Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z), 51115-51457 [2012-17663]
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Vol. 77
Thursday,
No. 164
August 23, 2012
Part II
Bureau of Consumer Financial Protection
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12 CFR Parts 1024 and 1026
Integrated Mortgage Disclosures Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth In Lending Act (Regulation
Z); Proposed Rule
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Parts 1024 and 1026
[Docket No. CFPB–2012–0028]
RIN 3170–AA19
Integrated Mortgage Disclosures
Under the Real Estate Settlement
Procedures Act (Regulation X) and the
Truth In Lending Act (Regulation Z)
Bureau of Consumer Financial
Protection.
ACTION: Proposed rule with request for
public comment.
AGENCY:
Sections 1032(f), 1098, and
1100A of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) direct the Bureau to
issue proposed rules and forms that
combine certain disclosures that
consumers receive in connection with
applying for and closing on a mortgage
loan under the Truth in Lending Act
and the Real Estate Settlement
Procedures Act. Consistent with this
requirement, the Bureau is proposing to
amend Regulation X (Real Estate
Settlement Procedures Act) and
Regulation Z (Truth in Lending) to
establish new disclosure requirements
and forms in Regulation Z for most
closed-end consumer credit transactions
secured by real property. In addition to
combining the existing disclosure
requirements and implementing new
requirements in the Dodd-Frank Act, the
proposed rule provides extensive
guidance regarding compliance with
those requirements.
DATES: Comments regarding the
proposed amendments to 12 CFR
1026.1(c) and 1026.4 must be received
on or before September 7, 2012. For all
other sections including proposed
amendments, comments must be
received on or before November 6, 2012.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2012–
0028 or RIN 3170–AA19, by any of the
following methods:
• Electronic: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail/Hand Delivery/Courier:
Monica Jackson, Office of the Executive
Secretary, Consumer Financial
Protection Bureau, 1700 G Street NW.,
Washington, DC 20552.
Instructions: All submissions should
include the agency name and docket
number or Regulatory Information
Number (RIN) for this rulemaking.
Because paper mail in the Washington,
DC area and at the Bureau is subject to
delay, commenters are encouraged to
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SUMMARY:
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submit comments electronically. In
general, all comments received will be
posted without change to https://
www.regulations.gov. In addition,
comments will be available for public
inspection and copying at 1700 G Street
NW., Washington, DC 20552, on official
business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can
make an appointment to inspect the
documents by telephoning (202) 435–
7275.
All comments, including attachments
and other supporting materials, will
become part of the public record and
subject to public disclosure. Sensitive
personal information, such as account
numbers or social security numbers,
should not be included. Comments will
not be edited to remove any identifying
or contact information.
FOR FURTHER INFORMATION CONTACT:
David Friend, Michael G. Silver and
Priscilla Walton-Fein, Counsels; Andrea
Pruitt Edmonds, Richard B. Horn, Joan
Kayagil, and Thomas J. Kearney, Senior
Counsels; Paul Mondor, Senior Counsel
& Special Advisor; and Benjamin K.
Olson, Managing Counsel, Office of
Regulations, at (202) 435–7700.
SUPPLEMENTARY INFORMATION:
I. Summary of Proposed Rule
A. Background
For more than 30 years, Federal law
has required lenders to provide two
different disclosure forms to consumers
applying for a mortgage. The law also
has generally required two different
forms at or shortly before closing on the
loan. Two different Federal agencies
developed these forms separately, under
two Federal statutes: the Truth in
Lending Act (TILA) and the Real Estate
Settlement Procedures Act of 1974
(RESPA). The information on these
forms is overlapping and the language is
inconsistent. Not surprisingly,
consumers often find the forms
confusing. It is also not surprising that
lenders and settlement agents find the
forms burdensome to provide and
explain.
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act) directs the Bureau to
combine the forms. To accomplish this,
the Bureau has engaged in extensive
consumer and industry research and
public outreach for more than a year.1
1 See part III below for a discussion of the
Bureau’s testing of the forms with more than 100
consumers, lenders, mortgage brokers, and
settlement agents. This part also describes the
Bureau’s outreach efforts, including the panel
convened by the Bureau to examine ways to
minimize the burden of the proposed rule on small
businesses.
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Based on this input, the Bureau is now
proposing a rule with new, combined
forms. The proposed rule also provides
a detailed explanation of how the forms
should be filled out and used.
The first new form (the Loan
Estimate) is designed to provide
disclosures that will be helpful to
consumers in understanding the key
features, costs, and risks of the mortgage
for which they are applying. This form
will be provided to consumers within
three business days after they submit a
loan application. The second form (the
Closing Disclosure) is designed to
provide disclosures that will be helpful
to consumers in understanding all of the
costs of the transaction. This form will
be provided to consumers three
business days before they close on the
loan.
The forms use clear language and
design to make it easier for consumers
to locate key information, such as
interest rate, monthly payments, and
costs to close the loan. The forms also
provide more information to help
consumers decide whether they can
afford the loan and to compare the cost
of different loan offers, including the
cost of the loans over time.
In developing the new Loan Estimate
form and Closing Disclosure form, the
Bureau has reconciled the differences
between the existing forms and
combined several other mandated
disclosures. The Bureau also has
responded to industry complaints of
uncertainty about how to fill out the
existing forms by providing detailed
instructions on how to complete the
new forms.2 This should reduce the
burden on lenders and others in
preparing forms in the future.
B. Scope of the Proposed Rule
The proposed rule applies to most
closed-end consumer mortgages. The
proposed rule does not apply to homeequity lines of credit, reverse mortgages,
or mortgages secured by a mobile home
or by a dwelling that is not attached to
real property (in other words, land). The
proposed rule also does not apply to
loans made by a creditor who makes
five or fewer mortgages in a year.3
C. The Loan Estimate
The Loan Estimate form would
replace two current Federal forms. It
would replace the Good Faith Estimate
designed by the Department of Housing
2 This guidance is provided in the proposed
regulations and the proposed Official
Interpretations, which are in Supplement I.
3 For additional discussion of the scope of the
proposed rule, see part VI below regarding section
1026.19, Coverage of Integrated Disclosure
Requirements.
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and Urban Development (HUD) under
RESPA and the ‘‘early’’ Truth in
Lending disclosure designed by the
Board of Governors of the Federal
Reserve System (the Board) under
TILA.4 The proposed rule and the
Official Interpretations (on which
lenders can rely) contain detailed
instructions as to how each line on the
Loan Estimate form would be
completed.5 There are sample forms for
different types of loan products.6 The
Loan Estimate form also incorporates
new disclosures required by Congress
under the Dodd-Frank Act.7
Provision by mortgage broker. The
lender may rely on a mortgage broker to
provide the Loan Estimate form.
However, the lender also remains
responsible for the accuracy of the
form.8
Timing. The lender or broker must
give the form to the consumer within
three business days after the consumer
applies for a mortgage loan.9 The
proposed rule contains a specific
definition of what constitutes an
‘‘application’’ for these purposes.10
Limitation on fees. Consistent with
current law, the lender generally cannot
charge consumers any fees until after
the consumers have been given the Loan
Estimate form and the consumers have
communicated their intent to proceed
with the transaction. There is an
exception that allows lenders to charge
fees to obtain consumers’ credit
reports.11
Disclaimer on early estimates.
Lenders and brokers may provide
consumers with written estimates prior
to application. The proposed rule
requires that any such written estimates
contain a disclaimer to prevent
confusion with the Loan Estimate form.
This disclaimer would not be required
for advertisements.12
4 These disclosures are available at https://
www.hud.gov/offices/hsg/rmra/res/gfestimate.pdf
and https://ecfr.gpoaccess.gov/graphics/pdfs/
ec27se91.024.pdf.
5 The requirements for the Loan Estimate are in
proposed § 1026.37. Additional discussion of this
and other sections of the proposed rule is provided
in the relevant portion of part VI below.
6 Appendix H to the proposed rule provides
examples of how to fill out these forms for a variety
of different loans, including loans with fixed or
adjustable rates or features such as balloon
payments and prepayment penalties.
7 For a discussion of these disclosures, see part
V.B below.
8 This provision is in proposed § 1026.19(e)(1)(ii).
9 This provision is in proposed
§ 1026.19(e)(1)(iii).
10 The definition of ‘‘application’’ is in proposed
§ 1026.2(a)(3).
11 This provision is in proposed § 1026.19(e)(2)(i).
12 This provision is in proposed
§ 1026.19(e)(2)(ii).
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D. The Closing Disclosure
The Closing Disclosure form would
replace the current form used to close a
loan, the HUD–1, which was designed
by HUD under RESPA. It would also
replace the revised Truth in Lending
disclosure designed by the Board under
TILA.13 The proposed rule and the
Official Interpretations (on which
lenders can rely) contain detailed
instructions as to how each line on the
Closing Disclosure form would be
completed.14 The Closing Disclosure
form contains additional new
disclosures required by the Dodd-Frank
Act and a detailed accounting of the
settlement transaction.
Timing. The lender must give
consumers this Closing Disclosure form
at least three business days before the
consumer closes on the loan. Generally,
if changes occur between the time the
Closing Disclosure form is given and the
closing, the consumer must be provided
a new form. When that happens, the
consumer must be given three
additional business days to review that
form before closing.15 However, the
proposed rule contains an exception
from the three-day requirement for some
common changes. These include
changes resulting from negotiations
between buyer and seller after the final
walk-through. There also is an
exception for minor changes which
result in less than $100 in increased
costs.16 The Bureau seeks comment on
whether to permit additional changes
without requiring a new three-day
period before closing.
Provision. Currently, settlement
agents are required to provide the HUD–
1, while lenders are required to provide
the revised Truth in Lending disclosure.
The Bureau is proposing two
alternatives for who is required to
provide consumers with the new
Closing Disclosure form. Under the first
option, the lender would be responsible
for delivering the Closing Disclosure
form to the consumer. Under the second
option, the lender may rely on the
settlement agent to provide the form.
However, under the second option, the
lender would also remain responsible
for the accuracy of the form.17 The
13 These disclosures are available at https://
www.hud.gov/offices/adm/hudclips/forms/files/
1.pdf and https://ecfr.gpoaccess.gov/graphics/pdfs/
ec27se91.024.pdf.
14 The requirements for the Closing Disclosure are
in proposed § 1026.38.
15 This provision is in proposed
§ 1026.19(f)(1)(ii).
16 These exceptions are in proposed
§ 1026.19(f)(2).
17 These alternatives are set forth in proposed
§ 1026.19(f)(1).
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Bureau seeks comment as to which
alternative is preferable.
E. Limits on Closing Cost Increases
Similar to existing law, the proposed
rule would restrict the circumstances in
which consumers can be required to pay
more for settlement services—the
various services required to complete a
loan, such as appraisals, inspections,
etc.—than the amount stated on their
Loan Estimate form. Unless an
exception applies, charges for the
following services could not increase:
(1) The lender’s or mortgage broker’s
charges for its own services; (2) charges
for services provided by an affiliate of
the lender or mortgage broker; and (3)
charges for services for which the lender
or mortgage broker does not permit the
consumer to shop. Also unless an
exception applies, charges for other
services generally could not increase by
more than 10 percent.18
The rule would provide exceptions,
for example, when: (1) The consumer
asks for a change; (2) the consumer
chooses a service provider that was not
identified by the lender; (3) information
provided at application was inaccurate
or becomes inaccurate; or (4) the Loan
Estimate expires. When an exception
applies, the lender generally must
provide an updated Loan Estimate form
within three business days.
F. Changes to APR
The proposed rule redefines the way
the Annual Percentage Rate or ‘‘APR’’ is
calculated. Under the rule, the APR will
encompass almost all of the up-front
costs of the loan.19 This will make it
easier for consumers to use the APR to
compare loans and easier for industry to
calculate the APR.
G. Recordkeeping
The proposed rule requires lenders to
keep records of the Loan Estimate and
Closing Disclosure forms provided to
consumers in a standard electronic
format.20 This will make it easier for
regulators to monitor compliance. The
Bureau seeks comment on whether
smaller lenders should be exempt from
this requirement.
H. Effective Date
The Bureau is seeking comment on
when this final rule should be effective.
Because the final rule will provide
important benefits to consumers, the
Bureau seeks to make it effective as soon
as possible. However, the Bureau
understands that the final rule will
18 The limitations and the exceptions discussed
below are in proposed § 1026.19(e)(3).
19 These revisions are in proposed § 1026.4.
20 This provision is in proposed § 1026.25.
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
require lenders, mortgage brokers, and
settlement agents to make extensive
revisions to their software and to retrain
their staff. In addition, some entities
will be required to implement other
Dodd-Frank Act provisions, which are
subject to separate rulemaking deadlines
under the statute and will have separate
effective dates. Therefore, the Bureau is
seeking comment on how much time
industry needs to make these changes.
The Bureau is proposing to delay
compliance with certain new disclosure
requirements contained in the DoddFrank Act until the Bureau’s final rule
takes effect.21
II. Background
A. The Mortgage Market
Overview of the Market and the
Mortgage Crisis
The mortgage market is the single
largest market for consumer financial
products and services in the United
States, with approximately $10.3 trillion
in loans outstanding.22 During the last
decade, the market went through an
unprecedented cycle of expansion and
contraction that was fueled in part by
the securitization of mortgages and
creation of increasingly sophisticated
derivative products designed to mitigate
accompanying risks. So many other
parts of the American financial system
were drawn into mortgage-related
activities that when the bubble
collapsed in 2008, it sparked the most
severe recession in the United States
since the Great Depression.
The expansion in this market is
commonly attributed to both particular
economic conditions and by changes
within the industry. Interest rates
dropped significantly—by more than 20
percent—from 2000 through 2003.23
Housing prices increased dramatically—
about 152 percent—between 1997 and
2006.24 Driven by the decrease in
interest rates and the increase in
housing prices, the volume of refinances
increased from about 2.5 million loans
21 For
additional discussion, see part V below.
Mortgage Finance, Outstanding 1–4
Family Mortgage Securities, Mortgage Market
Statistical Annual (2012).
23 See U.S. Dep’t. of Hous. and Urban Dev., An
Analysis of Mortgage Refinancing, 2001–2003 (Nov.
2004), available at www.huduser.org/Publications/
pdf/MortgageRefinance03.pdf; Souphala
Chomsisengphet and Anthony Pennington-Cross,
The Evolution of the Subprime Mortgage Market,
Federal Reserve Bank of St. Louis Review, 88(1), 31,
48 (Jan./Feb. 2006), available at https://
research.stlouisfed.org/publications/review/article/
5019.
24 The Financial Crisis Inquiry Commission, The
Financial Crisis Inquiry Report (Feb. 25, 2011)
(FCIC Report) at 156, available at https://
www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPOFCIC.pdf.
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in 2000 to more than 15 million in
2003.25
At the same time, advances in the
securitization of mortgages attracted
increasing involvement from financial
institutions that were not directly
involved in the extension of credit to
consumers and from investors
worldwide. Securitization of mortgages
allows originating lenders to sell off
their loans (and reinvest the funds
earned in making new ones) to investors
who want an income stream over time.
Securitization had been pioneered by
what are now called government
sponsored enterprises (GSEs), such as
the Federal National Mortgage
Association (Fannie Mae) and the
Federal Home Loan Mortgage
Corporation (Freddie Mac). But by the
early 2000s, large numbers of private
financial institutions were deeply
involved in creating increasingly
sophisticated investment mortgagerelated vehicles through securities and
derivative products.
Growth in the mortgage loan market
was particularly pronounced in what
are known as ‘‘subprime’’ and ‘‘Alt-A’’
products. Subprime products were sold
both to borrowers with poor or no credit
history, as well as to borrowers with
good credit. The Alt-A category of loans
permitted borrowers to provide little or
no documentation of income or other
repayment ability. Because these loans
involved additional risk, they were
typically more expensive to borrowers
than so-called ‘‘prime’’ mortgages,
though many offered low introductory
rates. In 2003, subprime and Alt-A
origination volume was about $400
billion. In 2006, it had reached $830
billion.26
So long as housing prices were
continuing to increase, it was relatively
easy for borrowers to refinance their
loans to avoid interest rate resets and
other adjustments. However, housing
prices began to decline as early as 2005,
slowing the growth in refinances.27 At
the same time, as the economy
worsened the rates of serious
delinquency (90 or more days past due
or in foreclosure) for these subprime
and Alt-A products began a steep
increase from approximately 10 percent
in 2006, to 20 percent in 2007, to over
40 percent in 2010.28
The impact of this level of
delinquencies on the private investors
who purchased these loans from the
25 An Analysis of Mortgage Refinancing, 2001–
2003, at 1.
26 Inside Mortgage Finance: Mortgage Market
Statistical Annual 2011.
27 FCIC Report at 215.
28 Id. at 217.
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mortgage originators was severe. Private
securitizations of subprime loans
peaked at $465 billion in 2005, but were
virtually eliminated in 2008. Private
securitizations of Alt-A loans followed a
similar trajectory.29 This effect was even
felt by Fannie Mae and Freddie Mac,
which were large purchasers of these
securitizations, and it resulted in the
Federal government in late 2008 placing
the GSEs into conservatorship in order
to support the collapsing mortgage
market.
Four years later, the United States
continues to grapple with the fallout.
Home prices are down 35 percent from
peak to trough on a national basis, and
it is not clear whether the national
market has reached bottom.30 The fall in
housing prices is estimated to have
resulted in about $7 trillion in
household wealth losses.31 Moreover,
mortgage markets continue to rely on
extraordinary U.S government support.
In addition, distressed homeownership
and foreclosure rates remain at
unprecedented levels. Approximately
5.8 million homeowners were
somewhere between 30 days late on
their mortgage and in the foreclosure
process as of April 2012.32 Finally, the
U.S. continues to face a stubbornly high
unemployment rate, which was at 8.2
percent at the end of May 2012.33
While there remains debate about
which market issues definitively
sparked this crisis, there were several
mortgage origination issues that
pervaded the mortgage lending system
prior to the crisis and are generally
accepted as having contributed to its
collapse. First, the market experienced a
steady deterioration of credit standards
in mortgage lending, particularly
evidenced by the growth of subprime
and Alt-A loans, which consumers were
often unable or unwilling to repay.34
Second, the mortgage market saw a
proliferation of more complex mortgage
products with terms that were often
difficult for consumers to understand.
These products included most notably
2/28 and 3/27 Hybrid Adjustable Rate
Mortgages and Option ARM products.35
29 Id.
at 124.
30 S&P/Case-Shiller
20-City Composite accessed
from Bloomberg, LP on June 6, 2012.
31 Board of Governors of the Federal Reserve
System, The U.S. Housing Market: Current
Conditions and Policy Considerations (Jan. 4, 2012),
available at https://www.federalreserve.gov/
publications/other-reports/files/housing-whitepaper-20120104.pdf.
32 Lender Processing Services April 2012
Mortgage Monitor.
33 Bureau of Labor Statistics, accessed from
Bloomberg, LP on June 6, 2012.
34 FCIC Report at 88.
35 Id. at 106. ‘‘Hybrid Adjustable Rate Mortgage’’
is a term frequently used to describe adjustable rate
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make a reasonable and good faith
determination, based on verified and
documented information, that the
consumer will have a reasonable ability
to repay the loan.40 Sections 1032(f),
1098, and 1100A of the Dodd-Frank Act
address concerns that Federal mortgage
disclosures did not adequately explain
to consumers the terms of their loans
(particularly complex adjustable rate or
optional payment loans) by requiring
new disclosure forms that will improve
consumer understanding of mortgage
transactions (which is the subject of this
proposal).41 In addition, the Dodd-Frank
Act established other new standards
concerning a wide range of mortgage
lending practices, including
compensation for mortgage
originators 42 and mortgage servicing.43
For additional information, see the
discussion below in part II.F.
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These products were often marketed to
subprime and Alt-A customers. The
appetite on the part of mortgage
investors for such products often
created inappropriate incentives for
mortgage originators to originate these
more expensive and profitable mortgage
products.36
Third, responsibility for the
regulation of consumer financial
protection laws was spread across seven
regulators including the Board, HUD,
the Office of Thrift Supervision, the
Federal Trade Commission, the Federal
Deposit Insurance Corporation, the
Office of the Comptroller of the
Currency, and the National Credit
Union Administration. Such a spread in
responsibility may have hampered the
government’s ability to coordinate
regulatory monitoring and response to
such issues.37
In the wake of this financial crisis,
Congress passed the Dodd-Frank Act to
address many of these concerns. In this
Act, Congress created the Bureau and
consolidated the rulemaking authority
for many consumer financial protection
statutes, including the two primary
Federal consumer protection statutes
governing mortgage origination, TILA
and RESPA, in the Bureau.38 Congress
also provided the Bureau with
supervision authority for certain
consumer financial protection statutes
over certain entities, including insured
depository institutions with total assets
over $10 billion and their affiliates, and
certain other non-depository entities.39
At the same time, Congress
significantly amended the statutory
requirements governing mortgage
practices with the intent to restrict the
practices that contributed to the crisis.
For example, in response to concerns
that some lenders made loans to
consumers without sufficiently
determining their ability to repay,
section 1411 of the Dodd-Frank Act
amended TILA to require that creditors
Size of the Current Mortgage Origination
Market
Even with the economic downturn,
approximately $1.28 trillion in mortgage
loans were originated in 2011.44 In
exchange for a mortgage loan, borrowers
promise to make regular mortgage
payments and provide their home or
real property as collateral. The
overwhelming majority of homebuyers
use mortgage loans to pay for at least
some of their property. In 2011, 93
percent of all new home purchases were
financed with a mortgage loan.45
Borrowers may take out mortgage
loans in order to purchase a new home,
to refinance an existing mortgage, or to
access home equity. Purchase loans and
refinances produced 6.3 million new
mortgage loan originations in 2011
alone.46 The proportion of loans that are
for purchases as opposed to refinances
varies with the interest rate
environment. In 2011, 65 percent of the
market was refinance transactions and
35 percent was purchase loans, by
volume.47 Historically the distribution
mortgage loans that have a low fixed introductory
rate for a certain period of time. ‘‘Option ARM’’ is
a term frequently used to describe adjustable rate
mortgage loans that have a scheduled loan payment
that may result in negative amortization for a
certain period of time, but that expressly permit
specified larger payments in the contract or
servicing documents, such as an interest-only
payment or a fully amortizing payment. For these
loans, the scheduled negatively amortizing payment
was typically described in marketing and servicing
materials as the ‘‘optional payment.’’
36 Id. at 109.
37 Id. at 111.
38 Sections 1011 and 1021 of title X of the DoddFrank Act, the ‘‘Consumer Financial Protection
Act,’’ Public Law 111–203, sections 1001–1100H,
codified at 12 U.S.C. 5491, 5511. The Consumer
Financial Protection Act is substantially codified at
12 U.S.C. 5481–5603.
39 Sections 1024 through 1026 of title X of the
Dodd-Frank Act, codified at 12 U.S.C. 5514–5516.
40 Section 1411 of the Dodd-Frank Act, codified
at 15 U.S.C. 1639c.
41 1032(f) of the Dodd-Frank Act, codified at 12
U.S.C. 5532(f). Sections 1098 and 1100A of the
Dodd-Frank Act amend RESPA and TILA,
respectively.
42 Sections 1402 through 1405 of the Dodd-Frank
Act, codified at 15 U.S.C. 1639b.
43 Sections 1418, 1420, 1463, and 1464 of the
Dodd-Frank Act, codified at 12 U.S.C. 2605; 15
U.S.C. 1638, 1638a, 1639f, and 1639g.
44 Moody’s Analytics, Credit Forecast (2012).
Reflects first-lien mortgage loans.
45 Inside Mortgage Finance, New Homes Sold by
Financing, Mortgage Market Statistical Annual
(2012).
46 Moody’s Analytics, Credit Forecast (2012).
Reflects first-lien mortgage loans.
47 Inside Mortgage Finance, Mortgage
Originations by Product, Mortgage Market
Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
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has been more even. In 2000, refinances
accounted for 44 percent of the market
while purchase loans comprised 56
percent, and in 2005 the two products
were split evenly.48
Using a home equity loan, a
homeowner can use their equity as
collateral in exchange for a loan. The
loan proceeds can be used, for example,
to pay for home improvements or to pay
off other debts. These home equity loans
resulted in an additional 1.3 million
mortgage loan originations in 2011.49
Shopping for Mortgage Loans
When shopping for a mortgage loan,
research has shown that consumers are
most concerned about the interest rate
and their monthly payment.50
Consumers may underestimate the
possibility that interest rates and
payments can increase later on, or they
may not fully understand that this
possibility exists. They also may not
appreciate other costs that could arise
later, such as prepayment penalties.51
This focus on short term costs while
underestimating long term costs may
result in consumers taking out mortgage
loans that are more costly than they
realize.52
48 Inside Mortgage Finance, Mortgage
Originations by Product, Mortgage Market
Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
49 Moody’s Analytics, Credit Forecast (2012).
Reflects open-end and closed-end home equity
loans.
50 Bd. of Governors of the Fed. Reserve Sys.,
Summary of Findings: Design and Testing of Truth
in Lending Disclosures for Closed-End Mortgages,
prepared by Macro International, Inc. (July 16,
2009), p. 6, available at https://
www.federalreserve.gov/boarddocs/meetings/2009/
20090723/Full%20Macro%20CE%20Report.pdf.;
see also Kleimann Communication Group, Inc.,
Know Before You Owe: Evolution of the Integrated
TILA–RESPA Disclosures (July 2012), available at
https://files.consumerfinance.gov/f/
201207_cfpb_report_tila-respa-testing.pdf.
51 James Lacko and Janis Pappalardo, Improving
Consumer Mortgage Disclosures: An Empirical
Assessment of Current and Prototype Disclosure
Forms, Federal Trade Commission, p. 26 (June
2007) (finding borrowers had misunderstood key
loan features, including the overall cost of the loan,
future payment amount, ability to refinance,
payment of up-front points and fees, whether the
monthly payment included escrow for taxes and
insurance, any balloon payment, whether the
interest rate had been locked, whether the rate was
adjustable or fixed, and any prepayment penalty),
available at https://www.ftc.gov/os/2007/06/P025505
MortgageDisclosureReport.pdf.
52 Oren Bar-Gill, The Law, Economics and
Psychology of Subprime Mortgage Contracts, 94
Cornell L. Rev. 1073, 1079 (2009) (discussing how
subprime borrowers may not fully understand the
loan costs due to product complexity and deferral
of loan costs into the future); id. at 1133 (explaining
that borrower underestimation of mortgage loan
cost distorts their decision to take out a loan,
resulting in excessive borrowing), available at
https://legalworkshop.org/wp-content/uploads/2009/
07/cornell-A23090727-bar-gill.pdf.
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Research points to a relationship
between consumer confusion about loan
terms and conditions and an increased
likelihood of adopting higher-cost,
higher-risk mortgage loans in the years
leading up to the mortgage crisis. A
study of data from the 2001 Survey of
Consumer Finances found that some
adjustable-rate mortgage loan
borrowers—particularly those with
below median income—underestimated
or did not realize how much their
interest rates could change.53 These
findings are consistent with a 2006
Government Accountability Office
study, which raised concerns that
mortgage loan disclosure laws did not
require specific disclosures for
adjustable rate loans.54 This evidence
suggests that borrowers who are not
presented with clear, understandable
information about their mortgage loan
offer may lack an accurate
understanding of the loan costs and
risks.
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The Mortgage Origination Process
Borrowers must go through a
mortgage origination process to take out
a mortgage loan. During this process,
borrowers have two significant factors to
consider: the costs that they pay to close
the loan, and the costs over the life of
the loan. Both factors can vary
tremendously, making the home
purchase especially complex.
Furthermore, there are many actors
involved in a mortgage origination. In
addition to the lender and the borrower,
a single transaction may involve a seller,
mortgage broker, real estate agent,
settlement agent, appraiser, multiple
insurance providers, and local
government clerks and tax offices. These
actors typically charge fees or
commissions for the services they
provide. Borrowers learn about the loan
costs and the sources of those costs
through a variety of sources, including
disclosures provided throughout the
mortgage origination process.
Loan Terms. The loan terms affect
how the loan is to be repaid, including
the type of loan product,55 the interest
rate, the payment amount, and the
length of the loan term.
Among other things, the type of loan
product determines whether the interest
53 Brian K. Bucks and Karen M. Pence, Do
Borrowers Know their Mortgage Terms?, J. of Urban
Econ. (2008), available at https://works.bepress.com/
karen_pence/5.
54 U.S. Government Accountability Office,
Alternative Mortgage Products: Impact on Default
Remains Unclear, but Disclosure of Risks to
Borrowers Could Be Improved (Sept. 20, 2006),
available at https://www.gao.gov/new.items/
d061112t.pdf.
55 Types of loan products include a fixed rate
loan, adjustable rate loan, and interest-only loan.
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rate can change and, if so, when and by
how much. A fixed rate loan sets the
interest rate at origination, and the rate
stays the same until the borrower pays
off the loan. However, the interest rate
on an adjustable rate loan is periodically
reset based on an interest rate index.
This shifting rate could change the
borrower’s monthly payment. Typically,
an adjustable rate loan will combine
both types of rates, so that the interest
rate is fixed for a certain period of time
before adjusting. For example, a 5/1
adjustable rate loan would have a fixed
interest rate for five years, and then
adjust every year until the loan ends.
Any changes in the interest rate after the
first five years would change the
borrower’s payments. Today, fixed rate
mortgages are the most common
mortgage product, accounting for 87
percent of the mortgage loan market in
2011.56 Adjustable rate mortgages
accounted for only 13 percent of the
mortgage loan market in 2011, although
they have been more popular in the
past.57 Adjustable-rate mortgages
accounted for 30 percent of mortgage
loan volume in 2000, and reached a
recent high of 50 percent in 2004.58
Borrowers are usually required to
make payments on a monthly basis.
These payments typically are calculated
to pay off the entire loan balance by the
time the loan term ends.59 The way a
borrower’s payments affect the amount
of the loan balance over time is called
amortization. Most borrowers take out
fully amortizing loans, meaning that
their payments are applied to both
principal and interest so that the loan’s
principal balance will gradually
decrease until it is completely paid off.
The typical 30-year fixed rate loan has
fully amortizing monthly payments that
are calculated to pay off the loan in full
over 30 years. However, loan
amortization can take other forms. An
interest-only loan would require the
borrower to make regular payments that
cover interest but not principal. In some
cases, these interest-only payments end
after a period of time (such as five years)
and the borrower must begin making
significantly higher payments that cover
56 Inside Mortgage Finance, Mortgage
Originations by Product, Mortgage Market
Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
57 Inside Mortgage Finance, Mortgage
Originations by Product, Mortgage Market
Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
58 Inside Mortgage Finance, Mortgage
Originations by Product, Mortgage Market
Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
59 Some loans may require a large final payment
(or ‘‘balloon’’ payment) in addition to monthly
payments.
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both interest and principal to amortize
the loan over the remaining loan term.
In other cases, the entire principal
balance must be paid when the loan
becomes due.
The time period that the borrower has
to repay the loan is known as the loan
term, and is specified in the mortgage
contract. Many loans are set for a term
of 30 years. Depending on the
amortization type of the loan, it will
either be paid in full or have a balance
due at the end of the term.
Closing Costs. Closing costs are the
costs of completing a mortgage
transaction, including origination fees,
appraisal fees, title insurance, taxes, and
homeowner’s insurance. The borrower
may pay an application or origination
fee. Lenders generally also require an
appraisal as part of the origination
process in order to determine the value
of the home. The appraisal helps the
lender determine whether the home is
valuable enough to act as collateral for
the mortgage loan. The borrower is
generally responsible for the appraisal
fee, which may be paid at or before
closing. Finally, lenders typically
require borrowers to take out various
insurance policies. Insurance protects
the lender’s collateral interest in the
property. Homeowner’s insurance
protects against the risk that the home
is damaged or destroyed, while title
insurance protects the lender against the
risk of claims against the borrower’s
legal right to the property. In addition,
the borrower may be required to take
out mortgage insurance which protects
the lender in the event of default.
Application. In order to obtain a
mortgage loan, borrowers must first
apply through a loan originator. There
are two different kinds of loan
originators. A retail originator works
directly for a mortgage lender. A
mortgage lender that employs retail
originators could be a bank or credit
union, or it could be a specialized
mortgage finance company. The other
kind of loan originator is a mortgage
broker. Mortgage brokers work with
many different lenders and facilitate the
transaction for the borrower.
A loan originator may help borrowers
determine what kind of loan best suits
their needs, and will collect their
completed loan application. The
application includes borrower credit
and income information, along with
information about the home to be
purchased.
Borrowers can apply to multiple loan
originators in order to compare the
loans that they are being offered. Once
they have decided to move forward with
the loan, the borrower must notify the
loan originator. The loan originator will
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typically wait to receive this notification
before taking more information from the
borrower and giving the borrower’s
application to a loan underwriter.
Mortgage Processing. A loan
underwriter uses the application and
additional information to confirm initial
information provided by the borrower.
The underwriter will assess whether the
lender should take on the risk of making
the mortgage loan. In order to make this
decision, the underwriter considers
whether the borrower can repay the
loan, and whether the home is worth
enough to act as collateral for the loan.
If the underwriter finds that the
borrower and the home qualify, the
underwriter will approve the borrower’s
mortgage application.
Depending on the loan terms, as
discussed above, lenders may require
borrowers to retain title insurance,
homeowner’s insurance, private
mortgage insurance, and other services.
The lender may allow the borrower to
shop for certain closing services on their
own.
Closing. After being accepted for a
mortgage loan, completing any closing
requirements, and receiving necessary
disclosures, the borrower can close on
the loan. Multiple parties participate at
closing, including the borrower and the
settlement agent.
The settlement agent ensures that all
the closing requirements are met, and
that all fees are collected. The
settlement agent also completes all of
the closing documents. The settlement
agent makes sure that the borrower signs
these closing documents, including a
promissory note and the security
instrument. This promissory note is
evidence of the loan debt, and
documents the borrower’s promise to
pay back the loan. It states the terms of
the loan, including the interest rate and
length. The security instrument, in the
form of a mortgage, provides the home
as collateral for the loan. A deed of trust
is similar to a mortgage, except that a
trustee is named to hold title to the
property as security for the loan. The
borrower receives title to the property
after the loan is paid in full. Both a
mortgage and deed of trust allow the
lender to foreclose and sell the home if
the borrower does not repay the loan.
In the case of a purchase loan, the
funds to purchase the home and pay
closing costs are distributed at closing
or shortly thereafter. In the case of a
refinance loan, the funds from the new
loan are used to pay off the old loan,
with any additional amount going to the
borrower or to pay off other debts.
Refinance loans also have closing costs,
which may be paid by the borrower at
closing or, in some cases, rolled into the
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loan amount. In home-equity loans, the
borrower’s funds and the closing costs
are provided upon closing. A settlement
agent makes sure that all amounts are
given to the appropriate parties. After
the closing, the settlement agent records
the deed at the local government
registry.
B. RESPA and Regulation X
Congress enacted the Real Estate
Settlement Procedures Act of 1974
based on findings that significant
reforms in the real estate settlement
process were needed to ensure that
consumers are provided with greater
and more timely information on the
nature and costs of the residential real
estate settlement process and are
protected from unnecessarily high
settlement charges caused by certain
abusive practices that Congress found to
have developed. 12 U.S.C. 2601(a). With
respect to RESPA’s disclosure
requirements, the Act’s purpose is to
provide ‘‘more effective advance
disclosure to home buyers and sellers of
settlement costs.’’ Id. 2601(b)(1). In
addition to providing consumers with
appropriate disclosures, the purposes of
RESPA include effecting certain changes
in the settlement process for residential
real estate that will result in (1) the
elimination of kickbacks or referral fees
that Congress found to increase
unnecessarily the costs of certain
settlement services; and (2) a reduction
in the amounts home buyers are
required to place in escrow accounts
established to insure the payment of real
estate taxes and insurance. Id. 2601. In
1990, Congress amended RESPA by
adding a new section 6 covering persons
responsible for servicing mortgage loans
and amending statutory provisions
related to mortgage servicers’
administration of borrowers’ escrow
accounts.60
RESPA’s disclosure requirements
generally apply to ‘‘settlement services’’
for ‘‘federally related mortgage loans.’’
Under the statute, the term ‘‘settlement
services’’ includes any service provided
in connection with a real estate
settlement. Id. 2602(3). The term
‘‘federally related mortgage loan’’ is
broadly defined to encompass virtually
any purchase money or refinance loan,
with the exception of temporary
financing, that is ‘‘secured by a first or
subordinate lien on residential real
property (including individual units of
condominiums and cooperatives)
designed principally for the occupancy
of from one to four families * * *.’’ Id.
2602(1).
60 Public Law 101–625, 104 Stat. 4079 (1990),
sections 941–42.
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Section 4 of RESPA requires that, in
connection with a ‘‘mortgage loan
transaction,’’ a disclosure form that
includes a ‘‘real estate settlement cost
statement’’ be prepared and made
available to the borrower for inspection
at or before settlement.61 Id. 2603. The
law further requires that form
‘‘conspicuously and clearly itemize all
charges imposed upon the borrower and
all charges imposed upon the seller in
connection with the settlement * * *.’’
Id. 2603(a). Section 5 of RESPA
provides for a booklet to help
consumers applying for loans to finance
the purchase of residential real estate
from lenders that make federally related
mortgage loans to understand the nature
and costs of real estate settlement
services. Id. 2604(a). Further, each
lender must ‘‘include with the booklet
a good faith estimate of the amount or
range of charges for specific settlement
services the borrower is likely to incur
in connection with the settlement
* * *.’’ Id. 2604(c). The booklet and the
good faith estimate must be provided
not later than three business days after
the lender receives an application,
unless the lender denies the application
for credit before the end of the three-day
period. Id. 2604(d).
Historically, Regulation X of the
Department of Housing and Urban
Development (HUD), 24 CFR part 3500,
has implemented RESPA. On March 14,
2008, after a 10-year investigatory
process, HUD proposed extensive
revisions to the good faith estimate and
settlement forms required under
Regulation X, as well as new accuracy
standards with respect to the estimates
provided to consumers. 73 FR 14030
(Mar. 14, 2008) (HUD’s 2008 RESPA
Proposal).62 In November 2008, HUD
finalized the proposed revisions in
substantially the same form, including
new standard good faith estimate and
settlement forms, which lenders,
mortgage brokers, and settlement agents
were required to use beginning on
January 1, 2010. 73 FR 68204 (Nov. 17,
2008) (HUD’s 2008 RESPA Final Rule).
HUD’s 2008 RESPA Final Rule
implemented significant changes to the
61 Prior to the Dodd-Frank Act, section 4 of
RESPA applied to ‘‘all transactions in the United
States which involve federally related mortgage
loans.’’ 12 U.S.C. 2603 (2009). However, section
1098 of the Dodd-Frank Act deleted the reference
to ‘‘federally related mortgage loan’’ in this section
and replaced it with ‘‘mortgage loan transactions.’’
The regulation implementing this statutory
requirement has historically applied and continues
to apply to ‘‘federally related mortgage loans.’’ See
12 CFR 1024.8; 24 CFR 3500.8 (2010).
62 During this 10-year period, in 2002, HUD
published a proposed rule revising the good faith
estimate forms and accuracy standards for cost
estimates, which it never finalized. 67 FR 49134
(July 29, 2002).
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rules regarding the accuracy of the
estimates provided to consumers. The
final rule required re-disclosure of the
good faith estimate form when the
actual costs increased beyond a certain
percentage of the estimated amounts,
and permitted such increases only
under certain specified circumstances.
Id. at 68240 (amending 24 CFR 3500.7).
HUD’s 2008 RESPA Final Rule also
included significant changes to the
RESPA disclosure requirements,
including prohibiting itemization of
certain amounts and instead requiring
the disclosure of aggregate settlement
costs; adding loan terms, such as
whether there is a prepayment penalty
and the borrower’s interest rate and
monthly payment; and requiring use of
a standard form for the good faith
estimate. Id. The standard form was
developed through consumer testing
conducted by HUD, which included
qualitative testing consisting of one-onone cognitive interviews.63 HUD issued
informal guidance regarding the final
rule on its Web site, in the form of
frequently asked questions 64 (HUD
RESPA FAQs) and bulletins 65 (HUD
RESPA Roundups).
The Dodd-Frank Act (discussed
further in part I.D, below) transferred
rulemaking authority for RESPA to the
Bureau, effective July 21, 2011. See
sections 1061 and 1098 of the DoddFrank Act. Pursuant to the Dodd-Frank
Act and RESPA, as amended, the
Bureau published for public comment
an interim final rule establishing a new
Regulation X, 12 CFR part 1024,
implementing RESPA. 76 FR 78978
(Dec. 20, 2011). This rule did not
impose any new substantive obligations
but did make certain technical,
conforming, and stylistic changes to
reflect the transfer of authority and
certain other changes made by the
Dodd-Frank Act. The Bureau’s
Regulation X took effect on December
30, 2011. RESPA section 5’s
requirements of an information booklet
and good faith estimate of settlement
costs (RESPA GFE) are implemented in
Regulation X by §§ 1024.6 and 1024.7,
respectively. RESPA section 4’s
requirement of a real estate settlement
statement (RESPA settlement statement)
is implemented by § 1024.8.
63 U.S. Dep’t. of Hous. and Urban Dev., Summary
Report: Consumer Testing of the Good Faith
Estimate Form (GFE), prepared by Kleimann
Communication Group, Inc. (2008), available at
https://www.huduser.org/publications/pdf/
Summary_Report_GFE.pdf.
64 New RESPA Rule FAQs, available at https://
portal.hud.gov/hudportal/documents/huddoc?id=
resparulefaqs422010.pdf.
65 RESPA Roundup Archive, available at https://
portal.hud.gov/hudportal/HUD?src=/program_
offices/housing/rmra/res/resroundup.
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C. TILA and Regulation Z
Congress enacted the Truth in
Lending Act based on findings that the
informed use of credit resulting from
consumers’ awareness of the cost of
credit would enhance economic
stability and would strengthen
competition among consumer credit
providers. 15 U.S.C. 1601(a). One of the
purposes of TILA is to provide
meaningful disclosure of credit terms to
enable consumers to compare credit
terms available in the marketplace more
readily and avoid the uninformed use of
credit. Id. TILA’s disclosures differ
depending on whether credit is an openend (revolving) plan or a closed-end
(installment) loan. TILA also contains
procedural and substantive protections
for consumers.
TILA’s disclosure requirements apply
to a ‘‘consumer credit transaction’’
extended by a ‘‘creditor.’’ Under the
statute, consumer credit means ‘‘the
right granted by a creditor to a debtor to
defer payment of debt or to incur debt
and defer its payment,’’ where ‘‘the
party to whom credit is offered or
extended is a natural person, and the
money, property, or services which are
the subject of the transaction are
primarily for personal, family, or
household purposes.’’ Id. 1602(f), (i). A
creditor generally is ‘‘a person who both
(1) regularly extends * * * consumer
credit which is payable by agreement in
more than four installments or for
which the payment of a finance charge
is or may be required, and (2) is the
person to whom the debt arising from
the consumer credit transaction is
initially payable on the face of the
evidence of indebtedness or, if there is
no such evidence of indebtedness, by
agreement.’’ Id. 1602(g).
TILA section 128 requires that, for
closed-end credit, the disclosures
generally be made ‘‘before the credit is
extended.’’ Id. 1638(b)(1). For closedend transactions secured by a
consumer’s dwelling and subject to
RESPA, good faith estimates of the
disclosures are required ‘‘not later than
three business days after the creditor
receives the consumer’s written
application, which shall be at least 7
business days before consummation of
the transaction.’’ Id. 1638(b)(2)(A).
Finally, if the annual percentage rate
(APR) disclosed in this early TILA
disclosure statement becomes
inaccurate, ‘‘the creditor shall furnish
an additional, corrected statement to the
borrower, not later than 3 business days
before the date of consummation of the
transaction.’’ Id. 1638(b)(2)(D).
Historically, Regulation Z of the
Board of Governors of the Federal
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Reserve System, 12 CFR part 226, has
implemented TILA. TILA section 128’s
requirement that the disclosure
statement be provided before the credit
is extended (final TILA disclosure) is
implemented in Regulation Z by
§ 1026.17(b). The requirements that a
good faith estimate of the disclosure be
provided within three business days
after application and at least seven
business days prior to consummation
(early TILA disclosure) and that a
corrected disclosure be provided at least
three business days before
consummation (corrected TILA
disclosure), as applicable, are
implemented by § 1026.19(a). The
contents of the TILA disclosures, as
required by TILA section 128, are
implemented by § 1026.18.
On July 30, 2008, Congress enacted
the Mortgage Disclosure Improvement
Act of 2008 (MDIA).66 MDIA, in part,
amended the timing requirements for
the early TILA disclosures, requiring
that these TILA disclosures be provided
within three business days after an
application for a dwelling-secured
closed-end mortgage loan also subject to
RESPA is received and before the
consumer has paid any fee (other than
a fee for obtaining the consumer’s credit
history).67 Creditors also must mail or
deliver these early TILA disclosures at
least seven business days before
consummation and provide corrected
disclosures if the disclosed APR
changes in excess of a specified
tolerance. The consumer must receive
the corrected disclosures no later than
three business days before
consummation. The Board implemented
these MDIA requirements in final rules
published May 19, 2009, which became
effective July 30, 2009, as required by
the statute. 74 FR 23289 (May 19, 2009)
(MDIA Final Rule).
MDIA also requires disclosure of
payment examples if the loan’s interest
rate or payments can change, along with
a statement that there is no guarantee
the consumer will be able to refinance
the transaction in the future. Under the
statute, these provisions of MDIA
became effective on January 30, 2011.
The Board worked to implement these
provisions of MDIA at the same time
that it was completing work on a several
66 MDIA is contained in sections 2501 through
2503 of the Housing and Economic Recovery Act of
2008, Public Law 110–289, enacted on July 30,
2008. MDIA was later amended by the Emergency
Economic Stabilization Act of 2008, Public Law
110–343, enacted on October 3, 2008.
67 MDIA codified some requirements previously
adopted by the Board in a July 2008 final rule. 73
FR 44522 (July 30, 2008) (HOEPA Final Rule). To
ease discussion, the description of MDIA’s
disclosure requirements includes the requirements
of the 2008 HOEPA Final Rule.
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year review of Regulation Z’s provisions
concerning home-secured credit. As a
result, the Board issued two sets of
proposals approximately one year apart.
On August 26, 2009, the Board
published proposed amendments to
Regulation Z containing comprehensive
changes to the disclosures for closedend credit secured by real property or a
consumer’s dwelling, including
revisions to the format and content of
the disclosures implementing MDIA’s
payment examples and refinance
statement requirements, and several
new requirements. 74 FR 43232 (Aug.
26, 2009) (2009 Closed-End Proposal).
For the 2009 Closed-End Proposal, the
Board developed several new model
disclosure forms through consumer
testing consisting of focus groups and
one-on-one cognitive interviews.68 In
addition, the 2009 Closed-End Proposal
proposed an extensive revision to the
definition of ‘‘finance charge’’ that
would replace the ‘‘some fees in, some
fees out’’ approach for determining the
finance charge with a simpler, more
inclusive ‘‘all-in’’ approach. The
proposed definition of ‘‘finance charge’’
would include a fee or charge if it is (1)
‘‘payable directly or indirectly by the
consumer’’ to whom credit is extended,
and (2) ‘‘imposed directly or indirectly
by the creditor as an incident to or a
condition of the extension of credit.’’
The finance charge would continue to
exclude fees or charges paid in
comparable cash transactions.69
On September 24, 2010, the Board
published an interim final rule to
implement MDIA’s payment example
and refinance statement requirements.
75 FR 58470 (Sept. 24, 2010) (MDIA
Interim Rule). The Board’s MDIA
Interim Rule effectively adopted those
aspects of the 2009 Closed-End Proposal
that implemented these MDIA
requirements, without adopting that
proposal’s other provisions, which were
not subject to the same January 30, 2011
68 Bd. of Governors of the Fed. Reserve Sys.,
Summary of Findings: Design and Testing of Truth
in Lending Disclosures for Closed-End Mortgages,
prepared by Macro International, Inc. (July 16,
2009) (Macro 2009 Closed-End Report), available at
https://www.federalreserve.gov/boarddocs/meetings/
2009/20090723/Full%20Macro%20CE%20
Report.pdf.
69 As discussed in the analysis of the proposed
amendments to § 1026.4 in part VI, in response to
concerns about the effect of an ‘‘all-in’’ finance
charge on the higher-priced and HOEPA coverage
thresholds in §§ 1026.35 and 1026.32, respectively,
the Board proposed to implement a different
‘‘transaction coverage rate’’ for higher-priced
coverage and to retain the existing ‘‘some fees in,
some fees out’’ treatment of certain charges in the
definition of points and fees for purposes of
determining HOEPA coverage. See 76 FR 27390,
27411–12 (May 11, 2011); 76 FR 11598, 11608–09
(Mar. 2, 2011); 75 FR 58539, 58636–38, 58660–61
(Sept. 24, 2010).
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statutory effective date. The Board later
issued another interim final rule to
make certain clarifying changes to the
provisions of the MDIA Interim Rule. 75
FR 81836 (Dec. 29, 2010).
On September 24, 2010, the Board
also proposed further amendments to
Regulation Z regarding rescission rights,
disclosure requirements in connection
with modifications of existing mortgage
loans, and disclosures and requirements
for reverse mortgage loans. This
proposal was the second stage of the
comprehensive review conducted by the
Board of TILA’s rules for home-secured
credit. 75 FR 58539 (Sept. 24, 2010)
(2010 Mortgage Proposal).
The Board also began, on September
24, 2010, issuing proposals
implementing the Dodd-Frank Act,
which had been signed on July 21, 2010.
The Board issued a proposed rule
implementing section 1461 of the DoddFrank Act, which, in part, adjusts the
rate threshold for determining whether
escrow accounts are required for ‘‘jumbo
loans,’’ whose principal amounts exceed
the maximum eligible for purchase by
Freddie Mac.70 75 FR 58505 (Sept. 24,
2010). On March 2, 2011, the Board
proposed amendments to Regulation Z
implementing other requirements of
sections 1461 and 1462 of the DoddFrank Act, which added new
substantive and disclosure requirements
regarding escrow accounts to TILA. 76
FR 11598 (March 2, 2011) (2011
Escrows Proposal). Sections 1461 and
1462 of the Dodd-Frank Act create new
TILA section 129D, which substantially
codifies requirements that the Board
had previously adopted in Regulation Z
regarding escrow requirements for
higher-priced mortgage loans (including
the revised rate threshold for ‘‘jumbo
loans’’ described above), but also adds
disclosure requirements, and lengthens
the period for which escrow accounts
are required.
On May 11, 2011, the Board proposed
amendments to Regulation Z to
implement section 1411 of the DoddFrank Act, which amends TILA to
prohibit creditors from making mortgage
loans without regard to the consumer’s
repayment ability. 76 FR 27390 (May 11,
2011) (2011 ATR Proposal). Section
1411 of the Dodd-Frank Act adds
section 129C to TILA, codified at 15
U.S.C. 1639c, which prohibits a creditor
from making a mortgage loan unless the
creditor makes a reasonable and good
faith determination, based on verified
and documented information, that the
consumer will have a reasonable ability
to repay the loan, including any
70 The Board finalized this proposal effective
April 1, 2011. 76 FR 11319 (Mar. 2, 2011).
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mortgage-related obligations (such as
property taxes).
Effective July 21, 2011, the DoddFrank Act transferred rulemaking
authority for TILA to the Bureau.71 See
sections 1061 and 1100A of the DoddFrank Act. Along with this authority,
the Bureau assumed responsibility for
the proposed rules discussed above.
Pursuant to the Dodd-Frank Act and
TILA, as amended, the Bureau
published for public comment an
interim final rule establishing a new
Regulation Z, 12 CFR part 1026,
implementing TILA (except with respect
to persons excluded from the Bureau’s
rulemaking authority by section 1029 of
the Dodd-Frank Act). 76 FR 79768 (Dec.
22, 2011). This rule did not impose any
new substantive obligations but did
make certain technical, conforming, and
stylistic changes to reflect the transfer of
authority and certain other changes
made by the Dodd-Frank Act. The
Bureau’s Regulation Z took effect on
December 30, 2011.
D. The History of Integration Efforts
For more than 30 years, TILA and
RESPA have required creditors and
settlement agents to give consumers
who apply for and obtain a mortgage
loan different but overlapping
disclosure forms regarding the loan’s
terms and costs. This duplication has
long been recognized as inefficient and
confusing for both consumers and
industry.
Previous efforts to develop a
combined TILA and RESPA disclosure
form were fueled by the amount,
complexity, and overlap of information
in the disclosures. On September 30,
1996, Congress enacted the Economic
Growth and Regulatory Paperwork
Reduction Act of 1996,72 which
required the Board and HUD to
‘‘simplify and improve the disclosures
applicable to the transactions under
[TILA and RESPA], including the timing
of the disclosures; and to provide a
single format for such disclosures which
will satisfy the requirements of each
such Act with respect to such
transactions.’’ 73 If the agencies found
that legislative action might be
necessary or appropriate to simplify and
unify the disclosures, they were to
submit a report to Congress containing
recommendations for such action. In the
same legislation, Congress added
71 Section 1029 of the Dodd-Frank Act excludes
from this transfer of authority, subject to certain
exceptions, any rulemaking authority over a motor
vehicle dealer that is predominantly engaged in the
sale and servicing of motor vehicles, the leasing and
servicing of motor vehicles, or both. 12 U.S.C. 5519.
72 Public Law 104–208, 110 Stat. 3009 (1996).
73 Id., section 2101.
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exemption authority in TILA section
105(f) for classes of transactions for
which, in the determination of the
Board (now the Bureau), coverage under
all or part of TILA does not provide a
meaningful benefit to consumers in the
form of useful information or
protection.74
The Board and HUD did not propose
an integrated disclosure pursuant to this
legislation. Instead, in July 1998, the
Board and HUD issued a ‘‘Joint Report
to the Congress Concerning Reform to
the Truth in Lending Act and the Real
Estate Settlement Procedures Act’’
(Board-HUD Joint Report).75 The BoardHUD Joint Report concluded that
‘‘meaningful change could come only
through legislation’’ and provided
Congress with the Board’s and HUD’s
recommendations for revising TILA and
RESPA.
The agencies recommended a number
of amendments to TILA and RESPA in
the report, such as amendment of
TILA’s definition of ‘‘finance charge’’ to
eliminate the ‘‘some fees in, some fees
out’’ approach and instead include ‘‘all
costs the consumer is required to pay in
order to close the loan, with limited
exceptions’’; the amendment of RESPA
to require either the guaranteeing of
closing costs on the GFE or estimates
that are subject to an accuracy standard;
and provision of the final TILA
disclosure and settlement statement
three days before closing, so that
consumers would be able to study the
disclosures in an unpressured
environment.
The Board-HUD Joint Report also
recommended several additional
changes to the TILA disclosures. In
particular, the report recommended
significant revisions to the ‘‘Fed Box,’’
which is the tabular disclosure provided
to consumers in the early and final TILA
disclosures under Regulation Z
containing the APR, the finance charge
(which is intended to be the cost of
credit expressed as a dollar amount), the
amount financed (which is intended to
reflect the loan proceeds available to the
consumer), and the total of payments
(which is the dollar amount of the
transaction over the loan term,
including principal and finance
charges).76 The report recommended,
among other things, eliminating the
74 Id.,
section 2102(b).
of Governors of the Fed. Reserve Sys. And
U.S. Dep’t of Hous. and Urban Dev., Joint Report to
the Congress Concerning Reform to the Truth in
Lending Act and the Real Estate Settlement
Procedures Act (1998), available at https://
www.federalreserve.gov/boarddocs/rptcongress/
tila.pdf.
76 See, e.g., Regulation Z, 12 CFR part 1026 app.
H–2 Loan Model Form.
75 Bd.
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amount financed from the disclosure for
mortgage loans because it probably was
not useful to consumers in
understanding mortgage loans. The
report also recommended adding
disclosure of the total closing costs in
the Fed Box, citing focus groups
conducted by the Board in which
participants stated that disclosure of the
amount needed to close the loan would
be useful.
The Board-HUD Joint Report did not
result in legislative action. Eleven years
later, and four months before the revised
RESPA disclosures under HUD’s 2008
RESPA Final Rule were to become
mandatory, the Board published the
2009 Closed-End Proposal, which
proposed significant revisions to the
TILA disclosures and stated that the
Board would work with HUD towards
integrating the two disclosure regimes.
The proposal stated that ‘‘the Board
anticipates working with [HUD] to
ensure that TILA and [RESPA]
disclosures are compatible and
complementary, including potentially
developing a single disclosure form that
creditors could use to combine the
initial disclosures required under TILA
and RESPA.’’ 77 The proposal stated that
consumer testing would be used to
ensure consumers could understand and
use the combined disclosures. However,
only ten months later in July 2010, the
Dodd-Frank Act was enacted by
Congress, which transferred rulemaking
authority under both TILA and RESPA
to the Bureau and mandated that the
Bureau establish a single disclosure
scheme under TILA and RESPA. Now,
nearly 16 years after Congress first
directed the Board and HUD to integrate
the disclosures under TILA and RESPA,
the Bureau publishes this proposed rule.
E. The Dodd-Frank Act
As noted above, RESPA and TILA
historically have been implemented by
regulations of HUD and the Board,
respectively, and the Dodd-Frank Act
consolidated this rulemaking authority
in the Bureau. In addition, the DoddFrank Act amended both statutes to
mandate that the Bureau establish a
single disclosure scheme for use by
lenders or creditors in complying
comprehensively with the disclosure
requirements discussed above. Section
1098(2) of the Dodd-Frank Act amended
RESPA section 4(a) to require that the
Bureau ‘‘publish a single, integrated
disclosure for mortgage loan
transactions (including real estate
settlement cost statements) which
includes the disclosure requirements of
this section and section 5, in
77 74
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conjunction with the disclosure
requirements of [TILA] that, taken
together, may apply to a transaction that
is subject to both or either provisions of
law.’’ 12 U.S.C. 2603(a). Similarly,
section 1100A(5) of the Dodd-Frank Act
amended TILA section 105(b) to require
that the Bureau ‘‘publish a single,
integrated disclosure for mortgage loan
transactions (including real estate
settlement cost statements) which
includes the disclosure requirements of
this title in conjunction with the
disclosure requirements of [RESPA]
that, taken together, may apply to a
transaction that is subject to both or
either provisions of law.’’ 15 U.S.C.
1604(b).
The amendments to RESPA and TILA
mandating a ‘‘single, integrated
disclosure’’ are among numerous
conforming amendments to existing
Federal laws found in subtitle H of the
Consumer Financial Protection Act of
2010.78 Subtitle C of the Consumer
Financial Protection Act, ‘‘Specific
Bureau Authorities,’’ codified at 12
U.S.C. chapter 53, subchapter V, part C,
contains a similar provision.
Specifically, section 1032(f) of the
Dodd-Frank Act provides that, by July
21, 2012, the Bureau ‘‘shall propose for
public comment rules and model
disclosures that combine the disclosures
required under [TILA] and [sections 4
and 5 of RESPA] into a single, integrated
disclosure for mortgage loan
transactions covered by those laws,
unless the Bureau determines that any
proposal issued by the [Board] and
[HUD] carries out the same purpose.’’ 12
U.S.C. 5532(f). The Bureau is publishing
this proposed rule pursuant to that
mandate and the parallel mandates
established by the conforming
amendments to RESPA and TILA,
discussed above.
F. Other Rulemakings
In addition to this proposal, the
Bureau currently is engaged in six other
rulemakings relating to mortgage credit
78 The Consumer Financial Protection Act is title
X, ‘‘Bureau of Consumer Financial Protection,’’ of
the Dodd-Frank Act, Public Law 111–203, 124 Stat.
1376 (2010), sections 1001–1100H. In the Consumer
Financial Protection Act, Congress established the
Bureau and its powers and authorities, transferred
to the Bureau various existing functions of other
agencies, mandated certain regulatory
improvements, and prescribed other requirements
and conforming amendments. Subtitle H,
‘‘Conforming Amendments,’’ is the last subtitle and
consists of sections 1081–1100H. Certain titles of
the Dodd-Frank Act are codified at 12 U.S.C.
chapter 53. Subtitles A through G (but not H) of title
X are codified at 12 U.S.C. chapter 53, subchapter
V, parts A through G. Thus, the Consumer Financial
Protection Act is substantially codified at 12 U.S.C.
5481–5603.
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
to implement requirements of the DoddFrank Act:
• HOEPA: On the same day that this
proposal is released by the Bureau, the
Bureau is releasing a proposal to
implement Dodd-Frank Act
requirements expanding protections for
‘‘high-cost’’ mortgage loans under
HOEPA, pursuant to TILA sections
103(bb) and 129, as amended by DoddFrank Act sections 1431 through 1433
(2012 HOEPA Proposal). 15 U.S.C.
1602(bb) and 1639.79
• Servicing: The Bureau is in the
process of developing a proposal to
implement Dodd-Frank Act
requirements regarding force-placed
insurance, error resolution, and
payment crediting, as well as forms for
mortgage loan periodic statements and
‘‘hybrid’’ adjustable-rate mortgage reset
disclosures, pursuant to sections 6 of
RESPA and 128, 128A, 129F, and 129G
of TILA, as amended or established by
Dodd-Frank Act sections 1418, 1420,
1463, and 1464. The Bureau has
publicly stated that in connection with
the servicing rulemaking the Bureau is
considering proposing rules on
reasonable information management,
early intervention for troubled and
delinquent borrowers, and continuity of
contact, pursuant to the Bureau’s
authority to carry out the consumer
protection purposes of RESPA in section
6 of RESPA, as amended by Dodd-Frank
Act section 1463. 12 U.S.C. 2605; 15
U.S.C. 1638, 1638a, 1639f, and 1639g.
• Loan Originator Compensation: The
Bureau is in the process of developing
a proposal to implement provisions of
the Dodd-Frank Act requiring certain
creditors and mortgage loan originators
to meet duty of care qualifications and
prohibiting mortgage loan originators,
creditors, and the affiliates of both from
receiving compensation in various
forms (including based on the terms of
the transaction) and from sources other
than the consumer, with specified
exceptions, pursuant to TILA section
129B as established by Dodd-Frank Act
sections 1402 and 1403. 15 U.S.C.
1639b.
• Appraisals: The Bureau, jointly
with Federal prudential regulators and
other Federal agencies, is in the process
of developing a proposal to implement
Dodd-Frank Act requirements
concerning appraisals for higher-risk
mortgages, appraisal management
companies, and automated valuation
models, pursuant to TILA section 129H
as established by Dodd-Frank Act
section 1471, 15 U.S.C. 1639h, and
sections 1124 and 1125 of the Financial
79 Available at https://www.consumerfinance.gov/
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Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) as
established by Dodd-Frank Act sections
1473(f), 12 U.S.C. 3353, and 1473(q), 12
U.S.C. 3354, respectively. In addition,
the Bureau is developing rules to
implement section 701(e) of the Equal
Credit Opportunity Act (ECOA), as
amended by Dodd-Frank Act section
1474, to require that creditors provide
applicants with a free copy of written
appraisals and valuations developed in
connection with applications for loans
secured by a first lien on a dwelling
(collectively, Appraisals Rulemaking).
15 U.S.C. 1691(e).
• Ability to Repay: The Bureau is in
the process of finalizing a proposal
issued by the Board to implement
provisions of the Dodd-Frank Act
requiring creditors to determine that a
consumer can repay a mortgage loan
and establishing standards for
compliance, such as by making a
‘‘qualified mortgage,’’ pursuant to TILA
section 129C as established by DoddFrank Act sections 1411 and 1412
(Ability to Repay Rulemaking). 15
U.S.C. 1639c.
• Escrows: The Bureau is in the
process of finalizing a proposal issued
by the Board to implement provisions of
the Dodd-Frank Act requiring certain
escrow account disclosures and
exempting from the higher-priced
mortgage loan escrow requirement loans
made by certain small creditors, among
other provisions, pursuant to TILA
section 129D as established by DoddFrank Act sections 1461 and 1462
(Escrows Rulemaking). 15 U.S.C. 1639d.
With the exception of the requirements
being implemented in this rulemaking,
the Dodd-Frank Act requirements
referenced above generally will take
effect on January 21, 2013 unless final
rules implementing those requirements
are issued on or before that date and
provide for a different effective date. To
provide an orderly, coordinated, and
efficient comment process, the Bureau is
generally setting the deadlines for
comments on this and other proposed
mortgage rules based on the date the
proposal is issued, instead of the date
this notice is published in the Federal
Register. Specifically, as discussed
below, it may be appropriate to finalize
proposed §§ 1026.1(c) and 1026.4 in
conjunction with the final rules adopted
on or before January 21, 2013.
Therefore, the Bureau is providing 60
days for comment on those proposals
(until September 7, 2012), which will
ensure that the Bureau receives
comments with sufficient time
remaining to issue final rules by that
date. For the other portions of this
proposed rule (including the Paperwork
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Reduction Analysis in part IX below),
the Bureau is providing 120 days (until
November 6, 2012). Because the precise
date this notice will be published
cannot be predicted in advance, setting
the deadlines based on the date of
issuance will allow interested parties
that intend to comment on multiple
proposals to plan accordingly.
The Bureau regards the foregoing
rulemakings as components of a larger
undertaking; many of them intersect
with one or more of the others.
Accordingly, the Bureau is coordinating
carefully the development of the
proposals and final rules identified
above. Each rulemaking will adopt new
regulatory provisions to implement the
various Dodd-Frank Act mandates
described above. In addition, each of
them may include other provisions the
Bureau considers necessary or
appropriate to ensure that the overall
undertaking is accomplished efficiently
and that it ultimately yields a regulatory
scheme for mortgage credit that achieves
the statutory purposes set forth by
Congress, while avoiding unnecessary
burdens on industry.
Thus, many of the rulemakings listed
above involve issues that extend across
two or more rulemakings. In this
context, each rulemaking may raise
concerns that might appear unaddressed
if that rulemaking were viewed in
isolation. For efficiency’s sake, however,
the Bureau is publishing and soliciting
comment on proposed answers to
certain issues raised by two or more of
its mortgage rulemakings in whichever
rulemaking is most appropriate, in the
Bureau’s judgment, for addressing each
specific issue. Accordingly, the Bureau
urges the public to review this and the
other mortgage proposals identified
above, including those previously
published by the Board, together. Such
a review will ensure a more complete
understanding of the Bureau’s overall
approach and will foster more
comprehensive and informed public
comment on the Bureau’s several
proposals, including provisions that
may have some relation to more than
one rulemaking but are being proposed
for comment in only one of them.
For example, as discussed in detail in
the section-by-section analysis under
proposed § 1026.4 below, this proposal
includes a simpler, more inclusive
definition of the finance charge, similar
to what the Board proposed in its 2009
Closed-End Proposal. See 74 FR 43232,
43241–45 (Aug. 26, 2009). The Board
recognized at that time that the more
inclusive finance charge would cause
more loans to be considered higherpriced mortgage loans under § 1026.35
and would expand the coverage of
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HOEPA and similar State laws. Id. at
43244–45. For these reasons, in its 2010
Mortgage Proposal, the Board proposed
to retain the existing treatment of thirdparty charges in the points and fees
definition, notwithstanding the
proposed expansion of the finance
charge for disclosure purposes. 75 FR
58539, 58637–38 (Sept. 24, 2010).
Similarly, the Board’s 2010 Mortgage
Proposal introduced a new metric for
determining coverage of the higherpriced mortgage loan protections to be
used in place of a transaction’s APR,
known as the ‘‘transaction coverage
rate’’ (TCR), which does not reflect the
additional charges that are reflected in
the disclosed APR under the more
inclusive finance charge definition. Id.
at 58660–62.
The Bureau recognizes, as did the
Board, that the proposed more inclusive
finance charge could affect the coverage
of the higher-priced mortgage loan and
HOEPA protections. The Bureau also is
aware that, consequently, a more
inclusive finance charge has
implications for the HOEPA, Appraisals,
Ability to Repay, and Escrows
rulemakings identified above. Those
impacts are analyzed below, but the
Bureau believes that it is also helpful to
analyze potential mitigation measures
on a rule-by-rule basis. Accordingly, the
Bureau expects to seek comment in the
HOEPA and Appraisals rulemakings on
whether and how to account for the
implications of the more inclusive
finance charge on those specific
regulatory regimes, for instance by
adopting the TCR as previously
proposed by the Board.80
III. Outreach and Consumer Testing
As noted above, the Dodd-Frank Act
established two goals for this
rulemaking: ‘‘to facilitate compliance
with the disclosure requirements of
[TILA and RESPA]’’ and ‘‘to aid the
borrower or lessee in understanding the
transaction by utilizing readily
understandable language to simplify the
technical nature of the disclosures.’’
Dodd-Frank Act sections 1098, 1100A.
Further, the Bureau has a specific
mandate and authority from Congress to
promote consumer comprehension of
financial transactions through clear
disclosures. Section 1021(a) of the
Dodd-Frank Act directs the Bureau to
‘‘implement * * * Federal consumer
financial law consistently for the
purpose of ensuring,’’ inter alia, that
‘‘markets for consumer financial
products and services are fair,
80 The Board already sought comment on this
issue in its proposals to implement the ability to
repay and escrow requirements.
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transparent, and competitive.’’ 12 U.S.C.
5511(a). Section 1021(b) of the DoddFrank Act, in turn, authorizes the
Bureau as part of its core mission to
exercise its authorities to ensure that,
with respect to consumer financial
products and services, ‘‘consumers are
provided with timely and
understandable information to make
responsible decisions about financial
transactions.’’ 12 U.S.C. 5511(b).
Consistent with these goals and in
preparation for proposing integrated
rules and forms, the Bureau conducted
a multifaceted information gathering
campaign, including researching how
consumers interact with and understand
information, testing of prototype forms,
developing interactive online tools to
gather public feedback, and hosting
roundtable discussions, teleconferences,
and meetings with consumer advocacy
groups, industry stakeholders, and other
government agencies.
A. Early Stakeholder Outreach &
Prototype Form Design
In September 2010, the Bureau began
meeting with consumer advocates, other
banking agencies, community banks,
credit unions, settlement agents, and
other industry representatives. This
outreach helped the Bureau better
understand the issues that consumers
and industry face when they use the
current TILA and RESPA disclosures.
At the same time, the Bureau began to
research how consumers interact with
and understand information. Given the
complexities and variability of mortgage
loan transactions and their underlying
real estate transactions, the Bureau
understood that the integrated
disclosures would have to convey a
large amount of complex and technical
information to consumers in a manner
that they could use and understand.
Considering that, in January 2011, the
Bureau contracted with a
communication, design, consumer
testing, and research firm, Kleimann
Communication Group, Inc. (Kleimann),
which specializes in consumer financial
disclosures. Kleimann has been hired by
other Federal agencies to perform such
design and qualitative testing work in
connection with other financial
disclosure forms. For example, the
Federal Trade Commission and the
Federal banking agencies contracted
with Kleimann to design and conduct
consumer testing for revised model
privacy disclosures.81 Also, HUD
contracted with Kleimann to assist in
the design and consumer testing for its
81 72 FR 14940, 14944 (Mar. 29, 2007); 74 FR
62890, 62893 (Dec. 1, 2009).
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revised good faith estimate and
settlement statement forms.82
The Bureau and Kleimann reviewed
relevant research and the work of other
Federal financial services regulatory
agencies to inform the Bureau’s design
of the prototype integrated disclosures.
One of the findings of this research was
that there is a significant risk to
consumers of experiencing ‘‘information
overload’’ when the volume or
complexity of information detracts from
the consumer decision-making
processes. ‘‘Information overload’’ has
often been cited as a problem with
financial disclosures.83 Researchers
suggest that there should be a balance
between the types and amount of
information in the disclosures, because
too much information has the potential
to detract from consumers’ decisionmaking processes.84 In its 2009 ClosedEnd Proposal, the Board cited a
reduction in ‘‘information overload’’ as
one of the potential benefits of its plan
to harmonize the TILA and RESPA
disclosures in collaboration with
HUD.85 The Board’s consumer testing in
connection with its 2009 Closed-End
Proposal found that when participants
were asked what was most difficult
about their mortgage experience, the
most frequent answer was the amount of
paperwork.86 HUD also stated that one
of its guiding principles for HUD’s 2008
RESPA Proposal was that ‘‘the
[mortgage loan settlement process] can
be improved with simplification of
disclosures and better borrower
information,’’ the complexity of which
82 73
FR 14030, 14043; 73 FR 68204, 68265.
e.g., Debra Pogrund Stark and Jessica M.
Choplin, A Cognitive and Social Psychological
Analysis of Disclosure Laws and Call for Mortgage
Counseling to Prevent Predatory Lending, 16 Psych.
Pub. Pol. and L. 85, 96 (2010); Paula J. Dalley, The
Use and Misuse of Disclosure as a Regulatory
System, 34 Fla. St. U.L. Rev. 1089, 1115 (2007);
Patricia A. McCoy, The Middle-Class Crunch:
Rethinking Disclosure in a World of Risk-Based
Pricing, 44 Harv. J. on Legis. 123, 133 (2007);
Lauren E. Willis, Decisionmaking and The Limits of
Disclosure: The Problem of Predatory Lending:
Price, 65 Md. L. Rev. 707, 766 (2006); Troy A.
Paredes, After the Sarbanes-Oxley Act: The Future
Disclosure System: Blinded by the Light:
Information Overload and its Consequences for
Securities Regulation, 81 Wash. U. L. Q. 417 (2003);
William N. Eskridge, Jr., One Hundred Years of
Ineptitude: The Need for Mortgage Rules Consonant
with the Economic and Psychological Dynamics of
the Home Sale and Loan Transaction, 70 Va. L. Rev.
1083, 1133 (1984).
84 John Kozup & Jeanne M. Hogarth, Financial
Literacy, Public Policy, and Consumers’ SelfProtection—More Questions, Fewer Answers, 42
Journal of Consumer Affairs 2, 127 (2008).
85 74 FR 43232, 43234.
86 See Macro 2009 Closed-End Report at 19. For
additional discussion regarding information
overload, see the section-by-section analysis to
proposed § 1026.37(l).
83 See
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caused many problems with the
process.87
The potential for ‘‘information
overload’’ was also cited by Congress as
one of the reasons it amended the TILA
disclosures in the Truth-in-Lending
Simplification and Reform Act of
1980.88 According to the Senate
Committee on Banking, Housing and
Urban Affairs, this legislation arose in
part because:
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During its hearings the Consumer Affairs
Subcommittee heard testimony from a
leading psychologist who has studied the
problem of ‘informational overload.’ The
Subcommittee learned that judging from
consumer tests in other areas, the typical
disclosure statement utilized today by
creditors is not an effective communication
device. Most disclosure statements are
lengthy, written in legalistic fine print, and
have essential Truth in Lending disclosures
scattered among various contractual terms.
The result is a piece of paper which appears
to be ‘just another legal document’ instead of
the simple, concise disclosure form Congress
intended.89
Based on this research, the Bureau is
particularly mindful of the risk of
information overload, especially
considering the large volume of other
information and paperwork consumers
are required to process throughout the
mortgage loan and real estate
transaction.
The Bureau began development of the
integrated disclosures with certain
design objectives. Considering that the
quantity of information both on the
disclosures and in other paperwork
throughout the mortgage loan and real
estate transaction may increase the risk
of information overload, the Bureau
began development of the integrated
disclosures with the objective of
creating a graphic design that used as
few words as possible when presenting
the key loan and cost information. The
Bureau’s purpose for such a design was
to make the information readily visible
so that consumers could quickly and
easily find the information they were
looking for, without being confronted
with large amounts of text. Accordingly,
the Bureau decided to limit the content
of the disclosures to loan terms, cost
information, and certain textual
disclosures and to exclude educational
material. The Bureau understood that
consumers would receive educational
materials under applicable law, such as
the Special Information Booklet
required by section 5 of RESPA, or
through other means. In addition, the
87 73
FR 14030, 14031.
Law 96–221, 94 Stat 132 (1980).
89 Public Law 96–221, Depository Institutions
Deregulation and Monetary Control Act of 1980,
Senate Report No. 96073 (Apr. 24, 1979).
88 Public
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Bureau understood that it would
provide additional educational
information and tools on its Web site
and place a Web site link on the
integrated disclosures directing
consumers to that site, which would
obviate the need to place educational
material directly on the disclosures.
The Bureau also believed the design
should highlight on the first page the
most important loan information that
consumers readily understand and use
to evaluate and compare loans, placing
more detailed and technical information
later in the disclosure. In addition, the
Bureau believed the design should use
plain language and limit the use of
technical, statutory, or complex
financial terms wherever possible.
The Bureau believes these design
objectives best satisfy the purposes of
the integrated disclosures set forth by
Dodd-Frank Act sections 1098 and
1100A, as well as the Bureau’s mandate
under Dodd-Frank Act section 1021(b)
to ensure that consumers are provided
with ‘‘understandable information’’ to
enable them to make responsible
decisions about financial transactions.
From January through May 2011, the
Bureau and Kleimann developed a plan
to design integrated disclosure
prototypes and conduct qualitative
usability testing, consisting of one-onone cognitive interviews. The Bureau
and Kleimann worked collaboratively
on developing the qualitative testing
plan and several prototype forms for the
Loan Estimate (i.e., the disclosure to be
provided in connection with a
consumer’s application integrating the
RESPA GFE and the early TILA
disclosure). Although qualitative testing
is commonly used by Federal agencies
to evaluate the effectiveness of
disclosures prior to issuing a proposal,
the qualitative testing plan developed
by the Bureau and Kleimann was
unique in that the Bureau conducted
qualitative testing with industry
participants as well as consumers. Each
round of qualitative testing included at
least two industry participants,
including lenders from several different
types of depository institutions
(including credit unions and
community banks) and non-depository
institutions, mortgage brokers, and
settlement agents.
B. Prototype Testing and the Know
Before You Owe (KBYO) Project
In May 2011, the Bureau selected two
initial prototype designs of the Loan
Estimate, which were used in
qualitative testing interviews in
Baltimore, Maryland. In these
interviews, consumers were asked to
work through the prototype forms while
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conveying their impressions, and also
asked a series of questions designed to
assess whether the forms presented
information in a format that enabled
them to understand and compare the
mortgage loans presented to them.
These questions ranged from the highly
specific (e.g., asking whether the
consumer could identify the loan
payment in year 10 of a 30-year,
adjustable-rate loan) to the highly
general (e.g., asking consumers to
choose the loan that best met their
needs).90 Industry participants were
asked to use the prototype forms to
explain mortgage loans as they would to
a consumer and to identify
implementation issues and areas for
improvement.
At the same time, to supplement its
qualitative testing, the Bureau launched
an initiative, which it titled ‘‘Know
Before You Owe,’’ to obtain public
feedback on the prototype disclosure
forms.91 The Bureau believed this
would provide an opportunity to obtain
a large amount of feedback from a broad
base of consumers and industry
respondents around the country. This
initiative consisted of either publishing
and obtaining feedback on the prototype
designs through an interactive tool on
the Bureau’s Web site or posting the
prototypes to the Bureau’s blog on its
Web site and providing an opportunity
for the public to email feedback directly
to the Bureau. Individual consumers,
loan officers, mortgage brokers,
settlement agents, and others provided
feedback based on their own
experiences with the mortgage loan
process by commenting on specific
sections of the form, prioritizing
information presented on the form, and
identifying additional information that
should be included.92
From May to October 2011, Kleimann
and the Bureau conducted a series of
five rounds of qualitative testing of
different iterations of the Loan Estimate
with consumer and industry
participants. In addition to Baltimore,
Maryland, this testing was conducted in
Los Angeles, California; Chicago,
90 The consumers who participated in these
interviews had varying levels of education (from
consumers with less than a high school education
to consumers with graduate degrees) and varying
levels of experience with the home buying and
mortgage loan process (from consumers who never
owned a home to consumers who had been through
the home buying and mortgage loan process before).
91 See https://www.consumerfinance.gov/
knowbeforeyouowe/.
92 Examples of consumer and industry responses
to the prototypes of the disclosures can be seen in
the CFPB blog, including at:
www.consumerfinance.gov/know-before-you-owego; www.consumerfinance.gov/13000-lessonslearned; and www.consumerfinance.gov/knowbefore-you-owe-its-closing-time.
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Illinois; Springfield, Massachusetts; and
Albuquerque, New Mexico. Each round
focused on a different aspect of the
integrated disclosure, such as the
overall design, the disclosure of closing
costs, and the disclosure of loan
payments over the term of the loan. The
overall goal of this qualitative testing
was to ensure that the forms enabled
consumers to understand and compare
the terms and costs of the loan.
After each round of testing, Kleimann
analyzed and reported to the Bureau on
the results of the testing. Based on these
results and supplemental feedback
received through the KBYO process, the
Bureau revised the prototype disclosure
forms for the next round of testing. This
iterative process helped the Bureau
develop forms that enable consumers to
understand and compare mortgage loans
and that assist industry in complying
with the law. For a detailed discussion
of this testing, see the report prepared
by Kleimann, Know Before You Owe:
Evolution of the Integrated TILA–RESPA
Disclosures (Kleimann Testing Report),
which the Bureau is publishing on its
Web site in conjunction with this
proposed rule.93
After completion of the qualitative
testing that focused solely on the Loan
Estimate, the Bureau and Kleimann
began work on the prototype designs for
the Closing Disclosure (i.e., the
disclosure provided in connection with
the closing of the mortgage loan that
integrates the RESPA settlement
statement and the final TILA
disclosure). From November 2011
through March 2012, the Bureau and
Kleimann conducted five rounds of
qualitative testing of different iterations
of the Closing Disclosure with consumer
and industry participants. This testing
was conducted in five different cities
across the country: Des Moines, Iowa;
Birmingham, Alabama; Philadelphia,
Pennsylvania; Austin, Texas; and
Baltimore, Maryland.
Similar to the qualitative testing of the
Loan Estimate, the Bureau revised the
prototype Closing Disclosure forms after
each round based on the results
Kleimann provided to the Bureau and
the feedback received from the KBYO
process. The Bureau focused on several
aspects of the prototypes during each
round, such as the settlement
disclosures adapted from the HUD–1,
new disclosure items required under
title XIV of the Dodd-Frank Act, and
tables to help identify changes in the
information disclosed in the initial Loan
93 Kleimann Communication Group, Inc., Know
Before You Owe: Evolution of the Integrated TILA–
RESPA Disclosures (July 2012), available at https://
files.consumerfinance.gov/f/
201207_cfpb_report_tila-respa-testing.pdf.
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Estimate. The overall goal of the
qualitative testing of the Closing
Disclosure was to ensure that the forms
enabled consumers to understand their
actual terms and costs, and to compare
the Closing Disclosure with the Loan
Estimate to identify changes.
Accordingly, several rounds included
testing of different iterations of the Loan
Estimate with the Closing Disclosure.
Overall, the Bureau performed
qualitative testing with 92 consumer
participants and 22 industry
participants, for a total of 114
participants. In addition, through the
Bureau’s KBYO initiative, the Bureau
received over 150,000 visits to the
KBYO Web site and over 27,000 public
comments and emails about the
prototype disclosures.
C. Ongoing Stakeholder Outreach
Throughout the qualitative testing of
the prototype disclosure forms, the
Bureau continued to conduct extensive
outreach to consumer advocacy groups,
other regulatory agencies, and industry
representatives and trade associations.
The Bureau held meetings with
individual stakeholders upon request,
and also invited stakeholders to
meetings in which individual views of
each stakeholder could be heard. The
Bureau conducted these meetings with
a wide range of stakeholders that may be
affected by the integrated disclosures,
even if not directly regulated by the
proposed rule. The meetings included
community banks, credit unions, thrifts,
mortgage companies, mortgage brokers,
settlement agents, settlement service
providers, software providers,
appraisers, not-for-profit consumer and
housing groups, and government and
quasi-governmental agencies. Many of
the persons attending these meetings
represented small business entities from
different parts of the country. In
addition to these meetings, after each
round of qualitative testing, the Bureau
received numerous letters from
individuals, consumer advocates,
financial services providers, and trade
associations, which provided the
Bureau with additional feedback on the
prototype disclosure forms.
In preparing this proposal, the Bureau
also considered comments provided in
response to its December 2011 proposal
regarding streamlining of regulations for
which rulemaking authority was
inherited by the CFPB from other
Federal agencies, including TILA and
RESPA. 76 FR 75825 (Dec. 5, 2011)
(2011 Streamlining Proposal). That
proposal specifically sought public
comment on provisions of the inherited
regulations that the Bureau should make
the highest priority for updating,
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modifying, or eliminating because they
are outdated, unduly burdensome, or
unnecessary, and sought suggestions for
practical measures to make compliance
with the regulations easier. Several
commenters requested that the Bureau
reconcile inconsistencies in the
terminology and requirements of
Regulations X and Z. Wherever possible,
the Bureau has proposed to do so in this
rulemaking. In addition, other relevant
comments received in response to the
2011 Streamlining Proposal are
addressed below.
D. Small Business Review Panel
In February 2012, the Bureau
convened a Small Business Review
Panel with the Chief Counsel for
Advocacy of the Small Business
Administration (SBA) and the
Administrator of the Office of
Information and Regulatory Affairs
within the Office of Management and
Budget (OMB).94 As part of this process,
the Bureau prepared an outline of the
proposals then under consideration and
the alternatives considered (Small
Business Review Panel Outline), which
it posted on its Web site for review by
the general public as well as the small
entities participating in the panel
process.95 The Small Business Review
Panel gathered information from
representatives of small lenders,
mortgage brokers, settlement agents, and
not-for-profit organizations and made
findings and recommendations
regarding the potential compliance costs
and other impacts of the proposed rule
on those entities. These findings and
recommendations are set forth in the
Small Business Review Panel Report,
which will be made part of the
administrative record in this
rulemaking.96 The Bureau has carefully
considered these findings and
recommendations in preparing this
proposal and has addressed certain
specific examples below.
In addition, the Bureau held
roundtable meetings with other Federal
banking and housing regulators,
consumer advocacy groups, and
94 The Small Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA) requires the Bureau
to convene a Small Business Review Panel before
proposing a rule that may have a substantial
economic impact on a significant number of small
entities. See Public Law 104–121, tit. II, 110 Stat.
847, 857 (1996) (as amended by Pub. L. 110–28, sec.
8302 (2007)).
95 Available at https://www.consumerfinance.gov/
blog/sbrefa-small-providers-and-mortgagedisclosure/.
96 Final Report of the Small Business Review
Panel on CFPB’s Proposals Under Consideration for
Integration of TILA and RESPA Mortgage Disclosure
Requirements (Apr. 23, 2012), available at https://
files.consumerfinance.gov/f/201207_cfpb_report
_tila-respa-sbrefa-feedback.pdf.
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industry representatives regarding the
Small Business Review Panel Outline.
At the Bureau’s request, many of the
participants provided feedback, which
the Bureau has used in preparing this
proposal.
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E. Next Steps
The public may submit comments on
the proposed rule for 120 days after
issuance (with the exception of the
proposed amendments to §§ 1026.1(c)
and 1026.4 that have a shorter 60-day
comment period as discussed below).
These comments will be available to the
public, as will summaries of written or
oral presentations in accordance with
the Bureau’s ex parte policy.97 During
the comment period and after it closes,
the Bureau will carefully review and
analyze the comments.
Once the Bureau has completed its
review and analysis of the comments, it
will consult with other Federal agencies
and determine whether changes should
be made to the proposed forms or rules.
If changes are contemplated to the
forms, the Bureau may conduct
additional qualitative testing to evaluate
the effectiveness of those changes.
Whether or not changes are made, the
Bureau may conduct large-scale
quantitative testing of the forms to
confirm that the forms aid consumers’
understanding of mortgage transactions,
if appropriate. On March 28, 2012, the
Bureau published a notice for comment
under the Paperwork Reduction Act in
connection with this quantitative
testing, specifically inviting comment
on whether the information collected
will have practical utility, the accuracy
of the Bureau’s burden hour estimates,
and ways to enhance the quality of the
information collected and minimize the
burden on respondents.98 The Bureau
received no comments to this notice.
During the Small Business Review
Panel, several small business
representatives requested that the
Bureau explore the feasibility of
conducting testing of the disclosure
forms on actual loans before issuing a
final rule. See Small Business Review
Panel Report at 28. Based on this
feedback and consistent with the Small
Business Review Panel’s
recommendation, the Bureau is
considering testing the forms on actual
loans after reviewing comments
received in connection with this
proposal, and making any appropriate
revisions to the proposed forms.
97 CFPB Bulletin 11–3 (August 16, 2011),
available at https://files.consumerfinance.gov/f/
2011/08/Bulletin_20110819_ExParte
PresentationsRulemakingProceedings.pdf.
98 77 FR 18793 (Mar. 28, 2012).
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After the Bureau has completed the
appropriate steps, it will prepare and
issue a final rule. However, as discussed
below in part V.A, the Bureau
understands from the Small Business
Review Panel process and from other
outreach that lenders, settlement agents,
and others will need a period of time to
update their systems and processes to
comply with the final rule and to train
their employees. Accordingly, the
Bureau is asking for comment on a time
period that strikes the appropriate
balance between providing consumers
with improved disclosures as soon as
possible and providing industry with
the necessary time to come into
compliance.
In addition, during the Small
Business Review Panel, several small
business representatives requested that
the Bureau provide detailed guidance
on how to complete the integrated
forms, including, as appropriate,
samples of completed forms for a variety
of loan transactions. See Small Business
Review Panel Report at 28. Similar
feedback was also submitted by several
industry trade associations in response
to the Small Business Review Panel
Outline. The Bureau also understands
from its other outreach efforts that
industry has experienced difficulties in
complying with HUD’s 2008 RESPA
Final Rule, in part because of a lack of
detailed guidance in HUD’s 2008
RESPA Final Rule, and the many
informal interpretations of the rule
issued by HUD in the HUD RESPA
FAQs and HUD RESPA Roundups.
Based on this feedback and consistent
with the Small Business Review Panel’s
recommendation, the proposed rule
contains detailed provisions regarding
the completion of the integrated
disclosures, multiple examples of
completed disclosures forms in
appendix H to Regulation Z, and
additional guidance and clarification in
the Bureau’s official commentary to
Regulation Z. Such detailed guidance
has, of course, added significant length
to the proposed rule. The Bureau
solicits comment on whether the level
of detail in the proposed regulations and
guidance (including the number of
examples illustrating what is and is not
permitted) will make compliance more,
rather than less, burdensome and
whether the Bureau should adopt a less
prescriptive approach in the final rule.
IV. Legal Authority
The Bureau is issuing this proposed
rule pursuant to its authority under
TILA, RESPA, and the Dodd-Frank Act.
On July 21, 2011, section 1061 of the
Dodd-Frank Act transferred to the
Bureau all of the HUD Secretary’s
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consumer protection functions relating
to RESPA.99 Accordingly, effective July
21, 2011, the authority of HUD to issue
regulations pursuant to RESPA
transferred to the Bureau. Section 1061
of the Dodd-Frank Act also transferred
to the Bureau the ‘‘consumer financial
protection functions’’ previously vested
in certain other Federal agencies,
including the Board. The term
‘‘consumer financial protection
function’’ is defined to include ‘‘all
authority to prescribe rules or issue
orders or guidelines pursuant to any
Federal consumer financial law,
including performing appropriate
functions to promulgate and review
such rules, orders, and guidelines.’’ 100
TILA, RESPA, and title X of the DoddFrank Act are Federal consumer
financial laws.101 Accordingly, the
Bureau has authority to issue
regulations pursuant to TILA and
RESPA, including the disclosure
requirements added to those statutes by
title XIV of the Dodd-Frank Act, as well
as title X of the Dodd-Frank Act.
A. The Integrated Disclosure Mandate
Section 1032(f) of the Dodd-Frank Act
requires that, ‘‘[n]ot later than one year
after the designated transfer date [of July
21, 2011], the Bureau shall propose for
public comment rules and model
disclosures that combine the disclosures
required under [TILA] and sections 4
and 5 of [RESPA], into a single,
integrated disclosure for mortgage loan
transactions covered by those laws,
unless the Bureau determines that any
proposal issued by the [Board] and
[HUD] carries out the same purpose.’’ 12
U.S.C. 5532(f). In addition, the DoddFrank Act amended section 105(b) of
TILA and section 4(a) of RESPA to
require the integration of the TILA
disclosures and the disclosures required
by sections 4 and 5 of RESPA.102 The
99 Public Law 111–203, 124 Stat. 1376, section
1061(b)(7); 12 U.S.C. 5581(b)(7).
100 12 U.S.C. 5581(a)(1).
101 Dodd-Frank Act section 1002(14), 12 U.S.C.
5481(14) (defining ‘‘Federal consumer financial
law’’ to include the ‘‘enumerated consumer laws’’
and the provisions of title X of the Dodd-Frank Act);
Dodd-Frank Act section 1002(12), 12 U.S.C.
5481(12) (defining ‘‘enumerated consumer laws’’ to
include TILA and RESPA).
102 Section 1100A of the Dodd-Frank Act
amended TILA section 105(b) to provide that the
‘‘Bureau shall publish a single, integrated
disclosure for mortgage loan transactions (including
real estate settlement cost statements) which
includes the disclosure requirements of this title in
conjunction with the disclosure requirements of the
Real Estate Settlement Procedures Act of 1974 that,
taken together, may apply to a transaction that is
subject to both or either provisions of law.’’ 15
U.S.C. 1604(b). Section 1098 of the Dodd-Frank
amended RESPA section 4(a) to require the Bureau
to publish a ‘‘single, integrated disclosure for
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purpose of the integrated disclosure is
to facilitate compliance with the
disclosure requirements of TILA and
RESPA, and to help the borrower
understand the transaction by utilizing
readily understandable language to
simplify the technical nature of the
disclosures. Dodd-Frank Act sections
1098, 1100A.
Although Congress imposed this
integrated disclosure requirement, it did
not fully harmonize the underlying
statutes. In particular, TILA and RESPA
establish different timing requirements
for disclosing mortgage credit terms and
costs to consumers and require that
those disclosures be provided by
different parties. TILA generally
requires that, within three business days
of receiving the consumer’s application
and at least seven business days before
consummation of certain mortgage
transactions, creditors must provide
consumers a good faith estimate of the
costs of credit.103 TILA section
128(b)(2)(A); 15 U.S.C. 1638(b)(2)(A). If
the annual percentage rate that was
initially disclosed becomes inaccurate,
TILA requires creditors to redisclose the
information at least three business days
before consummation. TILA section
128(b)(2)(D); 15 U.S.C. 1638(b)(2)(D).
These disclosures must be provided in
final form at consummation. TILA
section 128(b)(2)(B)(ii); 15 U.S.C.
1638(b)(2)(B)(ii). RESPA also requires
that the creditor or broker provide
consumers with a good faith estimate of
settlement charges no later than three
business days after receiving the
consumer’s application. However,
unlike TILA, RESPA requires that, at or
before settlement, ‘‘the person
conducting the settlement’’ (which may
or may not be the creditor) provide the
consumer with a statement that records
all charges imposed upon the consumer
in connection with the settlement.
RESPA sections 4(b), 5(c); 12 U.S.C.
2603(b), 2604(c).
The Dodd-Frank Act did not reconcile
these and other statutory differences.
Therefore, to meet the Dodd-Frank Act’s
express requirement to integrate the
disclosures required by TILA and
RESPA, the Bureau must do so. DoddFrank Act section 1032(f), TILA section
105(b), and RESPA section 4(a) provide
the Bureau with implicit authority to
mortgage loan transactions (including real estate
settlement cost statements) which includes the
disclosure requirements of this section and section
5, in conjunction with the disclosure requirements
of the Truth in Lending Act that, taken together,
may apply to a transaction that is subject to both
or either provisions of law.’’ 12 U.S.C. 2603(a).
103 This requirement applies to extensions of
credit that are both secured by a dwelling and
subject to RESPA. TILA section 128(b)(2)(A); 15
U.S.C. 1638(b)(2)(A).
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issue regulations that reconcile certain
provisions of TILA and RESPA to carry
out Congress’s mandate to integrate the
statutory disclosure requirements. For
the reasons discussed in this notice, the
Bureau is proposing regulations to carry
out the requirements of Dodd-Frank Act
section 1032(f), TILA section 105(b),
and RESPA section 4(a).
B. Other Rulemaking and Exception
Authorities
The proposed rule also relies on the
rulemaking and exception authorities
specifically granted to the Bureau by
TILA, RESPA, and the Dodd-Frank Act,
including the authorities discussed
below.104
Truth in Lending Act
TILA section 105(a). As amended by
the Dodd-Frank Act, TILA section
105(a), 15 U.S.C. 1604(a), directs the
Bureau to prescribe regulations to carry
out the purposes of TILA, and provides
that such regulations may contain
additional requirements, classifications,
differentiations, or other provisions, and
may provide for such adjustments and
exceptions for all or any class of
transactions, that the Bureau judges are
necessary or proper to effectuate the
purposes of TILA, to prevent
circumvention or evasion thereof, or to
facilitate compliance. A purpose of
TILA is ‘‘to assure a meaningful
disclosure of credit terms so that the
consumer will be able to compare more
readily the various credit terms
available to him and avoid the
uninformed use of credit.’’ TILA section
102(a); 15 U.S.C. 1601(a). This stated
purpose is tied to Congress’ finding that
‘‘economic stabilization would be
enhanced and the competition among
the various financial institutions and
other firms engaged in the extension of
consumer credit would be strengthened
by the informed use of credit[.]’’ TILA
section 102(a). Thus, strengthened
competition among financial
institutions is a goal of TILA, achieved
through the effectuation of TILA’s
purposes.
Historically, TILA section 105(a) has
served as a broad source of authority for
rules that promote the informed use of
credit through required disclosures and
substantive regulation of certain
practices. However, Dodd-Frank Act
104 As discussed in part II above, prior to the
Dodd-Frank Act, rulemaking authority over TILA
was vested in the Board and rulemaking authority
over RESPA was vested in HUD. The Dodd-Frank
Act transferred rulemaking authority for TILA and
RESPA to the Bureau, effective July 21, 2011. See
Dodd-Frank Act sections 1061, 1098, and 1100A.
The Bureau implements the proposed rule pursuant
to its authorities in section 1061 of the Dodd-Frank
Act.
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section 1100A clarified the Bureau’s
section 105(a) authority by amending
that section to provide express authority
to prescribe regulations that contain
‘‘additional requirements’’ that the
Bureau finds are necessary or proper to
effectuate the purposes of TILA, to
prevent circumvention or evasion
thereof, or to facilitate compliance. This
amendment clarified the authority to
exercise TILA section 105(a) to
prescribe requirements beyond those
specifically listed in the statute that
meet the standards outlined in section
105(a). The Dodd-Frank Act also
clarified the Bureau’s rulemaking
authority over certain high-cost
mortgages pursuant to section 105(a). As
amended by the Dodd-Frank Act, TILA
section 105(a) authority to make
adjustments and exceptions to the
requirements of TILA applies to all
transactions subject to TILA, except
with respect to the provisions of TILA
section 129 105 that apply to the highcost mortgages referred to in TILA
section 103(bb), 15 U.S.C. 1602(bb). For
the reasons discussed in this notice, the
Bureau is proposing regulations to carry
out TILA’s purposes and is proposing
such additional requirements,
adjustments, and exceptions as, in the
Bureau’s judgment, are necessary and
proper to carry out the purposes of
TILA, prevent circumvention or evasion
thereof, or to facilitate compliance. In
developing these aspects of the proposal
pursuant to its authority under TILA
section 105(a), the Bureau has
considered the purposes of TILA,
including ensuring meaningful
disclosures, facilitating consumers’
ability to compare credit terms, and
helping consumers avoid the
uninformed use of credit, and the
findings of TILA, including
strengthening competition among
financial institutions and promoting
economic stabilization.
TILA section 105(f). Section 105(f) of
TILA, 15 U.S.C. 1604(f), authorizes the
Bureau to exempt from all or part of
TILA any class of transactions if the
Bureau determines that TILA coverage
does not provide a meaningful benefit to
consumers in the form of useful
information or protection. In exercising
this authority, the Bureau must consider
the factors identified in section 105(f) of
TILA and publish its rationale at the
time it proposes an exemption for
public comment. Specifically, the
Bureau must consider:
105 15 U.S.C. 1639. TILA section 129 contains
requirements for certain high-cost mortgages,
established by the Home Ownership and Equity
Protection Act (HOEPA), which are commonly
called HOEPA loans.
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(a) The amount of the loan and
whether the disclosures, right of
rescission, and other provisions provide
a benefit to the consumers who are
parties to such transactions, as
determined by the Bureau;
(b) The extent to which the
requirements of this subchapter
complicate, hinder, or make more
expensive the credit process for the
class of transactions;
(c) The status of the borrower,
including—
(1) Any related financial arrangements
of the borrower, as determined by the
Bureau;
(2) The financial sophistication of the
borrower relative to the type of
transaction; and
(3) The importance to the borrower of
the credit, related supporting property,
and coverage under this subchapter, as
determined by the Bureau;
(d) Whether the loan is secured by the
principal residence of the consumer;
and
(e) Whether the goal of consumer
protection would be undermined by
such an exemption.
For the reasons discussed in this notice,
the Bureau is proposing to exempt
certain transactions from the
requirements of TILA pursuant to its
authority under TILA section 105(f). In
developing this proposal under TILA
section 105(f), the Bureau has
considered the relevant factors and
determined that the proposed
exemptions may be appropriate.
TILA section 129B(e). Dodd-Frank Act
section 1405(a) amended TILA to add
new section 129B(e), 15 U.S.C.
1639B(e). That section authorizes the
Bureau to prohibit or condition terms,
acts, or practices relating to residential
mortgage loans on a variety of bases,
including when the Bureau finds the
terms, acts, or practices are not in the
interest of the borrower. In developing
proposed rules under TILA section
129B(e), the Bureau has considered
whether the proposed rules are in the
interest of the borrower, as required by
the statute. For the reasons discussed in
this notice, the Bureau is proposing
portions of this rule pursuant to its
authority under TILA section 129B(e).
Real Estate Settlement Procedures Act
Section 19(a) of RESPA, 12 U.S.C.
2617(a), authorizes the Bureau to
prescribe such rules and regulations and
to make such interpretations and grant
such reasonable exemptions for classes
of transactions as may be necessary to
achieve the purposes of RESPA. One
purpose of RESPA is to effect certain
changes in the settlement process for
residential real estate that will result in
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more effective advance disclosure to
home buyers and sellers of settlement
costs. RESPA section 2(b); 12 U.S.C.
2601(b). In addition, in enacting RESPA,
Congress found that consumers are
entitled to be ‘‘provided with greater
and more timely information on the
nature and costs of the settlement
process and [to be] protected from
unnecessarily high settlement charges
caused by certain abusive practices
* * *’’ RESPA section 2(a); 12 U.S.C.
2601(a). In the past, section 19(a) has
served as a broad source of authority to
prescribe disclosures and substantive
requirements to carry out the purposes
of RESPA.
In developing proposed rules under
RESPA section 19(a) for this proposal,
the Bureau has considered the purposes
of RESPA, including to cause changes in
the settlement process that will result in
more effective advance disclosure of
settlement costs. For the reasons
discussed in this notice, the Bureau is
proposing portions of this rule pursuant
to its authority under RESPA section
19(a).
Dodd-Frank Act
Dodd-Frank Act section 1021. Section
1021(a) of the Dodd-Frank Act provides
that the Bureau shall seek to implement
and, where applicable, enforce Federal
consumer financial law consistently for
the purpose of ensuring that all
consumers have access to markets for
consumer financial services and that
markets for consumer financial products
and services are fair, transparent, and
competitive. 12 U.S.C. 5511(a). In
addition, section 1021(b) of the DoddFrank Act provides that the Bureau is
authorized to exercise its authorities
under Federal consumer financial law
for the purposes of ensuring that, with
respect to consumer financial products
and services: (1) Consumers are
provided with timely and
understandable information to make
responsible decisions about financial
transactions; (2) consumers are
protected from unfair, deceptive, or
abusive acts and practices and from
discrimination; (3) outdated,
unnecessary, or unduly burdensome
regulations are regularly identified and
addressed in order to reduce
unwarranted regulatory burdens; (4)
Federal consumer financial law is
enforced consistently, without regard to
the status of a person as a depository
institution, in order to promote fair
competition; and (5) markets for
consumer financial products and
services operate transparently and
efficiently to facilitate access and
innovation. 12 U.S.C. 5511(b).
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Accordingly, this proposal is
consistent with the purposes of DoddFrank Act section 1021(a) and with the
objectives of Dodd-Frank Act section
1021(b), specifically including DoddFrank Act section 1021(b)(1) and (3).
Dodd-Frank Act section 1022(b).
Section 1022(b)(1) of the Dodd-Frank
Act authorizes the Bureau to prescribe
rules ‘‘as may be necessary or
appropriate to enable the Bureau to
administer and carry out the purposes
and objectives of the Federal consumer
financial laws, and to prevent evasions
thereof[.]’’ 12 U.S.C. 5512(b)(1). Section
1022(b)(2) of the Dodd-Frank Act
prescribes certain standards for
rulemaking that the Bureau must follow
in exercising its authority under section
1022(b)(1). 12 U.S.C. 5512(b)(2). As
discussed above, TILA and RESPA are
Federal consumer financial laws.
Accordingly, the Bureau proposes to
exercise its authority under Dodd-Frank
Act section 1022(b) to prescribe rules
under TILA and RESPA that carry out
the purposes and prevent evasion of
those laws. See part VII for a discussion
of the Bureau’s standards for rulemaking
under Dodd-Frank Act section
1022(b)(2).
Dodd-Frank Act section 1032(a).
Section 1032(a) of the Dodd-Frank Act
provides that the Bureau ‘‘may prescribe
rules to ensure that the features of any
consumer financial product or service,
both initially and over the term of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.’’
12 U.S.C. 5532(a). The authority granted
to the Bureau in section 1032(a) is
broad, and empowers the Bureau to
prescribe rules regarding the disclosure
of the ‘‘features’’ of consumer financial
products and services generally.
Accordingly, the Bureau may prescribe
rules containing disclosure
requirements even if other Federal
consumer financial laws do not
specifically require disclosure of such
features.
Dodd-Frank Act section 1032(c)
provides that, in prescribing rules
pursuant to section 1032, the Bureau
‘‘shall consider available evidence about
consumer awareness, understanding of,
and responses to disclosures or
communications about the risks, costs,
and benefits of consumer financial
products or services.’’ 12 U.S.C. 5532(c).
Accordingly, in developing proposed
rules under Dodd-Frank Act section
1032(a) for this proposal, the Bureau has
considered available studies, reports,
and other evidence about consumer
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awareness, understanding of, and
responses to disclosures or
communications about the risks, costs,
and benefits of consumer financial
products or services. See parts II and III,
above. Moreover, the Bureau has
considered the evidence developed
through its consumer testing of the
integrated disclosures as well as prior
testing done by the Board and HUD
regarding TILA and RESPA disclosures.
See part III for a discussion of the
Bureau’s testing. For the reasons
discussed in this notice, the Bureau is
proposing portions of this rule pursuant
to its authority under Dodd-Frank Act
section 1032(a).
In addition, Dodd-Frank Act section
1032(b)(1) provides that ‘‘any final rule
prescribed by the Bureau under this
[section 1032] requiring disclosures may
include a model form that may be used
at the option of the covered person for
provision of the required disclosures.’’
12 U.S.C. 5532(b)(1). Any model form
issued pursuant to that authority shall
contain a clear and conspicuous
disclosure that, at a minimum, uses
plain language that is comprehensible to
consumers, using a clear format and
design, such as readable type font, and
succinctly explains the information that
must be communicated to the consumer.
Dodd-Frank Act 1032(b)(2); 12 U.S.C.
5532(b)(2). As discussed in the sectionby-section analysis for proposed
§§ 1026.37(o) and 1026.38(t), the Bureau
is proposing certain model disclosures
for transactions subject to TILA, and
standard forms for transactions subject
to both TILA and RESPA. For the
reasons discussed in this notice, the
Bureau is proposing these model
disclosures pursuant to its authority
under Dodd-Frank Act section 1032(b).
Dodd-Frank Act section 1405(b).
Section 1405(b) of the Dodd-Frank Act
provides that, ‘‘[n]otwithstanding any
other provision of [title 14 of the DoddFrank Act], in order to improve
consumer awareness and understanding
of transactions involving residential
mortgage loans through the use of
disclosures, the Bureau may, by rule,
exempt from or modify disclosure
requirements, in whole or in part, for
any class of residential mortgage loans
if the Bureau determines that such
exemption or modification is in the
interest of consumers and in the public
interest.’’ 15 U.S.C. 1601 note. Section
1401 of the Dodd-Frank Act, which
amends TILA section 103(cc)(5), 15
U.S.C. 1602(cc)(5), generally defines
residential mortgage loan as any
consumer credit transaction that is
secured by a mortgage on a dwelling or
on residential real property that
includes a dwelling other than an open-
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end credit plan or an extension of credit
secured by a consumer’s interest in a
timeshare plan. Notably, the authority
granted by section 1405(b) applies to
‘‘disclosure requirements’’ generally,
and is not limited to a specific statute
or statutes. Accordingly, Dodd-Frank
Act section 1405(b) is a broad source of
authority to modify the disclosure
requirements of TILA and RESPA.
In developing proposed rules for
residential mortgage loans under DoddFrank Act section 1405(b) for this
proposal, the Bureau has considered the
purposes of improving consumer
awareness and understanding of
transactions involving residential
mortgage loans through the use of
disclosures, and the interests of
consumers and the public. For the
reasons discussed in this notice, the
Bureau is proposing portions of this rule
pursuant to its authority under DoddFrank Act section 1405(b).
V. Mandatory Compliance
A. Implementation Period
As discussed in part II.E above, the
Bureau is proposing rules and
disclosures that combine the preconsummation disclosure requirements
of TILA and sections 4 and 5 of RESPA,
not later than July 21, 2012, consistent
with the requirements of sections
1032(f), 1098, and 1100A of the DoddFrank Act. 12 U.S.C. 2603(a); 5532(f); 15
U.S.C. 1604(b). The Dodd-Frank Act
does not impose a deadline for issuing
final rules and disclosures in
connection with this mandate to
integrate disclosure requirements or
provide a specific amount of time for
entities subject to those rules to come
into compliance.
As discussed in part II, above, the
Dodd-Frank Act establishes two goals
for the TILA–RESPA mortgage
disclosure integration: To improve
consumer understanding of mortgage
loan transactions; and to facilitate
industry compliance with TILA and
RESPA. Dodd-Frank Act sections 1098
and 1100A. The Bureau must balance
these statutory objectives in considering
the length of the implementation period.
The Bureau believes requiring industry
to implement the requirements of the
final rule as soon as practicable after its
issuance will benefit consumers by
expediting the use of the integrated
disclosure forms, which will improve
consumer understanding of mortgage
loan transactions. At the same time, the
Bureau recognizes that the creditors,
mortgage brokers, settlement agents, and
other entities affected by the proposed
rule will incur one-time compliance
costs, such as software upgrades to
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generate the integrated disclosure forms,
training staff and related parties to use
the new disclosure forms, updating
compliance systems and processes, and
obtaining legal guidance.106
Consequently, the Bureau believes that
a reasonable implementation period
would help facilitate compliance and
potentially reduce the one-time costs
that may be incurred by the entities
affected by the rule.
The Bureau is mindful that small
entities 107 may face unique challenges
in complying with the rule. During the
SBREFA Small Business Review Panel
process,108 the Small Business Review
Panel received feedback from small
entity representatives requesting that
the Bureau provide a substantial
compliance period after issuance of the
final rule. The small entity
representatives reported that they
anticipated significant one-time
software upgrade and training costs,
though their estimates varied greatly,
and they generally stated that these
costs would be less burdensome if the
Bureau provided a substantial
compliance period to upgrade systems
and to train staff. The small entity
representatives requested a variety of
implementation periods, however.109 As
detailed in the Panel Report, the Panel
recommended that the Bureau provide a
compliance period that permits
sufficient time for small entities to make
necessary system upgrades and provide
training, and that the Bureau solicit
public comment on the amount of time
needed for such upgrades and
training.110 Moreover, industry feedback
generally in response to the Bureau’s
Small Business Review Panel process
stated that an implementation period for
the final rule should provide sufficient
time for training, systems development,
and the operational changes that the
rule will necessitate.
In feedback provided during the
SBREFA process and through other
106 These one-time costs are discussed in the
section 1022 analysis in part VII, below, with
respect to covered persons as defined for purposes
of the Dodd-Frank Act, and the initial regulatory
flexibility analysis in part VIII, below, with respect
to small entities as defined for purposes of the
Regulatory Flexibility Act (RFA).
107 The term ‘‘small entities’’ means those entities
defined as small entities for purposes of the RFA,
as discussed further in part VIII, below. The terms
‘‘large entities’’ or ‘‘larger entities’’ refer to all
entities that are not small entities as defined for
purposes of the RFA.
108 See part VIII.A, below, for a discussion of the
Bureau’s Small Business Review Panel process.
109 Small Business Review Panel Report, at 19. As
noted in chapter 8.1 of the Panel Report, the small
entity representatives generally asked for an
implementation period ranging from 12 to 18
months.
110 See id. at p. 27.
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industry outreach, lenders, mortgage
brokers, settlement agents, and forms
vendors, as well as several trade
associations representing lenders,
brokers, and settlement agents,
requested an implementation period of
at least 12 months. Because the TILA–
RESPA final rule will provide important
benefits to consumers, the Bureau
wishes to make the rule effective as
soon as possible. However, the Bureau
understands that the final rule will
require lenders, mortgage brokers, and
settlement agents to make extensive
revisions to their software and to retrain
their staff. In addition, some entities
will be required to implement other
Dodd-Frank Act provisions, which are
subject to separate rulemaking deadlines
under the statute and will have separate
effective dates. Therefore, the Bureau is
seeking comment on how much time
industry needs to make these changes,
and specifically requests details on the
required updates and changes to
systems and other measures that would
be required to implement the rule and
the amount of time needed to make
those changes.
Furthermore, in light of the feedback
provided by small entity representatives
during the SBREFA process, as reflected
in the Panel Report of the Small
Business Review Panel, the Bureau
solicits comment on whether small
entities affected by the rule should have
more time to comply with the final rule
than larger entities. In soliciting
comment on this issue, however, the
Bureau notes its concern that a
bifurcated implementation period could
be detrimental to consumers. During
any period where only larger entities
must comply with the final rule,
consumers potentially would receive
different disclosures and be subject to
different sets of consumer protections
depending on their choice of creditor,
mortgage broker, or settlement agent. In
addition, larger entities that are subject
to the final rule and that purchase loans
from small entities may nevertheless
insist that small entities comply with
the final rules. See, e.g., Small Business
Review Panel Report at 30 (discussing
recordkeeping requirements).
Accordingly, based on the Small
Business Review Panel
recommendation, the Bureau solicits
comment on whether any separate
compliance period for larger entities
should take into account the
relationship between larger and smaller
entities.
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B. Delayed Effective Dates of Certain
Disclosure Requirements Established by
Title XIV of the Dodd-Frank Act
As discussed above, the Bureau is
proposing rules and disclosures that
combine the pre-consummation
disclosure requirements of TILA and
sections 4 and 5 of RESPA, not later
than July 21, 2012, consistent with the
requirements of section 1032(f) of the
Dodd-Frank Act. 12 U.S.C. 5532(f). The
Dodd-Frank Act does not impose a
deadline for issuing final rules and
disclosures.
In addition to this integrated
disclosure requirement in title X,
various provisions of title XIV of the
Dodd-Frank Act amend TILA, RESPA,
and other consumer financial laws to
impose new pre-consummation
disclosure requirements for mortgage
transactions. These provisions generally
require disclosure of certain information
when a consumer applies for a mortgage
loan or shortly before consummation of
the loan, around the same time that
consumers will receive the integrated
TILA–RESPA disclosures required by
section 1032(f) of the Dodd-Frank Act.
If regulations that are required to
implement the disclosure requirements
in title XIV are not prescribed in final
form within eighteen months after the
designated transfer date (i.e., by January
21, 2013), institutions must comply
with the statutory requirements on that
date. Dodd-Frank Act section 1400(c)(3);
15 U.S.C. 1601 note.
The Bureau believes that
implementing a single, consolidated
disclosure that satisfies section 1032(f)
and certain of the disclosure
requirements in title XIV of the DoddFrank Act will benefit consumers and
facilitate compliance with TILA and
RESPA. That is, the Bureau believes that
both consumers and industry will
benefit by incorporating many of the
disclosure requirements in title XIV into
this proposal (collectively, the ‘‘Affected
Title XIV Disclosures’’). Consumers will
benefit from a consolidated disclosure
that conveys loan terms and costs to
consumers in a coordinated way.
Lenders and settlement agents will
benefit by integrating two sets of
overlapping disclosures into a single
form and by avoiding regulatory burden
associated with revising systems and
practices multiple times. However,
given the broad scope and complexity of
this rulemaking and the 120-day
comment period provided by this
proposal, a final rule will not be issued
by January 21, 2013. Absent a final
implementing rule, institutions would
have to comply with the Affected Title
XIV Disclosures on that date due to the
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statutory requirement that any section of
title XIV for which regulations have not
been issued by January 21, 2013 shall
take effect on that date. This likely
would result in widely varying
approaches to compliance in the
absence of regulatory guidance, creating
confusion for consumers, and would
impose a significant burden on industry.
For example, this could result in a
consumer who shops for a mortgage
loan receiving different disclosures from
different creditors. Such disclosures
would not only be unhelpful to
consumers, but likely would be
confusing since the same disclosures
would be provided in widely different
ways. Moreover, implementing the title
XIV disclosures separately from the
integrated TILA–RESPA disclosure
would increase compliance costs and
burdens on industry. Nothing in the
Dodd-Frank Act itself or its legislative
history suggests that Congress
contemplated how the separate
requirements in titles X and XIV would
work together.111
Accordingly, and for the further
reasons set forth below, the Bureau
proposes to implement the Affected
Title XIV Disclosures by delaying those
requirements by temporarily exempting
entities from the requirement to comply
on January 21, 2013, until a final rule
implementing the integrated TILA–
RESPA disclosures take effect, pursuant
to the Bureau’s authority under TILA
section 105(a), RESPA section 19(a),
Dodd-Frank Act section 1032(a) and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b). 15 U.S.C. 1604(a);
12 U.S.C. 2617(a); 12 U.S.C. 5532(a); 15
U.S.C. 1601 note. Implementing the
Affected Title XIV Disclosures as part of
the broader integrated TILA–RESPA
rulemaking, rather than issuing rules
implementing each requirement
individually or allowing those statutory
provisions to take effect by operation of
law, will improve the overall
effectiveness of the integrated disclosure
for consumers and reduce burden on
industry. The Bureau will issue a final
111 Certain of the Affected Title XIV Disclosures
highlight that Congress did not intend for the title
XIV disclosure requirements and the integrated
TILA–RESPA disclosure to operate independently.
For example, Dodd-Frank Act section 1419
amended paragraphs (a)(16) through (19) of TILA
section 128 to require additional content on the
disclosure provided to consumers within three days
of application and in final form at or before
consummation. 15 U.S.C. 1638(a)(16) through (19).
Pursuant to TILA section 128(b)(1), for residential
mortgage transactions, all disclosures required by
TILA section 128(a) must be ‘‘conspicuously
segregated’’ from all other information provided in
connection with the transaction. 15 U.S.C.
1638(b)(1). Therefore, these sections are directly
implicated by the integrated TILA–RESPA
requirement.
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rule finalizing the proposed delay prior
to January 21, 2013.
Specifically, as set forth in the
section-by-section analysis to proposed
§ 1026.1(c), the Bureau proposes to
delay those requirements by temporarily
exempting entities from the requirement
to comply on January 21, 2013. This is,
in effect, a delay of the effective date of
the following statutory provisions:
• Warning regarding negative
amortization features. Dodd-Frank Act
section 1414(a); TILA section
129C(f)(1).112
• Disclosure of State law antideficiency protections. Dodd-Frank Act
section 1414(c); TILA section 129C(g)(2)
and (3).
• Disclosure regarding creditor’s
partial payment policy. Dodd-Frank Act
section 1414(d); TILA section 129C(h).
• Disclosure regarding mandatory
escrow accounts. Dodd-Frank Act
section 1461(a); TILA section 129D(h).
• Disclosure regarding waiver of
escrow at consummation. Dodd-Frank
Act section 1462; TILA section
129D(j)(1)(A).
• Disclosure of monthly payment,
including escrow, at initial and fullyindexed rate for variable-rate
transactions. Dodd-Frank Act section
1419; TILA section 128(a)(16).
• Repayment analysis disclosure to
include amount of escrow payments for
taxes and insurance. Dodd-Frank Act
section 1465; TILA 128(b)(4).
• Disclosure of settlement charges
and fees and the approximate amount of
the wholesale rate of funds. Dodd-Frank
Act section 1419; TILA section
128(a)(17).
• Disclosure of mortgage originator
fees. Dodd-Frank Act section 1419;
TILA section 128(a)(18).
• Disclosure of total interest as a
percentage of principal. Dodd-Frank Act
section 1419; TILA section 128(a)(19).
• Optional disclosure of appraisal
management company fee. Dodd-Frank
Act section 1475; RESPA section 4(c).
The Bureau is not proposing to delay
the effective date for the following
disclosure requirements found in title
XIV of the Dodd-Frank Act, and
therefore these provisions are not
Affected Title XIV Disclosures for
112 Dodd-Frank Act section 1414(a) also added to
TILA new section 129C(f)(2), which requires firsttime borrowers for certain residential mortgage
loans that could result in negative amortization to
provide the creditor with documentation to
demonstrate that the consumer received
homeownership counseling from organizations or
counselors certified by HUD. That provision is
implemented in the Bureau’s 2012 HOEPA
Proposal, which also implements the requirement
of RESPA section 5(c), added by section 1450 of the
Dodd-Frank Act, that lenders provide borrowers
with a list of certified homeownership counselors.
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purposes of this discussion. These
provisions will be implemented in
separate rulemakings, which are
expected to be proposed in summer
2012 and finalized by January 21, 2013,
with the specific effective dates set out
in the final rules for those specific
rulemakings.
• Disclosure regarding notice of reset
of hybrid adjustable rate mortgage.
Dodd-Frank Act section 1418(a); TILA
section 128A(a). The Bureau does not
propose to delay this requirement
because it applies, for the most part, to
the period after consummation.
• Loan originator identifier
requirement. Dodd-Frank section
1402(a)(2); TILA section 129B(b)(1)(B).
The Bureau does not propose to delay
this requirement because it applies
broadly to ‘‘loan documents.’’ In the
integrated TILA–RESPA final rule, the
Bureau will harmonize the loan
originator identifier provisions of this
proposal with the separate rulemaking
implementing TILA section
129B(b)(1)(B).
• Disclosure regarding waiver of
escrow after consummation. DoddFrank Act section 1462; TILA section
129D(j)(1)(B). The Bureau does not
propose to delay this requirement
because it applies to the period after
consummation and because it will be
implemented by final rule pursuant to
an outstanding proposal published by
the Board. 76 FR 11598 (Mar. 2, 2011).
• Consumer notification regarding
appraisals for higher-risk mortgages.
Dodd-Frank Act section 1471; TILA
section 129H(d). The Bureau does not
propose to delay this requirement
because it overlaps substantially with an
existing disclosure requirement under
ECOA (see below) and must be
implemented through an interagency
rulemaking. In the integrated TILA–
RESPA final rule, the Bureau plans to
harmonize the appraisal notification
provisions of this proposal with the
separate rulemaking implementing TILA
section 129H(d), so that once the
integrated form is finalized creditors
will be able to use the integrated forms
to satisfy the 129H(d) requirement.
• Consumer notification regarding the
right to receive an appraisal copy. DoddFrank Act section 1474; ECOA section
701(e)(5). The Bureau does not propose
to delay this requirement because it
replaces an existing disclosure
requirement under ECOA that is
typically provided separately from other
disclosures. In the integrated TILA–
RESPA final rule, the Bureau will
harmonize the provisions with the
separate rulemaking implementing
ECOA section 701(e)(5), so that once the
integrated form is finalized creditors
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will be able to use it to satisfy the ECOA
requirement.
As discussed in the section-by-section
analysis to proposed § 1026.19, the
integrated disclosure provisions of this
proposal apply to closed-end
transactions secured by real property,
other than reverse mortgages as defined
in § 1026.33(a). However, under the
statute, the Affected Title XIV
Disclosures vary in scope and are in
some cases broader than the scope of the
proposed integrated disclosure
provisions.113 For example, certain of
the Affected Title XIV Disclosures apply
to open-end credit plans,114 transactions
secured by dwellings that are not real
property,115 and/or reverse
mortgages,116 which are not the subject
of this rulemaking. However, because
the final scope of the integrated
disclosure provisions is not yet known,
the Bureau is proposing to delay the
Affected Title XIV Disclosures to the
fullest extent those requirements could
apply under the statutory provisions.
However, the Bureau also solicits
comment on whether the final rule
implementing the integrated disclosures
should implement the Affected Title
113 Except as described below, the Affected Title
XIV Disclosures apply to ‘‘residential mortgage
loans,’’ which are defined in TILA section
103(cc)(5). 15 U.S.C. 1602(cc)(5). TILA section
129C(f)(1) (requiring a negative amortization
warning) applies to open- or closed-end consumer
credit plans secured by a dwelling. 15 U.S.C.
1639c(f)(1). TILA section 129D(h) (disclosure
regarding mandatory escrow accounts) applies to
consumer credit transactions secured by a first lien
on the principal dwelling of the consumer, other
than open-end credit plans and reverse mortgages.
15 U.S.C. 1639d(h). TILA section 129D(j)(1)(A)
applies to consumer credit transactions secured by
real property. 15 U.S.C. 1639d(j)(1)(A). TILA section
128(b)(4) (requiring escrow amounts to be included
in the repayment analysis disclosure) applies to
consumer credit transactions secured by a first lien
on the consumer’s principal dwelling, other than
open-end plans or reverse mortgages. 15 U.S.C.
1638(b)(4). RESPA section 4(c) (permitting an
appraisal management fee disclosure) applies to
‘‘federally related mortgage loans.’’ 12 U.S.C.
2603(c). To the extent these statutory provisions do
not cover transactions that are within the scope of
the integrated disclosure provisions of this proposal
(e.g., vacant land), the Bureau is proposing to
modify the statutory requirements to cover those
transactions. See the section-by-section analysis to
proposed § 1026.19.
114 The following Affected Title XIV Disclosures
apply to open-end credit plans: TILA section
129C(f) (negative amortization warning); TILA
section 129D(j)(1)(A) (disclosure regarding waiver
of escrow at consummation); RESPA section 4(c)
(appraisal management company fee disclosure).
115 All of the Affected Title XIV Disclosures, other
than TILA section 129D(j)(1)(A) (disclosure
regarding waiver of escrow at consummation) and
RESPA section 4(c) (appraisal management
company fee disclosure), apply to transactions
secured by dwellings that are not real property.
116 All of the Affected Title XIV Disclosures, other
than TILA section 128(b)(4) (requiring repayment
analysis to include escrow) and TILA section
12D(h) (mandatory escrow or impound account
disclosure), apply to reverse mortgages.
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XIV Disclosures for open-end credit
plans, transactions secured by dwellings
that are not real property, and reverse
mortgages, as applicable, by requiring
creditors to comply with the proposed
provisions that implement those
disclosure requirements.
Improving Overall Effectiveness of
Disclosures
Issuing final rules implementing the
Affected Title XIV Disclosures at the
same time as the integrated TILA–
RESPA final rule will improve the
overall effectiveness of the integrated
disclosure. One of TILA’s primary
purposes is to ‘‘assure a meaningful
disclosure of credit terms * * * and
avoid the uninformed use of credit.’’
TILA section 102(a); 15 U.S.C. 1601(a).
Similarly, one purpose of RESPA is to
improve advance disclosure of
settlement costs. RESPA section 2(b)(1);
12 U.S.C. 2601(b)(1). As discussed
above, however, TILA, RESPA, and
current Regulations Z and X generally
require that consumers receive two
separate disclosures after applying for a
mortgage loan, and then receive two
additional separate disclosures prior to
closing on that loan. Concerns have
been raised that duplicative disclosures
may reduce consumer understanding of
mortgage loan transactions and increase
burden on industry. Thus, when viewed
together, the duplicative disclosures
required by TILA and RESPA may
inhibit consumers’ understanding of
their loans. Section 1032(f) of the DoddFrank Act addresses these concerns by
directing the Bureau to integrate these
disclosure requirements to improve
consumer understanding of mortgage
disclosures.
This same rationale supports delaying
the requirements of the Affected Title
XIV Disclosures until such time as the
Bureau issues a final rule implementing
the broader TILA–RESPA integration.
Incorporating the Affected Title XIV
Disclosures will enable the Bureau to
use the results of its consumer testing
and public feedback to develop forms
that include these pre-consummation
disclosures in a way that could improve
overall consumer understanding of
mortgage loan transactions.
Implementing the Affected Title XIV
Disclosures in isolation could have the
opposite effect, by multiplying the
number of individual disclosures that
consumers receive, thereby reducing the
likelihood that consumers will focus on
any of them.
Through consumer testing, the Bureau
has specifically examined how the
required disclosures should work
together on the integrated disclosure to
maximize consumer understanding. For
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example, in its consumer testing of the
integrated disclosures, the Bureau tested
and solicited public feedback on clauses
related to the Affected Title XIV
Disclosures to determine how the
language will be understood by
consumers, both separately and in the
context of the overall form.
The Bureau estimates that, by
incorporating Affected Title XIV
Disclosures that would otherwise be
provided separately, the total page
count for pre-consummation TILA and
RESPA disclosures would be reduced by
as much as 50 percent. The Bureau
believes that this reduction will not
only improve consumer understanding
of mortgage transactions, but also
facilitate compliance as discussed
below. Consumer testing also indicates
that some disclosures are either not
helpful or are detrimental to consumer
understanding; as discussed in the
section-by-section analysis below, the
Bureau proposes to use its authority to
modify these disclosures to enhance
consumer understanding.
Facilitating Compliance by Reducing
Regulatory Burden
As noted above, another purpose of
the integrated TILA–RESPA disclosure
is to facilitate compliance with the
requirements and purposes of those
statutes. TILA section 105(b); 15 U.S.C.
1604(b); RESPA section 4(a); 12 U.S.C.
2603(a). Delaying the effective date of
the Affected Title XIV Disclosures until
a rule implementing the integrated
TILA–RESPA disclosure is final will
further this purpose by reducing
regulatory burden. A substantial burden
would be imposed if entities were
required to revise their systems and
practices twice—once to comply with
the Affected Title XIV Disclosures and
again to comply with the final rule
integrating the TILA and RESPA
disclosures. Implementing the changes
twice would be particularly burdensome
because compliance with the Affected
Title XIV Disclosures will involve
modifying forms and systems, updating
compliance manuals, and training staff
regarding the new disclosures.
Implementing the Affected Title XIV
Disclosures as part of the integrated
TILA–RESPA rulemaking will reduce
regulatory burden by allowing entities
to adopt all the necessary changes at one
time. Implementing a single,
consolidated disclosure will also reduce
ongoing regulatory burden because an
integrated disclosure is less costly to
provide than a series of disclosures.
Legal Authority
For the reasons discussed above, the
Bureau proposes to exercise its
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authority under TILA section 105(a) and
(f), RESPA section 19(a), Dodd-Frank
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b) to, in effect, delay the effective
date of the Affected Title XIV
Disclosures by exempting regulated
entities from these provisions until a
final rule implementing Dodd-Frank Act
section 1032(f) takes effect. 15 U.S.C.
1604(a); 12 U.S.C. 2617(a); 12 U.S.C.
5532(a); 15 U.S.C. 1601 note. TILA
section 105(a) gives the Bureau
authority to adjust or except from the
disclosure requirements of TILA all or
any class of transactions to effectuate
the purposes of TILA or facilitate
compliance. As set forth above, delaying
the Affected Title XIV Disclosures until
such time as a final rule implementing
the integrated TILA–RESPA disclosures
takes effect achieves the purpose of
TILA to promote the informed use of
credit through a more effective,
consolidated disclosure, and facilitates
compliance by reducing regulatory
burden associated with revising systems
and practices multiple times and
providing multiple disclosures to
consumers.
The Bureau also proposes the
exemption pursuant to TILA section
105(f). The Bureau has considered the
factors in TILA section 105(f) and
believes that an exemption is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers.
As discussed above, the Bureau
believes that the exemption provides a
benefit to consumers through a more
effective, consolidated disclosure.
Absent an exemption, the Affected Title
XIV Disclosures would complicate and
hinder the mortgage lending process
because consumers would receive
inconsistent disclosures and, likely,
numerous additional pages of Federal
disclosures that do not work together in
a meaningful way. The Bureau also
believes that the cost of credit would be
increased if the Affected Title XIV
Disclosures take effect independent of
the larger TILA–RESPA integration
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because industry would be required to
revise systems and practices multiple
times. The Bureau has also considered
the status of mortgage borrowers in
issuing the proposed exemptions, and
believes the exemption is appropriate to
improve the informed use of credit. The
Bureau does not believe that the goal of
consumer protection would be
undermined by the exemption, because
of the risk that layering the Affected
Title XIV Disclosures on top of existing
mandated disclosures would lead to
consumer confusion. The exemption
allows the Bureau to coordinate the
changes in a way that improves overall
consumer understanding of the
disclosures.
RESPA section 19(a) provides the
Bureau with authority to grant
exemptions from the requirements of
RESPA as necessary to achieve the
purposes of RESPA. As discussed above,
one purpose of RESPA is to achieve
more effective advance disclosure to
home buyers and sellers of settlement
costs. RESPA section 2(b)(1); 12 U.S.C.
2601(b). Delaying the Affected Title XIV
Disclosures until such time as a final
rule implementing the integrated TILA–
RESPA disclosures takes effect will
result in a more effective disclosure and
improve consumer understanding and
will facilitate compliance by reducing
regulatory burden, as discussed above.
In addition, section 1405(b) of the
Dodd-Frank Act gives the Bureau
authority to exempt from or modify
disclosure requirements for any class of
residential mortgage loans if the Bureau
determines that the exemption or
modification is in the interest of
consumers and the public. As discussed
above, implementing the Affected Title
XIV Disclosures with the integrated
TILA–RESPA disclosure is in the
interest of consumers because it allows
the Bureau to coordinate the changes in
a way that improves overall consumer
understanding of the disclosures.
Further, implementing the Affected
Title XIV Disclosures as part of the
integrated disclosure rulemaking is in
the public interest because it produces
a more efficient regulatory scheme by
incorporating multiple, potentially
confusing disclosures into clear and
understandable forms through consumer
testing.
Finally, consistent with section
1032(a) of the Dodd-Frank Act,
implementing the Affected Title XIV
Disclosures together with the integrated
disclosure would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
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benefits, and risks associated with the
product or service, in light of the facts
and circumstances. The Bureau believes
that implementing a single,
consolidated disclosure will benefit
consumers and facilitate compliance
with TILA and RESPA. For these
reasons, the Bureau is proposing to
delay the Affected Title XIV Disclosures
until the Bureau issues a final rule
implementing the integrated TILA–
RESPA disclosure required by section
1032(f) of the Dodd-Frank Act.
The Bureau is proposing to
implement the Affected Title XIV
Disclosures in § 1026.1(c), which is
discussed further in the section-bysection analysis below. This proposal,
therefore, incorporates the Affected
Title XIV Disclosures as part of the
integrated disclosure. The Bureau views
proposed § 1026.1(c) as prescribing the
required rules in final form pursuant to
Dodd-Frank Act section 1400(c)(1)(A)
and the effective date of the final rule
implementing the delay of the Affected
Title XIV Disclosures as satisfying
Dodd-Frank Act section 1400(c)(1)(B).
The Bureau plans to issue a final rule
implementing this exemption before the
statutory provisions take effect in
January 2013. For this reason, the
Bureau is providing a comment period
of 60 days for the proposed amendments
to § 1026.1(c), rather than the 120-day
comment period provided for all other
aspects of this proposed rule other than
§ 1026.4, to permit the Bureau to
evaluate comments received in response
to this aspect of the proposal before
issuing a final rule. The Bureau plans to
issue a final notice that would remove
this regulatory exemption at the time a
final rule implementing the integrated
TILA–RESPA disclosure takes effect, but
solicits comment on whether the
regulatory exemption should sunset on
a specific date.
C. Potential Exemptions from Disclosure
Requirements
As discussed in part III, above, one of
the Bureau’s primary considerations in
developing the integrated disclosures
was to minimize the risk of information
overload and enhance consumers’
overall understanding of mortgage loan
and real estate transactions. To that end,
the integrated disclosures highlight
information that is important to
consumers in comparing and evaluating
mortgage loans and deemphasize
information that is secondary to
consumer understanding. In addition, as
discussed in the section-by-section
analysis, below, the Bureau is proposing
to use its exemption and modification
authority to exempt transactions subject
to proposed § 1026.19(e) and (f) from
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certain disclosure requirements that
consumer testing and research indicate
are confusing and unhelpful to
consumers. Specifically, the Bureau is
proposing to use its authority under
TILA section 105(a) and (f), Dodd-Frank
Act section 1032(a) and, for residential
mortgage loans, Dodd-Frank Act section
1405(b) to omit from the Loan Estimate
provided three business days after
receipt of the consumer’s application:
the amount financed (TILA section
128(a)(2)), the finance charge (TILA
section 128(a)(3)), a statement that the
creditor is taking a security interest in
the consumer’s property (TILA section
128(a)(9)), a statement that the
consumer should refer to the
appropriate contract document for
information about their loan (TILA
section 128(a)(12)), a statement
regarding certain tax implications (TILA
section 128(a)(15)), and the creditor’s
cost of funds (TILA section 128(a)(17)).
See the section-by-section analysis to
proposed § 1026.37(l). Although the
Bureau is generally proposing to require
these disclosures on the Closing
Disclosure provided three business days
prior to consummation, the Bureau is
alternatively proposing to use its
exemption and modification authority
to omit the creditor’s cost of funds
disclosure (TILA section 128(a)(17)) and
the total interest percentage disclosure
(TILA section 128(a)(19)) from both the
Loan Estimate and the Closing
Disclosure. See the section-by-section
analysis to proposed §§ 1026.37(l) and
1026.38(o).
For these same reasons, the Bureau
solicits comment on additional
disclosures that appear on the integrated
disclosures that are unhelpful or
potentially confusing to consumers and
whether the Bureau should use its
authority under TILA section 105(a) and
(f), Dodd-Frank Act section 1032(a) and,
for residential mortgage loans, DoddFrank Act section 1405(b) to exempt
transactions subject to proposed
§ 1026.19(e) and (f) from any such
disclosure requirements. The Bureau
believes exempting transactions from
those disclosure requirements would
promote the informed use of credit and
facilitate compliance, consistent with
TILA section 105(a). For the same
reasons, the Bureau believes such
exemptions would be appropriate under
TILA section 105(f) for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them, and for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer and
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would simplify the credit process
without undermining the goal of
consumer protection or denying
important benefits to consumers. Any
such exemption would also ensure that
the features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
the mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
would improve consumer awareness
and understanding of residential
mortgage loans, which is in the interest
of consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
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VI. Section-by-Section Analysis
As discussed above, TILA’s mortgage
disclosure requirements are currently
implemented in Regulation Z, whereas
RESPA’s mortgage disclosure
requirements are currently implemented
in Regulation X. Regulation Z contains
detailed regulations and guidance
regarding disclosures for mortgage
transactions, whereas Regulation X
largely relies on the GFE and HUD–1
forms. The Bureau understands that the
additional detail in Regulation Z
facilitates compliance by industry,
which is one of the goals of this
rulemaking.117 Accordingly, the Bureau
is proposing to establish the integrated
disclosure requirements in Regulation
Z, while making conforming and other
amendments to Regulation X.118
However, as discussed above, the
Bureau solicits comment on whether the
level of detail in the proposed
regulations and guidance (including the
number of examples illustrating what is
and is not permitted) will make
compliance more, rather than less,
burdensome and whether the Bureau
should adopt a less prescriptive
approach in the final rule.
As discussed in detail below with
respect to proposed § 1026.19, certain
mortgage transactions that are subject to
TILA are not subject to RESPA and vice
versa. As proposed, the integrated
mortgage disclosures would apply to
most closed-end consumer credit
117 For example, the small financial service
providers who advised the Small Business Review
Panel stated that ambiguity in the application or
interpretation of the current RESPA disclosure
requirements produces substantial costs in the form
of legal fees, staff training, and, for settlement
agents, preparing forms differently for different
lenders. To address this concern, these providers
generally requested that the Bureau provide clear
guidance on how to fill out the forms, similar to
that currently provided in Regulation Z. See Small
Business Review Panel Report at 19–20.
118 The Bureau is proposing to retain established
regulatory terminology in Regulations X and Z for
consistency.
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transactions secured by real property.
Certain types of loans that are currently
subject to TILA but not RESPA
(construction-only loans and loans
secured by vacant land or 25 or more
acres) would be subject to the proposed
integrated disclosure requirements,
whereas others (such as mobile home
loans and other loans that are secured
by a dwelling but not real property)
would remain solely subject to the
existing Regulation Z disclosure
requirements. Reverse mortgages are
excluded from coverage of the proposed
integrated disclosures and would
therefore remain subject to the current
Regulation X and Z disclosure
requirements until the Bureau addresses
those unique transactions in a separate,
future rulemaking. Finally, consistent
with the current rules under TILA, the
integrated mortgage disclosures would
not apply to mortgage loans made by
persons who are not ‘‘creditors’’ as
defined by Regulation Z (such as
persons who make five or fewer
mortgage loans in a year), although such
loans would continue to be subject to
RESPA.
A. Regulation X
Section 1024.5 Coverage of RESPA
5(a) Applicability
For the reasons discussed below
under proposed § 1024.5(c), the Bureau
is proposing to use its authority under
RESPA section 19(a) and, for residential
mortgage loans, Dodd-Frank Act section
1405(b) to exempt certain transactions
from the existing RESPA GFE and
RESPA settlement statement
requirements of Regulation X. The
Bureau therefore is proposing a
conforming amendment to § 1024.5(a) to
reflect these partial exemptions
pursuant to the same authority.
5(b) Exemptions
5(b)(1)
Section 1024.5(b)(1) currently
exempts from the coverage of RESPA
and Regulation X loans on property of
25 acres or more. The Bureau believes
that most loans that fall into this
category are separately exempt under a
provision excluding extensions of credit
primarily for business, commercial, or
agricultural purposes, set forth in
§ 1024.5(b)(2). Accordingly, the Bureau
proposes to exercise its authority under
RESPA section 19(a) and, for residential
mortgage loans, Dodd-Frank Act section
1405(b) to eliminate the Regulation X
exemption. This amendment will render
the TILA and RESPA regimes more
consistent, which promotes more
effective advance disclosure of
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51137
settlement costs (which is a purpose of
RESPA). In addition, this consistency
will improve consumer awareness and
understanding of transactions involving
residential mortgage loans and is
therefore in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b). Because it is
unclear whether any mortgages are
exempt based solely on § 1024.5(b)(1),
the Bureau solicits comment on the
number of loans that may be affected by
this aspect of the proposal and any
reasons for any continued exemption of
loans on property of 25 acres or more.
5(c) Partial Exemptions for Certain
Mortgage Loans
As discussed further below, the
Bureau proposes to exercise its
authority under RESPA section 19(a),
Dodd-Frank Act section 1032(a) and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b) to add new
§ 1024.5(c), which would exempt two
types of federally related mortgage loans
from coverage of the RESPA settlement
cost booklet, GFE, and settlement
statement requirements of §§ 1024.6,
1024.7, 1024.8, and 1024.10. This
partial exemption would apply to: (1)
federally related mortgage loans that are
subject to the integrated disclosures the
Bureau is proposing in Regulation Z
§ 1026.19(e) and (f) and (2) federally
related mortgage loans that satisfy
specified criteria associated with certain
housing assistance loan programs for
low- and moderate-income persons. As
described further below, these
exemptions are designed to create
consistency with the integrated
disclosures under Regulation Z and to
codify a disclosure exemption
previously granted by HUD. However,
the exemptions would retain coverage of
affected loans for all other requirements
of Regulation X, such as the servicing
requirements in RESPA section 6,
prohibitions on referral fees and
kickbacks in RESPA section 8, and
limits on amounts to be deposited in
escrow accounts in RESPA section 10.
5(c)(1)
Pursuant to the authority discussed
above, proposed § 1024.5(c)(1) exempts
from the RESPA settlement cost booklet,
GFE, and settlement statement
requirements of §§ 1024.6, 1024.7,
1024.8, and 1024.10 federally related
mortgage loans that are subject to the
special disclosure requirements for
certain consumer credit transactions
secured by real property set forth in
Regulation Z, under proposed
§ 1026.19(e) and (f). As discussed in
detail below, proposed § 1026.19(e) and
(f) establishes the integrated disclosures
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for compliance both with sections 4 and
5 of RESPA and with TILA disclosures
required for mortgage transactions, as
mandated by section 1032(f) of the
Dodd-Frank Act. Accordingly,
compliance with §§ 1024.6, 1024.7,
1024.8, and 1024.10 is unnecessary for
transactions that are subject to
§ 1026.19(e), (f) and (g) of Regulation Z.
Because proposed § 1026.19(e) and (f)
governs all closed-end transactions
secured by real property other than
reverse mortgages, the only federally
related mortgage loans that will
continue to comply with the Regulation
X GFE and settlement statement
requirements are reverse mortgages. The
Bureau plans to address the disclosure
requirements for reverse mortgages in a
separate later rulemaking, at which time
the Bureau may revise or eliminate the
remaining disclosure provisions in
Regulation X.
5(c)(2)
Proposed § 1024.5(c)(2) exempts from
the RESPA settlement cost booklet, GFE,
and settlement statement requirements
of §§ 1024.6, 1024.7, 1024.8, and
1024.10 federally related mortgage loans
that satisfy several criteria associated
with certain housing assistance loan
programs for low- and moderate-income
persons. This provision cross-references
proposed 12 CFR 1026.3(h), which
codifies an exemption issued by HUD
on October 6, 2010.119 Under the HUD
exemption, lenders need not provide the
GFE and settlement statement when six
prerequisites are satisfied: (1) the loan is
secured by a subordinate lien; (2) the
loan’s purpose is to finance
downpayment, closing costs, or similar
homebuyer assistance, such as principal
or interest subsidies, property
rehabilitation assistance, energy
efficiency assistance, or foreclosure
avoidance or prevention; (3) interest is
not charged on the loan; (4) repayment
of the loan is forgiven or deferred
subject to specified conditions; (5) total
settlement costs do not exceed one
percent of the loan amount and are
limited to fees for recordation,
application, and housing counseling;
and (6) the loan recipient is provided at
or before settlement with a written
disclosure of the loan terms, repayment
conditions, and costs of the loan.
In granting this partial exemption,
HUD invoked its authority under
RESPA section 19(a) to grant
‘‘reasonable exemptions for classes of
transactions, as may be necessary to
achieve the purposes of [RESPA].’’ HUD
determined that, for transactions
119 See https://portal.hud.gov/hudportal/
documents/huddoc?id=DOC_14574.pdf.
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meeting the criteria listed above, the
RESPA GFE and settlement statement
forms would be difficult to complete in
a meaningful way and would be likely
to confuse consumers who received
them. Moreover, because of the limited,
fixed fees involved with such
transactions, the comparison shopping
purpose of the GFE would not be
achieved. Finally, the alternative
written disclosure required as a
prerequisite of the exemption would
ensure that consumers understand the
loan terms and settlement costs charged.
To facilitate compliance, the Bureau is
proposing to codify this exemption in
Regulations X and Z for the same
reasons and under the same authority as
cited by HUD. In addition, the Bureau
relies on its authority under Dodd-Frank
Act section 1405(b) because the
proposed exemption will improve
consumer awareness and understanding
of transactions due to these same
concerns discussed involving
residential mortgage loans in the
identified class of transactions and is
therefore in the interest of consumers
and the public.
The Bureau is proposing to adopt this
exemption with the same prerequisites
established by HUD. The Bureau seeks
comment, however, on whether the
same rationale for the exemption still
would exist regardless of lien position
and, therefore, the subordinate lien
position should be eliminated as a
requirement for the exemption. The
Bureau also seeks comment concerning
the prerequisite that the loan contract
not ‘‘require the payment of interest.’’
As noted above, the exemption as issued
by HUD requires that the loan ‘‘carr[y]
an interest rate of -0- percent.’’ This
wording may be interpreted narrowly to
refer only to the rate of interest stated
in the note or loan contract but not to
other requirements or features that may
serve as interest substitutes. For
example, such a narrow reading would
mean that loans requiring private
mortgage insurance or loans having
shared-equity or shared-appreciation
features could qualify for this
exemption, provided the note recites an
interest rate of zero percent. The
Bureau’s wording, on the other hand,
could be interpreted as disallowing such
requirements and features because they
are essentially interest substitutes. The
Bureau therefore seeks comment on
whether such requirements and features
should be considered ‘‘interest’’ and,
therefore, should be impermissible for
loans seeking to qualify for this partial
exemption. In addition, the Bureau
seeks comment on other types of loan
requirements and features that should
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be similarly deemed ‘‘interest’’ for
purposes of this partial exemption.
Alternatively, the Bureau seeks
comment on whether this provision
should be eliminated.
Appendix A—Instructions for
Completing HUD–1 and HUD–1A
Settlement Statements; Sample HUD–1
and HUD–1A Statements
As previously discussed, the Bureau
proposes to require creditors to use the
integrated Closing Disclosure required
by §§ 1026.19(f) and 1026.38 to satisfy
the disclosure requirements under
RESPA section 4 for most closed-end
transactions covered by RESPA, except
for reverse mortgage transactions.
Currently, the manner in which reverse
mortgage transactions are disclosed on
the HUD–1 or HUD–1A under appendix
A of Regulation X is a source of
confusion for creditors. HUD attempted
to clarify the use of the RESPA
settlement disclosure in reverse
mortgage transactions by issuing
frequently-asked questions, the HUD
RESPA FAQs, the most recent of which
was released on April 2, 2010. The
Bureau proposes to exercise its
authority under RESPA section 19(a) to
modify appendix A of Regulation X to
incorporate the guidance provided by
the HUD RESPA FAQs because, under
the proposed rule, the closing of reverse
mortgage transactions will continue to
be disclosed using the RESPA
settlement statement. The proposed
revisions can be found in the
instructions for lines 202, 204 and page
3, loan terms.
The Bureau believes that adopting
this guidance will improve the
effectiveness of the disclosures when
used for reverse mortgages, thereby
reducing industry confusion and
advancing the purpose of RESPA to
provide more effective advanced
disclosure of settlement costs to both
the consumer and the seller in the real
estate transaction, consistent with
RESPA section 19(a).
Appendix B—Illustrations of
Requirements of RESPA
Appendix B to part 1024 contains
illustrations of requirements under
RESPA. Illustration 12 provides a
factual situation where a mortgage
broker provides origination services to
submit a loan to a lender for approval.
The mortgage broker charges the
borrower a uniform fee for the total
origination services, as well as a direct
up-front charge for reimbursement of
credit reporting, appraisal services, or
similar charges. To address this factual
situation, illustration 12 provides a
comment that: the mortgage broker’s fee
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must be itemized in the Good Faith
Estimate and on the HUD–1 Settlement
Statement; other charges that are paid
for by the borrower and paid in advance
of consummation are listed as paid
outside closing on the HUD–1
Settlement Statement, and reflect the
actual provider charge for such services;
and any other fee or payment received
by the mortgage broker from either the
lender or the borrower arising from the
initial funding transaction, including a
servicing release premium or yield
spread premium, is to be noted on the
Good Faith Estimate and listed in the
800 series of the HUD–1 Settlement
Statement.
Subsequent to the guidance provided
in illustration 12, Regulation Z
§ 1026.36(d)(2) was adopted. Section
1026.36(d)(2) states:
If any loan originator receives
compensation directly from a consumer in a
consumer credit transaction secured by a
dwelling: (i) No loan originator shall receive
compensation, directly or indirectly, from
any person other than the consumer in
connection with the transaction; and (ii) No
person who knows or has reason to know of
the consumer-paid compensation to the loan
originator (other than the consumer) shall
pay any compensation to a loan originator,
directly or indirectly, in connection with the
transaction.
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The last sentence in illustration 12
clearly contemplates the loan originator,
a mortgage broker, receiving
compensation from the lender as well as
the borrower, which therefore describes
a factual situation prohibited by
§ 1026.36(d)(2). Accordingly, for
consistency with § 1026.36(d)(2), the
Bureau proposes to exercise its
authority under RESPA section 19(a) to
delete the last sentence of the comment
provided in illustration 12 in Appendix
B to part 1024.
Appendix C—Instructions for
Completing Good Faith Estimate (GFE)
Form
As previously discussed, the Bureau
proposes to require creditors to use the
integrated loan estimate required by
§§ 1026.19(e) and 1026.37 to satisfy the
disclosure requirements under RESPA
section 5 for most closed-end
transactions covered by RESPA, except
for reverse mortgage transactions.
Currently, the manner in which reverse
mortgage transactions are disclosed on
the RESPA GFE under appendix C of
Regulation X is a source of confusion for
creditors. HUD clarified the use of the
RESPA GFE in reverse mortgage
transactions in the HUD RESPA FAQs.
The Bureau proposes to exercise its
authority under RESPA section 19(a) to
modify appendix C of Regulation X to
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incorporate the guidance provided by
the HUD RESPA FAQs because, under
the proposed rule, reverse mortgage
transactions will continue to be
disclosed using the RESPA GFE. The
proposed revisions can be found in the
instructions for the ‘‘Summary of your
loan’’ and ‘‘Escrow account
information’’ sections. The Bureau
believes that these revisions satisfy the
purpose of RESPA to provide more
effective advanced disclosure of
settlement costs to both the consumer
and the seller in the real estate
transaction.
Section 1026.1 Authority, Purpose,
Coverage, Organization, Enforcement,
and Liability
The Bureau is proposing conforming
amendments to § 1026.1 to reflect the
fact that, under this proposal,
Regulation Z implements not only TILA,
but also certain provisions of RESPA.
The details of the regulatory
implementation of these statutory
requirements are discussed below,
under the applicable sections of
Regulation Z. To reflect the expanded
statutory scope of Regulation Z, the
proposed conforming amendments
revise § 1026.1(a) (authority), (b)
(purpose), (d)(5) (organization of subpart
E), and (e) (enforcement and liability) to
include references to the relevant
provisions of RESPA.
1(c) Coverage
As discussed in part V.B, the Bureau
is proposing to exempt persons
temporarily from the disclosure
requirements of sections 128(a)(16)
through (19), 128(b)(4), 129C(f)(1),
129C(g)(2) and (3), 129C(h), 129D(h),
and 129D(j)(1)(A) of TILA and section
4(c) of RESPA, until regulations
implementing the integrated disclosures
required by section 1032(f) of the DoddFrank Act take effect. 15 U.S.C.
1638(a)(16)–(19), 1638(b)(4), 1639c(f)(1),
1639c(g), 1639c(h), 1639d(h), and
1639d(j)(1)(A); 12 U.S.C. 2604(c); 12
U.S.C. 5532(f). Proposed § 1026.1(c)(5)
implements this exemption by stating
that no person is required to provide the
disclosures required by the statutory
provisions listed above. Proposed
comment 1(c)(5)–1 explains that
§ 1026.1(c)(5) implements the abovelisted provisions of TILA and RESPA
added by the Dodd-Frank Act by
exempting persons from the disclosure
requirements of those sections. The
comment clarifies that the exemptions
provided in proposed § 1026.1(c)(5) are
intended to be temporary and will apply
only until compliance with the
regulations implementing the integrated
disclosures required by section 1032(f)
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of the Dodd-Frank Act become
mandatory. Proposed comment 1(c)(5)–
1 also clarifies that the exemption in
proposed § 1026.1(c)(5) does not exempt
any person from any other requirement
of Regulation Z, Regulation X, or of
TILA or RESPA. For the reasons
discussed in part V.B, the Bureau is
providing a comment period of 60 days
for the proposed amendments to
§ 1026.1(c). In addition, as discussed
above in part V.B, the Bureau requests
comment on whether the exemptions
provided in proposed § 1026.1(c)(5)
should expire after a specified period of
time.
Section 1026.2 Definitions and Rules
of Construction
2(a) Definitions
2(a)(3) Application
Background
Neither TILA nor RESPA defines the
term ‘‘application.’’ Although
Regulation Z does not define this term,
for the good faith estimate disclosures
currently required by § 1026.19(a),
Regulation Z incorporates the
Regulation X definition. See comment
19(a)(1)(i)–3. Section 1024.2(b) of
Regulation X defines application as ‘‘the
submission of a borrower’s financial
information in anticipation of a credit
decision relating to a federally related
mortgage loan, which shall include the
borrower’s name, the borrower’s
monthly income, the borrower’s social
security number to obtain a credit
report, the property address, an estimate
of the value of the property, the
mortgage loan amount sought, and any
other information deemed necessary by
the loan originator.’’ 12 CFR 1024.2(b).
This definition, adopted as part of
HUD’s 2008 RESPA Final Rule, was
intended to ensure that consumers
received a RESPA GFE containing
reliable estimates of settlement costs
early in the process of shopping for a
mortgage loan.
However, in response to concerns that
a narrow definition of application might
inhibit preliminary underwriting, the
definition adopted by HUD includes
seven elements, one of which is ‘‘any
other information deemed necessary by
the loan originator.’’ HUD added this
‘‘catch-all’’ element to enable creditors
to collect any additional information
deemed necessary to underwrite a loan.
Concerns With the Current Definition
Under Regulation X
While the Bureau believes that
creditors should be able to collect
information in addition to the six
elements, the Bureau is concerned that
the seventh catch-all element may
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permit creditors to delay providing
consumers with the integrated Loan
Estimate. One primary purpose of the
integrated Loan Estimate is to inform
consumers of the cost of credit when
they have bargaining power to negotiate
for better terms and time to compare
other financing options. It is vital,
however, that creditors be able to collect
the information necessary to originate
loans in a safe and sound manner. The
Bureau does not believe that these
principles conflict. The definition of
application does not define or limit
underwriting; it instead establishes a
point in time at which disclosure
obligations begin.
Based on this premise, the definition
of ‘‘application’’ should facilitate
consumers’ ability to receive reliable
estimates early in the loan process, but
should not restrict a creditor’s ability to
determine which information is
necessary for sound underwriting.
Removing the catch-all element from the
definition under Regulation X may
ensure that the disclosures are received
both early in the loan process and based
on the information most critical to
providing reliable estimates. Consumers
would be able to receive the disclosures
as soon as consumers provide creditors
with the information needed for reliable
estimation. Creditors would be able to
collect whatever information is, in the
creditor’s view, necessary for a
reasonably reliable estimate, provided
that it collects the additional
information prior to collecting the six
pieces of information specified in
proposed § 1026.2(a)(3)(ii), which are
the consumer’s name, income, and
social security number to obtain a credit
report, as well as the property address,
an estimate of the value of the property,
and the mortgage loan amount sought.
For example, if a creditor believes that
a reliable estimate cannot be provided
without information related to the
consumer’s combined current liabilities,
the creditor may collect this
information, provided that it does so
prior to, or at the same time as,
collecting the six pieces of information
specified in § 1026.2(a)(3)(ii). The
Bureau acknowledges that creditors
could strategically order information
collection in a manner that best suits the
needs of the creditor. Even if the
creditor did so, the Bureau believes that
the definition would enable the
consumers to receive the disclosures
early in the loan process. This approach
may also ensure that consumers are not
required to disclose sensitive
information, such as the consumer’s
social security number or income, until
after the creditor collects less sensitive
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information. Thus, removing the
seventh catch-all element, while
preserving creditors’ ability to collect
any additional necessary information,
may strike the appropriate balance
between the needs of consumers and the
needs of industry.
This approach also dovetails with the
requirements of proposed § 1026.19(e)
establishing limitations on fee increases
for the purposes of determining good
faith, but which are subject to several
exceptions, including exceptions based
on the information the creditor relied on
in disclosing the estimated loan costs.
Thus, the proposed definition of
application, by requiring creditors to
collect any additional information prior
to collecting the six pieces of
information specified in
§ 1026.2(a)(3)(ii), maintains creditors’
current flexibility in deciding which
additional information is necessary for
providing estimates. For example, if a
creditor chooses to collect a consumer’s
combined liability information prior to
collecting the six pieces of information
specified in § 1026.2(a)(3)(ii), the
disclosures provided pursuant to
§ 1026.19(e) may reflect such
information. If the consumer’s
combined liabilities subsequently
increase, the creditor may issue a
revised disclosure reflecting the change
in information relied upon in providing
the original disclosure. If a different
creditor chooses to rely on only the six
pieces of information specified in
§ 1026.2(a)(3)(ii) in providing the
disclosures, but during underwriting
information related to the consumer’s
combined liabilities is discovered, and
such information requires a revision in
loan terms, the creditor may issue a
revised disclosure reflecting such new
information not previously relied on in
providing the disclosures. But neither
creditor may delay providing consumers
with the disclosures in the first instance
by claiming that additional information
related to the consumer’s combined
liabilities is required after the consumer
has provided the six pieces of
information specified in
§ 1026.2(a)(3)(ii). Thus, removal of the
seventh catch-all element may achieve
the same outcome from the creditor’s
perspective as under the current
Regulation X definition, while
inhibiting the ability of creditors to
delay providing consumers with the
disclosures. This approach has the
added benefit of being a uniform
standard for disclosure obligations
across all creditors, which facilitates
compliance and supervision.
Accordingly, pursuant to its authority
under section 105(a) of TILA and 19(a)
of RESPA, the Bureau is proposing to
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add § 1026.2(a)(3)(i) to define
‘‘application’’ as the submission of a
consumer’s financial information for the
purposes of obtaining an extension of
credit. Proposed § 1026.2(a)(3)(ii)
provides that, except for purposes of
subpart B, subpart F, and subpart G, the
term consists of the consumer’s name,
income, and social security number to
obtain a credit report, and the property
address, an estimate of the value of the
property, and the mortgage loan amount
sought. For the reasons discussed above,
removal of the seventh catch-all element
from the definition of application may
help carry out the purposes of TILA by
promoting the informed use of credit
and achieve the purposes of RESPA by
promoting more effective advance
disclosure of settlement costs by
encouraging creditors to provide
consumers with good faith estimates of
loan terms and costs earlier in the
process.
The Bureau has received feedback,
including a comment received in
response to the 2011 Streamlining
Proposal, requesting a single definition
of ‘‘application’’ under Regulation Z,
Regulation B (which implements the
Equal Credit Opportunity Act), and
Regulation C (which implements the
Home Mortgage Disclosure Act). The
Bureau recognizes the potential
consistency benefits of a single
definition. However, for the reasons
discussed above, the Bureau believes
that the proposed definition provides
important benefits to consumers in this
context.
During the Small Business Panel
Review process, several small entity
representatives expressed concern about
eliminating the seventh prong of the
definition of application currently
under Regulation X. See Small Business
Review Panel Report at 33–34, 49, and
67. Based on this feedback and
consistent with the recommendation of
the Small Business Review Panel, the
Bureau solicits comment on what, if
any, additional specific information
beyond the six items included under the
proposed definition of application is
needed to provide a reasonably accurate
Loan Estimate. See id. at 29.
The proposed definition of
application consists of two parts. The
first part establishes a broad definition
for all of Regulation Z. The second part
provides that an application consists of
six elements of data. These elements,
which are currently set forth in the
definition of application in Regulation
X, have an established significance in
the context of closed-end loans secured
by real property, but may be less
significant or even inapplicable to other
types of credit. Thus, these six elements
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do not apply to Subpart B (open-end
loans), Subpart F (student loans), and
Subpart G (special rules for credit card
accounts and open-end credit offered to
college students).
Proposed comment 2(a)(3)–1 explains
that a consumer’s submission of
financial information is for purposes of
obtaining an extension of credit. A
creditor is free to collect information in
addition to that listed in
§ 1026.2(a)(3)(ii) that it deems necessary
in connection with the request for the
extension of credit. However, once a
creditor has received the six listed
pieces of information, it has an
application for purposes of
§ 1026.2(a)(3). The proposed comment
also contains illustrative examples of
this provision.
Proposed comment 2(a)(3)–2 clarifies
that, if a consumer does not have a
social security number, the creditor may
instead request whatever unique
identifier the creditor uses to obtain a
credit report. For example, a creditor
has obtained a social security number to
obtain a credit report for purposes of
§ 1026.2(a)(3)(ii) if the creditor collects
a Tax Identification Number from a
consumer who does not have a social
security number, such as a foreign
national. This comment is consistent
with guidance provided by HUD in the
HUD RESPA FAQs p. 7, #14 (‘‘GFE—
General’’).
Proposed comment 2(a)(3)–3 clarifies
that the creditor’s receipt of a credit
report fee does not affect whether an
application has been received. Section
1026.19(a)(1)(iii) permits the imposition
of a fee to obtain the consumer’s credit
history prior to the delivery of the
disclosures required under
§ 1026.19(a)(1)(i). Section
1026.19(e)(2)(i)(B) permits the
imposition of a fee to obtain the
consumer’s credit report prior to the
delivery of the disclosures required
under § 1026.19(e)(1)(i). Whether, or
when, such fees are received is
irrelevant for the purposes of the
definition in § 1026.2(a)(3) and the
timing requirements in § 1026.19(a)(1)(i)
and (e)(1)(iii). For example, if, in a
transaction subject to § 1026.19(e)(1)(i),
a creditor receives the six pieces of
information identified under
§ 1026.2(a)(3)(ii) on Monday, June 1, but
does not receive a credit report fee from
the consumer until Tuesday, June 2, the
creditor does not comply with
§ 1026.19(e)(1)(iii) if it provides the
disclosures required under
§ 1026.19(e)(1)(i) after Thursday, June 4.
The three-business-day period beings on
Monday, June 1, the date the creditor
received the six pieces of information.
The waiting period does not begin on
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Tuesday, June 2, the date the creditor
received the credit report fee.
2(a)(6) Business Day
Although neither RESPA nor TILA
defines ‘‘business day,’’ that term is
defined in Regulations X and Z. Both
Regulation X § 1024.2(b) and Regulation
Z § 1026.2(a)(6) generally define
‘‘business day’’ to mean a day on which
the offices of the creditor or other
business entity are open to the public
for carrying on substantially all of the
entity’s business functions. For certain
provisions of Regulation Z, however, an
alternative definition applies. Under
this definition, ‘‘business day’’ means
all calendar days except Sundays and
the legal public holidays specified in 5
U.S.C. 6103(a), i.e., New Year’s Day, the
Birthday of Martin Luther King, Jr.,
Washington’s Birthday, Memorial Day,
Independence Day, Labor Day,
Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
The alternative definition of business
day applies to, among other things, the
three-business-day limitation on the
imposition of fees in § 1026.19(a)(1)(ii)
and the three- and seven-business-day
waiting periods in § 1026.19(a)(2). As
discussed below, the Bureau is
proposing to amend § 1026.19 to
implement the integrated disclosure
requirement in section 1032(f) of the
Dodd-Frank Act by adding new
paragraphs (e) and (f). Accordingly, for
consistency and to facilitate compliance
with TILA, the Bureau is proposing to
use its authority under TILA section
105(a) to amend § 1026.2(a)(6) to apply
the alternative definition of business
day to the provisions of paragraphs (e)
and (f) that are analogous to
§ 1026.19(a)(1)(i), (a)(1)(ii), and (a)(2).
The Bureau also proposes conforming
amendments to comment 2(a)(6)–2.
The Bureau recognizes that this issue
was previously raised during the
Board’s 2008–2009 MDIA rulemaking.
See 73 FR 74989 at 74991 (Dec. 10,
2008) and 74 FR 23289 at 23293–23294
(May 19, 2009). However, the Bureau
believes that applying the alternative
definition of business day to the
integrated disclosures would facilitate
compliance. The Bureau solicits
feedback regarding whether the general
definition of business day instead
should apply to the integrated
disclosure delivery requirements. The
Bureau also solicits comment on
whether the rules should be analogous
to the current rules, where the general
business day requirement applies to
some requirements and the alternative
business day requirement applies to
other requirements. Finally, the Bureau
seeks feedback regarding whether the
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business day usage under current
§ 1026.19(a) should remain, or if
§ 1026.19(a) should be modified to use
a single definition of business day
consistent with proposed § 1026.19(e)
and (f).
2(a)(17) Creditor
Under current Regulation Z, a person
who extended consumer credit 25 or
fewer times in the past calendar year, or
five or fewer times for transactions
secured by a dwelling, is exempt from
the definition of ‘‘creditor.’’ See
§ 1026.2(a)(17)(v). The Bureau’s 2011
Streamlining Proposal specifically
requested comment on whether these
thresholds should be raised and, if so,
to what number of transactions. In
addition, the proposal solicited
comment on whether a similar
exemption should be applied to the preconsummation disclosure requirements
under RESPA that will be integrated
with the TILA requirements pursuant to
Dodd-Frank Act section 1032(f). In
response, trade association commenters
suggested raising the threshold number
of transactions in order to reduce
regulatory burden on more small
lenders. For example, one trade
association commenter suggested raising
the threshold number of transactions to
50, regardless of transaction type. In
light of this feedback, the Bureau
requests comment on whether the fiveloan exemption threshold is appropriate
for transactions subject to this proposed
rule and, if not, what number of
transactions would be appropriate. The
Bureau also solicits comment on
whether any transaction-based
exemption adopted in this rulemaking
should be applied to the preconsummation disclosure requirements
of sections 4 and 5 of RESPA.
2(a)(25) Security Interest
Pursuant to its authority under TILA
section 105(a), the Bureau proposes a
conforming amendment to the
definition of ‘‘security interest’’ in
current § 1026.2(a)(25). Under the
current definition of security interest,
for purposes of the disclosure
requirements in §§ 1026.6 and 1026.18,
the term does not include an interest
that arises solely by operation of law.
For consistency and to facilitate
compliance with TILA, the Bureau’s
proposed amendment extends that
exemption to disclosures required under
proposed §§ 1026.19(e) and (f) and
1026.38(l)(6). The same conforming
amendment would be made to comment
2(a)(25)–2.
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Section 1026.3
Exempt Transactions
The Bureau is proposing a partial
exemption from the disclosure
requirements of proposed § 1026.19(e),
(f), and (g) for certain mortgage loans.
The Bureau therefore is proposing
conforming amendments to § 1026.3(h)
to reflect this exemption. The Bureau is
also proposing amendments to the
commentary to § 1026.3(a) to clarify the
current exemption for certain trusts.
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3(a) Business, Commercial, Agricultural,
or Organizational Credit
TILA section 104(1), 15 U.S.C.
1603(1), excludes from TILA’s coverage
extensions of credit to, among others,
organizations. Accordingly,
§ 1026.3(a)(2) provides that Regulation Z
does not apply to extensions of credit to
other than a natural person. The Bureau
is proposing to revise comments 3(a)–9
and –10 to clarify that credit extended
to certain trusts for tax or estate
planning purposes is considered to be
extended to a natural person rather than
to an organization and, therefore, is not
exempt from the coverage of Regulation
Z under § 1026.3(a)(2).
Existing comment 3(a)–10 discusses
land trusts, a relatively uncommon way
of structuring consumer credit in which
the creditor holds title to the property
in trust and executes the loan contract
as trustee on behalf of the trust. The
comment states that, although a trust is
technically not a natural person, such
arrangements are subject to Regulation Z
because ‘‘in substance (if not form)
consumer credit is being extended.’’
This proposal amends comment 3(a)–10
to extend this rationale to more common
forms of trusts. Specifically, proposed
comment 3(a)–10 notes that consumers
sometimes place their assets in trust
with themselves as trustee(s), and with
themselves or themselves and their
families or other prospective heirs as
beneficiaries, to obtain certain tax
benefits and to facilitate the future
administration of their estates. Under
this proposal, revised comment 3(a)–10
states that Regulation Z applies to credit
that is extended to such a trust, even if
the consumer who is both trustee and
beneficiary executes the loan documents
only in the capacity of the trustee, for
the same reason the existing comment
notes with respect to land trusts: Such
transactions are extensions of consumer
credit in substance, if not in form.
Comment 3(a)–9 would be revised to
cross-reference comment 3(a)–10.
3(h) Partial Exemption for Certain
Mortgage Loans
The Bureau is proposing a new
§ 1026.3(h) to provide an exemption
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from proposed § 1026.19(e), (f), and (g)
for transactions that satisfy several
criteria associated with certain housing
assistance loan programs for low- and
moderate-income persons. As discussed
below, proposed § 1026.19(e) and (f)
establishes the requirement to provide
the new integrated disclosures for
transactions secured by real property,
other than reverse mortgages, and
proposed § 1026.19(g) establishes the
requirement to provide a special
information booklet for those
transactions. The partial exemption in
proposed § 1026.3(h) parallels
§ 1024.5(c)(3), discussed above. The
exemptions are designed to create
consistency with Regulation X and to
codify a disclosure exemption
previously granted by HUD. Thus,
under the two proposed exemptions,
lenders would be exempt from
providing the RESPA-mandated closing
cost disclosures for federally related
mortgage loans that satisfy the
exemption’s conditions, even if the
transaction otherwise would be subject
to RESPA.
The Bureau proposes this exemption
pursuant to its authority under TILA
section 105(a) and (f), RESPA section
19(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans,
Dodd-Frank Act section 1405(b). The
Bureau believes that the proposed
exemption will create consistency with
Regulation X and therefore facilitate
compliance with TILA and RESPA. In
addition, the Bureau believes the special
disclosure requirements that covered
persons must meet to qualify for the
proposed exemption will help ensure
that the features of these mortgage
transactions are fully, accurately. and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with these mortgage
transactions, consistent with DoddFrank Act section 1032(a). The proposed
exemption will also improve consumer
awareness and understanding of
transactions involving residential
mortgage loans, which is in the interest
of consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
The Bureau has considered the factors
in TILA section 105(f) and believes that,
for the reasons discussed above, an
exception is appropriate under that
provision. Specifically, the Bureau
believes that the proposed exemption is
appropriate for all affected borrowers,
regardless of their other financial
arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
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appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers.
The proposed exemption applies only
to transactions secured by a subordinate
lien. For the same reasons discussed in
the section-by-section analysis to
proposed § 1024.5(c)(3), the Bureau
requests comment on whether the
exemption in proposed § 1026.3(h)
should extend to first liens. In addition,
for the reasons discussed above, the
Bureau seeks comment on whether
requirements and features that may
serve as interest substitutes should be
considered ‘‘interest’’ and, therefore,
should be impermissible for loans
seeking to qualify for this partial
exemption. The Bureau also seeks
comment on the types of loan
requirements and features that should
be similarly deemed ‘‘interest’’ for
purposes of this partial exemption.
Alternatively, the Bureau seeks
comment on whether such requirements
and features should be permissible
within the exemption on the grounds
that the disclosure required by proposed
§ 1026.3(h)(6) is sufficient to inform
consumers of such loan terms.
Proposed comments provide
additional guidance. Proposed comment
3(h)–1 notes that transactions that meet
the requirements of § 1026.3(h) are
exempt from only the integrated
disclosure requirements and not from
any other applicable requirement of
Regulation Z. The comment further
clarifies that § 1026.3(h)(6) requires the
creditor to comply with the disclosure
requirements of § 1026.18, even if the
creditor would not otherwise be subject
to that section because of proposed
§ 1026.19(e), (f), and (g). In addition, the
comment notes that the consumer also
has the right to rescind the transaction
under § 1026.23, to the extent that
provision is applicable.
Proposed comment 3(h)–2 explains
that the conditions that the transaction
not require the payment of interest
under § 1026.3(h)(3) and that repayment
of the amount of credit extended be
forgiven or deferred in accordance with
§ 1026.3(h)(4) must be evidenced by
terms in the credit contract. The
comment further clarifies that, although
the other conditions need not be
reflected in the credit contract, the
creditor must retain evidence of
compliance with those requirements, as
required by § 1026.25(a). The Bureau
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solicits comment on whether this
exemption should be adopted in
Regulation Z.
Section 1026.4
Finance Charge
TILA’s Approach to the Finance Charge
Section 106(a) of TILA defines the
finance charge as ‘‘the sum of all
charges, payable directly or indirectly
by the person to whom the credit is
extended, and imposed directly or
indirectly by the creditor as an incident
to the extension of credit,’’ excluding
charges of a type payable in a
comparable cash transaction. 15 U.S.C.
1605(a). Despite this broad general
definition of the finance charge, TILA
contains numerous exceptions. For
example, TILA generally includes in the
finance charge credit insurance and
property and liability insurance charges
or premiums, but it also excludes such
amounts if certain conditions are met.
15 U.S.C. 1605(b), (c); TILA section
106(b), (c). TILA also specifically
excludes from the finance charge certain
charges related to the perfecting of the
security interest, and various fees in
connection with loans secured by real
property, such as title examination fees,
title insurance premiums, fees for
preparation of loan-related documents,
escrows for future payment of taxes and
insurance, notary fees, appraisal fees,
pest and flood-hazard inspection fees,
and credit report fees. 15 U.S.C. 1605(d),
(e); TILA section 106(d), (e). Such
amounts would otherwise be included
in the finance charge under the general
definition.
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Current Regulatory Approach to the
Finance Charge
Current § 1026.4 implements TILA
section 106 by largely mirroring the
statutory definition of finance charge
and the specific exclusions from that
definition. In addition, § 1026.4
contains certain exclusions from the
finance charge that are not specifically
listed in the statute. For example,
current § 1026.4(c) specifically excludes
application fees and forfeited interest
from the definition of finance charge,
whereas TILA does not.
There are longstanding concerns
about the ‘‘some fees in, some fees out’’
approach to the finance charge in TILA
and Regulation Z. Early concerns about
the problems with this approach to the
finance charge are outlined in the
Board-HUD Joint Report. Board-HUD
Joint Report at 10. The Board-HUD Joint
Report states that a fundamental
problem with the finance charge is that
the ‘‘cost of credit’’ has different
meanings from the perspective of the
consumer and the creditor. Id. From the
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creditor’s perspective, the cost of credit
may mean the interest and fee income
that the creditor receives in exchange
for providing credit to the consumer. Id.
However, the consumer views the cost
of credit as what the consumer pays for
the credit, regardless of the persons to
whom such amounts are paid. Id. The
current ‘‘some fees in, some fees out’’
approach to the finance charge largely
reflects the creditor’s perspective, not
the consumer’s.
In its 2009 Closed-End Proposal, the
Board proposed to broaden the
definition of the finance charge in
closed-end transactions secured by real
property or a dwelling, citing the BoardHUD Joint Report and consumer testing
conducted by the Board as support for
an expanded approach to the finance
charge. 74 FR 43232, 43243 (Aug. 26,
2009). First, the Board reasoned that
excluding certain fees from the finance
charge undermines the effectiveness of
the APR as a measure of the true cost
of credit. Id. Second, the Board’s 2009
Closed-End Proposal stated that the
numerous exclusions from the finance
charge encourage lenders to shift the
cost of credit to excluded fees. Id. This
practice undermines the usefulness of
the APR and has resulted in the creation
of new so-called ‘‘junk fees,’’ such as
fees for preparing loan-related
documents, which are not part of the
finance charge. Third, the Board cited
the complexity of the implementing
rules, which create significant
regulatory burden and litigation risk, as
support for a simplified definition of the
finance charge. Id.
In light of these concerns about the
finance charge, for closed-end credit
transactions secured by real property or
a dwelling, the Board’s 2009 Closed-End
Proposal would have replaced the
‘‘some fees in, some fees out’’ approach
to the finance charge with a more
inclusive approach to ensure that the
finance charge and corresponding APR
disclosed to consumers provides a more
complete and useful measure of the cost
of credit. The Board did not finalize its
proposal prior to the transfer of its TILA
rulemaking authority to the Bureau.
The Bureau’s Proposal
For the reasons set forth in the
Board’s 2009 Closed-End Proposal,
discussed above, proposed § 1026.4
revises the test for determining the
finance charge. Except where otherwise
noted, the Bureau’s proposal generally
mirrors the Board’s 2009 Closed-End
Proposal. Pursuant to its authority
under TILA section 105(a) and (f),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b), the Bureau is
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51143
proposing to amend § 1026.4 to replace
the current ‘‘some fees in, some fees
out’’ approach to the finance charge
with a simpler, more inclusive test
based on the general definition of
finance charge in TILA section 106(a).
15 U.S.C. 1601 note; 1604(a), (f); 12
U.S.C. 5532(a). The proposed changes to
§ 1026.4 apply to closed-end
transactions secured by real property or
a dwelling, and are not limited to
transactions subject to proposed
§ 1026.19(e) and (f).
Under proposed § 1026.4, the current
exclusions from the finance charge
would be largely eliminated, for closedend transactions secured by real
property or a dwelling. Specifically,
under the proposed test, a fee or charge
is included in the finance charge if it is
(1) ‘‘payable directly or indirectly by the
consumer’’ to whom credit is extended,
and (2) ‘‘imposed directly or indirectly
by the creditor as an incident to or a
condition of the extension of credit.’’
However, the finance charge would
continue to exclude fees or charges paid
in comparable cash transactions. The
proposed rule also retains a few narrow
exclusions from the finance charge. As
discussed below, proposed § 1026.4
continues to exclude from the finance
charge late fees and similar default or
delinquency charges, seller’s points,
amounts required to be paid into escrow
accounts if the amounts would not
otherwise be included in the finance
charge, and premiums for property and
liability insurance if certain conditions
are met.
The Bureau proposes § 1026.4
pursuant to its authority under TILA
section 105(a) and (f), Dodd-Frank-Act
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b). The Bureau has considered the
purposes for which it may exercise its
authority under TILA section 105(a)
and, based on that review, believes that
the proposed adjustments and
exceptions are appropriate. The
proposal would effectuate TILA’s
purpose by better informing consumers
of the total cost of credit and prevent
circumvention or evasion of the statute
through the unbundling or shifting of
the cost of credit from items that are
included in the finance charge to fees or
charges that are currently excluded from
the finance charge. The Bureau has
considered the factors in TILA section
105(f) and believes that, for the reasons
discussed above, an exception is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
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importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers. A
more inclusive approach to the finance
charge may improve the process of
mortgage lending by enhancing
consumer understanding of the finance
charge and APR, and will also reduce
compliance costs. The Bureau does not
believe that the proposed exemptions
undermine the goal of consumer
protection; rather they promote and are
more consistent with the overall
purposes of TILA. Based on that review,
the Bureau believes that treating the fees
that are currently exempt as part of the
finance charge, for closed-end
transactions secured by real property or
a dwelling, is appropriate.
In addition, for the reasons set forth
above, the proposed changes to the
finance charge will ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances, consistent with
section 1032(a) of the Dodd-Frank Act.
Finally, for closed-end transactions
secured by real property or a dwelling
that are also residential mortgage loans
as defined in TILA section 103(cc)(5),
the Bureau proposes § 1026.4 pursuant
to its authority under Dodd-Frank Act
section 1405(b). For the reasons set forth
above, including avoiding consumer
confusion and preventing the
unbundling of the cost of credit, the
Bureau believes this proposed
modification may improve consumer
understanding, and therefore is in the
interest of consumers and the public.
Industry feedback in response to the
Bureau’s Small Business Review Panel
Outline raised concerns about the
usefulness of the proposed expansion of
the finance charge in light of the
Bureau’s proposal to deemphasize the
finance charge and APR in the
disclosures provided to consumers
within three days of the consumers’
application and prior to consummation,
as discussed below in the section-bysection analysis for proposed
§§ 1026.37(l) and 1026.38(o). The
Bureau has considered this feedback in
developing the proposed rule, but
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nevertheless believes that, in addition to
benefiting industry by simplifying the
finance charge and APR calculation, the
proposed approach could provide
important benefits to consumers in the
form of an APR that better reflects the
true cost of credit. The Bureau intends
to develop supplemental educational
materials to further explain how to use
the finance charge and APR in
comparing loan costs over the long term.
Accordingly, the Bureau’s proposal to
remove exclusions from the finance
charge is one of several ways the Bureau
intends to improve the disclosure as a
useful measure for consumers.
The Bureau recognizes that the
proposed more inclusive finance charge
could affect coverage under other laws,
such as higher-priced mortgage loan and
HOEPA protections, and that a more
inclusive finance charge has
implications for the HOEPA, Escrow,
Appraisals, and Ability to Repay
rulemakings identified in part II.F
above. Absent further action by the
Bureau, the more inclusive finance
charge would:
• Cause more closed-end loans to
trigger HOEPA protections for high-cost
loans.120 The protections include
120 Under the Dodd-Frank Act, a loan is defined
as a high-cost mortgage, subject to HOEPA
protections, if the total points and fees payable in
connection with the transaction exceed specified
thresholds (points and fees coverage test); the
transaction’s APR exceeds the applicable APOR by
a specified threshold (APR coverage test); or the
transaction has certain prepayment penalties. First,
under the points and fees coverage test, the
definition of points and fees includes, as its starting
point, all items included in the finance charge.
Therefore, a potential consequence of the more
inclusive finance charge is that more loans might
exceed HOEPA’s points and fees threshold because
new categories of charges would be included in the
calculation of total points and fees for purposes of
that coverage test. In addition, under the APR
coverage test, the more inclusive finance charge
could result in some additional loans being covered
as high-cost mortgages because closed-end loans
would have higher APRs. There are currently some
differences between APR and the average prime
offer rate, which is generally calculated using data
that includes only contract interest rate and points
but not other origination fees. See 75 FR 58660–
58662. The current APR includes not only discount
points and origination fees but also other charges
the creditor retains and certain third-party charges.
The more inclusive finance charge, which would
also include most third-party charges, would widen
the disparity between the APR and APOR and cause
more closed-end loans to qualify as a high-cost
mortgage. The Bureau notes that substantially
similar implications would apply to each respective
rulemaking in which coverage depends on
comparing a transaction’s APR to the applicable
APOR. In addition, the Bureau notes that the DoddFrank Act expands HOEPA to apply to more types
of mortgage transactions, including purchase money
mortgage loans and open-end credit plans secured
by a consumer’s principal dwelling. However, the
proposed more inclusive finance charge applies
only to closed-end loans. Therefore, the Bureau
notes that the more inclusive finance charge would
not affect the potential coverage of open-end credit
plans under HOEPA.
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special disclosures, restrictions on
certain loan features and lender
practices, and strengthened consumer
remedies. The more inclusive finance
charge would affect both the points and
fees test (which currently uses the
finance charge as its starting point) and
the APR test (which under Dodd-Frank
will depend on comparisons to APOR)
for defining what constitutes a high-cost
loan.
• Cause more loans to trigger DoddFrank Act requirements to maintain
escrow accounts for first-lien higherpriced mortgage loans. Coverage
depends on comparing a transaction’s
APR to the applicable APOR.
• Cause more loans to trigger DoddFrank Act requirements to obtain one or
more interior appraisals for ‘‘higherrisk’’ mortgage loans. Coverage depends
on comparing a transaction’s APR to the
applicable APOR.
• Reduce the number of loans that
would otherwise be ‘‘qualified
mortgages’’ under the Dodd-Frank Act
Ability to Repay requirements, given
that qualified mortgages cannot have
points and fees in excess of three
percent of the loan amount. Also, more
loans could be required to comply with
separate underwriting requirements
applicable to higher-priced balloon
loans, and could be ineligible for certain
exceptions authorizing creditors to offer
prepayment penalties on fixed-rate,
non-higher-priced qualified mortgage
loans.121 Again, status as a higherpriced mortgage loan depends on
comparing APR to APOR.
During the Small Business Review
Panel and in industry feedback
provided in response to the Small
Business Review Panel Outline,
concerns were expressed that one
unintended consequence of a more
inclusive definition of finance charge
could be that more loans would qualify
as high-cost loans subject to additional
requirements under TILA section 129
and under similar State laws. See Small
Business Review Panel Report at 25.
Industry feedback generally suggests
that the proposed revisions to the
121 Specifically, the Dodd-Frank Act generally
prohibits prepayment penalties on closed-end,
dwelling-secured mortgage loans, except on fixedrate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank
Act generally requires creditors to assess
consumers’ ability to repay a higher-priced loan
with a balloon payment using the scheduled
payments required under the terms of the loan
including any balloon payment, and based on
income and assets other than the dwelling itself.
Only consumers with substantial income or assets
would likely qualify for such a loan. A separate
Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly
in rural or underserved areas is not affected by the
finance charge issue.
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finance charge be viewed in the context
of other rulemakings implementing the
Dodd-Frank Act revisions to the
thresholds for high-cost mortgages and
qualified mortgage determinations,
because of the relationship between the
APR and those thresholds and because
any changes to the APR calculation
could be costly to implement and
should be done in conjunction with
other related changes.
Based on this feedback and consistent
with the Small Business Review Panel’s
recommendation, the Bureau has
considered the requirements of TILA
section 129 (high-cost mortgages) and
TILA section 129C (qualified
mortgages), including the Dodd-Frank
Act amendments to those provisions, as
well as State predatory lending laws, in
proposing the amendments to § 1026.4.
For example, the Board previously
proposed two means of reconciling an
expanded definition of the finance
charge with existing thresholds for loan
APR and points and fees, and the
Bureau expects to seek comment on
potential trigger modifications in each
proposal it issues as discussed below.
The Bureau will consider any final or
proposed rules implementing those
provisions prior to issuing a final rule
on this issue. See Small Business
Review Panel Report at 30.
As described in the § 1022 analysis
below, the Bureau is seeking data that
will allow it to perform a quantitative
analysis to determine the impacts of a
broader finance charge definition on
APR thresholds for HOEPA and various
other regimes.122 The Bureau seeks
comment on its plans for data analysis,
as well as additional data and comment
on the potential impacts of a broader
finance charge definition and potential
modifications to the triggers.
The Bureau is carefully weighing
whether modifications may be
warranted to the thresholds for
particular regulatory regimes to
approximate coverage levels under the
current definition of finance charge. It is
not clear from the legislative history of
the Dodd-Frank Act whether Congress
was aware of the Board’s 2009 ClosedEnd Proposal to expand the current
122 In its 2009 Closed-End Proposal, the Board
relied on a 2008 survey of closing costs conducted
by Bankrate.com that contains data for hypothetical
$200,000 loans in urban areas. Based on that data,
the Board estimated that the share of first-lien
refinance and home improvement loans that are
subject to HOEPA would increase by .6 percent if
the definition of finance charge was expanded. The
Bureau is considering the 2010 version of that
survey, but as described below the Bureau is also
seeking additional data that would provide more
representative information regarding closing and
settlement costs that would allow for a more refined
analysis of the proposals.
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definition of finance charge or whether
Congress considered the interplay
between an expanded definition and
coverage under various thresholds
addressed in the Dodd-Frank Act. In
light of this fact and the concerns raised
by commenters on the Board’s 2009
Closed-End Proposal regarding effects
on access to credit, the Bureau believes
that it is appropriate to explore
alternatives to implementation of the
expanded finance charge definition for
purposes of coverage under HOEPA and
other regulatory regimes.
For example, the Board previously
proposed two means of reconciling an
expanded definition of the finance
charge with existing APR-based
thresholds. On several occasions, the
Board proposed to replace the APR with
a ‘‘transaction coverage rate’’ as a
transaction-specific metric a creditor
compares to the average prime offer rate
to determine whether the transaction
meets the higher-priced loan threshold
in § 1026.35(a). See 76 FR 27390,
27411–12 (May 11, 2011); 76 FR 11598,
11608–09 (Mar. 2, 2011); 75 FR 58539,
58660–61 (Sept. 24, 2010).123 Although
adopting the TCR would mean that
lenders would have to calculate one
metric for purposes of disclosure and
another for purposes of regulatory
coverage, both metrics would be simpler
to compute than APR today using the
current definition of finance charge.124
In addition, the Board proposed to
amend § 1026.32 to retain the existing
treatment of certain charges in the
definition of points and fees for
purposes of determining HOEPA
coverage. 75 FR at 58539, 58636–38
(Sept. 24, 2010). The Bureau has
proposed language to adopt the
transaction coverage rate and to exclude
the additional charges from the HOEPA
points and fees test in its 2012 HOEPA
123 The transaction coverage rate would be
determined in accordance with the applicable rules
of Regulation Z for the calculation of the annual
percentage rate for a closed-end transaction, except
that the prepaid finance charge for purposes of
calculating the transaction coverage rate includes
only charges that will be retained by the creditor,
mortgage broker, or affiliates of either. The wording
of the Board’s proposed definition of ‘‘transaction
coverage rate’’ varied slightly between the 2010
Mortgage Proposal and the 2011 Escrows Proposal
as to treatment of charges retained by mortgage
broker affiliates. In its 2012 HOEPA Proposal, the
Bureau proposes to use the 2011 Escrows Proposal
version, which would include charges retained by
broker affiliates. The Bureau believes that this
approach is consistent with the rationale articulated
by the Board in its earlier proposals and with
certain other parts of the Dodd-Frank Act that
distinguish between charges retained by the
creditor, mortgage broker, or affiliates of either
company. See, e.g., Dodd-Frank Act sections 1403,
1411(a).
124 To the extent that lenders believe that it is
burdensome to calculate two metrics, they could
continue to use APR for both purposes.
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Proposal. The Bureau has proposed
language to adopt the transaction
coverage rate and to exclude the
additional charges from the HOEPA
points and fees test in its 2012 HOEPA
Proposal. The Bureau seeks comment on
these prior proposals and other
potential methods of addressing the
impact of a more inclusive approach to
the finance charge on other regimes.
The Bureau also seeks comment on
the potential advantages and
disadvantages to both consumers and
creditors of using different metrics for
purposes of disclosures and for
purposes of determining coverage of
various regulatory regimes. With regard
to the transaction coverage rate, the
Bureau believes that the potential
compliance burden is mitigated by the
fact that both TCR and APR would be
easier to compute than the APR today
using the current definition of finance
charge. However, the Bureau seeks
comment on the issue generally and in
particular on whether use of the TCR or
other trigger modifications should be
optional, so that creditors could use the
broader definition of finance charge to
calculate APR and points and fees
triggers if they would prefer. The
Board’s 2010 Mortgage Proposal
structured TCR as a mandatory
requirement out of concern that
identical transactions extended by two
different creditors could have
inconsistent coverage under regulations
governing higher-priced mortgage loans,
but similarly sought comment on the
issue.
Finally, the Bureau also seeks
comment on the timing of
implementation. There is no statutory
deadline for issuing final rules to
integrate the mortgage disclosures under
TILA and RESPA, and the Bureau
expects that it may take some time to
conduct quantitative testing of the forms
prior to issuing final rules. However, the
Bureau expects to issue several final
rules to implement provisions of title
XIV of the Dodd-Frank Act by January
21, 2013, that address thresholds for
compliance with various substantive
requirements under HOEPA and other
Dodd-Frank Act provisions. In some
cases the Dodd-Frank Act requires that
regulations implementing title XIV take
effect within one year of issuance.
The Bureau believes that it would be
preferable to make any change to the
definition of finance charge and any
related adjustments in regulatory
triggers take effect at the same time, in
order to provide for consistency and
efficient systems modification. The
Bureau also believes that it may be
advantageous to consumers and
creditors to make any such changes at
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the same time that creditors are
implementing new title XIV
requirements involving APR and points
and fees thresholds, rather than waiting
until the Bureau finalizes other aspects
of this rulemaking relating to
disclosures. If the Bureau expands the
definition of finance charge, this
approach would likely provide the
benefits to consumers of the final rule
at an earlier date as well as avoid
requiring creditors to make two sets of
systems and procedures changes
focused on determining which loans
trigger particular regulatory
requirements. However, given that
implementation of the disclosurerelated elements of this proposal will
also require systems and procedures
changes, there may be advantages to
delaying any change in the definition of
finance charge and any related
adjustments to regulatory triggers until
those changes occur. The Bureau
therefore seeks comment on whether to
sequence any change in the proposal
considering the benefits and costs to
both consumers and industry of both
approaches.
In light of these implementation
issues, the Bureau wishes to evaluate
comments on the cumulative effect of an
expanded definition of the finance
charge simultaneously with comments
on the rules to implement title XIV. The
Bureau therefore is providing a
comment period of 60 days for the
proposed amendments to § 1026.4,
rather than the 120-day comment period
provided for all other aspects of this
proposed rule other than § 1026.1(c).
The Bureau believes a shorter comment
period is particularly appropriate given
that this aspect of the proposal largely
mirrors the proposed changes to
§ 1026.4 in the Board’s 2009 Closed-End
Proposal.
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4(a) Definition
Section 1026.4 states the basic test for
the finance charge, as set forth in TILA
section 106(a), and specifies that it does
not include types of charges payable in
a comparable cash transaction.
Consistent with the Board’s 2009
Closed-End Proposal, the Bureau is
proposing new comment 4(a)–6 to
clarify that, in a transaction where there
is no seller, such as a refinancing of an
existing extension of credit described in
§ 1026.20(a), there is no comparable
cash transaction and, therefore, the
exclusion from the finance charge in
proposed § 1026.4(a) for types of charges
payable in a comparable cash
transaction does not apply to such
transactions. The Bureau solicits
comment on this proposed clarification.
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4(a)(2) Special Rule; Closing Agent
Charges
Section 1026.4(a)(2) provides a
special rule for the treatment of closing
agent charges in determining the finance
charge. That section excludes from the
finance charge fees charged by a third
party that conducts a loan closing
unless the creditor (1) requires the
particular service for which the
consumer is charged; (2) requires the
imposition of the charge; or (3) retains
a portion of the third-party charge.
Under proposed § 1026.4(a)(2), this
exclusion is inapplicable to closed-end
transactions secured by real property or
a dwelling. Under the basic test for the
finance charge in TILA section 106(a),
many closing agent charges described in
§ 1026.4(a)(2) would typically be part of
the finance charge because creditors
generally require closing agents to
conduct closings who, in turn, impose
various fees on the consumer. As the
Board described in its 2009 Closed-End
Proposal, in some cases, the creditor
clearly requires the particular fee
charged by the closing agent but that, in
other cases, it is not clear whether a
charge is specifically required by the
creditor. A case-by-case determination
as to whether the creditor requires the
particular service charged by a closing
agent would result in significant burden
and risk for consumers and, likely,
inconsistent treatment of such fees,
which would undermine the purpose of
disclosing the finance charge to
consumers. 74 FR at 43246. For these
reasons, proposed § 1026.4(a)(2) adopts
a bright-line rule that includes in the
finance charge fees charged by closing
agents, including fees of other third
parties hired by closing agents to
perform particular services, assuming
those fees meet the general definition of
finance charge and that no other
exclusion applies. Proposed comment
4(a)(2)–3 clarifies that comments
4(a)(2)–1 and 4(a)(2)–2 do not apply to
closed-end transactions secured by real
property or a dwelling.
As the Board noted in its 2009 ClosedEnd Proposal, the inclusion of thirdparty charges in the finance charge may
create some risk that creditors will
understate the finance charge if the
creditor does not know that a charge is
imposed by a third party or the
particular amount of such charge. 74 FR
at 43246. Some industry commenters in
response to the 2009 Closed-End
Proposal supported the inclusion of all
closing agent charges in the finance
charge as a means of simplifying
compliance. Other industry commenters
opposed the inclusion of all closing
agent charges in the finance charge due
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to the creditor’s lack of control over
these charges, and also because
including these amounts in the finance
charge makes creditors responsible for
settlement fees under TILA. The Bureau
has considered these comments in
developing the proposed rule, but
believes that a determination of whether
a creditor requires the particular service
for which the consumer is charged
results in significant confusion for
consumers and inconsistent treatment of
such fees. In addition, as discussed
below, the Dodd-Frank Act added to
TILA a requirement that creditors
disclose aggregate settlement charges, so
that creditors now have a statutory
disclosure responsibility for such
charges under TILA. Furthermore,
creditors are responsible for disclosing
settlement charges subject to certain
estimation requirements and limitations
on increases in settlement costs
pursuant to HUD’s 2008 RESPA Final
Rule and proposed § 1026.19(e),
discussed below. The Bureau also notes
that the risk of understating the finance
charge is lessened by TILA section
106(f), 15 U.S.C. 1605(f), current
§ 1026.18(d)(1), and proposed
§ 1026.38(o)(2), which provide that a
disclosed finance charge is treated as
accurate if it does not vary from the
actual finance charge by more than $100
or is greater than the amount required
to be disclosed. The Bureau requests
comment on the extent to which
settlement costs increase from the good
faith estimate to closing and whether
the Bureau should increase the finance
charge tolerance for closed-end
transactions secured by real property or
a dwelling in light of the proposal to
include third-party charges in the
finance charge, and the amount of any
such increase.
In addition, the Board’s 2009 ClosedEnd Proposal stated that excluding
certain fees from the finance charge
because they are voluntary or optional
is inconsistent with the statutory
objective of disclosing the ‘‘cost of
credit,’’ including charges imposed ‘‘as
an incident to the extension of credit.’’
74 FR at 43246. As the Board noted, an
assumption underlying the exclusion
from the finance charge for certain
voluntary or optional charges is that
they are not ‘‘imposed directly or
indirectly by the creditor.’’ Id. However,
some charges may be imposed by the
creditor even if the services for which
the fee is imposed are not specifically
required by the creditor. Id. For
example, a creditor may require the use
of a closing agent, but may not impose
or require certain fees or services
imposed by that closing agent for which
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the consumer is charged, such as
administration fees for voluntary escrow
accounts. Excluding such charges from
the finance charge conflicts with the
statutory purpose of including charges
that are imposed ‘‘as an incident to the
extension of credit.’’
The Board historically interpreted the
definition of ‘‘finance charge’’ as not
dependent on whether a charge is
voluntary or required. See, e.g., 61 FR
49237, 49239 (Sept. 19, 1996) (‘‘The
Board has generally taken a case by case
approach in determining whether
particular fees are ‘finance charges’ and
does not interpret Regulation Z to
automatically exclude all ‘voluntary’
charges from the finance charge.’’). This
approach is reflected in current
Regulation Z’s treatment of voluntary
credit insurance premiums and debt
cancellation fees, which are by
definition voluntary, as excluded from
the finance charge only under certain
circumstances. This special rule
presupposes that voluntary credit
insurance and debt cancellation charges
would be included in the finance charge
under the general definition.
Furthermore, excluding certain fees
from the finance charge because they are
voluntary or optional requires a factual
determination, which is not practical in
all cases since it may be difficult to
determine whether a fee or charge is
truly voluntary. The Board’s 2009
Closed-End Proposal cited the current
provisions addressing whether a charge
for credit insurance is optional as an
example of an approach to defining a
voluntariness test that has proven
unsatisfactory. Id. For this reason, the
Bureau proposes a bright-line rule to
include in the finance charge both
voluntary and required charges that are
imposed by the creditor to avoid factbased analysis and improve consistency
in disclosure of the finance charge and
APR.
The Board cited as another basis for
the current exclusions from the finance
charge the assumption that creditors
cannot know the amounts of voluntary
or optional charges at the time the
finance charge and APR disclosures
must be provided to consumers. Id.
However, like the Board, the Bureau
believes that creditors know the
amounts of their own voluntary charges,
if any, and that creditors know or can
readily determine voluntary charges
when disclosing the finance charge and
APR to consumers at least three
business days prior to consummation.
As a practical matter, most voluntary
fees would be excluded from the finance
charge because they are also payable in
a comparable cash transaction (e.g.,
home warranty fees). The Board cited
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voluntary credit insurance premiums as
the primary voluntary third-party charge
in connection with a mortgage
transaction that is not otherwise
excluded from the finance charge,
noting that creditors generally solicit
consumers for this insurance and that,
historically, creditors had to disclose
the premium for voluntary credit
insurance to exclude such amounts from
the finance charge. However, the Bureau
solicits comment on whether there are
voluntary third-party charges that
would be included in the finance charge
under the proposed more-inclusive
approach the amounts of which cannot
be determined three business days
before consummation.
The Bureau also recognizes that,
within three business days of receiving
the consumer’s application, creditors
may not know what voluntary or
optional charges the consumer will
incur. Regulation Z generally permits
creditors to rely on reasonable
assumptions regarding voluntary or
optional charges and label those
disclosures as estimates pursuant to
§ 1026.17(c) and its commentary. The
Bureau requests comment on whether
further guidance is required regarding
reasonable assumptions for the
voluntary or optional charges.
4(b) Examples of Finance Charges
The Bureau proposes to amend
comment 4(b)-1 to be consistent with
proposed § 1026.4(g), which provides
that the exclusions from the finance
charge under § 1026.4(a)(2) and (c)
through (e), other than § 1026.4(c)(2),
(c)(5), (c)(7)(v), and (d)(2), do not apply
to closed-end transactions secured by
real property or a dwelling, as discussed
below.
4(c) Charges Excluded From the Finance
Charge
The Bureau proposes to amend
§ 1026.4(c), which lists specific
exclusions from the finance charge, to
be consistent with proposed § 1026.4(g).
Pursuant to proposed § 1026.4(g), the
exclusions in § 1026.4(c), other than the
exclusion for late fees, exceeding a
credit limit, and default, delinquency,
or similar charges, seller’s points, and
escrowed items that are otherwise not
included in the finance charge, would
not apply to closed-end transactions
secured by real property or a dwelling.
The Bureau also proposes to amend the
commentary to § 1026.4(c) to be
consistent with § 1026.4(g).
4(c)(2)
The Bureau proposes to retain the
exclusion from the finance charge under
§ 1026.4(c)(2) of fees for actual
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unanticipated late payment, exceeding a
credit limit, or for delinquency, default,
or a similar occurrence. Although the
Bureau is generally proposing a more
inclusive approach to the finance charge
through proposed § 1026.4, the charges
described in § 1026.4(c)(2) should be
excluded from the finance charge
because they are incurred, if at all, only
after consummation of the transaction.
At the time a creditor must disclose the
finance charge and other items affected
by the finance charge, the creditor
cannot know whether or how many
times such charges may be imposed.
4(c)(5)
The Bureau proposes to retain the
exclusion from the finance charge under
§ 1026.4(c)(5) of seller’s points. Seller’s
points include any charges imposed by
the creditor upon the non-creditor seller
of property for providing credit to the
buyer or for providing credit on certain
terms. Although the Bureau is generally
proposing a more inclusive approach to
the finance charge, the Bureau believes
that it is appropriate to continue to
exclude seller’s points from the finance
charge because seller’s points are not
payable by the consumer and because
the extent to which seller’s points are
passed on to the consumer in the form
of a higher sales price is unknown.
However, the Bureau requests comment
on whether seller’s points should be
included in the finance charge for
closed-end transactions secured by real
property or a dwelling. In particular, the
Bureau requests comment on the
frequency with which seller’s points are
passed on to the borrower through a
higher sales price. In addition, although
the scope of the changes to § 1026.4
under this proposal is limited to closedend transactions secured by real
property or a dwelling, the Bureau
solicits comment on the potential
ramifications of including seller’s points
in the finance charge for other types of
credit.
4(c)(7) Real-Estate Related Fees
Section 106(e) of TILA, 15 U.S.C.
1605(e), excludes certain charges from
the finance charge for credit secured by
an interest in real property. This
provision is implemented in current
§ 1026.4(c)(7), which contains
exclusions from the finance charge that
generally mirror the statute, for
transactions secured by real property or
in residential mortgage transactions,
provided that the fees for such charges
are bona fide and reasonable in amount.
Specifically, § 1026.4(c)(7) excludes
from the finance charge those fees for:
title examination, abstract of title, title
insurance, property survey, and similar
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purposes; preparing loan-related
documents, such as deeds, mortgages,
and reconveyance or settlement
documents; notary and credit report
fees; property appraisal or inspections
to assess the value or condition of the
property prior to closing, including
pest-infestation or flood-hazard
determination; and amounts required to
be paid into escrow or trustee accounts
if the amounts would not otherwise be
included in the finance charge. These
fees fall squarely within the general
statutory definition of the finance
charge, and their exclusion from the
finance charge significantly undermines
the purpose of the finance charge as a
reflection of the cost of credit since the
charges comprise a significant portion of
the up-front costs paid by consumers.
As noted by some industry commenters
to the 2009 Closed-End Proposal, the
inclusion of real-estate related fees such
as application, appraisal, and credit
report fees in the finance would reduce
the possibility that a creditor can
manipulate the APR by shifting some
costs of credit to fees that are currently
excluded from the finance charge. Some
commenters also noted that these
charges are generally known to the
creditor early in the loan process.
Accordingly, proposed § 1026.4
includes these charges in the finance
charge.
However, proposed § 1026.4 retains
the exclusion from the finance charge in
current § 1026.4(c)(7)(v) for amounts
required to be paid into escrow or
trustee accounts if the amounts would
not otherwise be included in the finance
charge. For example, homeowner’s
insurance premiums that are excluded
from the finance charge pursuant to
§ 1026.4(d)(2) would not be included in
the finance charge simply because such
premiums will be paid into an escrow
account.
Under the Board’s 2009 Closed-End
Proposal, § 1026.4(c)(7) would have
applied only to open-end credit plans
secured by real property or open-end
residential mortgage transactions. Some
commenters interpreted that proposal to
mean that amounts required to be paid
into escrow or trustee accounts should
be included in the finance charge
calculation, even if such amounts would
not otherwise be included in the finance
charge if not paid into an escrow or
trustee account. Concerns about
including escrowed taxes and insurance
in the finance charge were raised during
the Small Business Review Panel (see
Small Business Review Panel Report at
30), in industry feedback provided in
response to the Small Business Review
Panel Outline, and in comment letters
provided to the Board in response to the
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2009 Closed-End Proposal. The Small
Business Review Panel specifically
recommended that escrowed taxes and
insurance remain excluded from the
finance charge, unless those amounts
would otherwise be considered finance
charges under the expanded definition.
Small Business Review Panel Report at
30. Commenters to the 2009 Closed-End
Proposal noted that including escrowed
taxes and insurance in the finance
charge while excluding those paid
outside of escrow may mislead
consumers who try to compare
escrowed and non-escrowed loans.
Commenters also noted that the APR for
identical loans could be vastly different
because the escrow deposit is calculated
based on the date the loan closes and
when the next tax payment is due.
Based on this feedback and consistent
with the Small Business Review Panel’s
recommendation, the Bureau is
proposing to exclude escrowed taxes
and insurance from the finance charge,
unless those amounts would otherwise
be considered finance charges under the
expanded definition. In short, a fee or
charge that is not part of the finance
charge does not become part of the
finance charge merely because it is paid
to an escrow account.
Accordingly, proposed comment
4(c)(7)–1 clarifies that the exclusion of
escrowed amounts under
§ 1026.4(c)(7)(v) applies to all
residential mortgage transactions and to
other transactions secured by real estate.
The Bureau also proposes other
amendments to the commentary to
§ 1026.4(c)(7) to be consistent with
proposed § 1026.4(g).
4(d) Insurance and Debt Cancellation
and Debt Suspension Coverage
The Bureau proposes to amend
§ 1026.4(d), which currently excludes
from the finance charge, under certain
circumstances, voluntary credit
insurance premiums, property
insurance premiums, and voluntary
debt cancellation or debt suspension
fees. Consistent with proposed
§ 1026.4(g), proposed § 1026.4(d) would
not exclude from the finance charge
credit insurance premiums and debt
cancellation or debt suspension fees, for
closed-end mortgage transactions. The
Bureau also proposes to amend the
commentary to § 1026.4(d) to be
consistent with § 1026.4(g).
4(d)(1) Voluntary Credit Insurance
Premiums
4(d)(3) Voluntary Debt Cancellation or
Debt Suspension Fees
TILA section 106(b)(7), 15 U.S.C.
1605(b)(7), provides that premiums for
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credit life, accident, or health insurance
written in connection with any
consumer credit transaction are part of
the finance charge unless (1) the
coverage is not a factor in the approval
by the creditor of the extension of
credit, and this fact is clearly disclosed
in writing to the consumer; and (2) to
obtain the insurance, the consumer
specifically requests the insurance after
getting the disclosures. Current
§ 1026.4(d)(1) and (d)(3) implement this
provision by providing that the creditor
may exclude from the finance charge
any premium for credit life, accident,
health or loss-of-income insurance; any
charge or premium paid for debt
cancellation coverage for amounts
exceeding the value of the collateral
securing the obligation; or any charge or
premium for debt cancellation or debt
suspension coverage in the event of loss
of life, health, or income or in case of
accident, whether or not the coverage is
insurance, if (1) the insurance or
coverage is not required by the creditor
and the creditor discloses this fact in
writing, (2) the creditor discloses the
premium or charge for the initial term
of the insurance or coverage, (3) the
creditor discloses the term of insurance
or coverage, if the term is less than the
term of the credit transaction, and (4)
the consumer signs or initials an
affirmative written request for the
insurance or coverage after receiving the
required disclosures. In addition, under
§ 1026.4(d)(3)(iii), the creditor must
disclose, for debt suspension coverage,
the fact that the obligation to pay loan
principal and interest is only
suspended, and that interest will
continue to accrue during the period of
suspension.
Proposed § 1026.4(d)(1) and (3)
includes credit insurance and debt
cancellation charges in the finance
charge for closed-end transactions
secured by real property or a dwelling
to be consistent with § 1026.4(g).
Proposed § 1026.4(d) is consistent with
the overall proposed changes to
§ 1026.4, which remove exclusions from
the finance charge, to make the finance
charge and APR more accurately reflect
the cost of credit. As discussed above,
the Bureau does not believe that a rule
that excludes fees from the finance
charge simply because they are
‘‘voluntary’’ is consistent with the
statute, which says that the finance
charge include charges ‘‘imposed as an
incident to the extension of credit,’’ and
that a determination of whether a fee is,
in fact, voluntary simply has not been
effective. As discussed above and as the
Board noted in its 2009 Closed-End
Proposal, the current test for defining
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whether a charge for credit insurance
and debt cancellation or suspension
coverage is ‘‘voluntary’’ has proven
unsatisfactory. See 74 FR at 43246–50.
Instead, the Bureau proposes a brightline rule to include in the finance
charge premiums for credit insurance
and debt suspension fees. The Bureau
also proposes to amend the commentary
to § 1026.4(d) to be consistent with
§ 1026.4(g).
Concerns were raised in industry
feedback in response to the Small
Business Review Panel Outline and in
comment letters in response to the 2009
Closed-End Proposal that voluntary
charges such as credit insurance and
debt cancellation fees should not be part
of the finance charge because they are
not ‘‘imposed’’ by the creditor.
Commenters to the 2009 Closed-End
Proposal also noted that the products
are often sold after consummation of the
transaction and that including fees for
these products in the finance charge
may confuse consumers into believing
they are mandatory. The Bureau has
considered this feedback in developing
the proposed rule, but, as discussed
above, believes that whether or not a fee
is ‘‘voluntary’’ is not determinative of
whether it is imposed as an ‘‘incident to
the extension of credit.’’ Concerns that
consumers might mistake voluntary
charges for mandatory ones due to their
inclusion in the finance charge are
mitigated by the fact that (1) the TILA
disclosures do not itemize the
components of the finance charge or
APR, and (2) for transactions secured by
real property other than reverse
mortgages, creditors must indicate that
voluntary credit insurance or debt
suspension, or cancellation fees are
‘‘optional’’ on the Loan Estimate
provided to consumers within three
business days of application and the
Closing Disclosure provided three
business days before consummation
pursuant to proposed § 1026.37(g)(4)(ii).
Furthermore, existing commentary
makes clear that credit insurance and
debt cancellation and suspension
products requested by the consumer
after consummation are not considered
written in connection with the credit
transaction and therefore do not meet
the basic test for inclusion in the
finance charge. See comments 4(b)(7)
and (b)(8)–2 and 4(b)(1)–2.
4(d)(2) Property Insurance Premiums
Section 106(c) of TILA, 15 U.S.C.
1605(c), provides that premiums for
insurance, written in connection with
any consumer credit transaction, against
loss of or damage to property or against
liability arising out of the ownership or
use of property, should be included in
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the finance charge unless the creditor
provides the consumer with a clear
written statement that discloses the cost
of such insurance if obtained from or
through the creditor, and informs the
consumer that he may choose his own
insurance provider. Current
§ 1026.4(d)(2) implements TILA section
106(c), and generally provides that such
premiums may be excluded from the
finance charge if (1) the insurance may
be obtained from a person of the
consumer’s choice, and that fact is
disclosed to the consumer, and (2) if the
coverage is obtained from or through the
creditor, the premium for the initial
term of insurance coverage is disclosed.
The Bureau proposes to retain the
current exclusion from the finance
charge under § 1026.4(d)(2) for
premiums for insurance against loss of
or damage to property, or against
liability arising out of the ownership or
use of property. As the Board noted in
its 2009 Closed-End Proposal, property
insurance is generally a hybrid product
that protects both the value of the
creditor’s collateral and the consumer’s
equity in the property, such that it is
impossible to segregate the premium
into the portion that protects the
creditor and the portion that protects
the consumer. 74 FR at 43250. Although
creditors generally require property
insurance as a condition to extending
credit secured by real property or a
dwelling, consumers who do not have
mortgages also regularly purchase
property insurance to protect
themselves from the risk of loss of or
damage to property. Id. For these
reasons, the Bureau proposes to retain
the current exclusion from the finance
charge under § 1026.4(d)(2).
The Bureau proposes to revise
comment 4(d)–8 to conform it to the
statutory language providing that, to be
excluded from the finance charge,
premiums for property insurance
obtained ‘‘from or through the creditor’’
must be disclosed to the consumer. 15
U.S.C. 1605(c). Current § 1026.4(d)(2)
also provides that if coverage is
obtained ‘‘from or through the creditor,’’
the premium for the initial term must be
disclosed. However, current comment
4(d)-8 states, in relevant part, that ‘‘[t]he
premium or charge must be disclosed
only if the consumer elects to purchase
the insurance from the creditor; in such
a case, the creditor must also disclose
the term of the property insurance
coverage if it is less than the term of the
obligation.’’ (Emphasis added.)
Accordingly, the Bureau proposes to
amend comment 4(d)–8 to conform to
the statutory language. In addition,
proposed § 1026.4(d)(2) and comment
4(d)–8 clarify that insurance is available
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51149
‘‘from or through a creditor’’ only if it
is available from the creditor or the
creditor’s ‘‘affiliate,’’ as that term is
defined under the Bank Holding
Company Act, 12 U.S.C. 1841(k). The
Bank Holding Company Act defines an
‘‘affiliate’’ as ‘‘any company that
controls, is controlled by, or is under
common control with another
company.’’ Thus, if the consumer elects
to purchase property insurance from a
company that controls, is controlled by,
or is under common control with the
creditor, then the creditor is required to
disclose the cost of the insurance and its
term, if it is less than the term of the
obligation, for the charge to be excluded
from the finance charge.
4(e) Certain Security Interest Charges
TILA section 106(d), 15 U.S.C.
1605(d), provides exclusions from the
finance charge for certain government
recording taxes and related fees and the
premiums for any insurance in lieu of
perfecting a security interest, provided
those amounts are disclosed to the
consumer. This provision is
implemented in current § 1026.4(e).
Consistent with the overall approach to
largely eliminate the specific exclusions
from the finance charge for closed-end
transactions secured by real property or
a dwelling, the Bureau proposes to
amend § 1026.4(e) to eliminate those
exclusions, consistent with proposed
§ 1026.4(g). The Bureau believes this
approach will better inform consumers
of the total cost of credit and prevent
circumvention or evasion of the statute
through the unbundling of the cost of
credit to fees or charges that are
currently excluded from the finance
charge. The Bureau also proposes to
amend the commentary to § 1026.4(e) to
be consistent with § 1026.4(g).
4(g) Special Rule for Closed-End
Mortgage Transactions
The Bureau proposes new § 1026.4(g),
which treats certain fees as part of the
finance charge, for closed-end
transactions secured by real property or
a dwelling. Specifically, proposed
§ 1026.4(g) provides that the exclusions
from the finance charge in § 1026.4(a)(2)
(closing agent charges) and (c) (fees for
actual unanticipated late payment,
exceeding a credit limit, or for
delinquency, default, or similar
occurrence), (d) (premiums for credit
insurance and debt cancellation
coverage), and (e) (certain securityinterest charges), other than
§ 1026.4(c)(2) (late, over-limit,
delinquency, default, and similar fees),
(5) (seller’s points), (7)(v) (escrowed
items that are not included in the
finance charge), and (d)(2) (property and
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liability insurance premiums), do not
apply to closed-end transactions
secured by real property or a dwelling.
As discussed above, the Bureau
proposes to retain the exclusion from
the finance charge for late, over-limit,
delinquency, default and similar fees in
§ 1026.4(c)(2), seller’s points described
in § 1026.4(c)(5), amounts required to be
paid into escrow or trustee accounts if
the amounts would not otherwise be
included in the finance charge
described in § 1026.4(c)(7)(v), and
property and liability insurance
described in § 1026.4(d)(2).
Proposed comments 1026.4(g)–1
through –3 provide guidance to
creditors on compliance with the
special rule for closed-end mortgage
transactions provided in proposed
§ 1026.4(g). Proposed comment 4(g)–1
clarifies that the commentary under the
exclusions identified above no longer
applies to closed-end credit transactions
secured by real property or a dwelling.
Proposed comment 4(g)–2 clarifies that
third-party charges that meet the
definition under § 1026.4(a) and are not
otherwise excluded from the finance
charge generally are included in the
finance charge, whether or not the
creditor requires the services for which
they are imposed. Proposed comment
4(g)–3 clarifies that charges payable in
a comparable cash transaction, such as
property taxes and fees or taxes imposed
to record the deed evidencing transfer of
title to the property from the seller to
the buyer, are not part of the finance
charge because they would have to be
paid even if no credit were extended to
finance the purchase.
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Section 1026.17 General Disclosure
Requirements
The Bureau is proposing conforming
amendments to current § 1026.17 to
reflect the proposed rules regarding the
format, content, and timing of
disclosures for closed-end transactions
secured by real property, other than
reverse mortgages subject to § 1026.33.
17(a) Form of Disclosures
TILA section 128(b)(1) provides that
the disclosures required by TILA
sections 128(a) and 106(b), (c), and (d)
must be conspicuously segregated from
all other terms, data, or information
provided in connection with the
transaction, including any computations
or itemizations. 15 U.S.C. 1638(a), (b)(1);
15 U.S.C. 1605(b), (c), (d). In addition,
TILA section 122(a) requires that the
‘‘annual percentage rate’’ and ‘‘finance
charge’’ disclosures be more
conspicuous than other terms, data, or
information provided in connection
with the transaction, except information
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relating to the identity of the creditor.
15 U.S.C. 1632(a). Current § 1026.17(a)
implements these statutory provisions.
Current § 1026.17(a)(1) implements
TILA section 128(b)(1) by providing that
closed-end credit disclosures must be
grouped together and segregated from
all other disclosures and must not
contain any information not directly
related to the disclosures. Current
§ 1026.17(a)(2) implements TILA section
122(a) for closed-end credit transactions
by requiring that the terms ‘‘annual
percentage rate’’ and ‘‘finance charge,’’
together with a corresponding amount
or percentage rate, be disclosed more
conspicuously than any disclosure other
than the creditor’s identity.
The Bureau proposes to revise
§ 1026.17(a) to reflect the fact that
special rules apply to the disclosures
required by § 1026.19(e), (f), and (g), by
providing that § 1026.17(a) is
inapplicable to those disclosures. As
discussed below, the Bureau is
implementing the grouping and
segregation requirements of TILA
section 128(b)(1) in proposed
§§ 1026.37(o) and 1026.38(t). Further,
for the reasons set forth in the sectionby-section analysis to proposed
§§ 1026.37(l)(3) and 1026.38(o)(2) and
(4), the Bureau proposes to use its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b), to modify the
requirements of TILA section 122(a) for
transactions subject to § 1026.19(e)
and(f). Proposed comment 17–1 states
that, for the disclosures required by
proposed § 1026.19(e), (f), and (g), rules
regarding the disclosures’ form are
found in proposed §§ 1026.19(g),
1026.37(o), and 1026.38(t). In addition,
proposed comment 17(a)(1)–7 reflects
the special disclosure rules for
transactions subject to § 1026.18(g) or
(s).
17(b) Time of Disclosures
TILA section 128(b)(1) provides that
the disclosures required by TILA section
128(a) shall be made before credit is
extended. 15 U.S.C. 1638(b)(1). Special
timing rules for transactions subject to
RESPA are found in TILA section
128(b)(2). 15 U.S.C. 1638(b)(2). Current
§ 1026.17(b) implements TILA section
128(b)(1) by requiring creditors to make
closed-end credit disclosures before
consummation. The special timing rules
for transactions subject to RESPA are
implemented in current § 1026.19(a). As
discussed below, the Bureau is
proposing special timing rules for the
disclosures required by proposed
§ 1026.19(e), (f), and (g) in those
provisions. Proposed § 1026.17(b)
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reflects these special rules by providing
that § 1026.17(b) is inapplicable to the
disclosures required by § 1026.19(e), (f),
and (g). Proposed comment 17–1 states
that, for to the disclosures required by
§ 1026.19(e), (f), and (g), rules regarding
timing are found in those sections.
17(c) Basis of Disclosures and Use of
Estimates
17(c)(1)
Current § 1026.17(c)(1) requires that
the disclosures that creditors provide
pursuant to subpart C of Regulation Z
reflect the terms of the legal obligation
between the parties. The commentary to
current § 1026.17(c)(1) provides
guidance to creditors regarding the
disclosure of specific transaction types
and loan features.
As discussed more fully in the
section-by-section analysis to proposed
§§ 1026.37 and 1026.38, the Bureau is
proposing to integrate the disclosure
requirements of TILA and sections 4
and 5 of RESPA in the Loan Estimate
that creditors must provide to
consumers within three business days
after receiving the consumer’s
application and the Closing Disclosure
that creditors must provide to
consumers at least three business days
prior to consummation. Some
disclosures required by RESPA pertain
to services performed by third parties,
other than the lender. Accordingly, the
Bureau is proposing conforming
amendments to the commentary to
§ 1026.17(c) to clarify that the ‘‘parties’’
referred to in the commentary to
§ 1026.17(c) are the consumer and the
creditor and that the ‘‘agreement’’
referred to in the commentary to
§ 1026.17(c) is the legal obligation
between the consumer and the creditor.
The proposed conforming amendments
to the commentary also clarify that the
‘‘disclosures’’ referred to in the
commentary to current § 1026.17(c) are
the finance charge and the disclosures
affected by the finance charge. Finally,
the proposed conforming amendments
to the commentary extend existing
guidance on special disclosure rules for
transactions subject to § 1026.18(s) to
reflect the addition of new special rules
under § 1026.19(e) and (f).
The Bureau also proposes
amendments to the commentary to
§ 1026.17(c)(1) to address areas of
industry uncertainty regarding TILA
disclosures. First, the Bureau proposes
to revise comment 17(c)(1)–1 to provide
the general principle that disclosures
based on the assumption that the
consumer will abide by the terms of the
legal obligation throughout its term
comply with § 1026.17(c)(1). In
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addition, the Bureau proposes to revise
comments 17(c)(1)–3 and –4, regarding
third-party and consumer buydowns,
respectively. Under existing Regulation
Z, whether the effect of third-party or
consumer buydowns are disclosed
depends on State law. To address
uncertainty, the Bureau is proposing to
revise the examples in comments
17(c)(1)–3 and –4 to clarify that, in the
disclosure of the finance charge and
other disclosures affected by the finance
charge, third-party buydowns must be
reflected as an amendment to the
contract’s interest rate provision if the
buydown is reflected in the credit
contract between the consumer and the
creditor and that consumer buydowns
must always be reflected as an
amendment to the contract’s interest
rate provision.
The Bureau also proposes new
comment 17(c)(1)–19, regarding
disclosure of rebates and loan premiums
offered by a creditor. In its 2009 ClosedEnd Proposal, the Board proposed to
revise comment 18(b)–2, which
provides guidance regarding the
treatment of rebates and loan premiums
for the amount financed calculation
required by § 1026.18(b). 74 FR at
43385. Comment 18(b)–2 primarily
addresses credit sales, such as
automobile financing, and provides that
creditors may choose whether to reflect
creditor-paid premiums and seller- or
manufacturer-paid rebates in the
disclosures required by § 1026.18. The
Board stated its belief that such
premiums and rebates are analogous to
buy-downs because they may or may
not be funded by the creditor and
reduce costs that otherwise would be
borne by the consumer. 2009 ClosedEnd Proposal, 74 FR at 43256.
Accordingly, their impact on the
§ 1026.18 disclosures properly depends
on whether they are part of the legal
obligation, in accordance with
§ 1026.17(c)(1) and its commentary. The
Board therefore proposed to revise
comment 18(b)–2 to clarify that the
disclosures, including the amount
financed, must reflect loan premiums
and rebates regardless of their source,
but only if they are part of the legal
obligation between the creditor and the
consumer. The Board also proposed a
parallel comment under the section
requiring disclosure of the amount
financed for transactions subject to the
proposed, separate disclosure scheme
for transactions secured by real property
or a dwelling. 2009 Closed-End
Proposal, 74 FR at 43417 (proposed
comment 38(e)(5)(iii)–2).
The Bureau agrees with the Board’s
reasoning in proposing the foregoing
revisions to comment 18(b)–2 that the
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disclosures must reflect loan premiums
and rebates, even if paid by a third party
such as a seller or manufacturer, but
only if they are part of the legal
obligation between the creditor and the
consumer. The Bureau notes, however,
that the comment’s guidance extends
beyond the calculation of the amount
financed. For example, the guidance on
whether and how to reflect premiums
and rebates applies equally to such
disclosures as the amount financed, the
APR, the projected payments table,
interest rate and payment summary
table, or payment schedule, as
applicable, and other disclosures
affected by those disclosures. The
Bureau therefore is proposing to place
the guidance in the commentary to
§ 1026.17(c)(1), as that section is the
basis for the underlying principal that
the impact of premiums and rebates
depends on the terms of the legal
obligation.
17(c)(2)
Current § 1026.17(c)(2) and its
commentary contain general rules
regarding the use of estimates. The
Bureau proposes conforming
amendments to the commentary to
§ 1026.17(c)(2) to be consistent with the
special disclosure rules for closed-end
mortgage transactions subject to
proposed § 1026.19(e) and (f).
Comment 17(c)(2)(i)–1 provides
guidance to creditors on the basis for
estimates. The proposed rule amends
this comment to specify that it applies
except as otherwise provided in
§§ 1026.19, 1026.37, and 1026.38, and
that creditors must disclose the actual
amounts of the information required to
be disclosed pursuant to § 1026.19(e)
and (f), subject only to the estimation
and redisclosure rules in those sections.
The proposed rule also revises comment
17(c)(2)(i)–2, which gives guidance to
creditors on labeling estimated
disclosures, to provide that, for the
disclosures required by § 1026.19(e), use
of the Loan Estimate form H–24 in
appendix H, pursuant to § 1026.37(o),
satisfies the requirement that the
disclosure state clearly that it is an
estimate. In addition, consistent with
the proposed revisions to comment
17(c)(1)–1, the proposed rule revises
comment 17(c)(2)(i)–3, which provides
guidance to creditors regarding
disclosures in simple interest
transactions, to reflect that the comment
applies only to the extent that it does
not conflict with proposed § 1026.19.
Proposed comment 17(c)(2)(i)–3 also
clarifies that, in all cases, creditors must
base disclosures on the assumption that
payments will be made on time and in
the amounts required by the terms of the
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51151
legal obligation, disregarding any
possible differences resulting from
consumers’ payment patterns. Finally,
proposed comment 17(c)(2)(ii)–1,
regarding disclosure of per diem
interest, provides that the creditor shall
disclose the actual amount of per diem
interest that will be collected at
consummation, subject only to the
disclosure rules in § 1026.19(e) and (f).
17(c)(4)
The proposed rule revises comment
17(c)(4)–1 to clarify that creditors may
disregard payment period irregularities
when disclosing the payment summary
tables pursuant to §§ 1026.18(s),
1026.37(c), and 1026.38(c), in addition
to the payment schedule under
§ 1026.18(g) discussed in the existing
comment.
17(c)(5)
Current § 1026.17(c)(5) and its
commentary contain general rules
regarding the disclosure of demand
obligations. The proposed rule revises
comment 17(c)(5)–2, which addresses
obligations whose maturity date is
determined by a future event, to reflect
the fact that special rules apply to the
disclosures required by § 1026.19(e) and
(f). In addition, the proposal revises
comment 17(c)(5)–3, regarding
transactions that convert to demand
status only after a fixed period, to delete
obsolete references to specific loan
programs and to update crossreferences. Finally, the proposal revises
comment 17(c)(5)–4, regarding balloon
payment mortgages, to reflect the fact
that special rules apply to the disclosure
of balloon payments in the projected
payments tables required by
§§ 1026.37(c) and 1026.38(c).
17(d) Multiple Creditors; Multiple
Consumers
Current § 1026.17(d) addresses
transactions that involve multiple
creditors or consumers. The proposed
rule revises comment 17(d)–2, regarding
multiple consumers, to clarify that the
early disclosures required by
§ 1026.19(a), (e), or (g), as applicable,
need be provided to only one consumer
who will have primary liability on the
obligation. Material disclosures, as
defined in § 1026.23(a)(3)(ii), under
§ 1026.23(a) and the notice of the right
to rescind required by § 1026.23(b),
however, must be given before
consummation to each consumer who
has the right to rescind, including any
such consumer who is not an obligor.
As the Board stated in its 2010 Mortgage
Proposal, the purpose of the TILA
section 128 requirement that creditors
provide early and final disclosures is to
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ensure that consumers have information
specific to their loan to use while
shopping and evaluating their loan. See
75 FR at 58585. On the other hand, the
purpose of the TILA section 121(a)
requirement that each consumer with a
right to rescind receive disclosures
regarding that right is to ensure that
each such consumer has the necessary
information to decide whether to
exercise that right. Id. For this reason,
the proposed rule requires creditors to
provide all consumers who have the
right to rescind with the material
disclosures under §§ 1026.18 and
1026.38 and the notice of the right to
rescind required by § 1026.23(b), even if
such consumer is not an obligor.
17(e) Effect of Subsequent Events
Current § 1026.17(e) provides rules
regarding when a subsequent event
makes a disclosure inaccurate and
requires a new disclosure. The proposed
rule revises comment 17(e)–1 to clarify
that special rules apply to transactions
subject to proposed § 1026.19(e) and (f).
17(f) Early Disclosures
Current § 1026.17(f) contains rules
regarding when a creditor must
redisclose after providing disclosures
prior to consummation. As discussed in
the section-by-section analysis to
proposed § 1026.19(a), (e), and (f),
special timing requirements apply for
transactions subject to those sections.
Accordingly, § 1026.17(f) is revised to
reflect the fact that the general early
disclosure rules in § 1026.17(f) are
subject to the special rules in
§ 1026.19(a), (e), and (f). In addition,
comments 17(f)–1 through –4 would be
revised to conform to the special timing
requirements under proposed
§ 1026.19(a) or (e) and (f).
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17(g) Mail or Telephone Orders—Delay
in Disclosures
Current § 1026.17(g) and its
commentary permit creditors to delay
disclosures for transactions involving
mail or telephone orders until the first
payment is due if specific information,
including the principal loan amount,
total sale price, finance charge, annual
percentage rate, and terms of repayment
is provided to the consumer prior to the
creditor’s receipt of a purchase order or
request for extension of credit. As
discussed in the section-by-section
analysis to proposed § 1026.19(a), (e),
and (f), the Bureau proposes special
timing requirements for transactions
subject to those provisions.
Accordingly, the Bureau proposes to
revise § 1026.17(g) and comment 17(g)–
1 to clarify that § 1026.17(g) does not
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apply to transactions subject to
§ 1026.19(a), (e), and (f).
17(h) Series of Sales—Delay in
Disclosures
Current § 1026.17(h) and its
commentary permit creditors to delay
disclosures until the due date of the first
payment in transactions in which a
credit sale is one of a series made under
an agreement providing that subsequent
sales may be added to the outstanding
balance. As discussed in the section-bysection analysis to proposed
§ 1026.19(a), (e), and (f), the Bureau
proposes special timing requirements
for transactions subject to those
provisions. Accordingly, the Bureau
proposes to revise § 1026.17(h) and
comment 17(h)–1 to clarify that
§ 1026.17(h) does not apply to
transactions subject to § 1026.19(a) or (e)
and (f).
1026.18 Content of Disclosures
Section 1026.18 sets forth the
disclosure content for closed-end
consumer credit transactions. As
discussed in more detail below, the
Bureau is proposing to establish
separate disclosure requirements for
closed-end transactions secured by real
property, other than reverse mortgage
transactions, through proposed
§ 1026.19(e) and (f). Accordingly, the
Bureau is proposing to amend
§ 1026.18’s introductory language to
provide that its disclosure content
requirements apply only to closed-end
transactions other than mortgage
transactions subject to § 1026.19(e) and
(f).
The Bureau is also proposing
revisions to § 1026.18(k), which
provides for disclosure of whether, if
the obligation is prepaid in full, a
penalty will be imposed or a consumer
will be entitled to a rebate of any
finance charge. The proposed revisions
conform to the definition of
‘‘prepayment penalty’’ in proposed
§ 1026.37(b)(4) and associated
commentary. As explained in more
detail in the section-by-section analysis
for proposed § 1026.37(b)(4), the Bureau
is coordinating the definition of
‘‘prepayment penalty’’ across its
pending mortgage-related rulemakings,
and proposed revisions to § 1026.18(k)
are part of that comprehensive
approach.
The Bureau also is proposing to add
a new comment 18–3 clarifying that,
because of the exclusion of transactions
subject to § 1026.19(e) and (f), the
disclosures required by § 1026.18 apply
only to closed-end transactions that are
unsecured or secured by personal
property (including dwellings that are
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not also secured by real property) and
to reverse mortgages. The comment
would also clarify that, for unsecured
transactions and transactions secured by
personal property that is not a dwelling,
creditors must disclose a payment
schedule under § 1026.18(g), and for
other transactions that are subject to
§ 1026.18, creditors must disclose an
interest rate and payment summary
table under § 1016.18(s), as adopted by
the Board’s MDIA Interim Rule. 75 FR
at 58482–84. Finally, the comment
would clarify that, because § 1026.18
does not apply to most transactions
secured by real property, references in
the section and its commentary to
‘‘mortgages’’ refer only to transactions
secured by personal property that is not
a dwelling and reverse mortgages, as
applicable.
18(b) Amount Financed
Section 1026.18(b) addresses the
calculation and disclosure of the
amount financed for closed-end
transactions. Comment 18(b)–2
currently provides that creditors may
choose whether to reflect creditor-paid
premiums and seller- or manufacturerpaid rebates in the disclosures required
by § 1026.18. For the reasons discussed
under § 1026.17(c)(1), above, the Bureau
is proposing to remove comment 18(b)–
2 and place revised guidance regarding
rebates and loan premiums in proposed
comment 17(c)(1)–19.
18(b)(2)
The Bureau is proposing certain
conforming changes to comment
18(b)(2)–1, which addresses amounts
included in the amount financed
calculation that are not otherwise
included in the finance charge. As
discussed more fully under proposed
§ 1026.4, above, the Bureau proposes to
adopt a simpler and more inclusive
definition of the finance charge.
Therefore, references to real estate
settlement charges in comment 18(b)(2)–
1 are inappropriate. Proposed comment
18(b)(2)–1 removes those references and
substitutes appropriate examples.
18(c) Itemization of Amount Financed
Section 1026.18(c) requires an
itemization of the amount financed and
provides guidance on the amounts that
must be included in the itemization.
The Bureau proposes certain
conforming amendments to two
comments under § 1026.18(c). Under
this proposal, § 1026.18 disclosures,
including the itemization of amount
financed under § 1026.18(c), are
required only for closed-end
transactions that are not secured by real
property and reverse mortgages;
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transactions secured by real property
other than reverse mortgages are subject
instead to the disclosure content
required by §§ 1026.37 and 1026.38. The
Bureau therefore proposes technical
revisions to comments 18(c)–4 and
18(c)(1)(iv)–2 to limit those comments’
discussions of the RESPA disclosures
and their interaction with § 1026.18(c)
to reverse mortgages.
18(f) Variable Rate
18(f)(1)
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18(f)(1)(iv)
Section 1026.18(f)(1)(iv) requires that,
for variable-rate transactions not
secured by a consumer’s principal
dwelling and variable-rate transactions
secured by a consumer’s principal
dwelling where the loan term is one
year or less, creditors disclose an
example of the payment terms that
would result from an interest rate
increase. The Bureau proposes to revise
comment 18(f)(1)(iv)–2 by removing
paragraph 2.iii, which provides that
such an example is not required in a
multiple-advance construction loan
disclosed pursuant to appendix D, part
I. Appendix D, part I provides guidance
for disclosing the construction phase of
a construction-to-permanent loan as a
separate transaction pursuant to
§ 1026.17(c)(6)(ii) (or for disclosing a
construction-only loan). The Bureau’s
proposal to remove comment
18(f)(1)(iv)–2.iii is intended solely as a
conforming amendment, to reflect the
fact that multiple-advance construction
loans would no longer be subject to the
§ 1026.18 disclosure requirements under
this proposal. The Bureau believes that
multiple-advance construction loans are
limited to transactions with real
property as collateral, and are not used
for dwellings that are personal property
or in reverse mortgages. Therefore, all
construction loans would be subject
instead to the new disclosure content
requirements of §§ 1026.37 and 1026.38.
The Bureau seeks comment, however,
on whether any reason remains to
preserve comment 18(f)(1)(iv)–2.iii.
18(g) Payment Schedule
Section 1026.18(g) requires the
disclosure of the number, amounts, and
timing of payments scheduled to repay
the obligation, for closed-end
transactions other than transactions
subject to § 1026.18(s). Section
1026.18(s) requires an interest rate and
payment summary table, in place of the
§ 1026.18(g) payment schedule, for
closed-end transactions secured by real
property or a dwelling, other than
transactions that are secured by a
consumer’s interest in a timeshare plan.
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As noted above, however, the Bureau is
proposing to remove from the coverage
of § 1026.18 transactions secured by real
property, other than reverse mortgages,
and subject them to the integrated
disclosures under §§ 1026.37 and
1026.38. Thus, under this proposal,
§ 1026.18(g) applies only to closed-end
transactions that are unsecured or
secured by personal property that is not
a dwelling. All closed-end transactions
that are secured by either real property
or a dwelling, including reverse
mortgages, are subject instead to either
the interest rate and payment summary
table disclosure requirement under
§ 1026.18(s) or the projected payments
table disclosure requirement under
§§ 1026.37(c) and 1026.38(c), as
applicable.
In light of these changes to the
coverage of § 1026.18 generally, and
specifically § 1026.18(g), the Bureau is
proposing several conforming changes
to the commentary under § 1026.18(g).
Specifically, comment 18(g)–4 would be
revised to remove a reference to home
repairs, and comment 18(g)–5, relating
to mortgage insurance, would be
removed and reserved. In addition,
comment 18(g)–6, which currently
discusses the coverage of mortgage
transactions as between §§ 1026.18(g)
and 1026.18(s), would be revised to
reflect the additional effect of proposed
§ 1026.19(e) and (f), which requires the
new integrated disclosures set forth in
proposed §§ 1026.37 and 1026.38 for
most transactions secured by real
property. Finally, the Bureau also
proposes to amend comments 18(g)(2)–
1 and –2 to remove unnecessary, and
potentially confusing, references to
mortgages and mortgage insurance.
18(k) Prepayment
Section 1026.18(k) implements the
provisions of TILA section 128(a)(11),
which requires that the transactionspecific disclosures for closed-end
consumer credit transactions disclose
whether (1) a consumer is entitled to a
rebate of any finance charge upon
prepayment in full pursuant to
acceleration or otherwise, if the
obligation involves a precomputed
finance charge, and (2) a ‘‘penalty’’ is
imposed upon prepayment in full of
such transactions if the obligation
involves a finance charge computed
from time to time by application of a
rate to the unpaid principal balance. 15
U.S.C. 1638(a)(11). Commentary to
§ 1026.18(k) provides further guidance
regarding the disclosures and provides
examples of prepayment penalties and
the types of finance charges where a
consumer may be entitled to a rebate.
For further background on § 1026.18(k),
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see the section-by-section analysis for
proposed § 1026.37(b)(4), below.
The Bureau defines ‘‘prepayment
penalty’’ in proposed § 1026.37(b)(4) for
transactions subject to §§ 1026.19(e) and
(f) as a charge imposed for paying all or
part of a loan’s principal before the date
on which the principal balance is due,
and provides examples of prepayment
penalties and other relevant guidance in
proposed commentary. The Bureau’s
proposed definition of ‘‘prepayment
penalty’’ and commentary is based on
its consideration of the existing
statutory and regulatory definitions of
‘‘penalty’’ and ‘‘prepayment penalty’’
under TILA and Regulation Z, the
Board’s proposed definitions of
prepayment penalty in its 2009 ClosedEnd Proposal, 2010 Mortgage Proposal,
and 2011 ATR Proposal, and the
Bureau’s authority under TILA section
105(a) and Dodd-Frank Act sections
1032(a) and, for residential mortgage
loans, 1405(b). Further background on
the Bureau’s definition of prepayment
penalty and the basis of its legal
authority for proposing that definition
are in the section-by-section analysis for
proposed § 1026.37(b)(4), below.
As discussed in the section-by-section
analysis for proposed § 1026.37(b)(4),
the Bureau is coordinating the
definition of ‘‘prepayment penalty’’ in
proposed § 1026.37(b)(4) with the
definitions in the Bureau’s other
pending rulemakings under the DoddFrank Act concerning ability-to-repay
requirements, high-cost mortgages
under HOEPA, and mortgage servicing.
The Bureau believes that, to the extent
consistent with consumer protection
objectives, adopting a consistent
definition of ‘‘prepayment penalty’’
across its various pending rulemakings
affecting closed-end mortgages will
facilitate compliance. As an additional
part of adopting a consistent regulatory
definition of ‘‘prepayment penalty,’’ the
Bureau is proposing certain conforming
revisions to § 1026.18(k) and associated
commentary.
The Bureau recognizes that, with such
conforming revisions to § 1026.18(k)
and associated commentary, the revised
definition of ‘‘prepayment penalty’’ will
apply to both closed-end mortgage and
non-mortgage transactions. In particular,
the proposed conforming revisions to
§ 1026.18(k) define ‘‘prepayment
penalty’’ with reference to a prepayment
of ‘‘all or part of’’ the principal balance
of a loan covered by the provision,
while TILA section 128(a)(11) and
current § 1026.18(k) and its associated
commentary refer to prepayment ‘‘in
full.’’ This revision may lead to an
expansion of the set of instances that
trigger disclosure under § 1026.18 of a
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prepayment penalty for closed-end
transactions. The Bureau believes that
consumers entering into closed-end
mortgage and non-mortgage transactions
alike will benefit from the transparency
associated with more frequent and
consistent disclosure of prepayment
penalties. Therefore, the Bureau is using
its authority under TILA section 105(a)
to make the proposed conforming
revisions to § 1026.18(k) because they
will effectuate the purposes of TILA by
promoting the informed use of credit.
Similarly, these revisions will help
ensure that the features of these
mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand better the
costs, benefits, and risks associated with
mortgage transactions, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a). The
revisions will also improve consumer
awareness and understanding of
residential mortgage loans, and are in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). The Bureau solicits
comment on this approach to the
definition of prepayment penalty.
To conform with the proposed
definition of prepayment penalty in
§ 1026.37(b)(4), proposed § 1026.18(k)(1)
deletes the phrase ‘‘a statement
indicating whether or not a penalty may
be imposed if the obligation is prepaid
in full’’ and replaces it with the phrase
‘‘a statement indicating whether or not
a charge may be imposed for paying all
or part of a transaction’s principal
before the date on which the principal
is due.’’ Proposed § 1026.18(k)(2) adds
the phrase ‘‘or in part’’ at the end of the
phrase ‘‘a statement indicating whether
or not the consumer is entitled to a
rebate of any finance charge if the
obligation is prepaid in full.’’
Proposed revised comments 18(k)–1
through –3 insert the word
‘‘prepayment’’ before the words
‘‘penalty’’ and ‘‘rebate’’ when used, to
standardize the terminology across
Regulation Z (i.e., § 1026.32(d)(6)
currently refers to ‘‘prepayment
penalty,’’ and proposed § 1026.37(b)(4)
uses the same phrase). Proposed revised
comment 18(k)(1)–1 replaces the
existing commentary text with the
language from proposed comments
37(b)(4)–2 and –3. For further
background on proposed comments
37(b)(4)–2 and –3, see the section-bysection analysis for proposed
§ 1026.37(b)(4), below.
18(r) Required Deposit
If a creditor requires the consumer to
maintain a deposit as a condition of the
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specific transactions, § 1026.18(r)
requires that the creditor disclose a
statement that the APR does not reflect
the effect of the required deposit.
Comment 18(r)–6 provides examples of
arrangements that are not considered
required deposits and therefore do not
trigger this disclosure. The Bureau is
proposing to remove and reserve
paragraph 6.vi, which states that an
escrow of condominium fees need not
be treated as a required deposit. In light
of the changes to the coverage of
§ 1026.18 under this proposal, the only
transactions to which this guidance
could apply are reverse mortgages,
which do not entail escrow accounts for
condominium fees or any other
recurring expenses. Accordingly, the
Bureau believes that comment 18(r)–6.vi
is rendered unnecessary by this
proposal. The Bureau seeks comment,
however, on whether any kind of
transaction exists for which this
guidance would continue to be relevant
under § 1026.18, as amended by this
proposal.
18(s) Interest Rate and Payment
Summary for Mortgage Transactions
Section 1026.18(s) currently requires
the disclosure of an interest rate and
payment summary table for transactions
secured by real property or a dwelling,
other than a transaction secured by a
consumer’s interest in a timeshare plan.
Under this proposal, however,
§ 1026.19(e) and (f) requires new,
separate disclosures for transactions
secured by real property, other than
reverse mortgages. Generally, the
disclosure requirements of § 1026.19(e)
and (f) apply to transactions currently
subject to current § 1026.18(s), except
that reverse mortgages and transactions
secured by dwellings that are personal
property would be excluded. In
addition, as discussed in the section-bysection analysis to proposed § 1026.19,
transactions secured by a consumer’s
interest in a timeshare plan are covered
by the integrated disclosure
requirements of § 1026.19(e) and (f),
although such transactions are not
currently subject to the requirements of
§ 1026.18(s).
The new, integrated disclosures
include a different form of projected
payments table, under §§ 1026.37(c) and
1026.38(c), instead of the summary table
under § 1026.18(s). Accordingly, the
Bureau proposes to amend § 1026.18(s)
to provide that it applies to transactions
that are secured by real property or a
dwelling, other than transactions that
are subject to § 1026.19(e) and (f) (i.e.
reverse mortgages and dwellings that are
not secured by real property). The
Bureau is proposing parallel revisions to
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comment 18(s)–1 to reflect this change
in the scope of § 1026.18(s)’s coverage.
The Bureau also proposes to add a new
comment 18(s)–4 to explain that
§ 1026.18(s) governs only closed-end
reverse mortgages and closed-end
transactions secured by a dwelling that
is personal property.
18(s)(3) Payments for Amortizing Loans
18(s)(3)(i)(C)
Current § 1026.18(s)(3)(i)(C) requires
creditors to disclose whether mortgage
insurance is included in monthly
escrow payments in the interest rate and
payment summary. The Bureau
understands that some government loan
programs impose annual guarantee fees
and that creditors typically collect a
monthly escrow for the payment of such
amounts. The Bureau has learned
through industry inquiries that
uncertainty exists regarding whether
such guarantee fees should be disclosed
as mortgage insurance under
§ 1026.18(s)(3)(i)(C) if the guarantee
technically is not insurance under
applicable law. One way to comply with
§ 1026.18(s) is to include such guarantee
fees in the monthly payment amount,
without using the check box for
‘‘mortgage insurance.’’ See comment
18(s)(3)(i)(C)–1 (escrowed amounts
other than taxes and insurance may be
included but need not be). Although the
Bureau recognizes that government loan
program guarantees may be legally
distinguishable from mortgage
insurance, they are functionally very
similar. Moreover, such a technical,
legal distinction is unlikely to be
meaningful to most consumers.
Therefore, the Bureau believes that the
disclosure of such fees would be
improved by including them in the
monthly escrow payment amount and
using the check box for ‘‘mortgage
insurance.’’
For these reasons, pursuant to its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b), the Bureau
proposes to revise § 1026.18(s)(3)(i)(C)
to provide that mortgage insurance or
any functional equivalent must be
included in the estimate of the amount
of taxes and insurance, payable with
each periodic payment. Proposed
comment 18(s)(3)(i)(C)–2 is revised to
conform to § 1026.18(s)(3)(i)(C).
Specifically, the proposed comment
clarifies that, for purposes of the interest
rate and payment summary disclosure
required by § 1026.18(s), ‘‘mortgage
insurance or any functional equivalent’’
includes ‘‘mortgage guarantees’’ (such as
a United States Department of Veterans
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Affairs or United States Department of
Agriculture guarantee) that provide
coverage similar to mortgage insurance,
even if not technically considered
insurance under State or other
applicable law. Since mortgage
insurance and mortgage guarantee fees
are functionally very similar, the Bureau
believes that including both amounts in
the estimate of taxes and insurance on
the table required by § 1026.18(s) will
promote the informed use of credit,
thereby carrying out the purposes of
TILA, consistent with TILA section
105(a). In addition, the proposed
disclosure will ensure that more of the
features of the mortgage transaction are
fully, accurately, and effectively
disclosed to consumers in a manner that
will permit consumers to understand
the costs, benefits, and risks associated
with the mortgage transaction,
consistent with Dodd-Frank Act section
1032(a), and will improve consumer
awareness and understanding of
residential mortgage loans and will be
in the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). Proposed comment
18(s)(3)(i)(C)–2 is consistent with the
treatment of mortgage guarantee fees on
the projected payments table required
by proposed §§ 1026.37(c) and
1026.38(c). See proposed comment
37(c)(1)(i)(C)–1.
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Section 1026.19 Certain Mortgage and
Variable-Rate Transactions
As discussed below, the Bureau
proposes to amend § 1026.19 to define
the scope of the proposed integrated
disclosures and to establish the
requirements for provision of those
disclosures.
Coverage of Integrated Disclosure
Requirements
For the reasons discussed in detail
below, the Bureau proposes to require
delivery of the integrated disclosures for
closed-end consumer credit transactions
secured by real property, other than
reverse mortgages. As discussed above
in part IV, section 1032(f) of the DoddFrank Act requires that ‘‘the Bureau
shall propose for public comment rules
and model disclosures that combine the
disclosures required under [TILA] and
sections 4 and 5 of [RESPA], into a
single, integrated disclosure for
mortgage loan transactions covered by
those laws.’’ 12 U.S.C. 5532(f). In
addition, sections 1098 and 1100A of
the Dodd-Frank Act amended RESPA
section 4(a) and TILA section 105(b),
respectively, to require the Bureau to
publish a ‘‘single, integrated disclosure
for mortgage loan transactions
(including real estate settlement cost
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statements) which includes the
disclosure requirements of [TILA and
sections 4 and 5 of RESPA] that, taken
together, may apply to a transaction that
is subject to both or either provisions of
law.’’ 12 U.S.C. 2604(a); 15 U.S.C.
1604(b). Accordingly, the Bureau is
directed to establish the integrated
disclosure requirements for ‘‘mortgage
loan transactions’’ that are ‘‘subject to
both or either provisions of’’ RESPA
sections 4 and 5 (the statutory GFE and
settlement statement requirements) and
TILA.125
The Legal Authority discussion in
part IV also notes that, notwithstanding
this integrated disclosure mandate, the
Dodd-Frank Act did not reconcile
important differences between RESPA
and TILA relating to the timing of
delivery of the RESPA settlement
statement and the TILA disclosure, as
well as the persons and transactions on
whom those disclosure requirements are
imposed. Accordingly, to meet the
integrated disclosure mandate, the
Bureau believes that it must reconcile
such statutory differences. In addition to
those differences already noted, RESPA
and TILA have certain differences in the
types of transactions to which their
respective disclosure requirements
apply. The Bureau also recognizes that
application of the integrated disclosure
requirements to certain transaction
types may be inappropriate, even
though those transaction types are
within the scopes of one or both
statutes. These issues and the Bureau’s
proposal for addressing them are
discussed below.
Differences in coverage of RESPA and
TILA. RESPA applies generally to
‘‘federally related mortgage loans,’’
which means loans (other than
temporary financing such as
construction loans) secured by a lien on
residential real property designed
principally for occupancy by one to four
families and that are (1) made by a
lender with Federal deposit insurance;
(2) made, insured, guaranteed,
supplemented, or assisted in any way by
any officer or agency of the Federal
government; (3) intended to be sold to
Fannie Mae, Ginnie Mae, or (directly or
125 In addition to, and at the same times as,
provision of the GFE under RESPA section 5(c),
section 5(d) also requires lenders to provide to
mortgage applicants the home buying information
booklet prepared by the Bureau pursuant to section
5(a). Although the Bureau is not proposing to
integrate the booklet with the RESPA GFE and TILA
disclosures, in the sense of building all of their
contents into a single form, the Bureau is proposing
to implement the booklet requirement in proposed
§ 1026.19(g), discussed below. The same
considerations of coverage discussed here with
respect to the integrated disclosures also apply for
purposes of the booklet requirement.
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51155
through an intervening purchaser)
Freddie Mac; or (4) made by a
‘‘creditor,’’ as defined under TILA, that
makes or invests in real estate loans
aggregating more than $1,000,000 per
year, other than a State agency. 12
U.S.C. 2602(1), 2604.126 RESPA section
7(a) provides that RESPA does not apply
to credit for business, commercial, or
agricultural purposes or to credit
extended to government agencies. Id.
2606(a). Thus, RESPA disclosures
essentially are required for consumerpurpose loans that have some Federal
nexus (or are made by a TILA creditor
with sufficient volume) and that are
secured by real property improved by
single-family housing.
Regulation X § 1024.5 implements
these statutory provisions. Section
1024.5(a) provides that RESPA and
Regulation X apply to federally related
mortgage loans, which are defined by
§ 1024.2(b) to parallel the statutory
definition described above. Section
1024.5(b) establishes certain exemptions
from coverage, including loans on
property of 25 acres or more; loans for
a business, commercial, or agricultural
purpose; temporary financing, such as
construction loans, unless the loan is
used to finance transfer of title or may
be converted to permanent financing by
the same lender; and loans on
unimproved property, unless within
two years from settlement the loan
proceeds will be used to construct or
place a residence on the land. 12 CFR
1024.5(b)(1) through (4). Unlike the
others, the exemption for loans secured
by properties of 25 acres or more is not
statutory and is established by
Regulation X only.
TILA, on the other hand, applies
generally to consumer credit
transactions of all kinds, including
unsecured credit and credit secured by
nonresidential property. 15 U.S.C.
1602(f) (‘‘credit’’ defined as ‘‘the right
granted by a creditor to a debtor to defer
payment of debt or to incur debt and
defer its payment’’). Similar to RESPA,
TILA excludes, among others,
extensions of credit primarily for
business, commercial, or agricultural
purposes, or to government or
governmental agencies or
instrumentalities, or to organizations.
Id. 1603(1). In contrast with RESPA and
Regulation X, however, TILA (and
therefore Regulation Z) has no exclusion
126 Although section 4 of RESPA, 12 U.S.C. 2603,
originally recited that it applied to federally related
mortgage loans as well, as amended by the DoddFrank Act it no longer does so explicitly. The
Bureau nevertheless regards the RESPA settlement
statement requirement as continuing to apply to
federally related mortgage loans, consistent with the
rest of RESPA’s scope generally.
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for property of 25 acres or more,
temporary financing, or vacant land.
Moreover, TILA applies only to
transactions made by a person who
‘‘regularly extends’’ consumer credit. Id.
1602(g) (definition of creditor).
Regulation Z §§ 1026.2(a)(14) and (17)
and 1026.3(a) implement these statutory
provisions. In particular, § 1026.2(a)(17)
defines creditor in pertinent part as a
person who regularly extends consumer
credit, and § 1026.2(a)(17)(v) further
provides that, for transactions secured
by a dwelling (other than ‘‘high-cost’’
loans subject to HOEPA), a person
‘‘regularly extends’’ consumer credit if it
extended credit more than five times in
the preceding calendar year. Section
1026.3(a) implements the exclusion of
credit extended primarily for a business,
commercial, or agricultural purpose, as
well as credit extended to other than a
natural person, including government
agencies or instrumentalities.
Although TILA generally applies to
consumer credit that is unsecured or
secured by nonresidential property,
Dodd-Frank Act section 1032(f), RESPA
section 4(a), and TILA section 105(b)
specifically limit the integrated
disclosure requirement to ‘‘mortgage
loan transactions.’’ The Dodd-Frank Act
did not specifically define ‘‘mortgage
loan transaction,’’ but did direct that the
disclosures be designed to incorporate
disclosure requirements that may apply
to ‘‘a transaction that is subject to both
or either provisions of the law.’’
As described above, five types of
loans are currently covered by TILA or
RESPA, but not both. Under the
foregoing provisions, loans to finance
home construction that do not finance
transfer of title and for which the
creditor will not extend permanent
financing (construction-only loans),
loans secured by unimproved land
already owned by the consumer and on
which a residence will not be
constructed within two years (vacantland loans), and loans secured by land
of 25 acres or more (25-acre loans) all
are subject to TILA but are currently
exempt from RESPA coverage. In
addition, loans secured by dwellings
that are not real property, such as
mobile homes, houseboats, recreational
vehicles, and similar dwellings that are
not deemed real property under State
law, (chattel-dwelling loans) could be
considered ‘‘mortgage loan
transactions,’’ and they also are subject
to TILA but not RESPA. Meanwhile,
federally related mortgage loans made
by persons who are not creditors under
TILA, because they make five or fewer
such loans per year, are subject to
RESPA but not TILA. In addition, some
types of mortgage loan transactions are
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covered by both statutes, but may
warrant uniquely tailored disclosures
because they involve terms or features
that are so different from standard
closed-end transactions that use of the
same form may cause significant
consumer confusion and compliance
burden for industry.
For the reasons discussed in detail
below, the Bureau proposes to use its
authority under TILA section 105(a), (b),
and (f), RESPA sections 4(a) and 19(a),
and Dodd-Frank Act sections 1032(a)
and (f) and, for residential mortgage
loans, 1405(b) to tailor the scope of this
proposed rule so that the integrated
disclosure requirements apply to all
closed-end consumer credit transactions
secured by real property, other than
reverse mortgages. Doing so will ensure
that, in most mortgage transactions,
consumers receive integrated disclosure
forms developed by the Bureau through
extensive testing that will improve
consumers’ understanding of the
transaction. Furthermore, applying a
consistent set of disclosure
requirements to most mortgage
transactions will facilitate compliance
by industry. However, for a subset of
mortgage transactions, the Bureau
believes that application of the
integrated disclosure requirements
would not improve consumer
understanding or facilitate compliance
and that these transactions should
therefore be exempted from those
requirements.
In some cases, the Bureau is
proposing to exempt transactions that
could arguably fall within Dodd-Frank
Act sections 1032(f), 1098, and 1100A
but are sufficiently different from other
mortgage transactions that application
of the integrated disclosure forms would
neither improve consumer
understanding nor facilitate compliance
by industry (e.g., reverse mortgages,
open-end transactions secured by real
property or a dwelling, and closed-end
transactions secured by a dwelling but
not real property). These transactions
will remains subject to the existing
disclosure requirements under
Regulations X and Z, as applicable, until
the Bureau adopts integrated disclosures
specifically tailored to their distinct
features.127
In other cases, the Bureau is
proposing to expand the scope of certain
mortgage disclosure requirements in
order to ensure that, in most mortgage
127 As discussed below, certain new mortgage
disclosure requirements in the Dodd-Frank Act
apply to these transactions, among others.
Accordingly, transactions that are not subject to the
proposed rule would be temporarily exempt from
those requirements until the Bureau adopts a new
disclosure scheme specific to those transactions.
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transactions, consumers receive a
consistent set of disclosures, which the
Bureau believes will improve consumer
understanding and facilitate
compliance. In particular, the proposed
rule applies to certain transactions that
are currently subject to Regulation Z but
not Regulation X (construction-only
loans, vacant-land loans, and 25-acre
loans). In addition, many of the new
Dodd-Frank Act mortgage disclosure
requirements apply to ‘‘residential
mortgage loans,’’ which—as noted
above—are defined in section 1401 of
the Dodd-Frank Act as any consumer
credit transaction that is secured by a
mortgage on a dwelling or on residential
real property that includes a dwelling
other than an open-end credit plan or an
extension of credit secured by a
consumer’s interest in a timeshare
plan.128 Thus, in addition to narrowing
the application of these disclosures to
exempt temporarily reverse mortgages
and transactions that are not secured by
real property, the proposed rule
expands the application of these
disclosure requirements to apply to
transactions secured by real property
that does not contain a dwelling.
Similarly, the proposed rule both
narrows and expands the application of
other Dodd-Frank Act mortgage
disclosure requirements to improve
consumer understanding and facilitate
compliance.129
Accordingly, the Bureau believes
adjusting the application of the
provisions of TILA and RESPA is within
its general mandate under Dodd-Frank
128 See, e.g., Dodd-Frank Act § 1402(a)(2)
(requires disclosure of loan originator identifier)
(codified at TILA § 129B(b)(1)(B)); Dodd-Frank Act
§ 1414(c) (requires disclosure of anti-deficiency
protections) (codified at TILA § 129C(g)); DoddFrank Act § 1414(d) (requires disclosure of partial
payment policy) (codified at TILA § 129C(h)); DoddFrank Act § 1419 (requires disclosure of certain
aggregate amounts and wholesale rate of funds)
(codified at TILA § 128(a)(17)); Dodd-Frank Act
§ 1419 (requires disclosure of loan originator
compensation) (codified at TILA § 128(a)(18));
Dodd-Frank Act § 1419 (requires disclosure of total
interest) (codified at TILA § 128(a)(19)).
129 See, e.g., Dodd-Frank Act § 1414(a) (requires
negative amortization disclosure for open or closed
end consumer credit plans secured by a dwelling
or residential real property that includes a dwelling
that provides or permits a payment plan that may
result in negative amortization) (codified at TILA
§ 129C(f)); Dodd-Frank Act § 1419 (requires certain
payment disclosures for variable rate residential
mortgage loans for which an escrow account will
be established) (codified at TILA § 128(a)(16));
Dodd-Frank Act §§ 1461(a), 1462, and 1465
(requires certain payment and escrow disclosures
for consumer credit transactions secured by a first
lien on the principal dwelling of the consumer,
other than an open end credit plan or reverse
mortgage) (codified at TILA § 129D(h) and (j) and
128(b)(4)); Dodd-Frank Act § 1475 (permits
disclosure of appraisal management fees for
federally related mortgage loans) (codified at
RESPA § 4(c)).
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Act section 1032(f) to prescribe
integrated disclosures, which requires
that the Bureau reconcile differences in
coverage between the two statutes. The
Bureau also believes that this approach
is expressly authorized by sections 4(a)
of RESPA and 105(b) of TILA because
both provisions direct the Bureau to
prescribe disclosures that ‘‘may apply to
a transaction that is subject to both or
either provisions of law.’’ (Emphasis
added.) Those provisions authorize
requiring the integrated disclosures for
any transaction that is subject to either
RESPA or TILA, and not only a
transaction that is subject to both,
precisely so that the Bureau has the
flexibility necessary to reconcile those
statutes’ coverage differences for
purposes of the integrated disclosure
mandate.
Furthermore, the Bureau believes that
applying the integrated disclosures to
closed-end consumer credit transactions
secured by real property other than
reverse mortgages will carry out the
purposes of TILA and RESPA,
consistent with TILA section 105(a) and
RESPA section 19(a), by promoting the
informed use of credit and more
effective advance disclosure of
settlement costs, respectively. In
addition, the proposed scope will
ensure that the integrated disclosure
requirements are applied only in
circumstances where they will permit
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans, consistent with Dodd-Frank Act
section 1405(b).
Finally, the Bureau also proposes the
exemption pursuant to TILA section
105(f). The Bureau has considered the
factors in TILA section 105(f) and
believes that an exemption is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers. Based
on these considerations, the results of
the Bureau’s consumer testing, and the
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analysis discussed elsewhere in this
proposal, the Bureau believes that the
proposed exemptions are appropriate.
Coverage issues with HELOCs. Openend transactions secured by real
property or a dwelling (home-equity
lines of credit, or HELOCs) and reverse
mortgages are within the statutory scope
of both TILA and RESPA and also
reasonably could be considered
‘‘mortgage loan transactions.’’
Nevertheless, both types of transaction
are by their natures fundamentally
different from other forms of mortgage
credit. For the reasons discussed below,
the Bureau is proposing to exclude these
types of transaction from the coverage of
the integrated disclosure requirement.
HELOCs are open-end credit plans
and therefore are appropriately subject
to the open-end disclosure requirements
in subpart B of Regulation Z. The
Bureau looked to the closed-end content
requirements under TILA section 128 in
developing the integrated disclosures. It
did so because the Dodd-Frank Act
mandate to propose integrated
disclosures includes section 5 of
RESPA, which requires the GFE, and
only closed-end transactions are subject
to the parallel, early disclosure
requirement under TILA section
128(b)(2)(A). Subjecting open-end
transactions to the integrated disclosure
requirements thus would result in
consumers who are obtaining open-end
credit receiving closed-end disclosures,
many of which would be inapposite and
therefore potentially confusing or even
misleading. Further, in recognition of
the distinct nature of open-end credit,
Regulation X effectively exempts such
plans from the RESPA disclosure
requirements. Sections 1024.6(a)(2) and
1024.7(h) of Regulation X state that, for
HELOCs, the requirements to provide
the ‘‘special information booklet’’
regarding settlement costs and the GFE,
respectively, are satisfied by delivery of
the open-end disclosures required by
Regulation Z. And Regulation X
§ 1024.8(a) exempts HELOCs from the
settlement statement requirement
altogether. The Bureau expects to
address HELOCs through a separate,
future rulemaking that will establish a
distinct disclosure scheme tailored to
their unique features, which will
achieve more effectively the purposes of
both RESPA and TILA.130
Coverage issues with reverse
mortgages. The Bureau is aware that
lenders and creditors face significant
difficulties applying the disclosure
130 In 2009, the Board proposed significant
revisions to the disclosure requirements for
HELOCs. See 74 FR 43428 (Aug. 26, 2009). The
Bureau is now responsible for this proposal.
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requirements of RESPA and TILA to
reverse mortgages, in light of those
transactions’ unusual terms and
features. The difficulties appear to stem
from the fact that a number of the
disclosed items under existing
Regulations X and Z are not relevant to
such transactions and therefore have no
meaning. Moreover, the Bureau
developed the proposed integrated
disclosure forms for use in ‘‘forward’’
mortgage transactions and did not
subject those forms, which implement
essentially the same statutory disclosure
requirements as do the current
regulations, to any consumer testing
using reverse mortgage transactions. The
Bureau therefore is concerned that the
use of the integrated disclosures for
reverse mortgages may result in
numerous disclosures of items that are
not applicable, difficult to apply, or
potentially even misleading or
confusing for consumers.131 As with
HELOCs, the Bureau expects to address
reverse mortgages through a separate,
future rulemaking process that will
establish a distinct disclosure
scheme.132
Coverage issues with chattel-dwelling
loans. Chattel-dwelling loans (such as
loans secured by mobile homes) do not
involve real property, by definition. The
Bureau estimates that approximately
one-half of the closing-cost content of
the integrated disclosures is not
applicable to such transactions because
they more closely resemble motor
vehicle transactions than true mortgage
transactions. Such transactions
currently are not subject to RESPA and,
unlike the transactions above that
involve real property, generally are not
consummated with ‘‘real estate
settlements,’’ which are the basis of
RESPA’s coverage. Thus, were these
131 In addition, many reverse mortgages are
structured as open-end plans and therefore may be
subject to the same concerns noted with respect to
HELOCs.
132 The Board’s 2010 Mortgage Proposal included
several provisions relating to reverse mortgages. See
75 FR 58539, 58638–59. Specifically, the Board
proposed requiring creditors to use new forms of
disclosures designed specifically for reverse
mortgages, rather than the standard TILA
disclosures. The 2010 Mortgage Proposal also
proposed significant protections for reverse
mortgage consumers, including with respect to
advertising of reverse mortgages and cross-selling of
reverse mortgages with other financial and
insurance products. In addition, section 1076 of the
Dodd-Frank Act required the Bureau to engage in
a study of reverse mortgage transactions and
instructed the Bureau to consider protections with
respect to obtaining reverse mortgages for the
purpose of funding investments, annuities, and
other investment products and the suitability of a
borrower in obtaining a reverse mortgage. The
Bureau intends that its future rulemaking for
reverse mortgages will address the issues identified
in the Board’s 2010 Mortgage Proposal and the
findings of the Bureau’s reverse mortgage study.
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transactions subject to the integrated
disclosures under this proposal, a
significant portion of the disclosures’
content would be inapplicable. The
Bureau believes that permitting those
items to be omitted altogether could
compromise the overall integrity of the
disclosures, which were developed
through consumer testing that never
contemplated such extensive omissions,
and the Bureau therefore has no basis
for expecting that they would
necessarily be as informative to
consumers if so dramatically altered.
The Bureau has similar concerns about
keeping the overall forms intact but
directing creditors to complete the
inapplicable portions with ‘‘N/A’’ or
simply to leave them blank. Moreover,
the Bureau believes that such an
approach would risk undermining
consumers’ understanding of their
transactions, which would be
inconsistent with the purpose of this
rulemaking, because they could be
distracted by extensive blank or ‘‘N/A’’
disclosures from the relevant
disclosures present on the form.
Although chattel-dwelling loans are
subject to TILA, excluding them from
coverage of the integrated disclosures
would not excuse them from TILA’s
disclosure requirements. Rather, they
would remain subject to the existing
closed-end TILA disclosure
requirements as implemented in
§ 1026.18. Thus, this approach preserves
the current treatment of chattel-dwelling
loans under both RESPA and TILA. The
Bureau expects that it will undertake
improvements to the § 1026.18
disclosures in the future, through a
process similar to the one used in this
proposal. The Bureau believes that the
TILA disclosures resulting from that
process would be more appropriate and
more beneficial to consumers than the
integrated disclosures under this
proposal. Excluding chattel-dwellings
from the integrated disclosure
requirements means they would not be
subjected by this rulemaking to certain
new disclosure requirements added to
TILA section 128(a) by the Dodd-Frank
Act. As discussed under § 1026.1(c)
above, certain new mortgage disclosure
requirements established by the DoddFrank Act are being deferred until such
requirements are implemented by
regulations. Such regulations include,
but are not limited to, the final rule that
will be adopted under this proposal. As
noted above, the Bureau plans to
address chattel-dwellings, as well as
reverse mortgages and HELOCs, in
future rulemakings. Accordingly,
pursuant to the authority discussed
above, those transactions also are
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subject to the temporary exemption in
proposed § 1026.1(c) until those
rulemakings are completed.
The Bureau’s proposal. For the
reasons discussed above, proposed
§ 1026.19(e) and (f), discussed further
below, requires that the integrated
disclosures be provided for closed-end
consumer credit transactions secured by
real property, other than a reverse
mortgage subject to § 1026.33. Similarly,
proposed § 1026.19(g) requires
provision of the home buying
information booklet for closed-end
consumer credit transactions secured by
real property and states in
§ 1026.19(g)(1)(iii)(C) that the
requirement does not apply to reverse
mortgages. Accordingly, constructiononly loans and vacant-land loans are
subject to the proposed integrated
disclosure and booklet requirements. On
the other hand, chattel-dwelling loans
are not subject to the proposed
integrated disclosure or booklet
requirements and, instead, remain
subject to the existing disclosure
requirements in § 1026.18. Finally,
federally related mortgage loans
extended by a person that is not a
creditor, as defined in Regulation Z
§ 1026.2(a)(17), are not subject to the
proposed integrated disclosure or
booklet requirements because such
transactions are not subject to
Regulation Z at all.
The Bureau believes that, although
construction-only loans, vacant-land
loans, and 25-acre loans all currently are
exempt from RESPA coverage either by
statute or regulation, consumers may
benefit from the integrated disclosures
in such transactions. If such
transactions were not subjected to the
integrated disclosure requirements, they
would remain subject to the existing
TILA disclosures under § 1026.18. The
Bureau believes this treatment would
deprive consumers in such transactions
of the benefits of the enhanced
disclosures developed for this proposal.
Moreover, these types of transactions
involve real property and, therefore, are
amenable to disclosure of the
information currently disclosed through
the RESPA GFE and settlement
statement requirements. Thus, the
Bureau expects that creditors should be
able to use existing systems to provide
the integrated disclosures for such
transactions. The Bureau solicits
comment, however, on whether
application of the integrated disclosures
to these transactions will impose
significant burdens on creditors.
The Bureau also believes that, if a
lender extends five or fewer consumer
credit transactions secured by a
consumer’s dwelling in a year, it should
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not be subject to TILA or Regulation Z.
This treatment preserves the status of
such transactions under existing
Regulation Z. That is, currently,
consumers do not receive Regulation Z
disclosures from such lenders because
they are not considered ‘‘creditors’’
pursuant to § 1026.2(a)(17)(v). The
Bureau believes that eliminating this
exemption could represent a significant
expansion of TILA coverage and is
unaware of any significant problems
encountered by consumers obtaining
credit from such small lenders that
might justify such an expansion.
Further, because such small creditors
may lack the systems to comply with
TILA, they may cease to extend credit
if forced to establish compliance
systems. Although preserving this
exemption means that the integrated
disclosures would not be received by
consumers in such transactions, the
Bureau expects the impact of such an
exemption to be limited. Based on data
reported for 2010 under the Home
Mortgage Disclosure Act (HMDA), 12
U.S.C. 2801 et seq., the Bureau notes
that 569 creditors (seven percent of all
HMDA reporters) reported five or fewer
originations and, more significantly,
that their combined originations of 1399
loans equaled only 0.02 percent of all
originations reported under HMDA for
that year. These transactions would
remain subject to the RESPA disclosure
requirements under Regulation X.
Provision of Current Disclosures Under
TILA and RESPA
TILA. Section 128(b)(2)(A) of TILA
provides that for an extension of credit
secured by a consumer’s dwelling,
which is also subject to RESPA, good
faith estimates of the disclosures in
section 128(a) shall be made in
accordance with regulations of the
Bureau and shall be delivered or placed
in the mail not later than three business
days after the creditor receives the
consumer’s written application. 15
U.S.C. 1638(b)(2)(A). Section
128(b)(2)(A) also requires these
disclosures to be delivered at least seven
business days before consummation.
Regulation Z implements this provision
in § 1026.19(a), which generally tracks
the statute except that it does not apply
to home equity lines of credit subject to
§ 1026.40 and mortgage transactions
secured by a consumer’s interest in a
timeshare plan subject to
§ 1026.19(a)(5).
Section 128(b)(2)(A) and (D) of TILA
states that, if the disclosures provided
pursuant to section 128(b)(2)(A) contain
an annual percentage rate that is no
longer accurate, the creditor shall
furnish an additional, corrected
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statement to the borrower not later than
three business days before the date of
consummation of the transaction. 15
U.S.C. 1638(b)(2)(A), (D). Regulation Z
implements TILA’s requirement that the
creditor deliver corrected disclosures in
§ 1026.19(a)(2)(ii).
RESPA. Section 5(c) of RESPA states
that lenders shall provide, within three
days of receiving the consumer’s
application, a good faith estimate of the
amount or range of charges for specific
settlement services the borrower is
likely to incur in connection with the
settlement as prescribed by the
Bureau.133 12 U.S.C. 2604(c). Section
3(3) of RESPA defines ‘‘settlement
services’’ as:
[A]ny service provided in connection
with a real estate settlement including,
but not limited to, the following: title
searches, title examinations, the
provision of title certificates, title
insurance, services rendered by an
attorney, the preparation of documents,
property surveys, the rendering of credit
reports or appraisals, pest and fungus
inspections, services rendered by a real
estate agent or broker, the origination of
a federally related mortgage loan
(including, but not limited to, the taking
of loan applications, loan processing,
and the underwriting and funding of
loans), and the handling of the
processing, and closing or settlement. 12
U.S.C. 2602(3).
Section 1024.7(a)(1) of Regulation X
currently provides that, not later than
three business days after a lender
receives an application, or information
sufficient to complete an application,
the lender must provide the applicant
with the GFE.
In contrast to the TILA and RESPA
good faith estimate requirements, which
apply to creditors, the RESPA
settlement statement requirement
generally applies to settlement agents.
Specifically, section 4 of RESPA
provides that the settlement statement
must be completed and made available
for inspection by the borrower at or
133 RESPA section 5(d) provides that ‘‘Each lender
referred to in subsection (a) of this section shall
provide the booklet described in such subsection to
each person from whom it receives or for whom it
prepares a written application to borrow money to
finance the purchase of residential real estate. Such
booklet shall be provided by delivering it or placing
it in the mail not later than 3 business days after
the lender receives the application, but no booklet
need be provided if the lender denies the
application for credit before the end of the 3-day
period.’’ RESPA section 5(c) provides that ‘‘Each
lender shall include with the booklet a good faith
estimate of the amount or range of charges for
specific settlement services the borrower is likely to
incur in connection with the settlement as
prescribed by the Bureau.’’ Thus, the lender must
deliver the good faith estimate not later than three
business days after receiving the consumer’s
application.
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before settlement by the person
conducting the settlement. 12 U.S.C.
2603(b). Section 4 also provides that,
upon the request of the borrower, the
person who will conduct the settlement
shall permit the borrower to inspect
those items which are known to such
person on the settlement statement
during the business day immediately
preceding the day of settlement. Id.
These requirements are implemented in
Regulation X § 1024.10(a).
The Dodd-Frank Act. Sections 1098
and 1100A of the Dodd-Frank Act
amended RESPA and TILA to require an
integrated disclosure that ‘‘may apply to
a transaction that is subject to both or
either provisions of law.’’ Accordingly,
as discussed below, the Bureau is
proposing to integrate the TILA and
RESPA good faith estimate requirements
in a new § 1026.19(e). The Bureau is
also proposing to integrate the TILA and
RESPA settlement statement
requirements in a new § 1026.19(f).
Finally, as appropriate, the Bureau is
proposing to incorporate related
statutory and regulatory requirements
into § 1026.19 and to make conforming
amendments.
19(a) Reverse Mortgage Transactions
Subject to RESPA
As discussed above, the proposal
narrows the scope of § 1026.19(a) so that
all loans currently subject to
§ 1026.19(a), other than reverse
mortgages, are instead subject to
proposed § 1026.19(e) and (f). Pursuant
to its authority under section 105(a) of
TILA, the Bureau proposes to amend
§ 1026.19(a)(1)(i) to apply only to
reverse mortgage transactions subject to
both § 1026.33 and RESPA. This
proposed amendment is consistent with
TILA’s purpose in that it seeks to ensure
meaningful disclosure of credit terms by
requiring the integrated disclosures only
with respect to the loans for which they
were designed—mortgage loans secured
by real property other than reverse
mortgages. This modification will also
be in the interest of consumers and the
public because consumer understanding
will be improved if consumers of
reverse mortgages are not provided with
inapplicable disclosures, consistent
with Dodd-Frank Act section 1405(b).
The Bureau also proposes to make
conforming changes to
§ 1026.19(a)(1)(ii), to delete
§ 1026.19(a)(5), to delete comments
19(a)(5)(ii)–1 through –5, and to delete
comments 19(a)(5)(iii)–1 and –2.
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19(e) Mortgage Loans Secured by Real
Property—Early Disclosures
19(e)(1) Provision
19(e)(1)(i) Creditor
As discussed above, the Bureau is
proposing to integrate the good faith
estimate requirements in TILA section
128 and RESPA section 5 in
§ 1026.19(e)(1)(i), which provides that
in a closed-end consumer credit
transaction secured by real property,
other than a reverse mortgage subject to
§ 1026.33, the creditor shall make good
faith estimates of the disclosures listed
in § 1026.37. Proposed comment
19(e)(1)(i)–1 explains that
§ 1026.19(e)(1)(i) requires early
disclosure of credit terms in closed-end
credit transactions that are secured by
real property, other than reverse
mortgages. These disclosures must be
provided in good faith. Except as
otherwise provided in § 1026.19(e), a
disclosure is in good faith if it is
consistent with the best information
reasonably available to the creditor at
the time the disclosure is provided.
19(e)(1)(ii) Mortgage Broker
Currently, neither TILA’s nor
RESPA’s disclosure requirements apply
to mortgage brokers. The disclosure
requirements of Regulation Z also do
not apply to mortgage brokers. Section
1024.7(b) of Regulation X, however,
currently permits mortgage brokers to
deliver the GFE, provided that the
mortgage broker otherwise complies
with the relevant requirements of
Regulation X, and provided that the
lender remains responsible for ensuring
that the mortgage broker does so.
The Bureau recognizes that, in some
cases, permitting mortgage brokers to
deliver the integrated disclosure may
benefit consumers. Some consumers
may have better relationships with
mortgage brokers than with creditors,
which may enable mortgage brokers to
assist those consumers with
understanding the GFE more effectively
and efficiently. However, there are
concerns regarding the ability of
mortgage brokers to provide the
information required by the integrated
Loan Estimate accurately and reliably.
For example, it is not clear that
mortgage brokers have the ability to
inform the consumer whether the lender
intends to service the consumer’s loan,
or whether the lender will permit a
person to assume the consumer’s loan
on the original terms. Similarly, it is
uncertain that mortgage brokers have
the ability to estimate taxes and
insurance, which is a new disclosure on
the Loan Estimate that is not included
on the current RESPA GFE, to the level
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of specificity required for the Loan
Estimate under proposed
§ 1026.19(e)(3). There is an additional
concern that mortgage brokers do not
have the technology necessary to
comply with TILA’s requirements
regarding delivery of estimates, delivery
of revised disclosures, and
recordkeeping.
The Bureau proposes to exercise its
authority under TILA section 105(a)
and, with respect to residential
mortgage loans, Dodd-Frank Act section
1405(b) to preserve the flexibility in
current Regulation X by permitting the
mortgage broker to provide the
integrated Loan Estimate under
§ 1026.19(e)(1)(ii), subject to certain
limitations. This proposed provision is
consistent with TILA’s purpose in that
consumers will be able to compare more
readily the credit terms available if
mortgage brokers and creditors are able
to disclose available credit terms by use
of the Loan Estimate. In addition, this
modification will be in the interest of
consumers and the public because
consumer understanding and awareness
will be improved if consumers can rely
on the Loan Estimate regardless of
whether it is provided by a creditor or
mortgage broker, consistent with DoddFrank Act section 1405(b). Specifically,
proposed § 1026.19(e)(1)(ii) provides
that, in providing the Loan Estimate, the
mortgage broker must act as the creditor
in every respect, including complying
with all of the requirements of proposed
§ 1026.19(e) and assuming all related
responsibilities and obligations. The
Bureau also seeks comment on the
ability of mortgage brokers to comply
with the requirements of TILA. In
addition, the Bureau seeks comment on
the ability of creditors to coordinate
their operations with mortgage brokers
in a manner that provides the same or
better information to consumers than if
the creditor alone were permitted to
provide the disclosures.
Proposed comment 19(e)(1)(ii)–1
explains that a mortgage broker may
provide the disclosures required under
§ 1026.19(e)(1)(i) instead of the creditor.
By assuming this responsibility, the
mortgage broker becomes responsible
for complying with all of the relevant
requirements as if it were the creditor,
meaning that ‘‘mortgage broker’’ should
be read in the place of ‘‘creditor’’ for all
the relevant provisions of § 1026.19(e),
except where the context indicates
otherwise. The creditor and mortgage
broker must effectively communicate to
ensure timely and accurate compliance
with the requirements of § 1026.19(e).
Proposed comment 19(e)(1)(ii)-2
provides further guidance on the
mortgage broker’s responsibilities in the
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event that the mortgage broker provides
the disclosures required under
§ 1026.19(e), explaining that if a
mortgage broker issues any disclosure
under § 1026.19(e), the mortgage broker
must comply with the requirements of
§ 1026.19(e). For example, if the
mortgage broker receives sufficient
information to complete an application,
the mortgage broker must issue the
disclosures required under
§ 1026.19(e)(1)(i) within three business
days in accordance with
§ 1026.19(e)(1)(iii). If the broker
subsequently receives information
sufficient to establish that a disclosure
provided under § 1026.19(e)(1)(i) must
be reissued under § 1026.19(e)(3)(iv),
then the mortgage broker is responsible
for ensuring that a revised disclosure is
provided.
Proposed comment 19(e)(1)(ii)–3
discusses the creditor’s responsibilities
in the event that a mortgage broker
provides disclosures under § 1026.19(e).
The proposed comment explains that if
a mortgage broker issues any disclosure
required under § 1026.19(e) in the
creditor’s place, the creditor remains
responsible under § 1026.19(e) for
ensuring that the requirements of
§ 1026.19(e) have been satisfied. For
example, the creditor must ensure that
the broker provides the disclosures
required under § 1026.19(e) not later
than three business days after the
mortgage broker received information
sufficient to constitute an application,
as defined in § 1026.2(a)(3)(ii). The
creditor does not satisfy the
requirements of § 1026.19(e) if it
provides duplicative disclosures. For
example, a creditor does not meet its
burden by issuing disclosures required
under § 1026.19(e) that mirror
disclosures already issued by the broker
for the purpose of demonstrating that
the consumer received timely
disclosures. If the broker provides an
erroneous disclosure, the creditor is
responsible and may not issue a revised
disclosure correcting the error. The
creditor is expected to maintain
communication with the broker to
ensure that the broker is acting in place
of the creditor. This comment is
consistent with guidance provided by
HUD in the HUD RESPA FAQs p. 8–10,
# 16, 26, 29 (‘‘GFE—General’’).
Disclosures provided by a broker in
accordance with § 1026.19(e)(1)(ii)
satisfy the creditor’s obligation under
§ 1026.19(e)(1)(i).
Proposed comment 19(e)(1)(ii)–4
discusses when mortgage brokers must
comply with § 1026.19(e)(2)(ii),
regarding the provision of preliminary
written estimates specific to the
consumer. The proposed comment
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explains that § 1026.19(e)(1)(ii) requires
mortgage brokers to comply with
§ 1026.19(e)(2)(ii) if a mortgage broker
provides any disclosures under
§ 1026.19(e). For example, if a mortgage
broker never provides disclosures
required by § 1026.19(e), the mortgage
broker need not include the disclosure
required by § 1026.19(e)(2)(ii) on written
information provided to consumers.
19(e)(1)(iii) Timing
Section 128(b)(2)(A) of TILA provides
that good faith estimates of the
disclosures under section 128(a) shall be
delivered or placed in the mail not later
than three business days after the
creditor receives the consumer’s written
application. 15 U.S.C. 1638(b)(2)(A).
Section 128(b)(2)(A) also requires these
disclosures to be delivered at least seven
business days before consummation.
RESPA requires lenders to provide the
GFE not later than three business days
after receiving the consumer’s
application, but does not require
provision at least seven business days
before consummation. These
requirements are implemented in
§ 1026.19(a)(1)(i) and (a)(2)(i) of
Regulation Z and § 1024.7(a)(2) of
Regulation X, respectively.
The Bureau believes that, for the
proposed rule to be consistent with the
requirements of both statutes, both the
three-business-day delivery requirement
and the seven-business-day waiting
period should apply to the integrated
Loan Estimate. Although RESPA does
not contain a seven-business-day
waiting period, this waiting period is
consistent with the purposes of RESPA,
and adopting it for the integrated
disclosures may best effectuate the
purposes of both TILA and RESPA by
enabling the informed use of credit and
ensuring effective advance disclosure of
settlement charges. Accordingly,
pursuant to its authority under TILA
section 105(a), RESPA section 19(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, section
1405(b) of the Dodd-Frank Act, the
Bureau proposes § 1026.19(e)(1)(iii),
which provides that the creditor shall
deliver the disclosures required by
§ 1026.19(e)(1)(i) not later than the third
business day after the creditor receives
the consumer’s application, as defined
in proposed § 1026.2(a)(3)(ii), and that
the creditor shall deliver these
disclosures not later than the seventh
business day before consummation of
the transaction. This proposed provision
is consistent with TILA’s purposes in
that consumers will be able to compare
more readily the various credit terms
available and avoid the uninformed use
of credit, thereby assuring a meaningful
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disclosure of credit terms. This
proposed regulation is consistent with
section 19(a) of RESPA because it
achieves the purposes of RESPA by
requiring more effective advance
disclosure to consumers of settlement
costs. In addition, the Bureau is
proposing this provision pursuant to its
authority under Dodd-Frank Act section
1032(a) because the proposal ensures
that the features of the credit transaction
are fully, accurately, and effectively
disclosed to the consumer in a manner
that permits consumers to understand
the costs, benefits, and risks associates
with the mortgage loan by providing
sufficient time to review, question, and
understand the entire cost of the
transaction, which is also in the best
interest of consumers and the public,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 19(e)(1)(iii)–1
further clarifies this provision and
provides illustrative examples.
Proposed comment 19(e)(1)(iii)–2
discusses the waiting period, providing
that the seven-business-day waiting
period begins when the creditor delivers
the disclosures or places them in the
mail, not when the consumer receives or
is presumed to have received the
disclosures. For example, if a creditor
delivers the early disclosures to the
consumer in person or places them in
the mail on Monday, June 1,
consummation may occur on or after
Tuesday, June 9, the seventh business
day following delivery or mailing of the
early disclosures, because, for the
purposes of § 1026.19(e)(1)(iii), Saturday
is a business day, pursuant to
§ 1026.2(a)(6).
Proposed comment 19(e)(1)(iii)–3
relates to denied or withdrawn
applications, explaining that the
creditor may determine within the
three-business-day period that the
application will not or cannot be
approved on the terms requested, such
as when a consumer’s credit score is
lower than the minimum score required
for the terms the consumer applied for,
or the consumer applies for a type or
amount of credit that the creditor does
not offer. In that case, or if the consumer
withdraws the application within the
three-business-day period, the creditor
need not make the disclosures required
under § 1026.19(e)(1)(i). If the creditor
fails to provide early disclosures and the
transaction is later consummated on the
terms originally applied for, then the
creditor violates § 1026.19(e)(1)(i). If,
however, the consumer amends the
application because of the creditor’s
unwillingness to approve it on the terms
originally applied for, no violation
occurs for not providing disclosures
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based on those original terms. But the
amended application is a new
application subject to § 1026.19(e)(1)(i).
19(e)(1)(iv) Delivery
Section 128(b)(2)(E) of TILA provides
that, if the disclosures are mailed to the
consumer, the consumer is considered
to have received them three business
days after they are mailed. 15 U.S.C.
1638(b)(2)(E). RESPA provides that the
GFE may be delivered either in person
or by placing it in the mail. 12 U.S.C.
§ 2604(c) and (d). Regulation Z provides
that if the disclosures are provided to
the consumer by means other than
delivery in person, the consumer is
considered to have received the
disclosures three business days after
they are mailed or delivered. See
§ 1026.19(a)(1)(ii). Regulation X
contains a similar provision. See
§ 1024.7(a)(4).
To establish a consistent standard for
the integrated Loan Estimate, pursuant
to its authority under TILA section
105(a), RESPA section 19(a), DoddFrank Act section 1032(a), and, for
residential mortgage loans, section
1405(b) of the Dodd-Frank Act, the
Bureau proposes § 1026.19(e)(1)(iv),
which states that, if the disclosures are
provided to the consumer by means
other than delivery in person, the
consumer is presumed to have received
the disclosures three business days after
they are mailed or delivered to the
address specified by the consumer.
Proposed comment 19(e)(1)(iv)–1
explains that if any disclosures required
under § 1026.19(e)(1)(i) are not provided
to the consumer in person, the
consumer is presumed to have received
the disclosures three business days after
they are mailed or delivered. This is a
presumption which may be rebutted by
providing evidence that the consumer
received the disclosures earlier than
three business days. The proposed
comment also contains illustrative
examples. Proposed comment
19(e)(1)(iv)–2 clarifies that the
presumption established in
§ 1026.19(e)(1)(iv) applies to methods of
electronic delivery, such as email.
However, creditors using electronic
delivery methods, such as email, must
also comply with § 1026.17(a)(1). The
proposed comment also contains
illustrative examples.
19(e)(1)(v) Consumer’s Waiver of
Waiting Period Before Consummation
Section 128(b)(2)(F) of TILA provides
that the consumer may waive or modify
the timing requirements for disclosures
to expedite consummation of a
transaction, if the consumer determines
that the extension of credit is needed to
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meet a bona fide personal financial
emergency. Section 128(b)(2)(F) further
provides that: (1) the term ‘‘bona fide
personal financial emergency’’ may be
further defined in regulations issued by
the Bureau; (2) the consumer must
provide the creditor with a dated,
written statement describing the
emergency and specifically waiving or
modifying the timing requirements,
which bears the signature of all
consumers entitled to receive the
disclosures; and (3) the creditor must
provide, at or before the time of waiver
or modification, the final disclosures. 15
U.S.C. 1638(b)(2)(F). This provision is
implemented in § 1026.19(a)(3) of
Regulation Z. Neither RESPA nor
Regulation X contains a similar
provision.
Although the Bureau understands that
waivers based on a bona fide personal
financial emergency are rare, this
exception serves an important purpose:
consumers should be able to waive the
protection afforded by the waiting
period if, in the face of a financial
emergency, the waiting period does
more harm than good. Accordingly,
pursuant to its authority under TILA
section 105(a) and RESPA section 19(a)
the Bureau is proposing
§ 1026.19(e)(1)(v), which allows a
consumer to waive the seven-businessday waiting period in the event of a
bona fide personal financial emergency.
In addition, the Bureau seeks comment
on the nature of waivers based on bona
fide personal financial emergencies. The
Bureau also seeks comment on whether
the bona fide personal financial
emergency exception is needed more in
some contexts than in others (e.g., in
refinance transactions or purchase
money transactions).
Proposed comment 19(e)(1)(v)–1
explains that a consumer may modify or
waive the right to the seven-businessday waiting period required by
§ 1026.19(e)(1)(iii) only after the creditor
makes the disclosures required by
§ 1026.19(e)(1)(i). The consumer must
have a bona fide personal financial
emergency that necessitates
consummating the credit transaction
before the end of the waiting period.
Whether these conditions are met is
determined by the individual facts and
circumstances. The imminent sale of the
consumer’s home at foreclosure, where
the foreclosure sale will proceed unless
loan proceeds are made available to the
consumer during the waiting period, is
one example of a bona fide personal
financial emergency. Each consumer
who is primarily liable on the legal
obligation must sign the written
statement for the waiver to be effective.
Proposed comment 19(e)(1)(v)–2
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provides illustrative examples of this
requirement.
19(e)(1)(vi) Shopping for Settlement
Service Providers
Neither TILA nor RESPA nor
Regulation Z requires creditors to
inform consumers about settlement
service providers for whom the
consumer may shop. However, as
explained above, Regulation X provides
that where a lender or mortgage broker
permits a borrower to shop for third
party settlement services, the lender or
broker must provide the borrower with
a written list of settlement services
providers at the time the GFE is
provided on a separate sheet of paper.
12 CFR part 1024 app. C. HUD intended
this requirement to enable consumers to
shop for settlement service providers,
thereby enhancing market competition
and lowering settlement service costs
for consumers. See 73 FR at 14030. The
Bureau agrees that the written list of
settlement service providers may benefit
consumers by fostering settlement
service shopping.
Therefore, the Bureau proposes
§ 1026.19(e)(1)(vi). As an initial matter,
proposed § 1026.19(e)(1)(vi)(A) provides
that a creditor permits a consumer to
shop for a settlement service if the
creditor permits the consumer to select
the provider of that service, subject to
reasonable minimum requirements
regarding the qualifications of the
provider. Comment 19(e)(1)(vi)–1
provides examples of minimum
requirements that are and are not
reasonable. For example, the creditor
may require that a settlement agent
chosen by the consumer must be
appropriately licensed in the relevant
jurisdiction. In contrast, a creditor may
not require the consumer to choose a
provider from a list provided by
creditor. This comment also clarifies
that the requirements of
§ 1026.19(e)(1)(vi)(B) and (C) do not
apply if the creditor does not permit the
consumer to shop.
Proposed § 1026.19(e)(1)(vi)(B)
provides that the creditor shall identify
the services for which the consumer is
permitted to shop in the Loan Estimate.
Comment 19(e)(1)(vi)–2 clarifies that
§ 1026.37(f)(3) contains the content and
format requirements for this disclosure.
Proposed § 1026.19(e)(1)(vi)(C)
provides that, if the creditor permits a
consumer to shop for a settlement
service, the creditor shall provide the
consumer with a written list identifying
available providers of that service and
stating that the consumer may choose a
different provider for that service. It
further requires that the list be provided
separately from the Loan Estimate but in
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accordance with the timing
requirements for that disclosure (i.e.,
within three days after application).
Comment 19(e)(1)(vi)–3 explains that
the settlement service providers
identified on the written list must
correspond to the settlement services for
which the consumer may shop, as
disclosed on the Loan Estimate pursuant
to § 1026.37(f)(3). It also refers to the
model list provided in form H–27.
Comment 19(e)(1)(vi)–4 clarifies that a
creditor does not comply with the
requirement in § 1026.19(e)(1)(vi)(C) to
‘‘identify’’ providers unless it provides
sufficient information to allow the
consumer to contact the provider, such
as the name under which the provider
does business and the provider’s
address and telephone number. It also
clarifies that a creditor does not comply
with the availability requirement in
§ 1026.19(e)(1)(vi)(C) if it provides a
written list consisting of only settlement
service providers that are no longer in
business or that do not provide services
where the consumer or property is
located. However, if the creditor
determines that there is only one
available settlement service provider,
the comment clarifies that the creditor
need only identify that provider on the
written list of providers. The guidance
regarding availability is consistent with
guidance provided by HUD in the HUD
RESPA FAQs p. 15, # 7 (‘‘GFE—Written
list of providers’’).
Comment 19(e)(1)(vi)–5 refers to form
H–27 for an example of a statement that
the consumer may choose a provider
that is not included on that list.
Comment 19(e)(1)(vi)–6 clarifies that the
creditor may include a statement on the
written list that the listing of a
settlement service provider does not
constitute an endorsement of that
service provider. It further clarifies that
the creditor may also identify in the
written list providers of services for
which the consumer is not permitted to
shop, provided that the creditor
expressly and clearly distinguishes
those services from the services for
which the consumer is permitted to
shop. This may be accomplished by
placing the services under different
headings.
Finally, comment 19(e)(1)(vi)–7
discusses how proposed
§ 1026.19(e)(1)(vi) relates to the
requirements of RESPA and Regulation
X. The proposed comment explains that
§ 1026.19 does not prohibit creditors
from including affiliates on the written
list under § 1026.19(e)(1)(vi). However,
a creditor that includes affiliates on the
written list must also comply with
§ 1024.15 of Regulation X. This
comment is consistent with guidance
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provided by HUD in its RESPA FAQs p.
16, # 9 (‘‘GFE—Written list of
providers’’). The proposed comment
also explains that the written list is a
‘‘referral’’ under § 1024.14(f). This
comment is consistent with guidance
provided by HUD in the HUD RESPA
FAQs p. 14, # 4 (‘‘GFE—Written list of
providers’’).
In addition to these proposed
regulations and comments, the Bureau
solicits comment regarding whether the
final rule should provide more detailed
requirements for the written list of
providers. The Bureau also solicits
comment regarding whether the final
rule should include additional guidance
regarding the content and format of the
provider list.
This proposal is made pursuant to the
Bureau’s authority under sections 105(a)
of TILA, 19(a) of RESPA, and, for
residential mortgage loans, sections
129B(e) of TILA and 1405(b) of the
Dodd-Frank Act. This proposed
provision is consistent with TILA’s
purposes in that it will increase
consumer awareness of the costs of the
transaction by informing consumers that
settlement costs can be influenced by
shopping, thereby promoting the
informed use of credit. This provision is
consistent with section 129B(e) of TILA
because failing to inform borrowers of
available settlement service providers
increases the difficulty of shopping for
those services, which is not in the
interest of the borrower. It achieves the
purposes of RESPA because disclosure
of available settlement service providers
encourages consumer shopping and
settlement service provider competition,
which will result in the elimination of
kickbacks, referral fees, and other
practices that tend to increase
unnecessarily the costs of certain
settlement services. In addition, the
requirements in proposed
§ 1026.19(e)(1)(vi) are in the interest of
consumers and in the public interest
because they will improve consumer
understanding and awareness of the
mortgage loan transaction through the
use of disclosure by informing
consumers about shopping for
settlement service providers and making
consumers aware of different settlement
service providers available for the
transaction, consistent with Dodd-Frank
Act section 1405(b).
19(e)(2) Pre-Disclosure Activity
19(e)(2)(i) Imposition of Fees on
Consumer
19(e)(2)(i)(A) Fee Restriction
Section 128(b)(2)(E) of TILA provides
that the ‘‘consumer shall receive the
disclosures required under [TILA
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section 128(b)] before paying any fee to
the creditor or other person in
connection with the consumer’s
application for an extension of credit
that is secured by the dwelling of a
consumer.’’ 15 U.S.C. 1638(b)(2)(E).
This provision is implemented in
§ 1026.19(a)(1)(ii). Although RESPA
does not expressly contain a similar
provision, Regulation X does. See
§ 1024.7(a)(4). However, unlike
Regulation Z, Regulation X prohibits a
consumer from paying a fee until the
consumer indicates an intent to proceed
with the transaction after receiving the
disclosures. Id. As discussed below,
both Regulation Z and Regulation X
provide an exception only for the cost
of obtaining a credit report.
Thus, Regulation X requires
consumers to take an additional
affirmative step before new fees may be
charged. The Bureau believes that the
goals of the integrated disclosure are
best served by adopting the approach
under Regulation X. The Bureau intends
for consumers to use the integrated
disclosure to make informed financial
decisions. This goal may also be
inhibited if fees are imposed on
consumers before a consumer indicates
intent to proceed. For example, after
reviewing the Loan Estimate a consumer
may be uncertain that the disclosed
terms are in the consumer’s best interest
or that the disclosed terms are those for
which the consumer originally asked. If
fees may be imposed before the
consumer decides to proceed with a
particular loan, consumers may not take
additional time to understand the costs
and evaluate the risks of the disclosed
loan. The Bureau also intends for
consumers to use the integrated
disclosure to compare loan products
from different creditors. If creditors can
impose fees on consumers once the
Loan Estimate is delivered, but before
the consumer indicates intent to
proceed, shopping may be inhibited. For
example, after reviewing the Loan
Estimate a consumer may be uncertain
that the disclosed terms are the most
favorable terms the consumer could
receive in the market. If fees may be
imposed before the consumer decides to
proceed with a particular loan,
consumers may determine that too
much cost has been expended on a
particular Loan Estimate to continue
shopping, even though the consumer
believes more favorable terms could be
obtained from another creditor. Or,
consumers may determine that
obtaining a Loan Estimate from multiple
creditors is too costly if each creditor
can impose fees for each Loan Estimate.
Accordingly, pursuant to its authority
under TILA section 105(a) and RESPA
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section 19(a), the Bureau proposes
§ 1026.19(e)(2)(i)(A), which provides
that no person may impose a fee on a
consumer in connection with the
consumer’s application before the
consumer has received the disclosures
required by § 1026.19(e)(1)(i) and
indicated to the creditor an intent to
proceed with the transaction described
by those disclosures. This proposed
regulation carries out the purposes of
TILA because requiring the specific
identification of the fee imposed assures
meaningful disclosures of credit terms,
consistent with section 105(a) of TILA,
and it achieves the purposes of RESPA
because the more specific identification
of the fee is a more effective method of
advance disclosure, consistent with
section 19(a) of RESPA.
Proposed comment 19(e)(2)(i)(A)–1
explains that a creditor or other person
may not impose any fee, such as for an
application, appraisal, or underwriting,
until the consumer has received the
disclosures required by
§ 1026.19(e)(1)(i) and indicated an
intent to proceed with the transaction.
The only exception to the fee restriction
allows the creditor or other person to
impose a bona fide and reasonable fee
for obtaining a consumer’s credit report,
pursuant to § 1026.19(e)(2)(i)(B).
Proposed comment 19(e)(2)(i)(A)–2
explains that the consumer may indicate
intent to proceed in any manner the
consumer chooses, unless a particular
manner of communication is required
by the creditor, provided that the
creditor does not assume silence is
indicative of intent. The creditor must
document this communication to satisfy
the requirements of § 1026.25. The
proposed comment also includes
illustrative examples.
Proposed comment 19(e)(2)(i)(A)–3
discusses the collection of fees and
provides that at any time prior to
delivery of the required disclosures, the
creditor may impose a credit report fee
as provided in § 1026.19(e)(2)(i)(B).
However, the consumer must receive
the disclosures required by
§ 1026.19(e)(1)(i) and indicate an intent
to proceed with the mortgage loan
transaction before paying or incurring
any other fee imposed by a creditor or
other person in connection with the
consumer’s application for a mortgage
loan that is subject to § 1026.19(e)(1)(i).
Proposed comment 19(e)(2)(i)(A)–4
provides illustrative examples regarding
these requirements.
Proposed comment 19(e)(2)(i)(A)–5
discusses determining when a particular
charge is ‘‘imposed by’’ a person. The
proposed comment provides that, for
purposes of § 1026.19(e), a fee is
‘‘imposed by’’ a person if the person
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requires a consumer to provide a
method for payment, even if the
payment is not made at that time. For
example, a creditor may not require the
consumer to provide a $500 check to
pay a ‘‘processing fee’’ before the
consumer receives the disclosures
required by § 1026.19(e)(1)(i) and the
consumer subsequently indicates intent
to proceed. The creditor in this example
does not comply even if the creditor
does not deposit the check until after
the disclosures required by
§ 1026.19(e)(1)(i) are received by the
consumer and the consumer
subsequently indicates intent to
proceed. Similarly, a creditor may not
require the consumer to provide a credit
card number before the consumer
receives the disclosures required by
§ 1026.19(e)(1)(i) and the consumer
subsequently indicates intent to
proceed, even if the creditor promises
not to charge the consumer’s credit card
for the $500 processing fee until after
the disclosures required by
§ 1026.19(e)(1)(i) are received by the
consumer and the consumer
subsequently indicates intent to
proceed. In contrast, a creditor complies
with § 1026.19(e)(2) if the creditor
requires the consumer to provide a
credit card number before the consumer
receives the disclosures required by
§ 1026.19(e)(1)(i) and subsequently
indicates intent to proceed if the
consumer’s authorization is only to pay
for the cost of a credit report. This is so
even if the creditor maintains the
consumer’s credit card number on file
and charges the consumer a $500
processing fee after the disclosures
required by § 1026.19(e)(1)(i) are
received and the consumer
subsequently indicates intent to
proceed, provided that the creditor
requested and received a separate
authorization for the processing fee
charge from the consumer after the
consumer received the disclosures
required by § 1026.19(e)(1)(i).
19(e)(2)(i)(B) Exception to Fee
Restriction
Section 1026.19(a)(1)(iii) of
Regulation Z currently provides that a
person may impose a fee for obtaining
a consumer’s credit history prior to
providing the good faith estimates,
which is the lone exception to the
general rule established by
§ 1026.19(a)(1)(ii) that fees may not be
imposed prior to the consumer’s receipt
of the disclosures. Section 1024.7(a)(4)
of Regulation X contains a similar
exception, but it differs in two
important respects. First, Regulation Z
provides that the fee may be imposed
for a consumer’s ‘‘credit history,’’ while
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Regulation X specifies that the fee must
be for the consumer’s ‘‘credit report.’’
The Regulation Z provision could be
read as permitting a broader range of
activity than just acquiring a consumer’s
credit report. The Bureau believes that
the purposes of the integrated disclosure
are better served by adopting the
terminology used by Regulation X.
Consumers should be able to receive a
reliable estimate of mortgage loan costs
with as little up-front expense and
burden as possible, while creditors
should be able to receive sufficient
information from the credit report alone
to develop a reasonably accurate
estimate of costs.
Another issue stems from existing
commentary under Regulation Z, which
provides that the fee charged pursuant
to § 1026.19(a)(1)(iii) may be described
or referred to as an ‘‘application fee,’’
provided the fee meets the other
requirements of § 1026.19(a)(1)(iii). The
Bureau believes that the better
approach, for purposes of the integrated
disclosure, is to require a fee for a credit
report to be disclosed with the more
precise label. Consumers may be more
likely to understand that a credit report
fee is imposed if a fee for the purpose
of obtaining a credit report is clearly
described as such. Additionally,
compliance costs are generally reduced
when regulatory requirements are
standardized. Accordingly, the Bureau
proposes § 1026.19(e)(2)(i)(B), which
provides that a person may impose a
bona fide and reasonable fee for
obtaining the consumer’s credit report
before the consumer has received the
disclosures required by
§ 1026.19(e)(1)(i). Proposed comment
19(e)(2)(i)(B)–1 clarifies that a creditor
or other person may impose a fee before
the consumer receives the required
disclosures if it is for purchasing a
credit report on the consumer, provided
that such fee is bona fide and reasonable
in amount. Also, the creditor must
accurately describe or refer to this fee,
for example, as a ‘‘credit report fee.’’
19(e)(2)(ii) Written Information
Provided to Consumer
The Bureau understands that
consumers often request written
estimates of loan terms before receiving
the RESPA GFE. The Bureau recognizes
that these written estimates may be
helpful to consumers. However, the
Bureau is concerned that consumers
may confuse such written estimates,
which are not subject to the good faith
requirements of TILA section
128(b)(2)(A) and RESPA section 5 and
may be unreliable, with the disclosures
required under § 1026.19(e)(1)(i), which
must be made in good faith. The Bureau
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is also concerned that unscrupulous
creditors may use formatting and
language similar to the disclosures
required under § 1026.19(e)(1)(i) to
deceive consumers into believing that
the creditor’s unreliable written
estimate is actually the disclosure
required under § 1026.19(e)(1)(i). These
concerns are particularly important in
light of section 1405(b) of the DoddFrank Act, which places emphasis on
improving ‘‘consumer awareness and
understanding of transactions involving
residential mortgage loans through the
use of disclosures.’’
Creditors may choose to issue, and
consumers may want, preliminary
written estimates based on less
information than is needed to issue the
disclosures required under
§ 1026.19(e)(1)(i). However, mortgage
loan costs are often highly sensitive to
the information that triggers the
disclosures. Thus, the disclosures
required under § 1026.19(e)(1)(i) may be
more accurate indicators of cost than
preliminary written estimates.
Consumers may better understand the
sensitivity of mortgage loan costs to
information about the consumer’s
creditworthiness and collateral value if
consumers are aware of the difference
between preliminary written estimates
and disclosures required under
§ 1026.19(e)(1)(i). Additionally, section
1032(a) of the Dodd-Frank Act
authorizes the Bureau to prescribe rules
to ensure the full, accurate, and effective
disclosure of mortgage loan costs in a
manner that permits consumers to
understand the associated risks.
Consumers may not appreciate that
preliminary written estimates, which
are not subject to the good faith
requirements, may not constitute a full,
accurate, and effective description of
costs, as opposed to relying on the
disclosures required under
§ 1026.19(e)(1)(i), which must be made
in good faith. The Bureau seeks to foster
consumer understanding of the
reliability of the cost information
provided, while permitting the use of
preliminary written estimates which
may be beneficial to consumers.
Accordingly, pursuant to its authority
under section 105(a) of TILA, section
1032(a) of the Dodd-Frank Act, and, for
residential mortgage loans, sections
129B(e) of TILA and 1405(b) of the
Dodd-Frank Act, the Bureau proposes to
require creditors to distinguish between
preliminary written estimates of
mortgage loan costs, which are not
subject to the good faith requirements
under TILA and RESPA, and the
disclosures required under
§ 1026.19(e)(1)(i), which are. Proposed
§ 1026.19(e)(2)(ii) would require
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creditors to provide consumers with a
disclosure indicating that the written
estimate is not the Loan Estimate
required by RESPA and TILA, if a
creditor provides a consumer with a
written estimate of specific credit terms
or costs before the consumer receives
the disclosures under § 1026.19(e)(1)(i)
and subsequently indicates an intent to
proceed with the mortgage loan
transaction. This proposed provision is
consistent with section 105(a) of TILA
in that it will increase consumer
awareness of the costs of the transaction
by informing consumers of the risk of
relying on preliminary written
estimates, thereby assuring a meaningful
disclosure of credit terms and
promoting the informed use of credit.
This proposed provision is consistent
with section 129B(e) of TILA because
permitting creditors to provide
borrowers with a preliminary written
estimate and the Loan Estimate required
by TILA and RESPA without a
disclosure indicating the difference
between the two is not in the interest of
the borrower.
Proposed comment 19(e)(2)(ii)–1
explains that this requirement applies
only to written information specific to
the consumer. For example, if the
creditor provides a document showing
the estimated monthly payment for a
mortgage loan, and the estimate was
based on the estimated loan amount and
the consumer’s estimated credit score,
then the creditor must include a notice
on the document. In contrast, if the
creditor provides the consumer with a
preprinted list of closing costs common
in the consumer’s area, the creditor
need not include the warning. The
proposed comment also clarifies that
this requirement does not apply to an
advertisement, as defined in
§ 1026.2(a)(2). This proposed comment
also contains a reference to comment
19(e)(1)(ii)–4 regarding mortgage broker
provision of written estimates specific
to the consumer.
19(e)(2)(iii) Verification of Information
Section 1024.7(a)(5) of Regulation X
currently provides that a creditor may
collect any information from the
consumer deemed necessary, but the
creditor may not require the consumer
to provide documentation verifying any
information the consumer provided in
connection with the application. In
order to minimize the cost to consumers
of obtaining Loan Estimates, the Bureau
believes that this provision should
apply to the integrated disclosure. The
Bureau proposes § 1026.19(e)(2)(iii),
which provides that a creditor shall not
require a consumer to submit
documents verifying information related
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to the consumer’s application before
providing the disclosures required by
§ 1026.19(e)(1)(i).
The Bureau makes this proposal
pursuant to its authority under section
105(a) of TILA, section 19(a) of RESPA,
and, for residential mortgage loans,
section 129B(e) of TILA. The proposed
regulation will effectuate the purposes
of TILA by reducing the burden to
consumers associated with obtaining
different offers of available credit terms,
thereby facilitating consumers’ ability to
compare credit terms, consistent with
section 105(a) of TILA. This proposed
provision is consistent with section
129B(e) of TILA because requiring
documentation to verify the information
provided in connection with an
application increases the burden on
borrowers associated with obtaining
different offers of available credit terms,
which is not in the interest of the
borrower. This proposed regulation will
enable consumers to receive information
about the mortgage loan without
imposing costs or burdens on the
consumer, which will facilitate
shopping, thereby effecting changes in
the settlement process that will result in
the elimination of kickbacks, referral
fees, and other practices that tend to
increase unnecessarily the costs of
certain settlement services, consistent
with the Bureau’s authority under
section 19(a) of RESPA.
Proposed comment 19(e)(2)(iii)–1
explains that the creditor may collect
from the consumer any information that
it requires prior to providing the early
disclosures, including information not
listed in § 1026.2(a)(3)(ii). However, the
creditor is not permitted to require,
before providing the disclosures
required by § 1026.19(e)(1)(i), that the
consumer submit documentation to
verify the information provided by the
consumer. For example, the creditor
may ask for the names, account
numbers, and balances of the
consumer’s checking and savings
accounts, but the creditor may not
require the consumer to provide bank
statements, or similar documentation, to
support the information the consumer
provides orally before providing the
disclosures required by
§ 1026.19(e)(1)(i).
19(e)(3) Good Faith Determination for
Estimates of Closing Costs
Background
As noted above, section 102(a) of
TILA provides: ‘‘The Congress finds that
economic stabilization would be
enhanced and the competition among
the various financial institutions and
other firms engaged in the extension of
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consumer credit would be strengthened
by the informed use of credit. The
informed use of credit results from an
awareness of the cost thereof by
consumers.’’ 15 U.S.C. 1601(a). This
section further provides that the
purpose of TILA is ‘‘to assure a
meaningful disclosure of credit terms so
that the consumer will be able to
compare more readily the various credit
terms available to him and avoid the
uninformed use of credit.’’ Id.
To further these goals, TILA requires
creditors to disclose certain information
about the cost of credit. In the context
of certain mortgage loans, the
disclosures required under section
128(a) of TILA generally are either costs
imposed in connection with the
extension of credit, or measures of such
costs, such as the annual percentage
rate. 15 U.S.C. 1638(b). Examples of
items that affect the APR are fees and
charges imposed by creditors, such as
points and underwriting fees. Section
128(b)(2)(A) provides that these
disclosures must be delivered not later
than three business days after the
creditor receives the consumer’s written
application. Section 128(b)(2)(D)
requires the creditor to inform the
consumer, no later than three business
days before consummation, if the costs
of the mortgage loan, as reflected in the
annual percentage rate, change from
what was originally disclosed. 15 U.S.C.
1638(b)(2)(A), (D).
TILA contains tolerances for
determining whether an estimated
disclosure is accurate. For example,
section 106(f) provides that the finance
charge is not accurate if the estimated
finance charge disclosed to the
consumer changes by more than a
certain amount. 15 U.S.C. 1605(f). If
disclosures such as these become
inaccurate, TILA requires creditors to
provide revised disclosures with the
corrected amounts. 15 U.S.C.
1638(b)(2)(D). TILA also permits the
creation of new tolerances if the Bureau
deems them necessary. Specifically,
section 121(d) provides that the ‘‘Bureau
shall determine whether tolerances for
numerical disclosures other than the
annual percentage rate are necessary to
facilitate compliance with [TILA], and if
it determines that such tolerances are
necessary to facilitate compliance, it
shall by regulation permit disclosures
within such tolerances.’’ 15 U.S.C.
1631(d). Section 121(d) further provides
that the ‘‘Bureau shall exercise its
authority to permit tolerances for
numerical disclosures other than the
annual percentage rate so that such
tolerances are narrow enough to prevent
such tolerances from resulting in
misleading disclosures or disclosures
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51165
that circumvent the purposes of
[TILA].’’ Id.
Historically, TILA has generally
focused on the costs imposed by
creditors alone. In contrast, RESPA, in
broadly focusing on all costs associated
with real estate transactions, was
designed to address market failures in
the real estate settlement services
industry. Echoing TILA, Congress
enacted RESPA to ‘‘[e]nsure that
consumers throughout the Nation are
provided with greater and more timely
information on the nature and costs of
the settlement process and are protected
from unnecessarily high settlement
charges caused by certain abusive
practices.’’ 12 U.S.C. 2601(a). Congress
identified ‘‘more effective advance
disclosure to home buyers and sellers of
settlement costs’’ as a specific purpose
of RESPA. Id.
RESPA requires early disclosure of
settlement costs to further Congress’s
stated purpose that consumers should
receive effective advance disclosures of
such costs. As discussed above, RESPA
requires lenders to provide consumers
with good faith estimates of settlement
costs, which include most fees charged
in connection with a real property
settlement, within three days of
receiving a consumer’s application for a
mortgage loan. 12 U.S.C. 2602(3),
2604(c), (d).
Regulation Z also contains a good
faith estimate requirement, which
implements the requirements of TILA
section 128(b)(2)(A), in the context of
certain mortgage loans. Section
1026.19(a)(1)(i) of Regulation Z provides
that ‘‘the creditor shall make good faith
estimates of the disclosures required by
§ 1026.18 and shall deliver or place
them in the mail not later than the third
business day after the creditor receives
the consumer’s written application.’’
Section 1026.18 includes several
disclosures related to the cost of credit,
such as the amount financed, finance
charge, and annual percentage rate.
Section 1026.18(c)(3) also provides that
the itemization of amount financed need
not be delivered if the RESPA GFE is
provided.
After a 10-year investigatory process,
HUD amended Regulation X to establish
new regulatory requirements
surrounding the content, accuracy, and
delivery of the GFE. HUD’s 2008 RESPA
Final Rule added ‘‘tolerance’’ categories
limiting the variation between the
estimated amounts of settlement charges
included on the GFE and the actual
amounts included on the RESPA
settlement statement. Section
1024.7(e)(1) of Regulation X provides
that the actual charges at settlement may
not exceed the amounts included on the
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GFE for (1) the origination charge, (2)
while the borrower’s interest rate is
locked, the credit or charge for the
interest rate chosen, (3) while the
borrower’s interest rate is locked, the
adjusted origination charge; and (4)
transfer taxes. Section 1024.7(e)(2)
provides that the sum of the charges at
settlement for the following services
may not be greater than 10 percent
above the sum of the estimated charges
for those services included on the GFE
for (1) lender-required settlement
services, where the lender selects the
third party settlement service provider,
(2) lender-required services, title
services and required title insurance,
and owner’s title insurance, when the
borrower uses a settlement service
provider identified by the loan
originator, and (3) government recording
charges. Section 1024.7(e)(3) provides
that all other estimated charges may
change by any amount prior to
settlement.
The 2008 RESPA Final Rule also
provided that the estimates included on
the GFE are binding, with certain
limited exceptions and subject to
variations permitted by the tolerance
categories. 73 FR at 68218–19. Section
1024.7(f)(1) provides: ‘‘If changed
circumstances result in increased costs
for any settlement services such that the
charges at settlement would exceed the
tolerances for those charges, the loan
originator may provide a revised GFE to
the borrower.’’ Section 1024.7(f)(2)
provides: ‘‘If changed circumstances
result in a change in the borrower’s
eligibility for the specific loan terms
identified in the GFE, the loan
originator may provide a revised GFE to
the borrower.’’
‘‘Changed circumstances’’ are defined
as (1) acts of God, war, disaster, or other
emergency; (2) information particular to
the borrower or transaction that was
relied on in providing the GFE and that
changes or is found to be inaccurate
after the GFE has been provided, which
may include information about the
credit quality of the borrower, the
amount of the loan, the estimated value
of the property, or any other information
that was used in providing the GFE; (3)
new information particular to the
borrower or transaction that was not
relied on in providing the GFE; or (4)
other circumstances that are particular
to the borrower or transaction, including
boundary disputes, the need for flood
insurance, or environmental problems.
12 CFR 1024.2(b). Changed
circumstances, however, do not include
the borrower’s name, the borrower’s
monthly income, the property address,
an estimate of the value of the property,
the mortgage loan amount sought, and
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any information contained in any credit
report obtained by the loan originator
prior to providing the GFE, unless the
information changes or is found to be
inaccurate after the GFE has been
provided, or market price fluctuations
by themselves. Id.
Additionally, § 1024.7(f)(3) provides:
‘‘If a borrower requests changes to the
mortgage loan identified in the GFE that
change the settlement charges or the
terms of the loan, the loan originator
may provide a revised GFE to the
borrower.’’ Section 1024.7(f)(4)
provides: ‘‘If a borrower does not
express an intent to continue with an
application within 10 business days
after the GFE is provided, or such longer
time specified by the loan originator
* * * the loan originator is no longer
bound by the GFE.’’
The exception provided by
§ 1024.7(f)(4) relates to the ability of
consumers to use the GFE to shop and
compare mortgage loans, which is one
of the primary purposes of the 2008
RESPA Final Rule. A related provision,
§ 1024.7(c), provides that ‘‘the estimate
of the charges and terms for all
settlement services must be available for
at least 10 business days from when the
GFE is provided, but it may remain
available longer, if the loan originator
extends the period of availability.’’
Section 1024.7(f)(5) provides: ‘‘If the
interest rate has not been locked, or a
locked interest rate has expired, the
charge or credit for the interest rate
chosen, the adjusted origination
charges, per diem interest, and loan
terms related to the interest rate may
change. When the interest rate is later
locked, a revised GFE must be provided
showing the revised interest ratedependent charges and terms. All other
charges and terms must remain the same
as on the original GFE, except as
otherwise provided [under] this
section.’’
Section 1024.7(f)(6) provides: ‘‘In
transactions involving new construction
home purchases, where settlement is
anticipated to occur more than 60
calendar days from the time a GFE is
provided, the loan originator may
provide the GFE to the borrower with a
clear and conspicuous disclosure stating
that at any time up until 60 calendar
days prior to closing, the loan originator
may issue a revised GFE. If no such
separate disclosure is provided, the loan
originator cannot issue a revised GFE,
except as otherwise provided [under]
this section.’’
Although settlement charges have
historically been the subject of RESPA,
section 1419 of the Dodd-Frank Act
amended TILA section 128(a) to require
creditors to disclose: ‘‘In the case of a
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residential mortgage loan, the aggregate
amount of settlement charges for all
settlement services provided in
connection with the loan, the amount of
charges that are included in the loan
and the amount of such charges the
borrower must pay at closing * * * and
the aggregate amount of other fees or
required payments in connection with
the loan.’’ 15 U.S.C. 1638(a)(17).
‘‘Settlement charges’’ is not defined
under TILA. This amendment expands
the disclosure requirements of TILA
section 128(a) beyond the cost of credit
to include all charges imposed in
connection with the mortgage loan. No
distinction is made between whether
those charges relate to the extension of
credit or the real estate transaction, or
whether those charges are imposed by
the creditor or another party, so long as
the charges arise in the context of the
mortgage loan settlement.
Furthermore, as discussed above,
section 1032(f) of the Dodd-Frank Act
requires integration of the disclosure
provisions under TILA and RESPA.
Sections 1098 and 1100A of the DoddFrank Act further provide that the
purpose of the integrated disclosure is
‘‘to facilitate compliance with the
disclosure requirements of [RESPA] and
[TILA], and to aid the borrower or lessee
in understanding the transaction by
utilizing readily understandable
language to simplify the technical
nature of the disclosures.’’ 15 U.S.C.
1604(b), 12 U.S.C. 2603(a). These
amendments require integration of the
regulations related to the accuracy and
delivery of the disclosures, as well as
their content.
Issues With Integrating Different
Approaches to Good Faith Estimates,
Tolerances, and Redisclosure
As discussed above, TILA generally
focused on redisclosure in response to
changes in the cost of credit that
occurred during the mortgage loan
origination process. Over time, practices
developed that diminished the value of
the disclosures. Congress addressed
these problems by revising TILA from
time to time, seeking to ensure that
consumers could use the disclosures to
shop for credit.134 However, problems
134 In explaining the 1980 amendment to TILA,
Congress stated that the amendment ‘‘would also
make disclosures more meaningful to the consumer
in mortgage transactions in two respects. First, the
creditor would be required to give truth in lending
disclosures within 3 days after receiving a
consumer’s written application. * * * Under
current law, Truth in Lending disclosures are
provided for the first time at the real estate closing,
making them all but useless for credit shopping.’’
S. Rep. No. 368, 96th Cong., 1st Sess. 1979,
reprinted in 1980 U.S. Code Cong. & Ad. News 236,
266. Congress also amended the disclosure
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in the market persisted, and evidence
suggests that consumers were often
surprised by the difference between
their expectations of the cost of credit,
based on the good faith estimates
provided during the shopping phase,
and the actual cost of credit revealed at
settlement.135
The issues arising under TILA were
even more pronounced under RESPA.
HUD spent over ten years investigating
problems in the settlement services
industry.136 HUD found that the
principles of RESPA were undermined
by market forces operating against
consumers.137 In the context of home
purchases, consumers’ actual settlement
costs were sometimes dramatically
different from those originally
estimated. Consumers did not realize
this until immediately before
settlement—the point in time where
consumers are in the weakest bargaining
position. As a result, consumers were
often unable to challenge increases in
settlement costs when confronted with
requirements in 1994 to provide more extensive
disclosure on high-cost mortgage loans. Riegle
Community Development and Regulatory
Improvement Act of 1994, Public Law 103–325,
Title I, § 152(d), 108 Stat. 2191 (Sept. 23, 1994); 15
U.S.C. 1639(a). Congress amended the TILA
disclosure requirements again in 1996 to provide
disclosures related to variable-rate mortgage loans.
Economic Growth and Regulatory Paperwork
Reduction Act of 1996, Public Law 104–208, Title
I, Subtitle A, § 2105, 110 Stat. 3009 (Sept. 30, 1996);
15 U.S.C. 1638(a).
135 ‘‘For refinancings and second mortgages that
fall below the HOEPA triggers, the only required
written disclosure of the APR and finance charge
is usually given at closing on the TILA disclosure,
after which the borrower has only the three day
rescission period for price shopping, again too short
a period to obtain competing offers.’’ Lauren E.
Willis, Decisionmaking and the Limits of
Disclosure: The Problem of Predatory Lending:
Price, 65 Md. L. Rev. 707, 750 (2006). ‘‘[T]he prices
on subprime loans often turned out to be a moving
target. A lender or broker might have the customer
apply for one type of loan, price A, say a fixed rate
loan; changed the loan during underwriting to an
adjustable rate mortgage, price B; and then finally
change the loan at closing to something different at
price C, say an interest only mortgage.’’ Federal
Reserve Board Public Hearing Re: Building
Sustainable Homeownership: Responsible Lending
and Informed Consumer Choice, 155 (July 11, 2006)
(testimony of Patricia McCoy), available at https://
www.federalreserve.gov/events/publichearings/
hoepa/2006/20060711/transcript.pdf.
136 Joint Report to the Congress Concerning
Reform of the Truth in Lending Act and the Real
Estate Settlement Procedures Act, (July 1998); 2000
HUD-Treasury Report; 2002 RESPA Proposal (67 FR
49134).
137 ‘‘Estimates appearing on the GFEs can be
significantly lower than the amount ultimately
charged at settlement and do not provide
meaningful guidance on the costs borrowers will
incur at settlement. While unforeseeable
circumstances can drive up costs in particular
circumstances, in most cases loan originators have
the ability to estimate final settlement costs with
great accuracy.’’ 73 FR 14030, 14039 (March 14,
2008).
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them at the closing table.138 HUD found
that these high closing costs were
exacerbated by the fact that consumers
rarely shopped for settlement service
providers.139 Accordingly, settlement
service providers were not accountable
to the consumer, and creditors had little
motivation to monitor the legitimacy of
settlement costs because those costs
were simply passed on to the
consumer.140
These problems led HUD to the
determination that a subjective
requirement that estimates be made in
‘‘good faith’’ was not sufficient to
achieve the purposes of RESPA. The
tolerances included in the 2008 RESPA
Final Rule established objective
measures of good faith that were
designed to ensure that consumers were
provided with estimates more closely
tied to the actual costs. The provisions
related to redisclosure provided
industry with the flexibility to revise the
charges originally estimated when
legitimate and unforeseen issues arose
that affected the cost of settlement
services, while also ensuring that
consumers were not pressured into
paying unwarranted costs. The 2008
RESPA Final Rule established a
requirement that costs be available for at
least 10 business days, along with
requirements related to allowing
consumers to shop for settlement
service providers, sought to re-introduce
competition into the markets for both
mortgage loan origination and
settlement service providers, in
accordance with RESPA’s original
principles.
These revisions to Regulation X took
effect in 2010. Some concerns were
identified during the implementation
process. In particular, concerns have
been raised regarding the treatment of
fees charged by affiliates of the
138 ‘‘After agreeing to the price of a house, too
many families sit down at the settlement table and
discover unexpected fees that can add hundreds, if
not thousands, of dollars to the cost of their loan.
And at that point, they have no other options. On
the spot, the borrower is forced to make an
impossible choice: either hand over the extra cash
and sign, or lose either the house or the funds
needed to refinance.’’ Reforming the Real Estate
Settlement Procedure: Review of HUD’s proposed
RESPA Rule, 107th Cong. (October 3, 2002)
(testimony of Mel Martinez, Secretary of the U.S.
Department of Housing and Urban Development).
139 See 73 FR 14030, 14034 (March 14, 2008).
140 ‘‘There is not always an incentive in today’s
market for originators to control these costs. Too
often, high third-party costs are simply passed
through to the consumer.’’ U.S. Dep’t. of Housing
and Urban Dev., Office of Pol’y Dev. and Research,
RESPA: Regulatory Impact Analysis and Initial
Regulatory Flexibility Analysis, FR–5180–F–02,
Final Rule to Improve the Process of Obtaining
Mortgages and Reduce Consumer Costs, iv (2008).
See also Eskridge, supra note 83, at 1184–1185.
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lender.141 Under the 2008 rule,
affiliates’ fees are permitted to increase
by as much as 10 percent prior to the
real estate closing, in addition to
increases based on changed
circumstances and other similar events.
Settlement service providers such as
appraisal management companies and
title companies may be affiliated with
the creditor. Fees paid to these affiliates
may constitute a large percentage of the
total settlement service fees paid by
consumers at consummation. Permitting
these fees to vary by ten percent may
significantly increase the actual cost of
obtaining a mortgage loan. This variance
is of particular concern given the nature
of the relationship between creditors
and their affiliates. Regulation X
subjects fees paid to creditors to a zero
percent tolerance because credit
providers are expected to know their
own costs. The same reasoning may
apply to services provided by affiliates.
An affiliate relationship between a
creditor and a provider should facilitate
greater communication and
coordination than a relationship
between independent entities acting at
arm’s length. This is especially so given
that the rules require precise estimates
only of costs that are likely to occur and
provide flexibility for cost revisions
when an unexpected event occurs, such
as a changed circumstance or a change
requested by the consumer.
Additional concerns about affiliate
relationships stem from the fact that no
justification is required if affiliate fees
increase by as much as ten percent.
Given that the affiliate relationship is
beneficial to the creditor, this may
create an incentive to increase fees at
the real estate closing without
justification, solely to obtain all money
available under the tolerance. A rule
that encourages such rent-seeking
behavior could harm consumers by
unjustifiably increasing settlement
costs, which is contrary to the purposes
of RESPA.
Another concern with Regulation X
centers on the ability of consumers to
shop for settlement service providers.
Regulation X requires loan originators to
provide borrowers with a written list of
providers in some cases.142 This
provision was intended to enable
consumers to shop for settlement
141 For purposes of this proposal, ‘‘affiliate’’
means any company that controls, is controlled by,
or is under common control with another company,
as set forth in the Bank Holding Company Act of
1956 (12 U.S.C. 1841 et seq.).
142 ‘‘Where a loan originator permits a borrower
to shop for third party settlement services, the loan
originator must provide the borrower with a written
list of settlement services providers at the time of
the GFE, on a separate sheet of paper.’’ 12 CFR
1024, app. C.
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service providers, based on the
principle that such shopping would
spur competition in the settlement
service market, thereby reducing the
incidence of unnecessarily high
settlement service charges. However,
concerns have been raised that, rather
than simply providing consumers with
lists of available settlement service
providers to facilitate shopping,
creditors have instead developed
‘‘closed’’ lists that include only the
creditor’s ‘‘preferred’’ providers and are
requiring consumers to select one of
those providers. This practice
effectively may limit competition among
settlement service providers instead of
promoting competition, contrary to the
goals of the regulation.
The Bureau’s Proposal
An enhanced reliability standard. The
Bureau believes that consumers would
benefit from having more reliable
estimates of costs. A meaningful ‘‘good
faith’’ estimate should be based on the
best information reasonably available to
the person providing the estimate. In
many cases, a creditor should be able to
estimate costs with considerable
precision based on its familiarity with
its own underwriting process and its
knowledge of the real estate settlement
process. A creditor originating a loan in
a geographical area with which it is
unfamiliar, or using settlement service
providers with whom it is not familiar,
may not be able to estimate the
settlement service costs as accurately. In
cases such as these, the ten-percent
tolerance currently provided by
Regulation X may be appropriate.
However, creditors who have affiliate
relationships with service providers
should have access to the providers’
data about the actual costs of those
services, including how often changed
circumstances occur, and the magnitude
of resulting cost increases. Thus, in
many cases, creditors may be able to
provide accurate estimates of settlement
costs for services provided by affiliates,
and therefore should not need to rely on
the ten-percent tolerance. In addition to
the increased level of knowledge and
communication suggested by the
affiliate relationship, the frequency of
business with a particular affiliate
provides creditors with even more data,
which may be used to develop more
accurate estimates. It may be reasonable
to expect creditors to use the significant
amount of historical settlement cost data
available to them, by virtue of the repeat
business from affiliate relationships, to
develop highly accurate estimates of
costs. Accordingly, the Bureau proposes
to include charges paid to affiliates of
the creditor in the category of fees that
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may not vary from the estimated amount
disclosed, subject to legitimate reasons
for revision such as changed
circumstances and revisions requested
by the consumer.
The Bureau also believes that
consumers would benefit from a more
competitive market for settlement
service providers. A list of service
providers offers consumers the
opportunity to speak with multiple
providers and select the providers and
services that best fit consumers’ needs.
Although the Bureau understands the
concerns regarding preferred provider
lists identified above, such lists may be
a natural outgrowth of creditors’
business and are not necessarily
harmful to consumers. Indeed, it would
be much more difficult for creditors to
provide good faith estimates of
settlement service charges without
basing such estimates on charges
imposed by actual settlement service
providers in a particular area with
whom the creditor has established
relationships and regularly does
business.
Creditors that assemble preferred
provider lists are in a superior position
of knowledge with respect to the
expected costs of the services of those
providers, for reasons similar to those
seemingly inherent in the creditoraffiliate relationship. The relationship
between creditor and preferred provider
suggests a level of communication and
knowledge that is absent from a
relationship between a creditor and a
settlement service provider who do not
regularly do business. The repeat
business afforded by the preferred
provider relationship should also give
creditors access to statistically
significant amounts of historical
settlement charge data, with which the
creditor can accurately predict the cost
of a settlement service, in the absence of
a valid reason for revision such as a
changed circumstance. It may be
reasonable to expect the creditor to use
this relationship for the benefit of
consumers in the form of more accurate
initial estimates of costs.
The creditor’s knowledge may be less
certain with preferred providers, with
whom the creditor has some preexisting relationship or agreement, than
for affiliates, with whom the creditor
has an actual control-based relationship.
But this difference is countered when
the creditor does not permit the
consumer to shop independently for the
settlement service. Such closed lists
require consumers to choose providers
preferred by the creditor and prohibit
consumers from choosing more cost
efficient, or perhaps higher quality,
settlement service providers. Consumers
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presented with a closed list of preferred
providers are neither benefitted by more
accurate estimates nor able to protect
their own financial interests. Consumers
should have the ability to influence the
quality and cost of settlement services
related to what, for most consumers,
will be the most significant financial
obligation of their lives. If the creditor
arrogates that opportunity, then the
creditor should also take a greater
responsibility for estimating accurately
and assume some of the risk of underestimation if it does not. Thus, the
Bureau proposes to include charges paid
to non-affiliated third party service
providers in the category of fees that
may not vary from the estimated amount
disclosed if the creditor does not permit
the consumer to shop for those services,
subject to legitimate reasons for revision
such as changed circumstances and
revisions requested by the consumer.
This proposal seeks to strike the
appropriate balance between
consumers’ need for accurate, timely,
and reliable information about the costs
of a mortgage loan and industry’s need
for flexibility for the wide range of
unexpected issues that arise during the
mortgage loan origination process.
Creditors are routine participants in the
mortgage market, but individual
consumers are not. As a result, creditors
have access to important cost data that
are unavailable to consumers. It
therefore may be reasonable to expect
creditors to use this advantage to
provide consumers with reasonably
accurate estimates of the costs
associated with a real estate settlement.
This consideration is more compelling
when creditors have pre-existing, and
advantageous, relationships with
affiliated and ‘‘preferred’’ settlement
service providers. More reliable
estimates are inherently beneficial
because they enable consumers to make
informed and responsible financial
decisions, they promote honest
competition among the majority of
industry providers who want a fair and
level playing field, and they prevent
financial surprises at the real estate
closing that may greatly harm
consumers.
More reliable estimates also make it
more likely that consumers will shop for
mortgage loans based on all relevant
costs among multiple providers,
furthering one of the key principles of
TILA and RESPA. Encouraging
consumers to shop for settlement
services further facilitates a competitive
market for those services, thereby
preventing unnecessarily high
settlement costs and achieving one of
the key purposes of RESPA. This
approach furthers the goals of the 2008
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RESPA Final Rule and the principles
upon which TILA and RESPA are
founded.
Legal authority. The Bureau is
proposing to adopt an enhanced
reliability standard for settlement costs
pursuant to its authority to prescribe
standards for ‘‘good faith estimates’’
under TILA section 128 and RESPA
section 5, as well as its general
rulemaking, exception, and exemption
authorities under TILA sections 105(a)
and 121(d), RESPA section 19(a),
section 1032(a) of the Dodd-Frank Act,
and, for residential mortgage loans,
section 1405(b) of the Dodd-Frank Act
and section 129B(e) of TILA.
The Bureau has considered the
purposes for which it may exercise its
authority under TILA section 105(a)
and, based on that review, believes that
the proposed adjustments and
exceptions may be appropriate. The
proposal is consistent with the statute’s
purpose in that it seeks to ensure that
the cost estimates are more meaningful
and better inform consumers of the
actual costs associated with obtaining
credit. The proposal has the potential to
effectuate the statute’s goals by ensuring
more reliable estimates, which may
increase the level of shopping for
mortgage loans and foster honest
competition for prospective consumers
among financial institutions. The
Bureau believes that technological
advances in the mortgage loan
origination market, coupled with the
relationships that currently exist
between creditors and the settlement
service industry, may have improved
the ability of creditors to provide
accurate estimates, subject to reasonable
exceptions. The proposal could also
prevent potential circumvention or
evasion of TILA by penalizing
underestimation to gain a competitive
advantage in situations where TILA
requires good faith.
Section 121(d) of TILA generally
authorizes the Bureau to adopt
tolerances necessary to facilitate
compliance with the statute, provided
such tolerances are narrow enough to
prevent misleading disclosures or
disclosures that circumvent the
purposes of the statute. 15 U.S.C.
1631(d). The Bureau has considered the
purposes for which it may exercise its
authority under TILA section 121(d)
and, based on that review, believes that
the proposed tolerances may be
appropriate. The proposal has the
potential to facilitate compliance with
the statute by providing bright line rules
for the determination of ‘‘good faith’’
based on the knowledge of costs that
creditors have, or reasonably should
have. The narrowed tolerances may also
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prevent misleading disclosures by
forcing creditors who have access to
accurate cost information through
affiliate networks or exclusive provider
arrangements, and today use such
information strategically to
underestimate cost estimates, to absorb
any overages.
The proposal also may prevent
circumvention of TILA by preventing
creditors from using the tolerances to
capture rent through their affiliates, and
thereby unnecessarily increasing the
cost of credit. The proposed tolerances
may be sufficiently narrow by focusing
on areas where the creditor is, or
reasonably should be, in a position of
superior knowledge, while maintaining
the existing tolerances in areas where
the creditor is providing estimates based
on less certain information, such as cost
estimates for services provided by
independent providers.
In addition, the proposed regulation is
consistent with Dodd-Frank Act section
1032(a) because requiring more accurate
initial estimates of the costs of the
transaction, thereby limiting the
possibility of strategic underestimation
to gain a competitive advantage, will
ensure that the features of mortgage loan
transactions and settlement services will
be more fully, accurately, and
effectively disclosed to consumer in a
manner than permits consumers to
understand the costs, benefits, and risks
associated the mortgage loan. It is also
in the interest of consumers and in the
public interest, consistent with DoddFrank Act section 1405(b), because
providing consumers with more
accurate estimates of the cost of the
mortgage loan transaction will improve
consumer understanding and awareness
of the mortgage loan transaction through
the use of disclosure.
Section 129B(e) of TILA generally
authorizes the Bureau to adopt
regulations prohibiting or conditioning
terms, acts, or practices relating to
residential mortgage loans that are not
in the interest of the borrower. The
Bureau has considered the purposes for
which it may exercise its authority
under TILA section 129B(e) and, based
on that review, believes that the
proposed regulations are appropriate
because unreliable estimates are not in
the interest of the borrower.
Section 19(a) of RESPA authorizes the
Bureau to prescribe regulations and
make interpretations to carry out the
purposes of RESPA, which include
more effective advance disclosure of
settlement costs. 12 U.S.C. 2601(a),
2617(a). The Bureau has considered the
purposes for which it may exercise its
authority under RESPA section 19(a)
and, based on that review, believes that
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the proposed rules and interpretations
may be appropriate. The proposal has
the potential to ensure more effective
advance disclosure of settlement costs
by requiring creditors to disclose
accurate estimates when such creditors
are in a position to do so.
The Bureau solicits comment on all
aspects of this proposal, including the
cost, burden, and benefits to consumers
and to industry regarding the proposed
revisions to the good faith requirements.
The Bureau solicits comment on the
frequency, magnitude, and causes of
settlement cost increases. The Bureau
also requests comment on any
alternatives to the proposal that would
further the purposes of TILA, RESPA,
and the Dodd-Frank Act and provide
consumers with more useful
disclosures.
19(e)(3)(i) General Rule
Regulation X currently provides that
the amounts imposed for the origination
charge and transfer taxes may not
exceed the amounts included on the
RESPA GFE, unless certain exceptions
are met. § 1024.7(e)(1). The items
included under this category are
generally limited to charges paid to
lenders and brokers, in addition to
transfer taxes.
The Bureau is proposing to
incorporate this provision in new
§ 1026.19(e)(3)(i). Furthermore, as
discussed above, the Bureau is
proposing to expand the scope of the
current regulation. Under the proposed
rule, the default rule is that any charge
paid by the consumer that exceeds the
amount originally estimated on the
disclosures provided pursuant to
§ 1026.19(e)(1)(i) was not provided in
good faith. This default rule is subject
to legitimate cost revisions when an
unexpected event occurs, such as a
changed circumstance or a change
requested by the consumer. Also, the
charges for certain items are subject to
exceptions allowing other increases as
permitted under § 1026.19(e)(3)(ii) and
(iii). Thus, the Bureau believes that the
rule offers a level of flexibility similar
to the current rules under Regulation X.
The Bureau believes that the primary
impact of adopting this bright line
default rule will be to protect consumers
from unnecessary increases in charges.
Consequently, the Bureau proposes
§ 1026.19(e)(3)(i), which provides that
the charges paid by or imposed on the
consumer may not exceed the estimated
amounts of those charges provided
pursuant to § 1026.19(e)(1)(i), subject to
permissible reasons for revision such as
changed circumstances and revisions
requested by the consumer, and except
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as otherwise provided under
§ 1026.19(e)(3)(ii) and (iii).
During the Small Business Panel
Review process, several small entity
representatives expressed concern about
the unintended consequences that may
result from applying the zero-percent
tolerance rule currently under
Regulation X to affiliates of the lender
or mortgage broker and to providers
selected by the lender. See Small
Business Review Panel Report at 34, 37–
38, 40, 64, 67, and 71. The Small
Business Review Panel recommended
that the Bureau consider alternatives to
expanding application of the zeropercent tolerance that would increase
the reliability of cost estimates while
minimizing the impacts on small
entities. See id. at 29. The Bureau has
given careful consideration to this
recommendation, but has not yet
identified any alternatives that would
increase disclosure reliability while
minimizing small entity impact. The
Bureau solicits comment on any such
alternatives. The Panel also
recommended that the Bureau solicit
comment on the effectiveness of the
current tolerance rules. Id. Consistent
with the Small Business Review Panel’s
recommendation, the Bureau solicits
comment on whether the current
tolerance rules have sufficiently
improved the reliability of the estimates
that lenders give consumers, while
preserving lenders’ flexibility to
respond to unanticipated changes that
occur during the loan process.
Proposed comment 19(e)(3)(i)–1
explains that § 1026.19(e)(3)(i) imposes
a general rule that an estimated charge
disclosed pursuant to § 1026.19(e) is not
in good faith if the charge paid by or
imposed on the consumer exceeds the
amount originally disclosed. Although
§ 1026.19(e)(3)(ii) and (e)(3)(iii) provide
exceptions to the general rule for certain
types of charges, those exceptions
generally do not apply to (1) fees paid
to the creditor; (2) fees paid to a broker;
(3) fees paid to an affiliate of the
creditor or a broker; (4) fees paid to an
unaffiliated third party if the creditor
did not permit the consumer to shop for
a third party service provider; and (5)
transfer taxes.
Proposed comment 19(e)(3)(i)–2
provides guidance on the issue of
whether an item is ‘‘paid to’’ a
particular person. In the mortgage loan
origination process, individuals often
receive payments for services and
subsequently pass those payments on to
others. Similarly, individuals often pay
for services in advance of the real estate
closing and subsequently seek
reimbursement from the consumer. This
comment provides examples of how
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situations such as these are treated for
the purposes of § 1026.19.
Proposed comment 19(e)(3)(i)–3
discusses when items are characterized
as transfer taxes, as opposed to
recording fees. Transfer taxes are
analyzed under § 1026.19(e)(3)(i) for
purposes of determining whether an
estimate is provided in good faith.
Recording fees are analyzed under
§ 1026.19(e)(3)(ii) for purposes of
determining whether an estimate is
provided in good faith.
Proposed comment 19(e)(3)(i)–4
provides examples illustrating the good
faith requirement in the context of
specific credits, rebates, or
reimbursements. An item identified, on
the disclosures provided pursuant to
§ 1026.19(e), as a payment from a
creditor to the consumer to pay for a
particular fee, such as a credit, rebate,
or reimbursement are not subject to the
good faith determination requirements
in § 1026.19(e)(3)(i) or (ii) if the
increased specific credit, rebate, or
reimbursement actually reduces the cost
to the consumer. Specific credits,
rebates, or reimbursements may not be
disclosed or revised in a way that would
otherwise violate the requirements of
§ 1026.19(e)(3)(i) and (ii). The proposed
comment also provides illustrative
examples of these requirements.
Proposed comment 19(e)(3)(i)–5
discusses how to determine ‘‘good
faith’’ in the context of lender credits.
The proposed comment explains that
the disclosure of ‘‘lender credits,’’ as
identified in § 1026.37(g)(6)(ii), is
required by § 1026.19(e)(1)(i). These are
payments from the creditor to the
consumer that do not pay for a
particular fee on the disclosures
provided pursuant to § 1026.19(e)(1)(i).
These non-specific credits are negative
charges to the consumer—as the lender
credit decreases the overall cost to the
consumer increases. Thus, an actual
lender credit provided at the real estate
closing that is less than the estimated
lender credit provided pursuant to
§ 1026.19(e)(1)(i) is an increased charge
to the consumer for purposes of
determining good faith under
§ 1026.19(e)(3)(i). For example, if the
creditor provides a $750 estimate for
lender credits in the disclosures
required by § 1026.19(e)(1)(i), but only a
$500 lender credit is actually provided
to the consumer at the real estate
closing, the creditor does not comply
with § 1026.19(e)(3)(i) because, although
the actual lender credit was less than
the estimated lender credit provided in
the revised disclosures, the overall cost
to the consumer increased and,
therefore, did not comply with
§ 1026.19(e)(3)(i). See also
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§ 1026.19(e)(3)(iv)(D) and comment
19(e)(3)(iv)(D)–1 for a discussion of
lender credits in the context of interest
rate dependent charges.
19(e)(3)(ii) Limited Increases Permitted
for Certain Charges
Regulation X § 1024.7(e)(2) currently
provides that the sum of the amounts
charged for all lender-required
settlement services where the consumer
does not independently choose a
provider, title insurance, and recording
charges may increase by as much as 10
percent prior to settlement, subject to
revisions arising from exceptions such
as changed circumstances. The Bureau
believes that a more narrow regulation
may be appropriate in this context. The
Bureau therefore proposes
§ 1026.19(e)(3)(ii), which permits the
sum of all charges for lender-required
settlement services where the lender
permits the consumer to shop for a
provider other than those identified by
the creditor and recording fees to
increase by 10 percent for the purposes
of determining good faith. As explained
in the general discussion under
§ 1026.19(e)(3) above, the Bureau
believes that the purposes of TILA and
RESPA are better served by removing
affiliate fees from this category and
including other settlement services in
this category only if the consumer is
permitted to shop independently for a
service provider. Proposed comment
19(e)(3)(ii)–1 explains that
§ 1026.19(e)(3)(ii) provides that certain
estimated charges are in good faith if the
sum of all such charges paid by or
imposed on the consumer does not
exceed the sum of all such charges
disclosed pursuant to § 1026.19(e) by
more than 10 percent. Section
1026.19(e)(3)(ii) permits this limited
increase for only: (1) fees paid to an
unaffiliated third party if the creditor
permitted the consumer to shop for the
service, consistent with
§ 1026.19(e)(1)(vi)(A), and (2) recording
fees.
Proposed comment 19(e)(3)(ii)–2
clarifies that pursuant to
§ 1026.19(e)(3)(ii), whether an
individual estimated charge subject to
§ 1026.19(e)(3)(ii) is in good faith
depends on whether the sum of all
charges subject to § 1026.19(e)(3)(ii)
increase by more than 10 percent, even
if a particular charge does not increase
by more than 10 percent. This proposed
comment also clarifies that
§ 1026.19(e)(3)(ii) provides flexibility in
disclosing individual fees by focusing
on aggregate amounts, and provides
illustrative examples.
Proposed comment 19(e)(3)(ii)–3
discusses the determination of good
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faith when a consumer is permitted to
shop for a settlement service, but either
does not select a settlement service
provider, or chooses a settlement service
provider identified by the creditor on
the list required by
§ 1026.19(e)(1)(vi)(C). The proposed
comment explains § 1026.19(e)(3)(ii),
which provides that if the creditor
requires a service in connection with
the mortgage loan transaction, and
permits the consumer to shop, then
good faith is determined pursuant to
§ 1026.19(e)(3)(ii)(A), instead of
§ 1026.19(e)(3)(i) and subject to the
other requirements in
§ 1026.19(e)(3)(ii)(B) and (C). For
example, if, in the disclosures provided
pursuant to § 1026.19(e)(1)(i), a creditor
includes an estimated fee for an
unaffiliated settlement agent and
permits the consumer to shop for a
settlement agent, but the consumer does
not choose a settlement agent, or
chooses an agent identified by the
creditor on the list required by
§ 1026.19(e)(1)(vi)(C), then the estimated
settlement agent fee is included with the
fees that may, in aggregate, increase by
no more than 10 percent for the
purposes of § 1026.19(e)(3)(ii). If,
however, the consumer chooses a
provider that is not on the written list,
then good faith is determined according
to § 1026.19(e)(3)(iii).
Proposed comment 19(e)(3)(ii)–4
discusses how the good faith
determination requirements apply to
recording fees. Recording fees are
mandated by State or local law and paid
to a government agency. Consequently,
several of the requirements regarding
good faith do not apply. The proposed
comment explains that the condition
specified in § 1026.19(e)(3)(ii)(B), that
the charge not be paid to an affiliate of
the creditor, is inapplicable in the
context of recording fees. The condition
specified in § 1026.19(e)(3)(ii)(C), that
the creditor permits the consumer to
shop for the service, is similarly
inapplicable. Therefore, estimates of
recording fees need only satisfy the
condition specified in
§ 1026.19(e)(3)(ii)(A) (i.e., that the
aggregate amount increased by no more
than 10 percent) to meet the
requirements of § 1026.19(e)(3)(ii).
19(e)(3)(iii) Variations Permitted for
Certain Charges
Section 1024.7(e)(3) of Regulation X
currently provides that the amounts
charged for services, other than those
identified in § 1024.7(e)(1) and
§ 1024.7(e)(2), may change at settlement.
The Bureau agrees that certain types of
estimates, such as those for property
insurance premiums, may change
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significantly between the time that the
original disclosures are provided and
consummation. However, the Bureau
believes that the regulation will be
improved by specifically identifying
which items are included in this
category. Clear delineation of these
items should facilitate compliance by
reducing the need to question how to
categorize those items. Thus, the Bureau
proposes § 1026.19(e)(3)(iii), which
provides that estimates of prepaid
interest, property insurance premiums,
amounts placed into an escrow,
impound, reserve, or similar account,
and charges paid to third-party service
providers selected by the consumer
consistent with § 1026.19(e)(1)(vi)(A)
that are not on the list provided
pursuant to § 1026.19(e)(1)(vi)(C) are in
good faith regardless of whether the
amount actually paid by the consumer
exceeds the estimated amount
disclosed, provided such estimates are
consistent with the best information
reasonably available to the creditor at
the time the disclosures were made.
Proposed comments 19(e)(3)(iii)–1,
19(e)(3)(iii)–2, and 19(e)(3)(iii)–3
explain that the disclosures for items
subject to § 1026.19(e)(3)(iii) must be
made in good faith, even though good
faith is not determined pursuant to a
comparison of estimated amounts and
actual costs. The comments clarify that
the disclosures must be made according
to the best information reasonably
available to the creditor at the time the
disclosures are made. The Bureau is
concerned that unscrupulous creditors
may underestimate, or fail to include
estimates for, the items subject to
§ 1026.19(e)(3)(iii) and mislead
consumers into believing the cost of the
mortgage loan is less than it actually is.
This concern must be balanced against
the fact that some items may change
significantly and legitimately prior to
consummation. Furthermore, while the
creditor should include estimates for all
fees ‘‘the borrower is likely to incur,’’ it
may not be reasonable to expect the
creditor to know every fee, no matter
how uncommon, agreed to by the
consumer, for example in the purchase
and sale agreement, prior to providing
the estimated disclosures. The proposal
strikes a balance between these
considerations by imposing a general
good faith requirement. Thus, proposed
comment 19(e)(3)(iii)–1 explains that
estimates of prepaid interest, property
insurance premiums, and impound
amounts must be consistent with the
best information reasonably available to
the creditor at the time the disclosures
are provided. Differences between the
amounts of such charges disclosed
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pursuant to § 1026.19(e)(1)(i) and the
amounts of such charges paid by or
imposed upon the consumer do not
constitute a lack of good faith, so long
as the original estimated charge, or lack
of an estimated charge for a particular
service, was based on the best
information reasonably available to the
creditor at the time the disclosure was
provided. For example, if the creditor
requires homeowner’s insurance but
fails to include a homeowner’s
insurance premium on the estimates
provided pursuant to § 1026.19(e)(1)(i),
then the creditor has not complied with
§ 1026.19(e)(3)(iii). However, if the
creditor does not require flood
insurance and the subject property is
located in an area where floods
frequently occur, but not located in a
zone where flood insurance is required,
failure to include flood insurance on the
original estimates provided pursuant to
§ 1026.19(e)(1)(i) does not constitute a
lack of good faith. Or, if the creditor
knows that the loan must close on the
15th of the month but estimates prepaid
interest to be paid from the 30th of that
month, then the under-disclosure
violates § 1026.19(e)(3)(iii).
Proposed comment 19(e)(3)(iii)–2
discusses the good faith requirement for
required services chosen by the
consumer that has been permitted to
shop consistent with
§ 1026.19(e)(1)(vi)(A). The proposed
comment explains that, if a service is
required by the creditor, the creditor
permits the consumer to shop for that
service consistent with
§ 1026.19(e)(1)(vi)(A), the creditor
provides the list required by
§ 1026.19(e)(1)(vi)(C), and the consumer
chooses a service provider that is not on
the list to perform that service, then the
actual amounts of such fees need not be
compared to the original estimates for
such fees to perform the good faith
analysis required by § 1026.19(e)(3)(i) or
(ii). Differences between the amounts of
such charges disclosed pursuant to
§ 1026.19(e)(1)(i) and the amounts of
such charges paid by or imposed on the
consumer do not necessarily constitute
a lack of good faith. However, the
original estimated charge, or lack of an
estimated charge for a particular service,
must be made based on the best
information reasonably available to the
creditor at that time. For example, if the
consumer informs the creditor that the
consumer will choose a settlement agent
not identified by the creditor, and the
creditor subsequently discloses an
unreasonably low estimated settlement
agent fee, then the under-disclosure
does not comply with
§ 1026.19(e)(3)(iii). The comment also
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clarifies that, if the creditor permits the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) but fails to
provide the list required by
§ 1026.19(e)(1)(vi)(C), good faith is
determined pursuant to
§ 1026.19(e)(3)(ii) instead of
§ 1026.19(e)(3)(iii) regardless of the
provider selected by the consumer,
unless the provider is an affiliate of the
creditor in which case good faith is
determined pursuant to
§ 1026.19(e)(3)(i).
Proposed comment 19(e)(3)(iii)–3
discusses the good faith requirement for
non-required services chosen by the
consumer. Differences between the
amounts of estimated charges for
services not required by the creditor
disclosed pursuant to § 1026.19(e)(1)(i)
and the amounts of such charges paid
by or imposed on the consumer do not
necessarily constitute a lack of good
faith. For example, if the consumer
informs the creditor that the consumer
will obtain a type of inspection not
required by the creditor, the creditor
may include the charge for that item in
the disclosures provided pursuant to
§ 1026.19(e)(1)(i), but the actual amount
of the inspection fee need not be
compared to the original estimate for the
inspection fee to perform the good faith
analysis required by § 1026.19(e)(3)(iii).
However, the original estimated charge,
or lack of an estimated charge for a
particular service, must still be made
based on the best information
reasonably available to the creditor at
the time that the estimate was provided.
For example, if the subject property is
located in a jurisdiction where
consumers are customarily represented
at the real estate closing by their own
attorney, but the creditor fails to include
a fee for the consumer’s attorney, or
includes an unreasonably low estimate
for such fee, on the original estimates
provided pursuant to § 1026.19(e)(1)(i),
then the creditor’s failure to disclose, or
under-estimation, does not comply with
§ 1026.19(e)(3)(iii).
19(e)(3)(iv) Revised Estimates
Regulation X § 1024.7(f) currently
provides that the estimates included on
the RESPA GFE are binding, subject to
six exceptions. If the lender establishes
one of these six exceptions, the RESPA
GFE may be re-issued with revised
estimates. The Bureau agrees that there
are certain situations that may
legitimately cause increases over the
amounts originally estimated, and that
the regulations should provide a clear
mechanism for providing revised
estimates in good faith. The Bureau
proposes § 1026.19(e)(3)(iv), which
provides that, for purposes of
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determining good faith, a charge paid by
or imposed on the consumer may
exceed the originally estimated charge if
the revision is caused by one of the six
reasons identified in
§ 1026.19(e)(3)(iv)(A) through (F).
Proposed comment 19(e)(3)(iv)–1
illustrates this provision.
Consistent with current Regulation
X,143 proposed comment 19(e)(3)(iv)–2
clarifies that, to satisfy the good faith
requirement, revised estimates may
increase only to the extent that the
reason for revision actually caused the
increase and provides illustrative
examples of this requirement. Proposed
comment 19(e)(3)(iv)–3 discusses the
documentation requirements related to
the provision of revised estimates.
Regulation X § 1024.7(f) contains a
separate regulatory provision related to
documentation requirements. The
Bureau believes that this requirement is
encompassed within the requirements
of § 1026.25. The proposed comment
clarifies that the regulations include a
documentation requirement related to
the disclosures, but the requirements are
located under § 1026.25, instead of
§ 1026.19. As discussed below, the
Bureau is proposing to impose
enhanced recordkeeping requirements
under § 1026.25.
19(e)(3)(iv)(A) Changed Circumstance
Affecting Settlement Charges
In general. Regulation X § 1024.7(f)(1)
currently provides that a revised RESPA
GFE may be provided if changed
circumstances result in increased costs
for any settlement service such that
charges at settlement would exceed the
tolerances for those charges. The Bureau
agrees that creditors should be able to
provide revised estimates if certain
situations occur that increase charges.
The Bureau proposes
§ 1026.19(e)(3)(iv)(A), which provides
that a valid reason for re-issuance exists
when changed circumstances cause
estimated charges to increase or, for
those charges subject to
§ 1026.19(e)(3)(ii), cause the sum of all
such estimated charges to increase by
more than 10 percent. Proposed
comment 19(e)(3)(iv)(A)–1 provides
further explanation of this requirement
and includes several practical examples.
Changed circumstance. As explained
in the general discussion under
§ 1026.19(e)(3) above, Regulation X
§ 1024.2 generally defines changed
circumstances as information and
events that warrant revision of the
estimated amounts included on the
RESPA GFE. The Bureau generally
agrees with the information and events
143 See
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included in the current definition.
However, the Bureau has received
feedback that the current definition is
confusing. Thus, the Bureau proposes,
within § 1026.19(e)(3)(iv)(A), a new
definition of changed circumstance,
which provides that a changed
circumstance is an extraordinary event
beyond the control of any interested
party or other unexpected event specific
to the consumer or transaction,
information specific to the consumer or
transaction that the creditor relied upon
when providing the disclosures and that
was inaccurate or subsequently
changed, or new information specific to
the consumer or transaction that was
not relied on when providing the
disclosures.
This proposed definition, most
significantly, omits the fourth prong of
the existing definition, which provides
that: ‘‘[o]ther circumstances that are
particular to the borrower or
transaction, including boundary
disputes, the need for flood insurance,
or environmental problems’’ is
considered a changed circumstance. The
Bureau believes that this prong is not
needed because it is covered elsewhere
in the definition, and may be
contributing to the current industry
uncertainty surrounding what
constitutes a changed circumstance.
However, the Bureau seeks comment on
whether this proposal is appropriate,
and specifically on whether there are
scenarios that should be considered a
changed circumstance that would not be
captured under any of the other three
prongs. Proposed comment
19(e)(3)(iv)(A)–2 provides additional
elaboration on this issue and provides
several examples of changed
circumstances.
Proposed comment 19(e)(3)(iv)(A)–3
discusses how the definition of
application under § 1026.2(a)(3) relates
to the definition of changed
circumstances under
§ 1026.19(e)(3)(iv)(A). The proposed
comment explains that a creditor is not
required to collect the consumer’s name,
monthly income, or social security
number to obtain a credit report, the
property address, an estimate of the
value of the property, or the mortgage
loan amount sought. However, for
purposes of determining whether an
estimate is provided in good faith under
§ 1026.19(e)(1)(i), a creditor is presumed
to have collected these six pieces of
information. For example, if a creditor
provides the disclosures required by
§ 1026.19(e)(1)(i) prior to receiving the
property address from the consumer, the
creditor cannot subsequently claim that
the receipt of the property address is a
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changed circumstance, under
§ 1026.19(e)(3)(iv)(A) or (B).
19(e)(3)(iv)(B) Changed Circumstance
Affecting Eligibility
Regulation X § 1024.7(f)(2) currently
provides that a revised RESPA GFE may
be provided if a changed circumstance
affecting borrower eligibility results in
increased costs for any settlement
service such that charges at settlement
would exceed the tolerances for those
charges. The Bureau proposes
§ 1026.19(e)(3)(iv)(B), which provides
that a valid reason for reissuance exists
when a changed circumstance affecting
the consumer’s creditworthiness or the
value of the collateral causes the
estimated charges to increase. Proposed
comment 19(e)(3)(iv)(B)–1 explains that
if changed circumstances cause a
change in the consumer’s eligibility for
specific loan terms disclosed pursuant
to § 1026.19(e)(1)(i) and revised
disclosures are provided reflecting such
change, the actual amounts paid by the
consumer may be measured against the
revised estimated disclosures to
determine if the actual fee has increased
above the estimated fee. The proposed
comment also provides several
illustrative examples.
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19(e)(3)(iv)(C) Revisions Requested by
the Consumer
Regulation X § 1024.7(f)(3) currently
provides that a revised RESPA GFE may
be provided if a borrower requests
changes to the mortgage loan identified
in the GFE that change the settlement
charges or the terms of the loan. The
Bureau agrees that creditors should be
able to provide revised estimates that
increase charges from the original
estimates due to revisions requested by
the consumer. The Bureau proposes
§ 1026.19(e)(3)(iv)(C), which provides
that a valid reason for reissuance exists
when a consumer requests revisions to
the credit terms or the settlement that
cause estimated charges to increase.
Proposed comment 19(e)(3)(iv)(C)–1
illustrates this requirement.
19(e)(3)(iv)(D) Interest Rate Dependent
Charges
Regulation X § 1024.7(f)(5) currently
provides that, if the interest rate has not
been locked, or a locked interest rate has
expired, the charge or credit for the
interest rate chosen, the adjusted
origination charges, per diem interest,
and loan terms related to the interest
rate may change, provided, however,
that when the interest rate is later
locked, a revised GFE must be provided
showing the revised interest ratedependent charges and terms. The
Bureau agrees that disclosures related to
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the interest rate should be able to
fluctuate if the consumer’s rate has not
been set. The Bureau also agrees that
revised disclosures should be provided
when the consumer’s rate is later set.
However, the Bureau is concerned that
this provision may be used to harm
consumers. There is a possibility that
unscrupulous creditors could use this
provision to engage in rent-seeking
behavior, or to attempt to circumvent
the requirements of TILA or RESPA.
The Bureau acknowledges these
concerns, but the Bureau is unaware of
any evidence that creditors are using
current Regulation X § 1024.7(f)(5) to
harm consumers or to circumvent
RESPA. The Bureau believes that the
correct balance may be to retain the
current regulation while monitoring the
market to determine if the regulation is
being used to the detriment of
consumers. Thus, the Bureau proposes
§ 1026.19(e)(3)(iv)(D), which provides
that a valid reason for reissuance exists
when a consumer’s rate is set, and also
provides that revised disclosures must
be provided reflecting the revised
interest rate, bona fide discount points,
and lender credits. Proposed comment
19(e)(3)(iv)(D)–1 illustrates this
requirement. The Bureau also seeks
comment on the frequency and
magnitude of revisions to the interest
rate dependent charges, the frequency of
cancellations of contractual agreements
related to interest rate dependent
charges, such as rate lock agreements,
and the reasons for such revisions and
cancellations.
19(e)(3)(iv)(E) Expiration
Regulation X § 1024.7(f)(4) currently
provides that if a borrower does not
express an intent to continue with the
transaction within ten business days
after the RESPA GFE is provided, or
such longer time specified by the loan
originator, then the loan originator is no
longer bound by the RESPA GFE. The
Bureau believes that consumers should
be able to rely on the estimated charges
for a sufficient period of time to permit
shopping. The Bureau also believes that,
if the consumer does not indicate intent
to proceed within the ten-day period,
creditors should be able to provide
revised disclosures reflecting new
charges. The Bureau proposes
§ 1026.19(e)(3)(iv)(E), which provides
that a valid reason for reissuance exists
when a consumer expresses an intent to
proceed more than ten business days
after the disclosures are provided.
Proposed comment 19(e)(3)(iv)(E)–1
illustrates this requirement.
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19(e)(3)(iv)(F) Delayed Settlement Date
on a Construction Loan
Regulation X § 1024.7(f)(6) currently
provides that in transactions involving
new construction home purchases,
where settlement is expected to occur
more than 60 calendar days from the
time a GFE is provided, the loan
originator cannot issue a revised GFE
unless the loan originator provided the
borrower with a clear and conspicuous
disclosure stating that at any time up
until 60 calendar days prior to the real
estate closing, the loan originator may
issue a revised GFE. The Bureau
believes that the current law under
Regulation X should apply to the
integrated disclosures. The Bureau
agrees that creditors should be able to
issue revised disclosures for
construction loans where
consummation will not occur until well
into the future, likely after construction
is completed, provided that the
consumer is aware of this fact. The
Bureau proposes § 1026.19(e)(3)(iv)(F),
which provides that a valid reason for
revision exists on construction loans
when consummation is scheduled to
occur more than 60 days after delivery
of the estimated disclosures, provided
that the consumer was alerted to this
fact when the estimated disclosures
were provided.
Proposed comment 19(e)(3)(iv)(F)–1
clarifies that a loan for the purchase of
a home either to be constructed or under
construction is considered a
construction loan to purchase and build
a home for the purposes of
§ 1026.19(e)(3)(iv)(F). For example, a
loan to build a home that has yet to be
constructed, or a loan to purchase a
home on which construction is
currently underway, is a construction
loan to build a home for the purposes
of § 1026.19(e)(3)(iv)(F). However, if a
use and occupancy permit has been
issued for the home prior to the
issuance of the Loan Estimate, then the
home is not considered to be under
construction and the transaction would
not be a construction loan to purchase
and build a home for the purposes of
§ 1026.19(e)(3)(iv)(F). This comment is
consistent with guidance provided by
HUD in the HUD RESPA FAQs p. 21, #2
(‘‘GFE—New construction’’).
19(e)(4) Provision of Revised
Disclosures
Timing Requirements for Provision of
Revised Disclosures
TILA’s requirement that creditors
provide corrected disclosures is not
linked to the time when a creditor
discovers that a correction is necessary.
Instead, section 128(b)(2)(D) of TILA
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provides that the creditor shall furnish
additional, corrected disclosures to the
borrower not later than three business
days before the date of consummation of
the transaction, if the previously
disclosed annual percentage rate is no
longer accurate, as determined under
TILA section 107(c). 15 U.S.C.
1638(b)(2)(D). Regulation Z implements
this requirement in § 1026.19(a)(2)(ii).
RESPA does not expressly address
timing requirements for the delivery of
revised GFEs, but Regulation X
generally requires that a revised GFE
must be provided within three business
days of the creditor receiving
information sufficient to establish a
reason for revision.144
While both regulations contain
redisclosure requirements, their
approaches are different. Regulation Z
ensures that the consumer is made
aware of changes at a specific point in
time before consummation, but does not
require the creditor to keep the
consumer informed of incremental
changes during the loan origination
process. In contrast, Regulation X
ensures that the consumer is kept aware
of certain changes during the process,
but those changes may occur up to the
day of settlement. These different
approaches may stem from the
underlying purposes of the respective
statutes: TILA focuses primarily on the
disclosure of high-level measures of the
costs imposed by the creditor, such as
the APR, while RESPA requires
itemized disclosure of all charges
associated with the settlement of a
federally related mortgage loan and any
underlying real estate transaction,
regardless of who imposes the charge.
The Bureau believes that the policy
goals of both statutes are best served by
adopting the Regulation X requirement
that revised disclosures be delivered
within three business days of the
creditor establishing that a valid reason
for revision exists. Intermittent
redisclosure of the integrated Loan
Estimate is necessary under RESPA
because settlement service provider
costs typically fluctuate during the
mortgage loan origination process.
Furthermore, intermittent redisclosure
is consistent with the purposes of TILA
because it promotes the informed use of
144 ‘‘If a revised GFE is to be provided, the loan
originator must do so within 3 business days of
receiving information sufficient to establish
changed circumstances.’’ 12 CFR 1024.7(f)(1) and
(2). ‘‘If a revised GFE is to be provided, the loan
originator must do so within 3 business days of the
borrower’s request.’’ 12 CFR 1024.7(f)(3). ‘‘The loan
originator must provide the revised GFE within 3
business days of the interest rate being locked or,
for an expired interest rate, re-locked.’’ 12 CFR
1024.7(f)(5).
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credit by keeping the consumer
apprised of changes in costs.
Accordingly, the Bureau is proposing
§ 1026.19(e)(4)(i), which provides that,
if a creditor delivers a revised Loan
Estimate, the creditor must do so within
three business days of establishing that
a valid reason for revision exists.
Proposed comment 19(e)(4)–1 provides
illustrative examples of this
requirement.
The Bureau proposes this provision
pursuant to its authority under TILA
section 105(a), RESPA section 19(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, sections
129B(e) of TILA and 1405(b) of the
Dodd-Frank Act. This proposed
provision is consistent with TILA’s
purposes in that alerting consumers to
significant settlement cost increases as
they occur, rather than prior to
consummation, increases consumer
awareness during the mortgage loan
origination process, enabling consumers
to avoid the uninformed use of credit.
This provision is consistent with section
129B(e) of TILA because failing to
inform borrowers of significant
settlement cost increases as they occur
is not in the interest of the borrower.
This also achieves RESPA’s purposes
because informing consumers of
significant settlement cost increases as
they occur is a more effective method of
advance disclosure of settlement costs
than only informing consumers at or
shortly prior to consummation. In
addition, the proposed regulation is
consistent with Dodd-Frank Act section
1032(a) because the features of mortgage
loan transactions and settlement
services will be more fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage loan and
settlement services if consumers are
made aware of significant settlement
cost increases as they occur, rather than
prior to consummation. It is also in the
interest of consumers and in the public
interest, consistent with Dodd-Frank
Act section 1405(b), because alerting
consumers to significant settlement cost
increases during the process will
improve consumer understanding and
awareness of the mortgage loan
transaction through the use of
disclosure.
Prohibition Against Delivering Early
Disclosures at the Same Time as Final
Disclosures
As explained above, the purposes of
RESPA and TILA include effective
advance disclosure of settlement costs,
and the informed use of credit by
consumers. See TILA section 102;
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RESPA section 2. Section 105(a) of TILA
also permits the Bureau to prescribe
regulations that would improve
consumers’ ability to understand the
mortgage loan transaction. The DoddFrank Act enhances TILA’s focus by
placing special emphasis on the
requirement that disclosures must be
made in a way that is clear and
understandable to the consumer.
Section 1405 of the Dodd-Frank Act
focuses on improving ‘‘consumer
awareness and understanding of
transactions involving residential
mortgage loans through the use of
disclosures.’’ The Bureau is aware that,
in some cases, creditors have provided
a revised GFE at the real estate closing
along with the RESPA settlement
statement. The Bureau is concerned that
this practice may be confusing for
consumers and may diminish their
awareness and understanding of the
transaction.
The Bureau recognizes that there are
cases in which a consumer may not be
confused by receiving good faith
estimates on the same day, or even at
the same time, as the consumer receives
the actual settlement costs. However,
because the estimated costs will match
the actual costs, the Bureau is
concerned that consumers may be
confused by seemingly duplicative
disclosures. The Bureau is also
concerned that this duplication may
contribute to information overload
stemming from too many disclosures,
which may, in turn, inhibit the
consumer’s ability to understand the
transaction. Accordingly, proposed
§ 1026.19(e)(4)(ii) prohibits creditors
from providing a consumer with
disclosures of estimated and actual costs
at the same time. To draw a clear line
to facilitate compliance, the creditor
does not comply with the requirements
of proposed § 1026.19(e) if the consumer
receives revised versions of the
disclosures required under
§ 1026.19(e)(1)(i) on the same business
day as the consumer receives the
disclosures required by
§ 1026.19(f)(1)(i).
Accordingly, the Bureau is proposing
§ 1026.19(e)(4)(ii), which provides that
the creditor shall deliver revised
versions of the disclosures required by
§ 1026.19(e) in a manner that ensures
such revised disclosures are not
received on the same business day as
the consumer receives the disclosures
required by § 1026.19(f)(1)(i). The
Bureau proposes this provision
pursuant to its authority under TILA
section 105(a), RESPA section 19(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). The
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proposed provision is consistent with
TILA’s purposes because prohibiting
simultaneous provision of a revised
Loan Estimate and the Closing
Disclosure promotes the informed use of
credit by reducing the potential for
consumer confusion and information
overload. Similarly, this provision
achieves RESPA’s purposes because the
receipt of settlement cost information on
a single disclosure is a more effective
method of advance disclosure of
settlement costs. In addition, the
proposed regulation is consistent with
Dodd-Frank Act section 1032(a) because
consumers will understand the costs,
benefits, and risks associated with the
mortgage loan and settlement services if
the actual terms and costs of the
transaction are disclosed on the Closing
Disclosure only. It is also in the interest
of consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b), because ensuring that
consumers do not receive duplicative
disclosures will improve consumer
understanding and awareness of the
mortgage loan transaction through the
use of disclosure.
Proposed comment 19(e)(4)–2
discusses the requirement that revised
disclosures may not be delivered at the
same time as the final disclosures. The
proposed comment explains that
creditors comply with the requirements
of § 1026.19(e)(4) if the revised
disclosures are reflected in the
disclosures required by § 1026.19(f)(1)(i)
(i.e., the Closing Disclosure). This
comment also includes illustrative
examples of the requirement.
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19(f) Mortgage Loans Secured by Real
Property—Final Disclosures
As discussed in the preamble text
introducing § 1026.19, TILA applies
only to creditors and requires, for
certain mortgage transactions, creditors
to furnish a corrected disclosure to the
borrower not later than three business
days before the date of consummation of
the transaction if the prior disclosed
APR has become inaccurate. 15 U.S.C.
1638(b)(2)(A), (D). In contrast, RESPA
generally applies to settlement agents
and requires the person conducting the
settlement (e.g., the settlement agent) to
complete a settlement statement and
make it available for inspection by the
borrower at or before settlement. 12
U.S.C. 2603(b). RESPA also provides
that, upon the request of the borrower,
the person who conducts the settlement
must permit the borrower to inspect
those items which are known to such
person on the settlement statement
during the business day immediately
preceding the day of settlement. Id.
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Regulation Z implements TILA’s
requirement that the creditor deliver
corrected disclosures and provides that,
if the annual percentage rate disclosed
in the early TILA disclosure becomes
inaccurate, the creditor shall provide
corrected disclosures with all changed
terms. § 1026.19(a)(2)(ii). Regulation Z
further provides that the consumer must
receive the corrected disclosures no
later than three business days before
consummation. Id. Regulation X
provides that the settlement agent shall
permit the borrower to inspect the
RESPA settlement statement, completed
to set forth those items that are known
to the settlement agent at the time of
inspection, during the business day
immediately preceding settlement.
§ 1024.10(a).
Section 1032(f) of the Dodd-Frank Act
provides that the Bureau shall propose
for public comment rules that combine
the disclosures required under TILA
and sections 4 and 5 of RESPA. As
noted above, although the Dodd-Frank
Act amended TILA and RESPA to reflect
section 1032(f)’s mandate to integrate
the rules under TILA and RESPA,
Congress did not reconcile the timing
requirements or amend the division of
responsibilities between creditor and
settlement agent in TILA and RESPA.
19(f)(1) Provision
19(f)(1)(i) Scope
As discussed above, the integrated
disclosure mandate requires the Bureau
to reconcile what Congress did not.
Thus, pursuant to its authority under
sections 105(a) of TILA, 19(a) of RESPA,
and 1032(f) of the Dodd-Frank Act, the
Bureau is proposing to integrate the
disclosure requirements in TILA section
128 and RESPA section 4 in
§ 1026.19(f)(1)(i). This section provides
that in a closed-end consumer credit
transaction secured by real property,
other than a reverse mortgage subject to
§ 1026.33, the creditor shall provide the
consumer with the disclosures in
§ 1026.38 reflecting the actual terms of
the credit transaction. Proposed
comment 19(f)(1)(i)–1 provides
illustrative examples of this provision.
19(f)(1)(ii) Timing
19(f)(1)(ii)(A) In General
The Bureau must determine when the
integrated disclosures must be provided,
given that the statutory requirements are
not in sync. The Bureau believes that, to
comply with both TILA and RESPA, the
integrated disclosure must be delivered
no later than three days before
consummation. The Bureau recognizes
that RESPA requires settlement agents
to permit borrower inspection of the
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51175
settlement statement only one business
day in advance of settlement, and even
then RESPA requires disclosure of only
the information to the extent that it is
known to the settlement agent.
However, the fact that Congress did not
alter the timing requirements under
RESPA does not imply that the timing
requirements under TILA were
eliminated. It can be safely presumed
that Congress was aware of the
requirement that creditors must deliver
final disclosures three business days
before consummation because Congress
created the three-business-day waiting
period in 2008. Furthermore, section
1098 of the Dodd-Frank Act, which
amends RESPA section 4 to require
integrated disclosures, specifically
provides that such integrated
disclosures shall ‘‘include real estate
settlement cost statements.’’ This
suggests that Congress intended
creditors to deliver the settlement cost
statements with the TILA disclosures
required to be delivered no later than
three business days before
consummation, even though the
language in RESPA section 4 related to
settlement agent delivery remains.145
The expansion of the items required
to be disclosed three business days prior
to consummation also supports the
Bureau’s interpretation. As discussed
above, section 1419 of the Dodd-Frank
Act also amended TILA by adding
section 128(a)(17), which requires
creditors to disclose the aggregate
amount of settlement charges for all
settlement services provided in
connection with the loan and the
aggregate amount of other fees or
required payments in connection with
the loan. The items included in this
amendment are nearly all of the items
that are included on the RESPA
settlement statement, which suggests
that Congress intended for creditors to
disclose information that was
traditionally known only to settlement
agents in advance of consummation.
This amendment, coupled with the fact
that Regulation Z requires redisclosure
of all changed terms three business days
before consummation when the APR is
inaccurate, implies that Dodd-Frank
requires provision of the integrated
145 The language in section 4 of RESPA requiring
settlement statement delivery one business day in
advance of settlement was added in 1976. See
section 3 of Public Law 94–205 (Jan. 2, 1976).
Interpreting the recent amendments in a way that
overrides the legacy language is consistent with
Supreme Court precedent. See FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120, 133 (2000)
(‘‘[T]he meaning of one statute may be affected by
other Acts, particularly where Congress has spoken
subsequently and more specifically to the topic at
hand.’’).
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disclosure no later than three business
days before consummation.
The determination of how to integrate
these conflicting statutory provisions
also must be made in light of section
1405(b) of the Dodd-Frank Act, which
focuses on improving ‘‘consumer
awareness and understanding of
transactions involving residential
mortgage loans through the use of
disclosures.’’ Consumers may be more
aware of and better understand their
transactions if consumers receive the
disclosures reflecting all of the terms
and costs associated with their
transactions three days before
consummation. This should afford
consumers sufficient time to review,
analyze, and question the information
reflected in the disclosure, such that
consumers are aware of and understand
the transactions by the time consumers
are required to obligate themselves. This
should also provide consumers with
sufficient time to identify and correct
errors, discuss and negotiate cost
increases, and have the necessary funds
available. This may also eliminate the
opportunity for bad actors to surprise
consumers with unexpected costs at the
closing table, when consumers are less
able to question such costs.
In addition, the Bureau is concerned
that consumers would not receive the
disclosures far enough in advance of
consummation to review and
understand the transaction under an
alternate reading of the statute. As
explained above, Regulation Z currently
requires creditors to ensure that
consumers receive the corrected TIL
disclosures no later than three business
days prior to consummation. A less
stringent rule that allowed consumers to
receive the disclosures on the day of
consummation would be inconsistent
with both TILA and the goals this
proposal seeks to achieve. However, the
Bureau is also concerned that it would
be impractical to require delivery earlier
than three business days before
consummation. Thus, the Bureau
believes that the proposal should
provide flexibility to industry by
requiring creditors to ensure that
consumers receive the disclosures no
later than the third business day before
consummation. Under this approach, a
creditor need not complete the
disclosures until the third business day
before consummation, provided it can
ensure that the consumer will receive
the disclosures that day, such as via
electronic mail consistent with
applicable requirements or hand
delivery.
As discussed above, the integrated
disclosure mandate requires the Bureau
to reconcile what Congress did not.
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Section 105(a) of TILA authorizes the
Bureau to modify and add requirements
under certain circumstances, and the
Bureau believes that requiring
redisclosure in cases where it is not
currently required under Regulation Z
or Regulation X is necessary to
effectively integrate the disclosures.
Accordingly, the Bureau proposes
§ 1026.19(f)(1)(ii)(A), which provides
that, except for transactions secured by
timeshares, or as provided under
§ 1026.19(f)(2), the creditor shall ensure
that the consumer receives the
disclosures no later than three business
days before consummation. Proposed
comment 19(f)(1)(ii)–1 provides
illustrations of this requirement.
Proposed comment 19(f)(1)(ii)–2
explains the requirement that
consumers must receive disclosures no
later than three days in advance of
consummation, and provides practical
examples illustrating appropriate
delivery methods.
The Bureau informed the Small
Business Review Panel that the Bureau
was considering requiring reissuance if
the APR increased by more than 1⁄8 of
1 percent, certain loan features were
added, or if the amount needed to close
increased beyond a certain tolerance.
See Small Business Panel Review
Report at 11. While this proposal
includes the tolerance for the amount
needed to close and would require
reissuance if certain loan features are
added, this proposal does not include
an additional APR tolerance for
reissuance. Based on further review, the
Bureau believes that the $100 amount
needed to close tolerance provides
sufficient flexibility, thereby making an
additional APR tolerance unnecessary.
The Bureau was also concerned that the
additional APR tolerance would harm
consumers by allowing potentially large
costs to change immediately prior to
closing. Importantly, the Bureau
believes that this proposal is
substantially similar to the possibilities
discussed with the Small Business
Review Panel. In virtually all cases
where the APR increases by more than
1⁄8 of 1 percent, the amount needed to
close would also have increased by
more than $100, requiring re-disclosure.
However, the Bureau solicits comment
on whether the use of an APR tolerance
would provide any additional benefits.
The Bureau recognizes that this
modification would require redisclosure
three days before consummation in
circumstances that are not currently
required under Regulation Z. This
proposal removes the condition,
provided for under TILA section
128(b)(2)(D), that corrected disclosures
need not be delivered if the estimated
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APR included in the early TILA
disclosure is accurate at the time of
consummation. The Bureau has
received extensive feedback indicating
that APR estimates included in the early
TILA disclosures are so rarely accurate
that most creditors provide corrected
disclosures as a standard business
practice, instead of analyzing the
accuracy of the disclosed APR. Thus,
the Bureau believes that the benefit
afforded by the condition under TILA
section 128(b)(2)(D) is more illusory
than real, and may, in fact, impose an
unnecessary compliance burden on
industry. In addition, the Bureau
suspects that the expansion of the list of
items included in the APR, pursuant to
the proposed amendments to § 1026.4,
may make it less likely that a creditor
will be able to accurately estimate the
APR within three business days of
application. Therefore, this proposal
does not condition disclosure prior to
consummation on APR accuracy.
These proposals are made pursuant to
the Bureau’s legal authority under
sections 105(a) of TILA, 19(a) of RESPA,
1032(a) of the Dodd-Frank Act, and, for
residential mortgage transactions,
sections 129B(e) of TILA and 1405(b) of
the Dodd-Frank Act. The Bureau has
considered the purposes for which it
may exercise its authority under section
105(a) of TILA and, based on that
review, believes that the proposed
modifications are appropriate. The
proposal may help consumers avoid the
uninformed use of credit by ensuring
that consumers receive disclosures of
the actual terms and costs associated
with the mortgage loan transaction early
enough that consumers have sufficient
time to become fully informed as to the
cost of their credit. This provision is
consistent with section 129B(e) of TILA
because failing to provide borrowers
with enough time to become fully
informed of the actual terms and costs
of the transaction is not in the interest
of the borrower.
The Bureau has also considered the
purposes for which it may exercise its
authority under section 19(a) of RESPA
and, based on that review, believes that
the proposed rules and interpretations
are appropriate. The proposal has the
potential to ensure more effective
advance disclosure of settlement costs
by requiring creditors to disclose the
actual settlement costs associated with
the transaction three business days
before consummation.
Proposed § 1026.19(f)(1)(ii)(A) is
consistent with Dodd-Frank Act section
1032(a) because the features of mortgage
loan transactions and settlement
services will be more fully, accurately,
and effectively disclosed to consumer in
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a manner than permits consumers to
understand the costs, benefits, and risks
associated consumers will understand
the costs and risks associated with the
mortgage loan and settlement services if
consumers receive the disclosures
reflecting all of the terms and costs
associated with their transactions three
days before consummation.
In addition, the Bureau has
considered the purposes for which it
may exercise its authority under section
1405(b) of the Dodd-Frank Act and,
based on that review, believes that the
proposed modifications are appropriate.
The proposal may improve consumer
awareness and understanding of the
mortgage loan transaction by ensuring
that consumers receive the disclosures
reflecting all of the terms and costs
associated with their transactions three
days in advance of consummation. The
proposal may also be in the interest of
consumers and in the public interest
because the proposal may eliminate the
opportunity for bad actors to surprise
consumers with unexpected costs at the
closing table, when consumers are less
able to question such costs.
The Bureau recognizes that this is a
change from current industry practice.
During the Small Business Review
process, several small entity
representatives were opposed to this
modification. See Small Business
Review Panel report at 35, 38, 40, 45,
53–54, 59–60, 67–68, 72, and 77. The
Small Business Review Panel
recommended that the Bureau explore
ways to mitigate the potential impact of
the three business day requirement on
small entities. See id at 29. Based on
this feedback and consistent with the
Small Business Review Panel’s
recommendation, the Bureau solicits
comment on alternative approaches,
including any that can minimize the
burden on industry, especially small
entities, while serving the needs of
consumers and effectively integrating
the disclosures, as required by the
Dodd-Frank Act.
19(f)(1)(ii)(B) Timeshares
As explained above, in 2008 Congress
amended TILA to require delivery of
final disclosures three business days
prior to consummation. However,
Congress explicitly exempted mortgage
loans secured by timeshares, as defined
by 11 U.S.C. 101(53D), from the threeday requirement.146 Accordingly,
pursuant to its authority under sections
105(a) of TILA, 19(a) of RESPA, and
1405(b) of the Dodd-Frank Act, the
146 Mortgage Disclosure Improvement of 2008,
Public Law 110–289, Title V, § 2502(a)(6), 122 Stat.
2654, 2857 (July 30, 2008); 15 U.S.C. 1638(b)(2)(G).
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Bureau proposes § 1026.19(f)(1)(ii)(B),
which states that for transactions
secured by a consumer’s interest in a
timeshare plan described in 11 U.S.C.
101(53D), the creditor shall ensure that
the consumer receives the disclosures
required under paragraph (f)(1)(i) of this
section as soon as reasonably
practicable, but no later than
consummation. This proposed
regulation carries out the purposes of
TILA and RESPA by ensuring
meaningful disclosure of credit terms
and effective advance disclosure of
settlement costs, consistent with section
105(a) of TILA and 19(a) of RESPA,
respectively. Also, this proposed
regulation will improve consumer
awareness and understanding of
transactions involving residential
mortgage loans by requiring effective
disclosure within a timeframe
appropriate for loans secured by a
timeshare, which will be in the best
interest of consumers and the public
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 19(f)(1)(ii)–3
explains that for loans secured by
timeshares, as defined under 11 U.S.C.
101(53D), § 1026.19(f)(1)(ii)(B) requires
a creditor to ensure that the consumer
receives the disclosures required under
§ 1026.19 (f)(1)(i) as soon as reasonably
practicable, but no later than
consummation. The proposed comment
also includes illustrative examples of
this requirement.
19(f)(1)(iii) Delivery
Section 128(b)(2)(E) of TILA provides
that, if the disclosures are mailed to the
consumer, the consumer is considered
to have received them three business
days after they are mailed. 15 U.S.C.
1638(b)(2)(E). RESPA does not expressly
address delivery requirements.
Regulation Z provides that if the
disclosures are provided to the
consumer by means other than delivery
in person, the consumer is deemed to
have received the disclosures three
business days after they are mailed or
delivered. See § 1026.19(a)(1)(ii).
Regulation X provides that the
settlement agent shall deliver the
completed RESPA settlement statement
at or before the settlement, except if the
borrower waives the right to delivery of
the completed RESPA settlement
statement, in which case the completed
RESPA settlement statement shall be
mailed or delivered as soon as
practicable after settlement.
§ 1024.10(b), (c).
To establish a consistent standard for
the integrated Closing Disclosure,
pursuant to its authority under sections
105(a) of TILA, 19(a) of RESPA, and
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1405(b) of the Dodd-Frank Act, the
Bureau proposes to adopt
§ 1026.19(f)(1)(iii), which provides that,
if any disclosures required under
§ 1026.19(f)(1)(i) are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer.
Proposed comment 19(f)(1)(iii)–1
explains that if any disclosures required
under § 1026.19(f)(1)(i) are not provided
to the consumer in person, the
consumer is presumed to have received
the disclosures three business days after
they are mailed or delivered. This is a
presumption which may be rebutted by
providing evidence that the consumer
received the disclosures earlier than
three business days. The proposed
comment also contains illustrative
examples. Proposed comment
19(f)(1)(iii)–2 clarifies that the
presumption established in
§ 1026.19(f)(1)(iii) applies to methods of
electronic delivery, such as email.
However, creditors using electronic
delivery methods, such as email, must
also comply with § 1026.17(a)(1). This
proposed comment also contains
illustrative examples.
The Bureau recognizes that this
requirement is different than the current
requirement in Regulation Z. As
explained above, the current rules deem
corrected disclosures mailed or
delivered to the consumer by a method
other than in-person delivery to be
received three business days after
mailing or delivery. In contrast, the
proposed rule instead creates a
presumption that the disclosures are
received three business days after they
are mailed or delivered to the address
provided by the consumer. While the
current rule may be appropriate for the
disclosures provided under § 1026.19(a),
the Bureau is concerned that the current
rule may not be appropriate for the
integrated Closing Disclosure, which
contains much more information than
the final TILA disclosures subject to the
current rule, and therefore will require
more time to review and understand. It
therefore may be appropriate to create a
presumption of receipt, which would
provide additional encouragement for
lenders to ensure that the disclosures
are received in a timely manner.
However, the Bureau solicits feedback
regarding whether the proposed rules
will create uncertainty regarding
compliance. The Bureau also solicits
comment on whether the rules should
be analogous to the current rule under
§ 1026.19(a)(2), which uses ‘‘deem’’
instead of ‘‘presume.’’ Finally, the
Bureau seeks feedback regarding
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whether § 1026.19(a) should be
modified to reflect § 1026.19(f)(1)(iii), if
the final rule adopts the presumption of
receipt.
This proposed provision is consistent
with section 105(a) of TILA in that it
may help consumers avoid the
uninformed use of credit by ensuring
that consumers receive disclosures of
the actual terms and costs associated
with the mortgage loan transaction early
enough that consumers have sufficient
time to become fully informed as to the
cost of credit. This proposed provision
is also consistent with section 19(a) of
RESPA because it has the potential to
ensure more effective advance
disclosure of settlement costs by
requiring creditors to make sure that the
disclosures are delivered to the address
specified by the consumer three
business days before consummation. In
addition, the proposal is consistent with
section 1405(b) of the Dodd-Frank Act
because the proposal may improve
consumer awareness and understanding
of the mortgage loan transaction by
ensuring that disclosures reflecting all
of the terms and costs associated with
their transactions are delivered to the
address specified by the consumer three
business days in advance of
consummation. Ensuring that
consumers receive disclosures in a
timely manner is also in the interest of
consumers and in the public interest
because the proposal may allow
consumers to receive the disclosure
early enough to question and
understand their mortgage loan
transaction.
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19(f)(1)(iv) Consumer’s Waiver of
Waiting Period Before Consummation
Section 128(b)(2)(F) of TILA provides
that the consumer may waive or modify
the timing requirements for disclosures
to expedite consummation of a
transaction, if the consumer determines
that the extension of credit is needed to
meet a bona fide personal financial
emergency. Section 128(b)(2)(F) further
provides that: (1) The term ‘‘bona fide
personal financial emergency’’ may be
further defined in regulations issued by
the Bureau; (2) the consumer must
provide the creditor with a dated,
written statement describing the
emergency and specifically waiving or
modifying the timing requirements,
which bears the signature of all
consumers entitled to receive the
disclosures; and (3) the creditor must
provide, at or before the time of waiver
or modification, the final disclosures. 15
U.S.C. 1638(b)(2)(F). This provision is
implemented in § 1026.19(a)(3) of
Regulation Z. Neither RESPA nor
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Regulation X contains a similar
provision.
Although the Bureau understands that
waivers based on a bona fide personal
financial emergency are rare, this
exception serves an important purpose:
consumers should be able to waive the
protection afforded by the waiting
period if, in the face of a financial
emergency, the waiting period does
more harm than good. Accordingly, the
Bureau is proposing § 1026.19(f)(1)(iv),
which allows a consumer to waive the
three-business-day waiting period in the
event of a bona fide personal financial
emergency. In addition, the Bureau
seeks comment on the nature of waivers
based on bona fide personal financial
emergencies. The Bureau also seeks
comment on whether the bona fide
personal financial emergency exception
is needed more in some contexts than in
others (e.g., in refinance transactions or
purchase money transactions).
Proposed comment 19(f)(1)(iv)–1
states that, a consumer may modify or
waive the right to the three-business-day
waiting period required by
§ 1026.19(f)(1)(ii) only after the creditor
makes the disclosures required by
§ 1026.19(f)(1)(i). This comment is
modeled after comment 19(a)(3)–1,
which is based on the same statutory
text, and is consistent with commentary
on waiving the rescission period and the
pre-consummation waiting period
required for certain high-cost mortgage
transactions. The consumer must have a
bona fide personal financial emergency
that necessitates consummating the
credit transaction before the end of the
waiting period. Whether these
conditions are met is determined by the
facts surrounding individual situations.
The imminent sale of the consumer’s
home at foreclosure, where the
foreclosure sale will proceed unless
loan proceeds are made available to the
consumer during the waiting period, is
one example of a bona fide personal
financial emergency. Each consumer
who is primarily liable on the legal
obligation must sign the written
statement for the waiver to be effective.
Alternative—Proposed 19(f)(1)(v)
Settlement Agent
As discussed above, neither TILA nor
Regulation Z contain requirements
related to settlement agents, but RESPA
and Regulation X generally apply to
settlement agents with respect to closing
disclosure requirements. Section 1032(f)
of the Dodd-Frank Act requires the
Bureau to propose for public comment
rules that combine the disclosures
required under TILA and sections 4 and
5 of RESPA. The Dodd-Frank Act
amended TILA and RESPA to reflect
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section 1032(f)’s mandate to integrate
the rules under TILA and RESPA, but
Congress did not reconcile the division
of responsibilities between creditor and
settlement agent in TILA and RESPA.
The Bureau recognizes that people
who conduct settlements, such as
settlement agents and closing attorneys,
play a valuable role in the real estate
settlement process. The Bureau also
believes that settlement agents may be
able to assist consumers with issues that
arise during a real estate settlement as,
or perhaps more, effectively than
creditors. However, the Bureau is
concerned that, in the context of
providing disclosures, settlement agents
may not be able to fulfill the obligations
imposed by TILA. The Bureau is also
concerned that consumers will receive
duplicative, inaccurate, or unreliable
disclosures if the responsibility to
provide disclosures is divided.
As discussed above, proposed
§ 1026.19(f)(1)(i) makes the creditor
solely responsible for the provision of
the disclosures required by § 1026.19(f).
Although this may be the appropriate
solution, an alternative approach that
permits creditors and settlement agents
to split responsibility may also be
appropriate. This alternative would
require the creditor and settlement agent
to agree on a division of responsibilities
regarding the delivery of the
disclosures. Accordingly, pursuant to its
authority under sections 105(a) of TILA,
19(a) of RESPA, and 1405(b) of the
Dodd-Frank Act, the Bureau proposes
alternative § 1026.19(f)(1)(v), which
provides that a settlement agent may
provide a consumer with the disclosures
required under § 1026.19(f)(1)(i),
provided the settlement agent complies
with all requirements of § 1026.19(f) as
if it were the creditor. As discussed
under proposed alternative comment
19(f)(1)(v)–3 below, this proposed
regulation is not intended to relieve the
creditor’s responsibility under TILA.
The creditor would remain responsible
for ensuring that disclosures are
provided in accordance with the
requirements of § 1026.19(f). Disclosures
provided by a settlement agent in
accordance with the requirements of
§ 1026.19(f) satisfy the creditor’s
obligation under § 1026.19(f)(1)(i). As
discussed under proposed alternative
comment 19(f)(1)(v)–3 below, this
proposed regulation is not intended to
relieve the creditor’s responsibility
under TILA. The creditor would remain
responsible for ensuring that disclosures
are provided in accordance with the
requirements of § 1026.19(f). Disclosures
provided by a settlement agent in
accordance with the requirements of
§ 1026.19(f) satisfy the creditor’s
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obligation under § 1026.19(f)(1)(i). In
addition, the Bureau invites comment
on other methods of dividing
responsibility between creditors and
settlement service providers, provided
that such other methods ensure that
consumers are provided with prompt,
accurate, and reliable disclosures.
The Bureau informed the Small
Business Review Panel that the Bureau
was considering an alternate proposal
where the lender would be responsible
for preparing the TILA-required
information, the settlement agent would
be responsible for preparing the RESPArequired information, and the lender
and settlement agent would be jointly
responsible for providing the consumer
with an integrated Closing Disclosure
three business days before closing. See
Small Business Panel Review Report at
12. While the alternate proposal in this
proposed rule permits shared
responsibility, it does not delineate
responsibility between RESPA and TILA
content. Based on further review, the
Bureau determined that such a division
would be impracticable. There is
significant overlap between the
disclosures required by the statutes, and
creditors and settlement agents have
access to both RESPA and TILA
information. The Bureau believes that
the better approach is to permit shared
responsibility, but allow creditors and
settlement agents to decide how to most
effectively divide that responsibility.
However, the Bureau solicits comment
on the benefits and costs associated
with this alternative, especially
regarding any impact on small
businesses that was not raised during
the Small Business Review process.
This proposed regulation carries out
the purposes of TILA because requiring
the involvement of a settlement agent
could result in increased consumer
awareness and more meaningful
disclosure of credit terms, consistent
with section 105(a) of TILA. This
proposed regulation could also achieve
the purposes of RESPA by resulting in
more effective advance disclosure of
settlement costs, consistent with section
19(a) of RESPA. This proposed
regulation could also improve consumer
understanding and awareness of the
transaction by permitting the form to be
completed and provided by settlement
agents, who often assist consumers
during a real estate closing, which is in
the interest of consumers and in the
public interest, consistent with DoddFrank Act section 1405(b).
Proposed alternative comment
19(f)(1)(v)–1 clarifies that a settlement
agent may provide the disclosures
required under § 1026.19(f)(1)(i) instead
of the creditor. By assuming this
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responsibility, the settlement agent
becomes responsible for complying with
all of the relevant requirements as if it
were the creditor, meaning that
‘‘settlement agent’’ should be read in the
place of ‘‘creditor’’ for all the relevant
provisions of § 1026.19(f), except where
the context indicates otherwise. The
creditor and settlement agent must
effectively communicate to ensure
timely and accurate compliance with
the requirements of this section.
Proposed alternative comment
19(f)(1)(v)–2 clarifies that if a settlement
agent issues any disclosure under
§ 1026.19(f), the settlement agent must
comply with the requirements of
§ 1026.19(f). This proposed alternative
comment also clarifies that the
settlement agent may assume the
responsibility to provide some or all of
the disclosures required by § 1026.19(f),
provides that the consumer receives one
single disclosure form containing all of
the information required to be disclosed
pursuant to § 1026.19(f)(1)(i), in
accordance with the other requirements
in § 1026.19(f), such as requirements
related to timing and delivery. The
comment also includes illustrative
examples.
Proposed alternative comment
19(f)(1)(v)–3 explains that if a settlement
agent provides disclosures required
under § 1026.19(f) in the creditor’s
place, the creditor remains responsible
under § 1026.19(f) for ensuring that the
requirements of § 1026.19(f) have been
satisfied. For example, the creditor does
not comply with § 1026.19(f) if the
settlement agent does not provide the
disclosures required under
§ 1026.19(f)(1)(i), or if the consumer
receives the disclosures later than three
business days before consummation.
The proposed comment also clarifies
that the creditor does not satisfy the
requirements of § 1026.19(f) if it
provides duplicative disclosures. For
example, a creditor does not satisfy its
obligation by issuing disclosures
required under § 1026.19(f) that mirror
ones already issued by the settlement
agent for the purpose of demonstrating
that the consumer received timely
disclosures. The creditor is expected to
maintain communication with the
settlement agent to ensure that the
settlement agent is acting in place of the
creditor. Disclosures provided by a
settlement agent in accordance with
§ 1026.19(f)(1)(v) satisfy the creditor’s
obligation under § 1026.19(f)(1)(i).
Proposed alternative comment
19(f)(1)(v)–4 clarifies that the settlement
agent may assume the responsibility to
provide some or all of the disclosures
required by § 1026.19(f). However, the
consumer must receive one single
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disclosure form containing all of the
information required to be disclosed
pursuant to § 1026.19(f)(1)(i), in
accordance with the other requirements
in § 1026.19(f), such as requirements
related to timing and delivery. The
proposed alternative comment also
includes illustrative examples.
19(f)(2) Subsequent Changes
There are several circumstances
where the strict application of the threeday-waiting period required by
§ 1026.19(f)(1)(ii) may operate to the
consumer’s detriment. The Bureau seeks
to provide flexibility where doing so
would benefit the consumer. Thus, the
Bureau is proposing § 1026.19(f)(2),
which provides that creditors need not
comply with the timing requirements in
§ 1026.19(f)(1)(ii) if the disclosure
provided pursuant to § 1026.19(f)(1)(i) is
subsequently revised for any of the
reasons described in § 1026.19(f)(2)(i)
through (v).
The Bureau proposes § 1026.19(f)(2)
pursuant to its authority under sections
105(a) of TILA and 19(a) of RESPA. As
explained in more detail below, the
Bureau believes that these proposed
regulations will carry out the purposes
of TILA and RESPA by ensuring
meaningful disclosure of credit terms,
more effective advance disclosure of
settlement costs, and will result in the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services, consistent with
sections 105(a) of TILA and 19(a) of
RESPA, respectively.
19(f)(2)(i) Changes Due to Consumer and
Seller Negotiations
The Bureau recognizes that sellers
and buyers frequently alter the terms of
the real estate transaction based on the
condition of the house at the time of the
walk-though inspection, which is often
the day before the scheduled real estate
closing, and in some cases even
continue to negotiate the deal at the
closing table. These negotiations may
affect items included on the Closing
Disclosure, which, under the proposal,
must be delivered three days prior to
consummation. The Bureau believes
that the regulations should provide
flexibility to address this common
occurrence, so that these changes do not
trigger an additional three-day-waiting
period. Thus, pursuant to its authority
under section 105(a) of TILA and
section 19(a) of RESPA, the Bureau
proposes § 1026.19(f)(2)(i), which states
that if, after the creditor provides the
consumer with the disclosures, the
consumer and the seller agree to make
changes to the transaction that affect
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items disclosed, the creditor shall
deliver revised disclosures reflecting
such changes at or before
consummation. Proposed comment
19(f)(2)(i)–1 provides illustrative
examples of this requirement. This
proposed regulation will carry out the
purposes of TILA by ensuring
meaningful disclosure of credit terms
and enable the informed use of credit by
enabling buyers and sellers to conduct
final negotiations informed by the final
credit terms provided in the disclosures,
and by ensuring that the disclosures can
be modified to reflect such negotiations
immediately prior to the real estate
closing, consistent with section 105(a)
of TILA. This will also help to achieve
the purposes of RESPA by enabling
more effective advance disclosure of
settlement costs, and will result in the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services, by enabling buyers
and sellers to conduct final negotiations
informed by the final credit terms
provided in the disclosures, and by
ensuring that the disclosures can be
modified to reflect such negotiations
immediately prior to the real estate
closing, consistent with section 19(a) of
RESPA.
19(f)(2)(ii) Changes to the Amount
Actually Paid by the Consumer
The Bureau does not believe that
small miscalculations or minor changes
to the transaction should result in
closing delays. Therefore, the Bureau
proposes § 1026.19(f)(2)(ii), which
provides that, if the amount actually
paid by the consumer does not exceed
the amount disclosed under
§ 1026.38(d)(1) by more than $100, the
creditor shall deliver revised disclosures
at or before consummation. The Bureau
believes that $100 may be the correct
tolerance based on feedback received
regarding the items most likely to
change prior to consummation. The
Bureau seeks comment on whether the
threshold to accommodate small
miscalculations or minor changes prior
to consummation should be higher or
lower than the proposed $100.
The Bureau proposes
§ 1026.19(f)(2)(ii) pursuant to its
authority under section 105(a) of TILA
and section 19(a) of RESPA. This
proposed regulation will carry out the
purposes of TILA by ensuring
meaningful disclosure of credit terms
and enable the informed use of credit by
permitting minor underestimation in the
final amount paid by the consumer,
which will lessen the likelihood that
creditors will overestimate the final
amount paid by the consumer,
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consistent with section 105(a) of TILA.
This will also help to achieve the
purposes of RESPA by enabling more
effective advance disclosure of
settlement costs, and will result in the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services by permitting minor
underestimation in the final amount
paid by the consumer, which will lessen
the likelihood that creditors will
unnecessarily increase the cost of
settlement services by overestimating
the final amount paid by the consumer,
consistent with section 19(a) of RESPA.
Proposed comment 19(f)(2)(ii)–1
discusses the requirements of
§ 1026.19(f)(2)(ii), which states that the
creditor may provide revised
disclosures without regard to the timing
requirements in § 1026.19(f)(1)(ii) if the
amount actually paid by the consumer
does not exceed the amount disclosed
pursuant to § 1026.38(d)(1) by more
than $100, provided that the creditor
delivers revised disclosures at or before
consummation. This proposed comment
also includes illustrative examples of
these requirements.
Proposed comment 19(f)(2)(ii)–2
clarifies that revised disclosures
provided at consummation may reflect
adjustments pursuant to both
§ 1026.19(f)(2)(i) and § 1026.19(f)(2)(ii).
Thus, although § 1026.19(f)(2)(ii) limits
the difference between the amount
disclosed pursuant to § 1026.19(f)(1)(i)
and the amount actually paid at the real
estate closing by the consumer to $100,
the amount actually paid by the
consumer at the real estate closing may
vary by more than $100, to the extent
permitted by § 1026.19(f)(2)(i). This
proposed comment also includes
illustrative examples of this provision.
19(f)(2)(iii) Changes Due to Events
Occurring After Consummation
The Bureau is aware that some costs
are not known with absolute certainty
until the documents are recorded. For
example, it is possible that a locality
could change its schedule of recording
fees, without advance notice, the day
after the consumer signs the mortgage
loan documents, but before the
documents are recorded. The
regulations need to provide sufficient
flexibility to accommodate issues, such
as these, when such changes are caused
by a government entity. Thus, pursuant
to its authority under section 105(a) of
TILA and section 19(a) of RESPA, the
Bureau proposes § 1026.19(f)(2)(iii),
which provides that, if an event occurs
after consummation that causes the
disclosures to become inaccurate, and
such inaccuracy results solely from
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payments to a government entity in
connection with the transaction, the
creditor shall deliver revised disclosures
to the consumer no later than the third
business day after the event occurs,
provided the consumer receives the
corrected disclosures no later than 30
days after consummation. This
proposed regulation will prevent
circumvention and evasion of, and will
facilitate compliance with, TILA, by
ensuring that consumers receive correct
disclosures of the final terms and costs
of the transaction, consistent with
section 105(a) of TILA. This proposed
regulation is also made pursuant to the
Bureau’s authority to implement section
4 of RESPA, consistent with section
19(a) of RESPA. Proposed comment
19(f)(2)(iii)–1 clarifies that this
provision applies to payments imposed
by government entities, such as taxes,
recording fees, and other taxes related to
the real estate transaction, and provides
several illustrative examples. The
Bureau also solicits feedback on
whether changes, other than payments
to government entities, may occur after
the real estate closing, and whether the
regulation should provide additional
flexibility for such changes.
19(f)(2)(iv) Changes Due to Clerical
Errors
Regulation X § 1024.8(c) provides that
an inadvertent or technical error in
completing the HUD–1 or HUD–1A
shall not be deemed a violation of
section 4 of RESPA if a revised HUD–
1 or HUD–1A is provided within 30
calendar days after settlement. Section
130 of TILA has a similar provision,
with respect to civil liability, which
relieves creditors of civil liability under
certain circumstances, including if,
within 60 days of identifying an error,
the creditor notifies the person
concerned and makes whatever
adjustments are necessary.147 There is
no similar provision in RESPA or
Regulation Z. Pursuant to its authority
under section 105(a) of TILA and 19(a)
of RESPA, the Bureau proposes
147 ‘‘A creditor or assignee has no liability under
this section or section 108 or section 112 for any
failure to comply with any requirement imposed
under this chapter or chapter 5, if within sixty days
after discovering an error, whether pursuant to a
final written examination or notice issued under
section 108(e)(1) or through the creditor’s or
assignee’s own procedures, and prior to the
institution of an action under this section or the
receipt of written notice of the error from the
obligor, the creditor or assignee notifies the person
concerned of the error and makes whatever
adjustments in the appropriate account are
necessary to assure that the person will not be
required to pay an amount in excess of the charge
actually disclosed, or the dollar equivalent of the
annual percentage rate actually disclosed,
whichever is lower.’’ 15 U.S.C. 1640(b).
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§ 1026.19(f)(2)(iv), which provides that a
creditor does not violate
§ 1026.19(f)(1)(i) if the disclosures
contain non-numeric clerical errors,
provided the creditor delivers corrected
disclosures as soon as reasonably
practicable and no later than 30 days
after consummation. Proposed comment
19(f)(2)(iv)–1 clarifies that clerical errors
are errors such as typographical errors,
or other minor errors that do not affect
the amount owed by the consumer. This
proposed regulation will prevent
circumvention and evasion of, and will
facilitate compliance with, TILA, by
ensuring that consumers receive correct
disclosures consistent with section
105(a) of TILA. This proposed
regulation will also result in the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services by ensuring that the
consumers’ records correctly reflect the
terms, payments, and entities involved
in the transaction, consistent with
section 19(a) of RESPA. The Bureau also
solicits feedback on whether the
regulations should provide flexibility
for numeric clerical errors, and how
such flexibility could be provided
without undermining the reliability of
the disclosures provided to consumers
at or before consummation.
19(f)(2)(v) Refunds Related to the Good
Faith Analysis
Neither RESPA nor Regulation Z
expressly require creditors to refund
money to the consumer based on
variations between the disclosed
estimated costs of settlement services
and the amounts for such settlement
services actually paid by the consumer.
Section 1024.7(i) of Regulation X,
however, provides that a lender or
mortgage broker violates section 5 of
RESPA if any charges at settlement
exceed the charges listed on the GFE by
more than the permitted tolerances,
provided, however, that the loan
originator may cure the tolerance
violation by reimbursing to the borrower
the amount by which the tolerance was
exceeded at settlement or within 30
calendar days after settlement. As noted
above, section 130 of TILA has a similar
provision, with respect to civil liability,
which relieves creditors of civil liability
under certain circumstances, including
if, within 60 days of identifying an
error, the creditor notifies the person
concerned and makes whatever
adjustments are necessary to assure that
the person will not be required to pay
an amount in excess of the charge
actually disclosed.
Accordingly, pursuant to its authority
under sections 105(a) of TILA, 19(a) of
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RESPA, and 1405(b) of the Dodd-Frank
Act, the Bureau proposes
§ 1026.19(f)(2)(v), which provides that,
if amounts paid by the consumer exceed
the amounts specified under
§ 1026.19(e)(3)(i) or (ii), the creditor
complies with § 1026.19(e)(1)(i) if the
creditor refunds the excess to the
consumer as soon as reasonably
practicable and no later than 30 days
after consummation, and the creditor
complies with § 1026.19(f)(1)(i) if the
creditor provides revised disclosures
that reflect such refund as soon as
reasonably practicable and no later than
30 days after consummation. This
proposed regulation will enable
meaningful disclosure of credit terms,
prevent circumvention and evasion of
TILA, and will facilitate compliance
with TILA by enabling creditors to
refund amounts collected in excess of
the good faith requirements, consistent
with TILA section 105(a). This will also
result in the meaningful advance
disclosure of settlement costs and the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services by enabling creditors
to refund amounts collected in excess of
the good faith requirements, thereby
furthering the meaningfulness and
reliability of the estimated disclosures,
consistent with section 19(a) of RESPA.
Proposed comment 19(f)(2)(v)–1
discusses refunds related to the good
faith analysis. The proposed comment
explains the requirement under
§ 1026.19(f)(2)(v) providing that, if
amounts paid by the consumer exceed
the amounts specified under
§ 1026.19(e)(3)(i) or (ii) of this section,
the creditor does not violate
§ 1026.19(e)(1)(i) if the creditor delivers
disclosures revised to reflect the refund
of such excess as soon as reasonably
practicable and no later than 30 days
after consummation. This proposed
comment also includes illustrative
examples of these requirements.
19(f)(3) Charges Disclosed
19(f)(3)(i) Actual Charge
Neither TILA nor Regulation Z
addresses the amounts paid to
settlement service providers for
settlement services. However, section 4
of RESPA provides that the settlement
statement shall contain the amount
imposed upon the consumer in
connection with the settlement. 12
U.S.C. 2603(a). Section 1024.8(b)(1) of
Regulation X provides the general rule
that the settlement agent shall state the
actual charges paid by the borrower and
seller on the HUD–1, or by the borrower
on the HUD–1A. Pursuant to its
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authority under section 105(a) of TILA,
section 19(a) of RESPA, Dodd-Frank Act
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b), the Bureau proposes
§ 1026.19(f)(3)(i), which provides that
the amount imposed upon the consumer
for any settlement service shall not
exceed the amount actually received by
the service provider for that service,
except if the charge is an average charge,
as provided under § 1026.19(f)(3)(ii).
This proposed regulation will prevent
circumvention and evasion of, and will
facilitate compliance with, TILA by
requiring disclosure of the actual terms
and costs of the transaction, consistent
with section 105(a) of TILA. The
proposed regulation implements the
requirements of RESPA section 4,
pursuant to the Bureau’s
implementation authority under RESPA
section 19(a). This will also result in the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services, consistent with
RESPA sections 2(b) and 8. This will
also ensure that the features of the
consumer’s mortgage loan are fully and
accurately disclosed to the consumer,
consistent with Dodd-Frank Act section
1032(a). The proposed regulation will
also improve consumer awareness and
understanding of transactions involving
residential mortgage loans and is in the
interest of consumers and in the public
interest, consistent with Dodd-Frank
Act section 1405(b).
Proposed comment 19(f)(3)(i)–1
explains that § 1026.19(f)(3)(i) provides
the general rule that the amount
imposed upon the consumer for any
settlement service shall not exceed the
amount actually received by the service
provider for that service. Except as
otherwise provided in § 1026.19(f)(3)(ii),
a creditor violates § 1026.19(f)(3)(i) if
the amount imposed upon the consumer
exceeds the amount actually received by
the service provider for that service.
19(f)(3)(ii) Average Charge
As part of the 2008 RESPA Final Rule,
HUD adopted a limited exception to the
requirement that the settlement
statement shall contain the amount
imposed on the consumer, which shall
not be more than the amount received
by the settlement service provider. 12
U.S.C. 2603(a), 2607(b). A lender or
settlement service provider may charge
more for a settlement service than the
amount paid for that service if the
charge is an average charge.
Specifically, Regulation X § 1024.8(b)
provides that the average charge for a
settlement service shall be no more than
the average amount paid for a settlement
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service by one settlement service
provider to another settlement service
provider on behalf of borrowers and
sellers for a particular class of
transactions involving federally related
mortgage loans, and that the total
amounts paid by borrowers and sellers
for a settlement service based on the use
of an average charge may not exceed the
total amounts paid to the providers of
that service for the particular class of
transactions.
Section 1024.8(b)(2) also provides
that, the settlement service provider
shall define the particular class of
transactions for purposes of calculating
the average charge as all transactions
involving federally related mortgage
loans for a period of time as determined
by the settlement service provider, but
not less than 30 calendar days and not
more than 6 months, a geographic area
as determined by the settlement service
provider, and a type of loan as
determined by the settlement service
provider. Regulation X also requires a
settlement service provider to use an
average charge in the same class of
transactions for which the charge was
calculated, and if the settlement service
provider uses the average charge for any
transaction in the class, then the
settlement service provider must use the
same average charge in every
transaction within that class for which
a GFE was provided. Id. Regulation X
prohibits the use of an average charge
for any settlement service if the charge
for the service is based on the loan
amount or property value, such as
transfer taxes, interest charges, reserves
or escrow, or any type of insurance,
including mortgage insurance, title
insurance, or hazard insurance, and also
requires the settlement service provider
to retain all documentation used to
calculate the average charge for a
particular class of transactions for at
least three years after any settlement for
which that average charge was used. Id.
Pursuant to its authority under
section 105(a) of TILA and 19(a) of
RESPA, the Bureau proposes
§ 1026.19(f)(3)(ii), which provides that a
creditor or settlement service provider
may charge a consumer or seller the
average charge for a settlement service
if the average charge is no more than the
average amount paid for that service by
or on behalf of all consumers and sellers
for a class of transactions, the creditor
or settlement service provider defines
the class of transactions based on an
appropriate period of time, geographic
area, and type of loan, the creditor or
settlement service provider uses the
same average charge for every
transaction within the defined class,
and the creditor or settlement service
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provider does not use an average charge
for any type of insurance, for any charge
based on the loan amount or property
value, or if doing so is otherwise
prohibited by law. HUD adopted
average-charge pricing pursuant to its
authority under section 19(a) of RESPA
after finding that average-charge pricing
would benefit consumers by lowering
settlement costs and enabling more
effective advance disclosure of such
costs, consistent with RESPA sections
2(b), 4, 5, 8(c)(5), and 19(a).148 In
addition to this authority, the Bureau
finds that proposed § 1026.19(f)(3)(ii)
will prevent circumvention and evasion
of, and will facilitate compliance with,
TILA, consistent with section 105(a) of
TILA. This proposed regulation will
also improve consumer awareness and
understanding of the transaction, which
will be in the interest of consumers and
in the public interest, consistent with
Dodd-Frank Act section 1405(b).
Proposed comment 19(f)(3)(ii)–1
explains that average-charge pricing is
the exception to the rule in
§ 1026.19(f)(3)(i) that consumers shall
not pay more than the exact amount
charged by a settlement service provider
for the performance of that service. If
the creditor develops representative
samples of specific settlement costs for
a particular class of transactions, the
creditor may charge the average cost for
that settlement service instead of the
actual cost for such transactions. An
average-charge program may not be used
in a way that inflates the cost for
settlement services overall.
Proposed comment 19(f)(3)(ii)–2
explains how an appropriate period of
time, geographic area, and type of loan
may be defined, and provides
illustrative examples of issues a person
may encounter when defining an
appropriate geographic area and an
appropriate type of loan. Proposed
comment 19(f)(3)(ii)–3 provides further
explanation related to the requirement
that if a creditor chooses to use an
average charge for a settlement service
for a particular loan within a class, then
the creditor must use that average
charge for that service on all loans
within the class. Proposed comment
19(f)(3)(ii)–3 also provides practical
examples illustrating the uniform use
requirement.
Proposed comment 19(f)(3)(ii)–4
illustrates the requirement that the
average charge must be calculated
148 See 73 FR 14030, 14051–14052 (March 14,
2008). Section 8(c)(5) of RESPA provided that:
‘‘Nothing in this section shall be construed as
prohibiting * * * such other payments or classes
of payments or other transfers as are specified in
regulations prescribed by the Secretary.’’ 12 U.S.C.
2607(c)(5)(2008).
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according to the average amount paid
for a settlement service in a prior
period, and clarifies that updates to the
average charge may be delayed for an
amount of time sufficient to re-calculate
the average charge, provided that such
delays are applied uniformly from one
time period to the next.
Proposed comment 19(f)(3)(ii)–5
discusses the requirement that the total
amount of average charges paid by
consumers for settlement services may
not exceed the total amount paid for
those settlement services overall. The
Bureau has received extensive feedback
from industry that this requirement,
which currently exists under RESPA
and Regulation X, has impeded industry
adoption of average-charge pricing.
Prohibiting industry from collecting
more money than is actually paid to
settlement service providers means that
industry cannot actually average costs
over time, and must instead operate at
a loss in the long term if industry
chooses to use average-charge pricing.
The Bureau believes that the use of
average-charge pricing promotes greater
reliability for consumers. Therefore, the
Bureau seeks to address this concern to
facilitate the adoption of average-charge
pricing. Proposed comment 19(f)(3)(ii)–
5 addresses this issue and discusses the
ways in which a person may comply
with this requirement. A person may
refund the excess amounts collected or
may factor in the excesses when
determining the average charge for the
next period. A person may also comply
by establishing a rolling monthly period
of re-evaluation. A person complies by
re-calculating the average amount every
month, and will be deemed to be in
compliance with Sections 4 and 8 of
RESPA if the person uses this method,
even if the person collects more for
settlement services than the total
amount paid for those settlement
services over time.
Proposed comment 19(f)(3)(ii)–6
explains that adjustments to the average
charge based on prospective analysis are
permitted if the creditor or settlement
service provider develops a statistically
accurate and reliable method for doing
so. However, the Bureau is concerned
that prospective adjustments may not be
practicable in the context of
determining average charges.
Accordingly, the Bureau seeks comment
on whether such a provision is
appropriate.
Proposed comment 19(f)(3)(ii)–7
discusses the requirement that average
charges may not be used for insurance
premiums or for items that vary
according to the loan amount or
property value, such as transfer taxes.
Proposed comment 19(f)(3)(ii)–8
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clarifies that an average charge may not
be used where prohibited by any
applicable State or local law. Proposed
comment 19(f)(3)(ii)–9 explains how the
recordkeeping requirements in
§ 1026.25 apply to the documents
related to the calculation of average
charge.
19(f)(4) Transactions Involving a Seller
Neither TILA nor Regulation Z
contain requirements related to the
seller. Section 4 of RESPA provides that
the integrated disclosure shall
conspicuously and clearly itemize all
charges imposed upon the seller in
connection with the settlement. 12
U.S.C. 2603(a). Regulation X states that
the settlement agent shall provide a
completed HUD–1 to any seller at or
before the settlement, unless the
borrower waives the right to delivery of
the HUD–1 at or before settlement, in
which case the HUD–1 shall be mailed
to the seller as soon as practicable after
settlement. § 1024.10(b) and (c).
Pursuant to its authority under sections
105(a) of TILA, 19(a) of RESPA, DoddFrank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b), the Bureau
proposes § 1026.19(f)(4)(i), (ii), and (iii).
Proposed § 1026.19(f)(4)(i) provides that
in a closed-end consumer credit
transaction secured by real property,
other than a reverse mortgage subject to
§ 1026.33, the person conducting the
settlement shall provide the seller with
the disclosures in § 1026.38 that relate
to the seller. Proposed § 1026.19(f)(4)(ii)
provides that the person conducting the
settlement shall provide these
disclosures no later than the day of
consummation. If an event occurs after
consummation that causes such
disclosures to become inaccurate, and
such inaccuracy results solely from
payments to a government entity, the
person conducting the real estate
closing shall deliver revised disclosures
to the seller no later than 30 days after
consummation. Proposed
§ 1026.19(f)(4)(iii) provides that the
amount imposed upon the seller for any
settlement service shall not exceed the
amount actually received by the service
provider for that service, except for
average charges calculated pursuant to
§ 1026.19(f)(3)(ii).
This proposed regulation will prevent
circumvention and evasion of, and will
facilitate compliance with, TILA,
consistent with section 105(a) of TILA.
The proposed regulation implements
the requirements of RESPA section 4,
pursuant to the Bureau’s
implementation authority under RESPA
section 19(a). This proposed regulation
will also result in the meaningful
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advance disclosure of settlement costs
and the elimination of kickbacks,
referral fees, and other practices that
tend to increase unnecessarily the costs
of certain settlement services by
ensuring that the terms of the
transaction that relate to the seller,
which include amounts owed to the
seller, are fully and accurately disclosed
to the seller, consistent with RESPA
sections 8 and 19(a). Receipt of the
integrated disclosures in accordance
with this proposed regulation will also
ensure that the features of the
transaction and settlement services will
be more fully and accurately disclosed
to the consumer in a manner that
permits sellers to understand the costs
of the transaction, consistent with
Dodd-Frank Act section 1032(a). The
proposed regulation, by requiring sellers
to receive the integrated disclosure, will
also improve seller’s awareness and
understanding of the seller’s
transaction, which involves a residential
mortgage loan, which is in the interest
of consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 19(f)(4)(ii)–1
explains that, if an event occurs after
consummation that causes such
disclosures to become inaccurate and
such inaccuracy results solely from
payments to a government entity, the
person conducting the real estate
closing shall deliver revised disclosures
to the seller no later than 30 days after
consummation. Section 1026.19(f)(4)(i)
requires disclosure of the items that
relate to the seller’s transaction. Thus,
the person conducting the real estate
closing need only provide revised
disclosures if an item related to the
seller’s transaction becomes inaccurate
and such inaccuracy results solely from
payments to a government entity. The
proposed comment also provides
illustrative examples of this
requirement.
19(f)(5) No Fee
Although TILA does not address fees
related to the preparation of disclosures,
RESPA provides that no fee may be
imposed on any person, as a part of
settlement costs or otherwise, by a
lender in connection with a federally
related mortgage loan made by such
lender for the preparation or delivery of
the settlement statement required by
section 4 of RESPA or for statements
required by TILA. 12 U.S.C. 2610.
Although Regulation Z does not contain
a similar requirement, § 1024.12 of
Regulation X implements RESPA’s
requirement. Pursuant to its authority
under sections 105(a) of TILA and 19(a)
of RESPA, the Bureau proposes
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§ 1026.19(f)(5), which provides that no
fee may be imposed on any person, as
a part of settlement costs or otherwise,
by a creditor or by a servicer for the
preparation or delivery of the
disclosures required under
§ 1026.19(f)(1)(i), escrow account
statements required pursuant to section
10 of RESPA, or other statements
required by TILA. This proposed
regulation will strengthen the informed
use of credit by ensuring that consumers
are not informed that consumers must
pay fees prohibited by law, and enhance
competition by ensuring that creditors
do not attempt to gain a competitive
advantage by charging prohibited fees,
both of which are consistent with
section 105(a) of TILA. This proposal is
also made pursuant to the Bureau’s
authority to implement section 10 of
RESPA, consistent with section 19(a) of
RESPA. This proposed regulation will
also result in the meaningful advance
disclosure of settlement costs and the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services by ensuring that
illegal fees are not included on the
disclosures, consistent with section
19(a) of RESPA.
19(g) Special Information Booklet at
Time of Application
Section 1024.6 of Regulation X
contains the provisions related to the
Special Information Booklet, which is
required by section 5 of RESPA. 12
U.S.C. 2604. The Bureau plans to update
the booklet consistent with the
amendments to section 5 of RESPA in
section 1450 of the Dodd-Frank Act and
to reflect the integrated disclosures,
once those disclosures are finalized.
Pursuant to its authority under TILA
section 105(a) and RESPA section 19(a),
the Bureau proposes § 1026.19(g), which
is substantially similar to the existing
requirements in Regulation X, but
modified to conform to the usage
associated with TILA. The Bureau also
solicits feedback on whether the
CHARM booklet, required under
§ 1026.19(b)(1), should be incorporated
into the Special Information Booklet.
This proposed provision is consistent
with TILA’s purposes in that it will
increase consumer awareness of the
costs of the transaction by informing
consumers that settlement costs can be
influenced by shopping, thereby
promoting the informed use of credit.
This proposed regulation will enhance
consumers’ ability to shop for a
mortgage loan, which will effect
changes in the settlement process that
will result in the elimination of
kickbacks, referral fees, and other
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practices that tend to increase
unnecessarily the costs of certain
settlement services, consistent with the
Bureau’s authority under section 19(a)
of RESPA.
Proposed comment 19(g)(1)–1
provides that the Bureau may, after
publishing a notice in the Federal
Register, issue a revised or separate
special information booklet that
addresses transactions subject to
§ 1026.19(g). The Bureau may also
choose to permit the forms or booklets
of other Federal agencies, in which case
the availability of the booklet or
alternate materials for these transactions
will be set forth in a notice in the
Federal Register.
Proposed comment 19(g)(1)–2 clarifies
that when two or more persons apply
together for a loan, the creditor complies
with § 1026.19(g) if the creditor
provides a copy of the booklet to one of
the persons applying.
Proposed comment 19(g)(2)–1
explains that the special information
booklet may be reproduced in any form,
provided that no changes are made,
except as otherwise provided under
§ 1026.19(g). Provision of the special
information booklet as a part of a larger
document does not satisfy the
requirements of § 1026.19(g). Any color,
size and quality of paper, type of print,
and method of reproduction may be
used so long as the booklet is clearly
legible. Proposed comment 19(g)(2)–2
clarifies that the special information
booklet may be translated into languages
other than English.
Section 1026.22 Determination of
Annual Percentage Rate
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22(a) Accuracy of Annual Percentage
Rate
The Bureau is proposing conforming
amendments to § 1026.22 to reflect the
fact that proposed § 1026.38(o)(2) sets
forth finance charge tolerances for
mortgage transactions subject to
§ 1026.19(f), as discussed below. The
tolerances set forth in § 1026.18(d)(1)
continue to apply to closed-end
transactions that are not subject to
proposed § 1026.19(f). Accordingly, the
Bureau proposes to revise
§ 1026.22(a)(4) and (5) and comment
22(a)(4)–1 to add references to
§ 1026.38(o)(2).
Section 1026.24—Advertising
24(d) Advertisement of Terms That
Require Additional Disclosures
24(d)(2) Additional Terms
Comment 24(d)(2)–2 currently
provides guidance on how to state the
terms of repayment in an advertisement,
as required in § 1026.24(d)(2)(ii). The
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Bureau is proposing to exercise its
authority under TILA section 105(a) to
revise the comment to conform with the
additional forms of repayment term
disclosures that may apply to various
types of mortgage transactions under
this proposal. Proposed comment
24(d)(2)–2 clarifies that, in
advertisements for closed-end credit
secured by real property or a dwelling,
the repayment terms disclosed in the
interest rate and payment summary
table or the projected payments table in
§§ 1026.18(s) or 1026.37(c) and
1026.38(c), as applicable, can be
provided in an advertisement pursuant
to § 1026.24(d)(2)(ii). The use of either
the payment schedule described in
§ 1026.18(g) or the interest rate and
payments summary table described in
§ 1026.18(s) to state the terms of
repayment can be provided for
transactions secured by real property or
a dwelling under comment 24(d)(2)–2.
In light of the existence of the interest
rate and payment summary table
described in § 1026.18(s) and the
addition of the projected payments table
described in §§ 1026.37(c) and
1026.38(c) of this proposed rule, the
Bureau believes that the format of
disclosure applicable to a particular
transaction is also the most appropriate
format for advertising purposes.
Comment 24(d)(2)–2 would therefore be
revised to clarify that disclosing the
terms of repayment in the interest rate
and payment summary table and the
projected payment tables described in
§ 1026.18(s) or §§ 1026.37(c) and
1026.38(c), as applicable, satisfies the
requirements in § 1026.24(d)(2)(ii).
These revisions would also make clear
that the payment schedule described in
§ 1026.18(g) is not the only permissible
disclosure under § 1026.24(d)(2)(ii).
Section 1026.25
Record Retention
As discussed below, the Bureau
proposes to amend § 1026.25 to apply
the recordkeeping requirements
currently under Regulation X to the
proposed integrated disclosures and to
require creditors to keep such records in
an electronic, machine readable format.
25(a) General Rule
The Bureau proposes to amend
§ 1026.25(a) to exempt the requirements
of §§ 1026.19(e) and (f). Instead, the
record retention requirements for
compliance with these sections will be
established under a new § 1026.25(c)(1).
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25(c) Records Related to Certain
Requirements for Mortgage Loans
25(c)(1) Records Related to
Requirements for Loans Secured by Real
Property
25(c)(1)(i) General Rule
Neither TILA nor RESPA contain
record retention requirements. Section
1026.25 of Regulation Z requires
creditors to retain evidence of
compliance with TILA for two years
after the date disclosures are required to
be made or action is required to be
taken. Section 1024.7(f) of Regulation X
requires lenders to retain
documentation of any reason for
providing a revised GFE for no less than
three years after settlement.
Furthermore, § 1024.10(e) of Regulation
X requires lenders to retain each
completed RESPA settlement statement
and related documents for five years
after settlement, unless the lender
disposes of its interest in the mortgage
and does not service the mortgage.
The Bureau proposes to reconcile
these provisions by generally requiring
a creditor to retain evidence of
compliance with the requirements of
§ 1026.19(e) and (f) for three years. The
Bureau recognizes that extending the
record retention requirement from two
years, as currently provided in
Regulation Z, to three years may
increase costs. However, the Bureau is
unaware of any issues related to
complying with the three year period
currently required by Regulation X.
Creditors may be able to use existing
recordkeeping systems to maintain the
integrated disclosure data at no
additional cost. Additionally, several
sections of RESPA are subject to a three
year statute of limitations.149 Adopting
a document retention period of less than
three years may affect legal actions
brought under RESPA. Thus, it may be
appropriate to require creditors to
maintain records related to compliance
for three years, as opposed to the two
year requirement currently under
Regulation Z.
Pursuant to its authority under
section 105(a) of TILA and section 19(a)
of RESPA, the Bureau proposes
§ 1026.25(c)(1)(i), which states that,
except as provided under
§ 1026.25(c)(1)(ii), a creditor shall retain
evidence of compliance with the
requirements of § 1026.19(e) and (f) for
three years after the later of the date of
consummation, the date disclosures are
149 ‘‘[A]ctions [under sections 6, 8, or 9] brought
by the Bureau, the Secretary, the Attorney General
of any State, or the insurance commissioner of any
State may be brought within 3 years from the date
of the occurrence of the violation.’’ RESPA section
16, 12 U.S.C. 2614.
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required to be made, or the date the
action is required to be taken. The
Bureau believes that this proposed
modification will ensure that records
associated with the integrated
disclosures are kept long enough to
facilitate compliance with both TILA
and RESPA, which is necessary to both
prevent circumvention of and facilitate
compliance with TILA and RESPA. The
Bureau also solicits comment on
whether the three year period is
appropriate, whether the retention
requirement should be extended to five
years to match the recordkeeping
requirement in proposed
§ 1026.25(c)(1)(ii), and whether a shorter
time period would conflict with the
statute of limitations under section 16 of
RESPA.
Proposed comment 25(c)(1)(i)–1
applies guidance currently applicable
under § 1026.25(a) to proposed
§ 1026.25(c). The proposed comment
clarifies that the creditor must retain
evidence that it performed the required
actions as well as made the required
disclosures. This includes, for example,
evidence that the creditor properly
differentiated between affiliated and
independent third party settlement
service providers for determining good
faith under § 1026.19(e)(3); evidence
that the creditor properly documented
the reason for revisions under
§ 1026.19(e)(3)(iv); or evidence that the
creditor properly calculated average cost
under § 1026.19(f)(3)(ii). Proposed
comment 25(c)(1)(i)–2 provides a crossreference to § 1026.19(e)(1)(ii), which
imposes responsibilities on mortgage
brokers in some situations and may
implicate § 1026.25(c).
25(c)(1)(ii) Closing Disclosures
As noted above, while § 1026.25 of
Regulation Z generally requires
creditors to retain evidence of
compliance with TILA for two years
after the date disclosures are required to
be made or action is required to be
taken, § 1024.10(e) of Regulation X
requires lenders to retain each
completed RESPA settlement statement
and related documents for five years
after settlement, unless the lender
disposes of its interest in the mortgage
and does not service the mortgage. If the
lender disposes of its interest and does
not service the mortgage, § 1024.10(e)
requires the lender to provide the
lender’s copy of the RESPA settlement
statement to the owner or servicer of the
mortgage as part of the transfer of the
loan file. The owner or servicer to
whom the files are transferred must
retain the RESPA settlement statement
for the remainder of the five-year
period.
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Because the Closing Disclosure
contains the settlement information that
is currently provided on the RESPA
settlement statement, the Bureau
proposes to adopt the five-year
requirement. This information serves an
important purpose as both the record of
all fees associated with the transaction
and as part of the official disbursement
record. As such, this information may
be needed for more than two years after
the transaction. For example, State and
local laws related to transactions
involving real property may depend on
the information being available for five
years. Additionally, the current fiveyear recordkeeping requirement under
Regulation X has been in effect since
1992.150 The Bureau is unaware of any
problems caused by the five year
requirement and does not believe the
time period should be shortened
without evidence that the rule is not
operating as intended, is unnecessary,
or otherwise harms consumers. Thus, it
appears that requiring creditors to retain
copies of the Closing Disclosure for five
years is appropriate.
Pursuant to its authority under
section 105(a) of TILA and section 19(a)
of RESPA, the Bureau proposes
§ 1026.25(c)(1)(ii). Proposed
§ 1026.25(c)(1)(ii)(A) states that the
creditor shall retain each completed
disclosure required under
§ 1026.19(f)(1)(i) and (f)(4)(i), and all
documents related to such disclosures,
for five years after settlement. The
Bureau believes that this proposed
modification will ensure that records
associated with the integrated
disclosures are kept long enough to
facilitate compliance with both TILA
and RESPA, which is necessary to both
prevent circumvention of and facilitate
compliance with TILA. The proposed
recordkeeping requirement will also
enable accurate supervision, which will
result in the more effective advance
disclosure of settlement costs,
consistent with section 19(a) of RESPA.
Proposed § 1026.25(c)(1)(ii)(B) provides
that, if a creditor sells, transfers, or
otherwise disposes of its interest in a
mortgage and does not service the
mortgage, the creditor shall provide a
copy of the disclosures required under
§ 1026.19(f)(1)(i) or (f)(4)(i) to the owner
or servicer of the mortgage as a part of
the transfer of the loan file. Such owner
or servicer shall retain such disclosures
for the remainder of the five-year
period. Proposed § 1026.25(c)(1)(ii)(C)
provides that the Bureau shall have the
right to require provision of copies of
records related to the disclosures
150 57
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51185
required under § 1026.19(f)(1)(i) or
(f)(4)(i).
The Bureau recognizes that this
proposal is different from the current
requirements under Regulation X,
which does not require a creditor to
maintain these documents if the creditor
disposes of its interest in the mortgage
loan and does not service the mortgage
loan. However, the Bureau believes that
the current requirement provides little
practical benefit to creditors, because
other provisions of Regulations Z and X
require creditors to maintain records of
compliance for several years, even if the
creditor transfers, sells, or otherwise
disposes of its interest in the mortgage
loan. The Bureau solicits feedback
regarding whether it is appropriate for
creditors that transfer, sell, or otherwise
dispose of their interest in the mortgage
loan, and do not service the mortgage
loan, to keep these records for the fiveyear period. The Bureau also requests
feedback on the additional costs that
would result from such a requirement.
25(c)(1)(iii) Electronic Records
Issues Related to Adopting a
Standard, Machine Readable, Electronic
Data Format. Neither TILA nor RESPA
address electronic recordkeeping.
Regulation Z permits, but does not
require, electronic recordkeeping.
Comment 25(a)–2 provides that records
can be maintained by any method that
reproduces disclosures accurately,
including computer programs.
Regulation X also permits, but does not
require, electronic records. See
§ 1024.23 and HUD RESPA FAQs p.3,
#4 (‘‘GFE—General’’).
The Bureau has sought information
regarding the costs of keeping records in
an electronic, machine readable format.
‘‘Machine readable’’ means a format
where the individual data elements
comprising the record can be
transmitted, analyzed, and processed by
a computer program, such as a
spreadsheet or database program. Data
formats for image reproductions (e.g.,
PDF) or document text, such as those
used by word processing programs, are
not machine readable for purposes of
this proposal. Based on these
discussions, including information
learned from the Small Entity
Representatives participating in the
Small Business Review Panel process,
the Bureau recognizes that requiring
records in an electronic, machine
readable format will impose new costs
on industry. Industry would incur costs
for either acquiring a system to create
records in electronic, machine readable
format, or for modifying their current
systems to use a standard format
required by regulation. See Small
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Business Review Panel Report at 30.
However, feedback provided to the
Small Business Review Panel indicates
that creditors currently rely on
electronic systems for most aspects of
the mortgage loan origination process,
which include electronic record
creation and storage. See id. Thus, any
new costs caused by a machine readable
recordkeeping requirement would be
limited to the up-front costs of
upgrading existing computer systems
and additional, ongoing data storage
costs.
In contrast, the benefits of keeping
records in machine readable format may
be significant. A prescribed electronic
format may reduce costs across the
entire mortgage loan origination
industry due to efficiency gains
associated with a standardized data
format. Information received by the
Bureau suggests that creditors, mortgage
brokers, title companies, investors, and
other mortgage technology providers use
systems with proprietary data formats.
As a result, data must be translated
between formats as it is transmitted
from one point to another throughout
the mortgage loan origination process. A
standard electronic record format may
eliminate these multiple data formats,
thereby increasing efficiency in the
origination process, reducing industry
costs in the long term, and reducing
costs to consumers. Also, the Bureau is
aware that many firms currently face
significant internal costs for maintaining
multiple internal technological systems.
A single data format may lower overall
and long-term costs by enabling
creditors to migrate from older data
formats to a single, standard data
format.
Other benefits may be realized from a
standard, electronic, machine readable
format. A standard format may facilitate
innovation in the financial services
industry by making it easier for
technology companies to create new
programs that improve the mortgage
origination process and lower industry
costs, instead of tailoring programs to
each firm’s unique proprietary data
format. A standard machine readable
format may also facilitate industry
adoption of mortgage documentation
technology. Such developments would
reduce industry’s reliance on paper
files, which would lower ongoing costs
while reducing the paperwork burden
on both industry and consumers.
Furthermore, electronic, machine
readable records may allow regulators to
monitor some aspects of compliance
remotely. Remote examinations may
benefit creditors by easing the burden
associated with devoting staff time and
resources to on-site examinations. All of
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these benefits may reduce industry cost
and burden in the long run, thereby
reducing costs to consumers as well.
The Bureau believes that the benefits
of a standard, machine readable
electronic data format may outweigh the
costs associated with adopting and
maintaining such a format. Thus,
pursuant to its authority under section
105(a) of TILA, the Bureau proposes
§ 1026.25(c)(1)(iii), which provides that
a creditor shall retain evidence of
compliance in electronic, machine
readable format. The Bureau believes
that this proposed requirement will
ensure that records associated with the
integrated disclosures are readily
available for examination, which is
necessary to both prevent
circumvention of and facilitate
compliance with TILA. This proposed
regulation may also facilitate
compliance with TILA by easing the
burden of examinations and ensuring
that all entities subject to TILA keep
records in a standard format. Proposed
comment 25(c)(1)(iii)–1 clarifies that the
requirements of § 1026.25(c)(1)(iii) are
in addition to any other formats that
may be required by administrative
agencies responsible for enforcing the
regulation. The Bureau solicits comment
on this approach, including the costs
associated with such a requirement.
As discussed in the Initial Regulatory
Flexibility Analysis, section VIII.B.4.b
below, the proposed electronic
recordkeeping requirement may not be
appropriate for certain classes of
entities, such as small creditors that do
not currently have such electronic filing
systems or use vendor software. The
upfront and ongoing costs of such a
requirement on small creditors may
outweigh any benefits. However, the
Bureau does not have sufficient data to
determine whether and which small
creditors should be exempt from the
requirements. Accordingly, pursuant to
its authority under section 105(f) of
TILA, the Bureau proposes that, as an
alternative to requiring electronic
records, that a class of entities
consisting of small creditors be
exempted based on either entity size or
the number of loans originated.
The Bureau has considered the factors
in TILA section 105(f) and believes that
an exception could be appropriate
under that provision if the costs
imposed on small entities outweigh the
benefits to consumers. In such
circumstances, an exemption would be
appropriate for all affected borrowers
who receive mortgage loans from small
entities, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, an exemption
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would be appropriate for all affected
loans issued by exempt small entities,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, on balance, the proposed
exemption would simplify the credit
process for small entities without
undermining the goal of consumer
protection or denying important benefits
to consumers. The Bureau recognizes
that its exemption and exception
authorities apply to a class of
transactions, and proposes to apply
these authorities to the loans covered
under the proposal of the entities
proposed for potential exemption.
Consistent with the recommendation
of the Small Business Review Panel, the
Bureau solicits comment on whether a
small business exemption is
appropriate, whether such small
business exemption should be based on
entity size or the number of loans
originated, and the appropriate
exemption threshold in terms of
institution size or the number of loans
originated, respectively. The Bureau
solicits feedback on whether such an
exemption for depository institutions
should be different than an exemption
for non-depository institutions. The
Bureau also solicits feedback on small
business’ current technology costs, and
how such costs might be affected by an
electronic recordkeeping requirement.
Based on the Bureau’s discussions
with industry regarding machine
readable data formats, the Bureau
believes that XML may be the most
appropriate format for electronic
recordkeeping. However, the Bureau
solicits comment on the costs and
challenges associated with adopting an
XML format. The Bureau also solicits
feedback on other data formats that may
be more appropriate than XML.
Smart Disclosure. ‘‘Smart disclosure’’
generally refers to a requirement that
data be kept in standard, machine
readable format that is also available to
the public. In the context of mortgage
loans, any regulation implementing
smart disclosure would require creditors
to provide consumers with data related
to the loan origination process. Smart
disclosure can facilitate intelligent
decision-making by consumers and
encourage innovation. For example, if
consumers were provided with Loan
Estimates in electronic format, computer
programs and applications may be
developed to allow consumers to
compare Loan Estimates between
different creditors. Or, programs may be
developed that assist consumers in
assessing the ongoing costs, risks, and
affordability of a single Loan Estimate
for the individual consumer.
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The Bureau recognizes that smart
disclosures may encourage the informed
use of credit and promote innovation in
the consumer financial services
industry. While the Bureau supports
these goals, the Bureau is not proposing
a smart disclosure requirement at this
time. The Bureau intends to continue
monitoring the consumer financial
services market and will revisit this
issue if, in the future, the Bureau
determines that such a requirement is
appropriate.
Section 1026.28 Effect on State Laws
TILA preempts State laws to the
extent of their inconsistency with that
statute and permits States, creditors,
and other interested parties to request a
determination by the Bureau regarding
such inconsistency. Specifically, section
111(a)(1) states that the provisions of
chapters 1 (General Provisions), 2
(Credit Transactions), and 3 (Credit
Advertising and Limits on Credit Card
Fees) of TILA do not annul, alter, or
affect the laws of any State relating to
the disclosure of information in
connection with credit transactions,
except to the extent that those laws are
inconsistent with the provisions of TILA
and then only to the extent of the
inconsistency. 15 U.S.C. 1610(a)(1).
Upon its own motion or upon the
request of any creditor, State, or other
interested party that is submitted in
accordance with procedures prescribed
in regulations of the Bureau, the Bureau
shall determine whether any such
inconsistency exists. Id. If the Bureau
determines that a State-required
disclosure is inconsistent, creditors
located in that State may not make
disclosures using the inconsistent term
or form, and shall incur no liability
under the State law for failure to use
such term or form, notwithstanding that
such determination is subsequently
amended, rescinded, or determined by
judicial or other authority to be invalid
for any reason. Id. Section 111(b)
generally provides that TILA does not
otherwise annul, alter, or effect in any
manner the meaning, scope, or
applicability of the laws of any State,
including, but not limited to, laws
relating to the types, amounts, or rates
of charges, or any elements of charges,
permissible under such laws in
connection with the extension or use of
credit, and neither does TILA extend the
applicability of those laws to any class
of persons or transactions to which they
would not otherwise apply. 15 U.S.C.
1610(b).
Regulation Z § 1026.28 implements
TILA section 111. Section 1026.28(a)
provides that State law requirements
that are inconsistent with the
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requirements contained in chapters 1
through 3 of TILA and the
implementing provisions of Regulation
Z are preempted to the extent of the
inconsistency.151 Under § 1026.28(a), a
State law is inconsistent with a TILA
provision if it requires a creditor to
make disclosures or take actions that
contradict the requirements of TILA. A
State law contradicts a requirement of
TILA if it requires the use of the same
term to represent a different amount or
a different meaning than TILA, or if it
requires the use of a term different from
that required in TILA to describe the
same item. A creditor, State, or other
interested party may request the Bureau
to determine whether a State law
requirement is inconsistent, and if the
Bureau makes such a determination a
creditor may not make disclosures using
the inconsistent term or form.152 The
specific procedures for requesting a
State law preemption determination are
set forth in § 1026.28(c) and appendix A
to part 1026. Appendix A states, among
other things, that the Bureau reserves
the right to reverse a determination for
any reason bearing on the coverage or
effect of State or Federal law.
Current Regulation Z commentary
provides further guidance on the TILA
preemption rules. Comment 28(a)–2
includes examples of State laws that
would be preempted (e.g., a State law
requiring use of the term ‘‘finance
charge’’ but defining the term to include
fees that TILA excludes, or to exclude
fees that TILA includes). Comment
28(a)–3 explains that State law
requirements calling for disclosure of
items not covered by TILA or that
require more detailed disclosures
generally do not contradict the TILA
requirements, provides examples of
State laws that would not be preempted,
and gives guidance as to whether a State
law requiring itemization of the amount
financed would be preempted.
Comment 28(a)–4 explains that a
creditor, prior to a preemption
151 There are different rules regarding preemption
of State laws relating to the disclosure of credit
information in any credit or charge card application
or solicitation that is subject to the requirements of
section 127 of TILA and the correction of billing
errors, but those rules are outside the scope of this
rulemaking. See § 1026.28(a)(2), (d).
152 TILA section 111(a)(2) and § 1026.28(b)
generally permit a creditor, State, or other
interested party to request that the Bureau
determine whether a State-required disclosure is
substantially the same in meaning as a TILA
disclosure, and if the Bureau makes such a
determination, creditors in the State can provide
the State-required disclosure in lieu of the TILA
disclosure. Comment 28(b)–1 clarifies that under
§ 1026.28, a State disclosure can be substituted for
a Federal disclosure only after a determination of
substantial similarity. State exemptions are
addressed in more detail under § 1026.29 and
associated commentary.
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determination, may either (1) give the
State disclosures or (2) apply the
preemption standards to a State law,
conclude that it is inconsistent, and
choose not to give the State-required
disclosures (but that no immunity is
given under § 1026.28(a) for violations
of State law if the creditor chooses not
to make State disclosures and the
Bureau later determines that the State
law is not preempted). The comment
also states that the Bureau will give
sufficient time to creditors to revise
their forms and procedures as necessary
to conform with its preemption
determinations. Comments 28(a)–8
through –15 discuss prior
determinations made by the Federal
Reserve Board prior to July 21, 2011,
and recognized by the Bureau unless
and until the Bureau makes and
publishes any contrary determinations,
to preempt certain State laws. For
example, comment 28(a)–15 notes that,
in Wisconsin, disclosure of the annual
percentage rate under the particular
State law referenced in the comment is
preempted, because while the statute
refers to ‘‘annual percentage rate,’’ it
requires disclosure of a different amount
than under TILA.
Section 18 of RESPA and Regulation
X § 1024.13 provide that State laws that
are inconsistent with RESPA or
Regulation X are preempted to the
extent of the inconsistency. 12 U.S.C.
2616; 12 CFR 1024.13. RESPA and
Regulation X do not annul, alter, affect,
or exempt any person subject to their
provisions from complying with the
laws of any State with respect to
settlement practices, except to the
extent of the inconsistency. Id. Upon
request by any person, the Bureau is
authorized to determine whether such
inconsistencies exist, and the Bureau
may not determine that any State law is
inconsistent with any provision of
RESPA if the Bureau determines that
such law or regulation gives greater
protection to the consumer. 12 CFR
1024.13(b). In making this
determination, the Bureau must consult
with ‘‘appropriate Federal agencies.’’
Id.; see also 12 U.S.C. 2616. Section
1024.13(c) sets forth the process by
which the Bureau makes a preemption
determination. Unlike Regulation Z,
Regulation X does not list any State
laws preempted by RESPA, and the
Bureau is not aware of any.
The preemption provisions in TILA
and RESPA and their implementing
regulations thus contain similar
language as far as scope of the
preemption (i.e., in both cases State
laws generally are preempted only ‘‘to
the extent of the inconsistency’’), but
include different authority and
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procedures for determining whether
State laws are preempted. For example,
unlike Regulation X, § 1026.28 provides
a regulatory standard for determining
‘‘inconsistency’’ (i.e., disclosures or
actions that contradict Federal law
requirements) along with detailed
commentary. RESPA, but not TILA,
requires the preemption determination
to be made by the Bureau in
consultation with other appropriate
Federal agencies. Moreover, while the
Regulation Z provision addresses the
relationship between Federal and State
laws governing credit transactions,
§ 1024.13 refers to laws regarding
settlement practices.
As noted previously, section 1032(f)
of the Dodd-Frank Act requires the
Bureau to propose rules and forms that
combine the disclosures required under
TILA and sections 4 and 5 of RESPA
into a single, integrated disclosure for
mortgage loan transactions covered by
those laws. In addition, the Dodd-Frank
Act amended sections 105(b) of TILA
and 4(a) of RESPA, respectively, to
require the integration of those
disclosure requirements. However, the
Dodd-Frank Act did not specify whether
the TILA or the RESPA State law
preemption provision applies to the
provision of the integrated mortgage
disclosures. In order to meet the DoddFrank Act’s mandate, the proposed rule
must reconcile the differences regarding
these State law preemption regimes.
Furthermore, there are certain
transactions subject to TILA, but not
RESPA, for which the integrated
mortgage disclosures must be delivered
under the proposed rule. Pursuant to
§ 1026.19(e) and (f), the proposed rule
covers all closed-end consumer credit
transactions secured by real property,
other than reverse mortgages. Some of
these transactions are not subject to
RESPA (i.e., if they are not a federally
related mortgage loan as defined in
Regulation X § 1024.2), but consumers
in such transactions will receive
integrated mortgage disclosures
containing certain content mandated by
RESPA. This may create confusion as to
which preemption provision controls
were a State law preemption question to
arise with respect to the RESPAmandated content on the integrated
mortgage disclosures.
Accordingly, Dodd-Frank Act section
1032(f), TILA section 105(b), and
RESPA section 19(a) provide the Bureau
with authority to reconcile the
provisions of TILA and RESPA to carry
out the integrated disclosure
requirement. Based on such authority
and the Bureau’s authority under TILA
section 105(a) and RESPA section 19(a)
to make rules consistent with the
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purposes of those statutes, the Bureau is
proposing to require that the State law
preemption provisions of Regulation Z,
§ 1026.28, apply to any State law
preemption question arising with
respect to the requirements of sections
4 and 5 of RESPA (other than the
RESPA section 5(c) requirements
regarding provision of a list of certified
homeownership counselors), and
§§ 1026.19(e) and (f), 1026.37, and
1026.38. By applying the Regulation Z
State law preemption provision to any
State law preemption question arising
with respect to the requirements of
§§ 1026.19(e) and (f), 1026.37, and
1026.38, this requirement encompasses
all closed-end consumer credit
transactions secured by real property
that are covered by the proposed rule,
regardless of whether they are
independently subject to RESPA.
However, § 1024.13 applies to State law
preemption questions arising with
respect to other aspects of RESPA and
Regulation X, including the RESPA
section 5(c) requirements regarding
provision of a list of certified
homeownership counselors.
To effectuate this change, the Bureau
is proposing two modifications to
§ 1026.28 and its associated
commentary. First, the proposed rule
modifies § 1026.28(a) to provide that a
determination of whether a State law is
inconsistent with the requirements of
sections 4 and 5 of RESPA (other than
the RESPA section 5(c) requirements
regarding provision of a list of certified
homeownership counselors) and
proposed §§ 1026.19(e) and (f), 1026.37,
and 1026.38 shall be made in
accordance with § 1026.28 and not
Regulation X § 1024.13. Second, the
proposed rule adds text to comment
28(a)–1 providing that, to the extent
applicable to a transaction subject to
§ 1026.19(e) and (f), any reference to
‘‘creditor’’ in § 1026.28 includes a
creditor, a mortgage broker, or a closing
agent, as applicable. This change
coincides with the alternative proposed
§ 1026.19(f)(1)(v), which permits the
closing agent to deliver the Closing
Disclosure in place of the creditor. If the
alternative permitting the closing agent
to deliver the Closing Disclosure is not
adopted, the closing agent reference in
the proposed edit to comment 28(a)–1
will not be adopted.
The Bureau notes that proposed
§ 1026.28 and associated commentary
do not incorporate the language in
RESPA section 18 and Regulation X
§ 1024.13(b) providing that the Bureau
may not determine that any State law is
inconsistent with any RESPA provision
if the Bureau determines that such law
or regulation gives greater protection to
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the consumer. However, the Bureau
believes that proposed § 1026.28 is
consistent with RESPA section 18.
Specifically, a State disclosure is likely
to confuse consumers if it uses the same
term to represent a different amount or
a different meaning than, or if it requires
the use of a different term to describe
the same item as, the integrated
mortgage disclosures developed in this
rulemaking through extensive consumer
testing. Accordingly, for purposes of
this rulemaking, the Bureau believes
that such State disclosures generally do
not provide greater protection for
consumers.
Nevertheless, the Bureau intends to
take a cautious case-by-case approach to
evaluating inconsistency under RESPA
section 18. The Bureau also intends to
consult with other Federal agencies, as
appropriate, within the scope of RESPA
concerning any evaluations of
inconsistency under RESPA section 18.
Furthermore, the Bureau emphasizes
that nothing in this proposed rule is
intended to preempt State laws that
offer greater substantive consumer
protections than those provided under
sections 4 and 5 of RESPA 153 and
§§ 1026.19(e) and (f), 1026.37, and
1026.38 (e.g., a State law imposing
stricter limits on closing cost increases
or requiring disclosures of the final
closing costs seven days before
consummation). A more protective State
law would not be inconsistent with
such RESPA and Regulation Z
provisions, and therefore would not be
preempted by § 1026.28, because a
creditor’s compliance with the more
protective State law would also satisfy
the requirements of such RESPA and
Regulation Z provisions.
The Bureau believes that the proposed
revisions to the regulatory text and
commentary to § 1026.28 effectively
specify whether the Regulation Z or
RESPA State law preemption provision
applies to any State law preemption
question arising with respect to the
requirements of sections 4 and 5 of
RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors) and proposed §§ 1026.19(e)
and (f), 1026.37, and 1026.38.
Section 1026.29 State Exemptions
TILA has several provisions that
permit the Bureau to grant State
exemptions from certain TILA
disclosure provisions. Section 111(a)(2)
allows the Bureau, upon its own motion
153 As discussed above, proposed revised
§ 1026.28 and associated commentary do not govern
State law preemption questions arising under the
RESPA section 5(c) requirements for provision of a
list of certified homeownership counselors.
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or upon the request of any creditor,
State, or other interested party that is
submitted in accordance with
procedures prescribed in regulations of
the Bureau, to determine whether any
disclosure required under any State law
is substantially the same in meaning as
a disclosure required under TILA. 15
U.S.C. 1610(a)(2). If the Bureau makes
such a determination, TILA section
111(a)(2) provides that creditors located
in that State may make such disclosure
in compliance with such State law in
lieu of the TILA disclosure, except that
(1) the annual percentage rate and
finance charge must be disclosed as
required by section 122 of TILA, and (2)
State-required disclosures may not be
made in lieu of the high-cost mortgage
disclosures under section 129 of TILA.
Section 123 of TILA allows the Bureau
by regulation to exempt any class of
credit transactions within any State
from the requirements of chapter 2 of
TILA (Credit transactions) if the Bureau
determines that the law of the State
subjects the class of transactions to
requirements substantially similar to
those imposed under chapter 2 of TILA,
and that there is adequate provision for
enforcement.154 15 U.S.C. 1633.
Regulation Z § 1026.29 and appendix
B to part 1026 implement the TILA State
exemption provisions.155 Pursuant to
§ 1026.29(a), a State may apply to the
Bureau to exempt a class of transactions
within the State from the requirements
of chapter 2 (Credit transactions) or
chapter 4 (Credit billing) of TILA and
the corresponding provisions of
Regulation Z. The Bureau shall grant an
exemption if it determines that (1) the
State law is substantially similar to the
Federal law or, in the case of chapter 4
of TILA, affords the consumer greater
protection than the Federal law, and (2)
there is adequate provision for
enforcement. Comment 29(a)–2 clarifies
that State law is ‘‘substantially similar’’
for purposes of § 1026.29(a) if the State
statutory or regulatory provisions and
State interpretations of those provisions
are generally the same as TILA and
Regulation Z. Comment 29(a)–3 clarifies
that, generally, there is adequate
154 Section 171(b) of TILA also addresses State
exemptions and contains nearly identical language
to section 123, but section 171(b) applies with
respect to TILA chapter 4 (credit billing), which is
not affected by this rulemaking. 15 U.S.C. 1661j(b).
155 As noted earlier, § 1026.28(b) generally
permits a creditor, State, or other interested party
to request that the Bureau determine whether a
State-required disclosure is substantially the same
in meaning as a TILA disclosure, and if the Bureau
makes such a determination, creditors in the State
can provide the State-required disclosure in lieu of
the TILA disclosure. Comment 28(b)–1 clarifies that
under § 1026.28, a State disclosure can be
substituted for a Federal disclosure only after a
determination of substantial similarity.
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provision for enforcement if appropriate
State officials are authorized to enforce
the State law through procedures and
sanctions comparable to those available
to Federal enforcement agencies.
Comment 29(a)–4 states that the Bureau
recognizes certain TILA exemptions
granted by the Federal Reserve Board to
Maine, Connecticut, Massachusetts,
Wyoming, and Oklahoma prior to July
21, 2011, until and unless the Bureau
makes and publishes any contrary
determination. Comment 29(a)–4.i
through –4.v currently provides, in
relevant part, that credit transactions in
these five States that are subject to the
State consumer credit codes or truth in
lending acts enumerated in such
comment are exempt from the
requirements of chapter 2 of TILA,
which sets forth, among other
provisions, the disclosure requirements
for closed-end mortgages. The specific
procedures for requesting a State
exemption are set forth in § 1026.29(c)
and appendix B to part 1026. Appendix
B states, among other things, that the
Bureau reserves the right to revoke an
exemption if at any time it determines
that the standards required for an
exemption are not met.
Unlike TILA, RESPA does not contain
a State exemption provision for credit
transactions subject to RESPA. Rather,
as discussed above with respect to
§ 1026.28, section 18 of RESPA and
Regulation X § 1024.13 provide that
State laws that are inconsistent with
RESPA or Regulation X are preempted
to the extent of the inconsistency. 12
U.S.C. 2616; 12 CFR 1024.13.
As noted above, sections 1032(f),
1098, and 1100A of the Dodd-Frank Act
require the Bureau to propose for public
comment, rules and forms that combine
the disclosures required under TILA
and sections 4 and 5 of RESPA into a
single, integrated disclosure for
mortgage loan transactions covered by
those laws. However, the Dodd-Frank
Act did not address a number of
inconsistencies between TILA and
RESPA that affect the provision of the
integrated mortgage disclosures,
including inconsistent provisions
regarding the application of State law.
In order to meet the Dodd-Frank Act’s
mandate, the proposed rule must
reconcile the State exemption
provisions.
Accordingly, pursuant to its authority
under Dodd-Frank Act section 1032(f),
TILA section 105(b), and RESPA section
19(a) as well as its authority under TILA
section 105(a) and RESPA section 19(a)
to make rules consistent with the
purposes of those statutes, the Bureau is
proposing to require that the TILA State
exemption provision apply to
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51189
transactions subject to proposed
§ 1026.19(e) and (f) (i.e., all closed-end
consumer credit transactions secured by
real property, other than a reverse
mortgage). By applying the TILA State
exemption provision to transactions
subject to § 1026.19(e) and (f), rather
than the RESPA State preemption
provision (which is silent as to the
granting of State exemptions under
RESPA), this requirement would cover
all closed-end consumer credit
transactions secured by real property
that are covered by the proposed rule,
including those subject to RESPA. The
Bureau believes this is consistent with
the intent of TILA’s State exemption
provision and the integrated disclosure
mandate in Dodd-Frank Act section
1032(f), TILA section 105(b), and
RESPA section 19(a) because it allows
States to maintain their existing
exemptions so long as consumers
receive disclosures and protections that
are substantially similar to those in the
proposed rule. Furthermore, using the
TILA State law exemption provision for
transactions subject to § 1026.19(e) and
(f) will facilitate compliance with the
disclosure requirements of TILA and
RESPA and promote the informed use of
credit and more effective advance notice
of settlement costs since creditors,
consistent with TILA section 105(a) and
RESPA section 19(a), by applying a
consistent standard to those
transactions.
To effectuate this change, the Bureau
is proposing two substantive
modifications to the commentary to
§ 1026.29, in addition to relabeling some
of the section numbering and lettering.
First, proposed revised comment 29(a)–
2 modifies the guidance regarding the
‘‘substantially similar’’ standard set
forth in § 1026.29(a)(1) (i.e., one of the
two preconditions to the granting of an
exemption). Proposed revised comment
29(a)–2 clarifies that, in order for
transactions that would otherwise be
subject to the integrated disclosures
required by § 1026.19(e) and (f) to be
exempt from those disclosure
requirements, the State statutory or
regulatory provisions and State
interpretations of those provisions must
require disclosures that are generally the
same as those prescribed by § 1026.19(e)
and (f), in the forms prescribed by
§§ 1026.37 and 1026.38. This means
that, in order for an existing State
exemption to be maintained, the State’s
law must require disclosures that are
generally the same as the integrated
disclosures, including the RESPA
content.
Second, proposed revised comment
29(a)–4 states that, although RESPA and
Regulation X do not provide procedures
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for State exemptions, for transactions
subject to § 1026.19(e) and (f),
compliance with the requirements of
§§ 1026.19(e) and (f), 1026.37, and
1026.38 satisfies the requirements of
sections 4 and 5 of RESPA (other than
the RESPA section 5(c) requirements
regarding provision of a list of certified
homeownership counselors).
Furthermore, the proposed revised
comment states that if the transaction is
subject to a previously-granted State
exemption, then compliance with the
requirements of any State laws and
regulations incorporating the
requirements of §§ 1026.19(e) and (f),
1026.37, and 1026.38 likewise satisfies
the requirements of sections 4 and 5 of
RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors). Thus, in Maine,
Connecticut, Massachusetts, Oklahoma,
and Wyoming, creditors, mortgage
brokers, and settlement agents, as
applicable, may satisfy sections 4 and 5
of RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors) through compliance with
State law so long as the ‘‘substantially
similar’’ State statutory and regulatory
provisions (i.e., the State consumer
codes or truth in lending acts
enumerated in comment 29(a)–4.1
through –4.v, as applicable) expressly
mandate delivery of the integrated
mortgage disclosures required by the
Dodd-Frank Act and implemented by
the proposed rule.
The Bureau believes that the proposed
revisions to the commentary to
§ 1026.29 effectively reconcile the
conflicting TILA and RESPA provisions
by clarifying the standards for the
Bureau’s granting of exemptions from
certain relevant TILA and RESPA
provisions going forward. The proposed
revisions also clarify how compliance
with sections 4 and 5 of RESPA (other
than the RESPA section 5(c)
requirements regarding provision of a
list of certified homeownership
counselors) may be accomplished with
respect to transactions subject to the
previously-granted TILA exemptions in
light of the Dodd-Frank Act’s mandate
to integrate the mortgage disclosures
under TILA and sections 4 and 5 of
RESPA. Finally, the proposed revisions
do not change the existing language in
comment 29(a)–4 and appendix B to
part 1026 reserving the Bureau’s right to
make and publish any contrary
determination regarding State
exemptions previously granted by the
Federal Reserve Board and, more
generally, to revoke State exemptions if
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the standards for granting them are no
longer met.
The Bureau understands these
proposed changes will likely require
some of the five States previously
granted State exemptions under 12 CFR
226.29, the predecessor to § 1026.29, to
change their laws and/or regulations,
which may be a lengthy process.156 This
is because to the extent the
‘‘substantially similar’’ State laws and
regulations underlying the TILA State
exemptions do not currently require the
integrated disclosures mandated by the
Dodd-Frank Act (specifically, the
portions mandated by RESPA), there is
a gap in these States’ current statutory
and regulatory regimes that must be
filled in order to maintain the State
exemptions. As such, the Bureau hereby
solicits comment on the amount of time
that will be needed for these States to
change their laws and/or regulations.
Section 1026.37 Content of Disclosures
for Certain Mortgage Transactions (Loan
Estimate)
Proposed § 1026.37 sets forth the
required content of the integrated Loan
Estimate disclosures, required by
proposed § 1026.19(e) to be provided to
a consumer within three business days
of the creditor’s receipt of the
consumer’s application.
As discussed above, the Loan
Estimate integrates the disclosures
currently provided in the RESPA GFE
and the early TILA disclosure. In
addition, the Loan Estimate integrates
several disclosures that would
otherwise be provided separately under
various Federal laws. The Bureau
believes the three-page Loan Estimate
integrates at least seven pages of
disclosures. Specifically, the Loan
Estimate incorporates: (i) three pages of
the RESPA GFE; (ii) two pages typically
used for the early TILA disclosure; (iii)
one page typically used for the appraisal
notification provided under ECOA
section 701(e); and (iv) one page
typically used for the servicing
disclosure provided under RESPA
section 6. In addition, the Loan Estimate
incorporates the disclosure of: (i) The
total interest percentage under TILA
section 128(a)(19), which was added by
section 1419 of the Dodd-Frank Act; (ii)
the aggregate amount of loan charges
and closing costs the consumer must
156 While these proposed changes may require
some of these five States to change their laws and/
or regulations, others incorporate TILA and
Regulation Z into their State laws and/or
regulations by reference. Therefore, the Bureau
anticipates that these other States should not have
to take any action to maintain their existing
exemptions directly as a result of this proposed
rule.
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pay at consummation under TILA
section 128(a)(17), which was added by
section 1419 of the Dodd-Frank Act; (iii)
for refinance transactions, the antideficiency protection notice under TILA
section 129C(g)(3), which was added by
section 1414(c) of the Dodd-Frank Act;
and (iv) the homeowner’s insurance
disclosure in TILA section 106(c) and
§ 1026.4(d)(2)(i), which is required to
exclude homeowner’s insurance
premiums from the finance charge. In
absence of the Bureau’s integration of
the early TILA disclosure and the
RESPA GFE, some these new
disclosures would have been added to
the early TILA disclosure, which
potentially could have increased that
disclosure’s typical two pages to three
pages.
Proposed § 1026.37 provides that the
information set forth in § 1026.37(a)
through (n) shall be disclosed ‘‘as
applicable.’’ The Bureau is proposing a
new comment 37–1 to clarify that a
disclosure that is not applicable to a
transaction generally may be eliminated
entirely or may be included but marked
‘‘not applicable’’ or ‘‘N/A.’’
As discussed below, proposed
§ 1026.37(o) provides rules for the form
of the disclosures required by
§ 1026.37(a) through (n). Proposed
comment 37–2 directs creditors to
§ 1026.37(o) and its commentary for
guidance on format and permissible
modifications to the form of the
disclosures.
37(a) General Information
The Bureau proposes § 1026.37(a),
which combines and modifies
disclosures currently provided under
Regulations X and Z and adds
additional disclosures in the Loan
Estimate for transactions subject to
proposed § 1026.19(e). For the reasons
discussed below and consistent with
TILA section 105(a), RESPA section
19(a), and the purposes of those statutes,
proposed § 1026.37(a) will promote the
informed use of credit and more
effective advance disclosure of
settlement costs. In addition, proposed
§ 1026.37(a) will enable consumers to
better understand the costs, benefits,
and risks associated with mortgage
transactions, consistent with DoddFrank Act section 1032(a). Furthermore,
proposed § 1026.37(a) will improve
consumer awareness and understanding
of transactions involving residential
mortgage loans and is therefore in the
interest of consumers and the public,
consistent with Dodd-Frank Act section
1405(b).
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37(a)(1) Form Title
Although the Dodd-Frank Act
requires the Bureau to combine the
TILA and RESPA mortgage disclosures
that are currently provided to
consumers within three business days
after application, the Act does not
prescribe a title for the integrated form.
Under § 1024.2(b) of Regulation X, the
form providing consumers with the
RESPA good faith estimate of settlement
charges they are likely to incur is called
the ‘‘Good Faith Estimate’’ or ‘‘GFE.’’
Regulation Z does not prescribe a name
for the TILA good faith estimate
required by § 1026.19(a)(1), although
comment 17(a)(1)–5.ix permits the
creditor to provide ‘‘[a] brief caption
identifying the disclosures’’ and
provides as examples of acceptable
titles, ‘‘Federal Truth in Lending
Disclosures’’ and ‘‘Real Estate Loan
Disclosures.’’
Proposed § 1026.37(a)(1) requires the
creditor to use the term ‘‘Loan Estimate’’
as the title of the integrated disclosures
creditors provide pursuant to proposed
§ 1026.19(e). The Bureau believes the
adoption of a standardized form name
may eliminate confusion for consumers
seeking to compare estimates for
different loans and thereby promote the
informed use of credit and more
effective advance notice of settlement
costs, consistent with TILA section
105(a) and RESPA section 19(a), and
will enable consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions,
consistent with Dodd-Frank Act section
1032(a). In addition, the use of standard
terminology for the integrated
disclosures will facilitate compliance
for industry, which is a purpose of this
rulemaking under Dodd-Frank Act
sections 1098 and 1100A.
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37(a)(2) Form Purpose
Proposed § 1026.37(a)(2) requires the
creditor to include a statement regarding
one of the primary uses of the Loan
Estimate for consumers, which is to
compare with the Closing Disclosure to
verify the loan terms and costs.
Specifically, proposed § 1026.37(a)(2)
requires the creditor to provide the
following statement at the top of all
Loan Estimates, ‘‘Save this Loan
Estimate to compare with your Closing
Disclosure.’’ The proposed language
may benefit consumers and promote the
informed use of credit by encouraging
consumers to use the Loan Estimate as
a tool to help them readily identify any
changes to the loan transaction or costs
that may have occurred between
issuance of the initial Loan Estimate and
the Closing Disclosure.
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Requiring creditors to disclose the
purpose for the Loan Estimate and
related disclosures is not a new
requirement. Appendix C of Regulation
X currently requires specific language
regarding the purpose of the GFE.157
And while the Bureau’s proposed
language differs from that prescribed by
HUD, the Bureau believes that the
disclosure in proposed § 1026.37(a)(2)
accomplishes the same goal in a clearer
and more succinct manner.
Accordingly, this disclosure promotes
the informed use of credit and more
effective advance notice of settlement
costs, consistent with TILA section
105(a) and RESPA section 19(a), and
will enable consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions,
consistent with Dodd-Frank Act section
1032(a).
37(a)(3) Creditor
TILA section 128(a)(1) requires
disclosure of the ‘‘identity of the
creditor required to make [the]
disclosure.’’ 15 U.S.C. 1638(a)(1).
Regulation Z § 1026.18(a) implements
TILA section 128(a)(1) and requires for
each transaction the identity of the
creditor making the disclosure. HUD
imposed a similar requirement in
appendix C to Regulation X, requiring
the name and contact information for
the ‘‘loan originator.’’
Pursuant to TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a), proposed
§ 1026.37(a)(3) mirrors § 1026.18(a) and
requires the name of the creditor making
the disclosure. By allowing the
consumer to identify the name of the
creditor providing the Loan Estimate,
this disclosure will promote the
informed use of credit and more
effective advance notice of settlement
costs and will enable consumers to
better understand the costs, benefits,
and risks associated with mortgage
transactions.
Proposed comment 1026.37(a)(3)–1
cross-references § 1026.17(d) and
comment 17(d)–1 and clarifies that, in
transactions with multiple creditors,
only the creditor making the disclosure
must be identified. Proposed comment
37(a)(3)–2 states that, in transactions
where the loan is originated by a
mortgage broker, the name of the
157 Appendix C to Regulation X requires the
following statement on the GFE under the heading
‘‘Purpose’’: ‘‘This GFE gives you an estimate of your
settlement charges and loan terms if you are
approved for this loan. For more information, see
HUD’s Special Information Booklet on settlement
charges, your Truth-in-Lending Disclosures, and
other consumer information at www.hud.gov/respa.
If you decide you would like to proceed with this
loan, contact us.’’
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creditor, if known, must still be
provided even if the mortgage broker
provides the disclosure to the consumer.
37(a)(4) Date Issued
Appendix C to Regulation X requires
creditors to provide the date of the GFE.
Proposed § 1026.37(a)(4) mirrors this
requirement by mandating disclosure of
the date the Loan Estimate is mailed or
delivered to the consumer. Proposed
comment 1026.37(a)–1 clarifies that the
‘‘date issued’’ is the date the creditor
delivers the Loan Estimate to the
consumer and is not affected by the
creditor’s method of delivery.
The Bureau is proposing this
requirement pursuant to its authority
under TILA section 105(a) and RESPA
section 19(a) because disclosure of the
date the Loan Estimate is issued will
promote the informed use of credit and
more effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively, by
enabling consumers to compare the
Loan Estimate with any revised Loan
Estimates that may be issued. In
addition, this comparison will enable
consumers to identify changes in loan
terms and costs and thereby understand
the costs, benefits, and risks associated
with the mortgage transaction,
consistent with Dodd-Frank Act section
1032(a).
37(a)(5) Applicants
Appendix C to Regulation X requires
disclosure of the name of the applicants
for the mortgage loan transaction.
Similarly, pursuant to TILA section
105(a), RESPA section 19(a), and DoddFrank Act section 1032(a), proposed
§ 1026.37(a)(5) requires creditors to
disclose the name of the applicants for
the loan transaction. By enabling
consumers to confirm that the Loan
Estimate is intended for them, this
disclosure will promote the informed
use of credit and more effective advance
notice of settlement costs and will
enable consumers to better understand
the costs, benefits, and risks associated
with mortgage transactions. Proposed
comment 37(a)(5)–1 clarifies that the
names of all applicants for the mortgage
loan must be disclosed on the form and
that if the form cannot accommodate the
names of all the applicants, the creditor
may attach to the back of the form a
separate page listing the remaining
applicants.
37(a)(6) Property
Appendix C to Regulation X requires
at the top of the GFE the ‘‘address or
location of the property’’ for which the
financing is sought. The Bureau
proposes to use its authority in TILA
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section 105(a), RESPA section 19(a), and
section 1032(a) of the Dodd-Frank Act to
impose a similar requirement for the
Loan Estimate required by proposed
§ 1026.19(e). The Bureau believes that,
by providing the consumer with basic
information about the property that is
the subject of the loan transaction, this
disclosure will promote the informed
use of credit and more effective advance
notice of settlement costs and will
enable consumers to better understand
the costs, benefits, and risks associated
with mortgage transactions.
Accordingly, proposed § 1026.37(a)(6)
requires the creditor to disclose the
street address or location of the property
that secures the transaction that is the
subject of the Loan Estimate. Proposed
comment 37(a)(6)–1 instructs creditors
to provide a legal description or other
locator for the property in cases where
there is no street address. The proposed
comment also clarifies that a zip code
would be required in all instances.
37(a)(7) Sale Price
Proposed § 1026.37(a)(7)(i) requires
disclosure of the contract sale price for
the property identified in proposed
§ 1026.37(a)(6). For transactions that do
not involve a seller, proposed
§ 1026.37(a)(7)(ii) requires disclosure of
the estimated value for the property
identified in proposed § 1026.37(a)(6).
Proposed comment 37(a)(7)–1 provides
guidance regarding the requirement to
provide the estimated value of the
property, if a creditor has performed its
own estimate or obtained an appraisal
or valuation of the property.
The disclosure of the contract sale
price and estimated property value, as
applicable, is a new requirement, which
the Bureau proposes pursuant to its
authority under TILA section 105(a),
RESPA section 19(a), and section
1032(a) of the Dodd-Frank Act for
transactions subject to proposed
§ 1026.19(e). The Bureau believes that
including the contract sales price or
estimated property value in the Loan
Estimate will help promote the
informed use of credit and more
effective advance notice of settlement
costs and will enable consumers to
better understand the costs, benefits,
and risks associated with mortgage
transactions by ensuring that consumers
have in a single location all the
information needed to decide whether
to enter into a legal obligation.
37(a)(8) Loan Term
Existing appendix C to Regulation X
requires the loan originator to disclose
the loan term as part of the ‘‘Summary
of Your Loan’’ disclosure. Regulation Z
does not have a similar requirement,
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although TILA provides for such a
disclosure.158 Proposed § 1026.37(a)(8)
essentially mirrors appendix C to
Regulation X and requires the creditor
to disclose the term to maturity of the
credit. The prototype mortgage
disclosures used at the Bureau’s
consumer testing displayed this in terms
of years, and consumers were able to
understand and evaluate easily the term
to maturity. The Bureau believes that
this unit of time provides a frame of
reference to consumers that they use
more regularly and that is easier to
understand than months, which may
result in large numbers that are
unfamiliar to consumers, such as 180 or
360 months. Accordingly, proposed
§ 1026.37(a)(8) requires the loan term to
be expressed in years.
The Bureau understands from
industry feedback provided in
connection with the Bureau’s
stakeholder outreach that some
adjustable rate loans may be structured
so that the periodic principal and
interest payment is fixed and increases
in the interest rate increase the loan
term instead of the payment.
Accordingly, proposed comment
37(a)(8)–1 provides guidance regarding
compliance with the requirement of
proposed § 1026.37(a)(8) if the term to
maturity is adjustable under the terms of
the legal obligation.
The Bureau proposes § 1026.37(a)(8)
pursuant to its authority under TILA
section 105(a), RESPA section 19(a), and
section 1032(a) of the Dodd-Frank Act to
implement TILA section 128(a)(6) and
because disclosing the loan term will
help promote the informed use of credit
and more effective advance notice of
settlement costs and will enable
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions.
37(a)(9) Purpose
Neither Regulation Z nor Regulation X
currently requires disclosure of the
purpose of the loan. With the number of
loan products available on the market,
some of which are targeted for a
particular purpose, inclusion of this
information on the Loan Estimate will
promote the informed use of credit and
more effective advance notice of
158 TILA section 128(a)(6) requires disclosure of
the ‘‘number, amount, and due dates or period’’ of
periodic payments which, in effect, makes
disclosure of the loan term a statutory requirement.
Section 1026.18(g) implements TILA section
128(a)(6) for non-mortgage transactions, but there is
no corresponding disclosure requirement for
mortgage loan transactions in existing § 1026.18(s).
In this proposal, the Bureau intends to implement
TILA section 128(a)(6) by requiring disclosure of
the loan term for mortgages in proposed
§ 1026.37(a)(8).
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settlement costs and will enable
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions. Accordingly, the
Bureau proposes to use its authority
under TILA section 105(a), RESPA
section 19(a), and section 1032(a) of the
Dodd-Frank Act to require creditors to
disclose the intended purpose of the
extension of credit.
Under proposed § 1026.37(a)(9), the
creditor is required to disclose as the
purpose of the loan one of the following:
(1) Purchase; (2) refinance; (3)
construction; or (4) home equity loan.
Proposed comment 37(a)(9)–1 provides
general guidance on identifying the
most accurate loan purpose and clarifies
that, in disclosing the loan purpose, the
creditor must consider all relevant
information available to the creditor at
the time of the disclosure and that, if
there is uncertainty, the creditor may
rely on the consumer’s stated purpose.
The Bureau seeks comment on whether
additional loan purposes should be
added to § 1026.37(a)(9).
37(a)(9)(i) Purchase
If the credit is to finance the
acquisition of the property that is the
subject of the loan transaction, proposed
§ 1026.37(a)(9)(i) requires the creditor to
disclose that the loan is a ‘‘Purchase.’’
Proposed comment 37(a)(9)–1.i clarifies
the meaning of the term ‘‘purchase.’’
37(a)(9)(ii) Refinance
Proposed § 1026.37(a)(9)(ii) requires
the creditor to disclose that the loan is
for a ‘‘Refinance’’ if, consistent with
§ 1026.20(a) other than with regard to
the identity of the creditor, the credit is
to refinance an existing obligation
already secured by the property that is
the subject of the transaction. Like
§ 1026.20(a), whether a transaction is a
refinancing under proposed
§ 1026.37(a)(9)(ii) depends on whether
the original obligation has been satisfied
or extinguished and replaced by a new
obligation, based on the parties’ contract
and applicable law. This may include
an obligation under which amounts
other than principal remain due under
the existing obligation and are to be
paid with the new obligation to satisfy
the existing obligation. Proposed
comment 37(a)(9)–1.ii clarifies the
meaning of the term ‘‘refinance’’ and
that the consumer may or may not
receive cash from the transaction.
Proposed comment 37(a)(9)(ii)–1.ii also
provides a description of a refinancing
with and without cash provided and
provides an example of how a consumer
may use cash received in a refinancing
transaction with cash provided.
Proposed comment 37(a)(9)–2 also
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clarifies that proposed
§ 1026.37(a)(9)(ii), unlike § 1026.20(a),
applies to all such transactions even if
the refinancing is undertaken by a new
creditor.
37(a)(9)(iii) Construction
If the extension of credit is to finance
the construction of a dwelling on the
property, proposed § 1026.37(a)(9)(iii)
requires the creditor to disclose that the
loan is for ‘‘Construction.’’ Proposed
comment 37(a)(9)–1.iii clarifies that the
creditor is required to disclose that the
loan is for ‘‘construction’’ both in
transactions where the extension of
credit is to cover the costs of a
construction project only
(‘‘construction-only’’ loan), whether it is
a new construction or a renovation
project, and in transactions where a
multiple advance loan may be
permanently financed by the same
creditor (‘‘construction-to-permanent’’
loan). The proposed comment also
clarifies that, in construction-only
transactions, the consumer may be
required to make interest-only payments
during the construction phase of the
project with the loan balance due at the
completion of the construction project.
Finally, proposed comment 37(a)(9)–
1.iii cross-references § 1026.17(c)(6)(ii)
and comments 17(c)(6)–2 and –3 for
further guidance regarding constructionto-permanent transactions.
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37(a)(9)(iv) Home Equity Loan
If the extension of credit does not
involve the purchase of real property as
described in proposed § 1026.37(a)(9)(i)
or the construction of a dwelling as
described in proposed
§ 1026.37(a)(9)(iii) and will not be used
to refinance an existing obligation as
described in proposed
§ 1026.37(a)(9)(ii), proposed
§ 1026.37(a)(9)(iv) requires the creditor
to state that the extension of credit is for
a ‘‘Home Equity Loan.’’ Proposed
comment 37(a)(9)(iv)–1.iv clarifies that
the home equity loan disclosure applies
whether the transaction will be secured
by a first or subordinate lien on the
property.
37(a)(10) Product
Pursuant to TILA section
128(b)(2)(C)(ii), under existing
§ 1026.18(s), the creditor is required to
provide certain information about the
interest rate and payments, which is
based on the loan product. In proposed
§ 1026.37(a)(10), the Bureau requires a
description of the loan product. The
Bureau proposes this new requirement
pursuant to its authority under TILA
section 105(a), RESPA section 19(a),
section 1032(a) of the Dodd-Frank Act,
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and section 1405(b) of the Dodd-Frank
Act with respect to residential mortgage
loans. The Bureau believes that
requiring the disclosure of the loan
product on the Loan Estimate promotes
the informed use of credit and more
effective advance disclosure of
settlement charges by providing
consumers with key loan terms early in
the transaction and in a clear and
conspicuous manner. This disclosure
also enables consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions.
In addition, the disclosure of the loan
product may improve consumer
awareness and understanding of
transactions involving residential
mortgage loans through the use of
disclosures, and is in the interest of
consumers and in the public interest.
Specifically, proposed
§ 1026.37(a)(10)(i) requires the creditor
to identify the type of loan product for
which the consumer has applied and
proposed § 1026.37(a)(10)(ii) requires a
description of certain loan features
added to the loan product that may
change the consumer’s periodic
payment. Proposed § 1026.37(a)(10)(iii)
provides instructions on how to disclose
loan products that contain one or more
loan features, states that the creditor
may disclose only one loan feature, and
cross-references proposed
§ 1026.37(a)(10)(ii) as establishing the
following hierarchy to be adhered to
when disclosing a loan product with
more than one loan feature: (1) Negative
amortization; (2) interest-only; (3) step
payment; and (4) balloon payment.
Proposed § 1026.37(a)(10)(iv) requires
that the disclosure of any loan product
or loan feature be preceded by any
introductory rate periods, adjustable
features, and applicable time periods.
This aspect of the proposal would not
apply to fixed rate loans with no
additional features. Finally, comments
to proposed § 1026.37(a)(10) provide
further descriptions and examples of the
loan products and features to be
disclosed, as discussed below.
37(a)(10)(i)
Proposed § 1026.37(a)(10)(i) requires
disclosure of one of the following as the
product for which the consumer has
applied:
37(a)(10)(i)(A) Adjustable Rate
If the annual percentage rate may
increase after consummation, but the
rates that will apply or the periods for
which they will apply are not known at
consummation, proposed
§ 1026.37(a)(10)(i)(A) requires that the
loan be disclosed as an ‘‘Adjustable
Rate.’’ Proposed comment 37(a)(10)–1.i
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clarifies the proper format for disclosure
of an adjustable-rate product.
37(a)(10)(i)(B) Step Rate
Under proposed § 1026.37(a)(10)(i)(B),
the loan product is required to be
disclosed as a ‘‘Step Rate’’ if the interest
rate will change after consummation
and the applicable rates and the periods
for the applicable rates are known.
Proposed comment 37(a)(10)–1.ii
clarifies that the proper format for
disclosure of a step-rate product.
37(a)(10)(i)(C) Fixed Rate
Proposed § 1026.37(a)(10)(i)(C)
requires the creditor to disclose the loan
product as a ‘‘Fixed Rate’’ if the product
is neither an Adjustable Rate nor a Step
Rate, as described in
§ 1026.37(a)(10)(i)(A) and (B),
respectively. Proposed comment
37(a)(10)–1.iii provides guidance
regarding the disclosure required by
§ 1026.37(a)(10)(i)(C).
37(a)(10)(ii)
Proposed § 1026.37(a)(10)(ii) requires
the disclosure of loan features that may
change the consumer’s periodic
payment. As noted above, although
structured differently, § 1026.18(s)
requires a similar disclosure. Proposed
§ 1026.37(a)(10)(ii) requires the
consumer to disclose one of the
following features, as applicable:
Negative amortization, interest-only,
step payment, balloon payment, or
seasonal payment. Proposed comment
37(a)(10)–2 clarifies the requirements of
§ 1026.37(a)(10)(iii) and (iv) with
respect to the feature that is disclosed
and the time period or the length of the
introductory period and the frequency
of the adjustment periods, as applicable,
that preceded the feature. For example:
an adjustable-rate product with an
introductory rate that is interest-only for
the first five years and then adjusts
every three years starting in year six
would be disclosed as ‘‘5 Year Interest
Only, 5/3 Adjustable Rate’’; a step-rate
product with an introductory interest
rate that lasts for seven years, and
adjusts every year thereafter for the next
five years at a predetermined rate would
be disclosed as ‘‘7/1 Step Rate’’; and a
fixed rate product that is interest-only
for ten years with a balloon payment
due at the end of the ten-year period
would be disclosed as ‘‘10 Year Interest
Only, Fixed Rate.’’ The balloon payment
feature, however, would be disclosed
elsewhere on the form as described in
the section-by-section analysis of
proposed § 1026.37(b) and (c).
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37(a)(10)(ii)(A) Negative Amortization
Proposed § 1026.37(a)(10)(ii)(A)
requires that the creditor disclose a
‘‘Negative Amortization’’ loan feature if,
under the terms of the legal obligation,
the loan balance may increase. Proposed
comment 37(a)(10)–2.i provides an
example of the disclosure of a loan
product with a negative amortization
feature.
37(a)(10)(ii)(B) Interest Only
Proposed § 1026.37(a)(10)(ii)(B)
requires that the creditor disclose an
‘‘Interest Only’’ loan feature if, under
the legal obligation, one or more regular
periodic payments may be applied only
to interest accrued and not to the loan
principal. Proposed comment 37(a)(10)–
2.ii provides an example of the
disclosure of a loan product with an
interest only feature.
37(a)(10)(ii)(C) Step Payment
Proposed § 1026.37(a)(10)(ii)(C)
requires that the creditor disclose a
‘‘Step Payment’’ loan feature if the terms
of the legal obligation include a feature
that involves scheduled variations in
the periodic payment during the term of
the loan that are not caused by changes
in the interest rate. Proposed comment
37(a)(10)–2.iii clarifies that the term
‘‘step payment’’ is sometimes also called
a ‘‘graduated payment’’ and provides an
example and guidance on the format to
be used when disclosing a loan product
with a Step Payment feature.
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37(a)(10)(ii)(D) Balloon Payment
Proposed § 1026.37(a)(10)(ii)(D)
requires that the creditor disclose a
‘‘Balloon Payment’’ loan feature if the
transaction includes a balloon payment
as defined in proposed § 1026.37(b)(5).
Proposed comment 37(a)(10)–2.iv
clarifies that the term ‘‘balloon
payment’’ has the same meaning as in
proposed § 1026.37(b)(5) and provides
further guidance on the format to be
used when disclosing a loan product
with a balloon payment feature.
37(a)(10)(ii)(E) Seasonal Payment
Proposed § 1026.37(a)(10)(ii)(E)
requires that the creditor disclose
whether the terms of the legal obligation
expressly provide that regular periodic
payments are not scheduled for
specified unit-periods on a regular basis,
disclosed as a ‘‘Seasonal Payment’’
feature. The Bureau understands from
industry feedback provided in
connection with the Bureau’s
stakeholder outreach that some loans,
which may be more prevalent in the
community bank market, may be
structured so that periodic principal and
interest payments are not scheduled to
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be made by the consumer in between
specified unit-periods on a regular basis.
For example, such a loan may be
structured so that payments are not
required to be made by the consumer
during the months of June through
August each year of the loan term.
These loans are sometimes called
‘‘teacher loans.’’ Accordingly, proposed
§ 1026.37(a)(10)(ii)(E) provides for the
disclosure of such a product feature.
Proposed comment 37(a)(10)–2.v
provides guidance regarding this
requirement.
37(a)(10)(iii)
Proposed § 1026.37(a)(10)(iii) requires
that if more than one loan feature is
applicable to the transaction, the
creditor disclose only the first
applicable loan feature from the order in
which they are presented in proposed
§ 1026.37(a)(10)(ii). This proposed order
of loan features prioritizes the loan
features to ensure that consumers
receive information about potential
costs and risks in a readily visible
format, understanding that consumers
will receive information about some
applicable features elsewhere in the
Loan Estimate. For example, the
existence of a balloon payment is also
disclosed under both proposed
§ 1026.37(b) and (c), and thus, is later in
the order of loan features under
proposed § 1026.37(a)(10)(iii). In
addition, seasonal payments do not pose
as great a risk to consumers as do
negatively amortizing or non-amortizing
payments, and thus, disclosure of these
features is earlier than seasonal
payments in the order under proposed
§ 1026.37(a)(10)(iii).
37(a)(10)(iv)
Finally, proposed § 1026.37(a)(10)(iv)
requires the creditor to include in the
disclosures required by
§ 1026.37(a)(10)(i) and (ii) information
regarding any introductory rate period,
adjustment period, or time period, as
applicable, and that this information
should precede both the loan product
and any features disclosed, as
applicable. For example, if the
consumer applies for an adjustable-rate
loan that includes a scheduled regular
periodic payment that results in
negative amortization in years one
through three, interest-only payments in
years four and five, and an interest rate
that adjusts every two years after year
three, the creditor would disclose the
product as ‘‘3 Year Negative
Amortization, 3/2 Adjustable Rate.’’
37(a)(11) Loan Type
Existing appendix A to Regulation X
requires disclosure of the loan type in
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section B of the RESPA settlement
statement. The Bureau proposes to use
its authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act 1032(a) to require a similar
disclosure. The types of transactions
disclosed under proposed
§ 1026.37(a)(11) may include different
cost structures or underwriting
requirements. The disclosure of the type
of transaction enables consumers to
evaluate whether it is the type of
transaction that is best suited for their
personal situation. The Bureau believes
that including information regarding the
type of transaction for which the
consumer has applied will promote the
informed use of credit and more
effective advance disclosure of closing
costs, and will enable consumers to
better understand the costs, benefits,
and risks associated with mortgage
transactions by providing consumers
with information regarding important
characteristics of the loan early in the
transaction. Accordingly, under
proposed § 1026.37(a)(11), creditors are
required to disclose one of the following
loan types: Conventional, FHA, VA, or
Other.
37(a)(11)(i) Conventional
If the loan is not guaranteed or
insured by a Federal or State
government agency, proposed
§ 1026.37(a)(11)(i) requires the creditor
to disclose that the loan is a
‘‘Conventional.’’
37(a)(11)(ii) FHA
If the loan is insured by the Federal
Housing Administration, proposed
§ 1026.37(a)(11)(ii) requires the creditor
to disclose that the loan is a ‘‘FHA.’’
37(a)(11)(iii) VA
If the loan is guaranteed by the U.S.
Department of Veterans Affairs,
proposed § 1026.37(a)(11)(iii) requires
the creditor to disclose that the loan is
a ‘‘VA.’’
37(a)(11)(iv) Other
For federally-insured or guaranteed
loans that do not fall within the
categories described in proposed
§ 1026.37(a)(11)(i) through (iii) and
loans insured or guaranteed by a State
agency or other entity, proposed
§ 1026.37(a)(11)(iv) requires the creditor
to disclose the loan type as ‘‘Other’’ and
provide a brief description of the loan.
Proposed comment 1026.37(a)(11)–1
provides details on the type of loans
that would be categorized as ‘‘Other’’
and an example of an acceptable
description of a loan that falls within
that category.
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37(a)(12) Loan Identification Number
(Loan ID #)
Appendix A to Regulation X requires
the settlement agent to provide the
‘‘loan number’’ in the RESPA settlement
statement. The Bureau proposes to use
its authority in TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a) to require disclosure
of the loan number on the Loan
Estimate. The Bureau believes that
including this information in a
prominent position on the Loan
Estimate will promote the informed use
of credit and more effective advance
disclosure of settlement costs and will
enable consumers to better understand
the costs, benefits, and risks associated
with mortgage transactions by providing
consumers with access to information
they may use repeatedly throughout the
transaction.
Accordingly, proposed
§ 1026.37(a)(12) requires the creditor to
provide a unique number that may be
used by the lender, consumer, and other
parties to identify the loan transaction,
labeled as ‘‘Loan ID #.’’ Proposed
comment 37(a)(12)–1 clarifies that the
lender has the discretion to create the
unique loan identification number and
that different and unrelated loan
transactions with the same creditor may
not share the same loan identification
number.
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37(a)(13) Rate Lock
Existing appendix C to Regulation X
requires the loan originator to disclose
information regarding the expiration
date for the interest rate, charges, and
related terms offered by the originator in
the GFE. The Bureau believes that this
information is critical to the consumer’s
ability to understand the transaction
and avoid the uninformed use of credit.
Furthermore, disclosure of this
information promotes more effective
advance disclosure of settlement costs
and will enable consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions.
Thus, the Bureau proposes to use its
authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a) to require creditors
to provide the rate lock information
currently provided in the RESPA GFE.
Consistent with this requirement,
proposed § 1026.37(a)(13) requires the
creditor to disclose whether the interest
rate identified under proposed
§ 1026.37(b)(2) has been locked by the
consumer and, if set, proposed
§ 1026.37(a)(13)(i) requires disclosure of
the date and time (including the
applicable time zone) the locked rate
would expire. Proposed
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§ 1026.37(a)(13)(ii) states that the ‘‘rate
lock’’ statement required by proposed
§ 1026.37(a)(13) is to be accompanied by
a statement notifying the consumer that
the interest rate, points, and lender
credits provided in the Loan Estimate
are subject to change unless the rate has
been set by the consumer and the date
and time (including the applicable time
zone) all estimated closing costs
provided in the Loan Estimate will
expire. Proposed comment 37(a)(13)–1
clarifies that for purposes of proposed
§ 1026.37(a)(13), a disclosed interest rate
is set for a specific period of time even
if subject to conditions set forth in the
rate-lock agreement between the
creditor and consumer. Proposed
comment 37(a)(13)–2 clarifies that the
information provided under proposed
§ 1026.37(a)(13) is required whether or
not the transaction is consummated or
the terms are otherwise not accepted or
extended. Proposed comment 37(a)(13)–
3 states that all times provided in the
disclosure must reference the applicable
time zone and provides an example of
an appropriate disclosure of the
applicable time zone.
37(b) Loan Terms
To shop for and understand the cost
of credit, consumers must be able to
identify and understand the key loan
terms offered to them. As discussed
below, the Bureau’s consumer testing
suggests that the following are key loan
terms that consumers recognize and
expect to see on closed-end mortgage
disclosures, together with their
settlement charges: Loan amount;
interest rate; periodic principal and
interest payment; whether the loan
amount, interest rate, or periodic
payment can increase; and whether the
loan has a prepayment penalty or
balloon payment.
TILA requires the disclosure of some
of these key loan terms, but not all.
Notably, the loan amount and interest
rate are currently not specifically
required to be disclosed by TILA section
128. 15 U.S.C. 1638. Although
Regulation Z currently requires the
interest rate to be disclosed in the
payment schedule required by
§ 1026.18(s), it does not require the loan
amount to be disclosed for non-HOEPA
loans, and does not require a summary
table identifying these key loan terms
for closed-end credit secured by real
property. 12 CFR 1026.18. For federally
related mortgage loans, § 1024.7(d) of
Regulation X currently requires the GFE
to contain a table on page 1, labeled
‘‘Summary of your loan terms,’’ which
contains the following information: (i)
Initial loan amount; (ii) loan term; (iii)
initial interest rate; (iv) initial monthly
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amount owed for principal, interest, and
mortgage insurance; (v) whether the
interest rate can rise, and if so, the
maximum interest rate and the date of
the first interest rate change; (vi)
whether the loan balance can rise, and
if so, the maximum loan balance; (vii)
whether the monthly amount owed for
principal, interest, and mortgage
insurance can rise, and if so, the
payment amount at the first change and
the maximum payment; (viii) whether
the loan has a prepayment penalty and
the maximum prepayment penalty; and
(xi) whether the loan has a balloon
payment, the amount, and when it is
due. 12 CFR 1024.7(d).
Pursuant to its authority under TILA
section 105(a), RESPA section 19(a), and
Dodd-Frank Act section 1032(a), the
Bureau proposes to require creditors to
provide the key loan terms described
above in a summary table as part of the
integrated Loan Estimate required by
proposed § 1026.19(e) for closed-end
transactions secured by real property
(other than reverse mortgages). At the
Bureau’s consumer testing, participants
were able to use the summary table to
identify and compare easily the key loan
terms for different loans. Based on its
consumer testing, the Bureau believes
that a concise loan summary table will
improve consumer understanding of the
loan terms presented, such as an
understanding of whether the consumer
can afford the loan, enable comparisons
of different credit terms offered by the
same or multiple creditors, and enable
consumers to verify information about
the loan provided by the creditor orally
or in some other form, such as a
worksheet. The Bureau believes that this
disclosure will effectuate the purposes
of TILA by promoting the informed use
of credit and assuring a meaningful
disclosure to consumers, including
more effective advance disclosure of
settlement costs. Furthermore,
consistent with section 1032(a) of the
Dodd-Frank Act, this disclosure would
ensure that the features of consumer
credit transactions secured by real
property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
The table appears under the heading
‘‘Loan Terms’’ to enhance visibility. The
individual items of information in the
table are also labeled to enhance
visibility. The format provides
consumers with a bold ‘‘yes’’ or ‘‘no’’
answer to the questions of whether the
loan amount, interest rate, or periodic
payment can increase, and whether the
loan has a prepayment penalty or
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balloon payment. The format of the
Loan Terms table will help consumers
quickly and easily identify their key
loan terms.
The Bureau proposes comment 37(b)–
1 to provide additional guidance to
creditors regarding the Loan Terms
table. Proposed comment 37(b)–1
clarifies that the Loan Terms table
should reflect the terms of the legal
obligation that the consumer will enter
into, based on information the creditor
knows or reasonably should know. A
discussion of the specific items
included in the table follows.
37(b)(1) Loan Amount
Neither TILA nor RESPA specifically
requires the disclosure of the loan
amount for the transaction. TILA section
128(a)(2) requires disclosure of the
amount financed, of which the principal
amount of the loan is the most
significant component, but the section
does not require a separate disclosure of
the principal amount of the loan. 15
U.S.C. 1638(a)(2). Regulation Z
§ 1026.32(c)(5) currently requires the
disclosure of the total amount the
consumer will borrow, as reflected by
the face amount of the note, for loans
subject to HOEPA. For federally related
mortgage loans under RESPA,
§ 1024.7(d) of Regulation X currently
requires the disclosure of the loan
amount in the summary table on page 1
of the GFE with the text, ‘‘Your initial
loan amount is.’’
The Bureau believes, based on its
consumer testing, that the loan amount
is important to consumers to understand
readily, compare, and verify the amount
of credit offered to them. The principal
amount of the loan is a basic element of
the transaction that should be disclosed
to consumers.
Pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and RESPA section 19(a), the
Bureau proposes to require a disclosure
of the principal amount of the
transaction for closed-end transactions
secured by real property (other than
reverse mortgages). The Bureau
proposes this requirement to effectuate
the purposes of TILA to promote the
informed use of credit and ensure a
meaningful disclosure of credit terms to
consumers. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
the Bureau believes that the disclosure
of the loan amount in the Loan Terms
table may ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
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in light of the facts and circumstances.
Further, like HUD, the Bureau believes
the loan amount is necessary to
understanding the transaction and its
disclosure would effectuate the
purposes of RESPA.
Proposed § 1026.37(b)(1) requires
creditors to disclose the ‘‘loan amount,’’
which is defined as the amount of credit
to be extended under the terms of the
legal obligation. This disclosure is
labeled ‘‘Loan Amount’’ to enhance
visibility. Disclosing the loan amount
may also alert the consumer to fees that
are financed in addition to the amount
of credit sought for the consumer’s
purchase, refinance, or other purpose.
37(b)(2) Interest Rate
TILA section 128(a)(3) and (4)
requires disclosure of the finance charge
and the annual percentage rate, for
which the interest rate is a factor in the
calculation. 15 U.S.C. 1638(a)(3), (4).159
However, the statute does not require a
separate disclosure of the interest rate.
Currently, Regulation Z requires
creditors to disclose the interest rate
only in the interest rate and payment
summary table required by § 1026.18(s).
For federally related mortgage loans,
§ 1024.7(d) of Regulation X requires that
the GFE state the interest rate with the
text ‘‘your initial interest rate is’’ in the
summary table on page 1.
The Bureau believes that the interest
rate is an important loan term that
consumers should be able to locate
readily on the disclosure, because it is
the basis for the periodic payments of
principal and interest that the consumer
will be obligated to make. Participants
in the Bureau’s consumer testing used
the interest rate as one of the primary
factors when evaluating, comparing, and
verifying loan terms.
The Bureau proposes to use its
authority under TILA section 105(a) to
require disclosure of the interest rate for
the transaction to effectuate the
purposes of TILA to promote the
informed use of credit and ensure a
meaningful disclosure of credit terms to
consumers. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
the Bureau believes that the disclosure
of the interest rate in the Loan Terms
table may ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
159 As discussed below, the finance charge
disclosure is implemented in proposed
§ 1026.38(o)(2). The APR disclosure is implemented
in proposed §§ 1026.37(l)(2) and 1026.38(o)(4).
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in light of the facts and circumstances.
Further, like HUD, which required
disclosure of the interest rate in its good
faith estimate form, the Bureau proposes
to use its authority under RESPA
section 19(a) to require disclosure of the
interest rate, because the interest rate is
important to consumer understanding of
the transaction.
Proposed § 1026.37(b)(2) requires
disclosure of the initial interest rate that
will be applicable to the transaction,
labeled the ‘‘Interest Rate.’’ If the initial
interest rate may adjust based on an
index, the creditor must disclose the
fully-indexed rate, which is defined
within that paragraph. Proposed
comment 37(b)(2)–1 provides guidance
regarding how to calculate the fullyindexed rate to be disclosed.
37(b)(3) Principal and Interest Payment
TILA section 128(a)(6) requires
disclosure of the number, amount, and
due dates or period of payments
scheduled to repay the loan. 15 U.S.C.
1638(a)(6). TILA section 128(b)(2)(C)(ii)
requires the maximum principal and
interest payment and examples of other
potential principal and interest
payments to be disclosed when the
‘‘annual rate of interest is variable * * *
or the regular payments may otherwise
be variable.’’ 15 U.S.C. 1638(b)(2)(C)(ii).
Currently, for closed-end transactions
secured by real property or a dwelling,
Regulation Z requires creditors to
disclose the periodic principal and
interest payment only in the interest
rate and payment summary table
required by § 1026.18(s). For federally
related mortgage loans, § 1024.7(d) of
Regulation X requires the GFE to
contain the initial periodic payment for
principal and interest and mortgage
insurance with the text ‘‘Your initial
monthly amount owed for principal,
interest, and any mortgage insurance
is.’’
The Bureau believes that, like the
interest rate, the periodic principal and
interest payment is a key loan term that
consumers should be able to locate
readily on the form. The Bureau’s
consumer testing indicates that
consumers use the periodic principal
and interest payment of the loan as a
primary factor in evaluating and
comparing a loan. The Bureau believes
that a specific disclosure of the periodic
principal and interest payment in the
Loan Terms table will assist consumers
in readily evaluating, comparing, and
verifying possible loan terms. This
payment enables consumers to compare
loans of one or multiple creditors based
on the same measure, rather than a
payment that may include estimates for
escrow payments for property costs or
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mortgage insurance. Accordingly, the
Bureau proposes § 1026.37(b)(3) to
require the Loan Terms table to include
the periodic principal and interest
payment simply labeled ‘‘Principal &
Interest,’’ with an indication of the
applicable unit-period. If the initial
periodic payment may adjust based on
changes to an index, the payment
disclosed is required to be based on the
fully-indexed rate disclosed under
proposed § 1026.37(b)(2). The unitperiod that is applicable to a transaction
is currently described in appendix J to
Regulation Z. Proposed comment
37(b)(3)–1 clarifies that the label of the
periodic principal and interest payment
should reflect the appropriate unitperiod for the transaction. Proposed
comment 37(b)(3)–2 provides guidance
regarding how to calculate the payment
to be disclosed if the initial interest rate
is adjustable based on an index.
The Bureau believes that the total
periodic payment the consumer would
be responsible to make to the creditor,
including any required mortgage
insurance and escrow payments, is also
important for the consumer to consider
when evaluating a loan offer. This
amount allows a consumer to determine
the affordability of the credit transaction
and underlying real estate transaction.
Accordingly, the Bureau proposes to
include with the principal and interest
payment a statement referring the
consumer to the total periodic payment,
including estimated amounts for any
escrow and mortgage insurance
payments, which is disclosed in the
Projected Payments table under
proposed § 1026.37(c), immediately
below the Loan Terms table.
The Bureau proposes to use its
authority under TILA section 105(a) to
require disclosure of the periodic
principal and interest payment, along
with a reference to the total periodic
payment, in the Loan Terms table to
effectuate the purposes of TILA to
promote the informed use of credit and
ensure a meaningful disclosure of credit
terms to consumers. In addition,
consistent with section 1032(a) of the
Dodd-Frank Act, the Bureau believes
that this disclosure may ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances. Further, the Bureau
proposes to use its authority under
RESPA section 19(a) to require this
disclosure because the disclosure will
improve consumer understanding of the
transaction, including settlement costs.
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The Bureau also proposes this
requirement pursuant to its authority
under section 1405(b) of the Dodd-Frank
Act. The Bureau believes this disclosure
may improve consumer awareness and
understanding of transactions involving
residential mortgage loans through the
use of disclosures, and is in the interest
of consumers and in the public interest.
37(b)(4) Prepayment Penalty
Currently, TILA section 128(a)(11), 15
U.S.C. 1638(a)(11), and Regulation Z
§ 1026.18(k)(1) require the creditor to
disclose whether or not a penalty may
be imposed if the obligation is prepaid
in full for a transaction that includes a
finance charge computed from time to
time by application of a rate to the
unpaid principal balance. For federally
related mortgage loans, § 1024.7(d) of
Regulation X requires the summary
table on page 1 of the GFE to state
whether or not the loan has a
prepayment penalty with the text, ‘‘Does
your loan have a prepayment penalty?’’
The Bureau’s consumer testing
indicates that consumers use the
existence of a prepayment penalty as an
important factor in understanding and
evaluating loan offers. Accordingly,
because of the importance to consumers
of prepayment penalties, proposed
§ 1026.37(b)(4) requires disclosure of
whether the loan has a prepayment
penalty in the Loan Terms table, labeled
‘‘Prepayment Penalty.’’ As discussed
below, under proposed § 1026.37(b)(7),
the existence or non-existence of a
prepayment penalty provision in the
loan contract is indicated by an
affirmative or negative answer (designed
as a simple ‘‘yes’’ or ‘‘no’’) to the
question, ‘‘Does the loan have these
features?’’ In the Bureau’s consumer
testing, consumers were able to use this
disclosure to determine easily if the
loan had a prepayment penalty.
The Bureau proposes to require
disclosure of whether the transaction
includes a prepayment penalty under
TILA section 128(a)(11), its
implementation authority under TILA
section 105(a), and RESPA section 19(a).
The Bureau believes this additional
information will promote consumer
understanding of the cost of credit and
more effective disclosure of the terms of
the credit.
Definition of Prepayment Penalty
TILA establishes certain disclosure
requirements for transactions for which
a penalty is imposed upon prepayment,
but does not define the term
‘‘prepayment penalty.’’ TILA section
128(a)(11) requires that the transactionspecific disclosures for closed-end
consumer credit transactions disclose
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whether (1) a consumer is entitled to a
rebate of any finance charge upon
refinancing or prepayment in full
pursuant to acceleration or otherwise, if
the obligation involves a precomputed
finance charge, and (2) a ‘‘penalty’’ is
imposed upon prepayment in full if the
obligation involves a finance charge
computed from time to time by
application of a rate to the unpaid
principal balance. 15 U.S.C. 1638(a)(11).
Also, TILA section 128(a)(12) requires
that the transaction-specific disclosures
state that the consumer should refer to
the appropriate contract document for
information regarding certain loan terms
or features, including ‘‘prepayment
rebates and penalties.’’ 15 U.S.C.
1638(a)(12).
Section 1026.18(k) implements (and
largely mirrors) TILA section 128(a)(11).
Section 1026.18(k)(1) provides that
‘‘when an obligation includes a finance
charge computed from time to time by
application of a rate to the unpaid
principal balance,’’ the creditor must
disclose ‘‘a statement indicating
whether or not a penalty may be
imposed if the obligation is prepaid in
full.’’ Comment 18(k)(1)–1 clarifies that
such a ‘‘penalty’’ includes, for example,
‘‘interest charges for any period after
prepayment in full is made’’ and a
minimum finance charge, but does not
include, for example, loan guarantee
fees. Section 1026.18(k)(2) provides for
the disclosure of a statement indicating
whether or not the consumer is entitled
to a rebate of any finance charge if the
obligation is prepaid in full when an
obligation includes a finance charge
other than the finance charge described
in § 1026.18(k)(1). Comment 18(k)(2)–1
clarifies that § 1026.18(k)(2) applies to
any finance charges that do not take
account of each reduction in the
principal balance of an obligation, such
as recomputed finance charges and
charges that take account of some but
not all reductions in principal.
In addition, TILA section 129(c)(1)
limits the circumstances in which a
high-cost mortgage may include a
prepayment penalty where the
consumer pays all or part of the
principal before the date on which the
principal is due. 15 U.S.C.
1639(c)(1)(A). In the high-cost mortgage
context, any method of computing a
refund of unearned scheduled interest is
a prepayment penalty if it is less
favorable than the actuarial method, as
defined by section 933(d) of the Housing
and Community Development Act of
1992. 15 U.S.C. 1639(c)(1)(B). Section
1026.32(d)(6) implements these TILA
provisions.
Although the disclosure requirements
under current § 1026.18(k) apply to
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closed-end mortgage and non-mortgage
transactions, in its 2009 Closed-End
Proposal, the Board proposed to
establish a new § 226.38(a)(5) for
disclosure of prepayment penalties for
closed-end mortgage transactions. See
74 FR at 43334, 43413. In proposed
comment 38(a)(5)–2, the Board stated
that examples of prepayment penalties
include charges determined by treating
the loan balance as outstanding for a
period after prepayment in full and
applying the interest rate to such
‘‘balance,’’ a minimum finance charge in
a simple-interest transaction, and
charges that a creditor waives unless the
consumer prepays the obligation. 74 FR
at 43413. In addition, the Board’s
proposed comment 38(a)(5)–3 listed
loan guarantee fees and fees imposed for
preparing a payoff statement or other
documents in connection with the
prepayment as examples of charges that
are not prepayment penalties. Id. The
Board’s 2010 Mortgage Proposal
included amendments to existing
comment 18(k)(1)–1 and proposed
comment 38(a)(5)–2 stating that
prepayment penalties include ‘‘interest’’
charges after prepayment in full even if
the charge results from interest accrual
amortization used for other payments in
the transaction. See 75 FR at 58756,
58781.160
Prepayment penalties were also
addressed in the Board’s 2011 ATR
Proposal implementing sections 1411,
1412, and 1414 of the Dodd-Frank Act
(codified at 15 U.S.C. 1629c), which
expand the scope of the ability-to-repay
requirement under TILA and establish
‘‘qualified mortgage’’ standards for
complying with such requirement. See
76 FR at 27482, 27491. Specifically, the
Board’s proposed § 226.43(b)(10)
generally followed the current
Regulation Z guidance on prepayment
penalties (i.e., comment 18(k)(1)–1) and
the proposed definitions and guidance
in the Board’s 2009 Closed-End
Proposal and 2010 Mortgage Proposal.
However, the Board’s 2011 ATR
Proposal differed from the prior
proposals and current guidance in the
following respects: (1) Proposed
§ 226.43(b)(10) defined prepayment
penalty with reference to a payment of
‘‘all or part of’’ the principal in a
160 The preamble to the Board’s 2010 Mortgage
Proposal explained that the proposed revisions to
current Regulation Z commentary and the proposed
comment 38(a)(5) from the Board’s 2009 Closed-End
Proposal regarding interest accrual amortization
were in response to concerns about the application
of prepayment penalties to certain Federal Housing
Administration (FHA) and other loans (i.e., when a
consumer prepays an FHA loan in full, the
consumer must pay interest through the end of the
month in which prepayment is made). See 75 FR
at 58586.
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transaction covered by the provision,
while § 1026.18(k) and associated
commentary and the Board’s 2009
Closed-End Proposal and 2010 Mortgage
Proposal referred to payment ‘‘in full,’’
(2) the examples provided omitted
reference to a minimum finance charge
and loan guarantee fees,161 and (3)
proposed § 226.43(b)(10) did not
incorporate, and the Board’s 2011 ATR
Proposal did not otherwise address, the
language in § 1026.18(k)(2) and
associated commentary regarding
disclosure of a rebate of a precomputed
finance charge.
Based on the Bureau’s consideration
of the existing statutory and regulatory
definitions of ‘‘penalty’’ and
‘‘prepayment penalty’’ under TILA
sections 128(a) and 129(c) and
§§ 1026.18(k) and 1026.32(d)(6), the
Board’s proposed definitions of
prepayment penalty, and the Bureau’s
authority under TILA section 105(a) and
Dodd-Frank Act sections 1032(a) and,
for residential mortgage transactions,
1405(b), the Bureau is proposing to
define ‘‘prepayment penalty’’ in
proposed § 1026.37(b)(4) for
transactions subject to §§ 1026.19(e) and
(f) as a charge imposed for paying all or
part of a transaction’s principal before
the date on which the principal is due.
The proposed definition of prepayment
penalty as applicable to the transactions
subject to §§ 1026.19(e) and (f) broadens
the existing statutory and regulatory
definitions under TILA section
128(a)(11) and § 1026.18(k), and thereby
may result in more frequent disclosures
of prepayment penalties to consumers
than would be made under the existing
definitions. Therefore, the Bureau
believes that the disclosures of
prepayment penalties under proposed
§ 1026.37(b)(4) will effectuate the
purposes of TILA and RESPA by
facilitating the informed use of credit
and more effective advance disclosure
of settlement costs. In addition, the
revised disclosures will ensure that the
features of mortgage loan products
initially and over their terms are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
loan products in light of the facts and
circumstances, consistent with Dodd161 The preamble to the Board’s 2011 ATR
Proposal addressed why the Board chose to omit
these two items. The Board reasoned that a
minimum finance charge need not be included as
an example of a prepayment penalty because such
a charge typically is imposed with open-end, rather
than closed-end, transactions. The Board stated that
loan guarantee fees are not prepayment penalties
because they are not charges imposed for paying all
or part of a loan’s principal before the date on
which the principal is due. See 76 FR at 27416.
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Frank Act section 1032(a). Furthermore,
these disclosures will improve
consumers’ awareness and
understanding of residential mortgage
transactions, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
Proposed comment 37(b)(4)–1
clarifies that the disclosure of the
prepayment penalty under
§ 1026.37(b)(4) applies to transactions
where the terms of the loan contract
provide for a prepayment penalty, even
though it is not certain at the time of the
disclosure whether the consumer will,
in fact, make a payment to the creditor
that would cause imposition of the
penalty. This proposed comment also
clarifies that if the transaction includes
a prepayment penalty, § 1026.37(b)(7)
sets forth the information that must be
disclosed under § 1026.37(b)(4).
Proposed comment 37(b)(4)–2.i
through –2.iv gives the following
examples of prepayment penalties: (1) A
charge determined by treating the loan
balance as outstanding for a period of
time after prepayment in full and
applying the interest rate to such
‘‘balance,’’ even if the charge results
from interest accrual amortization used
for other payments in the transaction
under the terms of the loan contract; (2)
a fee, such as an origination or other
loan closing cost, that is waived by the
creditor on the condition that the
consumer does not prepay the loan; (3)
a minimum finance charge in a simple
interest transaction; and (4) computing
a refund of unearned interest by a
method that is less favorable to the
consumer than the actuarial method, as
defined by section 933(d) of the Housing
and Community Development Act of
1992, 15 U.S.C. 1615(d). Proposed
comment 37(b)(4)–2.i further clarifies
that ‘‘interest accrual amortization’’
refers to the method by which the
amount of interest due for each period
(e.g., month) in a transaction’s term is
determined and notes, for example, that
‘‘monthly interest accrual amortization’’
treats each payment as made on the
scheduled, monthly due date even if it
is actually paid early or late (until the
expiration of any grace period). The
proposed comment also provides an
example where a prepayment penalty of
$1,000 is imposed because a full
month’s interest of $3,000 is charged
even though only $2,000 in interest was
earned in the month during which the
consumer prepaid.
Proposed comment 37(b)(4)–3
clarifies that a prepayment penalty does
not include: (1) Fees imposed for
preparing and providing documents
when a loan is paid in full, whether or
not the loan is prepaid, such as a loan
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payoff statement, a reconveyance
document, or another document
releasing the creditor’s security interest
in the dwelling that secures the loan; or
(2) loan guarantee fees.
Proposed comment 37(b)(4)–4
clarifies that, with respect to an
obligation that includes a finance charge
that does not take into account each
reduction in the principal balance of the
obligation (e.g., precomputed finance
charges), § 1026.37(b)(4) satisfies
disclosure of whether or not the
consumer is entitled to a rebate of any
finance charge if the obligation is
prepaid in full or part. The comment
further clarifies that if the transaction
involves both a precomputed finance
charge and a finance charge computed
by application of a rate to an unpaid
balance, disclosures about both the
prepayment rebate and the prepayment
penalty are made under § 1026.37(b)(4)
as one disclosure to the question
required by § 1026.37(b)(7). For
example, if in such a transaction, a
portion of the precomputed finance
charge will not be provided as a rebate
and also a prepayment penalty based on
the amount prepaid is provided for by
the loan contract, both disclosures are
made under § 1026.37(b)(4) as one
aggregate amount, stating the maximum
amount and time period under
§ 1026.37(b)(7). If the transaction
instead provides a rebate of the
precomputed finance charge upon
prepayment, but imposes a prepayment
penalty based on the amount prepaid,
the disclosure required by
§ 1026.37(b)(4) is an affirmative answer
and the information required by
§ 1026.37(b)(7). This proposed comment
incorporates existing guidance in
Regulation Z commentary regarding
disclosure of whether the consumer is
entitled to a rebate of finance charges
that do not take into account each
reduction in principal balance. See
comments 18(k)-2 and -3 and 18(k)(2)-1.
The definition of prepayment penalty
in proposed § 1026.37(b)(4) and
associated commentary substantially
incorporates the definitions of and
guidance on prepayment penalty from
the Board’s 2009 Closed-End Proposal,
2010 Mortgage Proposal, and 2011 ATR
Proposal and, as necessary, reconciles
their differences. For example, the
Bureau proposes that the prepayment
penalty definition in § 1026.37(b)(4)
refer to payment of ‘‘all or part of a
covered transaction’s principal,’’ rather
than merely payment ‘‘in full,’’ because
knowledge of whether a partial
prepayment triggers a penalty is
important for consumers. Also, the
Bureau is proposing to incorporate the
language from the Board’s 2009 Closed-
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End Proposal and 2010 Mortgage
Proposal but omitted in the Board’s
2011 ATR Proposal listing a minimum
finance charge as an example of a
prepayment penalty and stating that
loan guarantee fees are not prepayment
penalties, because similar language is
found in longstanding Regulation Z
commentary. Based on the differing
approaches taken by the Board in its
recent mortgage proposals, however, the
Bureau seeks comment on whether a
minimum finance charge should be
listed as an example of a prepayment
penalty and whether loan guarantee fees
should be excluded from the definition
of prepayment penalty.
The Bureau expects to coordinate the
definition of prepayment penalty in
proposed § 1026.37(b)(4) with the
definitions in the Bureau’s other
pending rulemakings mandated by the
Dodd-Frank Act concerning ability-torepay, high-cost mortgages under
HOEPA, and mortgage servicing. To the
extent consistent with consumer
protection objectives, the Bureau
believes that adopting a consistent
definition of ‘‘prepayment penalty’’
across its various pending rulemakings
affecting closed-end mortgages will
facilitate compliance. As an additional
part of this effort to adopt a consistent
regulatory definition of ‘‘prepayment
penalty,’’ the Bureau is also proposing
certain conforming revisions to
§ 1026.18(k) and associated
commentary, as discussed earlier in the
section-by-section analysis for the
proposed revised § 1026.18(k).
37(b)(5) Balloon Payment
TILA section 128(a)(6) requires
disclosure of the number, amount, and
due dates or period of payments
scheduled to repay the loan. Currently,
for closed-end transactions secured by
real property or a dwelling, Regulation
Z requires balloon payments to be
disclosed only in connection with the
interest rate and payment summary
table required by § 1026.18(s). For
federally related mortgage loans,
§ 1024.7(d) of Regulation X requires the
GFE to state in the summary table on
page 1 whether or not the loan has a
balloon payment with the text, ‘‘Does
your loan have a balloon payment?’’
Pursuant to its authority under TILA
section 128(a)(6), TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a), the Bureau
proposes § 1026.37(b)(5), which requires
disclosure of whether the credit
transaction requires a balloon payment,
as defined within the provision. This
disclosure is provided in the Loan
Terms table, labeled ‘‘Balloon
Payment.’’ As discussed below, under
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51199
proposed § 1026.37(b)(7), the existence
or non-existence of a balloon payment
provision is indicated by a ‘‘yes’’ or
‘‘no’’ answer to the question, ‘‘Does the
loan have these features?’’ In the
Bureau’s consumer testing, consumers
were able to determine readily whether
a loan had a balloon payment. The
Bureau’s consumer testing indicates that
consumers consider whether a loan has
a balloon payment to be an important
factor in evaluating loans. The Bureau
believes that this disclosure will
effectuate the purposes of TILA and
RESPA because it will promote the
informed use of credit and assure a
meaningful disclosure to consumers,
and thus, will benefit consumers and
the public and result in more effective
advance disclosure.
Definition of Balloon Payment
Sections 1412 and 1432(b) of the
Dodd-Frank Act both define ‘‘balloon
payment’’ as ‘‘a scheduled payment that
is more than twice as large as the
average of earlier scheduled payments.’’
These definitions are incorporated into
TILA sections 129C(b)(2)(A)(ii) and
129(e), respectively. 15 U.S.C.
1639c(b)(2)(A)(ii), 1639(e). Regulation Z
§ 1026.18(s)(5)(i), however, defines
‘‘balloon payment’’ as ‘‘a payment that
is more than two times a regular
periodic payment.’’
The Board’s 2011 ATR Proposal
implementing section 1412 of the DoddFrank Act incorporates Regulation Z’s
existing definition of ‘‘balloon
payment’’ in § 1026.18(s)(5)(i) rather
than the definition in section 1412. See
proposed § 226.43(e)(2)(i)(C), 76 FR
27390, 27484. The Board noted that this
definition is substantially similar to the
statutory one, except that it uses as its
benchmark any regular periodic
payment rather than the average of
earlier scheduled payments. 76 FR at
27455. The Board also reasoned that
incorporating the Regulation Z, rather
than Dodd-Frank Act, definition of
‘‘balloon payment’’ facilitates
compliance by affording creditors a
single definition of the term within
Regulation Z. Id. at 27456.
By defining ‘‘balloon payment’’ in the
2011 ATR Proposal based on the
Regulation Z definition, the Board
proposed to adjust the Dodd-Frank Act
statutory definition. In doing so, the
Board stated that it was relying on TILA
section 105(a) authority to make such
adjustments for all or any class of
transactions as in the judgment of the
Board are necessary or proper to
facilitate compliance with TILA. Id.; 15
U.S.C. 1604(a). The class of transactions
for which the adjustment was proposed
encompassed all transactions covered
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by the 2011 ATR Proposal, i.e., closedend consumer credit transactions that
are secured by a dwelling. The Board,
however, solicited comment on the
appropriateness of the proposed
adjustment. The Board also stated that
the proposed adjustment was supported
by the Board’s authority under TILA
section 129B(e) to condition terms, acts,
or practices relating to residential
mortgage loans that the Board finds
necessary or proper to facilitate
compliance. 15 U.S.C. 1639b(e).
In view of the different definitions of
‘‘balloon payment’’ between the DoddFrank Act and Regulation Z and the
approach taken by the Board in the 2011
ATR Proposal, and based on the
Bureau’s authority under TILA section
105(a) and Dodd-Frank Act sections
1032(a), and for residential mortgage
loans, Dodd-Frank Act section 1405(b),
the Bureau is proposing a definition of
‘‘balloon payment’’ in proposed
§ 1026.37(b)(5) that largely incorporates
the existing Regulation Z definition in
§ 1026.18(s)(5)(i), i.e., a payment that is
more than two times a regular periodic
payment. For the reasons discussed
below, the Bureau believes that the
proposed definition will promote the
informed use of credit and facilitate
compliance with TILA, consistent with
TILA section 105(a). In addition, this
definition will enhance consumer
understanding of the costs, benefits, and
risks associated with the transaction in
light of the facts and circumstances
(consistent with Dodd-Frank Act section
1032(a)), and improve consumers’
awareness and understanding of
residential mortgage transactions, which
is in the interest of consumers and the
public (consistent with Dodd-Frank Act
section 1405(b)).
The proposed definition in
§ 1026.37(b)(5) revises the current
regulatory language to state that a
balloon payment cannot be a regular
periodic payment. This revision is
intended to prevent a regular periodic
payment following a scheduled or
permitted payment increase under the
terms of a loan contract (e.g., based on
a rate adjustment under an adjustable
rate loan) from being characterized as a
balloon payment if it is more than two
times a regular periodic payment
occurring prior to the payment increase.
Moreover, proposed commentary to
§ 1026.37(b)(5) clarifies the meaning of
regular periodic payment and discusses
how all regular periodic payments
during the loan term are used to
determine whether a particular payment
is a balloon payment (i.e., if the
particular payment is more than two
times any one regular periodic payment
during the loan term, it is disclosed as
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a balloon payment under § 1026.37(b)(5)
unless the particular payment itself is a
regular periodic payment). These
clarifications are intended to resolve
ambiguity in the current regulatory
definition and associated commentary,
and thereby facilitate compliance.162
This definition applies to all
transactions subject to proposed
§ 1026.19(e). The Bureau recognizes that
this proposed definition deviates from
that prescribed in the Dodd-Frank Act.
However, for the reasons set forth in the
2011 ATR Proposal, the Bureau believes
that adopting a consistent definition
within Regulation Z will promote the
informed use of credit and facilitate
compliance and, therefore, will also
benefit consumers and the public. See
76 FR at 27456.
The Bureau recognizes that these
additional clarifications may result in
more payments being disclosed as
balloon payments than under the
current regulatory definition. The
Bureau believes that more frequent
disclosure of balloon payment terms
facilitates the informed use of credit,
ensures that the features of mortgage
loan products initially and over their
terms are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the loan products in
light of the facts and circumstances, and
improves consumers’ awareness and
understanding of residential mortgage
transactions, which is in the interest of
consumers and the public. The Bureau
seeks comment, however, on whether
the definition of balloon payment in
proposed § 1026.37(b)(5) should be
revised to exclude any particular type of
payment. Furthermore, the Bureau
believes that a payment that is twice any
one regular periodic payment using the
regulatory definition, as revised in this
proposed rule, would be equal to or less
than a payment that is twice the average
of earlier scheduled payments using the
statutory definition. The Bureau notes
that the range of scheduled payment
amounts under the first approach is
more limited and defined. For example,
if the regular periodic payment is $200,
a payment of greater than $400 would
constitute a balloon payment. Under the
162 According to existing comment 32(d)(1)(i), a
payment is a ‘‘regular periodic payment’’ if it is not
more than twice the amount of other payments.
This definition, which is essentially the mirror
image of the balloon payment definition in
§ 1026.18(s)(5)(i) (i.e., a payment that is more than
two times a regular periodic payment), leaves
uncertainty as to how to determine whether a
payment is a balloon payment when there are
multiple regular periodic payments during the loan
term (e.g., if the regularly scheduled payments
increase due to an adjustable rate feature).
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statutory definition, however, the
threshold amount for a balloon payment
could be greater than $400 if, for
example, the regular periodic payments
were increased by $100 each year.
Under this scenario, the amount
constituting a ‘‘balloon payment’’ could
increase with the incremental increase
of the average of earlier scheduled
payments. The Bureau believes that
under the existing regulatory definition,
as revised by the proposed rule,
consumers would have a better
understanding of the highest possible
regular periodic payment in a
repayment schedule and may
experience less ‘‘payment shock’’ as a
result. Therefore, the Bureau believes
that the existing regulatory definition
may better protect consumers and
would be in their interest. In addition,
the Bureau believes that the definition
of ‘‘balloon payment’’ based on the
existing regulatory definition would
facilitate and simplify compliance by
eliminating the need to average earlier
scheduled payments.
Proposed comment 37(b)(5)–1
clarifies that the ‘‘regular periodic
payment’’ used to determine whether a
payment is a ‘‘balloon payment’’ for
purposes of § 1026.37(b)(5) is the
payment of principal and interest (or
interest only, depending on the loan
features) payable under the terms of the
loan contract for two or more unit
periods in succession. The comment
also clarifies that all regular periodic
payments during the loan term are used
to determine whether a particular
payment is a balloon payment,
regardless of whether the regular
periodic payments change during the
loan term due to rate adjustments or
other payment changes permitted or
required under the loan contract (i.e., if
the particular payment is more than two
times any one regular periodic payment
during the loan term, it is disclosed as
a balloon payment under § 1026.37(b)(5)
unless the particular payment itself is a
regular periodic payment). Proposed
comment 37(b)(5)–1.i gives an example
of a step-rate mortgage with two
different regular periodic payment
amounts. Proposed comment 37(b)(5)–
1.ii clarifies the definition of ‘‘regular
periodic payment’’ in the context of a
loan with an adjustable rate, where,
under the terms of the loan contract, the
regular periodic payments may increase
after consummation, but the amounts of
such payment increases (if any) are
unknown at the time of consummation.
In such instance, the proposed comment
clarifies that the ‘‘regular periodic
payments’’ are based on the fullyindexed rate, except as otherwise
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determined by any premium or
discounted rates, the application of any
interest rate adjustment caps, or any
other known, scheduled rates under the
terms specified in the loan contract. The
proposed comment also refers to the
analogous guidance provided in current
comments 17(c)(1)–8 and –10, and gives
an example of an adjustable rate
mortgage with two different periodic
payment amounts.
Proposed comment 37(b)(5)–1.iii
clarifies that for a loan with a negative
amortization feature, the ‘‘regular
periodic payment’’ does not take into
account the possibility that the
consumer may exercise an option to
make a payment greater than the
minimum scheduled periodic payment.
Proposed comment 37(b)(5)–1.iv
clarifies that, for purposes of
§ 1026.37(c), § 1026.37(b)(5) governs the
threshold determination of whether a
loan has a balloon payment feature, but
§ 1026.37(c) governs the disclosure of
balloon payments in the ‘‘Projected
Payments’’ table under that section.
The proposed definition of balloon
payment in proposed § 1026.37(b)(5)
includes the payments of a single or
double payment transaction. Proposed
comment 37(b)(5)–2 provides
clarification regarding such single and
double-payment transactions, which
require a single payment due at maturity
or only two payments during the loan
term, and do not require regular
periodic payments. A single payment
transaction does not have regular
periodic payments, because regular
periodic payments must be made two or
more unit periods in succession (see
proposed comment 37(b)(5)–1,
described above). And while a loan with
only two scheduled payments,
depending on the circumstances, may
have regular periodic payments (e.g., if
the two payments are made during the
last month of years one and two of a
two-year loan term), there is no third
payment that could potentially be the
balloon payment (i.e., a payment that is
more than twice the amount of the
regular periodic payments). The Bureau
believes the payments of such
transactions are essentially equivalent,
economically and practically, from the
perspective of a consumer, to a balloon
payment. The comment clarifies that
notwithstanding the fact that there is no
regular periodic payment to compare
such single or double payments to, any
payment in a single payment transaction
or a transaction with only two
scheduled payments is a ‘‘balloon
payment’’ under § 1026.37(b)(5).
The Bureau is coordinating the
definition of ‘‘balloon payment’’ in
proposed § 1026.37(b)(5) with the
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definitions of ‘‘balloon payment’’ in the
Bureau’s other pending rulemakings
under the Dodd-Frank Act concerning
ability-to-repay and high-cost mortgages
under HOEPA. To the extent consistent
with consumer protection objectives,
the Bureau believes that adopting a
consistent definition of ‘‘balloon
payment’’ across the Bureau’s DoddFrank Act rulemakings affecting closedend credit transactions will facilitate
compliance, as discussed in part II
above.
37(b)(6) Increases after Consummation
TILA section 128(b)(2)(C)(ii) requires,
for closed-end credit transactions
secured by a dwelling in which the
interest rate or payments may vary, the
disclosure of examples of adjustments to
the regular required payment based on
changes in the interest rates, including
the maximum payment amount of the
regular required payments based on the
maximum interest rate under the
contract. TILA section 128(b)(2)(C)(ii)
also requires the Bureau to conduct
consumer testing so that consumers can
easily understand the fact that the initial
regular payments are for a specific time
period and will end on a certain date
and that payments will subsequently
adjust to a potentially higher amount.
Currently, Regulation Z’s disclosures for
closed-end credit transactions secured
by real property or a dwelling require
information about whether the interest
rate, periodic principal and interest
payment, and loan amount can change.
The disclosures are given in the interest
rate and payment table required by
§ 1026.18(s). For federally related
mortgage loans, § 1024.7(d) of
Regulation X requires this information
to be disclosed in the summary table on
page 1 of the GFE, as affirmative or
negative answers to the questions ‘‘Can
your interest rate rise,’’ ‘‘Even if you
make payments on time, can your loan
balance rise,’’ and ‘‘Even if you make
payments on time, can your monthly
amount owed for principal, interest, and
any mortgage insurance rise?’’
As discussed above, the Bureau
conducted consumer testing of
prototype mortgage disclosures over ten
rounds. During each round of testing,
consumers placed significant emphasis
when evaluating loans on whether the
loan amount, interest rate, or periodic
principal and interest payment could
increase, the amount and timing of such
increases, and whether they were
scheduled increases or only potential
increases. Accordingly, the Bureau
believes that this information should be
disclosed so that consumers can easily
find and understand it.
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The Bureau proposes § 1026.37(b)(6)
to require that this information be
disclosed in the Loan Terms table.
Specifically, proposed § 1026.37(b)(6)
requires disclosure of whether the
amounts required to be disclosed by
proposed § 1026.37(b)(1) through (3)
may increase. If those amounts may
increase, the creditor must also disclose,
as applicable: (i) The maximum
principal balance for the transaction and
the date when the last payment for
which the principal balance is
permitted to increase will occur; (ii) the
frequency of interest rate adjustments,
the date when the interest rate begins to
adjust, the maximum interest rate under
the terms of the transaction, and the first
adjustment that could result in the
maximum interest rate; (iii) the
frequency of adjustments to the periodic
principal and interest payment, the date
when the principal and interest
payment begins to adjust, the maximum
principal and interest under the
transaction, and the first adjustment that
can result in the maximum principal
and interest payment; and (iv) the
periods of any features that permit the
periodic principal and interest payment
to adjust without an adjustment to the
interest rate, such as information about
interest-only periods. The Bureau also
understands from industry feedback
provided in connection with the
Bureau’s stakeholder outreach that some
adjustable rate loans, which may be
more prevalent in the community bank
market, may be structured so that the
periodic principal and interest payment
is fixed and increases in the interest rate
increase the loan term instead of the
payment. Accordingly, the information
required by proposed § 1026.37(b)(6)(ii)
also includes a statement of that fact for
transactions that contain such a feature.
The Bureau proposes a format that
provides this information as affirmative
or negative answers to one
comprehensive question, ‘‘Can this
amount increase after closing?’’ The
answers to this question are capitalized
and in bold text. In addition, bulletpointed text immediately to the right of
these answers provides the maximum
amounts, frequencies of changes,
references to more detailed information
disclosed elsewhere on the form, and
other relevant information. Bold text
will be used for important information
in these statements, to enable
consumers to see it quickly. Proposed
form H–24 in appendix H of Regulation
Z illustrates the disclosure of such
information, including the bulletpointed text required and the portions
of such text that are to be bolded.
The Bureau tested prototype versions
of this table in its consumer testing.
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During testing, consumers were able to
understand and use this information in
the proposed format when evaluating
and comparing terms of credit. Based on
these results, the Bureau believes that
this format will enable consumers to
find the information readily, to use it for
evaluating and comparing terms of
credit, and to understand the
information.
Accordingly, pursuant to TILA
section 128(b)(2)(C)(ii) and the Bureau’s
authority under TILA section 105(a),
RESPA section 19(a), Dodd-Frank Act
section 1032(a), and Dodd-Frank Act
1405(b), the Bureau proposes
§ 1026.37(b)(6) to require this
information in the Loan Terms table and
in the format required to be used by
proposed § 1026.37(o). The Bureau
believes that this disclosure will
effectuate the purposes of TILA because
it will promote the informed use of
credit and assure a meaningful
disclosure to consumers, and thus, will
benefit consumers and the public. The
Bureau believes this information
improves consumer awareness and
understanding of residential mortgage
loans and is in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b). The Bureau
also believes that, consistent with DoddFrank Act section 1032(a), this
requirement may ensure that the
features of any consumer financial
product or service, both initially and
over the term of the product or service,
are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances. In addition,
like HUD, the Bureau believes this
information is important to consumer
understanding of the transaction and as
a result, will promote more effective
advance disclosure of settlement costs
and should be provided on the
disclosure.
37(b)(7) Details about Prepayment
Penalty and Balloon Payment
Currently, for closed-end credit
transactions secured by real property or
a dwelling, § 1026.18(k) of Regulation Z
does not require the disclosure of the
maximum prepayment penalty that may
be charged. While § 1026.18(s) currently
requires the balloon payment that may
be charged on a loan to be disclosed, it
is not required to be disclosed with
other key terms of the transaction. For
federally related mortgage loans,
§ 1024.7(d) of Regulation X currently
requires the maximum prepayment
penalty and balloon payment in the
summary table on page 1 of the GFE
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with the text, ‘‘your maximum
prepayment penalty is $l and ‘‘you
have a balloon payment of $l due in
l years.’’
Proposed § 1026.37(b)(7) requires the
information in proposed § 1026.37(b)(4)
and (5) to be disclosed as an affirmative
or negative answer to the question
‘‘Does the loan have these features?’’
The section also requires disclosure of
the maximum prepayment penalty, the
period in which a prepayment penalty
may be imposed, the amounts of any
balloon payments and the dates of such
payments. Like the information required
to be disclosed by proposed
§ 1026.37(b)(6), the format required for
this information by proposed
§ 1026.37(o) emphasizes the maximum
amounts by using bold text, to enable
consumers to find these amounts
quickly.
In the Bureau’s consumer testing,
consumers were able to use this
disclosure to determine easily if the
loan had a prepayment penalty, the
maximum amount, and the period
during which the penalty applied, and
the amount and time of a balloon
payment. The Bureau’s consumer
testing has indicated that consumers
place significant emphasis when
evaluating loans on the potential for
large balloon or prepayment penalty
amounts.
The Bureau proposes to use its
authority under TILA sections 105(a),
Dodd-Frank Act section 1032(a), and
RESPA section 19(a) to require
disclosure of this information in the
Loan Terms table of the Loan Estimate.
The Bureau believes that placing these
details about prepayment penalties and
balloon payments in the summary table
with bold text for the maximum
amounts allows consumers to find this
information easily, enabling consumers
to understand and evaluate loans,
promoting meaningful disclosure of
credit terms to consumers. The Bureau
believes that this disclosure will
effectuate the purposes of TILA because
it will promote the informed use of
credit and assure a meaningful
disclosure to consumers, and thus, will
benefit consumers and the public. In
addition, like HUD, the Bureau believes
this information is important to
consumer understanding of the
transaction and as a result, will promote
more effective advance disclosure of
settlement costs and should be provided
on the disclosure. Proposed comment
37(b)(7)(i)-1 provides guidance
regarding calculating the maximum
amount of the prepayment penalty.
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37(b)(8) Timing
The Bureau’s consumer testing
indicated the references to the dates
required to be disclosed by proposed
§ 1026.37(b)(6) and (7) are easily
understood by consumers if disclosed in
whole years. The prototype mortgage
disclosures used at the Bureau’s
consumer testing displayed these dates
as years, and consumers were able to
understand and evaluate the risks posed
by these maximum amounts. The
Bureau believes that this unit of time
provides a frame of reference to
consumers that they use more regularly
and that is easier to understand than
‘‘payments’’ or high-number values of
‘‘months,’’ such as 60 months.
Accordingly, pursuant to its authority
under TILA section 105(a), Dodd-Frank
section 1032(a), and RESPA section
19(a), proposed § 1026.37(b)(8) requires
the information required to be disclosed
by paragraphs (b)(6) and (7) to be
disclosed by stating the number of the
year in which the payment or
adjustment occurs, counting from the
date that interest for the regularly
scheduled periodic payment begins to
accrue. Proposed comment 37(b)(8)–1
provides examples of how to disclose
dates using the timing rules of proposed
§ 1026.37(b)(8). The Bureau believes this
disclosure provides a meaningful
disclosure of credit terms, promotes the
informed use of credit by consumers,
and may ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
37(c) Projected Payments
Statutory Requirements
TILA section 128(a)(6) requires
creditors to disclose the number,
amount, and due dates or period of
payments scheduled to repay the total of
payments. 15 U.S.C. 1638(a)(6). TILA
section 128(b)(2)(C)(ii) requires the
disclosure of certain payment-related
information for closed-end variable-rate
transactions, or transactions where the
regular payment may otherwise be
variable, that are secured by a dwelling,
including examples of payments. 15
U.S.C. 1638(b)(2)(C)(ii). Specifically,
creditors must provide examples of
adjustments to the regular required
payment on the extension of credit
based on the change in the interest rates
specified by the contract for such
extension of credit. Id. Among the
examples required is an example that
reflects the maximum payment amount
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of the regular required payments on the
extension of credit, based on the
maximum interest rate allowed under
the contract. Id. TILA section
128(b)(2)(C)(i) also provides that these
examples must be in conspicuous type
size and format and that the payment
schedule be labeled ‘‘Payment
Schedule: Payments Will Vary Based on
Interest Rate Changes.’’ Section
128(b)(2)(C)(ii) requires the Bureau to
conduct consumer testing to determine
the appropriate format for providing the
disclosures to consumers so that the
disclosures can be easily understood.
In addition, TILA section
128(a)(16)(A), added to TILA by section
1419 of the Dodd-Frank Act, provides
that, for variable-rate residential
mortgage loans for which an escrow
account will be established, the creditor
must disclose both the initial monthly
principal and interest payment, and the
initial monthly principal and interest
payment including any amount
deposited in an escrow account for the
payment of applicable taxes, insurance,
and assessments. 15 U.S.C.
1638(a)(16)(A). New TILA section
128(a)(16)(B) also requires that, for
variable-rate residential mortgage loans
for which an escrow account will be
established, the creditor disclose the
amount of the fully-indexed monthly
payment due under the loan for the
payment of principal and interest, and
the fully-indexed monthly payment
including any amount deposited in an
escrow account for the payment of
applicable taxes, insurance, and
assessments. 15 U.S.C. 1638(a)(16)(B).
TILA section 128(b)(4)(A), added by
section 1465 of the Dodd-Frank Act,
provides that, in the case of any
consumer credit transaction secured by
a first mortgage on the principal
dwelling of the consumer, other than an
open-end credit plan or reverse
mortgage, for which an escrow account
has been or will be established, the
disclosures required by TILA section
128(a)(6) must take into account the
amount of any monthly payment to such
account, in accordance with section
10(a)(2) of RESPA.163 15 U.S.C.
1638(b)(4)(A); 12 U.S.C. 2609(a)(2). New
TILA section 128(b)(4)(B) generally
requires creditors to take into account
the taxable assessed value of the
property during the first year after
163 Section 10(a)(2) of RESPA prohibits the
lender, over the life of the escrow account, from
requiring the borrower to make payments to an
escrow account that exceed one-twelfth of the total
annual escrow disbursements that the lender
reasonably anticipates paying from the escrow
account during the year, plus the amount necessary
to maintain a one-sixth cushion. 12 U.S.C.
2609(a)(2).
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consummation, including the value of
any improvements constructed or to be
constructed on the property, if known,
and the replacement costs of the
property for hazard insurance, when
disclosing taxes and insurance escrows
pursuant to TILA section 128(b)(4)(A).
15 U.S.C. 1638(b)(4)(B).
Current Rules
Current § 1026.18(s) implements the
requirements of TILA sections 128(a)(6)
and 128(b)(2)(C) for all closed-end
transactions secured by real property or
a dwelling, other than transactions
secured by the consumer’s interest in a
timeshare plan described in 11 U.S.C.
101(53D). Section 1026.18(s) requires
creditors to disclose the contract interest
rate, regular periodic payment, and any
balloon payment. For adjustable-rate or
step-rate amortizing mortgages, the
creditor must disclose up to three
interest rates and corresponding
periodic payments. If payments are
scheduled to increase independent of an
interest-rate adjustment, the creditor
must disclose the increased payment. If
a borrower may make one or more
payments of interest only, all payment
amounts disclosed must be itemized to
show the amount that will be applied to
interest and the amount that will be
applied to principal. Current
§ 1026.18(s) requires special interest rate
and payment disclosures for loans that
permit negative amortization. Also
under current § 1026.18(s), creditors
must separately itemize an estimate of
the amount for taxes and insurance,
including mortgage insurance, if the
creditor will establish an escrow
account for the payment of such
amounts. The Board adopted this
requirement pursuant to its authority
under TILA section 105(a), based on
consumer testing which indicated that
consumers compare loans based on the
monthly payment amount and that
escrow payment information is
necessary for consumers to understand
the monthly amount they will pay.
MDIA Interim Rule, 75 FR at 58476–77.
Current § 1026.18(s) also requires the
disclosure of total periodic payments.
Creditors must provide the information
about interest rates and payments in the
form of a table, and creditors are not
permitted to include other, unrelated
information in the table.
Current § 1026.18(s) expands the
scope of TILA section 128(b)(2)(C) to all
closed-end transactions secured by real
property or a dwelling, other than
transactions secured by the consumer’s
interest in a timeshare plan, including
transactions in which the interest rate
and regular payments do not vary and
those that are secured by real property
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51203
that does not include a dwelling. The
Board adjusted the scope of this
provision pursuant to its authority
under TILA section 105(a). The Board
reasoned that providing examples of
increased interest rates and payments
will help consumers understand the
risks involved in certain loans, and that
consistent disclosure requirements for
all mortgage-secured, closed-end
consumer credit transactions, whether
or not they include a dwelling, would
ease compliance burden for mortgage
creditors. MDIA Interim Rule, 75 FR at
58473–74. The Board also stated that
applying § 1026.18(s) to transactions
where the interest rate or regular
payments do not vary would simplify
compliance for creditors and make it
easier for consumers to compare
different loan products. For all other
closed-end credit transactions,
§ 1026.18(g) provides the rules for
disclosing the payment schedule.
The Bureau’s Proposal
Pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
sections 1032(a) and 1405(b), the Bureau
proposes to incorporate the
requirements of current § 1026.18(s) into
new § 1026.37(c), for closed-end
mortgages subject to proposed
§ 1026.19(e), with certain adjustments
that are outlined below. The Bureau
believes that these requirements are
necessary and proper to effectuate the
purposes of TILA by promoting the
informed use of credit. Accordingly,
proposed § 1026.37(c) implements the
requirements of TILA sections 128(a)(6)
and 128(b)(2)(C), and also implements
the requirements of new TILA sections
128(a)(16) and (b)(4), for closed-end
mortgages subject to proposed
§ 1026.19(e). For all other closed-end
transactions, § 1026.18(g) and (s) would
continue to apply.
Like existing § 1026.18(s), proposed
§ 1026.37(c) requires creditors to
disclose, in a separate table, an
itemization of each separate periodic
payment or range of payments required
after consummation under the terms of
the legal obligation. Proposed
§ 1026.37(c) also requires disclosure of
an estimate of taxes, insurance, and
assessments and the payments to be
made with escrow account funds.
Specifically, the table required by
proposed § 1026.37(c) must contain the
projected principal and interest,
mortgage insurance, estimated escrowed
taxes and insurance, estimated total
monthly payment, and estimated taxes,
insurance, and assessment disclosures,
required by § 1026.37(c)(1) through (4).
Pursuant to proposed § 1026.37(o) and
form H–24, the table required by
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proposed § 1026.37(c) will appear on
the first page of the Loan Estimate. The
Bureau proposes that, as under
§ 1026.18(s), the table required by
proposed § 1026.37(c) must be disclosed
in all transactions subject to proposed
§ 1026.19(e), even in transactions where
the interest rate will not vary and those
that are secured by real property that
does not include a dwelling. Unlike
current § 1026.18(s), the projected
payment table required by proposed
§ 1026.37(c) applies to transactions
secured by the consumer’s interest in a
timeshare plan but does not apply to
transactions secured by a dwelling that
is not real property, for the reasons
discussed in the section-by-section
analysis to proposed § 1026.19.
The Bureau proposes to exercise its
authority under TILA section 105(a),
Dodd-Frank Act 1032(a), and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b) to require the
information disclosed pursuant to
proposed § 1026.37(c) to appear under
the heading ‘‘Projected Payments.’’ As
discussed above, TILA section
128(b)(2)(C)(i) requires the payment
schedule to be labeled ‘‘Payment
Schedule: Payments Will Vary Based on
Interest Rate.’’ The Bureau believes that
‘‘Projected Payments’’ conveys the same
substantive meaning, in plainer and
simpler language, and is a more accurate
heading for the table required by
proposed § 1026.37(c) since payment
amounts may vary for reasons other
than interest rate, such as in graduatedpayment plans or the termination of
mortgage insurance under applicable
law. The heading also performed well in
consumer testing. Using the table under
the heading ‘‘Projected Payments,’’
participants in the Bureau’s consumer
testing were able to readily identify that
their monthly payments might change
in the future. Furthermore, the Bureau
believes that the Loan Terms table
required by proposed § 1026.37(b)
effectively discloses when payments
and interest rate will vary, and that
consumers will not benefit from
disclosure of that information in
multiple places on the disclosure.
Accordingly, this proposed adjustment
promotes the informed use of credit,
improves consumer awareness and
understanding of transactions involving
residential mortgage loans, and is in the
interest of consumers and the public,
consistent with the purpose of TILA and
with Dodd-Frank Act section 1405(b). In
addition, the Bureau believes that this
disclosure would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
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consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances, consistent with
section 1032(a) of the Dodd-Frank Act.
Proposed comment 37(c)–1 provides
that, for purposes of proposed
§ 1026.37(c), the terms ‘‘adjustable rate,’’
‘‘fixed rate,’’ ‘‘negative amortization,’’
and ‘‘interest-only’’ have the meanings
prescribed in § 1026.37(a)(10).
37(c)(1) Periodic Payment or Range of
Payments
37(c)(1)(i)
Proposed § 1026.37(c)(1)(i) provides
rules regarding the separate periodic
payments or ranges of payments to be
disclosed on the table required by
§ 1026.37(c). Specifically, proposed
§ 1026.37(c)(1)(i) provides that the
initial periodic payment or range of
payments is a separate periodic
payment or range of payments and,
except as otherwise provided in
§ 1026.37(c)(1)(ii), the following events
require the disclosure of additional
separate periodic payments or ranges of
payments: (A) periodic principal and
interest payment or range of such
payments may change; (B) a scheduled
balloon payment; and (C) the creditor
must automatically terminate mortgage
insurance coverage, or any functional
equivalent, under applicable law.
Proposed comments 37(c)(1)(i)–1,
37(c)(1)(i)(A)–1 through –3,
37(c)(1)(i)(B)–1, and 37(c)(1)(i)(C)–1
through –3 provide guidance to
creditors on the events requiring the
disclosure of a separate periodic
payment or range of payments.
Proposed comment 37(c)(1)(i)–1 clarifies
that, for purposes of § 1026.37(c)(1)(i),
the periodic payment is the regularly
scheduled payment of principal and
interest, mortgage insurance, and
escrow payments described in
§ 1026.37(c)(2) without regard to any
final payment that differs from other
payments because of rounding to
account for payment amounts including
fractions of cents. Proposed comment
37(c)(1)(i)(A)–1 provides that periodic
principal and interest payments may
change when the interest rate,
applicable interest rate caps, required
periodic principal and interest
payments, or ranges of such payments
may change. Minor payment variations
resulting solely from the fact that
months have different numbers of days
are not changes to periodic principal
and interest payments. For a loan that
permits negative amortization, proposed
comment 37(c)(1)(i)(A)–2 clarifies that
periodic principal and interest
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payments may change at the time of a
scheduled recast of the mortgage loan
and when the consumer must begin
making fully amortizing payments of
principal and interest. The comment
also provides that the disclosure should
be based on the assumption that the
consumer will make only the minimum
payment required under the terms of the
legal obligation, for the maximum
amount of time permitted, taking into
account changes to interest rates that
may occur under the terms of the legal
obligation, and that the table required
by § 1026.37(c) should reflect any
balloon payment that would result from
making the minimum payment required
under the terms of the legal obligation.
In a loan that permits payment of only
interest for a specified period, proposed
comment 37(c)(1)(i)(A)–3 clarifies that
periodic principal and interest
payments may change for purposes of
§ 1026.37(c)(1)(i)(A) when the consumer
must begin making fully amortizing
periodic payments of principal and
interest.
Proposed comment 37(c)(1)(i)(B)–1
states that, for purposes of
§ 1026.37(c)(1)(i)(B), whether a balloon
payment occurs is determined pursuant
to § 1026.37(b)(5) and its commentary.
Although the existence of a balloon
payment is determined pursuant to
§ 1026.37(b)(5) and its commentary,
balloon payment amounts to be
disclosed under § 1026.37(c) are
calculated in the same manner as
periodic principal and interest
payments under § 1026.37(c). For
example, for a balloon payment amount
that can change depending on previous
interest rate adjustments that are based
on the value of an index at the time of
the adjustment, the balloon payment
amounts are calculated using the
assumptions for minimum and
maximum interest rates described in
§ 1026.37(c)(1)(iii) and its commentary,
and should be disclosed as a range of
payments.
Proposed comments 37(c)(1)(i)(C)–1
through –3 provide guidance to
creditors regarding the disclosure of
mortgage insurance. Proposed comment
37(c)(1)(i)(C)–1 states that ‘‘mortgage
insurance’’ means insurance against the
nonpayment of, or default on, an
individual mortgage, and that, for
purposes of proposed § 1026.37(c),
‘‘mortgage insurance or any functional
equivalent’’ includes any mortgage
guarantee that provides coverage similar
to mortgage insurance (such as a United
States Department of Veterans Affairs or
United States Department of Agriculture
guarantee), even if not technically
considered insurance under State or
other applicable law. The Bureau
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understands that some governmental
loan programs impose an annual
guarantee fee, and that creditors
typically collect a monthly escrow for
the payment of such amounts. Current
§ 1026.18(s) requires creditors to
disclose whether mortgage insurance is
included in monthly escrow payments,
but industry uncertainty exists as to
whether it is permissible to identify
such guarantees as mortgage insurance
on the disclosure required by
§ 1026.18(s). Although the Bureau
recognizes that such guarantees are
legally distinguishable from mortgage
insurance, they are functionally very
similar. Accordingly, proposed
comment 37(c)(1)(i)(C)–1 clarifies that
creditors should disclose any mortgage
guarantee that provides coverage similar
to mortgage insurance, even if not
considered insurance under State or
other applicable law, as mortgage
insurance on the disclosure required by
§ 1026.37(c). Proposed comment
37(c)(1)(i)(C)–1 is consistent with the
treatment of mortgage guarantee fees
under proposed comment 18(s)(3)(i)(C)–
2.
Proposed comment 37(c)(1)(i)(C)–2
gives guidance to creditors on the
calculation and termination of mortgage
insurance premiums by providing that,
for purposes of proposed
§ 1026.37(c)(1)(i)(C), mortgage insurance
premiums should be calculated based
on the declining principal balance that
will occur as a result of changes to the
interest rate and payment amounts,
assuming the fully-indexed rate at
consummation, taking into account any
introductory rates. Finally, proposed
comment 37(c)(1)(i)(C)–3 clarifies that
the table required by proposed
§ 1026.37(c) reflects the consumer’s
mortgage insurance payments until the
date on which the creditor must
automatically terminate coverage under
applicable law, even though the
consumer may have a right to request
that the insurance be cancelled earlier.
Unlike termination of mortgage
insurance, a subsequent decline in the
consumer’s mortgage insurance
premiums is not, by itself, an event that
requires the disclosure of additional
separate periodic payments or ranges of
payments in the table required by
§ 1026.37(c). For example, some
mortgage insurance programs annually
adjust premiums based on the declining
loan balance. Such annual adjustment to
the amount of premiums would not
require a separate disclosure of a
periodic payment or range payments.
37(c)(1)(ii)
Proposed § 1026.37(c)(1)(ii) contains
special rules for the disclosure of
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separate periodic payments or ranges of
payments described in § 1026.37(c)(1)(i).
Specifically, proposed § 1026.37(c)(1)(ii)
provides that the table required by
§ 1026.37(c) shall not disclose more
than four separate periodic payments or
ranges of payments. For all events
requiring disclosure of additional
separate periodic payments or ranges of
payments described in § 1026.37(c)(1)(i)
after the second to occur, the separate
periodic payments or ranges of
payments shall be disclosed as a single
range of payments, subject to the special
rules listed in proposed
§ 1026.37(c)(1)(ii)(A) through (C).
Proposed § 1026.37(c)(1)(ii)(A)
contains a special rule for final balloon
payments. That section would require
that a final balloon payment shall
always be disclosed as a separate
periodic payment or range of payments
and that, if a final balloon payment is
disclosed, no more than three other
separate periodic payments or ranges of
payments are disclosed. Proposed
comment 37(c)(1)(ii)(A)–1 clarifies that
§ 1026.37(c)(1)(ii)(A) is an exception to
the general rule in § 1026.37(c)(1)(ii),
and requires that a balloon payment that
is scheduled as a final payment under
the terms of the legal obligation is
always disclosed as a separate periodic
payment or range of payments. Balloon
payments that are not final payments,
such as a balloon payment due at the
scheduled recast of a loan that permits
negative amortization, are disclosed
pursuant to the general rule in
§ 1026.37(c)(1)(ii). Proposed
§ 1026.37(c)(1)(ii)(B) provides a special
rule for disclosure of mortgage
insurance premiums, requiring that the
automatic termination of mortgage
insurance, or any functional equivalent,
under applicable law shall be disclosed
as a separate periodic payment or range
of payments only if the total number of
events that require disclosure of
additional separate periodic payments
or ranges of payments described in
§ 1026.37(c)(1)(i), other than the
termination of mortgage insurance or
any functional equivalent, does not
exceed two.
Finally, proposed
§ 1026.37(c)(1)(ii)(C) provides a special
rule for events that require additional
separate periodic payments or ranges of
payments that occur during the same
year. Under proposed
§ 1026.37(c)(1)(ii)(C), if changes to
periodic principal and interest
payments described in
§ 1026.37(c)(1)(i)(A) would require more
than one separate disclosure during a
single year, such periodic payments
must be disclosed as a single range of
payments.
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37(c)(1)(iii)
Proposed § 1026.37(c)(1)(iii) provides
rules for the disclosure of ranges of
payments. A range of payments is
disclosed when the periodic principal
and interest payment may adjust based
on index rates at the time an interest
rate adjustment may occur or multiple
events are combined in a range of
payments pursuant to proposed
§ 1026.37(c)(1)(ii). When a range of
payments is required, the creditor must
disclose the minimum and maximum
possible payment amount for both the
principal and interest payment under
proposed § 1026.37(c)(2)(i) and the total
periodic payment under proposed
§ 1026.37(c)(2)(iv). In the case of an
interest rate adjustment, the maximum
payment amounts are determined by
assuming that the interest rate in effect
throughout the loan term is the
maximum possible interest, and the
minimum payment amounts are
determined by assuming that the
interest rate in effect throughout the
loan term is the minimum possible
interest rate.
Proposed comment 37(c)(1)(iii)–1
clarifies that a range of payments must
be disclosed when the periodic
principal and interest payments are not
known at the time the disclosure is
provided because they are subject to
changes based on index rates at the time
of an interest rate adjustment or when
multiple events are disclosed as a range
of payments pursuant to
§ 1026.37(c)(1)(ii). For such
transactions, proposed
§ 1026.37(c)(3)(iii) requires the creditor
to disclose both the minimum and
maximum periodic principal and
interest payments, expressed as a range.
In disclosing the maximum possible
interest rate for purposes of § 1026.37(c),
the creditor assumes that the interest
rate will rise as rapidly as possible after
consummation, taking into account the
terms of the legal obligation, including
any applicable caps on interest rate
adjustments and lifetime interest rate
cap. For a loan with no lifetime interest
rate cap, the maximum rate is
determined by reference to other
applicable laws, such as State usury
law. In disclosing the minimum
possible interest rate for purposes of
§ 1026.37(c), the creditor assumes that
the interest rate will decrease as rapidly
possible after consummation, taking
into account any introductory rates,
caps on interest rate adjustments, and
lifetime interest rate floor. For an
adjustable rate mortgage based on an
index that has no lifetime interest rate
floor, the minimum interest rate is equal
to the margin. Proposed comment
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37(c)(1)(iii)–2 clarifies that, when a
range of payments is required, the
amount required to be disclosed for
mortgage insurance premiums pursuant
to § 1026.37(c)(2)(ii) and the amount
payable into escrow pursuant to
§ 1026.37(c)(2)(iii) shall not be disclosed
as a range. Proposed comment
37(c)(1)(iii)–3 provides guidance to
creditors on the disclosure of ranges of
payments in adjustable rate mortgages.
37(c)(2) Itemization
Proposed § 1026.37(c)(2) requires that
each separate periodic payment or range
of payments included in the table
required by proposed § 1026.37(c) must
be itemized to include the following: (1)
The amount payable for principal and
interest, labeled as ‘‘Principal &
Interest,’’ including the term ‘‘only
interest’’ if the payment or range of
payments includes any interest-only
payment; (2) the maximum amount
payable for mortgage insurance
premiums corresponding to the
principal and interest payment
disclosed pursuant to § 1026.37(c)(2)(i),
labeled ‘‘Mortgage Insurance’’; (3) the
amount payable into an escrow account
to pay for some or all of the charges
described in § 1026.37(c)(4)(ii)(A)
through (E), labeled ‘‘Estimated
Escrow,’’ including a statement that the
amount disclosed can increase over
time; and (4) the total periodic payment,
calculated as the sum of the amounts
disclosed pursuant to § 1026.37(c)(2)(i)
through (iii), labeled ‘‘Total Monthly
Payment.’’ As discussed in the
Kleimann Testing Report, the Bureau’s
consumer testing indicates that
consumers understand the table and can
identify the components of their total
monthly payment using this itemization
of payments.
Proposed comment 37(c)(2)(ii)–1
clarifies that mortgage insurance
payments should be reflected on the
disclosure required by § 1026.37(c) even
if no escrow account is established for
the payment of mortgage insurance
premiums. If the consumer is not
required to purchase mortgage
insurance, the creditor discloses the
mortgage insurance premium as ‘‘0’’.
Proposed comment 37(c)(2)(ii)–2
clarifies that the creditor must disclose
mortgage insurance pursuant to
§ 1026.37(c)(2)(ii) on the same periodic
basis that payments for principal and
interest are disclosed pursuant to
§ 1026.37(c)(2)(i), even if mortgage
insurance premiums are actually paid
on some other periodic basis.
The Bureau proposes to require
creditors to disclose the amount of
estimated escrow payments pursuant to
its authority under TILA sections
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128(a)(16), 128(b)(4)(A), and 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). As discussed
above, TILA section 128(a)(16) requires
that, for variable-rate residential
mortgage loans for which an escrow
account will be established, the creditor
must disclose the initial total monthly
payment, including escrow payments
for taxes and insurance. The Bureau
proposes to modify this requirement to
cover all transactions subject to
proposed § 1026.19(e) for which an
escrow account will be established,
including fixed-rate loans. Additionally,
TILA section 128(b)(4)(A) requires that,
for any consumer credit transaction
secured by a first lien on the principal
dwelling of the consumer for which an
escrow account will be established, the
creditor must take into account escrow
payments when making the disclosures
required by TILA section 128(a)(6). The
Bureau also proposes to modify the
scope of this requirement to cover all
transactions subject to proposed
§ 1026.19(e) for which an escrow
account will be established, pursuant to
its authority under TILA sections
128(a)(16), 128(b)(4)(A), and 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). These
modifications are consistent with the
purposes of TILA, as they may promote
the informed use of credit by allowing
consumers to more readily compare
loans. Further, applying a single
disclosure rule to all transactions
subject to proposed § 1026.19(e) may
ease compliance burden for creditors.
Accordingly, these modifications will
improve consumer awareness and
understanding of residential mortgage
loans and are in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b). In
addition, consistent with section
1032(a) of the Dodd-Frank Act, this
disclosure would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances.
Further, the Bureau proposes to
require creditors to disclose the
maximum periodic payment for
mortgage insurance premiums
corresponding to the periodic principal
and interest payment disclosed
pursuant to § 1026.37(c)(2)(i), separately
from other escrowed amounts, pursuant
to its authority under TILA section
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105(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans,
Dodd-Frank Act section 1405(b), even if
no escrow account is established for the
payment of such amounts. Current
§ 1026.18(s) requires creditors to
include mortgage insurance in the
disclosure of the amounts required to be
paid into escrow. However, § 1026.18(s)
does not require creditors to separately
disclose payments for mortgage
insurance. The Bureau believes that
consumers would benefit from
disclosure of the periodic amount of
mortgage insurance payments required
by the creditor, and believes that
consumers would benefit from the
disclosure of any required mortgage
insurance payments even if no escrow
account for the payment of such
amounts will be established. Requiring
such disclosure in all cases may
facilitate comparison between loans and
improve overall understanding of credit
terms. Accordingly, the Bureau believes
this requirement promotes the informed
use of credit, will improve consumer
awareness and understanding of
transactions involving residential
mortgage loans, and is in the interest of
consumers and the public, consistent
with the purpose of TILA and with
Dodd-Frank Act section 1405(b).
Further, consistent with section 1032(a)
of the Dodd-Frank Act, this disclosure
would ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
In addition, the Bureau understands
that some mortgage insurance plans are
structured such that periodic mortgage
insurance payments decrease over time.
Accordingly, the Bureau proposes to
require creditors to disclose the
maximum amount payable for mortgage
insurance premiums, or any functional
equivalent, corresponding to the
periodic principal and interest payment
disclosed pursuant to § 1026.37(c)(2)(i).
The Bureau believes this disclosure will
enhance consumer understanding of
and facilitate comparison between loans
by more accurately reflecting the
amount of mortgage insurance payments
over time.
Proposed comment 37(c)(2)(iii)–1
clarifies that the disclosure of taxes and
insurance described in
§ 1026.37(c)(2)(iii) is required only if the
creditor will establish an escrow
account for the payment of the amounts
described in § 1026.37(c)(4)(ii)(A)
through (E), consistent with TILA
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section 128(b)(4)(A) and current
§ 1026.18(s).
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37(c)(3) Subheadings
Proposed § 1026.37(c)(3)(i) provides
that the labels required pursuant to
§ 1026.37(c)(2) must be listed under the
subheading ‘‘Payment Calculation.’’
Proposed § 1026.37(c)(3)(ii) provides
that each separate, itemized periodic
payment or range of payments to be
disclosed under § 1026.37(c) must be
disclosed under a subheading that states
the number of years of the loan during
which that payment or range of
payments will apply. The subheadings
must be stated in a sequence of whole
years from the date that the first such
payment is due. Proposed comment
37(c)(3)(ii)–1 provides additional
guidance on the disclosure of the
number of years of the loan during
which the payment or range of
payments will apply, and proposed
comment 37(c)(3)(ii)–2 provides
guidance on disclosure of the years of
the loan for transactions with variable
terms, such as transactions where the
loan term may increase based on an
adjustment of the interest rate.
37(c)(4) Taxes, Insurance, and
Assessments
As discussed above, the Bureau is
proposing to require creditors in
transactions subject to proposed
§ 1026.19(e) to disclose estimated
payments to escrow accounts pursuant
to its authority under TILA sections
128(a)(16), 128(b)(4)(A), and 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). The Bureau
also proposes § 1026.37(c)(4) pursuant
to this authority. Proposed
§ 1026.37(c)(4)(i) provides that creditors
must disclose the label ‘‘Estimated
Taxes, Insurance & Assessments.’’
Proposed § 1026.37(c)(4)(ii) requires
creditors to disclose the sum of property
taxes, mortgage-related insurance
premiums required by the creditor other
than amounts payable for mortgage
insurance premiums, homeowner’s
association, condominium or
cooperative fees, ground rent or
leasehold payments, and special
assessments, as applicable, expressed as
a monthly amount. The creditor must
disclose this amount even if no escrow
account for the payment of some or any
such charges will be established.
Proposed comments 37(c)(4)(ii)–1 and
–2 provide guidance to creditors on the
meaning of mortgage-related insurance
premiums and special assessments.
Proposed § 1026.37(c)(4)(iii) requires
creditors to state that the amount
disclosed pursuant to § 1026.37(c)(4)(ii)
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can increase over time. Proposed
§ 1026.37(c)(4)(iv) requires creditors to
state whether the amount disclosed
pursuant to § 1026.37(c)(4)(ii) includes
payments for property taxes, hazard
insurance, and other amounts described
in § 1026.37(c)(4)(ii), along with a
description of any such amounts, and an
indication of whether such amounts
will be paid by the creditor using
escrow account funds. Proposed
§ 1026.37(c)(4)(v) requires creditors to
provide a statement that the consumer
must pay separately any amounts
described in § 1026.37(c)(4)(ii) that are
not paid by the creditor using escrow
funds. Finally, proposed
§ 1026.37(c)(4)(vi) requires creditors to
provide a reference to the information
disclosed pursuant to § 1026.37(g)(3).
Under proposed § 1026.37(c)(4), the
disclosure of estimated taxes, insurance,
and assessments is required even where
no escrow account will be established
for the payment some or any such
amounts. The Bureau proposes this
requirement pursuant to its authority
under TILA section 105(a), Dodd-Frank
Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b). As discussed in the Kleimann
Testing Report, consumer testing
indicates that consumers view the total
monthly payment amount as a key piece
of information and look for this amount
when shopping for mortgages. Even
when no escrow account is established
for the payment of taxes and insurance,
this is an important measure of the
consumer’s ability to afford the
transaction. For this reason, the Bureau
believes that consumers would benefit
from the disclosure of the amounts that
will required to be paid for taxes,
insurance, and assessments, even if no
escrow account will be established for
the payment of such amounts. Absent
such a disclosure, consumers may not
fully comprehend the cost of their home
loan on a periodic basis, and may not
be as readily able to compare credit
terms and make an informed decision
about whether to proceed with the
transaction. Accordingly, the Bureau
believes this modification is consistent
with the purpose of TILA to promote the
informed use of credit, and will improve
consumer awareness and understanding
of residential mortgage loans and is in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). In addition, consistent
with section 1032(a) of the Dodd-Frank
Act, this disclosure would ensure that
the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
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51207
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances.
37(c)(5) Calculation of Taxes and
Insurance
As previously discussed, section 1465
of the Dodd-Frank Act added to TILA
new section 128(b)(4)(A), which
provides that, in the case of any
consumer credit transaction secured by
a first mortgage on the principal
dwelling of the consumer, other than an
open-end credit plan or reverse
mortgage, for which an escrow account
has been or will be established in
connection with the transaction for the
payment of property taxes,
homeowner’s (also referred to and
including hazard) and flood insurance
premiums, as applicable, or other
periodic payments with respect to the
property, the disclosures required by
TILA section 128(a)(6) must take into
account the amount of any monthly
payment to such account, in accordance
with section 10(a)(2) of RESPA. In
addition, new TILA section 128(b)(4)(B)
requires that the amount taken into
account under TILA section 128(b)(4)(A)
for the payment of property taxes,
hazard or flood insurance premiums, or
other periodic payments or premiums
with respect to the property shall reflect
the taxable assessed value of the real
property securing the transaction after
consummation of the transaction. That
amount must include the value of any
improvements on the property or to be
constructed on the property, if known,
even if such construction costs are not
financed from the proceeds of the
transaction, and the replacement costs
of the property for hazard insurance, in
the initial year after the transaction.
Pursuant to the Bureau’s
implementation authority under TILA
section 105(a), proposed § 1026.37(c)(5)
implements this requirement for
transactions subject to § 1026.19(e) and
requires that the estimated escrow and
estimated taxes, insurance, and
assessments disclosures required
pursuant to § 1026.37(c)(2)(iii) and
(4)(ii), respectively, reflect (1) the
taxable assessed value of the real
property securing the transaction after
consummation, including the value of
any improvements on the property or to
be constructed on the property, whether
or not such construction will be
financed from the proceeds of the
transaction, if known, for property
taxes; and (2) the replacement costs of
the property during the initial year after
the transaction, for hazard and flood
insurance.
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
Pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
sections 1032(a) and 1405(b), the Bureau
proposes to expand the requirements of
TILA section 128(b)(4)(A) and (B) to
cover all transactions subject to
proposed § 1026.19(e), including
transactions where no escrow account
will be established for the payment of
property taxes or hazard insurance,
transactions that are secured by real
property that does not include the
principal dwelling of the consumer, and
transactions secured by subordinate
liens. These modifications appear to be
consistent with the purposes of TILA, as
they may promote the informed use of
credit by allowing consumers to more
readily compare loans. Further,
applying a single disclosure rule to all
transactions subject to proposed
§ 1026.19(e) may ease compliance
burden for creditors. Accordingly, these
modifications will improve consumer
awareness and understanding of
residential mortgage loans and are in the
interest of consumers and the public,
consistent with Dodd-Frank Act section
1405(b). In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
the proposed disclosure would ensure
that the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances.
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37(d) Cash to Close
Pursuant to its authority under TILA
section 105(a) and Dodd-Frank section
1032(a), the Bureau proposes to require
creditors to provide the estimated total
closing costs imposed upon the
consumer and the estimated amount of
cash needed at consummation from the
consumer. This disclosure will
effectuate the purposes of TILA by
promoting the informed use of credit
and will ensure the features of the
mortgage transaction are fully,
accurately and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, in light of the
facts and circumstances, because it will
indicate to the consumer the amount the
consumer will have to pay at
consummation of the credit transaction
and closing of the real estate
transaction. Accordingly, proposed
§ 1026.37(d) requires the disclosure of
an estimate of the cash needed from the
consumer at consummation of the
transaction, with a breakdown of the
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amounts of loan costs and other costs
associated with the transaction.
Under § 1026.37(d)(1), the dollar
amount due from the consumer is the
same amount as calculated in
accordance with proposed
§ 1026.37(h)(4) and is disclosed under
the heading of ‘‘Cash to Close’’ and
labeled ‘‘Estimated Cash to Close.’’ The
total dollar amount of the loan costs to
be paid by the consumer at closing as
calculated under proposed
§ 1026.37(f)(4) is disclosed under
proposed § 1026.37(d)(2). The total
dollar amount of the other costs to be
paid by the consumer at closing as
calculated under proposed
§ 1026.37(g)(5) is disclosed under
proposed § 1026.37(d)(3). The amount of
lender credits disclosed under
§ 1026.37(g)(6)(ii) is disclosed under
§ 1026.37(d)(4). The sum of the amounts
disclosed under proposed
§ 1026.37(d)(2), through 1026.37(d)(4) is
disclosed with a description of ‘‘Closing
Costs’’ under § 1026.37(d)(5). A
statement directing the consumer to
refer to the location of the Loan Estimate
that contains the tables required under
§ 1026.37(f) and (g) is required under
§ 1026.37(d)(6).
37(e) Web Site Reference
Appendix C to Regulation X includes
a statement in the RESPA GFE that
directs consumers to HUD’s Web site
and other sources of additional
information, stating the following, ‘‘For
more information, see HUD’s Special
Information Booklet on settlement
charges, your Truth-in-Lending
Disclosures, and other consumer
information at www.hud.gov/respa.’’
Regulation Z does not contain a similar
provision. The Bureau proposes to use
its authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a) to require disclosure
of the Bureau’s Web site in proposed
§ 1026.37(e). The Bureau believes that a
disclosure in the Loan Estimate
directing consumers to additional
information and tools on its Web site
may help consumers understand the
mortgage process and the various loan
products in the market, and
consequently better understand their
loan transaction and make informed
decisions about whether to enter into a
loan transaction or which loan product
best meets their needs. Accordingly, this
disclosure will effectuate the purposes
of TILA and RESPA by promoting the
informed use of credit and more
effective advance notice of settlement
costs, consistent with TILA section
105(a) and RESPA section 19(a), and
will ensure that the features of the
mortgage transactions are fully,
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accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Therefore, proposed § 1026.37(e)
requires creditors to include a statement
notifying the consumer that additional
information and tools regarding
mortgage loans may be found at the
Bureau’s Web site. Proposed
§ 1026.37(e) also requires a reference to
the link/uniform resource locator (URL)
address for the Bureau’s Web site.
37(f) Closing Cost Details; Loan Costs
Under section 5(c) of RESPA creditors
must provide mortgage loan applicants
with a good faith estimate of the amount
or range of charges for specific
settlement services the applicant is
likely to incur in connection with the
consummation of the loan. 12 U.S.C.
2604(c). Section 1024.7 of Regulation X
implements this mandate by requiring
creditors and mortgage brokers to
provide the RESPA GFE, which must be
completed in accordance with the
instructions in appendix C to Regulation
X. Appendix C sets out specific
instructions for the information that
must be disclosed on the RESPA GFE,
including the loan costs that must be
included and how to identify those
costs on the disclosure.
As discussed above, Dodd-Frank Act
section 1032(f) requires the Bureau to
combine these RESPA disclosures with
the disclosures required by TILA. In
addition to existing TILA disclosure
requirements, section 1419 of the DoddFrank Act amended TILA section 128(a)
to require, in the case of a residential
mortgage loan, disclosure of the
aggregate amount of settlement charges
for all settlement services provided in
connection with the loan and the
aggregate amount of other fees or
required payments in connection with
the loan. 15 U.S.C. 1638(a)(17).
Pursuant to its authority under TILA
section 105(a), RESPA section 19(a), and
Dodd-Frank Act sections 1032(f) and,
for residential mortgage loans, 1405(b),
the Bureau proposes to require creditors
to provide the loan costs and other costs
imposed upon the consumer in tables as
part of the integrated Loan Estimate.
Proposed § 1026.37(f) and (g) implement
these early disclosure requirements of
TILA and RESPA by setting out details
relating to the costs for consummating
the mortgage loan, including loan costs
and other costs. Based on its consumer
testing, the Bureau believes that early
disclosure of estimated loan costs and
other costs, as set forth in proposed
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§ 1026.37(f) and (g), will improve
consumer understanding of the credit
and property transactions. The Bureau
believes that these disclosures will
effectuate the purpose of TILA by
promoting the informed use of credit
and assuring a meaningful disclosure to
consumers. The Bureau believes that the
disclosures will also satisfy the RESPA
requirement to provide a consumer with
a good faith estimate of the amount or
range of charges for specific settlement
services the consumer is likely to incur
in connection with the closing. In
addition, these disclosures will ensure
that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a).
In particular, proposed § 1026.37(f)
requires the creditor to itemize, as
‘‘Loan Costs,’’ its fees and other charges
to the consumer for extending the credit
or that compensate a mortgage broker
for originating the transaction. The
creditor must disclose the individual
itemized charges, along with subtotals
for prescribed categories of those
itemized charges, and the total of all
such itemized charges. In general, these
charges are currently required to be
disclosed—as itemized or aggregate
charges and amounts—on the RESPA
GFE, the RESPA settlement statement,
or both.164
164 On June 20, 2012, HUD’s Office of Policy
Development and Research and the Urban Institute
released a study entitled ‘‘What Explains Variation
in Title Charges? A Study of Five Large Markets,’’
https://www.huduser.org/portal/publications/hsgfin/
title_charges_2012.html, based on HUD–1
settlement statements of FHA loans from 2001. See
p. 13. The study discusses, among other things, that
an observed positive association between the
number of items listed and net service fees was
statistically significant after taking home prices into
account. See p. 29. However, the report could not
determine whether this indicates additional value
to the consumer or additional costs to the
settlement agent due to limitations of the data. Id.
The study states that ‘‘there is no way to ascertain
from the data whether an itemized cost is an
attempt to confuse consumers or the provision of
an additional, valuable service that the homebuyer
is willing to pay for. Both interpretations are
plausible.’’ Id. Under this proposal, itemization is
permitted on the Loan Estimate, but highly visible
subtotals in gray shading and bold font are
displayed above the itemized charges for specific
categories of costs. Based on its consumer testing,
the Bureau believes the highly visible subtotals,
along with the highly visible ‘‘Services You Can
Shop For’’ subcategory of Closing Costs on the Loan
Estimate, will inform consumers that they can shop
for their own service providers and provide them
with, along with the itemization, readily
comparable cost categories to shop between
creditors and service providers. Such shopping for
settlement service providers, according to the study,
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Proposed comment 37(f)–1 explains
that the items disclosed as Loan Costs
pursuant to § 1026.37(f) are those that
the creditor or mortgage broker require
for consummation. Proposed comment
37(f)–2 provides a cross-reference to the
commentary under § 1026.19(e)(1)(ii),
which discusses the requirements and
responsibilities of mortgage brokers that
provide the disclosures required under
§ 1026.19(e) and § 1026.37(f).
37(f)(1) Origination Charges
Under proposed § 1026.37(f)(1),
charges included on the Loan Estimate
under the subheading of ‘‘Origination
Charges’’ are those that the consumer
will pay to the creditor and any loan
originator for originating and extending
the credit. The points that the consumer
will pay to the creditor to reduce the
interest rate are specifically identified
and itemized as the first item under this
subheading.
As discussed above in part II.F, the
Bureau currently is engaged in six other
rulemakings that relate to mortgage
credit and intends that the rulemakings
function collectively as a whole.
Accordingly, the Bureau may have to
modify aspects of this proposed rule not
only in response to public comment on
this proposal, but also to maintain
consistency with final determinations
made after opportunity for public
comment in the other, related
rulemakings. For example, Dodd-Frank
Act section 1403 amended TILA section
129B(c)(2) to prohibit an origination fee
or charge that is paid to a mortgage
originator by any person other than the
consumer, unless the mortgage
originator does not receive
compensation directly from the
consumer and the consumer does not
make an upfront payment of discount
points, origination points, or fees (other
than certain third-party fees). 15 U.S.C.
1639b(c)(2)(B). Amended TILA section
129B(c)(2) also provides the Bureau
with the authority to waive or create
exemptions from this prohibition with
respect to the clause against the
consumer making an upfront payment
of discount points, origination points, or
fees, where doing so is in the interest of
consumers and in the public interest. Id.
As discussed in the materials
distributed for the Small Business
Review Panel convened for the
Residential Mortgage Loan Origination
could provide ‘‘significant benefits to consumers.’’
See p. 28. The study suggests that future research
using more detailed data on costs incurred by
settlement agents would be valuable. See p. 29. The
Bureau welcomes additional comments and studies
on the issue of itemization of costs on the Loan
Estimate and Closing Disclosure during the
comment period.
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Standards rulemaking implementing
amended TILA section 129B(c)(2), the
Bureau is considering exercising its
waiver or exemption authority in that
rulemaking.165 The Bureau will
coordinate these rulemakings and, if
applicable and appropriate, will modify
the disclosure of origination charges
under § 1026.37(f)(1) for consistency
with the final rule implementing
amended TILA section 129B(c)(2). The
Bureau invites comment on how, in
light of amended TILA section
129B(c)(2), the Bureau should refine or
modify the way in which origination
charges are disclosed under proposed
§ 1026.37(f)(1). The public will also
have the opportunity to comment on the
Bureau’s implementation of amended
TILA section 129B(c)(2) when a
proposed rule is published later this
summer. The Bureau expects the
comment period for the proposal set
forth in this notice will still be open at
that time.
TILA section 128(a)(18), as added by
Dodd-Frank Act section 1419, requires
the creditor to disclose, for residential
mortgage loans, the aggregate amount of
fees paid to the mortgage originator in
connection with the loan, the amount of
such fees paid directly by the consumer,
and any additional amount received by
the originator from the creditor. In the
discussion of proposed § 1026.37(l)
below, the Bureau notes that research
regarding consumer comprehension and
behavior and the results of the Bureau’s
consumer testing suggest that an
effective disclosure regime minimizes
the risk of consumer distraction and
information overload by providing only
information that will assist most
consumers. The Bureau has evaluated
the usefulness to consumers and others
at early stages of the loan process of the
disclosures required by TILA section
128(a)(18), as added by Dodd-Frank Act
section 1419. Based on that evaluation,
and as discussed further below, the
Bureau is proposing to use its authority
under TILA section 105(a) and (f),
RESPA section 19(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b), to exempt transactions subject
to proposed § 1026.19(e) from certain of
the itemized disclosures required by
TILA section 128(a)(18). In particular,
for transactions subject to proposed
§ 1026.19(e), proposed § 1026.37(f)(1)
requires the creditor to disclose the
amounts of origination fees paid by the
consumer to creditors and loan
165 Small Business Review Panel for Residential
Mortgage Loan Origination Standards Rulemaking:
Outline of Proposals Under Consideration and
Alternatives Considered (May 19, 2012), available at
https://files.consumerfinance.gov/f/201205_cfpb_
MLO_SBREFA_Outline_of_Proposals.pdf.
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originators in connection with the loan,
but not any amounts received by a loan
originator from the creditor. However,
as discussed below with respect to
proposed § 1026.38(f)(1), the full
disclosure required by TILA section
128(a)(18) is included in the disclosure
requirements for transactions subject to
proposed § 1026.19(f). In other words,
although certain TILA section 128(a)(18)
disclosures would not be included in
the Loan Estimate, they would be
provided in the Closing Disclosure.
The RESPA GFE currently required by
Regulation X aggregates all
compensation paid to all loan
originators and includes a separate item
that reflects as a ‘‘credit’’ to the
consumer fees received by mortgage
brokers from the creditor rather than the
consumer. A major goal of the RESPA
GFE disclosure requirements was to
provide consumers with a clear
disclosure of any rate-based payments
being made by creditors to mortgage
brokers who may be working with the
consumer. Regulation X provides
generally that lender and mortgage
broker origination charges are to be
included on page 2 of the RESPA GFE,
in Block 1 (‘‘Our origination charge’’),
Block 2 (‘‘Your credit or charge (points)
for the specific interest rate chosen’’),
and Line A (Your Adjusted Origination
Charges’’). See 12 CFR part 1024,
appendix C (instructions for ‘‘Your
Adjusted Origination Charges’’). Under
the disclosure requirements in
Regulation X, all charges for services
related to the creation of the mortgage
loan are to be included on the RESPA
GFE in the single amount stated in
Block 1 and the single amount in Block
2, as applicable. The RESPA GFE
disclosure requirements prohibit
creditors and mortgage brokers from
charging any fees for getting the loan
that are in addition to the amounts
included in Blocks 1 and 2. Id.
(instructions for ‘‘Block 1’’).
The requirements related to the
disclosures in Blocks 1 and 2 of the GFE
have been a source of uncertainty for
creditors, mortgage brokers, and
consumers. HUD provided informal
guidance to address some of the
uncertainty in a number of its HUD
RESPA FAQs and HUD RESPA
Roundups, much of which involved
where and how to disclose
compensation paid directly and
indirectly to mortgage brokers.
In 2010, subsequent to the issuance of
HUD’s 2008 RESPA Final Rule, the
Board established by regulation in
§ 1026.36 of Regulation Z restrictions on
the compensation of loan originators,
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including mortgage brokers.166 The
Board adopted these restrictions only
after concluding that disclosure of
creditor-paid compensation did not
provide sufficient protection for
consumers.167
Section 1403 of the Dodd-Frank Act
codified similar restrictions. 15 U.S.C.
1639b(c). As a result of these additional
consumer protections and based on
consumer testing, the Bureau believes
that consumers may not benefit from
any additional disclosure of rate-based
compensation when shopping for and
considering the costs of a mortgage loan.
Therefore, in proposed § 1026.37(f)(1),
the Bureau proposes to eliminate the
separate GFE Blocks 1 and 2
disclosures, thereby eliminating the
need to follow different instructions for
loans involving a mortgage broker than
for loans originated without one.
Consistent with Dodd-Frank section
1405(b), disclosure of only the direct
charges the consumer will pay will
reduce both consumer confusion and
the possibility of information overload,
improve consumer understanding of the
Loan Estimate form, and make it easier
for creditors or mortgage brokers to
complete the estimates of closing costs,
which is in the interest of consumers
and in the public interest. In addition,
consistent with TILA section 105(a) and
RESPA section 19(a), the proposed
disclosure will effectuate the purposes
of TILA and RESPA by promoting the
informed use of credit and more
effective disclosure of settlement costs
by allowing consumers to focus only on
the amounts they will pay. Furthermore,
consistent with section 1032(a) of the
Dodd-Frank Act, proposed § 1026.37(f)
would ensure that the origination costs
for consumer credit transactions secured
by real property are fully, accurately,
and effectively disclosed to consumers
166 75 FR 58509 (Sept. 24, 2010) (Board’s 2010
Compensation Final Rule).
167 The Board’s 2010 Compensation Final Rule
discussed the history of efforts by the Board to
address concerns regarding consumers’
understanding of fees received by mortgage brokers
from creditors. Before issuing that final rule, the
Board considered proposed disclosures of such
compensation, but had withdrawn the proposed
disclosures because of concern that they could
confuse consumers and undermine their
decisionmaking rather than improve it. 75 FR at
58511. A 2008 study referenced in the Board’s 2010
Compensation Final Rule indicated additional
disclosures may not help consumers understand
and avoid financial incentives for loan originators
that may be contrary to consumer interests. Id. The
study found that consumers were confused by, and
in some cases did not appropriately apply, the
information provided in disclosures about mortgage
broker compensation arrangements. Macro
International, Consumer Testing of Mortgage Broker
Disclosures (July 10, 2008), available at https://
www.federalreserve.gov/newsevents/press/bcreg/
20080714regzconstest.pdf.
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in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
As noted above, § 1026.37(f) is also
proposed pursuant to the Bureau’s
exemption authority under TILA section
105(f). The Bureau has considered the
factors in TILA section 105(f) and
believes that, for the reasons discussed
above, an exception is appropriate
under that provision. Specifically, the
Bureau believes that the proposed
exemption is appropriate for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. Accordingly, the Bureau
is proposing to exempt the disclosures
required pursuant to § 1026.19(e) from
the requirement in TILA section
128(a)(18) to itemize fees received by
loan originators from the creditor.
The Bureau invites comment on
whether the final rule should require
that fees received by loan originators
from the creditor be included in the
Loan Estimate. In addition, because the
foregoing analysis under TILA section
105(f) and the Bureau’s other exemption
authorities may apply to the disclosure
of creditor-paid compensation on the
Closing Disclosure pursuant to proposed
§ 1026.38(f)(1), the Bureau solicits
comments on whether the disclosure
should be omitted there as well. While
a goal of the proposed forms and
requirements is to develop clear
disclosures that help consumers
understand the credit transaction and
closing costs, another goal is to facilitate
consumer comparison of the actual
charges at consummation with the
charges estimated soon after
application. If, as proposed, the
amounts received by loan originators
from the creditor are not itemized in the
Loan Estimate, the consumercomparison purpose of the disclosure
forms is not advanced by itemizing
those amounts in the Closing
Disclosure. In fact, itemizing amounts in
the Closing Disclosure that are not
itemized on the Loan Estimate may add
to consumer confusion without any
offsetting benefit.
The Bureau believes, however, that
certain additional information about
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origination costs may benefit consumers
at early stages of the loan process. In its
2008 RESPA Final Rule, HUD explained
its reason for limiting to lump-sum
amounts certain disclosures, such as for
origination and title charges, as avoiding
consumer confusion resulting from a
proliferation of itemized fees. HUD
described the RESPA GFE that was in
place before the effective date of the
2008 RESPA final rule as ‘‘not
inform[ing] consumers what the major
costs are so that they can effectively
shop and compare mortgage offers
among different loan originators.’’ 73 FR
at 68260. Therefore HUD sought to
simplify the mortgage loan origination
process by consolidating costs into a
few major cost categories on the RESPA
GFE. Id.
The Bureau understands HUD’s
reasoning in its 2008 RESPA final rule
for establishing revised requirements for
the disclosure of origination-related
charges in the RESPA GFE form. The
Bureau notes, however, that HUD did
not specifically test the effect of
separating the lump sum amounts for
major categories of loan costs into
component charges.168 As discussed in
the Kleimann Testing Report, in several
rounds of testing, the Bureau examined
the effect of such itemization of loan
costs on consumers’ understanding of
the loan transaction and their tendency
and ability to shop. As a result of its
testing, the Bureau proposes to modify
the requirements for disclosing
origination-related items on the Loan
Estimate. As discussed in the Kleimann
Testing Report, at the Bureau’s
consumer testing, participants were
more likely to question loan costs when
they were presented in an itemized
format, rather than as only an aggregate
or lump sum of those costs. While
participants commented favorably on
lump-sum totals, they also asked for
more detail about the fees that were
included in the lump sum, especially
when the total was a significant amount,
such as for origination charges or title
fees.
Further, as discussed in the Kleimann
Testing Report, participants more often
indicated a desire to negotiate
origination charges and shop for thirdparty services when provided the
additional details about these closing
costs. Itemized closing costs also
prompted participants to ask more
questions about the other costs in the
Loan Estimate. Although participants
168 See, U.S. Dep’t. of Hous. and Urban Dev.,
Summary Report: Consumer Testing of the Good
Faith Estimate Form (GFE), prepared by Kleimann
Communications Group, Inc. (2008), available at
https://www.huduser.org/publications/pdf/
Summary_Report_GFE.pdf.
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also responded favorably to lump-sum
disclosures, without the additional
information about the cost category they
were less likely to indicate a desire to
negotiate costs, shop for providers, and
ask for additional detail about a large
cost. As discussed in the Kleimann
Testing Report, testing indicates that
descriptive, itemized listings of the
component charges in a category of
closing costs related to improved
performance of the participants in
understanding both the underlying
services provided and the amounts
imposed for those services. In addition,
testing participants stated that they felt
more comfortable with the transaction
when provided with additional detail,
in part because they believed they were
more responsible consumers when they
were more informed. The morecomplete information also may help a
consumer determine whether to shop
for a particular service or services.
During its outreach efforts, the Bureau
heard anecdotal reports that creditors
are often prepared to provide consumers
with additional detail about aggregate
amounts disclosed on the RESPA GFE,
in any event. State law also may require
creditors to provide such additional
detail about certain categories of costs
by consummation or before accepting a
fee,169 or to retain such detail in their
loan files.170
Therefore, proposed § 1026.37(f)(1)
does not limit the disclosure of
origination-related closing costs to an
aggregate amount with two lines under
predefined headings (as is the case with
the RESPA GFE). Instead, proposed
§ 1026.37(f)(1) requires that the Loan
Estimate include a subtotal of the
amounts for all ‘‘Origination Charges,’’
but permits the creditor to list up to 13
component items. The creditor must use
a descriptive label for each component
fee or charge, and must disclose the
amount of that fee or charge. Proposed
§ 1026.37(f)(1) requires the creditor to
include under the subheading
‘‘Origination Charges’’ the percentage of
the loan amount, and the resulting
calculation of the dollar amount, that is
charged to the consumer as points to
lower the interest rate. The Loan
Estimate form H–24, in appendix H to
Regulation Z, includes a line for this
disclosure immediately under the
169 See, e.g., Tex. Ins. Code Ann. § 2702.053 (title
charges); Ga. Comp. R. & Regs. 80–11–1–.01
(origination charges).
170 See, e.g., North Carolina Commissioner of
Banks Memorandum, Disclosure of Origination Fees
under HUD’s New RESPA Rules (December 3,
2010), available at https://www.nccob.gov/public/
docs/Financial%20Institutions/Mortgage/OCOB_
Letter_Regarding_Disclosure_of_Origination_Fees_
under_HUDs_new_RESPA_Rules.pdf.
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51211
subheading ‘‘Origination Charges.’’ The
line’s label reads: ‘‘l% of Loan Amount
(Points),’’ and the blank before the
percentage sign is to be filled in with
the applicable number.
The Bureau does not propose to
eliminate the disclosure of a single total
amount of origination charges from the
Loan Estimate form, however. The
RESPA GFE currently shows a subtotal
of the origination charges on Line A
(‘‘Your Adjusted Origination Charges’’).
Pursuant to § 1026.37(f)(1), the Bureau
proposes to show in the Loan Estimate
a similar subtotal accompanying the
subheading ‘‘Origination Charges.’’ The
Bureau’s testing of the Loan Estimate
forms indicates that consumers can
easily find and use this subtotal of the
origination charges to evaluate and
compare loans, as discussed in the
Kleimann Testing Report. Further, the
testing indicates that consumers easily
understand that the subtotal represents
the sum of the itemized fees and
charges.
The Bureau is proposing the
requirements in § 1026.37(f)(1) pursuant
to its implementation authority under
TILA section 105(a) and RESPA section
19(a) because disclosure of the points,
component charges, and total
origination charges will promote the
informed use of credit and more
effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements in
§ 1026.37(f)(1). The information
disclosed under § 1026.37(f)(1) will
enable consumers to understand and
negotiate fees, shop for origination
services, and compare the Loan Estimate
with any revised Loan Estimate and the
Closing Disclosure, thereby ensuring
that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed rule is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
The Bureau is aware of concerns that
permitting itemization may encourage
creditors to list numerous component
charges that the RESPA GFE currently
requires to be consolidated into one
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charge.171 Based on its testing, however,
the Bureau believes that proposed
§ 1026.37(f)(1), which permits some
itemization but also requires disclosure
of the subtotal of origination charges,
provides consumers with information
they want without encumbering their
ability to compare credit offers among
different creditors. The Bureau invites
comment on whether other limits on
itemization, in addition to the proposed
limits on the number of charges that
may be itemized pursuant to
§ 1026.37(f)(1), should be included in
the final rule and, if so, what those
limits should be.
Proposed comment 37(f)(1)–1 clarifies
that charges that are included under the
subheading ‘‘Origination Charges’’
pursuant to § 1026.37(f)(1) are those
charges paid by the consumer for which
the amount is paid to the creditor or
loan originator for originating and
extending the mortgage credit. The
comment includes cross-references to
§ 1026.37(o)(4) for rules on rounding
amounts disclosed, comment
19(e)(3)(i)–2 for a discussion of when a
fee is considered to be ‘‘paid to’’ a
person, and comment 36(a)–1 for a
discussion of the meaning of ‘‘loan
originator.’’ Proposed comment 37(f)(1)–
2 clarifies that only loan originator
charges paid directly by the consumer
are included in the items listed
pursuant to § 1026.37(f)(1), but notes
that charges paid by the creditor
through the interest rate are disclosed
on the Closing Disclosure pursuant to
§ 1026.38(f)(1). Proposed comment
37(f)(1)–3 provides examples of the
items that might be disclosed as
‘‘Origination Charges’’ on the Loan
Estimate. Proposed comment 37(f)(1)–4
explains that if the consumer is not
charged any points for the loan, the
creditor may leave blank the percentage
of points required by § 1026.37(f)(1)(i),
but must disclose the dollar amount of
‘‘$0.’’ Proposed comment 37(f)(1)–5
clarifies that the creditor may decide the
level of itemization of origination
charges that is appropriate, subject to
the limitations in § 1026.37(f)(1)(ii) on
the number of lines.
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37(f)(2) Services You Cannot Shop For
The fees and charges listed under the
subheading ‘‘Services You Cannot Shop
For’’ pursuant to proposed
171 In its 2008 RESPA Final Rule, HUD stated
that: ‘‘Current RESPA regulations have led to a
proliferation of charges that makes consumer
shopping and the mortgage settlement process both
difficult and confusing, even for the most informed
shoppers. Long lists of charges certainly do not
highlight the bottom-line costs so consumers can
shop and compare mortgage offers among different
originators.’’ 73 FR 68204, 68267 (Nov. 17, 2008).
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§ 1026.37(f)(2) are for services that the
creditor would require in connection
with the transaction, but that would be
provided by persons other than the
creditor or mortgage broker. Only items
for which the creditor does not permit
the consumer to shop in accordance
with § 1026.19(e)(1)(vi)(A) are listed
under this subheading. As discussed
above, § 1026.19(e)(3)(ii) applies the
same criterion in determining whether
an estimated charge is subsequently
permitted to increase by a limited
amount, absent other considerations set
out in § 1026.19(e)(3).
Currently, Regulation X provides that
third-party services required by the
creditor and for which the creditor does
not permit the consumer to shop are to
be included, as applicable, in Blocks 3
(‘‘Required services that we select’’) and
4 (‘‘Title services and lender’s title
insurance’’) on the RESPA GFE.
Regulation X also provides that charges
for title services, like charges for
origination services, are not itemized on
the RESPA GFE, but are disclosed only
as a total. See appendix C to Regulation
X (instructions for Blocks 3, 4 (‘‘all fees
for title searches, examinations, and
endorsements, for example, would be
included in this total’’), and 6).
As discussed in connection with
proposed § 1026.37(f)(1), consumer
testing performed on Loan Estimate
forms indicated that itemization related
to improved performance of the
participants in understanding both the
services provided and the charges
imposed for those services. Participants
appeared more likely to negotiate fees
and shop for services when provided
additional details that helped them to
understand the nature of the services
and the potential value of shopping for
a particular service. Pursuant to
§ 1026.37(f)(2) and (3), the Bureau
proposes to show in the Loan Estimate
subtotals and itemized amounts for loan
costs, including for title-related services,
on the highlighted lines with the
subheadings ‘‘Services You Cannot
Shop For’’ and ‘‘Services You Can Shop
For.’’ The Bureau’s testing of the forms
indicates that consumers can easily find
and appropriately use the subtotals of
these amounts, as discussed in the
Kleimann Testing Report.
Pursuant to § 1026.37(f)(2), each item
disclosed under the subheading
‘‘Services You Cannot Shop For’’ must
include a descriptive name and the
estimated charge, and the creditor must
provide a subtotal of all such items. All
items for which the charges relate to the
provision of title insurance and the
handling of the closing must be
identified beginning with ‘‘Title—.’’ The
creditor may use up to 13 lines to
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itemize charges under the subheading
for ‘‘Services You Cannot Shop For.’’
The Bureau is proposing the
requirements in § 1026.37(f)(2) pursuant
to its authority under TILA section
105(a) and RESPA section 19(a) because
disclosure of third-party services
required by a creditor for consummation
of the loan, their component and total
charges, and the fact that the creditor
will limit the choice of providers for
those services will promote the
informed use of credit and more
effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements in
§ 1026.37(f)(2). The information
disclosed under § 1026.37(f)(2) will
enable consumers to understand and
negotiate fees, shop for a mortgage loan,
and compare the Loan Estimate with
any revised Loan Estimate and the
Closing Disclosure, thereby ensuring
that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
As discussed above, the Bureau is
aware of concerns that permitting
itemization may encourage creditors to
list numerous component charges that
the RESPA GFE currently requires to be
consolidated. The Bureau invites
comment on whether other limits on
itemization, in addition to the proposed
limits on the number of charges that
may be itemized pursuant to
§ 1026.37(f)(2), should be included in
the final rule and, if so, what those
limits should be.
Proposed comment 37(f)(2)–1 crossreferences comments 19(e)(1)(iv)–1,
19(3)(i)–1, and 19(e)(3)(iv)–1 through –3
for discussions of the factors relevant to
determining whether a consumer is
permitted to shop and whether a
creditor has exercised good faith in
providing estimates of charges.
Proposed comment 37(f)(2)–2 provides
examples of the services that might be
listed under ‘‘Services You Cannot Shop
For.’’ Proposed comment 37(f)(2)–3
provides examples of services that
would be listed using a phrase
beginning with ‘‘Title—.’’ Proposed
comment 37(f)(2)–4 clarifies that the
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amount listed for the lender’s title
insurance coverage is the amount of the
premium without any adjustment that
might be made for the simultaneous
purchase of an owner’s title insurance
policy, and it cross-references comment
37(g)(4)–1 for the disclosure of the
premium for owner’s title insurance.
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37(f)(3) Services You Can Shop For
The fees and charges listed under the
subheading ‘‘Services You Can Shop
For’’ pursuant to proposed
§ 1026.37(f)(3) are for services that the
creditor would require in connection
with its decision to make the loan, but
that would be provided by persons other
than the creditor or mortgage broker.
Only items for which the creditor
permits the consumer to shop in
accordance with § 1026.19(e)(1)(vi)(A)
are listed under this subheading. Thus,
all Loan Costs that are not paid to the
creditor or mortgage broker are itemized
exclusively under either this
subheading or the subheading ‘‘Services
You Cannot Shop For.’’
Currently, Regulation X provides that
third-party services required by the
creditor but for which the creditor
permits the consumer to shop are to be
included, as applicable, in Blocks 4
(‘‘Title services and lender’s title
insurance’’) and 6 (‘‘Required services
that you can shop for’’) on the RESPA
GFE. Regulation X also provides that
charges for title services, like charges for
origination services, are not itemized on
the RESPA GFE, but are disclosed only
as a total. See appendix C to Regulation
X (instructions for Blocks 3, 4 (‘‘all fees
for title searches, examinations, and
endorsements, for example, would be
included in this total’’), and 6).
As discussed in connection with
proposed § 1026.37(f)(1) and (2),
consumer testing performed on Loan
Estimate forms indicated that
itemization related to improved
performance of the participants in
understanding both the services charged
and the costs of those services.
Participants appeared more likely to
negotiate fees and shop for services
when provided additional details that
helped them to understand the nature of
the services and the potential value of
shopping for a particular service.
Pursuant to § 1026.37(f)(2) and (3), the
Bureau proposes to show in the Loan
Estimate subtotals and itemized
amounts for loan costs, including for
title-related services, on the highlighted
lines with the subheadings ‘‘Services
You Cannot Shop For’’ and ‘‘Services
You Can Shop For.’’ The Bureau’s
testing of the forms indicates that
consumers can easily find and
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appropriately use the subtotals of these
amounts.
Pursuant to § 1026.37(f)(3), each item
disclosed under the subheading
‘‘Services You Can Shop For’’ must
include a descriptive name and the
estimated charge, and the creditor must
provide a subtotal of all such items. All
items for which the fees and charges
relate to the provision of title insurance
and the handling of the closing must be
identified beginning with ‘‘Title—.’’ The
creditor may use up to 14 lines to
itemize charges under this subheading.
The Bureau is proposing the
requirements in § 1026.37(f)(3) pursuant
to its authority under TILA section
105(a) and RESPA section 19(a) because
disclosure of third-party services
required by a creditor for consummation
of the loan, their component and total
charges, and the fact that the creditor
will permit the consumer to choose the
providers for those services will
promote the informed use of credit and
more effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements in
§ 1026.37(f)(3). The information
disclosed under § 1026.37(f)(3) will
enable consumers to understand and
negotiate fees, shop for a mortgage loan,
and compare the Loan Estimate with
any revised Loan Estimate and the
Closing Disclosure, thereby ensuring
that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
As discussed above, the Bureau is
aware of concerns that itemization may
encourage creditors to list numerous
component charges that the RESPA GFE
currently requires to be consolidated.
The Bureau invites comment on
whether other limits on itemization, in
addition to the proposed limits on the
number of charges that may be itemized
pursuant to § 1026.37(f)(3), should be
included in the final rule and, if so,
what those limits should be.
Proposed comment 37(f)(3)–1
provides cross-references to comments
19(e)(3)(ii)–1 through –3, 19(e)(3)(iii)–2,
and 19(e)(3)(iv)–1 through –3 for
discussions of determining good faith in
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estimating the costs for required
services when the consumer is
permitted to choose the provider of
those services. Proposed comment
37(f)(3)–2 provides examples of the
services that might be listed under
‘‘Services You Can Shop For.’’ Proposed
comment 37(f)(3)–3 provides crossreferences to comments 37(f)(2)–3 and
–4 for guidance on services that would
be labeled beginning with ‘‘Title—’’ and
on calculating the amount disclosed for
lender’s title insurance, and it crossreferences comment 37(g)(4)–1 for the
disclosure of the premium for owner’s
title insurance.
37(f)(4) Total Loan Costs
Proposed § 1026.37(f)(4) requires the
creditor to disclose, labeled ‘‘Total Loan
Costs,’’ the sum of the subtotals
disclosed under § 1026.37(f)(1) through
(3) for Origination Charges, Services
You Cannot Shop For, and Services You
Can Shop For, respectively. This total
represents all costs that the creditor and
mortgage broker impose in connection
with the transaction.
Although a comparable total is not
required to be stated on the current
RESPA GFE, the same costs are
included in other subtotals on the
RESPA GFE. The Bureau believes that
grouping and subtotaling these items in
this way will provide better information
to the consumer about costs that are
specific to obtaining the mortgage loan
from the creditor. Other costs that the
consumer may encounter as part of the
transfer of ownership of the property are
generally related to items and
requirements for which the amounts are
controlled by other entities or persons,
including governmental jurisdictions
and the consumer, and are addressed in
proposed § 1026.37(g). Accordingly,
disclosure of this information will
promote the informed use of credit and
more effective advance notice of
settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a).
It will also ensure that the features of
the mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated
above, the proposed disclosure is in the
interest of consumers and in the public
interest, consistent with Dodd-Frank
Act section 1405(b).
37(f)(5) Item Descriptions and Ordering
Proposed § 1026.37(f)(5) requires the
creditor to use terminology that briefly
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and clearly describes each item
disclosed under § 1026.37(f). Except for
the item for points that the consumer
will pay, which must be listed as the
first item under the subheading
‘‘Origination Charges,’’ all items must be
listed in alphabetical order under the
applicable subheading. The current
RESPA GFE and early TILA disclosure
do not include a similar requirement.
The Bureau believes that a consistent
listing of the costs that appear on the
Loan Estimate and the Closing
Disclosure will facilitate the consumer’s
comparison of the two disclosure
documents and understanding of the
transaction as a whole. Accordingly,
this requirement will effectuate the
purposes of TILA and RESPA by
promoting the informed use of credit
and more effective advance notice of
settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a),
and will ensure that the features of the
mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
37(f)(6) Use of Addenda
Proposed § 1026.37(f)(6) provides that
addenda may not be used to itemize
disclosures required by § 1026.37(f)(1)
or (2). If the creditor is not able to
itemize all of the charges required to be
disclosed in the number of lines
provided under § 1026.37(f)(1)(ii) and
(f)(2)(ii), the remaining charges must be
disclosed as an aggregate amount in the
last line permitted under the applicable
paragraph. An addendum may be used
to itemize disclosures required by
§ 1026.37(f)(3), or any remaining charges
may be disclosed as an aggregate
amount in the last line permitted under
paragraph (f)(3). The Bureau is
proposing the requirements in
§ 1026.37(f)(6) pursuant to its authority
under TILA section 105(a) and RESPA
section 19(a) because standardization of
the information provided on the
disclosures required under § 1026.19(e)
will provide consistent information that
consumers will be able to use to better
understand the mortgage transaction,
shop for loans, and compare the Loan
Estimate with any revised Loan Estimate
and the Closing Disclosure, thereby
promoting the informed use of credit
and more effective advance disclosure
of settlement costs, which are purposes
of TILA and RESPA respectively. This
standardization will also ensure that the
features of the mortgage transactions are
fully, accurately, and effectively
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disclosed to consumers in a manner that
permits consumers to more readily
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a), which is also
a source of authority for the proposed
requirements.
Proposed comment 37(f)(6)–1 clarifies
that a creditor is permitted to provide
additional disclosures that are required
by State law, as long as those
disclosures are provided on a document
whose pages are separate from, and are
not presented as part of, the disclosures
provided in accordance with
§ 1026.37(f). Proposed comment
37(f)(6)–2 provides an example of a
label that may be used to reference an
addendum as permitted under
§ 1026.37(f)(6)(ii).
37(g) Closing Cost Details; Other Costs
Under section 5(c) of RESPA,
creditors must provide mortgage loan
applicants with a good faith estimate of
the amount or range of charges for
specific settlement services the
applicant is likely to incur in
connection with the consummation of
the loan. 12 U.S.C. 2604(c). Section
1024.7 of Regulation X implements this
mandate by requiring creditors and
mortgage brokers to provide the GFE,
which must be completed in accordance
with the instructions in appendix C to
Regulation X. Appendix C sets out
specific instructions for the information
that must be disclosed on the GFE,
including which loan costs must be
included and how to identify those
costs on the GFE.
As discussed above, Dodd-Frank Act
section 1032(f) requires the Bureau to
combine these RESPA disclosures with
the pre-consummation disclosures
required by TILA. In addition to existing
TILA disclosure requirements, section
1419 of the Dodd-Frank Act amended
TILA section 128(a) to require, in the
case of a residential mortgage loan,
disclosure of the aggregate amount of
settlement charges for all settlement
services provided in connection with
the loan and the aggregate amount of
other fees or required payments in
connection with the loan. 15 U.S.C.
1638(a)(17).
Pursuant to its authority under DoddFrank Act section 1032(f), TILA section
105(a), and RESPA section 19(a), the
Bureau proposes to require creditors to
disclose the loan costs and other costs
imposed upon the consumer in tables as
part of the integrated Loan Estimate.
Proposed § 1026.37(f) and (g) implement
the early disclosure requirements in
TILA and RESPA by setting out details
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relating to the costs for consummating
the mortgage loan, including loan costs
and other costs. Based on its consumer
testing, the Bureau believes that early
disclosure of estimated loan costs and
other costs, as set forth in proposed
§ 1026.37(f) and (g), will improve
consumer understanding of the credit
and property transactions. The Bureau
believes that these disclosures will
effectuate the purpose of TILA by
promoting the informed use of credit
and assuring a meaningful disclosure to
consumers. The Bureau believes that the
disclosures will also satisfy the RESPA
requirement to provide a consumer with
a good faith estimate of the amount or
range of charges for specific settlement
services the consumer is likely to incur
in connection with the closing. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed rule. These disclosures will
ensure that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed rule is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed § 1026.37(g) requires
creditors to disclose as ‘‘Other Costs’’ on
the Loan Estimate certain items that are
in addition to the Loan Costs that are
specifically required by the creditor
before consummation of a credit
transaction and are disclosed pursuant
to § 1026.37(f). The ‘‘Other Costs’’
disclosed pursuant to § 1026.37(g) are
necessary to complete the real estate
closing. These items usually concern
payments for governmental
requirements, insurance premiums, and
items that are charged by parties to the
property transaction other than the
creditor. The creditor must disclose
under four subheadings individual
itemized charges, along with subtotals
for categories of those itemized charges.
Consumer feedback from the Bureau’s
consumer testing indicated that clear
amounts for the total costs of the loan
and real estate closing were also
important to consumers’ understanding
of the complete transaction. Consistent
with that feedback, under two
additional subheadings, the creditor
must disclose the total of Other Costs
and the total of Loan Costs plus Other
Costs. In general, all of these charges are
currently required to be disclosed—as
itemized or aggregate charges and
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amounts—on the RESPA GFE, the
RESPA settlement statement, or both.
Combining these charges and totals into
the disclosures required by § 1026.19(e)
will enable consumers to understand
the services and charges related to the
loan and property transactions, shop for
the loan and certain services, and
compare the Loan Estimate with any
revised Loan Estimate and the Closing
Disclosure, thereby ensuring that the
features of the mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Proposed comment 37(g)–1 describes
the kinds of charges that are disclosed
under § 1026.37(g). Proposed comment
37(g)–2 clarifies that items that are paid
at or before closing under the real estate
contract are not disclosed on the Loan
Estimate, except to the extent the
creditor is aware of those charges at the
time the Loan Estimate is issued. These
items will be disclosed, however, in the
Closing Disclosure pursuant to
§ 1026.38(f), (g), (j) and (k).
37(g)(1) Taxes and Other Government
Fees
Proposed § 1026.37(g)(1) requires the
disclosure of taxes and other
government fees for recording of
documents and transfer taxes assessed
against the purchase price of a real
estate contract or the loan amount.
Recording fees differ from transfer taxes
because recording fees are based on the
nature or physical characteristics of the
document being recorded and are not
based on the sales price or loan amount.
The Bureau is proposing the
requirements in § 1026.37(g)(1) pursuant
to its authority under TILA section
105(a) and RESPA section 19(a) because
disclosure of taxes and government fees
required to be paid in the real estate
closing will educate consumers about
costs they must be prepared to pay in
the transaction, thereby promoting the
informed use of credit and more
effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements in
§ 1026.37(g)(1). This information also
ensures that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
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circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 37(g)(1)–1 clarifies
that recording fees are assessed by a
government authority in order to record
and index documents related to
property transfers under State or local
law. Proposed comment 37(g)(1)–2
clarifies that government charges that
are not transfer taxes are disclosed with
recording fees under § 1026.37(g)(1)(i).
Proposed comment 37(g)(1)–3 explains
that, in general, transfer taxes are State
and local government fees on mortgages
and home sales that are based on the
loan amount or sales price. Proposed
comment 37(g)(1)–4 clarifies that the
only transfer taxes disclosed under
§ 1026.37(g)(1) are transfer taxes
imposed on the consumer, as
determined under State or local law,
and that if unpaid transfer taxes can
result in a lien being placed on the
property of the consumer, the transfer
tax is disclosed under § 1026.37(g)(1).
The comment further clarifies that if
State or local law is unclear, or does not
specifically attribute the transfer tax, the
creditor may use common practice in
the locality of the property to apportion
the amount of the transfer tax disclosed
as paid by the consumer under
§ 1026.37(g)(1). This comment is
consistent with guidance provided by
HUD in the HUD RESPA FAQs p.34, #2
(‘‘GFE-Block 8’’). Proposed comment
37(g)(1)–5 explains that although
transfer taxes paid by the seller in a
purchase transaction are not disclosed
pursuant to § 1026.37(g), they will be
disclosed on the Closing Disclosure
under § 1026.38(g)(1)(ii). Proposed
comment 37(g)(1)–6 clarifies that the
lines and labels required under
§ 1026.37(g)(1) may not be deleted, and
that additional items may not be listed
under the subheading.
37(g)(2) Prepaids
Proposed § 1026.37(g)(2) requires the
disclosure of prepaid charges for real
estate property taxes, insurance
premiums, and other items that must be
paid to insure the property or satisfy
real estate tax obligations, as well as
other charges that must be satisfied
before consummation of the credit
transaction and the real estate closing.
Proposed § 1026.37(g)(2) also prescribes
some of the items, and additional
information about those items, that must
be included under the subheading
‘‘Prepaids.’’ The Bureau is proposing the
requirements in § 1026.37(g)(2) pursuant
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51215
to its authority under TILA section
105(a) and RESPA section 19(a) because
disclosure of charges that must be
satisfied as part of the mortgage
transaction will educate consumers
about costs they must be prepared to
pay, thereby promoting the informed
use of credit and more effective advance
disclosure of settlement costs, which are
purposes of TILA and RESPA
respectively. Dodd-Frank Act sections
1032(a) and 1405(b) are also sources of
authority for the proposed requirements.
This information ensures that the
features of the mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 37(g)(2)–1
provides examples of other periodic
charges that are required to be paid at
consummation and are disclosed under
§ 1026.37(g)(2). Proposed comment
37(g)(2)–2 clarifies that the interest rate
disclosed under § 1026.37(g)(2)(iii) is
the same interest rate that is disclosed
under § 1026.37(b)(2). Proposed
comment 37(g)(2)–3 clarifies that the
terms ‘‘property taxes,’’ ‘‘homeowner’s
insurance,’’ and ‘‘mortgage insurance’’
have the same meaning as those terms
are used under § 1026.37(c) and its
commentary. Proposed comment
37(g)(2)–4 clarifies that the lines and
labels required under § 1026.37(g)(2)
may not be deleted.
37(g)(3) Initial Escrow Payment at
Closing
Proposed § 1026.37(g)(3) requires the
disclosure of the initial payments to
establish an escrow account to pay for
future recurring charges. Disclosure of
these amounts is required under
§ 1024.7 and § 1024.17 of Regulation X,
and the items and amounts must be
disclosed in Block 9 of the RESPA GFE.
Proposed § 1026.37(g)(3) also prescribes
some of the items, and additional
information about those items, that must
be included under the subheading
‘‘Initial Escrow Payment at Closing.’’
The Bureau is proposing the
requirements in § 1026.37(g)(3) pursuant
to its authority under TILA section
105(a) and RESPA section 19(a) because
disclosure of initial payments that
consumers are required to make to
establish escrow accounts for future
recurring charges will educate
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consumers about costs they must be
prepared to pay in the mortgage
transaction, thereby promoting the
informed use of credit and more
effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. DoddFrank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements. This
information ensures that the features of
the mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 37(g)(3)–1 clarifies
that for any item required to be listed
that is not charged to the consumer, the
monthly payment amount and time
period may be left blank, but the dollar
amount for the item must be shown as
zero. Proposed comment 37(g)(3)–2
clarifies that the aggregate escrow
account adjustment required for the
HUD–1 settlement statement under
Regulation X § 1024.17(d)(2) is not
included on the Loan Estimate, but is
included on the Closing Disclosure
under § 1026.38(g)(3). Proposed
comment 38(g)(3)–3 clarifies that
‘‘property taxes,’’ ‘‘homeowner’s
insurance,’’ and ‘‘mortgage insurance’’
have the same meaning as those terms
are used under § 1026.37(c) and its
commentary. Proposed comment
37(g)(3)–4 clarifies that the lines and
labels required under § 1026.37(g)(3)
may not be deleted.
37(g)(4) Other
Proposed § 1026.37(g)(4) requires the
disclosure of any other items that the
consumer has become legally obligated
to pay in connection with the
transaction, to the extent that the
existence of these items is known by the
creditor at the time the Loan Estimate is
issued. The label for any item that is a
component of title insurance must
include the description ‘‘Title—’’ at the
beginning. The label for all items for
which the amounts disclosed are
premiums for separate optional
insurance, warranty, guarantee, or
event-coverage products must include
the parenthetical ‘‘(optional)’’ at the
end. The items disclosed under
proposed § 1026.37(g)(4) are not
required by the creditor. These items are
also not additional coverage or
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endorsements added to products
required by the creditor. Accordingly,
they are not disclosed under other
paragraphs of proposed § 1026.37(f) or
(g) and are disclosed under the
subheading ‘‘Other.’’ These items are
voluntary products that the consumer
may be likely or may have already
elected to purchase, and of which the
creditor knows or is aware. The Bureau
is proposing the requirements in
§ 1026.37(g)(4) pursuant to its authority
under TILA section 105(a) and RESPA
section 19(a) because disclosure of
payments that consumers are likely to
pay in a mortgage transaction will
educate consumers about costs they
must be prepared to pay at closing,
thereby promoting the informed use of
credit and more effective advance
disclosure of settlement costs, which are
purposes of TILA and RESPA
respectively. Dodd-Frank Act sections
1032(a) and 1405(b) are also sources of
authority for the proposed requirements.
This information ensures that the
features of the mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the transaction in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). Furthermore,
for the reasons stated above, the
proposed disclosure is in the interest of
consumers and in the public interest,
consistent with Dodd-Frank Act section
1405(b).
Proposed comment 37(g)(4)–1 clarifies
that any owner’s title insurance policy
premium disclosed under
§ 1026.37(g)(4) is based on a basic rate,
and not an ‘‘enhanced’’ premium. This
comment is consistent with guidance
provided in the HUD RESPA FAQs p.33,
#3 (‘‘GFE-Block 5’’). Proposed comment
37(g)(4)–1 also provides an example of
a label for owner’s title insurance and
cross-references comment 37(f)(2)–4 for
disclosure of the premium for lender’s
title insurance. Proposed comment
37(g)(4)–2 clarifies that any title
insurance policy disclosed on the Loan
Estimate based on a simultaneous
issuance calculation must be disclosed
by adding the full owner’s title
insurance premium plus the
simultaneous issuance premium, and
then deducting the amount of the
lender’s title at the full premium rate.
Proposed comment 37(g)(4)–3 provides
examples of products to which the
description ‘‘(optional’’) applies and
cross-references comments 4(b)(7) and
(b)(8)–1 through –3 and comments
4(b)(10)–1 and –2 for descriptions and
guidance concerning disclosure of
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premiums for credit life, debt
suspension, and debt cancellation
coverage. Proposed comment 37(g)(4)–4
provides examples of other items that
are disclosed under § 1026.37(g)(4) if
known by the creditor at the time the
Loan Estimate is issued and refers to
comment 19(e)(3)(iii)–3 concerning
application of the good faith
requirement for services that are not
required by the creditor.
37(g)(5) Total Other Costs
Proposed § 1026.37(g)(5) requires
disclosure under the subheading ‘‘Total
Other Costs’’ of the sum of the subtotals
disclosed pursuant to paragraphs (g)(1)
through (g)(4). The Bureau is proposing
the requirements in § 1026.37(g)(5)
pursuant to its authority under TILA
section 105(a) and RESPA section 19(a)
because disclosure of the total of the
charges consumers must pay, in
addition to charges for consummating
the loan, will promote the informed use
of credit and more effective advance
disclosure of settlement costs, which are
purposes of TILA and RESPA
respectively. Dodd-Frank Act sections
1032(a) and 1405(b) are also sources of
authority for the proposed requirements.
This information ensures that the
features of the mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated
above, the proposed disclosure is in the
interest of consumers and in the public
interest, consistent with Dodd-Frank
Act section 1405(b).
37(g)(6) Total Closing Costs
Proposed § 1026.37(g)(6) requires the
disclosure under the subheading ‘‘Total
Closing Costs’’ of a subtotal of the items
disclosed as ‘‘Total Loan Costs’’ and
‘‘Total Other Costs’’ pursuant to
paragraphs (f)(4) and (g)(5); the amount
of any generalized lender credits to be
provided at consummation, stated as a
negative number; and the sum of the
subtotal of loan and other costs and the
(negative) amount of lender credits. The
Bureau is proposing the requirements in
§ 1026.37(g)(6) pursuant to its authority
under TILA section 105(a) and RESPA
section 19(a) because disclosure of the
total amounts consumers must pay to
consummate the loan and close the
property transaction will promote the
informed use of credit and more
effective advance disclosure of
settlement costs, which are purposes of
TILA and RESPA respectively. Dodd-
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Frank Act sections 1032(a) and 1405(b)
are also sources of authority for the
proposed requirements. This
information ensures that the features of
the mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction in light of the facts
and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated
above, the proposed disclosure is in the
interest of consumers and in the public
interest, consistent with Dodd-Frank
Act section 1405(b). Proposed comment
37(g)(6)(iii)–1 clarifies that generalized
lender credits not associated with a
particular service are disclosed under
§ 1026.37(g)(6)(iii), but lender credits for
specific items disclosed on the Loan
Estimate are disclosed as paid by others
on the Closing Disclosure under
§ 1026.38(f) and (g), as applicable.
37(g)(7) Item Descriptions and Ordering
In identifying the items listed as
Other Costs, the creditor is required to
use terminology that briefly and clearly
describes the item. All items must be
listed in alphabetical order following
the items prescribed to be included
under the subheading. The current
RESPA GFE and early TILA disclosure
do not include a similar requirement.
The Bureau is proposing the
requirements in § 1026.37(g)(7) pursuant
to its authority under TILA section
105(a) and RESPA section 19(a) because
a consistent listing of the costs that
appear on the Loan Estimate and the
Closing Disclosure will facilitate the
consumer’s comparison of the two
disclosure documents and
understanding of the transaction as a
whole, thereby promoting the informed
use of credit and more effective advance
disclosure of settlement costs, which are
purposes of TILA and RESPA
respectively. This requirement also will
ensure that the features of the mortgage
transactions are fully, accurately, and
effectively disclosed to consumers in a
manner that permit consumers to
understand the costs, benefits, and risks
associated with the mortgage transaction
in light of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a).
37(g)(8) Use of Addenda
Proposed § 1026.37(g)(8) provides that
addenda may not be used to itemize
disclosures required by § 1026.37(g). If
the creditor is not able to itemize all of
the charges required to be disclosed in
the number of lines provided under a
subheading, the remaining charges must
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be disclosed as an aggregate amount in
the last line permitted under the
applicable subheading. The Bureau is
proposing the requirements in
§ 1026.37(g)(8) pursuant to its authority
under TILA section 105(a) and RESPA
section 19(a) because standardization of
the information provided on the
disclosures required under § 1026.19(e)
will provide consistent information that
consumers will be able to use to better
understand the mortgage transaction,
shop for loans, and compare the Loan
Estimate with any revised Loan Estimate
and the Closing Disclosure, thereby
promoting the informed use of credit
and more effective advance disclosure
of settlement costs, which are purposes
of TILA and RESPA respectively. This
standardization will also ensure that the
features of the mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permit consumers to more readily
understand the costs, benefits, and risks
associated with the mortgage transaction
in light of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a), which is also a source of
authority for the proposed requirements.
Proposed comment 37(g)(8)–1 clarifies
that a creditor is permitted to provide
additional disclosures that are required
by State law, as long as those
disclosures are provided on a separate
document whose pages are physically
separate from, and are not presented as
part of, the disclosures provided in
accordance with § 1026.37.
37(h) Calculating Cash To Close
Pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
section 1032(a), the Bureau proposes
§ 1026.37(h), which requires the
disclosure of the calculation of an
estimate of the cash needed from the
consumer at consummation of the
transaction. In addition to promoting
the informed use of credit (which is a
purpose of TILA), this disclosure would
ensure that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product, in light of
the facts and circumstances, consistent
with section 1032(a) of the Dodd-Frank
Act. Proposed comment 37(h)-1 clarifies
that the labels to be used on the Loan
Estimate for each amount must match
their description in proposed
§ 1026.37(h)(1) to (7).
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37(h)(1) Total Closing Costs
37(h)(2) Closing Costs To Be Financed
Under § 1026.37(h)(1), the total
closing costs would be disclosed as
calculated under § 1026.37(g)(6) as a
positive number. Under § 1026.37(h)(2),
the amount of the closing costs to be
paid from loan proceeds would be
disclosed as a negative number.
37(h)(3) Downpayment and Other Funds
From Borrower
Under § 1026.37(h)(3), the amount of
the downpayment and other funds from
consumer at consummation would be
disclosed as a positive number. In a
purchase transaction the downpayment
would be calculated as the difference
between the purchase price of the
property and the principal amount of
the credit. In all other transactions, the
funds from the consumer would be
calculated under § 1026.37(h)(5).
37(h)(4) Deposit
Under proposed § 1026.37(h)(4), the
amount that is paid to the seller or held
in trust or escrow by a third party
pursuant to the terms of a contract for
sale of real estate disclosed as a negative
number. Proposed comment 37(h)(4)–1
clarifies that in any transaction other
than a purchase transaction, the amount
disclosed under proposed
§ 1026.37(h)(4) must be $0.
37(h)(5) Funds for Borrower
Under proposed § 1026.37(h)(5), the
amounts to be disclosed under both
§ 1026.37(h)(3) and § 1026.37(h)(5) are
calculated by subtracting the amount of
debt being satisfied by the real estate
transaction and the amount of the credit
extended by the new loan, excluding
any amount under § 1026.37(h)(2) since
that amount of the credit extended has
already been accounted for in the cash
to close calculation by inclusion in
§ 1026.37(h)(2). Funds for Borrower’’ is
intended to generally represent the
amount anticipated to be disbursed to
the consumer or used at consumer’s
discretion at consummation of the
transaction, such as in cash-out
refinance transactions. The
determination of whether the
transaction will result in ‘‘Funds for
Borrower’’ is made under proposed
§ 1026.37(h)(5). When the result of the
calculation is positive, that amount is
disclosed under § 1026.37(h)(3), and
$0.00 is disclosed under § 1026.37(h)(5).
When the result of the calculation is
negative, that amount is disclosed under
§ 1026.37(h)(5), and $0.00 is disclosed
under § 1026.37(h)(3). When the result
is $0.00, $0.00 is disclosed in both
§§ 1026.37(h)(3) and 1026.37(h)(5).
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37(h)(6) Seller Credits
Under proposed § 1026.37(h)(6), the
amount of any seller credit, to the extent
known by the creditor, is disclosed as a
negative number. Proposed comment
37(6)–1 clarifies that seller credits
known by the creditor at the time of
application are disclosed under
§ 1026.37(h)(6), and that seller credits
that are not known by the creditor are
not disclosed under § 1026.37(h)(6).
37(h)(7) Adjustments and Other Credits
Under proposed § 1026.37(h)(7) the
amount of other credits for all loan costs
and other costs, to the extent known,
that are to be paid by persons other than
the loan originator, creditor, consumer,
or seller disclosed as a negative number.
Proposed comment 37(h)(7)–1 clarifies
that amounts expected to be paid by
third parties not involved in the
transaction, such as gifts from family
members and not otherwise identified
under § 1026.37(h), would be included
in this amount to the extent known by
the creditor. Proposed comment
37(h)(7)–2 clarifies that the term
‘‘persons’’ as used in § 1026.37(h)(7)
includes all individuals and any entity,
regardless of the legal structure of such
entity. Proposed comment 37(h)(7)–3
clarifies that only credits from parties
other than the creditor or seller can be
disclosed pursuant to § 1026.37(h)(7).
Seller credits and credits from the
creditor are disclosed pursuant to
§ 1026.37(h)(6) and § 1026.37(g)(6)(ii),
respectively. Proposed comment
37(h)(7)–4 clarifies that other credits
known by the creditor at the time of
application are disclosed under
§ 1026.37(h)(7), and that other credits
that are not known by the creditor are
not disclosed under § 1026.37(h)(6).
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37(h)(8) Estimated Cash To Close
Under proposed § 1026.37(h)(8) the
total of the amounts disclosed under
proposed § 1026.37(h)(1) to (7) is
disclosed. Proposed comment 37(h)(8)-1
clarifies that the sum total of
§ 1026.37(h)(1) through (7) must be
disclosed pursuant to § 1026.37(h)(8) as
either a positive number, a negative
number, or zero. A positive number
indicates the estimated amount that the
consumer can be expected to pay at
consummation to complete the
transaction. A negative number
indicates the estimated amount that the
consumer can receive from the
transaction at consummation. A result
of zero indicates that the consumer is
anticipated to neither need to pay any
amount or receive any amount from the
transaction at consummation.
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37(i) Adjustable Payment Table
For certain credit transactions secured
by a dwelling, TILA section
128(b)(2)(C)(ii) requires the disclosure of
examples of adjustments to the regular
required payment on the extension of
credit based on the change in the
interest rates specified by the contract.
Among the examples must be the
maximum regular required payment
based on the maximum interest rate
allowed under the contract. While this
section requires examples based on
changes to the interest rates, the
requirement is triggered if either the
interest rate may change or the ‘‘regular
payments may otherwise be variable.’’
15 U.S.C. 1638(b)(2)(C)(ii). TILA section
128(b)(2)(C)(ii) does not, however,
require the disclosure of the existence of
loan terms that may cause the periodic
payment to adjust without a change to
the interest rate.
The Bureau believes that, to promote
the informed use of credit, loan terms
that may cause the periodic principal
and interest payment to adjust without
a change to the interest rate (such as an
optional payment loan) or include a
period during which the payment may
not pay principal (such as an interestonly period) or is not required to make
payments should be clearly disclosed to
consumers. In the Bureau’s consumer
testing, participants generally were able
to use this information to evaluate the
credit terms of the loan disclosed.
For example, the Bureau provided
mortgage disclosures for interest-only
loans to participants using a prototype
of an ‘‘adjustable payment table’’ at its
consumer testing. The table displayed
whether the loan had an interest-only,
optional-payment, or step-payment
period; the length of such period; the
amount of the periodic principal and
interest payment at the first adjustment;
the frequency and amounts of
subsequent adjustments; and the
maximum possible principal and
interest payment under the terms of the
loan. Participants were able to use this
table to determine the presence of the
interest-only period and the length of
the period, as well as how the principal
and interest payments would change as
a result. Also, participants were able to
understand that the purpose of the table
generally was to inform them about
such features. They were able to
determine from the prototype table that
the credit terms did not include one of
the other features, such as an optionalpayment or step-payment period.
Proposed § 1026.37(i) requires an
Adjustable Payment (AP) table to
disclose examples of the required
periodic principal and interest payment,
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including the maximum possible
required principal and interest payment,
for loans with terms that allow the
principal and interest payment to adjust
not based on adjustments to the interest
rate. In contrast, proposed § 1026.37(j)
requires provision of an Adjustable
Interest Rate table for credit transactions
with terms that permit the interest rate
to adjust after consummation. Proposed
§ 1026.37(i)(1) through (3) requires the
disclosure to state affirmatively or
negatively whether the loan has an
interest-only, payment-option, or steppayment period, and the length of such
period. Proposed § 1026.37(i)(4) also
requires the disclosure to state
affirmatively or negatively whether the
loan has a seasonal payment feature and
the period during which periodic
payments are affected by such feature.
As discussed above with respect to
proposed § 1026.37(a)(10), the Bureau
understands that some loans may be
structured so that periodic principal and
interest payments are not required to be
made by the consumer in between
specified unit-periods on a regular basis.
The format of the table as required by
proposed § 1026.37(o), and as illustrated
by form H–24 in appendix H to
Regulation Z, provides the affirmative or
negative statement in bold text in the
form of a question and answer. In
addition, the examples of the periodic
principal and interest payments are set
apart from these answers by a
subheading in bold text. The Bureau
believes, based on consumer testing,
that this format displays the information
in a readily visible, clear, and
understandable manner for consumers.
The Bureau proposes these
requirements pursuant to TILA section
128(b)(2)(C)(ii), and its authority under
TILA section 105(a), section 1032(a) of
the Dodd-Frank Act, and, for residential
mortgage loans, section 1405(b) of the
Dodd-Frank Act. The Bureau proposes
to use its authority under TILA section
105(a) to require this information to be
disclosed for all transactions subject to
§ 1026.19(e) and (f). The Bureau believes
this information may effectuate the
purposes of TILA by allowing
consumers to compare more readily the
different loan terms available to them,
and specifically, whether they contain
such adjustable or seasonal payment
terms. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
this disclosure would ensure that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks. In addition, the
Bureau believes this information may
improve consumer awareness and
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understanding of transactions involving
residential mortgage loans and is in the
interest of consumers and the public
interest.
Proposed comment 37(i)–1 clarifies
that under § 1026.37(i), the AP table
may only be disclosed if the periodic
principal and interest payment may
change after consummation based on an
adjustment that is not an adjustment to
the interest rate, or if the transaction is
a seasonal payment product as
described in proposed
§ 1026.37(a)(10)(ii)(E). The creditor is
not permitted to disclose the table if the
loan terms do not meet these
requirements, even if the table is left
blank or disclosed with an ‘‘N/A’’
within each row. The Bureau believes
that the inclusion of the AP table in
such cases would be unduly distracting
and confusing to a consumer and could
contribute to information overload—
especially if an entire table is included
only to be marked ‘‘not applicable.’’ As
the information within the table must be
determined dynamically, depending on
each transaction’s terms, the Bureau
believes a requirement that it be omitted
when not applicable is unlikely to be a
significant additional burden. This
comment references proposed comment
37–1, which clarifies the general
permission in proposed § 1026.37 to
provide the required disclosures ‘‘as
applicable’’ is subject to the more
specific prohibition in proposed
§ 1026.37(i), which does not permit
disclosure of the AP table when it is not
applicable. As the two tables’ numbers
of rows and columns are determined
dynamically, depending on each
transaction’s terms, the Bureau believes
a requirement that they be omitted
when not applicable is unlikely to be a
significant additional burden. The
Bureau seeks comment on whether this
dynamic inclusion/exclusion
requirement would be unduly
burdensome for creditors.
Proposed comment 37(i)–2 provides
guidance and examples of how the
information required by proposed
§ 1026.37(i)(1) through (4) should be
disclosed. Proposed comment 37(i)(5)–1
clarifies that the applicable unit-period
should be disclosed in the subheading
required by proposed § 1026.37(i)(5).
Proposed comment 38(i)(5)–2 provides
guidance on how to disclose the first
payment adjustment required to be
disclosed by proposed § 1026.37(i)(5)(i)
when the exact payment number is
unknown at the time of the disclosure.
Proposed comment 38(i)(5)–3 provides
guidance regarding how to disclose the
frequency of adjustments to the periodic
principal and interest payment after the
initial adjustment, as required by
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proposed § 1026.37(i)(5)(ii). Proposed
comment 37(i)(5)–4 provides guidance
regarding how to calculate the
maximum periodic principal and
interest payment for purposes of the
disclosure required by proposed
§ 1026.37(i)(5)(iii).
The format required by proposed
§ 1026.37(o), and illustrated by forms
H–24(b) and (c) in appendix H to this
part, provides the information required
by proposed § 1026.37(i) in a concise,
organized table. This table appears
immediately adjacent to the Adjustable
Interest Rate (AIR) Table required by
proposed § 1026.37(j) for loans that also
permit the interest rate to adjust after
consummation. The table uses bold text
for the questions and capitalized ‘‘yes’’
and ‘‘no’’ text for the answers required
by proposed § 1026.37(i)(1), (2), (3), and
(4). The AP table also uses bold text for
the subheading required by proposed
§ 1026.37(i)(5). Based on its testing, the
Bureau believes this format displays the
information in a clear, readily visible,
and understandable manner for
consumers.
37(j) Adjustable Interest Rate Table
Currently, TILA does not expressly
require disclosure of the interest rate for
closed-end credit. However, as noted
above, for closed-end credit secured by
a dwelling, TILA section 128(b)(2)(C)(ii)
requires disclosure of examples of the
periodic principal and interest payment
based on changes to the interest rate,
including the maximum principal and
interest payment during the life of the
loan. 15 U.S.C. 1638(b)(2)(C)(ii).
Regulation Z § 1026.18(s) currently
requires, for closed-end credit
transactions with adjustable interest
rates secured by real property or a
dwelling, disclosure of examples of the
interest rate and periodic principal and
interest payments, including the
maximum of these amounts under the
terms of the loan. For federally related
mortgage loans, § 1024.7(d) of
Regulation X currently requires the
summary table on page one of the
RESPA GFE to disclose the initial
interest rate, labeled ‘‘Your initial
interest rate is.’’ Then below another
row of the summary table stating the
initial monthly payment, the RESPA
GFE states whether the interest rate is
adjustable as an affirmative or negative
answer, labeled ‘‘Can your interest rate
rise?’’ If the answer is affirmative, the
RESPA GFE states the maximum
interest rate and when the first change
in the interest rate will occur within the
following sentence: ‘‘It can rise to a
maximum of __%. The first change will
be in _____.’’
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The Bureau believes that loan terms
that can cause the interest rate to adjust
should be clearly disclosed to
consumers. At the Bureau’s consumer
testing, participants generally stated that
information regarding potential changes
to the interest rate was important in
their evaluation of a loan. Participants
generally understood that the interest
rate affected the amount of interest due
under the loan and used the information
regarding potential changes to the
interest rate to evaluate loans. Although
proposed § 1026.37(b)(2) provides key
information about interest rate
adjustments, the Bureau believes more
detail regarding an adjustable interest
rate is important because it would
provide consumers with additional
detail regarding potential changes to the
interest and periodic payments that may
be useful in evaluating and comparing
loans.
The Bureau provided mortgage
disclosures for adjustable interest rate
loans to participants using a prototype
of an ‘‘Adjustable Interest Rate Table’’ at
its consumer testing. The table
displayed information about the index
and margin applicable to the loan, the
initial interest rate, the minimum and
maximum interest rates during the life
of the loan, the frequency of changes to
the interest rate, and limits on the
interest rate changes. Participants were
able to understand that the purpose of
the table generally was to inform them
about the adjustable interest rate terms
under the loan and often used the table
to compare adjustable-rate loans. The
table enabled consumers to determine
the interest rate terms of the transaction
and to compare two adjustable-rate
loans with different terms.
Therefore, the Bureau proposes to use
its authority under TILA section 105(a),
section 1032(a) of the Dodd-Frank Act,
and, for residential mortgage loans,
section 1405(b) of the Dodd-Frank Act
to require more detailed information
regarding the terms of an adjustable
interest rate to be disclosed in a separate
table, called the Adjustable Interest Rate
(AIR) Table, under proposed
§ 1026.37(j). The information regarding
the index and margin applicable to the
interest rate changes, the lifetime cap
and floor on the interest rate, and limits
on interest rate adjustments are not
currently provided together to
consumers in a clear, readily visible,
and understandable manner. Consumers
can find this information within the
promissory note, but they typically do
not receive the promissory note until
they are at the closing table. Disclosure
of this information in the Loan Estimate
and Closing Disclosure will enable
consumers to verify whether these terms
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have changed during the loan process.
This is especially important if the index
and margin have changed or the lifetime
maximum interest rate has changed,
because such changes can significantly
affect the amounts of periodic payments
over the life of the loan.
As described above, participants in
the Bureau’s consumer testing used
much of this information and generally
considered interest rate information to
be an important factor in evaluating a
loan. Participants were able to compare
this information between loans and
between the disclosures provided after
application and prior to loan closing.
The Bureau believes this information
may enable consumers to understand
and compare credit terms more readily,
effectuating the purposes of TILA. For
similar reasons, the Bureau believes this
disclosure will ensure that the features
of the transactions are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks,
in light of the facts and circumstances,
consistent with section 1032(a) of the
Dodd-Frank Act. The Bureau also
believe this information will improve
consumer awareness and understanding
of transactions involving residential
mortgage loans through the use of
disclosures, and is in the interest of
consumers and in the public interest.
Proposed § 1026.37(j) requires
disclosure of the index and margin for
an adjustable rate loan for which the
interest rate will adjust according to an
external index. For a loan with an
interest rate that changes based on
scheduled or pre-determined interest
rate adjustments and does not also
change based on the adjustment of an
external index, such as a ‘‘step-rate’’
product, proposed § 1026.37(j) requires
disclosure of the amount of any
adjustments to the interest rate that are
scheduled and their frequency. The
table also requires disclosure of: (i) The
interest rate at consummation of the
loan transaction; (ii) the minimum and
maximum possible interest rates after
the introductory rate expires; (iii) the
maximum possible change for the first
adjustment of the interest rate; (iv) the
maximum possible change for
subsequent adjustments of the interest
rate; (v) the number of months after
interest for the first regularly scheduled
periodic principal and interest payment
begins to accrue when the interest rate
may first change; and (vi) the frequency
of subsequent interest rate adjustments.
Proposed comment 37(j)–1 clarifies
that the table required by proposed
§ 1026.37(j) may only be provided in the
Loan Estimate when the interest rate
may change after consummation. The
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creditor is not permitted to disclose the
table in the Loan Estimate if the interest
rate will remain fixed, even if the table
is left blank or disclosed with an ‘‘N/A’’
within each row. As with the AP table,
the Bureau believes that the inclusion of
the AIR table in such cases would be
unduly distracting and confusing to a
consumer and potentially cause
information overload—especially if an
entire table is included only to be
marked ‘‘not applicable.’’ As the
information within the table must be
determined dynamically, depending on
each transaction’s terms, the Bureau
believes a requirement that it be omitted
when not applicable is unlikely to be a
significant additional burden. In the
discussion of proposed § 1026.37(i)
above, the Bureau seeks comment on
whether this dynamic inclusion/
exclusion requirement would be unduly
burdensome for creditors.
Proposed comment 37(j)(1)–1
provides guidance regarding how the
name of the index may be shortened.
Proposed comment 37(j)(2)–1 clarifies
that the table discloses the information
required by proposed § 1026.37(j)(2)
only if the loan does not also permit the
interest rate to adjust according to an
external index. Proposed comment
37(j)(3)–1 provides guidance regarding
the initial interest rate that must be
disclosed. Proposed comment 37(j)(4)–1
clarifies how the minimum interest rate
should be disclosed if the legal
obligation does not state a minimum
rate. Proposed comment 37(j)(4)–2
clarifies how the maximum interest rate
should be disclosed if the legal
obligation does not state a maximum
interest rate. While § 1026.30 currently
provides that a creditor must include a
maximum interest rate in any closedend consumer credit contract secured by
a dwelling for which the annual
percentage rate may increase after
consummation, that section applies only
to transactions secured by a dwelling.
The disclosure required by proposed
§ 1026.37(j)(4) applies to transactions
subject to § 1026.19(e), which includes
consumer credit transactions secured by
real property, which may not include a
dwelling.
Proposed comment 37(j)(5)–1 clarifies
that if the exact month of the first
adjustment to the interest rate is not
known at the time the disclosure is
provided, the earliest possible month
must be disclosed under proposed
§ 1026.37(j)(6). Proposed comment
37(j)(6)–1 clarifies that when more than
one limit applies to subsequent
adjustments to the interest rate, the
largest amount must be disclosed under
proposed § 1026.37(j)(6).
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The format required by proposed
§ 1026.37(o), and illustrated by
proposed form H–24(C) in appendix H
to this part, provides the information
required by proposed § 1026.37(j) in a
concise, single table. This table appears
immediately adjacent to the AP table
required by proposed § 1026.37(i) for
loans that permit the periodic principal
and interest payment to adjust based on
an adjustment other than an adjustment
to the interest rate. The table uses
concise labels and bold subheadings for
disclosures of the frequency of interest
rate changes and the limits on interest
rate changes. Based on its testing, the
Bureau believes this format displays the
information in a clear, readily visible,
and understandable manner for
consumers.
37(k) Contact Information
Under TILA section 128(a)(1) and
Regulation Z § 1026.18(a), the TILA
disclosures must include the identity of
the creditor. Comment 18(a)–1 clarifies
that the ‘‘identity’’ of the creditor must
include the name of the creditor, but
may also include the creditor’s address
and/or telephone number. As stated in
appendix C to Regulation X, the RESPA
GFE must include the name, address,
phone number, and email address (if
any) of the loan originator.
TILA, RESPA, and their implementing
regulations do not currently require the
disclosure of contact information for the
individual loan officer, however.
Therefore, the Bureau is proposing to
require that the Loan Estimate contain
certain contact information for the loan
officer as set forth in proposed
§ 1026.37(k) based on its authority
under TILA section 105(a), RESPA
section 19(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b).
The Bureau believes that this contact
information will effectuate the purposes
of TILA and RESPA by facilitating the
informed use of credit and ensuring that
consumers are provided with greater
and more timely information on the
costs of the settlement process.
Providing consumers with multiple
types of contact information for the loan
officers with whom they interact on the
transaction will allow consumers easier
access to information relevant to the
transaction (including costs), which in
turn ensures that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
matter that permits consumers to
understand the costs, benefits, and risks
associated with the transaction in light
of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a). The Bureau also believes such
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disclosure will improve consumers’
awareness and understanding of
residential mortgage transactions, which
is in the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b).
In light of the differing requirements
under TILA and RESPA with regard to
the types of contact information
disclosed on the early TILA disclosure
and RESPA GFE, respectively, the
Bureau also is proposing § 1026.37(k)
based on its mandate under sections
1032(f), 1098, and 1100A of the DoddFrank Act to propose rules and forms
that combine the disclosures required
under TILA and sections 4 and 5 of
RESPA into a single, integrated
disclosure for mortgage loan
transactions covered by those laws. As
discussed above, appendix C to
Regulation X states that the RESPA GFE
must include the name, address, phone
number, and email address (if any) of
the loan originator. Thus, as part of the
Bureau’s statutory mandate to integrate
the TILA and RESPA disclosures, the
Bureau must integrate the disclosures
currently required under Regulation X
with the TILA-mandated disclosures of
the creditor’s identity, discussed above.
Furthermore, TILA section
129B(b)(1)(B), 15 U.S.C. 1639b(b)(1)(B),
which was added by section 1402(a)(2)
of the Dodd-Frank Act, mandates that
each mortgage originator include on all
loan documents any unique identifier of
the mortgage originator provided by the
Nationwide Mortgage Licensing System
and Registry (NMLSR or NMLS). TILA
section 129B(b)(1)(B) will be
implemented in a separate rulemaking.
The Bureau proposes to use its authority
under TILA section 105(a) and DoddFrank Act sections 1032(a) and, for
residential mortgage loans, 1405(b) of
the Dodd-Frank Act to propose
§ 1026.37(k) for transactions subject to
proposed § 1026.19(e). Proposed
§ 1026.37(k) requires creditors to
provide certain contact and licensing
information for themselves, the
mortgage broker, and their respective
loan officers, as applicable. The Bureau
expects to harmonize this proposal with
the rulemaking implementing TILA
section 129B(b)(1)(B).
The Bureau believes that requiring on
the Loan Estimate the disclosure of the
name and NMLSR identification
number (NMLSR ID) number, if any, for
the creditor, mortgage broker, and the
loan officers employed by such entities,
as applicable (or, if none, the license
number or other unique identifier, if
any, issued by the applicable State,
locality, or other regulatory body with
responsibility for licensing and/or
registering such entity’s or individual’s
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business activities) may provide
consumers with the information they
need to conduct the due diligence
necessary to ensure that any creditor,
mortgage broker, and associated loan
officer selected to originate the loan are
appropriately licensed. Having this
information may help consumers assess
the risks associated with services and
service providers retained in connection
with the transaction, which in turn
promotes the informed use of credit
(consistent with TILA section 105(a)),
ensures that consumers are provided
with greater and more timely
information on the costs of the
settlement process (consistent with
RESPA section 19(a)), ensures that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
transaction in light of the facts and
circumstances (consistent with DoddFrank Act section 1032(a)), and
improves consumers’ awareness and
understanding of residential mortgage
transactions, which is in the interest of
consumers and the public (consistent
with Dodd-Frank Act section 1405(b)).
Thus, under the master heading
‘‘Additional Information About This
Loan,’’ proposed § 1026.37(k)(1)
requires the name and NMLSR ID, if
any, for the creditor and the mortgage
broker, if applicable. Proposed
§ 1026.37(k)(2) requires the name and
NMLSR ID for the loan officer
associated with the creditor and
mortgage broker identified in proposed
§ 1026.37(k)(1), if applicable. In the
event the creditor, mortgage broker, or
individual loan officer has not been
assigned an NMLSR ID, proposed
§ 1026.37(k)(1) and (2) require the
license number or other unique
identifier issued by the applicable
jurisdiction or regulating body with
which the creditor or mortgage broker is
licensed and/or registered to be
disclosed, if any. Proposed
§ 1026.37(k)(3) requires an email
address and phone number for each
loan officer identified in proposed
§ 1026.37(k)(2).
Proposed comment 37(k)–1 provides a
description of the NMLSR ID. Proposed
comment 37(k)–1 also references
provisions of the Secure and Fair
Enforcement for Mortgage Licensing Act
of 2008 (SAFE Act) requiring
individuals to register or obtain a
license through the NMLSR, and
clarifies that the information required in
§ 1026.37(k)(1) and (2) must be provided
for any creditor, mortgage broker, and
loan officer that has obtained an NMLSR
ID. Proposed comment 37(k)–2 provides
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clarification as to the nature of the
license or other unique identifier that is
to be disclosed in the event the creditor,
mortgage broker, or individual loan
officer has not been assigned an NMLSR
ID. Proposed comment 37(k)–3 clarifies
that the loan officer is the individual
who interacts most frequently with the
consumer and who has an NMLSR
identification number or, if none, a
license number, or other unique
identifier to be disclosed under
proposed § 1026.37(k)(2), as applicable.
37(l) Comparisons
TILA generally focuses on disclosing
the long-term cost of credit. However,
many of the disclosures required by the
statute have proven confusing for
consumers. As discussed below and in
part II above, Federal agencies have long
recognized that certain statutorilyrequired disclosures, such as the finance
charge and amount financed, are not
effective for communicating the cost of
credit to consumers and that, in some
cases, the disclosures hinder consumers’
ability to understand their credit terms.
One problem with the TILA
disclosures is consumer confusion
between common contract terms, such
as interest rate and loan amount, and
the required statutory disclosures. For
example, as discussed below, consumer
testing conducted by the Board
indicates that consumers are confused
about the difference between the
required TILA disclosure of the
‘‘amount financed’’ and the amount of
their loan or sale price of the property.
Similarly, the Board-HUD Joint Report
and consumer testing conducted by the
Board and the Bureau indicates
consumer confusion over the difference
between the contract interest rate and
the APR, in part because both are
expressed in the form of a rate and in
part because of the difficulty in
communicating to consumers the
meaning of the APR. Third, the TILA
disclosures focus on the cost of credit
over the entire life of the loan, which is
of limited use in the context of mortgage
lending since consumers generally do
not hold those loans for the entire loan
term. As discussed below and in part III
above, the results of the Bureau’s
consumer testing is consistent with
these concerns.
The Bureau believes that providing
consumers with useful tools to compare
loans is critical to carrying out the
purposes of TILA, RESPA, and the
Dodd-Frank Act. Accordingly, for the
reasons described below, the Bureau is
proposing to group several key metrics
together on the first page of the Loan
Estimate and shift others to the last page
of the Loan Estimate. In addition, the
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Bureau is proposing to provide certain
items only on the Closing Disclosure
because they are less useful to
consumers early in the lending process
and create the risk of undermining the
effectiveness of the Loan Estimate. The
Bureau proposes this approach to the
TILA disclosures because consumer
testing conducted by the Bureau, as well
as prior testing conducted by the Board,
strongly indicates that consumers
benefit from a disclosure that highlights
loan terms that are useful to consumers
in evaluating the cost of credit and
consumers’ ability to afford those costs,
such as the interest rate, monthly
payment amount, and amount of cash
needed to close the loan, and
deemphasizes terms that have proven
confusing or unhelpful to consumers.
The proposed rule shifts some
statutorily required disclosures from the
first page because the Bureau’s
consumer testing shows that consumers
benefit from this approach. The
proposed forms focus on presenting the
basic loan terms and risk features to
consumers first, because these
disclosures are critical to evaluating
affordability and facilitating comparison
of loans. The Bureau’s consumer testing
confirms that consumers are able to
locate the longer-term measures of the
cost of credit, notwithstanding the fact
that the proposed forms shift those
disclosures from the first page of the
disclosure. Moreover, the Bureau’s
consumer testing suggests that moving
the disclosure of the APR away from the
disclosure of the loan’s contract interest
rate and placing the APR with other
long-term metrics may reduce consumer
confusion and highlight the APR as a
special tool for comparing costs over
time.
Accordingly, proposed § 1026.37(l)
requires creditors to disclose, under the
master heading ‘‘Additional Information
About This Loan,’’ information required
by TILA section 128(a)(4), (5), (8), and
(19) in a separate table under the
heading ‘‘Comparisons,’’ along with the
statement, ‘‘Use these measures to
compare this loan with other loans.’’
Specifically, the table required by
proposed § 1026.37(l) must contain the
total payments (of principal, interest,
mortgage insurance, and loan costs) a
consumer will have made through the
end of the 60th month after the due date
of the first periodic payment (In 5
Years), the annual percentage rate
(APR), and the total interest percentage
(TIP), as described in § 1026.37(l)(1)
through (3). Pursuant to proposed
§ 1026.37(o) and proposed form H–24,
the table required by proposed
§ 1026.37(l) will appear on the final
page of the Loan Estimate, apart from
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the key loan terms identified on the first
page of the Loan Estimate. Based on
research regarding consumer
comprehension and behavior and the
results of the Bureau’s consumer testing,
as discussed above, the Bureau believes
that the disclosure of these calculations
on the final page of the Loan Estimate
and apart from the key loan terms may
enhance the overall understanding of
the disclosures.
37(l)(1) In Five Years
TILA section 128(a)(5) and (8)
requires creditors to disclose the sum of
the amount financed and the finance
charge using the term ‘‘Total of
Payments,’’ and a descriptive
explanation of that term. 15 U.S.C.
1638(a)(5), (8). Current § 1026.18(h)
implements these statutory provisions
by requiring creditors to disclose the
‘‘total of payments,’’ using that term,
and a descriptive explanation that the
figure represents the amount the
consumer will have paid after making
all scheduled payments. Current
comment 18(h)–2 provides that
creditors calculate the total of payments
amount for transactions subject to
current § 1026.18(s) using the rules in
current § 1026.18(g) and associated
commentary and, for adjustable-rate
transactions, comments 17(c)(1)–8 and
–10. Current comment 18(g)–1 provides
guidance to creditors on the amounts to
be included in the total of payments
calculation. Current comment 18(h)–1
allows creditors to revise the total of
payments descriptive statement for
variable-rate transactions to convey that
the disclosed amount is based on the
annual percentage rate and may change.
In addition, current comments 18(h)–3
and –4 permit creditors to omit the total
of payments disclosure in certain singlepayment transactions and for demand
obligations that have no alternate
maturity rate.
The total of payments disclosure has
historically been confusing for
consumers. For example, consumer
testing conducted for purposes of the
Board’s 2009 Closed-End Proposal
found that many consumers did not
understand the total of payments
disclosure and that, even when
consumers understood the meaning,
most did not consider it important in
their decision-making process. Macro
2009 Closed-End Report at 11, v. Based
on the Board’s testing and prior research
about the total of payment disclosure,
the Bureau considered alternative
metrics that might prove more useful to
consumers. As discussed above, one
problem with the TILA-required
disclosures is that they are calculated
over the entire length of the loan,
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although the Bureau understands that
consumers may typically only hold
mortgage loans for five to seven years
before selling the property or
refinancing. Accordingly, the total of
payments over the life of the loan is
such a large number that consumers
often find it overwhelming or
unrealistic, and therefore not a
meaningful disclosure of the cost of
credit. Furthermore, the total of
payments over the life of the loan does
not provide an accurate basis for
identifying the lowest cost loan for the
time a consumer will realistically hold
the loan.
Since the Board’s testing has already
shown that consumers do not
understand the total of payments
disclosure, the Bureau’s testing focused
on expressions of dollar amounts that
are more likely to be understood and
used by consumers. The Bureau also
recognized that simply providing one
disclosure would not give consumers an
accurate view of how much their
payments actually reduce the principal
balance of the loan, which would help
consumers pick the loan that puts them
in the best financial position after the
five to seven year mark if they do not
sell the property or refinance.
Accordingly, the Bureau developed a
two-element disclosure.
First, proposed § 1026.37(l)(1)(i)
requires the creditor to disclose the
dollar amount of the total principal,
interest, mortgage insurance, and loan
costs (disclosed pursuant to proposed
§ 1026.37(f)) scheduled to be paid
through the end of the 60th month after
the due date of the first periodic
payment, expressed as a dollar amount,
along with the statement ‘‘Total you will
have paid in principal, interest,
mortgage insurance, and loan costs.’’
Proposed comment 37(l)(1)(i)–1 clarifies
that the amount disclosed pursuant to
§ 1026.37(l)(1)(i) is the sum of principal,
interest, mortgage insurance, and loan
costs scheduled to be paid through the
end of the 60th month after the due date
of the first periodic payment. The
comment also clarifies that, for purposes
of § 1026.37(l)(1)(i), interest is
calculated using the fully-indexed rate
at consummation and includes any
prepaid interest. The comment further
provides that, for purposes of
§ 1026.37(l)(1)(i), the creditor assumes
that the consumer makes payments as
scheduled and on time. In addition,
proposed comment 37(l)(1)(i)–1
provides that, for purposes of
§ 1026.37(l)(1)(i), mortgage insurance is
defined pursuant to comment
37(c)(1)(i)(C)–1, and includes prepaid or
escrowed mortgage insurance, and that
loan costs are those costs disclosed
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pursuant to paragraph 1026.37(f).
Proposed comment 37(l)(1)(i)–2
provides guidance to creditors on
calculating principal and interest
disclosures for loans with negative
amortization features.
Second, proposed § 1026.37(l)(1)(ii)
requires the creditor to disclose the
dollar amount of principal scheduled to
be paid through the end of the 60th
month after the due date of the first
periodic payment, expressed as a dollar
amount, along with the statement
‘‘Principal you will have paid off.’’
Proposed comment 37(l)(1)(ii)–1
clarifies that the disclosure required by
proposed § 1026.37(l)(1)(ii) is calculated
in the same manner as the disclosure
required by proposed § 1026.37(l)(1)(i),
provided, however, that the disclosed
amount reflects only the total payments
to principal through the end of the 60th
month after the due date of the first
periodic payment.
Proposed § 1026.37(l)(1)(i)
implements the requirements of TILA
section 128(a)(5) and (8) for transactions
subject to proposed § 1026.19(e). The
Bureau proposes to modify the total of
payments disclosure to reflect the total
payments over five years, rather than
the life of the loan, on the Loan Estimate
provided to consumers near the time of
application. The Bureau proposes this
modification pursuant to its authority
under TILA section 105(a), Dodd-Frank
Act 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b). By reducing the scope of the
total of payments disclosure to five
years after the due date of the first
periodic payment, the disclosure more
accurately reflects the typical life of a
mortgage loan, thus effectuating the
purposes of TILA by enhancing
consumer understanding of mortgage
transactions. For this same reason, the
proposed modification will ensure that
the features of the mortgage transaction
are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans and is in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b).
As discussed in the Kleimann Testing
Report, consumer testing conducted by
the Bureau indicates that consumers can
use the ‘‘In 5 Years’’ disclosure to
compare loans they are considering and
that, in some instances, these
disclosures increase consumers’
understanding of loan costs. For
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example, some consumers who did not
understand from page one of the Loan
Estimate that a loan provided for
interest-only payments for a specified
period were able to recognize that they
would be making interest-only
payments as a result of the principal
paid ‘‘In 5 Years’’ disclosure. Consumer
participants understood the relationship
of principal and interest and generally
wanted to choose loans with more
principal paid off during the first five
years. Industry feedback provided in
response to the Bureau’s Small Business
Review Panel Outline stated that
implementation of the ‘‘In 5 Years’’
disclosure will require additional
training and systems changes, and that
it is unclear that the disclosure will
assist consumers. The Bureau has
considered this feedback but, in light of
the research and consumer testing
results discussed above, nevertheless
believes that the ‘‘In 5 Years’’ disclosure
will provide important benefits to
consumers by disclosing the total of
payments over a period that more
accurately reflects the typical life of a
mortgage loan.
The Bureau also proposes to exercise
its authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b) to include
mortgage insurance and other loan costs
in the ‘‘In 5 Years’’ calculation. TILA
section 128(a)(5) defines the total of
payments as the sum of the amount
financed and the finance charge.
However, the Bureau believes including
mortgage insurance and other loan
costs, rather than the finance charge, in
the calculation may enhance consumer
understanding of mortgage transactions
because consumers can cross-reference
other sections of the Loan Estimate to
determine what costs are actually
included in the ‘‘In 5 Years’’ disclosure,
permitting consumers to more readily
compare loans, consistent with the
purposes of TILA. In contrast, as
discussed below, consumers have no
way to know which costs are included
in the finance charge. For these same
reasons, the Bureau believes that the
proposed modification will ensure that
the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances, consistent with
section 1032(a) of the Dodd-Frank Act,
and will improve consumer awareness
and understanding of residential
mortgage loans and be in the interest of
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consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
Proposed § 1026.37(l)(1)(ii) requires
creditors to disclose the dollar amount
of principal scheduled to be paid
through the end of the 60th month after
the due date of the first periodic
payment. The Bureau proposes this
additional requirement pursuant to its
authority under TILA section 105(a) and
Dodd-Frank Act section 1032(a). As
discussed above, the Bureau believes
the proposed disclosure will enhance
consumer understanding of the
allocation of their payments between
principal and interest and help
consumers pick the loan that puts them
in the best financial position after the
five to seven year mark if they do not
sell the property or refinance, consistent
with the purposes of TILA. For these
same reasons, consistent with section
1032(a) of the Dodd-Frank Act, the
Bureau believes that the disclosure
would ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
The Bureau recognizes, however, that
the total of payments disclosure is
commonly used by creditors and
supervisory agencies for compliance
purposes, as well as consumer
advocates. Therefore, under the
proposal, creditors would be required to
disclose a modified total of payments
over the loan’s full term in the Closing
Disclosure provided to consumers at
least three days prior to consummation.
See proposed § 1026.38(o)(1).
37(l)(2) Annual Percentage Rate
TILA section 128(a)(4) and (8)
requires creditors to disclose the annual
percentage rate, together with a brief
descriptive statement of the annual
percentage rate. 15 U.S.C. 1638(a)(4),
(a)(8). Current § 1026.18(e) implements
these statutory provisions by requiring
creditors to disclose the ‘‘annual
percentage rate,’’ using that term, and a
brief description such as ‘‘the cost of
your credit as a yearly rate.’’ In addition,
TILA section 122(a) requires that the
annual percentage rate be more
conspicuous than other disclosures,
except the disclosure of the creditor’s
identity. 15 U.S.C. 1632(a). This
requirement is also implemented in
current § 1026.18(e).
Concerns have been raised repeatedly
over the last two decades that
consumers are confused by what the
APR represents and do not use it for its
intended purpose: to compare loans.
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The Board-HUD Joint Report noted that
consumers generally do not understand
what the APR represents or how to use
it, and that some consumers mistake the
APR with the interest rate. Board-HUD
Joint Report at 10. Consumer testing
conducted for purposes of the Board’s
2009 Closed-End Proposal revealed
these same problems with the APR. 74
FR at 43296. The Board tested
alternative descriptions and formats for
the APR, but the APR continued to
confuse consumers. Id. The Board’s
consumer testing also indicated that
consumers did not use the APR to
compare loans but, instead, focused on
the interest rate, monthly payment
amount, and settlement costs when
comparing loan offers. Id. at 43296–97.
As discussed in the Kleimann Testing
Report, the Bureau’s consumer testing
similarly indicates consumer confusion
regarding the APR disclosure and that
consumers do not use the APR when
comparing loans. Like the prior testing,
the Bureau’s consumer testing indicates
that consumers do not grasp the concept
of the APR and often confuse it with the
loan’s interest rate. Most consumers
confused the APR with the interest rate
and misinterpreted the meaning of the
disclosure. In Round 3 of the Bureau’s
consumer testing, the statement ‘‘This is
not your interest rate’’ was added to the
description of the APR to reduce
consumer confusion between the
interest rate and the APR. While most
consumer participants understood from
that statement that the interest rate and
APR were separate items, they still had
trouble understanding what the APR
means, how it relates to the interest rate,
and how it is useful as a comparison.
Participants also misunderstood the
APR in other ways, such as the average
interest rate of other loans, an interest
rate imposed once a year, and an
interest rate listed by the creditor to
mislead the consumer.
Pursuant to its implementation
authority under TILA section 105(a), the
Bureau proposes § 1026.37(l)(2) to
implement the requirements of TILA
section 128(a)(4) and (8) for transactions
subject to proposed § 1026.19(e) by
requiring creditors to disclose the
‘‘annual percentage rate’’ and the
abbreviation ‘‘APR,’’ together with the
following statement: ‘‘Your costs over
the loan term expressed as a rate. This
is not your interest rate.’’ Further, in
light of consumer confusion over the
APR and the fact that consumers do not
appear to use the APR in comparing
loan offers, the Bureau proposes to
exercise its authority under TILA
section 105(a) and (f), Dodd-Frank Act
section 1032(a) and, for residential
mortgage loans, Dodd-Frank Act section
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1405(b), to except transactions subject to
§ 1026.19(e) from the requirement of
TILA section 122(a) that the annual
percentage rate disclosure be more
conspicuous than other disclosures,
except the disclosure of the creditor’s
identity. As discussed above, testing
conducted by the Board and the Bureau
consistently indicate consumer
confusion over the APR. When the
Bureau added the statement ‘‘this is not
your interest rate’’ to the descriptive
explanation of the APR during its
consumer testing, although confusion
was reduced, participants still did not
understand how to use the APR.
Instead, participants used measures they
readily understood, such as the
maximum interest rates, maximum
periodic payments, and closing cost
details to evaluate, compare, and verify
loan terms. Participants were able to use
these measures to evaluate and compare
loans, making sophisticated trade-offs,
often based on rationales involving their
personal circumstances.
Accordingly, the Bureau believes the
proposed exemption may enhance
consumer understanding by separating
the APR disclosure from the interest rate
disclosure, which could prevent
consumer confusion over the two rates
and reduce the possibility of
information overload for consumers
attempting to compare loan terms,
consistent with the purposes of TILA.
The Bureau believes that grouping the
APR with the ‘‘In 5 Years’’ and Total
Interest Percentage disclosures will also
enhance consumer understanding by
emphasizing that the APR is a special
metric created specifically for
comparison purposes that may help
consumers think about their costs over
their life of the loan. In addition, the
purpose of the integrated disclosure
under TILA section 105(b) and RESPA
section 4(a) is to ‘‘aid the borrower
* * * in understanding the transaction
by utilizing readily understandable
language to simplify the technical
nature of the disclosures.’’ The Bureau
believes that placing measures that are
readily understandable to consumers on
the first page of the Loan Estimate, and
complex measures that consumers find
confusing on latter pages, meets this
statutory objective.
The Bureau has also considered the
factors in TILA section 105(f) and
believes that an exception is appropriate
under that provision. Specifically, the
Bureau believes that the proposed
exemption is appropriate for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
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appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. As discussed above,
consumer testing and historical research
indicate that consumers do not
understand the APR and do not use it
when shopping for a loan. Highlighting
the APR on the disclosure form
contributes to overall consumer
confusion and information overload,
complicates the mortgage lending
process, and hinders consumers’ ability
to understand important loan terms. As
such, the Bureau believes that the
proposed exemption from the
requirement that the APR be disclosed
more conspicuously than other
disclosures will not undermine the goal
of consumer protection but, instead,
will improve consumer understanding
of the loans. For all these reasons, the
Bureau believes that the proposed APR
disclosure will improve consumer
awareness and understanding of
residential mortgage loans and is in the
interest of consumers and the public,
consistent with Dodd-Frank Act section
1405(b), and that, consistent with
section 1032(a) of the Dodd-Frank Act,
the disclosure would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances.
In response to the Bureau’s Small
Business Review Panel Outline, some
consumer advocacy groups expressed
concern about disclosing the APR on the
final page of the Loan Estimate and, as
discussed below, on the final page of the
Closing Disclosure. Specifically, this
feedback stated that the APR is a widely
recognized disclosure that is a useful
tool for consumers in comparing and
understanding mortgage loans, and that
deemphasizing the APR is not the most
effective way of dealing with known
problems with the APR disclosure.
Instead, these groups suggested that the
APR disclosure can be improved
through an all-in APR, better descriptive
language of the APR, or by
supplementing the APR with other
disclosures. For example, consumer
advocacy groups recommended that the
APR be more prominent than the
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interest rate on the Loan Estimate and
to be disclosed in a graphic format.
The Bureau has considered this
feedback, but based on the long history
of consumer confusion of the APR, the
Board’s prior efforts to improve the APR
disclosure, and the Bureau’s testing of
various descriptive statements of the
APR, described above, the Bureau
believes that the proposed approach to
the APR could provide important
benefits to consumers by emphasizing
the difference between the APR and the
contract interest rate. The Bureau is,
however, proposing to improve the APR
disclosure through a more inclusive
definition of the finance charge, as
discussed above, and a descriptive
statement that clearly distinguishes the
APR from the interest rate. The Bureau
also intends to develop supplemental
educational materials in booklets and its
Web site that will further explain how
the APR differs from the interest rate,
how it provides a good way of
comparing the entire costs of the loan
over the entire term, and why
consumers may want to use both the ‘‘In
5 Years’’ and APR figures to think about
their financial futures.
37(l)(3) Total Interest Percentage
The Dodd-Frank Act amended TILA
to add new section 128(a)(19), which
requires that, in the case of a residential
mortgage loan, the creditor disclose the
total amount of interest that the
consumer will pay over the life of the
loan as a percentage of the principal of
the loan. That section also requires that
the disclosure be computed assuming
the consumer makes each monthly
payment in full and on time, and does
not make any over-payments.
The Bureau proposes § 1026.37(l)(3)
to implement TILA section 128(a)(19) by
requiring creditors to disclose the total
interest percentage, using that term and
the abbreviation ‘‘TIP,’’ and requiring
creditors to disclose the descriptive
statement ‘‘The total amount of interest
that you will pay over the loan term as
a percentage of your loan amount.’’
Proposed § 1026.37(l)(3) also provides
that the ‘‘total interest percentage’’ is the
total amount of interest that the
consumer will pay over the life of the
loan, expressed as a percentage of the
principal of the loan. Proposed
comments 37(l)(3)–1 through –3 provide
further guidance to creditors on
calculation of the total interest
percentage. Proposed comment 37(l)(3)–
1 provides that, when calculating the
total interest percentage, the creditor
assumes that the consumer will make
each payment in full and on time, and
will not make any additional payments.
Proposed comment 37(l)(3)–2 provides
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that, for adjustable-rate mortgages,
§ 1026.37(l)–(3) requires that the
creditor compute the total interest
percentage using the fully-indexed rate
and that, for step-rate mortgages,
§ 1026.37(l)(3) requires that the creditor
compute the total interest percentage in
accordance with § 1026.17(c)(1) and its
commentary. Proposed comment
37(l)(3)–3 provides that, for loans that
permit negative amortization,
§ 1026.37(l)(3) requires that the creditor
compute the total interest percentage
using the minimum payment amount
until the consumer must begin making
fully amortizing payments under the
terms of the legal obligation.
As discussed in the Kleimann Testing
Report, the Bureau’s consumer testing
indicates that consumers are able to use
the total interest percentage to compare
loans, and can generally recognize that
better loans disclose a lower total
interest percentage. Along with the ‘‘In
Five Years’’ disclosure, total interest
percentage was cited as the most useful
comparative tool. However, some
consumers did not understand the total
interest disclosure and questioned why
it is included on the form. Even
consumers who used the total interest
percentage disclosure generally did not
understand the more technical aspects
of the total interest percentage
disclosure, such as the difficulty of
using the measure in an adjustable-rate
loan. Concerns were also raised during
the Bureau’s Small Business Review
Panel, by industry in feedback provided
in response to the Small Business
Review Panel Outline, and in feedback
received through the Bureau’s Web site
that the total interest percentage could
be difficult to calculate and explain to
consumers, and would not likely be
helpful to consumer. See, e.g., Small
Business Review Panel Report at 20.
In light of the Bureau’s testing of the
total interest percentage disclosure and
the concerns about consumers’ ability to
understand the disclosure, the Bureau
proposes to require creditors to disclose
the descriptive statement, ‘‘The total
amount of interest that you will pay
over the loan term as a percentage of
your loan amount.’’ The Bureau
proposes this pursuant to its authority
under TILA section 105(a), Dodd-Frank
Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b). Based on consumer testing, the
Bureau believes that consumer
understanding of the total interest
percentage disclosure may be enhanced
through the descriptive statement of the
total interest percentage, consistent with
the purposes of TILA, and that the
proposed descriptive statement is in the
interest of consumers and the public,
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51225
consistent with section 1405(b) of the
Dodd-Frank Act. For these reasons, the
Bureau also believes that the disclosure
of the descriptive statement regarding
the total interest percentage may ensure
that the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances, consistent with
section 1032(a) of the Dodd-Frank Act.
Notwithstanding the proposed
modifications, based on concerns raised
by the Small Business Review Panel,
industry feedback, and its own
consumer testing, the Bureau remains
concerned that the total interest
percentage may not be a useful tool for
consumers and could create confusion
and contribute to information overload.
In light of these concerns, the Bureau
alternatively proposes to use its
exception and modification authority
under TILA section 105(a) and (f),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b) to exempt
transactions subject to proposed
§ 1026.19(e) and (f) from the
requirements of TILA section 128(a)(19).
The Bureau believes the proposed
exemption will carry out the purposes
of TILA, consistent with TILA section
105(a), by avoiding consumer confusion
and information overload, thereby
promoting the informed use of credit.
For these same reasons, the proposed
exemption will help ensure that the
features of the mortgage transaction are
fully, accurately and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans and is in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b). Finally, the
Bureau has considered the factors in
TILA section 105(f) and believes that,
for the reasons discussed above, an
exception may be appropriate under
that provision. Specifically, the Bureau
believes that the proposed exemption is
appropriate for all affected borrowers,
regardless of their other financial
arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
appropriate for all affected loans,
regardless of the amount of the loan and
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whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. Based on these
considerations, the results of the
Bureau’s consumer testing, and the
analysis discussed elsewhere in this
proposal, the Bureau believes that the
proposed exemption may be
appropriate. The Bureau solicits
comment on the proposed exemption
and, alternatively, whether the Bureau
should implement the total interest
percentage disclosure only in the
Closing Disclosure.
Other Statutory Disclosures
As discussed above, the research
regarding consumer comprehension and
behavior and the results of the Board’s
and the Bureau’s consumer testing
suggest that an effective disclosure
regime minimizes the risk of consumer
distraction and information overload by
providing only information that will
assist most consumers. The Bureau
therefore carefully evaluated each
statutory element required under TILA,
whether the element has been required
for decades or is newly imposed by
Dodd-Frank, as to its usefulness to
consumers and others at early stages of
the loan process, during the real estate
closing process, and as general reference
information over the life of the loan.
Based on that analysis, the Bureau is
proposing to use its authority under
TILA section 105(a) and (f), Dodd-Frank
Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b), to except from and modify the
timing requirements for certain
disclosures required by TILA section
128. Specifically, those disclosures are:
The amount financed (TILA section
128(a)(2)), the finance charge (TILA
section 128(a)(3)), a statement that the
creditor is taking a security interest in
the consumer’s property (TILA section
128(a)(9)), a statement that the
consumer should refer to the
appropriate contract document for
information about their loan (TILA
section 128(a)(12)), a statement
regarding certain tax implications (TILA
section 128(a)(15)), and the creditor’s
cost of funds (TILA section 128(a)(17)).
The Bureau believes the proposed
exemptions discussed above will carry
out the purposes of TILA, consistent
with TILA section 105(a), by avoiding
consumer confusion and information
overload, thereby promoting the
informed use of credit, as discussed
above. For these same reasons, the
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proposed exemptions will help ensure
that the features of the mortgage
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, consistent with Dodd-Frank
Act section 1032(a), and will improve
consumer awareness and understanding
of residential mortgage loans and are in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). The Bureau has
considered the factors in TILA section
105(f) and believes that, for the reasons
discussed above, an exception is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers. Based
on these considerations, the results of
the Bureau’s consumer testing, and the
analysis discussed elsewhere in this
proposal, the Bureau believes that the
proposed exemptions are appropriate.
The proposed exclusion of the finance
charge and the amount financed from
the Loan Estimate is discussed at length
below.
Finance charge. TILA section
128(a)(3) and (8) requires creditors to
disclose the ‘‘finance charge’’ and a brief
descriptive statement of the finance
charge. 15 U.S.C. 1638(a)(3), (a)(8). For
transactions subject to RESPA, TILA
section 128(b)(2)(A) requires creditors to
provide this disclosure not later than
three business days after the creditor
receives the consumer’s application,
and at least seven business days before
consummation. 15 U.S.C. 1638(b)(2)(A).
Current § 1026.18(d) implements TILA
section 128(a)(3) and (8) by requiring
creditors to disclose the ‘‘finance
charge,’’ using that term, and a brief
description such as ‘‘the dollar amount
the credit will cost you.’’ For
transactions subject to RESPA, current
§ 1026.19(a) requires creditors to
provide the finance charge disclosure
not later than the third business day
after the creditor receives the
consumer’s application.
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Federal agency research has long
recognized consumer confusion over the
finance charge. The Board-HUD Joint
Report found that TILA disclosures fall
short of meeting their goal of informing
consumers about the cost of credit, in
part because of consumer confusion
over the finance charge. Board-HUD
Joint Report at III. Evidence of consumer
confusion over the finance charge was
echoed in the Board’s 2009 Closed-End
Proposal. 74 FR at 43307–08. The
Board’s consumer testing indicates that
consumers often fail to understand that
the finance charge contains both interest
and fees,172 and that consumers place
very little value on the finance charge
when making decisions regarding their
loan.173 The report stated that ‘‘[testing]
participants * * * generally
disregarded the finance charge when
reading their TILA statements.’’174
For these reasons, the Bureau
proposes to exercise its authority under
TILA section 105(a) and (f) and DoddFrank sections 1032(a) and, for
residential mortgage loans, 1405(b), to
except transactions subject to proposed
§ 1026.19(e) from the requirements of
TILA section 128(a)(3) and (8) as it
applies to the Loan Estimate provided to
consumers within three business days of
application. As discussed above, the
Bureau believes that the proposed
exclusion of the finance charge
disclosure from the Loan Estimate
effectuates the purposes of TILA by
avoiding consumer confusion and
information overload historically
associated with the finance charge
disclosure, thereby improving the
informed use of credit. The Bureau has
considered the factors in TILA section
105(f) and believes that, for the reasons
discussed above, an exception is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
172 Macro 2009 Closed-End Report at 11, 41
(stating that, in Round 8 of the testing, ‘‘[m]ost
[participants] thought the finance charges were
equal to the amount of interest that the borrower
would pay over time; only a few understood the
finance charges shown on the form included fees
as well as interest’’).
173 For example, only one of the nine participants
in one round of the Board’s testing found the
finance charge useful. Id. at 35. In another round,
most participants said that they would not use the
finance charge in their decision-making. Id. at 28.
174 Id. at 41.
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residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers. Based
on these considerations, the results of
the Bureau’s consumer testing, and the
analysis discussed above, the Bureau
believes that the proposed exemption is
appropriate.
Specifically, the Bureau does not
believe that disclosure of the finance
charge on the Loan Estimate provides a
meaningful benefit to consumers in the
form of useful information or protection.
Rather, the Bureau believes that
disclosure of the finance charge to
consumers early in the lending process
actually complicates and hinders the
process of mortgage lending because
consumers do not understand the
disclosure. Removing the finance charge
disclosure from the Loan Estimate that
consumers receive early in the lending
process may assure meaningful
disclosure of credit terms, facilitate
consumer comparison of credit terms,
and improve the informed use of credit
by avoiding information overload and
improving consumer understanding of
loan terms, consistent with the purposes
of TILA and with section 1405(b) of the
Dodd-Frank Act. As consumer testing
indicates that consumers generally do
not use the finance charge when
shopping for a loan, the absence of the
finance charge from the Loan Estimate
should not detract from consumers’
understanding of their credit terms but,
instead, will permit consumers to focus
on other important terms. In addition,
consistent with Dodd-Frank Act section
1032(a), removal of the finance charge
from the Loan Estimate would help
ensure that the features of consumer
credit transactions secured by real
property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
The Bureau recognizes that creditors,
consumer advocates, and State and
Federal supervisory agencies use the
finance charge when calculating or
verifying the calculation of the APR,
determining compliance with certain
price thresholds, and for a range of other
purposes, including the right of
rescission pursuant to TILA section 125.
15 U.S.C. 1635. Accordingly, to preserve
the finance charge disclosure for these
purposes, proposed § 1026.38(o)(2)
requires creditors to disclose the finance
charge on the Closing Disclosure
provided to consumers at least three
days prior to prior to consummation.
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Although concerns regarding consumer
distraction and information overload
persist at the stage of the transaction
where the consumer receives the
Closing Disclosure, the Bureau believes
that disclosing the finance charge with
other loan calculations on the final page
of the Closing Disclosure as a general
reference for the consumer after closing
will mitigate these concerns. In
addition, though the finance charge is
not disclosed on the Loan Estimate,
creditors must, in order to comply with
the record retention requirements in
§ 1026.25, document the finance charge
used to calculate the APR disclosed on
the Loan Estimate. As discussed above,
the Bureau is proposing conforming
amendments to § 1026.22 to reflect the
accuracy standards applicable to the
finance charge disclosed on the Closing
Disclosure under proposed
§ 1026.38(o)(2). The Bureau seeks
comment on whether the final rule
should contain similar accuracy
standards for the finance charge used in
the APR calculation for the Loan
Estimate.
Amount financed. TILA section
128(a)(2) and (8) requires creditors to
disclose the ‘‘amount financed,’’ using
that term, and a brief descriptive
statement of the amount financed. 15
U.S.C. 1638(a)(2), (a)(8). Current
§ 1026.18(b) implements this
requirement and requires creditors to
disclose the amount financed, using that
term, together with a brief description
that the amount financed represents the
amount of credit of which the consumer
has actual use. Like the finance charge
disclosure, for transactions subject to
RESPA, TILA section 128(b)(2)(A)
requires that creditors provide a good
faith estimate of this disclosure not later
than three business days after the
creditor receives the consumer’s
application, and at least seven business
days before consummation. 15 U.S.C.
1638(b)(2)(A). This requirement is
implemented in current § 1026.19(a).
Like the finance charge, the amount
financed disclosure has historically
been viewed as confusing for
consumers. The Board-HUD Joint Report
recommended removing the amount
financed from consumer disclosures
altogether because it ‘‘is probably not a
useful disclosure for mortgage
lending.’’ 175 The Board-HUD Joint
Report found that the primary use of the
‘‘amount financed’’ is to help
supervisory agencies confirm APR
calculations, and is not a useful
shopping tool for consumers.176 The
Board’s consumer testing in connection
175
Board-HUD Joint Report at 16.
at 17.
176 Id.
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51227
with the 2009 Closed-End Proposal also
indicated consumer confusion about the
‘‘amount financed.’’ Some testing
participants incorrectly assumed that
the ‘‘amount financed’’ was their loan
amount or the sale price of the home.177
Based on this testing, the Board
concluded that the ‘‘amount financed’’
disclosure detracted from, rather than
enhanced, consumers’ understanding of
other disclosures 178 and that consumers
‘‘would not consider the amount
financed when shopping for a mortgage
or evaluating competing loan offers.’’ 179
The Board also found that ‘‘requiring
creditors to disclose the amount
financed in the loan summary with
other key loan terms would add
unnecessary complexity and result in
‘information overload.’ ’’ 180
For these reasons, the Bureau
proposes to exercise its authority under
TILA section 105(a) and (f), Dodd-Frank
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b), to modify and except
transactions subject to proposed
§ 1026.19(e) from the requirements of
TILA section 128(a)(2) and (8) as it
applies to the Loan Estimate provided to
consumers within three business days of
application. As discussed above, the
Bureau believes that the proposed
exclusion of the amount financed
disclosure from the Loan Estimate
effectuates the purposes of TILA by
avoiding consumer confusion and
information overload historically
associated with the disclosure, thereby
improving the informed use of credit. In
addition, the Bureau has considered the
factors in TILA section 105(f) and
177 Macro 2009 Closed-End Report at v. For
example, in Round 8 of testing, participants were
‘‘confused about the difference between the ‘loan
amount’ and the ‘amount financed.’’’ Id. at 26. In
Round 9, participants gave a variety of incorrect
explanations of the term, including that it was
‘‘how much escrow they would have,’’ the amount
they would have to pay back, or the amount that
they borrowed. Id. at 35. In both of these rounds,
some participants believed the ‘‘amount financed’’
was equal to the amount of money they would be
borrowing. Id. at 40. In Round 11, the ‘‘amount
financed’’ was moved to the second page, under the
heading ‘‘Total Payments’’ in the ‘‘More
Information About Your Payments’’ section. Id. at
51. As in previous rounds, no participant was able
to explain the meaning of ‘‘amount financed.’’ Id.
at 55. In Round 12, with the ‘‘amount financed’’ in
the same place on the second page, two participants
incorrectly believed they were borrowing the
‘‘amount financed.’’ Id. at 55. In the final round of
testing, none of the participants understood the
meaning of ‘‘amount financed.’’ Id. at 72.
178 74 FR at 43308. For example, ‘‘sample
disclosures were used to try to explain that the
difference between the loan amount and amount
financed is attributable to prepaid finance charges,
but this explanation did not appear to improve
consumer comprehension.’’ Id.
179 Id.
180 Id.
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believes that, for the reasons discussed
above, an exception is appropriate
under that provision. Specifically, the
Bureau believes that the proposed
exemption is appropriate for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. Based on these
considerations, the results of the
Bureau’s consumer testing, and the
analysis discussed above, the Bureau
believes that the proposed exemption is
appropriate.
The Bureau does not believe that
disclosure of the amount financed on
the Loan Estimate provides a
meaningful benefit to consumers in the
form of useful information or protection.
Rather, the Bureau believes that
disclosure of the amount financed to
consumers early in the lending process
actually complicates and hinders the
process of mortgage lending because
consumers do not understand the
disclosure. Removing the amount
financed from the Loan Estimate may
improve the informed use of credit by
avoiding information overload and
improving consumer understanding of
loan terms, consistent with the purposes
of TILA and will be in the interest of
consumers and the public, consistent
with section 1405(b) of the Dodd-Frank
Act. Enhanced consumer understanding
of mortgage transactions is also in the
interest of consumers and the public. In
addition, consistent with Dodd-Frank
Act section 1032(a), removal of the
amount financed from the Loan
Estimate would help ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances.
However, the Bureau recognizes that,
like the finance charge, the amount
financed is commonly used by creditors
and supervisory agencies for
compliance purposes, as well as by
consumer advocates. Therefore, under
the proposal, creditors would be
required to disclose the amount
financed in the Closing Disclosure
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provided to consumers at least three
business days prior to consummation.
Like the finance charge, the Bureau
believes that disclosing the amount
financed with other loan calculations on
the final page of the Closing Disclosure
as a general reference for the consumer
after closing will mitigate concerns
about consumer distraction and
information overload at the Closing
Disclosure stage.
37(m) Other Considerations
Under proposed § 1026.37(m),
creditors disclose certain information
pertaining to: (1) The consumer’s right
to receive copies of appraisals; (2) future
assumability of the loan; (3) at the
creditor’s option, homeowner’s
insurance requirements; (4) the
creditor’s late payment policy; (5) loan
refinancing; (6) loan servicing, and (7)
in refinance transactions, the
consumer’s liability for deficiency after
foreclosure. This information is
provided under the master heading
‘‘Additional Information About This
Loan’’ required by § 1026.37(k) and
under the heading ‘‘Other
Considerations.’’
As set forth below, consumers already
receive most of these disclosures at or
after application or prior to
consummation. Thus, by incorporating
all of these disclosures into the Loan
Estimate, the proposed rule will reduce
the number of separate disclosures that
consumers receive. Instead, consumers
will receive these disclosures in a
single, integrated document, which will
reduce the potential for information
overload, promote the informed use of
credit by the consumer, and facilitate
compliance by industry.
37(m)(1) Appraisal
Prior to the Dodd-Frank Act, ECOA
section 701(e) required creditors to
provide to applicants, upon written
request, a copy of the appraisal report
used in connection with the consumer’s
application for a loan secured by a lien
on residential real property. Section
1474 of the Dodd-Frank Act amended
ECOA section 701(e) to remove the
provision requiring consumers to
request a copy of their appraisal. That
section now requires the creditor to
provide the consumer with a copy of
any written appraisal or valuation
developed in connection with an
application for a loan that is or will be
secured by a first lien on a dwelling
promptly upon completion, and no later
than three days prior to the closing of
the loan, even if the creditor denies the
consumer’s application or the
application is incomplete or withdrawn.
15 U.S.C. 1691(e)(1). Under ECOA
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section 701(e)(5), the creditor must
notify the consumer in writing at the
time of application of the right to
receive a copy of any appraisal or
valuation. 15 U.S.C. 1691(e)(5).
In addition, section 1471(a) of the
Dodd-Frank Act added to TILA new
appraisal requirements for higher-risk
mortgages. Specifically, new TILA
section 129H(c) requires creditors to
provide consumers, at least three days
prior to closing, a copy of any appraisal
prepared in connection with a higherrisk mortgage. 15 U.S.C. 1639h(c).
Section 1471(f) of the Dodd-Frank Act
defines the term ‘‘higher-risk mortgage’’
generally as a residential mortgage loan,
other than a reverse mortgage, that is
secured by a principal dwelling with an
APR that exceeds the average prime
offer rate for a comparable transaction
by a specified percentage. 15 U.S.C.
1639h(f). New TILA section 129H(d)
contains a disclosure requirement that
creditors must provide consumers, at
the time of the initial mortgage
application, a statement that any
appraisal prepared for the mortgage is
for the creditor’s sole use and that the
consumer may choose to have a separate
appraisal conducted at his or her own
expense. 15 U.S.C. 1639h(d).
ECOA section 701(e), as amended by
the Dodd-Frank Act, and new TILA
section 129H(c) and (d) will be
implemented in separate Bureau and
joint interagency rulemakings,
respectively. However, the Bureau
proposes to use its authority under TILA
section 105(a) and Dodd-Frank Act
section 1032(a) to include on the Loan
Estimate disclosure of the new
requirements regarding the consumer’s
right to appraisal copies for loans
subject to ECOA section 701(e)(5) or
TILA section 129H(c) and (d). In the
integrated TILA–RESPA final rule, the
Bureau will harmonize this proposal
with its rulemaking implementing
amended ECOA section 701(e) and the
interagency rulemaking implementing
new TILA section 129H(c) and (d), so
that creditors may satisfy the ECOA
section 701(e)(5) and TILA section 129H
requirements in a single disclosure.
Proposed § 1026.37(m)(1) applies only
to closed-end credit transactions subject
to proposed § 1026.19(e) and ECOA
section 701(e) or TILA section 129H, as
implemented in Regulation B, 12 CFR
part 1002, and Regulation Z,
respectively. For such transactions,
proposed § 1026.37(m)(1) requires the
disclosure under the label ‘‘Appraisal.’’
The disclosure may be omitted for other
transactions. Proposed
§ 1026.37(m)(1)(i) requires the
disclosure to state that the creditor may
order an appraisal to determine the
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value of the property that is the subject
of the transaction and may charge the
consumer the cost for any such
appraisal. Proposed § 1026.37(m)(1)(ii)
requires the disclosure to state that the
creditor will promptly provide the
consumer a copy of the appraisal, even
if the transaction is not consummated.
Finally, proposed § 1026.37(m)(1)(iii)
requires the disclosure to state that the
consumer has the right to order an
additional appraisal of the property for
the consumer’s own use. Proposed
comment 37(m)(1)–1 clarifies that if a
transaction subject to proposed
§ 1026.19(e) is not also subject to either
ECOA section 701(e) or TILA section
129H, as implemented in Regulations B
and Z, respectively, the disclosure
required by proposed § 1026.37(m)(1)
may be omitted from the Loan Estimate.
The Bureau believes that including
these appraisal disclosures on the Loan
Estimate is consistent with the purposes
of TILA and will reduce burden on
industry. Rather than requiring two
separate appraisal disclosures in
addition to the Loan Estimate
consumers will receive after
application, the Bureau believes one
integrated disclosure will facilitate
compliance for creditors, promote the
informed use of credit by consumers,
and ensure effective disclosure to
consumers, consistent with the
purposes of TILA and TILA section
105(a). In addition, the Bureau believes
that incorporating the appraisal
disclosures into the Loan Estimate in a
way that is consistent with the
presentation of other disclosures will
ensure that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a).
37(m)(2) Assumption
TILA section 128(a)(13) requires the
creditor to disclose, in any residential
mortgage transaction, a statement
indicating whether a subsequent
purchaser may be permitted to assume
the remaining loan obligation on its
original terms. 15 U.S.C. 1638(a)(13).
This provision is currently implemented
in § 1026.18(q), and applies only to
residential mortgage transactions. TILA
section 103(x) defines ‘‘residential
mortgage transaction’’ as a ‘‘transaction
in which a mortgage, deed of trust,
purchase money security interest arising
under an installment sales contract, or
equivalent consensual security interest
is created or retained against the
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consumer’s dwelling to finance the
acquisition or initial construction of a
dwelling.’’ 15 U.S.C. 1602(x).
Proposed § 1026.37(m)(2) implements
TILA section 128(a)(13) for all
transactions subject to § 1026.19(e) by
requiring the creditor to disclose
whether a subsequent purchaser of the
property may be permitted to assume
the remaining loan obligation on its
original terms. Proposed comment
37(m)(2)–1 clarifies that the creditor
must disclose whether or not a third
party may be allowed to assume the
loan on its original terms if the property
is sold or transferred by the consumer.
Proposed comment 37(m)(2)–1 also
notes that in many mortgages, the
creditor may be unable to determine
whether the loan is assumable at the
time the Loan Estimate is provided and
cites to the Federal National Mortgage
Association and the Federal Home Loan
Mortgage Corporation as examples of
entities that as a common practice
condition assumability on a number of
factors such as the subsequent
borrower’s creditworthiness. Proposed
comment 37(m)(2)–1 clarifies that, if the
creditor can determine that such
assumption is not permitted, the
creditor complies with § 1026.37(m)(2)
by disclosing that the loan is not
assumable. In all other situations,
including where assumption of a loan is
permitted or is dependent on certain
conditions or factors, or uncertainty
exists as to the future assumability of a
mortgage, the creditor complies with
§ 1026.37(m)(2) by disclosing that,
under certain conditions, the creditor
may allow a third party to assume the
loan on its original terms. Proposed
comment 37(m)(2)–2 clarifies that the
phrase ‘‘original terms’’ as used in
§ 1027.37(m)(2) does not preclude an
assumption fee but may represent
different terms, and provides an
example of a modified term.
The Bureau proposes § 1026.37(m)(2)
to implement TILA section 128(a)(13)
for transactions subject to § 1026.19(e),
pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b).
In addition, the Bureau proposes to
modify the scope of TILA section
128(a)(13), pursuant to its authority
under TILA section 105(a) and DoddFrank Act sections 1032(a) and 1405(b),
to apply to all transactions subject to
proposed § 1026.19(e), even if not a
‘‘residential mortgage transaction’’ as
defined in TILA section 103(x). The
Bureau believes that consumers in
transactions secured by real property
would benefit from the disclosure, even
if the property does not contain a
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dwelling. Accordingly, the proposed
modification promotes the informed use
of credit, consistent with the purposes
of TILA. For this same reason, the
proposed modification will ensure that
the features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans and is in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b). Transactions
subject to the disclosure requirements of
§ 1026.18 continue to be subject to
§ 1026.18(q).
37(m)(3) Homeowner’s Insurance
TILA section 106(c) provides that
premiums for homeowner’s insurance
written in connection with any
consumer credit transaction shall be
included in the finance charge unless a
clear and specific statement in writing
is furnished by the creditor to the
person to whom credit is extended,
setting forth the cost of the insurance if
obtained from or through the creditor,
and stating that the person to whom
credit is extended may choose the
insurance provider. 15 U.S.C. 1605(c).
Current §§ 1026.4(d)(2)(i) and
1026.18(n) implement this provision.
The Bureau understands that many
creditors provide consumers the
disclosure described in TILA section
106(c) and § 1026.4(d)(2)(i) in order to
exclude homeowner’s insurance
premiums from the finance charge. To
reduce the number of individual
disclosures provided to consumers and
facilitate compliance for creditors, the
Bureau proposes § 1026.37(m)(3) which
provides that, at the creditor’s option,
the creditor may disclose a statement of
whether homeowner’s insurance is
required on the property and whether
the consumer may choose the insurance
provider, labeled ‘‘Homeowner’s
Insurance.’’ Proposed comment
37(m)(3)–1 clarifies that the disclosure
required in § 1026.37(m)(3) is optional.
Proposed comment 37(m)(3)–2 clarifies
that a creditor satisfies the condition for
excluding homeowner’s insurance
premiums from the finance charge
described in § 1026.4(d)(2)(i) by
disclosing the statement described in
§ 1026.37(m)(3).
The Bureau proposes § 1026.37(m)(3)
pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b).
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The Bureau believes that combining the
optional disclosure regarding
homeowner’s insurance premiums with
the other disclosures on the Loan
Estimate may avoid information
overload and therefore promote the
informed use of credit, consistent with
the purposes of TILA. In addition, the
proposed disclosure will help ensure
that the features of the transaction are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction, consistent
with Dodd-Frank Act section 1032(a),
and will improve consumer awareness
and understanding of residential
mortgage loans, in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
37(m)(4) Late Payment
TILA section 128(a)(10) requires
disclosure of ‘‘any dollar charge or
percentage amount which may be
imposed by a creditor solely on account
of a late payment.’’ 15 U.S.C.
1638(a)(10). This requirement is
currently implemented in § 1026.18(l),
which requires a statement detailing any
‘‘dollar or percentage charge that may be
imposed before maturity due to a late
payment.’’
Proposed § 1026.37(m)(4) implements
TILA section 128(a)(10) for transactions
subject to § 1026.19(e) and requires the
creditor to disclose a statement detailing
any charge that may be imposed on the
consumer for a late payment and the
number of days a payment must be late
before a penalty for late payment may be
assessed. Proposed comment 37(m)(4)–1
clarifies that the late payment disclosure
is required if charges are added to an
individual delinquent installment of a
transaction that remains ongoing on its
original terms. Proposed comment
37(m)(4)–1 also clarifies which charges
and creditor actions under the legal
obligation do not qualify as a late
payment charge and that an increase in
the interest rate is a late payment charge
to the extent of the increase. Comment
37(m)(4)–2 clarifies that the creditor
may make changes to the disclosure to
reflect the requirements imposed and
alternatives allowed under State law.
The Bureau proposes § 1026.37(m)(4)
to implement TILA section 128(a)(10)
for transactions subject to § 1026.19(e),
pursuant to its implementation
authority under TILA section 105(a). In
addition, the Bureau proposes to require
creditors to disclose the number of days
that a payment must be late to trigger
the late payment charge pursuant to its
authority under TILA section 105(a) and
Dodd-Frank Act section 1032(a). The
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Bureau believes the additional
disclosure enhances the late payment
disclosure by describing the conditions
that may trigger a late payment charge
and therefore promotes the informed
use of credit, consistent with the
purpose of TILA. For this same reason,
the Bureau believes the proposed
disclosure will ensure that the features
of the transaction are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a).
37(m)(5) Refinance
TILA section 128(b)(2)(C)(ii) requires
that, for variable-rate transactions or
transactions where the regular payment
may otherwise be variable and that are
secured by the consumer’s dwelling, the
borrower be provided with a disclosure
that there is no guarantee to refinance to
a lower amount. Current § 1026.18(t)
implements this provision by requiring
creditors to disclose a statement that
there is no guarantee that the consumer
may refinance to lower the interest rate
or monthly payment. Current
§ 1026.18(t) also expands the noguarantee-to-refinance disclosure to
apply to, not only variable-rate or
variable-payment transactions, but all
closed-end transactions secured by real
property or a dwelling, other than
transactions secured by the consumer’s
interest in a timeshare.
The Bureau proposes § 1026.37(m)(5)
to implement TILA section
128(b)(2)(C)(ii) for transactions subject
to proposed § 1026.19(e). Based on the
results of several rounds of consumer
testing of language regarding the
refinance disclosure, § 1026.37(m)(5)
specifically requires disclosure of the
following statement: ‘‘Refinancing this
loan will depend on your future
financial situation, the property value,
and market conditions. You may not be
able to refinance this loan.’’ As
discussed in the Kleimann Testing
Report, consumers in the Bureau’s
consumer testing understood this
language to mean that they are
permitted to try, but may not be able to
refinance their loan in the future.
In implementing TILA section
128(b)(2)(C)(ii), the Bureau proposes to
use its authority under section TILA
section 105(a) and Dodd-Frank Act
sections 1032(a) and 1405(b) to expand
the requirement to all transactions
subject to § 1026.19(e). Like the Board,
the Bureau is concerned that some
consumers may accept loan terms that
could present refinancing problems
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similar to those experienced by
consumers in variable-rate or variablepayment transactions (e.g., a three-year
fixed rate mortgage with a balloon
payment), and that all consumers would
benefit from a statement that encourages
consideration of possible future market
rate increases on refinancing. See 2009
Closed-End Proposal, 74 FR at 43310.
Accordingly, the Bureau believes the
proposed disclosure effectuates the
purpose of TILA to help consumers
avoid the uninformed use of credit. In
addition, the proposed disclosure helps
to ensure that the features of mortgage
transactions are fully and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
a financial product, in light of the facts
and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans, which is in is the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
Transactions subject to the disclosure
requirements of § 1026.18 continue to be
subject to § 1026.18(t).
37(m)(6) Servicing
RESPA section 6(a) requires
disclosures to loan applicants
concerning the assignment, sale, or
transfer of the servicing of the loan to
another party. 12 U.S.C. 2605(a).
Current appendix C to Regulation X
implements RESPA section 6(a) and
requires a statement in the GFE
regarding loan servicing under the
section ‘‘If your loan is sold in the
future,’’ albeit using relatively generic
language that does not express the
creditor’s actual intent.181 Proposed
§ 1026.37(m)(6) requires the creditor to
disclose in the Loan Estimate whether it
intends to service the loan directly or
transfer its servicing. Proposed
comment 37(m)(6)–1 clarifies that the
disclosure required in proposed
§ 1026.37(m)(6) requires only that the
creditor state its intent at the time the
disclosure is issued.
For transactions subject to RESPA, the
Bureau proposes § 1026.37(m)(6) to
implement RESPA section 6(a),
pursuant to its authority under RESPA
section 19(a). For transactions subject
the requirements of proposed
§ 1026.19(e) but that are not subject to
RESPA, the Bureau proposes to require
creditors to provide the servicing
disclosure described in § 1026.37(m)(6)
181 The standard RESPA GFE form in appendix C
to Regulation X reads as follows: ‘‘Some lenders
may sell your loan after settlement. Any fees
lenders receive in the future cannot change the loan
you receive or the charges you paid at settlement.’’
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pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
1032(a). The Bureau believes that
requiring the disclosure regarding loan
servicing in these transactions will
improve consumer understanding and
avoid the uninformed use of credit,
consistent with the purposes of TILA,
and that the disclosure will ensure that
the features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
37(m)(7) Liability After Foreclosure
Section 1414(c) of the Dodd-Frank Act
created new TILA section 129C(g),
which establishes certain requirements
for residential mortgage loans subject to
protection under a State anti-deficiency
law. 15 U.S.C. 1639c(g). TILA section
129C(g)(2) requires that, prior to
consummation, the creditor or mortgage
originator provide a written notice to
the consumer describing the protection
provided by the anti-deficiency law and
the significance to the consumer of the
loss of such protection. TILA section
129C(g)(3) requires that any creditor or
mortgage originator that provides an
application to a consumer or receives an
application from a consumer, for any
type of refinancing for such loan that
would cause the loan to lose the
protection of an anti-deficiency law, the
creditor or mortgage originator shall
provide a written notice to the
consumer describing the protection
provided by the anti-deficiency law and
the significance for the consumer of the
loss of such protection before any
agreement for refinancing is
consummated. TILA section 129C(g)(1)
defines anti-deficiency law to mean the
law of any State which provides that, in
the event of foreclosure on the
residential property of a consumer
securing a mortgage, the consumer is
not liable, in accordance with the terms
and limitations of such State law, for
any deficiency between the sale price
obtained from a foreclosure sale and the
outstanding balance of the mortgage.
Proposed § 1026.37(m)(7) implements
TILA section 129C(g)(3), which applies
to refinance transactions. Specifically,
proposed § 1026.37(m)(7) provides that,
if the credit is to refinance an extension
of credit as described in
§ 1026.37(a)(9)(ii) or (iii), the creditor
must disclose a brief statement that
certain State law protections against
liability for any deficiency after
foreclosure may be lost upon
refinancing, the potential consequences
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of the loss of such protections, and a
statement that the consumer should
consult an attorney for additional
information, labeled ‘‘Liability after
Foreclosure.’’
The Bureau proposes this requirement
pursuant to its implementation
authority under TILA section 105(a).
TILA section 129C(g)(3) requires
creditors to provide the anti-deficiency
disclosure prior to consummation. The
Bureau believes that consumers would
benefit from receiving the disclosure in
the Loan Estimate provided three days
after application since the disclosure
informs consumers of the potentially
significant consequences of refinancing
and is therefore an important
consideration for a consumer evaluating
whether to proceed with the loan.
Further, the Bureau believes that the
anti-deficiency disclosure is
appropriately tied to the submission of
the consumer’s application since TILA
section 129C(g)(3) requires creditors to
provide the disclosure to all consumers
to whom it provides an application or
from whom it receives an application.
The Bureau does not believe that it is
feasible to require the disclosure to be
provided to any consumer to whom the
creditor ‘‘provides’’ a loan application
because, as discussed above in the
section-by-section analysis of proposed
§ 1026.2(a)(3), ‘‘application’’ is defined
by proposed § 1026.2(a)(3) as the
consumer’s submission of certain
specific information to a creditor. The
requirements of TILA section 129C(g)(2)
are implemented in proposed
§ 1026.38(p)(3).
37(n) Signature Statement
TILA section 128(b)(2)(B)(i) requires
the following statement in transactions
that are also subject to RESPA and
where the extension of credit is secured
by the consumer’s dwelling, other than
timeshares: ‘‘You are not required to
complete this agreement merely because
you have received these disclosures or
signed a loan application.’’ 15 U.S.C.
1638(b)(2)(B)(i). Current § 1026.19(a)(4)
implements this provision by requiring,
for transactions subject to RESPA that
are secured by the consumer’s dwelling
(other than home equity lines of credit
subject to § 1026.5(b) and timeshares),
the statement required by TILA section
128(b)(2)(B)(i) in the good faith
estimates and corrected disclosures
provided pursuant to § 1026.19(a)(1)
and(2).
The Bureau proposes to implement
the signature requirement of TILA
section 128(b)(2)(B)(i) in proposed
§ 1026.37(n), for all transactions subject
to proposed § 1026.19(e). Proposed
§ 1026.37(n)(1) states that, at the
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creditor’s option, lines for the signatures
of the consumers in the transaction may
be provided. The optional signatures
lines would be located under the master
heading ‘‘Additional Information About
This Loan’’ required by proposed
§ 1026.37(k) and under the heading
‘‘Confirm Receipt.’’ Proposed
§ 1026.37(n)(1) also states that if the
creditor includes a line for the
consumer’s signature, the creditor is
required to disclose to that, by signing
the Loan Estimate, the consumer is only
confirming receipt of the form and is not
required to accept the loan. For
transactions where the creditor does not
include a line for the consumer’s
signature, proposed § 1026.37(n)(2)
requires disclosure of the statement that
the consumer does not have to accept
the loan because the consumer received
or signed the Loan Estimate. The
statement required by proposed
§ 1026.37(n)(2) is located under the
heading ‘‘Other Considerations’’
required by proposed § 1026.37(m),
labeled ‘‘Loan Acceptance.’’
Proposed comment 37(n)–1 clarifies
that it is at the creditor’s discretion
whether to provide a signature line for
the consumer’s signature, but if a
signature line is provided, the statement
in proposed § 1026.37(n)(1) must be
provided. Proposed comment 37(n)–2
clarifies that, if there is more than one
consumer in the transaction, the first
consumer signs as the applicant and
each additional consumer signs as a
‘‘co-applicant.’’ Proposed comment
37(n)–2 also clarifies that the creditor
may add an additional signature page to
the back of the form if additional
signature lines are necessary to
accommodate the number of consumers
in the transaction.
The Bureau proposes to modify the
signature language required by TILA
section 128(b)(2)(B)(i) pursuant to its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). While the
substance of the disclosure required by
proposed § 1026.37(n) is the same as the
statutory language, as discussed in the
Kleimann Testing Report, the Bureau’s
consumer testing indicated that
consumers more easily understand from
the proposed language that a signature
does not bind them to accept the loan.
Accordingly, the proposed modification
promotes the informed use of credit,
consistent with the purposes of TILA.
For this same reason, the proposed
modification will ensure that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
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benefits, and risks associated with the
mortgage transaction, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans and is in the interest of consumers
and the public, consistent with DoddFrank Act section 1405(b).
The Bureau also proposes to use its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b) to expand the
scope of TILA section 128(b)(2)(B)(i) to
apply to all transactions subject to
proposed § 1026.19(e). As discussed
above, TILA section 128(b)(2)(B)(i)
applies only to transactions subject to
both TILA and RESPA that are secured
by the consumer’s dwelling, and
excludes transactions secured by the
consumer’s interest in a timeshare.
However, the Bureau believes that
consumers in all transactions subject to
proposed § 1026.19(e) will benefit from
the disclosure because it ensures that
consumers understand they are not
obligated to complete the loan
transaction just because they signed or
received the Loan Estimate.
Accordingly, the proposed disclosure
promotes the informed use of credit,
consistent with the purposes of TILA.
For these same reasons, the Bureau
believes that the proposed disclosure
will ensure that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the mortgage
transaction, consistent with Dodd-Frank
Act section 1032(a), and will improve
consumer awareness and understanding
of residential mortgage loans and is in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b).
37(o) Form of Disclosures
TILA section 122(a) provides that the
information required to be disclosed
under TILA shall be disclosed clearly
and conspicuously, in accordance with
regulations of the Bureau. 15 U.S.C.
1632(a). TILA section 128(b)(1) provides
that the disclosures required by sections
128(a) and 106(b) through (d) generally
shall be conspicuously segregated from
all other terms, data, or information
provided in connection with a
transaction, including any computations
or itemization. Id. 1638(b)(1). Regulation
Z currently implements these
requirements for closed-end
transactions in § 1026.17(a)(1), which
provides that the disclosures shall be
made clearly and conspicuously in
writing, in a form that the consumer
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may keep. Section 1026.17(a)(1) further
provides that the disclosures shall be
grouped together, shall be segregated
from everything else, and shall not
contain any information not directly
related to the disclosures under
§ 1026.18 (and § 1026.47 for private
education loans).
As discussed above, the Bureau is
proposing to exclude transactions
subject to § 1026.19(e) and (f) from the
coverage of § 1026.17(a) and (b).
Consequently, the requirements of TILA
sections 122(a) and 128(b)(1) must be
implemented elsewhere. The Bureau,
pursuant to its implementation
authority under TILA section 105(a),
therefore proposes to implement the
statutory segregation and clear and
conspicuous requirements of TILA
sections 122(a) and 128(b)(1) for those
disclosures in new §§ 1026.37(o) and
1026.38(t). The Bureau believes these
requirements will effectuate the
purposes of TILA by assuring a
meaningful disclosure of credit terms so
that the consumer will be able to
compare more readily the various credit
terms available to him and avoid the
uninformed use of credit. In addition,
§ 1026.37(o) establishes a standard form
requirement for transactions subject to
RESPA and provides flexibility for
certain aspects of the integrated
disclosures.
37(o)(1) General Requirements
Proposed § 1026.37(o)(1)(i) establishes
the requirements that the disclosures
required by § 1026.37 be clear and
conspicuous, in writing, and grouped
together, segregated from everything
else, and provided on separate pages
that are not commingled with any other
documents or disclosures, including any
other disclosures required by State or
other laws. Proposed comment 37(o)–1
clarifies that the clear and conspicuous
standard requires that the disclosures be
legible and in a readily understandable
form. This guidance is adopted from
existing comment 17(a)(1)–1. The
comment also clarifies that proposed
§ 1026.37(o)(1)(i) requires that the
disclosures required by § 1026.37 be
provided in a form that is physically
separate from any other documents or
disclosures, including any other
disclosures required by State or other
laws. This requirement is stricter than
the guidance found in existing comment
17(a)(1)–2, which provides that the
disclosures may be grouped together
and segregated from other information
in a variety of ways other than a
separate piece of paper.
The Bureau recognizes that, in certain
credit sale and other non-mortgage,
closed-end credit transactions, creditors
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include the disclosures required by
§ 1026.18 in the loan contract or some
other document and ensure that they are
grouped together and segregated by
outlining them in a box or other means
authorized by comment 17(a)(1)–2. The
Bureau understands, however, that this
approach is virtually never employed
for mortgage credit, for which the new
disclosures under proposed
§§ 1026.19(e) and 1026.37, rather than
§ 1026.18 disclosures, are required.
Mortgage creditors generally use a
standardized note that cannot
accommodate dynamically generated,
transaction-specific disclosures, and
they almost universally employ the
model disclosure forms provided in
appendix H to Regulation Z as standalone, separate documents for providing
required TILA disclosures. The RESPA
GFE and RESPA settlement statement
forms required by RESPA for federally
related mortgage loans currently are
delivered as separate documents, in
accordance with the standard form
requirements of Regulation X. Moreover,
the forms in this proposal were
developed as stand-alone documents
through an extensive outreach and
consumer testing process, as discussed
above, and the Bureau is concerned that
much of the informative benefit of the
forms could be lost or compromised if
they were permitted to be included
within other documents. For these
reasons, it appears that requiring the
§ 1026.37 disclosures to be delivered as
a separate document maximizes the
benefits of the forms and does not
present any significant new obligation
that mortgage creditors do not already
effectively observe. The Bureau seeks
comment, however, on whether there
currently are transactions subject to
proposed § 1026.19(e) that may be
burdened by the adoption of this
requirement.
Proposed § 1026.37(o)(1)(ii) also
provides that, except as provided in
§ 1026.37(o)(5), the disclosures shall
contain only the information required
by § 1026.37(a) through (n) and that they
generally shall be made in the same
order, and positioned relative to the
master headings, headings, subheadings,
labels, and similar designations in the
same manner, as shown in form H–24.
Proposed comment 37(o)(1)–2 clarifies
that, even if a creditor elects not to use
the form as a model (when so permitted
because the transaction is not a federally
related mortgage loan, as discussed
above), failure to comply with these
requirements, to designate as
‘‘estimated’’ all disclosures designated
as such in the form, or to use letter size
paper as shown in form H–24
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requirement of § 1026.37(o)(3)(ii) that
the disclosures be made with headings,
content, and format substantially similar
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37(o)(2) Estimated Disclosures
Proposed § 1026.37(o)(2) provides
that, wherever form H–24 discloses the
required master heading, heading,
subheading, label, or similar designation
for a disclosure as ‘‘estimated,’’ that
corresponding master heading, heading,
subheading, label, or similar designation
required by § 1026.37 must contain the
word ‘‘estimated,’’ even if the provision
requiring such headings, label, or
similar designation does not. As noted
below under § 1026.38, many of the
disclosure items required by that section
cross-reference their estimated
counterparts in § 1026.37, although the
same items may not be estimates as
required by § 1026.19(f). To avoid
confusion over which items are
estimates and which are not, the content
provisions of § 1026.37 do not qualify
any of the master headings, headings,
subheadings, labels, and similar
designations of the items disclosed as
‘‘estimated.’’ Instead, proposed
§ 1026.37(o)(2) incorporates by reference
the ‘‘estimated’’ designations reflected
on form H–24, and as discussed below,
proposed § 1026.38(t)(2) incorporates by
reference the ‘‘estimated’’ designations
reflected on form H–25.
37(o)(3) Form
Proposed § 1026.37(o)(3)(i) also
provides that, for a transaction that is a
federally related mortgage loan, as
defined in Regulation X, the disclosures
must be made using form H–24, set forth
in appendix H to Regulation Z. The
Bureau is proposing to require that
creditors use a standard form (form H–
24 of appendix H) for federally related
mortgage loans pursuant to RESPA
section 4, as amended by the DoddFrank Act. 12 U.S.C. 2603(a). Section 4
has long authorized the use of standard
forms. As discussed above, the DoddFrank Act amended section RESPA
section 4(a) to require the integrated
disclosures that are the subject of this
proposal, which specifically include
both the settlement statement under
section 4 and the good faith estimate
under section 5(c). Although the DoddFrank Act eliminated one reference in
section 4(a) to a ‘‘standard’’ form, it left
another reference in place, as well as
another reference to a ‘‘standard’’ form
in section 4(c). And by including the
cross-reference to section 5(c) in section
4 in relation to the integrated disclosure
mandate, Congress effectively extended
RESPA’s existing standard-form
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authority to the good faith estimate as
well as the settlement statement
requirement. More notably, in amending
section 4(a), Congress did not include
an explicit prohibition of a mandatoryuse form as is found in TILA section
105(b).182 For this reason, the Bureau
does not believe that Congress intended
to eliminate standard-form authority
from RESPA section 4.
The Bureau also proposes a
mandatory form pursuant to its
authority under RESPA section 19(a) to
prescribe such rules and regulations as
may be necessary to achieve RESPA’s
purposes. 12 U.S.C. 2617(a). RESPA’s
purposes include the establishment of
more effective advance disclosure to
home buyers and sellers of settlement
costs. Id. 2601(b)(1). The Bureau
believes, based on consumer testing
results, that the purpose of more
effective advance disclosure of
settlement costs is better achieved if all
lenders provide those disclosures in a
standardized format that consumers can
recognize and understand. Moreover,
the credit terms included in the Loan
Estimate facilitate and enhance the
consumer’s ability to shop for the bestpriced loan, including settlement
charges, which have a direct
relationship to, and can overlap with,
credit terms. Disclosure of the
settlement costs alone, without the
context provided by the credit terms, is
therefore far less effective. This is
consistent with HUD’s rationale in
HUD’s 2008 RESPA Final Rule for
including credit terms in its good faith
estimate form. See 73 FR 68204, 68214–
15 (Nov. 17, 2008). Accordingly, the
Bureau is authorized under section 19(a)
to require the standard form for the
disclosure of all of the information it
contains, both settlement costs and
credit terms alike.
Certain closed-end consumer credit
transactions are subject to the
requirements of proposed § 1026.19(e)
but do not fall within the Regulation X
definition of ‘‘federally related mortgage
loan.’’ These include construction-only
loans with terms of less than two years
that do not finance the transfer of title
to the borrower and loans secured by
vacant land on which a home will not
be constructed or placed using the loan
proceeds within two years after
settlement of the loan. See § 1024.5(b)(3)
and (4). In addition, transactions subject
to proposed § 1026.19(e) but not subject
to RESPA would include loans secured
by non-residential real property,
182 TILA section 105(b) states that ‘‘nothing in
this title may be construed to require a creditor or
lessor to use any such model form or clause
prescribed by the Bureau under this section.’’ 15
U.S.C. 1604(b).
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51233
provided they have a consumer purpose
as required by § 1026.1(c)(1)(iv). See
§ 1024.2, definition of ‘‘federally related
mortgage loan,’’ paragraph (1)(i)
(requiring that the securing property be
‘‘residential real property’’).
For such transactions that are subject
to proposed § 1026.19(e) because they
are subject to TILA and are secured by
real property, but that are not subject to
RESPA, the Bureau does not mandate
the use of form H–24 as a standard form.
As noted above, TILA section 105(b)
explicitly provides that nothing in TILA
may be construed to require a creditor
to use any model form or clause
prescribed by the Bureau under that
section. Accordingly, proposed
§ 1026.37(o)(3)(ii) provides that, for
transactions subject to § 1026.37 that are
not federally related mortgage loans, the
disclosures must be made with
headings, content, and format
substantially similar to form H–24 but
does not mandate the use of that form.
Consistent with TILA section 105(b),
proposed comment 37(o)(3)–1 explains
that, although use of the form as a
standard form is not mandatory for such
transactions, its use as a model form, if
properly completed with accurate
content, constitutes compliance with
the clear and conspicuous and
segregation requirements of
§ 1026.37(o). In consideration of the
recommendation of the Small Business
Review Panel, the Bureau seeks
comment on the advantages, such as
cost-saving benefits, and disadvantages
of requiring a standard form for the
Loan Estimate for federally related
mortgage loans and model forms for
other credit transactions subject to
proposed § 1026.19(e). See Small
Business Review Panel Report at 28.
Proposed § 1026.37(o)(3)(iii) also
provides that the disclosures may be
provided in electronic form, subject to
compliance with the Electronic
Signatures in Global and National
Commerce Act (15 U.S.C. 7001 et seq.).
This provision parallels existing
§ 1026.17(a)(1).
37(o)(4) Rounding
The prototype disclosure forms used
in the Bureau’s consumer testing
displayed rounded numbers for certain
information required to be disclosed by
proposed § 1026.37. For example,
rounded numbers were disclosed for the
information required by proposed
§ 1026.37(b)(6) and (7), (c)(1)(iii),
(c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h),
(i), and (l). In addition, the total
monthly payment required by proposed
§ 1026.37(c)(2)(iv) was rounded if any of
its component amounts were required to
be rounded. The loan amount required
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to be disclosed by proposed
§ 1026.37(b)(1) and percentage amounts
required to be disclosed by proposed
§ 1026.37(b)(2) and (6), (f)(1)(i),
(g)(2)(iii), (j), and (l)(2) and (3) that did
not contain cents or fractional amounts
were disclosed without decimal places.
In the Bureau’s consumer testing,
using rounded numbers in this manner,
consumers were able to see and evaluate
the information required by the abovementioned paragraphs of proposed
§ 1026.37 quickly. The Bureau is
concerned that a large number of exact
dollar amounts and percentages has the
potential to cause information overload
and reduce the overall effectiveness of
the disclosure. The Bureau believes that
rounding certain amounts on the Loan
Estimate reduces the quantity of
numbers on the form and the
complexity of information about
potential risks. For example,
participants at the Bureau’s testing were
able to evaluate the risks of maximum
payments and interest rates in the Loan
Terms table using rounded numbers, as
well as evaluate the rounded closing
cost estimates, enhancing the utility of
the disclosure for consumers. The
Bureau believes the exact number of
cents or decimal places for information
required to be disclosed by the abovementioned paragraphs of proposed
§ 1026.37 at the time the Loan Estimate
is provided would not provide a benefit
to consumers that would outweigh the
risk of information overload.
Accordingly, the Bureau proposes to
use its implementation authority under
TILA section 105(a), its authority under
section 1032(a) of the Dodd-Frank Act,
and its authority under section 1405(b)
of the Dodd-Frank Act with respect to
residential mortgage loans, to require
only rounded numbers and percentages
without fractional amounts to be
disclosed without decimal places for
certain information on the Loan
Estimate. Whole dollar and certain
whole percentage amounts appear to be
sufficient to inform consumers of the
estimated periodic payment amounts,
estimated closing costs, financial risks
posed by maximum amounts, and
ensure a meaningful disclosure of credit
terms. In addition, the disclosure of
exact amounts could suggest to
consumers a degree of accuracy that
may not be warranted for some of the
estimated figures. The Bureau believes
this requirement ensures the meaningful
disclosure of credit terms to consumers
and promotes the informed use of
credit. In addition, the Bureau believes
this requirement may ensure that the
features of any consumer financial
product or service, both initially and
over the term of the product or service,
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are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances. Further, the
Bureau believes this requirement may
improve consumer awareness and
understanding of transactions involving
residential mortgage loans and is in the
interest of consumers and in the public
interest.
Proposed § 1026.37(o)(4)(i)(A)
requires only rounded numbers for the
information disclosed pursuant to
proposed § 1026.37(b)(6) and (7),
(c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f),
(g), (h), (i), and (l). Proposed
§ 1026.37(o)(4)(i)(B) requires the loan
amount disclosed pursuant to proposed
§ 1026.37(b)(1) to be disclosed without
decimal places denoting cents if the
amount of cents are zero. Proposed
§ 1026.37(o)(4)(i)(C) requires the total
monthly payment disclosed pursuant to
proposed § 1026.37(c)(2)(iv) to be
disclosed as a rounded number if any of
its component amounts are required to
be rounded. Proposed § 1026.37(o)(4)(ii)
requires percentages without fractional
amounts that are disclosed pursuant to
proposed § 1026.37(b)(2) and (6),
(f)(1)(i), (g)(2)(iii), (j), and (l)(2) and (3)
to be disclosed without decimal places.
Proposed comment 37(o)(4)–1
provides clarifies that consistent with
§ 1026.2(b)(4) all numbers are to be
disclosed as exact numbers, unless
required to be rounded by proposed
§ 1026.37(o)(4). Proposed comments
37(o)(4)–2, 37(o)(4)(i)(A)–1,
37(o)(4)(i)(B)–1, and 37(o)(4)(ii)–1
provide guidance regarding rounding
amounts on the Loan Estimate.
37(o)(5) Exceptions
The Bureau’s consumer testing has
indicated that the format of information
on the disclosures required by proposed
§ 1026.37 substantially affects the way
in which a consumer interacts with and
understands the information disclosed.
In addition, the Bureau understands that
credit and real estate transactions
involve significant variability and
believes that it is important to provide
industry with clear guidance regarding
permissible changes to the format
requirements to accommodate this
variability. Accordingly, the Bureau
believes it must specify the changes to
the format that are required and
permissible, to ensure the disclosures
provided to consumers convey the
information required by proposed
§ 1026.37 in a clear, understandable,
and effective manner for consumers.
As described above, pursuant to
RESPA section 19(a), 12 U.S.C. 2617(a),
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§ 1024.7 of Regulation X currently
requires the use of a standard from to
provide the disclosures required by
section 5 of RESPA, 12 U.S.C. 2604. In
contrast, TILA section 105(b), 15 U.S.C.
1604(b), provides for model disclosures
instead of a standard form. However,
TILA permits creditors to delete
information not required under the
statute, other than numerical
disclosures, and rearrange the format,
only if doing so does not affect the
substance, clarity, or meaningful
sequence of the disclosure. Pursuant to
its authority under RESPA section 19(a),
its implementation authority under
TILA section 105(a), and its authority
under section 1032(a) of the Dodd-Frank
Act, the Bureau proposes
§ 1026.37(o)(5), which sets forth the
required changes to the format required
to be used by proposed § 1026.37(o)(3),
illustrated by form H–24 in appendix H
to Regulation Z, and the permissible
changes that do not affect the substance,
clarity, or meaningful sequence of the
disclosure. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
providing specified changes to the form
would ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
The Bureau believes providing for only
specified changes to the form effectuates
the purposes of TILA set forth in TILA
section 102(a) and the purpose of the
integrated disclosure set forth in TILA
section 105(b), because it would ensure
meaningful disclosure of credit terms to
consumers, promote the informed use of
credit, and facilitate compliance by
providing flexibility where warranted.
In addition, the Bureau believes this
requirement would effectuate the
purposes of RESPA by promoting more
effective advance disclosure of
settlement costs.
Accordingly, proposed § 1026.37(o)(5)
specifies certain changes to form H–24
that are required or that do not affect the
substance, clarity, or meaningful
sequence of the disclosure and therefore
are permissible. Proposed
§ 1026.37(o)(5)(i) requires the
substitution of the words ‘‘month’’ or
‘‘monthly’’ on the form H–24, where
used to designate the frequency of
payments or the applicable unit-period
of the transaction, with a different word
representing the frequency of payments
or unit-period under the transaction’s
actual terms, if different from monthly.
Proposed § 1026.37(o)(5)(ii) permits the
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deletion of lender credits from the Cash
to Close table, required by proposed
§ 1026.37(d)(4), if the amount is zero.
Proposed § 1026.37(o)(5)(iii) permits the
use of a logo for, or addition of a slogan
with, the information required by
proposed § 1026.37(a)(3), and requires
the information disclosed pursuant to
§ 1026.37(a)(3), if no logo is used, to be
disclosed in a similar format as form H–
24 of appendix H to Regulation Z.
Proposed § 1026.37(o)(5)(iv) permits the
attachment of a business card over the
information required by proposed
§ 1026.37(a)(3). Proposed
§ 1026.37(o)(5)(v) permits the insertion
of administrative information above the
information required to be disclosed by
proposed § 1026.37(a)(2) and adjacent to
the information required to be disclosed
by proposed § 1026.37(a)(3) to assist in
the identification of the form or the
information contained on the form.
Proposed § 1026.37(o)(5)(vi) permits
the form to be translated into languages
other than English. The Bureau
understands that some State laws
require versions of the disclosures
required under TILA and RESPA to be
provided to consumers in a language
other than English when the negotiation
of the transaction is conducted in that
language.183 In addition, some of the
regulatory authorities in these States
publish their own translations of these
disclosures for use by the public.184 The
Bureau’s consumer testing included two
rounds of testing with Spanish-speaking
consumers of Spanish-language
prototype disclosure forms to determine
whether co-development of a nonEnglish version of the disclosure would
be beneficial to consumers.185 The
Bureau determined that co-development
of a separate non-English version of the
disclosures would likely yield little
benefit to consumers, because any
differences in performance with the
Spanish prototypes during testing were
caused more by translation than design
and structure issues. This may be due,
in part, because the Bureau
183 See Cal. Civ. Code §§ 1632, 1632.5, Or. Rev.
Stat. § 86A.198.
184 The California Department of Corporations has
translated the RESPA GFE into Chinese, Korean,
Tagalog, and Vietnamese, available at https://
www.corp.ca.gov/Forms/Default.asp. The Oregon
Division of Finance and Corporate Securities
provides version of the RESPA GFE and early TILA
disclosure in Russian, Spanish, and Vietnamese,
available at https://www.cbs.state.or.us/dfcs/ml/
mortgage_disclosures_translations.html.
185 According to the U.S. Census Bureau, based
on data from the 2007 American Community
Survey, 55.4 million people spoke a language other
than English at home, and of those people, 62
percent spoke Spanish. U.S. Census Bureau,
Language Use in the United States: 2007, ACS–12
(Apr. 2010), available at https://www.census.gov/
hhes/socdemo/language/data/acs/ACS–12.pdf.
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intentionally pursued a more graphic
than textual design for the Loan
Estimate with as few words as possible.
This design highlights key information
and allows consumers to quickly
recognize and find the key information
about the transaction without large
amounts of text. The differences in
language did not necessitate changes to
the design of the disclosure.
Accordingly, the proposed rule only
includes English-language disclosure
forms and permits the translation of
these forms. The Bureau plans to review
issues surrounding translations of the
integrated disclosures after issuance of
this proposal. As discussed below with
respect to appendix H, the Bureau
solicits comment on whether the final
rule should include sample Spanishlanguage or other non-English language
forms.
Proposed comment 37(o)(5)–1
clarifies that creditors making any
changes that are not expressly permitted
may lose their protection from civil
liability under TILA. Proposed comment
37(o)(5)–2 clarifies that the form may be
completed by hand, typewriter,
computer, or other word processing
device, as long as the method produces
clear and legible text and uses the
required formatting, including bold font
where shown on form H–24. Such
completion by hand or typewriter
would not exempt the creditor from the
requirement to keep records in an
electronic, machine readable format
under proposed § 1026.25.
Proposed comment 1026.37(o)(5)–3
clarifies that if there are multiple
creditors or mortgage brokers for a
transaction, a creditor may alter the
space provided on form H–24 and add
labels to disclose additional contact
information under proposed
§ 1026.37(m), or disclose the additional
information on a separate page with an
appropriate cross-reference, if the space
provided does not accommodate the
information to be disclosed on the page.
Proposed comment 1026.37(o)(5)–4
clarifies that a creditor may add
signature lines to form H–24 under the
‘‘Confirm Receipt’’ heading required by
proposed § 1026.37(n), or an additional
page with an appropriate crossreference, if the space provided by form
H–24 cannot accommodate the signature
lines for multiple applicants. Proposed
comment 1026.37(o)(5)–5 clarifies the
requirements of proposed § 1026.37(o)
as they apply to the use of a separate
page.
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Section 1026.38 Content of Disclosures
for Certain Mortgage Transactions
(Closing Disclosure)
Proposed § 1026.38 sets forth the
required content of the integrated
Closing Disclosure, required by
proposed § 1026.19(f) to be provided to
a consumer no later than three business
days prior to consummation.
As discussed above, the Closing
Disclosure integrates the disclosures
currently provided in the RESPA
settlement statement and the final TILA
disclosure. In addition, the Closing
Disclosure integrates several
disclosures, including new disclosures
under the Dodd-Frank Act, that
otherwise would likely have been
provided separately. The Bureau
believes that the five-page Closing
Disclosure integrates at least nine pages
of disclosures. Specifically, the Closing
Disclosure incorporates: (i) Three pages
of the RESPA settlement statement; (ii)
two pages typically used for the final
TILA disclosure; (iii) one page for the
negative amortization statement under
TILA section 129C(f), which was added
by section 1414(a) of the Dodd-Frank
Act; (iv) one page for the anti-deficiency
protection notice under TILA section
129C(g)(2), which was added by section
1414(c) of the Dodd-Frank Act; (v) one
page for the partial payment policy
disclosure under TILA section 129C(h),
which was added by section 1414(d) of
the Dodd-Frank Act; and (vi) one page
for the escrow account disclosures
under TILA sections 129D(h) and (j),
which were added by sections 1461 and
1462 of the Dodd-Frank Act. In
addition, the Closing Disclosure
incorporates the disclosure of: (i) The
total interest percentage under TILA
section 128(a)(19), which was added by
section 1419 of the Dodd-Frank Act; (ii)
the approximate amount of the
wholesale rate of funds in connection
with the loan under TILA section
128(a)(17), which was added by section
1419 of the Dodd-Frank Act; and (iii)
the aggregate amount of settlement
charges for all settlement services
provided in connection with the loan
and the aggregate amount of other fees
or required payments in connection
with the loan under TILA section
128(a)(17), which was added by section
1419 of the Dodd-Frank Act. In absence
of the Bureau’s integration of the final
TILA disclosure and the RESPA
settlement statement, these disclosures
would have been added to the final
TILA disclosure, which potentially
could have increased that disclosure’s
typical two pages to three pages.
As in the case of the disclosure
content required by proposed § 1026.37,
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
discussed above, § 1026.38 provides that
the information set forth in proposed
§ 1026.38(a) through (s) shall be
disclosed ‘‘as applicable.’’ Accordingly,
the Bureau is proposing parallel
commentary under § 1026.38 to that
proposed under § 1026.37. Thus,
proposed comment 38–1 clarifies that a
disclosure that is not applicable to a
transaction generally may be eliminated
entirely or may be included and marked
‘‘not applicable’’ or ‘‘N/A.’’
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38(a) General Information
As with the Loan Estimate in
proposed § 1026.37(a), the Bureau
proposes to use its authority under TILA
section 105(a), and its authority under
RESPA section 19(a), Dodd-Frank Act
sections 1032(a) and (f), 1098, and
1100A, and for residential mortgage
loans, Dodd-Frank Act section 1405(b),
to combine and modify disclosures and
related requirements currently provided
under Regulations X and Z and add
additional disclosures in the Closing
Disclosure for transactions subject to
proposed § 1026.19(f).
38(a)(1) Form Title
Like the integrated disclosure
provided three business days after
application, TILA, RESPA, and the
Dodd-Frank Act do not expressly
prescribe a title for the form that must
be provided in connection with a
settlement. RESPA refers to the form as
the ‘‘uniform settlement statement,’’
although § 1024.8 of Regulation X uses
the titles HUD–1 and HUD–1A to refer
to the forms used to document
settlement charges in connection with
the purchase of a property or
refinancing of an existing mortgage loan,
respectively. Regulation Z, however,
does not prescribe a title for the
disclosures that must be provided to the
consumer three business days prior to
settlement.
Proposed § 1026.38(a)(1) requires the
creditor to use the term ‘‘Closing
Disclosure’’ as the name of the
integrated disclosures provided to
consumers three business days prior to
settlement pursuant to proposed
§ 1026.19(f). The Bureau believes the
adoption of a standardized form name
will effectuate the purposes of TILA and
RESPA by promoting the informed use
of credit and more effective advance
notice of settlement costs, consistent
with TILA section 105(a) and RESPA
section 19(a), and will ensure that the
features of the transaction are fully,
accurately and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions in light of the
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facts and circumstances, consistent with
Dodd-Frank Act section 1032(a). In
addition, the use of standard
terminology for the integrated
disclosures will facilitate compliance
for industry, which is a purpose of this
rulemaking under Dodd-Frank Act
sections 1098 and 1100A. The Bureau
also believes that, consistent with
section 1405(b) of the Dodd-Frank Act,
the requirement of a standard form
name may improve consumer awareness
and understanding of transactions
involving residential mortgage loans
through the use of disclosures, and is in
the interest of consumers and in the
public interest.
38(a)(2) Form Purpose
Proposed § 1026.38(a)(2) requires the
creditor to include a statement regarding
the purpose of the Closing Disclosure.
Specifically, proposed § 1026.38(a)(2)
requires creditors to provide the
following statement: ‘‘This form is a
statement of final loan terms and closing
costs. Compare this document with your
Loan Estimate.’’ Providing the purpose
of the Closing Disclosure is a new
requirement, as neither creditors nor
settlement agents are currently required
to provide this type of information in
the disclosures required by TILA,
RESPA, and their implementing
regulations. Nonetheless, this disclosure
will benefit consumers and promote the
informed use of credit by encouraging
consumers to use both the Loan
Estimate and Closing Disclosure as tools
to identify changes in costs and terms
that may have occurred after issuance of
the Loan Estimate. Accordingly, this
disclosure will benefit consumers and
effectuate the purposes of TILA and
RESPA by promoting the informed use
of credit and more effective advance
notice of settlement costs, consistent
with TILA section 105(a) and RESPA
section 19(a), and will ensure that the
features of the transaction are fully,
accurately and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
mortgage transactions, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
38(a)(3) Closing Information
Appendix A to Regulation X currently
requires the settlement agent to include
in the RESPA settlement statement basic
information about the settlement
process, including the name of the
settlement agent, the place of
settlement, the property location, and
the settlement date. In addition to this
information, with the exception of the
place of settlement, proposed
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§ 1026.38(a)(3) requires creditors to
disclose: (1) The date the Closing
Disclosure is issued; (2) the dates funds
are disbursed to the seller and
consumer, as applicable; (3) the sale
price of the property that is the subject
of the transaction; and (4) the file
number assigned to the transaction by
the closing agent. All of the
aforementioned information would be
located under the heading ‘‘Closing
Information.’’ The Bureau believes that
this information and the additional
information discussed below effectuate
the purposes of TILA and RESPA by
promoting the informed use of credit
and more effective advance notice of
settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a),
and will ensure that the features of the
transaction are fully, accurately and
effectively disclosed to consumers in a
manner that permits consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions,
in light of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a).
38(a)(3)(i) Date Issued
Proposed § 1026.38(a)(3)(i) requires
the creditor to disclose the date the
disclosures required for transactions
subject to § 1026.19(f) are issued to the
consumer, labeled ‘‘Date Issued.’’
Proposed comment § 1026.38(a)(3)(i)–1
cross-references the commentary to
proposed § 1026.37(a)(4).
38(a)(3)(ii) Closing Date
Proposed § 1026.38(a)(3)(ii) requires
the creditor to disclose the
consummation date for the mortgage
loan transaction, labeled ‘‘Closing
Date.’’
38(a)(3)(iii) Disbursement Date
Proposed § 1026.38(a)(3)(iii) requires
the disclosure of the date the amounts
disclosed pursuant to proposed
§ 1026.38(j)(3)(iii) and (k)(3)(iii) are
expected to be paid to the consumer and
seller, respectively, labeled
‘‘Disbursement Date.’’
38(a)(3)(iv) Agent
Proposed § 1026.38(a)(3)(iv) requires
the identity of the settlement agent
conducting the closing, labeled
‘‘Agent.’’ Proposed comment
38(a)(3)(iv)–1 clarifies that the name of
the agency that employs the settlement
agent should be provided in the
disclosure required by
§ 1026.38(a)(3)(iv) and that the name of
the individual conducting the closing is
not required.
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38(a)(3)(v) File Number
Proposed § 1026.38(a)(3)(v) requires
disclosure of the number assigned to the
transaction by the closing agent for
identification purposes, labeled ‘‘File
#.’’
38(a)(3)(vi) Property
Proposed § 1026.38(a)(3)(vi) requires
the street address of the property
required to be disclosed under proposed
§ 1026.37(a)(6), labeled ‘‘Property.’’
Proposed comment 38(a)(3)(iv)–1 crossreferences the commentary to
§ 1026.37(a)(6), which provides
guidance regarding the information that
must be provided in response to this
requirement when a standard property
address is unavailable.
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38(a)(3)(vii) Sale Price
In credit transactions where there is a
seller, proposed § 1026.38(a)(3)(vii)(A)
requires disclosure of the contract sale
price for the property identified in
proposed § 1026.38(a)(3)(vi), labeled
‘‘Sale Price.’’ In transactions where
there is no seller, proposed
§ 1026.38(a)(3)(vii)(B) requires
disclosure of the appraised value of the
property in proposed § 1026.38(a)(3)(vi),
labeled ‘‘Appraised Prop. Value.’’
Proposed comment 38(a)(3)(vii)–1
provides guidance regarding disclosing
the property value when there is no
seller that is a party to the transaction.
38(a)(4) Transaction Information
Proposed § 1026.38(a)(4) requires the
creditor to disclose the names and
addresses of the parties to the
transaction: The borrower, seller, and
lender, as applicable. This information
would appear under the heading
‘‘Transaction Information.’’ These
disclosures are currently provided in
the RESPA settlement statement. See
appendix A to Regulations X. In
addition, TILA section 128(a)(1) and
Regulation Z § 1026.18(a) require
disclosure of the identity of the creditor.
The Bureau believes that these
disclosures effectuate the purposes of
TILA and RESPA by promoting the
informed use of credit and more
effective advance notice of settlement
costs, consistent with TILA section
105(a) and RESPA section 19(a), and
will ensure that the features of the
transaction are fully, accurately and
effectively disclosed to consumers in a
manner that permits consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions,
in light of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a).
Proposed comment 38(a)(4)–1 clarifies
that the name and address for each
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consumer and seller must be provided
and refers creditors to the commentary
to proposed § 1026.37(a)(5) for further
guidance. Proposed comment 38(a)(4)–1
also clarifies that the name and address
of each consumer must be provided and
that if the form does not provide enough
space to include the required
information for each seller, an
additional page with that information
may be appended to the end of the form,
provided the creditor is in compliance
with proposed § 1026.38(t)(3). Proposed
comment 38(a)(5)–2 clarifies that, in
transactions where there is no seller
such as in a refinancing or home equity
loan, the creditor must provide the
name of the person or persons primarily
liable under the obligation or who have
a right of rescission. Finally, proposed
comment 38(a)(4)–3 cross-references the
commentary to proposed § 1026.37(a)(3)
for information regarding the
identification of multiple creditors.
38(a)(5) Loan Information
Proposed § 1026.38(a)(5) requires the
creditor to provide certain information
about the mortgage loan that is the
subject of the transaction. With the
exception of the mortgage insurance
case number required by proposed
§ 1026.38(a)(5)(vi), all of the disclosures
required under proposed § 1026.38(a)(5)
mirror the disclosures required by
proposed § 1026.37(a)(8) through (12).
The Bureau believes that these
disclosures effectuate the purposes of
TILA and RESPA by promoting the
informed use of credit and more
effective advance notice of settlement
costs, consistent with TILA section
105(a) and RESPA section 19(a), and
will ensure that the features of the
transaction are fully, accurately and
effectively disclosed to consumers in a
manner that permits consumers to better
understand the costs, benefits, and risks
associated with mortgage transactions,
in light of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a).
Proposed comment 38(a)(5)–1 refers
the creditor to the commentary to
proposed § 1026.37(a)(9) through (11)
for further guidance on the general
requirements and definitions applicable
to proposed § 1026.38(a)(5)(i) through
(v). The disclosures required by
proposed § 1026.38(a)(5) appear under
the heading ‘‘Loan Information.’’
51237
38(a)(5)(ii) Purpose
Proposed § 1026.38(a)(5)(ii) requires
disclosure of the purpose of the loan,
consistent with proposed § 1026.37(a)(9)
and labeled ‘‘Purpose.’’
38(a)(5)(iii) Product
Proposed § 1026.38(a)(5)(iii) requires
disclosure of the loan product,
consistent with proposed
§ 1026.37(a)(10) and labeled ‘‘Product.’’
38(a)(5)(iv) Loan Type
Proposed § 1026.38(a)(5)(iv) requires
disclosure of the loan type, consistent
with proposed § 1026.37(a)(11) and
labeled ‘‘Loan Type.’’
38(a)(5)(v) Loan Identification Number
Proposed § 1026.38(a)(5)(v) requires
disclosure of the loan identification
number, consistent with proposed
§ 1026.37(a)(12) and labeled ‘‘Loan ID
#.’’
38(a)(5)(vi) Mortgage Insurance Case
Number
The mortgage insurance case number
currently is disclosed in section B of the
RESPA settlement statement. See
appendix A to Regulation X. Proposed
§ 1026.38(a)(5)(vi) incorporates this
disclosure into the Closing Disclosure,
labeled ‘‘MIC #.’’
38(a)(5)(i) Loan Term
38(b) Loan Terms
For transactions subject to proposed
§ 1026.19(f), proposed § 1026.38(b)
implements the requirements of TILA
section 128(a)(6), (a)(11), and
(b)(2)(C)(ii) by requiring creditors to
disclose on the Closing Disclosure the
table of key loan terms provided on the
Loan Estimate pursuant to proposed
§ 1026.37(b). This information includes
the loan amount; interest rate; periodic
principal and interest payment; whether
the loan amount, interest rate, or
periodic payment may increase; and
whether the loan has a prepayment
penalty or balloon payment. For a
detailed description of the Bureau’s
implementation of these statutory
provisions and its legal authority for
this proposal, see the section-by-section
analysis to proposed § 1026.37(b).
The requirements of proposed
§ 1026.38(b) generally mirror those of
proposed § 1026.37(b). Accordingly,
proposed comment 38(b)–1 directs
creditors to the commentary to proposed
§ 1026.37(b) for guidance on the
disclosures required by proposed
§ 1026.38(b).
Proposed § 1026.38(a)(5)(i) requires
disclosure of the term of the loan,
consistent with proposed § 1026.37(a)(8)
and labeled ‘‘Loan Term.’’
38(c) Projected Payments
Proposed § 1026.38(c) implements the
requirements of TILA section 128(a)(6),
(a)(16), (b)(2)(C), and (b)(4) for
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
transactions subject to proposed
§ 1026.19(f), by requiring creditors to
disclose on the Closing Disclosure the
periodic payment or range of payments,
together with an estimate of the taxes,
insurance, and assessments and the
payments to be made with escrow
account funds. 15 U.S.C. 128(a)(6),
(a)(16), (b)(2)(C), (b)(4). The
requirements of proposed § 1026.38(c)
generally mirror those of proposed
§ 1026.37(c), with certain exceptions
which are discussed below.
Accordingly, proposed comment 38(c)–
1 directs creditors to § 1026.37(c) and its
commentary for guidance on the
disclosures required by § 1026.38(c). For
a detailed description of the Bureau’s
implementation of these statutory
provisions and its legal authority for
this proposal, see the section-by-section
analysis to proposed § 1026.37(c) above.
As discussed below in the section-bysection analysis to proposed
§ 1026.38(t), the items required to be
disclosed pursuant to § 1026.38 will be
actual terms and costs, as required by
§ 1026.19(f).
Proposed § 1026.38(c) differs from
proposed § 1026.37(c) in several ways.
First, proposed § 1026.38(c)(2) requires
an additional reference to the
information required by proposed
§ 1026.38(l)(7). The Bureau believes,
based on consumer testing, that this
additional reference will help
consumers to understand the specific
payment amounts to be made with
escrow funds and those that must be
paid separately by the consumer.
Second, proposed § 1026.38(c) contains
different rules for estimating escrow
payments. As discussed in the sectionby-section analysis to proposed
§ 1026.37(c), the Dodd-Frank Act
amended TILA to add new requirements
regarding the disclosure of escrow
payments in consumer credit
transactions secured by a first mortgage
on the principal dwelling of the
consumer, other than an open-end
credit plan or reverse mortgage.
Specifically, TILA section 128(b)(4)(A)
provides that the disclosures required
by TILA section 128(a)(6) must take into
account the amount of any monthly
payment to an escrow account, in
accordance with section 10(a)(2) of
RESPA. 15 U.S.C. 1638(b)(4)(A); 12
U.S.C. 2609(a)(2). In addition, new TILA
section 128(b)(4)(B) generally requires
creditors to take into account the taxable
assessed value of the property during
the first year after consummation,
including the value of any
improvements constructed or to be
constructed on the property, if known,
and the replacement costs of the
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property for hazard or flood insurance,
when disclosing estimated escrow
payments pursuant to TILA section
128(b)(4)(A). 15 U.S.C. 1638(b)(4)(B).
For the Loan Estimate provided to
consumers near the time of application,
proposed § 1026.37(c) generally
incorporates these statutory provisions,
but expands the requirements to all
transactions subject to § 1026.37(c).
However, the Bureau believes that
separate treatment is required for the
Closing Disclosure because the statutory
requirements may conflict with certain
provisions of Regulation X, which
implements the provisions of RESPA
sections 6(g) and 10, regarding the
administration of escrow accounts. 12
U.S.C. 2605(g); 2609.
Regulation X § 1024.17(c)(7) specifies
how a creditor conducting an escrow
account analysis must estimate
disbursement amounts. If the creditor
knows the charge for a particular escrow
item, the creditor must use that amount
in estimating the disbursement. If the
charge is unknown, the creditor may
base the estimate on the preceding
year’s charge, but may adjust the
estimate to account for inflation. The
Regulation X requirement that the
creditor use actual charges, if known, in
estimating escrow payment amounts
may conflict with the TILA section
128(b)(4)(B) requirement that the
creditor take into account the
replacement costs of the property for
hazard insurance when determining the
estimated escrow amount. Under the
plain language of TILA section
128(b)(4)(B), a creditor must base
estimated escrows for hazard insurance
on the replacement costs of the
property, even if it knows that the actual
charges will be different. While the
Bureau believes that the TILA
requirement for estimating escrow
payments is appropriate for the Loan
Estimate because it requires creditors to
use a uniform standard for estimates
and therefore facilitates comparison, the
disclosure of actual payment amounts,
when known, is appropriate for the
Closing Disclosure.
Accordingly, the Bureau proposes to
use its authority under TILA section
105(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans,
Dodd-Frank Act section 1405(b) to
modify the requirements of TILA
section 128(b)(4)(B) for the estimation of
escrow payment amounts on the Closing
Disclosure. Proposed § 1026.38(c)
provides that, in disclosing estimated
escrow payments as described in
§ 1026.37(c)(2)(iii) and (4)(ii), the
amount disclosed on the Closing
Disclosure: (1) For transactions subject
to RESPA, is determined under the
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escrow account analysis described in
Regulation X, 12 CFR 1024.17, and (2)
for transactions not subject to RESPA,
may be determined under the escrow
account analysis described in
Regulation X, 12 CFR 1024.17, or in the
manner set forth in § 1026.37(c)(5).
Comment 38(c)(1)–1 clarifies that the
amount of estimated escrow payments
disclosed on the Closing Disclosure is
accurate if it differs from the estimated
escrow payment disclosed on the Loan
Estimate due to the escrow account
analysis described in Regulation X, 12
CFR 1024.17. The Bureau believes the
proposed modification will effectuate
the purposes of TILA by promoting the
informed use of credit by allowing
disclosure of actual escrow amounts for
hazard insurance, when known.
Additionally, the proposed modification
will ease compliance burden for
creditors. In particular, permitting
creditors in transactions not subject to
RESPA to rely on the accounting rules
described in Regulation X, 12 CFR
1024.17, to calculate the escrow
payment disclosure will avoid requiring
creditors to follow a separate disclosure
requirement for the relatively small
number of transactions that are subject
to TILA but not RESPA. The proposed
modification will also improve
consumer awareness and understanding
of residential mortgage loans and is in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). The Bureau also
believes that the disclosure ensures that
the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
38(d) Cash To Close
Pursuant to its authority under TILA
section 105(a) and Dodd-Frank section
1032(a), the Bureau proposes to require
creditors to provide the actual total
closing costs imposed upon the
consumer and the amount of the cash
required at consummation from the
consumer. This disclosure will promote
the informed use of credit and consumer
understanding of the costs, benefits, and
risks associated with the loan because it
will indicate to the consumer the
amount the consumer will pay at
consummation of the credit transaction
and closing of the real estate
transaction. Accordingly, proposed
§ 1026.38(d) requires the disclosure of
the cash required from the consumer at
consummation of the transaction, with a
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breakdown of the amounts of loan costs
and other costs associated with the
transaction.
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38(d)(1) to (d)(6)
Under proposed § 1026.38(d)(1), the
dollar amount due from the consumer is
the same amount as calculated in
accordance with proposed
§ 1026.38(j)(3)(iii) and is disclosed
under a heading of ‘‘Cash to Close’’ and
labeled ‘‘Cash to Close.’’ The total dollar
amount of the loan costs to be paid by
the consumer at closing as calculated
under proposed § 1026.38(f)(4) is
disclosed under proposed
§ 1026.38(d)(2). The total dollar amount
of the other costs to be paid by the
consumer at closing as calculated under
proposed § 1026.38(g)(5) is disclosed
under proposed § 1026.38(d)(3). The
amount of lender credits disclosed
under § 1026.38(h)(3) is disclosed under
§ 1026.38(d)(4). The sum of the amounts
disclosed under § 1026.38(d)(2),
1026.38(d)(3), and 1026.38(d)(4) is
disclosed with a description of ‘‘Closing
Costs’’ under § 1026.38(d)(5). A
statement directing the consumer to
refer to the page of the Closing
Disclosure that contains the tables
required under § 1026.38(f) and (g) is
required under § 1026.38(d)(6).
38(f),(g), and (h) Closing Cost Details
Currently, RESPA section 4(a)
requires that the forms published by the
Bureau ‘‘* * * shall conspicuously and
clearly itemize all charges imposed
upon the borrower and all charges
imposed upon the seller in connection
with the settlement * * *.’’ 12 U.S.C.
2603(a). The current RESPA settlement
statement used in residential real estate
transactions is promulgated under
Regulation X § 1024.8, with instructions
in appendix A of Regulation X.
As discussed above, Dodd-Frank Act
section 1032(f) requires the Bureau to
combine these RESPA disclosures with
the disclosures required by TILA.
However, section 1419 of the DoddFrank Act amended TILA section 128(a)
to also require, in the case of a
residential mortgage loan, disclosure of
the aggregate amount of settlement
charges for all settlement services
provided in connection with the loan
and the aggregate amount of other fees
or required payments in connection
with the loan. 15 U.S.C. 1638(a)(17).
Pursuant to its authority under DoddFrank Act section 1032(a) and (f), TILA
section 105(a), and RESPA section 19(a),
the Bureau proposes to require creditors
to provide the loan costs and other costs
imposed upon the consumer and the
seller in tables as part of the integrated
Closing Disclosure for closed-end
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transactions secured by real property
(other than reverse mortgages). Based on
its consumer testing, the Bureau
believes that the disclosure of loan costs
and other costs in the format illustrated
in proposed form H–25 of appendix H
to Regulation Z may improve consumer
understanding of the loan costs and
other costs being imposed. The Bureau
tested several different prototype
formats for disclosing actual closing
costs on the Closing Disclosure,
including prototypes that were similar
in format to the current RESPA
settlement statement, with a similar
three-and four-digit line numbering
system, and other prototypes that more
closely matched the Loan Estimate.
Consumer participants at the Bureau’s
consumer testing performed better at
identifying closing costs, including
whether closing costs had changed
between the estimated and actual
amounts, when using a format for
closing costs that closely matched that
of the Loan Estimate. Participants
gained a familiarity with the
organization of closing costs on the
Loan Estimate and benefited from this
experience when engaging with the
Closing Disclosure. In addition,
consumer participants often placed the
Loan Estimate and Closing Disclosure
prototypes side-by-side to compare the
closing costs, and this method of
comparing the two disclosures was
better enabled and assisted by a closely
matching organization of closing costs
between them. Accordingly, the Bureau
is proposing a format for the disclosure
of closing cost information required by
proposed § 1026.38(f) and (g) that
closely matches the format and
organization of the closing cost
information on the Loan Estimate, as
required by proposed § 1026.38(t) and
illustrated by proposed form H–25.
This format of form H–25 also uses a
different line numbering system than
that of the current RESPA settlement
statement. Both consumer and industry
participants at the Bureau’s testing
stated that line numbers would be
useful to facilitate conversations
between consumers, creditors, and other
participants in the credit and
underlying real estate transaction.
However, consumer participants at the
Bureau’s testing appeared overwhelmed
by the three-and four-digit line numbers
on the prototypes similar to the current
RESPA settlement statement, and
performed worse with prototypes
containing that system. As discussed
above in part III, the Bureau is
particularly mindful of the potential risk
of information overload for consumers,
given the amount of numbers and
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51239
complexity involved in the credit
transaction and the underlying real
estate transaction. The Bureau tested
prototypes with a two-digit line
numbering system, which performed
better with both consumer and industry
participants at the Bureau’s testing, with
some industry participants at the
Bureau’s testing preferring it over the
system of the current RESPA settlement
statement. Accordingly, the format for
the information required by proposed
§ 1026.38(f) and (g), as required by
proposed § 1026.38(t) and illustrated by
form H–25, also contains a two-digit
line numbering system that is different
than the current RESPA settlement
statement.
The Bureau believes that this
disclosure may effectuate the purpose of
TILA by promoting the informed use of
credit and assuring a meaningful
disclosure to consumers. The Bureau
believes that this disclosure may also
satisfy the purpose of RESPA to provide
more effective advanced disclosure of
settlement costs to both the consumer
and the seller in the real estate
transaction. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
this disclosure may ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances.
As discussed below, proposed
§ 1026.38(f), (g), and (h) require the
creditor or closing agent to disclose the
details of the closing costs at closing
and totals of those costs. The costs
related to the consummation of the
credit transaction and the closing of the
real estate transaction would be
disclosed under § 1026.38(f), (g), and
(h), as discussed below, regardless of the
person responsible for paying the
cost.186
During the Small Business Review
Panel, several settlement agents and one
mortgage company requested that the
186 The permitted itemization of closing costs
under § 1026.38(f) and (g) allows creditors to
provide itemizations required by State law without
using additional pages. See, e.g., Indiana
Department of Insurance, Title Insurance Division
‘‘New RESPA Rules and Indiana Code FAQs’’ (May
1, 2010) available at https://www.in.gov/idoi/files/
Indiana_Department_of_Insurance_FAQs.pdf;
North Carolina Commissioner of Banks
Memorandum ‘‘Disclosure of Origination Fees
under HUD’s New RESPA Rules’’ (December 3,
2010) available at https://www.nccob.gov/public/
docs/Financial%20Institutions/Mortgage/
OCOB_Letter_Regarding_Disclosure_
of_Origination_Fees_under_HUDs_new_RESPA
_Rules.pdf; Tex. Ins. Code Ann. art. § 2702.053
(West 2005).
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line numbers from the current RESPA
settlement statement be retained, stating
that using the revised line numbers in
the prototype integrated Closing
Disclosure would significantly increase
programming costs. See Small Business
Review Panel Report at 20, 28–9. Based
on this feedback, the Bureau seeks
comment on whether the use of line
numbers will lower software-related
costs on industry, and the exact amount
of the savings given the rest of the
changes in the integrated closing
disclosure contemplated by this
proposal, while improving consumer
understanding of the loan terms and
costs at the consummation of the credit
transaction and the closing of the real
estate transaction.
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38(f) Closing Cost Details; Loan Costs
Under proposed § 1026.38(f), the
closing cost details are disclosed under
a master heading of ‘‘Closing Cost
Details’’ with columns stating whether
the charge is paid at or before
consummation by the consumer or the
seller, or paid by others. All loan costs
in the credit transaction would be
disclosed in a table under a heading of
‘‘Loan Costs’’ in three subcategories.
38(f)(1) Origination Charges
The first subcategory of loan costs
would be disclosed under the label
‘‘Origination Charges,’’ which
encompasses the same items as
disclosed on the Loan Estimate under
proposed § 1026.37(f)(1) together with
any compensation of a loan originator
paid by the creditor. Each cost would be
disclosed in the appropriate column
designated borrower-paid at or before
closing, seller-paid at or before closing,
or paid by others. Proposed comment
38(f)(1)–1 clarifies that comments
37(f)(1)–1, –2 and –3 provide additional
guidance for the charges listed under
§ 1026.38(f)(1). Proposed comment
38(f)(1)–2 clarifies that all compensation
paid to a loan originator must be
provided under § 1026.38(f)(1), that
compensation from the creditor to a
loan originator must be disclosed in the
paid by others column, and that
compensation from both the consumer
and the creditor to the loan originator is
prohibited under § 1026.36(d)(2).
Proposed comment 38(f)(1)–3 clarifies
that any amount disclosed as paid from
the creditor to the loan originator is
calculated as the dollar value of all
compensation to the loan originator and
refers to comments 36(d)(1)–1, –2, –3
and –6 for further guidance on the
components of compensation a to loan
originator. The Bureau believes that the
origination charges disclosed under
§ 1026.38(f)(1) satisfies Dodd-Frank Act
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section 1419, which amended section
128(a) of TILA to add paragraph (18),
requiring disclosure of the aggregate
amount of fees paid to the mortgage
originator, amount of those fees paid
directly by the consumer, and any
additional amount received by the
originator from the creditor. As
discussed above in part II.F, the Bureau
currently is engaged in six other
rulemakings that relate to mortgage
credit and intends that the rulemakings
function collectively as a whole.
Accordingly, the Bureau may have to
modify aspects of this proposed rule for
consistency with determinations made
in the other rulemakings. For example,
the Bureau would modify the disclosure
of origination charges under
§ 1026.38(f)(1) as appropriate for
consistency with other rulemakings
related to permissible mortgage loan
originator compensation.
Alternatively, the Bureau invites
comment on whether it should require
itemization in the Closing Disclosure of
fees received by loan originators from
the creditor, and whether it should
require itemization of any compensation
paid by consumers to loan originators,
which does not include creditors, in the
Loan Estimate and Closing Disclosure.
As discussed above with respect to
proposed § 1026.37(f)(1), the Bureau is
proposing to use its authority under
TILA section 105(a) and (f), RESPA
section 19(a), and Dodd-Frank Act
section 1405(b) to exempt the
disclosures required by proposed
§ 1026.19(e) from the TILA section
128(a)(18) requirement that creditors
disclose the amount of origination fees
received by loan originators from the
creditor. The Bureau solicits comment
on whether a similar exemption should
be applied here.
38(f)(2) Services Borrower Did Not Shop
For
The second subcategory of loan costs
would be disclosed under the label
‘‘Services Borrower Did Not Shop For.’’
The costs of services that were required
by the creditor and provided by persons
other than the creditor for which the
consumer could not or did not shop
would disclosed under § 1026.38(f)(2).
All items that were required to be
disclosed under § 1026.37(f)(2), plus
those items that would be disclosed
under § 1026.37(f)(3) when the
consumer did not shop for the service
under § 1026.19(e)(1)(vi). Any
additional items that were required by
the creditor but were not disclosed on
the Loan Estimate under § 1026.37(f)(2)
would be disclosed under
§ 1026.38(f)(2) when the consumer did
not shop for the service under
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§ 1026.19(e)(1)(vi). Each cost would be
disclosed in the appropriate column
designated borrower-paid at or before
closing, seller-paid charges at or before
closing, or paid by others. Proposed
comment 38(f)(2)–1 refers to comments
37(f)(2)–1, through –4 to provide
additional guidance for the charges
listed under § 1026.38(f)(2).
38(f)(3) Services Borrower Did Shop For
The third subcategory of loan costs
would be disclosed under the label
‘‘Services Borrower Did Shop For.’’ The
services required by the creditor but for
which the consumer independently
shopped are disclosed under
§ 1026.38(f)(3). Each cost is disclosed in
the appropriate column for borrowerpaid at or before closing, seller-paid at
or before closing, or paid by others.
Proposed comment 38(f)(3)–1 clarifies
that all items that were disclosed under
§ 1026.37(f)(3) that the consumer did
not shop for the service under
§ 1026.19(e)(1)(vi) are disclosed under
§ 1026.38(f)(2), and not under
§ 1026.38(f)(3).
38(f)(4) and (5) Total Loan Costs and
Subtotal of Loan Costs
With the label ‘‘Total Loan Costs
(Borrower-Paid),’’ the total costs
designated borrower-paid charges at
closing and borrower-paid charges
before closing would be disclosed under
§ 1026.38(f)(4). The costs disclosed
under § 1026.38(f)(1), (2), and (3) would
be subtotaled and disclosed in the
appropriate column designated
borrower-paid at or before closing under
§ 1026.38(f)(5). Proposed comment
38(f)(5)–1 clarifies that costs that are
seller-paid at or before closing, or paid
by others, are not subtotaled under
§ 1026.38(f)(5), and that the subtotal of
charges that are seller-paid at or before
closing, or paid by others, would be
disclosed under § 1026.38(h)(2).
38(g) Closing Cost Details; Other Costs
Under proposed § 1026.38(g), all other
costs in the credit transaction and the
real estate transaction are disclosed in a
table under the heading of ‘‘Other
Costs’’ in four subcategories. Proposed
comment 38(g)–1 would refer to
comment 38(f)–1 and comment 37(g)–1
to provide guidance related to
§ 1026.38(g).
38(g)(1) Taxes and Other Government
Fees
The first subcategory is disclosed
under the label ‘‘Taxes and Other
Government Fees.’’ The amount of
recording fees and an itemization of
transfer taxes would be disclosed under
§ 1026.38(g)(1). Proposed comment
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relating to the instructions to complete
the current RESPA settlement statement
section 1000.
38(g)(2) Prepaids
The second subcategory is disclosed
under the label ‘‘Prepaids.’’ The items
that were identified under are stated
with the actual costs in the applicable
columns is disclosed under
§ 1026.38(g)(2). Proposed comment
38(g)(2)–1 refers to comment 37(g)(2)–1
to provide guidance on disclosures
required under § 1026.38(g)(2).
Proposed comment 38(g)(2)–2 clarifies
that the amount of prepaid interest can
be disclosed as a negative number if the
calculation of prepaid interest results in
a negative number. Proposed comment
38(g)(2)–3 clarifies that if interest is not
collected for a portion of a month or
other period between closing and the
date from which interest will be
collected with the first monthly
payment, then $0.00 must be disclosed
under § 1026.38(g)(2) for prepaid
interest. This guidance is consistent
with instructions for RESPA settlement
statement line 901 in appendix A of
Regulation X.
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38(g)(1)–1 refers to comments 37(g)(1)–
1, –2, –3 and –4 for guidance on
disclosures required under
§ 1026.38(g)(1).
The fourth subcategory would be
disclosed under the label ‘‘Other.’’ The
services required to be performed or are
to be obtained in the real estate closing
by the consumer, seller, or other party
are described and the costs for the
services disclosed under § 1026.38(g)(4).
The label for any cost that is a
component of title insurance must
include the description ‘‘Title—’’. The
label for costs of premiums for separate
insurance, warranty, guarantee, or
event-coverage products must include
the parenthetical ‘‘(optional)’’ at the
end. Proposed comment 38(g)(4)–1
clarifies that the charges disclosed
under § 1026.38(g)(4) include all real
estate brokerage fees, homeowner’s or
condominium association charges paid
at closing, home warranties, inspection
fees, and other fees that are part of the
real estate transaction but not required
by the creditor or disclosed elsewhere in
§ 1026.38. Proposed comment 38(g)(4)–
2 clarifies that any owner’s title
insurance premium disclosed under
§ 1026.38(g)(4) in a jurisdiction that
permits simultaneous issuance title
insurance rates is calculated by using
the full owner’s title insurance
premium, adding any simultaneous
issuance premium for issuance of
lender’s coverage, and then deducting
the full premium for lender’s coverage
disclosed under § 1026.38(f)(2) or (f)(3)
and that the cost of a premium for an
owner’s title insurance policy will be
always labeled with ‘‘Title—’’ at the
beginning, and labeled ‘‘(optional)’’ at
the end when designated borrower-paid
at or before closing. Proposed comment
38(g)(4)–3 refers to comment 37(g)(4)–3
for additional guidance on the use of the
parenthetical ‘‘(optional)’’ at the end of
label on a cost under § 1026.38(g)(4)(ii).
38(g)(3) Initial Escrow Payment at
Closing
The third subcategory is disclosed
under the subheading ‘‘Initial Escrow
Payment at Closing.’’ The items that
were identified under § 1026.37(g)(3) are
stated with their actual cost and the
applicable aggregate adjustment
required under 12 CFR 1024.17(d)(2)
and disclosed under § 1026.38(g)(3).
Proposed comment 38(g)(3)–1 clarifies
that the creditor would be required to
state the amount that it would require
the consumer to place into a reserve or
escrow account at consummation to be
applied to recurring charges for property
taxes, homeowner’s and similar
insurance, mortgage insurance,
homeowner’s association dues,
condominium dues, and other periodic
charges. Each charge identified would
be disclosed with a relevant label,
monthly payment amount, and number
of months collected at consummation.
Proposed comment 38(g)(3)–2 clarifies
that the method used to determine the
aggregate adjustment for purposes of
establishing the reserve or escrow
account is described in Regulation X
§ 1024.17(d)(2), that examples of the
calculation methodology can be found
in appendix E of Regulation X, and that
the result of the calculation will always
be a negative number or zero, except for
amounts due to rounding. This
comment incorporates guidance
provided in appendix A to Regulation X
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38(g)(4) Other
51241
are other costs seller-paid at closing,
seller-paid before closing, or paid by
others are not disclosed under
§ 1026.38(g)(6), but are subtotaled under
§ 1026.38(h)(2).
38(h) Closing Cost Totals
38(h)(1) and (2)
38(g)(5) Total Other Costs
Subtotals of closing costs and total
closing costs paid by the consumer must
be disclosed under proposed
§ 1026.38(h). With the label ‘‘Total
Closing Costs (Borrower-Paid),’’ the total
amount of consumer paid closing costs
would be disclosed under
§ 1026.38(h)(1). With a description of
‘‘Closing Costs Subtotal (Loan Costs +
Other Costs),’’ the subtotal of all charges
disclosed under § 1026.38(f) and (g) in
each column described in § 1026.38(f)
would be disclosed under
§ 1026.38(h)(2). Comment 38(h)(2)–1
clarifies that the loan costs and other
costs that are seller-paid at closing,
seller-paid before closing, and paid by
others are also subtotaled under
§ 1026.38(h)(2).
The Bureau proposes § 1026.38(h)
pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
section 1032(a) because disclosure of
this closing cost information will
promote the informed use of credit and
consumer understanding of the costs,
benefits, and risks associated with the
mortgage transaction. Furthermore, for
the reasons stated above, the proposed
rule is in the interest of consumers and
in the public interest, consistent with
Dodd-Frank Act section 1405(b). In
addition, proposed § 1026.38(h)
implements Dodd-Frank Act Section
1419, which amended section 128(a) of
TILA to add a new paragraph (17)
requiring disclosure of, among other
amounts, the amount of settlement
charges the borrower must pay at
closing and the aggregate amount of all
settlement charges for all settlement
services provided in connection with
the loan.
38(g)(6) Subtotal of Costs
38(h)(3)
With the label ‘‘Total Other Costs
(Borrower-Paid),’’ the total of the
consumer paid charges at closing and
the consumer paid charges before
closing would be disclosed under
proposed § 1026.38(g)(5). The costs
disclosed under § 1026.38(g)(1) through
(4) are be subtotaled and disclosed in
the appropriate column designated
borrower-paid at or before closing under
§ 1026.38(g)(6). Proposed comment
38(g)(6)–1 would clarify that the only
costs subtotaled under § 1026.38(g)(6)
are those that are designated borrowerpaid at or before closing. Charges that
Section 1026.38(h)(3) requires the
creditor to disclose the amount of
credits provided by the creditor to the
consumer at consummation. Proposed
comment 38(h)(3)–1 provides a cross
reference to guidance provided in
comments 17(c)(1)–19, 19(e)(3)(i)–4, and
19(e)(3)(i)–5 concerning the disclosure
of lender credits, including those that
are disclosed under § 1026.37(g)(6).
Proposed comment 38(h)(3)–2 clarifies
that any amounts disclosed under
§ 1026.38(h)(3) can also be used for
disclosing any credits from the creditor
to remediate excess costs determined
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under § 1026.19(e)(3)(i) or (e)(3)(ii). This
comment incorporates guidance
provided in the HUD RESPA Roundup
dated April 2010.
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38(h)(4)
Section 1026.38(h)(4) requires the
creditor to use terminology describing
the charges on the Closing Disclosure in
a manner that is consistent with the
descriptions used for charges disclosed
on the Loan Estimate under § 1026.37.
The creditor would also be required to
list the charges on the Closing
Disclosure in the same sequential order
on the Loan Estimate under § 1026.37.
Proposed comment 38(h)(4)–1 clarifies
that the creditor would be required to
use the same terminology and order to
make it easier for the consumer to
compare charges listed on the Loan
Estimate and Closing Disclosure. Also, if
charges move between subheadings
under § 1026.38(f)(2) and (3), listing the
charges in alphabetical order in each
subheading category would be
considered to be in compliance with
§ 1026.38(h)(4).
38(i) Calculating Cash To Close
As discussed above, the total amount
of cash or other funds that the consumer
must provide at consummation is
commonly known as the ‘‘cash to
close.’’ Prior to the enactment of the
Dodd-Frank Act, neither TILA nor
Regulation Z expressly required
disclosure of the cash to close amount
or its critical components. The DoddFrank Act added section 128(a)(17) to
TILA, which requires the disclosure of
‘‘the aggregate amount of settlement
charges for all settlement services
provided in connection with the loan,
the amount of charges that are included
in the loan and the amount of such
charges the borrower must pay at
closing * * * and the aggregate amount
of other fees or required payments in
connection with the loan.’’ 15 U.S.C.
1638(a)(17).
The ‘‘Summary of Borrower’s
Transaction’’ on page 1 of the RESPA
settlement statement, line 303, includes
a box that shows the amount of cash due
to or from the consumer. See appendix
A to Regulation X. Page 3 of the RESPA
settlement statement also includes a
chart entitled ‘‘Comparison of Good
Faith Estimate (GFE) and HUD–1
Charges,’’ which highlights any changes
between the estimated and actual
amounts for settlement service charges
that are subject to the limitations on
increases under 12 CFR 1024.7(e).
However, these settlement service
charges comprise only a portion of the
total amount of funds that the consumer
would need to consummate the
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transaction. Thus, the cash to close box
on line 303 and the comparison chart on
page 3 of the RESPA settlement
statement together provide an
incomplete picture of how the cash to
close amount is calculated and whether
it is different than the consumer expects
based on the GFE.
Consequently, and based on its
authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act sections 1032(a) and, for residential
mortgage loans, 1405(b), the Bureau is
proposing to require that the Closing
Disclosure contain a ‘‘Calculating Cash
to Close’’ table that highlights the cash
to close amount and its critical
components and compares those
amounts to the corresponding
disclosures shown on the Loan Estimate
under § 1026.37(h). The Bureau believes
that this disclosure will effectuate the
purposes of TILA and RESPA by
facilitating the informed use of credit
and ensuring that consumers are
provided with greater and timelier
information on the costs of the closing
process. Providing consumers with
information about the cash to close
amount, its critical components, and
how such amounts changed from the
estimated amounts disclosed on the
Loan Estimate helps ensure that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
the transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). The Bureau
also believes such disclosure will
improve consumers’ awareness and
understanding of residential mortgage
transactions, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
The ‘‘Calculating Cash to Close’’ table
in the Closing Disclosure under
proposed § 1026.38(i) mirrors the format
of, and updates the amounts shown on,
the ‘‘Calculating Cash to Close’’ table in
the Loan Estimate under proposed
§ 1026.37(h). The Bureau believes that
including separate ‘‘Calculating Cash to
Close’’ tables on both the Loan Estimate
and the Closing Disclosure will aid the
consumer in ascertaining whether the
cash to close amount and its critical
components changed between the Loan
Estimate and the Closing Disclosure,
and by how much. The two tables are
similar in format and designed to be
used in tandem when the consumer is
reviewing the Closing Disclosure and
comparing its content to that shown on
the Loan Estimate. However, the table
on the Closing Disclosure includes
additional information under the
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subheading ‘‘Did this change?’’ which is
intended to assist the consumer in
identifying and understanding the
reasons for any such changes.
The Bureau’s consumer testing
indicated that consumers were able to
use the detailed comparison table to
understand how and why the actual
cash to close amount on the Closing
Disclosure differs from the estimated
amounts shown on the Loan Estimate.
During testing, consumers tended to use
the ‘‘Calculating Cash to Close’’ table in
conjunction with the ‘‘Closing Cost
Details’’ tables showing itemized
charges and subtotals on the Closing
Disclosure, to identify the differences
between the estimated and actual cash
to close amount and its critical
components and to gain a better
understanding of the numbers
underlying the cash to close amount.
The consumers also benefited from the
‘‘Did this change?’’ subheading
containing statements that components
of the cash to close changed and simple
explanations as to why. The Bureau has
incorporated this feedback into the
design of the table and its choice of
language to be used under the ‘‘Did this
change?’’ subheading, as applicable.
Requiring disclosure of the
‘‘Calculating Cash to Close’’ table also
complements proposed
§ 1026.19(f)(1)(ii), which requires
delivery of the Closing Disclosure three
business days prior to consummation.
TILA section 128(b)(2)(D) requires that a
corrected TILA disclosure be given to
the consumer not later than three
business days prior to consummation if
the APR as initially disclosed becomes
inaccurate, and the Bureau understands
that the annual percentage rate changes
triggering the redisclosure obligation
occur so frequently that many creditors
currently provide the corrected TILA
disclosure as a matter of course even if
redisclosure is not required. RESPA
section 4 provides that the RESPA
settlement statement be provided ‘‘at or
before closing,’’ however, and the
Bureau understands that it typically is
given the day of closing. As discussed
above, proposed § 1026.19(f)(1)(ii)
merges the two provisions by requiring
that consumers be given the integrated
disclosures three business days prior to
consummation. During this threebusiness-day period, the consumer can
review the Closing Disclosure, contact
the creditor with questions regarding
the information contained on the
Closing Disclosure, and correct any
errors prior to consummation.
Disclosing the cash to close amount and
how it was calculated three business
days in advance of consummation
generally provides the consumer with a
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three-business-day window to make
arrangements to have the necessary
funds available for the consummation.
This will help alleviate concerns that, in
some cases, consumers may not know
until shortly before consummation—or
even the day of consummation—how
much of their own funds they will be
expected to bring to the closing table.
The ‘‘Calculating Cash to Close’’ table
to be disclosed on the Closing
Disclosure under § 1026.38(i) consists of
four columns and nine rows. The first
column, which does not have a
subheading, includes labels for the
amounts of cash to close (listed in the
final row of the table, in more
prominent fashion) and its critical
components. Total closing costs, which
are listed in the first row, is the sum
total of creditor, third party settlement
service, and other transaction-related
charges disclosed on the ‘‘Closing Cost
Details’’ tables on the Closing
Disclosure. Subsequent rows list other
components of the cash to close amount,
such as the closing costs paid before
consummation, closing costs financed,
and the deposit. These component
amounts are discussed in more detail
under § 1026.38(i)(1) through (8), below.
The second column, under the
subheading ‘‘Estimate,’’ includes the
estimated amounts of cash to close and
its components. These amounts match
the estimates given on the ‘‘Calculating
Cash to Close’’ table in the Loan
Estimate, which are shown to the
nearest whole dollar amount. The third
column, under the subheading ‘‘Final,’’
includes the actual amounts of the cash
to close and its components without
rounding. In both the second and the
third columns, the amounts that
increase the total cash to close amount
are shown as positive numbers, and the
amounts that reduce the total cash to
close amount are shown as negative
numbers. The fourth column, under the
subheading ‘‘Did this change?’’ contains
in each row (1) a statement, more
prominent than other disclosures under
proposed § 1026.38(i), as to whether the
actual amount is different from or
increased above the estimated amount
and (2) if the actual amount is different
from or increased over the estimated
amount, a simple explanation for the
difference or increase along with crossreferences to other relevant information
disclosed on the Closing Disclosure, as
applicable.
Proposed comment 38(i)–1 discusses
how, under each subparagraph (iii) of
§ 1026.38(i)(1) through (i)(8), the
statement as to whether the ‘‘Final’’
amount disclosed under each
subparagraph (ii) of §§ 1026.38(i)(1)
through (i)(8) is greater than, equal to,
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or less than the corresponding
‘‘Estimate’’ amount disclosed under
each subparagraph (i) of §§ 1026.38(i)(1)
through (i)(8) is disclosed more
prominently than the other disclosures
under § 1026.38(i). The proposed
comment clarifies that this more
prominent statement can take the form,
for example, of a ‘‘Yes’’ or ‘‘No’’
disclosed in capital letters and boldface
font, as shown on the Closing Disclosure
form H–25 set forth in appendix H to
this part, the standard form or model
form, as applicable, pursuant to
§ 1026.38(t). The comment also
discusses how, in the event a difference
or an increase in costs has occurred,
certain words within the narrative text
that are included under the subheading
‘‘Did this change?’’ are displayed more
prominently than other disclosures, and
gives an example of such a prominent
statement.
Proposed comment 38(i)–2 describes
how a final amount shown to two
decimal places on the ‘‘Calculating Cash
to Close’’ table disclosed under
§ 1026.38(i) could appear to be a larger
number than its corresponding estimate
shown to the nearest dollar when, in
fact, the apparent increase is due solely
to rounding. The comment further
clarifies that any statement disclosed
under the subheading ‘‘Did this
change?’’ as to whether an actual
amount is higher than its corresponding
estimated amount is based on the actual,
non-rounded estimate that would have
been disclosed on the Loan Estimate
under § 1026.37(h) if it had been shown
to two decimal places rather than a
whole dollar amount. The proposed
comment also provides an example of
how a contrary rule could result in
inaccurate disclosures of increases. The
proposed comment reflects the Bureau’s
intention that the statements of
increases to be disclosed under each
subparagraph (iii) under § 1026.38(i)(1)
through (i)(8) capture true increases
rather than increases due solely to
rounding rules.
Proposed comments 38(i)–3 and 4
provide guidance regarding the
statements required by each of
§ 1026.38(i)(4)(iii)(A),
1026.38(i)(5)(iii)(A),
1026.38(i)(6)(iii)(A),
1026.38(i)(7)(iii)(A), and
1026.38(i)(8)(iii)(A) that the consumer
should see the details disclosed
pursuant to another subsection or other
subsections within § 1026.38, or that an
amount has increased or decreased from
an estimated amount, as applicable. The
comments note that, for example,
§ 1026.38(i)(7)(iii)(A) requires a
statement that the consumer should see
the details disclosed pursuant to
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51243
§ 1026.38(j)(2)(v), and, as shown on
Closing Disclosure form H–25, that
statement can read: ‘‘See Seller Credits
in Section L.’’ These comments also
provide guidance regarding the required
statements that are not illustrated as
samples in form H–25 in appendix H.
38(i)(1) Total Closing Costs
Proposed § 1026.38(i)(1)(i) and (ii)
requires the disclosure of a comparison
of the consumer’s estimated and actual
‘‘Total Closing Costs’’ amounts. The
estimated ‘‘Total Closing Costs’’ amount
is the same amount that is disclosed on
the Loan Estimate in the ‘‘Calculating
Cash to Close’’ table under proposed
§ 1026.37(h)(1). This amount also
matches the ‘‘Total Closing Costs’’
amount that is disclosed on the Loan
Estimate under proposed
§ 1026.37(g)(6). The actual ‘‘Total
Closing Costs’’ amount is the same
amount disclosed on the Closing
Disclosure under § 1026.38(h)(1),
reduced by the amount of any lender
credits disclosed under § 1026.38(h)(3).
Proposed comment 38(i)(1)(i)–1
provides guidance regarding the
requirement under § 1026.38(i)(1)(i) that
the amount disclosed is labeled ‘‘Total
Closing Costs’’ and that such label is
accompanied by a reference to the
disclosure of ‘‘Total Closing Costs’’
under § 1026.38(h)(1).
Proposed § 1026.38(i)(1)(iii)(A)
specifies that if the actual amount of
‘‘Total Closing Costs’’ is different than
the estimated amount of such costs as
shown on the Loan Estimate (unless the
difference is due to rounding), the
creditor or closing agent must state,
under the subheading ‘‘Did this
change?’’, that the consumer should see
the total loan costs and total other costs
subtotals disclosed on the Closing
Disclosure under § 1026.38(f)(4) and
(g)(5), and must include a reference to
such disclosures, as applicable. This
language is intended to direct the
consumer to the more detailed
itemization on the Closing Disclosure of
the costs that comprise the ‘‘Total
Closing Costs.’’
Under proposed § 1026.38(i)(1)(iii)(A),
the creditor or closing agent must also
state the dollar amount of any excess
amount of closing costs above the
limitations on increases in closing costs
under § 1026.19(e)(3), if applicable,
along with language stating that the
increase exceeds the legal limits by the
dollar amount of the excess. The dollar
amount to be disclosed must reflect the
different methods of calculating such
excess amounts under § 1026.19(e)(3)(i)
and (ii). Proposed comment
38(i)(1)(iii)(A)–1 contains examples of
how to calculate such excess amounts
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and clarifies that because certain closing
costs, individually, are subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(i) (e.g., origination
fees, transfer taxes, charges paid by the
consumer to an affiliate of the creditor),
while other closing costs are collectively
subject to the limitations on increases in
closing costs under § 1026.19(e)(3)(ii)
(e.g., recordation fees, fees paid to an
unaffiliated third party if the creditor
permitted the consumer to shop for the
service provider), the creditor or closing
agent calculates subtotals for each type
of excess amount, and then adds such
subtotals together to yield the dollar
amount to be disclosed in the table. The
proposed comment also clarifies that the
calculation of the excess amounts above
the limitations on increases in closing
costs takes into account the fact that the
itemized, estimated closing costs
disclosed on the Loan Estimate will not
result in charges to the consumer if the
service is not actually provided at or
before consummation, and that certain
itemized charges listed on the Loan
Estimate under the subheading
‘‘Services You Can Shop For’’ may be
subject to different limitations
depending on the circumstances.
Proposed comments 38(i)(1)(iii)(A)–2.i
through –2.iii complement commentary
to proposed § 1026.19(e)(3). Pursuant to
proposed § 1026.19(f)(2)(v), the creditor
or closing agent must refund to the
consumer any such excess amounts at
consummation or within thirty days
thereafter. Accordingly, this disclosure
may help the consumer identify when a
refund may be required, and this
information can be used by the
consumer to request that the creditor or
closing agent provide such refund at
consummation or within thirty days
thereafter.
38(i)(2) Closing Costs Subtotal Paid
Before Closing
Proposed § 1026.38(i)(2) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Total Closing Costs’’ that are paid
before consummation of the transaction.
The estimated ‘‘Closing Costs Subtotal
Paid Before Closing’’ must be disclosed
as $0. Proposed comment 38(i)(2)(i)–1
clarifies that this requirement is because
the Loan Estimate does not have an
equivalent disclosure under proposed
§ 1026.37(h). The actual ‘‘Closing Costs
Subtotal Paid Before Closing’’ is the sum
of the amount disclosed on the Closing
Disclosure under proposed
§ 1026.38(h)(2) and designated
‘‘Borrower-Paid Before Closing.’’
Proposed § 1026.38(i)(2)(iii) specifies
that if the actual amount of ‘‘Closing
Costs Subtotal Paid Before Closing’’ is
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different than the estimated amount, in
this case $0 (unless the difference is due
to rounding), the creditor or closing
agent must state under the subheading
‘‘Did this change?’’ that the consumer
paid such costs before consummation.
This language is intended to remind the
consumer that he or she paid certain
transaction closing costs prior to
consummation and that such costs will
be subtracted from the actual cash to
close amount. Proposed comment
38(i)(2)(iii)(B)–1 provides guidance
regarding the requirement to disclose
whether the estimated and final
amounts are equal.
38(i)(3) Closing Costs Financed
Proposed § 1026.38(i)(3) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Total Closing Costs’’ that are financed.
The estimated ‘‘Closing Costs Financed’’
amount is the same amount that is
disclosed in the ‘‘Calculating Cash to
Close’’ table in the Loan Estimate under
proposed § 1026.37(h)(2). The actual
‘‘Closing Costs Financed’’ amount
reflects any changes to the amount
previously disclosed on the Loan
Estimate. Proposed § 1026.38(i)(3)(iii)
specifies that if the actual amount of
‘‘Closing Costs Financed’’ is different
than the estimated amount (unless the
excess is due to rounding), the creditor
or closing agent must state under the
subheading ‘‘Did this change?’’ that the
consumer included these closing costs
in the loan amount, which increased the
loan amount. The Bureau believes this
explanatory language will be
particularly helpful to consumers for
two reasons. First, an increase in closing
costs financed may trigger a sizeable
decrease in the cash to close, which in
turn could create a false impression that
the overall transaction costs to the
consumer decreased. Second, during
consumer testing, when consumers were
presented with a scenario involving a
loan amount that increased after
delivery of the Loan Estimate, some of
the consumers had difficultly isolating
the increase in closing costs financed as
the reason for the increased loan
amount. The Bureau believes this
disclosure may assist consumers in
understanding that the financed portion
of the closing costs are paid for through
the loan proceeds.
38(i)(4) Downpayment/Funds From
Borrower
Proposed § 1026.38(i)(4) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Downpayment/Funds from Borrower.’’
Downpayment and funds from borrower
are related concepts, but downpayment
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is applicable to a transaction that is a
purchase as defined in proposed
§ 1026.37(a)(9)(i), while funds from
borrower relates to a transaction other
than a purchase. Under proposed
§ 1026.38(i)(4)(i), the estimated
‘‘Downpayment/Funds from Borrower’’
amount is the same amount that is
disclosed on the ‘‘Calculating Cash to
Close’’ table in the Loan Estimate under
proposed § 1026.37(h)(3). Under
proposed § 1026.38(i)(4)(ii)(A), in a
transaction that is a purchase as defined
in proposed § 1026.37(a)(9)(i), the actual
amount of the ‘‘Downpayment/Funds
from Borrower’’ is the actual amount of
the difference between the purchase
price of the property and the principal
amount of the credit extended, stated as
a positive number. Under proposed
§ 1026.38(i)(4)(ii)(B), in a transaction
other than a purchase as defined in
proposed § 1026.37(a)(9)(i), the actual
amount of ‘‘Funds from Borrower’’ is
determined in accordance with
§ 1026.38(i)(6)(iv), by subtracting from
the total amount of all existing debt
being satisfied in the real estate closing
and disclosed under § 1026.38(j)(1)(v)
(except to the extent the satisfaction of
such existing debt is disclosed under
§ 1026.38(g)) the principal amount of
the credit extended. If such calculation
yields a positive number, then the
positive number is disclosed under
proposed § 1026.38(i)(4)(ii)(B);
otherwise, $0.00 is disclosed.
Proposed comment 38(i)(4)(ii)(A)–1
provides an example of the
downpayment changing in a particular
transaction. Proposed comment
38(i)(4)(ii)(B)–1 provides further
clarification about how the actual
‘‘Funds from Borrower’’ amount is
determined under § 1026.38(i)(6)(iv),
and gives an example of when that
actual amount may change from the
corresponding estimated amount.
Proposed § 1026.38(i)(4)(iii)(A)
specifies that if the actual amount of
‘‘Downpayment/Funds from Borrower’’
is different than the estimated amount
(unless the difference is due to
rounding), the creditor or closing agent
must state under the subheading ‘‘Did
this change?’’ that the consumer
increased or decreased the payment, as
applicable, and also state that the
consumer should see the details
disclosed under § 1026.38(j)(1) or (j)(2),
as applicable. This language is intended
to remind the consumer that he or she
will be contributing a different amount
of his or her own funds toward the cash
to close, and therefore must make
arrangements prior to the date of
consummation to procure any necessary
funds. Comment 38(i)(4)(iii)(A)–1
clarifies the requirement under
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§ 1026.38(i)(4)(iii)(A) that a statement be
given that the consumer has increased
or decreased this payment, as
applicable, along with a statement that
the consumer should see the details
disclosed under § 1026.38(j)(1) or (j)(2),
as applicable. The comment notes that,
in the event the purchase price of the
property increased, that statement can
read, for example: ‘‘You increased this
payment. See details in Section K.’’ In
the event the loan amount decreased,
that statement can read, for example,
‘‘You increased this payment. See
details in Section L.’’ This language is
intended to direct the consumer to the
section within the Closing Disclosure
containing the information that
accounts for the increase in the
‘‘Downpayment/Funds from Borrower’’
amount.
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38(i)(5) Deposit
Proposed § 1026.38(i)(5) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Deposit.’’ The estimated ‘‘Deposit’’
amount is the same amount that is
disclosed in the ‘‘Calculating Cash to
Close’’ table on the Loan Estimate under
proposed § 1026.37(h)(4). The actual
‘‘Deposit’’ amount is the same amount
that is disclosed on the Closing
Disclosure under proposed
§ 1026.38(j)(2)(ii). Proposed
§ 1026.38(i)(5)(iii) specifies that if the
actual amount of ‘‘Deposit’’ is different
than the estimated amount (unless the
difference is due to rounding), the
creditor or closing agent must state,
under the subheading ‘‘Did this
change?’’, that the consumer increased
or decreased this payment, as
applicable, and should see the details
disclosed under § 1026.38(j)(2)(ii). This
language is intended to direct the
consumer to the section within the
Closing Disclosure containing the
itemization of the deposit in the Closing
Disclosure.
38(i)(6) Funds for Borrower
Proposed § 1026.38(i)(6) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Funds for Borrower.’’ Like proposed
§ 1026.37(h)(5), this amount is intended
to generally represent the amount to be
disbursed to the consumer or used at
consumer’s discretion at consummation
of the transaction, such as in cash-out
refinance transactions. The
determination of whether the
transaction will result in ‘‘Funds for
Borrower’’ is made under proposed
§ 1026.38(i)(6)(iv). The estimated
‘‘Funds for Borrower’’ amount disclosed
under § 1026.38(i)(6)(i) is the same
amount that is disclosed in the
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‘‘Calculating Cash to Close’’ table in the
Loan Estimate under proposed
§ 1026.37(h)(5). Proposed
§ 1026.38(i)(6)(ii) provides that the
actual ‘‘Funds for Borrower’’ amount
disclosed is determined pursuant to
§ 1026.38(i)(6)(iv), by subtracting from
the total amount of all existing debt
being satisfied in the real estate closing
and disclosed under § 1026.38(j)(1)(v)
(except to the extent the satisfaction of
such existing debt is disclosed under
§ 1026.38(g)) the principal amount of
the credit extended (excluding any
amount disclosed under
§ 1026.38(i)(3)(ii)). The exclusion of any
amount disclosed under
§ 1026.38(i)(3)(ii) is necessary since that
amount of the credit extended has
already been accounted for in the cash
to close calculation by inclusion in
§ 1026.38(i)(3)(ii). If such calculation
yields a negative number, then the
negative number is disclosed under
proposed § 1026.38(i)(6)(ii); otherwise,
$0.00 is disclosed.
Proposed comment 38(i)(6)(ii)–1
provides further clarification about how
the actual ‘‘Funds for Borrower’’ amount
is determined under § 1026.38(i)(6)(iv),
and to whom such amount is disbursed.
Proposed § 1026.38(i)(6)(iii) clarifies
that, if the actual amount of ‘‘Funds for
Borrower’’ is different than the
estimated amount (unless the difference
is due to rounding), the creditor or
closing agent must state in the
subheading ‘‘Did this change?’’ that the
consumer’s available funds from the
loan amount have increased or
decreased, as applicable. This language
is intended to remind the consumer that
a different amount of loan proceeds will
be available following payoff of existing
loans.
38(i)(7) Seller Credits
Proposed § 1026.38(i)(7) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Seller Credits.’’ ‘‘Seller Credits’’ are
described in proposed 1026.38(j)(2)(v)
and corresponding commentary. The
estimated ‘‘Seller Credits’’ amount is the
same amount that is disclosed on the
‘‘Calculating Cash to Close’’ table in the
Loan Estimate under proposed
§ 1026.37(h)(6). The actual ‘‘Seller
Credits’’ amount is the same amount
disclosed on the Closing Disclosure
under proposed § 1026.38(j)(2)(v).
Proposed comment 38(i)(7)(ii)–1
clarifies that the ‘‘Final’’ amount reflects
any change, following the delivery of
the Loan Estimate, in the amount of
funds given by the seller to the
consumer for generalized credits for
closing costs or for allowances for items
purchased separately, as distinguished
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51245
from payments by the seller for items
attributable to periods of time prior to
consummation (which are considered
‘‘Adjustments and Other Credits’’
separately disclosed under proposed
§ 1026.38(i)(8)).
Proposed § 1026.38(i)(7)(iii) specifies
that, if the actual amount of ‘‘Seller
Credits’’ is different than the estimated
amount (unless the difference is due to
rounding), the creditor or closing agent
must state that fact under the
subheading ‘‘Did this change?,’’ and
state that the consumer should see the
details disclosed under
§ 1026.38(j)(2)(v). This language is
intended to direct the consumer to the
section within the Closing Disclosure
containing the itemization of seller
credits.
38(i)(8) Adjustments and Other Credits
Proposed § 1026.38(i)(8) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Adjustments and Other Credits.’’
‘‘Adjustments and Other Credits’’ are
described in proposed § 1026.38(j)(2)(vi)
through (xi) and corresponding
commentary. The estimated
‘‘Adjustments and Other Credits’’
amount is the same amount that is
disclosed on the ‘‘Calculating Cash to
Close’’ table in the Loan Estimate under
proposed § 1026.37(h)(7). The actual
‘‘Adjustments and Other Credits’’
amount is equal to the total amount of
the adjustments and other credits due
from the consumer at consummation
(i.e., the amounts disclosed on the
Closing Disclosure under
§§ 1026.38(j)(1)(v) through (x)), reduced
by the total amount of the adjustments
and other credits paid already by or on
behalf of the consumer at
consummation (i.e., the amounts
disclosed on the Closing Disclosure
under §§ 1026.38(j)(2)(vi) through (xi)).
Proposed § 1026.38(i)(8)(iii) specifies
that if the actual amount of
‘‘Adjustments and Other Credits’’ is
different than the estimated amount
(unless the difference is due to
rounding), the creditor or closing agent
must state that fact under the
subheading ‘‘Did this change?,’’ and
state that the consumer should see the
details disclosed under
§§ 1026.38(j)(1)(v) through (x) and
(j)(2)(vi) through (xi). This language is
intended to direct the consumer to the
sections within the Closing Disclosure
containing the itemization of the
adjustments and other credits. Proposed
comment 38(i)(8)(ii)–1 gives examples
of items that may be adjustments and
other credits, and clarifies that if the
calculation required by
§ 1026.38(i)(8)(ii) yields a negative
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38(i)(9) Cash To Close
Proposed § 1026.38(i)(9) requires the
disclosure of a comparison of the
estimated and actual amounts of the
‘‘Cash to Close.’’ The estimated ‘‘Cash to
Close’’ amount is the same amount that
is disclosed on the ‘‘Calculating Cash to
Close’’ table in the Loan Estimate under
proposed § 1026.37(h)(8) as ‘‘Estimated
Cash to Close.’’ The actual ‘‘Cash to
Close’’ amount is the sum of the
amounts disclosed under proposed
§§ 1026.38(i)(1) through (8). The label
‘‘Cash to Close’’ and the estimated and
actual amounts listed in the table are
disclosed more prominently than other
disclosures in § 1026.38(i), as a means of
emphasizing the importance of the cash
to close amount. Proposed comment
38(i)(9)(ii)–1 clarifies that the ‘‘Final’’
amount of ‘‘Cash to Close’’ disclosed
under § 1026.38(i)(9)(ii) equals the
amount disclosed on the Closing
Disclosure as ‘‘Cash to Close’’ under
§ 1026.38(j)(3)(iii). The proposed
comment also clarifies that if the
calculation required by
§ 1026.38(i)(9)(ii) yields a negative
number, the creditor or closing agent
discloses it as such. Proposed comment
38(i)(9)(ii)–2 discusses how the
disclosure of the ‘‘Final’’ amount of
‘‘Cash to Close’’ under § 1026.38(i)(9)(ii)
is more prominent than the other
disclosures under § 1026.38(i) and
clarifies that this more prominent
disclosure can take the form, for
example, of boldface font, as shown on
the Closing Disclosure form H–25.
38(j) and (k) Summaries of Borrower’s
and Seller’s Transactions
Currently, RESPA section 4 requires
the settlement agent to clearly and
conspicuously itemize all charges
imposed upon the borrower and seller
in connection with the settlement. See
12 U.S.C. 2603. Regulation X
implements these requirements by
requiring the settlement agent to
provide summaries of the consumer’s
and seller’s transactions on the RESPA
settlement statement. See Regulation X
§ 1024.8 and appendix A. Dodd-Frank
Act section 1032(f) requires that the
Bureau propose disclosures that
combine the disclosures required under
TILA and RESPA sections 4 and 5 into
a single, integrated disclosure for
mortgage loan transactions covered
under TILA and RESPA.
In addition to effectuating DoddFrank Act section 1032(f), the Bureau
believes that including on the Closing
Disclosure summaries of the consumer’s
and seller’s transactions will effectuate
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the purposes of TILA and RESPA by
promoting the informed use of credit
and more effective advance notice to
home buyers and sellers of settlement
costs, respectively. The summaries will
assist consumers in understanding of
the resolution of their legal obligations
to sellers under the terms of the sales
contract for the property which will be
used to secure the credit extended to
facilitate the purchase. The summaries
will also assist sellers in understanding
the charges they are required to pay
under the sales contract. In addition,
consistent with section 1032(a) of the
Dodd-Frank Act, the addition of the
summaries of the consumer’s and
seller’s transactions would ensure that
the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances. Therefore, the
Bureau proposes to exercise its
authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a) to require the
creditor or closing agent to provide the
summaries of the consumer’s and
seller’s transactions that are currently
provided in the RESPA settlement
statement. The required information
regarding the consumer’s transaction
would be set forth in § 1026.38(j) and
the required information regarding the
seller’s transaction would be set forth in
§ 1026.38(k). Furthermore, for the
reasons stated above, the proposed rule
is in the interest of consumers and in
the public interest, consistent with
Dodd-Frank Act section 1405(b). The
Bureau is not proposing to alter the
current method for calculating these
summaries as currently provided in
appendix A to Regulation X except as
specifically described below. However,
based on the results of consumer testing,
the Bureau is proposing to revise the
wording of headings, labels, and
references to make them more
understandable for consumers.
In addition, the format required by
proposed § 1026.38(t), as illustrated by
proposed form H–25 of appendix H to
Regulation Z, for the information
required by proposed § 1026.38(j) and
(k) contains a two-digit line numbering
system, in contrast to the three-digit line
numbering system for this information
on the current RESPA settlement
statement. At the Bureau’s consumer
testing, consumer participants appeared
overwhelmed by the three- and fourdigit line numbers on prototypes that
contained line numbers similar to the
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current RESPA settlement statement. As
described above in part III, the Bureau
is also mindful of the risks of
information overload to consumers. The
Bureau believes that the increased
amount of numbers on the page from the
three- and four-digit line numbering
system may significantly detract from
the consumer’s ability to engage with
the Closing Disclosure. The prototypes
that the Bureau tested that contained
only a two-digit line numbering system
performed better with consumers, and
were more effective at enabling them to
understand their actual closing costs
and the differences between the
estimated and actual amounts. In
addition, as described above in the
analysis of proposed § 1026.38(f) and
(g), the use of this two-digit line
numbering system for the information
required by proposed § 1026.38(f) and
(g) allows the Loan Estimate and Closing
Disclosure to match more closely, which
the Bureau’s consumer testing indicates
better enables consumers to understand
their transaction. See the analysis of
proposed § 1026.38(f) and (g) for more
detail regarding the two-digit line
numbering system. During the Small
Business Review Panel, several
settlement agents and one mortgage
company requested that the line
numbers from the current RESPA
settlement statement be retained, stating
that using the revised line numbers in
the prototype integrated Closing
Disclosure would significantly increase
programming costs. See Small Business
Review Panel Report at 20, 28. Based on
this feedback, the Bureau seeks
comment on whether the use of line
numbers will lower software-related
costs on industry, and the exact amount
of the savings given the rest of the
changes contemplated by this proposal,
while improving consumer
understanding of the loan terms and
costs at the consummation of the credit
transaction and the closing of the real
estate transaction.
38(j) Summary of Borrower’s
Transaction
Proposed § 1026.38(j) requires that the
creditor or closing agent provide the
summaries of the consumer’s and
seller’s transactions in separate tables
under the heading ‘‘Summaries of
Transactions’’ with a statement that the
purpose of the table is to summarize the
transaction. Proposed § 1026.38(j) also
lists the information that must be
provided under the subheading
‘‘Borrower’s Transaction.’’ Proposed
comment 38(j)–1 clarifies that it is
permissible to give two separate Closing
Disclosures to the consumer and seller.
This comment incorporates guidance
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provided in the HUD RESPA FAQs p.
44, #4 (‘‘HUD–1—‘‘General’’). Comment
38(j)–2 clarifies that additional lines can
be added to the Closing Disclosure to
show customary recitals and
information used locally in real estate
closings. This comment incorporates
guidance provided in HUD RESPA
FAQs p. 44, #5 and #10 (‘‘HUD–1—
General’’). Proposed comment 38(j)–3
clarifies that the amounts disclosed
under the following provisions of
§ 1026.38(j) are the same as the amounts
disclosed under the corresponding
provisions of § 1026.38(k):
§ 1026.38(j)(1)(ii) and § 1026.38(k)(1)(ii);
§ 1026.38(j)(1)(iii) and
§ 1026.38(k)(1)(iii); if the amount
disclosed under § 1026.38(j)(1)(v) is
attributable to contractual adjustments
between the consumer and seller,
§ 1026.38(j)(1)(v) and § 1026.38(k)(1)(iv);
§ 1026.38(j)(1)(vii) and
§ 1026.38(k)(1)(vi); § 1026.38(j)(1)(viii)
and § 1026.38(k)(1)(vii);
§ 1026.38(j)(1)(ix) and
§ 1026.38(k)(1)(viii); § 1026.38(j)(1)(x)
and § 1026.38(k)(1)(ix);
§ 1026.38(j)(2)(iv) and
§ 1026.38(k)(2)(iv); § 1026.38(j)(2)(v) and
§ 1026.38(k)(2)(vii); § 1026.38(j)(2)(viii)
and § 1026.38(k)(2)(x); § 1026.38(j)(2)(ix)
and § 1026.38(k)(2)(xi); § 1026.38(j)(2)(x)
and § 1026.38(k)(2)(xii); and
§ 1026.38(j)(2)(xi) and
§ 1026.38(k)(2)(xiii).
38(j)(1) Itemization of Amount Due
From Borrower
Proposed § 1026.38(j)(1)(i) requires
the creditor or closing agent to disclose
the label ‘‘Due from Borrower at
Closing’’ and the total amount due from
the consumer at closing, calculated as
the sum of items required to be
disclosed under § 1026.38(j)(1)(ii)
through (x), excluding items paid from
funds other than closing funds defined
under § 1026.38(j)(4)(i). Below this label
§ 1026.38(j)(ii) requires the creditor or
closing agent to provide a reference to
the sale price of the property and the
amount of the contract sales price of the
property being sold, excluding the price
of any items of tangible personal
property if the consumer and seller have
agreed to a separate price for such items.
In addition, below the same label, a
reference to the subtotal of closing costs
paid at closing by the consumer with
adjustments for items paid by the seller
in advance must also be provided by the
creditor or closing agent. Proposed
comment 38(j)(1)(ii)–1 clarifies that, for
purposes of this disclosure, personal
property is defined by state law, but
could include such items as carpets,
drapes, and appliances. Manufactured
homes are not considered personal
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property for purposes of
§ 1026.38(j)(1)(ii). This comment
incorporates guidance currently
provided in the instructions for RESPA
settlement statement line 102 in
appendix A to Regulation X. Proposed
§ 1026.38(j)(1)(iii) requires the creditor
or closing agent to provide a reference
to the sales price of any tangible
personal property included in the sale
that are not included in the sales price
disclosed under § 1026.38(j)(1)(ii).
Proposed § 1026.38(j)(1)(iv) requires
the creditor or closing agent to provide
a reference to the subtotal of closing
costs paid at closing by the consumer
and to disclose the amount of closing
costs paid by the consumer at closing.
Proposed § 1026.38(j)(1)(v) requires the
creditor or closing agent to describe and
disclose the amount of any additional
items that the seller has already paid but
are attributable to a time after closing
and therefore will be used by the
consumer. Also, proposed
§ 1026.38(j)(1)(v) requires a description
and the cost of any other items owed by
the consumer not otherwise disclosed
under proposed § 1026.38(f), (g), or (j).
Proposed comment 38(j)(1)(v)–1 clarifies
that items described and disclosed
under § 1026.38(j)(v) can include: any
balance in the seller’s reserve account
held in connection with an existing
loan, if assigned to the consumer in a
loan assumption case; any rent the
consumer would collect after closing for
a time period prior to closing; or to
show the treatment of a security deposit.
Proposed comment 38(j)(1)(v)–2 clarifies
costs owed by the consumer not
otherwise disclosed under § 1026.38(f),
(g), or (j) will not have a parallel amount
disclosed under proposed
§ 1026.38(k)(1)(iv).
Proposed § 1026.38(j)(1)(vi) requires
the creditor or closing agent to provide
a reference to adjustments paid by seller
in advance. Proposed § 1026.38(j)(1)(vii)
requires the creditor or closing agent to
provide a reference to city/town taxes,
the time period that the consumer is
responsible to reimburse the seller for
any such prepaid taxes, and the
prorated amount of any such prepaid
taxes due from the consumer at closing.
Proposed § 1026.38(j)(1)(viii) requires
the creditor or closing agent to provide
a reference to county taxes, the time
period that the consumer is responsible
for reimbursing the seller for any such
prepaid taxes, and the prorated amount
of any such prepaid taxes due from the
consumer at closing. Proposed
§ 1026.38(j)(1)(ix) requires the creditor
or closing agent to provide a reference
to assessments, the time period that the
consumer is responsible for reimbursing
the seller for any such prepaid
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assessments, and the prorated amount of
any such prepaid assessment due from
the consumer at closing. Proposed
§ 1026.38(j)(1)(x) requires the creditor or
closing agent to provide a description
and amount of any additional items
paid by the seller prior to closing that
are due from the consumer at closing.
Proposed comment 38(j)(1)(x)–1 clarifies
that amounts disclosed under
§ 1026.38(j)(1)(x) could be for additional
taxes not disclosed under
§ 1026.38(j)(1)(vii) and (viii), flood and
hazard insurance premiums where the
consumer is being substituted as an
insured under the same policy,
mortgage insurance in loan
assumptions, planned unit development
or condominium association
assessments paid in advance, fuel or
other supplies on hand purchased by
the seller which the consumer will use
when consumer takes possession of the
property, and ground rent paid in
advance. This comment incorporates
instructions for RESPA settlement
statement lines 106–112 in appendix A
to Regulation X.
38(j)(2) Itemization of Amounts Already
Paid by or on Behalf of Borrower
Proposed § 1026.38(j)(2)(i) requires
the creditor or closing agent to disclose
the label ‘‘Paid Already by or on Behalf
of Borrower at Closing’’ and the total
amount paid by or on behalf of the
consumer prior to closing, calculated as
the sum of items required to be
disclosed under § 1026.38(j)(2)(ii)
through (xi), excluding items paid from
funds other than closing funds defined
under § 1026.38(j)(4)(i). Below this
label, § 1026.38(j)(2)(ii) requires the
creditor or closing agent to provide a
reference to the amount of the deposit,
the consumer’s loan amount, the
existing loans assumed or taken subject
to at closing, seller credit, other credits,
and adjustments for items unpaid by
seller. Proposed comment 38(j)(2)(ii)–1
clarifies that the deposit is any amount
paid into a trust account by the
consumer under the contract of sale for
real estate. This is a change from the
current definition of deposit in the
instructions for RESPA settlement
statement line 201 in appendix A to
Regulation X, that define the deposit as
any amount paid against the sales price
prior to settlement, because the amount
of the downpayment or funds from the
consumer disclosed under
§ 1026.38(i)(4) may also be paid prior to
closing. To differentiate between the
downpayment amount and the deposit
amount in § 1026.38(i)(4), the amount of
the deposit needs to be specified
separately from other payments by the
consumer against the sales price prior to
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closing. Proposed comment 38(j)(2)(ii)–
2 clarifies that the amount of the deposit
should be reduced by a commensurate
amount if any of the deposit is used to
pay for a closing cost before closing.
Instead, the charge for the closing cost
paid from the deposit will be designated
as borrower-paid before closing under
§ 1026.38(f)(1) or (g)(1), as applicable.
Proposed § 1026.38(j)(2)(iii) requires
the creditor or closing agent to provide
a reference to the principal amount of
the consumer’s new loan and the
amount of the new loan made by the
creditor or the amount of the first user
loan. Proposed comment 38(j)(2)(iii)–1
clarifies that first user loan amount
disclosed under § 1026.38(j)(2)(iii) is
used to finance construction of a new
structure or purchase of a manufactured
home and that how to disclose a first
user loan will depend on whether it is
known if the manufactured home will
be considered real property at the time
of consummation. This comment
incorporates guidance currently
provided in the instructions for RESPA
settlement statement line 202 in
appendix A to Regulation X and HUD
RESPA FAQs p. 47, #2 (‘‘HUD–1—200
series’’).
Proposed § 1026.38(j)(2)(iv) requires
the creditor or closing agent to provide
a reference to existing loans assumed or
taken subject at closing to by the
consumer and the amount of those
loans. Proposed comment 38(j)(2)(iv)–1
clarifies that the amount disclosed
under § 1026.38(j)(2)(iv) is the
outstanding amount of any loan that the
consumer is assuming, or subject to
which the consumer is taking title to the
property, must be disclosed under
§ 1026.38(j)(2)(iv). This comment
incorporates guidance currently
provided in the instructions for RESPA
settlement statement line 203 in
appendix A to Regulation X.
Proposed § 1026.38(j)(2)(v) requires
the creditor or closing agent to provide
a reference to seller credits and the total
amount of money that the seller will
provide in a lump sum at closing for
closing costs, designated borrower-paid
at or before closing, as disclosed under
§ 1026.38(f)(1) and (g)(1), as applicable.
Proposed comment 38(j)(2)(v)–1 clarifies
that any amount disclosed under
§ 1026.38(j)(2)(v) is for generalized seller
credits, and that seller credits
attributable to a specific closing cost
would be reflected with a seller-paid
designation under § 1026.38(f)(1) or
(g)(1), as applicable. Proposed comment
38(j)(2)(v)–2 clarifies that any other
obligations of the seller to be paid
directly to the consumer, such as for
issues identified at a walk-through of
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the property prior to closing, are
disclosed under § 1026.38(j)(2)(v).
Proposed § 1026.38(j)(2)(vi) requires
the creditor or closing agent to provide
a reference to other credits and the
amount of items paid by or on behalf of
the consumer and not otherwise
disclosed under § 1026.38(j)(2), (f)(1),
(g)(1), or (h)(3). Proposed comment
38(j)(2)(vi)–1 clarifies that any amounts
disclosed under § 1026.38(j)(2)(vi) are
for other credits from parties other than
the seller or creditor, but credits
attributable to a specific closing cost
closing would be reflected with a paid
by other party designation under
§ 1026.38(f)(1) or (g)(1). For example, a
credit from a real estate agent would be
listed as a credit along with a
description of the rebate and include the
name of the party giving the credit. This
comment incorporates guidance
provided by HUD RESPA FAQs p. 47–
48, #4 (‘‘HUD–1—200 series’’).
Proposed comment 38(j)(2)(vi)–2
clarifies that any amounts disclosed
under § 1026.38(j)(2)(vi) can also be
used for disclosing subordinate
financing proceeds. For subordinate
financing, the principal amount of the
loan must be disclosed with a brief
explanation. If the net proceeds of the
loan are less than the principal amount,
the net proceeds may be listed on the
same lines as the principal amount. This
comment incorporates guidance
provided by the instructions for RESPA
settlement statement lines 204 to 209 in
appendix A to Regulation X and the
HUD RESPA Roundup dated December
2010.
Proposed comment 38(j)(2)(vi)–3
clarifies that any amounts disclosed
under § 1026.38(j)(2)(vi) can also be
used for the disclosure of satisfaction of
existing subordinate liens by the
consumer. Any amounts paid to satisfy
existing subordinate liens by the
consumer with funds outside of closing
funds must be disclosed with a
statement that such amounts were paid
outside of closing under § 1026.38(j)(4).
This comment incorporates guidance
provided by the instructions for
completing the RESPA settlement
disclosure lines 204 to 209 in appendix
A to Regulation X and the HUD RESPA
Roundup dated September 2010.
Proposed comment 38(j)(2)(vi)–4
clarifies that any amounts disclosed
under § 1026.38(j)(2)(vi) can also be
used for disclosing a transferred escrow
balance in a refinance transaction as a
credit along with a description of the
transferred escrow balance. This
comment incorporates guidance
provided by the HUD RESPA FAQs p.
47, #3 (‘‘HUD–1—200 series’’). Proposed
comment 38(j)(2)(vi)–5 clarifies that any
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amounts disclosed under
§ 1026.38(j)(2)(vi) can also be used for
gift funds provided on the consumer’s
behalf by parties not otherwise
associated with the transaction.
Proposed § 1026.38(j)(2)(vii) requires
the creditor or closing agent to provide
a reference to adjustments for items
unpaid by seller. Proposed
§ 1026.38(j)(2)(viii) requires the creditor
or closing agent to provide a reference
to city/town taxes, the time period that
the seller is responsible for the payment
of any such unpaid taxes, and the
prorated amount of any such taxes dues
from the seller at closing. Proposed
§ 1026.38(j)(2)(ix) requires the creditor
or closing agent to provide a reference
to county taxes, the time period that the
seller is responsible for the payment of
any such unpaid taxes, and the prorated
amount of any such unpaid taxes due
from the seller at closing. Proposed
§ 1026.38(j)(2)(x) requires the creditor or
closing agent to provide a reference to
assessments, the time period that the
seller is responsible for paying any such
unpaid taxes, and the prorated amount
of any such unpaid assessments due
from the seller at closing.
Proposed § 1026.38(j)(2)(xi) requires
the creditor or closing agent to provide
a description and the amount of any
additional items which have not yet
been paid and which the consumer is
expected to pay, but which are
attributable to a period of time prior to
closing. Proposed comment 38(j)(2)(xi)–
1 clarifies that any amounts disclosed
under § 1026.38(j)(2)(xi) are for other
items not paid by the seller, such as
utilities used by the seller, rent
collected in advance by the seller from
a tenant for a period extending beyond
the closing date, and interest on loan
assumptions.
38(j)(3) Calculation of Borrower’s
Transaction
Proposed § 1026.38(j)(3) requires the
creditor or closing agent to disclose the
label ‘‘Calculation.’’ Proposed
§ 1026.38(j)(3)(i) requires the creditor or
closing agent to provide a reference to
the total amount due from the consumer
at closing under § 1026.38(j)(1)(i).
Proposed § 1026.38(j)(3)(ii) requires the
creditor or closing agent to provide a
reference to the total amount paid
already by or on behalf of the consumer
at closing as a negative number under
§ 1026.38(j)(2)(i).
Proposed § 1026.38(j)(3)(iii) requires
the creditor or closing agent to provide
a reference to cash to close, a statement
of whether the disclosed amount is due
from or to the consumer, and the
amount due from or to the consumer at
closing. Proposed comment 38(j)(3)(iii)–
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1 clarifies that the creditor or closing
agent must state either the cash required
from the consumer at closing, or cash
payable to the consumer at closing.
Proposed comment 38(j)(3)(iii)–2
clarifies that the amount disclosed
under § 1026.38(j)(3)(iii) is the sum of
the amounts disclosed under
§ 1026.38(j)(3)(i) and (ii). If the result is
positive, the amount is due from the
consumer. If the result is negative, the
amount is due to the consumer.
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38(j)(4) Items Paid Outside of Closing
Funds
Proposed § 1026.38(j)(4)(i) requires
the creditor or closing agent to state
amounts paid outside of closing with
the phrase ‘‘paid outside closing’’ or
‘‘P.O.C.’’ Proposed comment 38(j)(4)(i)–
1 clarifies that any charges not paid
from closing funds but otherwise
disclosed under § 1026.38(j) must be
marked with the designation ‘‘paid
outside of closing’’ or ‘‘P.O.C.’’ with a
designation of the party making the
payment. This comment incorporates
guidance provided by the general
instructions for the RESPA settlement
statement in appendix A to Regulation
X. Proposed comment 38(j)(4)(i)–2
clarifies that charges paid outside of
closing funds are not included in
computing totals under § 1026.38(j).
Proposed § 1026.38(j)(4)(ii) would
define closing funds to mean fund
collected and disbursed at closing for
purposes of § 1026.38(j).
38(k) Summary of Seller’s Transaction
Proposed § 1026.38(k) would require
that the creditor or closing agent
provide the summaries of the seller’s
transaction in a separate tables under
the heading ‘‘Summaries of
Transactions’’ required under
§ 1026.38(j). Proposed § 1026.38(k) also
lists the information that must be
provided under the subheading ‘‘Seller’s
Transaction.’’ Proposed comment 38(k)–
1 clarifies that § 1026.38(k) does not
apply in transaction where there is no
seller, such as a refinance transaction.
Proposed comment 38(k)–2 clarifies that
§ 1026.38(k) refers to comment 38(j)–2
related to the use of addendums to the
Closing Disclosure. Proposed comment
38(k)–3 refers to comment 38(j)–3 for
guidance on the amounts disclosed
under certain provisions of § 1026.38(k)
that are the same as the amounts
disclosed under certain provisions of
§ 1026.38(j).
38(k)(1) Itemization of Amounts Due to
Seller
Proposed § 1026.38(k)(1)(i) requires
the creditor or closing agent to disclose
the label ‘‘Due to Seller at Closing’’ and
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the total amount due to the seller at
closing, calculated as the sum of items
required to be disclosed under
§ 1026.38(k)(1)(ii) through (ix),
excluding items paid from funds other
than closing funds as described in
§ 1026.38(k)(4)(i). Below this label,
§ 1026.38(k)(1)(ii) requires the creditor
or closing agent to provide a reference
to the sale price of the property and the
amount of the real estate contract sales
price of the property being sold,
excluding the price of any items of
tangible personal property if the
consumer and seller have agreed to a
separate price for such items. In
addition, below the same subheading, a
reference for adjustments for items paid
by seller in advance must also be
provided by the creditor or closing
agent.
Proposed § 1026.38(k)(1)(iii) requires
the creditor or closing agent to provide
a reference to the sale price of any
personal property included in the sale
and the amount of the sale price of any
personal property excluded from the
contract sales price under
§ 1026.38(k)(ii). Proposed comment
38(k)(1)(iii)–1 clarifies that guidance
regarding the classification of personal
property is provided at § 1026.38(j)(1)(ii)
and comment 38(j)(1)(ii)–1.
Proposed § 1026.38(k)(1)(iv) requires
the creditor or closing agent to provide
a description and the amount of other
items to be paid to the seller by the
consumer under the contract of sale or
other agreement, such as charges that
were not listed on the Loan Estimate or
items paid by the seller prior to closing
but reimbursed by the consumer at
consummation. Proposed
§ 1026.38(k)(1)(v) requires the creditor
or closing agent to provide a reference
to adjustments for items paid by the
seller in advance. Proposed
§ 1026.38(k)(1)(vi) requires the creditor
or closing agent to provide a reference
to city/town taxes, the time period that
the consumer is responsible for
reimbursing the seller for any such
prepaid taxes, and the prorated amount
of any such prepaid taxes due from the
consumer at closing. Proposed
§ 1026.38(k)(1)(vii) requires the creditor
or closing agent to provide a reference
to county taxes, the time period that the
consumer is responsible for reimbursing
the seller for any such prepaid taxes,
and the prorated amount of any such
prepaid taxes due from the consumer at
closing.
Proposed § 1026.38(k)(1)(viii) requires
the creditor or closing agent to provide
a reference to assessments, the time
period that the consumer is responsible
for reimbursing the seller for any such
prepaid assessments, and the prorated
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amount of any such assessments due
from the consumer at closing. Proposed
§ 1026.38(k)(1)(ix) requires the creditor
or closing agent to provide a description
and amount of additional items paid by
the seller prior to closing that are
reimbursed by the consumer at closing.
38(k)(2) Itemization of Amounts Due
From Seller
Proposed § 1026.38(k)(2)(i) requires
the creditor or closing agent to disclose
label ‘‘Due from Seller at Closing’’ and
the total amount due from the seller at
closing, calculated as the sum of items
required to be disclosed under
§ 1026.38(k)(2)(ii) through (xiii),
excluding items paid from funds other
than closing funds as described in
§ 1026.38(k)(4)(i). Below this label,
§ 1026.38(k)(2)(ii) would require the
creditor or closing agent to provide a
reference to the amount of excess
deposit, the consumer’s loan amount,
the existing loans assumed or taken
subject to at closing, the payoff amount
of first mortgage loan, the payoff of
second mortgage loan, seller credit, and
adjustments for items unpaid by seller.
Proposed comment 38(k)(2)(ii)–1
clarifies that any excess deposit
disbursed to the seller by a party other
than the closing agent must be disclosed
under § 1026.38(k)(2)(ii) if the party will
provide the excess deposit directly to
the seller. Proposed comment
38(k)(2)(ii)–2 clarifies that any amounts
of the deposit that were disbursed to the
seller prior to closing must be disclosed
under § 1026.38(k)(2)(ii).
Proposed § 1026.38(k)(2)(iii) requires
the creditor or closing agent to provide
a reference and amount of the subtotal
closing costs paid at closing by seller as
calculated under § 1026.38(h)(1).
Proposed § 1026.38(k)(2)(iv) requires the
creditor or closing agent to provide a
reference to existing loans assumed or
taken subject to by the consumer and
the amount of those loans. Proposed
comment 38(k)(2)(iv)–1 clarifies that the
amount of the outstanding balance of
any lien that the consumer is assuming
or taking title subject and is to be
deducted from the sales price must be
disclosed under § 1026.38(k)(2)(iv).
Proposed § 1026.38(k)(2)(v) would
require the creditor or closing agent to
provide a reference to the payoff of the
first mortgage loan and the amount of
any first loan that will be paid off as part
of closing. Proposed § 1026.38(k)(2)(vi)
would require the creditor or closing
agent to provide a reference to the
payoff of the second mortgage loan and
the amount of any second loan that will
be paid off as part of closing.
Proposed § 1026.38(k)(2)(vii) requires
the creditor or closing agent to provide
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a reference to seller credits and the total
amount of money that the seller will
provide as a lump sum at closing to pay
for loan costs and other costs,
designated borrower-paid at or before
closing, as disclosed under
§ 1026.38(f)(1) and (g)(1), as applicable.
Any costs disclosed as seller-paid at or
before closing under § 1026.38(f)(1) and
(g)(1) are not disclosed under
§ 1026.38(k)(vii). Proposed comment
(k)(2)(vii)–1 clarifies that any other
obligations of the seller to be paid
directly to the consumer, such as credits
for issues identified at a walk-through of
the property prior to closing, are
disclosed under § 1026.38(k)(2)(vii).
Proposed § 1026.38(k)(2)(viii) requires
the creditor or closing agent to provide
a description and the amount or any and
all other obligations required to be paid
by the seller at closing, including any
lien-related payoffs, fees, or obligations.
Proposed comment 38(k)(2)(viii)–1
clarifies that amounts that must be paid
in order to satisfy other seller
obligations to clear title to the property
must be disclosed under
§ 1026.38(k)(2)(viii). Proposed comment
38(k)(2)(viii)–2 clarifies that the
satisfaction of existing liens by the
consumer that are not deducted from
the sales price are disclosed under
§ 1026.38(k)(2)(viii) and must be
disclosed as paid outside of closing
under § 1026.38(k)(4)(i). This guidance
tracks comment 38(j)(2)(vi)–2, and
incorporates guidance provided by the
HUD RESPA Roundup dated December
2010. Proposed comment 38(k)(2)(viii)–
3 clarifies that escrowed funds held by
the closing agent for payment of
invoices related to repairs, water, fuel,
or other utility bills received after
closing that cannot be prorated are
disclosed under § 1026.38(k)(2)(viii),
and that subsequent disclosure of the
amounts paid after consummation is
optional. This guidance is consistent
with the instructions for RESPA
settlement statement lines 506 to 509 in
appendix A to Regulation X.
Proposed § 1026.38(k)(2)(ix) requires
the creditor or closing agent to provide
a reference to adjustments for items
unpaid by seller. Proposed
§ 1026.38(k)(2)(x) requires the creditor
or closing agent to provide a reference
to city/town taxes, the time period that
the seller is responsible for payment of
any such unpaid taxes, and the prorated
amount of any such unpaid taxes due
from the seller at closing. Proposed
§ 1026.38(k)(2)(xi) requires the creditor
or closing agent to provide a reference
to county taxes, the time period that the
seller is responsible for the payment of
any such unpaid taxes, and the prorated
amount of any such unpaid assessments
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due from the seller at closing. Proposed
§ 1026.38(k)(2)(xii) requires the creditor
or closing agent to provide a reference
to assessments, the time period that the
seller is responsible for payment of any
such unpaid assessments, and the
prorated amount of any such unpaid
assessments due from the seller at
closing. Proposed § 1026.38(k)(2)(xiii)
would require the creditor or closing
agent to provide a description and the
amount of any additional items that
have not yet been paid, and which the
seller is expected to pay at closing, but
which are attributable in part to a period
of time prior to the closing.
38(k)(3) Calculation of Seller’s
Transaction
38(k)(4) Items Paid Outside of Closing
Funds
Proposed § 1026.38(k)(4)(i) requires
the creditor or closing agent to state
amounts paid outside of closing with
the phrase ‘‘paid outside closing’’ or
‘‘P.O.C.’’ and that closing funds are
funds collected and disbursed at
consummation by the creditor or closing
agent. Proposed § 1026.38(k)(4)(ii)
would define closing funds to mean
funds collected and disbursed at
consummation for purposes of
§ 1026.38(k).
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As discussed below, TILA requires
that creditors provide consumers with a
variety of disclosures prior to
consummation regarding requirements
in or arising from the legal obligation:
Assumption, demand feature, late
payment, negative amortization, partial
payment policy, security interest, and
escrow account information. For
purposes of the integrated disclosure
form required by proposed § 1026.19(f),
these disclosure requirements must be
grouped together under the master
heading ‘‘Additional Information About
This Loan’’ and under the heading
‘‘Loan Disclosures.’’
38(l)(1) Assumption
Proposed § 1026.38(k)(3) would
require the creditor or closing agent to
disclose the subheading ‘‘Calculation.’’
Proposed § 1026.38(k)(3)(i) requires the
creditor or closing agent to provide a
reference to total due to seller at closing
and the amount described under
§ 1026.38(k)(1)(i). Proposed § 1026.38(ii)
requires the creditor or closing agent to
provide a reference to total due from
seller at closing and the amount
described as a negative number under
§ 1026.38(k)(2)(i).
Proposed § 1026.38(k)(3)(iii) requires
the creditor or closing agent to provide
a reference to cash, a statement of
whether the disclosed amount is due
from or to the seller, and the amount
due from or to the seller at closing.
Proposed comment 38(k)(3)(iii)–1
clarifies that the creditor or closing
agent must state either the cash required
from the seller at closing, or the cash
payable to the seller at closing.
Comment 38(k)(3)(iii)–2 clarifies that
the amount disclosed under
§ 1026.38(k)(3)(iii) is the sum of the
amounts disclosed under
§ 1026.38(k)(3)(i) and the amount
disclosed under § 1026.38(k)(ii). If the
result is positive, the amount is due to
the seller. If the result is negative, the
amount is due from the seller.
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38(l) Loan Disclosures
Proposed § 1026.38(l)(1) implements
TILA section 128(a)(13) for transactions
subject to § 1026.19(f) by requiring the
creditor to disclose the statement
required by § 1026.37(m)(2), which
describes whether a subsequent
purchaser may be permitted to assume
the remaining loan obligation. For a
detailed description of the Bureau’s
implementation of TILA section
128(a)(13) and the legal authority for
this proposal, see the section-by-section
analysis to proposed § 1026.37(m)(2).
38(l)(2) Demand Feature
TILA section 128(a)(12) requires the
creditor to disclose a statement that the
consumer should refer to the
appropriate contract document for
information about certain loan features,
including the right to accelerate the
maturity of the debt. 15 U.S.C.
1638(a)(12). Current § 1026.18(p)
implements TILA section 128(a)(12) by
requiring, among other things, a
statement that the consumer should
refer to the appropriate contract
document for information about
nonpayment, default, and the right to
accelerate the maturity of the obligation,
and prepayment rebates and penalties.
In addition, current § 1026.18(i) requires
the creditor to disclose whether the
legal obligation includes a demand
feature and, if the disclosures are based
on the assumed maturity of one year as
described in § 1026.17(c)(5), the creditor
must state that fact.
Pursuant to the Bureau’s
implementation authority under TILA
section 105(a), proposed § 1026.38(l)(2)
incorporates certain of the requirements
of current § 1026.18(i) and (p) for
transactions subject to § 1026.19(f) by
requiring that the creditor disclose
whether the legal obligation permits the
creditor to demand early repayment of
the loan and, if so, a statement that the
consumer should review the loan
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document for more details. The
information required by proposed
§ 1026.38(l)(2) must be labeled
‘‘Demand Feature.’’ Proposed comment
38(l)(3)–1 provides a cross-reference to
comment 18(i)–2 for a description of
demand features that would trigger the
disclosure requirement in proposed
§ 1026.38(l)(2).
Pursuant to its authority under TILA
section 105(a) and (f), Dodd-Frank Act
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b), the Bureau does not propose to
incorporate into § 1026.38(l)(2) the
special disclosure requirement
regarding assumed maturity of one year
in current § 1026.18(i) or the optional
contract reference disclosures in current
§ 1026.18(p). By exempting disclosure of
information that will not be useful to
consumers, the disclosure effectuates
the purposes of TILA by enhancing
consumer understanding of mortgage
transactions, consistent with TILA
section 105(a). Similarly, the Bureau has
considered the factors in TILA section
105(f) and believes that an exception is
appropriate under that provision.
Specifically, the Bureau believes that
the proposed exemption is appropriate
for all affected borrowers, regardless of
their other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection or denying
important benefits to consumers.
Furthermore, the proposed exemption
will ensure that the features of the
mortgage transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
38(l)(3) Late Payment
TILA section 128(a)(10) requires
disclosure of any dollar charge or
percentage amount which may be
imposed by a creditor due to a late
payment, other than a deferral or
extension charge. 15 U.S.C. 1638(a)(10).
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This requirement is currently
implemented in § 1026.18(l). Proposed
§ 1026.38(l)(3) implements TILA section
128(a)(10) for loans subject to
§ 1026.19(f) by requiring the creditor to
disclose the statement required by
§ 1026.37(m)(4), which details any
charge that may be imposed for a late
payment, stated as a dollar amount or
percentage charge of the late payment
amount, and the number of days that a
payment may be late to trigger the late
payment fee. For a detailed description
of the Bureau’s implementation of TILA
section 128(a)(10) and the legal
authority for this proposal, see the
section-by-section analysis to proposed
§ 1026.37(m)(4).
38(l)(4) Negative Amortization
New TILA section 129C(f), which was
added by section 1414(a) of the DoddFrank Act, provides that no creditor
may extend credit to a borrower in
connection with a transaction secured
by a dwelling or residential real
property that includes a dwelling, other
than a reverse mortgage, that provides
for or permits a payment plan that may
result in negative amortization unless
the creditor provides the consumer with
a notice that the transaction may or will
result in negative amortization. 15
U.S.C. 1639c(f). Under TILA section
129C(f), before consummation of the
transaction, the creditor must provide
the consumer with a statement that: (1)
The pending transaction will or may, as
applicable, result in negative
amortization; (2) describes negative
amortization in the manner prescribed
by the Bureau; (3) negative amortization
increases the loan balance; and (4)
negative amortization decreases the
consumer’s equity in the property. 15
U.S.C. 1639c(f)(1).
Although TILA section 129C(f) is
new, both Regulations Z and X currently
contain disclosure requirements for loan
products that may negatively amortize.
In Regulation Z, if the loan product
contains features that may cause the
loan amount to increase,
§ 1026.18(s)(4)(C) requires a statement
that warns the consumer that the
minimum payment covers only some
interest, does not repay any principal,
and will cause the loan amount to
increase, for closed-end transactions
secured by real property or a dwelling.
Current appendix A to Regulation X
requires a similar statement in the
‘‘Loan Terms’’ section of the RESPA
settlement statement, which discloses
whether the loan balance may increase
even if loan payments are made on time.
The Bureau proposes § 1026.38(l)(4)
to implement TILA section 129C(f) for
transactions subject to § 1026.19(f),
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51251
pursuant to its implementation
authority under TILA section 105(a).
Specifically, proposed § 1026.38(l)(4)
requires a statement of whether the
regular periodic payment may cause the
principal balance to increase. If the
regular periodic payment does not cover
all of the interest due, proposed
§ 1026.38(l)(4)(i) requires a statement
that the principal balance will increase,
that the principal balance will likely
exceed the original loan amount, and
that increases in the principal balance
will lower the consumer’s equity in the
property. In transactions in which the
consumer has the option of making
regular periodic payments that do not
cover all of the interest accrued that
month, proposed § 1026.38(l)(4)(ii)
requires a statement that, if the
consumer chooses a periodic payment
option that does not cover all of the
interest due, the principal balance may
exceed the original loan amount and
that increases in the principal balance
decrease the consumer’s equity in the
property. The statements required by
proposed § 1026.38(l)(4)(i) and (ii) are
located under the subheading ‘‘Negative
Amortization (Increase in Loan
Amount).’’
38(l)(5) Partial Payment Policy
TILA section 129C(h), added by
section 1414(d) of the Dodd-Frank Act,
provides that, in any residential
mortgage loan, the creditor must
disclose, prior to consummation or at
the time such person becomes the
creditor for an existing loan, the
creditor’s policy regarding the
acceptance of partial payments, and if
partial payments are accepted, how
such payments will be applied to the
mortgage and whether such payments
will be placed in escrow. 15 U.S.C.
1631c(h).
The Bureau proposes § 1026.38(l)(5)
to implement the pre-consummation
disclosure requirements of TILA section
129C(h), pursuant to its implementation
authority under TILA section 105(a).187
Specifically, § 1026.38(l)(5) requires the
creditor to disclose, under the
subheading ‘‘Partial Payment Policy,’’ a
statement of whether it will accept
monthly payments that are less than the
full amount due and that, if the loan is
sold, the new creditor may have a
different policy. If partial payments are
accepted, the creditor must also provide
a brief description of its partial payment
policy, including the manner and order
in which any partial payments are
applied to the principal, interest, or an
187 The disclosure requirements of TILA section
129C(h) that apply after consummation are
implemented in proposed § 1026.39.
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escrow account for partial payments and
whether any penalties apply.
38(l)(6) Security Interest
TILA section 128(a)(9) requires the
creditor to provide a statement that a
security interest has been taken in the
property that secures the transaction or
in property not purchased as part of the
transaction by item or type. 15 U.S.C.
1638(a)(9). This requirement is
implemented in current § 1026.18(m),
which requires disclosure of the fact
that the creditor has or will acquire a
security interest in the property
purchased as part of the transaction, or
in other property identified by item or
type.
The Bureau proposes § 1026.38(l)(6)
to implement TILA section 128(a)(9) for
transactions subject to § 1026.19(f),
pursuant to its implementation
authority under TILA section 105(a).
Specifically, if the creditor will take a
security interest in the property that is
the subject of a mortgage loan
transaction, proposed § 1026.38(l)(6)
requires the creditor to disclose that the
consumer is granting it a security
interest in that property, the address of
the property, and a statement that the
consumer may lose the property if the
consumer fails to make payments or
satisfy other requirements of the legal
obligation. The information required by
proposed § 1026.38(l)(6) is located
under the subheading ‘‘Security
Interest.’’
The Bureau proposes to require
creditors to disclose the address of the
property in which a security interest
will be taken and a statement that the
consumer may lose the property if he
does not make payments or satisfy other
requirements, pursuant to its authority
under TILA section 105(a) and DoddFrank Act section 1032(a). The Bureau
believes the proposed disclosures
promote the informed use of credit,
which is a purpose of TILA, by clearly
disclosing the property in which a
security interest is being granted and
informing consumers of the potential
consequences of the creditor’s security
interest in the property. In addition, the
Bureau believes the proposed
disclosures will ensure that the features
of the mortgage transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
38(l)(7) Escrow Account
Sections 1461 and 1462 of the DoddFrank Act amended TILA to create a
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new section 129D, which establishes
certain requirements for escrow
accounts for consumer credit
transactions secured by a first lien on a
consumer’s principal dwelling (other
than a consumer credit transaction
under an open-end credit plan or a
reverse mortgage). 15 U.S.C. 1639d(a)
through (j). In particular, new TILA
section 129D(h) and (j) require certain
disclosures when an escrow account is
established and certain other
disclosures when an escrow account is
refused or cancelled by the consumer,
respectively. Under TILA section
129D(b), however, application of the
mandatory escrow requirements is
limited to the following situations: (1)
Where an escrow account is required by
Federal or State law; (2) where the loan
is made, guaranteed, or insured by a
Federal or State agency; (3) where the
transaction’s APR exceeds the average
prime offer rate by prescribed margins;
and (4) where an escrow account is
required by regulation.
As discussed above, the Board’s 2011
Escrows Proposal proposed to
implement the new TILA escrow
requirements. Although the Bureau
expects to implement most aspects of
that proposal in a separate rulemaking,
there are certain key disclosures in the
Board’s 2011 Escrows Proposal that
complement the integrated Closing
Disclosure. Thus, the Bureau proposes
to implement those disclosure
requirements in proposed
§ 1026.38(l)(7).
Like the Board’s 2011 Escrows
Proposal, the Bureau proposes to apply
the TILA section 129D escrow
requirements to all transactions subject
to proposed § 1026.19(f) even if the
disclosures are not mandated by TILA
section 129D(b). In doing so, the Bureau
relies on its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b).
The Bureau believes that requiring
disclosures regarding the establishment
of an escrow account, as well as the
non-establishment of an escrow
account, will provide consumers with
information needed to evaluate the costs
and fees associated with mortgage loans
and to understand their ongoing
monthly obligations regardless of
whether the transaction would include
an escrow account. Disclosure of this
information will ensure that consumers
have the facts needed to understand a
key requirement of their mortgage loan
and avoid the uninformed use of credit,
consistent with the purposes of TILA. In
addition, the Bureau believes that the
proposed disclosures will ensure that
the features of the mortgage transaction
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are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the mortgage transaction, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
Accordingly, the Bureau proposes to
implement the disclosure requirements
of TILA section 129D(h) and (j) in
proposed § 1026.38(l)(7), pursuant to its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). Under the
subheading ‘‘Escrow Account,’’
proposed § 1026.38(l)(7) requires the
creditor to disclose whether the
consumer’s loan will have an escrow
account, and certain details about the
payments made using escrow account
funds and those the consumer must
make directly. Under the ‘‘Escrow
Account’’ subheading and under the
reference ‘‘For now,’’ proposed
§ 1026.38(l)(7)(i) requires a statement
that an escrow account may also be
called an ‘‘impound’’ or ‘‘trust’’ account
and a statement of whether the creditor
has or will establish an escrow account
at or before consummation. Proposed
§ 1026.38(l)(7)(i)(A) requires the
following disclosures under the ‘‘For
now’’ reference: (1) A statement that the
creditor may be liable for penalties and
interest if it fails to make a payment for
any costs for which the escrow account
has been established, (2) a statement
that the consumer would be required to
pay such costs directly if no account is
established, and (3) a table titled
‘‘Escrow’’ that contains, if an escrow
account is or will be established, an
itemization of the following: (i) The
total amount the consumer will be
required to pay into an escrow account
over the first year after consummation
for payment of the charges described in
§ 1026.37(c)(4)(ii), labeled ‘‘Escrowed
Property Costs over Year 1,’’ together
with a descriptive name of each such
charge, calculated as the amount
disclosed under § 1026.38(l)(7)(i)(A)(4)
multiplied by the number of periodic
payments scheduled to be made to the
escrow account during the first year
after consummation; (ii) the estimated
amount the consumer is likely to pay
during the first year after consummation
for charges described in
§ 1026.37(c)(4)(ii) that are known to the
creditor and that will not be paid using
escrow account funds, labeled ‘‘Non-
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Escrowed Property Costs over Year 1,’’
together with a descriptive name of each
such charge and a statement that the
consumer may have to pay other costs
that are not listed; (iii) the total amount
disclosed pursuant to § 1026.37(g)(3), a
statement that the payment is a cushion
for the escrow account, labeled ‘‘Initial
Payment,’’ and a reference to the
information disclosed pursuant to
§ 1026.38(g)(3); and (iv) the amount the
consumer will be required to pay into
the escrow account with each periodic
payment during the first year after
consummation for payment of the
charges described in § 1026.37(c)(4)(ii),
labeled ‘‘Monthly Payment.’’ Proposed
§ 1026.38(l)(7)(i)(A)(5) provides that a
creditor complies with the requirements
of § 1026.38(l)(7)(i)(A)(1) and
(l)(7)(i)(A)(4) if the creditor bases the
numerical disclosures required by those
paragraphs on amounts derived from the
escrow account analysis required under
Regulation X, 12 CFR 1024.17. Proposed
comment 38(l)(7)(i)(A)(2)–1 and
38(l)(7)(i)(A)(4)–1 provide guidance to
creditors on the calculation of the
itemized amounts disclosed pursuant to
§ 1026.38(l)(7)(i)(A).
Proposed § 1026.38(l)(7)(i)(B) requires
a statement of whether the loan will not
have an escrow account and the reason
the loan will not have an escrow
account. For example, if the loan will
not have an escrow account because
either the consumer declined to have
one or the creditor does not require or
offer them, the disclosure must state
that fact. Proposed § 1026.38(l)(7)(i)(B)
also requires a statement that the
consumer must pay all property costs,
such as taxes and homeowner’s
insurance, directly, as well as a
statement that the consumer may
contact the creditor to inquire about the
availability of an escrow account.
Finally, proposed § 1026.38(l)(7)(i)(B)
requires a table titled ‘‘No Escrow,’’ that
contains, if an escrow account will not
be established, an itemization of the
following: (1) The estimated total
amount the consumer will pay directly
for charges described in
§ 1026.37(c)(4)(ii) during the first year
after consummation that are known to
the creditor and a statement that,
without an escrow account, the
consumer must pay the identified costs,
possibly in one or two large payments,
labeled as ‘‘Estimated Property Costs
over Year 1,’’ and (2) the amount of any
fee that the creditor may impose for not
establishing an escrow account, labeled
‘‘Escrow Waiver Fee.’’ The disclosures
required in § 1026.38(l)(7)(i)(B) are
under the ‘‘For now’’ reference required
in § 1026.38(l)(7)(i). Proposed comment
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38(l)(7)(i)(B)(1)–1 provides guidance to
creditors on calculation of the amounts
required to be disclosed pursuant to
§ 1026.38(l)(7)(i)(B).
Under the subheading ‘‘Escrow
Account’’ required by proposed
§ 1026.38(l)(7) and under the reference
‘‘In the future,’’ proposed
§ 1026.38(l)(7)(ii) requires information
about future requirements for property
costs. Specifically, proposed
§ 1026.38(l)(7)(ii)(A) requires a
statement that the consumer’s property
costs may change and, as a result, the
consumer’s escrow amount may change.
Proposed § 1026.38(l)(7)(ii)(B) requires a
statement that the consumer may be
able to cancel an established escrow
account, but if the account is cancelled
the consumer would be required to pay
those costs directly unless a new escrow
account is established. Proposed
§ 1026.38(l)(7)(ii)(C) requires a
description of the consequences of
failing to pay the property costs,
including the imposition of fines and
penalties or imposition of a tax lien by
the consumer’s State and local
government, and possible actions by the
creditor, such as adding the outstanding
amounts to the loan balance, adding an
escrow account for the loan, or
purchasing property insurance on the
consumer’s behalf (with the statement
that it is likely to be more expensive and
provide fewer benefits than what the
consumer could purchase directly).
38(m) Adjustable Payment Table
For transactions subject to proposed
§ 1026.19(f), the Bureau proposes
§ 1026.38(m) pursuant to TILA section
128(b)(2)(C)(ii), its implementation
authority under TILA section 105(a),
and its authority under section 1032(a)
of the Dodd-Frank Act and RESPA
section 19(a). Proposed § 1026.38(m)
requires creditors to disclose on the
Closing Disclosure the Adjustable
Payment table required by proposed
§ 1026.37(i) if, under the terms of the
legal obligation, the principal and
interest payment may adjust without a
corresponding adjustment to the interest
rate or if the loan is a seasonal payment
product under § 1026.38(a)(5)(iii). The
information required to be disclosed in
the table includes: The periodic
payment at the first adjustment of the
payment; the number of the earliest
number payment that could reflect an
adjustment to the amount of the
periodic payment; the maximum
possible principal and interest payment;
the number of the earliest payment that
could reflect the maximum possible
periodic payment; an affirmative or
negative statement of whether the loan
has an interest-only, payment-option,
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step-payment period, or seasonal
payment period; and the length of such
a period and the payments affected. For
a detailed description of the Bureau’s
implementation of TILA section
128(b)(2)(C)(ii) and use of its authority
under TILA section 105(a), Dodd-Frank
Act section 1032(a), and RESPA section
19(a), see the section-by-section analysis
to proposed § 1026.37(i).
The requirements of proposed
§ 1026.38(m) mirror those of proposed
§ 1026.37(i). Accordingly, proposed
comment 38(m)–1 directs creditors to
the commentary to proposed
§ 1026.37(i) for guidance on the
disclosures required by proposed
§ 1026.38(m). Proposed comment
38(m)–2 clarifies that, although the
disclosure required by proposed
§ 1026.38(m) is to be presented under a
different master heading than the
disclosure required by proposed
§ 1026.37(i), the other requirements
applicable to proposed § 1026.37(i)
apply to proposed § 1026.38(m).
Proposed comment 38(m)–3 clarifies
that the prohibition against presenting
the table required by proposed
§ 1026.37(i) except if the conditions of
that paragraph are satisfied applies to
proposed § 1026.38(m). Proposed
comment 38(m)–4 clarifies that the final
terms that will apply to the credit
transaction must be disclosed pursuant
to proposed § 1026.38(m).
38(n) Adjustable Interest Rate Table
For transactions subject to proposed
§ 1026.19(f), proposed § 1026.38(n) uses
the implementation authority of TILA
section 105(a), and the authority of
Dodd-Frank Act section 1032(a) and
RESPA section 19(a) to require creditors
to disclose on the Closing Disclosure the
Adjustable Interest Rate table required
by proposed § 1026.37(j) if, under the
final terms of the legal obligation, the
interest rate may adjust after
consummation. The information
required to be disclosed in the table
includes: (i) The index and margin for
an adjustable rate loan for which the
interest rate will adjust according to an
index that is beyond the control of the
creditor; (ii) for a loan with an interest
rate that changes based on something
other than such an index, such as a
‘‘step-rate’’ product, the amount of the
scheduled adjustments and their
frequency; (iii) the interest rate at
consummation; (iv) the minimum and
maximum possible interest rates after
consummation of the loan, after any
introductory or teaser rate expires; (v)
the maximum possible change in the
interest rate at the first adjustment; (vi)
the maximum possible change for
subsequent adjustments of the interest
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rate; (vii) the month after consummation
when the interest rate may first change,
counted from the date that interest
begins to accrue for the first periodic
principal and interest payment; and
(viii) the frequency of subsequent
interest rate adjustments after
consummation. For a detailed
description of the Bureau’s
implementation of these rules and use
of TILA section 105(a), Dodd-Frank Act
section 1032(a), and RESPA section
19(a) authority, see the section-bysection analysis to proposed § 1026.37(j)
above.
The requirements of proposed
§ 1026.38(n) mirror those of proposed
§ 1026.37(j). Accordingly, proposed
comment 38(n)–1 directs creditors to the
commentary to proposed § 1026.37(j) for
guidance on the disclosures required by
proposed § 1026.38(n). Proposed
comment 38(n)–4 clarifies that, although
the disclosure required pursuant to
proposed § 1026.38(n) is to be presented
under a different master heading than
the disclosure required by proposed
§ 1026.37(j), the other requirements
applicable to proposed § 1026.37(j)
apply to proposed § 1026.38(n).
Proposed comment 38(n)–3 clarifies that
the prohibition against presenting the
table required by proposed § 1026.37(j)
if the interest rate will not change after
consummation applies to proposed
§ 1026.38(n). Proposed comment 38(n)–
4 clarifies that the final terms that will
apply to the credit transaction must be
disclosed pursuant to proposed
§ 1026.38(n).
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38(o) Loan Calculations
Proposed § 1026.38(o) requires
creditors to disclose in a separate table
under the heading ‘‘Loan Calculations,’’
certain information required by TILA
section 128(a)(2) through (5), (8), (17),
and (19). Specifically, the table required
by proposed § 1026.38(o) must contain
the total of payments, finance charge,
amount financed, annual percentage
rate, total interest percentage, and the
approximate cost of funds disclosures
described in proposed § 1026.38(o)(1)
through (6). Pursuant to proposed
§ 1026.38(t) and form H–25, the table
required by proposed § 1026.38(o) will
appear on the final page of the Closing
Disclosure, apart from key loan terms
identified on the first page of the
Closing Disclosure. Based on research
regarding consumer comprehension and
behavior and the results of the Bureau’s
consumer testing, the Bureau believes
that the disclosure of these calculations
on the final page of the Closing
Disclosure and apart from key loan
terms may reduce information overload
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and enhance the overall understanding
of the Closing Disclosure.
As discussed above, research suggests
that consumers can process only a finite
amount of information when making
complex decisions. As a result, an
effective disclosure regime minimizes
the risk of distraction and overload by
emphasizing information that is
important to consumer comprehension,
while placing less emphasis on
disclosures that are less useful to
consumers. Consumer testing conducted
by the Bureau for purposes of
developing the Closing Disclosure and
by the Board for purposes of its 2009
Closed-End Proposal indicates that
consumer understanding is enhanced if
the loan calculations in proposed
§ 1026.38(o) are disclosed together and
less prominently than disclosures that
are most important to consumers’
understanding of their mortgage
transactions, such as interest rate and
monthly payment. 74 FR at 43293–98,
43306–09. The Bureau requests
comment on whether the disclosures in
§ 1026.38(o) enhance consumers’ ability
to understand their loan transactions or
serve other important purposes and, if
not, whether the Bureau should use its
authority under TILA section 105(a) and
(f) and Dodd-Frank Act sections 1032(a)
and 1405(b) to exempt transactions
subject to § 1026.19(f) from certain of
these requirements, as set forth below.
38(o)(1) Total of Payments
TILA section 128(a)(5) and (8)
requires creditors to disclose the sum of
the amount financed and the finance
charge using the term ‘‘Total of
Payments,’’ and a descriptive
explanation of that term. 15 U.S.C.
1638(a)(5), (8). Current § 1026.18(h)
implements these statutory provisions
by requiring creditors to disclose the
‘‘total of payments,’’ using that term,
and a descriptive explanation that the
figure represents the amount the
consumer will have paid after making
all scheduled payments. Current
comment 18(h)–2 provides that
creditors must calculate the total of
payments amount for transactions
subject to § 1026.18(s) using the rules in
§ 1026.18(g) and associated commentary
and, for adjustable-rate transactions,
comments 17(c)(1)–8 and –10. Current
comment 18(g)–1 provides guidance to
creditors on the amounts to be included
in the total of payments calculation.
Current comment 18(h)–1 allows
creditors to revise the total of payments
descriptive statement for variable-rate
transactions to convey that the disclosed
amount is based on the annual
percentage rate and may change. In
addition, current comments 18(h)–3 and
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–4 permit creditors to omit the total of
payments disclosure in certain singlepayment transactions and for demand
obligations that have no alternate
maturity rate.
Proposed § 1026.38(o)(1) implements
the requirements of TILA section
128(a)(5) and (8) for transactions subject
to proposed § 1026.19(f), pursuant to the
Bureau’s implementation authority
under TILA section 105(a). Specifically,
proposed § 1026.38(o)(1) requires
creditors to disclose on the Closing
Disclosure the term ‘‘Total of
Payments,’’ and the statement that the
disclosure is the total you will have
paid after you make all payments of
principal, interest, mortgage insurance,
and loan costs, as scheduled. Proposed
comment 38(o)(1)–1 clarifies that, for
purposes of § 1026.18(o)(1), the total of
payments is calculated in the same
manner as the ‘‘In 5 Years’’ disclosure
pursuant to § 1026.37(l)(1)(i), except
that the disclosed amount reflects the
total payments through the end of the
loan term. The comment also refers
creditors to comment 37(1)(1)(i)–1 for
guidance on the amounts included in
the total of payments calculation.
As discussed in the section-by-section
analysis to proposed § 1026.37(l),
consumers have historically
misunderstood the total of payments
disclosure and do not use it when
evaluating their loan. Accordingly, for
the reasons set forth in the section-bysection analysis to proposed
§ 1026.37(l)(1)(i), the Bureau proposes to
modify the requirement of TILA section
128(a)(5) that the total of payments
disclose the sum of the amount financed
and the finance charge. Instead, the
Bureau proposes to include in the total
of payments calculation principal,
interest, mortgage insurance (including
any prepaid or escrowed mortgage
insurance), and loan costs disclosed
pursuant to proposed § 1026.37(f). The
Bureau proposes this modification
pursuant to TILA section 105(a), DoddFrank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b). The Bureau
believes that this modification will
enhance consumer understanding of
mortgage transactions because including
loan costs, rather than the finance
charge, in the total of payments
calculation will allow consumers to
identify the costs that are included in
the total of payments calculation.
Consumers can refer to other parts of the
Closing Disclosure to determine which
loan costs are included in the total of
payments disclosure, in contrast to the
components of the finance charge,
which the consumer has no way to
identify. Further, the Bureau believes
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that including the same costs and fees
in the total of payments disclosure as
are in the ‘‘In 5 Years’’ disclosure
pursuant to proposed § 1026.37(l)(1)(i)
will ease compliance burden for
creditors. The Bureau believes this
proposed modification will improve
consumer awareness and understanding
of residential mortgage loans, which is
in the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b). In addition, the Bureau
believes that the disclosure ensures that
the features of consumer credit
transactions secured by real property are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
The proposed rule does not allow
creditors to modify the descriptive
statement that accompanies the total of
payments disclosure for variable-rate
transactions or to omit the total of
payments disclosure in single-payment
transactions and for demand obligations
that have no alternate maturity rate, in
contrast to current comments 18(h)–1,
–3, and –4. The Bureau believes that
consistent disclosures will better
enhance consumer understanding of
credit terms and will ease compliance
burden for creditors.
38(o)(2) Finance Charge
TILA section 128(a)(3) and (8)
requires creditors to disclose the
‘‘finance charge’’ and a brief descriptive
statement of the finance charge. 15
U.S.C. 1638(a)(3), (8). Current
§ 1026.18(d) implements these
provisions by requiring creditors to
disclose the ‘‘finance charge,’’ using that
term, and a brief description such as
‘‘the dollar amount the credit will cost
you.’’ Current comment 18(d)–1 allows
creditors to modify the descriptive
statement for variable rate transactions
with a phrase indicating that the
disclosed amount is subject to change.
In addition, current § 1026.17(a)(2),
which implements TILA section 122(a),
requires creditors to disclose the finance
charge more conspicuously than any
other required disclosure, except the
creditor’s identity. The rules addressing
which charges must be included in the
finance charge are set forth in TILA
section 106, and are discussed more
fully above with respect to proposed
§ 1026.4.
The Bureau proposes § 1026.38(o)(2)
to implement TILA section 128(a)(3)
and (8) for transactions subject to
§ 1026.19(f), pursuant to its
implementation authority under TILA
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section 105(a). Proposed § 1026.38(o)(2)
requires creditors to disclose the finance
charge, using that term, and the
descriptive statement ‘‘the dollar
amount the loan will cost you,’’ in the
table required by proposed § 1026.38(o).
Proposed comments 38(o)(2)–1 and –2
provide guidance to creditors on how to
disclose and calculate the finance
charge. The proposed rule does not
allow creditors to modify the
descriptive statement that accompanies
the finance charge disclosure for
variable-rate transactions, in contrast to
current comment 18(d)–1, because the
Bureau believes that consistent
disclosures will better enhance
consumer understanding of credit terms
and will ease compliance burden for
creditors. Proposed § 1026.38(o)(2) also
provides that the disclosed finance
charge and other disclosures affected by
the disclosed finance charge (including
the amount financed and the annual
percentage rate) shall be treated as
accurate if the amount disclosed as the
finance charge is understated by no
more than $100 or is greater than the
amount required to be disclosed.
However, as discussed in the section-bysection analysis to proposed § 1026.4
above, the Bureau solicits comment on
whether and the amount by which this
tolerance should be raised in light of the
expanded definition of the finance
charge for closed-end transactions
secured by real property or a dwelling.
The Bureau proposes to exercise its
authority under TILA section 105(a) and
(f), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans,
Dodd-Frank Act section 1405(b) to
except transactions subject to proposed
§ 1026.19(f) from the requirement under
TILA section 122(a) that the finance
charge be disclosed more conspicuously
than other disclosures. The Bureau has
considered the purposes for which it
may exercise its authority under TILA
section 105(a) and, based on that
review, believes that the proposed
exception is appropriate. Here, the
proposed exception from the TILA
section 122(a) requirement that the
finance charge be more conspicuously
disclosed than other disclosures
effectuates TILA’s purpose of achieving
a meaningful disclosure of credit terms
for transactions subject to proposed
§ 1026.19(f). As discussed in the
section-by-section analysis to proposed
§ 1026.37(l), consumers generally do not
understand the finance charge and do
not use it when making decisions about
their loan. Accordingly, the Bureau
believes that consumer understanding is
enhanced by disclosing the finance
charge with other loan calculations,
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51255
such as total of payments, amount
financed, and total interest percentage,
for transactions subject to proposed
§ 1026.19(f), and that a more prominent
disclosure of the finance charge may not
provide a meaningful benefit to
consumers. Rather, disclosure of the
finance charge separately from the
information that is important to
consumer understanding of credit terms
may enhance consumer understanding
by avoiding information overload.
The Bureau also proposes this
exception pursuant to its authority
under TILA section 105(f). 15 U.S.C.
1604(f)(1). The Bureau has considered
the factors in TILA section 105(f) and
believes that, for the reasons discussed
above, an exception is appropriate
under that provision. Specifically, the
Bureau believes that the proposed
exemption is appropriate for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. Highlighting the finance
charge on the disclosure form
contributes to overall consumer
confusion and information overload,
complicates the mortgage lending
process, and hinders consumers’ ability
to understand important loan terms. For
these same reasons, the Bureau believes
that the proposed disclosure of the
finance charge would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances, consistent with
1032(a) of the Dodd-Frank Act, and will
improve consumer awareness and
understanding of residential mortgage
loans, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
38(o)(3) Amount Financed
TILA section 128(a)(2) and (8)
requires creditors to disclose the
‘‘amount financed,’’ using that term, and
a brief descriptive statement. 15 U.S.C.
1638(a)(2), (8). Current § 1026.18(b)
implements this provision by requiring
creditors to disclose the amount
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financed, using that term, together with
a brief description that the amount
financed represents the amount of credit
of which the consumer has actual use.
The Bureau proposes new
§ 1026.38(o)(3) to implement TILA
section 128(a)(2) and (8) for transactions
subject to proposed § 1026.19(f),
pursuant to its implementation
authority under TILA section 105(a).
Proposed § 1026.38(o)(3) requires
creditors to disclose the amount
financed, using that term, together with
the descriptive statement, ‘‘the loan
amount available after paying your
upfront finance charge.’’ Based on
consumer testing, the Bureau believes
this approach is appropriate to serve
TILA’s purpose of assuring a meaningful
disclosure of credit terms. Proposed
comment 38(o)(3)–1 clarifies that, for
purposes of § 1026.38(o)(3), the amount
financed disclosure is calculated in
accordance with the requirements of
§ 1026.18(b) and its commentary.
38(o)(4) Annual Percentage Rate
TILA section 128(a)(4) and (8)
requires creditors to disclose the annual
percentage rate, together with a brief
descriptive statement. 15 U.S.C.
1638(a)(4), (8). Current § 1026.18(e)
implements this requirement by
requiring creditors to disclose the
‘‘annual percentage rate,’’ using that
term, and a brief description such as
‘‘the cost of your credit as a yearly rate.’’
15 U.S.C. 1632(a). In addition, TILA
section 122(a) requires that the annual
percentage rate be more conspicuous
than other disclosures, except the
disclosure of the creditor’s identity.
This requirement is implemented in
current § 1026.18(e).
Proposed § 1026.38(o)(4) implements
the requirements of TILA section
128(a)(4) and (8) for transactions subject
to § 1026.19(f) by requiring creditors to
disclose the ‘‘annual percentage rate’’
and the abbreviation ‘‘APR,’’ together
with the following statement: ‘‘Your
costs over the loan term expressed as a
rate. This is not your interest rate.’’ For
the reasons discussed in the section-bysection analysis to proposed
§ 1026.37(l)(2), the Bureau proposes to
exercise its authority under TILA
section 105(a) and (f), Dodd-Frank Act
section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section
1405(b) to except the annual percentage
rate from the conspicuous disclosure
requirement under TILA section 122(a),
for transactions subject to proposed
§ 1026.19(f).
As discussed in the section-by-section
analysis to proposed § 1026.37(l), in
response to the Bureau’s Small Business
Review Panel Outline, some consumer
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advocates expressed concern about
disclosing the APR on the final page of
the Closing Disclosure and suggested
that the APR should be more
prominently displayed on the
disclosure. The Bureau has considered
this feedback, but for the reasons
discussed above, believes that the
proposed approach to the APR could
provide important benefits to consumers
by emphasizing the difference between
the APR and the contract interest rate
and by deemphasizing historically
confusing disclosures that contribute to
information overload, and that other
possible approaches to improving the
APR would be less effective at
improving the disclosure.
38(o)(5) Total Interest Percentage
As discussed in the section-by-section
analysis to proposed § 1026.37(l)(3),
section 1419 of the Dodd-Frank Act
amended TILA to add new section
128(a)(19), which requires that, in the
case of a residential mortgage loan, the
creditor disclose the total amount of
interest that the consumer will pay over
the life of the loan as a percentage of the
principal of the loan. 15 U.S.C.
1638(a)(19). TILA section 128(a)(19) also
requires that the amount be computed
assuming the consumer makes each
monthly payment in full and on time,
and does not make any overpayments.
Pursuant to the Bureau’s
implementation authority under TILA
section 105(a), proposed § 1026.38(o)(5)
implements this new statutory
requirement by requiring creditors to
disclose the ‘‘total interest percentage,’’
using that term and the abbreviation
‘‘TIP.’’ For guidance on disclosure and
calculation of the total interest
percentage on the Closing Disclosure,
proposed comment 38(o)(5)–1 refers
creditors to the disclosure of the total
interest percentage on the Loan
Estimate, found in § 1026.37(l)(3) and its
commentary. In addition, for the reasons
discussed in the section-by-section
analysis to proposed § 1026.37(l)(3), the
Bureau proposes to exercise its
authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b) to require
creditors to disclose the following
descriptive statement of the total
interest percentage: ‘‘This rate is the
total amount of interest that you will
pay over the loan term as a percentage
of your loan amount.’’
Concerns were raised during the
Small Business Review Panel, by
industry feedback provided in response
to the Small Business Review Panel
Outline, and in feedback received
through the Bureau’s Web site that the
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total interest percentage would be
difficult to calculate and explain to
consumers, would not likely be helpful
to consumers, and may distract
consumers from more important
disclosures. See Small Business Review
Panel Report at 20. In particular,
industry feedback provided in response
to the Bureau’s Small Business Review
Panel Outline noted that the disclosure
will always be inaccurate in an
adjustable-rate loan and in any loan that
is paid off before final maturity.
Based on this feedback and consistent
with the Small Business Review Panel’s
recommendation, the Bureau
alternatively proposes to use its
authority under TILA section 105(a) and
(f) and Dodd-Frank Act sections 1032(a)
and 1405(b) to remove the total interest
percentage from the Closing Disclosure
required by proposed § 1026.19(f). The
Bureau’s rationale for the proposed
exemption is found in the section-bysection analysis to proposed
§ 1026.37(l)(3). The Bureau solicits
comment on the proposed exemption.
38(o)(6) Approximate Cost of Funds
The Dodd-Frank Act amended TILA
to add new section 128(a)(17). 15 U.S.C.
1638(a)(17). Among other things, that
section requires creditors to disclose, in
the case of residential mortgage loans,
‘‘the approximate amount of the
wholesale rate of funds in connection
with the loan.’’
The Bureau notes several interpretive
challenges in TILA section 128(a)(17).
First, the statute refers to an ‘‘amount’’
of a ‘‘rate,’’ whereas amounts are
typically absolute, while rates are
typically expressed as percentages.
Second, the intended meaning of the
phrase ‘‘wholesale rate of funds’’ is
unclear. Wholesale transactions have
historically had a ‘‘wholesale rate,’’
which is generally the rate at which a
wholesale lender is willing to extend
credit to a particular consumer, before
any increase to recoup compensation
paid to a mortgage broker. The resulting
increased rate is the ‘‘retail rate’’ paid by
the consumer. However, there are other
components of overall pricing such as
discount points and other up-front
charges, which calls into question the
use of the term ‘‘wholesale rate’’ as a
meaningful disclosure.
The Bureau is unaware of the phrase
‘‘wholesale rate of funds’’ having a
known standard usage in the mortgage
industry. ‘‘Wholesale’’ generally is used
by industry participants to refer to loans
made through mortgage brokers, as
opposed to loans made directly by the
creditor through its own employees,
which are commonly referred to as
‘‘retail’’ originations. Yet, there is
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nothing in TILA section 128(a)(17)
limiting its applicability to wholesale
transactions. In addition, the meaning of
the term ‘‘rate of funds’’ is unclear.
In light of these uncertainties, the
Bureau proposes to interpret the
‘‘wholesale rate of funds’’ to mean the
actual cost of borrowing funds for use in
mortgage lending. As discussed in the
Kleimann Testing Report, the Bureau
conducted consumer testing using the
terms ‘‘lender cost of funds,’’ ‘‘average
cost of funds,’’ and ‘‘approximate cost of
funds,’’ along with descriptive
statements of these terms. First, the
Bureau conducted consumer testing
using the phrase ‘‘lender cost of funds,’’
which was the actual cost of funds used
to make mortgage loans. Consumers
were generally unable to understand or
use this disclosure, and the Bureau
received significant negative feedback
about this disclosure from industry
representatives. Second, the Bureau
conducted consumer testing using the
phrase ‘‘average cost of funds,’’ which is
an average or approximate cost of funds
in lieu of the creditor’s actual costs.
Again, consumers were unable to use or
understand this disclosure, and the
Bureau received negative industry
feedback. In all cases, experienced and
non-experienced consumers that
participated in the Bureau’s consumer
testing of the cost of funds disclosure
questioned the disclosure and were
unable to articulate how to use the
information. During five rounds of
consumer testing, only one consumer
showed any interest in the disclosure,
stating that it was ‘‘interesting,’’ but did
not use it to evaluate the loan. All other
consumers were either confused by the
disclosure or simply did not find it
helpful. Several consumers expressed a
feeling of offense in reaction to the cost
of funds. Industry participants also
believed that consumers would be
confused by the cost of funds
disclosure.
Accordingly, the Bureau is soliciting
comment on both ‘‘lender cost of funds’’
and ‘‘average cost of funds’’ pursuant to
its authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b). Proposed
§ 1026.38(o)(6) requires creditors to
disclose the ‘‘approximate cost of
funds,’’ using that term and the
abbreviation ‘‘ACF’’ and expressed as a
percentage, and the statement ‘‘The
approximate cost of funds used to make
this loan. This is not a direct cost to
you.’’ For purposes of proposed
§ 1026.38(o)(6), ‘‘approximate cost of
funds’’ means either the most recent
ten-year Treasury constant maturity rate
or the creditor’s actual cost of borrowing
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the funds used to extend the credit, at
the creditor’s option. The Bureau
solicits comment on whether another
index, such as the London Interbank
Offer Rate (LIBOR), would be a more
appropriate measure of the approximate
cost of funds. The Bureau also solicits
comment on what would be required for
creditors to disclose their actual costs of
funds.
Based on consumer testing, the
Bureau believes that consumer
understanding of the cost of funds
disclosure will be enhanced through the
descriptive statement, consistent with
the purposes of TILA, and will improve
consumer awareness and understanding
of residential mortgage loans, which is
in the interest of consumers and the
public, consistent with section 1405(b)
of the Dodd-Frank Act. For these
reasons, the Bureau also believes that
the disclosure of the descriptive
statement of the cost of funds disclosure
may ensure that the features of
consumer credit transactions secured by
real property are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances,
consistent with section 1032(a) of the
Dodd-Frank Act.
Notwithstanding these proposed
modifications, consumer testing
conducted by the Bureau suggests that
consumers do not understand the
disclosure and that it does not provide
a meaningful benefit to consumers. In
addition, based on concerns raised by
the Small Business Review Panel,
industry feedback provided in response
to the Bureau’s Small Business Review
Panel Outline, and feedback provided
through the Bureau’s Web site, the
Bureau believes that the disclosure may
be very burdensome for creditors to
calculate and explain, and that
consumers would not find the
disclosures helpful. See Small Business
Review Panel Report at 20. Accordingly,
the Bureau remains concerned that the
cost of funds disclosure may not be a
useful tool for consumers and could
create confusion and contribute to
information overload. Consistent with
the recommendation of the Small
Business Review Panel, the Bureau
alternatively proposes to use its
exception and modification authority
under TILA section 105(a) and (f),
Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, DoddFrank Act section 1405(b) to exempt
transactions subject to proposed
§ 1026.19(e) and (f) from the cost of
funds disclosure requirement in TILA
section 128(a)(17). The Bureau believes
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the proposed exemption will carry out
the purposes of TILA, consistent with
TILA section 105(a), by avoiding
consumer confusion and information
overload, thereby promoting the
informed use of credit. For these same
reasons, the proposed exemption will
help ensure that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to better
understand the costs, benefits, and risks
associated with the mortgage
transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a), and will
improve consumer awareness and
understanding of residential mortgage
loans, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
Finally, the Bureau has considered the
factors in TILA section 105(f) and
believes that, for the reasons discussed
above, an exception is appropriate
under that provision. Specifically, the
Bureau believes that the proposed
exemption is appropriate for all affected
borrowers, regardless of their other
financial arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
believes that the proposed exemption is
appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the proposed exemption
will simplify the credit process without
undermining the goal of consumer
protection or denying important benefits
to consumers. Based on these
considerations, the results of the
Bureau’s consumer testing, and the
analysis discussed elsewhere in this
proposal, the Bureau believes that the
proposed exemption may be
appropriate. The Bureau solicits
comment on this proposed exemption.
38(p) Other Disclosures
As discussed below, proposed
§ 1026.38(p) implements statutory
provisions requiring creditors to
disclose information regarding
appraisals, contract details, liability
after foreclosure, refinancing, and tax
deductions. Under the proposal, these
disclosures would be provided under
the heading ‘‘Other Disclosures.’’
38(p)(1) Appraisal
As noted above in the discussion of
proposed § 1026.37(m)(1), the DoddFrank Act amended ECOA to require
creditors to provide consumers with a
copy of any written appraisal conducted
for a loan that is or will be secured by
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a first lien on a dwelling, and also
added a requirement that creditors
disclose that right to consumers at the
time of application. ECOA section
701(e); 15 U.S.C. 1691(e). In addition,
the Dodd-Frank Act amended TILA to
require creditors to provide consumers
with an appraisal copy at least three
days prior to consummation of certain
‘‘higher-risk’’ mortgages. TILA section
129H(c)–(d); 15 U.S.C. 1639h(c)–(d). As
discussed above, these provisions are
being implemented in separate Bureau
and joint interagency rulemakings,
respectively. Although the Bureau is not
implementing these statutory provisions
through this proposed rule, the Bureau
is proposing appraisal disclosures
similar to those required by the statutes
to be included on the Loan Estimate in
transactions subject to either ECOA
section 701(e) or TILA section 129H, as
implemented in Regulations B and Z,
respectively, pursuant to its authority
under TILA section 105(a) and DoddFrank Act section 1032(a). The Bureau
intends to harmonize these
requirements with the final rules
implementing the statutory appraisal
disclosure requirements at the time it
issues a rule finalizing this proposal.
In addition, the Bureau is proposing,
pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act
section 1032(a), that creditors provide a
disclosure regarding the right to receive
an appraisal on the Closing Disclosure
the consumer receives three days prior
to consummation. Like § 1026.37(m)(1),
this disclosure requirement applies only
to transactions subject to either ECOA
section 701(e) or TILA section 129H, as
implemented in Regulations B and Z,
respectively. Specifically, proposed
§ 1026.38(p)(1)(i) requires the creditor to
disclose that, if there was an appraisal
of the property in connection with the
loan, the creditor is required to provide
the consumer with a copy of such
appraisal at no additional cost to the
consumer at least three days prior to
consummation. Proposed
§ 1026.38(p)(1)(ii) requires the creditor
to disclose that, if the consumer has not
yet received a copy of the appraisal, the
consumer should contact the creditor
using the information disclosed
pursuant to proposed § 1026.38(r).
Proposed § 1026.38(p)(1) requires these
disclosures to be provided under the
subheading ‘‘Appraisal.’’ Proposed
comment 38(p)(1)–1 provides guidance
regarding the applicability of proposed
§ 1026.38(p)(1). The comment states that
if a transaction is not subject to either
ECOA section 701(e) or TILA section
129H, as implemented in Regulations B
and Z, respectively, the disclosure
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required by proposed § 1026.38(p)(1)
may be omitted from the Closing
Disclosure.
The Bureau believes the additional
disclosure reminding consumers of their
right to receive a copy of an appraisal
conducted for their loan will promote
the informed use of credit by
consumers, consistent with TILA
section 105(a), and ensure that the
features of mortgage transactions are
fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the loans, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a).
38(p)(2) Contract Details
TILA section 128(a)(12) requires the
creditor to provide a statement that
‘‘[t]he consumer should refer to the
appropriate document for any
information such document provides
about nonpayment, default, the right to
accelerate the maturity of the debt, and
prepayment rebates and penalties.’’ 15
U.S.C. 1638(a)(12). This requirement is
currently implemented in § 1026.18(p),
which requires the creditor to provide a
statement that the consumer should
refer to the appropriate contract
document for information pertaining to
nonpayment, default, the right to
accelerate the maturity of the loan
obligation, and prepayment rebates and
penalties. Section 1026.18(p) also
provides the creditor the option to
disclose a reference to the contract
document for information regarding
security interests and assumption of the
legal obligation.
The Bureau proposes § 1026.18(p)(2)
to implement TILA section 128(a)(12)
for transactions subject to § 1026.19(f),
pursuant to its implementation
authority under TILA section 105(a).
Like current § 1026.18(p), proposed
§ 1026.38(p)(2) requires the creditor to
disclose a statement that the consumer
should review the loan contract for
additional information about loan terms.
Specifically, under proposed
§ 1026.38(p)(2), the creditor is required
to state that the consumer should refer
to the appropriate loan document and
security instrument for information
about nonpayment, what constitutes a
default under the legal obligation,
circumstances under which the creditor
may accelerate the maturity of the
obligation, and prepayment rebates and
penalties. Proposed § 1026.38(p)(2)
requires this information to be disclosed
is under the subheading ‘‘Contract
Details.’’
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38(p)(3) Liability After Foreclosure
As discussed in the section-by-section
analysis to proposed § 1026.37(m)(7),
section 1414(c) of the Dodd-Frank Act
created new TILA section 129C(g),
which establishes certain requirements
for residential mortgage loans subject to
protection under a State’s antideficiency law. 15 U.S.C. 1639c(g). TILA
section 129C(g)(2) generally requires the
creditor to provide a written notice to
the consumer describing the protection
provided by the applicable State’s antideficiency law and the significance for
the consumer of the loss of such
protection. For refinance transactions
only, TILA section 129C(g)(3) generally
requires creditors that receive from or
provide to the consumer an application
for refinancing that would cause the
loan to lose the protection of an antideficiency law to provide a written
notice to the consumer describing the
protection provided by the antideficiency law and the significance for
the consumer of the loss of such
protection. As discussed above, TILA
section 129C(g)(3), which applies to
refinance transactions only, is
implemented in proposed
§ 1026.37(m)(7).
Proposed § 1026.38(p)(3) implements
the requirements of TILA section
129C(g)(2) for transactions subject to
§ 1026.19(f), pursuant to the Bureau’s
implementation authority under TILA
section 105(a). Specifically, under
proposed § 1026.38(p)(3), if State law
may offer consumers protection from
liability, the creditor must disclose a
brief statement that State law may
protect the consumer from liability for
the unpaid balance. The statement must
also advise the consumer that any
protection afforded under State law may
be lost if the consumer refinances the
loan or incurs additional debt on the
property and that the consumer should
consult an attorney for additional
information. However, if State law does
not protect the consumer from liability
for the unpaid balance, proposed
§ 1026.38(p)(3) requires the creditor to
disclose that fact. The information
required by proposed § 1026.38(p)(3) is
provided under the subheading
‘‘Liability after Foreclosure.’’ Proposed
comment 38(p)(3)–1 clarifies that
whether the consumer is afforded
protection from liability in a foreclosure
varies by State and that proposed
§ 1026.38(p)(3) requires the creditor to
provide a general description of the
applicable State’s requirements.
Proposed comment 38(p)(3)–1 also
clarifies that any type of protection
afforded by State law, other than a
statute of limitations, requires a
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statement that State law may protect the
consumer from liability for the unpaid
balance.
Pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b),
the Bureau proposes to modify the
statutory requirement that the creditor
or loan originator must describe the
protection provided by the applicable
State’s anti-deficiency law, for all
transactions subject to proposed
§ 1026.19(f). The Bureau believes that
the more generalized anti-deficiency
disclosure required by proposed
§ 1026.38(p)(3) is effective at informing
consumers about the existence or
absence of State anti-deficiency laws,
and that a more detailed state-specific
disclosure could be confusing for
consumers and costly and burdensome
to implement. The Bureau recognizes
that significant State law variations exist
regarding anti-deficiency protection. For
this reason, proposed § 1026.38(p)(3)
requires creditors to disclose a
statement that consumers should
consult a lawyer for more information
about any applicable anti-deficiency
laws. The Bureau believes the proposed
modification will ensure that the
features of the transaction are fully,
accurately and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
mortgage transaction, consistent with
Dodd-Frank Act section 1032(a), and
will improve consumer awareness and
understanding of residential mortgage
loans, which is in the interest of
consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
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38(p)(4) Refinance
Proposed § 1026.38(p)(4) implements
TILA section 128(b)(2)(C)(ii) for
transactions subject to § 1026.19(f) by
requiring the creditor to disclose the
statement required by proposed
§ 1026.37(m)(5), regarding the
consumer’s future ability to refinance
their loan. For a detailed discussion of
the Bureau’s proposed implementation
of TILA section 128(b)(2)(C)(ii), see the
section-by-section analysis to proposed
§ 1026.37(m)(5).
38(p)(5) Tax Deductions
The Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005
(Bankruptcy Act) amended TILA to add
new section 128(a)(15), 15 U.S.C.
1638(a)(15), which requires that, in the
case of a consumer credit transaction
that is secured by the principal dwelling
of the consumer in which the extension
of credit may exceed the fair market
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value of the collateral, the creditor must
disclose certain tax implications for the
consumer. Public Law 109–8,119 Stat.
23. The Board stated its intent to
implement the Bankruptcy Act
amendments in an advance notice of
proposed rulemaking published in
October 2005 as part of its ongoing
review of Regulation Z. 70 FR 60235
(Oct. 17, 2005). The issue was addressed
again in the Board’s 2009 Closed-End
Proposal, although a final rule was not
adopted. 74 FR 43232, 43310.
In the 2009 Closed-End Proposal, the
Board proposed to implement TILA
section 128(a)(15) by requiring creditors
to provide the disclosure required by
TILA section 128(a)(15) for transactions
secured by a dwelling. 74 FR at 43310–
11. The proposed rule permitted, but
did not require, creditors to provide the
disclosure in transactions secured by
real property that does not include a
dwelling, even though the statute limits
the disclosure to transactions secured by
the principal dwelling of the consumer.
Id. The Board reasoned that it would be
unnecessarily burdensome to require
creditors to create separate disclosures
for transactions secured by real property
and those secured by a dwelling and
proposed that the creditor be permitted,
but not required, to provide disclosures
regarding Federal tax implications for
transactions secured by real property.
Id.
Proposed § 1026.38(p)(5) implements
the requirements of TILA section
128(a)(15) for transactions subject to
proposed § 1026.19(f), including
transactions secured by real property
that does not include a dwelling,
pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b).
Specifically, for all transactions subject
to § 1026.19(f), proposed § 1026.38(p)(5)
requires creditors to state that, if the
consumer borrows more than the value
of the property, the interest on the loan
amount above the market value is not
deductible from Federal income taxes.
Proposed § 1026.38(p)(5) also requires a
statement advising the consumer to
consult a tax professional for additional
information. The Bureau believes that
the proposed disclosure promotes the
informed use of credit in all transactions
subject to § 1026.19(f), and is therefore
consistent with the purposes of TILA.
Moreover, requiring the disclosure for
all transactions subject to proposed
§ 1026.19(f), whether secured by the
consumer’s principal dwelling or other
real property, facilitates industry
compliance by reducing the time and
resources that would be expended to
determine whether a loan transaction is
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51259
subject to the disclosure requirements
regarding the deductibility of Federal
income taxes. In addition, the Bureau
believes that the proposed disclosure
ensures that the features of mortgage
transactions are disclosed in manner
that ensures that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to
understand the cost, benefits, and risks
associated with the transaction,
consistent with Dodd-Frank Act section
1032(a) and will improve consumer
awareness and understanding of
residential mortgage loans, which is in
the interest of consumers and the
public, consistent with Dodd-Frank Act
section 1405(b).
38(q) Questions Notice
Proposed § 1026.38(q) requires the
creditor or closing agent to provide a
statement that the consumer should
contact the creditor with any questions
about the disclosures required under
§ 1026.19(f), a reference to the Bureau’s
Web site to obtain more information or
to make a complaint, and a prominent
question mark. Although this notice is
not currently expressly required by
TILA, RESPA, or their implementing
regulations, the Bureau is proposing to
require that the Closing Disclosure
contain such a notice based on its
authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank
Act section 1032(a). The Bureau
believes that this disclosure will
effectuate the purposes of TILA and
RESPA by facilitating the informed use
of credit and ensuring that consumers
are provided with greater and timelier
information on the costs of the closing
process, and will also ensure that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
the transaction in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a).
Requiring disclosure of this notice
complements proposed
§ 1026.19(f)(1)(ii), which requires
delivery of the Closing Disclosure three
business days prior to consummation.
TILA section 128(b)(2)(D) requires that a
corrected TILA disclosure be given to
the consumer three business days prior
to consummation if the APR as initially
disclosed becomes inaccurate, and the
Bureau understands that because of the
high frequency of annual percentage
rate changes triggering the corrected
TILA disclosure obligation, many
creditors currently provide the corrected
TILA disclosure as a matter of course
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even if it is not required. RESPA section
4 requires that the RESPA settlement
statement be provided ‘‘at or before
closing,’’ however, and the Bureau
understands that it is typically given at
closing. Proposed § 1026.19(f)(1)(ii)
reconciles the two provisions by
requiring that consumers be given all of
the RESPA- and TILA-mandated
disclosures three business days prior to
consummation. During this threebusiness-day period, the consumer can
review the Closing Disclosure, contact
the creditor with questions regarding
the information contained on the
Closing Disclosure, and correct any
errors prior to consummation.
Under proposed § 1026.38(q), the
required notice includes a statement
directing the consumer to contact the
creditor with any questions about the
disclosures required under § 1026.19(f).
If the alternative language proposed in
§ 1026.19(f)(1)(v) is adopted in a final
rule, however, the closing agent may
provide the disclosures required under
§ 1026.19(f) instead of the creditor.
Notwithstanding this fact, the Bureau
believes the notice required under
proposed § 1026.38(q) should in all
cases reference the creditor, rather than
the closing agent, because the creditor is
better positioned to answer the
consumer’s questions relating to the
disclosures provided under § 1026.19(f).
The creditor is familiar with the loan
terms and is responsible for disclosing
the aggregate amount of closing costs
under TILA section 128(a)(17).
Moreover, it is more likely that the
creditor will have been in
communication with the consumer
previously. The Bureau seeks comment,
however, on whether the notice
required under proposed § 1026.38(q)
should include a statement directing the
consumer to contact the creditor or the
closing agent with questions, or a
statement directing the consumer to
contact the closing agent, if the
disclosures required under § 1026.19(f)
are provided by the closing agent.
Moreover, the Bureau’s Web site will
offer important information and useful
tools that consumers can access at key
points in the mortgage origination
process, including during the threebusiness-day period between the
consumer’s receipt of the Closing
Disclosure and consummation.
Directing consumers to this Web site
therefore promotes consumer
understanding of credit terms and
closing costs and of benefits and risks
associated with the transaction in light
of the facts and circumstances.
The notice required under proposed
§ 1026.38(q) also includes a prominent
question mark. This prominent question
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mark is an aspect of the Closing
Disclosure form H–25 set forth in
appendix H to Regulation Z, the
standard form or model form, as
applicable, pursuant to § 1026.38(t).
Consumer testing by the Bureau
indicated that use of the prominent
question mark icon in the questions
notice drew consumers’ attention to the
notice.
38(r) Contact Information
Under TILA section 128(a)(1) and
Regulation Z § 1026.18(a), the TILA
disclosures must include the identity of
the creditor. Comment 18(a)–1 clarifies
that the ‘‘identity’’ of the creditor must
include the name of the creditor, but
may also include the creditor’s address
and/or telephone number. As stated in
appendix C to Regulation X, the RESPA
GFE must include the name, address,
phone number, and email address (if
any) of the loan originator. As stated in
appendix A to Regulation X, the RESPA
settlement statement must include the
name and mailing address of the lender
and the name, address, and phone
number of the settlement agent.
Moreover, TILA section 129B(b)(1)(B),
which was added to TILA by section
1402 of the Dodd-Frank Act, provides
that each mortgage originator must
include on all loan documents any
unique identifier of the mortgage
originator provided by the Nationwide
Mortgage Licensing System and
Registry. However, TILA, RESPA, and
their implementing regulations
currently do not expressly require the
disclosure of: (1) The email address of
the creditor (unless the creditor is also
the loan originator, in which case it
must be disclosed on the GFE but not
on the RESPA settlement statement); (2)
the name, email address, and phone
number of the primary contact with the
creditor; (3) the email address of the
closing agent; (4) the name, email
address, and phone number of the
consumer’s and seller’s real estate
brokers, if any; or (5) the license number
or other unique identifier issued by the
applicable jurisdiction or regulating
body with which a closing agent or real
estate broker is licensed and/or
registered, if any.
The Bureau received feedback from
the public through its Know Before You
Owe initiative that requested contact
information on the disclosure to appear
only on one part of the Closing
Disclosure. Based on this feedback, the
Bureau tested a prototype design with
contact information for the creditor,
mortgage broker, and other parties
related to the transaction in one table.
During consumer testing, consumers
and industry participants found the
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contact information table useful and
easy to follow, and indicated that it
contained the basic information they
needed to follow up with the various
parties related to the transaction.
Therefore, the Bureau is proposing to
require that the Closing Disclosure
contain a contact information table as
set forth in proposed § 1026.38(r) based
on its authority under TILA section
105(a), RESPA section 19(a), DoddFrank Act section 1032(a) and, for
residential mortgage loans, Dodd-Frank
Act section 1405(b). The Bureau
believes that the contact information
table required to be disclosed under
proposed § 1026.38(r) will effectuate the
purposes of TILA and RESPA by
facilitating the informed use of credit
and ensuring that consumers are
provided with greater and more timely
information on the costs of the closing
process. Providing consumers with
multiple types of contact information
for the critical non-seller parties
participating in the transaction will
allow consumers easier access to
information relevant to the transaction
(including costs), which in turn
enhances consumer understanding of
the costs, benefits, and risks associated
with the transaction in light of the facts
and circumstances (which is consistent
with Dodd-Frank Act section 1032(a)).
The Bureau also believes such
disclosure will improve consumers’
awareness and understanding of
residential mortgage transactions, which
is in the interest of consumers and the
public (which is consistent with DoddFrank Act section 1405(b)).
Moreover, the Bureau is proposing
§ 1026.38(r) based on its mandate under
sections 1032(f), 1098, and 1100A of the
Dodd-Frank Act to propose rules and
forms that combine the disclosures
required under TILA and sections 4 and
5 of RESPA into a single, integrated
disclosure for mortgage loan
transactions covered by those laws. As
discussed above, appendix C to
Regulation X states that the RESPA GFE
must include the name, address, phone
number, and email address (if any) of
the loan originator, and pursuant to
appendix A to Regulation X, the RESPA
settlement statement must include the
name and mailing address of the lender
and the name, address, and phone
number of the settlement agent. Thus, as
part of the Bureau’s statutory mandate
to integrate the TILA and RESPA
disclosures, the Bureau must integrate
the disclosures currently required under
Regulation X with the TILA-mandated
disclosures of the creditor’s identity,
discussed above.
As noted above, TILA section
129B(b)(1)(B), as added by section 1402
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of the Dodd-Frank Act, provides that
each mortgage originator must include
on all loan documents any unique
identifier of the mortgage originator
provided by NMLSR. New TILA section
129B(b)(1)(B) will be implemented in a
separate Bureau rulemaking concerning
mortgage loan origination
compensation. However, the Bureau is
proposing to use its authority under
TILA section 105(a), Dodd-Frank Act
section 1032(a) and, for residential
mortgage loans, Dodd-Frank section
1405(b) to include in the contact
information table to be disclosed under
§ 1026.38(r) the NMLSR identification
number for the creditors, mortgage
brokers, and the individual persons
employed by such entities, as
applicable, since the additional
information of the NMLSR and license
numbers for State regulated settlement
service providers will improve
consumer awareness and understanding
of transactions involving residential
mortgage loans and is therefore in the
interest of consumers and the public by
providing the consumer with
information about the licensing of the
settlement service providers. In the
integrated TILA–RESPA final rule, the
Bureau expects to harmonize this
proposal with its rulemaking
implementing TILA section
129B(b)(1)(B).
The Bureau also believes that the
disclosure of contact information in a
tabular format as required by proposed
§ 1026.38(r) complements proposed
§ 1026.19(f)(1)(ii), which requires
delivery of the Closing Disclosure three
business days prior to consummation.
As noted above, proposed
§ 1026.19(f)(1)(ii) reconciles the TILA
and RESPA timing provisions by
requiring that consumers be given the
integrated disclosures three business
days prior to consummation. During this
three-business-day period, the consumer
can review the Closing Disclosure,
contact the creditor, closing agent,
mortgage broker, and real estate brokers
with questions regarding the
information contained on the Closing
Disclosure, and correct any errors prior
to consummation. Thus, the contact
information table required under
proposed § 1026.38(r) makes it easier for
consumers to contact the critical nonseller parties participating in the
transaction during the three-businessday period prior to consummation. The
inclusion of primary contact email
addresses in the table facilitates efficient
communication between the consumer
and the other parties.
As applicable, the table required by
proposed § 1026.38(r) would include
contact information for the creditor, the
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mortgage broker, the consumer’s real
estate broker, the seller’s real estate
broker, and the closing agent. The table
would include the following contact
information for each party, as
applicable: Name, address, NMLSR
identification/license number, name of
primary contact, NMLSR identification/
license number of the primary contact,
email address of primary contact, and
phone number of primary contact.
Proposed comments 38(r)–1 through
–6 provide additional guidance
regarding these required disclosures.
For instance, proposed comment 38(r)–
3 clarifies that the address disclosed in
the contact information table is the
identified party’s place of business
where the primary contact for the
transaction is located (usually the local
office), rather than a general corporate
headquarters address. Similarly,
proposed comment 38(r)–6 clarifies that
the primary contact working at the
identified party is the individual who
interacts most frequently with the
consumer and who has an NMLSR
identification number or, if none, a
license number, or other unique
identifier to be disclosed under
proposed § 1026.38(r)(3) and (5), as
applicable, and provides examples of
the primary contact to be disclosed in a
given transaction.
38(s) Signature Statement
For the reasons and based on the legal
authority set forth in the section-bysection analysis to proposed
§ 1026.37(n), proposed § 1026.38(s)
implements the requirements of TILA
section 128(b)(2)(B)(i) for transactions
subject to § 1026.19(f). The disclosure
requirements in proposed § 1026.38(s)
mirror the requirements in proposed
§ 1026.37(n). Proposed comment 38(s)–
1 cross-references the commentary to
proposed § 1026.37(n) for guidance
regarding optional signature
requirements and signature lines for
multiple consumers.
During the Bureau’s Small Business
Review Panel, some industry
participants expressed concern that
consumers might be confused about the
effect of signing the Closing Disclosure
to acknowledge receipt. Small Business
Review Panel Report at 29. Based on
this feedback, the Panel recommended
that the Bureau consider whether to
revise the signature statement on the
prototype form, or whether additional
guidance should be provided to clarify
the effect of a signature line on the
consumer’s legal obligation. Id. The
Bureau has considered the Panel’s
recommendation and believes, based on
several rounds of consumer testing, that
consumers understand the disclosure in
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proposed § 1026.38(s) to mean that they
are not obligated to complete the loan
transaction just because they signed the
Closing Disclosure. As a result, the
Bureau believes that the proposed
disclosure is appropriate, but solicits
comment on this issue.
38(t) Form of Disclosures
As discussed above, the Bureau is
proposing to exclude transactions
subject to proposed § 1026.19(f) from
the coverage of § 1026.17(a) and (b).
Consequently, the implementation of
TILA sections 122(a) and 128(b)(1) in
§ 1026.17(a)(1), requiring that the
disclosures be clear and conspicuous
and that they be segregated from
everything else, does not apply to the
integrated disclosures set forth in
§ 1026.38 under this proposal. As
described in the analysis of proposed
§ 1026.37(o), the Bureau, pursuant to its
implementation authority under TILA
section 105(a), proposes to implement
the statutory segregation and clear and
conspicuous requirements of TILA
sections 122(a) and 128(b)(1) for the
disclosure required by proposed
§ 1026.38 in new § 1026.38(t). The
Bureau believes these requirements will
assure a meaningful disclosure of credit
terms so that the consumer will be able
to compare more readily the various
credit terms available to him and avoid
the uninformed use of credit.
38(t)(1) General Requirements
Similar to proposed § 1026.37(o)(1),
proposed § 1026.38(t)(1) establishes the
requirements that the disclosures
required by § 1026.38 be clear and
conspicuous, in writing, and grouped
together, segregated from everything
else, and provided on separate pages
that are not commingled with any other
documents or disclosures, including any
other disclosures required by State or
other laws. Proposed comment 38(t)–1
clarifies that the clear and conspicuous
standard requires that the disclosures be
legible and in a readily understandable
form. This guidance is adopted from
existing comment 17(a)(1)–1. The
comment also clarifies that proposed
§ 1026.37(o)(1) requires that the
disclosures be grouped together,
segregated from everything else, and
provided on separate pages that are not
commingled with any other documents
or disclosures, including any other
disclosures required by State or other
laws. This requirement is stricter than
the guidance found in existing comment
17(a)(1)–2, which provides that the
disclosures may be grouped together
and segregated from other information
in a variety of ways other than a
separate piece of paper.
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The Bureau recognizes that, in certain
credit sale and other non-mortgage,
closed-end credit transactions, creditors
include the disclosures required by
§ 1026.18 in the loan contract or some
other document and ensure that they are
grouped together and segregated by
outlining them in a box or other means
authorized by comment 17(a)(1)–2.
However, as described above in the
discussion of proposed § 1026.37(o), the
Bureau believes that this approach is
virtually never employed for mortgage
credit, for which the new disclosures
under proposed §§ 1026.19(f) and
1026.38, rather than § 1026.18
disclosures, are required. For the
reasons stated in that discussion, the
Bureau believes that requiring the
§ 1026.38 disclosures to be delivered as
a separate document does not present
any significant new obligation that
mortgage creditors do not already
effectively observe and maximizes the
benefits of the forms. The Bureau seeks
comment, however, on whether there
currently are transactions subject to
§ 1026.19(f) that may be burdened by
the adoption of this requirement.
Also, similar to proposed
§ 1026.37(o)(1)(ii), proposed
§ 1026.38(t)(1)(ii) provides that the
disclosures shall contain only the
information required by § 1026.38(a)
through (s) and that they generally shall
be made in the same order, and
positioned relative to the master
headings, headings, subheadings, labels,
and similar designations in the same
manner, as shown in form H–25.
Proposed comment 38(t)–2 clarifies that
the treatment of balloon payment loans
with leasing characteristics.
38(t)(2) Estimated Disclosures
Similar to proposed § 1026.37(o)(2),
proposed § 1026.38(t)(2) provides that,
wherever form H–25 designates the
required master heading, heading,
subheading, label, or similar designation
for a disclosure as ‘‘estimated,’’ that
corresponding master heading, heading,
subheading, label, or similar designation
required by § 1026.38 must include the
word ‘‘estimated,’’ even if the provision
requiring such heading, label, or similar
designation does not contain the word.
Many of the items that are required to
be only good faith estimates when
included in the § 1026.37 disclosures, in
accordance with § 1026.19(e), will be
actual terms and costs when stated in
the § 1026.38 disclosures, as required by
§ 1026.19(f). As noted above in the
section-by-section analysis of proposed
§ 1026.37(o), many of the disclosure
items required by § 1026.38 crossreference their counterparts in
§ 1026.37. To avoid confusion over
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which items must be designated as
‘‘estimates,’’ the content provisions of
§ 1026.37 do not include in any of the
master headings, headings, subheadings,
labels, and similar designations the
word ‘‘estimated.’’ Instead, proposed
§ 1026.37(o)(2) effectively incorporates
by reference the ‘‘estimated’’
designations reflected on form H–24 of
appendix H to this part. Accordingly,
proposed § 1026.38(t)(2) also
incorporates by reference the
‘‘estimated’’ designations reflected on
form H–25 of appendix H to this part.
Proposed comment 38(t)(2)–1 provides
guidance regarding the requirement to
disclose certain amounts as estimated
amounts based on the designations
within form H–25.
38(t)(3) Form
Similar to proposed § 1026.37(o)(3),
proposed § 1026.38(t)(3) also provides
that, for a transaction that is a federally
related mortgage loan, as defined in
Regulation X, the disclosures must be
made using form H–25 of appendix H to
this part. Certain closed-end consumer
credit transactions are subject to the
requirements of proposed § 1026.19(f)
but do not fit the Regulation X
definition of ‘‘federally related mortgage
loan.’’ These include construction-only
loans with terms of less than two years
that do not finance the transfer of title
to the consumer and loans secured by
vacant land on which a home will not
be constructed or placed using the loan
proceeds within two years after
settlement of the loan. See § 1024.5(b)(3)
and (4). In addition, transactions subject
to proposed § 1026.19(f) but not subject
to RESPA would include loans secured
by non-residential real property,
provided they have a consumer purpose
as required by § 1026.1(c)(1)(iv). See
§ 1024.2, definition of ‘‘federally related
mortgage loan, paragraph (1)(i)
(requiring that the securing property be
‘‘residential real property’’).
As with transactions subject to
proposed § 1026.19(e), for such
transactions that are subject to proposed
§ 1026.19(f), because they are subject to
TILA and are secured by real property,
but that are not subject to RESPA, the
Bureau is not mandating the use of form
H–25 as a standard form. TILA section
105(b) provides that nothing in TILA
may be construed to require a creditor
to use any model form or clause
prescribed by the Bureau under that
section. Accordingly, proposed
§ 1026.38(t)(3) provides that, for
transactions subject to § 1026.38 that are
not federally related mortgage loans, the
disclosures must be made with
headings, content, and format
substantially similar to form H–25 but
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does not mandate the use of that form.
Consistent with TILA section 105(b),
proposed comment 38(t)(3)–1 explains
that, although use of the form as a
standard form is not mandatory for such
transactions, its use as a model form, if
properly completed with accurate
content, constitutes compliance with
the clear and conspicuous and
segregation requirements of
§ 1026.38(t)(1).
As discussed in the analysis of
proposed § 1026.37(o)(3), the Bureau is
proposing the requirement that creditors
use the standard form for federally
related mortgage loans pursuant to
RESPA section 4(a), as amended by the
Dodd-Frank Act. 12 U.S.C. 2603(a). As
discussed above, although the DoddFrank Act eliminated one reference in
RESPA section 4(a) to a ‘‘standard’’
form, it left the other such reference in
place, as well as another such reference
in section 4(c). More notably, in
amending section 4(a), Congress did not
include an explicit prohibition of a
mandatory-use form. For this reason, the
Bureau does not believe that Congress
intended to eliminate standard-form
authority from RESPA section 4.
The Bureau also proposes the
mandatory form pursuant to its
authority in RESPA section 19(a) to
prescribe such rules and regulations as
may be necessary to achieve RESPA’s
purposes. 12 U.S.C. 2617(a). RESPA’s
purposes include the establishment of
more effective advance disclosure to
home buyers and sellers of settlement
costs. Id. 2601(b)(1). The Bureau
believes, based on consumer testing
results, that the purpose of more
effective advance disclosure of
settlement costs is better achieved if all
lenders provide those disclosures in a
standardized format. In the Bureau’s
consumer testing, participants were able
to compare the costs disclosed on the
Loan Estimate and Closing Disclosure
more easily when they were provided in
a format that matched closely. In
addition, participants better understood
the costs disclosed in the Closing
Disclosure after gaining experience
using the matching format of the Loan
Estimate. Further, disclosure of
settlement costs alone, without the
context provided by the credit terms, is
far less effective in aiding consumer
understanding of the transaction. This is
consistent with HUD’s rationale for
including credit terms in the required
GFE, in HUD’s 2008 RESPA Final Rule.
See 73 FR 68204, 68214–15 (Nov. 17,
2008). This is also the stated purpose of
the integrated disclosure under RESPA
section 4(a).
Accordingly, the Bureau is authorized
under section 19(a) to require the
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standard form for the disclosure of all of
the information it contains, both
settlement costs and credit terms alike.
The Bureau uses this authority to
require a standard form for federally
related mortgage loans under proposed
§ 1026.38(t)(3)(i). As described above,
for transactions subject to proposed
§ 1026.19(f), proposed § 1026.38(t)(3)(ii)
uses the authority TILA section 105(b)
to establish a model disclosure for credit
transactions subject to TILA and not
RESPA. For a detailed description of the
Bureau’s implementation of these rules
and use of TILA section 105(a)
authority, see the section-by-section
analysis of proposed § 1026.37(o)(3).
During the Small Business Review
Panel, several settlement agents
requested that the Bureau require the
use of a standard integrated disclosure
form. The settlement agents stated that
if the forms were only models, creditors
would establish inconsistent
requirements, which would be more
expensive for small settlement agents.
See Small Business Review Panel
Report at 19. Feedback requesting both
standard and model forms was also
submitted by industry trade associations
in response to the Small Business
Review Panel Outline. In consideration
of the recommendation of the Small
Business Review Panel, the Bureau
seeks comment on the advantages, such
as cost-saving benefits, and
disadvantages of requiring a standard
form for the Closing Disclosure for
federally related mortgage loans and
model forms for other credit
transactions subject to proposed
§ 1026.19(f). Id. at 28.
Similar to proposed
§ 1026.37(o)(3)(iii), proposed
§ 1026.38(t)(3)(iii) also provides that the
disclosures may be provided in
electronic form, subject to compliance
with the Electronic Signatures in Global
and National Commerce Act (15 U.S.C.
7001 et seq.). This provision parallels
existing § 1026.17(a)(1).
38(t)(4) Rounding
Similar to proposed § 1026.37(o)(4),
proposed § 1026.38(t)(4) requires certain
numerical amounts on the Closing
Disclosure to be rounded. The Bureau
proposes this requirement for the same
reasons as the requirements of proposed
§ 1026.37(o)(4), namely to reduce
information overload, aid in consumer
understanding of the transaction,
prevent misconceptions regarding the
accuracy of certain estimated amounts
(e.g., estimated property costs over the
life of the loan), and ensure a
meaningful disclosure of credit terms.
For a detailed description of the
Bureau’s use of its authority under TILA
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section 105(a), RESPA section 19(a), and
section 1405(b) of the Dodd-Frank Act
in requiring rounded numbers on the
integrated disclosures, see the analysis
of proposed § 1026.37(o)(4). Proposed
comment 38(t)(4)–1 clarifies that
consistent with § 1026.2(b)(4) all
numbers are to be disclosed as exact
numbers, unless required to be rounded
by proposed § 1026.38(t)(4). Proposed
comment 38(t)(4)–2 refers to
commentary to proposed § 1026.37(o)(4)
for guidance.
38(t)(5) Exceptions
The Bureau believes it must specify
the changes to the format of the Closing
Disclosure that are required and
permissible, to ensure the disclosures
provided to consumers convey the
information required by proposed
§ 1026.38 in a clear, understandable,
and effective manner for consumers.
Accordingly, pursuant to its authority
under RESPA section 19(a), TILA
section 105(a), and section 1032(a) of
the Dodd-Frank Act, the Bureau
proposes § 1026.38(t)(5) to provide for a
specific list of exceptions to the format
of the Closing Disclosure, as illustrated
in form H–25 of appendix H to
Regulation Z. For a detailed description
of the Bureau’s use of its authority
under TILA section 105(a), RESPA
section 19(a), and section 1405(b) of the
Dodd-Frank Act in providing for a list
of exceptions to the required format, see
the analysis of proposed § 1026.37(o)(5).
The requirements of proposed
§ 1026.38(t)(5) mirror those of proposed
§ 1026.37(o)(5), with appropriate
differences for the different format,
timing, and use of the two disclosures.
Like proposed § 1206.37(o), proposed
§ 1026.38(t)(5)(i) requires modification
to indicate the frequency of payment or
applicable unit-period for the
transaction; proposed § 1026.38(t)(5)(ii)
permits lender credits to be deleted
from the Cash to Close disclosure
required by proposed § 1026.38(d);
proposed § 1026.38(t)(5)(iii) permits the
addition of administrative information
in certain space on the form; and
proposed § 1026.38(t)(5)(ix) permits
translation of the form into languages
other than English.
In contrast to proposed § 1026.37(o),
unlike proposed § 1026.37(o)(5)(iii),
proposed § 1026.38(t)(5) does not permit
the font size or type to be altered from,
or a slogan or logo to be provided for or
with, the creditor information required
by proposed § 1026.38(a)(4)(iii).
While proposed § 1026.37(o)(5) does
not permit the deletion of lines from the
proposed form H–24 in appendix H to
Regulation Z for the information
required to be disclosed by proposed
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51263
§ 1026.37(f) and (g), proposed
§ 1026.38(t)(5)(iv) does permit the
deletions of lines in certain
circumstances from proposed form H–
25 in appendix H to Regulation Z. While
proposed § 1026.37(o) does not permit
the use of additional pages for closing
cost details on the Loan Estimate, except
for the services for which a consumer
can shop under proposed
§ 1026.37(f)(3), proposed
§ 1026.38(t)(5)(v) does permits the
expansion of the information required
by proposed § 1026.38(f), (g), and (h)
over two pages in certain circumstances
to accommodate the closing costs and
itemization required on the Closing
Disclosure, provided that the Loan Costs
and Other Costs under proposed
§ 1026.38(f) and (g), respectively, are
each disclosed on a single page.
In addition, the Bureau understands
that the Closing Disclosure may be
provided to parties other than
consumers, unlike the Loan Estimate. In
light of privacy considerations that may
arise, proposed § 1026.38(t)(5)(vi)
permits the creditor or settlement agent
preparing the disclosure to leave certain
information regarding the consumer’s
transaction blank in the disclosure
provided to the seller and vice versa.
Similarly, proposed § 1026.38(t)(5)(vii)
permits the creditor or settlement agent
preparing the disclosure to delete
certain information regarding the
consumer’s transaction from the
disclosure provided to a seller or third
party. For example, proposed
§ 1026.38(t)(5)(vii) permits the
disclosures regarding the consumer’s
credit transaction required by proposed
§ 1026.38(l) through (s) to be deleted
from the form provided to a seller. An
illustration of such form is provided in
proposed form H–25(I) in appendix H to
Regulation Z. Further, considering that
some credit transactions may not
involve sellers, proposed
§ 1026.38(t)(5)(viii) also permits use of a
modified version of the form for credit
transactions that do not involve a seller,
such as a refinance transaction, which is
illustrated in proposed form H–25(J).
Proposed § 1026.38(t)(5)(x) also permits
the addition of a page for customary
recitals and information used locally in
real estate settlements.
Proposed comment 38(t)(5)–1 clarifies
that any changes not specified in
proposed § 1026.38(t)(5) may affect the
substance, clarity, or meaningful
sequence of the disclosure and cause the
creditor to lose protection from civil
liability under TILA. Similar to
proposed comments 37(o)(t)–2 through
–5, proposed comments 38(t)(5)–2
through –5 provide guidance regarding
manual completion of the form,
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modifications to accommodate
additional contact information, the
addition of signature lines, and the
formatting of additional pages permitted
by § 1026.38(t)(5). In addition, because
certain disclosures required by
proposed § 1026.38 are permitted by
proposed § 1026.38(t) to be disclosed
over two pages, even though they are
illustrated on form H–25 of appendix H
to this part as disclosed on one page,
proposed comment 38(t)(5)–6 permits
modifications to the page number
references illustrated on form H–25
accordingly.
Proposed comment 38(t)(5)(iv)–1
provides guidance regarding the
deletion and addition of line numbers
on form H–25 for the disclosures
requirements of § 1026.38(f) through (h).
Proposed comments 38(t)(5)(v)–1 and –2
provide guidance regarding the
permission to disclose the information
required by proposed § 1026.38(f)
through (h) over two pages. Proposed
comments 38(t)(5)(viii)–1 and –2
provide guidance regarding the effect of
the modifications permitted by
proposed § 1026.38(t)(5)(viii) on the
Calculating Cash to Close table required
by proposed § 1026.38(t)(i) and with
respect to the disclosure required by
proposed § 1026.38(a)(3)(vii)(B).
Proposed comment 38(t)(5)(x)–1
provides guidance regarding the
permission to add an additional page for
customary recitals and information.
Section 1026.39 Mortgage Transfer
Disclosures
Section 1414(d) of the Dodd-Frank
Act amended TILA section 129C to add
section 129C(h), which requires at the
time a person becomes a creditor of an
existing residential mortgage loan,
disclosure of the following: (i) The
creditor’s policy regarding the
acceptance of partial payments; and (ii)
if they are accepted, how such payments
will be applied to the mortgage loan and
if such payments will be placed in
escrow. 15 U.S.C. 1639c(h). This
requirement is in addition to the
identical disclosure required before
settlement that was added to TILA by
section 1414(d) of the Dodd-Frank Act,
which the Bureau proposes to
implement in proposed § 1026.38(l)(5)
pursuant to its authority under TILA
section 105(a), as described above.
Section 1401 of the Dodd-Frank Act
amended TILA section 103 to define
‘‘residential mortgage loan’’ as
essentially closed-end credit
transactions secured by a dwelling or
residential real property with a
dwelling. Specifically, the definition
includes any consumer credit
transaction that is secured by a
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mortgage, deed of trust, or other
equivalent consensual security interest
on a dwelling, or residential real
property that includes a dwelling, other
than a consumer credit transaction
under an open credit plan or, for
purposes of certain sections of TILA,
including TILA section 129C, timeshare
plans described in section 101(53D) of
title 11 of the United States Code. 15
U.S.C. 1602(cc)(5).
On May 20, 2009, the Helping
Families Save Their Homes Act of 2009
was signed into law.188 Section 404(a) of
the Helping Families Save Their Homes
Act of 2009 amended TILA to establish
a new requirement for notifying
consumers of the sale or transfer of their
mortgage loans. The creditor that is the
new owner or assignee of a mortgage
loan must provide the required
disclosures no later than 30 days after
the date on which it acquired the loan.
This provision is contained in TILA
section 131(g), 15 U.S.C. 1641(g), and
applies to any consumer credit
transaction secured by the principal
dwelling of a consumer. The Board
implemented TILA section 131(g) in
Regulation Z § 1026.39.189
Scope of Coverage
The disclosures required by TILA
sections 129C(h) and 131(g) must be
provided in connection with the transfer
or assignment of a mortgage loan
generally. However, the disclosures
apply to different types of mortgage
loans. The requirements in TILA section
131(g) apply to both closed-end credit
transactions and open-end home equity
lines of credit secured by the principal
dwelling of a consumer. But the
requirement of TILA section 129C(h)
applies to closed-end credit secured by
a dwelling or residential real property
with a dwelling, which is broader than
a consumer’s principal dwelling, but
specifically excludes open-end credit.
Further, the TILA section 131(g)
disclosure is specifically required by
statute to be provided no later than 30
days after the date on which a mortgage
loan is sold or otherwise transferred or
assigned to a third party. TILA section
129C(h), on the other hand, simply
provides that a new creditor of an
existing residential mortgage loan must
disclose its partial payment policy at the
time the person becomes a creditor. In
other words, TILA section 129C(h)
requires the disclosure when the person
acquires the loan.
The Bureau believes that combining
the partial payment policy disclosure
required after consummation with the
188 Public
189 75
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FR 58489 (Sept. 24, 2010).
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mortgage loan transfer disclosure
currently required by § 1026.39, and
adjusting the scope of the mortgage loan
transfer disclosure to include credit
transactions secured by all dwellings,
rather than principal dwellings only,
would promote the informed use of
credit by consumers and facilitate
compliance by persons covered by these
requirements. The disclosures regarding
the identity of a consumer’s new
creditor, and the new creditor’s partial
payment policy, would be just as useful
to a consumer whose closed-end credit
transaction is secured by a second or
vacation home as it would to a
consumer whose closed-end loan is
secured by a principal dwelling. In
addition, adjustment of the scope of
§ 1206.39 to include closed-end credit
transactions secured by a dwelling
would eliminate much of the analysis
that covered persons would have to
undertake to determine whether and
which disclosures would be triggered
when a closed-end transaction secured
by a dwelling is transferred.
The Bureau also proposes to adjust
the scope of the current mortgage loan
transfer disclosure to include closedend credit transactions subject to
proposed § 1026.19(f) (i.e., closed-end
transactions secured by real estate other
than reverse mortgage transactions
subject to § 1026.33 of this part), as well
as closed-end transactions secured by a
dwelling. This adjustment would
expand the coverage of the mortgage
loan transfer disclosure, and the postconsummation partial payment policy
disclosure, to the same types of property
covered by the pre-consummation
partial payment policy disclosure,
which includes closed-end transactions
secured by real estate but not a
dwelling. The Bureau believes that
requiring the post-consummation partial
payment policy disclosure for the same
loans as the pre-consummation partial
payment policy disclosure would
promote the informed use of credit,
because consumers who receive the
disclosure before consummation would
be informed if the policy has changed
with the new ownership of the loan. In
addition, the Bureau believes
disclosures regarding the identity of a
consumer’s new creditor, and the new
creditor’s partial payment policy, would
be just as useful to a consumer whose
closed-end consumer credit transaction
is secured by real estate that does not
include a dwelling, or non-residential
real estate, as it would to a consumer
whose closed-end loan is secured by a
dwelling.
This adjustment to the scope does not
exclude reverse mortgage transactions
subject to § 1026.33, as does
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§ 1026.19(f), as such transactions are not
currently excluded from coverage under
§ 1026.39 generally. However, reverse
mortgage transactions do not require
consumers to make regular periodic
payments to the creditor, and thus, the
Bureau proposes to exclude reverse
mortgage transactions subject to
§ 1026.33 from the requirement to
disclose a partial payment policy. The
Bureau believes this exclusion of
reverse mortgage transactions from the
partial payment disclosure is
appropriate and facilitates compliance
with the statute.
In addition, although the scope also
does not contain the specific exclusion
for credit transactions relating to
timeshare plans as described in 11
U.S.C. 101(53D), as defined by section
1401 of the Dodd-Frank Act, that the
definition of ‘‘residential mortgage
loan’’ does under TILA section 103,
such transactions would generally be
covered by proposed § 1026.19(f) as
transactions secured by real estate. The
Bureau believes that a new creditor’s
partial payment policy would be just as
useful to a consumer whose closed-end
credit transaction is secured by a such
a timeshare plan as to a consumer of a
principal-dwelling secured transaction.
The Bureau proposes the
aforementioned adjustments pursuant to
its authority under TILA section 105(a)
to effectuate the purposes of TILA and
Regulation Z and facilitate compliance
with the statute. The Bureau believes
this adjustment effectuates the purposes
of TILA under TILA section 102(a),
because it would ensure meaningful
disclosure of credit terms to consumers
and facilitate compliance with the
statute. In addition, consistent with
section 1032(a) of the Dodd-Frank Act,
this adjustment would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances. Further, the Bureau
proposes this modification of the
disclosure requirements for residential
mortgage loans on its authority under
Dodd-Frank Act section 1405(b), as it
believes the modification may improve
consumer awareness and understanding
of transactions involving residential
mortgage loans through the use of
disclosures, and is in the interest of
consumers and in the public interest.
39(a) Scope
For the reasons discussed above, the
Bureau proposes amendments to
§ 1026.39(a) to expand the coverage of
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the disclosures required when
ownership of a mortgage loan is
transferred to closed-end credit
transactions secured by a dwelling or
real property. The Bureau proposes to
retain the scope for open-end credit
transactions to those secured by the
consumer’s principal dwelling.
The Bureau is not proposing to
change the scope of the term ‘‘covered
person’’ under § 1026.39(a)(1). When the
Board promulgated § 1026.39, it applied
the section to ‘‘covered persons,’’ rather
than ‘‘creditors’’ as defined under TILA
and Regulation Z.190 The Board stated
that Congress did not intend the word
‘‘creditor’’ under section 404(a) of the
Helping Families Save Their Homes Act
of 2009 to have the same meaning as
‘‘creditor’’ under TILA and Regulation
Z.191 The term ‘‘creditor’’ generally
refers to a person to whom the credit
obligation is initially made payable and
that regularly engages in extending
consumer credit. 15 U.S.C. 1602(g); 12
CFR 1026.2(a)(17). However, as
described above, the requirement of
section 404(a) of the Helping Families
Save Their Homes Act of 2009 applies
to a ‘‘creditor that is the new owner or
assignee of the debt.’’ 192 The Board
concluded that ‘‘to give effect to the
legislative purpose, the term ‘creditor’
in Section 404(a) must be construed to
refer to the owner of the debt following
the sale, transfer or assignment, without
regard to whether that party would be
a ‘creditor’ for other purposes under
TILA or Regulation Z.’’ 193 Similar to
section 404(a) of the Helping Families
Save Their Homes Act of 2009, the postconsummation disclosure requirement
of TILA section 129C(h) applies to
persons who become creditors after the
transaction is consummated. The
requirement under TILA section 129C
applies to ‘‘a person becoming a creditor
with respect to an existing residential
mortgage loan.’’ 194 The Bureau believes
that, for the same reasons cited by the
Board in implementing TILA section
131(g), to give effect to the legislative
purpose of section 1414(d) of the DoddFrank Act, the post-consummation
disclosure requirement of TILA section
129C(h) should apply without regard to
whether the person would be a
‘‘creditor’’ under TILA and Regulation
Z.195 For these reasons, the Bureau
proposes to retain the term ‘‘covered
190 Id.
191 Id.
at 58490–1.
Law 111–22, § 404(a); 15 U.S.C.
192 Public
1641(g).
193 75 FR 58489, 58490–1.
194 15 U.S.C. 1639c(h).
195 See 75 FR 58489, 58490–1.
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person’’ under § 1026.39(a)(1) and its
definition.
39(d) Content of Required Disclosure
As discussed above, the Bureau
believes the adjustment to the scope of
§ 1026.39 may promote the informed
use of credit and facilitate compliance
with the statute. The Bureau proposes
amendments to § 1026.39(d) to add the
additional requirement of TILA section
129C(h) to the disclosure required by
that section. Pursuant to its authority
under TILA Section 105(a), the Bureau
proposes to integrate the timing of this
disclosure requirement with the
disclosure required by TILA section
131(g). The Bureau believes that
consumers may be better informed
regarding the transfer of ownership of
their mortgage loans if the required
disclosures integrated the information
applicable to the new creditor into one
single disclosure, rather than consumer
having to receive separate mailings at
different times. In addition, consistent
with section 1032(a) of the Dodd-Frank
Act, the integration of these disclosure
requirements would ensure that the
features of consumer credit transactions
secured by real property are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with the
product or service, in light of the facts
and circumstances.
The Bureau believes this integrated
mortgage transfer disclosure will also
facilitate compliance with the statute.
Covered persons will have to analyze
the timing requirements and scope of
only one transfer disclosure, rather than
two separate disclosures for one transfer
of a mortgage loan. However, because
the partial payment policy disclosure
required by TILA section 129C(h) is not
required for open-end credit
transactions, and the pre-consummation
partial payment policy disclosure as
implemented by proposed
§ 1026.38(l)(5) for loans subject to
proposed § 1026.19(f) is not required for
closed-end credit reverse mortgage
transactions subject to § 1026.33, and for
the aforementioned reasons, the partial
payment policy disclosure requirement
under proposed § 1026.39(d) is not
required for these types of transactions.
The proposed amendments also add
comment 39(d)–2, which clarifies that
the partial payment policy disclosure is
required only for closed-end mortgage
loans secured by a dwelling or real
property, other than reverse mortgage
transactions subject to § 1026.33.
Proposed comment 39(d)(5)–1 clarifies
that covered persons are permitted to
use the format for the disclosure that is
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illustrated in proposed form H–25 of
appendix H to Regulation Z for the
information required to be disclosed by
proposed § 1026.38(l)(5), with
appropriate modifications that do not
affect the substance, clarity, or
meaningful sequence of the disclosure.
Appendix D—Multiple Advance
Construction Loans
Currently, appendix D to Regulation Z
provides guidance concerning the
disclosure of multiple-advance
construction loans, including such loans
that may be permanently financed by
the same creditor. Dodd-Frank Act
section 1032(f) requires that the Bureau
propose rules and forms that combine
the disclosures required under TILA
and RESPA sections 4 and 5 into a
single, integrated disclosure for
mortgage loan transactions covered
under TILA and RESPA. The Bureau
proposes to exercise its authority under
TILA section 105(a) and Dodd-Frank
Act section 1405(b) to amend appendix
D to Regulation Z by revising the
guidance provided in that appendix D to
assist in the integration of these
disclosures. In addition to effectuating
Dodd-Frank Act section 1032(f), the
Bureau believes that these proposed
revisions are necessary and proper to
effectuate the purposes of TILA by
promoting the informed use of credit
because the proposed revisions assist
consumers’ understanding of their legal
obligations to the creditor. In addition,
consistent with section 1405(b) of the
Dodd-Frank Act, these revisions will
improve consumer awareness and
understanding of transactions involving
residential mortgage loans and are
therefore in the interest of consumers
and the public.
Proposed revisions to part II of
appendix D exclude loans that are
subject to § 1026.19(e) and (f) from the
guidance provided under paragraph A.1
of part II, but include those loans in the
guidance provided under paragraph A.2
of part II. Proposed revised comment
app. D–6 clarifies that some home
construction loans that are secured by a
dwelling are subject to § 1026.18(s) and
not § 1026.18(g), with a reference to
proposed comment app. D–7. One
illustration of the application of
appendix D to transactions subject to
§ 1026.18(s) also clarifies that, where
interest is payable on the amount
actually advanced for the time it is
outstanding, the construction phase
must be disclosed pursuant to appendix
D, part II.C.1, and the interest rate and
payment summary table disclosed under
§ 1026.18(s) in such cases must reflect
only the permanent phase of the
transaction.
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Proposed comment app. D–7 clarifies
that some home construction loans that
are secured by real property are subject
to §§ 1026.37(c) and 1026.38(c) and not
§ 1026.18(g). Under § 1026.17(c)(6)(ii),
when a multiple-advance construction
loan may be permanently financed by
the same creditor, the construction
phase and the permanent phase may be
treated as either one transaction or more
than one transaction. Two illustrations
further clarify the application of
appendix D to transactions subject to
§§ 1026.37(c) and 1026.38(c).
The first illustration clarifies that, if a
creditor uses appendix D and elects
pursuant to § 1026.17(c)(6)(ii) to
disclose the construction and
permanent phases as separate
transactions, the construction phase
must be disclosed according to the rules
in §§ 1026.37(c) and 1026.38(c). Under
§§ 1026.37(c) and 1026.38(c), the
creditor must disclose the periodic
payments during the construction phase
in a projected payments table. The
provision in appendix D, part I.A.3,
which allows the creditor to omit the
number and amounts of any interest
payments ‘‘in disclosing the payment
schedule under § 1026.18(g)’’ does not
apply because the transaction is
governed by §§ 1026.37(c) and
1026.38(c) rather than § 1026.18(g). The
creditor determines the amount of the
interest-only payment to be made
during the construction phase using the
assumption in appendix D, part I.A.1.
Also, because the construction phase is
being disclosed as a separate transaction
and its terms do not repay all principal,
the creditor must disclose the
construction phase transaction as a
balloon product, pursuant to
§§ 1026.37(a)(10)(ii)(D) and
1026.38(a)(5)(iii), in addition to
reflecting the balloon payment in the
projected payments table. The second
illustration clarifies that, if the creditor
elects to disclose the construction and
permanent phases as a single
transaction, the repayment schedule
must be disclosed pursuant to appendix
D, part II.C.2. Under appendix D, part
II.C.2, the projected payments table
must reflect the interest-only payments
during the construction phase in a first
column, followed by the appropriate
column(s) reflecting the amortizing
payments for the permanent phase. The
creditor determines the amount of the
interest-only payment to be made
during the construction phase using the
assumption in appendix D, part II.A.1.
Appendix H—Closed-End Forms and
Clauses
The Bureau proposes to add forms H–
24, H–25, H–26, and H–27 to appendix
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H to Regulation Z. Forms H–24 and H–
25 provide blank forms for the Loan
Estimate and Closing Disclosure
illustrating the inclusion or exclusion of
information as required, prohibited, or
applicable under §§ 1026.37 and
1026.38. In addition, form H–24
provides examples of completed Loan
Estimates in whole or in relevant part
for a fixed-rate transaction, an interest
only adjustable-rate transaction, a
refinance with a prepayment penalty, a
loan with a balloon payment, and a loan
with negative amortization. Form H–25
provides examples of completed Closing
Disclosures in whole or in relevant part
for a fixed-rate transaction, a purchase
transaction with funds from a second
loan, a transaction in which a second
loan is satisfied outside of closing,
samples of a refinance transaction, and
examples of the modifications to the
Closing Disclosure permitted pursuant
to proposed § 1026.38(t)(5)(v) through
(viii).
The Bureau proposes forms H–24 and
H–25 pursuant to the authority and for
the reasons described above with
respect to §§ 1026.37(o) and 1026.38(t).
Specifically, the Bureau proposes forms
H–24 and H–25 as standard forms that
are required for transactions that are
subject to proposed § 1026.19(e) and (f)
and are federally related mortgage loans,
as defined in Regulation X. For
transactions that are subject to proposed
§ 1026.19(e) and (f) but are not federally
related mortgage loans, the forms in H–
24 and H–25 are models for compliance
with the applicable requirements of
§§ 1026.19, 1026.37, and 1026.38.196
Transactions subject to § 1026.19(e)
are subject to additional disclosure
requirements under proposed
§ 1026.19(e)(1)(vi), (2)(ii), and (3)(ii)(C).
Form H–26 provides a model for
compliance with the statement required
by proposed § 1026.19(e)(2)(ii) if a
creditor provides a written estimate of
terms or costs specific to a consumer
before the consumer receives the
disclosures required under
§ 1026.19(e)(1)(i) and indicates intent to
proceed with the transaction. Consistent
with § 1026.19(e)(2)(ii), this statement
must be placed at the top of the front of
the first page of the estimate in a font
size that is no smaller than 12-point
font.
Form H–27(A) provides a model for
the written list of settlement service
providers required by proposed
§ 1026.19(e)(1)(vi) and the statement
required by § 1026.19(e)(3)(ii)(C) that
196 For these transactions, the Bureau also
proposes these forms pursuant to its authority to
publish model forms under TILA section 105(b) and
(c).
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the consumer may select a settlement
service provider that is not on the list.
Forms H–27(B) and (C) are samples for
this form. The Bureau proposes forms
H–26 and H–27 pursuant to its authority
to publish model forms under TILA
section 105(b) and (c). The Bureau also
proposes to make conforming
amendments to samples H–13 and H–15
and their associated comments pursuant
to its authority to publish model forms
under TILA section 105(b) and (c).
As noted above, during the Small
Business Review Panel, several small
business representatives requested that
the Bureau provide detailed guidance
on how to complete the integrated
forms, including, as appropriate,
samples of completed forms for a variety
of loan transactions. See Small Business
Review Panel Report at 28. Similar
feedback was also submitted by several
industry trade associations in response
to the Small Business Review Panel
Outline. Based on this feedback and
consistent with the Small Business
Review Panel’s recommendation, the
Bureau has proposed the examples
described above, which of course, have
added significant length to the proposed
rule. The Bureau seeks comment on
whether the number and types of
examples are beneficial to industry or
whether certain examples should be
added to or deleted from the rule,
including sample forms in other
languages, such as Spanish.
The Bureau has also received
feedback from industry stakeholders
during its outreach that samples of a
construction-only transaction and a
transaction with both a construction and
permanent financing phase would be
beneficial to industry. The Bureau has
proposed amendments to appendix D to
Regulation Z and its commentary, as
described above, that relate to such
construction financing and provide
guidance regarding its disclosure on the
Loan Estimate. The Bureau believes the
proposed Forms H–24(C) and (E)
provide the necessary illustration for
such financing, because these samples
contain the interest-only period and
final balloon payment, respectively,
which, as described above, are product
features that would be disclosed in
connection with such construction
financing. The Bureau notes that one
difference for the disclosure of such
financing is that the purpose of the
transaction disclosed under proposed
§§ 1026.37(a)(9) and 1026.38(a)(5)(ii)
would be ‘‘Construction.’’ The Bureau
seeks comment on whether, in light of
the proposed amendments to appendix
D and its commentary, additional
samples for a construction-only or
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construction with permanent financing
would be beneficial to industry.
VII. Section 1022(b)(2) Analysis
In developing the proposed rule, the
Bureau has considered potential
benefits, costs, and impacts, and has
consulted or offered to consult with the
prudential regulators, the Department of
Housing and Urban Development, and
the Federal Trade Commission,
including regarding consistency with
any prudential, market, or systemic
objectives administered by such
agencies.197 The Bureau also held
discussions with or solicited feedback
from the United States Department of
Agriculture Rural Housing Service, the
Farm Credit Administration, the Federal
Housing Administration, the Federal
Housing Finance Agency, and the
Department of Veterans Affairs
regarding the potential impacts of the
proposed rule on those entities’ loan
programs.
The Bureau is proposing to
implement section 1032(f) of the DoddFrank Act by proposing rules and forms
combining the pre-consummation TILA
and RESPA disclosures for loans subject
to either law or to both laws by July 21,
2012. Sections 1098 and 1100A of the
Dodd-Frank Act, which revise RESPA
and TILA, respectively, to mandate the
integrated disclosures, state that the
purposes of the disclosures are to
facilitate compliance with the statutes
and ‘‘to aid the borrower or lessee in
understanding the transaction by
utilizing readily understandable
language to simplify the technical
nature of the disclosures.’’ The Bureau
is also proposing to implement several
new disclosure requirements added to
TILA and RESPA by the Dodd-Frank
Act. In addition, the Bureau is
proposing to revise current regulations
implementing the pre-consummation
disclosure requirements of TILA and
RESPA to improve consumer
understanding of mortgage transactions
and upfront disclosure of loan costs and
terms, consistent with the purposes of
TILA and RESPA.
TILA and RESPA currently require
creditors and settlement agents to give
consumers who take out mortgage loans
different but overlapping disclosure
forms regarding the loan’s terms and
costs. This duplication has long been
197 Specifically, section 1022(b)(2)(A) of the
Dodd-Frank Act calls for the Bureau to consider the
potential benefits and costs of a regulation to
consumers and covered persons, including the
potential reduction of access by consumers to
consumer financial products or services; the impact
on depository institutions and credit unions with
$10 billion or less in total assets as described in
section 1026 of the Dodd-Frank Act; and the impact
on consumers in rural areas.
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recognized as inefficient and confusing
for consumers and industry. Prior to the
creation of the Bureau, the Board and
HUD independently took steps to
address these shortcomings, but neither
agency had the authority to combine the
duplicative disclosures. On July 21,
2011, the Dodd-Frank Act transferred
authority over TILA and RESPA to the
Bureau. As noted above, the Act
specifically directs the Bureau to
combine the TILA and RESPA mortgage
disclosures.
A. Provisions To Be Analyzed
The proposal contains both specific
proposed provisions with regulatory or
commentary language (proposed
provisions) as well as requests for
comment on modifications where
regulatory or commentary language was
not specifically included (additional
proposed modifications). The analysis
below considers the benefits, costs, and
impacts of the following major proposed
provisions and the additional proposed
modifications:
1. The integration of the initial and
closing disclosures (the Loan Estimate
and Closing Disclosure, respectively),
2. The definition of application,
3. The disclaimer on pre-application
written estimates,
4. Permissible changes to settlement
costs and re-disclosure of initial
disclosures,
5. Provision of the Closing Disclosure,
6. Recordkeeping,
7. The definition of the finance
charge, and
8. Implementation of new disclosures
mandated by the Dodd-Frank Act.
With respect to each provision, the
analysis considers the benefits and costs
to consumers and covered persons. The
analysis also addresses certain
alternative provisions that were
considered by the Bureau in the
development of the rule. The Bureau
requests comments and data on the
potential benefits, costs, and impacts of
the proposal.
B. Baseline for Analysis
The analysis examines the benefits,
costs, and impacts of the major
provisions of the proposed rule against
a pre-statutory baseline. To the extent
there are benefits, costs, or other
relevant impacts emanating from the
relevant provisions of the Dodd-Frank
Act, those costs are combined with the
benefits, costs, and impact of the
regulation itself in conducting this
analysis. The Bureau has discretion in
future rulemakings to choose the most
appropriate baseline for that particular
rulemaking.
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C. Coverage of the Proposal
The proposed rule requires provision
of the integrated disclosures for closedend consumer credit transactions
secured by real property, other than a
reverse mortgage subject to § 1026.33.
As discussed in part VI above, sectionby-section analysis for proposed
§ 1026.19, the Dodd-Frank Act generally
directs the Bureau to establish an
integrated disclosure for ‘‘mortgage loan
transactions’’ that are ‘‘subject to both or
either provisions of’’ RESPA sections 4
and 5 and TILA. However, TILA and
RESPA differ in the types of
transactions to which their respective
disclosure requirements apply. The
proposed scope of the integrated
disclosure provisions reconciles these
differences, recognizing that certain
transaction types may be inappropriate
for the integrated disclosure.
Notably, the integrated disclosure
provisions of the proposed rule do not
apply to reverse mortgages and HELOCs,
which are within the statutory scope of
TILA and RESPA, because those
transactions are fundamentally different
from other types of mortgage credit. The
integrated disclosure provisions also do
not apply to dwellings that are not
secured by real property, which are
subject to TILA but not RESPA, nor to
creditors that originate fewer than five
loans in a year, who are subject to
RESPA but not TILA. The integrated
disclosure provisions do, however,
apply to construction-only loans,
vacant-land loans, and loans secured by
more than 25 acres, although these
transactions are currently exempt from
RESPA coverage, because the Bureau
believes that excluding these
transactions would deprive consumers
of the benefit of enhanced disclosures.
The proposed revisions to the definition
of finance charge, discussed below and
in part VI, section-by-section analysis
for § 1026.4, apply to all closed-end
credit transactions secured by real
property or a dwelling.
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D. Potential Benefits and Costs to
Consumers and Covered Persons
1. Integrated Initial and Closing
Disclosures
The proposed rule requires that the
Loan Estimate be provided to consumers
within three business days after receipt
of the consumer’s application, to replace
the early TILA disclosure and RESPA
GFE, and that the Closing Disclosure be
provided to consumers at least three
business days prior to consummation, to
replace the final TILA disclosure and
RESPA settlement statement. As
discussed above, TILA authorizes the
Bureau to publish model forms for the
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TILA disclosures, while RESPA
authorizes the Bureau to require the use
of standard forms (e.g., the prescribed
RESPA GFE and settlement statement
forms). Accordingly, the Bureau is
proposing to require the use of standard
Loan Estimate and Closing Disclosure
forms for mortgage loan transactions
that are subject to RESPA, other than
reverse mortgages. For transactions that
are subject only to TILA, however, the
forms would be model disclosures,
consistent with the provisions of that
statute. The proposed rule also
incorporates prior informal guidance
regarding compliance with HUD’s 2008
Final RESPA Rule into Regulation Z and
official commentary, as necessary and
appropriate.
In considering the benefits and costs
of the Loan Estimate and Closing
Disclosure, the Bureau notes that the
costs associated with the proposal
would likely be one-time costs
associated with adjusting to the new
requirements while the benefits would
persist over time. Some of the benefits—
the benefits to consumers of reduced
mortgage costs—may actually grow over
time as more consumers pay off existing
mortgages and take out new mortgages.
The Bureau believes that because the
proposed disclosures would likely lead
to consumers making more informed
choices, some of them would obtain
mortgages that were lower cost than, or
in some other way preferable to, the
mortgages they would obtain otherwise.
In particular, if consumers do obtain
mortgages at a lower cost, these benefits
accrue over time; as more borrowers
take out loans with the new disclosures,
the share of all mortgage borrowers
receiving these benefits would grow.
a. Benefits to Consumers
i. The Loan Estimate. The integration
of the early TILA disclosure and the
RESPA GFE into the Loan Estimate
would have several benefits to
consumers. The Bureau believes that the
Loan Estimate would facilitate
consumer understanding of the loan
terms and closing costs of possible
loans. The Loan Estimate would also
make it easier for consumers to compare
different loans, either different products
from a single creditor or loans from
different creditors. In addition, the
harmonization of the Loan Estimate and
Closing Disclosure forms would make it
easier for consumers to compare the
estimated information they initially
receive from creditors with the actual
costs of the loan. The benefits of this
third effect are discussed below, in the
section on the benefits of the Closing
Disclosure.
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The Loan Estimate would make it
easier for consumers to understand their
loan in several ways. First, the Loan
Estimate would make it easier for
consumers to understand the loan terms
and closing costs of potential loans. The
Loan Estimate emphasizes information
that is important to consumer
understanding of the mortgage
transaction, and deemphasizes
information that is either confusing or
unhelpful to consumers, such as the
APR, which current TILA disclosures
focus on as a measure of the cost of
credit. As discussed in part VI above,
section-by-section analysis for proposed
§ 1026.37(l), research conducted by the
Board and HUD, as well as consumer
testing conducted by the Board and
Bureau, indicate that consumers do not
understand the APR or how to use it
when comparing loans and often
confuse the APR with the loan’s interest
rate. Instead, the Bureau’s testing
indicates that consumers focus on other
information that is less prominently
disclosed on current Federal disclosures
than the APR, or that is not required on
current Federal disclosures. See Macro
2009 Closed-End Report at iv–v.
Accordingly, the Bureau developed the
proposed Loan Estimate to prioritize
and clearly display the information that
consumers readily understand and is
most important to them in
understanding the loan and the
underlying transaction, such as the
interest rate, monthly payment amount,
and settlement costs. The design
displays this key information in a
manner that enables consumers to locate
it quickly on the form by using highly
visible headings and labels and limiting
the amount of text on the form. Based
on the results of its consumer testing
and outreach, described in part III above
and in the Kleimann Testing Report, the
Bureau believes the Loan Estimate is
easier for consumers to use and
understand.
The Loan Estimate may also make it
easier for consumers to understand the
risks associated with a loan because the
form emphasizes risk factors that are
either less prominently disclosed or are
not found on current Federal
disclosures. For example, the first page
of the Loan Estimate clearly discloses
whether a loan will or may experience
future changes to the interest rate,
monthly payment amount, or to the
loan’s principal balance as a result of
negative amortization, by using simple
text and highly visible capitalized type
in a bold font to indicate the possibility
of such changes. These disclosures
would help reduce the likelihood that
consumers will experience payment
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shock due to future payment changes. In
addition, unlike current Federal forms,
the Loan Estimate prominently discloses
total monthly payment amounts,
including estimated amounts for taxes,
insurance, and assessments, whether or
not an escrow account would be
established for the payment of such
amounts. This disclosure would make it
easier for consumers to consider the
loan and underlying real estate
transaction’s overall affordability, as
compared to current Federal forms.
The integration of the forms would
also reduce the sheer volume of paper
that consumers receive, mitigating
‘‘information overload’’ and making it
easier for consumers to identify
important information. With the current
Federal disclosures, consumers need to
work through four separate forms to
compare two loan products, which
amount to a total of ten pages. But with
the Loan Estimate, consumers need to
work with only two forms to compare
two loan products, and only six total
pages. In addition, because the format of
the Loan Estimate prioritizes the
information that consumers actually use
to understand and compare loans,
placing it on the first page, consumers
could potentially compare two loans
using only the first page of the Loan
Estimate for each. The Bureau therefore
believes that the Loan Estimate would
be substantially more understandable
for consumers than the current TILA
disclosure and RESPA GFE and would
enable consumers to make more
informed choices when they are
considering a mortgage.
Better understanding of closing costs
and loan terms would benefit
consumers in several ways. It would
help consumers to make better decisions
about whether to take out a loan at all,
which type of loan to take out, and
which creditor to borrow from. Some
consumers, such as those who may
benefit slightly from refinancing or for
whom whether to rent or buy is a
difficult decision, will be close to the
margin of taking out a loan or not taking
out a loan. Improved understanding of
the costs of borrowing will allow those
consumers to make a more informed
decision about whether to borrow.
For consumers that are borrowing, a
better understanding of closing costs
and loan terms will enable them to
better pick the loan product that suits
their needs and circumstances. It may
also enable consumers to identify loans
with features that are only suitable for
some consumers, such as negative
amortization or balloon payments, and
evaluate whether those features make
sense for them. The Bureau is concerned
that, prior to the mortgage crisis, some
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consumers entered into loans with such
features when they were not suited to
them because they were unaware of
such features or the risk they posed.
The forms may also facilitate
shopping amongst loan offers and
creditors, affecting both the evaluation
of different offers and the number of
offers consumers obtain. Existing
research suggests that consumers
arguably do not shop extensively when
selecting a mortgage. Surveys of
mortgage borrowers suggest that roughly
20–30 percent of borrowers contact one
creditor and a similar fraction consider
only two creditors.198
Further, available evidence indicates
that some mortgage borrowers may have
difficulty understanding or at least
recalling details of their mortgage,
particularly the terms and features of
adjustable-rate mortgages.199 Making the
terms of a given loan easier to
understand would make it easier for
consumers to compare loans. As noted
above, the Loan Estimate prioritizes on
the first page the information that
consumers generally use to compare
loans (e.g., interest rate, monthly
payment, and closing costs). As
discussed in part III, above, the Bureau
conducted extensive qualitative
consumer testing of the Loan Estimate to
ensure that forms enable consumers to
understand and compare the terms and
costs of various loans. During the testing
process, consumers were able to use the
form to compare loans and select the
loan that best met their preferences (e.g.,
a fixed rate or lower closing costs). In
addition, Regulation Z currently uses
model forms and language, not standard
forms and language, so it does not
ensure that consumers are presented
information about loan terms and costs
in the same way across multiple loans
and multiple creditors. The proposed
regulation would require that all
creditors use a standard format for
transactions that are subject to RESPA,
which the Bureau understands to be the
majority of mortgage transactions,
making comparisons easier.
Making it easier for consumers to
compare products may have two effects.
It may make shopping more effective,
198 Jinkook Lee and Jeanne M. Hogarth, Consumer
Information Search for Home Mortgages: Who,
What, How Much, and What Else?, Fin. Services
Rev. 9, 277–293 (2000), available at https://www2.
stetson.edu/fsr/abstracts/vol_9_num3_p277.pdf; see
also Lacko and Pappalardo, Improving Consumer
Mortgage Disclosure, available at https://www.ftc.
gov/os/2007/06/P025505MortgageDisclosureReport.
pdf.
199 See Bucks and Pence, Do Homeowners Know
Their House Values and Mortgage Terms, available
at https://www.federalreserve.gov/Pubs/feds/2006/
200603/200603pap.pdf; see also Lacko and
Pappalardo.
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leading consumers to make better
choices for themselves amongst a given
set of loans. It may also lead to more
shopping, because the task of comparing
loans is simpler. The estimated benefits
of shopping for mortgages and for
settlement services are substantial. Hall
and Woodward estimate that the
borrowers who obtain loans through
mortgage brokers could save roughly
$1,000 on the transaction through
additional search.200
In addition to providing consumers
with clear information about important
loan terms and closing costs, the Loan
Estimate makes clear to consumers
which settlement services they can shop
for. To the extent that consumers use
this information to shop for some
settlement services, they may identify
service providers that offer better prices
or better suit their needs than settlement
service providers selected by the
creditor. In a recently released study of
title services and title insurance based
on RESPA settlement statements for
FHA loans, HUD and the Urban Institute
estimate that borrowers in some
jurisdictions could save several hundred
dollars if they searched for title services
and title insurance.201
ii. The Closing Disclosure. The Bureau
believes that the integration of the final
TILA disclosure and the RESPA
settlement statement would benefit
consumers by allowing them to better
understand the actual terms of their
loan and the other costs of the loan
transaction. As with the Loan Estimate,
the Bureau developed the integrated
Closing Disclosure through several
rounds of form design and testing.
The Bureau believes that the Closing
Disclosure is more understandable for
consumers than the current TILA
disclosure and RESPA settlement
statement and, as described below, the
proposal would include a requirement
that the Closing Disclosure be provided
to consumers three business days prior
to closing, giving consumers time to
review the Closing Disclosure.
200 Hall and Woodward, Diagnosing Consumer
Confusion and Sub-Optimal Shopping Effort:
Theory and Mortgage-Market Evidence (2012),
available at https://www.stanford.edu/∼rehall/
DiagnosingConsumerConfusionJune2012. In the
data used in the paper, yield spread premiums are
common. As a result, the results may overstate
some of the current savings from changes in
shopping behavior. However, these results only
include settlement charges retained by the broker
and therefore any savings on other charges are
additive to these.
201 U.S. Department of Housing and Urban
Development and The Urban Institute, What
Explains Variation in Title Charges? A Study of Five
Large Markets (2012) (HUD Title Charge Study),
available at https://www.huduser.org/portal/
publications/hsgfin/title_charges_2012.html.
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The Bureau also believes the Closing
Disclosure would improve the ability of
consumers to compare the terms and
costs on the Loan Estimate with the
actual loan terms and closing costs. The
Bureau designed the Loan Estimate and
Closing Disclosure to work together; the
two forms use consistent formatting and
language to facilitate consumers’ ability
to identify any changes that occurred
during the underwriting process. For
example, the first page of the Loan
Estimate, where key loan terms are
disclosed to consumers, is nearly
identical to the first page of the Closing
Disclosure, and the first page of the
Closing Disclosure specifically directs
consumers to compare the two forms.
The second page of the Loan Estimate
and Closing Disclosure also use the
same order and groupings of costs,
making it easier for consumers to
identify changes. At the Bureau’s
consumer testing, consumers were able
to use the second pages of the Loan
Estimate and Closing Disclosure
together to identify changes in
individual costs, often placing the forms
side by side, which was enabled by the
matching order and groupings. In
addition, page three of the Closing
Disclosure contains a table that
identifies categories of costs that
changed from the time the Loan
Estimate was issued to the time of
issuance of the Closing Disclosure. The
Bureau believes these features would
improve consumers’ ability to
understand their actual loan terms and
costs, and compare early and final
disclosures and identify changes in loan
terms, which may better enable
consumers to recognize and question
changes in settlement costs or loan
terms from the Loan Estimate. This may
encourage all creditors to take care to
ensure that Loan Estimates are accurate
and may discourage unscrupulous
creditors from attempting to ‘‘bait and
switch’’ consumers with initial Loan
Estimates that have better loan terms or
lower settlement costs than the final
transaction.
b. Magnitude of the Benefits to
Consumers of the Revised Disclosures
Quantifying the magnitude of the
benefits of the new Loan Estimate or
Closing Disclosure would be very
challenging. With regard to the Loan
Estimate, important factors in the
magnitude of the benefits to consumers
would include: (1) How many
consumers avoid loans that do not suit
their needs; (2) how much more
consumers shop; (3) how much more
effective that shopping would be; and
(4) how those changes in behavior
would translate into changes in the
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overall market for mortgage loans. The
Bureau is unaware of data that would
make possible reliable estimates of these
effects. There is some evidence showing
that slight increases in shopping—just
contacting one more creditor or loan
originator—can lead to substantial
savings for a consumer. See Hall and
Woodward. This evidence is based on
market conditions with current
consumer shopping behavior, however,
so it is difficult to project to the effects
of shopping if many consumers shopped
more.
Similarly, quantifying the magnitude
of the benefits of the integrated Closing
Disclosure would also be very
challenging. The Bureau is unaware of
any data that can provide reliable
market-wide estimates of the prevalence
of changes between early TILA
disclosures and RESPA GFEs and final
loan terms and closing costs. As
described below, however, the Bureau
may obtain a substantial sample of these
forms from several lenders prior to
finalizing the proposal. This would
provide the Bureau with better
information about this phenomenon.
Other important factors affecting the
consumer benefits of improved final
disclosures include how much the
Closing Disclosure would affect whether
consumers recognize those changes or
how they react to them and the effects
on creditors’ and settlement service
providers’ behavior.
Despite the challenges to quantifying
the benefits of the Loan Estimate or
Closing Disclosure, simple hypothetical
calculations demonstrate that, because
the mortgage market is so large, even
very small effects on improving
consumers’ ability to make informed
decisions or small effects on prices from
greater shopping would lead to large
savings for consumers. For example, if
the new disclosures only affect ten
percent of consumers, and only lower
their interest rates by .125% (1⁄8 of a
percentage point, the smallest typical
unit of price difference in the mortgage
market), this would lead to an annual
savings of $1,250,000,000 for mortgage
borrowers if all mortgages were
originated with the proposed
disclosures and total outstanding
mortgage balances were to remain at
their current level of roughly $10
trillion. If consumers were to benefit
from a reduction in costs like this, some
of the savings would come from reduced
profits to creditors and brokers, as
creditors and brokers receive lower
prices from better-informed consumers,
while other savings would come from a
shift of business from less efficient to
more efficient creditors and brokers.
The reallocation to more efficient
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creditors and brokers that can originate
loans at lower cost represents a savings
to society in terms of the total resources
used to originate loans.
A similar hypothetical can illustrate
the potential effects of the improved
ability of consumers to better
understand closing costs. Bankrate.com
collects information on average closing
costs, as estimated on creditor RESPA
GFEs, by State, for a $200,000 mortgage.
It shows that average closing costs on
such a mortgage, including lender fees,
vary from roughly $2,300 to roughly
$5,000. Taking average closing costs of
$3,000, for example, if a consumer was
able to use the Loan Estimate to shop
more effectively for loans that came
with lower closing costs or to shop for
the various settlement services
themselves and thereby obtain a loan
with closing costs five percent lower,
this would translate into savings of
$150. This assumption seems
reasonable, given the HUD and Urban
Institute estimates that borrowers in
some jurisdictions could save several
hundred dollars by shopping for these
services. See HUD Title Charge Study.
The most recent year for which detailed
mortgage origination information is
available is 2010. The Bureau estimates
that there were a total of about
8,000,000 mortgages originated that
year. If ten percent of consumers saved
$150 each, it would translate into
roughly $120,000,000 per year. As with
any savings on loan costs, these savings
would come from a mix of reduced
profits to settlement service providers
and from shifting demand from less
efficient to more efficient providers.
c. Costs to Consumers
The Bureau does not believe that
adoption of the integrated Loan Estimate
or Closing Disclosure would impose any
direct costs on consumers. Consumers
may bear some costs of the disclosures
if lenders or loan originators pass
through some or all of the costs that
would be imposed on them by the
proposal. However, the Bureau
estimates that any increased cost per
origination would be small and that,
after one-time costs are absorbed, the
proposal would likely reduce the cost
per origination. Therefore, the Bureau
does not anticipate any material adverse
effect on credit access in the long or
short term. Over the longer term, the
rule could increase credit access if the
expected cost savings materialize and
competition forces lenders to pass the
savings to consumers.
Requiring the use of standard Loan
Estimate and Closing Disclosure forms
has the potential to impose costs on
some consumers if it supplants forms
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that are currently in use by creditors or
mortgage brokers that are more effective
at conveying information to consumers
than the proposed forms, or if the
requirement to use the forms prevents
the development of more effective
forms. The Bureau does not believe that
there is a substantial risk of this
occurring. Current Regulation X
prescribes a standard form for the
RESPA GFE and settlement statement.
Although Regulation Z provides model
forms and language rather than standard
forms, the Bureau understands that
many creditors do not provide
disclosures that differ significantly from
the model forms and language in
Regulation Z due to the complexity of
the Regulation Z disclosure
requirements and the safe harbor
provision in TILA section 105(b).
Therefore, creditors are limited in their
ability to develop forms that are
substantially better at conveying
information to consumers. The Bureau
is unaware of any efforts by creditors of
the scale undertaken by the Bureau to
develop and test disclosures. And
creditors that do believe that they can
communicate loan terms or other
important information more effectively
than the required forms would not be
prevented from doing so, so long as they
also provide the required forms and
communicate that information
separately from the required forms.
d. Benefits to Covered Persons
The integration of the early TILA
disclosure and the RESPA GFE, and the
revised TILA disclosure and the RESPA
settlement statement, may benefit
creditors, mortgage brokers, and
settlement agents that provide the
disclosures. It will reduce the number of
disclosures that covered persons need to
prepare and provide and the number of
disclosure-provision systems and
processes that covered persons need to
maintain. In addition, the three-page
Loan Estimate would replace a threepage RESPA GFE, a two-page early TILA
disclosure, a one-page appraisal
notification provided under ECOA
section 701(e), and a one-page servicing
disclosure provided under RESPA
section 6, as well as incorporating other
new disclosure requirements in the
Dodd-Frank Act that might otherwise be
provided as separate documents.
Most small entities that participated
in the Small Business Review Panel
process stated that the integrated forms
would make it easier to explain
transactions to consumers. One letter
from several small entity settlement
agents indicated that the new forms
could actually lead to more questions
during a closing; however, the Bureau is
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alternatively proposing and soliciting
comment on removing from the
integrated forms certain disclosures,
such as the total interest percentage and
cost of funds, which may be difficult to
explain to consumers. Information
submitted by several settlement agents
indicates that requiring the use of
standard forms and providing clearer
regulatory guidance could save as much
as 30 minutes per closing by
standardizing practices across lenders
and reducing confusion. Based on
industry estimates, the typical hourly
wage of a settlement agent is $31 per
hour; therefore, this translates into a
dollar savings from the simplified
closing forms of $16.50 per closing.
Some portion of these savings would
likely be passed on to the consumers.
The integrated disclosures also permit
creditors to consolidate certain
numerical calculations. For example,
Regulations Z and X currently require
two different calculations for the
disclosure of monthly payment
information on the early TILA
disclosure and the RESPA GFE. The
integrated Loan Estimate consolidates
these calculations into one monthly
payment disclosure, which may
facilitate compliance and ease burden
on covered persons. Other examples of
overlapping but potentially different
numerical disclosures required under
Regulations Z and X include
information about balloon payments
and prepayment penalties.
e. Costs to Covered Persons
As just described, the Bureau believes
that the ongoing costs of compliance
with the proposed disclosure
requirements would likely be equal to or
less than current ongoing compliance
costs. The integrated Loan Estimate and
the Closing Disclosure, however, would
result in certain one-time costs to revise
software and compliance systems. The
Bureau believes that many of the costs
of complying with these requirements
would be common across the two
disclosures, and therefore discusses
them together here. Under the proposal,
responsibility for delivering the Loan
Estimate would lie with the creditor.
The Bureau believes that in some
circumstances the Loan Estimate may be
delivered by a mortgage broker acting on
behalf of the creditor, as is currently the
case with the RESPA GFE. The Bureau
believes the costs would be similar for
Loan Estimates delivered by brokers,
and the estimates presented here are
based on the assumption that the
creditor delivers the Loan Estimate. The
Bureau is proposing two alternatives for
the provision of the Closing Disclosure.
Under the first alternative, the creditor
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would be solely responsible for
providing the disclosure to the
consumer. Under the second alternative,
the creditor and the settlement agent
would be jointly responsible. For the
purposes of this analysis, the Bureau is
assuming that the creditor will bear the
costs of revising software and
compliance systems. If, instead,
settlement agents bore those costs, the
costs would likely be similar, although
borne by different parties.202 The
Bureau requests comment on this
approach to estimating costs, including
whether mortgage brokers and
settlement agents would incur costs that
are substantially different from those
incurred by creditors if they were
responsible for providing the
disclosures.
Creditors would need to adapt their
software and compliance systems to
produce the new forms. In addition to
changing the format of the required
forms, the new proposed forms would
include numerous new disclosures that
are required by the Dodd-Frank Act. The
Bureau believes that this additional
information would be added to the
forms as part of the process of adapting
software and compliance systems to
produce the new forms, and therefore
does not provide separate estimates for
the costs of this additional information.
Based on information provided by
creditors and by software vendors, the
Bureau believes that, in general, larger
creditors develop and maintain their
own compliance software and systems,
while smaller creditors primarily rely
on software and compliance systems
provided by outside vendors. Based on
industry feedback, the Bureau believes
that roughly the top 20 mortgage
originators maintain their own systems,
while 95 percent of smaller creditors
(those outside the top 50) rely on
vendors.
Mid-size creditors (those roughly
ranked between 20 and 50 in origination
volume) are served by a range of
vendors, and in some cases have
202 As described below, two major vendors
currently provide software services to the vast
majority of small mortgage originators to produce
the RESPA GFE and initial TILA disclosures.
RESPA settlement statements are currently issued
by settlement agents using software provided by a
different, but similarly small, set of vendors;
however, the Bureau understands that the
originators’ systems are capable of producing the
RESPA settlement statements. As a result, the
Bureau believes that it is reasonable to measure
costs assuming that the originators’ vendors will
provide both the Loan Estimate and the Closing
Disclosure to their clients under existing contracts.
Were the current software providers for settlement
agents to have to update their systems (under the
second alternative or under other contractual
arrangements), those vendors would have to incur
the stated costs.
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customized systems provided by these
vendors. For the purposes of this
analysis, the Bureau treats all creditors
outside the top 20 the same.
The use of vendors by smaller
creditors will substantially mitigate the
costs of revising software and
compliance systems, as the efforts of a
single vendor would address the needs
of a large number of creditors. There are
two primary vendors of this software to
mortgage creditors outside the top 50.
Based on discussions with vendors that
provide software and compliance
systems to mortgage lenders, the Bureau
estimates that each of these vendors
would spend roughly $500,000 to
$2,000,000 to determine what changes
need to be made to come into
compliance and to update the software
that they provide to creditors. Based on
discussions with a leading origination
technology provider, the Bureau
believes that these updates, however,
would likely be included in regular
annual updates, and therefore the costs
would not be directly passed on to the
client creditors.203 As many as 95
percent of creditors outside the top 20,
therefore, would not pay directly for
software updates to comply with the
new rules.
Based on estimates from small entities
that participated in the Small Business
Review Panel process, the Bureau
estimates that the small fraction of
smaller creditors that maintain their
own compliance software and systems
would incur costs of roughly $100,000
to update their systems to comply with
the proposal. Firms are expected to
amortize this cost over a period of years.
In this analysis, all costs are amortized
over five years, using a simple straightline amortization. Thus, about five
percent of smaller creditors are expected
to incur a cost of $20,000 per year. The
Bureau estimates that there were a total
of 14,374 banks, savings institutions,
credit unions, and mortgage companies
that originated mortgages in 2010,204 the
most recent year for which complete
data are available, for a total of 14,354
outside the top 20.205 The total one-time
cost for the roughly five percent of
smaller creditors that maintain their
own compliance software and systems
203 Note that the vendors themselves are not
covered persons.
204 As discussed above, this analysis assumes that
the creditor, rather than a mortgage broker, delivers
the Loan Estimate and that the creditor also delivers
the Closing Disclosure, rather than sharing
responsibility for delivery with a settlement agent.
Accordingly, the Bureau excludes mortgage brokers
and settlement agents from this calculation.
205 Creditors and originator estimates based on
analysis of HMDA, SNL Call Reports, NCUA Call
Reports, and NMLS Call Reports. See part VIII
below for additional details.
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is therefore $100,000 * 14,354 * 5% =
$71,800,000 (rounded to the nearest
$100,000). Amortized over five years,
the estimated total annual cost for this
small fraction of small creditors to
update compliance systems is about
$14,360,000 for all small creditors
combined.
The largest 20 mortgage creditors
would need to revise their compliance
software and systems. Based on
information from conversations with
large creditors and with software
vendors, the costs to these creditors of
updating compliance software and
systems would vary considerably with
the size and complexity of the
institution. The Bureau estimates that
on average the cost per creditor for this
category of creditor would be
$1,000,000, for a total of $20,000,000.
Amortized over five years, the estimated
annual cost for large creditors to update
compliance systems is $4,000,000 for
the largest 20 mortgage creditors
combined.
Covered persons would incur onetime costs associated with training
employees to use new forms and any
new compliance software and systems.
The Bureau estimates that each loan
officer or other loan originator will need
to receive two hours of training, and
that one trainer could train ten loan
officers at a time, for an additional one
hour of trainer time per ten hours of
trainee time. The Bureau estimates that
there are approximately 83,000 loan
officers and other originators that would
need training. Based on data from the
Bureau of Labor Statistics, the Bureau
estimates that the average total
compensation is $46 per hour for a loan
officer and $39 per hour for a trainer, for
a total training cost of (83,000 * 2 * $46)
+ (8,300 * 2 * $39) = $8,300,000
(rounded to the nearest $100,000).
Amortized over five years, this is an
annual cost of $1,660,000 for all
mortgage creditors combined.
Taken together, the Bureau estimates
that the total one-time costs of
complying with the proposed Loan
Estimate and Closing Disclosure would
be roughly $100,100,000. Amortized
over five years, this is an annual cost of
$20,020,000 for all mortgage creditors
combined. For additional perspective,
there were approximately 8,000,000
mortgage originations in 2010. The
estimated one-time cost, annualized
using a five-year amortization, is
therefore less than three dollars per
origination. Note that these costs would
not recur, and the Bureau expects that
ongoing costs would be equal to or less
than current compliance costs.
The proposed rule also requires
itemization of certain settlement charges
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that are not permitted to be itemized on
the current RESPA GFE and settlement
statement forms, which may lead to
increased costs for covered persons. In
its 2008 RESPA Final Rule, HUD
predicted that removing itemization
from the disclosures would relieve
creditors from preparing lengthy lists of
fees and addressing consumer questions
about such fees. 73 FR at 68276.
However, the Bureau understands that
creditors and settlement agents often
provide this itemization on separate
disclosures currently to comply with
State law or investor requirements,
which mitigates any increased costs
associated with itemization.
2. Definition of Loan Application
The proposed rule revises the
regulatory definition of loan application
to encourage earlier provision of the
Loan Estimate to consumers.
Under TILA and RESPA, a creditor or
mortgage broker is not required to
provide the good faith estimates of loan
terms and settlement costs in the early
TILA disclosure and RESPA GFE until
it has received an ‘‘application.’’ As
discussed more fully in part VI above,
section-by-section analysis for proposed
§ 1026.2(a)(3), under current
regulations, the receipt of the following
information by the creditor or mortgage
broker constitutes receipt of an
‘‘application’’: (1) Borrower’s name; (2)
monthly income; (3) social security
number to obtain a credit report; (4) the
property address; (5) an estimate of the
value of the property; (6) loan amount
sought; and (7) any other information
deemed necessary by the lender. The
seventh item could allow creditors and
mortgage brokers to delay providing the
integrated Loan Estimate until relatively
late in the loan process by delaying
collection of information deemed
‘‘necessary.’’ The Bureau understands
that some creditors currently provide
non-binding written estimates of loan
terms or settlement charges prior to
issuing the early TILA disclosure or
RESPA GFE. The current rules
encourage creditors and mortgage
brokers to provide the good faith
estimates early in the loan process by
prohibiting creditors from collecting any
fees from a consumer (other than a
credit report fee) until the estimates are
provided. To further encourage early
provision of estimates, the proposed
rule removes the seventh item (‘‘any
other information deemed necessary by
the lender’’) from the definition of
‘‘application.’’
a. Benefits to Consumers
The Bureau believes that the proposed
rule may benefit consumers by ensuring
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that consumers receive Loan Estimates
early enough in the lending process to
use them in shopping for their loan.
Removing the seventh item may allow
consumers to receive Loan Estimates
that are subject to the limitations on
increases discussed above with respect
to proposed § 1026.19(e)(3) earlier in the
lending process, whereas today
consumers may receive only informal
estimates that are not subject to those
protections. Improved consumer
shopping for mortgages may result in
lower costs to consumers. As described
above, the Bureau cannot estimate the
magnitude of the benefits of improved
shopping, but believes that they could
be very large. The Bureau also believes
that the Loan Estimate is a better
shopping tool for consumers than
informal estimates provided to
consumers prior to receipt of the
consumers’ application, both because it
was developed through an extensive
testing and design process and because
certain costs disclosed in the Loan
Estimate are subject to limitations on
increases, described below. The Bureau
believes that lenders will be able to
provide reliable estimates based on the
six items that together would constitute
an application under the proposal and
that, by receiving more reliable cost
estimates earlier in the mortgage lending
process, consumers would be less
frequently surprised by increases in
costs near the time of closing. However,
the Bureau seeks input and information
on whether the proposed change to the
definition of application would result in
less accurate estimates, or in more
frequent re-disclosures that could cause
consumer confusion.
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b. Costs to Consumers
The Bureau does not believe that
eliminating the seventh item in the
definition of application would lead to
costs to consumers beyond any costs
that are passed through to consumers by
creditors or loan originators.
c. Costs to Covered Persons
The Bureau understands that
eliminating creditors’ and mortgage
brokers’ ability to wait to provide a good
faith estimate until after they receive
‘‘any other information deemed
necessary’’ could increase the burden on
creditors and mortgage brokers to the
extent that it causes them to issue more
Loan Estimates than they would under
the current definition of application. If
a creditor or mortgage broker obtains
additional information from the
consumer after the Loan Estimate has
been issued that affects the costs of the
settlement service for the loan, the
creditor may need to issue a revised
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Loan Estimate. The Bureau is unaware
of information that would allow it to
estimate how often this would occur.
The Bureau believes, however, if this
were to impose substantial costs,
creditors and mortgage brokers would
mitigate this by adjusting their business
practices surrounding the receipt of
applications to gather other important
information prior to, or at the same time
as, they obtain the six items that
together constitute an ‘‘application.’’ As
discussed in section F, below, the
Bureau is working to obtain such data
prior to issuing a final rule and is
seeking comment on its plans for data
analysis, as well as additional data and
comment relevant to this issue.
In developing the proposed rule, the
Bureau also considered removing
additional items from the regulatory
definition of ‘‘application.’’ However,
the Bureau does not believe the other
items in the current definition of
application raise similar concerns
regarding creditors’ ability to delay
provision of the early disclosures.
Furthermore, the Bureau believes that
many or all of the six items may be
necessary for a creditor to provide
reliable estimates in many
circumstances.
3. Disclaimer on Pre-Application
Estimates
The Bureau is proposing to require
that any pre-application, consumerspecific written estimate of loan terms
or settlement charges contain a
prominent disclaimer indicating that the
document is not the Loan Estimate
required by TILA and RESPA. This
requirement would not apply to general
advertisements.
a. Benefits to Consumers
The Bureau believes that the
disclaimer may benefit consumers by
clearly distinguishing disclosures that
are subject to TILA and RESPA
protections from those that are not.
b. Costs to Consumers
This new disclosure requirement
could impose costs on consumers, in the
form of reduced information about
mortgage loan options, if it makes
creditors or mortgage brokers less
willing to provide written preapplication estimates of loan terms. The
Bureau believes, however, that any such
effect on creditors or mortgage brokers
would be small or non-existent,
especially when they are acting in good
faith.
c. Costs to Covered Persons
To the extent covered persons
currently provide such pre-application
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written estimates to consumers they
would bear the costs of adding a
disclaimer to those communications.
However, the Bureau expects such costs
to be de minimis since the Bureau is
proposing a brief, standard statement for
use by creditors, which should not
require significant redesign of existing
estimate materials or require additional
pages.
4. Changes in Settlement Costs/
Redisclosures
The proposed rule revises current
rules regarding the circumstances in
which a consumer may be charged more
at closing for settlement services than
the creditor estimated in the disclosure
provided to the consumer three business
days after application.
As discussed more fully in part VI,
section-by-section analysis for proposed
§ 1026.19(e)(3), HUD’s 2008 RESPA
Final Rule limits the circumstances in
which a creditor can charge the
consumer more at consummation for
settlement services than the creditor
estimated in the RESPA GFE provided
to the consumer three business days
after application. These rules generally
place charges into three categories: The
creditor’s charges for its own services,
which cannot exceed the creditor’s
estimates unless an exception applies
(‘‘zero tolerance’’); charges for
settlement services provided by third
parties, which cannot exceed estimated
amounts by more than ten percent
unless an exception applies (‘‘ten
percent tolerance’’); and other charges
that are not subject to any limitation on
increases (‘‘no tolerance’’). The rule
permits certain limited exceptions in
which higher charges are permitted,
such as when the consumer requests a
change, when the RESPA GFE expires,
or when valid changes in circumstance
occur. The Bureau is aware of concerns
that HUD’s 2008 RESPA Final Rule is
both too lax and too restrictive, and also
that the rule is difficult to understand.
The proposed rule attempts to address
these concerns by balancing the
objective of improving the reliability of
the estimates creditors give consumers
shortly after application with the
objective of preserving creditors’
flexibility to respond to unanticipated
changes that occur during the loan
process. Specifically, the proposed rule
applies the zero tolerance category to a
larger range of charges, including fees
charged by an affiliate of the creditor
and charges for services for which the
creditor does not permit the consumer
to shop. A service provider would be
considered selected by the creditor if
consumers are required to choose only
from a list of service providers prepared
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by the creditor (i.e., if consumers are not
permitted to shop for their own
provider).
In developing the proposed rule, the
Bureau considered narrowing the
exceptions permitting increases in
settlement charges in order to restrict
the ability of a creditor to charge more
for its own services or for third-party
settlement services than the creditor
initially estimated. However, the Bureau
is concerned that this approach could
prevent creditors from increasing
settlement charges to reflect justifiable
increases in costs. The Bureau also
considered preserving HUD’s 2008
RESPA Final Rule in its entirety.
However, as discussed above, the
Bureau believes that the rule can likely
be improved by requiring creditors to
provide consumers with more accurate
estimates of settlement charges and
reducing compliance burden for
industry.
a. Benefits to Consumers
The Bureau believes that consumers
may benefit when fewer fees are
permitted to change from the Loan
Estimate. Consumers that rely on the
Loan Estimate to shop for a loan would
be able to make decisions based on
estimated costs that more closely reflect
the actual costs they would bear,
making shopping more effective. For
some consumers, such as those
considering a refinancing that they may
or may not decide to take out, more
reliable information may allow them to
make a better-informed decision about
whether to take out a loan at all. Firmer
fee estimates may also reduce ‘‘gaming’’
by unscrupulous creditors that provide
low-ball initial estimates and then
impose new or different charges near
the time of consummation.
The Bureau cannot quantify the
magnitude of these benefits. The Bureau
is unaware of any data that can provide
reliable market-wide estimates of the
prevalence of changes between early
TILA disclosures and RESPA GFEs and
final loan terms and closing costs or of
the causes for those changes that occur.
As noted above, the Bureau may obtain
data on a sample of TILA disclosures
and RESPA GFEs from several lenders,
which would provide additional
information about this issue.
For a sense of the scale of the
potential impact, it is worth considering
an extreme hypothetical example where
all of the settlement services move from
the ten percent tolerance category to the
zero tolerance category. This is unlikely
to happen in practice, but illustrates the
largest possible effect of the regulatory
change. For a loan with a total of $3,000
in settlement costs, the maximum effect
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of the proposal would be that the
creditor could not pass on $300 in cost
increases that occurred without an
exception allowing the increase to be
passed on to the consumer.
Expanding the set of costs covered by
the zero tolerance may also benefit
consumers by giving creditors an
incentive to control the costs imposed
by third parties. Currently, creditors
have limited incentives to control thirdparty costs. By applying the zero
tolerance category to a larger range of
charges, including charges by affiliates
of the creditor, creditors are required to
absorb more increases in costs (when no
exception applies), and may seek to
minimize the chance that these
increases would occur. Creditors are in
a better position than consumers to
control these costs, as they are much
more familiar with these markets than
are typical consumers, and they are
likely to have ongoing relationships
with settlement service providers that
give them some ability to encourage
these providers not to charge more than
the initial estimate.
b. Costs to Consumers
The expansion of the set of costs that
are subject to a zero tolerance could
impose costs on some consumers. The
restriction on changes to these costs
may cause some creditors to provide
higher initial estimates, making
shopping less effective as consumers
rely on less accurate information. The
Bureau believes, however, that these
effects are likely to be mitigated by
competitive pressures that encourage
brokers and creditors not to inflate cost
estimates.
c. Benefits to Covered Persons
Covered persons may benefit from the
proposed rule because it reduces
compliance burden by resolving current
regulatory ambiguities. For example, the
proposed rule makes clear that creditors
need not reissue Loan Estimates unless
and until the costs that are subject to the
ten percent tolerance standard increase
based on valid changes in circumstance
by more than ten percent in total. The
proposed rule also revises the rule and
provides more guidance to facilitate use
of average cost pricing and reconciles
certain inconsistencies between RESPA
and TILA terminology. The proposed
rule further streamlines and clarifies
HUD’s 2008 RESPA Final Rule by
incorporating prior HUD guidance into
Regulation Z and its commentary, as
necessary and appropriate. Further, to
the extent the proposed rule reduces
unnecessary redisclosure of the RESPA
content currently provided on the GFE,
the rule would decrease costs to
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creditors, although the extent to which
the proposed rule would have such an
effect is unknown. Reducing
unnecessary redisclosure may also
benefit consumers, to the extent that
redisclosures lead to consumer
confusion.
The Bureau is unaware of reliable
data showing how often creditors are
providing additional disclosures that are
not required by the current rule and that
they would no longer send if the rules
were clarified. As discussed in section
F, below, the Bureau is working to
obtain such data prior to issuing a final
rule and is seeking comment on its
plans for data analysis, as well as
additional data and comment relevant to
this issue. Some creditors, however,
have reported that additional clarity
regarding redisclosure requirements for
the RESPA GFE and average cost pricing
would reduce the cost of compliance, in
part, by reducing confusion over when
redisclosure is permitted or required,
and thereby reducing the need for legal
advice.
To the extent that restricting certain
changes in fees reduces bait-and-switch
tactics by some creditors, this provision
may also benefit honest creditors that do
not use these tactics.
d. Costs to Covered Persons
The Bureau understands that covered
persons may experience increased costs
as a result of a rule that applied the zero
tolerance category to a larger range of
charges. Since the proposed rule would
expand the circumstances in which
creditors could not pass increased costs
to consumers when the initial estimate
is lower than the actual costs but there
is not a legitimate change in
circumstances or other exception,
creditors may be required to absorb
more costs. This impact should be
mitigated to the extent creditors are in
a position to know the typical charges
of affiliated firms and firms they engage
repeatedly and require consumers to
use, and can therefore provide estimates
that are accurate when there is no
changed circumstance. As discussed
above, the Bureau is unaware of any
data that can provide reliable marketwide estimates of the prevalence of
changes between early TILA disclosures
and RESPA GFEs and final loan terms
and closing costs, and the causes of
those changes. Therefore, the Bureau
cannot provide estimates of how often
creditors would have to absorb higher
than expected costs that cannot be
attributed to a changed circumstance.
The discussion of average settlement
costs provided in the ‘‘Consumer
Benefits’’ section applies here, as well,
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suggesting that these costs to creditors
would be quite modest.
The Bureau also understands that the
proposed rule may result in increased
use of affiliated service providers, so
that creditors can more directly control
changes in settlement costs, which
could have a negative impact on
independent providers. Some have
argued that the negative impact on
independent providers could lead to
reduced competition for settlement
services and ultimately higher costs.
The Bureau is unaware of any evidence
that the ultimate increase in costs is
likely to occur. Alternatively, the
proposed rule may encourage creditors
to allow consumers to choose settlement
service providers that are not on a list
provided to the consumer (although in
this case the creditor would be required
to provide consumers with a list of
settlement service providers that the
consumers could use, if they so choose),
so that the zero tolerance requirement
would not apply. This would appear to
benefit independent service providers,
or at least be neutral relative to current
practices.
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5. Provision of Closing Disclosure
The proposed rule requires delivery of
the integrated Closing Disclosure three
business days before consummation in
all cases. However, the Bureau is
proposing two alternative approaches
for assigning responsibility for
providing the integrated Closing
Disclosure to the consumer. Alternative
1 places sole responsibility for provision
of the Closing Disclosure on the
creditor, while Alternative 2 makes the
creditor and settlement agent jointly
responsible for providing the Closing
Disclosure.
a. Timing of Closing Disclosure
Provision
TILA and RESPA establish different
timing requirements for disclosing final
loan terms and costs to consumers. As
discussed more fully in part VI, sectionby-section analysis for proposed
§ 1026.19(f), TILA generally provides
that, if the early disclosures contain an
APR that is no longer accurate, the
creditor shall furnish an additional,
corrected disclosure to the consumer
not later than three business days before
consummation. RESPA, on the other
hand, requires that the final statement of
loan costs and terms is provided to the
consumer at or before settlement. To
meet the Dodd-Frank Act’s mandate to
integrate the disclosures required by
TILA and RESPA, and to better facilitate
consumer understanding of the costs,
the proposed rule would require
delivery of the integrated Closing
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Disclosure three business days before
closing in all circumstances. However,
to prevent unnecessary closing delays,
the proposed rule would permit limited
changes after provision of the Closing
Disclosure to reflect common
adjustments, such as changes to
recording fees. In addition, reissuance of
the Closing Disclosure and an additional
three-business day waiting period
would not be required if, during the
three business days after issuance of the
Closing Disclosure, the amount needed
to close shown on the Closing
Disclosure increases by $100 or less.
i. Benefits to Consumers. Consumers
may benefit from the proposed rule
because it would ensure that consumers
receive the disclosures far enough in
advance of consummation that they can
review the final details of the
transaction. Together with the improved
clarity of the Closing Disclosure and the
comparability of the Loan Estimate and
the Closing Disclosure, this should
allow consumers to have a better
understanding of the final terms of the
transaction and how and whether those
terms have changed since the consumer
received the Loan Estimate. Improved
ability to compare early and final
disclosures and identify changes in loan
terms may better enable consumers to
recognize and challenge increased
settlement costs or loan terms that are
different from the initial disclosure.
This may encourage all creditors to take
greater care to ensure that Loan
Estimates are accurate and may
discourage unscrupulous creditors from
attempting to ‘‘bait and switch’’
consumers with initial Loan Estimates
that have better loan terms or lower
settlement costs than the final
transaction. Some of these changes are
not permissible under the current or
revised regulation, but making it easier
for consumers to identify these changes
may provide an additional incentive for
creditors to avoid such changes.
The Bureau cannot quantify the
magnitude of the benefits of the threeday period for consumers to review the
integrated Closing Disclosure. The
Bureau is unaware of any data that can
provide reliable market-wide estimates
of the prevalence of changes between
early TILA disclosures and RESPA GFEs
and final loan terms and closing costs.
The Bureau also does not know how
much the three-day period would
improve consumers’ ability to recognize
those changes or how consumers would
react to changes, or the effects on
creditors’ behavior.
ii. Costs to Consumers. The proposal
to require provision of the Closing
Disclosure three business days prior to
consummation in all circumstances may
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51275
result in closing delays, which could
come at a cost to consumers. In extreme
cases, such delays could cause a
transaction to fall through if a consumer
is under a contractual obligation to close
by a certain date. Creditors and closing
agents, however, currently coordinate to
provide RESPA closing documents at
closing. Both closing agents and
creditors would have incentives to
complete closings as scheduled, and
therefore the Bureau believes that they
would adjust their business practices
such that the Closing Disclosure could
be provided in a timely manner and
closing problems would be infrequent.
iii. Costs to Covered Persons. If the
requirement does lead to delayed or
canceled closings, this would impose
costs on covered persons as well. Such
closing delays could result in loss of
revenue for transactions that fall
through due to a delay. The proposed
rule may also create legal and
reputational risks for creditors or
settlement agents that are unable to
close loans as planned.
iv. Alternatives Considered. In
developing the proposed rule, the
Bureau considered requiring provision
of the Closing Disclosure three business
days before closing only when the APR
in the Loan Estimate increases beyond
a tolerance or certain risky features are
added to the loan. In all other
circumstances, the Closing Disclosure
would have been provided at or before
closing. However, the Bureau is
concerned that this approach would
allow significant increases in the cash
needed to close the transaction without
sufficient notice to consumers. Further,
the Bureau has received feedback
indicating that the APR estimates
included in the early TILA disclosures
typically change by more than 1⁄8 of 1
percent, such that most creditors
provide corrected disclosures as a
standard business practice, rather than
analyzing the accuracy of the disclosed
APR. Therefore, the Bureau believes that
any additional burden associated with
requiring the disclosure three business
days before closing in all cases is small
given current creditor practices. In
addition, the Bureau considered
expanding current rules allowing
consumers to waive the three-business
day waiting period in cases of bona fide
personal financial emergency. However,
the Bureau is concerned that such an
expansion would be subject to abuse.
b. Responsibility for Providing the
Closing Disclosure
TILA and RESPA require that
different parties provide the final
disclosures to consumers. Specifically,
TILA requires the creditor to provide
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the TILA disclosures to consumers,
while RESPA requires that the person
conducting the settlement provide the
final statement of settlement costs to the
consumer. However, section 1419 of the
Dodd-Frank Act amended TILA to make
creditors responsible for disclosing
settlement cost information. See TILA
section 128(a)(17). To reconcile these
statutory differences and implement
TILA section 128(a)(17), the Bureau is
proposing two alternative approaches
for assigning responsibility for provision
of the integrated Closing Disclosure to
consumers. Under Alternative 1, the
creditor would be solely responsible for
delivering the Closing Disclosure to the
consumer. Under Alternative 2, the
creditor and settlement agent would be
jointly responsible for providing the
consumer with an integrated Closing
Disclosure three business days before
closing.
i. Benefits and Costs to Consumers.
The Bureau believes that consumer
benefits and costs would not differ
between the two proposals, so long as
disclosures are accurate and provided in
a timely manner.
ii. Benefits to Covered Persons.
Because the difference between
Alternatives 1 and 2 is about which
party would be responsible for
providing a disclosure, the relative
benefits of each proposal to different
covered persons are likely to consist of
avoided costs. The most useful way to
consider these alternatives, therefore, is
to consider their respective costs.
iii. Costs to Covered Persons—
Alternative 1. Alternative 1 would likely
place increased costs on creditors. As
discussed above, RESPA and current
Regulation X require that the person
conducting the settlement provide the
RESPA-required disclosures to
consumers at or before consummation.
Since, under Alternative 1, the creditor
would be responsible for provision of
both the TILA and RESPA content to the
consumer, the creditor would incur
additional logistical burden and legal
risk. Creditors and settlement agents
may incur one-time legal fees under
Alternative 1, since those entities may
need to contractually stipulate their
respective duties or amend existing
contractual arrangements in light of the
rule. Creditors may also need to hire
additional staff to handle the increased
workload associated with collecting the
settlement costs and coordinating with
the settlement agents and third party
service providers and preparing the
disclosures. However, since the current
regulatory scheme of split
responsibility, as well as the different
roles of creditors and settlement agents
in the transaction, already requires a
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great deal of coordination, it is not clear
that giving the creditor sole
responsibility for providing the
disclosures would impose much
additional burden. As a general matter,
shifting responsibility for delivery of
final RESPA disclosures from settlement
agents to creditors may change the role
of settlement agents, though the exact
impact of such a rule is unclear.
Settlement agents play a unique role in
working through local real estate
transaction requirements and practices,
which creditors may be unlikely to take
on.
iv. Costs to Covered Persons—
Alternative 2. The costs to creditors and
to settlement agents under the proposed
alternative that gives joint responsibility
for provision of the Closing Disclosure
to creditors and settlement agents would
depend on how creditors and settlement
agents go about fulfilling the joint
requirement. Joint provision would
likely require coordination on the part
of creditors and settlement agents
similar to what is done today. One
additional cost, however, may entail reworking that coordination to adjust to
the new forms and timing requirement
(discussed above).
v. Alternative Considered. In
developing the proposed rule, the
Bureau also considered an alternative
under which the settlement agent would
have sole responsibility for providing
the Closing Disclosure to the consumer.
However, the Bureau is concerned that
settlement agents do not have access to
much of the information regarding loan
terms that must be included in the
Closing Disclosure. In addition, in
response to industry feedback, the
Bureau considered an approach that
would bifurcate the Closing Disclosure
into TILA-required and RESPA-required
disclosures. However, the Bureau is
concerned that such an approach would
be confusing for consumers, would be
impracticable and result in additional
regulatory burden because of the
amount of overlap between TILA and
RESPA disclosures, and is inconsistent
with the Dodd-Frank Act requirement to
integrate the disclosures.
6. Recordkeeping of Machine Readable
Data
The proposed rule imposes new data
retention requirements for the Loan
Estimate and the Closing Disclosure by
requiring creditors to maintain evidence
of compliance in machine readable,
electronic format. The proposed
retention period is three years for the
Loan Estimates and five years for the
Closing Disclosures. See proposed
§ 1026.25.
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a. Benefits to Consumers
The proposed rule may benefit
consumers because comprehensive data
on the extent to which settlement costs
and loan terms change between the
initial and final disclosures may
improve the ability of the Bureau and
other regulators to monitor compliance
with applicable requirements and to
evaluate whether the rules adequately
protect consumers against
impermissible changes in settlement
costs and loan terms.
b. Costs to Consumers
The Bureau does not believe the
recordkeeping requirements would lead
to costs to consumers, beyond any costs
that are passed through to consumers by
creditors or loan originators.
c. Benefits to Covered Persons
A prescribed electronic format may
reduce costs across the entire mortgage
loan origination industry due to the
efficiency gains associated with a
standardized data format. Based on
industry feedback, the Bureau
understands that creditors, mortgage
brokers, title companies, investors, and
other mortgage technology providers use
systems with proprietary data formats.
As a result, data must be translated
between formats as it is transmitted
from one point to another throughout
the mortgage loan origination process. A
standard format should lower those
coordination costs. In addition, a
standard format may also facilitate
innovation in the financial services
industry by making it easier for
technology companies to create new
programs that improve the mortgage
origination process and lower industry
costs, instead of tailoring programs to
each firm’s unique proprietary data
format; may lower ongoing costs by
facilitating industry adoption of
mortgage documentation technology
and reducing industry’s reliance on
paper files; and may ease the burden of
staff time and resources devoted to onsite supervisory examinations by
allowing for remote examinations of
compliance. All of these benefits may
reduce industry cost and burden in the
long run, thereby reducing costs to
consumers as well.
The Bureau is aware that there are
various efforts currently underway to
standardize the format for storage and
transmission of mortgage originationrelated data. To the extent that the
Bureau’s proposal may advance these
efforts toward a standard electronic
record format, the proposal may help
eliminate multiple data formats, thereby
increasing efficiency in the origination
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process, reducing industry costs in the
long term, and reducing costs to
consumers. Also, the Bureau is aware
that many firms currently face
significant internal costs for maintaining
multiple internal technological systems.
To the extent the Bureau’s efforts reduce
uncertainly regarding the eventual
standard, a single data format specified
by the Bureau may lower costs by
enabling creditors to migrate from older
data formats to a single, standard data
format.
d. Costs to Covered Persons
The proposed rule may result in costs
to covered persons. Under current rules,
creditors must retain evidence of
compliance with the disclosure
requirements in Regulation X (i.e., a
copy of the RESPA settlement
statement) and Regulation Z (i.e.,
evidence of compliance generally) for
five years and two years, respectively,
but are not required to maintain such
evidence an electronic, readable format.
12 CFR 1024.10(e); 1026.25. Based on
industry feedback, the Bureau
understands that firms currently rely on
electronic systems for most aspects of
the mortgage loan origination process,
including electronic record creation and
storage. Not all lenders currently
maintain data in a machine-readable
format, and those who do may not retain
it in the format that may ultimately be
adopted. To comply with the proposed
record retention provisions, therefore,
creditors may be required to reconfigure
existing document production and
retention systems. For creditors that
maintain their own compliance systems
and software, the Bureau does not
believe that adding the capacity to
maintain data in a standard machine
readable format will impose a
substantial burden, as the only
requirement will be to output existing
data to a new format and then store that
data. The Bureau believes that the
primary cost will be one-time systems
changes that could be accomplished at
the same time that systems changes are
carried out to comply with the new
proposed Loan Estimate and Closing
Disclosure. Similarly, creditors that rely
on vendors would likely rely on vendor
software and systems to comply with
the data retention requirement; at least
one vendor already offers indefinite data
storage to customers that use their Webbased origination services.
The Bureau estimates that creditors
with existing electronic storage systems
would need to expend 40 hours of
software and IT staff time to develop the
ability to export data from existing
systems to a standardized format. This
would apply to the creditors that
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maintain their own systems—the 20
largest and five percent of other
creditors (14,354*0.05 = 718, rounded to
the nearest whole entity)—for a total of
(718+20)*40 = 29,520 hours. Assuming
an hourly labor cost of software and IT
staff of $54, based on information from
the Bureau of Labor Statistics, gives a
total dollar cost of 29,520*$54 =
$1,600,000 (rounded to nearest
$100,000). Amortized over five years,
this is an annual cost of roughly
$320,000 for all mortgage creditors
combined. Compared to total mortgage
originations of 8,000,000 per year, this
amounts to pennies per origination.
The Bureau understands that
requiring standardized, electronic
records may be a significant burden for
covered persons that do not currently
have such electronic filing systems. To
reduce the burden on small entities, the
Bureau is considering an exemption
from the electronic data retention
requirements. See part VI, section-bysection analysis for proposed § 1026.25.
7. Expanded Definition of Finance
Charge
The proposed rule expands the
definition of the finance charge for
closed-end transactions secured by real
property or a dwelling, consistent with
the Board’s 2009 Closed-End Proposal.
As discussed more fully in part VI,
section-by-section analysis for proposed
§ 1026.4, TILA and current Regulation Z
exclude many types of charges from the
finance charge, particularly for mortgage
transactions. Concerns have long been
raised that these exclusions undermine
the potential usefulness of the finance
charge and corresponding APR as a tool
for consumers to compare the total cost
of one loan to another. In addition, these
exclusions create compliance burden
and litigation risk for creditors and may
encourage creditors to shift the cost of
credit to excluded fees, a practice that
is inefficient.
a. Proposed Definition of Finance
Charge and Other Federal Regulation
The Bureau recognizes that the
proposed more inclusive finance charge
could affect coverage under other laws,
such as higher-priced mortgage loan and
HOEPA protections, and that a more
inclusive finance charge has
implications for the HOEPA, Escrows,
Appraisals, and Ability to Repay
rulemakings identified in part II.F
above. Absent further action by the
Bureau, the more inclusive finance
charge would:
• Cause more closed-end loans to
trigger HOEPA protections for high-cost
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51277
loans.206 The protections include
special disclosures, restrictions on
certain loan features and lender
practices, and strengthened consumer
remedies. The more inclusive finance
charge would affect both the points and
fees test (which currently uses the
finance charge as its starting point) and
the APR test (which under Dodd-Frank
will depend on comparisons to the
average prime offer rate (APOR)) for
defining what constitutes a high-cost
loan.
• Cause more loans to trigger DoddFrank Act requirements to maintain
escrow accounts for first-lien higherpriced mortgage loans. Coverage
depends on comparing a transaction’s
APR to the applicable APOR.
• Cause more loans to trigger DoddFrank Act requirements to obtain one or
more interior appraisals for ‘‘higherrisk’’ mortgage loans. Coverage depends
on comparing a transaction’s APR to the
applicable APOR.
• Reduce the number of loans that
would otherwise be ‘‘qualified
mortgages’’ under the Dodd-Frank Act
Ability to Repay requirements, given
that qualified mortgages cannot have
points and fees in excess of three
206 Under the Dodd-Frank Act, a loan is defined
as a high-cost mortgage, subject to HOEPA
protections, if the total points and fees payable in
connection with the transaction exceed specified
thresholds (points and fees coverage test); the
transaction’s APR exceeds the applicable APOR by
a specified threshold (APR coverage test); or if the
transaction has certain prepayment penalties. First,
under the points and fees coverage test, the
definition of points and fees includes, as its starting
point, all items included in the finance charge.
Therefore, a potential consequence of the more
inclusive finance charge is that more loans might
exceed HOEPA’s points and fees threshold because
new categories of charges would be included in the
calculation of total points and fees for purposes of
that coverage test. In addition, under the APR
coverage test, the more inclusive finance charge
could result in some additional loans being covered
as high-cost mortgages because closed-end loans
would have higher APRs. There are currently some
differences between APR and the average prime
offer rate, which is generally calculated using data
that includes only contract interest rate and points
but not other origination fees. See 75 FR 58660–
58662. The current APR includes not only discount
points and origination fees but also other charges
the creditor retains and certain third-party charges.
The more inclusive finance charge, which would
also include most third-party charges, would widen
the disparity between the APR and APOR and cause
more closed-end loans to qualify as a high-cost
mortgage. The Bureau notes that substantially
similar implications would apply to each respective
rulemaking in which coverage depends on
comparing a transaction’s APR to the applicable
APOR. In addition, the Bureau notes that the DoddFrank Act expands HOEPA to apply to more types
of mortgage transactions, including purchase money
mortgage loans and open-end credit plans secured
by a consumer’s principal dwelling. However, the
proposed more inclusive finance charge applies
only to closed-end loans. Therefore, the Bureau
notes that the more inclusive finance charge would
not affect the potential coverage of open-end credit
plans under HOEPA.
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percent of the loan amount. Also, more
loans could be required to comply with
separate underwriting requirements
applicable to higher-priced balloon
loans, and could be ineligible for certain
exceptions authorizing creditors to offer
prepayment penalties on fixed-rate,
non-higher-priced qualified mortgage
loans.207 Again, status as a higherpriced mortgage loan depends on
comparing APR to APOR.
As discussed above in part VI,
section-by-section analysis for proposed
§ 1026.4, and below in section F, the
Bureau is seeking data to model the
impact of the more expansive definition
of finance charge on coverage of each of
these regulatory regimes or the impact
of potential modifications that the
Bureau could make to the triggers to
more closely approximate existing
coverage levels prior to issuing a final
rule and is seeking comment on its
plans for data analysis, as well as
additional data and comment on the
potential impacts of a broader finance
charge definition and potential
modifications to the triggers.208
The Board previously proposed to
address these effects by adopting an
adjusted points and fees definition and
a new metric for determining coverage
207 Specifically, the Dodd-Frank Act generally
prohibits prepayment penalties on closed-end,
dwelling-secured mortgage loans, except on fixedrate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank
Act generally requires creditors to assess
consumers’ ability to repay a higher-priced loan
with a balloon payment using the scheduled
payments required under the terms of the loan
including any balloon payment, and based on
income and assets other than the dwelling itself.
Only consumers with substantial income or assets
would likely qualify for such a loan. A separate
Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly
in rural or underserved areas is not affected by the
finance charge issue.
208 In its 2009 proposal, the Board relied on a
2008 survey of closing costs conducted by
Bankrate.com that contains data for hypothetical
$200,000 loans in urban areas. Based on that data,
the Board estimated that the share of first-lien
refinance and home improvement loans that are
subject to HOEPA would increase by .6 percent if
the definition of finance charge was expanded, and
that the share of first-lien loans in the range of
typical home purchases or refinancings ($175,000 to
$225,000) that qualified as higher-priced mortgage
loans would increase by 3 percent. The Board also
looked at the impact on two states and the District
of Columbia because their anti-predatory lending
laws had triggers below the level of the historical
HOEPA APR threshold, which is benchmarked to
U.S. Treasury securities. The Board concluded that
the percentage of first-lien loans subject to those
laws would increase by 2.5 percent in the District
of Columbia and 4.0 percent in Illinois, but would
not increase in Maryland. The Bureau is
considering the 2010 version of the Bankrate.com
survey, but as described in this notice the Bureau
is also seeking additional data that would provide
more representative information regarding closing
and settlement costs that would allow for a more
refined analysis of the proposals.
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under APR thresholds, known as the
‘‘transaction coverage rate’’ (TCR). The
TCR would be based on a modified
prepaid finance charge that would
include only finance charges retained by
the creditor, mortgage broker, or their
affiliates, and would therefore more
closely approximate existing coverage
levels than a more inclusive finance
charge. See 76 FR 27390, 27411–12
(May 11, 2011); 76 FR 11598, 11608–09
(Mar. 2, 2011); 75 FR 58539, 58660–61
(Sept. 24, 2010).209 The Bureau has
incorporated these measures into its
2012 HOEPA Proposal, and is seeking
comment both in that proposal and this
rulemaking on additional trigger
modifications that could approximate
coverage levels under the existing
definition of finance charge, such as
adjusting the numeric percentage point
triggers for APR under HOEPA or other
regimes.
If the adjusted points and fees
definition, the TCR, or other trigger
modifications were adopted in the other
rules, the more inclusive finance charge
definition would have little or no effect
on coverage under those rules although
there might still be effects from the
expanded definition of finance charge
on the coverage of various State
mortgage laws and regulations. In
addition, because the TCR excludes fees
to unaffiliated third-parties, the TCR
might result in some loans not triggering
one or more of the regulatory regimes
discussed above that would qualify
under an APR threshold using the
current definition of finance charge.210
The discussion of the costs and benefits
of a more inclusive definition of finance
charge, below, assumes that the Bureau
does not adopt the adjusted points and
fees definition, the TCR, or other
methods of addressing the impact of a
more inclusive approach to the finance
charge in the other rulemakings. If the
Bureau does adopt those measures, the
209 The wording of the Board’s proposed
definition of ‘‘transaction coverage rate’’ varied
slightly between the 2010 Mortgage Proposal and
the 2011 Escrows Proposal as to treatment of
charges retained by mortgage broker affiliates. In its
2012 HOEPA Proposal, the Bureau proposes to use
the 2011 Escrows Proposal version, which would
include charges retained by broker affiliates.
210 As discussed above in part VI, section-bysection analysis for proposed § 1026.4, the Bureau
believes that the margin of differences between the
TCR and current APR is significantly smaller than
the margin between the current APR and the APR
calculated using the expanded finance charge
definition because relatively few third-party fees
would be excluded by the TCR that are not already
excluded under current rules. The Bureau is
considering ways to supplement the data analysis
described above to better assess this issue, and
seeks comment and data regarding the potential
impacts of the TCR relative to APR calculated using
the current and proposed definitions of finance
charge.
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effects of the proposed definition of
finance charge would be muted. For
instance, the benefits of a simpler APR
calculation may be lessened if creditors
are required to use different metrics for
purposes of disclosure and for
determining coverage under various
regulatory regimes, although as
discussed below with regard to
transaction coverage rate both metrics
would be easier to calculate than APR
using the existing definition of finance
charge. In addition, the effects (both
benefits and costs) through expanded
coverage of those other rules would be
eliminated or (in the case of TCR)
somewhat reduced.
b. Benefits to Consumers
The proposed rule may benefit
consumers by making the finance charge
and corresponding APR more
meaningful disclosures of the cost of
credit for closed-end transactions
secured by real property or a dwelling.
Certain limitations on the usefulness of
APR as a price comparison tool,
however, such as the assumption in the
calculation that the loan will be paid as
according to the note to maturity and
not pre-paid, may limit this benefit.
Consumers may benefit from the
expanded finance charge definition to
the extent it discourages the
proliferation of certain ‘‘junk fees,’’ such
as fees for preparing loan-related
documents, which are currently
excluded from the finance charge.
As discussed above, if the expanded
definition of finance charge is adopted
without modifications to the triggers,
the more inclusive finance charge
definition would cause more loans to be
classified as high-cost mortgages under
HOEPA, higher-priced mortgage loans
under the Escrows and Ability to Repay
rulemakings, and/or higher-risk
mortgage loans under the Appraisals
rulemaking. The more inclusive finance
charge could also affect the number of
mortgages that meet the definition of a
qualified mortgage under the Ability to
Repay rulemaking.
Absent modifications to the triggers,
this would result in more consumers
receiving the benefits of one or more of
the regulatory regimes described above.
In the context of the HOEPA
rulemaking, the benefits to consumers
could include, for example, a better
understanding of the risks associated
with the loan through additional
disclosures (which, in turn, may reduce
the likelihood a consumer takes out a
mortgage he or she cannot afford), better
loan terms due to increased shopping,
and an absence of loan features whose
associated risks may be difficult for
consumers to understand. Consumers
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could also benefit from more loans
being classified as higher-priced under
the Escrows or Ability to Repay
rulemakings. Under the Escrows
rulemaking, more transactions would be
required to include escrow accounts for
the payment of recurring costs such as
taxes and hazard insurance, which
could assist more consumers in
planning for such costs. Under the
Ability to Repay rulemaking, fewer
loans could be permitted to have
prepayment penalties whose associated
risks may be difficult for consumers to
understand, more loans could be subject
to the separate underwriting standards
required for higher-priced balloon loans,
which could help to ensure consumers’
ability to repay such loans, and fewer
loans would be classified as ‘‘qualified
mortgages.’’ Finally, in the Appraisals
rulemaking, an increase in the number
of loans classified as higher-risk could
benefit consumers because more
transactions would be subject to the
requirement that creditors obtain one or
more interior appraisals before
extending credit.
Alternatively, the expanded definition
of finance charge may benefit
consumers if creditors lower the fees or
interest rate on the loan a consumer
receives so as to maintain eligibility as
a qualified mortgage or to avoid
coverage by those other consumer
protection laws.
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c. Costs to Consumers
Without modifications to the triggers,
the proposed more inclusive finance
charge could impose direct costs on
some consumers. For instance, the cost
of obtaining an initial interior appraisal
may be passed on to consumers under
the Dodd-Frank Act requirements for
higher-risk mortgages. The additional
protections required under the various
regulations may also lead to higher cost
of credit for some consumers or reduced
access to credit if creditors choose not
to make loans that would be classified
as high-cost, higher-priced, or higherrisk, or if consumers cannot qualify for
credit as a result of the separate
underwriting standards that could apply
to higher-priced balloon loans.
d. Benefits to Covered Persons
The proposed rule may benefit
covered persons by easing regulatory
burden and litigation risk associated
with the current complex rules for
determining which fees are part of the
finance charge. Because the current
rules for determining which fees are
part of the finance charge are
complicated and unclear, creditors will
benefit from a simpler, more inclusive
definition. In particular, feedback
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received by the Bureau and comments
on a similar proposal issued by the
Board in the 2009 indicate that, because
a failure to calculate the finance charge
and the APR accurately gives rise to the
right of rescission, creditors incur
substantial compliance costs attempting
to make accurate calculations and incur
substantial litigation costs defending
against claims of inaccurate
calculations.
e. Costs to Covered Persons
To comply with the proposed rule,
creditors may be required to update
compliance systems to reflect changes to
the finance charge calculation. These
updates may involve one-time costs
associated with software updates, legal
expenses, and personnel training time.
As discussed above, if the Bureau
adopts the proposal, it expects to
provide an implementation period that
would coincide either with
implementation of the disclosure
modifications or with implementation
of certain changes to coverage of
HOEPA and other regulatory regimes
that would be affected by the change in
definition. Accordingly, the Bureau
believes that software changes and other
expenses would be incurred as part of
the overall software and compliance
system revisions required to comply
with the other simultaneous changes,
and therefore would not impose a
substantial additional burden.
As discussed above, the proposed rule
if it were implemented without
modifications to the triggers for various
regulatory regimes might cause more
loans to cross Federal and State highcost or high-priced loan thresholds
based on APR or points and fees. With
respect to the HOEPA and Appraisals
rulemakings, creditors may incur costs
associated with generating and
providing HOEPA and appraisal
disclosures for additional loans.
Creditors may incur additional costs in
the context of the Appraisals
rulemaking because the Dodd-Frank Act
prohibits creditors from charging
consumers for second appraisals
conducted in connection with certain
properties that have been sold in the last
180 days. Similarly, in the context of the
Escrows rulemaking, creditors may
incur costs associated with maintaining
escrow accounts on more transactions if
not subject to other exceptions provided
by the Dodd-Frank Act. With respect to
the Ability to Repay rulemaking,
creditors may incur costs associated
with making fewer loans with
prepayment penalties, or may incur
costs from the additional underwriting
requirements and/or liability associated
with making more loans that are higher-
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51279
priced balloon loans or that are not
qualified mortgages.
In addition, a small number of
creditors may also lose a very small
fraction of revenue if they are reluctant
to make high-cost, higher-priced, or
higher-risk mortgage loans and cannot
offer alternatives that are as profitable as
those loans.
As discussed in more detail in the
2012 HOEPA Proposal, modifying the
triggers would require some one-time
implementation costs and would create
some additional compliance complexity
if creditors must use different metrics
for disclosure purposes and for
determining coverage under particular
regulatory regimes. However, with
regard to the TCR, the Bureau believes
that such impacts would be addressed
by the fact that both TCR and APR using
the expanded definition of finance
charge would be easier to calculate than
APR under the current definition. On
balance, the Bureau believes adoption of
the proposed trigger modifications
would reduce the economic impacts on
creditors of the more expansive
definition of finance charge.
8. Implementation of New Disclosures
Mandated by the Dodd-Frank Act
The proposed rule exempts creditors
temporarily from compliance with
certain new disclosure requirements
added to TILA and RESPA by the DoddFrank Act until the TILA–RESPA rule
takes effect.
As discussed more fully in part V.B,
above, title XIV of the Dodd-Frank Act
adds new disclosure requirements to
TILA and RESPA for mortgage
transactions. Although the Dodd-Frank
Act does not specifically require
inclusion of all of these new disclosures
in the Loan Estimate and the Closing
Disclosure, the Bureau believes these
disclosures should be included in the
integrated forms because doing so
would improve the overall effectiveness
of the integrated disclosure, which may
benefit consumers and covered persons,
and also reduce burden on covered
persons. Finalizing the rules
implementing these title XIV
disclosures simultaneously with the
final TILA–RESPA rule would avoid
unnecessary regulatory burden by
preventing creditors from having to
implement multiple rounds of
disclosure rules. The Bureau does not
anticipate additional costs to covered
persons as a result of delayed
implementation of the new disclosure
requirements, although, as noted above,
covered persons may incur additional
recurring costs associated with
calculating and disclosing this
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additional information to consumers
once the implementing rules take effect.
9. Other Costs of Complying with the
Proposed Regulation
Covered persons will need to learn
about the requirements of the regulation
and determine what changes to their
business practices they would be
required to make to come into
compliance. These costs will vary
considerably across institutions,
depending on the size and complexity
of their operations. In addition, some
firms will rely on their own staff to
conduct this analysis, while others will
rely on outside counsel, industry
sources, or compliance firms. Firms that
use compliance systems provided by
outside vendors, especially smaller
creditors, will likely rely in large part on
those vendors to determine what
changes they need to make, reducing the
burden on those creditors.
E. Potential Specific Impacts of the
Proposed Rule
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1. Depository Institutions and Credit
Unions with $10 Billion or Less in Total
Assets, As Described in Section 1026
Other than as noted here, the Bureau
believes that the impact of the rule on
depository institutions and credit
unions with $10 billion or less in total
assets will be similar to those for
creditors as a whole. The primary
difference in the impact on these
institutions is likely to come from
differences in the compliance systems
and software of these institutions.
As discussed above, based on
information provided by creditors and
by software vendors, the Bureau
believes that, in general, larger creditors
develop and maintain their own
compliance software and systems, while
95 prercent of smaller creditors, which
includes the vast majority of those with
assets less than $10 billion, primarily
rely on software and compliance
systems provided by outside vendors.
As described above, the use of vendors
by smaller creditors will substantially
mitigate the costs of revising software
and compliance systems, as vendor
software updates would likely be
included in regular annual updates, and
therefore the costs would not be directly
passed on to the client creditors.
As discussed above, based on small
entities that participated in the Small
Business Review Panel process, the
Bureau estimates that the small fraction
of smaller creditors that maintain their
own compliance software and systems
would incur costs of roughly $100,000
to update their systems to comply with
the proposal. The Bureau estimates that
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there were a total of 11,749 banks,
savings institutions, and credit unions
with assets less than $10 billion that
originated mortgages in 2010, the most
recent year for which complete data are
available, and that all but one of them
was outside the top twenty mortgage
originators.211 The total estimated cost
for these few smaller creditors that
maintain their own compliance software
and systems is therefore
$100,000*11,749*5% = $58,700,000
(rounded to the nearest $100,000).
Amortized over five years, the annual
costs are $11,750,000 for all smaller
depository mortgages lenders and credit
unions that make mortgages combined.
The one creditor in the largest 20
mortgage creditors that is a depository
institution and has assets under
$10,000,000 would need to revise its
compliance software and systems. The
Bureau estimates that the cost for this
creditor would be $1,000,000; amortized
over five years this is an annual cost of
$200,000.
Covered persons would incur onetime costs associated with training
employees to use new forms and any
new compliance software and systems.
The Bureau estimates that each loan
officer or other loan originator will need
to receive two hours of training, and, as
described above, each ten hours of
trainee time would require an additional
hour of trainer time. Assuming the same
ratio of loan officers to originations at
these institutions as for the industry as
a whole, the Bureau estimates that there
are roughly 28,000 loan officers that
would need training at these
institutions.212 Based on data from the
Bureau of Labor Statistics, the Bureau
estimates that the average total
compensation is $46 per hour for a loan
officer and $39 per hour for a trainer, for
a total training cost of
(28,000*2*$46)+(2,800*2*$39) =
2,800,000 (rounded to the nearest
$100,000). Amortized over five years,
this is an annual cost of $560,000 for all
smaller depository mortgage lenders and
credit unions that make mortgage loans
combined.
Taken together, the Bureau estimates
that the total one-time costs of
complying with the proposed Loan
Estimate and Closing Disclosure for
these institutions would be roughly
$62,500,000. Amortized over five years,
this is an annual cost of $12,500,000 for
all smaller depository mortgage lenders
and credit unions that make mortgage
211 Estimate based on analysis of HMDA, SNL
Call Reports, NCUA Call Reports, and NMLS Call
Reports.
212 Originations estimates based on analysis of
HMDA, SNL Call Reports, NCUA Call Reports, and
NMLS Call Reports.
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loans combined. The Bureau estimates
that these creditors made roughly 2.6
million originations in 2010. The
estimated one-time cost is therefore less
than $5.00 per origination.
As discussed above, to comply with
the proposed record retention
provisions, creditors may be required to
reconfigure existing document
production and retention systems. The
Bureau estimates that creditors with
existing electronic storage systems
would need to expend 40 hours of
software and IT staff time to develop the
ability to export data from existing
systems to a standardized format. This
would apply to the creditors that
maintain their own systems—the one
depository institution with assets less
than $10 billion that is one of the 20
largest mortgage creditors and five
percent of other institutions, for a total
of 40+(11,749*.05*40) = 23,538 hours.
Assuming an hourly labor cost for
software and IT staff of $54, based on
information from the Bureau of Labor
Statistics, gives a total dollar cost of
23,538*$54 = $1,300,000 (rounded to
nearest $100,000). Amortized over five
years, this is an annual cost of $260,000
for all smaller depository mortgage
lenders and credit unions that make
mortgage loans combined.
The Bureau understands that
requiring standardized, electronic
records may be a significant burden for
covered persons that do not currently
have such electronic filing systems. To
reduce the burden on small entities,
which will include some depository
institutions and credit unions with $10
billion or less in total assets, the Bureau
is considering an exemption from the
electronic data retention requirements.
See part VI, section-by-section analysis
for proposed § 1026.25.
2. Impact of the Proposed Provisions on
Consumers in Rural Areas
Consumers in rural areas may
experience benefits and costs from the
proposed rule that are different in
certain respects to those experienced by
consumers in general. The extent to
which rural consumers shop for
mortgages and the ways in which they
shop may differ than the extent to
which other consumers shop, which
may affect the benefits of the revised
Loan Estimate. The Bureau is unaware
of information on these differences,
however. To the extent that the impacts
of the proposal on creditors differ by
type of creditor, this may affect the costs
and benefits of the proposal on
consumers in rural areas.
The Bureau will further consider the
impact of the proposed rule on
consumers in rural areas. The Bureau
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therefore asks interested parties to
provide data, research results and other
factual information on the impact of the
proposed rule on consumers in rural
areas.
F. Additional Analysis Being
Considered and Request for Information
The Bureau will further consider the
benefits, costs, and impacts of the
proposed provisions before finalizing
the proposal. As noted above, there are
a number of areas where additional
information would allow the Bureau to
better estimate the benefits, costs, and
impacts of this proposal and more fully
inform the rulemaking. In particular, the
Bureau seeks additional data to analyze
the frequency, magnitude, and type of
differences between initial estimates of
settlement costs and actual costs. This
will enable the Bureau to better estimate
the effects of the various aspects of this
proposal that relate to settlement costs
and how they change between the initial
RESPA GFE and closing. In addition,
the Bureau asks interested parties to
provide general information, data, and
research results on:
• How consumers might respond to
better mortgage costs disclosures;
• The benefits to consumers of clearer
information about their mortgages;
• The potential impact on the
functioning of the market and on
creditors if consumers better understood
their loan;
• The potential impact on creditors of
the elimination of the ten percent
tolerance for cost changes for certain
settlement fees;
• The effects on the role of different
market participants of various aspects of
the proposal, such as the elimination of
the ten percent tolerance for cost
changes on certain settlement fees and
the alternative proposal that creditors be
solely responsible for the provision of
the Closing Disclosure;
• The effects of adopting a more
inclusive finance charge, including with
respect to the rulemakings on HOEPA,
Escrows, Appraisals, and Ability to
Repay;
• The costs to covered persons of
complying with the proposal, such as
revising compliance software and
systems;
• How often creditors or mortgage
brokers obtain additional information
from the consumer after the Loan
Estimate has been issued that affects the
costs of settlement services for the loan
and that may cause the creditor or
broker to issue a revised Loan Estimate;
and
• How often creditors are providing
additional disclosures that are not
required by the current rules and that
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they would no longer send if the rules
are clarified.
To supplement the information
discussed in this preamble and any
information that the Bureau may receive
from commenters, the Bureau is
currently working to gather additional
data that may be relevant to this and
other mortgage related rulemakings.
These data may include additional data
from Nationwide Mortgage Licensing
System and Registry and the NMLS
Mortgage Call Report, loan file extracts
from various lenders, and data from the
pilot phases of the National Mortgage
Database. The Bureau expects that each
of these datasets will be confidential.
This section now describes each dataset
in turn.
First, as the sole system supporting
licensure/registration of mortgage
companies for 53 agencies for states and
territories and mortgage loan originators
under the SAFE Act, NMLS contains
basic identifying information for
nondepository mortgage loan
origination companies. Firms that hold
a State license or State registration
through NMLS are required to complete
either a standard or expanded Mortgage
Call Report (MCR). The Standard MCR
includes data on each firm’s residential
mortgage loan activity including
applications, closed loans, individual
mortgage loan originator (MLO) activity,
line of credit and other data repurchase
information by State. It also includes
financial information at the company
level. The expanded report collects
more detailed information in each of
these areas for those firms that sell to
Fannie Mae or Freddie Mac.213 To date,
the Bureau has received basic data on
the firms in the NMLS and de-identified
data and tabulations of data from the
Mortgage Call Report. These data were
used, along with HMDA data, to help
estimate the number and characteristics
of nondepository institutions active in
various mortgage activities. In the near
future, the Bureau may receive
additional data on loan activity and
financial information from the NMLS
including loan activity and financial
information for identified lenders. The
Bureau anticipates that these data will
provide additional information about
the number, size, type, and level of
activity for nondepository lenders
engaging in various mortgage
origination and servicing activities. As
such, it supplements the Bureau’s
current data for nondepository
institutions reported in HMDA and the
213 More information about the Mortgage Call
Report can be found at https://mortgage.nationwide
licensingsystem.org/slr/common/mcr/Pages/
default.aspx.
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data already received from NMLS. For
example, these new data will include
information about the number and size
of closed-end first and second loans
originated, fees earned from origination
activity, levels of servicing, revenue
estimates for each firm and other
information. The Bureau may compile
some simple counts and tabulations and
conduct some basic statistical modeling
to better model the levels of various
activities at various types of firms. In
particular, the information from the
NMLS and the MCR may help the
Bureau refine its estimates of benefits,
costs, and impacts for each of the
revisions to the RESPA GFE and
settlement statement forms, changes to
the HOEPA thresholds, changes to
requirements for appraisals, updates to
loan originator compensation rules,
proposed new servicing requirements,
and the new ability to repay standards.
Second, the Bureau is working to
obtain a random selection of loan-level
data from several lenders. The Bureau
intends to request loan file data from
lenders of various sizes and geographic
locations to construct a representative
dataset. In particular, the Bureau will
request a random sample of RESPA GFE
and RESPA settlement statement forms
from loan files for closed-end loans.
These forms include data on some or all
loan characteristics including settlement
charges, origination charges, appraisal
fees, flood certifications, mortgage
insurance premiums, homeowner’s
insurance, title charges, balloon
payments, prepayment penalties,
origination charges, and credit charges
or points. Through conversations with
industry, the Bureau believes that such
loan files exist in standard electronic
formats allowing for the creation of a
representative sample for analysis. The
Bureau may use these data to further
measure the impacts of certain proposed
changes. Calculations of various
categories of settlement and origination
charges may help the Bureau calculate
the various impacts of proposed changes
to the definition of finance charge and
other aspects of the proposal, including
proposed changes in the number and
characteristics of loans that exceed the
HOEPA thresholds, loans that would
meet the high rate or high risk
definitions mandating additional
consumer protections, and loans that
meet the points and fees thresholds
contained in the ability to repay
provisions of Dodd-Frank.
Third, the Bureau may also use data
from the pilot phases of the National
Mortgage Database (NMDB) to refine its
proposals and/or its assessments of the
benefits, costs, and impacts of these
proposals. The NMDB is a
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comprehensive database, currently
under development, of loan-level
information on first lien single-family
mortgages. It is designed to be a
nationally representative sample (1
percent) and contains data derived from
credit reporting agency data and other
administrative sources along with data
from surveys of mortgage borrowers.
The first two pilot phases, conducted
over the past two years, vetted the data
development process, successfully
pretested the survey component and
produced a prototype dataset. The
initial pilot phases validated that
sampled credit repository data are both
accurate and comprehensive and that
the survey component yields a
representative sample and a sufficient
response rate. A third pilot is currently
being conducted with the survey being
mailed to holders of five thousand
newly originated mortgages sampled
from the prototype NMDB. Based on the
2011 pilot, a response rate of fifty
percent or higher is expected. These
survey data will be combined with the
credit repository information of nonrespondents, and then de-identified.
Credit repository data will be used to
minimize non-response bias, and
attempts will be made to impute
missing values. The data from the third
pilot will not be made public. However,
to the extent possible, the data may be
analyzed to assist the Bureau in its
regulatory activities and these analyses
will be made publically available.
The survey data from the pilots may
be used by the Bureau to analyze
consumers’ shopping behavior regarding
mortgages. For instance, the Bureau may
calculate the number of consumers who
use brokers, the number of lenders
contacted by borrowers, how often and
with what patterns potential borrowers
switch lenders, and other behaviors.
Questions may also assess borrowers’
understanding of their loan terms and
the various charges involved with
origination. Tabulations of the survey
data for various populations and simple
regression techniques may be used to
help the Bureau with its analysis.
The Bureau requests commenters to
submit data and to provide suggestions
for additional data to assess the issues
discussed above and other potential
benefits, costs, and impacts of the
proposed rule. The Bureau also requests
comment on the use of the data
described above.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
as amended by SBREFA, requires each
agency to consider the potential impact
of its regulations on small entities,
including small businesses, small
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governmental units, and small not-forprofit organizations. 5 U.S.C. 601 et seq.
The RFA generally requires an agency to
conduct an initial regulatory flexibility
analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule
subject to notice-and-comment
rulemaking requirements, unless the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities. 5
U.S.C. 603, 604. The Bureau also is
subject to certain additional procedures
under the RFA involving the convening
of a panel to consult with small
business representatives prior to
proposing a rule for which an IRFA is
required. 5 U.S.C. 609.
The Bureau has not certified that the
proposed rule would not have a
significant economic impact on a
substantial number of small entities
within the meaning of the RFA.
Accordingly, the Bureau convened and
chaired a Small Business Review Panel
to consider the impact of the proposed
rule on small entities that would be
subject to that rule and to obtain
feedback from representatives of such
small entities. The Small Business
Review Panel for this rulemaking is
discussed below in part VIII.A.
The Bureau is publishing an IRFA.
Among other things, the IRFA estimates
the number of small entities that will be
subject to the proposed rule and
describe the impact of that rule on those
entities. The IRFA for this rulemaking is
set forth below in part VIII.B.
A. Small Business Review Panel
Under section 609(b) of the RFA, as
amended by SBREFA and the DoddFrank Act, the Bureau seeks, prior to
conducting the IRFA, information from
representatives of small entities that
may potentially be affected by its
proposed rules to assess the potential
impacts of that rule on such small
entities. 5 U.S.C. 609(b). Section 609(b)
sets forth a series of procedural steps
with regard to obtaining this
information. The Bureau first notifies
the Chief Counsel for Advocacy (Chief
Counsel) of the U.S. Small Business
Administration (SBA) and provides the
Chief Counsel with information on the
potential impacts of the proposed rule
on small entities and the types of small
entities that might be affected. 5 U.S.C.
609(b)(1). Not later than 15 days after
receipt of the formal notification and
other information described in section
609(b)(1) of the RFA, the Chief Counsel
then identify individuals representative
of affected small entities for the purpose
of obtaining advice and
recommendations from those
individuals about the potential impacts
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of the proposed rule (the small entity
representatives, or SERs). 5 U.S.C.
609(b)(2). The Bureau convenes a
review panel for such rule consisting
wholly of full time Federal employees of
the office within the Bureau responsible
for carrying out the proposed rule, the
Office of Information and Regulatory
Affairs (OIRA) within the U.S. Office of
Management and Budget (OMB), and
the Chief Counsel (collectively, the
Small Business Review Panel or Panel).
5 U.S.C. 609(b)(3). The Panel reviews
any material the Bureau has prepared in
connection with the SBREFA process
and collects advice and
recommendations of each individual
small entity representative identified by
the Bureau after consultation with the
Chief Counsel on issues related to
sections 603(b)(3) through (b)(5) and
603(c) of the RFA.214 5 U.S.C. 609(b)(4).
Not later than 60 days after the date the
Bureau convenes the Small Business
Review Panel, the Panel reports on the
comments of the SERs and its findings
as to the issues on which the Panel
consulted with the SERs, and the report
is made public as part of the rulemaking
record. 5 U.S.C. 609(b)(5). Where
appropriate, the Bureau modifies the
rule or the IRFA in light of the foregoing
process. 5 U.S.C. 609(b)(6).
On February 7, 2012, the Bureau
provided the Chief Counsel with the
formal notification and other
information required under section
609(b)(1) of the RFA. To obtain feedback
from small entity representatives to
inform the Panel pursuant to sections
609(b)(2) and 609(b)(4) of the RFA, the
Bureau, in consultation with the Chief
Counsel, identified six categories of
small entities that may be subject to the
proposed rule for purposes of the IRFA:
commercial banks/savings institutions,
credit unions, mortgage brokers,
mortgage companies (non-bank lenders),
settlement (closing) agents, and
nonprofit organizations. These are the
categories of entities that may be
required to provide, and maintain
214 As described in the IRFA in part VIII.B, below,
sections 603(b)(3) through (b)(5) and 603(c) of the
RFA, respectively, require a description of and,
where feasible, provision of an estimate of the
number of small entities to which the proposed rule
will apply; a description of the projected reporting,
recordkeeping, and other compliance requirements
of the proposed rule, including an estimate of the
classes of small entities which will be subject to the
requirement and the type of professional skills
necessary for preparation of the report or record; an
identification, to the extent practicable, of all
relevant Federal rules which may duplicate,
overlap, or conflict with the proposed rule; and a
description of any significant alternatives to the
proposed rule which accomplish the stated
objectives of applicable statutes and which
minimize any significant economic impact of the
proposed rule on small entities. 5 U.S.C. 603(b)(3)–
(5), 603(c).
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related records on, the integrated
mortgage disclosures, either because
they may make mortgage loans subject
to the proposed rule or because they
may be responsible for completing or
providing required disclosures. Part
VIII.B.3, below, describes in greater
detail the Bureau’s analysis of the
number and types of entities that may
be affected by the proposed rule. Having
identified the categories of small entities
that may be subject to the proposed rule
for purposes of an IRFA, the Bureau, in
consultation with the Chief Counsel,
selected 16 SERs to participate in the
SBREFA process. As described in
chapter 7 of the Panel’s report
(described below), the SERs included
representatives from each of the
categories identified by the Bureau and
comprised a diverse group of
individuals with regard to geography
and type of locality (i.e., rural, urban, or
suburban areas).
On February 21, 2012, the Bureau
convened the Panel pursuant to section
609(b)(3) of the RFA. To collect the
advice and recommendations of the
SERs under section 609(b)(4) of the
RFA, the Panel held an outreach
meeting/teleconference with the SERs
on March 6, 2012 (the Panel Outreach
Meeting). To help the SERs prepare for
the Panel Outreach Meeting, the Panel
circulated briefing materials prepared in
connection with section 609(b)(4) of the
RFA that summarized the proposals
under consideration at that time, posed
discussion issues, and provided
information about the SBREFA process
generally.215 All 16 SERs participated in
the Panel Outreach Meeting either in
person or by telephone. The Panel also
provided the SERs with an opportunity
to submit written feedback. In response,
the Panel received written feedback
from 12 of the representatives.216
On April 23, 2012, the Panel
submitted to the Director of the Bureau,
Richard Cordray, a written report (the
Small Business Review Panel Report)
that includes the following: background
information on the proposals under
consideration at the time; information
on the types of small entities that would
be subject to those proposals and on the
SERs who were selected to advise the
Panel; a summary of the Panel’s
outreach to obtain the advice and
215 The Bureau posted these materials on its Web
site and invited the public to email remarks on the
materials. See https://www.consumerfinance.gov/
pressreleases/consumer-financial-protectionbureau-convenes-small-business-panel-for-knowbefore-you-owe-mortgage-disclosures/ (the materials
are accessible via the links within this document).
216 This written feedback is attached as appendix
A to the written report of the Panel, discussed
below.
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recommendations of those SERs; a
discussion of the comments and
recommendations of the SERs; and a
discussion of the Panel findings,
focusing on the statutory elements
required under section 603 of the RFA.
5 U.S.C. 609(b)(5).217
In preparing this proposed rule and
the IRFA, the Bureau has carefully
considered the feedback from the SERs
participating in the SBREFA process
and the findings and recommendations
in the Small Business Review Panel
Report. The section-by-section analysis
of the proposed rule in part VI, above,
and the IRFA discuss this feedback and
the specific findings and
recommendations of the Panel, as
applicable. The SBREFA process
provided the Panel and the Bureau with
an opportunity to identify and explore
opportunities to minimize the burden of
the rule on small entities while
achieving the rule’s purposes. It is
important to note, however, that the
Panel prepared the Small Business
Review Panel Report at a preliminary
stage of the proposal’s development and
that the Panel Report—in particular, the
Panel’s findings and
recommendations—should be
considered in that light. Also, the Small
Business Review Panel Report expressly
stated that options it identified for
reducing the proposed rule’s regulatory
impact on small entities were subject to
further consideration, analysis, and data
collection by the Bureau to determine if
the options identified were practicable,
enforceable, and consistent with TILA,
RESPA, the Dodd-Frank Act, and their
statutory purposes. The proposed rule
and the IRFA reflect further
consideration, analysis, and data
collection by the Bureau.
B. Initial Regulatory Flexibility Analysis
Under section 603(a) of the RFA, an
IRFA ‘‘shall describe the impact of the
proposed rule on small entities.’’ 5
U.S.C. 603(a). Section 603(b) of the RFA
sets forth the required elements of the
IRFA. Section 603(b)(1) requires the
IRFA to contain a description of the
reasons why action by the agency is
being considered. 5 U.S.C. 603(b)(1).
Section 603(b)(2) requires a succinct
statement of the objectives of, and the
legal basis for, the proposed rule. 5
U.S.C. 603(b)(2). The IRFA further must
contain a description of and, where
feasible, provision of an estimate of the
number of small entities to which the
217 Final Report of the Small Business Review
Panel on the CFPB’s Proposals Under Consideration
for Integration of TILA and RESPA Mortgage
Disclosure Requirements, dated April 23, 2012. As
discussed above, this report is available on the
Bureau’s Web site.
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proposed rule will apply. 5 U.S.C.
603(b)(3). Section 603(b)(4) requires a
description of the projected reporting,
recordkeeping, and other compliance
requirements of the proposed rule,
including an estimate of the classes of
small entities that will be subject to the
requirement and the types of
professional skills necessary for the
preparation of the report or record. 5
U.S.C. 603(b)(4). In addition, the Bureau
must identify, to the extent practicable,
all relevant Federal rules which may
duplicate, overlap, or conflict with the
proposed rule. 5 U.S.C. 603(b)(5). The
Bureau, further, must describe any
significant alternatives to the proposed
rule which accomplish the stated
objectives of applicable statutes and
which minimize any significant
economic impact of the proposed rule
on small entities. 5 U.S.C. 603(b)(6).
Finally, as amended by the Dodd-Frank
Act, section 603(d) of the RFA requires
that the IRFA include a description of
any projected increase in the cost of
credit for small entities, a description of
any significant alternatives to the
proposed rule which accomplish the
stated objectives of applicable statutes
and which minimize any increase in the
cost of credit for small entities (if such
an increase in the cost of credit is
projected), and a description of the
advice and recommendations of
representatives of small entities relating
to the cost of credit issues. 5 U.S.C.
603(d)(1); Dodd-Frank Act section
1100G(d)(1).
1. Description of the Reasons Why
Agency Action Is Being Considered
As discussed in part II, above, for
more than 30 years, TILA and RESPA
have required lenders and settlement
agents to give to consumers who take
out a mortgage loan different but
overlapping disclosure forms regarding
the loan’s terms and costs. This
duplication has long been recognized as
inefficient and confusing for consumers
and industry. The following two
paragraphs briefly summarize the
statutory differences, which are
described in more detail in part I and
part II, above.
a. TILA/Regulation Z
In connection with any closed-end
credit transaction secured by a
consumer’s dwelling and subject to
RESPA, TILA and Regulation Z require
creditors to provide good faith estimates
of loan terms (such as the APR) within
three business days after receiving the
consumer’s mortgage application (i.e.,
the early TILA disclosure). If the APR
on the early TILA disclosure becomes
inaccurate, TILA requires the creditor to
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provide a corrected disclosure at least
three business days before closing (i.e.,
the corrected TILA disclosure). TILA
requires that the disclosures be
provided in final form at the time of
consummation (i.e., the final TILA
disclosure). See part II.C, above.
b. RESPA/Regulation X
In connection with any federally
related mortgage loan, RESPA and
Regulation X require that lenders
provide a good faith estimate of the
amount or range of charges for certain
settlement services the borrower is
likely to incur in connection with the
settlement (such as fees for an appraisal
or a title search) and related loan
information within three business days
after receiving the consumer’s
application (i.e., the RESPA GFE).
RESPA also requires that ‘‘the person
conducting the settlement’’ (typically,
the settlement or closing agent) provide
the consumer with a completed,
itemized statement of settlement charges
at or before settlement (i.e., the RESPA
settlement statement). See part II.B
above.
Furthermore, the recent mortgage
crisis highlighted deficiencies in
consumer understanding of mortgage
transactions, which may be attributed in
part to shortcomings in mortgage
disclosures. Part II.A above discusses in
greater detail the background of the
mortgage market. Prior to the creation of
the Bureau, other government agencies
took steps to address these
shortcomings. Specifically, HUD, which
was previously responsible for
implementing RESPA, finalized rules in
2008 that substantially revised the
RESPA mortgage disclosures (i.e.,
HUD’s 2008 RESPA Final Rule). In
addition, the Board, which was
previously responsible for TILA,
proposed rules in 2009 that would have
substantially revised the TILA mortgage
disclosures (i.e., the Board’s 2009
Closed-End Proposal). However, neither
HUD nor the Board had the authority to
combine the TILA and RESPA
disclosures.
As noted above, the Dodd-Frank Act
consolidated rulemaking authority for
RESPA and TILA in the Bureau. In
addition, the Dodd-Frank Act amended
both statutes to mandate specifically
that the Bureau propose rules and forms
combining the TILA and RESPA
disclosures for mortgage loans subject to
either law or both laws by July 21, 2012.
Dodd-Frank Act sections 1032(f), 1098,
1100A. The Dodd-Frank Act establishes
two goals for the consolidation: to
improve consumer understanding of
mortgage loan transactions; and to
facilitate industry compliance with
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TILA and RESPA. The Dodd-Frank Act
also made several amendments to the
disclosure requirements in TILA and
RESPA. In particular, the Dodd-Frank
Act amended TILA to require the
creditor to disclose in the early and final
TILA disclosures the aggregate amount
of settlement charges provided in
connection with the loan, which was
previously disclosed only by the
settlement agent in the RESPA
settlement statement.218
The proposed rule, therefore, both
follows on the prior efforts of HUD and
the Board to address shortcomings in
the mortgage market with regard to
mortgage disclosures and effectuates
Congress’s specific mandate to the
Bureau to integrate the mortgage
disclosures under TILA and RESPA. For
a further description of the reasons why
agency action is being considered, see
the background discussion for the
proposed rule in part II, above.
2. Statement of the Objectives of, and
Legal Basis for, the Proposed Rule
As described above, the proposed rule
effectuates Congress’s mandate to
integrate the mortgage disclosures
required under TILA and RESPA. In
particular, sections 1098 and 1100A of
the Dodd-Frank Act state that the
purposes of the integrated disclosures
are to facilitate compliance with TILA
and RESPA and ‘‘to aid the borrower or
lessee in understanding the transaction
by utilizing readily understandable
language to simplify the technical
nature of the disclosures.’’ The
integrated disclosures also effectuate the
underlying statutory purposes of RESPA
and TILA. One of the statutory purposes
of RESPA is ‘‘more effective advance
disclosure to home buyers and sellers of
settlement costs.’’ 12 U.S.C. 2601(b)(1).
And one statutory purpose of TILA is to
‘‘to assure a meaningful disclosure of
credit terms so that the consumer will
be able to compare more readily the
various credit terms available to him
and avoid the uninformed use of
credit.’’ 15 U.S.C. 1601(a).
Furthermore, this rulemaking
promotes consumer comprehension of
financial disclosures. Section 1021(b) of
the Dodd-Frank Act authorizes the
Bureau to exercise its authorities to
ensure that, with respect to consumer
financial products and services,
‘‘consumers are provided with timely
and understandable information to
make responsible decisions about
financial transactions.’’ 12 U.S.C.
5511(b). Section 1032(a) of the DoddFrank Act provides the Bureau with the
218 Section 1419 of the Dodd-Frank Act, adding
section 128(a)(17) to TILA.
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authority to ‘‘prescribe rules to ensure
that the features of any consumer
financial product or service, both
initially and over the term of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.’’
12 U.S.C. 5532(a).
The proposed rule also is intended to
provide other benefits for consumers.
First, the new prototype disclosure
forms are simpler and more
comprehensible, and their design has
been refined to incorporate extensive
consumer and industry feedback
gathered through online tools and oneon-one testing across the country. See
part III, above. By conveying
information on key loan terms clearly,
the redesigned disclosure forms may
improve the ability of consumers to
shop for and compare mortgage terms
across loan offers and improve their
understanding of mortgage loan
transactions. Second, the proposed rule
seeks to improve consumers’ ability to
shop by more clearly delineating
between estimates regulated by TILA
and RESPA and non-binding
preapplication estimates. Third, the
proposed rule may reduce the
magnitude and frequency of changes in
costs between application and
consummation and may decrease the
likelihood that consumers will face
unexpected changes in costs due to
‘‘bait and switch’’ tactics.219
Lastly, the Bureau is seeking to
reconcile differences in the scope,
terminology, and requirements of TILA,
RESPA, and their current implementing
regulations. As discussed above, the
Dodd-Frank Act did not reconcile a
number of statutory differences between
TILA and RESPA (e.g., the different
requirements on the timing of
disclosures and which party is
responsible for providing the
disclosures), which the Bureau needs to
do in order to satisfy the mandate to
integrate the disclosures. Moreover, the
proposed rule clarifies and streamlines
aspects of the current rules that have
been identified as confusing by lenders,
mortgage brokers, mortgage companies,
and settlement agents, as well as for
consumers who receive the disclosures.
The Bureau believes that these
clarifications will resolve ambiguities,
eliminate redundant or unnecessary
disclosures, and more effectively
219 This discussion of the proposed rule’s benefits
to consumers is intended to be illustrative, not
exhaustive. Additional consumer benefits that may
result from the proposed rule are discussed in other
sections of the proposed rule.
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disclose mortgage loan terms and costs
to consumers.
The legal basis for the proposed rule
is discussed in detail in the legal
authority analysis in part IV and in the
section-by-section analysis in part VI,
above.
3. Description and, Where Feasible,
Provision of an Estimate of the Number
of Small Entities to Which the Proposed
Rule Will Apply
As discussed in the Small Business
Review Panel Report, for purposes of
assessing the impacts of the proposed
rule on small entities, ‘‘small entities’’ is
defined in the RFA to include small
businesses, small nonprofit
organizations, and small government
jurisdictions. 5 U.S.C. 601(6). A ‘‘small
business’’ is determined by application
of SBA regulations and reference to the
North American Industry Classification
System (NAICS) classifications and size
standards.220 5 U.S.C. 601(3). Under
such standards, banks and other
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220 The current SBA size standards are found on
SBA’s Web site at https://www.sba.gov/content/
table-small-business-size-standards.
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depository institutions are considered
‘‘small’’ if they have $175 million or less
in assets, and for other financial
businesses, the threshold is average
annual receipts (i.e., annual revenues)
that do not exceed $7 million.221
During the Small Business Review
Panel process, the Bureau identified six
categories of small entities that may be
subject to the proposed rule for
purposes of the RFA. These are the
categories of entities that may be
required to provide, and maintain
related records on, the integrated
disclosures, either because they may
make residential mortgage loans or
because they may be responsible for
completing or providing required
disclosures. The categories and the SBA
small entity thresholds for those
categories are: (1) Commercial banks 222
221 See
id.
purposes of the Bureau’s Small Business
Review Panel Outline circulated in advance of the
Panel Outreach Meeting, the categories of
commercial banks and savings institutions were
combined under the label ‘‘commercial banks.’’ The
list of SERs identified in chapter 7 of the Small
Business Review Panel Report includes one
representative of a savings institution.
222 For
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with up to $175,000,000 in assets, (2)
credit unions with up to $175,000,000
in assets, (3) mortgage brokers with up
to $7,000,000 in annual revenue, (4)
mortgage companies (non-bank lenders)
with up to $7,000,000 in annual
revenue, (5) settlement (closing) agents
with up to $7,000,000 in annual
revenue, and (6) nonprofit organizations
that are not for profit, independently
owned and operated, and not dominant
in the field.
Since the time the Small Business
Review Panel Report was completed,
some of the data sources that the Bureau
used to estimate the numbers of small
entities of different types have released
updated information and the Bureau has
revised some aspects of the estimation
procedure. The following table provides
the Bureau’s revised estimates of the
number and types of entities that may
be affected by the proposed rule: 223
223 In the Small Business Review Panel Report,
chapter 9.1, a preliminary estimate of affected
entities and small entities was included in a similar
format (a chart with clarifying notes). See Small
Business Review Panel Report at 26–27.
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4. Projected Reporting, Recordkeeping,
and Other Compliance Requirements of
the Proposed Rule, Including an
Estimate of the Classes of Small Entities
Which Will Be Subject to the
Requirement and the Type of
Professional Skills Necessary for the
Preparation of the Report
The proposed rule does not impose
new reporting requirements. The
proposed rule does, however, impose
new recordkeeping and compliance
requirements on certain small entities.
The requirements to integrate the TILA
and RESPA disclosures and the
imposition of new disclosure
requirements under the Dodd-Frank
Act, title XIV, appear specifically in the
Dodd-Frank Act, while the
recordkeeping requirements do not.
Thus, to a large extent, the impacts
discussed below are impacts of the
statute, not of the regulation per se—
that is, the Bureau discusses impacts
against a pre-statute baseline.
a. Reporting Requirements
The proposed rule does not impose
new reporting requirements.
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b. Recordkeeping Requirements
The proposed rule imposes new data
retention requirements for the Loan
Estimate and the Closing Disclosure by
requiring creditors to maintain evidence
of compliance in machine readable,
electronic format. The proposed
retention period is three years for the
Loan Estimates and five years for the
Closing Disclosures. See part VI above,
section-by-section analysis for proposed
§ 1026.25.
i. Benefits to Small Entities
A prescribed electronic format may
reduce costs across the entire mortgage
loan origination industry due to the
efficiency gains associated with a
standardized data format. Based on
industry feedback, the Bureau
understands that creditors, mortgage
brokers, title companies, investors, and
other mortgage technology providers use
systems with proprietary data formats.
As a result, data must be translated
between formats as it is transmitted
from one point to another throughout
the mortgage loan origination process. A
standard format should lower those
coordination costs. In addition, a
standard format may also facilitate
innovation in the financial services
industry by making it easier for
technology companies to create new
programs that improve the mortgage
origination process and lower industry
costs, instead of tailoring programs to
each firm’s unique proprietary data
format; may lower ongoing costs by
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facilitating industry adoption of
mortgage documentation technology
and reducing industry’s reliance on
paper files; and may ease the burden of
staff time and resources devoted to onsite supervisory examinations by
allowing for remote examinations of
compliance. All of these benefits may
reduce industry cost and burden in the
long run, thereby reducing costs to
consumers as well.
The Bureau is aware that there are
various efforts currently underway to
standardize the format for storage and
transmission of mortgage origination
related data. To the extent that the
Bureau’s proposal may advance these
efforts toward a standard electronic
record format, the proposal may help
eliminate multiple data formats, thereby
increasing efficiency in the origination
process, reducing industry costs in the
long term, and reducing costs to
consumers. Also, the Bureau is aware
that many firms currently face
significant internal costs for maintaining
multiple internal technological systems.
To the extent the Bureau’s efforts reduce
uncertainly regarding the eventual
standard, a single data format specified
by the Bureau may lower costs by
enabling creditors to migrate from older
data formats to a single, standard data
format.
ii. Costs to Small Entities
The proposed rule may result in costs
to small entities. Under current rules,
creditors must retain evidence of
compliance with the disclosure
requirements in Regulation X (i.e., a
copy of the RESPA settlement
statement) and Regulation Z (i.e.,
evidence of compliance generally) for
five years and two years, respectively,
but are not required to maintain such
evidence an electronic, machine
readable format. 12 CFR 1024.10(e);
1026.25. Based on industry feedback,
the Bureau understands that firms
currently rely on electronic systems for
most aspects of the mortgage loan
origination process, including electronic
record creation and storage. Not all
small creditors currently maintain data
in a machine-readable format, however,
and those who do may not retain it in
the format that may ultimately be
adopted. To comply with the proposed
record retention provisions, therefore,
creditors may be required to reconfigure
existing document production and
retention systems. For small creditors
that maintain their own compliance
systems and software, the Bureau does
not believe that adding the capacity to
maintain data in a standard machine
readable format will impose a
substantial burden, as the only
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requirement will be to output existing
data to a new format and then store that
data. The Bureau believes that the
primary cost will be one-time systems
changes that could be accomplished at
the same time that systems changes are
carried out to comply with the new
proposed Loan Estimate and Closing
Disclosure. Similarly, small creditors
that rely on vendors would likely rely
on vendor software and systems to
comply with the data retention
requirement; at least one vendor already
offers indefinite data storage to
customers that use their web-based
compliance tool.
The Bureau understands, however,
that requiring standardized, electronic
records may be a significant burden for
small creditors that do not currently
have such electronic filing systems or
use vendor software. To reduce the
burden on small entities, the Bureau is
considering an exemption from the
electronic data retention requirements.
See part VI above, section-by-section
analysis for proposed § 1026.25.
c. Compliance Requirements
The proposal contains both specific
proposed provisions with regulatory or
commentary language (proposed
provisions) as well as requests for
comment on modifications where
regulatory or commentary language was
not specifically included (additional
proposed modifications). The analysis
below considers the benefits, costs, and
impacts of the following major proposed
provisions and the additional proposed
modifications on small entities:
1. The integration of the initial and
closing disclosures (the Loan Estimate
and Closing Disclosure, respectively),
2. The definition of application,
3. The disclaimer on pre-application
written estimates,
4. Permissible changes to settlement
costs and re-disclosure of initial
disclosures,
5. Provision of the Closing Disclosure,
6. The definition of the finance
charge, and
7. Implementation of new disclosures
mandated by the Dodd-Frank Act.
The analysis examines the benefits,
costs, and impacts of the major
provisions of the proposed rule against
a pre-statutory baseline. This means that
to the extent there are benefits, costs, or
other relevant impacts emanating from
the relevant provisions of the DoddFrank Act, those are combined with the
benefits, costs, and impact of the
regulation itself in conducting this
analysis. The Bureau has discretion in
future rulemakings to choose the most
appropriate baseline for that particular
rulemaking.
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The Bureau generally requests
comment on the proposed provisions
and additional proposed modifications
and on the Bureau’s assessment of the
benefits, costs, and impacts on small
entities of the major proposed
provisions and additional proposed
modifications.
i. Integrated Initial and Closing
Disclosures
The proposed rule requires that the
Loan Estimate be provided to consumers
within three business days after receipt
of the consumer’s application, to replace
the early TILA disclosure and RESPA
GFE, and that the Closing Disclosure be
provided to consumers at least three
business days prior to consummation, to
replace the final TILA disclosure and
RESPA settlement statement. As
discussed above, TILA authorizes the
Bureau to publish model forms for the
TILA disclosures, while RESPA
authorizes the Bureau to require the use
of standard forms (e.g., the prescribed
RESPA GFE and settlement statement
forms). Accordingly, the Bureau is
proposing to require the use of standard
Loan Estimate and Closing Disclosure
forms for mortgage loan transactions
that are subject to RESPA, other than
reverse mortgages. For transactions that
are subject only to TILA, however, the
forms would be model disclosures,
consistent with the provisions of that
statute. The proposed rule also
incorporates prior informal guidance
regarding compliance with HUD’s 2008
Final RESPA Rule into Regulation Z and
official commentary, as necessary and
appropriate.
Benefits to Small Entities. The
integration of the early TILA disclosure
and the RESPA GFE, and the revised
TILA disclosure and the RESPA
settlement statement, may benefit small
entities, including small creditors,
mortgage brokers, and settlement agents
that provide the disclosures. It will
reduce the number of disclosures that
covered persons need to prepare and
provide and the number of disclosureprovision systems and processes that
covered persons need to maintain. In
addition, the three-page Loan Estimate
would replace a three-page RESPA GFE
and two-page early TILA disclosure, as
well as incorporate other new disclosure
requirements in the Dodd-Frank Act
that might otherwise be provided
separately.
Most small entities that participated
in the Small Business Review Panel
process stated that the integrated forms
would make it easier to explain
transactions to consumers. One letter
from several small entity settlement
agents indicated that the new forms
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could actually lead to more questions
during a closing; however, the Bureau is
alternatively proposing and soliciting
comment on removing from the
integrated forms certain disclosures,
such as the total interest percentage and
costs of funds, which may be difficult to
explain to consumers. Information
submitted by several settlement agents
indicates that requiring the use of
standard forms and providing clearer
regulatory guidance could save as much
as 30 minutes per closing by
standardizing practices across lenders
and reducing confusion. Based on an
industry estimate of a typical hourly
wage of a settlement agent of $31 per
hour, this translates into a dollar savings
from the simplified closing forms of
$16.50 per closing. Some portion of
these savings would likely be passed on
to the consumers.
The integrated disclosures also permit
creditors to consolidate certain
numerical calculations. For example,
Regulations Z and X currently require
two different calculations for the
disclosure of monthly payment
information on the early TILA
disclosure and the RESPA GFE. The
integrated Loan Estimate consolidates
these calculations into one monthly
payment disclosure, which may
facilitate compliance and ease burden
on small entities. Other examples of
overlapping but potentially different
numerical disclosures required under
Regulations Z and X include
information about balloon payments
and prepayment penalties.
Costs to Small Entities. The integrated
Loan Estimate and the Closing
Disclosure would result in certain
compliance costs to small entities. The
Bureau believes that many of the costs
of complying with these requirements
would be common across the two
disclosures, and therefore discusses
them together here. In addition, the
Bureau believes that these costs would
consist primarily of one-time costs to
revise software and compliance systems,
as other costs of compliance should not
vary significantly from the costs of
complying with existing regulations.
Small entities would need to adapt
their software and compliance systems
to produce the new forms. In addition
to changing the format of the required
forms, the new proposed forms would
include several new disclosures that are
required by the Dodd-Frank Act. The
Bureau believes that this additional
information would be added to the
forms as part of the process of adapting
software and compliance systems to
produce the new forms, and therefore
does not provide separate estimates for
the costs of this additional information.
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Based on information provided by
creditors and by software vendors, the
Bureau believes that, in general, small
creditors primarily rely on software and
compliance systems provided by
outside vendors. Based on industry
feedback, the Bureau believes that that
95 percent of creditors outside the top
20 rely on vendors, and it is likely the
case that the percentage of small
creditors using vendors is even higher
than this. The use of vendors by small
creditors will substantially mitigate the
costs of revising software and
compliance systems, as the efforts of a
single vendor would address the needs
of a large number of creditors. Based on
discussions with a leading mortgage
origination technology provider, the
Bureau believes that these updates
would likely be included in regular
annual updates, and therefore the costs
would not be directly passed on to the
client creditors. More than 95 percent of
small creditors, therefore, would not
pay directly for software updates to
comply with the new rules.
Based on small entities that
participated in the Small Business
Review Panel process, the Bureau
estimates that smaller creditors that
maintain their own compliance software
and systems would incur costs of
roughly $100,000 to determine what
changes need to be made and to update
their systems to comply with the
proposal.224 The total cost for these
smaller creditors that maintain their
own compliance software and systems
is therefore
$100,000*9,807*5%=$49,000,000
(rounded to the nearest $100,000). As
noted above, the share of small entities
that maintain their own compliance
software and systems is likely less than
five percent, so this is likely an overestimate of the costs of revising these
systems.
Covered persons would incur onetime costs associated with training
employees to use new forms and any
new compliance software and systems.
The Bureau estimates that each loan
officer or other loan originator will need
to receive two hours of training, and
that one trainer would be needed for
each ten trainees. Assuming the same
ratio of loan officers to originations at
small creditors as for the industry as a
whole, the Bureau estimates that there
are 20,000 loan officers that would need
training at these institutions.225 Based
224 Small entities that participated in the Small
Business Review Panel process provided a wide
range of estimates. See Small Business Review
Panel Report at 17–20.
225 Originations estimates based on analysis of
HMDA, SNL Call Reports, NCUA Call Reports, and
NMLS Call Reports.
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on data from the Bureau of Labor
Statistics, the Bureau estimates that the
average total compensation is $46 per
hour for a loan officer and $39 per hour
for a trainer, for a total training cost of
(20,000*2*$46)+(2,000*2*$39) =
$2,000,000 (rounded to the nearest
100,000).
Taken together, the Bureau estimates
that the total one-time costs for small
entities of complying with the proposed
Loan Estimate and Closing Disclosure
would be roughly $51,000,000. As
discussed above, firms are expected to
amortize this cost over a period of years
and in this analysis all costs are
amortized over five years, using a
simple straight-line amortization.
Amortizing this one-time cost of
compliance over five years yields an
annual cost of $10,200,000. The Bureau
estimates that these creditors made
roughly 1.4 million originations in 2010.
The estimated annualized one-time cost
is therefore less than $8 per origination.
ii. Definition of Loan Application
The proposed rule revises the
regulatory definition of loan application
to encourage earlier provision of the
Loan Estimate to consumers.
Under TILA and RESPA, a creditor or
mortgage broker is not required to
provide the good faith estimates of loan
terms and settlement costs in the early
TILA disclosure and RESPA GFE until
it has received an ‘‘application.’’ As
discussed more fully in part VI above,
section-by-section analysis for proposed
§ 1026.2(a)(3), under current
regulations, the receipt of the following
information by the creditor or mortgage
broker constitutes receipt of an
‘‘application’’: (1) Borrower’s name; (2)
monthly income; (3) social security
number to obtain a credit report; (4) the
property address; (5) an estimate of the
value of the property; (6) loan amount
sought; and (7) any other information
deemed necessary by the lender. The
seventh item could allow creditors and
mortgage brokers to delay providing the
integrated Loan Estimate until relatively
late in the loan process by delaying
collection of information deemed
‘‘necessary.’’ The Bureau understands
that some creditors currently provide
non-binding written estimates of loan
terms or settlement charges prior to
issuing the early TILA disclosure or
RESPA GFE. The current rules
encourage creditors and mortgage
brokers to provide the good faith
estimates early in the loan process by
prohibiting creditors from collecting any
fees from a consumer (other than a
credit report fee) until the estimates are
provided. To further encourage early
provision of estimates, the proposed
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rule removes the seventh item (‘‘any
other information deemed necessary by
the lender’’) from the definition of
‘‘application.’’
Costs to Small Entities. The Bureau
understands that eliminating creditors’
and mortgage brokers’ ability to wait to
provide a good faith estimate until after
they receive ‘‘any other information
deemed necessary’’ could increase the
burden on small creditors and mortgage
brokers to the extent that it causes them
to issue more Loan Estimates than they
would under the current definition of
application. If a creditor or mortgage
broker obtains additional information
from the consumer after the Loan
Estimate has been issued that affects the
costs of the settlement service for the
loan, the creditor may need to issue a
revised Loan Estimate. The Bureau is
unaware of information that would
allow it to estimate how often this
would occur. The Bureau believes,
however, if this were to impose
substantial costs, creditors and mortgage
brokers would mitigate this by adjusting
their business practices surrounding the
receipt of applications to gather other
important information prior to, or at the
same time as, they obtain the six items
that together constitute an
‘‘application.’’ As discussed in part
VII.F, above, the Bureau is working to
obtain such data prior to issuing a final
rule and is seeking comment on its
plans for data analysis, as well as
additional data and comment relevant to
this issue.
iii. Disclaimer on Pre-Application
Estimates
The Bureau is proposing to require
that any pre-application, consumerspecific written estimate of loan terms
or settlement charges contain a
prominent disclaimer indicating that the
document is not the Loan Estimate
required by TILA and RESPA. This
requirement would not apply to general
advertisements.
Costs to Small Entities. To the extent
small creditors and mortgage brokers
currently provide such pre-application
written estimates to consumers they
would bear the costs of adding a
disclaimer to those communications.
However, the Bureau expects such costs
to be de minimis since the Bureau is
proposing a brief, standard statement for
use by creditors, which should not
require significant redesign of existing
estimate materials or require additional
pages.
iv. Changes in Settlement Costs/
Redisclosures
The proposed rule revises current
rules regarding the circumstances in
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which a consumer may be charged more
at closing for settlement services than
the creditor estimated in the disclosure
provided to the consumer three business
days after application.
As discussed more fully in part VI,
section-by-section analysis for proposed
§ 1026.19(e)(3), HUD’s 2008 RESPA
Final Rule limits the circumstances in
which a creditor can charge the
consumer more at consummation for
settlement services than the creditor
estimated in the RESPA GFE provided
to the consumer three business days
after application. These rules generally
place charges into three categories: the
creditor’s charges for its own services,
which cannot exceed the creditor’s
estimates unless an exception applies
(‘‘zero tolerance’’); charges for
settlement services provided by third
parties, which cannot exceed estimated
amounts by more than ten percent
unless an exception applies (‘‘ten
percent tolerance’’); and other charges
that are not subject to any limitation on
increases (‘‘no tolerance’’). The rule
permits certain limited exceptions in
which higher charges are permitted,
such as when the consumer requests a
change, when the RESPA GFE expires,
or when valid changes in circumstance
occur. The Bureau is aware of concerns
that HUD’s 2008 RESPA Final Rule is
both too lax and too restrictive, and also
that the rule is difficult to understand.
The proposed rule attempts to address
these concerns by balancing the
objective of improving the reliability of
the estimates creditors give consumers
shortly after application with the
objective of preserving creditors’
flexibility to respond to unanticipated
changes that occur during the loan
process. Specifically, the proposed rule
applies the zero tolerance category to a
larger range of charges, including fees
charged by an affiliate of the creditor
and charges for services for which the
creditor does not permit the consumer
to shop. A service provider would be
considered selected by the creditor if
consumers are required to choose only
from a list of service providers prepared
by the creditor (i.e., if consumers are not
permitted to shop for their own
provider).
For a sense of the scale of the
potential impact, it is worth considering
an extreme hypothetical example where
all of the settlement services move from
the ten percent tolerance category to the
zero tolerance category. This is unlikely
to happen in practice, but illustrates the
largest possible effect of the regulatory
change. For a loan with a total of $3,000
in settlement costs the maximum effect
of the proposal would be that the
creditor could not pass on $300 in cost
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increases that occurred without an
exception allowing the increase to be
passed on the consumers.
Benefits to Small Entities. Small
entities may benefit from the proposed
rule because it reduces compliance
burden by resolving current regulatory
ambiguities. For example, the proposed
rule makes clear that creditors need not
reissue Loan Estimates unless and until
the costs that are subject to the ten
percent tolerance standard increase
based on valid changes in circumstance
by more than ten percent in total. The
proposed rule also revises the rule and
provides more guidance to facilitate use
of average cost pricing and reconciles
certain inconsistences between RESPA
and TILA terminology. The proposed
rule further streamlines and clarifies
HUD’s 2008 RESPA Final Rule by
incorporating prior HUD guidance into
Regulation Z and its commentary, as
necessary and appropriate. Further, to
the extent the proposed rule reduces
unnecessary redisclosure of the RESPA
content currently provided on the GFE,
the rule would decrease costs to
creditors, although the extent to which
the proposed rule would have such an
effect is unknown. Reducing
unnecessary redisclosure may also
benefit consumers, to the extent that
redisclosures lead to consumer
confusion.
The Bureau is not aware of reliable
data showing how often creditors are
providing additional disclosures that are
not required by the current rule and that
they would no longer send if the rules
are clarified. As discussed in part VII.F,
above, the Bureau is working to obtain
such data prior to issuing a final rule
and is seeking comment on its plans for
data analysis, as well as additional data
and comment relevant to this issue.
Some creditors, however, have reported
that additional clarity regarding
redisclosure requirements for the
RESPA GFE and average cost pricing
would reduce the cost of compliance, in
part, by reducing confusing over when
redisclosure is permitted or required,
and thereby reducing the need for legal
advice.
Costs to Small Entities. The Bureau
understands that small entities may
experience increased costs as a result of
the proposal to apply the zero tolerance
category to a larger range of charges.
Since the proposed rule would expand
the circumstances in which creditors
could not pass increased costs to
consumers when the initial estimate is
lower than the actual costs but there is
not a legitimate change in circumstances
or other exception, creditors may be
required to absorb more costs. This
impact should be mitigated to the extent
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creditors are in a position to know the
typical charges of affiliated firms and
firms they engage repeatedly and
require consumers to use, and can
therefore provide estimates that are
accurate when there is no changed
circumstance. As discussed above, the
Bureau is unaware of any data that can
provide reliable market-wide estimates
of the prevalence of changes between
early TILA disclosures and RESPA GFEs
and final loan terms and closing costs,
and the causes of those changes.
Therefore, the Bureau cannot provide
estimates of how often creditors would
have to absorb higher than expected
costs that cannot be attributed to a
changed circumstance. As discussed
above, however, even in circumstances
where settlement costs increase
substantially and the creditor is unable
to pass those charges on to the
consumer, the difference between a ten
percent tolerance and a zero tolerance
will be limited.
The Bureau also understands that the
proposed rule may result in increased
use of affiliated service providers, so
that creditors can more directly control
changes in settlement costs, which
could have a negative impact on
independent providers who are
typically small entities. Some have
argued that the negative impact on
independent providers could lead to
reduced competition for settlement
services and ultimately higher costs.
The Bureau is unaware of any evidence
to suggest that costs are likely to
increase in this way. Alternatively, the
proposed rule may encourage creditors
to allow consumers to choose settlement
service providers that are not on a list
provided to the consumer (although in
this case the creditor would be required
to provide consumers with a list of
settlement service providers that the
consumers could use, if they so choose),
so that the zero tolerance requirement
would not apply. This would appear to
benefit independent service providers,
or at least be neutral relative to current
practices.
v. Provision of Closing Disclosure
The proposed rule requires delivery of
the integrated Closing Disclosure three
business days before consummation in
all cases. However, the Bureau is
proposing two alternative approaches
for assigning responsibility for
providing the integrated Closing
Disclosure to the consumer. Alternative
1 places sole responsibility for provision
of the Closing Disclosure on the
creditor, while Alternative 2 makes the
creditor and settlement agent jointly
responsible for providing the Closing
Disclosure.
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Timing of Closing Disclosure Provision
TILA and RESPA establish different
timing requirements for disclosing final
loan terms and costs to consumers. As
discussed more fully in part VI above,
section-by-section analysis for proposed
§ 1026.19(f), TILA generally provides
that, if the early disclosures contain an
APR that is no longer accurate, the
creditor shall furnish an additional,
corrected disclosure to the consumer
not later than three business days before
consummation. RESPA, on the other
hand, requires that the final statement of
loan costs and terms is provided to the
consumer at or before settlement. To
meet the Dodd-Frank Act’s mandate to
integrate the disclosures required by
TILA and RESPA, and to better facilitate
consumer understanding of the costs,
the proposed rule would require
delivery of the integrated Closing
Disclosure three business days before
closing in all circumstances. However,
to prevent unnecessary closing delays,
the proposed rule would permit limited
changes after provision of the Closing
Disclosure to reflect common
adjustments, such as changes to
recording fees. In addition, reissuance of
the Closing Disclosure and an additional
three-business day waiting period
would not be required if, during the
three business days after issuance of the
Closing Disclosure, the amount needed
to close shown on the Closing
Disclosure increases by $100 or less.
Costs to Small Entities. The proposal
to require provision of the Closing
Disclosure three business days prior to
consummation in all circumstances may
result in closing delays. In extreme
cases, such delays could cause a
transaction to fall through if a consumer
is under a contractual obligation to close
by a certain date. Creditors and closing
agents, however, currently coordinate to
provide RESPA closing documents at
closing. Both closing agents and
creditors would have incentives to
complete closings as scheduled, and
therefore the Bureau believes that they
would adjust their business practices
such that the Closing Disclosure could
be provided in a timely manner and
closing problems would be infrequent. If
the requirement does lead to delayed or
canceled closings, this would impose
costs on small entities. Such closing
delays could result in loss of revenue for
transactions that fall through due to a
delay. The proposed rule may also
create legal and reputational risks for
creditors or settlement agents that are
unable to close loans as planned.
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TILA and RESPA require that
different parties provide the final
disclosures to consumers. Specifically,
TILA requires the creditor to provide
the TILA disclosures to consumers,
while RESPA requires that the person
conducting the settlement provide the
final statement of settlement costs to the
consumer. However, section 1419 of the
Dodd-Frank Act amended TILA to make
creditors responsible for disclosing
settlement cost information. See TILA
section 128(a)(17). To reconcile these
statutory differences and implement
TILA section 128(a)(17), the Bureau is
proposing two alternative approaches
for assigning responsibility for provision
of the integrated Closing Disclosure to
consumers. Under Alternative 1, the
creditor would be solely responsible for
delivering the Closing Disclosure to the
consumer. Under Alternative 2, the
creditor and settlement agent would be
jointly responsible for providing the
consumer with an integrated Closing
Disclosure three business days before
closing.
Benefits to Small Entities. Because the
difference between Alternatives 1 and 2
is about which party would be
responsible for providing a disclosure,
the relative benefits of each proposal to
different small entities are likely to
consist of avoided costs. The most
useful way to consider these
alternatives, therefore, is to consider
their respective costs.
Costs to Small Entities—Alternative 1.
Alternative 1 would likely place
increased costs on creditors, including
small creditors. As discussed above,
RESPA and current Regulation X require
that the person conducting the
settlement provide the RESPA-required
disclosures to consumers at or before
consummation. Since, under Alternative
1, the creditor would be responsible for
provision of both the TILA and RESPA
content to the consumer, the creditor
would incur additional logistical burden
and legal risk.226 Small creditors and
226 As described in part VII, above, two major
vendors currently provide software services to the
vast majority of small mortgage originators to
produce the RESPA GFE and initial TILA
disclosures. RESPA settlement statements are
currently issued by settlement agents using software
provided a different, but similarly small, set of
vendors; however, the Bureau understands that the
originators’ systems are capable of producing the
RESPA settlement statements. As a result, the
Bureau believes that it is reasonable to measure
costs assuming that the originators’ vendors will
provide both the Loan Estimate and the Closing
Disclosure to their clients under existing contracts.
Were the current software providers for settlement
agents to have to update their systems (under the
second alternative or under other contractual
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settlement agents may incur one-time
legal fees under Alternative 1, since
those entities may need to contractually
stipulate their respective duties or
amend existing contractual
arrangements in light of the rule. Small
creditors may also need to hire
additional staff to handle the increased
workload associated with collecting the
settlement costs and coordinating with
the settlement agents and third party
service providers and preparing the
disclosures. Since the current regulatory
scheme of split responsibility, as well as
the different roles of creditors and
settlement agents in the transaction,
already requires a great deal of
coordination, it is not clear that giving
the creditor sole responsibility for
providing the disclosures would impose
much additional burden. As a general
matter, shifting responsibility for
delivery of final RESPA disclosures
from settlement agents to creditors may
change the role of settlement agents,
though the exact impact of such a rule
is unclear. Settlement agents play a
unique role in working through local
real estate transaction requirements and
practices, which creditors may be
unlikely to take on.
Costs to Small Entities—Alternative 2.
The costs to creditors and to settlement
agents under the proposed alternative
that gives joint responsibility for
provision of the Closing Disclosure to
creditors and settlement agents would
depend on how creditors and settlement
agents go about fulfilling the joint
requirement. Joint provision would
likely require coordination on the part
of creditors and settlement agents
similar to what is done today. One
additional cost, however, may entail reworking that coordination to adjust to
the new forms and timing requirement
(discussed above).
vi. Expanded Definition of Finance
Charge
The proposed rule expands the
definition of the finance charge for
closed-end transactions secured by real
property or a dwelling, consistent with
the Board’s 2009 Closed-End Proposal.
As discussed more fully in part VI
above, section-by-section analysis for
proposed § 1026.4, TILA and current
Regulation Z exclude many types of
charges from the finance charge,
particularly for mortgage transactions.
Concerns have long been raised that
these exclusions undermine the
potential usefulness of the finance
charge and corresponding APR as a tool
for consumers to compare the total cost
arrangements), those vendors would have to incur
the stated costs.
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51291
of one loan to another. In addition, these
exclusions create compliance burden
and litigation risk for creditors and may
encourage creditors to shift the cost of
credit to excluded fees, a practice that
is inefficient.
The Bureau recognizes that the
proposed more inclusive finance charge
could affect coverage under other laws,
such as such as higher-priced mortgage
loan and HOEPA protections, and that
a more inclusive finance charge has
implications for the HOEPA, Escrows,
Appraisals, and Ability to Repay
rulemakings identified in part II.F
above. Absent further action by the
Bureau, the more inclusive finance
charge would:
• Cause more closed-end loans to
trigger HOEPA protections for high-cost
loans.227 The protections include
special disclosures, restrictions on
certain loan features and lender
practices, and strengthened consumer
remedies. The more inclusive finance
charge would affect both the points and
fees test (which currently uses the
finance charge as its starting point) and
the APR test (which under Dodd-Frank
will depend on comparisons to APOR)
for defining what constitutes a high-cost
loan.
• Cause more loans to trigger DoddFrank Act requirements to maintain
escrow accounts for first-lien higherpriced mortgage loans. Coverage
depends on comparing a transaction’s
APR to the applicable APOR.
• Cause more loans to trigger DoddFrank Act requirements to obtain one or
more interior appraisals for ‘‘higherrisk’’ mortgage loans. Coverage depends
on comparing a transaction’s APR to the
applicable APOR.
• Reduce the number of loans that
would otherwise be ‘‘qualified
mortgages’’ under the Dodd-Frank Act
Ability to Repay requirements, given
that qualified mortgages cannot have
points and fees in excess of three
percent of the loan amount. Also, more
loans could be required to comply with
separate underwriting requirements
applicable to higher-priced balloon
loans, and could be ineligible for certain
exceptions authorizing creditors to offer
prepayment penalties on fixed-rate,
non-higher-priced qualified mortgage
loans.228 Again, status as a higher227 See part VII.D.7 above, for a detailed
description of the potential effects of an expanded
finance charge on the HOEPA rulemaking.
228 Specifically, the Dodd-Frank Act generally
prohibits prepayment penalties on closed-end,
dwelling-secured mortgage loans, except on fixedrate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank
Act generally requires creditors to assess
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priced mortgage loan depends on
comparing APR to APOR.
As discussed above in part VI,
section-by-section analysis for proposed
§ 1026.4 and in part VII, the Bureau is
seeking data to model the impact of the
more expansive definition of finance
charge on coverage of each of these
regulatory regimes or the impact of
potential modifications that the Bureau
could make to the triggers to more
closely approximate existing coverage
levels.229 The Bureau is working to
obtain such data prior to issuing a final
rule and is seeking comment on its
plans for data analysis, as well as
additional data and comment on the
potential impacts of a broader finance
charge definition and potential
modifications to the triggers.
The Board previously proposed to
address these effects by adopting an
adjusted points and fees definition and
a new metric for determining coverage
under APR thresholds, known as the
‘‘transaction coverage rate’’ (TCR). The
TCR would be based on a modified
prepaid finance charge that would
include only finance charges retained by
the creditor, mortgage broker, or their
affiliates, and would therefore more
closely approximate existing coverage
levels than a more inclusive finance
charge. See 76 FR 27390, 27411–12
(May 11, 2011); 76 FR 11598, 11608–09
(Mar. 2, 2011); 75 FR 58539, 58660–61
consumers’ ability to repay a higher-priced loan
with a balloon payment using the scheduled
payments required under the terms of the loan
including any balloon payment, and based on
income and assets other than the dwelling itself.
Only consumers with substantial income or assets
would likely qualify for such a loan. A separate
Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly
in rural or underserved areas is not affected by the
finance charge issue.
229 In its 2009 proposal, the Board relied on a
2008 survey of closing costs conducted by
Bankrate.com that contains data for hypothetical
$200,000 loans in urban areas. Based on that data,
the Board estimated that the share of first-lien
refinance and home improvement loans that are
subject to HOEPA would increase by .6 percent if
the definition of finance charge was expanded, and
that the share of first-lien loans in the range of
typical home purchases or refinancings ($175,000 to
$225,000) that qualified as higher-priced mortgage
loans would increase by 3 percent. The Board also
looked at the impact on two states and the District
of Columbia because their anti-predatory lending
laws had triggers below the level of the historical
HOEPA APR threshold, which is benchmarked to
U.S. Treasury securities. The Board concluded that
the percentage of first-lien loans subject to those
laws would increase by 2.5 percent in the District
of Columbia and 4.0 percent in Illinois, but would
not increase in Maryland. The Bureau is
considering the 2010 version of the Bankrate.com
survey, but as described in this notice, the Bureau
is also seeking additional data that would provide
more representative information regarding closing
and settlement costs that would allow for a more
refined analysis of the proposals.
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(Sept. 24, 2010).230 The Bureau has
incorporated these measures into its
2012 HOEPA Proposal, and is seeking
comment both in that proposal and this
rulemaking on additional trigger
modifications that could approximate
coverage levels under the existing
definition of finance charge, such as
adjusting the numeric percentage point
triggers for APR under HOEPA or other
regimes.
If the adjusted points and fees
definition, the TCR, or other trigger
modifications were adopted in the other
rules, the more inclusive finance charge
definition would have little or no effect
on coverage under those rules although
there might still be effects from the
expanded definition of finance charge
on the coverage of various State
mortgage laws and regulations. In
addition, because the TCR excludes fees
to unaffiliated third parties, the TCR
might result in some loans not triggering
one or more of the regulatory regimes
discussed above that would qualify
under an APR threshold using the
current definition of finance charge.231
The discussion of the costs and benefits
of a more inclusive definition of finance
charge, below, assumes that the Bureau
does not adopt the adjusted points and
fees definition, the TCR, or other
methods of addressing the impact of a
more inclusive approach to the finance
charge in the other rulemakings. If the
Bureau does adopt those measures, the
effects of the proposed definition of
finance charge would be muted. For
instance, the benefits of a simpler APR
calculation may be lessened if creditors
are required to use different metrics for
purposes of disclosure and for
determining coverage under various
regulatory regimes, although as
discussed below with regard to
transaction coverage rate both metrics
would be easier to calculate than APR
using the existing definition of finance
230 The wording of the Board’s proposed
definition of ‘‘transaction coverage rate’’ varied
slightly between the 2010 Mortgage Proposal and
the 2011 Escrows Proposal as to treatment of
charges retained by mortgage broker affiliates. In its
2012 HOEPA Proposal, the Bureau proposes to use
the 2011 Escrows Proposal version, which would
include charges retained by broker affiliates.
231 As discussed above in part VI, section-bysection analysis for proposed § 1026.4, the Bureau
believes that the margin of differences between the
TCR and current APR is significantly smaller than
the margin between the current APR and the APR
calculated using the expanded finance charge
definition because relatively few third-party fees
would be excluded by the TCR that are not already
excluded under current rules. The Bureau is
considering ways to supplement the data analysis
described above to better assess this issue, and
seeks comment and data regarding the potential
impacts of the TCR relative to APR calculated using
the current and proposed definitions of finance
charge.
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charge. In addition, the effects (both
benefits and costs) through expanded
coverage of those other rules would be
eliminated or (in the case of TCR)
somewhat reduced.
Benefits to Small Entities
The proposed rule may benefit small
entities by easing regulatory burden and
litigation risk associated with the
current complex rules for determining
which fees are part of the finance
charge. Because the current rules for
determining which fees are part of the
finance charge are complicated and
unclear, creditors will benefit from a
simpler, more inclusive definition. In
particular, feedback received by the
Bureau and comments on a similar
proposal issued by the Board in the
2009 indicate that, because a failure to
calculate the finance charge and the
APR accurately gives rise to the right of
rescission, creditors incur substantial
compliance costs attempting to make
accurate calculations and incur
substantial litigation costs defending
against claims of inaccurate
calculations.
Costs to Small Entities
To comply with the proposed rule,
small entities may be required to update
compliance systems to reflect changes to
the finance charge calculation. These
updates may involve one-time costs
associated with software updates, legal
expenses, and personnel training time.
As discussed above, if the Bureau
adopts the proposal, it expects to
provide an implementation period that
would coincide either with
implementation of the disclosure
modifications or with implementation
of certain changes to coverage of
HOEPA and other regulatory regimes
that would be affected by the change in
definition. Accordingly, the Bureau
believes that software changes and other
expenses would be incurred as part of
the overall software and compliance
system revisions required to comply
with the other simultaneous changes,
and therefore would not impose a
substantial additional burden.
As discussed above, the proposed rule
if it were implemented without
modifications to the triggers for various
regulatory regimes might cause more
loans to cross Federal and State high
cost or high priced loan thresholds
based on APR or points and fees. With
respect to the HOEPA and Appraisals
rulemakings, creditors may incur costs
associated with generating and
providing HOEPA and appraisal
disclosures for additional loans.
Creditors may incur additional costs in
the context of the Appraisals
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rulemaking because the Dodd-Frank Act
prohibits creditors from charging
consumers for second appraisals
conducted in connection with certain
properties that have been sold in the last
180 days. Similarly, in the context of the
Escrows rulemaking, creditors may
incur costs associated with maintaining
escrow accounts on more transactions if
not subject to other exceptions provided
by the Dodd-Frank Act. With respect to
the Ability to Repay rulemaking,
creditors may incur costs associated
with making fewer loans with
prepayment penalties, or may incur
costs from the additional underwriting
requirements and/or liability associated
with making more loans that are higherpriced balloon loans or that are not
qualified mortgages.
In addition, a small number of
creditors may also lose a very small
fraction of revenue if they are reluctant
to make high-cost, higher-priced, or
higher-risk mortgage loans and cannot
offer alternatives that are as profitable as
those loans.
As discussed in more detail in the
2012 HOEPA Proposal, modifying the
triggers would require some one-time
implementation costs and would create
some additional compliance complexity
if creditors must use different metrics
for disclosure purposes and for
determining coverage under particular
regulatory regimes. However, with
regard to the transaction coverage rate,
the Bureau believes that such impacts
would be addressed by the fact that both
TCR and APR using the expanded
definition of finance charge would be
easier to calculate than APR under the
current definition. On balance, the
Bureau believes adoption of the
proposed trigger modifications would
reduce the economic impacts on small
entities of the more expansive definition
of finance charge.
vii. Implementation of New Disclosures
Mandated by the Dodd-Frank Act
The proposed rule exempts creditors
temporarily from compliance with
certain new disclosure requirements
added to TILA and RESPA by the DoddFrank Act until the TILA–RESPA rule
takes effect.
As discussed more fully in part V.B,
above, title XIV of the Dodd-Frank Act
adds new disclosure requirements to
TILA and RESPA for mortgage
transactions. Although the Dodd-Frank
Act does not specifically require
inclusion of all of these new disclosures
in the Loan Estimate and the Closing
Disclosure, the Bureau believes these
disclosures should be included in the
integrated forms because doing so
would improve the overall effectiveness
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of the integrated disclosure, which may
benefit consumers and covered persons,
and also reduce burden on covered
persons. Finalizing the rules
implementing these title XIV
disclosures simultaneously with the
final TILA–RESPA rule would avoid
unnecessary regulatory burden by
preventing creditors from having to
implement multiple rounds of
disclosure rules. The Bureau does not
anticipate additional costs to covered
persons as a result of delayed
implementation of the new disclosure
requirements, although, as noted above,
small entities may incur additional
recurring costs associated with
calculating and disclosing this
additional information to consumers
once the implementing rules take effect.
viii. Costs Associated with Reviewing
the Regulation
Small entities will need to learn about
the requirements of the regulation and
determine what changes to their
business practices they would be
required to make to come into
compliance. These costs will vary
considerably across institutions,
depending on the size and complexity
of their operations. In addition, some
firms will rely on their own staff to
conduct this analysis, while others will
rely on outside counsel, industry
sources, or compliance firms. Firms that
use compliance systems provided by
outside vendors, especially smaller
creditors, will likely rely in large part on
those vendors to determine what
changes they need to make, reducing the
burden on those creditors.
d. Estimate of the Classes of Small
Entities Which Will Be Subject to the
Requirement and the Type of
Professional Skills Necessary for the
Preparation of the Report or Record
Section 603(b)(4) of the RFA requires
an estimate of the classes of small
entities which will be subject to the
requirement. The classes of small
entities which will be subject to the
recordkeeping and compliance
requirements of the proposed rule are
the same classes of small entities that
are identified above in part VIII.B.3.
Section 603(b)(4) of the RFA also
requires an estimate of the type of
professional skills necessary for the
preparation of the reports or records.
The Bureau does not anticipate that,
except in certain rare circumstances,
any professional skills will be required
for recordkeeping and other compliance
requirements of this proposed rule that
are not otherwise required in the
ordinary course of business of the small
entities affected by the proposed rule.
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Part VIII.B.4.b and 4.c summarize the
recordkeeping and compliance
requirements of the proposed rule that
would affect small entities.
With regard to the proposed
recordkeeping requirements, the SERs
reported that they generally use vendorsupplied computer systems to prepare
the TILA and RESPA disclosures and
retain scanned images of those
disclosures electronically, but they do
not retain those records in a machine
readable format.232 As discussed above,
however, the Bureau believes that
vendors will update their software and
provide small creditors with the ability
to retain the required data. The one
situation in which a small entity would
require professional skills that are not
otherwise required in the ordinary
course of business would be if a small
creditor does not use computerized
systems to store loan information and
therefore will either need to hire staff
with the ability to implement a
machine-readable data retention system
or contract with one of the vendors that
provides this service.
With regard to the proposed
compliance requirements, as discussed
above, the Bureau understands that,
based on feedback from the SERs, the
small entities that will be affected by the
proposed rule will continue to perform
the basic functions that they perform
today: generating disclosure forms (and
answering consumers’ questions about
them), taking loan applications,
redisclosing estimates of settlement
costs, providing final disclosures,
maintaining recordkeeping systems that
store documents electronically (but not
necessarily in a machine readable
format), and maintaining systems to
calculate the APR. The major elements
of the proposed rule, described earlier
in this part VIII, relate to these
continuing functions. Therefore, the
Bureau believes that small entities will
have the professional skills necessary to
comply with the proposed rule.
Specifically with regard to the
requirement to use the integrated
disclosure forms, the SERs identified
potentially significant one-time costs
associated with changing software
systems to produce the forms and
provided a wide range of estimates of
one-time costs of training staff and
related parties to use the new integrated
forms and update systems and
processes.233 The SERs also reported
that they typically contract out to third
party software vendors the design of the
disclosure forms provided to
consumers, and pay annual fees to such
232 See
233 See
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vendors for upgrades. The SERs did not
express any concerns that the design
and implementation of the forms or the
use of the integrated disclosure forms on
an ongoing basis would require their
staff to possess a different set of
professional skills than that required in
the ordinary course of business
currently. Furthermore, while the SERs
identified potential upfront and ongoing
training costs as a result of the proposals
under consideration at the time, the
Bureau believes efforts to train small
entity staff on the updated software and
compliance systems would be
reinforcing existing professional skills
sets above those needed in the ordinary
course of business and to comply with
HUD’s 2008 Final RESPA Rule (which,
as discussed above, significantly
overhauled the design and content of
the RESPA GFE and settlement
statement disclosures given to
consumers).
In addition, although the Bureau
acknowledges the possibility that
certain small entities may have to hire
additional staff as a result of certain
aspects of the proposed rule, the Bureau
has no evidence that such additional
staff will have to possess a qualitatively
different set of professional skills than
small entity staff employed currently.
The Bureau presumes that additional
staff that small entities may need to hire
would generally be of the same
professional skill set as current staff. For
example, if the Bureau were to adopt the
Alternative 1 proposal regarding
responsibility for who provides the
Closing Disclosure (i.e. making creditors
responsible), small creditors may need
to hire additional staff to handle the
increased work load resulting from the
reallocation of existing responsibilities
between creditors and settlement agents.
As a more general matter, to the extent
the proposed rule adds new disclosures
that will need to be generated and
explained to consumers, the Bureau
anticipates that any incremental
increase in the complexity of such tasks
for small entity staff will be
counterbalanced by the regulatory
streamlining and clearer guidance
provided by the proposed rule.
5. Identification, to the Extent
Practicable, of All Relevant Federal
Rules which May Duplicate, Overlap, or
Conflict with the Proposed Rule.
The proposed rule is intended to
consolidate the overlapping and, in
some cases, duplicative mortgage
disclosure regulations under TILA and
RESPA into a single set of requirements
and to resolve conflicts between the
two. The Bureau is not aware of any
other Federal regulations that currently
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duplicate, overlap, or conflict with the
proposed rule.
However, the Bureau is currently
developing other proposed or final rules
required by title XIV of the Dodd-Frank
Act, including rules addressing abilityto-pay standards for qualified
mortgages, mortgage loan originator
compensation, mortgage loans subject to
HOEPA, mortgage servicing, and
appraisal practices. As discussed above,
the Bureau is aware of concerns that
aspects of the proposed rule could affect
the Bureau’s rulemakings concerning
HOEPA, Escrows, Appraisals, and
Ability-to-Repay. In particular, some
SERs expressed concern that an
unintended consequence of a more
inclusive approach to the finance charge
could be that more loans would qualify
as high-cost loans subject to additional
requirements under HOEPA or similar
State statutes that use the finance charge
or the APR as a trigger.234 As a result,
the SERs generally requested that the
Bureau adjust these thresholds, to the
extent possible, to account for the more
inclusive finance charge. In response to
this feedback, the Panel recommended
in the Small Business Review Panel
Report that, before issuing a final rule,
the Bureau consider the impact of the
more inclusive finance charge on its
other rulemakings, and that it adopt any
alternatives or adjustments in the final
rule or the Bureau’s other rulemakings
that would reduce burden on small
entities while still accomplishing the
goals of the more inclusive finance
charge.
Based on this feedback and consistent
with the Small Business Review Panel’s
recommendation, the Bureau has
considered the requirements of TILA
section 129 (high-cost mortgages) and
TILA section 129C (qualified
mortgages), including the Dodd-Frank
Act amendments to those provisions, as
well as State predatory lending laws, in
proposing the amendments to § 1026.4.
For example, the Board previously
proposed two means of reconciling an
expanded definition of the finance
charge with existing thresholds for loan
APR and points and fees. The Bureau
believes that it is helpful to analyze any
threshold adjustments on a rule-by-rule
basis, so in addition to seeking general
comment in this rulemaking it has
incorporated these adjustments into its
2012 HOEPA Proposal and is seeking
comment on additional adjustments that
could approximate coverage levels
under the existing definition of finance
charge, such as adjusting the numeric
234 The Bureau acknowledged this possible effect
in the Small Business Review Panel Outline.
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percentage point triggers for APR under
HOEPA.
The Bureau will consider any final or
proposed rules implementing the
regulatory regimes that rely on APR and
points and fees triggers prior to issuing
a final rule on definition of finance
charge. As discussed above, the Bureau
believes that it would be preferable to
make any change to the definition of
finance charge and any related
adjustments in regulatory triggers take
effect at the same time, in order to
provide for consistency and efficient
systems modification, and is seeking
comment on the best sequencing for
implementation periods in light of the
related rulemakings.
In addition, title XIV of the DoddFrank Act amends TILA and RESPA to
add new disclosures that must be
provided in the Loan Estimate or
Closing Disclosure (e.g., disclosure of
escrow payment amounts and aggregate
settlement charges). In addition, title
XIV adds other new mortgage disclosure
requirements (e.g., warnings regarding
negative amortization and State antideficiency laws). Although the DoddFrank Act does not specifically mandate
inclusion of these new disclosures in
the Loan Estimate and Closing
Disclosure, the Bureau is proposing that,
to avoid duplication, overlaps, and
conflicts, these new disclosures be
included in the integrated forms. See
part V.B above for further discussion.
6. Description of Any Significant
Alternatives to the Proposed Rule which
Accomplish the Stated Objectives of
Applicable Statutes and Minimize Any
Significant Economic Impact of the
Proposed Rule on Small Entities.
a. Initial and Final Disclosures
As noted above, under the proposed
rule, the Loan Estimate would be
provided to consumers within three
business days after application and
replace the early TILA disclosure and
RESPA GFE, and the Closing Disclosure
would be provided to consumers at least
three business days prior to the closing
of the loan transaction and replace the
final TILA disclosure and RESPA
settlement statement. In the Small
Business Review Panel Report, the
Panel made a number of
recommendations regarding the Loan
Estimate and Closing Disclosure that
could potentially reduce the impact of
the proposed rule on small entities,
while accomplishing the stated
objectives of applicable statutes.
i. Prototype Forms
As discussed in the Small Business
Review Panel Report, on the whole, the
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SERs strongly preferred the Bureau’s
prototype integrated disclosure forms to
the current TILA and RESPA disclosure
forms, but expressed concerns about the
one-time costs and ongoing costs
associated with generating the prototype
integrated forms. In particular, the SERs
anticipated significant one-time
software upgrade and training costs,
though their estimates varied greatly.
(These costs are described in greater
detail in part VIII.B.4.c.i, above.) SERs
generally stated that these costs would
be less burdensome if the Bureau
provided a substantial compliance
period to upgrade systems and to train
staff, but SERs requested a variety of
periods. The Panel recommended that
the Bureau provide a compliance period
that permits sufficient time for small
entities to make necessary system
upgrades and provide training, and that
the Bureau solicit public comment on
the amount of time needed for such
upgrades and training.
In part V.A, above, the Bureau
discusses the mandatory compliance
period for the proposed rule and notes
that, although Bureau wishes to make
the rule effective as soon as possible
because it will provide important
benefits to consumers, the Bureau
understands that the final rule will
require lenders, mortgage brokers, and,
under Alternative 2 regarding provision
of the Closing Disclosure, settlement
agents to make extensive revisions to
their software and to retrain their staff.
The Bureau is seeking comment on how
much time industry needs to make these
changes, and specifically requests
details on the required updates and
changes to systems and other measures
that would be required to implement the
rule and the amount of time needed to
make those changes. Furthermore, with
respect to small entities, the Bureau is
following the Panel’s recommendation
and soliciting comment on whether
small entities affected by the rule
should have additional time to comply
with the final rule.
ii. Testing
As discussed in the Small Business
Review Panel Report, the SERs
suggested that the prototype forms
could be further improved through
testing on actual loan transactions. The
Panel recognized that the Bureau has
developed the prototype forms through
qualitative, one-on-one testing with
consumers, lenders, mortgage brokers,
and settlement agents and that the
Bureau has solicited extensive public
feedback on the prototype forms
through its Web site, but recommended
that the Bureau explore the feasibility of
conducting such testing before issuing a
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final rule. Based on this
recommendation, the Bureau plans to
explore the feasibility of conducting
such testing before issuing a final rule.
iii. Clear Guidance
As discussed in the Small Business
Review Panel Report, the Bureau
indicated in the Small Business Review
Panel Outline that it was considering
proposing to require the use of standard
forms for mortgage loan transactions
that are subject to RESPA and to
promulgate model forms for TILA-only
transactions, and sought feedback from
the SERs regarding their preference for
promulgation of standard or model
disclosure forms. Moreover, the Bureau
indicated that it was considering
providing additional guidance regarding
compliance with the regulations
affecting mortgage disclosures. On both
issues, however, the Bureau sought
feedback from SERs. As discussed in the
Small Business Review Panel Report,
the SERs generally stated a preference
for standard forms and clearer guidance.
In response to this feedback, the Panel
recommended that the Bureau provide
more detailed guidance on how to
complete the integrated forms
(including, as appropriate, samples of
completed forms for a variety of loan
transactions) and that the Bureau
consider whether mandating use of the
integrated forms would result in more
consistent disclosures for consumers
while also easing the compliance
burden on small entities. The Panel also
recommended that, in the proposed
rule, the Bureau solicit public comment
on mandating use of the integrated
forms. As discussed above, the Bureau
is proposing to require the use of
standard forms for mortgage loan
transactions that are subject to RESPA,
but for transactions that are subject only
to TILA, the forms would be models,
consistent with the provisions of that
statute.
iv. Total Interest Percentage and
Average Cost of Funds
As discussed in the Small Business
Review Panel Report, the SERs
expressed concerns that the total
interest percentage and average cost of
funds disclosures required under the
Dodd-Frank Act would be difficult to
calculate, difficult to explain to
consumers, and likely not helpful to
consumers.235 The Panel recognized
235 However, as the Small Business Review Panel
Report notes on page 28, the SERs did not provide
specific estimates of the costs to calculate these
amounts or to explain these amounts to consumers,
nor did they provide evidence to support the claim
that this information would be unhelpful to
consumers.
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that these disclosures are required by
the Dodd-Frank Act, but recommended
that the Bureau consider revisions to
these disclosures that would minimize
the burden on small entities while still
ensuring that consumers receive
important information about mortgage
transactions. The Panel also
recommended that the Bureau solicit
comment on whether these disclosures
would be helpful to consumers and the
costs, if any, these disclosures would
impose on small entities. The prototype
disclosure forms appended to the
proposed rule include the total interest
percentage and average cost of funds
disclosures. However, following the
Panel’s recommendation, the Bureau is
alternatively proposing to exempt
transactions subject to this proposal
from disclosing the total interest
percentage disclosure and the lender
cost of funds, as discussed in part VI
above, section-by-section analysis for
proposed §§ 1026.37(l)(3) and
1026.38(o)(5) and (6).
v. Use of Line Numbers
As discussed in the Small Business
Review Panel Report, several SERs
stated that removing the current RESPA
settlement statement line numbers from
the integrated Closing Disclosure would
significantly increase the cost of
software upgrades. The Panel
recognized that the prototype Closing
Disclosure was developed through
consumer testing to enable consumers to
compare the final costs to those
provided in the Loan Estimate and that
the proposed form of the Closing
Disclosure would necessitate reordering
and relabeling of many of the line
numbers on the current disclosures (e.g.,
due to the proposed revisions being
considered to the tolerance rules). The
Panel recommended that the Bureau
solicit comment on whether an
alternative design or numbering format
(including incorporating the current
RESPA settlement statement line
numbers to the extent consistent with
the proposals) would impose a lower
amount of software-related costs on
lenders, mortgage brokers, mortgage
companies, and settlement agents while
enabling consumers to compare loan
terms to the same extent as the current
prototype forms. Following the Panel’s
recommendation, the Bureau is
soliciting comment on these issues in
part VI above, section-by-section
analysis for proposed § 1026.37(f).
vi. Optional Signature Line
As discussed in the Small Business
Review Panel Report, page five of the
prototype Closing Disclosure includes a
signature block for the consumer to
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acknowledge receipt of the Closing
Disclosure. Some SERs were concerned
that consumers might be confused about
the effect of signing to acknowledge
receipt of the Closing Disclosure. In
response to these concerns, the Panel
recommended that the Bureau consider
whether the language on the prototype
forms should be revised, or whether
additional guidance should be provided
to clarify the effect of a signature on the
consumer’s legal obligations. Following
the Panel’s recommendation, the Bureau
is soliciting comment on such issues in
part VI above, section-by-section
analysis for proposed § 1026.38(s).
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b. Definition of Loan Application
As discussed in the Small Business
Review Panel Report, the Bureau has
considered eliminating the seventh
element of the application definition
and replacing it with additional items
that would, along with the six specific
items in the current definition that the
Bureau proposes to retain, enable the
creditor or mortgage broker to provide a
reasonably accurate Loan Estimate. The
Panel recognized that the SERs
disagreed about whether the seventh
item in the application definition was
necessary to provide a reasonably
accurate Loan Estimate, and there was a
lack of consensus among the SERs who
opposed elimination of the seventh item
about what additional information
would be needed. Following the Panel’s
recommendation, the Bureau is
soliciting public comment in part VI
above, section-by-section analysis for
the proposed § 1026.2(a)(3) on what, if
any, additional specific information
beyond the six specific items included
under the proposed definition of
application is needed to provide a
reasonably accurate Loan Estimate.
c. Changes in Settlement Costs;
Redisclosure
As discussed in the Small Business
Review Panel Report, the Bureau
indicated in the Small Business Review
Panel Outline that it has considered
preserving HUD’s 2008 RESPA Final
Rule in its entirety. However, as
mentioned in such materials and as
discussed further in part VI above,
section-by-section analysis for proposed
§ 1026.19(e), above, the Bureau believes
that the current rules can likely be
improved by requiring creditors to
provide consumers with more accurate
estimates of settlement charges and
reducing compliance burden for
industry.
As discussed in the Small Business
Review Panel Report, the SERs generally
expressed concern about the potential
unintended consequences of applying
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the proposed zero percent tolerance
standard (instead of the current ten
percent tolerance) to affiliate fees and
fees charged by creditor-selected
providers. However, the SERs generally
supported additional clarifications and
guidance regarding the current tolerance
rules. In response to this feedback, the
Panel recommended that the Bureau
consider alternatives to expanding
application of the zero percent tolerance
that would increase the reliability of
cost estimates while minimizing the
impacts on small entities. The Panel
also recommended that the Bureau
solicit comment on whether the current
tolerance rules have sufficiently
improved the reliability of the estimates
that creditors give consumers, while
preserving creditors’ flexibility to
respond to unanticipated changes that
occur during the loan process. The
Bureau has adopted these
recommendations in the proposed rule.
See part VI, section-by-section analysis
for proposed § 1026.19(e).
As discussed in the Small Business
Review Panel Report, the Bureau also
considered narrowing the exceptions
permitting increases in settlement
charges in order to restrict the ability of
a creditor to charge more for its own
services or for third-party settlement
services than the creditor initially
estimated. Such an approach, if
adopted, would have likely reduced the
ability of creditors, including small
entity creditors, to pass on changes in
settlement costs to consumers and,
accordingly, increased the extent to
which creditors bore the associated risk.
However, the Bureau chose not to
incorporate this approach into the
proposal because of its concern that it
could prevent creditors from increasing
settlement charges to reflect justifiable
increases in costs.
d. Provision of the Closing Disclosure
As discussed in the Small Business
Review Panel Report, the Bureau has
also considered requiring provision of
the Closing Disclosure three business
days before closing only when, after the
Loan Estimate is given, the APR in the
Loan Estimate increases by more than
one-eighth of one percent or an
adjustable-rate feature is added to the
loan. In all other circumstances, the
Closing Disclosure would have been
provided at or before consummation.
However, the Bureau is concerned that
this approach would allow significant
increases in the cash needed to close
without sufficient notice to the
consumer.
In addition, the Bureau has
considered expanding the current rules
allowing consumers to waive the three-
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business-day waiting period in cases of
bona fide personal financial emergency.
However, the Bureau is concerned that
such an expansion would enable
creditors to pressure consumers into
waiving the waiting period because
consumers may be unwilling or unable
to challenge a cost increase that occurs
shortly before consummation.
As noted in the Small Business
Review Panel Report, the SERs generally
opposed requiring provision of the
integrated Closing Disclosure three
business days before consummation.
The Panel acknowledged this feedback,
but recognized that statutory
requirements limit the discretion of the
Bureau to shorten the three-businessday waiting period. Therefore, the Panel
recommended that the Bureau continue
to explore whether the potential impact
of the three-business-day requirement
on small entities can be mitigated while
maintaining the benefits to consumers
by, for example, permitting limited
changes after provision of the Closing
Disclosure. Following the Panel’s
recommendation, the Bureau has
included in proposed § 1026.19(f)(2) a
list of permitted changes after provision
of the Closing Disclosure.
Regarding which party is responsible
for providing the Closing Disclosure to
the consumer, the Bureau has also
considered making the settlement agent
solely responsible for this task.
However, the Bureau understands that
settlement agents may not have access
to much of the information regarding
loan terms that must be disclosed in the
Closing Disclosure.
e. Recordkeeping and Data Collection
The issues regarding the Bureau’s
proposed record retention requirements
and the alternatives the Bureau has
considered (i.e., a small entity
exemption) are discussed in part
VIII.B.4.b, above.
f. Annual Percentage Rate
As discussed in the Small Business
Review Panel Report, most lender SERs
supported the more-inclusive definition
of finance charge, but some expressed
concern about including taxes and
insurance that are required to be paid to
an escrow account in the finance charge.
In response to this feedback, the Panel
recommended that the Bureau consider
excluding escrowed taxes and insurance
from the more inclusive finance charge,
unless those amounts would otherwise
be considered finance charges under the
expanded definition. The Bureau has
proposed a revised definition of finance
charge in § 1026.4 that incorporates the
Panel’s recommendation.
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Moreover, the Panel recommended
that, before issuing a final rule to
integrate the TILA and RESPA mortgage
disclosure requirements, the Bureau
consider the impact of the more
inclusive finance charge on its other
rulemakings, and that it adopt any
alternatives or adjustments in the final
TILA–RESPA rule or the Bureau’s other
rulemakings that would reduce burden
on small entities while still
accomplishing the goals of the more
inclusive finance charge. As discussed
above in part II.F, in the section-bysection analysis for proposed § 1026.4 in
part VI, and in part VIII.B.5, the Bureau
has carefully considered alternatives
that would mitigate the impact of the
more inclusive finance charge on all
entities subject to the proposed rule,
including small entities. Addition
discussion will be provided in other
proposed and final rules issues by the
Bureau. Furthermore, the Bureau will
carefully consider the comments
received on this issue and perform
further analysis prior to issuing a final
rule.
7. Discussion of Impact on Cost of
Credit for Small Entities
Section 603(d) of the RFA requires the
Bureau to consult with small entities
regarding the potential impact of the
proposed rule on the cost of credit for
small entities and related matters. 5
U.S.C. 603(d). To satisfy these statutory
requirements, the Bureau provided
notification to the Chief Counsel on
February 7, 2012, that the Bureau would
collect the advice and recommendations
of the same small entity representatives
identified in consultation with the Chief
Counsel through the Small Business
Review Panel process concerning any
projected impact of the proposed rule
on the cost of credit for small entities.236
The Bureau sought to collect the advice
and recommendations of the small
entity representatives during the Small
Business Review Panel Outreach
Meeting regarding the potential impact
on the cost of business credit because,
as small financial service providers, the
SERs could provide valuable input on
any such impact related to the proposed
rule.237
At the time the Bureau circulated the
Small Business Review Panel Outline to
the SERs in advance of the Panel
Outreach Meeting, it had no evidence
that the proposals then-under
236 See
5 U.S.C. 603(d)(2)(A). The Bureau
provided this notification as part of the notification
and other information provided to the Chief
Counsel with respect to the Small Business Review
Panel process pursuant to section 609(b)(1) of the
RFA.
237 See 5 U.S.C. 603(d)(2)(B).
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consideration would result in an
increase in the cost of business credit
for small entities. Instead, the summary
of the proposals stated that the
proposals would apply to only mortgage
loans obtained by consumers primarily
for personal, family, or household
purposes, and the proposals would not
apply to loans obtained primarily for
business purposes.238
At the Panel Outreach Meeting, the
Bureau asked the SERs a series of
questions regarding cost of business
credit issues.239 The questions were
focused on two areas. First, the SERs
from commercial banks/savings
institutions, credit unions, and mortgage
companies were asked whether, and
how often, they extend to their
customers closed-end mortgage loans to
be used primarily for personal, family,
or household purposes but that are used
secondarily to finance a small business,
and whether the proposals then-under
consideration would result in an
increase in their customers’ cost of
credit. Second, the Bureau inquired as
to whether, and how often, the SERs
themselves take out closed-end, homesecured loans to be used primarily for
personal, family, or household purposes
and use them secondarily to finance
their small businesses, and whether the
proposals under consideration would
increase the SERs’ cost of credit.
In general, the lender SERs reported
making few mortgage loans that are used
primarily for personal, family, or
household purposes (and therefore are
covered by TILA and RESPA) but that
are used, secondarily, to finance a small
business. In addition, the few loans they
described making would appear to fall
within the TILA and RESPA exceptions
for loans made primarily for business
purposes,240 and therefore would not be
subject to the proposed rule.
The Bureau recognizes that some
mortgages, especially second lien
mortgages or cash-out refinancings, may
be used in part or in whole to finance
small businesses, without the
knowledge of the creditor. Based on the
overall impact of the proposal, however,
the Bureau does not believe that the
proposal would lead to an increase in
the cost of mortgage lending. As
discussed above in part VII, the Bureau
estimates that the most burdensome
aspect of the proposal, the systems
revision required to provide the new
238 See TILA section 104(1); RESPA section
7(a)(1).
239 See the Small Business Review Panel Report
at appendix D, 154–155 (PowerPoint slides from the
Panel Outreach Meeting, ‘‘Topic 7: Impact on the
Cost of Business Credit’’).
240 See TILA section 104(1); RESPA section
7(a)(1).
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Loan Estimate and Closing Disclosure,
would lead to a one-time cost that, on
an annualized basis, is equivalent to less
than $3 dollars per mortgage
origination. The proposal, therefore
would not lead to an increase in the cost
of credit to small businesses even if
small businesses were to use closed-end
mortgages credit for financing.
As discussed in the Small Business
Review Panel Report, the Bureau
considered various alternatives
regarding the regulatory definition of
application, permissible changes in
settlement costs, timing and provision
of the Closing Disclosure, and
recordkeeping requirements, and
consulted with the Small Business
Review Panel on those alternatives. See
Small Business Review Panel Report at
9–12. For example, the Bureau
considered an exemption for small
entities from the electronic data
recordkeeping requirements in proposed
§ 1026.25. Id. at 12. The Bureau
consulted on alternatives that would
achieve the statutory objectives while
minimizing the cost of credit for small
entities.
IX. Paperwork Reduction Act
The collection of information
contained in this notice of proposed
rulemaking, and identified as such, will
be submitted to the Office of
Management and Budget (OMB) for
review under section 3507(d) of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.) (Paperwork
Reduction Act or PRA). Under the PRA,
the Bureau may not conduct or sponsor,
and a person is not required to respond
to, this information collection unless the
information collection displays a
currently valid control number.
This proposed rule would amend 12
CFR part 1024 (Regulation X) and 12
CFR part 1026 (Regulation Z). Both
Regulations X and Z currently contain
collections of information approved by
OMB. The Bureau’s OMB control
number for Regulation X is 3170–0016
and for Regulation Z is 3170–0015. As
described below, the proposed rule
would amend the collections of
information currently in Regulation X
and Regulation Z. As previously
discussed, the Dodd-Frank Act amended
TILA and RESPA to mandate
specifically that the Bureau propose
rules and forms combining the TILA
and RESPA disclosures for mortgage
loans subject to either law or both laws.
Dodd-Frank Act sections 1098, 1100A.
The Dodd-Frank Act requires the
Bureau to publish proposed rules and
forms combining the disclosures by July
21, 2012. Dodd-Frank Act section
1032(f). The Dodd-Frank Act also made
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several amendments to the disclosure
requirements in TILA and RESPA.
Based on the specific statutory mandate
to combine the disclosures under TILA
and RESPA, the Bureau is proposing to
amend Regulation X and Regulation Z to
establish new disclosure requirements
and forms in Regulation Z for closedend consumer credit transactions
secured by real property, other than
reverse mortgages. Accordingly, the
proposed rule requires that an
integrated Loan Estimate be provided to
consumers within three business days
after receipt of the consumer’s
application to replace the early TILA
disclosure and RESPA GFE, and that an
integrated Closing Disclosure be
provided to consumers at least three
business days prior to consummation to
replace the final TILA disclosure and
RESPA settlement statement. The
proposed rule also contains new
electronic recordkeeping requirements.
The information collection in the
proposed rule is required to provide
benefits for consumers and would be
mandatory. See 15 U.S.C. 1601 et seq.;
12 U.S.C. 2601 et seq., 5532(f). Because
the Bureau does not collect any
information under the proposed rule, no
issue of confidentiality arises. The likely
respondents would be commercial
banks/savings institutions, credit
unions, mortgage companies (non-bank
lenders), mortgage brokers, and
settlement agents 241 that would be
required under the proposed
amendments to Regulations Z and X, to
provide to consumers, and maintain
related electronic records on, the
integrated TILA–RESPA mortgage
disclosures, either because they make
mortgage loans subject to the proposed
rule or because they may be responsible
for completing or providing required
disclosures.242
Under the proposed rule, the Bureau
would account for the entire paperwork
burden for respondents under
Regulation X. The Bureau generally
would also account for the paperwork
burden associated with Regulation Z for
the following respondents pursuant to
241 Although respondents under PRA for
Regulation Z also include mortgage brokers and
settlement agents, for purposes of the PRA analysis,
the Bureau assumes that the creditor takes on the
obligation to deliver the Loan Estimate and Closing
Disclosure. Accordingly, there is minimal burden
attributed to brokers and settlement agents.
242 For purposes of this PRA analysis, references
to ‘‘creditors’’ or ‘‘lenders’’ shall be deemed to refer
collectively to commercial banks, savings
institutions, credit unions, and mortgage companies
(i.e., nondepository lenders), unless otherwise
stated. Moreover, reference to ‘‘respondents’’ shall
generally mean all categories of entities identified
in the sentence to which this footnote is appended,
except as otherwise stated or if the context indicates
otherwise.
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its administrative enforcement
authority: insured depository
institutions with more than $10 billion
in total assets, their depository
institution affiliates, and certain
nondepository institutions. The Bureau
and the FTC generally both have
enforcement authority over
nondepository institutions for
Regulation Z. Accordingly, the Bureau
has allocated to itself half of the
estimated burden to nondepository
institutions. Other Federal agencies are
responsible for estimating and reporting
to OMB the total paperwork burden for
the institutions for which they have
administrative enforcement authority.
They may, but are not required to, use
the Bureau’s burden estimation
methodology.
For purposes of this analysis, the
Bureau assumes that any burden
increase associated with the proposed
rule is allocated to Regulation Z. As
discussed in part IX.B.2, below, under
the proposed rule there would be no
burden increase associated with
Regulation X, and in fact there is a
burden reduction attributed to
Regulation X because the RESPA GFE
and settlement statement disclosures
would be eliminated for all of the
mortgage market, other than reverse
mortgages, and replaced by the Loan
Estimate and Closing Disclosures, under
Regulation Z. Using the Bureau’s burden
estimation methodology, the total
estimated burden for the approximately
14,354 banks, savings institutions,
credit unions, and mortgage companies
subject to the proposed rule,243
including Bureau respondents, would
be approximately 2.12 million hours for
one-time changes and 2.35 million
hours annually. The estimates presented
in this part IX represent weighted
averages across respondents. The
Bureau expects that the amount of time
required to implement each of the
proposed changes for a given institution
may vary based on the size, complexity,
and practices of the respondent.
A. Information Collection Requirements
The Bureau believes the following
aspects of the proposed rule would be
information collection requirements
under the PRA: (1) The development,
implementation, and continuing use of
new, integrated Loan Estimate and
Closing Disclosure forms required for
closed-end mortgage transactions
subject to the proposed rule and the
generation and provision of additional
Loan Estimates in particular
transactions as a result of increases in
243 For the reasons described above, this figure
excludes mortgage brokers and settlement agents.
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the closing costs that were included in
the initial Loan Estimate,244 and (2) the
imposition of new requirements to
maintain evidence of compliance in
standardized, machine readable,
electronic format.245
1. Initial and Final Disclosures
As discussed above in part VII, the
integrated Loan Estimate and the
Closing Disclosure would result in
certain compliance costs to covered
persons. The Bureau believes that many
of the costs of complying with these
requirements would be common across
the two disclosures, and therefore
discusses them together here. Under the
proposal, responsibility for delivering
the Loan Estimate would lie with the
creditor. The Bureau believes that in
some circumstances the Loan Estimate
may be delivered by a mortgage broker
acting on behalf of the creditor. The
Bureau believes the costs would be
similar for Loan Estimates delivered by
creditors and brokers, and the estimates
presented here are based on the
assumption that the creditor delivers the
Loan Estimate. Similarly, the Bureau is
proposing two alternatives with respect
to the responsibility to deliver the
Closing Disclosure. Under the first
alternative, the creditor would be solely
responsible for delivering the Closing
Disclosure; under the second
alternative, the creditor and settlement
agent would be jointly responsible.
These estimates assume that the creditor
takes on the obligation to deliver the
Closing Disclosure. The Bureau believes
244 The proposal also provides that, if the creditor
permits a consumer to shop for a settlement service,
the creditor shall provide the consumer with a
written list identifying available providers of that
service and stating that the consumer may choose
a different provider for that service. Accordingly,
creditors must comply with this additional
requirement in certain transactions where
consumers are permitted to shop for settlement
services. This is an existing requirement under
current Regulation X, 12 CFR part 1024 app. C, but
is not specifically itemized as a separate
information collection under Regulation X. Because
the timing of this requirement coincides with the
provision of the initial Loan Estimate to consumers,
the burden associated with the written list of
providers requirement under the proposed rule is
included in the burden calculation for the Loan
Estimate.
245 Under the proposal, these information
collections apply to closed-end transactions secured
by real property, other than reverse mortgages
subject to § 1026.33. As discussed in part VI,
section-by-section analysis for § 1026.19, above,
construction-only loans, vacant-land loans, and
loans secured by more than 25 acres, are subject to
the integrated disclosure provisions although these
transactions are currently exempt from RESPA
coverage, because the Bureau believes that
excluding these transactions would deprive
consumers of the benefit of enhanced disclosures.
However, the Bureau believes that the number of
such transactions is negligible as compared to the
entire mortgage market.
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that if settlement agents were to take on
a substantial portion of the
responsibility for delivering the Closing
Disclosure the costs would be similar,
although they may be borne by different
parties.
246 In addition to changing the format of the
required forms, the new proposed forms include
numerous new disclosures that are required by the
Dodd-Frank Act. The Bureau believes that this
additional information would be added to the forms
as part of the process of adapting software and
compliance systems to produce the new forms, and
therefore does not provide separate estimates for the
costs of adding this additional information.
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a. One-Time Costs
Covered persons would incur onetime costs associated with training and
reviewing the regulation. In addition,
covered persons who maintain their
own software and compliance systems
would incur one-time costs to adapt
their software and compliance systems
to produce the new forms.246 Based on
information provided by creditors and
by software vendors, the Bureau
believes that, in general, larger creditors
develop and maintain their own
compliance software and systems, while
smaller creditors primarily rely on
software and compliance systems
provided by outside vendors. The
Bureau estimates that the top 20
creditors typically maintain their own
systems, while 95 percent of smaller
creditors rely on vendors.
The use of vendors would
substantially mitigate the costs of
revising software and compliance
systems, as the efforts of a single vendor
would address the needs of a large
number of creditors. Based on
discussions with a leading mortgage
origination technology provider, the
Bureau believes that these updates,
however, would likely be included in
regular annual updates, and therefore
the costs would not be directly passed
on to the client creditors. Based on
small entities that participated in the
Small Business Review Panel process,
the Bureau estimates that creditors that
maintain their own compliance software
and systems would incur costs of
roughly $100,000 to determine what
changes need to be made and to update
their systems to comply with the
proposal. Larger creditors with
proprietary systems would need to
revise their compliance software and
systems. Based on information from
conversations with large creditors and
with software vendors, the Bureau
estimates that the cost per creditor for
this category of creditor would be
$1,000,000.
Covered persons would incur onetime costs associated with training
employees to use new forms and any
new compliance software and systems.
The Bureau estimates that each loan
officer or other loan originator will need
to receive two hours of training. The
Bureau further estimates that a trainer
will spend an hour for every ten hours
of trainee time.
The Bureau estimates that, for each
covered person, one attorney and one
compliance officer would each take
seven hours to read and review the
sections of the proposed regulation that
describe the contents of the Loan
Estimate and Closing Disclosure
requirements, based on the length of
each of the sections.
The Bureau estimates the total onetime costs of reading the relevant
sections of the Federal Register,
revising systems to provide the new
disclosures, and training personnel for
the Bureau respondents to be
approximately $30.9 million, which
corresponds to approximately 574,600
hours. Annualized over five years, this
is an annual cost of $6.2 million. The
Bureau estimates the one-time costs to
the 128 depository institutions
(including their depository affiliates)
that are mortgage originator respondents
of the Bureau under Regulation Z 247
would be $20.1 million, or 391,000
hours. For the estimated 2,515
nondepository institutions that are
subject to the Bureau’s administrative
enforcement authority, the Bureau is
taking the burden of half of those
nondepository institutions for purposes
of this PRA analysis.248 The Bureau
247 There are 154 depository institutions (and
their depository affiliates) that are subject to the
Bureau’s administrative enforcement authority. For
purposes of this PRA analysis, the Bureau has
calculated its burden hours and costs based on the
estimated 128 depository institutions subject to
Regulation Z that are mortgage originators.
248 Unless otherwise specified, all references to
burden hours and costs for the Bureau respondents
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51299
estimates the one-time costs would be
$10.8 million, or 183,700 hours.249
b. Ongoing Costs
In addition to one-time costs to revise
systems and train employees, covered
persons will have ongoing costs from
providing the disclosures. Based on
industry feedback, the Bureau
understands that most disclosures will
be generated by automated systems that
use data collected by covered entities in
the normal course of business. The
Bureau believes that a small number of
the disclosures in the Loan Estimate and
Closing Disclosure would be generated
using data that may not otherwise be
collected in the normal course of
business, and has considered this in
calculating the ongoing burden
associated with the information
collection. However, the Bureau may
adjust its calculation in a final rule if it
determines that such information is
collected in the normal course of
business or that automated sources of
such data exist that would make any
burden associated with collecting that
data negligible. The Bureau’s estimates
also account for the time covered
persons would spend to review the
forms for accuracy.
In calculating the total burden of
providing Loan Estimates and Closing
Disclosures, the Bureau assumes that
Loan Estimates will be provided in
response to applications for mortgages
and Closing Disclosures will be
provided three business days before
mortgages are consummated. The
Bureau further estimates entities will
reissue on average two Loan Estimates
per loan originated.
Table 2 summarizes these ongoing
costs, which total an estimated $68.4
million per year. This represents an
average cost of approximately $15 per
origination.250
are based on a calculation of half of the estimated
2,515 nondepository institutions.
249 For additional information, please see the
proposed amended Supporting Statement for OMB
Control Number 3170–0016, available at
www.reginfo.gov.
250 Bureau respondents are estimated to originate
approximately 4.8 million mortgages per year that
would be subject to these information collections.
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The proposed rule imposes new data
retention requirements on certain
respondents. As discussed above in part
VII, the proposed rule will require
creditors and mortgage brokers to retain
evidence of compliance with the Loan
Estimate and Closing Disclosure
requirements in machine readable,251
electronic format. The proposed
retention period is three years for the
Loan Estimates and five years for the
Closing Disclosures. See part VI above,
section-by-section analysis for proposed
§ 1026.25.
The proposed rule may result in costs
to covered persons. Under current rules,
creditors must retain evidence of
compliance with the disclosure
requirements in Regulation X (i.e., a
copy of the RESPA settlement
statement) and Regulation Z (i.e.,
evidence of compliance generally), but
are not required to maintain such
evidence an electronic, machine
readable format. 12 CFR 1024.10(e);
1026.25. Based on industry feedback,
the Bureau understands that firms
currently rely on electronic systems for
most aspects of the mortgage loan
origination process, including electronic
record creation and storage. Not all
creditors currently maintain data in a
machine-readable format, and those
who do may not retain it in the format
that may ultimately be adopted. To
comply with the proposed record
retention provisions, therefore, creditors
may be required to reconfigure existing
document production and retention
systems. For creditors that maintain
their own compliance systems and
software, the Bureau does not believe
that adding the capacity to maintain
data in a standard machine readable
format will impose a substantial burden,
as the only requirement will be to
output existing data to a new format and
then store that data.
The Bureau believes that the primary
cost will be one-time systems changes
that could be accomplished at the same
time that systems changes are carried
out to comply with the new proposed
Loan Estimate and Closing Disclosure.
The Bureau estimates that creditors that
maintain their own compliance systems
will need to expend 40 hours of
software and IT staff time to develop the
capacity to export data from existing
data formats to the standard format. As
discussed above, the Bureau estimates
that 2,643 creditors are its respondents
for purposes of the PRA, of which 152
creditors maintain their own
compliance systems. At 40 hours each,
the one-time burden is an estimated
6,080 hours.
Additionally, for each covered person,
the Bureau estimates that one attorney
and one compliance officer would each
take 7.5 minutes to read and review the
portion of the regulation pertaining to
data retention, based on the length of
that section. Accordingly, the total onetime burden associated with the data
retention provision of the proposed rule
would be 6,400 hours, or $376,400.
Creditors that rely on vendors would
likely rely on vendor software and
systems to comply with the data
retention requirement; at least one
vendor already offers indefinite data
storage to customers that use their webbased origination services.
The Bureau understands that
requiring standardized, electronic
records may be a significant burden for
covered persons that do not currently
have such electronic filing systems. To
reduce the burden on small entities, the
Bureau is considering an exemption
from the electronic data retention
requirements. See part VI above,
section-by-section analysis for proposed
§ 1026.25.
In addition, the proposed rule
requires creditors and mortgage brokers
to retain documentation sufficient to
show their supervisory agencies that
one of the exceptions applies whenever
a cost for a service provided by a
company that is owned by or affiliated
with the creditor proves to be higher
than estimated in the Loan Estimate,
similar to the current document
retention requirements under
Regulation X for when the RESPA GFE
is reissued. This retention requirement
may result in additional cost to
respondents that are creditors and
mortgage brokers.
251 As discussed in part VI, section-by-section
analysis for proposed § 1026.25(c), ‘‘machine
readable’’ means a format where the individual data
elements comprising the record can be transmitted,
analyzed, and processed by a computer program,
such as a spreadsheet or database program. Data
formats for image reproductions (e.g., PDF) or
document text, such as those used by word
processing programs, are not machine readable for
purposes of this proposal.
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B. Summary of Burden Hours
1. Regulation Z
The below table summarizes the one
time and annual burdens under
Regulation Z associated with
information collections affected by the
proposal for Bureau respondents under
the PRA.
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2. Recordkeeping
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
51301
early, revised, and final TILA
disclosures nor limit burden hours to
mortgage transactions (but, instead,
estimate for closed-end credit,
generally). However, the total PRA
burden associated with the new
integrated disclosures for all institutions
subject to Regulation Z is estimated to
be 2.35 million hours annually. These
changes reflect the decrease in the
number of mortgages originated,
increased systems automation, changes
in methodology for calculating burden
under the PRA, and the effects of the
proposal.
collections of information are necessary
for the proper performance of the
functions of the Bureau, including
whether the information will have
practical utility; (ii) the accuracy of the
estimated burden associated with the
proposed collections of information; (iii)
how to enhance the quality, utility, and
clarity of the information to be
collected; and (iv) how to minimize the
burden of complying with the proposed
collections of information, including the
application of automated collection
techniques or other forms of information
technology. Comments on the collection
of information requirements should be
sent to the Office of Management and
Budget (OMB), Attention: Desk Officer
As discussed above, by integrating the
TILA and RESPA disclosures, the
proposal eliminates the majority of the
ongoing PRA burden under Regulation
X for the RESPA GFE and settlement
statement disclosures, while
simultaneously creating ongoing burden
attributable to the integrated disclosures
in Regulation Z. On a market-wide
basis, annual PRA burden in Regulation
X decreases by approximately 10.8
million hours. The Bureau cannot
similarly quantify the change in ongoing
burden under Regulation Z, because
current burden estimates neither itemize
the burden hours attributable to the
252 The annual burdens attributed to the RESPA
GFE and settlement statement (HUD–1/HUD–1A)
are 3,612,500 hours and 7,250,000 hours,
respectively. See Supporting Statement for OMB
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C. Comments
Comments are specifically requested
concerning: (i) Whether the proposed
Control Number 3170–0016, available at https://
www.reginfo.gov/public/do/PRAViewICR?ref_nbr=
201110-3170-013 (CFPB); Supporting Statement for
OMB Control Number 2502–0265, available at
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https://www.reginfo.gov/public/do/PRAView
Document?ref_nbr=200810-2502-001 (HUD).
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EP23AU12.996
burden associated with these
disclosures in Regulation X would total
approximately 62,400 hours, assuming
no change in the time required to
respond. The below table summarizes
the annual burdens under Regulation X
associated with information collections
affected by the proposal.
EP23AU12.997
settlement statement disclosures
account for approximately 10.9 million
annual burden hours.252 Under the
proposal, the majority of this burden
would be eliminated, with only reverse
mortgage transactions remaining subject
to the RESPA GFE and settlement
statement requirements. The remaining
3. Net Effect on PRA Estimates of
Ongoing Burden
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2. Regulation X
The proposal does not increase PRA
burden associated with Regulation X,
and instead removes the majority of the
burden associated with two information
collections: (i) The RESPA GFE and (ii)
the RESPA settlement statement.
Currently, the RESPA GFE and
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
for the Consumer Financial Protection
Bureau, Office of Information and
Regulatory Affairs, Washington, DC
20503, or by the internet to https://
oira_submission@omb.eop.gov, with
copies to the Bureau at the Consumer
Financial Protection Bureau (Attention:
PRA Office), 1700 G Street NW.,
Washington, DC 20552, or by the
internet to CFPB_Public_PRA@cfpb.gov.
List of Subjects
12 CFR Part 1024
Condominiums, Consumer protection,
Housing, Mortgage servicing, Mortgages,
Recordkeeping requirements, Reporting.
12 CFR Part 1026
Advertising, Consumer protection,
Credit, Credit unions, Mortgages,
National banks, Recordkeeping
requirements, Reporting, Savings
associations, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used
to highlight the proposed revisions.
New language is shown inside bold
arrows, and language that would be
deleted is shown inside bold brackets.
Authority and Issuance
For the reasons set forth in the
preamble, the Bureau proposes to
amend Regulation X, 12 CFR part 1024,
and Regulation Z, 12 CFR part 1026, as
set forth below:
PART 1024—REAL ESTATE
SETTLEMENT PROCEDURES
(REGULATION X)
1. The authority citation for part 1024
continues to read as follows:
Authority: 12 U.S.C. 2603–2605, 2607,
2609, 2617, 5512, 5581.
2. Section 1024.5 is amended by
revising paragraph (a), removing and
reserving paragraph (b)(1), and adding
paragraph (c), to read as follows:
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§ 1024.5
Coverage of RESPA.
(a) Applicability. RESPA and this part
apply to øall¿ federally related mortgage
loans, except flasfi øfor the
exemptions¿ provided in
paragraphflsfi (b) fland (c)fi of this
section.
(b) Exemptions. (1) fl[Reserved]fi
øA loan on property of 25 acres or
more.¿
*
*
*
*
*
fl(c) Partial exemptions for certain
mortgage loans. Sections 1024.6, 1024.7,
1024.8, 1024.10, and 1024.21(b) and (c)
do not apply to a federally related
mortgage loan:
(1) That is subject to the special
disclosure requirements for certain
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consumer credit transactions secured by
real property set forth in Regulation Z,
12 CFR 1026.19(e) and (f); or
(2) That satisfies the criteria in
Regulation Z, 12 CFR 1026.3(h).fi
3. Appendix A to part 1024 is revised
to read as follows:
Appendix A to Part 1024—Instructions
for Completing HUD–1 and HUD–1A
Settlement Statements; Sample HUD–1
and HUD–1A Statements
The following are instructions for
completing the HUD–1 settlement statement,
required under section 4 of RESPA and 12
CFR part 1024 (Regulation X) of the Bureau
of Consumer Financial Protection (Bureau)
regulations. This form is to be used as a
statement of actual charges and adjustments
paid by the borrower and the seller, to be
given to the parties in connection with the
settlement. The instructions for completion
of the HUD–1 are primarily for the benefit of
the settlement agents who prepare the
statements and need not be transmitted to the
parties as an integral part of the HUD–1.
There is no objection to the use of the HUD–
1 in transactions in which its use is not
legally required. Refer to the definitions
section of the regulations (12 CFR 1024.2) for
specific definitions of many of the terms that
are used in these instructions.
General Instructions
Information and amounts may be filled in
by typewriter, hand printing, computer
printing, or any other method producing
clear and legible results. Refer to the Bureau’s
regulations (Regulation X) regarding rules
applicable to reproduction of the HUD–1 for
the purpose of including customary recitals
and information used locally in settlements;
for example, a breakdown of payoff figures,
a breakdown of the Borrower’s total monthly
mortgage payments, check disbursements, a
statement indicating receipt of funds,
applicable special stipulations between
Borrower and Seller, and the date funds are
transferred.
The settlement agent shall complete the
HUD–1 to itemize all charges imposed upon
the Borrower and the Seller by the loan
originator and all sales commissions,
whether to be paid at settlement or outside
of settlement, and any other charges which
either the Borrower or the Seller will pay at
settlement. Charges for loan origination and
title services should not be itemized except
as provided in these instructions. For each
separately identified settlement service in
connection with the transaction, the name of
the person ultimately receiving the payment
must be shown together with the total
amount paid to such person. Items paid to
and retained by a loan originator are
disclosed as required in the instructions for
lines in the 800-series of the HUD–1 (and for
per diem interest, in the 900-series of the
HUD–1).
As a general rule, charges that are paid for
by the seller must be shown in the seller’s
column on page 2 of the HUD–1 (unless paid
outside closing), and charges that are paid for
by the borrower must be shown in the
borrower’s column (unless paid outside
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closing). However, in order to promote
comparability between the charges on the
GFE and the charges on the HUD–1, if a seller
pays for a charge that was included on the
GFE, the charge should be listed in the
borrower’s column on page 2 of the HUD–1.
That charge should also be offset by listing
a credit in that amount to the borrower on
lines 204–209 on page 1 of the HUD–1, and
by a charge to the seller in lines 506–509 on
page 1 of the HUD–1. If a loan originator
(other than for no-cost loans), real estate
agent, other settlement service provider, or
other person pays for a charge that was
included on the GFE, the charge should be
listed in the borrower’s column on page 2 of
the HUD–1, with an offsetting credit reported
on page 1 of the HUD–1, identifying the party
paying the charge.
Charges paid outside of settlement by the
borrower, seller, loan originator, real estate
agent, or any other person, must be included
on the HUD–1 but marked ‘‘P.O.C.’’ for ‘‘Paid
Outside of Closing’’ (settlement) and must
not be included in computing totals.
However, indirect payments from a lender to
a mortgage broker may not be disclosed as
P.O.C., and must be included as a credit on
Line 802. P.O.C. items must not be placed in
the Borrower or Seller columns, but rather on
the appropriate line outside the columns.
The settlement agent must indicate whether
P.O.C. items are paid for by the Borrower,
Seller, or some other party by marking the
items paid for by whoever made the payment
as ‘‘P.O.C.’’ with the party making the
payment identified in parentheses, such as
‘‘P.O.C. (borrower)’’ or ‘‘P.O.C. (seller)’’.
In the case of ‘‘no cost’’ loans where ‘‘no
cost’’ encompasses third party fees as well as
the upfront payment to the loan originator,
the third party services covered by the ‘‘no
cost’’ provisions must be itemized and listed
in the borrower’s column on the HUD–1/1A
with the charge for the third party service.
These itemized charges must be offset with
a negative adjusted origination charge on
Line 803 and recorded in the columns.
Blank lines are provided in section L for
any additional settlement charges. Blank
lines are also provided for additional
insertions in sections J and K. The names of
the recipients of the settlement charges in
section L and the names of the recipients of
adjustments described in section J or K
should be included on the blank lines.
Lines and columns in section J which
relate to the Borrower’s transaction may be
left blank on the copy of the HUD–1 which
will be furnished to the Seller. Lines and
columns in section K which relate to the
Seller’s transaction may be left blank on the
copy of the HUD–1 which will be furnished
to the Borrower.
Line Item Instructions
Instructions for completing the individual
items on the HUD–1 follow.
Section A. This section requires no entry
of information.
Section B. Check appropriate loan type and
complete the remaining items as applicable.
Section C. This section provides a notice
regarding settlement costs and requires no
additional entry of information.
Sections D and E. Fill in the names and
current mailing addresses and zip codes of
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the Borrower and the Seller. Where there is
more than one Borrower or Seller, the name
and address of each one is required. Use a
supplementary page if needed to list multiple
Borrowers or Sellers.
Section F. Fill in the name, current mailing
address and zip code of the Lender.
Section G. The street address of the
property being sold should be listed. If there
is no street address, a brief legal description
or other location of the property should be
inserted. In all cases give the zip code of the
property.
Section H. Fill in name, address, zip code
and telephone number of settlement agent,
and address and zip code of ‘‘place of
settlement.’’
Section I. Fill in date of settlement.
Section J. Summary of Borrower’s
Transaction. Line 101 is for the contract sales
price of the property being sold, excluding
the price of any items of tangible personal
property if Borrower and Seller have agreed
to a separate price for such items.
Line 102 is for the sales price of any items
of tangible personal property excluded from
Line 101. Personal property could include
such items as carpets, drapes, stoves,
refrigerators, etc. What constitutes personal
property varies from State to State.
Manufactured homes are not considered
personal property for this purpose.
Line 103 is used to record the total charges
to Borrower detailed in section L and totaled
on Line 1400.
Lines 104 and 105 are for additional
amounts owed by the Borrower, such as
charges that were not listed on the GFE or
items paid by the Seller prior to settlement
but reimbursed by the Borrower at
settlement. For example, the balance in the
Seller’s reserve account held in connection
with an existing loan, if assigned to the
Borrower in a loan assumption case, will be
entered here. These lines will also be used
when a tenant in the property being sold has
not yet paid the rent, which the Borrower
will collect, for a period of time prior to the
settlement. The lines will also be used to
indicate the treatment for any tenant security
deposit. The Seller will be credited on Lines
404–405.
Lines 106 through 112 are for items which
the Seller had paid in advance, and for which
the Borrower must therefore reimburse the
Seller. Examples of items for which
adjustments will be made may include taxes
and assessments paid in advance for an
entire year or other period, when settlement
occurs prior to the expiration of the year or
other period for which they were paid.
Additional examples include flood and
hazard insurance premiums, if the Borrower
is being substituted as an insured under the
same policy; mortgage insurance in loan
assumption cases; planned unit development
or condominium association assessments
paid in advance; fuel or other supplies on
hand, purchased by the Seller, which the
Borrower will use when Borrower takes
possession of the property; and ground rent
paid in advance.
Line 120 is for the total of Lines 101
through 112.
Line 201 is for any amount paid against the
sales price prior to settlement.
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Line 202 is for the amount of the new loan
made by the Lender when a loan to finance
construction of a new structure constructed
for sale is used as or converted to a loan to
finance purchase. Line 202 should also be
used for the amount of the first user loan,
when a loan to purchase a manufactured
home for resale is converted to a loan to
finance purchase by the first user. For other
loans covered by 12 CFR Part 1024
(Regulation X) which finance construction of
a new structure or purchase of a
manufactured home, list the sales price of the
land on Line 104, the construction cost or
purchase price of manufactured home on
Line 105 (Line 101 would be left blank in this
instance) and amount of the loan on Line
202. The remainder of the form should be
completed taking into account adjustments
and charges related to the temporary
financing and permanent financing and
which are known at the date of settlement.
flFor reverse mortgage transactions, the
amount disclosed on Line 202 is the initial
principal limit.fi
Line 203 is used for cases in which the
Borrower is assuming or taking title subject
to an existing loan or lien on the property.
Lines 204–209 are used for other items
paid by or on behalf of the Borrower. Lines
204–209 should be used to indicate any
financing arrangements or other new loan not
listed in Line 202. For example, if the
Borrower is using a second mortgage or note
to finance part of the purchase price, whether
from the same lender, another lender or the
Seller, insert the principal amount of the loan
with a brief explanation on Lines 204–209.
Lines 204–209 should also be used where the
Borrower receives a credit from the Seller for
closing costs, including seller-paid GFE
charges. They may also be used in cases in
which a Seller (typically a builder) is making
an ‘‘allowance’’ to the Borrower for items that
the Borrower is to purchase separately. flFor
reverse mortgages, the amount of any initial
draw at settlement is disclosed on Line
204.fi
Lines 210 through 219 are for items which
have not yet been paid, and which the
Borrower is expected to pay, but which are
attributable in part to a period of time prior
to the settlement. In jurisdictions in which
taxes are paid late in the tax year, most cases
will show the proration of taxes in these
lines. Other examples include utilities used
but not paid for by the Seller, rent collected
in advance by the Seller from a tenant for a
period extending beyond the settlement date,
and interest on loan assumptions.
Line 220 is for the total of Lines 201
through 219.
Lines 301 and 302 are summary lines for
the Borrower. Enter total in Line 120 on Line
301. Enter total in Line 220 on Line 302.
Line 303 must indicate either the cash
required from the Borrower at settlement (the
usual case in a purchase transaction), or cash
payable to the Borrower at settlement (if, for
example, the Borrower’s earnest money
exceeds the Borrower’s cash obligations in
the transaction or there is a cash-out
refinance). Subtract Line 302 from Line 301
and enter the amount of cash due to or from
the Borrower at settlement on Line 303. The
appropriate box should be checked. If the
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Borrower’s earnest money is applied toward
the charge for a settlement service, the
amount so applied should not be included on
Line 303 but instead should be shown on the
appropriate line for the settlement service,
marked ‘‘P.O.C. (Borrower)’’, and must not be
included in computing totals.
Section K. Summary of Seller’s
Transaction. Instructions for the use of Lines
101 and 102 and 104–112 above, apply also
to Lines 401–412. Line 420 is for the total of
Lines 401 through 412.
Line 501 is used if the Seller’s real estate
broker or other party who is not the
settlement agent has received and holds a
deposit against the sales price (earnest
money) which exceeds the fee or commission
owed to that party. If that party will render
the excess deposit directly to the Seller,
rather than through the settlement agent, the
amount of excess deposit should be entered
on Line 501 and the amount of the total
deposit (including commissions) should be
entered on Line 201.
Line 502 is used to record the total charges
to the Seller detailed in section L and totaled
on Line 1400.
Line 503 is used if the Borrower is
assuming or taking title subject to existing
liens which are to be deducted from sales
price.
Lines 504 and 505 are used for the amounts
(including any accrued interest) of any first
and/or second loans which will be paid as
part of the settlement.
Line 506 is used for deposits paid by the
Borrower to the Seller or other party who is
not the settlement agent. Enter the amount of
the deposit in Line 201 on Line 506 unless
Line 501 is used or the party who is not the
settlement agent transfers all or part of the
deposit to the settlement agent, in which case
the settlement agent will note in parentheses
on Line 507 the amount of the deposit that
is being disbursed as proceeds and enter in
the column for Line 506 the amount retained
by the above-described party for settlement
services. If the settlement agent holds the
deposit, insert a note in Line 507 which
indicates that the deposit is being disbursed
as proceeds.
Lines 506 through 509 may be used to list
additional liens which must be paid off
through the settlement to clear title to the
property. Other Seller obligations should be
shown on Lines 506–509, including charges
that were disclosed on the GFE but that are
actually being paid for by the Seller. These
Lines may also be used to indicate funds to
be held by the settlement agent for the
payment of either repairs, or water, fuel, or
other utility bills that cannot be prorated
between the parties at settlement because the
amounts used by the Seller prior to
settlement are not yet known. Subsequent
disclosure of the actual amount of these postsettlement items to be paid from settlement
funds is optional. Any amounts entered on
Lines 204–209 including Seller financing
arrangements should also be entered on Lines
506–509.
Instructions for the use of Lines 510
through 519 are the same as those for Lines
210 to 219 above.
Line 520 is for the total of Lines 501
through 519.
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Lines 601 and 602 are summary lines for
the Seller. Enter the total in Line 420 on Line
601. Enter the total in Line 520 on Line 602.
Line 603 must indicate either the cash
required to be paid to the Seller at settlement
(the usual case in a purchase transaction), or
the cash payable by the Seller at settlement.
Subtract Line 602 from Line 601 and enter
the amount of cash due to or from the Seller
at settlement on Line 603. The appropriate
box should be checked.
Section L. Settlement Charges.
Line 700 is used to enter the sales
commission charged by the sales agent or real
estate broker.
Lines 701–702 are to be used to state the
split of the commission where the settlement
agent disburses portions of the commission
to two or more sales agents or real estate
brokers.
Line 703 is used to enter the amount of
sales commission disbursed at settlement. If
the sales agent or real estate broker is
retaining a part of the deposit against the
sales price (earnest money) to apply towards
the sales agent’s or real estate broker’s
commission, include in Line 703 only that
part of the commission being disbursed at
settlement and insert a note on Line 704
indicating the amount the sales agent or real
estate broker is retaining as a ‘‘P.O.C.’’ item.
Line 704 may be used for additional
charges made by the sales agent or real estate
broker, or for a sales commission charged to
the Borrower, which will be disbursed by the
settlement agent.
Line 801 is used to record ‘‘Our origination
charge,’’ which includes all charges received
by the loan originator, except any charge for
the specific interest rate chosen (points). This
number must not be listed in either the
buyer’s or seller’s column. The amount
shown in Line 801 must include any
amounts received for origination services,
including administrative and processing
services, performed by or on behalf of the
loan originator.
Line 802 is used to record ‘‘Your credit or
charge (points) for the specific interest rate
chosen,’’ which states the charge or credit
adjustment as applied to ‘‘Our origination
charge,’’ if applicable. This number must not
be listed in either column or shown on page
one of the HUD–1.
For a mortgage broker originating a loan in
its own name, the amount shown on Line 802
will be the difference between the initial loan
amount and the total payment to the
mortgage broker from the lender. The total
payment to the mortgage broker will be the
sum of the price paid for the loan by the
lender and any other payments to the
mortgage broker from the lender, including
any payments based on the loan amount or
loan terms, and any flat rate payments. For
a mortgage broker originating a loan in
another entity’s name, the amount shown on
Line 802 will be the sum of all payments to
the mortgage broker from the lender,
including any payments based on the loan
amount or loan terms, and any flat rate
payments.
In either case, when the amount paid to the
mortgage broker exceeds the initial loan
amount, there is a credit to the borrower and
it is entered as a negative amount. When the
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initial loan amount exceeds the amount paid
to the mortgage broker, there is a charge to
the borrower and it is entered as a positive
amount. For a lender, the amount shown on
Line 802 may include any credit or charge
(points) to the Borrower.
Line 803 is used to record ‘‘Your adjusted
origination charges,’’ which states the net
amount of the loan origination charges, the
sum of the amounts shown in Lines 801 and
802. This amount must be listed in the
columns as either a positive number (for
example, where the origination charge shown
in Line 801 exceeds any credit for the interest
rate shown in Line 802 or where there is an
origination charge in Line 801 and a charge
for the interest rate (points) is shown on Line
802) or as a negative number (for example,
where the credit for the interest rate shown
in Line 802 exceeds the origination charges
shown in Line 801).
In the case of ‘‘no cost’’ loans, where ‘‘no
cost’’ refers only to the loan originator’s fees,
the amounts shown in Lines 801 and 802
should offset, so that the charge shown on
Line 803 is zero. Where ‘‘no cost’’ includes
third party settlement services, the credit
shown in Line 802 will more than offset the
amount shown in Line 801. The amount
shown in Line 803 will be a negative number
to offset the settlement charges paid
indirectly through the loan originator.
Lines 804–808 may be used to record each
of the ‘‘Required services that we select.’’
Each settlement service provider must be
identified by name and the amount paid
recorded either inside the columns or as paid
to the provider outside closing (‘‘P.O.C.’’), as
described in the General Instructions.
Line 804 is used to record the appraisal fee.
Line 805 is used to record the fee for all
credit reports.
Line 806 is used to record the fee for any
tax service.
Line 807 is used to record any flood
certification fee.
Lines 808 and additional sequentially
numbered lines, as needed, are used to
record other third party services required by
the loan originator. These Lines may also be
used to record other required disclosures
from the loan originator. Any such
disclosures must be listed outside the
columns.
Lines 901–904. This series is used to
record the items which the Lender requires
to be paid at the time of settlement, but
which are not necessarily paid to the lender
(e.g., FHA mortgage insurance premium),
other than reserves collected by the Lender
and recorded in the 1000-series.
Line 901 is used if interest is collected at
settlement for a part of a month or other
period between settlement and the date from
which interest will be collected with the first
regular monthly payment. Enter that amount
here and include the per diem charges. If
such interest is not collected until the first
regular monthly payment, no entry should be
made on Line 901.
Line 902 is used for mortgage insurance
premiums due and payable at settlement,
including any monthly amounts due at
settlement and any upfront mortgage
insurance premium, but not including any
reserves collected by the Lender and
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recorded in the 1000-series. If a lump sum
mortgage insurance premium paid at
settlement is included on Line 902, a note
should indicate that the premium is for the
life of the loan.
Line 903 is used for homeowner’s
insurance premiums that the Lender requires
to be paid at the time of settlement, except
reserves collected by the Lender and
recorded in the 1000-series.
Lines 904 and additional sequentially
numbered lines are used to list additional
items required by the Lender (except for
reserves collected by the Lender and
recorded in the 1000-series), including
premiums for flood or other insurance. These
lines are also used to list amounts paid at
settlement for insurance not required by the
Lender.
Lines 1000–1007. This series is used for
amounts collected by the Lender from the
Borrower and held in an account for the
future payment of the obligations listed as
they fall due. Include the time period
(number of months) and the monthly
assessment. In many jurisdictions this is
referred to as an ‘‘escrow,’’ ‘‘impound,’’ or
‘‘trust’’ account. In addition to the property
taxes and insurance listed, some Lenders
may require reserves for flood insurance,
condominium owners’ association
assessments, etc. The amount in line 1001
must be listed in the columns, and the
itemizations in lines 1002 through 1007 must
be listed outside the columns.
After itemizing individual deposits in the
1000 series, the servicer shall make an
adjustment based on aggregate accounting.
This adjustment equals the difference
between the deposit required under aggregate
accounting and the sum of the itemized
deposits. The computation steps for aggregate
accounting are set out in 12 CFR 1024.17(d).
The adjustment will always be a negative
number or zero (–0–), except for amounts due
to rounding. The settlement agent shall enter
the aggregate adjustment amount outside the
columns on a final line of the 1000 series of
the HUD–1 or HUD–1A statement. Appendix
E to this part sets out an example of aggregate
analysis.
Lines 1100–1108. This series covers title
charges and charges by attorneys and closing
or settlement agents. The title charges
include a variety of services performed by
title companies or others, and include fees
directly related to the transfer of title (title
examination, title search, document
preparation), fees for title insurance, and fees
for conducting the closing. The legal charges
include fees for attorneys representing the
lender, seller, or borrower, and any attorney
preparing title work. The series also includes
any settlement, notary, and delivery fees
related to the services covered in this series.
Disbursements to third parties must be
broken out in the appropriate lines or in
blank lines in the series, and amounts paid
to these third parties must be shown outside
of the columns if included in Line 1101.
Charges not included in Line 1101 must be
listed in the columns.
Line 1101 is used to record the total for the
category of ‘‘Title services and lender’s title
insurance.’’ This amount must be listed in
the columns.
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Line 1102 is used to record the settlement
or closing fee.
Line 1103 is used to record the charges for
the owner’s title insurance and related
endorsements. This amount must be listed in
the columns.
Line 1104 is used to record the lender’s
title insurance premium and related
endorsements.
Line 1105 is used to record the amount of
the lender’s title policy limit. This amount is
recorded outside of the columns.
Line 1106 is used to record the amount of
the owner’s title policy limit. This amount is
recorded outside of the columns.
Line 1107 is used to record the amount of
the total title insurance premium, including
endorsements, that is retained by the title
agent. This amount is recorded outside of the
columns.
Line 1108 used to record the amount of the
total title insurance premium, including
endorsements, that is retained by the title
underwriter. This amount is recorded outside
of the columns.
Additional sequentially numbered lines in
the 1100-series may be used to itemize title
charges paid to other third parties, as
identified by name and type of service
provided.
Lines 1200–1206. This series covers
government recording and transfer charges.
Charges paid by the borrower must be listed
in the columns as described for lines 1201
and 1203, with itemizations shown outside
the columns. Any amounts that are charged
to the seller and that were not included on
the Good Faith Estimate must be listed in the
columns.
Line 1201 is used to record the total
‘‘Government recording charges,’’ and the
amount must be listed in the columns.
Line 1202 is used to record, outside of the
columns, the itemized recording charges.
Line 1203 is used to record the transfer
taxes, and the amount must be listed in the
columns.
Line 1204 is used to record, outside of the
columns, the amounts for local transfer taxes
and stamps.
Line 1205 is used to record, outside of the
columns, the amounts for State transfer taxes
and stamps.
Line 1206 and additional sequentially
numbered lines may be used to record
specific itemized third party charges for
government recording and transfer services,
but the amounts must be listed outside the
columns.
Line 1301 and additional sequentially
numbered lines must be used to record
required services that the borrower can shop
for, such as fees for survey, pest inspection,
or other similar inspections. These lines may
also be used to record additional itemized
settlement charges that are not included in a
specific category, such as fees for structural
and environmental inspections; pre-sale
inspections of heating, plumbing or electrical
equipment; or insurance or warranty
coverage. The amounts must be listed in
either the borrower’s or seller’s column.
Line 1400 must state the total settlement
charges as calculated by adding the amounts
within each column.
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Page 3
Comparison of Good Faith Estimate (GFE)
and HUD–1/1A Charges
The HUD–1/1–A is a statement of actual
charges and adjustments. The comparison
chart on page 3 of the HUD–1 must be
prepared using the exact information and
amounts for the services that were purchased
or provided as part of the transaction, as that
information and those amounts are shown on
the GFE and in the HUD–1. If a service that
was listed on the GFE was not obtained in
connection with the transaction, pages 1 and
2 of the HUD–1 should not include any
amount for that service, and the estimate on
the GFE of the charge for the service should
not be included in any amounts shown on
the comparison chart on Page 3 of the HUD–
1. The comparison chart is comprised of
three sections: ‘‘Charges That Cannot
Increase’’, ‘‘Charges That Cannot Increase
More Than 10%’’, and ‘‘Charges That Can
Change’’.
‘‘Charges That Cannot Increase’’. The
amounts shown in Blocks 1 and 2, in Line
A, and in Block 8 on the borrower’s GFE
must be entered in the appropriate line in the
Good Faith Estimate column. The amounts
shown on Lines 801, 802, 803 and 1203 of
the HUD–1/1A must be entered in the
corresponding line in the HUD–1/1A
column. The HUD–1/1A column must
include any amounts shown on page 2 of the
HUD–1 in the column as paid for by the
borrower, plus any amounts that are shown
as P.O.C. by or on behalf of the borrower. If
there is a credit in Block 2 of the GFE or Line
802 of the HUD–1/1A, the credit should be
entered as a negative number.
‘‘Charges That Cannot Increase More Than
10%’’. A description of each charge included
in Blocks 3 and 7 on the borrower’s GFE
must be entered on separate lines in this
section, with the amount shown on the
borrower’s GFE for each charge entered in the
corresponding line in the Good Faith
Estimate column. For each charge included
in Blocks 4, 5 and 6 on the borrower’s GFE
for which the loan originator selected the
provider or for which the borrower selected
a provider identified by the loan originator,
a description must be entered on a separate
line in this section, with the amount shown
on the borrower’s GFE for each charge
entered in the corresponding line in the Good
Faith Estimate column. The loan originator
must identify any third party settlement
services for which the borrower selected a
provider other than one identified by the
loan originator so that the settlement agent
can include those charges in the appropriate
category. Additional lines may be added if
necessary. The amounts shown on the HUD–
1/1A for each line must be entered in the
HUD–1/1A column next to the corresponding
charge from the GFE, along with the
appropriate HUD–1/1A line number. The
HUD–1/1A column must include any
amounts shown on page 2 of the HUD–1 in
the column as paid for by the borrower, plus
any amounts that are shown as P.O.C. by or
on behalf of the borrower.
The amounts shown in the Good Faith
Estimate and HUD–1/1A columns for this
section must be separately totaled and
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51305
entered in the designated line. If the total for
the HUD–1/1A column is greater than the
total for the Good Faith Estimate column,
then the amount of the increase must be
entered both as a dollar amount and as a
percentage increase in the appropriate line.
‘‘Charges That Can Change’’. The amounts
shown in Blocks 9, 10 and 11 on the
borrower’s GFE must be entered in the
appropriate lines in the Good Faith Estimate
column. Any third party settlement services
for which the borrower selected a provider
other than one identified by the loan
originator must also be included in this
section. The amounts shown on the HUD–1/
1A for each charge in this section must be
entered in the corresponding line in the
HUD–1/1A column, along with the
appropriate HUD–1/1A line number. The
HUD–1/1A column must include any
amounts shown on page 2 of the HUD–1 in
the column as paid for by the borrower, plus
any amounts that are shown as P.O.C. by or
on behalf of the borrower. Additional lines
may be added if necessary.
Loan Terms
This section must be completed in
accordance with the information and
instructions provided by the lender. The
lender must provide this information in a
format that permits the settlement agent to
simply enter the necessary information in the
appropriate spaces, without the settlement
agent having to refer to the loan documents
themselves. flFor reverse mortgages, the
initial monthly amount owed for principal,
interest, and any mortgage insurance must
read ‘‘N/A’’ and the loan term is disclosed as
‘‘N/A’’ when the loan term is conditioned
upon the occurrence of a specified event,
such as the death of the borrower or the
borrower no longer occupying the property
for a certain period of time. Additionally, for
reverse mortgages the question ‘‘Even if you
make payments on time, can your loan
balance rise?’’ must be answered as ‘‘Yes’’
and the maximum amount disclosed as
‘‘Unknown.’’
For reverse mortgages that establish an
arrangement for the payment of property
taxes, homeowner’s insurance, or other
recurring charges through draws from the
principal limit, the second box in the ‘‘Total
monthly amount owed including escrow
payments’’ section must be checked. The
blank following the first $ must be completed
with ‘‘0’’ and an asterisk, and all items that
will be paid using draws from the principal
limit, such as for property taxes, must also
be indicated. An asterisk must also be placed
in this section with the following statement:
‘‘Paid by or through draws from the principal
limit.’’ Reverse mortgage transactions are not
considered to be balloon transactions for the
purposes of the loan terms disclosed on page
3 of the HUD–1.fi
Instructions for Completing HUD–1A
Note: The HUD–1A is an optional form that
may be used for refinancing and subordinatelien federally related mortgage loans, as well
as for any other one-party transaction that
does not involve the transfer of title to
residential real property. The HUD–1 form
may also be used for such transactions, by
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utilizing the borrower’s side of the HUD–1
and following the relevant parts of the
instructions as set forth above. The use of
either the HUD–1 or HUD–1A is not
mandatory for open-end lines of credit
(home-equity plans), as long as the
provisions of Regulation Z are followed.
Background
The HUD–1A settlement statement is to be
used as a statement of actual charges and
adjustments to be given to the borrower at
settlement, as defined in this part. The
instructions for completion of the HUD–1A
are for the benefit of the settlement agent
who prepares the statement; the instructions
are not a part of the statement and need not
be transmitted to the borrower. There is no
objection to using the HUD–1A in
transactions in which it is not required, and
its use in open-end lines of credit
transactions (home-equity plans) is
encouraged. It may not be used as a
substitute for a HUD–1 in any transaction
that has a seller.
Refer to the ‘‘definitions’’ section (§ 1024.2)
of 12 CFR part 1024 (Regulation X) for
specific definitions of terms used in these
instructions.
General Instructions
Information and amounts may be filled in
by typewriter, hand printing, computer
printing, or any other method producing
clear and legible results. Refer to 12 CFR
1024.9 regarding rules for reproduction of the
HUD–1A. Additional pages may be attached
to the HUD–1A for the inclusion of
customary recitals and information used
locally for settlements or if there are
insufficient lines on the HUD–1A. The
settlement agent shall complete the HUD–1A
in accordance with the instructions for the
HUD–1 to the extent possible, including the
instructions for disclosing items paid outside
closing and for no cost loans.
Blank lines are provided in section L for
any additional settlement charges. Blank
lines are also provided in section M for
recipients of all or portions of the loan
proceeds. The names of the recipients of the
settlement charges in section L and the
names of the recipients of the loan proceeds
in section M should be set forth on the blank
lines.
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Line-Item Instructions
Page 1
The identification information at the top of
the HUD–1A should be completed as follows:
The borrower’s name and address is entered
in the space provided. If the property
securing the loan is different from the
borrower’s address, the address or other
location information on the property should
be entered in the space provided. The loan
number is the lender’s identification number
for the loan. The settlement date is the date
of settlement in accordance with 12 CFR
1024.2, not the end of any applicable
rescission period. The name and address of
the lender should be entered in the space
provided.
Section L. Settlement Charges. This section
of the HUD–1A is similar to section L of the
HUD–1, with minor changes or omissions,
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including deletion of lines 700 through 704,
relating to real estate broker commissions.
The instructions for section L in the HUD–
1 should be followed insofar as possible.
Inapplicable charges should be ignored, as
should any instructions regarding seller
items.
Line 1400 in the HUD–1A is for the total
settlement charges charged to the borrower.
Enter this total on line 1601. This total
should include section L amounts from
additional pages, if any are attached to this
HUD–1A.
Section M. Disbursement to Others. This
section is used to list payees, other than the
borrower, of all or portions of the loan
proceeds (including the lender, if the loan is
paying off a prior loan made by the same
lender), when the payee will be paid directly
out of the settlement proceeds. It is not used
to list payees of settlement charges, nor to list
funds disbursed directly to the borrower,
even if the lender knows the borrower’s
intended use of the funds.
For example, in a refinancing transaction,
the loan proceeds are used to pay off an
existing loan. The name of the lender for the
loan being paid off and the pay-off balance
would be entered in section M. In a home
improvement transaction when the proceeds
are to be paid to the home improvement
contractor, the name of the contractor and the
amount paid to the contractor would be
entered in section M. In a consolidation loan,
or when part of the loan proceeds is used to
pay off other creditors, the name of each
creditor and the amount paid to that creditor
would be entered in section M. If the
proceeds are to be given directly to the
borrower and the borrower will use the
proceeds to pay off existing obligations, this
would not be reflected in section M.
Section N. Net Settlement. Line 1600
normally sets forth the principal amount of
the loan as it appears on the related note for
this loan. In the event this form is used for
an open-ended home equity line whose
approved amount is greater than the initial
amount advanced at settlement, the amount
shown on Line 1600 will be the loan amount
advanced at settlement. Line 1601 is used for
all settlement charges that both are included
in the totals for lines 1400 and 1602, and are
not financed as part of the principal amount
of the loan. This is the amount normally
received by the lender from the borrower at
settlement, which would occur when some or
all of the settlement charges were paid in
cash by the borrower at settlement, instead of
being financed as part of the principal
amount of the loan. Failure to include any
such amount in line 1601 will result in an
error in the amount calculated on line 1604.
Items paid outside of closing (P.O.C.) should
not be included in Line 1601.
Line 1602 is the total amount from line
1400.
Line 1603 is the total amount from line
1520.
Line 1604 is the amount disbursed to the
borrower. This is determined by adding
together the amounts for lines 1600 and 1601,
and then subtracting any amounts listed on
lines 1602 and 1603.
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Page 2
This section of the HUD–1A is similar to
page 3 of the HUD–1. The instructions for
page 3 of the HUD–1 should be followed
insofar as possible. The HUD–1/1A Column
should include any amounts shown on page
1 of the HUD–1A in the column as paid for
by the borrower, plus any amounts that are
shown as P.O.C. by the borrower.
Inapplicable charges should be ignored.
4. Appendix B to part 1024 is
amended by revising paragraph 12 to
read as follows:
Appendix B to Part 1024—Illustrations
of Requirements of RESPA
*
*
*
*
*
12. Facts. A is a mortgage broker who
provides origination services to submit a loan
to a lender for approval. The mortgage broker
charges the borrower a uniform fee for the
total origination services, as well as a direct
up-front charge for reimbursement of credit
reporting, appraisal services, or similar
charges.
Comment. The mortgage broker’s fee must
be flreflectedfi øitemized¿ in the Good
Faith Estimate and on the HUD–1 Settlement
Statement. Other charges which are paid for
by the borrower and paid in advance are
listed as P.O.C. on the HUD–1 Settlement
Statement, and reflect the actual provider
charge for such services. øAlso, any other fee
or payment received by the mortgage broker
from either the lender or the borrower arising
from the initial funding transaction,
including a servicing release premium or
yield spread premium, is to be noted on the
Good Faith Estimate and listed in the 800
series of the HUD–1 Settlement Statement.¿
5. Appendix C to part 1024 is revised
to read as follows:
Appendix C to Part 1024—Instructions
for Completing Good Faith Estimate
(GFE) Form
The following are instructions for
completing the GFE required under section 5
of RESPA and 12 CFR 1024.7 of the Bureau
regulations. The standardized form set forth
in this Appendix is the required GFE form
and must be provided exactly as specified;
provided, however, preparers may replace
HUD’s OMB approval number listed on the
form with the Bureau’s OMB approval
number when they reproduce the GFE form.
The instructions for completion of the GFE
are primarily for the benefit of the loan
originator who prepares the form and need
not be transmitted to the borrower(s) as an
integral part of the GFE. The required
standardized GFE form must be prepared
completely and accurately. A separate GFE
must be provided for each loan where a
transaction will involve more than one
mortgage loan.
General Instructions
The loan originator preparing the GFE may
fill in information and amounts on the form
by typewriter, hand printing, computer
printing, or any other method producing
clear and legible results. Under these
instructions, the ‘‘form’’ refers to the required
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standardized GFE form. Although the
standardized GFE is a prescribed form,
Blocks 3, 6, and 11 on page 2 may be adapted
for use in particular loan situations, so that
additional lines may be inserted there, and
unused lines may be deleted.
All fees for categories of charges shall be
disclosed in U.S. dollar and cent amounts.
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
Specific Instructions
Page 1
Top of the Form—The loan originator must
enter its name, business address, telephone
number, and email address, if any, on the top
of the form, along with the applicant’s name,
the address or location of the property for
which financing is sought, and the date of the
GFE.
‘‘Purpose.’’—This section describes the
general purpose of the GFE as well as
additional information available to the
applicant.
‘‘Shopping for your loan.’’—This section
requires no loan originator action.
‘‘Important dates.’’—This section briefly
states important deadlines after which the
loan terms that are the subject of the GFE
may not be available to the applicant. In Line
1, the loan originator must state the date and,
if necessary, time until which the interest
rate for the GFE will be available. In Line 2,
the loan originator must state the date until
which the estimate of all other settlement
charges for the GFE will be available. This
date must be at least 10 business days from
the date of the GFE. In Line 3, the loan
originator must state how many calendar
days within which the applicant must go to
settlement once the interest rate is locked. In
Line 4, the loan originator must state how
many calendar days prior to settlement the
interest rate would have to be locked, if
applicable.
‘‘Summary of your loan.’’—In this section,
for all loans the loan originator must fill in,
where indicated:
(i) The initial loan amount;
(ii) The loan term; and
(iii) The initial interest rate.
flFor reverse mortgage transactions:
(i) The initial loan amount disclosed on the
GFE is the amount of the initial principal
limit of the loan;
(ii) The loan term is disclosed as ‘‘N/A’’
when the loan term is conditioned upon the
occurrence of a specified event, such as the
death of the borrower or the borrower no
longer occupying the property for a certain
period of time; and
(iii) The initial interest rate is the interest
rate indicated on the legal obligation.fi
The loan originator must fill in the initial
monthly amount owed for principal, interest,
and any mortgage insurance. The amount
shown must be the greater of: (1) The
required monthly payment for principal and
interest for the first regularly scheduled
payment, plus any monthly mortgage
insurance payment; or (2) the accrued
interest for the first regularly scheduled
payment, plus any monthly mortgage
insurance payment. flFor reverse mortgage
transactions where there are no regular
payment periods, the loan originator must
disclose ‘‘Not Applicable’’ or ‘‘N/A’’ for the
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initial monthly amount owed for principal,
interest, and any mortgage insurance.fi
The loan originator must indicate whether
the interest rate can rise, and, if it can, must
insert the maximum rate to which it can rise
over the life of the loan. The loan originator
must also indicate the period of time after
which the interest rate can first change.
The loan originator must indicate whether
the loan balance can rise even if the borrower
makes payments on time, for example in the
case of a loan with negative amortization. If
it can, the loan originator must insert the
maximum amount to which the loan balance
can rise over the life of the loan. For Federal,
State, local, or tribal housing programs that
provide payment assistance, any repayment
of such program assistance should be
excluded from consideration in completing
this item. If the loan balance will increase
only because escrow items are being paid
through the loan balance, the loan originator
is not required to check the box indicating
that the loan balance can rise. flFor reverse
mortgage transactions, the loan originator
must indicate that the loan balance can rise
even if the borrower makes payments on time
and the maximum amount to which the loan
balance can rise must be disclosed as
‘‘Unknown.’’fi
The loan originator must indicate whether
the monthly amount owed for principal,
interest, and any mortgage insurance can rise
even if the borrower makes payments on
time. If the monthly amount owed can rise
even if the borrower makes payments on
time, the loan originator must indicate the
period of time after which the monthly
amount owed can first change, the maximum
amount to which the monthly amount owed
can rise at the time of the first change, and
the maximum amount to which the monthly
amount owed can rise over the life of the
loan. The amount used for the monthly
amount owed must be the greater of: (1) The
required monthly payment for principal and
interest for that month, plus any monthly
mortgage insurance payment; or (2) the
accrued interest for that month, plus any
monthly mortgage insurance payment. flFor
reverse mortgage transactions, the loan
originator must disclose that the monthly
amount owed for principal, interest, and any
mortgage insurance cannot rise.fi
The loan originator must indicate whether
the loan includes a prepayment penalty, and,
if so, the maximum amount that it could be.
The loan originator must indicate whether
the loan requires a balloon payment and, if
so, the amount of the payment and in how
many years it will be due. flReverse
mortgage transactions are not considered to
be balloon transactions for the purposes of
this disclosure on the GFE.fi
‘‘Escrow account information.’’—The loan
originator must indicate whether the loan
includes an escrow account for property
taxes and other financial obligations. The
amount shown in the ‘‘Summary of your
loan’’ section for ‘‘Your initial monthly
amount owed for principal, interest, and any
mortgage insurance’’ must be entered in the
space for the monthly amount owed in this
section. flFor reverse mortgage transactions
where the lender will establish an
arrangement to pay for such items as
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51307
property taxes and homeowner’s insurance
through draws from the principal limit, the
loan originator must indicate that an escrow
account is included and the amount shown
in this section must be disclosed as ‘‘N/A.’’fi
‘‘Summary of your settlement charges.’’—
On this line, the loan originator must state
the Adjusted Origination Charges from
subtotal A of page 2, the Charges for All
Other Settlement Services from subtotal B of
page 2, and the Total Estimated Settlement
Charges from the bottom of page 2.
Page 2
‘‘Understanding your estimated settlement
charges.’’—This section details 11 settlement
cost categories and amounts associated with
the mortgage loan. For purposes of
determining whether a tolerance has been
met, the amount on the GFE should be
compared with the total of any amounts
shown on the HUD–1 in the borrower’s
column and any amounts paid outside
closing by or on behalf of the borrower.
‘‘Your Adjusted Origination Charges.’’
Block 1, ‘‘Our origination charge.’’—The
loan originator must state here all charges
that all loan originators involved in this
transaction will receive, except for any
charge for the specific interest rate chosen
(points). A loan originator may not separately
charge any additional fees for getting this
loan, including for application, processing, or
underwriting. The amount stated in Block 1
is subject to zero tolerance, i.e., the amount
may not increase at settlement.
Block 2, ‘‘Your credit or charge (points) for
the specific interest rate chosen.’’—For
transactions involving mortgage brokers, the
mortgage broker must indicate through check
boxes whether there is a credit to the
borrower for the interest rate chosen on the
loan, the interest rate, and the amount of the
credit, or whether there is an additional
charge (points) to the borrower for the
interest rate chosen on the loan, the interest
rate, and the amount of that charge. Only one
of the boxes may be checked; a credit and
charge cannot occur together in the same
transaction.
For transactions without a mortgage broker,
the lender may choose not to separately
disclose in this block any credit or charge for
the interest rate chosen on the loan; however,
if this block does not include any positive or
negative figure, the lender must check the
first box to indicate that ‘‘The credit or
charge for the interest rate you have chosen’’
is included in ‘‘Our origination charge’’
above (see Block 1 instructions above), must
insert the interest rate, and must also insert
‘‘0’’ in Block 2. Only one of the boxes may
be checked; a credit and charge cannot occur
together in the same transaction.
For a mortgage broker, the credit or charge
for the specific interest rate chosen is the net
payment to the mortgage broker from the
lender (i.e., the sum of all payments to the
mortgage broker from the lender, including
payments based on the loan amount, a flat
rate, or any other computation, and in a table
funded transaction, the loan amount less the
price paid for the loan by the lender). When
the net payment to the mortgage broker from
the lender is positive, there is a credit to the
borrower and it is entered as a negative
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mstockstill on DSK4VPTVN1PROD with PROPOSALS2
amount in Block 2 of the GFE. When the net
payment to the mortgage broker from the
lender is negative, there is a charge to the
borrower and it is entered as a positive
amount in Block 2 of the GFE. If there is no
net payment (i.e., the credit or charge for the
specific interest rate chosen is zero), the
mortgage broker must insert ‘‘0’’ in Block 2
and may check either the box indicating
there is a credit of ‘‘0’’ or the box indicating
there is a charge of ‘‘0’’.
The amount stated in Block 2 is subject to
zero tolerance while the interest rate is
locked, i.e., any credit for the interest rate
chosen cannot decrease in absolute value
terms and any charge for the interest rate
chosen cannot increase. (Note: An increase in
the credit is allowed since this increase is a
reduction in cost to the borrower. A decrease
in the credit is not allowed since it is an
increase in cost to the borrower.)
Line A, ‘‘Your Adjusted Origination
Charges.’’—The loan originator must add the
numbers in Blocks 1 and 2 and enter this
subtotal at highlighted Line A. The subtotal
at Line A will be a negative number if there
is a credit in Block 2 that exceeds the charge
in Block 1. The amount stated in Line A is
subject to zero tolerance while the interest
rate is locked.
In the case of ‘‘no cost’’ loans, where ‘‘no
cost’’ refers only to the loan originator’s fees,
Line A must show a zero charge as the
adjusted origination charge. In the case of
‘‘no cost’’ loans where ‘‘no cost’’
encompasses third party fees as well as the
upfront payment to the loan originator, all of
the third party fees listed in Block 3 through
Block 11 to be paid for by the loan originator
(or borrower, if any) must be itemized and
listed on the GFE. The credit for the interest
rate chosen must be large enough that the
total for Line A will result in a negative
number to cover the third party fees.
‘‘Your Charges for All Other Settlement
Services’’
There is a 10 percent tolerance applied to
the sum of the prices of each service listed
in Block 3, Block 4, Block 5, Block 6, and
Block 7, where the loan originator requires
the use of a particular provider or the
borrower uses a provider selected or
identified by the loan originator. Any
services in Block 4, Block 5, or Block 6 for
which the borrower selects a provider other
than one identified by the loan originator are
not subject to any tolerance and, at
settlement, would not be included in the sum
of the charges on which the 10 percent
tolerance is based. Where a loan originator
permits a borrower to shop for third party
settlement services, the loan originator must
provide the borrower with a written list of
settlement services providers at the time of
the GFE, on a separate sheet of paper.
Block 3, ‘‘Required services that we
select.’’—In this block, the loan originator
must identify each third party settlement
service required and selected by the loan
originator (excluding title services), along
with the estimated price to be paid to the
provider of each service. Examples of such
third party settlement services might include
provision of credit reports, appraisals, flood
checks, tax services, and any upfront
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mortgage insurance premium. The loan
originator must identify the specific required
services and provide an estimate of the price
of each service. Loan originators are also
required to add the individual charges
disclosed in this block and place that total in
the column of this block. The charge shown
in this block is subject to an overall 10
percent tolerance as described above.
Block 4, ‘‘Title services and lender’s title
insurance.’’—In this block, the loan
originator must state the estimated total
charge for third party settlement service
providers for all closing services, regardless
of whether the providers are selected or paid
for by the borrower, seller, or loan originator.
The loan originator must also include any
lender’s title insurance premiums, when
required, regardless of whether the provider
is selected or paid for by the borrower, seller,
or loan originator. All fees for title searches,
examinations, and endorsements, for
example, would be included in this total. The
charge shown in this block is subject to an
overall 10 percent tolerance as described
above.
Block 5, ‘‘Owner’s title insurance.’’—In this
block, for all purchase transactions the loan
originator must provide an estimate of the
charge for the owner’s title insurance and
related endorsements, regardless of whether
the providers are selected or paid for by the
borrower, seller, or loan originator. For nonpurchase transactions, the loan originator
may enter ‘‘NA’’ or ‘‘Not Applicable’’ in this
Block. The charge shown in this block is
subject to an overall 10 percent tolerance as
described above.
Block 6, ‘‘Required services that you can
shop for.’’—In this block, the loan originator
must identify each third party settlement
service required by the loan originator where
the borrower is permitted to shop for and
select the settlement service provider
(excluding title services), along with the
estimated charge to be paid to the provider
of each service. The loan originator must
identify the specific required services (e.g.,
survey, pest inspection) and provide an
estimate of the charge of each service. The
loan originator must also add the individual
charges disclosed in this block and place the
total in the column of this block. The charge
shown in this block is subject to an overall
10 percent tolerance as described above.
Block 7, ‘‘Government recording charge.’’—
In this block, the loan originator must
estimate the State and local government fees
for recording the loan and title documents
that can be expected to be charged at
settlement. The charge shown in this block
is subject to an overall 10 percent tolerance
as described above.
Block 8, ‘‘Transfer taxes.’’—In this block,
the loan originator must estimate the sum of
all State and local government fees on
mortgages and home sales that can be
expected to be charged at settlement, based
upon the proposed loan amount or sales
price and on the property address. A zero
tolerance applies to the sum of these
estimated fees.
Block 9, ‘‘Initial deposit for your escrow
account.’’—In this block, the loan originator
must estimate the amount that it will require
the borrower to place into a reserve or escrow
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account at settlement to be applied to
recurring charges for property taxes,
homeowner’s and other similar insurance,
mortgage insurance, and other periodic
charges. The loan originator must indicate
through check boxes if the reserve or escrow
account will cover future payments for all
tax, all hazard insurance, and other
obligations that the loan originator requires
to be paid as they fall due. If the reserve or
escrow account includes some, but not all,
property taxes or hazard insurance, or if it
includes mortgage insurance, the loan
originator should check ‘‘other’’ and then list
the items included.
Block 10, ‘‘Daily interest charges.’’—In this
block, the loan originator must estimate the
total amount that will be due at settlement
for the daily interest on the loan from the
date of settlement until the first day of the
first period covered by scheduled mortgage
payments. The loan originator must also
indicate how this total amount is calculated
by providing the amount of the interest
charges per day and the number of days used
in the calculation, based on a stated projected
closing date.
Block 11, ‘‘Homeowner’s insurance.’’—The
loan originator must estimate in this block
the total amount of the premiums for any
hazard insurance policy and other similar
insurance, such as fire or flood insurance that
must be purchased at or before settlement to
meet the loan originator’s requirements. The
loan originator must also separately indicate
the nature of each type of insurance required
along with the charges. To the extent a loan
originator requires that such insurance be
part of an escrow account, the amount of the
initial escrow deposit must be included in
Block 9.
Line B, ‘‘Your Charges for All Other
Settlement Services.’’—The loan originator
must add the numbers in Blocks 3 through
11 and enter this subtotal in the column at
highlighted Line B.
Line A+B, ‘‘Total Estimated Settlement
Charges.’’—The loan originator must add the
subtotals in the right-hand column at
highlighted Lines A and B and enter this total
in the column at highlighted Line A+B.
Page 3
‘‘Instructions.’’
‘‘Understanding which charges can change
at settlement.’’—This section informs the
applicant about which categories of
settlement charges can increase at closing,
and by how much, and which categories of
settlement charges cannot increase at closing.
This section requires no loan originator
action.
‘‘Using the tradeoff table.’’—This section is
designed to make borrowers aware of the
relationship between their total estimated
settlement charges on one hand, and the
interest rate and resulting monthly payment
on the other hand. The loan originator must
complete the left hand column using the loan
amount, interest rate, monthly payment
figure, and the total estimated settlement
charges from page 1 of the GFE. The loan
originator, at its option, may provide the
borrower with the same information for two
alternative loans, one with a higher interest
rate, if available, and one with a lower
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interest rate, if available, from the loan
originator. The loan originator should list in
the tradeoff table only alternative loans for
which it would presently issue a GFE based
on the same information the loan originator
considered in issuing this GFE. The
alternative loans must use the same loan
amount and be otherwise identical to the
loan in the GFE. The alternative loans must
have, for example, the identical number of
payment periods; the same margin, index,
and adjustment schedule if the loans are
adjustable rate mortgages; and the same
requirements for prepayment penalty and
balloon payments. If the loan originator fills
in the tradeoff table, the loan originator must
show the borrower the loan amount,
alternative interest rate, alternative monthly
payment, the change in the monthly payment
from the loan in this GFE to the alternative
loan, the change in the total settlement
charges from the loan in this GFE to the
alternative loan, and the total settlement
charges for the alternative loan. If these
options are available, an applicant may
request a new GFE, and a new GFE must be
provided by the loan originator.
‘‘Using the shopping chart.’’—This chart is
a shopping tool to be provided by the loan
originator for the borrower to complete, in
order to compare GFEs.
‘‘If your loan is sold in the future.’’—This
section requires no loan originator action.
PART 1026—TRUTH IN LENDING
(REGULATION Z)
6. The authority citation for part 1026
is revised to read as follows:
Authority: 12 U.S.C. fl2601; 2603–2605,
2607, 2609, 2617, 5511,fi 5512, fl5532,fi
5581; 15 U.S.C. 1601 et seq.
7. Section 1026.1 is amended by
revising paragraphs (a), (b), (c)(5), (d)(5),
and (e) to read as follows:
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
§ 1026.1 Authority, purpose, coverage,
organization, enforcement, and liability.
(a) Authority. This part, known as
Regulation Z, is issued by the Bureau of
Consumer Financial Protection to
implement the Federal Truth in Lending
Act, which is contained in title I of the
Consumer Credit Protection Act, as
amended (15 U.S.C. 1601 et seq.). This
part also implements title XII, section
1204 of the Competitive Equality
Banking Act of 1987 (Pub. L. 100–86,
101 Stat. 552). flFurthermore, this part
implements certain provisions of the
Real Estate Settlement Procedures Act of
1974, as amended (12 U.S.C. 2601 et
seq.).fi Information-collection
requirements contained in this part have
been approved by the Office of
Management and Budget under the
provisions of 44 U.S.C. 3501 et seq. and
have been assigned OMB No. 3170–0015
fl(Truth in Lending)fi.
(b) Purpose. The purpose of this part
is to promote the informed use of
consumer credit by requiring
disclosures about its terms and costfl,
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to ensure that consumers are provided
with greater and more timely
information on the nature and costs of
the residential real estate settlement
process, and to result in a more effective
advance disclosure to home buyers and
sellers of settlement costsfi. The
regulation also includes substantive
protections. It gives consumers the right
to cancel certain credit transactions that
involve a lien on a consumer’s principal
dwelling, regulates certain credit card
practices, and provides a means for fair
and timely resolution of credit billing
disputes. The regulation does not
generally govern charges for consumer
credit, except that several provisions in
subpart G set forth special rules
addressing certain charges applicable to
credit card accounts under an open-end
(not home-secured) consumer credit
plan. The regulation requires a
maximum interest rate to be stated in
variable-rate contracts secured by the
consumer’s dwelling. It also imposes
limitations on home-equity plans that
are subject to the requirements of
§ 1026.40 and mortgages that are subject
to the requirements of § 1026.32. The
regulation prohibits certain acts or
practices in connection with credit
secured by a dwelling in § 1026.36, and
credit secured by a consumer’s principal
dwelling in § 1026.35. The regulation
also regulates certain practices of
creditors who extend private education
loans as defined in § 1026.46(b)(5). flIn
addition, it imposes certain limitations
on increases in costs for mortgage
transactions subject to § 1026.19(e) and
(f).fi
(c) Coverage. * * *
fl(5) No person is required to provide
the disclosures required by sections
128(a)(16) through (19), 128(b)(4),
129C(f)(1), 129C(g)(2) and (3), 129C(h),
129D(h), or 129D(j)(1)(A) of the Truth in
Lending Act or section 4(c) of the Real
Estate Settlement Procedures Act.fi
(d) Organization. * * *
(5) Subpart E contains special rules
for mortgage transactions. Section
1026.32 requires certain disclosures and
provides limitations for closed-end
loans that have rates or fees above
specified amounts. Section 1026.33
requires special disclosures, including
the total annual loan cost rate, for
reverse mortgage transactions. Section
1026.34 prohibits specific acts and
practices in connection with closed-end
mortgage transactions that are subject to
§ 1026.32. Section 1026.35 prohibits
specific acts and practices in connection
with closed-end higher-priced mortgage
loans, as defined in § 1026.35(a).
Section 1026.36 prohibits specific acts
and practices in connection with an
extension of credit secured by a
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dwelling. flSections 1026.37 and
1026.38 set forth the special disclosure
requirements for certain closed-end
transactions secured by real property, as
required by § 1026.19(e), (f), and (g).fi
*
*
*
*
*
(e) Enforcement and liability. Section
108 of the flTruth in Lendingfi Act
contains the administrative enforcement
provisions flfor that Actfi. Sections
112, 113, 130, 131, and 134 contain
provisions relating to liability for failure
to comply with the requirements of the
flTruth in Lendingfi Act and the
regulation. Section 1204(c) of title XII of
the Competitive Equality Banking Act of
1987, Pub. L. 100–86, 101 Stat. 552,
incorporates by reference administrative
enforcement and civil liability
provisions of sections 108 and 130 of
the flTruth in Lendingfi Act.
flSection 19 of the Real Estate
Settlement Procedures Act contains the
administrative enforcement provisions
for that Act.fi
8. Section 1026.2 is amended by
revising paragraphs (a)(3), (a)(6), and
(a)(25) to read as follows:
§ 1026.2 Definitions and rules of
construction.
(a) Definitions. For purposes of this
regulation, the following definitions
apply:
*
*
*
*
*
fl(3)(i) Application means the
submission of a consumer’s financial
information for the purposes of
obtaining an extension of credit.
(ii) Except for purposes of subpart B,
subpart F, and subpart G of this part, an
application consists of the submission
of the consumer’s name, the consumer’s
income, the consumer’s social security
number to obtain a credit report, the
property address, an estimate of the
value of the property, and the mortgage
loan amount sought.fi
*
*
*
*
*
(6) Business day means a day on
which the creditor’s offices are open to
the public for carrying on substantially
all of its business functions. However,
for purposes of rescission under
§§ 1026.15 and 1026.23, and for
purposes of §§ 1026.19(a)(1)(ii),
1026.19(a)(2), fl1026.19(e)(1)(iii),
1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A),
1026.19(f)(1)(ii), 1026.19(f)(1)(iii),fi
1026.31, and 1026.46(d)(4), the term
means all calendar days except Sundays
and the legal public holidays specified
in 5 U.S.C. 6103(a), such as New Year’s
Day, the Birthday of Martin Luther King,
Jr., Washington’s Birthday, Memorial
Day, Independence Day, Labor Day,
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Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
*
*
*
*
*
(25) Security interest means an
interest in property that secures
performance of a consumer credit
obligation and that is recognized by
State or Federal law. It does not include
incidental interests such as interests in
proceeds, accessions, additions,
fixtures, insurance proceeds (whether or
not the creditor is a loss payee or
beneficiary), premium rebates, or
interests in after-acquired property. For
purposes of disclosures under
§§ 1026.6fl,fi øand¿ 1026.18,
fl1026.19(e) and (f), and
1026.38(l)(6),fi the term does not
include an interest that arises solely by
operation of law. However, for purposes
of the right of rescission under
§§ 1026.15 and 1026.23, the term does
include interests that arise solely by
operation of law.
*
*
*
*
*
9. Section 1026.3 is amended by
revising the introductory text and
adding new paragraph (h) to read as
follows:
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§ 1026.3
Exempt transactions.
flThe following transactions are not
subject to this part or, if the exemption
is limited to specified provisions of this
part, are not subject to those
provisionsfi øThis part does not apply
to the following¿:
*
*
*
*
*
fl(h) Partial exemption for certain
mortgage loans. The special disclosure
requirements in § 1026.19(e), (f), and (g)
do not apply to a transaction that
satisfies all of the following criteria:
(1) The transaction is secured by a
subordinate lien;
(2) The transaction is for the purpose
of:
(i) Downpayment, closing costs, or
other similar homebuyer assistance,
such as principal or interest subsidies;
(ii) Property rehabilitation assistance;
(iii) Energy efficiency assistance; or
(iv) Foreclosure avoidance or
prevention;
(3) The credit contract does not
require the payment of interest;
(4) The credit contract provides that
repayment of the amount of credit
extended is:
(i) Forgiven either incrementally or in
whole, at a date certain, and subject
only to specified ownership and
occupancy conditions, such as a
requirement that the consumer maintain
the property as the consumer’s principal
dwelling for five years;
(ii) Deferred for a minimum of 20
years;
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(iii) Deferred until sale of the property
securing the transaction; or
(iv) Deferred until the property
securing the transaction is no longer the
principal dwelling of the consumer;
(5) The total of closing costs payable
by the consumer in connection with the
transaction is less than one percent of
the amount of credit extended and
includes no charges other than:
(i) Fees for recordation of security
instruments, deeds, and similar
documents;
(ii) A bona fide and reasonable
application fee; and
(iii) A bona fide and reasonable fee for
housing counseling services; and
(6) The creditor complies with all
other applicable requirements of this
part in connection with the transaction,
including without limitation the
disclosures required by § 1026.18 even
if the creditor would not otherwise be
subject to the disclosure requirements of
§ 1026.18.fi
10. Section 1026.4 is amended by
revising paragraphs (a)(2), (c)
introductory text, (d)(1), (d)(2), (d)(3),
and (e), and adding new paragraph (g),
to read as follows:
§ 1026.4
Finance charge.
(a) * * *
(2) Special rule; closing agent charges.
flExcept as provided in § 1026.4(g),
feesfi øFees¿ charged by a third party
that conducts the loan closing (such as
a settlement agent, attorney, or escrow
or title company) are finance charges
only if the creditor:
(i) Requires the particular services for
which the consumer is charged;
(ii) Requires the imposition of the
charge; or
(iii) Retains a portion of the thirdparty charge, to the extent of the portion
retained.
*
*
*
*
*
(c) Charges excluded from the finance
charge. flExcept as provided in
§ 1026.4(g), thefi øThe¿ following
charges are not finance charges:
*
*
*
*
*
(d) Insurance and debt cancellation
and debt suspension coverage. (1)
Voluntary credit insurance premiums.
flExcept as provided in § 1026.4(g),
premiumsfi øPremiums¿ for credit life,
accident, health, or loss-of-income
insurance may be excluded from the
finance charge if the following
conditions are met:
(i) The insurance coverage is not
required by the creditor, and this fact is
disclosed in writing.
(ii) The premium for the initial term
of insurance coverage is disclosed in
writing. If the term of insurance is less
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than the term of the transaction, the
term of insurance also shall be
disclosed. The premium may be
disclosed on a unit-cost basis only in
open-end credit transactions, closed-end
credit transactions by mail or telephone
under § 1026.17(g), and certain closedend credit transactions involving an
insurance plan that limits the total
amount of indebtedness subject to
coverage.
(iii) The consumer signs or initials an
affirmative written request for the
insurance after receiving the disclosures
specified in this paragraph, except as
provided in paragraph (d)(4) of this
section. Any consumer in the
transaction may sign or initial the
request.
(2) Property insurance premiums.
Premiums for insurance against loss of
or damage to property, or against
liability arising out of the ownership or
use of property, including single interest
insurance if the insurer waives all right
of subrogation against the consumer,
may be excluded from the finance
charge if the following conditions are
met:
(i) The insurance coverage may be
obtained from a person of the
consumer’s choice, and this fact is
disclosed. (A creditor may reserve the
right to refuse to accept, for reasonable
cause, an insurer offered by the
consumer.)
(ii) If the coverage is obtained from or
through the creditor flor from an
affiliate of the creditor,fi the premium
for the initial term of insurance coverage
shall be disclosed. If the term of
insurance is less than the term of the
transaction, the term of insurance shall
also be disclosed. The premium may be
disclosed on a unit-cost basis only in
open-end credit transactions, closed-end
credit transactions by mail or telephone
under § 1026.17(g), and certain closedend credit transactions involving an
insurance plan that limits the total
amount of indebtedness subject to
coverage.
(3) Voluntary debt cancellation or
debt suspension fees. flExcept as
provided in § 1026.4(g), chargesfi
øCharges¿ or premiums paid for debt
cancellation coverage for amounts
exceeding the value of the collateral
securing the obligation or for debt
cancellation or debt suspension
coverage in the event of the loss of life,
health, or income or in case of accident
may be excluded from the finance
charge, whether or not the coverage is
insurance, if the following conditions
are met:
(i) The debt cancellation or debt
suspension agreement or coverage is not
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required by the creditor, and this fact is
disclosed in writing;
(ii) The fee or premium for the initial
term of coverage is disclosed in writing.
If the term of coverage is less than the
term of the credit transaction, the term
of coverage also shall be disclosed. The
fee or premium may be disclosed on a
unit-cost basis only in open-end credit
transactions, closed-end credit
transactions by mail or telephone under
§ 1026.17(g), and certain closed-end
credit transactions involving a debt
cancellation agreement that limits the
total amount of indebtedness subject to
coverage;
(iii) The following are disclosed, as
applicable, for debt suspension
coverage: That the obligation to pay loan
principal and interest is only
suspended, and that interest will
continue to accrue during the period of
suspension.
(iv) The consumer signs or initials an
affirmative written request for coverage
after receiving the disclosures specified
in this paragraph, except as provided in
paragraph (d)(4) of this section. Any
consumer in the transaction may sign or
initial the request.
*
*
*
*
*
(e) Certain security interest charges.
flExcept as provided in § 1026.4(g),
iffi øIf¿ itemized and disclosed, the
following charges may be excluded from
the finance charge:
*
*
*
*
*
fl(g) Special rule for closed-end
mortgage transactions. Paragraphs (a)(2)
and (c) through (e) of this section, other
than paragraphs (c)(2), (c)(5), (c)(7)(v),
and (d)(2), do not apply to closed-end
transactions secured by real property or
a dwelling.fi
11. Section 1026.17 is amended by
adding introductory text to paragraph
(a) and revising paragraphs (b), (f)
introductory text, (g) introductory text,
and (h) introductory text to read as
follows:
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§ 1026.17 General disclosure
requirements.
(a) Form of disclosures. flExcept for
the disclosures required by § 1026.19(e),
(f), and (g):fi
*
*
*
*
*
(b) Time of disclosures. The creditor
shall make disclosures before
consummation of the transaction. In
certain residential mortgage
transactions, special timing
requirements are set forth in
§ 1026.19(a). In certain variable-rate
transactions, special timing
requirements for variable-rate
disclosures are set forth in § 1026.19(b)
and § 1026.20(c). For private education
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51311
loan disclosures made in compliance
with § 1026.47, special timing
requirements are set forth in
§ 1026.46(d). In certain transactions
involving mail or telephone orders or a
series of sales, the timing of disclosures
may be delayed in accordance with
paragraphs (g) and (h) of this section.
flThis paragraph (b) does not apply to
the disclosures required by § 1026.19(e),
(f), and (g).fi
*
*
*
*
*
(f) Early disclosures. Except for
private education loan disclosures made
in compliance with § 1026.47, if
disclosures required by this subpart are
given before the date of consummation
of a transaction and a subsequent event
makes them inaccurate, the creditor
shall disclose before consummation
(subject to the provisions of
§ 1026.19(a)(2)fl, (e), and (f)):fi øand
§ 1026.19(a)(5)(iii)):¿
*
*
*
*
*
(g) Mail or telephone orders—delay in
disclosures. Except for private education
loan disclosures made in compliance
with § 1026.47 fland mortgage
disclosures made in compliance with
§ 1026.19(a), (e), and (f)fi, if a creditor
receives a purchase order or a request
for an extension of credit by mail,
telephone, or facsimile machine without
face-to-face or direct telephone
solicitation, the creditor may delay the
disclosures until the due date of the first
payment, if the following information
for representative amounts or ranges of
credit is made available in written form
or in electronic form to the consumer or
to the public before the actual purchase
order or request:
*
*
*
*
*
(h) Series of sales—delay in
disclosures. flExcept for mortgage
disclosures made in compliance with
§ 1026.19(a), (e), and (f), iffi øIf¿ a
credit sale is one of a series made under
an agreement providing that subsequent
sales may be added to an outstanding
balance, the creditor may delay the
required disclosures until the due date
of the first payment for the current sale,
if the following two conditions are met:
*
*
*
*
*
12. Section 1026.18 is amended by
revising the introductory text and
paragraphs (k), (s) introductory text,
(s)(3)(i)(C), and (t)(1) to read as follows:
(k) Prepayment. (1) When an
obligation includes a finance charge
computed from time to time by
application of a rate to the unpaid
principal balance, a statement
indicating whether or not a flchargefi
øpenalty¿ may be imposed flfor paying
all or part of a loan’s principal balance
before the date on which the principal
is due.fi øif the obligation is prepaid in
full.¿
(2) When an obligation includes a
finance charge other than the finance
charge described in paragraph (k)(1) of
this section, a statement indicating
whether or not the consumer is entitled
to a rebate of any finance charge if the
obligation is prepaid in full flor in
partfi.
*
*
*
*
*
(s) Interest rate and payment
summary for mortgage transactions. For
a closed-end transaction secured by real
property or a dwelling, other than a
transaction flthat is subject to
§ 1026.19(e) and (f)fi øsecured by a
consumer’s interest in a timeshare plan
described in 11 U.S.C. 101(53D)¿, the
creditor shall disclose the following
information about the interest rate and
payments:
*
*
*
*
*
(3) Payments for amortizing loans. (i)
Principal and interest payments. * * *
(C) If an escrow account will be
established, an estimate of the amount
of taxes and insurance, including any
mortgage insurance flor any functional
equivalentfi, payable with each
periodic payment; and
*
*
*
*
*
(t) ‘‘No-guarantee-to-refinance’’
statement. (1) Disclosure. For a closedend transaction secured by real property
or a dwelling, other than a transaction
flthat is subject to § 1026.19(e) and
(f)fi øsecured by a consumer’s interest
in a timeshare plan described in 11
U.S.C. 101(53D)¿, the creditor shall
disclose a statement that there is no
guarantee the consumer can refinance
the transaction to lower the interest rate
or periodic payments.
*
*
*
*
*
13. Section 1026.19 is amended by
revising paragraph (a)(1)(i) and (ii),
removing paragraph (a)(5), and adding
new paragraphs (e), (f), and (g), to read
as follows:
§ 1026.18
§ 1026.19 Certain mortgage and variablerate transactions.
Content of disclosures.
For each transaction flother than a
mortgage transaction subject to
§ 1026.19(e) and (f)fi, the creditor shall
disclose the following information as
applicable:
*
*
*
*
*
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(a) flReverse mortgagefi øMortgage¿
transactions subject to RESPA. (1)(i)
Time of disclosures. In a flreversefi
mortgage transaction subject to flboth
§ 1026.33 andfi the Real Estate
Settlement Procedures Act (12 U.S.C.
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2601 et seq.) that is secured by the
consumer’s dwelling, øother than a
home equity line of credit subject to
§ 1026.40 or mortgage transaction
subject to paragraph (a)(5) of this
section,¿ the creditor shall make good
faith estimates of the disclosures
required by § 1026.18 and shall deliver
or place them in the mail not later than
the third business day after the creditor
receives the consumer’s written
application.
(ii) Imposition of fees. Except as
provided in paragraph (a)(1)(iii) of this
section, neither a creditor nor any other
person may impose a fee on a consumer
in connection with the consumer’s
application for a flreversefi mortgage
transaction subject to paragraph (a)(1)(i)
of this section before the consumer has
received the disclosures required by
paragraph (a)(1)(i) of this section. If the
disclosures are mailed to the consumer,
the consumer is considered to have
received them three business days after
they are mailed.
(iii) Exception to fee restriction. A
creditor or other person may impose a
fee for obtaining the consumer’s credit
history before the consumer has
received the disclosures required by
paragraph (a)(1)(i) of this section,
provided the fee is bona fide and
reasonable in amount.
*
*
*
*
*
ø(5) Timeshare plans. In a mortgage
transaction subject to the Real Estate
Settlement Procedures Act (12 U.S.C.
2601 et seq.) that is secured by a
consumer’s interest in a timeshare plan
described in 11 U.S.C. 101(53(D)):
(i) The requirements of paragraphs
(a)(1) through (a)(4) of this section do
not apply;
(ii) The creditor shall make good faith
estimates of the disclosures required by
§ 1026.18 before consummation, or shall
deliver or place them in the mail not
later than three business days after the
creditor receives the consumer’s written
application, whichever is earlier; and
(iii) If the annual percentage rate at
the time of consummation varies from
the annual percentage rate disclosed
under paragraph (a)(5)(ii) of this section
by more than 1⁄8 of 1 percentage point
in a regular transaction or more than 1⁄4
of 1 percentage point in an irregular
transaction, as defined in § 1026.22, the
creditor shall disclose all the changed
terms no later than consummation or
settlement.¿
*
*
*
*
*
fl(e) Mortgage loans secured by real
property—Early disclosures. (1)
Provision. (i) Creditor. In a closed-end
consumer credit transaction secured by
real property, other than a reverse
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mortgage subject to § 1026.33, the
creditor shall make good faith estimates
of the disclosures in § 1026.37.
(ii) Mortgage broker. A mortgage
broker may provide a consumer with the
disclosures required under paragraph
(e)(1)(i) of this section, provided the
broker complies with all requirements
of this paragraph (e) as if it were the
creditor. The creditor shall ensure that
disclosures are provided in accordance
with the requirements of this paragraph
(e). Disclosures provided by a broker in
accordance with the requirements of
this paragraph (e) satisfy the creditor’s
obligation under paragraph (e)(1)(i) of
this section.
(iii) Timing. The creditor shall deliver
the disclosures required under
paragraph (e)(1)(i) of this section not
later than the third business day after
the creditor receives the consumer’s
application, as defined in § 1026.2(a)(3).
The creditor shall deliver the
disclosures required under paragraph
(e)(1)(i) of this section not later than the
seventh business day before
consummation of the transaction.
(iv) Delivery. If any disclosures
required under paragraph (e)(1)(i) of this
section are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer.
(v) Consumer’s waiver of waiting
period before consummation. If the
consumer determines that the extension
of credit is needed to meet a bona fide
personal financial emergency, the
consumer may modify or waive the
seven-business-day waiting period for
early disclosures required under
paragraph (e)(1)(iii) of this section, after
receiving the disclosures required under
paragraph (e)(1)(i) of this section. To
modify or waive a waiting period, the
consumer shall give the creditor a dated
written statement that describes the
emergency, specifically modifies or
waives the waiting period, and bears the
signature of all the consumers who are
primarily liable on the legal obligation.
Printed forms for this purpose are
prohibited.
(vi) Shopping for settlement service
providers. (A) Shopping permitted. A
creditor permits a consumer to shop for
a settlement service if the creditor
permits the consumer to select the
provider of that service, subject to
reasonable requirements.
(B) Disclosure of services. The creditor
shall identify the services for which the
consumer is permitted to shop in the
disclosures provided pursuant to
paragraph 19(e)(1)(i) of this section.
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(C) Written list of providers. If the
consumer is permitted to shop for a
settlement service, the creditor shall
provide the consumer with a written list
identifying available providers of that
settlement service and stating that the
consumer may choose a different
provider for that service. The creditor
shall provide this written list of
settlement service providers separately
from the disclosures required by
paragraph (e)(1)(i) of this section but in
accordance with the timing
requirements in paragraph (e)(1)(iii) of
this section.
(2) Pre-disclosure activity. (i)
Imposition of fees on consumer. (A) Fee
restriction. Except as provided in
paragraph (e)(2)(i)(B) of this section,
neither a creditor nor any other person
may impose a fee on a consumer in
connection with the consumer’s
application for a mortgage transaction
subject to paragraph (e)(1)(i) of this
section before the consumer has
received the disclosures required under
paragraph (e)(1)(i) of this section and
indicated to the creditor an intent to
proceed with the transaction described
by those disclosures.
(B) Exception to fee restriction. A
creditor or other person may impose a
bona fide and reasonable fee for
obtaining the consumer’s credit report
before the consumer has received the
disclosures required under paragraph
(e)(1)(i) of this section.
(ii) Written information provided to
consumer. If a creditor provides a
consumer with a written estimate of
terms or costs specific to that consumer
before the consumer receives the
disclosures required under paragraph
(e)(1)(i) of this section and indicates
intent to proceed with the transaction,
the creditor shall clearly and
conspicuously state at the top of the
front of the first page of the estimate in
a font size that is no smaller than 12point font: ‘‘Your actual rate, payment,
and costs could be higher. Get an
official Loan Estimate before choosing a
loan.’’
(iii) Verification of information. The
creditor shall not require a consumer to
submit documents verifying information
related to the consumer’s application
before providing the disclosures
required by paragraph (e)(1)(i) of this
section.
(3) Good faith determination for
estimates of closing costs. (i) General
rule. An estimated closing cost is in
good faith if the charge paid by or
imposed on the consumer does not
exceed the amount disclosed under
paragraph (e)(1)(i) of this section, except
as otherwise provided in paragraph
(e)(3)(ii) through (iv) of this section.
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(ii) Limited increases permitted for
certain charges. An estimate of a charge
for a third-party service or a recording
fee is in good faith if:
(A) The aggregate amount of charges
for third-party services and recording
fees paid by or imposed on the
consumer does not exceed the aggregate
amount of such charges disclosed under
paragraph (e)(1)(i) of this section by
more than 10 percent;
(B) The charge is not paid to an
affiliate of the creditor; and
(C) The creditor permits the consumer
to shop for the service, consistent with
paragraph (e)(1)(vi)(A) of this section.
(iii) Variations permitted for certain
charges. An estimate of the following
charges is in good faith if it is consistent
with the best information reasonably
available to the creditor at the time it is
disclosed, regardless of whether the
amount actually paid by the consumer
exceeds the amount disclosed under
paragraph (e)(1)(i) of this section:
(A) Prepaid interest;
(B) Property insurance premiums;
(C) Amounts placed into an escrow,
impound, reserve, or similar account;
and
(D) Charges paid to third-party service
providers selected by the consumer
consistent with paragraph (e)(1)(vi)(A)
of this section that are not on the list
provided pursuant to paragraph
(e)(1)(vi)(C) of this section.
(iv) Revised estimates. For the
purpose of determining good faith under
paragraph (e)(3)(i) and (ii) of this
section, a charge paid by or imposed on
the consumer may exceed the originally
estimated charge if the revision is due
to one of the following reasons:
(A) Changed circumstance affecting
settlement charges. Changed
circumstances cause the estimated
charges to increase or, in the case of
estimated charges identified in
paragraph (e)(3)(ii) of this section, cause
the aggregate amount of such charges to
increase by more than 10 percent. For
purposes of this paragraph, ‘‘changed
circumstance’’ means:
(1) An extraordinary event beyond the
control of any interested party or other
unexpected event specific to the
consumer or transaction;
(2) Information specific to the
consumer or transaction that the
creditor relied upon when providing the
disclosures required under paragraph
(e)(1)(i) of this section and that was
inaccurate or changed after the
disclosures were provided; or
(3) New information specific to the
consumer or transaction that the
creditor did not rely on when providing
the original disclosures.
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(B) Changed circumstance affecting
eligibility. The consumer is ineligible for
an estimated charge previously
disclosed because a changed
circumstance, as defined under
paragraph (e)(3)(iv)(A) of this section,
affected the consumer’s
creditworthiness or the value of the
security for the loan.
(C) Revisions requested by the
consumer. The consumer requests
revisions to the credit terms or the
settlement that cause an estimated
charge to increase.
(D) Interest rate dependent charges.
The points or lender credits change
because the interest rate was not set
when the disclosures required under
paragraph (e)(1)(i) of this section were
provided. On the date the interest rate
is set, the creditor shall provide revised
disclosures under paragraph (e)(1)(i) of
this section to the consumer with the
revised interest rate, bona fide discount
points, and lender credits.
(E) Expiration. The consumer
expresses an intent to proceed with the
transaction more than ten business days
after the disclosures required under
paragraph (e)(1)(i) of this section are
provided.
(F) Delayed settlement date on a
construction loan. In transactions
involving new construction, where the
creditor reasonably expects that
settlement will occur more than 60 days
after the disclosures required under
paragraph (e)(1)(i) of this section are
originally provided, the creditor may
provide revised disclosures to the
consumer if the original disclosures
state clearly and conspicuously that at
any time prior to 60 days before
consummation, the creditor may issue
revised disclosures. If no such statement
is provided, the creditor may not issue
revised disclosures, except as otherwise
provided in paragraph (f) of this section.
(4) Provision of revised disclosures. (i)
Except as provided in paragraph
(e)(4)(ii) of this section, if a creditor
provides a revised disclosure pursuant
to paragraph (e)(3)(iv) of this section,
the creditor shall provide such revised
disclosure within three business days of
receiving information sufficient to
establish that one of the reasons for
revision provided under paragraph
(e)(3)(iv)(A) through (F) of this section
applies.
(ii) The creditor shall not deliver a
revised disclosure pursuant to
paragraph (e)(3)(iv) of this section on or
after the date on which the creditor
delivers the disclosures required under
paragraph (f)(1)(i) of this section. The
consumer must receive a revised version
of the disclosure required under
paragraph (e)(1)(i) of this section no
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later than four days prior to
consummation.
Alternative 1—Paragraph (f)(1)
(f) Mortgage loans secured by real
property—Final disclosures. (1)
Provision. (i) Scope. In a closed-end
consumer credit transaction secured by
real property, other than a reverse
mortgage subject to § 1026.33, the
creditor shall provide the consumer
with the disclosures in § 1026.38
reflecting the actual terms of the
transaction.
(ii) Timing. (A) In general. Except as
provided in paragraph (f)(1)(ii)(B) or
(f)(2) of this section, the creditor shall
ensure that the consumer receives the
disclosures required under paragraph
(f)(1)(i) of this section no later than three
business days before consummation.
(B) Timeshares. For transactions
secured by a consumer’s interest in a
timeshare plan described in 11 U.S.C.
101(53D), the creditor shall ensure that
the consumer receives the disclosures
required under paragraph (f)(1)(i) of this
section no later than consummation.
(iii) Delivery. If any disclosures
required under paragraph (f)(1)(i) of this
section are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer.
(iv) Consumer’s waiver of waiting
period before consummation. If the
consumer determines that the extension
of credit is needed to meet a bona fide
personal financial emergency, the
consumer may modify or waive the
three-business-day waiting period for
the disclosures required under
paragraph (f)(1)(ii) of this section, after
receiving the disclosures required under
paragraph (f)(1)(i) of this section. To
modify or waive a waiting period, the
consumer shall give the creditor a dated
written statement that describes the
emergency, specifically modifies or
waives the waiting period, and bears the
signature of all consumers who are
primarily liable on the legal obligation.
Printed forms for this purpose are
prohibited.
Alternative 2—Paragraph (f)(1)
(f) Mortgage loans secured by real
property—Final disclosures. (1)
Provision. (i) Scope. In a closed-end
consumer credit transaction secured by
real property, other than a reverse
mortgage subject to § 1026.33, the
creditor shall provide the consumer
with the disclosures in § 1026.38
reflecting the actual terms of the
transaction.
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(ii) Timing. (A) In general. Except as
provided in paragraph (f)(1)(ii)(B) or
(f)(2) of this section, the creditor shall
ensure that the consumer receives the
disclosures required under paragraph
(f)(1)(i) of this section no later than three
business days before consummation.
(B) Timeshares. For transactions
secured by a consumer’s interest in a
timeshare plan described in 11 U.S.C.
101(53D), the creditor shall ensure that
the consumer receives the disclosures
required under paragraph (f)(1)(i) of this
section no later than consummation.
(iii) Delivery. If any disclosures
required under paragraph (f)(1)(i) of this
section are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer.
(iv) Consumer’s waiver of waiting
period before consummation. If the
consumer determines that the extension
of credit is needed to meet a bona fide
personal financial emergency, the
consumer may modify or waive the
three-business-day waiting period for
the disclosures required under
paragraph (f)(1)(ii) of this section, after
receiving the disclosures required under
paragraph (f)(1)(i) of this section. To
modify or waive a waiting period, the
consumer shall give the creditor a dated
written statement that describes the
emergency, specifically modifies or
waives the waiting period, and bears the
signature of all consumers who are
primarily liable on the legal obligation.
Printed forms for this purpose are
prohibited.
(v) Settlement agent. A settlement
agent may provide a consumer with the
disclosures required under paragraph
(f)(1)(i) of this section, provided the
settlement agent complies with all
requirements of this paragraph (f) as if
it were the creditor. The creditor shall
ensure that disclosures are provided in
accordance with the requirements of
this paragraph (f). Disclosures provided
by a settlement agent in accordance
with the requirements of this paragraph
(f) satisfy the creditor’s obligation under
paragraph (f)(1)(i) of this section.
(2) Subsequent changes. If the
disclosure provided pursuant to
paragraph (f)(1)(i) of this section is
subsequently revised for any of the
reasons described in this paragraph
(f)(2), a creditor need not comply with
the timing requirements in paragraph
(f)(1)(ii) of this section when providing
a revised disclosure:
(i) Changes due to consumer and
seller negotiations. If, after the creditor
provides the consumer with the
disclosures required under paragraph
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(f)(1)(i) of this section, the consumer
and the seller agree to make changes to
the transaction that affect items
disclosed pursuant to paragraph (f)(1)(i)
of this section, the creditor shall deliver
revised disclosures reflecting such
changes at or before consummation.
(ii) Changes to the amount actually
paid by the consumer. If the amount
actually paid by the consumer does not
exceed the amount disclosed pursuant
to § 1026.38(d)(1) by more than one
hundred dollars the creditor shall
deliver revised disclosures at or before
consummation.
(iii) Changes due to events occurring
after consummation. If an event occurs
after consummation that causes
disclosures required under paragraph
(f)(1)(i) of this section to become
inaccurate, and such inaccuracy results
solely from payments to a government
entity in connection with the
transaction, the creditor shall deliver
revised disclosures to the consumer not
later than the third business day after
the event occurs, provided the
consumer receives the revised
disclosures no later than 30 days after
consummation.
(iv) Changes due to clerical errors. A
creditor does not violate section (f)(1)(i)
if the disclosures provided under
(f)(1)(i) contain non-numeric clerical
errors, provided the creditor delivers
revised disclosures as soon as
reasonably practicable and no later than
30 days after consummation.
(v) Refunds related to the good faith
analysis. If amounts paid by the
consumer exceed the amounts specified
under paragraph (e)(3)(i) or (ii) of this
section, the creditor complies with
paragraph (e)(1)(i) of this section if the
creditor refunds the excess to the
consumer as soon as reasonably
practicable and no later than 30 days
after consummation, and the creditor
complies with paragraph (f)(1)(i) of this
section if the creditor delivers revised
disclosures that reflect such refund as
soon as reasonably practicable and no
later than 30 days after consummation.
(3) Charges disclosed. (i) Actual
charge. The amount imposed upon the
consumer for any settlement service
shall not exceed the amount actually
received by the service provider for that
service, except as otherwise provided in
paragraph (f)(3)(ii) of this section.
(ii) Average charge. A creditor or
settlement service provider may charge
a consumer or seller the average charge
for a settlement service if the following
conditions are satisfied:
(A) The average charge is no more
than the average amount paid for that
service by or on behalf of all consumers
and sellers for a class of transactions;
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(B) The creditor or settlement service
provider defines the class of
transactions based on an appropriate
period of time, geographic area, and
type of loan;
(C) The creditor or settlement service
provider uses the same average charge
for every transaction within the defined
class; and
(D) The creditor or settlement service
provider does not use an average charge:
(1) For any type of insurance;
(2) For any charge based on the loan
amount or property value; or
(3) If doing so is otherwise prohibited
by law.
(4) Transactions involving a seller. (i)
Provision to seller. In a closed-end
consumer credit transaction secured by
real property that involves a seller, other
than a reverse mortgage subject to
§ 1026.33, the person conducting the
real estate closing shall provide the
seller with the disclosures in § 1026.38
that relate to the seller’s transaction.
(ii) Timing. The person conducting
the real estate closing shall provide the
disclosures required under paragraph
(f)(4)(i) of this section no later than the
day of consummation. If an event occurs
after consummation that causes
disclosures required under paragraph
(f)(4)(i) of this section to become
inaccurate, and such inaccuracy results
solely from payments to a government
entity, the person conducting the real
estate closing shall deliver revised
disclosures to the seller no later than 30
days after consummation.
(iii) Charges disclosed. The amount
imposed on the seller for any settlement
service shall not exceed the amount
actually received by the service provider
for that service, except as otherwise
provided in paragraph (f)(3)(ii) of this
section.
(5) No fee. No fee may be imposed on
any person, as a part of settlement costs
or otherwise, by a creditor or by a
servicer (as that term is defined under
12 U.S.C. 2605(i)(2)) for the preparation
or delivery of the disclosures required
under paragraph (f)(1)(i) of this section,
escrow account statements required
pursuant to section 10 of RESPA (12
U.S.C. 2609), or statements required by
the Truth in Lending Act, 15 U.S.C.
1601 et seq.
(g) Special information booklet at
time of application. (1) Creditor to
provide special information booklet.
Except as provided in paragraphs
(g)(1)(ii) and (iii) of this section, the
creditor shall provide a copy of the
special information booklet to a
consumer who applies for a consumer
credit transaction secured by real
property.
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(i) The creditor shall deliver the
special information booklet to the
consumer not later than three business
days after the application is received.
However, if the creditor denies the
consumer’s application for credit before
the end of the three-day period, the
creditor need not provide the booklet. If
a consumer uses a mortgage broker, the
mortgage broker shall provide the
special information booklet and the
creditor need not do so.
(ii) In the case of a home equity line
of credit subject to § 1026.40, a creditor
or mortgage broker that provides the
consumer with a copy of the brochure
entitled ‘‘When Your Home is On the
Line: What You Should Know About
Home Equity Lines of Credit,’’ or any
successor brochure issued by the
Bureau, is deemed to be in compliance
with this section.
(iii) The creditor or mortgage broker
need not provide the booklet to the
consumer for the following types of
transactions:
(A) Refinancing transactions;
(B) Closed-end loans when the lender
takes a subordinate lien;
(C) Reverse mortgages; and
(D) Any other consumer credit
transaction secured by real property
whose purpose is not the purchase of a
one-to-four family residential property.
(2) Permissible changes. No changes
to, deletions from, or additions to the
special information booklet shall be
made other than the permissible
changes specified in paragraphs (g)(2)(i)
through (iv) of this section.
(i) In the Complaints section of the
booklet, it is a permissible change to
substitute ‘‘the Bureau of Consumer
Financial Protection’’ for ‘‘HUD’s Office
of RESPA’’ and ‘‘the RESPA office.’’
(ii) In the Avoiding Foreclosure
section of the booklet, it is a permissible
change to inform homeowners that
homeowners may find information on
and assistance in avoiding foreclosures
at https://www.consumerfinance.gov.
The deletion of the reference to the HUD
Web page, https://www.hud.gov/
foreclosure/, in the Avoiding
Foreclosure section of the booklet is not
a permissible change.
(iii) In the No Discrimination Section
of the Appendix to the booklet, it is a
permissible change to substitute ‘‘the
Bureau of Consumer Financial
Protection’’ for the reference to the
‘‘Board of Governors of the Federal
Reserve System.’’ In the Contact
Information section of the Appendix to
the booklet, it is a permissible change to
add the following contact information
for the Bureau: ‘‘Bureau of Consumer
Financial Protection, 1700 G Street NW.,
Washington, DC 20552;
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www.consumerfinance.gov/learnmore.’’
It is also a permissible change to remove
the contact information for HUD’s Office
of RESPA and Interstate Land Sales
from the Contact Information section of
the Appendix to the booklet.
(iv) The cover of the booklet may be
in any form and may contain any
drawings, pictures or artwork, provided
that the words ‘‘settlement costs’’ are
used in the title. Names, addresses, and
telephone numbers of the lender or
others and similar information may
appear on the cover, but no discussion
of the matters covered in the booklet
shall appear on the cover. References to
HUD on the cover of the booklet may be
changed to references to the Bureau.fi
14. Section 1026.22 is amended by
revising paragraphs (a)(4)(ii)(A) and
(a)(5) to read as follows:
§ 1026.22 Determination of annual
percentage rate.
(a) Accuracy of annual percentage
rate. * * *
(4) Mortgage loans. If the annual
percentage rate disclosed in a
transaction secured by real property or
a dwelling varies from the actual rate
determined in accordance with
paragraph (a)(1) of this section, in
addition to the tolerances applicable
under paragraphs (a)(2) and (3) of this
section, the disclosed annual percentage
rate shall also be considered accurate if:
(i) The rate results from the disclosed
finance charge; and
(ii)(A) The disclosed finance charge
would be considered accurate under
§ 1026.18(d)(1) flor 1026.38(o)(2), as
applicablefi; or
(B) For purposes of rescission, if the
disclosed finance charge would be
considered accurate under § 1026.23(g)
or (h), whichever applies.
(5) Additional tolerance for mortgage
loans. In a transaction secured by real
property or a dwelling, in addition to
the tolerances applicable under
paragraphs (a)(2) and (3) of this section,
if the disclosed finance charge is
calculated incorrectly but is considered
accurate under § 1026.18(d)(1)fl or
1026.38(o)(2), as applicable,fi or
§ 1026.23(g) or (h), the disclosed annual
percentage rate shall be considered
accurate:
(i) If the disclosed finance charge is
understated, and the disclosed annual
percentage rate is also understated but
it is closer to the actual annual
percentage rate than the rate that would
be considered accurate under paragraph
(a)(4) of this section;
(ii) If the disclosed finance charge is
overstated, and the disclosed annual
percentage rate is also overstated but it
is closer to the actual annual percentage
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51315
rate than the rate that would be
considered accurate under paragraph
(a)(4) of this section.
*
*
*
*
*
15. Section 1026.25 is amended by
revising paragraph (a) and adding new
paragraph (c) to read as follows:
§ 1026.25
Record retention.
(a) General rule. A creditor shall
retain evidence of compliance with this
part (other than advertising
requirements under §§ 1026.16 and
1026.24fl, and other than the
requirements under § 1026.19(e) and
(f)fi) for ø2¿fltwofi years after the
date disclosures are required to be made
or action is required to be taken. The
administrative agencies responsible for
enforcing the regulation may require
creditors under their jurisdictions to
retain records for a longer period if
necessary to carry out their enforcement
responsibilities under section 108 of the
Act.
*
*
*
*
*
fl(c) Records related to certain
requirements for mortgage loans. (1)
Records related to requirements for
loans secured by real property. (i)
General rule. Except as provided under
paragraph (c)(1)(ii) of this section, a
creditor shall retain evidence of
compliance with the requirements of
§ 1026.19(e) and (f) for three years after
the later of the date of consummation,
the date disclosures are required to be
made, or the date the action is required
to be taken.
(ii) Closing Disclosures. (A) A creditor
shall retain each completed disclosure
required under § 1026.19(f)(1)(i) or
(f)(4)(i), and all documents related to
such disclosures, for five years after
consummation.
(B) If a creditor sells, transfers, or
otherwise disposes of its interest in a
mortgage and does not service the
mortgage, the creditor shall provide a
copy of the disclosures required under
§ 1026.19(f)(1)(i) or (f)(4)(i) to the owner
or servicer of the mortgage as a part of
the transfer of the loan file. Such owner
or servicer shall retain such disclosures
for the remainder of the five-year period
described under paragraph (c)(1)(ii)(A)
of this section.
(C) The Bureau shall have the right to
require provision of copies of records
related to the disclosures required under
§ 1026.19(f)(1)(i) and (f)(4)(i).
(iii) Electronic records. A creditor
shall retain evidence of compliance in
electronic, machine readable format.
(2) [Reserved]fi
16. Section 1026.28 is amended by
revising paragraph (a)(1) to read as
follows:
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Effect on State laws.
(a) Inconsistent disclosure
requirements. (1) Except as provided in
paragraph (d) of this section, State law
requirements that are inconsistent with
the requirements contained in chapter 1
(General Provisions), chapter 2 (Credit
Transactions), or chapter 3 (Credit
Advertising) of the Act and the
implementing provisions of this part are
preempted to the extent of the
inconsistency. A State law is
inconsistent if it requires a creditor to
make disclosures or take actions that
contradict the requirements of the
Federal law. A State law is
contradictory if it requires the use of the
same term to represent a different
amount or a different meaning than the
Federal law, or if it requires the use of
a term different from that required in
the Federal law to describe the same
item. A creditor, State, or other
interested party may request the Bureau
to determine whether a State law
requirement is inconsistent. After the
Bureau determines that a State law is
inconsistent, a creditor may not make
disclosures using the inconsistent term
or form. flA determination as to
whether a State law is inconsistent with
the requirements of sections 4 and 5 of
RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors) and §§ 1026.19(e) and (f),
1026.37, and 1026.38 shall be made in
accordance with this section and not 12
CFR 1024.13.fi
*
*
*
*
*
17. New § 1026.37 is added to read as
follows:
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ߤ 1026.37 Content of disclosures for
certain mortgage transactions (Loan
Estimate).
For each transaction subject to
§ 1026.19(e), the creditor shall disclose
the information in this section, as
applicable:
(a) General information. (1) Form title.
The title of the form, ‘‘Loan Estimate,’’
using that term.
(2) Form purpose. The statement,
‘‘Save this Loan Estimate to compare
with your Closing Disclosure.’’
(3) Creditor. The name and address of
the creditor making the disclosure.
(4) Date issued. The date the
disclosures are mailed or delivered to
the consumer by the creditor, labeled
‘‘Date Issued.’’
(5) Applicants. The consumer’s name
and mailing address, labeled
‘‘Applicants.’’
(6) Property. The street address or
location of the property that secures the
transaction, labeled ‘‘Property.’’
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(7) Sale price. (i) For credit
transactions that involve a seller, the
contract sale price of the property
identified in paragraph (a)(6) of this
section, labeled ‘‘Sale Price.’’
(ii) For credit transactions that do not
involve a seller, the estimated value of
the property identified in paragraph
(a)(6), labeled ‘‘Est. Prop. Value.’’
(8) Loan term. The term to maturity of
the credit transaction, stated in years,
labeled ‘‘Loan Term.’’
(9) Purpose. The consumer’s intended
use for the credit, labeled ‘‘Purpose,’’
using one of the following terms:
(i) Purchase. If the credit is to finance
the acquisition of the property
identified in paragraph (a)(6) of this
section, the creditor shall disclose that
the loan is for a ‘‘Purchase.’’
(ii) Refinance. The creditor shall
disclose that the loan is for a
‘‘Refinance’’ if the credit is a refinance
of an existing obligation, consistent with
§ 1026.20(a), by any creditor, that is
secured by the property identified in
paragraph (a)(6) of this section.
(iii) Construction. If the credit will be
used to finance the construction of a
dwelling on the property identified in
paragraph (a)(6) of this section, the
creditor shall disclose that the loan is
for ‘‘Construction.’’
(iv) Home equity loan. If the credit is
not for one of the purposes described in
paragraphs (a)(9)(i)–(iii) of this section,
the creditor shall disclose that the loan
is for a ‘‘Home Equity Loan.’’
(10) Product. A description of the loan
product, labeled ‘‘Product.’’ (i) The
description of the loan product shall
include one of the following terms, as
applicable:
(A) Adjustable rate. If the interest rate
may increase after consummation, but
the rates that will apply or the periods
for which they will apply are not known
at consummation, the creditor shall
disclose the loan product as an
‘‘Adjustable Rate.’’
(B) Step rate. If the interest rate will
change after consummation, and the
rates that will apply and periods for
which they will apply are known at
consummation, the creditor shall
disclose the loan product as a ‘‘Step
Rate.’’
(C) Fixed rate. If the loan product is
not an Adjustable Rate or a Step Rate,
as described in paragraphs (a)(10)(i)(A)
and (B) of this section, respectively, the
creditor shall disclose the loan product
as a ‘‘Fixed Rate.’’
(ii) The description of the loan
product shall include the features that
may change the periodic payment, using
the following terms as required by
paragraph (a)(10)(iii), as applicable:
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(A) Negative amortization. If the
principal balance may increase due to
the addition of accrued interest to the
principal balance, the creditor shall
disclose that the loan product has a
‘‘Negative Amortization’’ feature.
(B) Interest only. If one or more
regular periodic payments may be
applied only to interest accrued and not
to the loan principal, the creditor shall
disclose that the loan product has an
‘‘Interest Only’’ feature.
(C) Step payment. If scheduled
variations in regular periodic payment
amounts occur that are not caused by
changes to the interest rate during the
loan term, the creditor shall disclose
that the loan product has a ‘‘Step
Payment’’ feature.
(D) Balloon payment. The creditor
shall disclose that the loan has a
‘‘Balloon Payment’’ feature if the
transaction includes a ‘‘balloon
payment,’’ as that term is defined in
§ 1026.37(b)(5).
(E) Seasonal payment. If the terms of
the legal obligation expressly provide
that regular periodic payments are not
scheduled in between specified unitperiods on a regular basis, the creditor
shall disclose that the loan product has
a ‘‘Seasonal Payment’’ feature.
(iii) The disclosure of a loan feature
under paragraph (a)(10)(ii) of this
section shall precede the disclosure of
the loan product under paragraph
(a)(10)(i) of this section. If a transaction
has more than one of the loan features
described in paragraph (a)(10)(ii) of this
section, the creditor shall disclose only
the first applicable feature in the order
the features are listed in paragraph
(a)(10)(ii) of this section.
(iv) The disclosures required by
paragraphs (a)(10)(i) and (ii) of this
section must each be preceded by a
description of any introductory rate
period, adjustment period, or other time
period, as applicable.
(11) Loan type. The type of loan,
labeled ‘‘Loan Type,’’ offered to the
consumer using one of the following
terms, as applicable:
(i) Conventional. If the loan is not
guaranteed or insured by a Federal or
State government agency, the creditor
shall disclose that the loan is a
‘‘Conventional.’’
(ii) FHA. If the loan is insured by the
Federal Housing Administration, the
creditor shall disclose that the loan is an
‘‘FHA.’’
(iii) VA. If the loan is guaranteed by
the U.S. Department of Veterans Affairs,
the creditor shall disclose that the loan
is a ‘‘VA.’’
(iv) Other. For federally-insured or
guaranteed loans other than those
described in paragraphs (a)(11)(ii) and
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(iii) of this section and loans insured or
guaranteed by a State agency, the
creditor shall disclose the loan type as
‘‘Other,’’ and provide a brief description
of the loan type.
(12) Loan identification number (Loan
ID #). A unique number that may be
used by the creditor, consumer, and
other parties to identify the transaction,
labeled as ‘‘Loan ID #.’’
(13) Rate lock. A statement of whether
the interest rate disclosed pursuant to
paragraph (b)(2) of this section is set for
a specific period of time, labeled ‘‘Rate
Lock.’’
(i) For transactions in which the
interest rate is set for a specific period
of time, the creditor must provide the
date and time (including the applicable
time zone) when that period ends.
(ii) The ‘‘Rate Lock’’ statement
required by this paragraph (a)(13) shall
be accompanied by a statement that the
interest rate, any points, and any lender
credits may change unless the interest
rate has been set, and the date and time
(including the applicable time zone) at
which estimated closing costs expire.
(b) Loan terms. A separate table
labeled ‘‘Loan Terms’’ that includes the
following information and satisfies the
following requirements:
(1) Loan amount. The amount of
credit to be extended under the terms of
the legal obligation, labeled the ‘‘Loan
Amount.’’
(2) Interest rate. The initial interest
rate that will be applicable to the
transaction, labeled the ‘‘Interest Rate.’’
If the initial interest rate may adjust
based on an index, the amount
disclosed shall be the fully-indexed rate,
which, for purposes of this paragraph,
means the interest rate calculated using
the index value and margin at the time
of consummation.
(3) Principal and interest payment.
The initial periodic payment amount
that will be due under the terms of the
legal obligation, labeled ‘‘Principal &
Interest,’’ immediately preceded by the
applicable unit-period, and a statement
referring to the payment amount that
includes any mortgage insurance and
escrow payments that is required to be
disclosed pursuant to paragraph (c) of
this section. If the initial periodic
payment amount may adjust based on
an index, the amount disclosed shall be
calculated using the fully-indexed rate
disclosed under paragraph (b)(2) of this
section.
(4) Prepayment penalty. A statement
of whether the transaction includes a
prepayment penalty, labeled
‘‘Prepayment Penalty.’’ For purposes of
this paragraph (b)(4), ‘‘prepayment
penalty’’ means a charge imposed for
paying all or part of a transaction’s
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principal before the date on which the
principal is due.
(5) Balloon payment. A statement of
whether the transaction includes a
balloon payment, labeled ‘‘Balloon
Payment.’’ For purposes of this
paragraph (b)(5), ‘‘balloon payment’’
means a payment that is more than two
times a regular periodic payment and is
not itself a regular periodic payment.
‘‘Balloon payment’’ includes the
payment or payments under a
transaction that requires only one or two
payments during the loan term.
(6) Adjustments after consummation.
For each amount required to be
disclosed by paragraphs (b)(1) through
(3) of this section, a statement of
whether the amount may increase after
consummation as an affirmative or
negative answer to the question ‘‘Can
this amount increase after closing?’’
and, if in the case of an affirmative
answer, the following additional
information, as applicable:
(i) Adjustment in loan amount. The
maximum principal balance for the
transaction and the due date of the last
payment that may cause the principal
balance to increase. The disclosure shall
indicate whether the maximum
principal balance is potential or is
scheduled to occur under the terms of
the legal obligation using the phrase
‘‘Can go as high as’’ or ‘‘Will go as high
as,’’ respectively.
(ii) Adjustment in interest rate. The
frequency of interest rate adjustments,
the date when the interest rate may first
adjust, the maximum interest rate, and
the first date when the interest rate can
reach the maximum interest rate,
followed by a reference to the disclosure
required by paragraph (j) of this section.
If the loan term, as defined under
paragraph (a)(8) of this section, may
increase based on an adjustment of the
interest rate, the disclosure required by
this paragraph (b)(6)(ii) shall also state
that fact and the maximum possible
loan term.
(iii) Increase in periodic payment. The
scheduled frequency of adjustments to
the periodic principal and interest
payment, the due date of the first
adjusted principal and interest payment,
the maximum possible periodic
principal and interest payment, and the
date when the periodic principal and
interest payment may first equal the
maximum principal and interest
payment. If any adjustments to the
principal and interest payment are not
the result of a change to the interest rate,
a reference to the disclosure required by
paragraph (i) of this section. If there is
a period during which only interest is
required to be paid, the disclosure
required by this paragraph (b)(6)(iii)
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shall also state that such periodic
payments will include ‘‘only interest’’
and ‘‘no principal’’ and the due date of
the last periodic payment of such
period.
(7) Details about prepayment penalty
and balloon payment. The information
required to be disclosed by paragraphs
(b)(4) and (5) of this section shall be
disclosed as an affirmative or negative
answer to the question ‘‘Does the loan
have these features?’’ If an affirmative
answer for a prepayment penalty or
balloon payment is required to be
disclosed, the following information, as
applicable:
(i) The maximum amount of the
prepayment penalty that may be
imposed and the date when the period
under which the penalty may be
imposed terminates; and
(ii) The maximum amount of the
balloon payment(s) and the due date(s).
(8) Timing. The dates required to be
disclosed by paragraphs (b)(6) and (7) of
this section shall be disclosed as the
year in which the date occurs, counting
from the date that interest for the first
scheduled periodic payment begins to
accrue after consummation.
(c) Projected payments. In a separate
table under the heading ‘‘Projected
Payments,’’ an itemization of each
separate periodic payment or range of
payments, together with an estimate of
taxes, insurance, and assessments and
the payments to be made with escrow
account funds.
(1) Periodic payment or range of
payments. (i) The initial periodic
payment or range of payments is a
separate periodic payment or range of
payments and, except as otherwise
provided in paragraph (c)(1)(ii) of this
section, the following events require the
disclosure of additional separate
periodic payments or ranges of
payments:
(A) The periodic principal and
interest payment or range of such
payments may change;
(B) A scheduled balloon payment; and
(C) The creditor must automatically
terminate mortgage insurance coverage,
or any functional equivalent, under
applicable law.
(ii) The table required by this
paragraph (c) shall not disclose more
than four separate periodic payments or
ranges of payments. For all events
requiring disclosure of additional
separate periodic payments or ranges of
payments described in paragraph
(c)(1)(i) of this section after the second
to occur, the separate periodic payments
or ranges of payments shall be disclosed
as a single range of payments, subject to
the following exceptions:
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(A) A final balloon payment shall
always be disclosed as a separate
periodic payment or range of payments,
in which case no more than three other
separate periodic payments or ranges of
payments are disclosed.
(B) The automatic termination of
mortgage insurance coverage, or any
functional equivalent, under applicable
law shall require disclosure of a
separate periodic payment or range of
payments only if the total number of
events that require disclosure of
additional separate periodic payments
or ranges of payments described in
paragraph (c)(1)(i) of this section, other
than the termination of mortgage
insurance, or any functional equivalent,
does not exceed two.
(C) If changes to periodic principal
and interest payments described in
paragraph (c)(1)(i)(A) of this section
would require more than one separate
disclosure during a single year, such
periodic payments shall be disclosed as
a single range of payments.
(iii) A range of payments is required
under this paragraph (c)(1) when the
periodic principal and interest payment
may adjust based on index rates at the
time an interest rate adjustment may
occur or multiple events are combined
in a range of payments pursuant to
paragraph (c)(1)(ii) of this section. When
a range of payments is required, the
creditor must disclose the minimum
and maximum amount for both the
principal and interest payment under
paragraph (c)(2)(i) of this section and
the total periodic payment under
paragraph (c)(2)(iv) of this section. In
the case of an interest rate adjustment,
the maximum payment amounts are
determined by assuming that the
interest rate in effect throughout the
loan term is the maximum possible
interest rate, and the minimum payment
amounts are determined by assuming
that the interest rate in effect throughout
the loan term is the minimum possible
interest rate.
(2) Itemization. Each separate periodic
payment or range of payments included
in the table required by this paragraph
(c) shall be itemized as follows:
(i) The amount payable for principal
and interest, labeled ‘‘Principal &
Interest,’’ including the term ‘‘only
interest’’ if the payment or range of
payments includes any interest-only
payment;
(ii) The maximum amount payable for
mortgage insurance premiums
corresponding to the principal and
interest payment disclosed pursuant to
paragraph (c)(2)(i) of this section,
labeled ‘‘Mortgage Insurance’’;
(iii) The amount payable into an
escrow account to pay some or all of the
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charges described in paragraphs
(c)(4)(ii)(A) through (E) of this section,
as applicable, labeled ‘‘Estimated
Escrow,’’ together with a statement that
the amount disclosed can increase over
time; and
(iv) The total periodic payment,
calculated as the sum of the amounts
disclosed pursuant to paragraphs
(c)(2)(i) through (iii) of this section,
labeled ‘‘Total Monthly Payment.’’
(3) Subheadings. (i) The labels
required pursuant to paragraph (c)(2) of
this section must be listed under the
subheading ‘‘Payment Calculation.’’
(ii) Each separate periodic payment or
range of payments to be disclosed under
this paragraph (c) must be disclosed
under a subheading that states the
number of years of the loan during
which that payment or range of
payments will apply. The subheadings
must be stated in a sequence of whole
years from the date that the first such
payment is due.
(4) Taxes, insurance, and
assessments. Under the information
required by paragraphs (c)(1) through (3)
of this section:
(i) The label ‘‘Estimated Taxes,
Insurance & Assessments’’;
(ii) The sum of the following charges,
if applicable, expressed as a monthly
amount, even if no escrow account for
the payment of some or any of such
charges will be established:
(A) Property taxes;
(B) Mortgage-related insurance
premiums required by the creditor,
other than amounts payable for
mortgage insurance premiums;
(C) Homeowner’s association,
condominium, or cooperative fees;
(D) Ground rent or leasehold
payments; and
(E) Special assessments;
(iii) A statement that the amount
disclosed pursuant to paragraph
(c)(4)(ii) of this section can increase over
time;
(iv) A statement of whether the
amount disclosed pursuant to paragraph
(c)(4)(ii) of this section includes
payments for property taxes,
homeowner’s insurance, and other
amounts described in paragraph
(c)(4)(ii) of this section, along with a
description of any such other amounts,
and an indication of whether such
amounts will be paid by the creditor
using escrow account funds;
(v) A statement that the consumer
must pay separately any amounts
described in paragraph (c)(4)(ii) of this
section that are not paid by the creditor
using escrow account funds; and
(vi) A reference to the information
disclosed pursuant to paragraph (g)(3) of
this section.
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(5) Calculation of taxes and
insurance. For purposes of paragraphs
(c)(2)(iii) and (4)(ii) of this section,
estimated property taxes and
homeowner’s insurance shall reflect:
(i) The taxable assessed value of the
real property securing the transaction
after consummation, including the value
of any improvements on the property or
to be constructed on the property, if
known, whether or not such
construction will be financed from the
proceeds of the transaction, for property
taxes; and
(ii) The replacement costs of the
property during the initial year after the
transaction, for homeowner’s insurance.
(d) Cash to close. In a separate table,
under the heading ‘‘Cash to Close’’:
(1) The dollar amount as calculated in
accordance with paragraph (h)(8) of this
section, labeled ‘‘Estimated Cash to
Close’’;
(2) The dollar amount calculated in
accordance with paragraph (f)(4) of this
section, described as ‘‘Loan Costs’’;
(3) The dollar amount calculated in
accordance with paragraph (g)(5) of this
section, described as ‘‘Other Costs’’;
(4) The dollar amount disclosed
pursuant to paragraph (g)(6)(ii) of this
section, described as ‘‘Lender Credits’’;
(5) The sum of the amounts disclosed
pursuant to paragraphs (d)(2), (d)(3) and
(d)(4) of this section, described as
‘‘Closing Costs’’; and
(6) A statement referring the
consumer to the location where tables
required pursuant to paragraphs (f) and
(g) of this section are provided for
details.
(e) Web site reference. A statement
that the consumer may obtain additional
information and tools at the Web site of
the Bureau, and the link/URL address to
the Web site:
www.consumerfinance.gov/learnmore.
(f) Closing cost details; loan costs.
Under the master heading ‘‘Closing Cost
Details,’’ in a table under the heading
‘‘Loan Costs,’’ all loan costs associated
with the transaction. The table shall
contain the items and amounts listed
under four subheadings, described in
paragraphs (f)(1) through (4) of this
section.
(1) Origination charges. Under the
subheading ‘‘Origination Charges,’’ an
itemization of each amount, and a
subtotal of all such amounts, that the
consumer will pay to each creditor and
loan originator for originating and
extending the credit.
(i) The points that the consumer will
pay to the creditor to reduce the interest
rate shall be separately itemized, as both
a percentage of the amount of credit
extended and a dollar amount, and
labeled ’’ __% of Loan Amount
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(Points).’’ If points are not paid by the
consumer, the disclosure required by
this paragraph (f)(1)(i) shall show the
amount as zero.
(ii) The number of items disclosed
under this paragraph (f)(1), including
the points disclosed under paragraph
(f)(1)(i) of this section, shall not exceed
13.
(2) Services you cannot shop for.
Under the subheading ‘‘Services You
Cannot Shop For,’’ an itemization of
each amount, and a subtotal of all such
amounts, for services for which the
consumer cannot shop in accordance
with § 1026.19(e)(1)(vi)(A) and that are
provided by persons other than the
creditor or mortgage broker.
(i) For any item that is a component
of title insurance or is for conducting
the closing, the introductory description
‘‘Title—’’ shall appear at the beginning
of the label for that item.
(ii) The number of items disclosed
under this paragraph (f)(2) shall not
exceed 13.
(3) Services you can shop for. Under
the subheading ‘‘Services You Can Shop
For,’’ an itemization of each amount,
and a subtotal of all such amounts, for
services for which the consumer can
shop in accordance with
§ 1026.19(e)(1)(vi)(A) and that are
provided by persons other than the
creditor or mortgage broker.
(i) For any item that is a component
of title insurance or is for conducting
the closing, the introductory description
‘‘Title—’’ shall appear at the beginning
of the label for that item.
(ii) The number of items disclosed
under this paragraph (f)(3) shall not
exceed 14.
(4) Total loan costs. Under the
subheading ‘‘Total Loan Costs,’’ the sum
of the subtotals disclosed under
paragraphs (f)(1) through (3) of this
section.
(5) Item descriptions and ordering.
The items listed as loan costs pursuant
to this paragraph (f) shall be labeled
using terminology that briefly and
clearly describes each item, subject to
the requirements of paragraphs (f)(1)(i),
(f)(2)(i), and (f)(3)(i) of this section.
(i) The item prescribed in paragraph
(f)(1)(i) of this section for points shall be
the first item listed in the disclosure
pursuant to paragraph (f)(1) of this
section.
(ii) All other items must be listed in
alphabetical order by their labels under
the applicable subheading.
(6) Use of addenda. (i) An addendum
to a form of disclosures prescribed by
§ 1026.37(o) may not be used for items
required to be disclosed by paragraph
(f)(1) or (2) of this section. If the creditor
is not able to itemize all of the charges
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required to be disclosed in the number
of lines provided by paragraph (f)(1)(ii)
or (2)(ii) of this section, the remaining
charges shall be disclosed as an
aggregate amount in the last line
permitted under paragraph (f)(1)(ii) or
(2)(ii), as applicable, using the label
‘‘Additional Charges’’ to describe such
charges.
(ii) An addendum to a form of
disclosures prescribed by § 1026.37(o)
may be used for items required to be
disclosed by paragraph (f)(3) of this
section. If the creditor is not able to
itemize all of the charges required to be
disclosed in the number of lines
provided by paragraph (f)(3)(ii), the
remaining charges shall be disclosed as
follows:
(A) Label the last line permitted under
paragraph (f)(3)(ii) with an appropriate
reference to an addendum and list the
remaining items on the addendum in
accordance with the requirements in
paragraphs (f)(3) and (5) of this section;
or
(B) Disclose the remaining charges as
an aggregate amount in the last line
permitted under paragraph (f)(3)(ii),
using the label ‘‘Additional Charges.’’
(g) Closing cost details; other costs.
Under the master heading ‘‘Closing Cost
Details,’’ costs associated with the
transaction that are in addition to the
costs disclosed under § 1026.37(f), listed
in a table under the heading ‘‘Other
Costs.’’ The table consists of the items
and amounts listed under six
subheadings, described in paragraphs
(g)(1) through (6) of this section.
(1) Taxes and other government fees.
Under the subheading ‘‘Taxes and Other
Government Fees,’’ the amounts to be
paid to State and local governments for
taxes and other government fees, and
the subtotal of all such amounts, as
follows:
(i) On the first line, using the label
‘‘Recording Fees and Other Taxes,’’ the
sum of all recording fees and other
government fees and taxes, except for
transfer taxes.
(ii) On the second line, using the label
‘‘Transfer Taxes,’’ the sum of all transfer
taxes.
(iii) If an amount for recording fees or
transfer taxes is not charged to the
consumer, the dollar amount disclosed
on the applicable line required by this
paragraph (g)(1) must be zero.
(2) Prepaids. Under the subheading
‘‘Prepaids,’’ an itemization of the
amounts to be paid by the consumer in
advance of the first scheduled payment,
and the subtotal of all such amounts, as
follows:
(i) On the first line, using the label
‘‘Homeowner’s Insurance Premium (l
months),’’ the number of months for
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51319
which homeowner’s premiums are to be
paid by the consumer at consummation
and the total dollar amount to be paid.
(ii) On the second line, using the label
‘‘Mortgage Insurance Premium (l
months),’’ the number of months for
which mortgage insurance premiums
are to be paid by the consumer at
consummation and the total dollar
amount to be paid.
(iii) On the third line, using the label
‘‘Prepaid Interest (ll per day for l
days @ l%),’’ the amount of interest to
be paid per day, the number of days for
which prepaid interest will be collected,
the interest rate, and the total dollar
amount to be paid.
(iv) On the fourth line, using the label
‘‘Property Taxes,’’ the number of
months for which property taxes are to
be paid by the consumer and the total
dollar amount to be paid.
(v) If an amount is not charged to the
consumer for any item for which this
paragraph (g)(2) prescribes a label, the
dollar amount disclosed on that line
must be zero.
(vi) A maximum of three additional
items may be disclosed under this
paragraph (g)(2), and each additional
item must be identified and include the
applicable time period covered by the
amount to be paid by the consumer at
consummation and the total amount to
be paid.
(3) Initial escrow payment at closing.
Under the subheading ‘‘Initial Escrow
Payment at Closing,’’ an itemization of
the amounts that the consumer will be
expected to place into a reserve or
escrow account at consummation to be
applied to recurring periodic charges,
and the subtotal of all such amounts, as
follows:
(i) On the first line, using the label
‘‘Homeowner’s Insurance $l per month
for l mo.,’’ the amount escrowed per
month, the number of months covered
by an escrowed amount collected at
consummation, and the total amount to
be paid into the escrow account by the
consumer to insure the property against
hazards.
(ii) On the second line, using the label
‘‘Mortgage Insurance $l per month for
l mo.,’’ the amount escrowed per
month, the number of months covered
by an escrowed amount collected at
consummation, and the total amount to
be paid by the consumer for mortgage
insurance.
(iii) On the third line, using the label
‘‘Property Taxes $l per month for l
mo.,’’ the amount escrowed per month,
the number of months covered by an
escrowed amount collected at
consummation, and the total amount to
be paid by the consumer for property
taxes.
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(iv) If an amount is not charged to the
consumer for any item for which this
paragraph (g)(3) prescribes a label, the
dollar amount disclosed on that line
must be zero.
(v) A maximum of five additional
items may be disclosed under this
paragraph (g)(3), and each additional
item must be identified and include the
applicable amount per month, the
number of months collected at
consummation, and the total amount to
be paid.
(4) Other. Under the subheading
‘‘Other,’’ an itemization of any other
amounts the consumer is likely to pay
or has contracted with a person other
than the creditor or loan originator to
pay at closing and of which the creditor
is aware at the time of issuing the Loan
Estimate, and the subtotal of all
amounts itemized.
(i) For any item that is a component
of title insurance, the introductory
description ‘‘Title—’’ shall appear at the
beginning of the label for that item.
(ii) The parenthetical description
‘‘(optional)’’ shall appear at the end of
the label for items disclosing any
premiums paid for separate insurance,
warranty, guarantee, or event-coverage
products.
(iii) The number of items disclosed
under this paragraph (g)(4) shall not
exceed five.
(iv) If there are no such amounts, this
table must be left blank.
(5) Total other costs. With the label
‘‘Total Other Costs,’’ the sum of the
amounts disclosed pursuant to
paragraphs (g)(1) through (4) of this
section.
(6) Total closing costs. With the label
‘‘Total Closing Costs,’’ the component
amounts and their sum, as follows:
(i) The sum of the amounts disclosed
as Loan Costs and Other Costs under
paragraphs (f)(4) and (g)(5) of this
section, disclosed with the label ‘‘D + I’’;
(ii) The amount of any lender credits,
disclosed as a negative number with the
label ‘‘Lender Credits’’; and
(iii) Add the amount calculated under
paragraph (g)(6)(i) and the (negative)
amount disclosed under paragraph
(g)(6)(ii) and disclose this sum as ‘‘Total
Closing Costs.’’
(7) Item descriptions and ordering. In
identifying the items listed as Other
Costs pursuant to this paragraph (g), the
creditor must use terminology that
briefly and clearly describes the item.
(i) The items prescribed in paragraphs
(g)(1)(i) and (ii), (g)(2)(i) through (iv),
and (g)(3)(i) through (iii) of this section
must be listed in the order prescribed as
the initial items under the applicable
subheading, with any additional items
to follow.
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(ii) All additional items must be listed
in alphabetical order under the
applicable subheading.
(8) Use of addenda. An addendum to
a form of disclosures prescribed by
§ 1026.37(o) may not be used for items
required to be disclosed by this
paragraph (g). If the creditor is not able
to itemize all of the charges required to
be disclosed in the number of lines
provided by paragraph (g)(2)(vi), (3)(v),
or (4)(iii) of this section, the remaining
charges shall be disclosed as an
aggregate amount in the last line
permitted under paragraph (g)(2)(vi),
(3)(v), or (4)(iii), as applicable, using the
label ‘‘Additional Charges.’’
(h) Calculating cash to close. In a
separate table, under the master heading
‘‘Closing Cost Details,’’ required by
paragraph (f) of this section, under the
heading ‘‘Calculating Cash to Close,’’
the total amount of cash or other funds
that must be provided by the consumer
at consummation must be disclosed,
with an itemization of that amount into
the following component amounts:
(1) Total closing costs. The amount
disclosed under paragraph (g)(6)(iii) of
this section, disclosed as a positive
number;
(2) Closing costs to be financed. The
amount of any closing costs to be paid
out of loan proceeds, disclosed as a
negative number;
(3) Downpayment and other funds
from borrower. (i) In a purchase
transaction, as defined in
§ 1026.37(a)(9)(i), the actual amount of
the difference between the purchase
price of the property and the principal
amount of the loan, disclosed as a
positive number; or
(ii) In all other transactions, the
estimated ‘‘Funds from Borrower,’’
labeled using that term, as determined
in accordance with paragraph (h)(5) of
this section;
(4) Deposit. The amount that is paid
to the seller or held in trust or escrow
by an attorney or other party under the
terms of the agreement for the sale of the
property, disclosed as a negative
number;
(5) Funds for borrower. The amount of
‘‘Funds from Borrower,’’ to be disclosed
under paragraph (h)(3)(ii) of this
section, and of ‘‘Funds for Borrower,’’
disclosed under this paragraph (h)(5) of
this section, are determined by
subtracting the principal amount of the
credit extended (excluding any amount
disclosed pursuant to paragraph (h)(2)
of this section) from the total amount of
all existing debt being satisfied in the
transaction (except to the extent the
satisfaction of such existing debt is
disclosed under paragraph (g) of this
section).
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(i) If the calculation under this
paragraph (h)(5) of this section yields an
amount that is a positive number, such
amount shall be disclosed under
paragraph (h)(3)(ii) of this section, and
$0.00 shall be disclosed under
paragraph (h)(5) of this section.
(ii) If the calculation under this
paragraph (h)(5) yields an amount that
is a negative number, such amount shall
be disclosed under paragraph (h)(5) of
this section as a negative number, and
$0.00 shall be disclosed under
paragraph (h)(3)(ii) of this section.
(iii) If the calculation under this
paragraph (h)(5) of this section yields
$0.00, then $0.00 shall be disclosed
pursuant to paragraph (h)(3)(ii) of this
section and pursuant to paragraph (h)(5)
of this section.
(6) Seller credits. Seller credits are the
total amount of money that the seller
will provide to pay for total loan costs
as determined by paragraph (f)(4) of this
section and total other costs as
determined by paragraph (g)(5) of this
section, to the extent known, disclosed
as a negative number;
(7) Adjustments and other credits.
Other credits include all loan costs and
other costs, to the extent known, that are
paid by persons other than the loan
originator, creditor, consumer, or seller,
disclosed as a negative number; and
(8) Estimated Cash to Close. The total
of the amounts disclosed by paragraphs
(h)(1) thorough (h)(7).
(i) Adjustable payment table. If the
periodic principal and interest payment
may change after consummation but not
based on an adjustment to the interest
rate, or if the transaction is a seasonal
payment product as described in
§ 1026.37(a)(10)(ii)(E), a separate table
under the master heading ‘‘Closing Cost
Details’’ required by paragraph (f) of this
section and under the heading
‘‘Adjustable Payment (AP) Table’’ that
includes the following information and
satisfies the following requirements:
(1) Interest-only payments. Whether
the transaction is an interest only
product pursuant to paragraph
(a)(10)(ii)(B) of this section as an
affirmative or negative answer to the
question ‘‘Interest Only Payments?’’
and, if an affirmative answer is
disclosed, the period during which
interest-only periodic payments are
scheduled.
(2) Optional payments. Whether the
terms of the legal obligation expressly
provide that the consumer may elect to
pay a specified periodic principal and
interest payment other than the
scheduled amount of the payment, as an
affirmative or negative answer to the
question ‘‘Optional Payments?’’ and, if
an affirmative answer is disclosed, the
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period during which the consumer may
elect to make such payments.
(3) Step payments. Whether the
transaction is a step payment product
pursuant to paragraph (a)(10)(ii)(C) of
this section as an affirmative or negative
answer to the question ‘‘Step
Payments?’’ and, if an affirmative
answer is disclosed, the period during
which the regular periodic payments are
scheduled to increase.
(4) Seasonal payments. Whether the
transaction is a seasonal payment
product pursuant to paragraph
(a)(10)(ii)(E) of this section as an
affirmative or negative answer to the
question ‘‘Seasonal Payments?’’ and, if
an affirmative answer is disclosed, the
period during which periodic payments
are not scheduled.
(5) Principal and interest payments.
Under the subheading ‘‘Principal and
Interest Payments,’’ which subheading
is immediately preceded by the
applicable unit period, the following
information:
(i) The number of the payment of the
first periodic principal and interest
payment that may change under the
terms of the legal obligation disclosed
under this paragraph (i), counting from
the first periodic payment due after
consummation, and the amount or range
of the periodic principal and interest
payment for such payment, labeled,
‘‘First Change/Amount’’;
(ii) The frequency of subsequent
changes to the periodic principal and
interest payment; and
(iii) The maximum periodic principal
and payment that may occur during the
term of the transaction, and the first
periodic principal and interest payment
that can reach such maximum, counting
from the first periodic payment due
after consummation.
(j) Adjustable interest rate table. If the
interest rate may increase after
consummation, a separate table under
the master heading ‘‘Closing Cost
Details’’ required by paragraph (f) of this
section and under the heading
‘‘Adjustable Interest Rate (AIR) Table’’
that includes the following information
and satisfies the following requirements:
(1) Index and margin. If the interest
rate may adjust, the index upon which
the adjustments to the interest rate are
based and the margin that is added to
the index to determine the interest rate,
if any, labeled ‘‘Index + Margin.’’
(2) Increases in interest rate. If the
product type is a ‘‘Step Rate’’ and not
also an ‘‘Adjustable Rate’’ under
paragraph (a)(10) of this section, the
maximum amount of any adjustments to
the interest rate that are scheduled and
pre-determined, labeled ‘‘Interest Rate
Adjustments.’’
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(3) Initial interest rate. The interest
rate at consummation of the loan
transaction.
(4) Minimum and maximum interest
rate. The minimum and maximum
interest rates for the loan, after any
introductory period expires.
(5) Frequency of adjustments. The
following information, under the
subheading ‘‘Change Frequency’’:
(i) The month when the interest rate
after consummation may first change,
calculated from the date interest begins
to accrue for the first regular periodic
principal and interest payment, labeled
‘‘First Change’’; and
(ii) The frequency of interest rate
adjustments after the initial adjustment
to the interest rate, labeled, ‘‘Subsequent
Changes.’’
(6) Limits on interest rate changes.
The following information, under the
subheading ‘‘Limits on Interest Rate
Changes’’:
(i) The maximum possible change for
the first adjustment of the interest rate
after consummation, labeled ‘‘First
Change’’; and
(ii) The maximum possible change for
subsequent adjustments of the interest
rate after consummation, labeled
‘‘Subsequent Changes.’’
(k) Contact information. Under the
master heading, ‘‘Additional
Information About This Loan,’’ the
following information:
(1) The name and Nationwide
Mortgage Licensing System and Registry
identification number (NMLSR ID)
(labeled ‘‘NMLS ID/License #’’) for the
creditor (labeled ‘‘Lender’’) and the
mortgage broker (labeled ‘‘Mortgage
Broker’’), if any, together with the name
of a primary contact for the consumer of
the lender or mortgage broker. In the
event the creditor or the mortgage
broker has not been assigned an NMLSR
ID, the license number or other unique
identifier issued by the applicable
jurisdiction or regulating body with
which the creditor or mortgage broker is
licensed and/or registered shall be
disclosed, if any;
(2) The name and NMLSR ID of the
individual loan officer (labeled ‘‘Loan
Officer’’ and ‘‘NMLS ID/License #,’’
respectively) who is primary contact for
the consumer. In the event the
individual loan officer has not been
assigned an NMLSR ID, the license
number or other unique identifier
issued by the applicable jurisdiction or
regulating body with which the creditor
or mortgage broker is licensed and/or
registered shall be disclosed, if any; and
(3) The email address and telephone
number of the loan officer (labeled
‘‘Email’’ and ‘‘Phone,’’ respectively).
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(l) Comparisons. Under the master
heading, ‘‘Additional Information About
This Loan,’’ in a separate table under
the heading ‘‘Comparisons’’ along with
the statement ‘‘Use these measures to
compare this loan with other loans’’:
(1) In five years. Using the label ‘‘In
5 Years’’:
(i) The total principal, interest,
mortgage insurance, and loan costs
scheduled to be paid through the end of
the 60th month after the due date of the
first periodic payment, expressed as a
dollar amount, along with the statement
‘‘Total you will have paid in principal,
interest, mortgage insurance, and loan
costs’’; and
(ii) The principal scheduled to be
paid through the end of the 60th month
after the due date of the first periodic
payment, expressed as a dollar amount,
along with the statement ‘‘Principal you
will have paid off.’’
(2) Annual percentage rate. The
‘‘Annual Percentage Rate,’’ using that
term and the abbreviation ‘‘APR’’ and
expressed as a percentage, and the
following statement: ‘‘Your costs over
the loan term expressed as a rate. This
is not your interest rate.’’
(3) Total interest percentage. The
‘‘Total Interest Percentage,’’ using that
term and the abbreviation ‘‘TIP’’ and
expressed as a percentage, and the
statement ‘‘The total amount of interest
that you will pay over the loan term as
a percentage of your loan amount.’’ The
total interest percentage is the total
amount of interest that the consumer
will pay over the life of the loan,
expressed as a percentage of the amount
of credit extended.
(m) Other considerations. Under the
master heading ‘‘Additional Information
About This Loan’’ required by
paragraph (k) of this section and under
the heading ‘‘Other Considerations’’:
(1) Appraisal. For transactions subject
to 15 U.S.C. 1639h or 1691(e), as
implemented in this part or Regulation
B, 12 CFR part 1002, respectively, a
statement, labeled ‘‘Appraisal,’’ that:
(i) The creditor may order an
appraisal to determine the value of the
property identified in paragraph (a)(6) of
this section and may charge the
consumer for that appraisal;
(ii) The creditor will promptly
provide the consumer a copy of any
completed appraisal, even if the
transaction is not consummated; and
(iii) The consumer may choose to pay
for an additional appraisal of the
property for the consumer’s use.
(2) Assumption. A statement of
whether a subsequent purchaser of the
property may be permitted to assume
the remaining loan obligation on its
original terms, labeled ‘‘Assumption.’’
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(3) Homeowner’s insurance. At the
option of the creditor, a statement of
whether homeowner’s insurance is
required on the property and whether
the consumer may choose the insurance
provider, labeled ‘‘Homeowner’s
Insurance.’’
(4) Late payment. A statement
detailing any charge that may be
imposed for a late payment, stated as a
dollar amount or percentage charge of
the late payment amount, and the
number of days that a payment must be
late to trigger the late payment fee,
labeled ‘‘Late Payment.’’
(5) Refinance. The following
statement, labeled ‘‘Refinance,’’
‘‘Refinancing this loan will depend on
your future financial situation, the
property value, and market conditions.
You may not be able to refinance this
loan.’’
(6) Servicing. A statement of whether
the loan will be serviced by the creditor
or transferred to another servicer,
labeled ‘‘Servicing.’’
(7) Liability after foreclosure. If the
purpose of the credit transaction is to
refinance an extension of credit as
described in paragraph (a)(9)(ii) of this
section, a brief statement that certain
State law protections against liability for
any deficiency after foreclosure may be
lost, the potential consequences of the
loss of such protections, and a statement
that the consumer should consult an
attorney for additional information,
labeled ‘‘Liability after Foreclosure.’’
(n) Signature statement. (1) At the
creditor’s option, under the master
heading required by paragraph (k) of
this section and under the heading
‘‘Confirm Receipt,’’ a line for the
signatures of the consumers in the
transaction. If the creditor includes a
line for the consumer’s signature, the
creditor must disclose the following
below the signature line: ‘‘By signing,
you are only confirming that you have
received this form. You do not have to
accept this loan because you have
signed or received this form.’’
(2) If the creditor does not include a
line for the consumer’s signature, the
creditor must disclose the following
statement under the heading ‘‘Other
Considerations’’ required by paragraph
(m) of this section, labeled ‘‘Loan
Acceptance’’: ‘‘You do not have to
accept this loan because you have
received this form or signed a loan
application.’’
(o) Form of disclosures. (1) General
requirements. (i) The creditor shall
make the disclosures required by this
section clearly and conspicuously in
writing, in a form that the consumer
may keep. The disclosures also shall be
grouped together, segregated from
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everything else, and provided on
separate pages that are not commingled
with any other documents or
disclosures, including any other
disclosures required by State or other
laws.
(ii) Except as provided in paragraph
(o)(5) of this section, the disclosures
shall contain only the information
required by paragraphs (a) through (n) of
this section and shall be made in the
same order, and positioned relative to
the master headings, headings,
subheadings, labels, and similar
designations in the same manner, as
shown in form H–24, set forth in
appendix H to this part.
(2) Estimated disclosures. If a master
heading, heading, subheading, label, or
similar designation contains the word
‘‘estimated’’ in form H–24, set forth in
appendix H to this part, that heading,
label, or similar designation shall
contain the word ‘‘estimated.’’
(3) Form. Except as provided in
paragraph (o)(5) of this section: (i) For
a transaction subject to this section that
is a federally related mortgage loan, as
defined in Regulation X, 12 CFR 1024.2,
the disclosures must be made using
form H–24, set forth in appendix H to
this part.
(ii) For any other transaction subject
to this section, the disclosures must be
made with headings, content, and
format substantially similar to form H–
24, set forth in appendix H to this part.
(iii) The disclosures required by this
section may be provided to the
consumer in electronic form, subject to
compliance with the consumer consent
and other applicable provisions of the
Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15
U.S.C. 7001 et seq.).
(4) Rounding. (i) Nearest dollar. (A)
The dollar amounts required to be
disclosed by paragraphs (b)(6) and (7),
(c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f),
(g), (h), (i), and (l) of this section shall
be rounded to the nearest whole dollar.
(B) The dollar amount required to be
disclosed by paragraph (b)(1) of this
section shall be disclosed as an exact
number, except that decimal places
shall not be disclosed if the amount of
cents is zero.
(C) The dollar amounts required to be
disclosed by paragraph (c)(2)(iv) of this
section shall be rounded to the nearest
whole dollar, if any of the component
amounts are required by paragraph
(o)(4)(i)(A) of this section to be rounded
to the nearest whole dollar.
(ii) Percentages. The percentage
amounts required to be disclosed under
paragraphs (b)(2) and (6), (f)(1)(i),
(g)(2)(iii), (j), and (l)(3) of this section
shall be disclosed as an exact number
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up to two or three decimal places. The
percentage amount required to be
disclosed under paragraph (l)(2) of this
section shall be disclosed up to three
decimal places. Decimal places shall not
be disclosed if the amount is a whole
number.
(5) Exceptions. (i) Unit-period.
Wherever the form or this section uses
‘‘monthly’’ to describe the frequency of
any payments or uses ‘‘month’’ to
describe the applicable unit-period, the
creditor shall substitute the appropriate
term to reflect the fact that the
transaction’s terms provide for other
than monthly periodic payments, such
as bi-weekly or quarterly payments.
(ii) Lender credits. The amount
required to be disclosed by paragraph
(d)(4) of this section may be omitted
from the form if the amount is zero.
(iii) Logo or slogan. The creditor
providing the form may use a logo for,
and include a slogan with, the
information required by paragraph (a)(3)
of this section in any font size or type,
provided that such logo or slogan does
not cause the information required by
paragraph (a)(3) of this section to exceed
the space provided for that information,
as illustrated in form H–24(a) in
appendix H to this part. If the creditor
does not use a logo for the information
required by paragraph (a)(3) of this
section, the information shall be
disclosed in a similar format as form H–
24.
(iv) Business card. The creditor may
physically attach a business card over
the information required to be disclosed
by paragraph (a)(3) of this section.
(v) Administrative information. The
creditor may insert immediately above
the information required to be disclosed
by paragraph (a)(2) of this section and
adjacent to the information required to
be disclosed by paragraph (a)(3) of this
section any administrative information,
text, or codes that assist in identification
of the form or the information disclosed
on the form, provided that the space
provided on form H–24 of appendix H
to this part for the information required
by paragraph (a)(3) of this section is not
altered.
(vi) Translation. The form may be
translated into languages other than
English.fi
18. New § 1026.38 is added to read as
follows:
ߤ 1026.38 Content of disclosures for
certain mortgage transactions (Closing
Disclosure).
For each transaction subject to
§ 1026.19(f), the creditor shall disclose
the information in this section, as
applicable:
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(a) General information. (1) Form title.
The title of the form, ‘‘Closing
Disclosure,’’ using that term.
(2) Form purpose. The following
statement: ‘‘This form is a statement of
final loan terms and closing costs.
Compare this document with your Loan
Estimate.’’
(3) Closing information. Under the
heading ‘‘Closing Information’’:
(i) Date issued. The date the
disclosures required by this section are
delivered to the consumer, labeled
‘‘Date Issued.’’
(ii) Closing date. The date of
consummation, labeled ‘‘Closing Date.’’
(iii) Disbursement date. The date the
amounts disclosed pursuant to
paragraphs (j)(3)(iii) and (k)(3)(iii) of
this section are expected to be paid to
the consumer and seller, respectively, as
applicable, labeled ‘‘Disbursement
Date.’’
(iv) Agent. The name of the settlement
agent conducting the closing, labeled
‘‘Agent.’’
(v) File number. The number assigned
to the transaction by the settlement
agent for identification purposes,
labeled ‘‘File #.’’
(vi) Property. The street address or
location of the property required to be
disclosed under § 1026.37(a)(6), labeled
‘‘Property.’’
(vii) Sale price. (A) In credit
transactions where there is a seller, the
contract sale price of the property
identified in paragraph (a)(3)(vi) of this
section, labeled ‘‘Sale Price.’’
(B) In credit transactions where there
is no seller, the appraised value of the
property identified in paragraph
(a)(3)(vi) of this section, labeled
‘‘Appraised Prop. Value.’’
(4) Transaction information. Under
the heading ‘‘Transaction Information’’:
(i) Borrower. The consumer’s name
and mailing address, labeled
‘‘Borrower.’’
(ii) Seller. Where applicable, the
seller’s name and mailing address,
labeled ‘‘Seller.’’
(iii) Lender. The name of the creditor
making the disclosure, labeled
‘‘Lender.’’
(5) Loan information. Under the
heading ‘‘Loan Information’’:
(i) Loan term. The information
required to be disclosed under
§ 1026.37(a)(8), labeled ‘‘Loan Term.’’
(ii) Purpose. The information required
to be disclosed under § 1026.37(a)(9),
labeled ‘‘Purpose.’’
(iii) Product. The information
required to be disclosed under
§ 1026.37(a)(10), labeled ‘‘Product.’’
(iv) Loan type. The information
required to be disclosed under
§ 1026.37(a)(11), labeled ‘‘Loan Type.’’
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(v) Loan identification number. The
information required to be disclosed
under § 1026.37(a)(12), labeled ‘‘Loan ID
#.’’
(vi) Mortgage insurance case number.
The case number for any mortgage
insurance policy, if required by the
creditor, labeled ‘‘MIC #.’’
(b) Loan terms. A separate table under
the heading ‘‘Loan Terms’’ that includes
the information required by
§ 1026.37(b).
(c) Projected payments. A separate
table, under the heading ‘‘Projected
Payments,’’ that includes and satisfies
the following information and
requirements:
(1) Projected payments or range of
payments. The information required to
be disclosed pursuant to § 1026.37(c)(1)
through (4), other than
§ 1026.37(c)(4)(vi). In disclosing
estimated escrow payments as described
in § 1026.37(c)(2)(iii) and (4)(ii), the
amount disclosed on the Closing
Disclosure:
(i) For transactions subject to RESPA,
is determined under the escrow account
analysis described in Regulation X, 12
CFR 1024.17;
(ii) For transactions not subject to
RESPA, may be determined under the
escrow account analysis described in
Regulation X, 12 CFR 1024.17 or in the
manner set forth in § 1026.37(c)(5).
(2) Estimated taxes, insurance, and
assessments. A reference to the
disclosure required by § 1026.38(l)(7).
(d) Cash to close. In a separate table,
under the heading ‘‘Cash to Close’’:
(1) The sum of the dollar amounts
calculated in accordance with paragraph
(j)(3)(iii) of this section, labeled ‘‘Cash to
Close’’;
(2) The dollar amount of loan costs
that are disclosed as borrower-paid at
closing calculated in accordance with
paragraph (f)(4) of this section,
described as ‘‘Loan Costs’’;
(3) The dollar amount of other costs
that are disclosed as borrower-paid at
closing and calculated in accordance
with paragraph (g)(5) of this section,
described as ‘‘Other Costs’’;
(4) The dollar amount disclosed
pursuant to paragraph (h)(3) of this
section, described as ‘‘Lender Credit’’;
(5) The sum of the amounts disclosed
pursuant to paragraphs (d)(2), (d)(3),
and (d)(4) of this section, described as
‘‘Closing Costs’’; and
(6) A statement referring the
consumer to the tables required
pursuant to paragraphs (f) and (g) of this
section for details.
(e) [Reserved]
(f) Closing cost details; loan costs.
Under the master heading ‘‘Closing Cost
Details’’ with columns stating whether
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the charge was borrower-paid at or
before closing, seller-paid at or before
closing, or paid by others, all loan costs
associated with the transaction, listed in
a table under the heading ‘‘Loan Costs.’’
The table consists of the items and
amounts listed under five labels,
described in paragraphs (f)(1) through
(5) of this section.
(1) Origination charges. Under the
label ‘‘Origination Charges,’’ an
itemization of the items described in
§ 1026.37(f)(1) and compensation paid
by the creditor to a loan originator in the
applicable column and the total of all
such itemized amounts that are
designated borrower-paid at or before
closing.
(2) Services borrower did not shop for.
Under the label ‘‘Services Borrower Did
Not Shop For,’’ an itemization of the
costs for services required by the
creditor and provided by persons other
than the creditor or mortgage broker in
the applicable column, and the total of
all such itemized amounts that are
designated borrower-paid at or before
closing. Items that were disclosed
pursuant to § 1026.37(f)(3) must be
disclosed under this paragraph (f)(2)
when the consumer was provided a
written list under § 1026.19(e)(1)(vi)(C)
and the consumer selected a provider
contained on that written list.
(3) Services borrower did shop for.
Under the label ‘‘Services Borrower Did
Shop For,’’ an itemization of the costs
for services required by the creditor and
provided by persons other than the
creditor or mortgage broker where the
consumer was provided a written list
under § 1026.19(e)(1)(vi)(C) and the
consumer did not select a provider
contained on that written list, and the
total of all such itemized costs that are
designated borrower-paid at or before
closing.
(4) Total loan costs. The total of the
amounts disclosed under § 1026.38(f)(5)
with the label ‘‘Total Loan Costs
(Borrower-Paid).’’
(5) Subtotal of loan costs. The sum of
loan costs, calculated by totaling the
amounts described in paragraphs (f)(1),
(2), and (3) of this section for costs
designated borrower-paid at or before
closing, with the label ‘‘Loan Costs
Subtotal.’’
(g) Closing cost details; other costs.
Under the master heading ‘‘Closing Cost
Details’’ disclosed pursuant to
paragraph (f) of this section, all other
costs associated with the transaction
listed in a table with a heading
disclosed as ‘‘Other Costs.’’ The table
comprises items and amounts listed
under five labels, described in
paragraphs (g)(1) through (6) of this
section.
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(1) Taxes and other government fees.
Under the label ‘‘Taxes and Other
Government Fees,’’ each amount that is
expected to be paid to State and local
governments for taxes and government
fees and the total of all such itemized
amounts that are designated borrowerpaid at or before closing, as follows:
(i) Recording fees and the amounts
paid in the applicable columns; and
(ii) An itemization of transfer taxes
and the amounts paid in the applicable
columns.
(2) Prepaids. Under the subheading
‘‘Prepaids,’’ the charges disclosed
pursuant to § 1026.37(g)(2) with the
actual costs in the applicable columns,
and the total of all such itemized
amounts that are designated borrowerpaid at or before closing.
(3) Initial escrow payment at closing.
Under the label ‘‘Initial escrow payment
at closing,’’ the items described in
§ 1026.37(g)(3) with their actual costs,
the applicable aggregate adjustment
pursuant to 12 CFR 1024.17(d)(2), and
the total of all such itemized amounts
that are designated borrower-paid at or
before closing.
(4) Other. Under the label ‘‘Other,’’
identify and state any other actual costs
for services that are required or obtained
in the real estate closing by the
consumer, the seller, or other party, and
the total of all such itemized amounts
that are designated borrower-paid at or
before closing.
(i) For any actual cost that is a
component of title insurance, the
introductory description ‘‘Title—’’ shall
appear at the beginning of the label for
that actual cost.
(ii) The parenthetical description
‘‘(optional)’’ shall appear at the end of
the label for actual costs designated
borrower-paid at or before closing for
any premiums paid for separate
insurance, warranty, guarantee, or
event-coverage products.
(5) Total other costs. With the label
‘‘Total Other Costs (Borrower-Paid),’’
the sum of the amounts disclosed
pursuant to paragraphs (g)(6) of this
section.
(6) Subtotal of costs. The sum of other
costs, calculated by totaling the costs
disclosed in paragraphs (g)(1) through
(4) of this section designated borrowerpaid at or before closing, labeled ‘‘Other
Costs Subtotal.’’
(h) Closing cost totals. (1) The total of
the costs designated borrower-paid at or
before closing that are disclosed
pursuant to paragraph (h)(2) of this
section, labeled ‘‘Total Closing Costs
(Borrower-Paid).’’
(2) The total of the amounts disclosed
in paragraphs (f)(5) and (g)(6) of this
section and the total of the costs
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designated seller-paid at or before
closing, or paid by others are disclosed
pursuant to paragraphs (f) and (g) of this
section, and the sum of the amount
disclosed in (h)(3) of this section and
the amounts designated borrower-paid
at closing, labeled ‘‘Closing Costs
Subtotal (Loan Costs + Other Costs).’’
(3) The amount disclosed pursuant to
§ 1026.37(g)(6)(ii) as a negative number,
with the label ‘‘Lender Credit’’ and
designated borrower-paid at closing.
(4) The creditor must use descriptions
for the charges disclosed pursuant to
paragraphs (f) and (g) of this section on
the Closing Disclosure in a manner that
are consistent with the descriptions
used for the charges disclosed on the
Loan Estimate pursuant to § 1026.37 of
this part. The creditor must also list the
charges on the Closing Disclosure in the
same sequential order as on the Loan
Estimate pursuant to § 1026.37.
(i) Calculating cash to close. In a
separate table, under the heading
‘‘Calculating Cash to Close,’’ together
with the statement ‘‘Use this table to see
what has changed from your Loan
Estimate’’:
(1) Total closing costs. (i) Under the
subheading ‘‘Estimate,’’ the ‘‘Total
Closing Costs’’ disclosed on the Loan
Estimate under § 1026.37(h)(1), labeled
using that term together with a reference
to the disclosure of ‘‘Total Closing
Costs’’ under paragraph (h)(1) of this
section.
(ii) Under the subheading ‘‘Final,’’ the
amount disclosed under paragraph
(h)(1) of this section, reduced by the
amount of any lender credits disclosed
under § 1026.38(h)(3).
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(1)(ii) of this section is
different than the amount disclosed
under paragraph (i)(1)(i) of this section
(unless the difference is due to
rounding):
(1) A statement of that fact;
(2) If the difference in the ‘‘Total
Closing Costs’’ is attributable to
differences in itemized charges that are
included in either or both subtotals, a
statement that the consumer should see
the total loan costs and total other costs
subtotals disclosed under paragraphs
(f)(4) and (g)(5) of this section (together
with references to such disclosures), as
applicable; and
(3) If the increase exceeds the
limitations on increases in closing costs
under § 1026.19(e)(3), a statement that
such increase exceeds the legal limits by
the dollar amount of the excess. Such
dollar amount shall equal the sum total
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of all excesses of the limitations on
increases in closing costs under
§ 1026.19(e)(3), taking into account the
different methods of calculating
excesses of the limitations on increases
in closing costs under § 1026.19(e)(3)(ii)
and (iii).
(B) If the amount disclosed under
paragraph (i)(1)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(1)(i) of this section, a
statement of that fact.
(2) Closing costs subtotal paid before
closing. (i) Under the subheading
‘‘Estimate,’’ the dollar amount ‘‘$0,’’
labeled ‘‘Closing Costs Subtotal Paid
Before Closing.’’
(ii) Under the subheading ‘‘Final,’’ the
amount of ‘‘Total Closing Costs’’
disclosed under paragraph (h)(2) of this
section and designated as borrower-paid
before closing, stated as a negative
number.
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(2)(ii) of this section is
different than the amount disclosed
under paragraph (i)(2)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer paid
such amounts prior to consummation of
the transaction; or
(B) If the amount disclosed under
paragraph (i)(2)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(2)(i) of this section, a
statement of that fact.
(3) Closing costs financed. (i) Under
the subheading ‘‘Estimate,’’ the amount
disclosed under § 1026.37(h)(2), labeled
‘‘Closing Costs Financed.’’
(ii) Under the subheading ‘‘Final,’’ the
actual amount of the closing costs that
are to be paid out of loan proceeds,
stated as a negative number.
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(3)(ii) of this section is
different than the amount disclosed
under paragraph (i)(3)(i) of this section
(unless the difference is due to
rounding), a statement that the amount
is different, along with a statement that
the consumer included the closing costs
in the loan amount, which increased the
loan amount; or
(B) If the amount disclosed under
paragraph (i)(3)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(3)(i) of this section, a
statement of that fact.
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(4) Downpayment/funds from
borrower. (i) Under the subheading
‘‘Estimate,’’ the amount disclosed under
§ 1026.37(h)(3), labeled ‘‘Downpayment/
Funds from Borrower.’’
(ii) Under the subheading ‘‘Final’’:
(A) In a transaction that is a purchase
as defined in § 1026.37(a)(9)(i), the
actual amount of the difference between
the purchase price of the property and
the principal amount of the credit
extended, stated as a positive number,
labeled using the term ‘‘Downpayment/
Funds from Borrower’’; or
(B) In a transaction other than the one
described in paragraph (i)(4)(ii)(A) of
this section, the ‘‘Funds from Borrower’’
as determined in accordance with
paragraph (i)(6)(iv) of this section,
labeled using the term ‘‘Downpayment/
Funds from Borrower.’’
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(4)(ii) of this section is
different than the amount disclosed
under paragraph (i)(4)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer
increased or decreased this payment
and that the consumer should see the
details disclosed under paragraph (j)(1)
or (j)(2) of this section, as applicable; or
(B) If the amount disclosed under
paragraph (i)(4)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(4)(i) of this section, a
statement of that fact.
(5) Deposit. (i) Under the subheading
‘‘Estimate,’’ the amount disclosed under
§ 1026.37(h)(4), labeled ‘‘Deposit.’’
(ii) Under the subheading ‘‘Final,’’ the
amount disclosed under paragraph
(j)(2)(ii) of this section, stated as a
negative number.
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(5)(ii) of this section is
different than the amount disclosed
under paragraph (i)(5)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer
increased or decreased this payment, as
applicable, and that the consumer
should see the details disclosed under
paragraph (j)(2)(ii) of this section; or
(B) If the amount disclosed under
paragraph (i)(5)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(5)(i) of this section, a
statement of that fact.
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(6) Funds for borrower. (i) Under the
subheading ‘‘Estimate,’’ the amount
disclosed under § 1026.37(h)(5), labeled
‘‘Funds for Borrower.’’
(ii) Under the subheading ‘‘Final,’’ the
‘‘Funds for Borrower,’’ labeled using
that term, as determined in accordance
with paragraph (i)(6)(iv) of this section.
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(6)(ii) of this section is
different than the amount disclosed
under paragraph (i)(6)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer’s
available funds from the loan amount
have increased or decreased, as
applicable; or
(B) If the amount disclosed under
paragraph (i)(6)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(6)(i) of this section, a
statement of that fact.
(iv) The ‘‘Funds from Borrower’’ to be
disclosed under paragraph (i)(4)(ii)(B) of
this section and ‘‘Funds for Borrower’’
to be disclosed under paragraph (i)(6)(ii)
of this section are determined by
subtracting the principal amount of the
credit extended (excluding any amount
disclosed pursuant to paragraph (i)(3)(ii)
of this section) from the total amount of
all existing debt being satisfied in the
real estate closing and disclosed under
§ 1026.38(j)(1)(v) (except to the extent
the satisfaction of such existing debt is
disclosed under § 1026.38(g)).
(A) If the calculation under this
paragraph (i)(6)(iv) yields an amount
that is a positive number, such amount
shall be disclosed under paragraph
(i)(4)(ii)(B) of this section, and $0.00
shall be disclosed under paragraph
(i)(6)(ii) of this section.
(B) If the calculation under this
paragraph (i)(6)(iv) yields an amount
that is a negative number, such amount
shall be disclosed under paragraph
(i)(6)(ii) of this section, stated as a
negative number, and $0.00 shall be
disclosed under paragraph (i)(4)(ii)(B) of
this section.
(C) If the calculation under this
paragraph (i)(6)(iv) yields $0.00, $0.00
shall be disclosed under paragraph
(i)(4)(ii)(B) of this section and under
paragraph (i)(6)(ii) of this section.
(7) Seller credits. (i) Under the
subheading ‘‘Estimate,’’ the amount
disclosed under § 1026.37(h)(6), labeled
‘‘Seller Credits.’’
(ii) Under the subheading ‘‘Final,’’ the
amount disclosed under paragraph
(j)(2)(v) of this section, stated as a
negative number.
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51325
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(7)(ii) of this section is
different than the amount disclosed
under paragraph (i)(7)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer
should see the details disclosed under
paragraph (j)(2)(v) of this section; or
(B) If the amount disclosed under
paragraph (i)(7)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(7)(i) of this section, a
statement of that fact.
(8) Adjustments and other credits. (i)
Under the subheading ‘‘Estimate,’’ the
amount disclosed on the Loan Estimate
under § 1026.37(h)(7) rounded to the
nearest whole dollar, labeled
‘‘Adjustments and Other Credits.’’
(ii) Under the subheading ‘‘Final,’’ the
amount equal to the total of the amounts
disclosed under paragraphs (j)(1)(v)
through (x) of this section reduced by
the total of the amounts disclosed under
paragraphs (j)(2)(vi) through (xi) of this
section.
(iii) Disclosed more prominently than
the other disclosures under this
paragraph (i), under the subheading
‘‘Did this change?’’:
(A) If the amount disclosed under
paragraph (i)(8)(ii) of this section is
different than the amount disclosed
under paragraph (i)(8)(i) of this section
(unless the difference is due to
rounding), a statement of that fact, along
with a statement that the consumer
should see the details disclosed under
paragraphs (j)(1)(v) through (x) and
(j)(2)(vi) through (xi) of this section; or
(B) If the amount disclosed under
paragraph (i)(8)(ii) of this section is
equal to the amount disclosed under
paragraph (i)(8)(i) of this section, a
statement of that fact.
(9) Cash to close. (i) Under the
subheading ‘‘Estimate,’’ the amount
disclosed on the Loan Estimate under
§ 1026.37(h)(8), labeled ‘‘Cash to Close’’
and disclosed more prominently than
the other disclosures under this
paragraph (i).
(ii) Under the subheading ‘‘Final,’’ the
sum of the amounts disclosed under
paragraphs (i)(1) through (i)(8) of this
section, and disclosed more
prominently than the other disclosures
under this paragraph (i).
(j) Summary of borrower’s
transaction. Under the heading
‘‘Summaries of Transactions,’’ with a
statement to ‘‘Use this table to see a
summary of your transaction,’’ two
separate tables are disclosed. The first
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table shall include, under the
subheading ‘‘Borrower’s Transaction,’’
the following information and shall
satisfy the following requirements:
(1) Itemization of amount due from
borrower. (i) The total amount due from
the consumer at closing, calculated as
the sum of items required to be
disclosed by paragraph (j)(1)(ii) through
(x) of this section, excluding items paid
from funds other than closing funds as
described in paragraph (j)(4)(i) of this
section, labeled ‘‘Due from Borrower at
Closing’’;
(ii) The amount of the contract sales
price of the property being sold in a
purchase real estate transaction,
excluding the price of any tangible
personal property if the consumer and
seller have agreed to a separate price for
such items, labeled ‘‘Sale Price of
Property’’;
(iii) The amount of the sales price of
any tangible personal property excluded
from the contract sales price pursuant to
paragraph (j)(1)(ii) of this section,
labeled ‘‘Sale Price of Any Personal
Property Included in Sale’’;
(iv) The total amount of closing costs
disclosed that are designated borrowerpaid at closing, calculated pursuant to
paragraph (h)(1) of this section, the
labeled ‘‘Subtotal Closing Costs Paid at
Closing by Borrower’’;
(v) A description and the amount of
any additional items that the seller has
paid prior to the real estate closing, but
reimbursed by the consumer at the real
estate closing, and a description and the
amount of any other items owed by the
consumer at the real estate closing not
otherwise disclosed pursuant to
paragraph (f), (g), or (j) of this section;
(vi) The description ‘‘Adjustments for
Items Paid by Seller in Advance’’;
(vii) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid taxes, and the
prorated amount of any prepaid taxes
due from the consumer at the real estate
closing, labeled ‘‘City/Town Taxes’’;
(viii) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid taxes, and the
prorated amount of any prepaid taxes
due from the consumer at the real estate
closing, labeled ‘‘County Taxes’’;
(ix) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid assessments,
and the prorated amount of any prepaid
assessments due from the consumer at
the real estate closing, labeled
‘‘Assessments’’; and
(x) A description and the amount of
any additional items paid by the seller
prior to the real estate closing that are
due from the consumer at the real estate
closing.
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(2) Itemization of amounts already
paid by or on behalf of borrower. (i) The
sum of the amounts disclosed in this
paragraphs (j)(2)(ii) through (xi) of this
section, excluding items paid from
funds other than closing funds as
described in paragraph (j)(4)(i) of this
section, labeled ‘‘Paid Already by or on
Behalf of Borrower at Closing’’;
(ii) Any amount that is paid to the
seller or held in trust or escrow by an
attorney or other party under the terms
of the agreement for the sale of real
estate, labeled ‘‘Deposit’’;
(iii) The amount of the consumer’s
new loan or first user loan as disclosed
pursuant to paragraph (b)(1) of this
section, labeled ‘‘Borrower’s Loan
Amount’’;
(iv) The amount of those existing
loans assumed or taken subject to by the
consumer, labeled ‘‘Existing Loan(s)
Assumed or Taken Subject to’’;
(v) The total amount of money that
the seller will provide at the real estate
closing as a lump sum to pay for loan
costs as determined by paragraph (f) of
this section and other costs as
determined by paragraph (g) of this
section and any other obligations of the
seller to be paid directly to the
consumer, labeled ‘‘Seller Credit’’;
(vi) The amount of other items paid
by or on behalf of the consumer and not
otherwise disclosed pursuant to
paragraphs (f), (g), (h), and (j)(2) of this
section, labeled ‘‘Other Credits’’;
(vii) The description ‘‘Adjustments for
Items Unpaid by Seller’’;
(viii) The time period that the seller
is responsible for the payment of any
unpaid taxes, and the prorated amount
of any unpaid taxes due from the seller
at the real estate closing, labeled ‘‘City/
Town Taxes’’;
(ix) The time period that the seller is
responsible for the payment of any
unpaid taxes, and the prorated amount
of any unpaid taxes due from the seller
at the real estate closing, labeled
‘‘County Taxes’’;
(x) The time period that the seller is
responsible for the payment of any
unpaid assessments, and the prorated
amount of any unpaid assessments due
from the seller at the real estate closing,
labeled ‘‘Assessments’’; and
(xi) A description and the amount of
any additional items which have not yet
been paid and which the consumer is
expected to pay after the real estate
closing, but which are attributable in
part to a period of time prior to the real
estate closing.
(3) Calculation of borrower’s
transaction. Under the label
‘‘Calculation’’:
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(i) The amount disclosed pursuant to
paragraph (j)(1)(i) of this section, labeled
‘‘Total Due from Borrower at Closing’’;
(ii) The amount disclosed pursuant to
paragraph (j)(2)(i) of this section,
disclosed as a negative number, labeled
‘‘Total Paid Already by or on Behalf of
Borrower at Closing’’; and
(iii) A statement that the disclosed
amount is due from or to the consumer,
and the amount due from or to the
consumer at the real estate closing,
calculated by the sum of the amounts
disclosed under paragraphs (j)(3)(i) and
(j)(3)(ii) of this section, labeled ‘‘Cash to
Close.’’
(4) Items paid outside of closing
funds. (i) Costs that are not paid from
closing funds but that would otherwise
be disclosed in the table required
pursuant to paragraph (j) of this section,
should be marked with the phrase ‘‘Paid
Outside of Closing’’ or the abbreviation
‘‘P.O.C.’’ and include the name of the
party making the payment.
(ii) For purposes of this paragraph (j),
‘‘closing funds’’ means funds collected
and disbursed at closing.
(k) Summary of seller’s transaction.
Under the heading required by
paragraph (j) of this section, a second
table under the subheading ‘‘Seller’s
Transaction,’’ that includes the
following information and satisfies the
following requirements:
(1) Itemization of amounts due to
seller. (i) The total amount due to the
seller at the real estate closing,
calculated as the sum of items required
to be disclosed pursuant to paragraph
(k)(1)(ii) through (ix) of this section,
excluding items paid from funds other
than closing funds as described in
paragraph (k)(4)(i) of this section,
labeled ‘‘Due to Seller at Closing’’;
(ii) The amount of the contract sales
price of the property being sold,
excluding the price of any tangible
personal property if the consumer and
seller have agreed to a separate price for
such items, labeled ‘‘Sale Price of
Property’’;
(iii) The amount of the sales price of
any tangible personal property excluded
from the contract sales price pursuant to
paragraph (k)(1)(ii) of this section,
labeled ‘‘Sale Price of Any Personal
Property Included in Sale’’;
(iv) A description and the amount of
other items paid to the seller by the
consumer pursuant to the contract of
sale or other agreement, such as charges
that were not disclosed pursuant to
§ 1026.37 on the Loan Estimate or items
paid by the seller prior to the real estate
closing but reimbursed by the consumer
at the real estate closing;
(v) The description ‘‘Adjustments for
Items Paid by Seller in Advance’’;
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(vi) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid taxes, and the
prorated amount of any prepaid taxes
due from the consumer at the real estate
closing, labeled ‘‘City/Town Taxes’’;
(vii) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid taxes, and the
prorated amount of any prepaid taxes
due from the consumer at the real estate
closing, labeled ‘‘County Taxes’’;
(viii) The time period that the
consumer is responsible for reimbursing
the seller for any prepaid assessments,
and the prorated amount of any prepaid
assessments due from the consumer at
the real estate closing, labeled
‘‘Assessments’’; and
(ix) A description and the amount of
additional items paid by the seller prior
to the real estate closing that are
reimbursed by the consumer at the real
estate closing.
(2) Itemization of amounts due from
seller. (i) The total amount due from the
seller at the real estate closing,
calculated as the sum of items required
to be disclosed pursuant to paragraph
(k)(2)(ii) through (xiii) of this section,
excluding items paid from funds other
than closing funds as described in
paragraph (k)(4)(i) of this section,
labeled ‘‘Due from Seller at Closing’’;
(ii) The amount of any excess deposit
retained by the seller at the time of the
real estate closing, labeled ‘‘Excess
Deposit’’;
(iii) The amount of closing costs
designated seller-paid at closing
disclosed pursuant to paragraph (h)(1)
of this section, labeled ‘‘Subtotal
Closing Costs Paid at Closing by Seller’’;
(iv) The amount of those existing
loans assumed or taken subject to at the
real estate closing by the consumer,
labeled ‘‘Existing Loan(s) Assumed or
Taken Subject to’’;
(v) The amount of any first loan
secured by the property that will be
paid off as part of the real estate closing,
labeled ‘‘Payoff of First Mortgage Loan’’;
(vi) The amount of any second loan
secured by the property that will be
paid off as part of the real estate closing,
labeled ‘‘Payoff of Second Mortgage
Loan’’;
(vii) The total amount of money that
the seller will provide at the real estate
closing as a lump sum to pay for loan
costs as determined by paragraph (f) of
this section and other costs as
determined by paragraph (g) of this
section and any other obligations of the
seller to be paid directly to the
consumer, labeled ‘‘Seller Credit’’;
(viii) A description and amount of any
and all other obligations required to be
paid by the seller at the real estate
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closing, including any lien-related
payoffs, fees, or obligations;
(ix) The description ‘‘Adjustments for
Items Unpaid by Seller’’;
(x) The time period that the seller is
responsible for the payment of any
unpaid taxes, and the prorated amount
of any unpaid taxes due from the seller
at the real estate closing, labeled ‘‘City/
Town Taxes’’;
(xi) The time period that the seller is
responsible for the payment of any
unpaid taxes, and the prorated amount
of any unpaid taxes due from the seller
at the real estate closing, labeled
‘‘County Taxes’’;
(xii) The time period that the seller is
responsible for the payment of any
unpaid assessments, and the prorated
amount of any unpaid assessments due
from the seller at the real estate closing,
labeled ‘‘Assessments’’; and
(xiii) A description and the amount of
any additional items which have not yet
been paid and which the consumer is
expected to pay after the real estate
closing, but which are attributable in
part to a period of time prior to the real
estate closing.
(3) Calculation of seller’s transaction.
Under the label ‘‘Calculation’’:
(i) The amount described in paragraph
(k)(1)(i) of this section, labeled ‘‘Total
Due to Seller at Closing’’;
(ii) The amount described in
paragraph (k)(2)(i) of this section,
disclosed as a negative number, labeled
‘‘Total Due from Seller at Closing’’; and
(iii) A statement that the disclosed
amount is due from or to the seller, and
the amount due from or to the seller at
closing, calculated by the sum of the
amounts disclosed pursuant to
paragraphs (k)(3)(i) and (k)(3)(ii) of this
section, labeled ‘‘Cash.’’
(4) Items paid outside of closing
funds. (i) Charges that are not paid from
closing funds but that would otherwise
be disclosed in the table described in
paragraph (k) of this section, should be
marked with the phrase ‘‘Paid Outside
of Closing’’ or the acronym ‘‘P.O.C.’’ and
include a statement of the party making
the payment.
(ii) For purposes of this paragraph (k),
‘‘closing funds’’ are defined as funds
collected and disbursed at closing.
(l) Loan disclosures. Under the master
heading ‘‘Additional Information About
This Loan’’ and under the heading
‘‘Loan Disclosures’’:
(1) Assumption. Under the
subheading ‘‘Assumption,’’ the
information required by § 1026.37(m)(2).
(2) Demand feature. Under the
subheading ‘‘Demand Feature,’’ a
statement of whether the legal
obligation permits the creditor to
demand early repayment of the loan
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and, if the statement is affirmative, a
reference to the note or other loan
contract for details.
(3) Late payment. Under the
subheading ‘‘Late Payment,’’ the
information required by § 1026.37(m)(4).
(4) Negative amortization. Under the
subheading ‘‘Negative Amortization
(Increase in Loan Amount),’’ a statement
of whether the regular periodic
payments may cause the principal
balance to increase.
(i) If the regular periodic payments do
not cover all of the interest due, the
creditor must provide a statement that
the principal balance will increase, such
balance will likely become larger than
the original loan amount, and increases
in such balance lower the consumer’s
equity in the property.
(ii) If the consumer may make regular
periodic payments that do not cover all
of the interest due, the creditor must
provide a statement that, if the
consumer chooses a monthly payment
option that does not cover all of the
interest due, the principal balance may
become larger than the original loan
amount and the increases in the
principal balance lower the consumer’s
equity in the property.
(5) Partial payment policy. Under the
subheading ‘‘Partial Payment Policy’’:
(i) A statement whether the creditor
will accept monthly payments that are
less than the full amount due and that,
if the loan is sold, the new creditor may
have a different policy; and
(ii) If partial payments are permitted,
a brief description of the creditor’s
partial payment policy, including the
manner and order in which the partial
payment would be applied to the
principal, interest, or an escrow account
for partial payments and whether any
penalties apply.
(6) Security interest. Under the
subheading ‘‘Security Interest,’’ a
statement that the creditor will acquire
a security interest in the property
securing the transaction, the property
address, and a statement that the
consumer may lose the property if the
consumer does not make the required
payments or satisfy other requirements
under the legal obligation.
(7) Escrow account. Under the
subheading ‘‘Escrow Account’’:
(i) Under the reference ‘‘For now,’’ a
statement that an escrow account may
also be called an impound or trust
account, a statement of whether the
creditor has established or will
establish, at or before consummation, an
escrow account in connection with the
transaction for the costs that will be
paid using escrow account funds
described in paragraph (l)(7)(i)(A)(1) of
this section:
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(A) A statement that the creditor may
be liable for penalties and interest if it
fails to make a payment for any cost for
which the escrow account is
established, a statement that the
consumer would have to pay such costs
directly in the absence of the escrow
account, and a table, titled ‘‘Escrow’’
that contains, if an escrow account is or
will be established, an itemization of the
following:
(1) The total amount the consumer
will be required to pay into an escrow
account over the first year after
consummation for payment of the
charges described in § 1026.37(c)(4)(ii),
labeled ‘‘Escrowed Property Costs over
Year 1,’’ together with a descriptive
name of each such charge, calculated as
the amount disclosed under paragraph
(l)(7)(i)(A)(4) of this section multiplied
by the number of periodic payments
scheduled to be made to the escrow
account during the first year after
consummation;
(2) The estimated amount the
consumer is likely to pay during the
first year after consummation for
charges described in § 1026.37(c)(4)(ii)
that are known to the creditor and that
will not be paid using escrow account
funds, labeled ‘‘Non-Escrowed Property
Costs over Year 1,’’ together with a
descriptive name of each such charge
and a statement that the consumer may
have to pay other costs that are not
listed;
(3) The total amount disclosed
pursuant to paragraph (g)(3) of this
section, a statement that the payment is
a cushion for the escrow account,
labeled ‘‘Initial Payment,’’ and a
reference to the information disclosed
pursuant to paragraph (g)(3) of this
section;
(4) The amount the consumer will be
required to pay into the escrow account
with each periodic payment during the
first year after consummation for
payment of the charges described in
§ 1026.37(c)(4)(ii), labeled ‘‘Monthly
Payment.’’
(5) A creditor complies with the
requirements of paragraphs
(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) of this
section if the creditor bases the
numerical disclosures required by those
paragraphs on amounts derived from the
escrow account analysis required under
Regulation X, 12 CFR 1024.17.
(B) A statement of whether the
consumer will not have an escrow
account, the reason why an escrow
account will not be established, a
statement that the consumer must pay
all property costs, such as taxes and
homeowner’s insurance, directly, a
statement that the consumer may
contact the creditor to inquire about the
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availability of an escrow account, and a
table, titled ‘‘No Escrow,’’ that contains,
if an escrow account will not be
established, an itemization of the
following:
(1) The estimated total amount the
consumer will pay directly for charges
described in § 1026.37(c)(4)(ii) during
the first year after consummation that
are known to the creditor and a
statement that, without an escrow
account, the consumer must pay the
identified costs, possibly in one or two
large payments, labeled as ‘‘Estimated
Property Costs over Year 1’’; and
(2) The amount of any fee the creditor
imposes on the consumer for not
establishing an escrow account in
connection with the transaction, labeled
‘‘Escrow Waiver Fee.’’
(ii) Under the reference ‘‘In the
future’’:
(A) A statement that the consumer’s
property costs may change and that, as
a result, the consumer’s escrow
payments may change;
(B) A statement that the consumer
may be able to cancel any escrow
account that has been established, but
that the consumer is responsible for
directly paying all property costs in the
absence of an escrow account; and
(C) A description of the consequences
if the consumer fails to pay property
costs, including the actions that a State
or local government may take if
property taxes are not paid and the
actions the creditor may take if the
consumer does not pay some or all
property costs, such as adding amounts
to the loan balance, adding an escrow
account to the loan, or purchasing a
property insurance policy on the
consumer’s behalf that may be more
expensive and provide fewer benefits
than what the consumer could obtain
directly.
(m) Adjustable payment table. Under
the master heading ‘‘Additional
Information About This Loan’’ required
by paragraph (l) of this section, and
under the heading ‘‘Adjustable Payment
(AP) Table,’’ the table required to be
disclosed by § 1026.37(i).
(n) Adjustable interest rate table.
Under the master heading ‘‘Additional
Information About This Loan’’ required
by paragraph (l) of this section, and
under the heading ‘‘Adjustable Interest
Rate (AIR) Table,’’ the table required to
be disclosed by § 1026.37(j).
(o) Loan calculations. In a separate
table under the heading ‘‘Loan
Calculations’’:
(1) Total of payments. The ‘‘Total of
Payments,’’ using that term and
expressed as a dollar amount, and a
statement that the disclosure is the total
the consumer will have paid after
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making all payments of principal,
interest, mortgage insurance, and loan
costs, as scheduled.
(2) Finance charge. The ‘‘Finance
Charge,’’ using that term and expressed
as a dollar amount, and the following
statement: ‘‘The dollar amount the loan
will cost you.’’ The disclosed finance
charge and other disclosures affected by
the disclosed financed charge (including
the amount financed and the annual
percentage rate) shall be treated as
accurate if the amount disclosed as the
finance charge:
(i) is understated by no more than
$100; or
(ii) is greater than the amount
required to be disclosed.
(3) Amount financed. The ‘‘Amount
Financed,’’ using that term and
expressed as a dollar amount, and the
following statement: ‘‘The loan amount
available after paying your upfront
finance charge.’’
(4) Annual percentage rate. The
‘‘Annual Percentage Rate,’’ using that
term and the abbreviation ‘‘APR’’ and
expressed as a percentage, and the
following statement: ‘‘Your costs over
the loan term expressed as a rate. This
is not your interest rate.’’
(5) Total interest percentage. The
‘‘Total Interest Percentage,’’ using that
term and the abbreviation ‘‘TIP’’ and
expressed as a percentage, and the
following statement: ‘‘The total amount
of interest that you will pay over the
loan term as a percentage of your loan
amount.’’
(6) Approximate cost of funds. The
‘‘Approximate Cost of Funds,’’ using
that term and the abbreviation ‘‘ACF’’
and expressed as a percentage, and the
following statement: ‘‘The approximate
cost of funds used to make this loan.
This is not a direct cost to you.’’ For
purposes of this paragraph (o)(6),
‘‘approximate cost of funds’’ means
either the most recent ten-year Treasury
constant maturity rate or the creditor’s
actual cost of borrowing the funds used
to extend the credit, at the creditor’s
option.
(p) Other disclosures. Under the
heading ‘‘Other Disclosures’’:
(1) Appraisal. For transactions subject
to 15 U.S.C. 1639h or 1691(e), as
implemented in this part or Regulation
B, 12 CFR part 1002, respectively, under
the subheading ‘‘Appraisal,’’ that:
(i) If there was an appraisal of the
property in connection with the loan,
the creditor is required to provide the
consumer with a copy at no additional
cost to the consumer at least three days
prior to consummation; and
(ii) If the consumer has not yet
received a copy of the appraisal, the
consumer should contact the creditor
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using the information disclosed
pursuant to paragraph (r) of this section.
(2) Contract details. A statement that
the consumer should refer to the
appropriate loan document and security
instrument for information about
nonpayment, what constitutes a default
under the legal obligation,
circumstances under which the creditor
may accelerate the maturity of the
obligation, and prepayment rebates and
penalties, under the subheading
‘‘Contract Details.’’
(3) Liability after foreclosure. A brief
statement of whether, and the
conditions under which, the consumer
may remain responsible for any
deficiency after foreclosure under
applicable State law, a brief statement
that certain protections may be lost if
the consumer refinances or incurs
additional debt on the property, and a
statement that the consumer should
consult an attorney for additional
information, under the subheading
‘‘Liability after Foreclosure.’’
(4) Refinance. Under the subheading
‘‘Refinance,’’ the statement required by
§ 1026.37(m)(5).
(5) Tax deductions. Under the
subheading ‘‘Tax Deductions,’’ a
statement that, if the extension of credit
exceeds the fair market value of the
property, the interest on the portion of
the credit extension that is greater than
the fair market value of the property is
not tax deductible for Federal income
tax purposes and a statement that the
consumer should consult a tax adviser
for further information.
(q) Questions notice. In a separate
notice labeled ‘‘Questions?’’:
(1) A statement that the consumer
should contact the creditor with any
questions about the disclosures required
pursuant to § 1026.19(f);
(2) A reference to the Bureau’s Web
site to obtain more information or to
make a complaint; and
(3) A prominent question mark.
(r) Contact information. In a separate
table, under the heading ‘‘Contact
Information,’’ the following information
for each creditor (under the subheading
‘‘Lender’’), mortgage broker (under the
subheading ‘‘Mortgage Broker’’),
consumer’s real estate broker (under the
subheading ‘‘Real Estate Broker (B)’’),
seller’s real estate broker (under the
subheading ‘‘Real Estate Broker (S)’’),
and closing agent (under the subheading
‘‘Closing Agent’’) participating in the
transaction:
(1) Name of the person, labeled
‘‘Name’’;
(2) Address, using that label;
(3) Nationwide Mortgage Licensing
System & Registry identification number
or, if none, license number or other
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unique identifier issued by the
applicable jurisdiction or regulating
body with which the person is licensed
and/or registered, for the persons
identified in paragraph (r)(1) of this
section, labeled ‘‘NMLS/License ID’’;
(4) Name of the natural person who is
the primary contact for the consumer
with the person identified in paragraph
(r)(1) of this section, labeled ‘‘Contact’’;
(5) Nationwide Mortgage Licensing
System & Registry identification number
or, if none, license number or other
unique identifier issued by the
applicable jurisdiction or regulating
body with which the person is licensed
and/or registered, for the natural person
identified in paragraph (r)(4) of this
section, labeled ‘‘Contact NMLS/License
ID’’;
(6) Email address for the person
identified in paragraph (r)(4) of this
section, labeled ‘‘Email’’; and
(7) Telephone number for the person
identified in paragraph (r)(4) of this
section, labeled ‘‘Phone.’’
(s) Signature statement. (1) At the
creditor’s option, under the heading
‘‘Confirm Receipt,’’ a line for the
signatures of the consumers in the
transaction. If the creditor provides a
line for the consumer’s signature, the
creditor must disclose the statement
required to be disclosed under
§ 1026.37(n)(1).
(2) If the creditor does not provide a
line for the consumer’s signature under
the heading ‘‘Other Disclosures’’
required by paragraph (p) of this
section, the statement required to be
disclosed under § 1026.37(n)(2).
(t) Form of disclosures. (1) General
requirements. (i) The creditor shall
make the disclosures required by this
section clearly and conspicuously in
writing, in a form that the consumer
may keep. The disclosures also shall be
grouped together, segregated from
everything else, and provided on
separate pages that are not commingled
with any other documents or
disclosures, including any other
disclosures required by State or other
laws.
(ii) Except as provided in paragraph
(t)(5), the disclosures shall contain only
the information required by paragraphs
(a) through (s) of this section and shall
be made in the same order, and
positioned relative to the master
headings, headings, subheadings, labels,
and similar designations in the same
manner, as shown in form H–25, set
forth in appendix H to this part.
(2) Estimated disclosures. If a master
heading, heading, subheading, label, or
similar designation contains the word
‘‘estimated’’ in form H–25, set forth in
appendix H to this part, that heading,
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51329
label, or similar designation shall
contain the word ‘‘estimated.’’
(3) Form. Except as provided in
paragraph (t)(5) of this section:
(i) For a transaction subject to this
section that is a federally related
mortgage loan, as defined in Regulation
X, 12 CFR 1024.2, the disclosures must
be made using form H–25, set forth in
appendix H to this part.
(ii) For any other transaction subject
to this section, the disclosures must be
made with headings, content, and
format substantially similar to form H–
25, set forth in appendix H to this part.
(iii) The disclosures required by this
section may be provided to the
consumer in electronic form, subject to
compliance with the consumer consent
and other applicable provisions of the
Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15
U.S.C. 7001 et seq.).
(4) Rounding. (i) Nearest dollar. The
following dollar amounts are required to
be rounded to the nearest whole dollar:
(A) The dollar amounts required to be
disclosed by paragraph (b) of this
section that are required to be rounded
by § 1026.37(o)(4)(i)(A) when disclosed
under § 1026.37(b)(6) and (7);
(B) The dollar amounts required to be
disclosed by paragraph (c) of this
section that are required to be rounded
by § 1026.37(o)(4)(i)(A) when disclosed
under § 1026.37(c)(1)(iii);
(C) The dollar amounts required to be
disclosed by paragraph (i) of this section
under the subheading ‘‘Estimate’’;
(D) The dollar amounts required to be
disclosed by paragraph (m) of this
section; and
(E) The dollar amounts required to be
disclosed by paragraph (c) of this
section that are required to be rounded
by § 1026.37(o)(4)(i)(B) when disclosed
under § 1026.37(c)(2)(iv).
(ii) Percentages. The percentage
amounts required to be disclosed under
paragraphs (b), (f)(1)(i), (g)(2)(iii), (l), (n),
and (o)(5) and (6) of this section shall be
disclosed as an exact number up to two
or three decimal places. The percentage
amount required to be disclosed under
paragraph (o)(4) of this section shall be
disclosed up to three decimal places.
Decimal places shall not be disclosed if
the amount is a whole number.
(5) Exceptions. (i) Unit-period.
Wherever the form or this section uses
‘‘monthly’’ to describe the frequency of
any payments or uses ‘‘month’’ to
describe the applicable unit-period, the
creditor shall substitute the appropriate
term to reflect the fact that the
transaction’s terms provide for other
than monthly periodic payments, such
as bi-weekly or quarterly payments.
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(ii) Lender credits. The amount
required to be disclosed by paragraph
(d)(4) of this section may be omitted
from the form if the amount is zero.
(iii) Administrative information. The
creditor may insert immediately above
the information required to be disclosed
by paragraph (a)(2) of this section and
adjacent to the information required to
be disclosed by paragraph (a)(3) of this
section any administrative information,
text, or codes that assist in identification
of the form or the information disclosed
on the form.
(iv) Line numbers (Closing Cost
Details). Line numbers provided on
form H–25 in Appendix H to this part
for the disclosure of the information
required by paragraphs (f)(1), (2), and (3)
and (g)(1), (2), (3), and (4) of this section
that are not used may be deleted and the
deleted line numbers added to the space
provided for any other of those
paragraphs as necessary to
accommodate the disclosure of
additional items.
(v) Additional page (Closing Cost
Details). The information required to be
disclosed by paragraphs (f), (g), and (h)
of this section may be disclosed on two
pages if form H–25 in appendix H to
this part, as altered pursuant to
paragraph (t)(5)(iv) of this section, does
not accommodate an itemization of all
of the information required to be
disclosed by paragraphs (f), (g), and (h)
on one page, provided that the
information required by paragraph (f) is
disclosed on a page separate from the
information required by paragraph (g).
The information required by paragraph
(g), if disclosed on a page separate from
paragraph (f), shall be disclosed on the
same page as the information required
by paragraph (h).
(vi) Separation of consumer and seller
information. The creditor or settlement
agent preparing the form may use form
H–25 in appendix H to this part for the
disclosure provided to both the
consumer and the seller, with the
following modifications to separate the
information of the consumer and seller,
as necessary:
(A) The information required to be
disclosed by paragraphs (j) and (k) of
this section may be disclosed on
separate pages to the consumer and the
seller, respectively, with the
information required by the other
paragraph left blank. The information
disclosed to the consumer pursuant to
paragraph (j) of this section must be
disclosed on the same page as the
information required by paragraph (i) of
this section.
(B) The information required to be
disclosed by paragraphs (f) and (g) of
this section with respect to costs paid by
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the consumer may be left blank on the
disclosure provided to the seller.
(C) The information required by
paragraphs (a)(2), (a)(4)(iii), (a)(5), (b)
through (d), (i), (l) through (p), (r) with
respect to the creditor and mortgage
broker, and (s)(2) of this section may be
left blank on the disclosure provided to
the seller.
(vii) Modified version of the form for
a seller or third-party. The information
required by paragraphs (a)(2), (a)(4)(iii),
(a)(5), (b) through (d), (f) and (g) with
respect to costs paid by the consumer,
(i), (j), (l) through (p), (q)(1), (r) with
respect to the creditor and mortgage
broker, and (s) of this section may be
deleted from the form provided to the
seller or a third-party, as illustrated by
form H–25(I) in appendix H to this part.
(viii) Transaction without a seller.
The following modifications to form H–
25 in appendix H to this part may be
made for a transaction that does not
involve a seller, as illustrated by form
H–25(J) in appendix H to this part:
(A) The information required by
paragraphs (a)(4)(ii), (f), (g), and (h) with
respect to costs paid by the seller, and
(k) of this section may be deleted.
(B) A table under the master heading
‘‘Closing Cost Details’’ required by
paragraph (f) of this section may be
added with the heading ‘‘Disbursements
to Others’’ that itemizes the amounts of
payments made at closing to other
parties from the credit extended to the
consumer or funds provided by the
consumer in connection with the
transaction, including designees of the
consumer; the payees of such
disbursements under the subheading
‘‘To’’; and the total amount of such
payments labeled ‘‘Total Disbursements
to Others.’’
(C) The information required by
paragraphs (i)(5), (7), and (8) of this
section may be deleted from the table
required by paragraph (i) of this section.
These deletions must be factored into
the calculation and disclosure required
by paragraph (i)(9) of this section.
(D) The tables required to be disclosed
by paragraphs (j) and (k) of this section
may be deleted.
(ix) Translation. The form may be
translated into languages other than
English.
(x) Customary recitals and
information. An additional page may be
attached to the form for the purpose of
including customary recitals and
information used locally in real estate
settlements.fi
19. Section 1026.39 is amended by
revising paragraphs (a)(2) and (d) and
adding new paragraph (d)(5) to read as
follows:
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§ 1026.39
Mortgage transfer disclosures.
(a) Scope. The disclosure
requirements of this section apply to
any covered person except as otherwise
provided in this section. For purposes of
this section:
*
*
*
*
*
(2) A ‘‘mortgage loan’’ means fl:
(i) An open-end consumer credit
transaction that is secured by the
principal dwelling of a consumer; and
(ii) A closed-end consumer credit
transaction secured by a dwelling or real
property.fi
*
*
*
*
*
(d) Content of required disclosures.
The disclosures required by this section
shall identify the loan that was sold,
assigned or otherwise transferred, and
state the following fl, except that the
information required by paragraph (d)(5)
of this section shall be stated only for
a mortgage loan that is a closed-end
consumer credit transaction other than
a reverse mortgage transaction subject to
§ 1026.33 of this partfi:
*
*
*
*
*
fl(5) The following statements,
labeled ‘‘Partial Payment Policy’’:
(i) Whether the covered person will
accept payments that are less than the
amount due;
(ii) If such payments are accepted, a
description of how the covered person
will apply such payments to the amount
due, including whether such payments
will be placed in an escrow account;
and
(iii) A statement that, if the loan is
sold, the new covered person, using the
term ‘‘lender,’’ may have a different
policy.fi
*
*
*
*
*
20. Appendix D to part 1026 is
amended by revising paragraph C of part
II to read as follows:
Appendix D to Part 1026—Multiple
Advance Construction Loans
*
*
*
*
*
Part II—Construction and Permanent
Financing Disclosed as One Transaction
*
*
*
*
*
C. The creditor shall disclose the
repayment schedule as follows:
1. For loans under paragraph A.1 of part II,
flother than loans that are subject to
§ 1026.19(e) and (f),fi without reflecting the
number or amounts of payments of interest
only that are made during the construction
period. The fact that interest payments must
be made and the timing of such payments
shall be disclosed.
2. For loans under paragraph A.2 of part II
fland loans under paragraph A.1 of part II
that are subject to § 1026.19(e) and (f)fi,
including any payments of interest only that
are made during the construction period.
*
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21. Appendix H to part 1026 is
amended by revising H–13 and H–15,
adding new H–24 through H–27, and
revising and adding their respective
entries to the table of contents at the
beginning of the appendix in numerical
order as follows:
Appendix H to Part 1026—Closed-End
øModel¿ Forms and Clauses
*
*
*
*
H–13 flClosed-Endfi øMortgage¿
Transaction With Demand Feature Sample
*
*
*
*
*
H–15 flClosed-Endfi Graduated-Payment
øMortgage¿ flTransactionfi Sample
*
*
*
*
*
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flH–24(A) Mortgage Loan Transaction Loan
Estimate—Blank
H–24(B) Mortgage Loan Transaction Loan
Estimate—Fixed-Rate Loan Sample
H–24(C) Mortgage Loan Transaction Loan
Estimate—Interest Only Adjustable-Rate
Loan Sample
H–24(D) Mortgage Loan Transaction Loan
Estimate—Refinance Sample
*
*
*
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*
*
*
*
*
*
BILLING CODE 4810–25–P
H–13 flClosed-End Transactionfi
øMortgage¿ With Demand Feature
Sample
H–15 flClosed-Endfi Graduated Payment
flTransactionfi øMortgage¿ Sample
*
22:03 Aug 22, 2012
H–25(I) Mortgage Loan Transaction Closing
Disclosure—Modification to Closing
Disclosure for Disclosure Provided to Seller
H–25(J) Mortgage Loan Transaction Closing
Disclosure—Modification to Closing
Disclosure for Transaction Not Involving
Seller
H–26(A) Mortgage Loan Transaction—PreLoan Estimate Statement
H–26(B) Mortgage Loan Transaction—PreLoan Estimate Statement on Worksheet
H–27(A) Mortgage Loan Transaction—
Written List of Providers
H–27(B) Mortgage Loan Transaction—Sample
of Written List of Providers
H–27(C) Mortgage Loan Transaction—Sample
of Written List of Providers With Services
You Cannot Shop Forfi
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*
H–24(E) Mortgage Loan Transaction Loan
Estimate—Balloon Payment Sample
H–24(F) Mortgage Loan Transaction Loan
Estimate—Negative Amortization Sample
H–25(A) Mortgage Loan Transaction Closing
Disclosure—Blank
H–25(B) Mortgage Loan Transaction Closing
Disclosure—Fixed-Rate Loan Sample
H–25(C) Mortgage Loan Transaction Closing
Disclosure—Sample of Borrower Funds From
Second-Lien Loan in Summaries of
Transactions
H–25(D) Mortgage Loan Transaction Closing
Disclosure—Sample of Borrower Satisfaction
of Seller’s Second-Lien Loan Outside of
Closing in Summaries of Transactions
H–25(E) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
H–25(F) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
(19(e)(3) violation)
H–25(G) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
With Financed Closing Costs
H–25(H) Mortgage Loan Transaction Closing
Disclosure—Modification to Closing Cost
Details
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*
*
*
flH–24(A) Mortgage Loan Transaction Loan
Estimate—Blank
*
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requirements in § 1026.37. This form
provides two variations of page one, four
variations of page two, and eight variations
of page three, reflecting the variable content
requirements in § 1026.37.
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51334
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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51337
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VerDate Mar<15>2010
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51339
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
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22:03 Aug 22, 2012
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51343
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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22:03 Aug 22, 2012
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51345
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–24(B) Mortgage Loan Transaction Loan
Estimate—Fixed-Rate Loan Sample
Description: This is an example of a
completed Loan Estimate for a fixed-rate
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
loan. This loan is for the purchase of
property at a sale price of $180,000 and has
a loan amount of $162,000, a 30-year loan
term, and a fixed interest rate of 3.875
PO 00000
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percent. The consumer has elected to lock
the interest rate. The creditor requires an
escrow account and that the consumer pay
for private mortgage insurance.
E:\FR\FM\23AUP2.SGM
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EP23AU12.015
51346
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51347
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VerDate Mar<15>2010
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22:03 Aug 22, 2012
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51348
H–24(C) Mortgage Loan Transaction Loan
Estimate—Interest Only Adjustable-Rate
Loan Sample
Description: This is an example of a
completed Loan Estimate for an adjustablerate loan with interest-only payments. This
loan is for the purchase of property at a sale
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
price of $240,000 and has a loan amount of
$211,000 and a 30-year loan term. For the
first five years of the loan term, the
scheduled payments cover only interest and
the loan has an adjustable interest rate that
is fixed at 4.375 percent. After five years, the
payments include principal and the interest
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51349
rate adjusts every three years based on the
value of the London Interbank Offered Rate
plus a margin of 4.00 percent. The consumer
has elected to lock the interest rate. The
creditor requires an escrow account and that
the consumer pay for private mortgage
insurance.
E:\FR\FM\23AUP2.SGM
23AUP2
EP23AU12.018
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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22:03 Aug 22, 2012
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–24(D) Mortgage Loan Transaction Loan
Estimate—Refinance Sample
Description: This is an example of a
completed Loan Estimate for a transaction
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22:03 Aug 22, 2012
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that is for a refinance and includes a
prepayment penalty equal to 2.00 percent of
the principal amount prepaid for the first two
years after consummation of the transaction.
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The consumer estimated the balance of the
existing loan to be $121,000.
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51352
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22:03 Aug 22, 2012
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51354
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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(c) for a transaction with a loan term of 7
years that includes a final balloon payment.
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EP23AU12.024
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H–24(E) Mortgage Loan Transaction Loan
Estimate—Balloon Payment Sample
Description: This is an example of the
information required by § 1026.37(a) through
51355
51356
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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EP23AU12.025
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H–24(F) Mortgage Loan Transaction Loan
Estimate—Negative Amortization Sample
Description: This is an example of the
information required by § 1026.37(a) and (b)
for a transaction with negative amortization.
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
22:03 Aug 22, 2012
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requirements in § 1026.38. This form
provides two variations of page one, one page
two, one page three, four variations of page
four, and two variations of page five,
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reflecting the variable content requirements
in § 1026.38. This form does not reflect
modifications permitted under § 1026.38(t).
E:\FR\FM\23AUP2.SGM
23AUP2
EP23AU12.026
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H–25(A) Mortgage Loan Transaction Closing
Disclosure—Blank
Description: This is a blank Closing
Disclosure that illustrates the content
51357
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22:03 Aug 22, 2012
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51359
EP23AU12.028
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VerDate Mar<15>2010
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22:03 Aug 22, 2012
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VerDate Mar<15>2010
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22:03 Aug 22, 2012
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51363
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22:03 Aug 22, 2012
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51365
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VerDate Mar<15>2010
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
22:03 Aug 22, 2012
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rate loan illustrated by form H–24(B). The
purpose, sale price, loan amount, loan term,
and interest rate have not changed from the
estimates provided on the Loan Estimate. The
PO 00000
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creditor requires an escrow account and that
the consumer pay for private mortgage
insurance for the transaction.
E:\FR\FM\23AUP2.SGM
23AUP2
EP23AU12.036
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(B) Mortgage Loan Transaction Closing
Disclosure—Fixed-Rate Loan Sample
Description: This is an example of a
completed Closing Disclosure for the fixed-
51367
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22:03 Aug 22, 2012
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51369
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VerDate Mar<15>2010
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22:03 Aug 22, 2012
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(C) Mortgage Loan Transaction Closing
Disclosure—Sample of Borrower Funds From
Second-Lien Loan in Summaries of
Transactions
Description: This is an example of the
information required on the Closing
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
Disclosure by § 1026.38(j) for disclosure of
consumer funds from a simultaneous secondlien credit transaction not otherwise
disclosed pursuant to § 1026.38(j)(2)(iii) or
(iv) that is used to finance part of the
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purchase price of the property subject to the
transaction.
E:\FR\FM\23AUP2.SGM
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EP23AU12.041
51372
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
Disclosure by § 1026.38(j) and (k) for the
satisfaction of a junior-lien transaction by the
consumer, which was not paid from closing
funds.
PO 00000
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23AUP2
EP23AU12.042
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(D) Mortgage Loan Transaction Closing
Disclosure—Sample of Borrower Satisfaction
of Seller’s Second-Lien Loan Outside of
Closing in Summaries of Transactions
Description: This is an example of the
information required on the Closing
51373
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(E) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
Description: This is an example of a
completed Closing Disclosure for the
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
refinance transaction illustrated by form H–
24(D). The purpose, loan amount, loan term,
interest rate, and prepayment penalty have
not changed from the estimates provided on
PO 00000
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Sfmt 4702
the Loan Estimate. The creditor requires an
escrow account and that the consumer pay
for private mortgage insurance for the
transaction.
E:\FR\FM\23AUP2.SGM
23AUP2
EP23AU12.043
51374
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23AUP2
51375
EP23AU12.044
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VerDate Mar<15>2010
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22:03 Aug 22, 2012
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EP23AU12.045
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51376
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51377
EP23AU12.046
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
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22:03 Aug 22, 2012
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EP23AU12.047
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51378
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
VerDate Mar<15>2010
22:03 Aug 22, 2012
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refinance transaction illustrated by form H–
24(D). The Closing Costs have increased in
violation of § 1026.19(e)(3) by $100, for
which the creditor has provided a credit.
PO 00000
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23AUP2
EP23AU12.048
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(F) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
(19(e)(3) violation)
Description: This is an example of a
completed Closing Disclosure for the
51379
VerDate Mar<15>2010
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
22:03 Aug 22, 2012
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EP23AU12.049
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51380
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51381
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22:03 Aug 22, 2012
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51383
EP23AU12.052
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
mstockstill on DSK4VPTVN1PROD with PROPOSALS2
H–25(G) Mortgage Loan Transaction Closing
Disclosure—Sample of Refinance Transaction
With Financed Closing Costs
Description: This is an example of a
completed Closing Disclosure for the
VerDate Mar<15>2010
22:03 Aug 22, 2012
Jkt 226001
refinance transaction illustrated by form H–
24(D). The consumer has financed $4,500 of
the Closing Costs in the Loan Amount.
PO 00000
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51384
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51385
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Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Proposed Rules
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EP23AU12.055
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51387
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H–25(H) Mortgage Loan Transaction Closing
Disclosure—Modification to Closing Cost
Details
Description: This is an example of the
modification to Closing Cost Details
permitted by § 1026.38(t)(5)(v).
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H–25(I) Mortgage Loan Transaction Closing
Disclosure—Modification to Closing
Disclosure for Disclosure Provided to Seller
Description: This is an example of the
modification permitted by
§ 1026.38(t)(5)(vii).
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Disclosure—Modification to Closing
Disclosure for Transaction Not Involving
Seller
Description: This is an example of the
modification permitted by
§ 1026.38(t)(5)(viii).
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H–26(B) Mortgage Loan Transaction—
Disclaimer on Worksheet
Description: This is an example of the
placement of the disclaimer required by
§ 1026.19(e)(2)(ii) on the first page of a
consumer-specific worksheet for which a
creditor uses a format similar to the Loan
Estimate in H–24 of this appendix.
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Disclaimer
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by § 1026.19(e)(1)(vi) and the statement
required by § 1026.19(e)(1)(vi)(C) that the
consumer may select a settlement service
provider that is not on the list.
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H–27(A) Mortgage Loan Transaction—
Written List of Providers
Description: This is a model for the written
list of settlement service providers required
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of Written List of Providers
Description: This is a sample of the Written
List of Providers for the transaction in the
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sample Loan Estimate illustrated by form H–
24(B) of this appendix.
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providers selected by the creditor for the
charges disclosed pursuant to § 1026.37(f)(2).
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H–27(C) Mortgage Loan Transaction—Sample
of Written List of Providers With Services
You Cannot Shop For
Description: This is a sample of the Written
List of Providers with information about the
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BILLING CODE 4810–25–C
22. In Supplement I to Part 1026:
A. Under Section 1026.1—Authority,
Purpose, Coverage, Organization,
Enforcement and Liability, subheading
1(c) Coverage, the subheading
Paragraph 1(c)(5) and paragraph 1.
under that subheading are added.
B. Under Section 1026.2—Definitions
and Rules of Construction:
i. The subheading 2(a)(3) Application
and paragraphs 1., 2., and 3. under that
subheading are added.
ii. Under subheading 2(a)(6) Business
day, paragraph 2. is revised.
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iii. Under subheading 2(a)(25)
Security interest, paragraph 2. is
revised.
C. Under Section 1026.3—Exempt
Transactions:
i. Under subheading 3(a) Business,
commercial, agricultural, or
organizational credit, paragraphs 9. and
10. are revised.
ii. The subheading 3(h) Partial
exemption for certain mortgage loans
and paragraphs 1. and 2. under that
subheading are added.
D. Under Section 1026.4—Finance
Charge:
i. Under subheading 4(a) Definition,
paragraph 6. is added.
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ii. Under subheading 4(a)(2) Special
rule; closing agent charges, paragraph 3.
is added.
iii. Under subheading 4(b) Examples
of finance charges, paragraph 1. is
revised.
iv. Under subheading 4(c) Charges
excluded from the finance charge:
a. Under subheading Paragraph
4(c)(1), paragraph 1. is revised.
b. Under subheading 4(c)(7) Realestate related fees, paragraphs 1. and .3
are revised.
v. Under subheading 4(d) Insurance
and debt cancellation and debt
suspension coverage, paragraphs 8. and
12. are revised.
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vi. Under subheading 4(e) Certain
security interest charges, paragraph 1. is
revised.
vii. The subheading 4(g) Special rule
for closed-end mortgage transactions
and paragraphs 1., 2., and 3. under that
subheading are added.
E. Under Section 1026.17—General
Disclosure Requirements:
i. Paragraph 1. is added.
ii. Under subheading 17(a) Form of
disclosures, subheading Paragraph
17(a)(1), paragraph 7. is revised.
iii. Under subheading 17(c) Basis of
disclosures and use of estimates:
a. Under subheading Paragraph
17(c)(1), paragraphs 1., 2., 3., 4., 5., 8.,
10., 11., and 12. are revised and
paragraph 19. is added.
b. Under subheading Paragraph
17(c)(2)(i), paragraphs 1., 2., and 3. are
revised.
c. Under subheading Paragraph
17(c)(2)(ii), paragraph 1. is revised.
d. Under subheading Paragraph
17(c)(4), paragraph 1. is revised.
e. Under subheading Paragraph
17(c)(5), paragraphs 2., 3., and 4. are
revised.
iv. Under subheading 17(d) Multiple
creditors; multiple consumers,
paragraph 2. is revised.
v. Under subheading 17(e) Effect of
subsequent events, paragraph 1. is
revised.
vi. Under subheading 17(f) Early
disclosures, paragraphs 1., 2., 3., and 4.
are revised.
vii. Under subheading 17(g) Mail or
telephone orders—delay in disclosures,
paragraph 1. is revised.
viii. Under subheading 17(h) Series of
sales—delay in disclosures, paragraph 1.
is revised.
F. Under Section 1026.18—Content of
Disclosures:
i. Paragraph 3. is added.
ii. Under subheading 18(b) Amount
financed:
a. Paragraph 2. is removed.
b. Under subheading Paragraph
18(b)(2), paragraph 1. is revised.
iii. Under subheading 18(c)
Itemization of amount financed:
a. Paragraph 4. is revised.
b. Under subheading Paragraph
18(c)(1)(iv), paragraph 2. is revised.
iv. Under subheading 18(f) Variable
rate, subheading Paragraph 18(f)(1)(iv),
paragraph 2. is revised.
v. Under subheading 18(g) Payment
schedule:
a. Paragraphs 4. and 6. are revised.
b. Paragraph 5. is removed and
reserved.
c. Under subheading Paragraph
18(g)(2), paragraphs 1. and 2. are
revised.
vi. Under subheading 18(k)
Prepayment:
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a. Paragraphs 1., 2., and 3. are revised.
b. Under subheading Paragraph
18(k)(1), paragraph 1. is revised and
paragraph 2. is added.
c. Under subheading Paragraph
18(k)(2), paragraph 1. is revised.
vii. Under subheading 18(r) Required
deposit, paragraph 6.vi is removed and
reserved.
viii. Under subheading 18(s) Interest
rate and payment summary for
mortgage transactions:
a. Paragraph 1. is revised and
paragraph 4. is added.
b. Under subheading 18(s)(3)
Payments for amortizing loans,
subheading Paragraph 18(s)(3)(i)(C),
paragraph 2. is revised.
G. Under Section 1026.19—Certain
Mortgage and Variable-Rate
Transactions:
i. Under subheading 19(a)(1)(i) Time
of disclosures, paragraph 1. is revised.
ii. Under subheading 19(a)(5)
Timeshare plans:
a. The subheading 19(a)(5) Timeshare
plans is removed.
b. The subheading Paragraph
19(a)(5)(ii) and paragraphs 1., 2., 3., 4.,
and 5. under that subheading are
removed.
c. The subheading Paragraph
19(a)(5)(iii) and paragraphs 1. and 2.
under that subheading are removed.
iii. New 19(e) Mortgage loans secured
by real property—Early disclosures,
19(f) Mortgage loans secured by real
property—Final disclosures, and 19(g)
Special information booklet at time of
application are added.
H. Under Section 1026.22—
Determination of Annual Percentage
Rate, subheading 22(a) Accuracy of
annual percentage rate, subheading
22(a)(4) Mortgage loans, paragraph 1. is
revised.
I. Under Section 1026.24—
Advertising, 24(d) Advertisement of
terms that require additional
disclosures, subheading 24(d)(2)
Additional terms, paragraph 2. is
revised.
J. Under Section 1026.25—Record
Retention:
i. The subheading 25(c) Records
related to certain requirements for
mortgage loans is added.
ii. The subheading 25(c)(1) Records
related to requirements for loans
secured by real property and paragraphs
1. and 2. under that subheading are
added.
iii. The subheading 25(c)(1)(iii)
Electronic records and paragraph 1.
under that subheading are added.
K. Under Section 1026.28—Effect on
State Laws, subheading 28(a)
Inconsistent disclosure requirements,
paragraph 1. is revised.
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51407
L. Under Section 1026.29—State
Exemptions, subheading 29(a) General
rule, paragraphs 2. and 4. are revised.
M. New Section 1026.37—Content of
Disclosures for Certain Mortgage
Transactions (Loan Estimate) is added.
N. New Section 1026.38—Content of
Disclosures for Certain Mortgage
Transactions (Closing Disclosure) is
added.
O. Under Section 1026.39—Mortgage
transfer disclosures, subheading 39(d)
Content of required disclosures:
i. Paragraph 2. is added.
ii. The subheading Paragraph 39(d)(5)
and paragraph 1. under that subheading
are added.
The revisions and additions read as
follows:
Supplement I to Part 1026—Official
Interpretations
*
*
*
*
*
SUBPART A—GENERAL
Section 1026.1—Authority, Purpose,
Coverage, Organization, Enforcement
and Liability 1(c) Coverage
*
*
*
*
*
flParagraph 1(c)(5).
1. Temporary exemption. Section
1026.1(c)(5) implements sections
128(a)(16) through (19), 128(b)(4),
129C(f)(1), 129C(g)(2) and (3), 129C(h),
129D(h), and 129D(j)(1)(A) of the Truth
in Lending Act and section 4(c) of the
Real Estate Settlement Procedures Act,
by exempting persons from the
disclosure requirements of those
sections. These exemptions are intended
to be temporary, lasting only until
regulations implementing the integrated
disclosures required by section 1032(f)
of the Dodd-Frank Act (12 U.S.C.
5532(f)) becomes mandatory. Section
1026.1(c)(5) does not exempt any person
from any other requirement of this part,
Regulation X (12 CFR part 1024), the
Truth in Lending Act, or the Real Estate
Settlement Procedures Act.fi
*
*
*
*
*
Section 1026.2—Definitions and Rules
of Construction
*
*
*
*
*
fl2(a)(3) Application.
1. In general. An application means
the submission of a consumer’s
financial information for purposes of
obtaining an extension of credit. Except
for purposes of subpart B, subpart F,
and subpart G, the term consists of the
consumer’s name, the consumer’s
income, the consumer’s social security
number to obtain a credit report, the
property address, an estimate of the
value of the property, and the mortgage
loan amount sought. This definition
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does not prevent a creditor from
collecting whatever additional
information it deems necessary in
connection with the request for the
extension of credit. However, once a
creditor has received these six pieces of
information, it has an application for
purposes of the requirements of
Regulation Z. A submission may be in
written or electronic format and
includes a written record of an oral
application. The following examples are
illustrative of this provision:
i. Assume a creditor provides a
consumer with an application form
containing 20 questions about the
consumer’s credit history and the
collateral value. The consumer submits
answers to nine of the questions and
informs the creditor that the consumer
will contact the creditor the next day
with answers to the other 11 questions.
Although the consumer provided nine
pieces of information, the consumer did
not provide a social security number.
The creditor has not yet received an
application for purposes of
§ 1026.2(a)(3).
ii. Assume a creditor requires all
applicants to submit 20 pieces of
information. The consumer submits
only six pieces of information and
informs the creditor that the consumer
will contact the creditor the next day
with answers to the other 14 questions.
The six pieces of information provided
by the consumer were the consumer’s
name, income, social security number,
property address, estimate of the value
of the property, and the mortgage loan
amount sought. Even though the
creditor requires 14 additional pieces of
information to process the consumer’s
request for a mortgage loan, the creditor
has received an application for the
purposes of § 1026.2(a)(3) and therefore
must comply with the relevant
requirements under § 1026.19.
2. Social security number to obtain a
credit report. If a consumer does not
have a social security number, the
creditor may substitute whatever unique
identifier the creditor uses to obtain a
credit report on the consumer. For
example, a creditor has obtained a social
security number to obtain a credit report
for purposes of § 1026.2(a)(3)(ii) if the
creditor collects a Tax Identification
Number from a consumer who does not
have a social security number, such as
a foreign national.
3. Receipt of credit report fees.
Section 1026.19(a)(1)(iii) permits the
imposition of a fee to obtain the
consumer’s credit history prior to the
delivery of the disclosures required
under § 1026.19(a)(1)(i). Section
1026.19(e)(2)(i)(B) permits the
imposition of a fee to obtain the
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consumer’s credit report prior to the
delivery of the disclosures required
under § 1026.19(e)(1)(i). Whether, or
when, such fees are received does not
affect whether an application has been
received for the purposes of the
definition in § 1026.2(a)(3) and the
timing requirements in § 1026.19(a)(1)(i)
and (e)(1)(iii). For example, if, in a
transaction subject to § 1026.19(e)(1)(i),
a creditor receives the six pieces of
information identified under
§ 1026.2(a)(3)(ii) on Monday, June 1, but
does not receive a credit report fee from
the consumer until Tuesday, June 2, the
creditor does not comply with
§ 1026.19(e)(1)(iii) if it provides the
disclosures required under
§ 1026.19(e)(1)(i) after Thursday, June 4.
The three-business-day period begins on
Monday, June 1, the date the creditor
received the six pieces of information.
The waiting period does not begin on
Tuesday, June 2, the date the creditor
received the credit report fee.fi
*
*
*
*
*
2(a)(6) Business day.
*
*
*
*
*
2. Rule for rescission, disclosures for
certain mortgage transactions, and
private education loans. A more precise
rule for what is a business day (all
calendar days except Sundays and the
Federal legal holidays specified in 5
U.S.C. 6103(a)) applies when the right of
rescission, the receipt of disclosures for
certain dwelling-secured mortgage
transactions under §§ 1026.19(a)(1)(ii),
1026.19(a)(2), fl1026.19(e)(1)(iii),
1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A),
1026.19(f)(1)(ii), 1026.19(f)(1)(iii),fi
1026.31(c), or the receipt of disclosures
for private education loans under
§ 1026.46(d)(4) is involved. Four Federal
legal holidays are identified in 5 U.S.C.
6103(a) by a specific date: New Year’s
Day, January 1; Independence Day, July
4; Veterans Day, November 11; and
Christmas Day, December 25. When one
of these holidays (July 4, for example)
falls on a Saturday, Federal offices and
other entities might observe the holiday
on the preceding Friday (July 3). In
cases where the more precise rule
applies, the observed holiday (in the
example, July 3) is a business day.
*
*
*
*
*
2(a)(25) Security interest.
*
*
*
*
*
2. Exclusions. The general definition
of security interest excludes three
groups of interests: Incidental interests,
interests in after-acquired property, and
interests that arise solely by operation of
law. These interests may not be
disclosed with the disclosures required
under fl§ fi§ 1026.18, fl1026.19(e)
and (f), and 1026.38(l)(6)fi, but the
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creditor is not precluded from
preserving these rights elsewhere in the
contract documents, or invoking and
enforcing such rights, if it is otherwise
lawful to do so. If the creditor is unsure
whether a particular interest is one of
the excluded interests, the creditor may,
at its option, consider such interests as
security interests for Truth in Lending
purposes.
*
*
*
*
*
Section 1026.3—Exempt Transactions
*
*
*
*
*
3(a) Business, commercial,
agricultural, or organizational credit.
*
*
*
*
*
9. Organizational credit. The
exemption for transactions in which the
borrower is not a natural person applies,
for example, to loans to corporations,
partnerships, associations, churches,
unions, and fraternal organizations. The
exemption applies regardless of the
purpose of the credit extension and
regardless of the fact that a natural
person may guarantee or provide
security for the credit. flBut see
comment 3(a)–10 concerning credit
extended to trusts.fi
10. flTrusts. Credit extended for
consumer purposes to certain trusts is
considered to be credit extended to a
natural person rather than credit
extended to an organization.
Specifically:
i. Trusts for tax or estate planning
purposes. In some instances, a creditor
may extend credit for consumer
purposes to a trust that a consumer has
created for tax or estate planning
purposes (or both). Consumers
sometimes place their assets in trust
with themselves as trustee(s), and with
themselves or themselves and their
families or other prospective heirs as
beneficiaries, to obtain certain tax
benefits and to facilitate the future
administration of their estates. During
their lifetimes, however, such
consumers continue to use the assets of
such trusts as their property. A creditor
extending credit to finance the
acquisition of, for example, a
consumer’s dwelling that is held in such
a trust, or to refinance existing debt
secured by such a dwelling, may
prepare the note, security instrument,
and similar loan documents for
execution by the consumer either in
both the consumer’s individual capacity
and as trustee or in only one capacity or
the other. Regardless of the capacity or
capacities in which the consumer
executes the loan documents, assuming
the transaction is for personal, family, or
household purposes, the transaction is
subject to the regulation because in
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substance (if not form) consumer credit
is being extended.
ii. fiLand trusts. øCredit extended for
consumer purposes to a land trust is
considered to be credit extended to a
natural person rather than credit
extended to an organization.¿ In some
jurisdictions, a financial institution
financing a residential real estate
transaction for an individual uses a land
trust mechanism. Title to the property is
conveyed to the land trust for which the
financial institution itself is trustee. The
underlying installment note is executed
by the financial institution in its
capacity as trustee and payment is
secured by a trust deed, reflecting title
in the financial institution as trustee. In
some instances, the consumer executes
a personal guaranty of the indebtedness.
The note provides that it is payable only
out of the property specifically
described in the trust deed and that the
trustee has no personal liability on the
note. Assuming the transactions are for
personal, family, or household
purposes, these transactions are subject
to the regulation because in substance
(if not form) consumer credit is being
extended.
*
*
*
*
*
fl3(h) Partial exemption for certain
mortgage loans.
1. Partial exemption. Section
1026.3(h) exempts certain transactions
from only the disclosures required by
§ 1026.19(e), (f), and (g), and not from
any of the other applicable requirements
of this part. As provided by
§ 1026.3(h)(6), creditors must comply
with all other applicable requirements
of this part. In addition, the creditor
must provide the disclosures required
by § 1026.18, even if the creditor would
not otherwise be subject to the
disclosure requirements of § 1026.18.
The consumer also has the right to
rescind the transaction under § 1026.23,
to the extent that provision is
applicable.
2. Requirements of exemption. The
conditions that the transaction not
require the payment of interest under
§ 1026.3(h)(3) and that repayment of the
amount of credit extended be forgiven
or deferred in accordance with
§ 1026.3(h)(4) is determined by the
terms of the credit contract. The other
requirements of § 1026.3(h) need not be
reflected in the credit contract, but the
creditor must retain evidence of
compliance with those provisions, as
required by § 1026.25(a). In particular,
because the exemption from
§ 1026.19(e), (f), and (g) means the
consumer will not receive the
disclosures of closing costs under
§ 1026.37 or § 1026.38, the creditor must
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have information reflecting that the total
of closing costs imposed in connection
with the transaction is less than one
percent of the amount of credit
extended and include no charges other
than recordation, application, and
housing counseling fees, in accordance
with § 1026.3(h)(5). Unless an
itemization of the amount financed
sufficiently details this requirement, the
creditor must establish compliance with
§ 1026.3(h)(5) by some other written
document and retain it in accordance
with § 1026.25(a).fi
Section 1026.4—Finance Charge
4(a) Definition.
*
*
*
*
*
fl6. Transactions with no seller. In a
transaction where there is no seller,
such as a refinancing of an existing
extension of credit described in
§ 1026.20(a), there is no comparable
cash transaction. Thus, the exclusion
from the finance charge for charges of a
type payable in a comparable cash
transaction does not apply to such
transactions.fi
*
*
*
*
*
4(a)(2) Special rule; closing agent
charges.
*
*
*
*
*
fl3. Closed-end mortgage
transactions. Comments 4(a)(2)–1 and
4(a)(2)–2 do not apply to closed-end
transactions secured by real property or
a dwelling, pursuant to § 1026.4(g).fi
*
*
*
*
*
4(b) Examples of finance charges.
1. Relationship to other provisions.
Charges or fees shown as examples of
finance charges in § 1026.4(b) may be
excludable under § 1026.4(c), (d), or (e).
For example ø:
i. Premiums¿fl, premiumsfi for
credit life insurance, shown as an
example of a finance charge under
§ 1026.4(b)(7), may be excluded if the
requirements of § 1026.4(d)(1) are met.
flThey may not be excluded, however,
in closed-end transactions secured by
real property or a dwelling, pursuant to
§ 1026.4(g).fi
øii. Appraisal fees mentioned in
§ 1026.4(b)(4) are excluded for real
property or residential mortgage
transactions under § 1026.4(c)(7).¿
*
*
*
*
*
4(c) Charges excluded from the
finance charge.
Paragraph 4(c)(1).
1. Application fees. An application
fee that is excluded from the finance
charge is a charge to recover the costs
associated with processing applications
for credit. The fee may cover the costs
of services such as credit reports, credit
investigations, and appraisals. The
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51409
creditor is free to impose the fee in only
certain of its loan programs, such as
flautomobilefi ømortgage¿ loans.
However, if the fee is to be excluded
from the finance charge under
§ 1026.4(c)(1), it must be charged to all
applicants, not just to applicants who
are approved or who actually receive
credit.
*
*
*
*
*
4(c)(7) Real-estate related fees.
1. Real estate or residential mortgage
transaction charges. The list of charges
in ø§ 1026.4(c)(7)¿ fl§ 1026.4(c)(7)(i)
through (iv)fi applies flonly to openend credit plans secured by real
property and open-end residential
mortgage transactions because
§ 1026.4(g) makes them inapplicable to
closed-end transactions secured by real
property or a dwelling. The exclusion of
escrowed amounts under
§ 1026.4(c)(7)(v), on the other hand,
applies to allfi øboth to¿ residential
mortgage transactions (which may
include, for example, the purchase of a
mobile home) and to other transactions
secured by real estate. The fees are
excluded from the finance charge even
if the services for which the fees are
imposed are performed by the creditor’s
employees rather than by a third party.
In addition, the cost of verifying or
confirming information connected to the
item is also excluded. For example,
credit-report fees cover not only the cost
of the report but also the cost of
verifying information in the report. In
all cases, charges excluded under
§ 1026.4(c)(7) must be bona fide and
reasonable.
*
*
*
*
*
3. Charges assessed during the loan
term. flChargesfi øReal estate or
residential mortgage transaction
charges¿ excluded under § 1026.4(c)(7)
are those charges imposed solely in
connection with the initial decision to
grant credit. This would include, for
example, a fee to search for tax liens on
the property or to determine if flood
insurance is required. The exclusion
does not apply to fees for services to be
performed periodically during the loan
term, regardless of when the fee is
collected. For example, a fee for one or
more determinations during the loan
term of the current tax-lien status or
flood-insurance requirements is a
finance charge, regardless of whether
the fee is imposed at closing, or when
the service is performed. If a creditor is
uncertain about what portion of a fee to
be paid at consummation or loan closing
is related to the initial decision to grant
credit, the entire fee may be treated as
a finance charge.
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4(d) Insurance and debt cancellation
and debt suspension coverage.
*
*
*
*
*
8. Property insurance. To exclude
property insurance premiums or charges
from the finance charge, the creditor
must allow the consumer to choose the
insurer and disclose that fact. This
disclosure must be made whether or not
the property insurance is available from
or through the creditor. The requirement
that an option be given does not require
that the insurance be readily available
from other sources. The premium or
charge must be disclosed only if the
consumer elects to purchase the
insurance from flor throughfi the
creditor; in such a case, the creditor
must also disclose the term of the
property insurance coverage if it is less
than the term of the obligation.
flInsurance is available ‘‘from or
through a creditor’’ only if it is available
from the creditor or the creditor’s
affiliate, as defined under the Bank
Holding Company Act, 12 U.S.C.
1841(k).fi
*
*
*
*
*
12. Initial term; alternative. i. General.
A creditor has the option of providing
cost disclosures on the basis of one year
of insurance or debt cancellation or debt
suspension coverage instead of a longer
initial term (provided the premium or
fee is clearly labeled as being for one
year) if:
A. The initial term is indefinite or not
clear, or
B. The consumer has agreed to pay a
premium or fee that is assessed
periodically but the consumer is under
no obligation to continue the coverage,
whether or not the consumer has made
an initial payment.
ii. Open-end plans. For open-end
plans, a creditor also has the option of
providing unit-cost disclosure on the
basis of a period that is less than one
year if the consumer has agreed to pay
a premium or fee that is assessed
periodically, for example monthly, but
the consumer is under no obligation to
continue the coverage.
iii. Examples. To illustrate:
A. A credit life insurance policy
providing coverage for a flfour-year
automobilefi ø30-year mortgage¿ loan
has an initial term of flfourfi ø30¿
years, even though premiums are paid
monthly and the consumer is not
required to continue the coverage.
Disclosures may be based on the initial
term, but the creditor also has the
option of making disclosures on the
basis of coverage for an assumed initial
term of one year.
*
*
*
*
*
4(e) Certain security interest charges.
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Jkt 226001
1. Examples.
i. Excludable charges. Sums must be
actually paid to public officials to be
excluded from the finance charge under
§ 1026.4(e)(1) and (e)(3). Examples are
charges or other fees required for filing
or recording security agreements,
mortgages fl(for open-end credit; but
see § 1026.4(g) regarding closed-end
mortgage credit)fi, continuation
statements, termination statements, and
similar documents, as well as intangible
property or other taxes even when the
charges or fees are imposed by the state
solely on the creditor and charged to the
consumer (if the tax must be paid to
record a security agreement). See
comment 4(a)–5 regarding the treatment
of taxes, generally.
*
*
*
*
*
fl4(g) Special rule for closed-end
mortgage transactions.
1. Applicability of commentary to
mortgages. The commentary to
§ 1026.4(a)(2) and (c) through (e), other
than that under § 1026.4(c)(2), (c)(5),
(c)(7) (to the extent it relates to
escrowed items as described in
paragraph (c)(7)(v) of that section), and
(d) (to the extent it relates to property
insurance premiums described in
paragraph (d)(2) of that section), does
not apply to closed-end transactions
secured by real property or a dwelling.
Commentary under § 1026.4(a) (other
than paragraph (a)(2) of that section),
(c)(2), (c)(5), (c)(7) (to the extent it
relates to escrowed items as described
in paragraph (c)(7)(v) of that section),
and (d) (to the extent it relates to
property insurance premiums described
in paragraph (d)(2) of that section),
however, does apply to such
transactions.
2. Third-party charges. Charges
imposed by third parties are included in
the finance charge if they meet the
general definition under § 1026.4(a).
Thus, if a third-party charge is payable
directly or indirectly by the consumer
and imposed directly or indirectly by
the creditor as an incident to the
extension of credit, it is a finance charge
unless it would be payable in a
comparable cash transaction. For
example, appraisal and credit report
fees are included in the finance charge
because they meet the definition in
§ 1026.4(a). This test generally does not
depend on whether the creditor requires
the service for which the charge is
imposed. In addition, charges imposed
by closing agents, if the creditor requires
that a closing agent conduct the loan
closing, generally are included in the
finance charge unless otherwise
excluded. Insurance premiums
generally are included in the finance
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charge, whether imposed by a closing
agent or another insurer, although
premiums for property insurance are
excluded if § 1026.4(d)(2) is satisfied.
Premiums for credit insurance (or fees
for debt cancellation or debt suspension
agreements) and premiums for lender’s
coverage under a title insurance policy
are included in the finance charge
because they are imposed as an incident
to the extension of credit. In contrast,
premiums for owner’s title insurance
coverage are not included in the finance
charge because they are not imposed as
an incident to the extension of credit.
3. Charges in comparable cash
transactions. While the exclusions in
§ 1026.4(c) through (e), other than
§ 1026.4(c)(2), (c)(5), (c)(7)(v), and (d)(2),
are inapplicable to closed-end
transactions secured by real property or
a dwelling, charges in connection with
such transactions that are payable in a
comparable cash transaction are not
included in the finance charge. See
comment 4(a)–1. For example, property
taxes imposed to record the deed
evidencing transfer from the seller to the
buyer of title to the property are not
included in the finance charge because
they would be paid even if no credit
were extended to finance the purchase.
In contrast, fees or taxes imposed to
record the mortgage, deed of trust, or
other security instrument evidencing
the creditor’s security interest in the
property securing transaction are
included in the finance charge because
they would not be incurred in a cash
transaction.fi
*
*
*
*
*
Subpart C—Closed-End Credit
Section 1026.17—General Disclosure
Requirementsfl
1. Rules for certain mortgage
disclosures. Section 1026.17(a) and (b)
does not apply to the disclosures
required by § 1026.19(e), (f), and (g). For
those disclosures, rules regarding the
disclosures’ form are found in
§§ 1026.19(g), 1026.37(o), and 1026.38(t)
and rules regarding timing are found in
§ 1026.19(e), (f), and (g).fi
17(a) Form of disclosures.
Paragraph 17(a)(1).
*
*
*
*
*
7. Balloon payment financing with
leasing characteristics. In certain credit
sale or loan transactions, a consumer
may reduce the dollar amount of the
payments to be made during the course
of the transaction by agreeing to make,
at the end of the loan term, a large final
payment based on the expected residual
value of the property. The consumer
may have a number of options with
respect to the final payment, including,
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among other things, retaining the
property and making the final payment,
refinancing the final payment, or
transferring the property to the creditor
in lieu of the final payment. Such
transactions may have some of the
characteristics of lease transactions
subject to Regulation M (12 CFR Part
1013), but are considered credit
transactions where the consumer
assumes the indicia of ownership,
including the risks, burdens and
benefits of ownership upon
consummation. These transactions are
governed by the disclosure requirements
of this part instead of Regulation M.
Creditors should not include in the
segregated Truth in Lending disclosures
additional information. Thus,
disclosures should show the large final
payment in the payment schedule flor
interest rate and payment summary
table under § 1026.18(g) or (s), as
applicable,fi and should not, for
example, reflect the other options
available to the consumer at maturity.
*
*
*
*
*
17(c) Basis of disclosures and use of
estimates.
Paragraph 17(c)(1).
1. Legal obligation. The disclosures
shall reflect the øcredit¿ terms to which
the øparties¿ flconsumer and
creditorfi are legally bound as of the
outset of the transaction. In the case of
disclosures required under § 1026.20(c),
the disclosures shall reflect the credit
terms to which the øparties¿
flconsumer and creditorfi are legally
bound when the disclosures are
provided. The legal obligation is
determined by applicable State law or
other law. flDisclosures based on the
assumption that the consumer will
abide by the terms of the legal obligation
throughout the term of the transaction
comply with § 1026.17(c)(1).fi (Certain
transactions are specifically addressed
in this commentary. See, for example,
the discussion of buydown transactions
elsewhere in the commentary to
§ 1026.17(c).) The fact that a term or
contract may later be deemed
unenforceable by a court on the basis of
equity or other grounds does not, by
itself, mean that disclosures based on
that term or contract did not reflect the
legal obligation.
2. Modification of obligation. The
legal obligation normally is presumed to
be contained in the note or contract that
evidences the agreement flbetween the
consumer and the creditorfi. But this
presumption is rebutted if another
agreement between the øparties¿
flconsumer and creditorfi legally
modifies that note or contract. If the
øparties¿ flconsumer and creditorfi
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informally agree to a modification of the
legal obligation, the modification should
not be reflected in the disclosures
unless it rises to the level of a change
in the terms of the legal obligation. For
example:
*
*
*
*
*
3. Third-party buydowns. In certain
transactions, a seller or other third party
may pay an amount, either to the
creditor or to the consumer, in order to
reduce the consumer’s payments øor
buy down the interest rate¿ for all or a
portion of the credit term. For example,
a consumer and a bank agree to a
mortgage with an interest rate of 15%
and level payments over 25 years. By a
separate agreement, the seller of the
property agrees to subsidize the
consumer’s payments for the first two
years of the mortgage, giving the
consumer an effective rate of 12% for
that period.
i. If the ølower rate¿ flthird-party
buydownfi is reflected in the credit
contract between the consumer and the
bank, the flfinance charge and all other
disclosures affected by itfi
ødisclosures¿ must take the buydown
into account flas an amendment to the
contract’s interest rate provisionfi. For
example, the annual percentage rate
must be a composite rate that takes
account of both the lower initial rate
and the higher subsequent rate, and the
øpayment schedule disclosures¿
fldisclosures required under
§§ 1026.18(g), 1026.18(s), 1026.37(c),
and 1026.38(c), as applicable,fi must
reflect the two payment levelsfl, except
as otherwise provided in those
paragraphsfi. However, the amount
paid by the seller would not be
specifically reflected in the fldisclosure
of the finance charge and other
disclosures affected by itfi
ødisclosures¿ given by the bank, since
that amount constitutes seller’s points
and thus is not part of the finance
charge. flThe seller-paid amount is
disclosed, however, as a credit from the
seller in the summaries of transactions
disclosed pursuant to § 1026.38(j) and
(k).fi
ii. If the ølower rate¿ flthird-party
buydownfi is not reflected in the credit
contract between the consumer and the
bank and the consumer is legally bound
to the 15% rate from the outset, the
fldisclosure of the finance charge and
other disclosures affected by itfi
ødisclosures¿ given by the bank must
not reflect the seller buydown in any
way. For example, the annual
percentage rate and øpayment
schedule¿ fldisclosures required under
§§ 1026.18(g), 1026.18(s), 1026.37(c),
and 1026.38(c), as applicable,fi would
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51411
not take into account the reduction in
the interest rate and payment level for
the first two years resulting from the
buydown. flThe seller-paid amount is,
however, disclosed as a credit from the
seller in the summaries of transactions
disclosed pursuant to § 1026.38(j) and
(k).fi
4. Consumer buydowns. In certain
transactions, the consumer may pay an
amount to the creditor to reduce the
payments øor obtain a lower interest
rate¿ on the transaction. Consumer
buydowns must be reflected flas an
amendment to the contract’s interest
rate provisionfi in the fl disclosure of
the finance charge and other disclosures
affected by it fi ødisclosures¿ given for
that transaction. To illustrate, in a
mortgage transaction, the creditor and
consumer agree to a note specifying a 14
percent interest rate. However, in a
separate document, the consumer agrees
to pay an amount to the creditor at
consummation in return for øa
reduction in the interest rate to 12
percent¿ fllower paymentsfi for a
portion of the mortgage term. The
amount paid by the consumer may be
deposited in an escrow account or may
be retained by the creditor. Depending
upon the buydown plan, the consumer’s
prepayment of the obligation may or
may not result in a portion of the
amount being credited or refunded to
the consumer. In the fl disclosure of
the finance charge and other disclosures
affected by it fi ødisclosures¿ given for
the mortgage, the creditor must reflect
the terms of the buydown agreement.
i. For example:
*
*
*
*
*
C. The øpayment schedule¿
fldisclosures under §§ 1026.18(g) and
(s), 1026.37(c), and 1026.38(c), as
applicable,fi must reflect the multiple
flrate andfi payment levels resulting
from the buydown, flexcept as
otherwise provided in those sections.
Further, for example, the transaction is
disclosed as a step rate product under
§§ 1026.37(a)(10) and
1026.38(a)(5)(iii).fi
ii. The rules regarding consumer
buydowns do not apply to transactions
known as ‘‘lender buydowns.’’ In lender
buydowns, a creditor pays an amount
(either into an account or to the party to
whom the obligation is sold) to reduce
the consumer’s payments or interest rate
for all or a portion of the credit term.
Typically, these transactions are
structured as a buydown of the interest
rate during an initial period of the
transaction with a higher than usual rate
for the remainder of the term. The
fldisclosure of the finance charge and
other disclosures affected by itfi
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ødisclosures¿ for lender buydowns
should be based on the terms of the
legal obligation between the consumer
and the creditor. See comment 17(c)(1)–
3 for the analogous rules concerning
third-party buydowns.
5. Split buydowns. In certain
transactions, a third party (such as a
seller) and a consumer both pay an
amount to the creditor to reduce the
interest rate. The creditor must include
the portion paid by the consumer in the
finance charge and disclose the
corresponding multiple payment
levelsfl, except as otherwise provided
in §§ 1026.18(s), 1026.37(c), and
1026.38(c),fi and composite annual
percentage rate. The portion paid by the
third party and the corresponding
reduction in interest rate, however,
should not be reflected in the
fldisclosure of the finance charge and
other disclosures affected by it fi
ødisclosures¿ unless the lower rate is
reflected in the credit contract. See the
discussion on third-party and consumer
buydown transactions elsewhere in the
commentary to § 1026.17(c).
*
*
*
*
*
8. Basis of disclosures in variable-rate
transactions. flExcept as otherwise
provided in §§ 1026.18(s), 1026.37 and
1026.38, as applicable, thefi øThe¿
disclosures for a variable-rate
transaction must be given for the full
term of the transaction and must be
based on the terms in effect at the time
of consummation. Creditors should base
the disclosures only on the initial rate
and should not assume that this rate
will increasefl, except as otherwise
provided in §§ 1026.18(s), 1026.37 and
1026.38fi. For example, in a loan with
an initial rate of 10 percent and a 5
percentage points rate cap, creditors
should base the disclosures on the
initial rate and should not assume that
this rate will increase 5 percentage
points. However, in a variable-rate
transaction with a seller buydown that
is reflected in the credit contract, a
consumer buydown, or a discounted or
premium rate, disclosures should not be
based solely on the initial terms. In
those transactions, the disclosed annual
percentage rate should be a composite
rate based on the rate in effect during
the initial period and the rate that is the
basis of the variable-rate feature for the
remainder of the term. See the
commentary to § 1026.17(c) for a
discussion of buydown, discounted, and
premium transactions and the
commentary to § 1026.19(a)(2) fl, (e),
and (f)fi for a discussion of the
redisclosure in certain mortgage
transactions with a variable-rate feature.
flSee §§ 1026.37(c) and 1026.38(c) for
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Jkt 226001
rules regarding disclosure of variablerate transactions in the projected
payments table for transactions subject
to § 1026.19(e) and (f).fi
*
*
*
*
*
10. Discounted and premium
variable-rate transactions. * * *
i. When creditors use an initial
interest rate that is not calculated using
the index or formula for later rate
adjustments, the disclosures should
reflect a composite annual percentage
rate based on the initial rate for as long
as it is charged and, for the remainder
of the term, the rate that would have
been applied using the index or formula
at the time of consummation. The rate
at consummation need not be used if a
contract provides for a delay in the
implementation of changes in an index
value. For example, if the contract
specifies that rate changes are based on
the index value in effect 45 days before
the change date, creditors may use any
index value in effect during the 45 day
period before consummation in
calculating a composite annual
percentage rate.
ii. The effect of the multiple rates
must also be reflected in the calculation
and disclosure of the finance charge,
total of payments, and øpayment
schedule¿ flthe disclosures required
under §§ 1026.18(g) and (s), 1026.37(c),
and 1026.38(c), as applicablefi.
*
*
*
*
*
v. Examples of discounted variablerate transactions include:
A. A 30-year loan for $100,000 with
no prepaid finance charges and rates
determined by the Treasury bill rate
plus two percent. Rate and payment
adjustments are made annually.
Although the Treasury bill rate at the
time of consummation is 10 percent, the
creditor sets the interest rate for one
year at 9 percent, instead of 12 percent
according to the formula. The
disclosures should reflect a composite
annual percentage rate of 11.63 percent
based on 9 percent for one year and 12
percent for 29 years. Reflecting those
two rate levels, the payment schedule
fldisclosed pursuant to § 1026.18(g)fi
should show 12 payments of $804.62
and 348 payments of $1,025.31.
flSimilarly, the disclosures required by
§§ 1026.18(s), 1026.37(c), and 1026.38(c)
should reflect the effect of this
calculation.fi The finance charge
should be $266,463.32 andfl, for
transactions subject to § 1026.18,fi the
total of payments $366,463.32.
B. Same loan as above, except with a
two-percent rate cap on periodic
adjustments. The disclosures should
reflect a composite annual percentage
rate of 11.53 percent based on 9 percent
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for the first year, 11 percent for the
second year, and 12 percent for the
remaining 28 years. Reflecting those
three rate levels, the payment schedule
fldisclosed pursuant to § 1026.18(g)fi
should show 12 payments of $804.62,
12 payments of $950.09, and 336
payments of $1,024.34. flSimilarly, the
disclosures required by §§ 1026.18(s),
1026.37(c), and 1026.38(c) should
reflect the effect of this calculation.fi
The finance charge should be
$265,234.76 andfl, for transactions
subject to § 1026.18,fi the total of
payments $365,234.76.
C. Same loan as above, except with a
71⁄2 percent cap on payment
adjustments. The disclosures should
reflect a composite annual percentage
rate of 11.64 percent, based on 9 percent
for one year and 12 percent for 29 years.
Because of the payment cap, five levels
of payments should be reflected. The
payment schedule fldisclosed pursuant
to § 1026.18(g)fi should show 12
payments of $804.62, 12 payments of
$864.97, 12 payments of $929.84, 12
payments of $999.58, and 312 payments
of $1,070.04. flSimilarly, the
disclosures required by §§ 1026.18(s),
1026.37(c), and 1026.38(c) should
reflect the effect of this calculation.fi
The finance charge should be
$277,040.60, andfl, for transactions
subject to § 1026.18,fi the total of
payments $377,040.60.
*
*
*
*
*
11. Examples of variable-rate
transactions. Variable-rate transactions
include:
*
*
*
*
*
v. ‘‘Price level adjusted mortgages’’ or
other indexed mortgages that have a
fixed rate of interest but provide for
periodic adjustments to payments and
the loan balance to reflect changes in an
index measuring prices or inflation.
Disclosures are to be based on the fixed
interest ratefl, except as otherwise
provided in §§ 1026.18(s), 1026.37, and
1026.38, as applicablefi.
12. Graduated payment adjustable
rate mortgages. These mortgages involve
both a variable interest rate and
scheduled variations in payment
amounts during the loan term. For
example, under these plans, a series of
graduated payments may be scheduled
before rate adjustments affect payment
amounts, or the initial scheduled
payment may remain constant for a set
period before rate adjustments affect the
payment amount. In any case, the initial
payment amount may be insufficient to
cover the scheduled interest, causing
negative amortization from the outset of
the transaction. In these transactions,
flexcept as otherwise provided in
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§§ 1026.18(s), 1026.37(c), and
1026.38(c)fi, the disclosures should
treat these features as follows:
*
*
*
*
*
iv. The øschedule of payments
discloses¿ fldisclosures required by
§ 1026.18(g) and (s) reflectfi the amount
of any scheduled initial payments
followed by an adjusted level of
payments based on the initial interest
rate. Since some mortgage plans contain
limits on the amount of the payment
adjustment, the øpayment schedule¿
fldisclosures required by § 1026.18(g)
and (s)fi may require several different
levels of payments, even with the
assumption that the original interest rate
does not increase. flFor transactions
subject to § 1026.19(e) and (f), see
§ 1026.37(c) and its commentary for a
discussion of different rules for
graduated payment adjustable rate
mortgages.fi
*
*
*
*
*
fl19. Rebates and loan premiums. In
a loan transaction, the creditor may offer
a premium in the form of cash or
merchandise to prospective borrowers.
Similarly, in a credit sale transaction, a
seller’s or manufacturer’s rebate may be
offered to prospective purchasers of the
creditor’s goods or services. Such
premiums and rebates must be reflected
in accordance with the terms of the legal
obligation between the consumer and
the creditor. Thus, if the creditor is
legally obligated to provide the
premium or rebate to the consumer as
part of the credit transaction, the
disclosures should reflect its value in
the manner and at the time the creditor
is obligated to provide it.fi
Paragraph 17(c)(2)(i).
1. Basis for estimates. flExcept as
otherwise provided in §§ 1026.19,
1026.37, and 1026.38, disclosuresfi
øDisclosures¿ may be estimated when
the exact information is unknown at the
time disclosures are made. Information
is unknown if it is not reasonably
available to the creditor at the time the
disclosures are made. The ‘‘reasonably
available’’ standard requires that the
creditor, acting in good faith, exercise
due diligence in obtaining information.
For example, the creditor must at a
minimum utilize generally accepted
calculation tools, but need not invest in
the most sophisticated computer
program to make a particular type of
calculation. The creditor normally may
rely on the representations of other
parties in obtaining information. For
example, the creditor might look to the
consumer for the time of consummation,
to insurance companies for the cost of
insurance, or to realtors for taxes and
escrow fees. The creditor may utilize
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estimates in making disclosures even
though the creditor knows that more
precise information will be available by
the point of consummation. However,
new disclosures may be required under
§ 1026.17(f) or § 1026.19. flFor
purposes of § 1026.17(c)(2)(i), creditors
must provide the actual amounts of the
information required to be disclosed
pursuant to § 1026.19(e) and (f), subject
to the estimation and redisclosure rules
in those provisions.fi
2. Labeling estimates. Estimates must
be designated as such in the segregated
disclosures. flFor the disclosures
required by § 1026.19(e), use of the Loan
Estimate form H–24 in appendix H to
this part, pursuant to § 1026.37(o),
satisfies the requirement that the
disclosure state clearly that the
disclosure is an estimate. For all other
disclosures, even though theyfi øEven
though other disclosures¿ are based on
the same assumption on which a
specific estimated disclosure was based,
the creditor has øsome¿ flexibility in
labeling the estimates. Generally, only
the particular disclosure for which the
exact information is unknown is labeled
as an estimate. However, when several
disclosures are affected because of the
unknown information, the creditor has
the option of labeling either every
affected disclosure or only the
disclosure primarily affected. For
example, when the finance charge is
unknown because the date of
consummation is unknown, the creditor
must label the finance charge as an
estimate and may also label as estimates
the total of payments and the payment
schedule. When many disclosures are
estimates, the creditor may use a general
statement, such as ‘‘all numerical
disclosures except the late payment
disclosure are estimates,’’ as a method
to label those disclosures as estimates.
3. Simple-interest transactions. If
consumers do not make timely
payments in a simple-interest
transaction, some of the amounts
calculated for Truth in Lending
disclosures will differ from amounts
that consumers will actually pay over
the term of the transaction. Creditors
may label disclosures as estimates in
these transactionsfl, except as
otherwise provided by § 1026.19fi. For
example, because the finance charge
and total of payments may be larger
than disclosed if consumers make late
payments, creditors may label the
finance charge and total of payments as
estimates. On the other hand, creditors
may choose not to label disclosures as
estimatesfl. In all cases, creditorsfi
øand may¿ flcomply with
§ 1026.17(c)(2)(i) by basingfi øbase all¿
disclosures on the assumption that
PO 00000
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51413
payments will be made on time fland
in the amounts required by the terms of
the legal obligationfi, disregarding any
possible øinaccuracies¿ fldifferencesfi
resulting from consumers’ payment
patterns.
Paragraph 17(c)(2)(ii).
1. Per-diem interest. Section
1026.17(c)(2)(ii) applies to any
numerical amount (such as the finance
charge, annual percentage rate, or
payment amount) that is affected by the
amount of the per-diem interest charge
that will be collected at consummation.
If the amount of per-diem interest used
in preparing the disclosures for
consummation is based on the
information known to the creditor at the
time the disclosure document is
prepared, the disclosures are considered
accurate under this rule, and affected
disclosures are also considered accurate,
even if the disclosures are not labeled as
estimates. For example, if the amount of
per-diem interest used to prepare
disclosures is less than the amount of
per-diem interest charged at
consummation, and as a result the
finance charge is understated by $200,
the disclosed finance charge is
considered accurate even though the
understatement is not within the $100
tolerance of § 1026.18(d)(1), and the
finance charge was not labeled as an
estimate. In this example, if in addition
to the understatement related to the perdiem interest, a $90 fee is incorrectly
omitted from the finance charge,
causing it to be understated by a total
of $290, the finance charge is
considered accurate because the $90 fee
is within the tolerance in
§ 1026.18(d)(1). flFor purposes of
transactions subject to § 1026.19(e) and
(f), the creditor shall disclosure the
actual amount of per diem interest that
will be collected at consummation,
subject only to the disclosure rules in
those sections.fi
*
*
*
*
*
Paragraph 17(c)(4).
1. Payment schedule irregularities.
When one or more payments in a
transaction differ from the others
because of a long or short first period,
the variations may be ignored in
disclosing the payment schedule fl
pursuant to § 1026.18(g) or the
disclosures required pursuant to
§§ 1026.18(s), 1026.37(c), or
1026.38(c)fi, finance charge, annual
percentage rate, and other terms. For
example:
*
*
*
*
*
Paragraph 17(c)(5).
*
*
*
*
*
2. Future event as maturity date. An
obligation whose maturity date is
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determined solely by a future event, as
for example, a loan payable only on the
sale of property, is not a demand
obligation. Because no demand feature
is contained in the obligation, demand
disclosures under § 1026.18(i) are
inapplicable fland demand disclosures
under § 1026.38(l)(2) are answered in
the negativefi. The disclosures should
be based on the creditor’s estimate of
the time at which the specified event
will occur and fl, except as otherwise
provided in § 1026.19(e) and (f),fi may
indicate the basis for the creditor’s
estimate, as noted in the commentary to
§ 1026.17(a).
3. Demand after stated period. Most
demand transactions contain a demand
feature that may be exercised at any
point during the term, but certain
transactions convert to demand status
only after a fixed period. øFor example,
in States prohibiting due-on-sale
clauses, the Federal National Mortgage
Association (FNMA) requires mortgages
that it purchases to include a call option
rider that may be exercised after 7 years.
These mortgages are generally written as
long-term obligations, but contain a
demand feature that may be exercised
only within a 30-day period at 7 years.¿
The disclosures for øthese transactions¿
fla transaction that converts to demand
status after a fixed periodfi should be
based upon the legally agreed-upon
maturity date. Thus, flfor example,fi if
a mortgage containing øthe 7-year
FNMA call option¿ fla call option that
the creditor may exercise during the
first 30 days of the eighth year after loan
originationfi is written as a 20-year
obligation, the disclosures should be
based on the 20-year term, with the
demand feature disclosed under
§ 1026.18(i)flor § 1026.38(l)(2), as
applicablefi.
4. Balloon mortgages. Balloon
payment mortgages, with payments
based on a long-term amortization
schedule and a large final payment due
after a shorter term, are not demand
obligations unless a demand feature is
specifically contained in the contract.
For example, a mortgage with a term of
five years and a payment schedule
based on 20 years would not be treated
as a mortgage with a demand feature, in
the absence of any contractual demand
provisions. In this type of mortgage,
disclosures should be based on the fiveyear term. flSee §§ 1026.37(c) and
1026.38(c) and their commentary for
projected payment disclosures for
balloon payment mortgages.fi
*
*
*
*
*
17(d) Multiple creditors; multiple
consumers.
*
*
*
*
*
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2. Multiple consumers. When two
consumers are joint obligors with
primary liability on an obligation, the
disclosures may be given to either one
of them. If one consumer is merely a
surety or guarantor, the disclosures
must be given to the principal debtor. In
rescindable transactions, however,
separate disclosures must be given to
each consumer who has the right to
rescind under § 1026.23, although the
disclosures required under § 1026.19(b)
need only be provided to the consumer
who expresses an interest in a variablerate loan program. flIn addition, the
early disclosures required by
§ 1026.19(a), (e), or (g), as applicable,
may be provided to any consumer with
primary liability on the obligation.
Material disclosures, as defined in
§ 1026.23(a)(3)(ii), under § 1026.23(a)
and the notice of the right to rescind
required by § 1026.23(b), however, must
be given before consummation to each
consumer who has the right to rescind,
even if such consumer is not an obligor.
See §§ 1026.2(a)(11), 1026.17(b),
1026.19(a), 1026.19(f), and
1026.23(b).fi
17(e) Effect of subsequent events.
1. Events causing inaccuracies.
flSubject to § 1026.19(e) and (f),
inaccuraciesfi øInaccuracies¿ in
disclosures are not violations if
attributable to events occurring after the
disclosures are made. For example,
when the consumer fails to fulfill a prior
commitment to keep the collateral
insured and the creditor then provides
the coverage and charges the consumer
for it, such a change does not make the
original disclosures inaccurate. The
creditor may, however, be required to
make new disclosures under
§ 1026.17(f) or § 1026.19 if the events
occurred between disclosure and
consummation or under § 1026.20 if the
events occurred after consummation.
flFor rules regarding permissible
changes to the information required to
be disclosed by § 1026.19(e) and (f), see
§ 1026.19(e)(3) and (f)(4) and their
commentary.fi
17(f) Early disclosures.
1. Change in rate or other terms.
Redisclosure is required for changes that
occur between the time disclosures are
made and consummation if the annual
percentage rate in the consummated
transaction exceeds the limits
prescribed in øthis section,¿
fl§ 1026.17(f)fi even if the øinitial¿
flpriorfi disclosures would be
considered accurate under the
tolerances in § 1026.18(d) or 1026.22(a).
To illustrate:
i. øGeneral.¿ flTransactions not
secured by real property.fi A. flFor
transactions not secured by real
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property, iffi øIf¿ disclosures are made
in a regular transaction on July 1, the
transaction is consummated on July 15,
and the actual annual percentage rate
varies by more than 1⁄8 of 1 percentage
point from the disclosed annual
percentage rate, the creditor must either
redisclose the changed terms or furnish
a complete set of new disclosures before
consummation. Redisclosure is required
even if the disclosures made on July 1
are based on estimates and marked as
such.
B. In a regular transaction flnot
secured by real property fi, if early
disclosures are marked as estimates and
the disclosed annual percentage rate is
within 1⁄8 of 1 percentage point of the
rate at consummation, the creditor need
not redisclose the changed terms
(including the annual percentage rate).
øii. Nonmortgage loan.¿ flC.fi If
disclosures flfor transactions not
secured by real propertyfi are made on
July 1, the transaction is consummated
on July 15, and the finance charge
increased by $35 but the disclosed
annual percentage rate is within the
permitted tolerance, the creditor must at
least redisclose the changed terms that
were not marked as estimates. See
§ 1026.18(d)(2) of this part.
øiii.¿ flii. Reverse
mortgages.fiøMortgage loan¿. øAt¿
flIn a transaction subject to
§ 1026.19(a) and not § 1026.19(e) and (f),
atfi the time øTILA disclosures¿ flthe
disclosures required by § 1026.19(a)fi
are prepared in July, the loan closing is
scheduled for July 31 and the creditor
does not plan to collect per-diem
interest at consummation.
Consummation actually occurs on
August 5, and per-diem interest for the
remainder of August is collected as a
prepaid finance charge. øAssuming
there were no other changes requiring
redisclosure, the¿ flThefi creditor may
rely on the disclosures prepared in July
that were accurate when they were
prepared. However, if the creditor
prepares new disclosures in August that
will be provided at consummation, the
new disclosures must take into account
the amount of the per-diem interest
known to the creditor at that time.
fliii. Mortgages other than reverse
mortgages and mortgage loans not
secured by real property. For
transactions secured by real property
other than reverse mortgages, at the time
the disclosures required by § 1026.19(e)
are prepared in July, the loan closing is
scheduled for July 31 and the creditor
does not plan to collect per-diem
interest at consummation.
Consummation actually occurs on
August 5, and per-diem interest for the
remainder of August is collected as a
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prepaid finance charge. The creditor
must make the disclosures required by
§ 1026.19(f) three days before
consummation, and the disclosures
required by § 1026.19(f) must take into
account the amount of per-diem interest
that will be collected at
consummation.fi
2. Variable rate. The addition of a
variable rate feature to the credit terms,
after early disclosures are given,
requires new disclosures. flSee
§ 1026.19(e) and (f) to determine when
new disclosures are required for
transactions secured by real property.fi
3. Content of new disclosures.
flExcept as provided by § 1026.19(e)
and (f), iffiøIf¿ redisclosure is required,
the creditor has the option of either
providing a complete set of new
disclosures, or providing disclosures of
only the terms that vary from those
originally disclosed. See the
commentary to § 1026.19(a)(2).
4. Special rules. In mortgage
transactions subject to § 1026.19
fl(a)fi, the creditor must redisclose if,
between the delivery of the required
early disclosures and consummation,
the annual percentage rate changes by
more than a stated tolerance. When
subsequent events occur after
consummation, new disclosures are
required only if there is a refinancing or
an assumption within the meaning of
§ 1026.20.
*
*
*
*
*
17(g) Mail or telephone orders—delay
in disclosures.
1. Conditions for use. flExcept for
extensions of credit subject to
§ 1026.19(a) or (e), (f), and (g), whenfi
øWhen¿ the creditor receives a mail or
telephone request for credit, the creditor
may delay making the disclosures until
the first payment is due if the following
conditions are met:
*
*
*
*
*
17(h) Series of sales—delay in
disclosures.
1. Applicability. flExcept for
extensions of credit covered by
§ 1026.19(a) or (e), (f), and (g), the fi
[The] creditor may delay the disclosures
for individual credit sales in a series of
such sales until the first payment is due
on the current sale, assuming the two
conditions in this paragraph are met. If
those conditions are not met, the general
timing rules in § 1026.17(b) apply.
*
*
*
*
*
Section 1026.18—Content of Disclosures
*
*
*
*
*
fl3. Scope of coverage.
i. Section 1026.18 applies to closedend consumer credit transactions, other
than transactions that are subject to
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Jkt 226001
§ 1026.19(e) and (f). Section 1026.19(e)
and (f) applies to closed-end consumer
credit transactions that are secured by
real property, other than reverse
mortgages subject to § 1026.33.
Accordingly, the disclosures required by
§ 1026.18 apply only to closed-end
consumer credit transactions that are:
A. Unsecured;
B. Secured by personal property that
is not a dwelling;
C. Secured by personal property that
is a dwelling and is not also secured by
real property; or
D. Reverse mortgages subject to
§ 1026.33.
ii. Of the foregoing transactions that
are subject to § 1026.18, the creditor
discloses a payment schedule pursuant
to § 1026.18(g) for those described in
paragraphs i.A and i.B of this comment.
For transactions described in paragraphs
i.C and i.D of this comment, the creditor
discloses an interest rate and payment
summary table pursuant to § 1026.18(s).
See also comments 18(g)–6 and 18(s)–4
for additional guidance on the
applicability to different transaction
types of §§ 1026.18(g) or (s) and
1026.19(e) and (f).
iii. Because § 1026.18 does not apply
to transactions secured by real property,
other than reverse mortgages, references
in the section and its commentary to
‘‘mortgages’’ refer only to transactions
described in paragraphs i.C and i.D of
this comment, as applicable.fi
*
*
*
*
*
18(b) Amount financed.
*
*
*
*
*
ø2. Rebates and loan premiums. In a
loan transaction, the creditor may offer
a premium in the form of cash or
merchandise to prospective borrowers.
Similarly, in a credit sale transaction, a
seller’s or manufacturer’s rebate may be
offered to prospective purchasers of the
creditor’s goods or services. At the
creditor’s option, these amounts may be
either reflected in the Truth in Lending
disclosures or disregarded in the
disclosures. If the creditor chooses to
reflect them in the § 1026.18
disclosures, rather than disregard them,
they may be taken into account in any
manner as part of those disclosures.¿
*
*
*
*
*
Paragraph 18(b)(2).
1. Adding other amounts. Fees or
other charges that are not part of the
finance charge and that are financed
rather than paid separately at
consummation of the transaction are
included in the amount financed.
Typical examples are øreal estate
settlement charges and premiums for
voluntary credit life and disability
insurance¿ flgovernment recording fees
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51415
for deeds and premiums for insurance
against loss of or damage to propertyfi
excluded from the finance charge under
§ 1026.4. This paragraph does not
include any amounts already accounted
for under § 1026.18(b)(1), such as taxes,
tag and title fees, or the costs of
accessories or service policies that the
creditor includes in the cash price.
*
*
*
*
*
18(c) Itemization of amount financed.
*
*
*
*
*
4. RESPA transactions. The Real
Estate Settlement Procedures Act
(RESPA) requires creditors to provide a
good faith estimate of closing costs and
a settlement statement listing the
amounts paid by the consumer.
flReverse mortgagesfi øTransactions¿
subject to RESPA fland § 1026.18fi are
exempt from the requirements of
§ 1026.18(c) if the creditor complies
with RESPA’s requirements for a good
faith estimate and settlement statement.
The itemization of the amount financed
need not be given, even though the
content and timing of the good faith
estimate and settlement statement under
RESPA differ from the requirements of
§§ 1026.18(c) and 1026.19(a)(2). If a
creditor chooses to substitute RESPA’s
settlement statement for the itemization
when redisclosure is required under
§ 1026.19(a)(2), the statement must be
delivered to the consumer at or prior to
consummation. The disclosures
required by §§ 1026.18(c) and
1026.19(a)(2) may appear on the same
page or on the same document as the
good faith estimate or the settlement
statement, so long as the requirements
of § 1026.17(a) are met.
*
*
*
*
*
Paragraph 18(c)(1)(iv).
*
*
*
*
*
2. Prepaid mortgage insurance
premiums. flRegulation X underfi
RESPAfl, 12 CFR 1024.8,fi requires
creditors to give consumers a settlement
statement disclosing the costs associated
with flreversefi mortgage loan
transactions. Included on the settlement
statement are mortgage insurance
premiums collected at settlement,
which are prepaid finance charges. In
calculating the total amount of prepaid
finance charges, creditors should use
the amount for mortgage insurance
listed on the line for mortgage insurance
on the settlement statement (line 1003
on HUD–1 or HUD 1–A), without
adjustment, even if the actual amount
collected at settlement may vary
because of RESPA’s escrow accounting
rules. Figures for mortgage insurance
disclosed in conformance with RESPA
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shall be deemed to be accurate for
purposes of Regulation Z.
*
*
*
*
*
18(f) Variable rate.
*
*
*
*
*
Paragraph 18(f)(1)(iv).
*
*
*
*
*
2. Hypothetical example not required.
The creditor need not provide a
hypothetical example in the following
transactions with a variable-rate feature:
i. Demand obligations with no
alternate maturity date.
ii. Private education loans as defined
in § 1026.46(b)(5).
øiii. Multiple-advance construction
loans disclosed pursuant to Appendix
D, Part I.¿
*
*
*
*
*
18(g) Payment schedule.
*
*
*
*
*
4. Timing of payments.
i. General rule. * * *
ii. Exception. In a limited number of
circumstances, the beginning-payment
date is unknown and difficult to
determine at the time disclosures are
made. For example, a consumer may
become obligated on a credit contract
that contemplates the delayed
disbursement of funds based on a
contingent event, such as the
completion of [home] repairs.
Disclosures may also accompany loan
checks that are sent by mail, in which
case the initial disbursement and
repayment dates are solely within the
consumer’s control. In such cases, if the
beginning-payment date is unknown the
creditor may use an estimated date and
label the disclosure as an estimate
pursuant to § 1026.17(c). Alternatively,
the disclosure may refer to the
occurrence of a particular event, for
example, by disclosing that the
beginning payment is due ‘‘30 days after
the first loan disbursement.’’ This
information also may be included with
an estimated date to explain the basis
for the creditor’s estimate. See comment
17(a)(1)–5.iii.
5. fløReserved¿fiøMortgage
insurance. The payment schedule
should reflect the consumer’s mortgage
insurance payments until the date on
which the creditor must automatically
terminate coverage under applicable
law, even though the consumer may
have a right to request that the
insurance be cancelled earlier. The
payment schedule must reflect the legal
obligation, as determined by applicable
State or other law. For example, assume
that under applicable law, mortgage
insurance must terminate after the 130th
scheduled monthly payment, and the
creditor collects at closing and places in
escrow two months of premiums. If,
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Jkt 226001
under the legal obligation, the creditor
will include mortgage insurance
premiums in 130 payments and refund
the escrowed payments when the
insurance is terminated, the payment
schedule should reflect 130 premium
payments. If, under the legal obligation,
the creditor will apply the amount
escrowed to the two final insurance
payments, the payment schedule should
reflect 128 monthly premium payments.
(For assumptions in calculating a
payment schedule that includes
mortgage insurance that must be
automatically terminated, see comments
17(c)(1)–8 and 17(c)(1)–10.)¿
6. Mortgage transactions. Section
1026.18(g) applies øonly¿ to closed-end
transactions, other than transactions
that are subject to § 1026.18(s)flor
§ 1026.19(e) and (f)fi. Section
1026.18(s) applies to closed-end
transactions secured by real property or
a dwellingfl, unless they are subject to
§ 1026.19(e) and (f). Section 1026.19(e)
and (f) applies to closed-end
transactions secured by real property,
other than reverse mortgagesfi. Thus, if
a closed-end consumer credit
transaction is secured by real property
or a dwelling fland the transaction is a
reverse mortgage or the dwelling is
personal propertyfi, the creditor
discloses an interest rate and payment
summary table in accordance with
§ 1026.18(s) øand does not observe¿.
flSee comment 18(s)–4. If a closed-end
consumer credit transaction is secured
by real property and is not a reverse
mortgage, the creditor discloses a
projected payments table in accordance
with §§ 1026.37(c) and 1026.38(c), as
required by § 1026.19(e) and (f). In all
such cases, the creditor is not subject
tofi the requirements of § 1026.18(g).
On the other hand, if a closed-end
consumer credit transaction is not
secured by real property or a dwelling
fl(for example, if it is unsecured or
secured by an automobile)fi, the
creditor discloses a payment schedule
in accordance with § 1026.18(g) and
ødoes not observe¿ flis not subject tofi
the requirements of § 1026.18(s) flor
§§ 1026.37(c) and 1026.38(c)fi.
*
*
*
*
*
Paragraph 18(g)(2).
1. Abbreviated disclosure. The
creditor may disclose an abbreviated
payment schedule when the amount of
each regularly scheduled payment
(other than the first or last payment)
includes an equal amount to be applied
on principal and a finance charge
computed by application of a rate to the
decreasing unpaid balance. øThis option
is also available when mortgageguarantee insurance premiums, paid
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either monthly or annually, cause
variations in the amount of the
scheduled payments, reflecting the
continual decrease or increase in the
premium due.¿ In addition, in
transactions where payments vary
because interest and principal are paid
at different intervals, the two series of
payments may be disclosed separately
and the abbreviated payment schedule
may be used for the interest payments.
For example, in transactions with fixed
quarterly principal payments and
monthly interest payments based on the
outstanding principal balance, the
amount of the interest payments will
change quarterly as principal declines.
In such cases the creditor may treat the
interest and principal payments as two
separate series of payments, separately
disclosing the number, amount, and due
dates of principal payments, and, using
the abbreviated payment schedule, the
number, amount, and due dates of
interest payments. This option may be
used when interest and principal are
scheduled to be paid on the same date
of the month as well as on different
dates of the month. The creditor using
this alternative must disclose the dollar
amount of the highest and lowest
payments and make reference to the
variation in payments.
2. Combined payment schedule
disclosures. Creditors may combine the
option in this paragraph with the
general payment schedule requirements
in transactions where only a portion of
the payment schedule meets the
conditions of § 1026.18(g)(2). For
example, in a fltransactionfi
øgraduated payment mortgage¿ where
payments rise sharply for five years and
then decline over the next 25 years
øbecause of decreasing mortgage
insurance premiums¿, the first five
years would be disclosed under the
general rule in § 1026.18(g) and the next
25 years according to the abbreviated
schedule in § 1026.18(g)(2).
*
*
*
*
*
18(k) Prepayment.
1. Disclosure required. The creditor
must give a definitive statement of
whether or not a flprepaymentfi
penalty will be imposed or a
flprepaymentfi rebate will be given.
i. The fact that no flprepaymentfi
penalty will be imposed may not simply
be inferred from the absence of a
flprepaymentfi penalty disclosure; the
creditor must indicate that prepayment
will not result in a flprepaymentfi
penalty.
ii. If a flprepaymentfi penalty or
flprepaymentfi refund is possible for
one type of prepayment, even though
not for all, a positive disclosure is
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required. This applies to any type of
prepayment, whether voluntary or
involuntary as in the case of
prepayments resulting from
acceleration.
iii. Any difference in flprepaymentfi
rebate or flprepaymentfi penalty
policy, depending on whether
prepayment is voluntary or not, must
not be disclosed with the segregated
disclosures.
2. Rebate-penalty disclosure. A single
transaction may involve both a
precomputed finance charge and a
finance charge computed by application
of a rate to the unpaid balance (for
example, mortgages with mortgageguarantee insurance). In these cases,
disclosures about both prepayment
rebates and flprepaymentfi penalties
are required. Sample form H–15 in
appendix H to this part illustrates a
mortgage transaction in which both
rebate and penalty disclosures are
necessary.
3. Prepaid finance charge. The
existence of a prepaid finance charge in
a transaction does not, by itself, require
a disclosure under § 1026.18(k). A
prepaid finance charge is not considered
a flprepaymentfi penalty under
§ 1026.18(k)(1), nor does it require a
disclosure under § 1026.18(k)(2). At its
option, however, a creditor may
consider a prepaid finance charge to be
under § 1026.18(k)(2). If a disclosure is
made under § 1026.18(k)(2) with respect
to a prepaid finance charge or other
finance charge, the creditor may further
identify that finance charge. For
example, the disclosure may state that
the borrower ‘‘will not be entitled to a
refund of the prepaid finance charge’’ or
some other term that describes the
finance charge.
Paragraph 18(k)(1).fl
1. Examples of prepayment penalties.
For purposes of § 1026.18(k)(1), the
following are examples of prepayment
penalties:
i. A charge determined by treating the
loan balance as outstanding for a period
of time after prepayment in full and
applying the interest rate to such
‘‘balance,’’ even if the charge results
from interest accrual amortization used
for other payments in the transaction
under the terms of the loan contract.
‘‘Interest accrual amortization’’ refers to
the method by which the amount of
interest due for each period (e.g.,
month) in a transaction’s term is
determined. For example, ‘‘monthly
interest accrual amortization’’ treats
each payment as made on the
scheduled, monthly due date even if it
is actually paid early or late (until the
expiration of any grace period). Thus,
under the terms of a loan contract
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providing for monthly interest accrual
amortization, if the amount of interest
due on May 1 for the preceding month
of April is $3,000, the loan contract will
require payment of $3,000 in interest for
the month of April whether the payment
is made on April 20, on May 1, or on
May 10. In this example, if the
consumer prepays the loan in full on
April 20 and if the accrued interest as
of that date is $2,000, then assessment
of a charge of $3,000 constitutes a
prepayment penalty of $1,000 because
the amount of interest actually earned
through April 20 is only $2,000.
ii. A fee, such as an origination or
other loan closing cost, that is waived
by the creditor on the condition that the
consumer does not prepay the loan.
iii. A minimum finance charge in a
simple interest transaction.
2. Fees that are not prepayment
penalties. For purposes of
§ 1026.18(k)(1), fees which are not
prepayment penalties include, for
example:
i. Fees imposed for preparing and
providing documents when a loan is
paid in full, whether or not the loan is
prepaid, such as a loan payoff
statement, a reconveyance document, or
another document releasing the
creditor’s security interest in the
dwelling that secures the loan.
ii. Loan guarantee fees.fi
ø1. Penalty. This applies only to those
transactions in which the interest
calculation takes account of all
scheduled reductions in principal, as
well as transactions in which interest
calculations are made daily. The term
penalty as used here encompasses only
those charges that are assessed strictly
because of the prepayment in full of a
simple-interest obligation, as an
addition to all other amounts. Items
which are penalties include, for
example:
i. Interest charges for any period after
prepayment in full is made. (See the
commentary to § 1026.17(a)(1) regarding
disclosure of interest charges assessed
for periods after prepayment in full as
directly related information.)
ii. A minimum finance charge in a
simple-interest transaction. (See the
commentary to § 1026.17(a)(1) regarding
the disclosure of a minimum finance
charge as directly related information.)
Items which are not penalties include,
for example, loan guarantee fees.¿
Paragraph 18(k)(2).
1. Rebate of finance charge. i. This
applies to any finance charges that do
not take account of each reduction in
the principal balance of an obligation.
This category includes, for example:
A. Precomputed finance charges such
as add-on charges. flThis includes
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51417
computing a refund of unearned finance
charge, such as precomputed interest,
by a method that is less favorable to the
consumer than the actuarial method, as
defined by section 933(d) of the Housing
and Community Development Act of
1992, 15 U.S.C. 1615(d). For purposes of
computing a refund of unearned
interest, if using the actuarial method
defined by applicable State law results
in a refund that is greater than the
refund calculated by using the method
described in section 933(d) of the
Housing and Community Development
Act of 1992, creditors should use the
State law definition in determining if a
refund is a prepayment penalty.fi
B. Charges that take account of some
but not all reductions in principal, such
as mortgage guarantee insurance
assessed on the basis of an annual
declining balance, when the principal is
reduced on a monthly basis.
ii. No description of the method of
computing earned or unearned finance
charges is required or permitted as part
of the segregated disclosures under this
section.
*
*
*
*
*
18(r) Required deposit.
*
*
*
*
*
6. Examples of amounts excluded.
The following are among the types of
deposits that need not be treated as
required deposits:
i. Requirement that a borrower be a
customer or a member even if that
involves a fee or a minimum balance.
ii. Required property insurance
escrow on a mobile home transaction.
iii. Refund of interest when the
obligation is paid in full.
iv. Deposits that are immediately
available to the consumer.
v. Funds deposited with the creditor
to be disbursed (for example, for
construction) before the loan proceeds
are advanced.
vi. fløReserved¿fi øEscrow of
condominium fees.¿
vii. Escrow of loan proceeds to be
released when the repairs are
completed.
18(s) Interest rate and payment
summary for mortgage transactions.
1. In general. Section 1026.18(s)
prescribes format and content for
disclosure of interest rates and monthly
(or other periodic) payments for
flreverse mortgages and certain
transactions secured by dwellings that
are personal propertyfi ømortgage
loans¿. The information in
§ 1026.18(s)(2) through (4) is required to
be in the form of a table, except as
otherwise provided, with headings and
format substantially similar to model
clause H–4(E), H–4(F), H–4(G), or H–
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4(H) in appendix H to this part. A
disclosure that does not include the
shading shown in a model clause but
otherwise follows the model clause’s
headings and format is substantially
similar to that model clause. Where
§ 1026.18(s)(2) through (4) or the
applicable model clause requires that a
column or row of the table be labeled
using the word ‘‘monthly’’ but the
periodic payments are not due monthly,
the creditor should use the appropriate
term, such as ‘‘bi-weekly’’ or
‘‘quarterly.’’ In all cases, the table
should have no more than five vertical
columns corresponding to applicable
interest rates at various times during the
loan’s term; corresponding payments
would be shown in horizontal rows.
Certain loan types and terms are defined
for purposes of § 1026.18(s) in
§ 1026.18(s)(7).
*
*
*
*
*
fl4. Scope of coverage in relation to
§ 1026.19(e) and (f). Section 1026.18(s)
applies to transactions secured by a real
property or a dwelling, other than
transactions that are subject to
§ 1026.19(e) and (f). Those provisions
apply to closed-end transactions
secured by real property, other than
reverse mortgages. Accordingly,
§ 1026.18(s) governs only closed-end
reverse mortgages and closed-end
transactions secured by a dwelling that
is personal property (such as a mobile
home that is not deemed real property
under State or other applicable law).fi
*
*
*
*
*
18(s)(3) Payments for amortizing
loans.
*
*
*
*
*
Paragraph 18(s)(3)(i)(C).
*
*
*
*
*
2. Mortgage insurance flor any
functional equivalentfi. flFor purposes
of § 1026.18(s), ‘‘mortgage insurance’’
means insurance against the
nonpayment of, or default on, an
individual mortgage. ‘‘Mortgage
guarantees’’ (such as a United States
Department of Veterans Affairs or
United States Department of Agriculture
guarantee) provide coverage similar to
mortgage insurance, even if not
technically considered insurance under
State or other applicable law. For
purposes of § 1026.18(s), ‘‘mortgage
insurance or any functional equivalent’’
includes any mortgage guarantee.fi
Payment amounts under
§ 1026.18(s)(3)(i) should reflect the
consumer’s mortgage insurance
payments flor any functionally
equivalent feefi until the date on which
the creditor must automatically
terminate coverage under applicable
law, even though the consumer may
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have a right to request that the
insurance be cancelled earlier. The
payment amount must reflect the terms
of the legal obligation, as determined by
applicable State or other law. For
example, assume that under applicable
law, mortgage insurance must terminate
after the 130th scheduled monthly
payment, and the creditor collects at
closing and places in escrow two
months of premiums. If, under the legal
obligation, the creditor will include
mortgage insurance premiums in 130
payments and refund the escrowed
payments when the insurance is
terminated, payment amounts disclosed
through the 130th payment should
reflect premium payments. If, under the
legal obligation, the creditor will apply
the amount escrowed to the two final
insurance payments, payments
disclosed through the 128th payment
should reflect premium payments. The
escrow amount reflected on the
disclosure should include mortgage
insurance premiums even if they are not
escrowed and even if there is no escrow
account established for the transaction.
*
*
*
*
*
Section 1026.19—Certain Mortgage and
Variable-Rate Transactions
19(a)(1)(i) Time of disclosures.
1. Coverage. This section requires
early disclosure of credit terms in
flreversefi mortgage transactions
flsubject to § 1026.33fi that are
secured by a consumer’s dwelling
ø(other than home equity lines of credit
subject to § 1026.40 or mortgage
transactions secured by an interest in a
timeshare plan)¿ that are also subject to
the Real Estate Settlement Procedures
Act (RESPA) and its implementing
Regulation X. To be covered by
§ 1026.19fl(a)fi, a transaction must be
a Federally related mortgage loan under
RESPA. ‘‘Federally related mortgage
loan’’ is defined under RESPA (12
U.S.C. 2602) and Regulation X (12 CFR
1024.2), and is subject to any
interpretations by the Bureau.
*
*
*
*
*
ø19(a)(5) Timeshare plans.
Paragraph 19(a)(5)(ii).
1. Timing. A mortgage transaction
secured by a consumer’s interest in a
‘‘timeshare plan,’’ as defined in 11
U.S.C. 101(53D), that is also a Federally
related mortgage loan under RESPA is
subject to the requirements of
§ 1026.19(a)(5) instead of the
requirements of § 1026.19(a)(1) through
§ 1026.19(a)(4). See comment
19(a)(1)(i)–1. Early disclosures for
transactions subject to § 1026.19(a)(5)
must be given (a) before consummation
or (b) within three business days after
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the creditor receives the consumer’s
written application, whichever is
earlier. The general definition of
‘‘business day’’ in § 1026.2(a)(6)—a day
on which the creditor’s offices are open
to the public for substantially all of its
business functions—applies for
purposes of § 1026.19(a)(5)(ii). See
comment 2(a)(6)–1. These timing
requirements are different from the
timing requirements under
§ 1026.19(a)(1)(i). Timeshare
transactions covered by § 1026.19(a)(5)
may be consummated any time after the
disclosures required by
§ 1026.19(a)(5)(ii) are provided.
2. Use of estimates. If the creditor
does not know the precise credit terms,
the creditor must base the disclosures
on the best information reasonably
available and indicate that the
disclosures are estimates under
§ 1026.17(c)(2). If many of the
disclosures are estimates, the creditor
may include a statement to that effect
(such as ‘‘all numerical disclosures
except the late-payment disclosure are
estimates’’) instead of separately
labeling each estimate. In the
alternative, the creditor may label as an
estimate only the items primarily
affected by unknown information. (See
the commentary to § 1026.17(c)(2).) The
creditor may provide explanatory
material concerning the estimates and
the contingencies that may affect the
actual terms, in accordance with the
commentary to § 1026.17(a)(1).
3. Written application. For timeshare
transactions, creditors may rely on
comment 19(a)(1)(i)–3 in determining
whether a ‘‘written application’’ has
been received.
4. Denied or withdrawn applications.
For timeshare transactions, creditors
may rely on comment 19(a)(1)(i)–4 in
determining that disclosures are not
required by § 1026.19(a)(5)(ii) because
the consumer’s application will not or
cannot be approved on the terms
requested or the consumer has
withdrawn the application.
5. Itemization of amount financed.
For timeshare transactions, creditors
may rely on comment 19(a)(1)(i)–5 in
determining whether providing the good
faith estimates of settlement costs
required by RESPA satisfies the
requirement of § 1026.18(c) to provide
an itemization of the amount financed.
Paragraph 19(a)(5)(iii).
*
*
*
*
*
1. Consummation or settlement. For
extensions of credit secured by a
consumer’s timeshare plan, when
corrected disclosures are required, they
must be given no later than
‘‘consummation or settlement.’’
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‘‘Consummation’’ is defined in
§ 1026.2(a). ‘‘Settlement’’ is defined in
Regulation X (12 CFR 1024.2(b)) and is
subject to any interpretations issued by
the Bureau. In some cases, a creditor
may delay redisclosure until settlement,
which may be at a time later than
consummation. If a creditor chooses to
redisclose at settlement, disclosures
may be based on the terms in effect at
settlement, rather than at
consummation. For example, in a
variable-rate transaction, a creditor may
choose to base disclosures on the terms
in effect at settlement, despite the
general rule in comment 17(c)(1)–8 that
variable-rate disclosures should be
based on the terms in effect at
consummation.
2. Content of new disclosures.
Creditors may rely on comment
19(a)(2)(ii)–2 in determining the content
of corrected disclosures required under
§ 1026.19(a)(5)(iii).¿
*
*
*
*
*
fl19(e) Mortgage loans secured by
real property—Early disclosures.
19(e)(1)(i) Creditor.
1. Requirements. Section
1026.19(e)(1)(i) requires early disclosure
of credit terms in closed-end credit
transactions that are secured by real
property, other than reverse mortgages.
These disclosures must be provided in
good faith. Except as otherwise
provided in § 1026.19(e), a disclosure is
in good faith if it is consistent with the
best information reasonably available to
the creditor at the time the disclosure is
provided.
19(e)(1)(ii) Mortgage broker.
1. Requirements. A mortgage broker
may provide the disclosures required
under § 1026.19(e)(1)(i) instead of the
creditor. By assuming this
responsibility, the mortgage broker
becomes responsible for complying with
all of the relevant requirements as if it
were the creditor, meaning that
‘‘mortgage broker’’ should be read in the
place of ‘‘creditor’’ for all the relevant
provisions of § 1026.19(e), except to the
extent that such a reading would create
responsibility for mortgage brokers
under § 1026.19(f). For example,
comment 19(e)(4)–2 states that creditors
comply with the requirements of
§ 1026.19(e)(4) if the revised disclosures
are reflected in the disclosures required
by § 1026.19(f)(1)(i). ‘‘Mortgage broker’’
could not be read in place of ‘‘creditor’’
in comment 19(e)(4)–2 because the
mortgage brokers are not responsible for
the disclosures required by
§ 1026.19(f)(1)(i).
2. Broker responsibilities. If a
mortgage broker issues any disclosure
under § 1026.19(e), the mortgage broker
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Jkt 226001
must comply with the requirements of
§ 1026.19(e). For example, if the
mortgage broker receives sufficient
information to complete an application,
the mortgage broker must issue the
disclosures required under
§ 1026.19(e)(1)(i) within three business
days in accordance with
§ 1026.19(e)(1)(iii). If the mortgage
broker subsequently receives
information sufficient to establish that a
disclosure provided under
§ 1026.19(e)(1)(i) must be reissued
under § 1026.19(e)(3)(iv), then the
mortgage broker is responsible for
ensuring that a revised disclosure is
provided. If a mortgage broker issues
any disclosure under § 1026.19(e), the
mortgage broker must also comply with
the requirements of § 1026.25. For
example, if a mortgage broker issues the
disclosure required under
§ 1026.19(e)(1)(i), it must maintain
records for three years, in compliance
with § 1026.25(c)(1)(i), and must
maintain such records in an electronic,
machine-readable format, in compliance
with § 1026.25(c)(1)(iii).
3. Creditor responsibilities. If a
mortgage broker issues any disclosure
required under § 1026.19(e) in the
creditor’s place, the creditor remains
responsible under § 1026.19(e) for
ensuring that the requirements of
§ 1026.19(e) have been satisfied. For
example, the creditor must ensure that
the broker provides the disclosures
required under § 1026.19(e) not later
than three business days after the
mortgage broker received information
sufficient to constitute an application,
as defined in § 1026.2(a)(3)(ii). The
creditor does not satisfy the
requirements of § 1026.19(e) if it
provides duplicative disclosures. For
example, a creditor does not meet its
burden by issuing disclosures required
under § 1026.19(e) that mirror ones
already issued by the broker for the
purpose of demonstrating that the
consumer received timely disclosures. If
the broker provides an erroneous
disclosure, the creditor is responsible
and may not issue a revised disclosure
correcting the error. The creditor is
expected to maintain communication
with the broker to ensure that the broker
is acting in place of the creditor.
Disclosures provided by a broker in
accordance with § 1026.19(e)(1)(ii)
satisfy the creditor’s obligation under
§ 1026.19(e)(1)(i).
4. Broker provision of preliminary
written estimates specific to the
consumer. Section 1026.19(e)(2)(ii)
requires creditors to provide consumers
with a disclosure indicating that the
written estimate is not the Loan
Estimate required by RESPA and TILA,
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51419
if a creditor provides a consumer with
certain written estimates of specific
credit terms or costs. Section
1026.19(e)(1)(ii) states that, if a mortgage
broker provides any disclosure required
by § 1026.19(e), the mortgage broker
must comply with the requirements in
§ 1026.19(e) related to such disclosure.
Thus, § 1026.19(e)(1)(ii) requires
mortgage brokers to comply with
§ 1026.19(e)(2)(ii) if a mortgage broker
provides any disclosures under
§ 1026.19(e). For example, if a mortgage
broker never provides disclosures
required by § 1026.19(e), the mortgage
broker need not include the disclosure
required by § 1026.19(e)(2)(ii) on written
information provided to consumers.
19(e)(1)(iii) Timing.
1. Timing and use of estimates. The
disclosures required by
§ 1026.19(e)(1)(i) must be delivered not
later than three business days after the
creditor receives the consumer’s
application. For example, if an
application is received on Monday, the
creditor satisfies this requirement by
either hand delivering the disclosures
on or before Thursday, or placing them
in the mail on or before Thursday,
assuming each weekday is a business
day. For purposes of § 1026.19(e)(1)(iii),
the term ‘‘business day’’ means all
calendar days except Sundays and legal
public holidays referred to in
§ 1026.2(a)(6). See comment 2(a)(6)–2. If
the creditor does not know the precise
credit terms, the creditor must base the
disclosures on the best information
reasonably available.
2. Waiting period. The sevenbusiness-day waiting period begins
when the creditor delivers the
disclosures or places them in the mail,
not when the consumer receives or is
presumed to have received the
disclosures. For example, if a creditor
delivers the early disclosures to the
consumer in person or places them in
the mail on Monday, June 1,
consummation may occur on or after
Tuesday, June 9, the seventh business
day following delivery or mailing of the
early disclosures, because, for the
purposes of § 1026.19(e)(1)(iii), Saturday
is a business day, pursuant to
§ 1026.2(a)(6).
3. Denied or withdrawn applications.
The creditor may determine within the
three-business-day period that the
application will not or cannot be
approved on the terms requested, such
as when a consumer’s credit score is
lower than the minimum score required
for the terms the consumer applied for,
or the consumer applies for a type or
amount of credit that the creditor does
not offer. In that case, or if the consumer
withdraws the application within the
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three-business-day period, the creditor
need not make the disclosures required
under § 1026.19(e)(1)(i). If the creditor
fails to provide early disclosures and the
transaction is later consummated on the
terms originally applied for, then the
creditor does not comply with
§ 1026.19(e)(1)(i). If, however, the
consumer amends the application
because of the creditor’s unwillingness
to approve it on the terms originally
applied for, no violation occurs for not
providing disclosures based on those
original terms. But the amended
application is a new application subject
to § 1026.19(e)(1)(i).
19(e)(1)(iv) Delivery.
1. Mail delivery. Section
1026.19(e)(1)(iv) provides that, if any
disclosures required under
§ 1026.19(e)(1)(i) are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer. This
presumption may be rebutted by
providing evidence that the consumer
received the disclosures earlier than
three business days. For example, if the
creditor sends the disclosures via
overnight mail on Monday, and the
consumer signs for receipt of the
overnight delivery on Tuesday, the
creditor could demonstrate that the
disclosures were received on Tuesday,
thereby rebutting the presumption that
the disclosures were received on
Thursday, three business days after the
disclosures were sent.
2. Electronic delivery. The
presumption established in
§ 1026.19(e)(1)(iv) applies to methods of
electronic delivery, such as email. For
example, if a creditor sends a disclosure
required under § 1026.19(e) via email on
Monday, pursuant to § 1026.19(e)(1)(iv)
the consumer is presumed to have
received the disclosure on Thursday,
three business days later. However, the
creditor may rebut the presumption by
providing evidence that the consumer
received the emailed disclosures earlier.
Creditors using electronic delivery
methods, such as email, must also
comply with § 1026.17(a)(1). For
example, if a creditor delivers the
disclosures required by
§ 1026.19(e)(1)(i) to a consumer via
email, but the creditor did not obtain
the consumer’s consent to receive
disclosures via email prior to delivering
the disclosures, then the creditor does
not comply with § 1026.17(a)(1), and the
creditor does not comply with
§ 1026.19(e)(1)(i), assuming the
disclosures were not provided in a
different manner in accordance with the
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timing requirements of
§ 1026.19(e)(1)(iii).
19(e)(1)(v) Consumer’s waiver of
waiting period before consummation.
1. Modification or waiver. A consumer
may modify or waive the right to the
seven-business-day waiting period
required by § 1026.19(e)(1)(iii) only after
the creditor makes the disclosures
required by § 1026.19(e)(1)(i). The
consumer must have a bona fide
personal financial emergency that
necessitates consummating the credit
transaction before the end of the waiting
period. Whether these conditions are
met is determined by the facts
surrounding individual situations. The
imminent sale of the consumer’s home
at foreclosure, where the foreclosure
sale will proceed unless loan proceeds
are made available to the consumer
during the waiting period, is one
example of a bona fide personal
financial emergency. Each consumer
who is primarily liable on the legal
obligation must sign the written
statement for the waiver to be effective.
2. Examples of waivers within the
seven-business-day waiting period. If
the early disclosures are delivered to the
consumer in person on Monday, June 1,
the seven-business-day waiting period
ends on Tuesday, June 9. If on Monday,
June 1, the consumer executes a waiver
of the seven-business-day waiting
period, the final disclosures required by
§ 1026.19(f)(1)(i) could then be
delivered three days before
consummation, as required by
§ 1026.19(f)(1)(ii), on Tuesday, June 2,
and the loan can be consummated on
Friday, June 5.
19(e)(1)(vi) Shopping for settlement
service providers.
1. Permission to shop. Section
1026.19(e)(1)(vi)(A) states that the
creditor may impose reasonable
minimum requirements regarding the
qualifications of the provider. For
example, the creditor may require that
a settlement agent chosen by the
consumer must be appropriately
licensed in the relevant jurisdiction.
Similarly, the creditor may require that
the homeowner’s insurance carrier
chosen by the consumer have a
minimum rating by an independent
insurance rating service. In contrast, a
creditor does not permit a consumer to
shop for purposes of § 1026.19(e)(1)(vi)
if the creditor requires the consumer to
choose a provider from a list provided
by creditor. The requirements of
§ 1026.19(e)(1)(vi)(B) and (C) do not
apply if the creditor does not permit the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A).
2. Disclosure of services for which the
consumer may shop. Section
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1026.19(e)(1)(vi)(C) requires the creditor
to identify the services for which the
consumer is permitted to shop in the
disclosures provided pursuant to
§ 1026.19(e)(1)(i). See § 1026.37(f)(3)
regarding the content and format for this
disclosure.
3. Written list of providers. If the
creditor permits the consumer to shop
for a settlement service,
§ 1026.19(e)(1)(vi)(C) requires the
creditor to provide the consumer with a
written list identifying available
providers of that service and stating that
the consumer may choose a different
provider for that service. The settlement
service providers identified on such
written list must correspond to the
settlement services for which the
consumer may shop, disclosed pursuant
to § 1026.37(f)(3). See form H–27 in
appendix H to this part for a model list.
See also comment 19(e)(1)(ii)–4
regarding mortgage broker provision of
the written list of settlement service
providers.
4. Identification of available
providers. Section 1026.19(e)(1)(vi)(C)
provides that the creditor must identify
settlement service providers that are
available to the consumer. A creditor
does not comply with the identification
requirement in § 1026.19(e)(1)(vi)(C)
unless it provides sufficient information
to allow the consumer to contact the
provider, such as the name under which
the provider does business and the
provider’s address and telephone
number. Similarly, a creditor does not
comply with the availability
requirement in § 1026.19(e)(1)(vi)(C) if it
provides a written list consisting of only
settlement service providers that are no
longer in business or that do not provide
services where the consumer or
property is located. If the creditor
determines that there is only one
available settlement service provider,
the creditor need only identify that
provider on the written list.
5. Statement that consumer may
choose different provider. Section
1026.19(e)(1)(vi)(C) requires the creditor
to include in the written list a statement
that the consumer may choose a
provider that is not included on that
list. See form H–27 in appendix H to
this part for an example of such a
statement.
6. Additional information on written
list. The creditor may include a
statement on the written list that the
listing of a settlement service provider
does not constitute an endorsement of
that service provider. The creditor may
also identify in the written list providers
of services for which the consumer is
not permitted to shop, provided that the
creditor clearly and expressly
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distinguishes those services from the
services for which the consumer is
permitted to shop. This may be
accomplished by placing the services
under different headings. For example,
if the list provided pursuant to
§ 1026.19(e)(1)(vi)(C) identifies
providers of pest inspections,
homeowner’s insurance, and surveys,
but the consumer may select a provider,
other than those identified on the list,
for only the homeowner’s insurance
carrier and surveyor, then the list must
specifically inform the consumer that
the consumer is permitted to select a
provider, other than a provider
identified on the list, for only the
homeowner’s insurance carrier and the
surveyor.
7. Relation to RESPA and Regulation
X. Section 1026.19 does not prohibit
creditors from including affiliates on the
written list under § 1026.19(e)(1)(vi).
However, a creditor that includes
affiliates on the written list must also
comply with 12 CFR 1024.15.
Furthermore, the written list is a
‘‘referral’’ under 12 CFR 1024.14(f).
19(e)(2) Pre-disclosure activity.
19(e)(2)(i) Imposition of fees on
consumer.
19(e)(2)(i)(A) Fee restriction.
1. Fees restricted. A creditor or other
person may not impose any fee, such as
for an application, appraisal, or
underwriting, until the consumer has
received the disclosures required by
§ 1026.19(e)(1)(i) and indicated an
intent to proceed with the transaction.
The only exception to the fee restriction
allows the creditor or other person to
impose a bona fide and reasonable fee
for obtaining a consumer’s credit report,
pursuant to § 1026.19(e)(2)(i)(B).
2. Intent to proceed. A consumer may
indicate intent to proceed with a
transaction in any manner the consumer
chooses, unless a particular manner of
communication is required by the
creditor, provided that the creditor does
not assume silence is indicative of
intent. The creditor must document this
communication to satisfy the
requirements of § 1026.25. For example,
oral communication in person
immediately upon delivery of the
disclosures required by
§ 1026.19(e)(1)(i) is sufficiently
indicative of intent. Oral
communication over the phone, written
communication via email, or signing a
pre-printed form are also sufficiently
indicative of intent if such actions occur
after receipt of the disclosures required
by § 1026.19(e)(1)(i). However, a
creditor may not deliver the disclosures,
wait for some period of time for the
consumer to respond, and then charge
the consumer a fee for an appraisal if
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the consumer does not respond, even if
the creditor disclosed that it would do
so.
3. Timing of fees. At any time prior to
delivery of the required disclosures, the
creditor may impose a credit report fee
as provided in § 1026.19(e)(2)(i)(B). The
consumer must receive the disclosures
required by this section and indicate an
intent to proceed with the mortgage loan
transaction before paying or incurring
any other fee imposed by a creditor or
other person in connection with the
consumer’s application for a mortgage
loan that is subject to § 1026.19(e)(1)(i).
4. Collection of fees. A creditor
complies with § 1026.19(e)(2)(i)(A) if:
i. The creditor receives a consumer’s
written application directly from the
consumer and does not collect any fee,
other than a fee for obtaining a
consumer’s credit report, until the
consumer receives the early mortgage
loan disclosure and indicates an intent
to proceed.
ii. A third party submits a consumer’s
written application to a creditor and
both the creditor and third party do not
collect any fee, other than a fee for
obtaining a consumer’s credit report,
until the consumer receives the early
mortgage loan disclosure from the
creditor and indicates an intent to
proceed.
iii. A third party submits a
consumer’s written application to a
creditor following a different creditor’s
denial of the consumer’s application (or
following the consumer’s withdrawal of
that application), and, if a fee already
has been assessed, the new creditor or
third party does not collect or impose
any additional fee until the consumer
receives an early mortgage loan
disclosure from the new creditor and
indicates an intent to proceed.
5. Fees ‘‘imposed by’’ a person. For
purposes of § 1026.19(e), a fee is
‘‘imposed by’’ a person if the person
requires a consumer to provide a
method for payment, even if the
payment is not made at that time. For
example, if a creditor requires the
consumer to provide a $500 check to
pay for a ‘‘processing fee’’ before the
consumer receives the disclosures
required by § 1026.19(e)(1)(i) and the
consumer subsequently indicates intent
to proceed, then the creditor does not
comply with § 1026.19(e)(2), even if the
creditor states that the check will not be
cashed until after the disclosures
required by § 1026.19(e)(1)(i) are
received by the consumer and the
consumer indicates intent to proceed.
Similarly, a creditor does not comply
with the requirements of § 1026.19(e)(2)
if the creditor requires the consumer to
provide a credit card number before the
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51421
consumer receives the disclosures
required by § 1026.19(e)(1)(i) and the
consumer subsequently indicates intent
to proceed, even if the creditor promises
not to charge the consumer’s credit card
for the $500 processing fee until after
the disclosures required by
§ 1026.19(e)(1)(i) are received by the
consumer and the consumer
subsequently indicates intent to
proceed. In contrast, a creditor complies
with § 1026.19(e)(2) if the creditor
requires the consumer to provide a
credit card number before the consumer
receives the disclosures required by
§ 1026.19(e)(1)(i) and subsequently
indicates intent to proceed if the
consumer’s authorization is only to pay
for the cost of a credit report. This is so
even if the creditor maintains the
consumer’s credit card number on file
and charges the consumer a $500
processing fee after the disclosures
required by § 1026.19(e)(1)(i) are
received and the consumer
subsequently indicates intent to
proceed, provided that the creditor
requested and received a separate
authorization for the processing fee from
the consumer after the consumer
received the disclosures required by
§ 1026.19(e)(1)(i).
19(e)(2)(i)(B) Exception to fee
restriction.
1. Requirements. A creditor or other
person may impose a fee before the
consumer receives the required
disclosures if it is for purchasing a
credit report on the consumer. The fee
also must be bona fide and reasonable
in amount. For example, a creditor may
collect a fee for obtaining a credit report
if it is in the creditor’s ordinary course
of business to obtain a credit report. If
the criteria in § 1026.19(e)(2)(i)(B) are
met, the creditor must accurately
describe or refer to this fee, for example,
as a ‘‘credit report fee.’’
19(e)(2)(ii) Written information
provided to consumer.
1. Requirements. Section
1026.19(e)(2)(ii) requires the creditor to
include a notice on certain written
estimates provided to the consumer
before the disclosures required by
§ 1026.19(e)(1)(i) are provided. The
requirement applies only to written
information specific to the consumer.
For example, if the creditor provides a
document showing the estimated
monthly payment for a mortgage loan,
and the estimate was based on the
estimated loan amount and the
consumer’s estimated credit score, then
the creditor must include the warning
on the document. In contrast, if the
creditor provides the consumer with a
preprinted list of closing costs common
in the consumer’s area, the creditor
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need not include the warning. Similarly,
the warning would not be required on
a preprinted list of available rates for
different loan products. This
requirement does not apply to an
advertisement, as defined in
§ 1026.2(a)(2). See also comment
19(e)(1)(ii)–4 regarding mortgage broker
provision of written estimates specific
to the consumer.
19(e)(2)(iii) Verification of
information.
1. Requirements. The creditor may
collect from the consumer any
information that it requires prior to
providing the early disclosures,
including information not listed in
§ 1026.2(a)(3)(ii). However, the creditor
is not permitted to require, before
providing the disclosures required by
§ 1026.19(e)(1)(i), that the consumer
submit documentation to verify the
information provided by the consumer.
For example, the creditor may ask for
the names, account numbers, and
balances of the consumer’s checking
and savings accounts, but the creditor
may not require the consumer to
provide bank statements, or similar
documentation, to support the
information the consumer provides
orally before providing the disclosures
required by § 1026.19(e)(1)(i). See also
§ 1026.2(a)(3) and the related
commentary regarding the definition of
application.
19(e)(3) Good faith determination for
estimates of closing costs.
19(e)(3)(i) General rule.
1. Requirement. Section
1026.19(e)(3)(i) provides the general
rule that an estimated charge disclosed
pursuant to § 1026.19(e) is not in good
faith if the charge paid by or imposed
upon the consumer exceeds the amount
originally disclosed. Although
§ 1026.19(e)(3)(ii) and (iii) provide
exceptions to the general rule, the
charges that remain subject to
§ 1026.19(e)(3)(i) include, but are not
limited to, the following:
i. Fees paid to the creditor.
ii. Fees paid to a mortgage broker.
iii. Fees paid to an affiliate of the
creditor or a mortgage broker.
iv. Fees paid to an unaffiliated third
party if the creditor did not permit the
consumer to select a third party service
provider, other than those providers
identified on the written list provided
pursuant to § 1026.19(e)(1)(vi).
v. Transfer taxes.
2. Fees ‘‘paid to’’ a person. For
purposes of § 1026.19(e), a fee is not
considered ‘‘paid to’’ a person if the
person does not retain the fee, or if the
person retains the fee as reimbursement
for an amount it has already paid to
another party. For example, if a
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consumer pays the creditor an appraisal
fee in advance of the real estate closing
and the creditor subsequently uses those
funds to pay another party for an
appraisal, then the appraisal fee is not
‘‘paid to’’ the creditor for the purposes
of § 1026.19(e). Similarly, if a creditor
pays for an appraisal in advance of the
real estate closing and the consumer
pays the creditor an appraisal fee at the
real estate closing, then the fee is not
‘‘paid to’’ the creditor for the purposes
of § 1026.19(e), even though the creditor
retains the fee, because the payment is
a reimbursement for an amount already
paid.
3. Transfer taxes and recording fees.
See comments 37(g)(1)–1, –2, –3 and –4
for a discussion of the difference
between transfer taxes and recording
fees.
4. Specific credits, rebates, or
reimbursements. An item identified, on
the disclosures provided pursuant to
§ 1026.19(e), as a payment from a
creditor to the consumer to pay for a
specific fee, such as a credit, rebate, or
reimbursement, is not subject to the
good faith determination requirements
in § 1026.19(e)(3)(i) or (ii) if the
increased specific credit, rebate, or
reimbursement actually reduces the cost
to the consumer. Specific credits,
rebates, or reimbursements may not be
disclosed or revised in a way that
achieves what would otherwise violate
the requirements of § 1026.19(e)(3)(i)
and (ii). For example, assume the
creditor originally disclosed a $100 pest
inspection fee credit to cover the cost of
a $100 pest inspection fee paid to an
affiliated provider and subject to
§ 1026.19(e)(3)(i). If the pest inspection
fee subsequently increases to $150, and
the creditor increases the amount of the
pest inspection fee credit from $100 to
$150 to pay for the increase, the credit
is not being revised in a way that would
otherwise violate the requirements of
§ 1026.19(e)(3)(i) because, although the
disclosed amount increased, the amount
paid by the consumer did not. However,
if the creditor disclosed a $150 pest
inspection fee credit to cover the cost of
a $150 pest inspection fee paid to an
affiliated provider and subject to
§ 1026.19(e)(3)(i), and the creditor
subsequently decreases the pest
inspection fee credit from $150 to $100,
even though the pest inspection fee
remained at $150, then the requirements
of § 1026.19(e)(3)(i) have been violated
because, although the disclosed amount
did not increase, the amount paid by the
consumer for this service did increase.
5. Lender credits. The disclosure of
‘‘lender credits,’’ as identified in
§ 1026.37(g)(6)(ii), is required by
§ 1026.19(e)(1)(i). These are payments
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from the creditor to the consumer that
do not pay for a particular fee on the
disclosures provided pursuant to
§ 1026.19(e)(1)(i). These non-specific
credits are negative charges to the
consumer—as the lender credit
decreases, the overall cost to the
consumer increases. Thus, an actual
lender credit provided at the real estate
closing that is less than the estimated
lender credit provided pursuant to
§ 1026.19(e)(1)(i) is an increased charge
to the consumer for purposes of
determining good faith under
§ 1026.19(e)(3)(i). For example, if the
creditor provides a $750 estimate for
lender credits in the disclosures
required by § 1026.19(e)(1)(i), but only a
$500 lender credit is actually provided
to the consumer at the real estate
closing, the creditor has not complied
with § 1026.19(e)(3)(i) because, although
the actual lender credit was less than
the estimated lender credit provided in
the revised disclosures, the overall cost
to the consumer increased and,
therefore, did not comply with
§ 1026.19(e)(3)(i). See also
§ 1026.19(e)(3)(iv)(D) and comment
19(e)(3)(iv)(D)–1 for a discussion of
lender credits in the context of interest
rate dependent charges.
19(e)(3)(ii) Limited increases
permitted for certain charges.
1. Requirements. Section
1026.19(e)(3)(ii) provides that certain
estimated charges are in good faith if the
sum of all such charges paid by or
imposed on the consumer does not
exceed the sum of all such charges
disclosed pursuant to § 1026.19(e) by
more than ten percent. Section
1026.19(e)(3)(ii) permits this limited
increase for only the following items:
i. Fees paid to an unaffiliated third
party if the creditor permitted the
consumer to select a settlement service
provider that is not on the list provided
pursuant to § 1026.19(e)(1)(vi) and
discloses that the consumer may do so
on that list.
ii. Recording fees.
2. Aggregate increase limited to ten
percent. Pursuant to § 1026.19(e)(3)(ii),
whether an individual estimated charge
subject to § 1026.19(e)(3)(ii) is in good
faith depends on whether the sum of all
charges subject to § 1026.19(e)(3)(ii)
increase by more than ten percent, even
if a particular charge does not increase
by more than ten percent. For example,
if, in the disclosures provided pursuant
to § 1026.19(e)(1)(i), the creditor
includes a $300 estimated fee for a
settlement agent, the settlement agent
fee is included in the category of
charges subject to § 1026.19(e)(3)(ii),
and the sum of all charges subject to
§ 1026.19(e)(3)(ii) (including the
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settlement agent fee) equals $1,000, then
the creditor does not violate
§ 1026.19(e)(3)(ii) if the actual
settlement agent fee exceeds ten percent
(i.e., exceeds $330), provided that the
sum of all such charges does not exceed
ten percent (i.e., $1,100). Section
1026.19(e)(3)(ii) also provides flexibility
in disclosing individual fees by focusing
on aggregate amounts. For example,
assume that, in the disclosures provided
pursuant to § 1026.19(e)(1)(i), the sum of
all estimated charges subject to
§ 1026.19(e)(3)(ii) equals $1,000. If the
creditor does not include an estimated
charge for a notary fee but a $10 notary
fee is charged to the consumer, and the
notary fee is subject to
§ 1026.19(e)(3)(ii), then the creditor does
not violate § 1026.19(e)(1)(i) if the sum
of all amounts charged to the consumer
subject to § 1026.19(e)(3)(ii) does not
exceed $1,100, even though an
individual notary fee was not included
in the estimated disclosures provided
pursuant to § 1026.19(e)(1)(i).
3. Services for which the consumer
may, but does not, select a settlement
service provider. Good faith is
determined pursuant to
§ 1026.19(e)(3)(ii), instead of
§ 1026.19(e)(3)(i), if the creditor permits
the consumer to shop for a settlement
service provider, consistent with
§ 1026.19(e)(1)(vi)(A). Section
1026.19(e)(3)(ii) provides that if the
creditor requires a service in connection
with the mortgage loan transaction, and
permits the consumer to shop for that
service consistent with
§ 1026.19(e)(1)(vi)(A), but the consumer
either does not select a settlement
service provider or chooses a settlement
service provider identified by the
creditor on the list, then good faith is
determined pursuant to
§ 1026.19(e)(3)(ii)(A), instead of
§ 1026.19(e)(3)(i) and subject to the
other requirements in
§ 1026.19(e)(3)(ii)(B) and (C). For
example, if, in the disclosures provided
pursuant to §§ 1026.19(e)(1)(i) and
1026.37(f)(3), a creditor discloses an
estimated fee for an unaffiliated
settlement agent and permits the
consumer to shop for that service, but
the consumer either does not choose a
provider, or chooses a provider
identified by the creditor on the written
list provided pursuant to
§ 1026.19(e)(1)(vi)(C), then the estimated
settlement agent fee is included with the
fees that may, in aggregate, increase by
no more than ten percent for the
purposes of § 1026.19(e)(3)(ii). If,
however, the consumer chooses a
provider that is not on the written list,
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then good faith is determined according
to § 1026.19(e)(3)(iii).
4. Recording fees. Section
1026.19(e)(3)(ii) provides that an
estimate of recording fees is in good
faith if the conditions specified in
§ 1026.19(e)(3)(ii)(A), (B), and (C) are
satisfied. However, the condition
specified in § 1026.19(e)(3)(ii)(B), that
the charge not be paid to an affiliate of
the creditor, is inapplicable for
recording fees. The condition specified
in § 1026.19(e)(3)(ii)(C), that the creditor
permits the consumer to shop for the
service, is similarly inapplicable.
Therefore, estimates of recording fees
need only satisfy the condition specified
in § 1026.19(e)(3)(ii)(A) to meet the
requirements of § 1026.19(e)(3)(ii).
19(e)(3)(iii) Variations permitted for
certain charges.
1. Good faith requirement for prepaid
interest, property insurance premiums,
and impound amounts. Estimates of
prepaid interest, property insurance
premiums, and impound amounts must
be consistent with the best information
reasonably available to the creditor at
the time the disclosures are provided.
Differences between the amounts of
such charges disclosed under
§ 1026.19(e)(1)(i) and the amounts of
such charges paid by or imposed on the
consumer do not necessarily constitute
a lack of good faith, so long as the
original estimated charge, or lack of an
estimated charge for a particular service,
was based on the best information
reasonably available to the creditor at
the time the disclosure was provided.
For example, if the creditor requires
homeowner’s insurance but fails to
include a homeowner’s insurance
premium on the estimates provided
pursuant to § 1026.19(e)(1)(i), then the
creditor’s failure to disclose does not
comply with § 1026.19(e)(3)(iii).
However, if the creditor does not require
flood insurance and the subject property
is located in an area where floods
frequently occur, but not specifically
located in a zone where flood insurance
is required, failure to include flood
insurance on the original estimates
provided pursuant to § 1026.19(e)(1)(i)
does not constitute a lack of good faith
under § 1026.19(e)(3)(iii). Or, if the
creditor knows that the loan must close
on the 15th of the month but estimates
prepaid interest to be paid from the 30th
of that month, then the under-disclosure
does not comply with
§ 1026.19(e)(3)(iii).
2. Good faith requirement for required
services chosen by the consumer. If a
service is required by the creditor, the
creditor permits the consumer to shop
for that service consistent with
§ 1026.19(e)(1)(vi)(A), the creditor
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provides the list required by
§ 1026.19(e)(1)(vi)(C), and the consumer
chooses a service provider that is not on
that list to perform that service, then the
actual amounts of such fees need not be
compared to the original estimates for
such fees to perform the good faith
analysis required by § 1026.19(e)(3)(i) or
(ii). Differences between the amounts of
such charges disclosed pursuant to
§ 1026.19(e)(1)(i) and the amounts of
such charges paid by or imposed on the
consumer do not necessarily constitute
a lack of good faith. However, the
original estimated charge, or lack of an
estimated charge for a particular service,
must be made based on the best
information reasonably available to the
creditor at that time. For example, if the
consumer informs the creditor that the
consumer will choose a settlement agent
not identified by the creditor on the
written list provided pursuant to
§ 1026.19(e)(1)(vi)(C), and the creditor
subsequently discloses an unreasonably
low estimated settlement agent fee, then
the under-disclosure does not comply
with § 1026.19(e)(3)(iii). If the creditor
permits the consumer to shop consistent
with § 1026.19(e)(1)(vi)(A) but fails to
provide the list required by
§ 1026.19(e)(1)(vi)(C), good faith is
determined pursuant to
§ 1026.19(e)(3)(ii) instead of
§ 1026.19(e)(3)(iii) regardless of the
provider selected by the consumer,
unless the provider is an affiliate of the
creditor in which case good faith is
determined pursuant to
§ 1026.19(e)(3)(i).
3. Good faith requirement for nonrequired services chosen by the
consumer. Differences between the
amounts of estimated charges for
services not required by the creditor
disclosed pursuant to § 1026.19(e)(1)(i)
and the amounts of such charges paid
by or imposed on the consumer do not
necessarily constitute a lack of good
faith. For example, if the consumer
informs the creditor that the consumer
will obtain a type of inspection not
required by the creditor, the creditor
may include the charge for that item in
the disclosures provided pursuant to
§ 1026.19(e)(1)(i), but the actual amount
of the inspection fee need not be
compared to the original estimate for the
inspection fee to perform the good faith
analysis required by § 1026.19(e)(3)(iii).
However, the original estimated charge,
or lack of an estimated charge for a
particular service, must still be made
based on the best information
reasonably available to the creditor at
the time that the estimate was provided.
For example, if the subject property is
located in a jurisdiction where
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consumers are customarily represented
at closing by their own attorney, but the
creditor fails to include a fee for the
consumer’s attorney, or includes an
unreasonably low estimate for such fee,
on the original estimates provided
pursuant to § 1026.19(e)(1)(i), then the
creditor’s failure to disclose, or underestimation, does not comply with
§ 1026.19(e)(3)(iii).
19(e)(3)(iv) Revised estimates.
1. Requirement. Pursuant to
§ 1026.19(e)(3)(i) and (ii), good faith is
determined by calculating the difference
between the estimated charges
originally provided pursuant to
§ 1026.19(e)(1)(i) and the actual charges
paid by the consumer. Section
1026.19(e)(3)(iv) provides the exception
to this rule. Pursuant to
§ 1026.19(e)(3)(iv), a charge paid by or
imposed on the consumer may exceed
the originally estimated charge if the
revision is due to one of the reasons
specified in § 1026.19(e)(3)(iv)(A)
through (F).
2. Actual increase. The revised
disclosures may reflect increased
charges only to the extent that the
reason for revision, as identified in
§ 1026.19(e)(3)(iv)(A) through (F),
actually increased the particular charge.
For example, if a consumer requests a
rate lock extension, then the revised
disclosures may reflect a new rate lock
extension fee, but the fee may be no
more than the rate lock extension fee
charged by the creditor in its usual
course of business, and other charges
unrelated to the rate lock extension may
not change.
3. Documentation requirement. In
order to comply with § 1026.25,
creditors must retain records
demonstrating compliance with the
requirements of § 1026.19(e). For
example, if revised disclosures are
provided because of a changed
circumstance under
§ 1026.19(e)(3)(iv)(A) affecting
settlement costs, the creditor must be
able to show compliance with
§ 1026.19(e) by documenting the
original estimate of the cost at issue,
explaining the reason for revision and
how it affected settlement costs,
showing that the corrected disclosure
increased the estimate only to the extent
that the reason for revision actually
increased the cost, and showing that the
timing requirements of § 1026.19(e)(4)
were satisfied. However, the
documentation requirement does not
require separate corrected disclosures
for each change. A creditor may provide
corrected disclosures reflecting multiple
changed circumstances, provided that
the creditor’s documentation
demonstrates that each correction
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complies with the requirements of
§ 1026.19(e).
19(e)(3)(iv)(A) Changed circumstance
affecting settlement charges.
1. Requirement. Except for the items
identified in § 1026.19(e)(3) (iii), revised
charges are compared to actual charges
if the revision was caused by a changed
circumstance. See also comment
19(e)(3)(iv)(A)–2 regarding the
definition of a changed circumstance.
The following examples illustrate the
application of this provision:
i. Assume a creditor provides a $200
estimated appraisal fee pursuant to
§ 1026.19(e)(1)(i), which will be paid to
an affiliated appraiser and therefore may
not increase for purposes of determining
good faith under § 1026.19(e)(3)(i),
except as provided in
§ 1026.19(e)(3)(iv). The estimate was
based on information provided by the
consumer at application, which
included information indicating that the
subject property was a single-family
dwelling. Upon arrival at the subject
property, the appraiser discovers that
the property is actually a single-family
dwelling located on a farm. A different
schedule of appraisal fees applies to
residences located on farms. A changed
circumstance has occurred (i.e.,
information provided by the consumer
is found to be inaccurate after the
disclosures required under
§ 1026.19(e)(1)(i) were provided), which
caused an increase in the cost of the
appraisal. Therefore, if the creditor
issues revised disclosures with the
corrected appraisal fee, the actual
appraisal fee of $400 paid at the real
estate closing by the consumer will be
compared to the revised appraisal fee of
$400 to determine if the actual fee has
increased above the estimated fee.
However, if the creditor failed to
provide revised disclosures, then the
actual appraisal fee of $400 must be
compared to the originally disclosed
estimated appraisal fee of $200.
ii. Assume a creditor provides a $400
estimate of title fees, which are included
in the category of fees which may not
increase by more than ten percent for
the purposes of determining good faith
under § 1026.19(e)(3)(ii), except as
provided in § 1026.19(e)(3)(iv). An
unreleased lien is discovered and the
title company must perform additional
work to release the lien. However, the
additional costs amount to only a five
percent increase over the sum of all fees
included in the category of fees which
may not increase by more than ten
percent. A changed circumstance has
occurred (i.e., new information), but
costs have not increased by more than
ten percent. Therefore, if the creditor
issues revised disclosures, when the
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disclosures required by § 1026.19(f)(1)(i)
are delivered, the actual title fees of
$500 may not be compared to the
revised title fees of $500; they must be
compared to the originally estimated
title fees of $400.
2. Changed circumstance. A changed
circumstance may be an extraordinary
event beyond the control of any
interested party. For example, a war or
a natural disaster would be an
extraordinary event beyond the control
of an interested party. A changed
circumstance may also be an
unexpected event specific to the
consumer or the transaction. For
example, if the creditor provided an
estimate of title insurance on the
disclosures required under
§ 1026.19(e)(1)(i), but the title insurer
goes out of business during
underwriting, then this unexpected
event specific to the transaction is a
changed circumstance. A changed
circumstance may also be information
specific to the consumer or transaction
that the creditor relied upon when
providing the disclosures required
under § 1026.19(e)(1)(i) and that was
inaccurate or changed after the
disclosures were provided. For example,
if the creditor relied on the consumer’s
income when providing the disclosures
required under § 1026.19(e)(1)(i), and
the consumer represented to the creditor
that the consumer had an annual
income of $90,000, but underwriting
determines that the consumer’s annual
income is only $80,000, then this
inaccuracy in information relied upon is
a changed circumstance. Or, assume two
co-applicants applied for a mortgage
loan. One applicant’s income was
$30,000, while the other applicant’s
income was $50,000. If the creditor
relied on the combined income of
$80,000 when providing the disclosures
required under § 1026.19(e)(1)(i), but the
applicant earning $30,000 becomes
unemployed during underwriting,
thereby reducing the combined income
to $50,000, then this change in
information relied upon is a changed
circumstance. A changed circumstance
may also be the discovery of new
information specific to the consumer or
transaction that the creditor did not rely
on when providing the original
disclosures. For example, if the creditor
relied upon the value of the property in
providing the disclosures required
under § 1026.19(e)(1)(i), but during
underwriting a neighbor of the seller,
upon learning of the impending sale of
the property, files a claim contesting the
boundary of the property to be sold,
then this new information specific to
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the transaction is a changed
circumstance.
3. Six pieces of information presumed
collected, but not required. Section
1026.19(e)(1)(iii) requires creditors to
deliver the disclosures not later than the
third business day after the creditor
receives the consumer’s application,
which § 1026.2(a)(3)(ii) defines as six
pieces of information. A creditor is not
required to collect the consumer’s name,
monthly income, or social security
number to obtain a credit report, the
property address, an estimate of the
value of the property, or the mortgage
loan amount sought. However, for
purposes of determining whether an
estimate is provided in good faith under
§ 1026.19(e)(1)(i), a creditor is presumed
to have collected these six pieces of
information. For example, if a creditor
provides the disclosures required by
§ 1026.19(e)(1)(i) prior to receiving the
property address from the consumer, the
creditor cannot subsequently claim that
the receipt of the property address is a
changed circumstance pursuant to
§ 1026.19(e)(3)(iv)(A) or (B).
19(e)(3)(iv)(B) Changed circumstance
affecting eligibility.
1. Requirement. If changed
circumstances cause a change in the
consumer’s eligibility for specific loan
terms disclosed pursuant to
§ 1026.19(e)(1)(i) and revised
disclosures are provided reflecting such
change, the final amounts paid by the
consumer may be compared to the
revised estimated disclosures to
determine if the actual fee has increased
above the estimated fee. For example,
assume that, prior to providing the
disclosures required by
§ 1026.19(e)(1)(i), the creditor believed
that the consumer was eligible for a loan
program that did not require an
appraisal. The creditor then provides
the estimated disclosures required by
§ 1026.19(e)(1)(i), which do not include
an estimated charge for an appraisal.
During underwriting it is discovered
that the consumer was delinquent on
mortgage loan payments in the past,
making the consumer ineligible for the
loan program originally identified on
the estimated disclosures, but the
consumer remains eligible for a different
program that requires an appraisal. If
the creditor provides revised disclosures
reflecting the new program and
including the appraisal fee, then the
actual appraisal fee will be compared to
the revised appraisal fee to determine if
the actual fee has increased above the
estimated fee. However, if the revised
disclosures also include increased
estimates for title fees, the actual title
fees must be compared to the original
estimates because the increased title
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fees do not stem from the change in
eligibility. See also
§ 1026.19(e)(3)(iv)(A) and comment
19(e)(3)(iv)(A)–2 regarding the
definition of changed circumstances.
19(e)(3)(iv)(C) Revisions requested by
the consumer.
1. Requirement. If the consumer
requests revisions to the transaction that
affect items disclosed pursuant to
§ 1026.19(e)(1)(i), and the creditor
provides revised disclosures reflecting
the consumer’s requested changes, the
final disclosures are compared to the
revised disclosures to determine
whether the actual fee has increased
above the estimated fee. For example,
assume that the consumer decides to
grant a power of attorney authorizing a
family member to consummate the
transaction on the consumer’s behalf
after the disclosures required under
§ 1026.19(e)(1)(i) are provided. If the
creditor provides revised disclosures
reflecting the fee to record the power of
attorney, then the actual charges will be
compared to the revised charges to
determine if the fees have increased.
19(e)(3)(iv)(D) Interest rate dependent
charges.
1. Requirements. If the interest rate is
not set when the disclosures required by
§ 1026.19(e)(1)(i) are delivered, a valid
reason for revision exists when the
interest rate is subsequently set, at
which point § 1026.19(e)(3)(iv)(D)
requires the creditor to issue a revised
version of the disclosures required by
§ 1026.19(e)(1)(i) reflecting the revised
interest rate, bona fide discount points,
and lender credits. The following
examples illustrate this requirement:
i. Assume a creditor sets the interest
rate by executing a rate lock agreement
with the consumer. If such an agreement
exists when the disclosures required by
§ 1026.19(e)(1)(i) are originally
provided, then the actual bona fide
discount points and lender credits are
compared to the estimated bona fide
discount points and lender credits
included in the disclosures originally
provided pursuant to § 1026.19(e)(1)(i)
for the purpose of determining good
faith pursuant to § 1026.19(e)(3)(i). If the
consumer enters into a rate lock
agreement with the creditor after the
disclosures required by
§ 1026.19(e)(1)(i) were provided, then
§ 1026.19(e)(3)(iv)(D) requires the
creditor to provide revised disclosures
reflecting any revised bona fide
discount points and lender credits, in
which case the actual bona fide
discount points and lender credits are
compared to the revised bona fide
discount points and lender credits for
the purpose of determining good faith
pursuant to § 1026.19(e)(3)(i).
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51425
ii. Assume a creditor does not offer
rate lock agreements, but instead sets
the interest rate on all mortgage loan
transactions according to the interest
rate in effect seven days prior to
consummation. Section
1026.19(e)(3)(iv)(D) requires the creditor
to issue a revised version of the
disclosures required by
§ 1026.19(e)(1)(i) reflecting the set
interest rate, bona fide discount points,
and lender credits. The actual bona fide
discount points and lender credits are
compared to the revised bona fide
discount points and lender credits for
the purpose of determining good faith
pursuant to § 1026.19(e)(3)(i).
19(e)(3)(iv)(E) Expiration.
1. Requirements. Section
1026.19(e)(3)(i) provides the general
rule that the actual fees charged cannot
exceed the fees disclosed pursuant to
§ 1026.19(e)(1)(i). An exception to that
rule applies if the creditor provides
revised versions of the disclosures
required by § 1026.19(e)(1)(i) because
the consumer indicates an intent to
proceed with the transaction more than
ten business days after the disclosures
were originally provided. However,
§ 1026.19(e)(3)(iv)(E) requires no
justification for the change other than
the lapse of ten business days. For
example, assume a creditor includes a
$500 underwriting fee on the
disclosures provided pursuant to
§ 1026.19(e)(1)(i) and the creditor
delivers those disclosures on a Monday.
If the consumer indicates intent to
proceed 11 business days later, the
creditor may provide new disclosures
with a $700 underwriting fee. In this
example § 1026.19(e) and § 1026.25
require the creditor to document that a
new disclosure was provided pursuant
to § 1026.19(e)(3)(iv)(E), but do not
require the creditor to document a
reason for the increase in the
underwriting fee.
19(e)(3)(iv)(F) Delayed settlement date
on a construction loan.
1. Requirements. A loan for the
purchase of a home either to be
constructed or under construction is
considered a construction loan to build
a home for the purposes of
§ 1026.19(e)(3)(iv)(F). For example, a
loan to purchase and build a home that
has yet to be constructed, or a loan to
purchase a home on which construction
is currently underway, is a construction
loan to build a home for the purposes
of § 1026.19(e)(3)(iv)(F). However, if a
use and occupancy permit has been
issued for the home prior to the
issuance of the Loan Estimate, then the
home is not considered to be under
construction and the transaction would
not be a construction loan to build a
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home for the purposes of
§ 1026.19(e)(3)(iv)(F).
19(e)(4) Provision of revised
disclosures.
1. Three-day requirement. Section
1026.19(e)(4) provides that the creditor
must deliver revised disclosures within
three business days of receiving
information sufficient to establish that a
reason for revision, as specified under
§ 1026.19(e)(3)(iv)(A) through (F), has
occurred. The following examples
illustrate these requirements:
i. Assume a creditor requires a pest
inspection. The unaffiliated pest
inspection company informs the
creditor on Monday that the subject
property contains evidence of termite
damage, requiring a further inspection,
the cost of which will cause an increase
in estimated settlement charges subject
to § 1026.19(e)(3)(ii) by more than ten
percent. The creditor must deliver
revised disclosures by Thursday to
comply with § 1026.19(e)(4)(i).
ii. Assume a creditor receives
information on Monday that, because of
a changed circumstance under
§ 1026.19(e)(3)(iv)(A), the title fees will
increase by an amount totaling six
percent of the originally estimated
settlement charges subject to
§ 1026.19(e)(3)(ii). The creditor had
received information three weeks before
that, because of a changed circumstance
under § 1026.19(e)(3)(iv)(A), the
appraisal fees increased by an amount
totaling five percent of the originally
estimated settlement charges subject to
§ 1026.19(e)(3)(ii). Thus, on Monday,
the creditor has received sufficient
information to establish a valid reason
for revision and must provide revised
disclosures reflecting the 11 percent
increase by Thursday to comply with
§ 1026.19(e)(4)(i).
iii. Assume a creditor requires an
appraisal. The creditor receives the
appraisal report, which indicates that
the value of the home is significantly
lower than expected. However, the
creditor has reason to doubt the validity
of the appraisal report. A reason for
revision has not been established
because the creditor reasonably believes
that the appraisal report is incorrect.
The creditor then chooses to send a
different appraiser for a second opinion,
but the second appraiser returns a
similar report. At this point, the creditor
has received information sufficient to
establish that a reason for revision has,
in fact, occurred, and must provide
corrected disclosures within three
business days of receiving the second
appraisal report. In this example, in
order to comply with § 1026.19(e)(3)(iv)
and § 1026.25, the creditor must
maintain records documenting the
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creditor’s doubts regarding the validity
of the appraisal to demonstrate that the
reason for revision did not occur upon
receipt of the first appraisal report.
2. Revised disclosures may not be
delivered at the same time as the final
disclosures. Creditors comply with the
requirements of § 1026.19(e)(4) if the
revised disclosures are reflected in the
disclosures required by
§ 1026.19(f)(1)(i). For example, if the
creditor is scheduled to meet with the
consumer and provide the disclosures
required by § 1026.19(f)(1)(i) on
Wednesday, and the APR becomes
inaccurate on Tuesday, the creditor
would comply with the requirements of
§ 1026.19(e)(4) by providing the
disclosures required by § 1026.19(f)(1)(i)
reflecting the revised APR on
Wednesday. However, the creditor
would not comply with the
requirements of § 1026.19(e)(4) if it
provided both a revised version of the
disclosures required by
§ 1026.19(e)(1)(i) reflecting the revised
APR on Wednesday, and also provided
the disclosures required by
§ 1026.19(f)(1)(i) on Wednesday. Or, if
the creditor is scheduled to email the
disclosures required by § 1026.19(f)(1)(i)
to the consumer on Wednesday, and the
consumer requests a change to the loan
that would result in revised disclosures
pursuant to § 1026.19(e)(3)(iv)(C) on
Tuesday, the creditor would comply
with the requirements § 1026.19(e)(4) by
providing the disclosures required by
§ 1026.19(f)(1)(i) reflecting the consumer
requested changes on Wednesday.
However, the creditor would not
comply if it provided both the
disclosures required by
§ 1026.19(e)(1)(i) reflecting consumer
requested changes and the disclosures
required by § 1026.19(f)(1)(i) on
Wednesday.
Alternative 1—Paragraph (f)(1)
19(f) Mortgage loans secured by real
property—Final disclosures.
19(f)(1) Provision.
19(f)(1)(i) Scope.
1. Requirements. Section
1026.19(f)(1)(i) requires disclosure of
the actual terms of the credit
transaction, and the actual costs
associated with the settlement of that
transaction, for closed-end credit
transactions that are secured by real
property, other than reverse mortgages
subject to § 1026.33. For example, if the
creditor requires the consumer to pay
money into a reserve account for the
future payment of taxes, the creditor
must disclose to the consumer the exact
amount that the consumer is required to
pay into the reserve account. If the
disclosures provided pursuant to
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§ 1026.19(f)(1)(i) do not contain the
actual terms of the transaction, the
creditor does not violate
§ 1026.19(f)(1)(i) if the creditor provides
new disclosures that contain the actual
terms of the transaction and complies
with the other requirements of
§ 1026.19(f), including the timing
requirements in § 1026.19(f)(1)(ii). For
example, if the creditor provides the
disclosures required by § 1026.19(f)(1)(i)
on Monday, June 1, but the consumer
requests a change to the terms of the
transaction on Tuesday, June 2, the
creditor complies with § 1026.19(f)(1)(i)
if it provides disclosures reflecting the
revised terms of the transaction on or
after Tuesday, June 2, assuming that the
revised disclosures are also provided no
later than three business days before
consummation.
19(f)(1)(ii) Timing.
1. Timing. Except as provided in
§ 1026.19(f)(1)(ii)(B) or (f)(2), the
disclosures required by § 1026.19(f)(1)(i)
must be received by the consumer no
later than three business days before
consummation. For example, if
consummation is scheduled for
Thursday, the creditor satisfies this
requirement by hand delivering the
disclosures on Monday, assuming each
weekday is a business day. For purposes
of § 1026.19(f)(1)(ii), the term ‘‘business
day’’ means all calendar days except
Sundays and legal public holidays
referred to in § 1026.2(a)(6). See
comment 2(a)(6)–2. See comment
2(a)(6)–1.
2. Receipt of disclosures three
business days before consummation.
Section 1026.19(f)(1)(ii) provides that
the consumer must receive the
disclosures no later than three business
days before consummation. To comply
with this requirement, the creditor must
arrange for delivery accordingly. For
example, if the consummation is
scheduled for Thursday, the creditor
satisfies this requirement by delivering
the disclosures on Monday by way of
electronic mail, provided the
requirements of § 1026.17(a)(1) relating
to disclosures in electronic form are
satisfied and assuming that each
weekday is a business day. However, a
creditor does not satisfy the
requirements of § 1026.19(f)(1)(ii) in this
example if the creditor places the
disclosures in the mail on Monday. A
creditor would satisfy the requirements
of § 1026.19(f)(1)(ii) in this example if
the creditor places the disclosures in the
mail on Thursday of the previous week,
because, for the purposes of
§ 1026.19(f)(1)(ii), Saturday as a
business day, pursuant to § 1026.2(a)(6).
3. Timeshares. For loans secured by
timeshares, as defined under 11 U.S.C.
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101(53D), § 1026.19(f)(1)(ii)(B) requires
a creditor to ensure that the consumer
receives the disclosures required under
§ 1026.19(f)(1)(i) as soon as reasonably
practicable, but no later than
consummation. For example, if a
consumer provides the creditor with an
application, as defined by § 1026.2(a)(3),
for a mortgage loan secured by a
timeshare on Monday, June 1, the
creditor may provide the consumer with
the disclosures required by
§ 1026.19(e)(1)(i) on the same day,
pursuant to § 1026.19(e)(1)(iii). If
consummation of this transaction is
scheduled for Friday, June 5, the
creditor may provide the consumer with
the disclosures required by
§ 1026.19(f)(1)(i) on Tuesday, June 2, if
doing so is reasonably practicable. If,
however, consummation is scheduled
for Tuesday, June 2, then the creditor
complies with § 1026.19(f)(1)(ii)(B) by
providing the disclosures required by
§ 1026.19(f)(1)(i) on Tuesday, June 2, the
day of consummation. If the consumer
provides the creditor with an
application, as defined by § 1026.2(a)(3),
for a mortgage loan secured by a
timeshare on Monday, June 1, and
wishes to consummate the transaction
on that same day, then the creditor
complies with § 1026.19(e)(4)(ii) by
providing the disclosures required by
§ 1026.19(f)(1)(i) instead of the
disclosures required by
§ 1026.19(e)(1)(i) on Monday, June 1,
and the creditor also complies with
§ 1026.19(f)(1)(ii)(B) by providing the
disclosures required by § 1026.19(f)(1)(i)
on Monday, June 1.
19(f)(1)(iii) Delivery.
1. Mail delivery. Section
1026.19(f)(1)(iii) provides that, if any
disclosures required under
§ 1026.19(f)(1)(i) are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer. This
is a presumption which may be rebutted
by providing evidence that the
consumer received the disclosures
earlier than three business days. For
example, if the creditor sends the
disclosures via overnight mail on
Monday, and the consumer signs for
receipt of the overnight delivery on
Tuesday, the creditor could demonstrate
that the disclosures were received on
Tuesday, thereby rebutting the
presumption that the disclosures were
received on Thursday, three business
days after the disclosures were sent.
2. Electronic delivery. The
presumption established in
§ 1026.19(f)(1)(iii) applies to methods of
electronic delivery, such as email. For
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example, if a creditor sends a disclosure
required under § 1026.19(f) via email on
Monday, pursuant to § 1026.19(f)(1)(iii)
the consumer is presumed to have
received the disclosure on Thursday,
three business days later. However, the
creditor may rebut the presumption by
providing evidence that the consumer
received the emailed disclosures earlier.
Creditors using electronic delivery
methods, such as email, must also
comply with § 1026.17(a)(1). For
example, if a creditor delivers the
disclosures required by § 1026.19(f)(1)(i)
to a consumer via email, but the creditor
did not obtain the consumer’s consent
to receive disclosures via email prior to
delivering the disclosures, then the
creditor does not comply with
§ 1026.17(a)(1), and the creditor does
not comply with § 1026.19(f)(1)(i),
assuming the disclosures were not
provided in a different manner in
accordance with the timing
requirements of § 1026.19(f)(1)(ii).
19(f)(1)(iv) Consumer’s waiver of
waiting period before consummation.
1. Modification or waiver. A consumer
may modify or waive the right to the
three-business-day waiting period
required by § 1026.19(f)(1)(ii) only after
the creditor makes the disclosures
required by § 1026.19(f)(1)(i). The
consumer must have a bona fide
personal financial emergency that
necessitates consummating the credit
transaction before the end of the waiting
period. Whether these conditions are
met is determined by the facts
surrounding individual situations. The
imminent sale of the consumer’s home
at foreclosure, where the foreclosure
sale will proceed unless loan proceeds
are made available to the consumer
during the waiting period, is one
example of a bona fide personal
financial emergency. Each consumer
who is primarily liable on the legal
obligation must sign the written
statement for the waiver to be effective.
Alternative 2—Paragraph (f)(1)
19(f) Mortgage loans secured by real
property—Final disclosures.
19(f)(1) Provision.
19(f)(1)(i) Scope.
1. Requirements. Section
1026.19(f)(1)(i) requires disclosure of
the actual terms of the credit
transaction, and the actual costs
associated with the settlement of that
transaction, for closed-end credit
transactions that are secured by real
property, other than reverse mortgages
subject to § 1026.33. For example, if the
creditor requires the consumer to pay
money into a reserve account for the
future payment of taxes, the creditor
must disclose to the consumer the exact
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51427
amount that the consumer is required to
pay into the reserve account. If the
disclosures provided pursuant to
§ 1026.19(f)(1)(i) do not contain the
actual terms of the transaction, the
creditor does not violate
§ 1026.19(f)(1)(i) if the creditor provides
new disclosures that contain the actual
terms of the transaction and complies
with the other requirements of
§ 1026.19(f), including the timing
requirements in § 1026.19(f)(1)(ii). For
example, if the creditor provides the
disclosures required by § 1026.19(f)(1)(i)
on Monday, June 1, but the consumer
requests a change to the terms of the
transaction on Tuesday, June 2, the
creditor complies with § 1026.19(f)(1)(i)
if it provides disclosures reflecting the
revised terms of the transaction on or
after Tuesday, June 2, assuming that the
revised disclosures are also provided no
later than three business days before
consummation.
19(f)(1)(ii) Timing.
1. Timing. Except as provided in
§ 1026.19(f)(1)(ii)(B) or (f)(2), the
disclosures required by § 1026.19(f)(1)(i)
must be received by the consumer no
later than three business days before
consummation. For example, if
consummation is scheduled for
Thursday, the creditor satisfies this
requirement by hand delivering the
disclosures on Monday, assuming each
weekday is a business day. For purposes
of § 1026.19(f)(1)(ii), the term ‘‘business
day’’ means all calendar days except
Sundays and legal public holidays
referred to in § 1026.2(a)(6). See
comment 2(a)(6)–2. See comment
2(a)(6)–1.
2. Receipt of disclosures three
business days before consummation.
Section 1026.19(f)(1)(ii) provides that
the consumer must receive the
disclosures no later than three business
days before consummation. To comply
with this requirement, the creditor must
arrange for delivery accordingly. For
example, if the consummation is
scheduled for Thursday, the creditor
satisfies this requirement by delivering
the disclosures on Monday by way of
electronic mail, provided the
requirements of § 1026.17(a)(1) relating
to disclosures in electronic form are
satisfied and assuming that each
weekday is a business day. However, a
creditor does not satisfy the
requirements of § 1026.19(f)(1)(ii) in this
example if the creditor places the
disclosures in the mail on Monday. A
creditor would satisfy the requirements
of § 1026.19(f)(1)(ii) in this example if
the creditor places the disclosures in the
mail on Thursday of the previous week,
because, for the purposes of
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§ 1026.19(f)(1)(ii), Saturday as a
business day, pursuant to § 1026.2(a)(6).
3. Timeshares. For loans secured by
timeshares, as defined under 11 U.S.C.
101(53D), § 1026.19(f)(1)(ii)(B) requires
a creditor to ensure that the consumer
receives the disclosures required under
§ 1026.19(f)(1)(i) as soon as reasonably
practicable, but no later than
consummation. For example, if a
consumer provides the creditor with an
application, as defined by § 1026.2(a)(3),
for a mortgage loan secured by a
timeshare on Monday, June 1, the
creditor may provide the consumer with
the disclosures required by
§ 1026.19(e)(1)(i) on the same day,
pursuant to § 1026.19(e)(1)(iii). If
consummation of this transaction is
scheduled for Friday, June 5, the
creditor may provide the consumer with
the disclosures required by
§ 1026.19(f)(1)(i) on Tuesday, June 2, if
doing so is reasonably practicable. If,
however, consummation is scheduled
for Tuesday, June 2, then the creditor
complies with § 1026.19(f)(1)(ii)(B) by
providing the disclosures required by
§ 1026.19(f)(1)(i) on Tuesday, June 2, the
day of consummation. If the consumer
provides the creditor with an
application, as defined by § 1026.2(a)(3),
for a mortgage loan secured by a
timeshare on Monday, June 1, and
wishes to consummate the transaction
on that same day, then the creditor
complies with § 1026.19(e)(4)(ii) by
providing the disclosures required by
§ 1026.19(f)(1)(i) instead of the
disclosures required by
§ 1026.19(e)(1)(i) on Monday, June 1,
and the creditor also complies with
§ 1026.19(f)(1)(ii)(B) by providing the
disclosures required by § 1026.19(f)(1)(i)
on Monday, June 1.
19(f)(1)(iii) Delivery.
1. Mail delivery. Section
1026.19(f)(1)(iii) provides that, if any
disclosures required under
§ 1026.19(f)(1)(i) are not provided to the
consumer in person, the consumer is
presumed to have received the
disclosures three business days after
they are mailed or delivered to the
address specified by the consumer. This
is a presumption which may be rebutted
by providing evidence that the
consumer received the disclosures
earlier than three business days. For
example, if the creditor sends the
disclosures via overnight mail on
Monday, and the consumer signs for
receipt of the overnight delivery on
Tuesday, the creditor could demonstrate
that the disclosures were received on
Tuesday, thereby rebutting the
presumption that the disclosures were
received on Thursday, three business
days after the disclosures were sent.
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2. Electronic delivery. The
presumption established in
§ 1026.19(f)(1)(iii) applies to methods of
electronic delivery, such as email. For
example, if a creditor sends a disclosure
required under § 1026.19(f) via email on
Monday, pursuant to § 1026.19(f)(1)(iii)
the consumer is presumed to have
received the disclosure on Thursday,
three business days later. However, the
creditor may rebut the presumption by
providing evidence that the consumer
received the emailed disclosures earlier.
Creditors using electronic delivery
methods, such as email, must also
comply with § 1026.17(a)(1). For
example, if a creditor delivers the
disclosures required by § 1026.19(f)(1)(i)
to a consumer via email, but the creditor
did not obtain the consumer’s consent
to receive disclosures via email prior to
delivering the disclosures, then the
creditor does not comply with
§ 1026.17(a)(1), and the creditor does
not comply with § 1026.19(f)(1)(i),
assuming the disclosures were not
provided in a different manner in
accordance with the timing
requirements of § 1026.19(f)(1)(ii).
19(f)(1)(iv) Consumer’s waiver of
waiting period before consummation.
1. Modification or waiver. A consumer
may modify or waive the right to the
three-business-day waiting period
required by § 1026.19(f)(1)(ii) only after
the creditor makes the disclosures
required by § 1026.19(f)(1)(i). The
consumer must have a bona fide
personal financial emergency that
necessitates consummating the credit
transaction before the end of the waiting
period. Whether these conditions are
met is determined by the facts
surrounding individual situations. The
imminent sale of the consumer’s home
at foreclosure, where the foreclosure
sale will proceed unless loan proceeds
are made available to the consumer
during the waiting period, is one
example of a bona fide personal
financial emergency. Each consumer
who is primarily liable on the legal
obligation must sign the written
statement for the waiver to be effective.
19(f)(1)(v) Settlement agent
1. Requirements. A settlement agent
may provide the disclosures required
under § 1026.19(f)(1)(i) instead of the
creditor. By assuming this
responsibility, the settlement agent
becomes responsible for complying with
all of the relevant requirements as if it
were the creditor, meaning that
‘‘settlement agent’’ should be read in the
place of ‘‘creditor’’ for all the relevant
provisions of § 1026.19(f), except where
such a reading would create
responsibility for settlement agent under
§ 1026.19(e). For example, comment
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19(f)(1)(ii)–3 states that, if a consumer
provides the creditor with an
application for a mortgage loan secured
by a timeshare on Monday, June 1, the
creditor may provide the consumer with
the disclosures required by
§ 1026.19(e)(1)(i) on the same day,
pursuant to § 1026.19(e)(1)(iii).
‘‘Settlement agent’’ could not be read in
place of ‘‘creditor’’ in comment
19(f)(1)(ii)–3 because the settlement
agents are not responsible for the
disclosures required by
§ 1026.19(e)(1)(i). To ensure timely and
accurate compliance with the
requirements of this section, the creditor
and settlement agent need to effectively
communicate.
2. Settlement agent responsibilities. If
a settlement agent issues any disclosure
under § 1026.19(f), the settlement agent
must comply with the requirements of
§ 1026.19(f). For example, the settlement
agent must ensure that the consumer
received the disclosures required under
§ 1026.19(f)(1)(i) no later than three
business days before consummation in
accordance with § 1026.19(f)(1)(ii). The
settlement agent may assume the
responsibility to provide some or all of
the disclosures required by § 1026.19(f).
For example, both the creditor and the
settlement agent comply with the
requirements of § 1026.19(f)(1)(v) if the
settlement agent agrees to complete only
the portion of the disclosures required
by § 1026.19(f)(1)(i) related to closing
costs for taxes, title fees, and insurance
premiums, the creditor agrees to
complete the remainder of the
disclosures required by
§ 1026.19(f)(1)(i), and either the
settlement agent or the creditor provides
the consumer with one single disclosure
form containing all of the information
required to be disclosed pursuant to
§ 1026.19(f)(1)(i), in accordance with the
other requirements in § 1026.19(f), such
as requirements related to timing and
delivery.
3. Creditor responsibilities. If a
settlement agent provides disclosures
required under § 1026.19(f) in the
creditor’s place, the creditor remains
responsible under § 1026.19(f) for
ensuring that the requirements of
§ 1026.19(f) have been satisfied. For
example, the creditor does not comply
with § 1026.19(f) if the settlement agent
does not provide the disclosures
required under § 1026.19(f)(1)(i), or if
the consumer receives the disclosures
later than three business days before
consummation, in accordance with
§ 1026.19(f)(1)(ii). The creditor does not
satisfy the requirements of § 1026.19(f)
if it provides duplicative disclosures.
For example, a creditor does not satisfy
its obligation by issuing disclosures
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required under § 1026.19(f) that mirror
ones already issued by the settlement
agent for the purpose of demonstrating
that the consumer received timely
disclosures. The creditor is expected to
maintain communication with the
settlement agent to ensure that the
settlement agent is acting in place of the
creditor. Disclosures provided by a
settlement agent in accordance with
§ 1026.19(f)(1)(v) satisfy the creditor’s
obligation under § 1026.19(f)(1)(i).
4. Shared responsibilities permitted.
The settlement agent may assume the
responsibility to provide some or all of
the disclosures required by § 1026.19(f).
For example, the creditor complies with
the requirements of § 1026.19(f)(1)(i)
and the settlement agent complies with
the requirements of § 1026.19(f)(1)(v) if
the settlement agent agrees to complete
only the portion of the disclosures
required by § 1026.19(f)(1)(i) related to
closing costs for taxes, title fees, and
insurance premiums, the creditor agrees
to complete the remainder of the
disclosures required by
§ 1026.19(f)(1)(i), and either the
settlement agent or the creditor provides
the consumer with one single disclosure
form containing all of the information
required to be disclosed pursuant to
§ 1026.19(f)(1)(i), in accordance with the
other requirements in § 1026.19(f), such
as requirements related to timing and
delivery.
19(f)(2) Subsequent changes.
19(f)(2)(i) Changes due to consumer
and seller negotiations.
1. Requirements. Section
1026.19(f)(2)(i) provides that the
creditor need not comply with the
timing requirements in
§ 1026.19(f)(1)(ii) if the revisions reflect
changes to the transaction due to
negotiations between the seller and the
consumer, and such changes occur after
the creditor provides the consumer with
the disclosures required by
§ 1026.19(f)(1)(i). For example:
i . Assume consummation is
scheduled for Thursday, the consumer
received the disclosures required under
§ 1026.19(f)(1)(i) on Monday, and a
walk-through inspection occurs on
Wednesday morning. During the walkthrough the consumer discovers damage
to the dishwasher. The seller agrees to
credit the consumer $500 towards a new
dishwasher. The creditor complies with
the requirements of § 1026.19(f) if the
creditor provides a revised disclosure at
or before consummation on Thursday.
ii. Assume consummation is
scheduled for Friday and on Monday
morning the creditor sends the
disclosures via overnight delivery to the
consumer, ensuring that the consumer
receives the disclosures on Tuesday. On
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Monday night, the seller agrees to sell
certain household furnishings to the
consumer for an additional $1,000, to be
paid at the real estate closing, and the
consumer immediately informs the
creditor of the change. The creditor may
deliver revised disclosures at or before
consummation. The creditor does not
violate § 1026.19(f) because the change
to the transaction resulting from
negotiations between the seller and
consumer occurred after the creditor
provided the final disclosures,
regardless of the fact that the change
occurred before the consumer had
received the final disclosures.
19(f)(2)(ii) Changes to the amount
actually paid by the consumer.
1. Requirements. Section
1026.19(f)(2)(ii) states that the creditor
may provide revised disclosures
without complying with the timing
requirements in § 1026.19(f)(1)(ii) if the
amount actually paid by the consumer
does not exceed the amount disclosed
pursuant to § 1026.19(f)(1)(i) by more
than $100, provided that the creditor
delivers revised disclosures at or before
consummation. For example, assume
the disclosures provided pursuant to
§ 1026.19(f)(1)(i) reflect $18,700 as the
total amount the consumer must pay at
the real estate closing. If the disclosures
reflect a homeowner’s insurance
premium of $800, but the premium is
actually $850, the $50 understatement is
not a violation of § 1026.19(f)(1)(i). In
such case, the creditor complies with
§ 1026.19(f)(1)(i) by providing revised
disclosures to the consumer at or before
consummation, pursuant to
§ 1026.19(f)(2)(ii), reflecting the revised
$850 homeowner’s insurance premium
and the revised $18,750 as the total
amount the consumer must pay at the
real estate closing. See also comment
38(i)(9)(ii)–1.
2. Other adjustments permitted.
Revised disclosures provided at
consummation may reflect adjustments
pursuant to both § 1026.19(f)(2)(i) and
(f)(2)(ii). Thus, although
§ 1026.19(f)(2)(ii) limits the difference
between the amount disclosed pursuant
to § 1026.19(f)(1)(i) and the amount
actually paid by the consumer to $100,
the amount actually paid by the
consumer may vary by more than $100
to the extent permitted by
§ 1026.19(f)(2)(i). For example, if the
disclosures reflect a homeowner’s
insurance premium of $800, but the
premium is actually $850, the $50
understatement is not a violation of
§ 1026.19(f)(1)(i). If, in addition to this
understatement, the total amount due
from the buyer increases by $500 as a
result of consumer and seller
negotiations, the creditor complies with
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51429
§ 1026.19(f)(1)(i) by providing revised
disclosures reflecting the $550 increase
to the consumer at or before closing,
pursuant to § 1026.19(f)(2)(ii). However,
to comply with § 1026.25, the creditor
must maintain documentation
demonstrating that $500 of the increase
was due to negotiations between the
consumer and the seller under
§ 1026.19(f)(2)(i), and that the remainder
of the increase complied with
§ 1026.19(f)(2)(ii).
19(f)(2)(iii) Changes due to events
occurring after consummation.
1. Requirements. Section
1026.19(f)(2)(iii) requires the creditor to
deliver revised disclosures within three
business days of an event that occurs
after consummation that causes the
disclosures to become inaccurate,
provided such inaccuracy results solely
from payments to a government entity
in connection with the transaction. For
example:
i. Assume consummation occurs on a
Monday and the security instrument is
recorded on Tuesday, the day after
consummation. If the fees charged by
the recorder’s office differ from those
disclosed pursuant to § 1026.19(f)(1)(i),
the creditor complies with
§ 1026.19(f)(1)(i) by revising the
disclosures accordingly and delivering
or placing them in the mail no later than
Friday, three business days after
Tuesday. However, if the fees charged
by the recorder’s office differ from those
disclosed pursuant to § 1026.19(f)(1)(i),
but the security instrument is not
recorded until the 28th day after
consummation, the creditor does not
comply with § 1026.19(f)(1)(i) by
placing the revised disclosures in the
mail on that day, unless the creditor
otherwise ensures that the consumer
receives the revised disclosures by no
later than 30 days after consummation,
pursuant to § 1026.19(f)(2)(iii).
ii. Assume consummation occurs on a
Monday and the security instrument is
recorded on Tuesday, the day after
consummation. If the transfer taxes
owed to the State differ from those
disclosed pursuant to § 1026.19(f)(1)(i),
then the creditor complies with
§ 1026.19(f)(1)(i) by revising the
disclosures accordingly and delivering
or placing them in the mail no later than
Friday, three business days after
Tuesday, and the consumer receives
them no later than 30 days after
consummation, pursuant to
§ 1026.19(f)(2)(iii).
iii. Assume consummation occurs on
a Monday and the security instrument is
recorded on Tuesday, the day after
consummation. During the recording
process it is discovered that the
property is subject to an unpaid $500
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nuisance abatement assessment, which
was not disclosed pursuant to
§ 1026.19(f)(1)(i). The creditor complies
with § 1026.19(f)(1)(i) by revising the
disclosures accordingly and delivering
or placing them in the mail no later than
Friday, three business days after
Tuesday, and the consumer receives
them no later than 30 days after
consummation, pursuant to
§ 1026.19(f)(2)(iii).
iv. Assume consummation occurs on
a Monday and the security instrument is
recorded on Tuesday, the day after
consummation. Assume further that ten
days after consummation the
municipality in which the property is
located raises property taxes. Section
1026.19(f)(2)(iii) does not require the
creditor to provide the consumer with a
revised version of the disclosure
required pursuant to § 1026.19(f)(1)(i),
because the increase in property tax
rates is not in connection with the
consumer’s transaction.
19(f)(2)(iv) Changes due to clerical
errors.
1. Requirements. Section
1026.19(f)(2)(iv) requires the creditor to
deliver revised disclosures to the
consumer if the disclosures provided
pursuant to § 1026.19(f)(1)(i) contain
non-numeric clerical errors. An error is
considered clerical if it does not affect
a numerical disclosure and does not
affect requirements imposed by
§ 1026.19(e) or (f). For example, if the
disclosure identifies the incorrect
settlement service provider as the
recipient of a payment, then
§ 1026.19(f)(2)(iv) requires the creditor
to provide revised disclosures reflecting
the corrected non-numeric disclosure as
soon as reasonably practicable, but no
later than 30 days after consummation.
19(f)(2)(v) Refunds related to the good
faith analysis.
1. Requirements. Section
1026.19(f)(2)(v) provides that, if
amounts paid at closing exceed the
amounts specified under
§ 1026.19(e)(3)(i) or (ii), the creditor
does not violate § 1026.19(e)(1)(i) if the
creditor refunds the excess to the
consumer as soon as reasonably
practicable and no later than 30 days
after consummation, and the creditor
does not violate § 1026.19(f)(1)(i) if the
creditor delivers disclosures revised to
reflect the refund of such excess as soon
as reasonably practicable and no later
than 30 days after consummation. For
example, assume that at closing the
consumer must pay four itemized
charges that are subject to the good faith
determination under § 1026.19(e)(3)(i).
If the actual amounts paid by the
consumer for the four itemized charges
subject to § 1026.19(e)(3)(i) exceeded
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their respective estimates on the
disclosures required under
§ 1026.19(e)(1)(i) by $30, $25, $25, and
$10, then there would be a $90 excess
amount above the limitations prescribed
by § 1026.19(e)(3)(i). If, further, the
amounts paid by the consumer for
services that are subject to the good faith
determination under § 1026.19(e)(3)(ii)
totaled $1,190, but the respective
estimates on the disclosures required
under § 1026.19(e)(1)(i) totaled only
$1,000, then there would be a $90
excess amount above the limitations
prescribed by § 1026.19(e)(3)(ii).
Consequently, to comply with
§ 1026.19(f)(1)(i), the creditor must
provide revised disclosures to the
consumer reflecting the $180 refund of
the excess amount collected. See
comment 38(h)(3)–2 for additional
guidance on disclosing refunds such as
these.
19(f)(3) Charges disclosed.
19(f)(3)(i) Actual charge.
1. Requirement. Section
1026.19(f)(3)(i) provides the general rule
that the amount imposed on the
consumer for any settlement service
shall not exceed the amount actually
received by the service provider for that
service. Except as otherwise provided in
§ 1026.19(f)(3)(ii), a creditor violates
§ 1026.19(f)(3)(i) if the amount imposed
upon the consumer exceeds the amount
actually received by the service provider
for that service.
19(f)(3)(ii) Average charge.
1. Requirements. Average-charge
pricing is the exception to the rule in
§ 1026.19(f)(3)(i) that consumers shall
not pay more than the exact amount
charged by a settlement service provider
for the performance of that service. See
comment 19(f)(3)(i)–1. If the creditor
develops representative samples of
specific settlement costs for a particular
class of transactions, the creditor may
charge the average cost for that
settlement service instead of the actual
cost for such transactions. An averagecharge program may not be used in a
way that inflates the cost for settlement
services overall.
2. Defining the class of transactions.
Section 1026.19(f)(3)(ii)(B) requires a
creditor to use an appropriate period of
time, appropriate geographic area, and
appropriate type of loan to define a
particular class of transaction. For
purposes of § 1026.19(f)(3)(ii)(B), a
period of time is appropriate if the
sample size is sufficient to obtain a
representative sample, provided that the
period of time is not less than 30 days
and not more than six months. For
purposes of § 1026.19(f)(3)(ii)(B), a
geographic area and loan type are
appropriate if the sample size is
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sufficient to obtain a representative
sample, provided that the area and loan
type are not defined in a way that pools
costs between dissimilar populations.
For example:
i. Assume a creditor defines a
geographic area that contains two
subdivisions, one with a median
appraisal cost of $200, and the other
with a median appraisal cost of $1,000.
This geographic area would not satisfy
the requirements of § 1026.19(f)(3)(ii)
because the cost characteristics of the
two populations are dissimilar.
However, a geographic area would be
appropriate if both subdivisions had a
relatively normal distribution of
appraisal costs, even if the distribution
ranges from below $200 to above $1,000.
ii. Assume a creditor defines a type of
loan that includes two distinct rate
products. The median recording fees for
one product are $80, while the median
recording fees for the other product are
$130. This definition of loan type would
not satisfy the requirements of
§ 1026.19(f)(3)(ii) because the cost
characteristics of the two products are
dissimilar. However, a type of loan
would be appropriate if both products
had a relatively normal distribution of
recording fees, even if the distribution
ranges from below $80 to above $130.
3. Uniform use. If a creditor chooses
to use an average charge for a settlement
service for a particular loan within a
class, § 1026.19(f)(3)(ii)(C) requires the
creditor to use that average charge for
that service on all loans within the
class. For example:
i. Assume a creditor elects to use an
average charge for appraisal fees. The
creditor defines a class of transactions
as all fixed-rate loans originated
between January 1 and April 30 secured
by real property located within a
particular metropolitan statistical area.
The creditor must then charge the
average appraisal charge to all
consumers obtaining fixed-rate loans
originated between May 1 and August
30 secured by real property located
within the same metropolitan statistical
area.
ii. The example in paragraph i of this
comment assumes that a consumer
would not be required to pay the
average appraisal charge unless an
appraisal was required on that
particular loan. Using the example
above, if a consumer applies for a loan
within the defined class, but already has
an appraisal report acceptable to the
creditor from a prior loan application,
the creditor may not charge the
consumer the average appraisal fee
because an acceptable appraisal report
has already been obtained for the
consumer’s application. Similarly,
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although the creditor defined the class
broadly to include all fixed-rate loans,
the creditor may not require the
consumer to pay the average appraisal
charge if the particular fixed-rate loan
program the consumer applied for does
not require an appraisal.
4. Average amount paid. The average
charge must correspond to the average
amount paid by or imposed on
consumers and sellers during the prior
defined time period. For example,
assume a creditor calculates an average
tax certification fee based on four-month
periods starting January 1 of each year.
The tax certification fees charged to a
consumer on May 20 may not exceed
the average tax certification fee paid
from January 1 through April 30. A
creditor may delay the period by a
reasonable amount of time if such delay
is needed to perform the necessary
analysis and update the affected
systems, provided that each subsequent
period is scheduled accordingly. For
example, a creditor may define a fourmonth period from January 1 to April 30
and begin using the average charge from
that period on May 15, provided the
average charge is used until September
15, at which time the average charge for
the period from May 1 to August 31
becomes effective.
5. Adjustments based on retrospective
analysis required. Creditors using
average charges must ensure that the
total amount paid by or imposed on
consumers for a service does not exceed
the total amount paid to the providers
of that service for the particular class of
transactions. A creditor may find that,
even though it developed an averagecost pricing program in accordance with
the requirements of § 1026.19(f)(3)(ii),
over time it has collected more from
consumers than it has paid to settlement
service providers. For example, assume
a creditor defines a class of transactions
and uses that class to develop an
average charge of $135 for pest
inspections. The creditor then charges
$135 per transaction for 100
transactions from January 1 through
April 30, but the actual average cost to
the creditor of pest inspections during
this period is $115. The creditor then
decreases the average charge for the May
to August period to account for the
lower average cost during the January to
April period. At this point, the creditor
has collected $2,000 more than it has
paid to settlement service providers for
pest inspections. The creditor then
charges $115 per transaction for 70
transactions from May 1 to August 30,
but the actual average cost to the
creditor of pest inspections during this
period is $125. Based on the average
cost to the creditor from the May to
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August period, the average charge to the
consumer for the September to
December period should be $125.
However, while the creditor spent $700
more than it collected during the May
to August period, it collected $1,300
more than it spent from January to
August. In cases such as these, the
creditor remains responsible for
ensuring that the amount collected from
consumers does not exceed the total
amounts paid for the corresponding
settlement services over time. The
creditor may develop a variety of
methods that achieve this outcome. For
example, the creditor may choose to
refund the proportional overage paid to
the affected consumers. Or the creditor
may choose to factor in the excess
amount collected to decrease the
average charge for an upcoming period.
Although any method may comply with
this requirement, a creditor is deemed to
have complied if it defines a six-month
time period and establishes a rolling
monthly period of reevaluation. For
example, assume a creditor defines a
six-month time period from January 1 to
June 30 and the creditor uses the
average charge starting July 1. If, at the
end of July, the creditor recalculates the
average cost from February 1 to July 31,
and then uses the recalculated average
cost for transactions starting August 1,
the creditor complies with the
requirements of § 1026.19(f)(3)(ii), even
if the creditor actually collected more
from consumers than was paid to
providers over time.
6. Adjustments based on prospective
analysis permitted, but not required. A
creditor may prospectively adjust
average charges if it develops a
statistically reliable and accurate
method for doing so. For example,
assume a creditor calculates average
charges based on two time periods:
winter (October 1 to March 31), and
summer (April 1 to September 30). If the
creditor can demonstrate that the
average cost of a particular settlement
service is always at least 15 percent
more expensive during the winter
period than the summer period, the
creditor may increase the average charge
for the next winter period by 15 percent
over the average cost for the current
summer period, provided, however, that
the creditor performs retrospective
periodic adjustments, as explained in
comment 19(f)(3)(ii)–5.
7. Charges that vary with loan amount
or property value. An average charge
may not be used for any charge that
varies according to the loan amount or
property value. For example, an average
charge may not be used for a transfer tax
if the transfer tax is calculated as a
percentage of the loan amount or
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property value. Average charges also
may not be used for any insurance
premium. For example, average charges
may not be used for title insurance or
for either the upfront premium or initial
escrow deposit for hazard insurance.
8. Prohibited by law. An average
charge may not be used where
prohibited by any applicable State or
local law. For example, a creditor may
not impose an average charge for an
appraisal if applicable law prohibits
creditors from collecting any amount in
excess of the actual cost of the appraisal.
9. Documentation required. To
comply with § 1026.25, a creditor must
retain all documentation used to
calculate the average charge for a
particular class of transactions for at
least two years after any settlement for
which that average charge was used.
The documentation must support the
components and methods of calculation.
For example, if a creditor calculates an
average charge for a particular county
recording fee by simply averaging all of
the relevant fees paid in the prior
month, the creditor need only retain the
receipts for the individual recording
fees, a ledger demonstrating that the
total amount received did not exceed
the total amount paid over time, and a
document detailing the calculation.
However, if a creditor develops complex
algorithms for determining averages, not
only must the creditor maintain the
underlying receipts and ledgers, but the
creditor must maintain documentation
sufficiently detailed to allow an
examiner to verify the accuracy of the
calculations.
19(f)(4) Transactions involving a
seller.
19(f)(4)(ii) Timing.
1. Requirement. Section
1026.19(f)(4)(ii) provides that the person
conducting the closing shall provide the
disclosures required under
§ 1026.19(f)(4)(i) no later than the day of
consummation. If an event occurs after
consummation that causes such
disclosures to become inaccurate and
such inaccuracy results solely from
payments to a government entity, the
person conducting the closing shall
deliver revised disclosures to the seller
no later than 30 days after
consummation. Section 1026.19(f)(4)(i)
requires disclosure of the items that
relate to the seller’s transaction. Thus,
the person conducting the closing need
only redisclose if an item related to the
seller’s transaction becomes inaccurate
and such inaccuracy results solely from
payments to a government entity. For
example, assume a transaction where
the seller pays the transfer tax, the
consummation occurs on Monday, and
the security instrument is recorded on
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Tuesday, the day after consummation. If
the transfer taxes owed to the State
differ from those disclosed pursuant to
§ 1026.19(f)(4)(i), the person conducting
the settlement complies with
§ 1026.19(f)(4)(ii) by revising the
disclosures accordingly and providing
them to the seller no later than 30 days
after consummation.
19(g) Special information booklet at
time of application.
19(g)(1) Creditor to provide special
information booklet.
1. Revision of booklet. The Bureau
may, after publishing a notice in the
Federal Register, issue a revised or
separate special information booklet
that addresses transactions subject to
§ 1026.19(g). The Bureau may also
choose to permit the forms or booklets
of other Federal agencies. In such an
event, the availability of the booklet or
alternate materials for these transactions
will be set forth in a notice in the
Federal Register. The current version of
the booklet can be accessed on the
Bureau’s Web site, www.
consumerfinance.gov/learnmore.
(2.) Multiple applicants. When two or
more persons apply together for a loan,
the creditor complies with § 1026.19(g)
if the creditor provides a copy of the
booklet to one of the persons applying.
19(g)(2) Permissible changes.
1. Reproduction. The special
information booklet may be reproduced
in any form, provided that no changes
are made, except as otherwise provided
under § 1026.19(g). Provision of the
special information booklet as a part of
a larger document does not satisfy the
requirements of § 1026.19(g). Any color,
size and quality of paper, type of print,
and method of reproduction may be
used so long as the booklet is clearly
legible.
2. Other permissible changes. The
special information booklet may be
translated into languages other than
English. Changes to the booklet, other
those specified in § 1026.19(g)(2)(i)
through (iv), do not comply with
§ 1026.19(g).fi
Section 1026.22—Determination of
Annual Percentage Rate
22(a) Accuracy of annual percentage
rate.
*
*
*
*
*
22(a)(4) Mortgage loans.
1. Example. If a creditor improperly
omits a $75 fee from the finance charge
on a regular transaction, the understated
finance charge is considered accurate
under § 1026.18(d)(1) flor
1026.38(o)(2), as applicablefi, and the
annual percentage rate corresponding to
that understated finance charge also is
considered accurate even if it falls
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outside the tolerance of 1⁄8 of 1
percentage point provided under
§ 1026.22(a)(2). Because a $75 error was
made, an annual percentage rate
corresponding to a $100 understatement
of the finance charge would not be
considered accurate.
*
*
*
*
*
Section 1026.24—Advertising
*
*
*
*
*
24(d) Advertisement of terms that
require additional disclosures.
*
*
*
*
*
24(d)(2) Additional terms.
*
*
*
*
*
2. Disclosure of repayment terms. The
phrase ‘‘terms of repayment’’ generally
has the same meaning as the ‘‘payment
schedule’’ required to be disclosed
under § 1026.18(g)fl, the interest rate
and payment summary table required to
be disclosed pursuant to § 1026.18(s), or
the projected payments table required to
be disclosed pursuant to §§ 1026.37(c)
and 1026.38(c), as applicablefi. Section
1026.24(d)(2)(ii) provides flexibility to
creditors in making this disclosure for
advertising purposes. Repayment terms
may be expressed in a variety of ways
in addition to an exact repayment
schedule; this is particularly true for
advertisements that do not contemplate
a single specific transaction. Repayment
terms, however, must reflect the
consumer’s repayment obligations over
the full term of the loan, including any
balloon payment, see comment
24(d)(2)–3, not just the repayment terms
that will apply for a limited period of
time. For example:
i. A creditor may use a unit-cost
approach in making the required
disclosure, such as ‘‘48 monthly
payments of $27.83 per $1,000
borrowed.’’
ii. In an advertisement for credit
secured by a dwelling, when any series
of payments varies because of the
inclusion of mortgage insurance
premiums, a creditor may state the
number and timing of payments, the fact
that payments do not include amounts
for mortgage insurance premiums, and
that the actual payment obligation will
be higher.
iii. In an advertisement for credit
secured by a dwelling, when one series
of monthly payments will apply for a
limited period of time followed by a
series of higher monthly payments for
the remaining term of the loan, the
advertisement must state the number
and time period of each series of
payments, and the amounts of each of
those payments. For this purpose, the
creditor must assume that the consumer
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makes the lower series of payments for
the maximum allowable period of time.
*
*
*
*
*
Subpart D—Miscellaneous
Section 1026.25—Record Retention
*
*
*
*
*
fl25(c) Records related to certain
requirements for mortgage loans.
25(c)(1) Records related to
requirements for loans secured by real
property.
1. Evidence of required actions. The
creditor must retain evidence that it
performed the required actions as well
as made the required disclosures. This
includes, for example, evidence that the
creditor properly differentiated between
affiliated and independent third party
settlement service providers for
determining good faith under
§ 1026.19(e)(3); evidence that the
creditor properly documented the
reason for revisions under
§ 1026.19(e)(3)(iv); or evidence that the
creditor properly calculated average cost
under § 1026.19(f)(3)(ii).
2. Mortgage brokers. See comment
19(e)(1)(ii)–2 regarding instances where
§ 1026.19(e) imposes § 1026.25(c)
responsibilities on mortgage brokers.
25(c)(1)(iii) Electronic records. (1.)
Other recordkeeping formats may also
be required. The requirements of
§ 1026.25(c)(1)(iii) are in addition to any
other recordkeeping formats that may be
required by administrative agencies
responsible for enforcing the
regulation.fi
*
*
*
*
*
Section 1026.28—Effect on State Laws
28(a) Inconsistent disclosure
requirements.
1. General. There are three sets of
preemption criteria: one applies to the
general disclosure and advertising rules
of the regulation, and two apply to the
credit billing provisions. Section
1026.28 also provides for Bureau
determinations of preemption. flFor
purposes of determining whether a State
law is inconsistent with the
requirements of sections 4 and 5 of
RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors) and §§ 1026.19(e) and (f),
1026.37, and 1026.38 under § 1026.28,
any reference to ‘‘creditor’’ in § 1026.28
or this commentary includes a creditor,
a mortgage broker, or a closing agent, as
applicable.fi
*
*
*
*
*
Section 1026.29—State Exemptions
29(a) General rule.
*
*
*
*
*
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2. Substantial similarity. The
‘‘substantially similar’’ standard
requires that State statutory or
regulatory provisions and State
interpretations of those provisions be
generally the same as the Federal Act
and Regulation Z. This includes the
requirement that State provisions for
reimbursement to consumers for
overcharges be at least equivalent to
those required in section 108 of the Act.
A State will be eligible for an exemption
even if its law covers classes of
transactions not covered by the Federal
law. For example, if a State’s law covers
agricultural credit, this will not prevent
the Bureau from granting an exemption
for consumer credit, even though
agricultural credit is not covered by the
Federal law. flFor transactions subject
to § 1026.19(e) and (f), § 1026.29(a)(1)
requires that the State statutory or
regulatory provisions and State
interpretations of those provisions
require disclosures that are generally the
same as the disclosures required by
§ 1026.19(e) and (f), with form and
content as prescribed by §§ 1026.37 and
1026.38.fi
*
*
*
*
*
4. Exemptions granted. fli.fi The
Bureau recognizes exemptions granted
by the Board of Governors of the Federal
Reserve System prior to July 21, 2011,
until and unless the Bureau makes and
publishes any contrary determination.
Effective October 1, 1982, the Board of
Governors granted the following
exemptions from portions of the revised
Truth in Lending Act:
øi.¿ flA.fi Maine. Credit or lease
transactions subject to the Maine
Consumer Credit Code and its
implementing regulations are exempt
from chapters 2, 4 and 5 of the Federal
Act. (The exemption does not apply to
transactions in which a Federally
chartered institution is a creditor or
lessor.)
øii.¿ flB.fi Connecticut. Credit
transactions subject to the Connecticut
Truth in Lending Act are exempt from
chapters 2 and 4 of the Federal Act.
(The exemption does not apply to
transactions in which a Federally
chartered institution is a creditor.)
øiii.¿ flC.fi Massachusetts. Credit
transactions subject to the
Massachusetts Truth in Lending Act are
exempt from chapters 2 and 4 of the
Federal Act. (The exemption does not
apply to transactions in which a
Federally chartered institution is a
creditor.)
øiv.¿ flD.fi Oklahoma. Credit or
lease transactions subject to the
Oklahoma Consumer Credit Code are
exempt from chapters 2 and 5 of the
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Federal Act. (The exemption does not
apply to sections 132 through 135 of the
Federal Act, nor does it apply to
transactions in which a Federally
chartered institution is a creditor or
lessor.)
øv.¿ flE.fi Wyoming. Credit
transactions subject to the Wyoming
Consumer Credit Code are exempt from
chapter 2 of the Federal Act. (The
exemption does not apply to
transactions in which a Federally
chartered institution is a creditor.)
flii. Although RESPA and its
implementing Regulation X do not
provide procedures for granting State
exemptions, for transactions subject to
§ 1026.19(e) and (f), compliance with
the requirements of §§ 1026.19(e) and
(f), 1026.37, and 1026.38 satisfies the
requirements of sections 4 and 5 of the
Real Estate Settlement Procedures Act
(RESPA) (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors). If such a transaction is
subject to one of the State exemptions
previously granted by the Board of
Governors and noted in comment 29(a)–
4.i above, however, then compliance
with the requirements of any State laws
and regulations incorporating the
requirements of §§ 1026.19(e) and (f),
1026.37, and 1026.38 likewise satisfies
the requirements of sections 4 and 5 of
RESPA (other than the RESPA section
5(c) requirements regarding provision of
a list of certified homeownership
counselors) and the provisions of
Regulation X (12 CFR part 1024)
implementing those sections of
RESPA.fi
*
*
*
*
*
flSection 1026.37—Content of
Disclosures for Certain Mortgage
Transactions (Loan Estimate)
1. As applicable. The disclosures
required by § 1026.37 are to be made
only as applicable, except as otherwise
provided in § 1026.37(o). A disclosure
that is not applicable to a particular
transaction generally may be eliminated
entirely. For example, in a transaction
for which the creditor does not require
homeowner’s insurance, the disclosure
required by § 1026.37(m)(3) need not be
included. Alternatively, the creditor
generally may include disclosures that
are not applicable to the transaction and
note that they are ‘‘not applicable’’ or
‘‘N/A.’’ As provided in § 1026.37(i) and
(j), however, the adjustable payment and
adjustable interest rate tables required
by those paragraphs may be included
only if those disclosures are applicable
to the transaction and otherwise must be
excluded.
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2. Format. See § 1026.37(o) and its
commentary for guidance on the proper
format to be used in making the
disclosures, as well as permissible
modifications.
37(a) General information.
37(a)(3) Creditor.
1. Multiple creditors. For transactions
with multiple creditors, see § 1026.17(d)
and comment 17(d)–1 for further
guidance. The creditor making the
disclosures, however, must be identified
as the creditor for purposes of
§ 1026.37(a)(3).
2. Mortgage broker as loan originator.
In transactions involving a mortgage
broker, the name of the creditor must be
disclosed, if known, even if the
mortgage broker provides the
disclosures to the consumer.
37(a)(4) Date issued.
1. Applicable date. Section
1026.37(a)(4) requires disclosure of the
date the creditor mails or delivers the
Loan Estimate to the consumer. The
creditor’s method of delivery does not
affect the date issued.
37(a)(5) Applicants.
1. Multiple consumers. If there is
more than one consumer applying for
the credit, § 1026.37(a)(5) requires
disclosure of the name and mailing
address of each consumer on the Loan
Estimate. If the number of consumers
applying for the credit does not fit in the
space allocated on the Loan Estimate, an
additional page with that information
may be appended to the end of the form.
For additional information on
permissible changes, see § 1026.37(o)
and its commentary.
37(a)(6) Property.
1. Alternate property address. Section
1026.37(a)(6) requires disclosure of the
street address, if available, and the city,
state, and zip code for the property that
secures the credit. If there is no street
address, § 1026.37(a)(6) requires
disclosure of a legal description or other
location information for the property;
however, disclosure of a zip code is
required in all instances.
37(a)(7) Sale price.
1. Estimated property value. In
transactions where there is no seller,
such as in a refinancing,
§ 1026.37(a)(7)(ii) requires the creditor
to disclose the estimated value of the
property identified in § 1026.37(a)(6) at
the time the disclosure is issued to the
consumer. The creditor may use the
estimate provided by the consumer at
application, or if it has performed its
own estimate of the property value by
the time the disclosure is provided to
the consumer, use that estimate. If the
creditor has obtained any appraisals or
valuations of the property for the
application at the time the disclosure is
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issued to the consumer, the value
determined by the appraisal or
valuation to be used during
underwriting for the application is
disclosed as the estimated property
value.
37(a)(8) Loan term.
1. Adjustable loan term. Section
1026.37(a)(8) requires disclosure of the
term to maturity of the credit
transaction. If the term to maturity is
adjustable, to comply with
§ 1026.37(a)(8), the possible range of the
loan term, including the maximum
number of years possible under the
terms of the legal obligation, must be
disclosed. For example, if the loan term
depends on the value of interest rate
adjustments during the term of the loan,
to calculate the maximum loan term, the
creditor should assume that the interest
rate rises as rapidly as possible after
consummation, taking into account the
terms of the legal obligation, including
any applicable caps on interest rate
adjustments and lifetime interest rate
cap.
37(a)(9) Purpose.
1. General. Section 1026.37(a)(9)
requires disclosure of the consumer’s
intended use of the credit extended. In
ascertaining the consumer’s intended
use, § 1026.37(a)(9) requires the creditor
to consider all relevant information
known to the creditor at the time of the
disclosure. To the extent the purpose is
not known, the creditor may rely on the
consumer’s stated purpose. The
following examples illustrate when each
of the permissible purposes should be
disclosed:
i. Purchase. The consumer intends to
use the credit to purchase the property.
ii. Refinance. The consumer
refinances an existing obligation already
secured by the consumer’s dwelling to
change the rate, term, or other loan
features and may or may not receive
cash from the transaction. For example,
in a refinance with no cash provided,
the new amount financed does not
exceed the unpaid principal balance,
any earned unpaid finance charge on
the existing debt, and amounts
attributed solely to the costs of the
refinancing. Conversely, in a refinance
with cash provided, the consumer
refinances an existing mortgage
obligation and receives money from the
transaction that is in addition to the
funds used to pay the unpaid principal
balance, any earned unpaid finance
charge on the existing debt, and
amounts attributed solely to the costs of
the refinancing. In such a transaction,
the consumer may, for example, use the
newly-extended credit to pay off the
balance of the existing mortgage and
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other consumer debt, such as a credit
card balance.
iii. Construction. Section
1026.37(a)(9)(iii) requires the creditor to
disclose that the loan is for construction
in transactions where the creditor
extends credit to finance only the cost
of construction (‘‘construction-only’’
loan), whether it is new construction or
a renovation project, and in transactions
where a multiple advance loan may be
permanently financed by the same
creditor (‘‘construction-to-permanent’’
loan). In a construction-only loan, the
borrower may be required to make
interest-only payments during the loan
term with the balance commonly due at
the end of the construction project. For
additional guidance on disclosing
construction-to-permanent loans, see
§ 1026.17(c)(6)(ii) and comments
17(c)(6)–2 and –3.
iv. Home equity loan. The creditor is
required to disclose that the credit is for
a ‘‘home equity loan’’ if the creditor
extends credit for any purpose other
than a purchase, refinancing, or
construction. This disclosure applies
whether the property that secures the
loan is a first or subordinate lien.
2. Refinance coverage. The disclosure
requirements under § 1026.37(a)(9)(ii)
apply to credit transactions that meet
the definition of a refinancing under
§ 1026.20(a) but that are made by any
creditor. This differs from § 1026.20(a),
which applies only to refinancings
undertaken by the original creditor or a
holder or servicer of the original debt.
37(a)(10) Product.
1. No features. If the loan product
disclosed pursuant to § 1026.37(a)(10)
does not include any of the features
described in § 1026.37(a)(10)(ii), only
the product type and introductory and
adjustment periods, if applicable, are
disclosed. For example:
i. Adjustable rate. When disclosing an
adjustable rate product, the disclosure
of the loan product must be preceded by
the length of the introductory period
and the frequency of the adjustment
periods thereafter. Thus, for example, if
the loan product is an adjustable rate
with an introductory rate that remains
the same for the first five years of the
loan term and then adjusts every three
years starting in year six, the disclosure
required by § 1026.37(10)(i) is ‘‘5/3
Adjustable Rate.’’
ii. Step rate. If the loan product is a
step rate with an introductory interest
rate that lasts for ten years and adjusts
every year thereafter for the next five
years, and then adjusts every three years
for the next 15 years, the disclosure
required by § 1026.37(a)(10)(i) is ‘‘10/1/
3 Step Rate.’’
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iii. Fixed rate. If the loan product is
not an adjustable rate or a step rate, as
described in § 1026.37(a)(10)(i), even if
an additional feature described in
§ 1026.37(a)(10)(ii) may change the
consumer’s periodic payment, the
disclosure required by
§ 1026.37(a)(10)(i) is ‘‘Fixed Rate.’’
2. Additional features. When
disclosing a loan product with at least
one of the features described in
§ 1026.37(a)(10)(ii), § 1026.37(a)(10)(iii)
and (iv) requires the disclosure of only
the first applicable feature in the order
of § 1026.37(a)(10)(ii) and that it be
preceded by the time period or the
length of the introductory period and
the frequency of the adjustment periods,
as applicable, followed by a description
of the loan product and its time period
as provided for in § 1026.37(a)(10)(i).
For example:
i. Negative amortization. Some loan
products, such as payment-option loans,
permit the borrower to make payments
that are insufficient to cover all of the
interest accrued, and the unpaid interest
is added to the principal balance. Where
the loan product includes a loan feature
that may cause the loan balance to
increase, the disclosure required by
§ 1026.37(a)(10)(ii)(A) is preceded by
the time period that the negative
amortization is permitted (e.g., ‘‘2 Year
Negative Amortization’’), followed by
the loan product type. Thus, a fixed-rate
product with a step-payment feature for
the first two years of the legal obligation
that may negatively amortize is
disclosed as ‘‘2 Year Negative
Amortization, Fixed Rate.’’
ii. Interest only. When disclosing an
‘‘Interest Only’’ feature, as that term is
defined in § 1026.18(s)(7)(iv), the
applicable time period must precede the
label ‘‘Interest Only.’’ Thus, a fixed rate
loan with only interest due for the first
five years of the loan term is disclosed
as ‘‘5 Year Interest Only, Fixed Rate.’’ If
the interest only feature fails to cover
the total interest due then the disclosure
must reference the negative
amortization feature and not the
interest-only feature (i.e., ‘‘5 Year
Negative Amortization, Fixed Rate’’).
iii. Step payment. When disclosing a
step payment feature (which is
sometimes also referred to as a
graduated payment), the period of time
over which the scheduled payments
will increase must precede the label
‘‘Step Payment’’ (e.g., ‘‘5 Year Step
Payment’’) followed by the name of the
loan product. Thus, a fixed-rate
mortgage subject to a 5-year steppayment plan is disclosed as a ‘‘5-Year
Step Payment, Fixed Rate.’’
iv. Balloon payment. If a loan product
includes a ‘‘balloon payment,’’ as that
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term is defined in § 1026.37(b)(5), the
disclosure of the balloon payment
feature, including the year the payment
is due, precedes the disclosure of the
loan product. Thus, if the loan product
is an adjustable rate with an
introductory rate that lasts for three
years and adjusts each year thereafter
until the balloon payment is due in the
seventh year of the loan term, the
disclosure required is ‘‘Year 7 Balloon
Payment, 3/1 Step Rate.’’
v. Seasonal payment. If a loan
product includes a seasonal payment
feature, § 1026.37(a)(10)(ii)(E) requires
that the creditor disclose the feature.
The feature is not, however, required to
be disclosed with any preceding time
period. Disclosure of the label ‘‘Seasonal
Payment’’ without any preceding
number of years satisfies this
requirement.
37(a)(11) Loan type.
1. Other loan type. If the transaction
is a type other than a conventional,
FHA, or VA loan, § 1026.37(a)(11)
requires the creditor to provide a name
or brief description of the loan type. For
example, a loan that is guaranteed or
funded by the Federal government
under the Rural Housing Service (RHS)
of the U.S. Department of Agriculture is
required to be disclosed under the
subcategory ‘‘Other,’’ because it is
guaranteed or funded by a Federal
agency, and therefore is not
‘‘Conventional,’’ but is neither a ‘‘VA’’
nor an ‘‘FHA’’ loan. Section
1026.37(a)(11)(iv) requires a brief
description of the loan type (e.g.,
‘‘RHS’’). A loan that is insured or
guaranteed by a State agency must also
be disclosed as ‘‘Other.’’
37(a)(12) Loan identification number
(Loan ID #).
1. Unique identifier. The unique loan
identification number is determined by
the lender. Because the number must be
unique under § 1026.37(a)(12), different,
but related, loan transactions with a
single creditor may not share the same
loan identification number.
37(a)(13) Rate lock.
1. Interest rate. For purposes of
§ 1026.37(a)(13), the interest rate is set
for a specific period of time if the rate
will not vary during that period, other
than under circumstances that are
described in any rate-lock agreement
between the creditor and consumer.
2. Expiration date. Whether or not the
interest rate is set for a specific period
of time, § 1026.37(a)(13) requires the
creditor to provide the date and time the
terms and costs disclosed in the Loan
Estimate expire if the transaction is not
yet consummated, or the terms and
costs are not otherwise accepted or
extended.
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3. Time zone. The disclosures
required by § 1026.37(13) requires the
applicable time zone for all times
provided, as determined by the creditor.
For example, if the creditor is located in
New York and determines that the Loan
Estimate will expire at 5:00 p.m. in the
time zone applicable to its location,
while standard time is in effect, the
disclosure must include a reference to
the Eastern time zone (i.e., 5:00 p.m.
EST).
37(b) Loan terms.
1. Legal obligation. The disclosures
required by § 1026.37 must reflect good
faith estimates of the credit terms to
which the parties will be legally bound
for the transaction. If certain terms of
the transaction are known or reasonably
should be known to the creditor, based
on information such as the consumer’s
selection of a product type or other
information in the consumer’s
application, § 1026.37 requires the
creditor to disclose those credit terms.
For example, if the consumer selects a
product type with a prepayment
penalty, the terms of the prepayment
penalty known to the creditor at the
time the disclosure is provided shall be
set forth in the disclosure.
37(b)(2) Interest rate.
1. Initial interest rate if adjustable.
The fully-indexed rate is defined in
§ 1026.37(b)(2) as the index plus the
margin at consummation. Although
§ 1026.37(b)(2) refers to the index plus
margin ‘‘at consummation,’’ if the index
value that will be in effect at
consummation is unknown at the time
the disclosure is provided pursuant to
§ 1026.19(e), such as for the disclosure
delivered within three business days
after receipt of a consumer’s
application, the fully-indexed rate
disclosed under § 1026.37(b)(2) may be
based on the index in effect at the time
the disclosure is provided. The index in
effect at consummation (or the time the
disclosure is provided pursuant to
§ 1026.19(e)) need not be used if the
contract provides for a delay in the
implementation of changes in an index
value. For example, if the contract
specifies that rate changes are based on
the index value in effect 45 days before
the change date, creditors may use any
index value in effect during the 45 days
before consummation (or any earlier
date of disclosure) in calculating the
fully-indexed rate to be disclosed.
37(b)(3) Principal and interest
payment.
1. Frequency of principal and interest
payment. Pursuant to § 1026.37(o)(5)(i),
if the contract provides for a unit-period
of a month, such as a monthly payment
schedule, the payment disclosed under
§ 1026.37(b)(3) should be labeled
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51435
‘‘Monthly Principal & Interest.’’ If the
contract requires bi-weekly payments of
principal or interest, the payment
should be labeled ‘‘Bi-Weekly Principal
& Interest.’’ If a creditor voluntarily
permits a payment schedule not
provided for in the contract, such as an
informal principal-reduction
arrangement, the disclosure should
reflect only the payment frequency
provided for in the contract. See
§ 1026.17(c)(1).
2. Initial periodic payment if
adjustable. Pursuant to § 1026.37(b)(3),
the initial periodic payment amount
that will be due under the terms of the
legal obligation must be disclosed. If the
initial periodic payment may vary based
on an adjustment to an index,
§ 1026.37(b)(3) requires that the
disclosure be based on the fully-indexed
rate disclosed under § 1026.37(b)(2). See
comment 37(b)(2)–1 for guidance
regarding calculating the fully-indexed
rate.
37(b)(4) Prepayment penalty.
1. Transaction includes a prepayment
penalty. Section 1026.37(b)(4) requires
disclosure of a statement of whether the
transaction includes a prepayment
penalty. If the transaction includes a
prepayment penalty, § 1026.37(b)(7) sets
forth the information that must be
disclosed under § 1026.37(b)(4) (i.e., the
maximum amount of the prepayment
penalty that may be imposed under the
terms of the loan contract and the date
when the penalty will no longer be
imposed). For an example of such
disclosure, see form H–24 in appendix
H to this part. The disclosure under
§ 1026.37(b)(4) would apply to
transactions where the terms of the loan
contract provide for a prepayment
penalty, even though it is not certain at
the time of the disclosure whether the
consumer will, in fact, make a payment
to the creditor that would cause
imposition of the penalty. For example,
if the monthly interest accrual
amortization method described in
comment 37(b)(4)–2.i is used such that
interest is assessed on the balance for a
full month even if the consumer makes
a full prepayment before the end of the
month, as discussed in comment
37(b)(4)–2.i, the transaction includes a
prepayment penalty that must be
disclosed pursuant to § 1026.37(b)(4).
2. Examples of prepayment penalties.
For purposes of § 1026.37(b)(4), the
following are examples of prepayment
penalties:
i. A charge determined by treating the
loan balance as outstanding for a period
of time after prepayment in full and
applying the interest rate to such
‘‘balance,’’ even if the charge results
from interest accrual amortization used
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for other payments in the transaction
under the terms of the loan contract.
‘‘Interest accrual amortization’’ refers to
the method by which the amount of
interest due for each period (e.g.,
month) in a transaction’s term is
determined. For example, ‘‘monthly
interest accrual amortization’’ treats
each payment as made on the
scheduled, monthly due date even if it
is actually paid early or late (until the
expiration of any grace period). Thus,
under the terms of a loan contract
providing for monthly interest accrual
amortization, if the amount of interest
due on May 1 for the preceding month
of April is $3,000, the loan contract will
require payment of $3,000 in interest for
the month of April whether the payment
is made on April 20, on May 1, or on
May 10. In this example, if the
consumer prepays the loan in full on
April 20 and if the accrued interest as
of that date is $2,000, then assessment
of a charge of $3,000 constitutes a
prepayment penalty of $1,000 because
the amount of interest actually earned
through April 20 is only $2,000.
ii. A fee, such as an origination or
other loan closing cost, that is waived
by the creditor on the condition that the
consumer does not prepay the loan.
iii A minimum finance charge in a
simple interest transaction.
iv. Computing a refund of unearned
interest by a method that is less
favorable to the consumer than the
actuarial method, as defined by section
933(d) of the Housing and Community
Development Act of 1992, 15 U.S.C.
1615(d). For purposes of computing a
refund of unearned interest, if using the
actuarial method defined by applicable
State law results in a refund that is
greater than the refund calculated by
using the method described in section
933(d) of the Housing and Community
Development Act of 1992, creditors
should use the State law definition in
determining if a refund is a prepayment
penalty.
3. Fees that are not prepayment
penalties. For purposes of
§ 1026.37(b)(4), fees which are not
prepayment penalties include, for
example:
i. Fees imposed for preparing and
providing documents when a loan is
paid in full, whether or not the loan is
prepaid, such as a loan payoff
statement, a reconveyance document, or
another document releasing the
creditor’s security interest in the
dwelling that secures the loan.
ii. Loan guarantee fees.
4. Rebate of finance charge. For an
obligation that includes a finance charge
that does not take into account each
reduction in the principal balance of the
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obligation, the disclosure under
§ 1026.37(b)(4) reflects whether or not
the consumer is entitled to a rebate of
any finance charge if the obligation is
prepaid in full or part. Finance charges
that do not take into account each
reduction in the principal balance of an
obligation may include precomputed
finance charges. If any portion of an
unearned precomputed finance charge
will not be provided as a rebate upon
full prepayment, the disclosure required
by § 1026.37(b)(4) will be an affirmative
answer, indicate the maximum amount
of such precomputed finance charge
that may not be provided as a rebate to
the consumer upon any prepayment,
and when the period during which a
full rebate would not be provided
terminates, as required by
§ 1026.37(b)(7). If, instead, there will be
a full rebate of the precomputed finance
charge and no other prepayment penalty
imposed on the consumer, to comply
with the requirements of § 1026.37(b)(4)
and (7), the creditor states a negative
answer only. If the transaction involves
both a precomputed finance charge and
a finance charge computed by
application of a rate to an unpaid
balance, disclosure about both the
entitlement to any rebate of the finance
charge upon prepayment and any other
prepayment penalty are made as one
disclosure under § 1026.37(b)(4), stating
one affirmative or negative answer and
an aggregated amount and time period
for the information required by
§ 1026.37(b)(7). For example, if in such
a transaction, a portion of the
precomputed finance charge will not be
provided as a rebate and the loan
contract also provides for a prepayment
penalty based on the amount prepaid,
both disclosures are made under
§ 1026.37(b)(4) as one aggregate amount,
stating the maximum amount and time
period under § 1026.37(b)(7). If the
transaction instead provides a rebate of
the precomputed finance charge upon
prepayment, but imposes a prepayment
penalty based on the amount prepaid, to
comply with § 1026.37(b)(4), the
creditor states an affirmative answer and
the information about the prepayment
penalty, as required by § 1026.37(b)(7).
For further guidance and examples of
these types of charges, see comment
18(k)(2)–1. For analogous guidance, see
comment 18(k)–2. For further guidance
on prepaid finance charges generally,
see comment 18(k)–3.
5. Additional guidance. For additional
guidance generally on disclosures of
prepayment penalties, see comment
18(k)–1.
37(b)(5) Balloon payment.
1. Regular periodic payment. The
regular periodic payments used to
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determine whether a payment is a
balloon payment under § 1026.37(b)(5)
are the payments of principal and
interest (or interest only, depending on
the loan features) specified under the
terms of the loan contract that are due
from the consumer for two or more unit
periods in succession. All regular
periodic payments during the loan term
are used to determine whether a
particular payment is a balloon
payment, regardless of whether the
regular periodic payments have changed
during the loan term due to rate
adjustments or other payment changes
permitted or required under the loan
contract. If a specific payment is more
than two times any one regular periodic
payment during the loan term, then it is
disclosed as a balloon payment under
§ 1026.37(b)(5) unless the specific
payment itself is a regular periodic
payment.
i. For example, assume that, under a
15-year step-rate mortgage, the loan
contract provides for scheduled
monthly payments of $300 each during
the years one through three and
scheduled monthly payments of $700
each during years four through 15. If an
irregular payment of $1,000 is
scheduled during the final month of
year 15, that payment is disclosed as a
balloon payment under § 1026.37(b)(5),
because it is more than two times the
regular periodic payment amount of
$300 during years one through three.
This is the case even though the
irregular payment is not more than two
times the regular periodic payment of
$700 per month during years four
through fifteen. The $700 monthly
payments during years four through
fifteen are not balloon payments even
though they are more than two times the
regular periodic payments during years
one through three, because they are
regular periodic payments.
ii. If the loan has an adjustable rate
under which the regular periodic
payments may increase after
consummation, but the amounts of such
payment increases (if any) are unknown
at the time of consummation, then the
regular periodic payments are based on
the fully-indexed rate, except as
otherwise determined by any premium
or discounted rates, the application of
any interest rate adjustment caps, or any
other known, scheduled rates under the
terms specified in the loan contract. For
analogous guidance, see comments
17(c)(1)–8 and –10. For example,
assume that, under a 30-year adjustable
rate mortgage, (1) the loan contract
requires monthly payments of $300
during years one through five, (2) the
loan contract permits interest rate
increases every three years starting in
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the sixth year up to the fully-indexed
rate, subject to caps on interest rate
adjustments specified in the loan
contract, (3) based on the application of
the interest rate adjustment caps, the
interest rate may increase to the fullyindexed rate starting in year nine, and
(4) the monthly payment based on the
fully-indexed rate is $700. The regular
periodic payments during years one
through five are $300 per month,
because they are known and scheduled.
The regular periodic payments during
years six through eight are up to $700
per month, based on the fully-indexed
rate but subject to the application of
interest rate adjustment caps specified
under the loan contract. The regular
periodic payments during years nine
through thirty are $700, based on the
fully-indexed rate. Therefore, if an
irregular payment of $1,000 is
scheduled during the final month of
year 30, that payment is disclosed as a
balloon payment under § 1026.37(b)(5),
because it is more than two times the
regular periodic payment amount of
$300 during years one through five. This
is the case even though the irregular
payment is not more than two times the
regular periodic payment during years
nine through thirty (i.e., based on the
fully-indexed rate). However, the
regular periodic payments during years
six through thirty themselves are not
balloon payments, even though they
may be more than two times the regular
periodic payments during years one
through five.
iii. For a loan with a negative
amortization feature, the regular
periodic payment does not take into
account the possibility that the
consumer may exercise an option to
make a payment greater than the
scheduled periodic payment specified
under the terms of the loan contract, if
any.
iv. The disclosure of balloon
payments in the ‘‘Projected Payments’’
table under § 1026.37(c) is governed by
that section and its commentary, rather
than § 1026.37(b)(5), except that the
determination, as a threshold matter, of
whether a payment disclosed under
§ 1026.37(c) is a balloon payment is
made in accordance with § 1026.37(b)(5)
and its commentary.
2. Single and double payment
transactions. The definition of a
‘‘balloon payment’’ under
§ 1026.37(b)(5) includes the payments
under transactions that require only one
or two payments during the loan term,
even though a single payment
transaction does not require regular
periodic payments, and a transaction
with only two scheduled payments
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during the loan term may not require
regular periodic payments.
37(b)(7) Details about prepayment
penalty and balloon payment.
Paragraph 37(b)(7)(i).
1. Maximum prepayment penalty.
Section 1026.37(b)(7)(i) requires
disclosure of the maximum amount of
the prepayment penalty that may be
imposed under the terms of the legal
obligation. The creditor complies with
§ 1026.37(b)(7)(i) when it assumes that
the consumer prepays at a time when
the prepayment penalty may be charged
and that the consumer makes all
payments prior to the prepayment on a
timely basis and in the amount required
by the terms of the legal obligation. The
creditor must determine the maximum
of each amount used in calculating the
prepayment penalty. For example, if a
transaction is fully amortizing and the
prepayment penalty is two percent of
the loan balance at the time of
prepayment, the prepayment penalty
amount should be determined by using
the highest loan balance possible during
the period in which the penalty may be
imposed. If the loan is negatively
amortizing and the prepayment penalty
equals three percent of the loan balance
in the first year and two percent in the
second year during the first two years
after loan origination, the creditor must
determine the highest loan balance in
each year and apply the respective two
percent or three percent rate to such
balance to determine the maximum
amount. If more than one type of
prepayment penalty applies, the
creditor must aggregate the maximum
amount of each type of prepayment
penalty in the maximum penalty
disclosed.
37(b)(8) Timing.
1. Timing. The timing of information
required by § 1026.37(b)(8) starts with
year number ‘‘1,’’ counting from the
date that interest for the first scheduled
periodic payment begins to accrue. For
example, an interest rate that can first
adjust at the beginning of the 13th
month from the date that interest for the
regularly scheduled periodic payment
began to accrue would be disclosed as
beginning to adjust in ‘‘year 2.’’ An
interest rate that can first adjust at the
beginning of the 61st month from the
date that interest for the regularly
scheduled periodic payment began to
accrue would be disclosed as beginning
to adjust in ‘‘year 6.’’ A monthly
periodic principal and interest payment
that begins to adjust at the 13th payment
would be disclosed as beginning to
adjust in ‘‘year 2.’’
37(c) Projected payments.
1. Definitions. For purposes of
§ 1026.37(c), the terms ‘‘adjustable rate,’’
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‘‘fixed rate,’’ ‘‘negative amortization,’’
and ‘‘interest-only’’ have the meanings
in § 1026.37(a)(10).
37(c)(1) Periodic payment or range of
payments.
Paragraph 37(c)(1)(i).
1. Periodic payments. For purposes of
§ 1026.37(c)(1)(i), the periodic payment
is the regularly scheduled payment of
principal and interest, mortgage
insurance, and escrow payments
described in § 1026.37(c)(2) without
regard to any final payment that differs
from other payments because of
rounding to account for payment
amounts including fractions of cents.
Paragraph 37(c)(1)(i)(A).
1. Periodic principal and interest
payments. For purposes of
§ 1026.37(c)(1)(i)(A), periodic principal
and interest payments may change
when the interest rate, applicable
interest rate caps, required periodic
principal and interest payments, or
ranges of such payments may change.
Minor payment variations resulting
solely from the fact that months have
different numbers of days are not
changes to periodic principal and
interest payments.
2. Negative amortization. In a loan
that permits negative amortization,
periodic principal and interest
payments may change at the time of a
scheduled recast of the mortgage loan
and when the consumer must begin
making fully amortizing payments of
principal and interest. The disclosure
should be based on the assumption that
the consumer will make only the
minimum payment required under the
terms of the legal obligation, for the
maximum amount of time permitted,
taking into account potential changes to
the interest rate. The table required by
§ 1026.37(c) should also reflect any
balloon payment that would result from
making the minimum payment required
under the terms of the legal obligation.
3. Interest-only. In a loan that permits
payment of only interest for a specified
period, periodic principal and interest
payments may change for purposes of
§ 1026.37(c)(1)(i)(A) when the consumer
must begin making fully amortizing
periodic payments of principal and
interest.
Paragraph 37(c)(1)(i)(B).
1. Balloon payment. For purposes of
§ 1026.37(c)(1)(i)(B), whether a balloon
payment occurs is determined pursuant
to § 1026.37(b)(5) and its commentary.
Although the existence of a balloon
payment is determined pursuant to
§ 1026.37(b)(5) and its commentary,
balloon payment amounts to be
disclosed under § 1026.37(c) are
calculated in the same manner as
periodic principal and interest
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payments under § 1026.37(c). For
example, for a balloon payment amount
that can change depending on previous
interest rate adjustments that are based
on the value of an index at the time of
the adjustment, the balloon payment
amounts are calculated using the
assumptions for minimum and
maximum interest rates described in
§ 1026.37(c)(1)(iii) and its commentary,
and should be disclosed as a range of
payments.
Paragraph 37(c)(1)(i)(C).
1. General. ‘‘Mortgage insurance’’
means insurance against the
nonpayment of, or default on, an
individual mortgage. For purposes of
§ 1026.37(c), ‘‘mortgage insurance
coverage or any functional equivalent’’
includes any mortgage guarantee that
provides coverage similar to mortgage
insurance (such as a United States
Department of Veterans Affairs or
United States Department of Agriculture
guarantee), even if not technically
considered insurance under State or
other applicable law. The fees for such
a guarantee are included in ‘‘mortgage
insurance premiums.’’
2. Calculation. For purposes of
§ 1026.37(c)(1)(i)(C), mortgage insurance
premiums should be calculated based
on the declining principal balance that
will occur as a result of changes to the
interest rate and payment amounts,
assuming the fully-indexed rate applies
at consummation, taking into account
any introductory interest rates.
3. Disclosure. The table required by
§ 1026.37(c) should reflect the
consumer’s mortgage insurance
premiums until the date on which the
creditor must automatically terminate
coverage under applicable law, even
though the consumer may have a right
to request that the insurance be
cancelled earlier. Unlike termination of
mortgage insurance, a subsequent
decline in the consumer’s mortgage
insurance premiums is not, by itself, an
event that requires the disclosure of
additional separate periodic payments
or ranges of payments in the table
required by § 1026.37(c). For example,
some mortgage insurance programs
annually adjust premiums based on the
declining loan balance. Such annual
adjustment to the amount of premiums
would not require a separate disclosure
of a periodic payment or range
payments.
Paragraph 37(c)(1)(ii).
Paragraph 37(c)(1)(ii)(A).
1. Balloon payments that are final
payments. Section 1026.37(c)(1)(ii)(A) is
an exception to the general rule in
§ 1026.37(c)(1)(ii), and requires that a
balloon payment that is scheduled as a
final payment under the terms of the
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legal obligation is always disclosed as a
separate periodic payment or range of
payments. Balloon payments that are
not final payments, such as a balloon
payment due at the scheduled recast of
a loan that permits negative
amortization, are disclosed pursuant to
the general rule in § 1026.37(c)(1)(ii).
Paragraph 37(c)(1)(iii).
1. Calculation of minimum and
maximum payments. A range of
payments is disclosed under
§ 1026.37(c)(1)(iii) when the periodic
principal and interest payments are not
known at the time the disclosure is
provided because they are subject to
changes based on index rates at the time
of an interest rate adjustment, or when
multiple events are disclosed as a range
of payments pursuant to
§ 1026.37(c)(1)(ii). For such
transactions, § 1026.37(c)(1)(iii) requires
the creditor to disclose both the
minimum and maximum periodic
principal and interest payments,
expressed as a range. In disclosing the
maximum possible interest rate under
§ 1026.37(c), the creditor assumes that
the interest rate will rise as rapidly as
possible after consummation, taking
into account the terms of the legal
obligation, including any applicable
caps on interest rate adjustments and
lifetime interest rate cap. For a loan
with no lifetime interest rate cap, the
maximum rate is determined by
reference to other applicable laws, such
as State usury law. In disclosing the
minimum possible interest rate for
purposes of § 1026.37(c), the creditor
assumes that the interest rate will
decrease as rapidly possible after
consummation, taking into account any
introductory rates, caps on interest rate
adjustments, and lifetime interest rate
floor. For an adjustable rate mortgage
based on an index that has no lifetime
interest rate floor, the minimum interest
rate is equal to the margin.
2. Ranges of payments. When a range
of payments is required,
§ 1026.37(c)(1)(iii) requires the creditor
to disclose the minimum and maximum
amount for both the principal and
interest payment under
§ 1026.37(c)(2)(i) and the total periodic
payment under § 1026.37(c)(2)(iv). The
amount required to be disclosed for
mortgage insurance premiums pursuant
to § 1026.37(c)(2)(ii) and the amount
payable into an escrow account
pursuant to § 1026.37(c)(2)(iii) shall not
be disclosed as a range.
3. Adjustable rate mortgages. For an
adjustable rate mortgage, the periodic
principal and interest payment at each
time the interest rate may change will
depend on the rate that applies at the
time of the adjustment, which is not
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known at the time the disclosure is
provided. As a result, the creditor
discloses the minimum and maximum
periodic principal and interest payment
that could apply during each period
disclosed pursuant to § 1026.37(c)(1)
after the first period.
37(c)(2) Itemization.
Paragraph 37(c)(2)(ii).
1. Mortgage insurance. Mortgage
insurance premiums should be reflected
on the disclosure required by
§ 1026.37(c) even if no escrow account
is established for the payment of
mortgage insurance premiums. If the
consumer is not required to purchase
mortgage insurance, the creditor shall
disclose the mortgage insurance
premium as ‘‘0’’.
2. Periodic payments. The creditor
discloses mortgage insurance premiums
pursuant to § 1026.37(c)(2)(ii) on the
same periodic basis that payments for
principal and interest are disclosed
pursuant to § 1026.37(c)(2)(i), even if
mortgage insurance premiums are
actually paid on some other periodic
basis.
Paragraph 37(c)(2)(iii).
1. Escrow. The disclosure described in
§ 1026.37(c)(2)(iii) is required only if the
creditor will establish an escrow
account for the payment of some or all
of the charges described in
§ 1026.37(c)(4)(ii)(A) through (E).
37(c)(3) Subheadings.
Paragraph 37(c)(3)(ii).
1. Years. Section 1026.37(c)(3)(ii)
requires that each periodic payment or
range of payments be disclosed under a
subheading that states the number of
years during which that payment or
range of payments will apply and that
such subheadings be stated in a
sequence of whole years. For purposes
of § 1026.37(c), ‘‘year’’ is defined as the
twelve-month interval beginning on the
due date of the first periodic payment
and each anniversary thereafter. For
example, for a loan with a 30-year term
that does not require mortgage
insurance and requires interest-only
payments for the first 60 months of the
loan, then requires fixed, fully
amortizing payments of principal and
interest for the duration of the loan, the
creditor would label the first disclosure
of periodic payments as ‘‘Years 1–5’’
and the second disclosure of periodic
payments or range of payments as
‘‘Years 6–30.’’ However, if that loan
requires interest-only payments for the
first 54 months of the loan, then
requires fixed, fully amortizing
payments of principal and interest for
the duration of the loan, the creditor
would label the first disclosure of
periodic payments as ‘‘Years 1–4’’ and
the second disclosure of periodic
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payments or range of payments as
‘‘Years 5–30.’’ Finally, if the loan that
requires interest-only payments for the
first 54 months also requires mortgage
insurance that would automatically
terminate under applicable law after the
100th month of the loan’s term, the
creditor would label the first disclosure
of periodic payments as ‘‘Years 1–4,’’
the second disclosure of periodic
payments or range of payments as
‘‘Years 5–8,’’ and the third disclosure of
periodic payments or range of payments
as ‘‘Years 9–30.’’
2. Loans with variable terms. If the
loan term may increase based on an
adjustment of the interest rate, the
creditor must disclose the maximum
loan term possible under the legal
obligation. To calculate the maximum
loan term, the creditor assumes that the
interest rate rises as rapidly as possible,
taking into account the terms of the
legal obligation, including any
applicable caps on interest rate
adjustments and lifetime interest rate
cap. See comment 37(a)(8)–1.
37(c)(4) Taxes, insurance, and
assessments.
Paragraph 37(c)(4)(ii).
1. Mortgage-related insurance
premiums. Mortgage-related insurance
premiums required by the creditor are
those described § 1026.35(b)(3)(i) and its
commentary, except that, for purposes
of § 1026.37(c)(4)(ii), mortgage-related
insurance premiums do not include
mortgage insurance premiums disclosed
pursuant to § 1026.37(c)(2)(ii). A
creditor need not include premiums for
mortgage-related insurance that are not
required as part of the legal obligation
or under applicable law, such as
optional earthquake insurance or credit
insurance, or fees for optional debt
suspension and debt cancellation
agreements.
2. Special assessments. Special
assessments are imposed on the
consumer at or before consummation,
such as a one-time homeowners’
association fee that will not be paid by
the consumer in full at or before
consummation.
37(f) Closing cost details; loan costs.
1. General description. The items
disclosed under § 1026.37(f) include
services that the creditor or mortgage
broker require for consummation, such
as underwriting, appraisal, and title
services.
2. Mortgage broker. Official
commentary under § 1026.19(e)(1)(ii)
discusses the requirements and
responsibilities of mortgage brokers that
provide the disclosures required by
§ 1026.19(e), which include the
disclosures set forth in § 1026.37(f).
37(f)(1) Origination charges.
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1. Origination charges. Charges
included under the subheading
‘‘Origination Charges’’ pursuant to
§ 1026.37(f)(1) are those charges paid by
the consumer to the creditor and each
loan originator for originating and
extending the credit, regardless of how
such fees are denominated. In
accordance with § 1026.37(o)(4), the
dollar amounts disclosed under
§ 1026.37(f)(1) must be rounded to the
nearest whole dollar and the percentage
amounts must be disclosed as an exact
number up to three decimal places,
except that decimal places shall not be
disclosed if the percentage is a whole
number. See comment 19(e)(3)(i)–2 for a
discussion of when a fee is considered
to be ‘‘paid to’’ a person. See comment
36(a)–1 for a discussion of the meaning
of ‘‘loan originator’’ in connection with
limits on compensation in a consumer
credit transaction secured by a dwelling.
2. Indirect loan originator
compensation. Only charges paid
directly by the consumer to compensate
a loan originator are included in the
amounts listed under § 1026.37(f)(1).
Compensation of a loan originator paid
indirectly by the creditor through the
interest rate is not itemized on the Loan
Estimate required by § 1026.19(e).
However, pursuant to § 1026.38(f)(1)
such compensation is itemized on the
Closing Disclosure required by
§ 1026.19(f).
3. Description of charges. Other than
for points that the consumer will pay to
the creditor to reduce the interest rate,
for which specific language must be
used, the creditor may use a general
description to identify each service that
is disclosed as an origination charge
pursuant to § 1026.37(f)(1). Items that
are listed under the subheading
‘‘Origination Charges’’ may include, for
example, application fee, origination
fee, underwriting fee, processing fee,
verification fee, and rate-lock fee.
4. Points. If the consumer is not
charged any points to reduce the
interest rate, the creditor may leave
blank the percentage of points disclosed
under § 1026.37(f)(1)(i), but must
disclose a dollar amount of ‘‘$0.’’
5. Itemization. Creditors determine
the level of itemization of ‘‘Origination
Charges’’ that is appropriate under
§ 1026.37(f)(1), subject to the limitations
in § 1026.37(f)(1)(ii).
37(f)(2) Services you cannot shop for.
1. Services disclosed. Items included
under the subheading ‘‘Services You
Cannot Shop For’’ pursuant to
§ 1026.37(f)(2) are for those services that
the creditor requires in connection with
the transaction that would be provided
by persons other than the creditor or
mortgage broker and for which the
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51439
creditor does not permit the consumer
to shop in accordance with
§ 1026.19(e)(1)(vi)(A). Comment
19(e)(1)(iv)–1 clarifies that a consumer
is not permitted to shop if the consumer
must choose a provider from a list
provided by the creditor. Comment
19(e)(3)(i)–1 addresses determining
good faith in providing estimates under
§ 1026.19(e), including estimates for
services for which the consumer cannot
shop. Comments 19(e)(3)(iv)–1 through
–3 discuss limits and requirements
applicable to providing revised
estimates for services for which the
consumer cannot shop.
2. Examples of charges. Examples of
the services to be disclosed pursuant to
§ 1026.37(f)(2) might include appraisal
fee, appraisal management company fee,
credit report fee, flood determination
fee, lender’s attorney, tax status research
fee, title—closing protection letter, and
title—lender’s coverage.
3. Title insurance services. The
services required to be labeled
beginning with ‘‘Title—’’ pursuant to
§ 1026.37(f)(2) or (3) are those required
for the issuance of title insurance
policies to the creditor in connection
with the consummation of the
transaction. These services may include,
for example:
i. Examination and evaluation, based
on relevant law and title insurance
underwriting principles and guidelines,
of the title evidence to determine the
insurability of the title being examined
and what items to include or exclude in
any title commitment and policy to be
issued;
ii. Preparation and issuance of the
title commitment or other document
that discloses the status of the title as it
is proposed to be insured, identifies the
conditions that must be met before the
policy will be issued, and obligates the
insurer to issue a policy of title
insurance if such conditions are met;
iii. Resolution of underwriting issues
and taking the steps needed to satisfy
any conditions for the issuance of the
policies;
iv. Preparation and issuance of the
policy or policies of title insurance;
v. Premiums for any title insurance
coverage for the benefit of the creditor;
and
vi. Conducting the closing.
4. Lender’s title insurance policy. The
amount disclosed for lender’s title
insurance coverage pursuant to
§ 1026.37(f)(2) or (3) is the amount of
the premium without any adjustment
that might be made for the simultaneous
purchase of an owner’s title insurance
policy. This amount should be disclosed
as ‘‘Title—Premium for Lender’s
Coverage,’’ or in any similar manner
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that clearly indicates the amount of the
premium disclosed pursuant to
§ 1026.37(f)(2) is for the lender’s title
insurance coverage. See comment
37(g)(4)–1 for a discussion of the
disclosure of the premium for owner’s
title insurance coverage.
37(f)(3) Services you can shop for.
1. Services disclosed. Items included
under the subheading ‘‘Services You
Can Shop For’’ pursuant to
§ 1026.37(f)(3) are for those services:
that the creditor requires in connection
with its decision to make the loan; that
would be provided by persons other
than the creditor or mortgage broker;
and for which the creditor allows the
consumer to shop in accordance with
§ 1026.19(e)(1)(vi)(A). Comments
19(e)(3)(ii)–1 through –3 address the
determination of good faith in providing
estimates of charges for services for
which the consumer can shop.
Comment 19(e)(3)(iii)–2 discusses the
determination of good faith when the
consumer chooses a provider that is not
on the list the creditor provides to the
consumer when the consumer is
permitted to shop consistent with
§ 1026.19(e)(1)(vi)(A). Comments
19(e)(3)(iv)–1 through –3 discuss limits
and requirements applicable to
providing revised estimates for services
for which the consumer can shop.
2. Example of charges. Examples of
the services to be listed under this
subheading pursuant to § 1026.37(f)(3)
might include pest inspection fee,
survey fee, title—closing agent fee, and
title—closing protection letter.
3. Title insurance. See comments
37(f)(2)–3 and –4 for guidance on
services that are to be labeled beginning
with ‘‘Title—’’ and on calculating and
labeling the amount disclosed for
lender’s title insurance pursuant to
§ 1026.37(f)(3). See comment 37(g)(4)–1
for a discussion of the disclosure of the
premium for owner’s title insurance
coverage.
37(f)(6) Use of addenda.
1. State law disclosures. If a creditor
is required by State law to make
additional disclosures that, pursuant to
§ 1026.37(f)(6)(i), cannot be included in
the disclosures required under
§ 1026.37(f), the creditor may make
those additional State law disclosures
on a document whose pages are separate
from, and are not presented as part of,
the disclosures prescribed in § 1026.37.
See comment 37(o)(1)–1.
2. Reference to addendum. If an
addendum is used as permitted under
§ 1026.37(f)(6)(ii), an example of a label
that would comply with the
requirement for an appropriate reference
on the last line is: ‘‘See attached page
for additional items you can shop for.’’
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37(g) Closing cost details; other costs.
1. General description. The items
listed under the heading of ‘‘Other
Costs’’ pursuant to § 1026.37(g) include
services that are ancillary to the
creditor’s decision to evaluate the
collateral and the consumer for the loan.
The amounts disclosed for these items
are: established by government action;
determined by standard calculations
applied to ongoing fixed costs; or based
on an obligation incurred by the
consumer independently of any
requirement imposed by the creditor.
Except for prepaid interest under
§ 1026.37(g)(2)(iii), the creditor does not
retain any of the amounts or portions of
the amounts disclosed as Other Costs,
nor does the creditor use any of the
services listed to evaluate the collateral
and the consumer for the loan.
2. Charges pursuant to property
contract. The creditor is required to
disclose charges that are described in
§ 1026.37(g)(1) through (3). Other
charges that are required to be paid at
or before closing pursuant to the
property contract for sale between the
consumer and seller are not disclosed
on the Loan Estimate, except to the
extent the creditor is aware of those
charges when it issues the Loan
Estimate. See § 1026.37(g)(4) and
comment 37(g)(4)–3.
37(g)(1) Taxes and other government
fees.
1. Recording fees. Recording fees
listed under § 1026.37(g)(1) are fees
assessed by a government authority to
record and index the loan and title
documents as required under State or
local law. Recording fees are assessed
based on the type of document to be
recorded or its physical characteristics,
such as the number of pages. Unlike
transfer taxes, recording fees are not
based on the sales price of the property
or loan amount. For example, a fee for
recording a subordination agreement
that is $20, plus $3 for each page over
three pages, is a recording fee, but a fee
of $1,250 based on 0.5% of the loan
amount is a transfer tax, and not a
recording fee.
2. Other government charges. Any
charges or fees imposed by a State or
local government that are not transfer
taxes are aggregated with recording fees
and disclosed under § 1026.37(g)(1)(i).
3. Transfer taxes—terminology. In
general, transfer taxes listed under
§ 1026.37(g)(1) are State and local
government fees on mortgages and home
sales that are based on the loan amount
or sales price, while recording fees are
State and local government fees for
recording the loan and title documents.
The name that is used under State or
local law to refer to these amounts is not
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determinative of whether they are
disclosed as transfer taxes or as
recording fees and other taxes under
§ 1026.37(g)(1).
4. Transfer taxes—consumer. Only
transfer taxes imposed on the consumer
are disclosed on the Loan Estimate
pursuant to § 1026.37(g)(1). State and
local government transfer taxes are
governed by State or local law, which
determines if the seller or consumer is
ultimately responsible for paying the
transfer taxes. For example, if State law
indicates a lien can attach to the
consumer’s acquired property if the
transfer tax is not paid, the transfer tax
is disclosed. If State or local law is
unclear or does not specifically attribute
transfer taxes to the seller or the
consumer, the creditor is in compliance
with requirements of § 1026.37(g)(1) as
long as the amount of the transfer tax
disclosed is not less than the amount
apportioned to the consumer using
common practice in the locality of the
property.
5. Transfer taxes—seller. Transfer
taxes paid by the seller in a purchase
transaction are not disclosed on the
Loan Estimate under § 1026.37(g)(1), but
will be disclosed on the Closing
Disclosure pursuant to
§ 1026.38(g)(1)(ii).
6. Deletion and addition of items. The
lines and labels required by
§ 1026.37(g)(1) may not be deleted, even
if recording fees or transfer taxes are not
charged to the consumer. No additional
items may be listed under the
subheading in § 1026.37(g)(1).
37(g)(2) Prepaids.
1. Examples. Prepaid items required
to be disclosed pursuant to
§ 1026.37(g)(2) include the interest due
at consummation for the period of time
before the first scheduled payment is
due and certain periodic charges that
are required by the creditor to be paid
at consummation. Each periodic charge
listed as a prepaid item indicates, as
applicable, the time period that the
charge will cover, the daily amount, the
percentage used to calculate the charge,
and the total dollar amount of the
charge. Examples of periodic charges
that the creditor may require the
consumer to pay at consummation
include:
i. Real estate property taxes due
within 60 days after consummation of
the transaction;
ii. Past-due real estate property taxes;
iii. Mortgage insurance premiums;
iv. Flood insurance premiums; and
v. Homeowner’s insurance premiums.
2. Interest rate. The interest rate
disclosed pursuant to § 1026.37(g)(2)(iii)
is the same interest rate disclosed
pursuant to § 1026.37(b)(2).
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3. Terminology. As used in
§ 1026.37(g)(2), the terms ‘‘property
taxes,’’ ‘‘homeowner’s insurance,’’
‘‘mortgage insurance’’ have the same
meaning as those terms are used in
§ 1026.37(c) and its commentary.
4. Deletion of items. The lines and
labels required by paragraph (g)(2) may
not be deleted, even if amounts for those
labeled items are not charged to the
consumer. If an amount for a labeled
item is not charged to the consumer, the
time period, daily amount, and
percentage may be left blank.
37(g)(3) Initial escrow payment at
closing.
1. Listed item not charged. Pursuant
to § 1026.37(g)(3), each periodic charge
to be included in the escrow or reserve
account must be itemized under the
‘‘Initial Escrow Payment at Closing’’
subheading, with a relevant label,
monthly payment amount, and number
of months expected to be collected at
consummation. If an item required to be
listed under § 1026.37(g)(3)(i) through
(iii) is not charged to the consumer, the
monthly payment amount and time
period may be left blank.
2. Aggregate escrow account
calculation. The aggregate escrow
account adjustment required under
§ 1026.38(g)(3) and 12 CFR
1024.17(d)(2) is not included on the
Loan Estimate under § 1026.37(g)(3).
3. Terminology. As used in
§ 1026.37(g)(3), the terms ‘‘property
taxes,’’ ‘‘homeowner’s insurance,’’ and
‘‘mortgage insurance’’ have the same
meaning as those terms are used in
§ 1026.37(c) and its commentary.
4. Deletion of items. The lines and
labels required by § 1026.37(g)(3) may
not be deleted, even if amounts for those
labeled items are not charged to the
consumer.
37(g)(4) Other.
1. Basic owner’s policy rate. The
amount disclosed for an owner’s title
insurance premium pursuant to
§ 1026.37(g)(4) is based on a basic
owner’s policy rate, and not on an
‘‘enhanced’’ title insurance policy
premium. This amount should be
disclosed as ‘‘Title—Owner’s Title
Policy (optional),’’ or in any similar
manner that includes the introductory
description ‘‘Title—’’ at the beginning of
the label for the item, the parenthetical
description ‘‘(optional)’’ at the end of
the label, and clearly indicates the
amount of the premium disclosed
pursuant to § 1026.37(g)(4) is for the
owner’s title insurance coverage. See
comment 37(f)(2)–4 for a discussion of
the disclosure of the premium for
lender’s title insurance coverage.
2. Simultaneous title insurance
premium rate in purchase transactions.
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The premium for an owner’s title
insurance policy for which a special rate
may be available based on the
simultaneous issuance of a lender’s and
an owner’s policy is calculated and
disclosed pursuant to § 1026.37(g)(4) as
follows:
i. The title insurance premium for a
lender’s title policy is based on the full
premium rate, consistent with
§ 1026.37(f)(2) or (f)(3).
ii. The owner’s title insurance
premium is calculated 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.
3. Designation of optional items.
Products disclosed under § 1026.37(g)(4)
for which the parenthetical description
‘‘(optional)’’ is included at the end of
the label for the item include only items
that are separate from any item
disclosed on the Loan Estimate under
paragraphs other than § 1026.37(g)(4).
For example, such items may include
owner’s title insurance, credit life
insurance, debt suspension coverage,
debt cancellation coverage, warranties
of home appliances and systems, and
similar products, when coverage is
written in connection with a credit
transaction that is subject to
§ 1026.19(e). However, because the
requirement in § 1026.37(g)(4)(ii)
applies to separate products only,
additional coverage and endorsements
on insurance otherwise required by the
lender are not disclosed under
§ 1026.37(g)(4). See comments 4(b)(7)
and (b)(8)–1 through –3 and comments
4(b)(10)–1 and –2 for descriptions of
credit life insurance, debt suspension
coverage, debt cancellation coverage,
and similar coverage and for guidance
on determining when such coverage is
written in connection with a transaction
subject to § 1026.19(e).
4. Examples. Examples of other items
that are disclosed under § 1026.37(g)(4)
if the creditor is aware of those items
when it issues the Loan Estimate
include commissions of real estate
brokers or agents, additional payments
to the seller to purchase personal
property pursuant to the property
contract, homeowner’s association and
condominium charges associated with
the transfer of ownership, and fees for
inspections not required by the creditor
but paid by the consumer pursuant to
the property contract. Although the
consumer is obligated for these costs,
they are not imposed upon the
consumer by the creditor or loan
originator. Therefore, they are not
disclosed with the parenthetical
description ‘‘(optional)’’ at the end of
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the label for the item, and they are
disclosed pursuant to § 1026.37(g) rather
than § 1026.37(f). Even if such items are
not required to be disclosed on the Loan
Estimate under § 1026.37(g)(4),
however, they may be required to be
disclosed on the Closing Disclosure
pursuant to § 1026.38. Comment
19(e)(3)(iii)–3 discusses application of
the good faith requirement for services
chosen by the consumer that are not
required by the creditor.
37(g)(6) Total closing costs.
Paragraph 37(g)(6)(ii).
1. Lender credits. Section
1026.19(e)(1)(i) requires disclosure of
lender credits as provided in
§ 1026.37(g)(6)(ii). Comment 19(e)(3)(i)–
5 describes such lender credits as
payments from the creditor to the
consumer that do not pay for a
particular fee on the disclosures
provided under § 1026.37. Comment
19(e)(3)(i)–4 addresses payments by a
creditor to a consumer to pay for
particular fees.
37(g)(8) Use of addenda.
1. State law disclosures. If a creditor
is required by State law to make
additional disclosures that, pursuant to
§ 1026.37(g)(8), cannot be included in
the disclosures required under
§ 1026.37(g), the creditor may make
those additional State law disclosures
on a separate document whose pages are
physically separate from, and are not
presented as part of, the disclosures
prescribed in § 1026.37. See comment
37(o)(1)–1.
37(h) Calculating cash to close.
1. Labels for amounts disclosed.
Paragraph 37(h) describes the amounts
that are used to calculate the estimated
amount of cash or other form of
payment that the consumer must
provide at consummation. The labels
used on the chart must correspond to
the italicized descriptions of
§ 1026.37(h)(1) through (7).
37(h)(4) Deposit.
1. A deposit must be disclosed in a
purchase transaction. In any other type
of transaction, any deposit amount is
disclosed under § 1026.37(h)(4) as $0.
37(h)(6) Seller credits.
1. Credits to be disclosed. The seller
credits known to the creditor at the time
of application are disclosed under
§ 1026.37(h)(6). Seller credits that are
not known by the creditor at the time of
application are not disclosed under
§ 1026.37(h)(6).
37(h)(7) Adjustments and other
credits.
1. Other credits known at the time the
Loan Estimate is issued. Amounts
expected to be paid by third parties not
involved in the transaction, such as gifts
from family members and not otherwise
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identified under § 1026.37(h), would be
included in the amount disclosed
pursuant to § 1026.37(h)(7) to the extent
known by the creditor.
2. Persons. The term ‘‘persons’’ as
used in § 1026.37(h)(7) includes all
individuals and any entity, regardless of
the legal structure of such entity.
3. Credits. Only credits from parties
other than the creditor or seller can be
disclosed pursuant to § 1026.37(h)(7).
Seller credits and credits from the
creditor are disclosed pursuant to
§ 1026.37(h)(6) and § 1026.37(g)(6)(ii),
respectively.
4. Other credits to be disclosed. Other
credits known to the creditor at the time
of application are disclosed under
§ 1026.37(h)(7). Other credits that are
not known by the creditor at the time of
application are not disclosed under
§ 1026.37(h)(7).
37(h)(8) Estimated cash to close.
1. Result of cash to close calculation.
The total of § 1026.37(h)(1) through (7)
is disclosed under § 1026.37(h)(8) as
either a positive number, a negative
number, or zero. A positive number
indicates the estimated amount that the
consumer can be expected to pay at
consummation. A negative number
indicates the estimated amount that the
consumer can receive at consummation.
A result of zero indicates that the
consumer is anticipated to neither pay
any amount or receive any amount at
consummation.
37(i) Adjustable payment table.
1. When table is not permitted to be
disclosed. The disclosure described in
§ 1026.37(i) is required only if the
periodic principal and interest payment
may change after consummation based
on a loan term other than a change to
the interest rate, or the transaction
contains a seasonal payment product
feature as described in
§ 1026.37(a)(10)(ii)(E). If the transaction
does not contain such loan terms, this
table may not appear on the Loan
Estimate. See comment 37–1.
2. Periods to be disclosed. Section
1026.37(i)(1) through (4) requires
disclosure of the periods during which
interest-only, optional payment, steppayment, and seasonal payment product
features will be in effect. The periods
required to be disclosed should be
disclosed by describing the number of
payments counting from the first
periodic payment due after
consummation. The period of seasonal
payments required to be disclosed by
§ 1026.37(i)(4), to be clear and
conspicuous, should be disclosed with
a noun that identifies the unit-period,
because such feature may apply on a
regular basis during the loan term that
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does not depend on when regular
periodic payments begin. For example:
i. Period from date of consummation.
If a loan has an interest-only period for
the first 60 regular periodic payments
due after consummation, the disclosure
states ‘‘for your first 60 payments.’’
ii. Period during middle of loan term.
If the loan has an interest-only period
between the 61st and 85th payments,
the disclosure states ‘‘from your 61st to
85th payment.’’
iii. Multiple successive periods. If
there are multiple periods during which
a certain adjustable payment term
applies, such as a period of step
payments that occurs from the first to
12th payment, does not apply to the
13th through 24th payments, and occurs
again from the 25th through 36th
payments, the period disclosed is the
entire span of all such periods.
Accordingly, such period is disclosed as
‘‘for your first 36 payments.’’
iv. Seasonal payments. For a seasonal
payment product with a unit-period of
a month that does not require periodic
payments for the months of June, July,
and August each year during the loan
term, because such feature depends on
calendar months and not on when
regular periodic payments begin, the
period is disclosed as ‘‘from June to
August.’’ For a transaction with a
quarterly unit-period that does not
require a periodic payment every third
quarter during the loan term and does
not depend on calendar months, the
period is disclosed as ‘‘every third
payment.’’ In the same transaction, if
the seasonal payment feature ends after
the twentieth quarter, the period is
disclosed as ‘‘every quarter until the
20th quarter.’’
37(i)(5) Principal and interest
payments.
1. Statement of periodic payment
frequency. The subheading required by
§ 1026.37(i)(5) must include the unitperiod of the transaction, such as
‘‘quarterly,’’ ‘‘bi-weekly,’’ or ‘‘annual.’’
This unit period should be the same as
disclosed under § 1026.37(b)(3). See
§ 1026.37(o)(5)(i).
2. Initial payment adjustment
unknown. The disclosure required by
§ 1026.37(i)(5) must state the number of
the first payment for which the regular
periodic principal and interest payment
may change. This payment is typically
set forth in the legal obligation.
However, if the exact payment number
of the first adjustment is not known at
the time the creditor provides the Loan
Estimate, the creditor must disclose the
earliest possible payment that may
change under the terms of the legal
obligation, based on the information
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available to the creditor at the time, as
the initial payment number and amount.
3. Subsequent changes. The
disclosure required by § 1026.37(i)(5)
must state the frequency of adjustments
to the regular periodic principal and
interest payment after the initial
adjustment, if any, expressed in years,
except if adjustments are more frequent
than once every year, in which case the
disclosure should be expressed as
payments. If there is only one
adjustment of the periodic payment
under the terms of the legal obligation
(for example, if the loan has an interestonly period for the first 60 payments
and there are no adjustments to the
payment after the end of the interestonly period), the disclosure should
state: ‘‘No subsequent changes.’’ If the
loan has graduated increases in the
regular periodic payment every 12th
payment, the disclosure should state:
‘‘Every year.’’ If the frequency of
adjustments to the periodic payment
may change under the terms of the legal
obligation, the disclosure should state
the smallest period of adjustments that
may occur. For example, if an increase
in the periodic payment is scheduled
every sixth payment for 36 payments,
and then every 12th payment for the
next 24 payments, the disclosure should
state: ‘‘Every 6th payment.’’
4. Maximum payment. The disclosure
required by § 1026.37(i)(5) must state
the larger of the maximum scheduled or
maximum potential amount of a regular
periodic principal and interest payment
under the terms of the legal obligation,
as well as the payment number of the
first periodic principal and interest
payment that can reach such amount. If
the disclosed payment is scheduled,
§ 1026.37(i)(5) requires that the
disclosure state the payment number
when such payment is reached with the
preceding text, ‘‘starting at.’’ If the
disclosed payment is only potential, as
may be the case for a loan that permits
optional payments, the disclosure states
the earliest payment number when such
payment can be reached with the
preceding text, ‘‘as early as.’’ Section
1026.37(i)(5) requires that the first
possible periodic principal and interest
that can reach the maximum be
disclosed. For example, for a fixed
interest rate optional-payment loan with
scheduled payments that result in
negative amortization, the maximum
periodic payment disclosed should be
based on the consumer having elected to
make the periodic payments that would
increase the principal balance to the
maximum amount at the latest time
possible before the loan begins to fully
amortize, which would cause the
periodic principal and interest payment
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to be the maximum possible. For
example, if the earliest payment that
could reach the maximum principal
balance was the 41st payment at which
time the loan would begin to amortize
and the periodic principal and interest
payment would be recalculated, but the
last payment that permitted the
principal balance to increase was the
60th payment, the disclosure required
by § 1026.37(i)(5) must assume the
consumer only reached the maximum
principal balance at the 60th payment
because this would result in the
maximum possible principal and
interest payment under the terms of the
legal obligation. The disclosure must
state the periodic principal and interest
payment based on this assumption and
state ‘‘as early as the 61st payment.’’
5. Payments that do not pay principal.
Although the label of the disclosure
required by § 1026.37(i)(5) is ‘‘Principal
and Interest Payments,’’ and the section
refers to periodic principal and interest
payments, it includes a scheduled
periodic payment that only covers some
or all of the interest that is due and not
any principal (i.e., an interest-only or
negatively amortizing payment).
37(j) Adjustable interest rate table.
1. When table is permitted to be
disclosed. The disclosure described in
§ 1026.37(j) is only required if the
interest rate may increase after
consummation, either based on changes
to an index or scheduled changes to the
interest rate. If the legal obligation does
not permit the interest rate to adjust
after consummation, such as for a
‘‘Fixed Rate’’ product under
§ 1026.37(a)(10), this table is not
permitted to appear on the Loan
Estimate. The creditor may not disclose
a blank table or a table with ‘‘N/A’’
inserted within each row. See comment
37–1.
37(j)(1) Index and margin.
1. Index and margin. The index
disclosed pursuant to § 1026.37(j)(1)
must be stated such that a consumer
reasonably can identify it. A common
abbreviation or acronym of the name of
the index may be disclosed in place of
the proper name of the index, if it is a
commonly used public method of
identifying the index. For example,
‘‘LIBOR’’ may be disclosed instead of
London Interbank Offered Rate. The
margin should be disclosed as a
percentage. For example, if the contract
determines the interest rate by adding
4.25 percentage points to the index, the
margin should be disclosed as ‘‘4.25%.’’
37(j)(2) Increases in interest rate.
1. Adjustments not based on an index.
If the legal obligation includes both
adjustments to the interest rate based on
an external index and scheduled and
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pre-determined adjustments to the
interest rate, such as for a ‘‘Step Rate’’
product under § 1026.37(a)(10), the
disclosure required by § 1026.37(j)(1),
and not § 1026.37(j)(2), must be
provided pursuant to § 1026.37(j)(2).
The disclosure described in
§ 1026.37(j)(2) is stated only if the
product type does not permit the
interest rate to adjust based on an
external index.
37(j)(3) Initial interest rate.
1. Interest rate at consummation. In
all cases, the interest rate in effect at
consummation must be disclosed as the
initial interest rate, even if it will apply
only for a short period, such as one
month.
37(j)(4) Minimum and maximum
interest rate.
1. Minimum interest rate. The
minimum rate required to be disclosed
by § 1026.37(j)(4) is the minimum
interest rate that may occur at any time
during the term of the transaction, after
any introductory or ‘‘teaser’’ interest
rate expires, under the terms of the legal
obligation, such as an interest rate
‘‘floor.’’ If the terms of the legal
obligation do not state a minimum
interest rate, the minimum interest rate
that applies to the transaction under
applicable law must be disclosed. If the
terms of the legal obligation do not state
a minimum interest rate, and no other
minimum interest rate applies to the
transaction under applicable law, the
amount of the margin is disclosed.
2. Maximum interest rate. The
maximum interest rate required to be
disclosed pursuant to § 1026.37(j)(4) is
the maximum interest rate possible
under the terms of the legal obligation,
such as an interest rate ‘‘cap.’’ If the
terms of the legal obligation do not
specify a maximum interest rate, the
maximum interest rate permitted by
applicable law, such as State usury law,
must be disclosed.
37(j)(5) Frequency of adjustments.
1. Exact month unknown. The
disclosure required by § 1026.37(j)(5)
must state the first month for which the
interest rate may change. This month is
typically scheduled in the terms of the
legal obligation. However, if the exact
month is not known at the time the
creditor provides the Loan Estimate, the
creditor must disclose the earliest
possible month under the terms of the
legal obligation, based on the
information available to the creditor at
the time.
37(j)(6) Limits on interest rate
changes.
1. Different limits on subsequent
interest rate adjustments. If more than
one limit applies to the amount of
adjustments to the interest rate after the
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initial adjustment, the greatest limit on
subsequent adjustments must be
disclosed. For example, if the initial
interest rate adjustment is capped at two
percent, the second adjustment is
capped at two and a half percent, and
all subsequent adjustments are capped
at three percent, the disclosure required
by § 1026.37(j)(6)(ii) states ‘‘3%.’’
37(k) Contact information.
1. NMLSR ID. Section 1026.37(k)
requires the disclosure of an NMLSR
identification (ID) number for each
creditor, mortgage broker, and loan
officer identified on the Loan Estimate.
The NMLSR ID is a unique number or
other identifier generally assigned by
the Nationwide Mortgage Licensing
System and Registry (NMLSR) to
individuals registered or licensed
through NMLSR to provide loan
originating services. For more
information, see the Secure and Fair
Enforcement for Mortgage Licensing Act
of 2008 (SAFE Act) sections 1503(3) and
(12) and 1504 (12 U.S.C. 5102(3) and
(12) and 5103), and its implementing
regulations (i.e., 12 CFR 1007.103(a) and
1008.103(a)(2)). An entity may also have
an NMLSR ID. Thus, if the creditor,
mortgage broker, or loan officer has
obtained an NMLSR ID, the NMLSR IDs
must be provided in the disclosures
required by § 1026.37(k)(1) and (2).
2. License number or unique
identifier. Section 1026.37(k)(1) and (2)
requires the disclosure of a license
number or unique identifier for the
creditor, mortgage broker, and loan
officer if such entity or individual has
not obtained an NMLSR ID. In such
event, if the applicable State, locality, or
other regulatory body with
responsibility for licensing and/or
registering such entity’s or individual’s
business activities has issued a license
number or other unique identifier to
such entity or individual, that number
is disclosed.
3. Contact. Section 1026.37(k)(2)
requires the disclosure of the name and
NMLSR ID of the loan officer for the
consumer. The loan officer is generally
the natural person employed by the
person disclosed under § 1026.37(k)(2)
who interacts most frequently with the
consumer and who has an NMLSR ID
or, if none, a license number or other
unique identifier to be disclosed under
§ 1026.38(k)(2), as applicable.
37(l) Comparisons.
37(l)(1) In five years.
1. Loans with terms of less than five
years. In transactions with a scheduled
loan term of less than 60 months, to
comply with § 1026.37(l)(1), the creditor
discloses the amounts paid through the
end of the loan term.
Paragraph 37(l)(1)(i).
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1. Calculation of total payments in
five years. The amount disclosed
pursuant to § 1026.37(l)(1)(i) is the sum
of principal, interest, mortgage
insurance, and loan costs scheduled to
be paid through the end of the 60th
month after the due date of the first
periodic payment. For purposes of
§ 1026.37(l)(1)(i), interest is calculated
using the fully-indexed rate at
consummation and includes any
prepaid interest. In addition, for
purposes of § 1026.37(l)(1)(i), the
creditor should assume that the
consumer makes payments as scheduled
and on time. For purposes of
§ 1026.37(l)(1)(i), mortgage insurance is
defined pursuant to comment
37(c)(1)(i)(C)–1 and includes prepaid or
escrowed mortgage insurance. Loan
costs are those costs disclosed pursuant
to § 1026.37(f).
2. Negative amortization loans. For
loans that permit negative amortization,
the creditor calculates the total
payments in five years using the
negatively amortizing payment amount
until the consumer must begin making
fully amortizing payments under the
terms of the legal obligation.
Paragraph 37(l)(1)(ii).
1. Calculation of principal paid in five
years. The disclosure required by
§ 1026.37(l)(1)(ii) is calculated in the
same manner as the disclosure required
by § 1026.37(l)(1)(i), except that the
disclosed amount reflects only the total
payments to principal through the end
of the 60th month after the due date of
the first periodic payment.
37(l)(3) Total interest percentage.
1. General. When calculating the total
interest percentage, the creditor assumes
that the consumer will make each
payment in full and on time, and will
not make any additional payments.
2. Adjustable-rate and step-rate
mortgages. For adjustable-rate
mortgages, § 1026.37(1)(3) requires that
the creditor compute the total interest
percentage using the fully-indexed rate.
For step-rate mortgages, § 1026.37(l)(3)
requires that the creditor compute the
total interest percentage in accordance
with § 1026.17(c)(1) and its associated
commentary.
3. Negative amortization loans. For
loans that permit negative amortization,
§ 1026.37(l)(3) requires that the creditor
compute the total interest percentage
using the negatively amortizing
payment amount until the consumer
must begin making fully amortizing
payments under the terms of the legal
obligation.
37(m) Other considerations.
37(m)(1) Appraisal.
1. Applicability. Section 1026.37
requires the disclosures required by this
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section to be made as applicable. The
disclosure required by § 1026.37(m)(1)
is only applicable to transactions subject
to § 1026.19(e) that are also subject
either to 15 U.S.C. 1639h or 1691(e), as
implemented by this part or Regulation
B, 12 CFR part 1002, respectively.
Accordingly, if a transaction is not also
subject to either of these provisions, the
disclosure required by § 1026.37(m)(1)
may be omitted from the Loan Estimate.
37(m)(2) Assumption.
1. Disclosure. Section 1026.37(m)(2)
requires the creditor to disclose whether
or not a third party may be allowed to
assume the loan on its original terms if
the property is sold or transferred by the
consumer. In many cases, the creditor
cannot determine, at the time the
disclosure is made, whether a loan may
be assumable at a future date on its
original terms. For example, the
assumption clause commonly used in
mortgages sold to the Federal National
Mortgage Association and the Federal
Home Loan Mortgage Corporation
conditions an assumption on a variety
of factors, such as the creditworthiness
of the subsequent borrower, the
potential for impairment of the
creditor’s security, and the execution of
an assumption agreement by the
subsequent borrower. If the creditor can
determine that such assumption is not
permitted, the creditor complies with
§ 1026.37(m)(2) by disclosing that the
loan is not assumable. In all other
situations, including where assumption
of a loan is permitted or is dependent
on certain conditions or factors, or
uncertainty exists as to the future
assumability of a mortgage, the creditor
complies with § 1026.37(m)(2) by
disclosing that, under certain
conditions, the creditor may allow a
third party to assume the loan on its
original terms.
2. Original terms. For purposes of
§ 1026.37(m)(2), the phrase ‘‘original
terms’’ does not preclude the imposition
of an assumption fee, but a modification
of the legal obligation, such as a change
in the contract interest rate, represents
different terms.
37(m)(3) Homeowner’s insurance.
1. Optional disclosure. Section
1026.37(m)(3) provides that creditors
may, but are not required to, disclose a
statement of whether homeowner’s
insurance is required on the property
and whether the consumer may choose
the insurance provider, labeled
‘‘Homeowner’s Insurance.’’
2. Relation to the finance charge.
Section 1026.4(d)(2) describes the
conditions under which a creditor may
exclude premiums for homeowner’s
insurance from the finance charge. A
creditor satisfies § 1026.4(d)(2)(i) by
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disclosing the statement described in
§ 1026.37(m)(3).
37(m)(4) Late payment.
1. Definition. Section 1026.37(m)(4)
requires a disclosure if charges are
added to an individual delinquent
installment by a creditor that otherwise
considers the transaction ongoing on its
original terms. Late payment charges do
not include: (i) the right of acceleration;
(ii) fees imposed for actual collection
costs, such as repossession charges or
attorney’s fees; (iii) referral and
extension charges; or (iv) the continued
accrual of simple interest at the contract
rate after the payment due date.
However, an increase in the interest rate
on account of a late payment by the
consumer is a late payment charge to
the extent of the increase.
2. Applicability of State law. Many
State laws authorize the calculation of
late charges as either a percentage of the
delinquent payment amount or a
specified dollar amount, and permit the
imposition of the lesser or greater of the
two calculations. The language provided
in the disclosure may reflect the
requirements and alternatives allowed
under State law.
37(m)(6) Servicing.
1. Creditor’s intent. Section
1026.37(m)(6) requires the creditor to
disclose whether it intends to service
the loan directly or transfer servicing to
another servicer after closing. A creditor
complies with § 1026.37(m)(6) if the
disclosure reflects the creditor’s intent
at the time the Loan Estimate is issued.
37(m)(7) Liability after foreclosure.
1. When statement is not permitted to
be disclosed. The statement required by
§ 1026.37(m)(7) is permitted only under
the condition specified by
§ 1026.37(m)(7), specifically, if the
purpose of the credit transaction is a
refinance under § 1026.37(a)(9).
37(n) Signature statement.
1. Signature line optional. Whether a
signature line is provided under
§ 1026.37(n) is determined solely by the
creditor. If a signature line is provided,
however, the disclosure must include
the statement required by
§ 1026.37(n)(1).
2. Multiple consumers. If there is
more than one consumer in the
transaction, the first consumer signs as
the applicant and each additional
consumer signs as a ‘‘co-applicant.’’ If
there is not enough space under the
heading ‘‘Confirm Receipt’’ to provide
signature lines for every consumer in
the transaction, the creditor may add
additional signature pages, as needed, at
the end of the form for the remaining
consumers’ signatures.
37(o) Form of disclosures.
37(o)(1) General requirements.
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1. Clear and conspicuous; segregation.
The clear and conspicuous standard
requires that the disclosures required by
§ 1026.37 be legible and in a readily
understandable form. Section
1026.37(o)(1)(i) requires that the
disclosures be grouped together,
segregated from everything else, and
provided on separate pages that are not
commingled with any other documents
or disclosures, including any other
disclosures required by State or other
laws. As required by § 1026.37(o)(3)(i),
the disclosures for any transaction that
is a federally related mortgage loan
under Regulation X, 12 CFR 1024.2,
must be made using the standard form
H–24 in appendix H to this part.
Accordingly, use of that form
constitutes compliance with the clear
and conspicuous and segregation
requirements of § 1026.37(o).
2. Balloon payment financing with
leasing characteristics. In certain credit
sale or loan transactions, a consumer
may reduce the dollar amount of the
payments to be made during the
transaction by agreeing to make, at the
end of the loan term, a large final
payment based on the expected residual
value of the property. The consumer
may have a number of options with
respect to the final payment, including,
among other things, retaining the
property and making the final payment,
refinancing the final payment, or
transferring the property to the creditor
in lieu of the final payment. Such
transactions may have some of the
characteristics of lease transactions
subject to Regulation M (12 CFR part
1013), but are considered credit
transactions where the consumer
assumes the indicia of ownership,
including the risks, burdens, and
benefits of ownership, upon
consummation. These transactions are
governed by the disclosure requirements
of this part instead of Regulation M.
Under § 1026.37(o)(1)(ii), creditors may
not include any additional information
with the disclosures required by
§ 1026.37, except as provided in
§ 1026.37(o)(5). Thus, the disclosures
must show the large final payment as a
balloon payment in the projected
payments table required by § 1026.37(c)
and should not, for example, reflect the
other options available to the consumer
at maturity.
37(o)(2) Estimated disclosures.
1. Estimated amounts. Section
1026.37(o)(2) incorporates the
‘‘estimated’’ designations reflected on
form H–24 in appendix H to this part
into the disclosure requirements of
§ 1026.37, even if the relevant provision
of § 1026.37 does not expressly require
disclosure of the word ‘‘estimate.’’ For
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example, § 1026.37(c)(2)(iv) requires
disclosure of the total periodic payment
labeled ‘‘Total Monthly Payment,’’ but
the label on form H–24 contains the
designation ‘‘Estimated’’ and thus, the
label required by § 1026.37(c)(2)(iv)
must contain the designation
‘‘Estimated.’’ Although many of the
disclosures required by § 1026.38 crossreference their counterparts in
§ 1026.37, § 1026.38(t) incorporates the
‘‘estimated’’ designations reflected on
form H–25, not form H–24.
37(o)(3) Form.
1. Non-federally related mortgage
loans. For a non-federally related
mortgage loan, the creditor is not
required to use form H–24 in appendix
H to this part, although its use as a
model form for such transactions, if
properly completed with accurate
content, constitutes compliance with
the clear and conspicuous and
segregation requirements of
§ 1026.37(o)(1)(i). Even when the
creditor elects not to use the model
form, § 1026.37(o)(1) requires that the
disclosures be grouped together and
segregated from everything else; contain
only the information required by
§ 1026.37(a) through (n); and be
provided in the same order as they
occur in form H–24, using the same
relative positions of the headings,
labels, and similar designations as
shown in the form. In addition,
§ 1026.37(o)(2) requires that the creditor
include the designation of ‘‘estimated’’
for all headings, subheading, labels, and
similar designations required by
§ 1026.37 for which form H–24 contains
the ‘‘estimated’’ designation in such
heading, subheading, label, or similar
designation. The disclosures required by
this section comply with the
requirement to be in a format
substantially similar to form H–24 when
provided on letter size (8.5″ × 11″)
paper.
37(o)(4) Rounding.
1. Rounding. Consistent with
§ 1026.2(b)(4), except as otherwise
provided in § 1026.37(o)(4), any amount
required to be disclosed by § 1026.37
must be disclosed as an exact numerical
amount using decimal places where
applicable, unless otherwise provided.
2. Calculations. If a dollar amount
that is required to be rounded by
§ 1026.37(o)(4)(i) on the Loan Estimate
is a total of one or more dollar amounts
that are not required to be rounded, the
total amount must be rounded
consistent with § 1026.37(o)(4)(i), but
such component amounts used in the
calculation must such exact numbers. In
addition, if any such exact component
amount is required to be disclosed
under § 1026.37, consistent with
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§ 1026.2(b)(4), it should be disclosed as
an exact number. If an amount that is
required to be rounded by
§ 1026.37(o)(4)(i) on the Loan Estimate
is a total of one or more components
that are also required to be rounded by
§ 1026.37(o)(4)(i), the total amount must
be calculated using such rounded
amounts. For example, the subtotals
required to be disclosed by
§ 1026.37(f)(1), (2), and (3) are
calculated using the rounded amounts
disclosed under those subsections. See
comment 37(o)(4)(i)(C)–1. However, the
amounts required to be disclosed by
§ 1026.37(l) reference actual amounts for
their components, rather than other
amounts disclosed under § 1026.37 and
rounded pursuant to § 1026.37(o)(4)(i),
and thus, they are calculated using exact
numbers.
37(o)(4)(i) Nearest dollar.
Paragraph 37(o)(4)(i)(A).
1. Rounding of dollar amounts.
Section 1026.37(o)(4)(i)(A) requires that
certain dollar amounts be rounded to
the nearest whole dollar. For example,
pursuant to § 1026.37(o)(4)(i)(A), if
§ 1026.37(c)(2)(ii) requires disclosure of
periodic mortgage insurance payments
of $164.50, the creditor would disclose
$165. However, if the periodic mortgage
insurance payment required to be
disclosed by § 1026.37(c)(2)(ii) were
$164.49, the creditor would disclose
$164.
Paragraph 37(o)(4)(i)(B).
1. Rounding of loan amount. Section
1026.37(o)(4)(i)(B) requires the loan
amount to be disclosed without decimal
places denoting cents if the amount of
cents is zero. For example, if
§ 1026.37(b)(1) requires disclosure of a
loan amount of $481,516.23, the creditor
discloses the amount as $481,516.23.
However, if the loan amount required to
be disclosed were $481,516.00, the
creditor would disclose $481,516.
Paragraph 37(o)(4)(i)(C).
1. Rounding of the total monthly
payment. Section 1026.37(o)(4)(i)(C)
requires the total monthly payment
amount disclosed under
§ 1026.37(c)(2)(iv) to be rounded if any
of its components are rounded. For
example, if the total monthly payment
disclosed under disclosed under
§ 1026.37(c)(2)(iv) is composed of a
$2,000.49 periodic principal and
interest payment required to be
disclosed by § 1026.37(c)(2)(i) and a
$164.49 periodic mortgage insurance
payment required to be disclosed by
§ 1026.37(c)(2)(ii), the creditor would
calculate the total monthly payment by
adding the exact periodic principal and
interest payment of $2,000.49 and the
rounded periodic mortgage insurance
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payment of $164, round the total, and
disclose $2,164.
37(o)(4)(ii) Percentages.
1. Decimal places. Section
1026.37(o)(4)(ii) requires the percentage
amounts disclosed not to use decimal
places, if the amount is a whole number.
For example, a 7.005 percent annual
percentage rate is disclosed in
compliance with § 1026.37(o)(4)(ii) as
‘‘7.005%,’’ but a 7.000 percent annual
percentage rate would be disclosed as
‘‘7%.’’
37(o)(5) Exceptions.
1. Permissible changes. The changes
required or permitted by § 1026.37(o)(5)
do not affect the substance, clarity, or
meaningful sequence of the disclosure
and therefore, are permissible. Any
changes to the disclosure not specified
in § 1026.37(o)(5) or not permitted by
other provisions of § 1026.37, may affect
the substance, clarity, or meaningful
sequence of the disclosure and therefore
are not permissible. Creditors making
any changes that affect substance,
clarity, or meaningful sequence will lose
their protection from civil liability
under TILA.
2. Manual completion. Section
1026.37(o) does not require the creditor
to use a computer, typewriter, or other
word processor to complete the
disclosure form. The person may fill in
information and amounts required to be
disclosed by § 1026.37 on form H–24 in
appendix H to this part by hand printing
or using any other method, provided the
person produces clear and legible text
and uses the formatting required by
form H–24, including replicating bold
font where required. Completion by
hand or typewriter does not provide an
exemption from the requirement to keep
records in an electronic, machine
readable format under § 1026.25.
3. Contact information. If a
transaction involves more than one
creditor or mortgage broker, the space
provided on form H–24 in appendix H
to this part for the contact information
required by § 1026.37(m) may be altered
to add additional labels to accommodate
the additional information of such
parties, provided that the information
required by § 1026.37(l), (m), and (n) are
disclosed on the same page as
illustrated by form H–24. If the space
provided on form H–24 in appendix H
to this part does not allow for the
disclosure of such contact and other
information on the same page, an
additional page may be added to
provide the required contact
information with an appropriate
reference to the additional page.
4. Signature lines. Section 1026.37(o)
does not restrict the addition of
signature lines to the disclosure
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required by § 1026.37, provided any
signature lines appear only under the
‘‘Confirm Receipt’’ heading required by
§ 1026.37(n) as illustrated by form H–24
in appendix H to this part. If the number
of signatures requested by the creditor
requires space for signature lines in
excess of that provided on form H–24,
an additional page may be added to
accommodate the additional signature
lines with an appropriate reference to
the additional page. Such additional
page should also contain the heading
and statement required by § 1026.37(n)
in the format provided on form H–24.
5. Additional page. Information
required or permitted to be disclosed by
§ 1026.37(o)(5) on a separate page
should be formatted similarly to form
H–24 in appendix H to this part, so as
not affect the substance, clarity, or
meaningful sequence of the disclosure.
In addition, information provided on
additional pages should be consolidated
on as few pages as necessary to not
affect the substance, clarity, or
meaningful sequence of the disclosure.
Section 1026.38—Content of Disclosures
for Certain Mortgage Transactions
(Closing Disclosure)
1. As applicable. The disclosures
required by § 1026.38 are to be made
only as applicable. A disclosure that is
not applicable to a particular transaction
generally may be eliminated entirely.
For example, the disclosure required by
§ 1026.38(r) of the consumer or seller’s
real estate brokers may be eliminated for
a transaction that does not involve such
real estate brokers, such as a refinance
or home equity loan. Alternatively, the
creditor generally may include
disclosures that are not applicable to the
transaction and note that they are ‘‘not
applicable’’ or ‘‘N/A.’’
2. Format. See § 1026.38(t) and its
commentary for guidance on the proper
format to be used in making the
disclosures, as well as required and
permissible modifications.
38(a) General information.
38(a)(3) Closing information.
38(a)(3)(i) Date issued.
1. Applicable date. For general
guidance on identifying the date issued
for the Closing Disclosure, see the
commentary to § 1026.37(a)(4).
38(a)(3)(iv) Agent.
1. Agency name. Section
1026.38(a)(3)(iv) requires the name of
the agency that employs the settlement
agent. The name of the individual
conducting the closing is not required.
38(a)(3)(vi) Property.
1. Alternative property location. For
guidance on providing the location of a
property that does not have a standard
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street address, see the commentary to
§ 1026.37(a)(6).
38(a)(3)(vii) Sale price.
1. No seller. In transactions where
there is no seller, such as in a
refinancing, § 1026.38(a)(3)(vii)(B)
requires the creditor to disclose the
appraised value of the property. To
comply with this requirement, the
creditor discloses the value determined
by the appraisal or valuation used to
determine approval of the credit
transaction, or if a more recent appraisal
or valuation has been obtain by the
creditor, the value determined by the
more recent appraisal or valuation.
38(a)(4) Transaction information.
1. Multiple borrowers and sellers. The
name and address of each consumer and
seller in the transaction must be
provided under the heading
‘‘Transaction Information.’’ If the form
does not provide enough space to
include the required information for
each seller, an additional page may be
used and appended to the end of the
form provided that the creditor
complies with the requirements of
§ 1026.38(t)(3). For additional guidance
on disclosing multiple borrowers, see
the commentary to § 1026.37(a)(5).
2. No seller. In transactions where
there is no seller, such as in a
refinancing or home equity loan, this
disclosure may be left blank.
3. Multiple creditors. See commentary
to § 1026.37(a)(3) regarding
identification requirements for multiple
creditors.
38(a)(5) Loan information.
1. General. See commentary to
§ 1026.37(a)(8) through (12) for guidance
on the general requirements and
definitions applicable to
§ 1026.38(a)(5)(i) through (v).
38(b) Loan terms.
1. Guidance. See the commentary to
§ 1026.37(b) for guidance on the content
of the disclosures required by
§ 1026.38(b).
38(c) Projected payments.
1. In general. For guidance on the
disclosure of the projected payments
table, see § 1026.37(c) and its
commentary.
38(c)(1) Projected payments or range
of payments.
1. Escrow account analysis. The
amount of estimated escrow payments
disclosed on the Closing Disclosure is
accurate if it differs from the estimated
escrow payment disclosed on the Loan
Estimate because of the escrow account
analysis described in Regulation X, 12
CFR 1024.17.
38(f) Closing cost details; loan costs.
38(f)(1) Origination charges.
1. Guidance in other comments. For a
description of origination charges and
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discount points, see comments 37(f)(1)–
1, 2 and 3 of this part.
2. Loan originator compensation. All
compensation paid to a loan originator,
as defined by § 1026.36(a)(1), associated
with the transaction, regardless of the
party that pays the compensation, must
be disclosed pursuant to § 1026.38(f)(1).
Compensation from the consumer to a
loan originator will be designated as
borrower-paid at or before closing, as
applicable, on the Closing Disclosure.
Compensation from the creditor to a
loan originator will be designated as
paid by others on the Closing
Disclosure. Compensation to a loan
originator from both the consumer and
the creditor in the transaction is
prohibited under § 1026.36(d)(2).
3. Calculating compensation to a loan
originator from the creditor. The amount
disclosed as paid from the creditor to a
loan originator under § 1026.38(f)(1) is
the dollar value of salaries,
commissions, and any financial or
similar compensation provided to a loan
originator by the creditor. For additional
guidance and examples on the
calculation of compensation paid to the
loan originator from the creditor, see
comments 36(d)(1)–1, –2, –3 and –6.
38(f)(2) Services borrower did not
shop for.
1. Guidance in other comments. For
examples of services, costs, and their
descriptions disclosed under
§ 1026.38(f)(2), see comments 37(f)(2)–1,
2, 3 and 4 of this part.
38(f)(3) Services borrower did shop
for.
1. Provider on written list. Items that
were disclosed pursuant to
§ 1026.37(f)(3) cannot be disclosed
under this § 1026.38(f)(3) when the
consumer selected a provider contained
on the written list provided under
§ 1026.19(e)(1)(vi)(C). Instead, such
costs are disclosed pursuant to
§ 1026.38(f)(2).
38(f)(5) Subtotal of loan costs.
1. Charges subtotaled. The only
charges that are loan costs that are
subtotaled pursuant to § 1026.38(f)(5)
are those costs designated borrowerpaid at or before closing. Charges which
are loan costs designated seller-paid at
or before closing, or paid by others, are
not subtotaled pursuant to
§ 1026.38(f)(5). The subtotal of charges
that are seller-paid at or before closing
or paid by others is disclosed under
§ 1026.38(h)(2).
38(g) Closing costs details; other costs.
38(g)(1) Taxes and other government
fees.
1. Guidance. For additional guidance
on taxes and other government fees, see
comments 37(g)(1)–1, –2, –3 and –4.
38(g)(2) Prepaids.
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1. Guidance. For additional guidance
on prepaids, see comment 37(g)(2)–1.
2. Negative prepaid interest. The
prepaid interest amount is disclosed as
a negative number if the calculation of
prepaid interest results in a negative
number.
3. No prepaid interest. If interest is
not collected for a portion of a month
or other period between closing and the
date from which interest will be
collected with the first monthly
payment, then $0 must be disclosed
under § 1026.38(g)(2).
38(g)(3) Initial escrow payment at
closing.
1. Initial escrow account itemization.
The creditor must state the amount that
it will require the consumer to place
into a reserve or escrow account at
consummation to be applied to
recurring charges for property taxes,
homeowner’s and similar insurance,
mortgage insurance, homeowner’s
association dues, condominium dues,
and other periodic charges. Each
periodic charge to be included in the
escrow or reserve account must be
itemized under the ‘‘Initial Escrow
Payment at Closing’’ subheading, with a
relevant label, monthly payment
amount, and number of months
collected at closing.
2. Aggregate accounting. The method
used to determine the aggregate
adjustment for the purposes of
establishing the escrow account is
described in 12 CFR 1024.17(d)(2).
Examples of this calculation
methodology can be found in appendix
E to 12 CFR part 1024.
38(g)(4) Other.
1. Costs disclosed. The costs disclosed
under § 1038(g)(4) include all real estate
brokerage fees, homeowner’s or
condominium association charges paid
at consummation, home warranties,
inspection fees, and other fees that are
part of the real estate closing but not
required by the creditor or disclosed
elsewhere under § 1026.38.
2. Owner’s title insurance premium.
In a jurisdiction where simultaneous
issuance title insurance rates are
permitted, any owner’s title insurance
premium disclosed under
§ 1026.38(g)(4) is calculated by using the
full owner’s title insurance premium,
adding any simultaneous issuance
premium for issuance of lender’s
coverage, and then deducting the full
premium for lender’s coverage disclosed
under § 1026.38(f)(2) or (f)(3). Section
1026.38(g)(4)(i) requires that the
disclosure of the cost of the premium for
an owner’s title insurance policy must
include ‘‘Title—’’ at the beginning of the
label. In addition, § 1026.38(g)(4)(ii)
requires that the disclosure of the cost
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of the premium for an owner’s title
insurance policy must include the
parenthetical ‘‘(optional)’’ at the end of
the label when designated borrowerpaid at or before closing.
3. Guidance. For additional guidance
on the use of the term ‘‘(optional)’’
under § 1038(g)(4)(ii), see comment
37(g)(4)–3.
38(g)(6) Subtotal of costs.
1. Costs subtotaled. The only costs
that are subtotaled pursuant to
§ 1026.38(g)(6) are those costs that are
designated borrower-paid at or before
closing. Costs that are other costs
designated seller-paid at or before
closing, or paid by others, are not
subtotaled pursuant to § 1026.38(g)(6).
The subtotal of charges that are
designated seller-paid at or before
closing or paid by others is disclosed
under § 1026.38(h)(2).
38(h) Closing cost totals.
Paragraph 38(h)(2).
1. Charges paid by seller and by
others subtotaled. All loan costs and
other costs that are designated sellerpaid at or before closing, or paid by
others, are also totaled under
§ 1026.38(h)(2).
Paragraph 38(h)(3).
1. General lender credits. When the
consumer receives a generalized credit
from creditor for closing costs, the
amount of the credit must be disclosed.
However, if such credit is attributable to
a specific loan cost or other cost listed
in the Closing Cost Details tables,
pursuant to § 1026.38(f) or (g), that
amount should be reflected in the paid
by others column in the Closing Cost
Details tables under § 1026.38(f) or (g).
For a description of lender credits from
the creditor, see comment 17(c)(1)–19.
For a discussion of determining
amounts of general lender credits, see
comment 19(e)(3)(i)–5. For a discussion
of lender credits for specific charges, see
comment 19(3)(i)–4.
2. Credits for excess charges. Credits
from the creditor to offset an amount
charged in excess of the limitations
described in § 1026.19(e)(ii) are
disclosed pursuant to § 1026.38(h)(3),
along with a statement that such amount
was paid to offset an excess charge, with
funds other than closing funds. If an
excess charge is discovered after the
revised Closing Disclosure has been
provided, the revised form must be
provided to the consumer and other
appropriate parties, as described under
§ 1026.19(f)(2)(iii).
Paragraph 38(h)(4).
1. Consistent terminology and order of
charges. On the Closing Disclosure the
creditor must use terminology that is
consistent with that used on the Loan
Estimate to identify each corresponding
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loan cost and other cost. In addition,
§ 1026.38(h)(4) requires the creditor to
list the costs disclosed under each
subcategory of charges in a consistent
order. If costs move between
subheadings under § 1026.38(f)(2) and
(f)(3) of this part, listing the costs in
alphabetical order in each subheading
category is considered to be in
compliance with § 1026.38(h)(4).
38(i) Calculating cash to close.
1. More prominent disclosures.
Sections 1026.38(i)(1)(iii),
1026.38(i)(2)(iii), 1026.38(i)(3)(iii),
1026.38(i)(4)(iii), 1026.38(i)(5)(iii),
1026.38(i)(6)(iii), 1026.38(i)(7)(iii), and
1026.38(i)(8)(iii) require that statements
are given as to whether the ‘‘Final’’
amount disclosed under each
subparagraph (ii) of §§ 1026.38(i)(1)
through (i)(8) is different or equal to,
and in some cases whether the amount
is greater than or less than, the
corresponding ‘‘Estimate’’ amount
disclosed under each subparagraph (i) of
§§ 1026.38(i)(1) through (i)(8). These
statements are more prominent than the
other disclosures under § 1026.38(i).
The statement of whether the estimated
and final amounts are different, stated
as a ‘‘Yes’’ or ‘‘No’’ in capital letters and
boldface font, under the subheading
‘‘Did this change?,’’ as shown on form
H–25 in appendix H to this part,
complies with the requirement to state
whether the amounts are different more
prominently. Such statement of ‘‘No’’
satisfies the requirement to state that the
estimated and final amounts are equal,
and these sections do not provide for
any narrative text to be included with
such statement. The prominence
requirement also requires that, in the
event an increase or decrease in costs
has occurred, certain words within the
narrative text to be included under the
subheading ‘‘Did this change?’’ for a
‘‘Yes’’ answer are displayed more
prominently than other disclosures. For
example, under § 1026.38(i)(1)(iii)(A),
this more prominent statement could
take the form of the phrases ‘‘Total Loan
Costs (D)’’ and ‘‘Total Other Costs (I)’’
being shown in boldface, as shown on
form H–25 in appendix H to this part.
See comments 38(i)–3 and –4 for further
guidance regarding the prominence of
such statements.
2. Statements of differences. The
dollar amounts disclosed under
§ 1026.38 generally are shown to two
decimal places unless otherwise stated.
See comment 38(t)(4)–1. As a result, any
‘‘Final’’ amount that is disclosed in the
‘‘Calculating Cash to Close’’ table under
§ 1026.38(i) is shown to two decimal
places unless otherwise stated. Pursuant
to § 1026.38(t)(4)(i)(C), however, any
‘‘Estimate’’ amount that is disclosed in
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the ‘‘Calculating Cash to Close’’ table
under § 1026.38(i) is shown to the
nearest dollar amount, and thus matches
the corresponding estimated amount
disclosed on the Loan Estimate’s
‘‘Calculating Cash to Close’’ table under
§ 1026.37(h), which is shown to the
nearest whole dollar pursuant to
§ 1026.37(o)(4)(i)(A). For this reason, a
‘‘Final’’ amount shown to two decimal
places could be a larger number than its
corresponding ‘‘Estimate’’ amount
shown to the nearest whole dollar,
when, in fact, the apparent increase is
due solely to rounding. Therefore, for
purposes of §§ 1026.38(i)(1)(iii),
1026.38(i)(2)(iii), 1026.38(i)(3)(iii),
1026.38(i)(4)(iii), 1026.38(i)(5)(iii),
1026.38(i)(6)(iii), 1026.38(i)(7)(iii), and
1026.38(i)(8)(iii), each statement of a
change between the amounts disclosed
on the Loan Estimate and the Closing
Disclosure is based on the actual, nonrounded estimate that would have been
disclosed on the Loan Estimate under
§ 1026.37(h) if it had been shown to two
decimal places rather than a whole
dollar amount. For example, if the
‘‘Estimate’’ amount of ‘‘Total Closing
Costs’’ disclosed under § 1026.38(i)(1)(i)
is $12,500, and the ‘‘Final’’ amount of
‘‘Total Closing Costs’’ disclosed under
§ 1026.38(i)(1)(ii) is $12,500.35, then
even though the table would appear to
show a $0.35 increase in ‘‘Total Closing
Costs,’’ no statement of such increase is
given under § 1026.38(i)(1)(iii) so long
as the actual, non-rounded estimate (i.e.,
the estimated amount of ‘‘Total Closing
Costs’’ that would have been shown on
the Loan Estimate to two decimal
places) is equal to $12,500.35.
3. Statements that the consumer
should see details. The provisions of
§ 1026.38(i)(4)(iii)(A), (i)(5)(iii)(A),
(i)(7)(iii)(A), and (i)(8)(iii)(A) each
require a statement that the consumer
should see certain details of the closing
costs disclosed under § 1026.38(j). Form
H–25 in appendix H to this part
contains examples of these statements.
For example, § 1026.38(i)(7)(iii)(A)
requires a statement that the consumer
should see the details disclosed
pursuant to § 1026.38(j)(2)(v), and, as
shown on form H–25, the statement,
‘‘See Seller Credits in Section L,’’ in
which the words ‘‘Section L’’ are
boldface, complies with this provision.
In addition, for example,
§ 1026.38(i)(5)(iii)(A) requires a
statement that the consumer should see
the details disclosed pursuant to
§ 1026.38(j)(2)(ii), and the following
similar statement to that shown on form
H–25 for § 1026.38(i)(7)(iii)(A), ‘‘See
Deposit in Section L,’’ complies with
this provision.
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4. Statements of increases or
decreases. The statements of whether
there is a difference between the final
and estimated amounts under the
subheading ‘‘Did this change?,’’ as
required by § 1026.38(i). The provisions
of § 1026.38(i)(4)(iii)(A), (i)(5)(iii)(A),
and (i)(6)(iii)(A) each require a
statement of whether the amount
increased or decreased from the
estimated amount. Form H–25 in
appendix H to this part contains an
example of the statement required by
§ 1026.38(i)(6)(iii)(A). For the provisions
of § 1026.38(i)(4)(iii)(A) and
(i)(5)(iii)(A), the statement, ‘‘You
increased this payment,’’ in which the
word ‘‘increased’’ is boldface and is
replaced with the word ‘‘decreased’’ as
applicable, complies with this
provision.
38(i)(1) Total closing costs.
Paragraph 38(i)(1)(i).
1. Reference to disclosure of total
closing costs. Under § 1026.38(i)(1)(i),
the amount disclosed is labeled ‘‘Total
Closing Costs,’’ and such label is
accompanied by a reference to the
disclosure of ‘‘Total Closing Costs’’
under § 1026.38(h)(1). This reference
may take the form, for example, of a
cross-reference in parenthesis to the row
on the table disclosed under
§ 1026.38(h) that includes the itemized
amount for ‘‘Total Closing Costs,’’ as
shown on form H–25 in appendix H to
this part.
Paragraph 38(i)(1)(iii)(A).
1. Statements and references
regarding the total loan costs and total
other costs. Under § 1026.38(i)(1)(iii)(A),
the statements under the subheading
‘‘Did this change?’’ that the consumer
should see the total loan costs and total
other costs subtotals disclosed on the
Closing Disclosure under § 1026.38(f)(4)
and (g)(5) is made only if and to the
extent the difference in the ‘‘Total
Closing Costs’’ is attributable to
differences in itemized charges that are
included in either or both of such
subtotals.
i. For example, if an increase in the
‘‘Total Closing Costs’’ is attributable
only to an increase in the appraisal fee
(which is an itemized charge on the
Closing Disclosure under the
subheading ‘‘Services Borrower Did Not
Shop For,’’ itself under the heading
‘‘Loan Costs’’), then a statement is given
under the subheading ‘‘Did this
change?’’ that the consumer should see
the total loan costs subtotal disclosed on
the Closing Disclosure under
§ 1026.38(f)(4). If the increase in ‘‘Total
Closing Costs’’ is attributable only to an
increase in recording fees (which is an
itemized charge on the Closing
Disclosure under the subheading ‘‘Taxes
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and Other Government Fees,’’ itself
under the heading ‘‘Other Costs’’), then
a statement is given under the
subheading ‘‘Did this change?’’ that the
consumer should see the total other
costs subtotal disclosed on the Closing
Disclosure under § 1026.38(g)(5). If,
however, the increase is attributable in
part to an increase in the appraisal fee
and in part to an increase in the
recording fee, then a statement is given
under the subheading ‘‘Did this
change?’’ that the consumer should see
the total loan costs and total other costs
subtotals disclosed on the Closing
Disclosure under § 1026.38(f)(4) and
(g)(5).
ii. For guidance regarding the
requirement that this statement be
accompanied by a reference to the
disclosures of the total loan costs and
total other costs under §§ 1026.38(f)(4)
and (g)(5), see comment 38(i)(1)(i)–1.
For an example of such reference, see
form H–25 in appendix H to this part.
2. Disclosure of excess amounts above
limitations on increases in closing costs.
i. Because certain closing costs,
individually, are subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(i) (e.g., fees paid
to the creditor, transfer taxes, fees paid
to an affiliate of the creditor), while
other closing costs are collectively
subject to the limitations on increases in
closing costs under § 1026.19(e)(3)(ii)
(e.g., recordation fees, fees paid to an
unaffiliated third party identified by the
creditor if the creditor permitted the
consumer to shop for the service
provider), § 1026.38(i)(1)(iii)(A) requires
the creditor or closing agent to calculate
subtotals for each type of excess
amount, and then add such subtotals
together to yield the dollar amount to be
disclosed in the table. See commentary
to § 1026.19(e)(3) for additional
guidance on calculating excess amounts
above the limitations on increases in
closing costs under § 1026.19(e)(3).
ii. Under § 1026.38(i)(1)(iii)(A),
calculation of the excess amounts above
the limitations on increases in closing
costs takes into account that the
itemized, estimated closing costs
disclosed on the Loan Estimate will not
result in charges to the consumer if the
service is not actually provided at or
before consummation. For example, if
the Loan Estimate included under
‘‘Services You Cannot Shop For’’ a $30
charge for a ‘‘title courier fee,’’ but the
title company elects to hand-deliver the
title documents package to the creditor
at no charge, the $30 fee is not factored
into the calculation of the ‘‘Total
Closing Costs’’ that are subject to the
limitations on increases in closing costs.
However, if the title courier fee was
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assessed, but at only $15, the charge is
factored into the calculation because the
third party service was actually
provided, albeit at a lower amount than
estimated.
iii. Under § 1026.38(i)(1)(iii)(A),
calculation of the excess amounts above
the limitations on increases in closing
costs takes into account that certain
itemized charges listed on the Loan
Estimate under the subheading
‘‘Services You Can Shop For’’ may be
subject to different limitations
depending on the circumstances. Such a
charge would be subject to the
limitations under § 1026.19(e)(3)(i) if the
consumer decided to use a provider
affiliated with the creditor. However,
the same charge would instead be
subject to the limitations under
§ 1026.19(e)(3)(ii) if the consumer
selected a third party service provider
unaffiliated with but identified by the
creditor, and the creditor permitted the
consumer to shop for the service
provider. See commentary to
§ 1026.19(e)(3) for additional guidance
on calculating excess amounts above the
limitations on increases in closing costs
under § 1026.19(e)(3).
38(i)(2) Closing costs subtotal paid
before closing.
Paragraph 38(i)(2)(i).
1. Estimate of closing costs subtotal
paid before closing. Under
§ 1026.38(i)(2)(i), the ‘‘Estimate’’ amount
for ‘‘Closing Costs Subtotal Paid Before
Closing’’ is always shown as ‘‘$0,’’
because an estimate of such amount is
not disclosed on the Loan Estimate.
Paragraph 38(i)(2)(iii)(B).
1. Equal amount. Under
§ 1026.38(i)(2)(iii)(B), the creditor or
closing agent will give a statement that
the ‘‘Final’’ amount disclosed under
§ 1026.38(i)(2)(ii) is equal to the
‘‘Estimate’’ amount disclosed under
§ 1026.38(i)(2)(i), only if the ‘‘Final’’
amount is $0, because the ‘‘Estimate’’
amount is always disclosed as $0
pursuant to § 1026.38(i)(2)(i). See
comment 38(i)(2)(i)–1.
38(i)(4) Downpayment/funds from
borrower.
Paragraph 38(i)(4)(ii)(A).
1. Downpayment. Under
§ 1026.38(i)(4)(ii)(A), in a transaction
that is a purchase as defined in
§ 1026.37(a)(9)(i), the ‘‘Final’’ amount
disclosed for ‘‘Downpayment/Funds
from Borrower’’ reflects any change,
following delivery of the Loan Estimate,
in the amount of down payment
required of the consumer. This change
might result, for example, from an
increase in the purchase price of the
property.
Paragraph 38(i)(4)(ii)(B).
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1. Funds from borrower. Section
1026.38(i)(4)(ii)(B) provides that, in a
transaction other than a purchase as
defined in § 1026.37(a)(9)(i), the ‘‘Final’’
amount disclosed for ‘‘Downpayment/
Funds from Borrower’’ is the amount of
‘‘Funds from Borrower’’ determined in
accordance with § 1026.38(i)(6)(iv).
Under § 1026.38(i)(6)(iv), the ‘‘Final’’
amount of ‘‘Funds from Borrower’’ to be
disclosed under § 1026.38(i)(4)(ii)(B) is
determined by subtracting from the total
amount of all existing debt being
satisfied in the real estate closing and
disclosed under § 1026.38(j)(1)(v)
(except to the extent the satisfaction of
such existing debt is disclosed under
§ 1026.38(g)) the principal amount of
the credit extended, and is disclosed
either as a positive number or $0
depending on the result of the
calculation. An increase in the ‘‘Final’’
amount of ‘‘Funds from Borrower’’
compared to the corresponding
‘‘Estimate’’ amount might result, for
example, from a decrease in the amount
of the credit extended or an increase in
the payoff amount for the consumer’s
existing debt that is secured by the
property. For additional guidance
regarding the determination of the
‘‘Funds from Borrower’’ amount, see
comment 38(i)(6)(ii)–1.
Paragraph 38(i)(4)(iii)(A).
1. Statement of differences. Section
1026.38(i)(4)(iii)(A) requires, as
applicable, a statement that the
consumer has increased or decreased
this payment, along with a statement
that the consumer should see the details
disclosed under § 1026.38(j)(1) or (j)(2),
as applicable. The applicable disclosure
to be referenced corresponds to the label
on the Closing Disclosure under which
the information accounting for the
increase in the ‘‘Downpayment/Funds
from Borrower’’ amount is disclosed.
For example, in a transaction that is a
purchase as defined in § 1026.37(a)(9)(i),
if the purchase price of the property has
increased and therefore caused the
‘‘Downpayment’’ amount to increase,
the statement, ‘‘You increased this
payment. See details in Section K,’’ with
the words ‘‘increased’’ and ‘‘Section K’’
in boldface text, complies with this
requirement. In a purchase or
refinancing transaction, in the event the
amount of the credit extended by the
creditor has decreased and therefore
caused the ‘‘Funds from Borrower’’
amount to increase, the statement can
read, for example, ‘‘You increased this
payment. See details in Section L,’’ with
the same boldface text.
38(i)(6) Funds for borrower.
Paragraph 38(i)(6)(ii).
1. Final funds for borrower. Section
1026.38(i)(6)(ii) provides that the
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‘‘Final’’ amount for ‘‘Funds for
Borrower’’ is determined in accordance
with § 1026.38(i)(6)(iv). Under
§ 1026.38(i)(6)(iv), the ‘‘Final’’ amount
of ‘‘Funds for Borrower’’ to be disclosed
under § 1026.38(i)(6)(ii) is determined
by subtracting from the total amount of
all existing debt being satisfied in the
transaction and disclosed under
§ 1026.38(j)(1)(v) (except to the extent
the satisfaction of such existing debt is
disclosed under § 1026.38(g)) the
principal amount of the credit extended
(excluding any amount disclosed under
§ 1026.38(i)(3)(ii), and is disclosed
under § 1026.38(i)(6)(ii) either as a
negative number or $0.00 depending on
the result of the calculation. The
‘‘Final’’ amount of ‘‘Funds for
Borrower’’ disclosed under
§ 1026.38(i)(6)(ii) is the amount to be
disbursed to the consumer or a designee
of the consumer at consummation, if
any.
38(i)(7) Seller credits.
Paragraph 38(i)(7)(ii).
1. Final seller credits. Under
§ 1026.38(i)(7)(ii), the ‘‘Final’’ amount of
‘‘Seller Credits’’ reflects any change,
following the delivery of the Loan
Estimate, in the amount of funds given
by the seller to the consumer for
generalized (i.e., lump sum) credits for
closing costs or for allowances for items
purchased separately (e.g., if the seller
is a builder). Seller credits are
distinguished from payments by the
seller for items attributable to periods of
time prior to consummation, which are
among the ‘‘Adjustments and Other
Credits’’ separately disclosed pursuant
to § 1026.38(i)(8). For additional
guidance regarding seller credits, see
comments 38(j)(2)(v)–1 and –2.
38(i)(8) Adjustments and other
credits.
Paragraph 38(i)(8)(ii).
1. Adjustments and other credits.
Under § 1026.38(i)(8)(ii), the ‘‘Final’’
amount for ‘‘Adjustments and Other
Credits’’ would include, for example,
prorations of taxes or homeowners’
association fees, utilities used but not
paid for by the seller, rent collected in
advance by the seller from a tenant for
a period extending beyond the
consummation, and interest on loan
assumptions. This category also
includes generalized credits toward
closing costs given by parties other than
the seller. For additional guidance
regarding adjustments and other credits,
see commentary to §§ 1026.37(h)(7),
1026.38(j)(2)(vi), and 1026.38(j)(2)(xi). If
the calculation required by
§ 1026.38(i)(8)(ii) yields a negative
number, the creditor or closing agent
discloses the amount as a negative
number.
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38(i)(9) Cash to close.
Paragraph 38(i)(9)(ii).
1. Final cash to close amount. The
‘‘Final’’ amount of ‘‘Cash to Close’’
disclosed under § 1026.38(i)(9)(ii) is the
same as the amount disclosed on the
Closing Disclosure as ‘‘Cash to Close’’
under § 1026.38(j)(3)(iii). If the
calculation required by
§ 1026.38(i)(9)(ii) yields a negative
number, the creditor or closing agent
discloses the amount as a negative
number.
2. More prominent disclosure. Section
1026.38(i)(9)(ii) requires that the
disclosure of the ‘‘Final’’ amount of
‘‘Cash to Close’’ be more prominent than
the other disclosures under § 1026.38(i).
Such more prominent disclosure can
take the form, for example, of boldface
font, as shown on form H–25 in
appendix H to this part.
38(j) Summary of borrower’s
transaction.
1. In general. It is permissible to have
two separate Closing Disclosures in a
transaction: One that reflects the
consumer’s costs and credits only,
which is provided to the consumer, and
one with the seller’s costs and credits
only, which is provided to the seller.
See § 1026.38(t)(5)(vii) and (viii). Some
State laws may prohibit provision of
information about the consumer to the
seller and about the seller to the
consumer.
2. Addendums. Additional pages may
be attached to the Closing Disclosure to
add lines, as necessary, to accommodate
the complete listing of all items required
to be shown on the Closing Disclosure,
and for the purpose of including
customary recitals and information used
locally in real estate closings (for
example, breakdown of payoff figures, a
breakdown of the consumer‘s total
monthly mortgage payments, an
accounting of debits received and check
disbursements, a statement stating
receipt of funds, applicable special
stipulations between consumer and
seller, and the date funds are
transferred). See § 1026.38(t)(5)(vi).
3. Identical amounts. The amounts
disclosed under the following
provisions of § 1026.38(j) are the same
as the amounts disclosed under the
corresponding provisions of
§ 1026.38(k): § 1026.38(j)(1)(ii) and
§ 1026.38(k)(1)(ii); § 1026.38(j)(1)(iii)
and § 1026.38(k)(1)(iii); if the amount
disclosed under § 1026.38(j)(1)(v) is
attributable to contractual adjustments
between the consumer and seller,
§ 1026.38(j)(1)(v) and § 1026.38(k)(1)(iv);
§ 1026.38(j)(1)(vii) and
§ 1026.38(k)(1)(vi); § 1026.38(j)(1)(viii)
and § 1026.38(k)(1)(vii);
§ 1026.38(j)(1)(ix) and
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§ 1026.38(k)(1)(viii); § 1026.38(j)(1)(x)
and § 1026.38(k)(1)(ix);
§ 1026.38(j)(2)(iv) and
§ 1026.38(k)(2)(iv); § 1026.38(j)(2)(v) and
§ 1026.38(k)(2)(vii); § 1026.38(j)(2)(viii)
and § 1026.38(k)(2)(x); § 1026.38(j)(2)(ix)
and § 1026.38(k)(2)(xi); § 1026.38(j)(2)(x)
and § 1026.38(k)(2)(xii); and
§ 1026.38(j)(2)(xi) and
§ 1026.38(k)(2)(xiii).
38(j)(1) Itemization of amounts due
from borrower.
Paragraph 38(j)(1)(ii).
1. Contract sales price and personal
property. Section 1026.38(j)(1)(ii)
requires disclosure of the contract sales
price of the property being sold,
excluding the price of any tangible
personal property if the consumer and
seller have agreed to a separate price for
such items. Personal property is defined
by state law, but could include such
items as carpets, drapes, and appliances.
Manufactured homes are not considered
personal property under
§ 1026.38(j)(1)(ii).
Paragraph 38(j)(1)(v).
1. Contractual adjustments. Section
1026.38(j)(1)(v) requires disclosure of
amounts owed by the consumer that are
not otherwise disclosed pursuant to
§ 1026.38(j). For example, the following
items must be disclosed under
§ 1026.38(j), to the extent applicable:
i. The balance in the seller’s reserve
account held in connection with an
existing loan, if assigned to the
consumer in a loan assumption
transaction;
ii. Any rent that the consumer will
collect after the real estate closing for a
period of time prior to the real estate
closing; or
iii. The treatment of any tenant
security deposit.
2. Other consumer charges. The
amounts disclosed under
§ 1026.38(j)(1)(v) which are for charges
owed by the consumer at the real estate
closing not otherwise disclosed
pursuant to § 1026.38(f), (g), and (j) will
not have a corresponding credit in the
summary of seller’s transaction under
§ 1026.38(k)(1)(iv). For example, the
amounts paid to any existing holders of
liens on the property in a refinance
transaction, and any outstanding real
estate property taxes are disclosed
under § 1026.38(j)(1)(v) without a
corresponding credit in the summary of
seller’s transaction under
§ 1026.38(k)(1)(iv).
Paragraph 38(j)(1)(x).
1. Additional adjustments. Examples
of items for which adjustments may be
made include taxes, other than those
disclosed pursuant to § 1026.38(j)(1)(vii)
and (viii), paid in advance for an entire
year or other period, when the real
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estate closing occurs prior to the
expiration of the year or other period for
which they were paid. Additional
examples of items for which
adjustments may be made include:
i. Flood and hazard insurance
premiums, if the consumer is being
substituted as an insured under the
same policy;
ii. Mortgage insurance in loan
assumptions;
iii. Planned unit development or
condominium association assessments
paid in advance;
iv. Fuel or other supplies on hand,
purchased by the seller, which the
consumer will use when consumer takes
possession of the property; and
v. Ground rent paid in advance.
38(j)(2) Itemization of amounts
already paid by or on behalf of
borrower.
Paragraph 38(j)(2)(ii).
1. Deposit. All amounts paid into a
trust account by the consumer pursuant
to the contract of sale for real estate, any
addenda thereto, or any other agreement
between the consumer and seller must
be disclosed under § 1026.38(j)(2)(ii).
2. Reduction of deposit when deposit
used to pay for closing charges prior to
closing. If the consumer’s deposit has
been applied toward a charge for a
closing cost, the amount applied should
not be included in the amount disclosed
pursuant to § 1026.38(j)(2)(ii), but
instead should be shown on the
appropriate line for the closing cost in
the Closing Cost Detail tables pursuant
to § 1026.38(f) or (g), designated
borrower-paid before closing.
Paragraph 38(j)(2)(iii).
1. First user loan. For purposes of
§ 1026.38(j), a first user loan is a loan to
finance construction of a new structure
or purchase of manufactured home that
is known at the time of consummation
to be real property under state law,
where the structure was constructed for
sale or the manufactured home was
purchased for purposes of resale and the
loan is used as or converted to a loan
to finance purchase by the first user. For
other loans subject to § 1026.19(f) that
finance construction of a new structure
or purchase of a manufactured home
that is known at the time of
consummation to be real property under
State law, the sales price of the land and
the construction cost or purchase price
of the manufactured home should be
disclosed separately and the amount of
the loan in the current transaction must
be disclosed. The remainder of the
Closing Disclosure should be completed
taking into account adjustments and
charges related to the temporary
financing and permanent financing that
are known at the time of consummation.
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Paragraph 38(j)(2)(iv).
1. Assumption of existing loan
obligation of seller by consumer. The
outstanding amount of any loan that the
consumer is assuming, or subject to
which the consumer is taking title to the
property must be disclosed under
§ 1026.38(j)(2)(iv).
Paragraph 38(j)(2)(v).
1. General seller credits. When the
consumer receives a generalized credit
from the seller for closing costs or where
the seller (typically a builder) is making
an allowance to the consumer for items
to purchase separately, the amount of
the credit must be disclosed. However,
if the seller credit is attributable to a
specific loan cost or other cost listed in
the Closing Cost Details tables, pursuant
to § 1026.38(f) or (g), that amount
should be reflected in the seller-paid
column in the Closing Cost Details
tables under § 1026.38(f) or (g).
2. Other seller credits. Any other
obligations of the seller to be paid
directly to the consumer, such as for
issues identified at a walk-through of
the property prior to closing, are
disclosed under § 1026.38(j)(2)(v).
Paragraph 38(j)(2)(vi).
1. Credits from any party other than
the seller or creditor. Section
1026.38(j)(2)(vi) requires disclosure of a
description and the amount of items
paid by or on behalf of the consumer
and not disclosed elsewhere under
§ 1026.38(j)(2). For example, credits a
consumer receives from a real estate
agent or other third party, other than a
seller or creditor, are disclosed pursuant
to § 1026.38(j)(2)(vi). However, if the
credit is attributable to a specific closing
cost listed in the Closing Cost Details
tables under § 1026.38(f) or (g), that
amount should be reflected in the paid
by others column on the Closing Cost
Details tables and not in the disclosure
required under § 1026.38(j)(2)(vi).
Similarly, if a real estate agent rebates
a portion of the agent’s commission to
the consumer, the rebate should be
listed as a credit along with a
description of the rebate, which must
include the name of the party giving the
credit.
2. Subordinate financing proceeds.
Any financing arrangements or other
new loans not otherwise disclosed
pursuant to § 1026.38(j)(2)(iii) or (iv)
must also be disclosed pursuant to
§ 1026.38(j)(2)(vi). For example, if the
consumer is using a second mortgage or
note to finance part of the purchase
price, whether from the same creditor,
another creditor, or the seller, the
principal amount of the loan disclosed
with a brief explanation. If the net
proceeds of a second loan are less than
the principal amount of the second loan,
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the net proceeds may be listed on the
same line as the principal amount of the
second loan. For an example, see form
H–25 in appendix H to this part.
3. Satisfaction of existing subordinate
liens by consumer. For payments to
subordinate lien holders by or on behalf
of the consumer, disclosure of any
amounts paid with funds other than
closing funds, as defined under
§ 1026.38(j)(4)(ii), in connection with
the second mortgage payoff are required
to be disclosed under § 1026.38(j)(2)(vi),
with a statement that such amounts
were paid outside of closing funds.
4. Transferred escrow balances. In a
refinance transaction, any transferred
escrow balance is listed as a credit
pursuant to § 1026.38(j)(2)(vi), along
with a description of the transferred
escrow balance.
5. Gift funds. A credit must be
disclosed for any money or other
payments made by family members or
third parties not otherwise associated
with the transaction, along with a
description of the nature of the funds
provided under § 1026.38(j)(2)(vi).
Paragraph 38(j)(2)(xi).
1. Examples. Examples of items that
would be disclosed under
§ 1026.38(j)(2)(xi) include:
i. Utilities used but not paid for by the
seller;
ii. Rent collected in advance by the
seller from a tenant for a period
extending beyond the closing date; and
iii. Interest on loan assumptions.
38(j)(3) Calculation of borrower’s
transaction.
Paragraph 38(j)(3)(iii).
1. Stating if a mount is due to or from
consumer. To comply with
§ 1026.38(j)(3)(iii), the creditor must
state either the cash required from the
consumer at consummation, or cash
payable to the consumer at
consummation, as described under
§ 1026.38(j)(2)(iii).
2. Methodology. To calculate the cash
to close, total the amounts disclosed
under § 1026.38(j)(3)(i) and (ii). If that
calculation results in a positive amount,
the amount is due from the consumer.
If the calculation results in a negative
amount, the amount is due to the
consumer.
38(j)(4) Items paid outside of closing
funds.
Paragraph 38(j)(4)(i).
1. Charges not paid with closing
funds. Section 1026.38(j)(4)(i) requires
that any charges not paid from closing
funds but that otherwise are disclosed
pursuant to § 1026.38(j) be marked as
‘‘paid outside of closing’’ or ‘‘P.O.C.’’
The disclosure must include a statement
of the party making the payment, such
as the consumer, seller, loan originator,
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real estate agent, or any other person.
For an example of a disclosure of a
charge not made from closing funds, see
form H–25 in appendix H to this part.
For an explanation of what constitutes
closing funds, see § 1026.38(j)(4)(ii).
2. Items paid without closing funds
not included in totals. Charges that are
paid outside of closing funds under
§ 1026.38(j)(4)(i) should not be included
in computing totals under
§ 1026.38(j)(1) and (j)(2).
38(k) Summary of seller’s transaction.
1. Transactions with no seller. Section
1026.38(k) does not apply in
transactions where there is no seller,
such as a refinance transaction.
2. Extra line items. For guidance
regarding the use of an addendum, see
comment 38(j)–2.
3. Identical amounts. For guidance
regarding the amounts disclosed under
certain provisions of § 1026.38(k) are the
same as amounts disclosed under
certain provisions of § 1026.38(j), see
comment 38(j)–3.
38(k)(2) Itemization of amounts due
from seller.
Paragraph 38(k)(2)(ii).
1. Excess deposit disbursed to seller
by party other than closing agent. If the
seller’s real estate broker or other party
who is not the closing agent has
received and holds a deposit against the
sales price (earnest money) which
exceeds the fee or commission owed to
that party, the excess deposit must be
disclosed pursuant to § 1026.38(k)(2)(ii),
if that party will provide the excess
deposit directly to the seller, rather than
through the closing agent.
2. Distributions of deposit to seller
prior to consummation. If the deposit or
any portion thereof has been disbursed
to the seller prior to closing, only the
amount of the deposit that has not been
distributed to the seller must be
disclosed under § 1026.38(k)(2)(ii).
Paragraph 38(k)(2)(iv).
1. Assumption of existing loan
obligation of seller by consumer. If the
consumer is assuming or taking title
subject to existing liens and the
amounts of the outstanding balance of
the lien are to be deducted from sales
price, the amounts of the outstanding
balance of the lien must be disclosed
under § 1026.38(k)(2)(iv).
2. Other seller credits. Any other
obligations of the seller to be paid
directly to the consumer, such as credits
for issues identified at a walk-through of
the property prior to the real estate
closing, are disclosed under
§ 1026.38(k)(2)(vii).
Paragraph 38(k)(2)(viii).
1. Satisfaction of other seller
obligations. Seller obligations, other
than second liens, that must be paid off
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to clear title to the property must be
disclosed pursuant to
§ 1026.38(k)(2)(viii). Examples of
disclosures pursuant to
§ 1026.38(k)(2)(viii) include the
satisfaction of outstanding liens
imposed due to Federal, State, or local
income taxes, real estate property tax
liens, judgments against the seller
reduced to lien upon the property, or
any other obligations the seller wishes
the closing agent to pay from their
proceeds at the real estate closing.
2. Consumer satisfaction of
outstanding subordinate loans. If the
consumer is satisfying existing liens
which will not be deducted from the
sales price, the amount of the
outstanding balance of the loan must be
disclosed under § 1026.38(k)(2)(viii).
For example, the amount of any second
lien which will be paid as part of the
real estate closing that is not deducted
from the seller’s proceeds under
§ 1026.38(k)(2)(iv), is disclosed under
§ 1026.38(k)(2)(viii). For payments to
the subordinate lien holder, any
amounts paid must be disclosed, and
other amounts paid by or on behalf of
the seller must be disclosed as paid
outside of closing funds under
§ 1026.38(j)(2)(vi). For additional
discussion, see comment 38(j)(2)(vi)–2.
3. Escrows held by closing agent for
payment of invoices received after
consummation. Funds to be held by the
closing agent for the payment of either
repairs, or water, fuel, or other utility
bills that cannot be prorated between
the parties at closing because the
amounts used by the seller prior to
closing are not yet known must be
disclosed under § 1026.38(k)(2)(viii).
Subsequent disclosure of the actual
amount of these post-closing items to be
paid from closing funds is optional.
38(k)(3) Calculation of seller’s
transaction.
1. Stating if amount is due to or from
seller. To comply with
§ 1026.38(k)(3)(iii), the creditor must
state either the cash required from the
seller at closing, or cash payable to the
seller at closing, as described under
§ 1026.38(k)(2)(iii).
2. Methodology. To calculate the cash
due to or from the consumer, total the
amounts disclosed under
§ 1026.38(k)(3)(i) and (ii). If that
calculation results in a positive amount,
the amount is due to the seller. If the
calculation results in a negative amount,
the amount is due from the seller.
38(k)(4) Items paid outside of closing
funds.
1. Guidance. For guidance regarding
the disclosure of items paid with funds
other than closing funds, see comments
38(j)(4)–1 and –2.
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38(l) Loan disclosures.
38(l)(2) Demand feature.
1. Covered features. See comment
18(i)–2 for a description of demand
features triggering the disclosure
requirements of § 1026.38(l)(2).
38(l)(3) Late payment.
1. Guidance. See the commentary to
§ 1026.37(m)(4) for guidance on
disclosing late payment requirements
under § 1026.38(l)(3).
38(l)(7) Escrow account.
Paragraph 38(l)(7)(i)(A)(2).
1. Estimated costs not paid by escrow
account funds. Section
1026.38(l)(7)(i)(A)(2) requires the
creditor to estimate the amount the
consumer is likely to pay during the
first year after consummation for
charges described in § 1026.37(c)(4)(ii)
that are known to the creditor that will
not be paid using escrow account funds.
The creditor discloses this amount only
if an escrow account will be established
for the payment of any amounts
described in § 1026.37(c)(4)(ii). The
creditor complies with this provision by
disclosing the amount of such charges
used to calculate the estimated taxes,
insurance, and assessments disclosed
pursuant to § 1026.38(c)(1) as the total
amount scheduled to be paid during the
first year after consummation.
Paragraph 38(l)(7)(i)(A)(4).
1. Estimated costs paid using escrow
account funds. The amount the
consumer will be required to pay into
an escrow account with each periodic
payment during the first year after
consummation pursuant to
§ 1026.38(l)(7)(i)(A)(4) is the amount of
estimated escrow payments disclosed
pursuant to § 1026.38(c)(1).
Paragraph 38(l)(7)(i)(B)(1).
1. Estimated costs paid directly by the
consumer. The estimated total amount
the consumer will pay directly for
charges described in § 1026.37(c)(4)(ii)
that are known to the creditor in the
absence of an escrow account during the
first year after consummation pursuant
to § 1026.38(l)(7)(i)(B)(1) is the amount
of estimated taxes, insurance, and
assessments disclosed pursuant to
§ 1026.38(c)(1) as the estimated total
amount scheduled to be paid during the
first year after consummation. The
creditor discloses this amount only if no
escrow account will be established for
the payment of amounts described in
§ 1026.37(c)(4)(ii).
38(m) Adjustable payment table.
1. Guidance. See the commentary to
§ 1026.37(i) for guidance regarding the
disclosure required by § 1026.38(m).
2. Master heading. The disclosure
required by § 1026.38(m) is required to
be provided under a different master
heading than the disclosure required by
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§ 1026.37(i), but all other requirements
applicable to the disclosure required by
§ 1026.37(i) apply to the disclosure
required by § 1026.38(m).
3. When table is not permitted to be
disclosed. Like the disclosure required
by § 1026.37(i), the disclosure required
by § 1026.38(m) is permitted only if the
periodic principal and interest payment
may change after consummation based
on a loan term other than on an
adjustment to the interest rate or if the
transaction is a seasonal payment
product as described under
§ 1026.37(a)(10)(ii)(E). If the transaction
does not contain these terms, this table
is not permitted on the Closing
Disclosure. See comments 37–1 and
37(i)–1.
4. Final loan terms. The disclosures
required by § 1026.38(m) must include
the information required by § 1026.37(i),
as applicable, but the creditor must
make the disclosure using the
information that is known at the time
the disclosure is required to be provided
by § 1026.19(f).
38(n) Adjustable interest rate table.
1. Guidance. See the commentary to
§ 1026.37(j) for guidance regarding the
disclosures required by § 1026.38(n).
2. Master heading. The disclosure
required by § 1026.38(n) is required to
be provided under a different master
heading than the disclosure required by
§ 1026.37(j), but all other requirements
applicable to the disclosure required by
§ 1026.37(j) apply to the disclosure
required by § 1026.38(n).
3. When table is not permitted to be
disclosed. Like the disclosure required
by § 1026.37(j), the disclosure required
by § 1026.38(n) is permitted only if the
interest rate may change after
consummation based on the terms of the
legal obligation. If the interest rate will
not change after consummation, this
table is not permitted on the Closing
Disclosure. See comments 37–1 and
37(j)–1.
4. Final loan terms. The disclosures
required by § 1026.38(n) must include
the information required by § 1026.37(j),
as applicable, but the creditor must
make the disclosure using the
information that is known at the time
the disclosure is required to be provided
by § 1026.19(f).
38(o) Loan Calculations.
38(o)(1) Total of payments.
1. Calculation of total of payments.
The total of payments is calculated in
the same manner as the ‘‘In 5 Years’’
disclosure pursuant to § 1026.37(l)(1)(i),
except that the disclosed amount
reflects the total payments through the
end of the loan term. For guidance on
the amounts included in the total of
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payments calculation, see comment
37(1)(1)(i)–1.
38(o)(2) Finance charge.
1. Calculation of finance charge. The
finance charge is calculated in
accordance with the requirements of
§ 1026.4 and its commentary and is
expressed as a dollar amount.
2. Disclosure. The finance charge is
disclosed as a total amount; the
components of the finance charge are
not itemized.
38(o)(3) Amount financed.
1. Calculation of amount financed.
The amount financed is calculated in
accordance with the requirements of
§ 1026.18(b) and its commentary.
38(o)(5) Total interest percentage.
1. In general. For guidance on
calculation and disclosure of the total
interest percentage, see § 1026.37(l)(3)
and its commentary.
38(p) Other disclosures.
38(p)(1) Appraisal.
1. Applicability. Section 1026.38
provides that the disclosures must be
made as applicable. The disclosure
required by § 1026.38(p)(1) is only
applicable to closed-end transactions
subject to § 1026.19(f) that are also
subject either to 15 U.S.C. 1639h or
1691(e), as implemented by this part or
Regulation B, 12 CFR part 1002,
respectively. Accordingly, if a
transaction is not subject to either of
those provisions, the disclosure
required by § 1026.38(p)(1) may be
omitted from the Closing Disclosure.
38(p)(3) Liability after foreclosure.
1. State law requirements. If the
creditor forecloses on the property and
the proceeds of the foreclosure sale are
less than the unpaid balance on the
loan, whether the consumer has
continued or additional responsibility
for the loan balance after foreclosure,
and the conditions under which liability
occurs, will vary by state. Section
1026.38(p)(3) requires the creditor to
provide a brief description of the
applicable State’s requirements. Any
type of protection afforded by State law,
other than a statute of limitations that
only limits the timeframe in which a
creditor may seek redress, requires a
statement that State law may protect the
consumer from liability for the unpaid
balance.
38(q) Questions notice.
Paragraph 38(q)(3).
1. Prominent question mark. The
notice required under § 1026.38(q)
includes a prominent question mark.
This prominent question mark is an
aspect of form H–25 in appendix H to
this part, the standard form or model
form, as applicable, pursuant to
§ 1026.38(t). If the creditor or closing
agent deviates from the depiction of the
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51453
question mark as shown on form H–25,
the creditor or closing agent complies
with § 1026.38(q) if (1) the size and
location of the question mark on the
Closing Disclosure are substantially
similar in size and location to the
question mark shown on form H–25,
and (2) the creditor or closing agent
otherwise complies with § 1026.38(t)(5)
regarding permissible changes to the
form of the Closing Disclosure.
38(r) Contact information.
1. Each person to be identified. Form
H–25 in appendix H to this part
includes the contact information
required to be disclosed under
§ 1026.38(r) generally in a five-column
tabular format (i.e., there are columns
from left to right that disclose the
contact information for the creditor,
mortgage broker, consumer’s real estate
broker, seller’s real estate broker, and
closing agent). Because § 1026.38
requires disclosures only to the extent
applicable, columns are either left blank
or filled in with ‘‘N/A’’ where no such
person is participating in the
transaction. For example, if there is no
mortgage broker involved in the
transaction, the column for the mortgage
broker is either left blank or filled in
with ‘‘N/A.’’ Conversely, in the event
the transaction involves more than one
of each such person (e.g., two seller’s
real estate brokers splitting a
commission), the contact information
table may be altered to accommodate
the information for such persons,
provided that the other information is
disclosed on the same page. If the
format of the page does not
accommodate the addition of such
information, an additional table to
accommodate the information may be
provided on a separate page, with an
appropriate reference to the additional
table. See § 1026.38(t)(2)(x). A creditor
or closing agent may also omit a column
on the table that is inapplicable or, if
necessary, replace an inapplicable
column with the contact information for
the additional person.
2. Name of person. Where
§ 1026.38(r)(1) calls for disclosure of the
name of the person participating in the
transaction, the person’s legal name
(e.g., the name used for registration,
incorporation, or chartering purposes),
the person’s trade name, if any, or an
abbreviation of the person’s legal name
or the trade name is disclosed, so long
as the disclosure is clear and
conspicuous as required by
§ 1026.38(t)(1)(i). For example, if the
creditor’s legal name is ‘‘Alpha Beta Chi
Bank and Trust Company, N.A.’’ and its
trade name is ‘‘ABC Bank,’’ then under
§ 1026.38(r)(1) the full legal name, the
trade name, or an abbreviation such as
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‘‘ABC Bank & Trust Co.’’ may be
disclosed. However, the abbreviation
‘‘Bank & Trust Co.’’ is not distinct as to
enable a consumer to identify the
person, and therefore would not be clear
and conspicuous. If the creditor,
mortgage broker, seller’s real estate
broker, consumer’s real estate broker, or
closing agent participating in the
transaction is a natural person, the
natural person’s name is listed in the
§ 1026.38(r)(1) and (r)(4) disclosures
(assuming that such natural person is
the primary contact for the consumer or
seller, as applicable).
3. Address. The address disclosed
under § 1026.38(r)(2) is the identified
person’s place of business where the
primary contact for the transaction is
located (usually the local office), rather
than a general corporate headquarters
address. If a natural person’s name is to
be disclosed under § 1026.38(r)(1), see
comment 38(r)–2, the business address
of such natural person is listed
(assuming that such natural person is
the primary contact for the consumer or
seller, as applicable).
4. NMLSR ID. Section 1026.38(r)(3)
and (5) requires the disclosure of an
NMLSR identification (ID) number for
each person identified in the table. The
NMLSR ID is a unique number or other
identifier that is generally assigned by
the Nationwide Mortgage Licensing
System & Registry (NMLSR) to
individuals registered or licensed
through NMLSR to provide loan
originating services (for more
information, see the Secure and Fair
Enforcement for Mortgage Licensing Act
of 2008 (SAFE Act) sections 1503(3) and
(12) and 1504, 12 U.S.C. 5102(3) and
(12) and 5103, and its implementing
regulations (i.e., 12 CFR 1007.103(a) and
1008.103(a)(2)). An entity may also have
an NMLSR ID. Thus, any NMLSR ID
that is obtained by a creditor or
mortgage broker entity disclosed under
§ 1026.38(r)(1), as applicable, or a
natural person disclosed under
§ 1026.38(r)(4), either as required under
the SAFE Act or otherwise, is disclosed.
If the creditor, mortgage broker, or
natural person has an NMLSR ID and a
separate license number or unique
identifier issued by the applicable State,
locality, or other regulatory body with
responsibility for licensing and/or
registering such entity or person’s
business activities, only the NMLSR ID
is disclosed. Because § 1026.38 requires
disclosures only to the extent
applicable, the table is left blank, or
‘‘N/A’’ is entered, for these disclosures
in the columns corresponding to
persons that have no NMLSR ID and no
license number or unique identifier to
be disclosed under § 1026.38(r)(3) and
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(5), see comment 38(r)–5; provided that,
the creditor or closing agent may omit
the column from the table or, if
necessary, replace the column with the
contact information for an additional
person. See § 1026.38(t)(2)(xii) and
comment 38(r)–1.
5. License number or unique
identifier. Section 1026.38(r)(3) and (5)
requires the disclosure of a license
number or unique identifier for each
person (including natural persons)
identified in the table if the applicable
State, locality, or other regulatory body
with responsibility for licensing and/or
registering such person’s business
activities has issued a license number or
other unique identifier to such person,
and that person’s NMLSR ID number
has not already been disclosed under
§ 1026.38(r)(3) and (5). See comment
38(r)–4. Because § 1026.38 requires
disclosures only to the extent
applicable, the table is either left blank
or ‘‘N/A’’ is entered for these
disclosures in the columns
corresponding to persons who are not
subject to the issuance of such a license
number or unique identifier and who
have not obtained an NMLSR ID to be
disclosed under § 1026.38(r)(3) and (5)
(see comment 38(r)–4); provided that,
the creditor or closing agent may omit
the column from the table or, if
necessary, replace the column with the
contact information for an additional
person. See § 1026.38(t)(2)(xii) and
comment 38(r)–1.
6. Contact. Section 1026.38(r)(4)
requires the disclosure of the primary
contact for the consumer. The primary
contact is the natural person employed
by the person disclosed under
§ 1026.38(r)(1) who interacts most
frequently with the consumer and who
has an NMLSR ID or, if none, a license
number or other unique identifier to be
disclosed under § 1026.38(r)(5), as
applicable. See comments 38(r)–4 and
–5. For example, if the senior loan
officer employed by the creditor or
mortgage broker disclosed under
§ 1026.38(r)(1) has an NMLSR ID, but
the consumer meets with a different
loan officer to complete the application
and answer questions, the senior loan
officer’s name is disclosed under
§ 1026.38(r)(4) unless the other loan
officer also has an NMLSR ID, in which
case the other loan officer’s name is
disclosed. Further, if the sales agent
employed by the consumer’s real estate
broker disclosed under § 1026.38(r)(1)
has a State-issued brokers’ license
number, but the consumer meets with
an associate sales agent to tour the
property being purchased and complete
the sales contract, the sale’s agent’s
name is disclosed under § 1026.38(r)(4)
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unless the associate sales agent also has
a State-issued license number, in which
case the associate sales agent’s name is
disclosed. Moreover, if the closing
attorney employed by the closing agent
disclosed under § 1026.38(r)(1) has a
State-issued closing agent license
number, but the consumer meets with a
secretary to fill out any necessary
documentation prior to the closing and
to answer questions, the closing
attorney’s name is disclosed under
§ 1026.38(r)(4) since a secretary is only
performing clerical functions.
38(s) Signature statement.
1. General requirements. See the
commentary to § 1026.37(n) for
guidance regarding optional signature
requirements and signature lines for
multiple consumers.
38(t) Form of disclosures.
38(t)(1) General requirements.
1. Clear and conspicuous; segregation.
The clear and conspicuous standard
requires that the disclosures required by
§ 1026.38 be legible and in a readily
understandable form. The disclosures
also must be grouped together,
segregated from everything else, and
provided on separate pages that are not
commingled with any other documents
or disclosures, including any other
disclosures required by State or other
laws. As required by § 1026.38(t)(2), the
disclosures for any transaction that is a
federally related mortgage loan under
Regulation X, 12 CFR 1024.2, must be
made using the standard form H–25 in
appendix H to this part. Accordingly,
use of that form constitutes compliance
with the clear and conspicuous and
segregation requirements of § 1026.38(t).
2. Balloon payment financing with
leasing characteristics. In certain credit
sale or loan transactions, a consumer
may reduce the dollar amount of the
payments to be made during the course
of the transaction by agreeing to make,
at the end of the loan term, a large final
payment based on the expected residual
value of the property. The consumer
may have a number of options with
respect to the final payment, including,
among other things, retaining the
property and making the final payment,
refinancing the final payment, or
transferring the property to the creditor
in lieu of the final payment. Such
transactions may have some of the
characteristics of lease transactions
subject to Regulation M (12 CFR part
1013), but are considered credit
transactions where the consumer
assumes the indicia of ownership,
including the risks, burdens and
benefits of ownership, upon
consummation. These transactions are
governed by the disclosure requirements
of this part instead of Regulation M.
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Under § 1026.38(t)(2), creditors may not
include any additional information in
the disclosures required by § 1026.38.
Thus, the disclosures must show the
large final payment as a balloon
payment in the projected payments
table required by § 1026.38(c) and
should not, for example, reflect the
other options available to the consumer
at maturity.
38(t)(2) Estimated disclosures.
1. Estimated amounts. Although
certain amounts are estimated when
provided on the disclosure required by
§ 1026.37, many of these amounts, must
be actual amounts rather than estimates
in accordance with the requirements of
§ 1026.19(f), even though the
corresponding provision of § 1026.38
cross-references a counterpart in
§ 1026.37. Section 1026.38(t)(2)
provides that, if a master heading,
heading, subheading, label, or similar
designation contains the word
‘‘estimated’’ in form H–25 in appendix
H to this part, that heading, label, or
similar designation shall contain the
word ‘‘estimated.’’ Thus, § 1026.38(t)(2)
incorporates the ‘‘estimated’’
designations reflected on form H–25
into the requirements of § 1026.38. See
comment 37(o)(2)–1.
38(t)(3) Form.
1. Non-federally related mortgage
loans. For a transaction that a nonfederally related mortgage loan, the
creditor is not required to use form H–
25 in appendix H to this part, although
its use as a model form for such
transactions, if properly completed with
accurate content, constitutes
compliance with the clear and
conspicuous and segregation
requirements of § 1026.38(t)(1)(i). Even
when the creditor elects not to use the
model form, § 1026.38(t)(1)(ii) requires
that the disclosures contain only the
information required by § 1026.38(a)
through (s), and that the creditor make
the disclosures in the same order as they
occur in H–25, use the same headings,
labels, and similar designations as used
in the form (many of which also are
expressly required by § 1026.38(a)
through (s)), and position the
disclosures relative to those
designations in the same manner as
shown in the form. In order to be in a
format substantially similar to form H–
25, the disclosures required by this
section must be provided on letter size
(8.5″ x 11″) paper.
38(t)(4) Rounding.
1. Generally. Consistent with
§ 1026.2(b)(4), any amount required to
be disclosed by § 1026.38 must be
disclosed as an exact numerical amount
using decimal places where applicable,
unless otherwise provided. For
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example, § 1026.38(t)(4) requires that
the loan amount be disclosed using
decimal places even if the amount of
cents is zero. Accordingly, in contrast to
the amounts disclosed under
§ 1026.37(b)(1), loan amounts disclosed
pursuant to § 1026.38(b) are disclosed
with decimal places even if they denote
zero cents.
2. Guidance. For guidance regarding
the requirements of § 1026.38(t)(4), see
the commentary to § 1026.37(o)(4).
38(t)(5) Exceptions.
1. Permissible changes. The changes
required and permitted by
§ 1026.38(t)(5) do not affect the
substance, clarity, or meaningful
sequence of the disclosure and
therefore, are permissible. Any changes
to the disclosure not specified in
§ 1026.38(t)(5) or not permitted by other
provisions of § 1026.38, may affect the
substance, clarity, or meaningful
sequence of the disclosure. Creditors
making any changes that do not conform
to these requirements will lose their
protection from civil liability under
TILA.
2. Manual completion. The creditor or
settlement agent preparing the form is
not required to use a computer,
typewriter, or other word processor to
complete the disclosure required by this
section. The creditor or settlement may
fill in information and amounts required
to be disclosed by this section on form
H–25 in appendix H to this part by hand
printing or using any other method,
provided the person produces clear and
legible text and uses the formatting
required by this section, including
replicating bold font where required.
Completion by hand or typewriter does
not provide an exemption from the
requirement to keep records in an
electronic, machine readable format
under § 1026.25.
3. Contact information. If a
transaction involves more than one
creditor or mortgage broker, the space
provided on form H–25 in appendix H
to this part for the contact information
required by § 1026.38(r) may be altered
to accommodate the information for
such parties, provided that the
information required by § 1026.38(o),
(p), (q), (r), and (s) are disclosed on the
same page as illustrated by form H–25.
If the space provided on form H–25 does
not allow for the disclosure of such
contact and other information on the
same page, an additional page may be
added to provide the required contact
information with an appropriate
reference to the additional page.
4. Signature lines. Section 1026.38(t)
does not restrict the addition of
signature lines to the disclosure
required by § 1026.38, provided any
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signature lines for confirmations of
receipt of the disclosure appear only
under the ‘‘Confirm Receipt’’ heading
required by § 1026.38(s) as illustrated by
form H–25 in appendix H to this part.
If the number of signatures requested by
the creditor for confirming receipt of the
disclosure requires space for signature
lines in excess of that provided on form
H–25, an additional page may be added
to accommodate the additional
signature lines with an appropriate
reference to the additional page. Such
additional page should also contain the
heading and statement required by
§ 1026.38(s) in the format provided on
form H–25. Signatures for a purpose
other than confirming receipt of the
form may be obtained on a separate
page, and consistent with
§ 1026.38(t)(1)(i), not on the same page
as the information required by
§ 1026.38.
5. Additional page. Information
required or permitted to be disclosed by
§ 1026.38(t)(5) on a separate page should
be formatted similarly to form H–25 in
appendix H to this part, so as not affect
the substance, clarity, or meaningful
sequence of the disclosure. In addition,
information provided on additional
pages should be consolidated on as few
pages as necessary to not affect the
substance, clarity, or meaningful
sequence of the disclosure.
6. Page numbers. References required
by provisions of § 1026.38 to
information disclosed pursuant to other
provisions of the section, as illustrated
on form H–25 in appendix H, may be
altered to refer to the appropriate page
number of the form containing such
information.
38(t)(5)(iv) Line numbers (Closing Cost
Details).
1. Line numbers; Closing Cost Details.
Section 1026.38(t)(5)(iv) permits the
deletion of unused lines from the
disclosures required by § 1026.38(f)(1),
(2) and (3) and (g)(1), (2), (3), and (4),
if necessary to allow the addition of
lines to other sections that require them
for the required disclosures. This
provision permits creditors and
settlement agents to use the space
gained from deleting unused lines for
additional lines to accommodate all of
the costs that are required to be
itemized. For example, if the only
origination charge required by
§ 1026.38(f)(1) is points, the remaining
seven lines illustrated on form H–25 in
appendix H to this part may be deleted
and added to the disclosure required by
§ 1026.38(g)(4), if seven lines in
addition to those provided on form H–
25 are necessary to accommodate such
disclosure.
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38(t)(5)(v) Additional page (Closing
Cost Details).
1. Additional page; Closing Cost
Details. Section 1026.38(t)(5)(v) permits
the disclosure of the information
required by § 1026.38(f), (g), and (h)
over two pages, but only if form H–25
in appendix H to this part, as modified
pursuant to § 1026.38(t)(5)(iv), does not
accommodate all of the costs required to
be disclosed on one page. If the deletion
of unused lines and the addition of such
lines to other sections permits the
disclosures required by § 1026.38(f), (g),
and (h) to fit on one page, modification
pursuant to § 1026. 38(t)(5)(v) is not
permissible.
2. Separate pages for Loan Costs and
Other Costs. The modification permitted
by § 1026.38(t)(5)(v) allows the
information required by § 1026.38(f), (g),
and (h) to be disclosed over two pages.
Under this modification, the
information required by § 1026.38(h)
must remain on the same page as the
information required by § 1026.38(g).
Accordingly, the Loan Costs and Other
Costs sections of form H–25 in appendix
H to this part may each appear on their
own page, but the Other Costs section
must appear on the same page as the
Total Closing Costs section. The
modifications permitted by
§ 1026.38(t)(5)(iv) and (v) may be used
in conjunction to ensure disclosure of
§ 1026.38(f) on one page and
§ 1026.38(g) and (h) on one separate
page.
38(t)(5)(viii) Transaction without a
seller.
1. Calculating Cash to Close. The
modifications permitted by
§ 1026.38(t)(5)(viii)(C) to the table
required to be disclosed by § 1026.38(i)
should be factored into the calculation
of the total amount required by
§ 1026.38(i)(9)(ii). In addition, the
modifications should be factored into
the disclosures required by § 1026.38(i)
to be disclosed under the subheading
‘‘Estimate,’’ using the estimated
amounts disclosed or used in
calculating the disclosures under
§ 1026.37.
2. Appraised Property Value. The
modifications permitted by
§ 1026.38(t)(5)(viii) do not specifically
refer to the label required by
§ 1026.38(a)(3)(vii)(B) for transactions
that do not involve a seller, because the
label is required by that section and is
a requirement and not considered a
modification. As required by
§ 1026.38(a)(3)(vii)(B), a form used for a
transaction that does not involve a seller
and is modified pursuant to
§ 1026.38(t)(5)(viii) must contain the
label ‘‘Appraised Prop. Value’’ and the
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information required by
§ 1026.38(a)(3)(vii)(B).
38(t)(5)(x) Customary recitals and
information.
1. Customary recitals and
information. Section 1026.38(t)(5)(x)
permits an additional page to be added
to the disclosure for customary recitals
and information used locally in real
estate settlements. Examples of such
information include breakdown of
payoff figures, a breakdown of the
consumer’s total monthly mortgage
payments, check disbursements, a
statement indicating receipt of funds,
applicable special stipulations between
buyer and seller, and the date funds are
transferred.fi
Section 1026.39—Mortgage transfer
disclosures.
*
*
*
*
*
39(d) Content of required disclosures.
*
*
*
*
*
fl2. Partial Payment Policy. The
disclosures required by § 1026.39(d)(5)
must identify whether the covered
person accepts payments from the
consumer that are less than the full
amount due and, if so, provide a
description of such policy. The
disclosures required by § 1026.39(d)(5)
apply only to a closed-end consumer
credit transaction secured by a dwelling
or real property, other than a reverse
mortgage transaction subject to
§ 1026.33. For example, an open or
closed-end consumer credit transaction
secured by a principal dwelling is a
mortgage loan under § 1026.39(a) and a
covered person must provide the
disclosures required by § 1026.39(d)(1)
through (4). However, the covered
person is only required to include the
partial payment policy disclosure
required by § 1026.39(d)(5) if the
transaction is a closed-end non-reverse
mortgage transaction. If the dwelling in
the same transaction is not a principal
dwelling (e.g., it is used solely for
vacation purposes), the disclosure
required by § 1026.39 is not required for
an open-end credit transaction, because
the transaction is not secured by a
principal dwelling. If the transaction
that is transferred is a non-reverse
mortgage closed-end consumer credit
transaction secured by nonresidential
real property, the transaction is a
mortgage loan requiring a covered
person to provide the disclosures under
§ 1026.39(d)(1) through (5).fi
*
*
*
*
*
flParagraph 39(d)(5).
1. Format of Disclosure. Section
1026.39(d)(5) requires disclosure of the
partial payment policy of covered
persons for closed-end mortgage loans.
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Fmt 4701
Sfmt 4702
A covered person may utilize the format
of the disclosure illustrated by form H–
25 in appendix H to this part for the
information required to be disclosed by
§ 1026.38(l)(5). For example, the
statement required § 1026.39(d)(5)(iii)
that a new covered person may have a
different partial payments policy may be
disclosed using the language illustrated
by form H–25, which states ‘‘If this loan
is sold, your new lender may have a
different policy.’’ The text illustrated by
form H–25 may be modified to suit the
format of the covered person’s
disclosure under § 1026.39. For
example, the format illustrated by form
H–25 begins with the text, ‘‘Your lender
will,’’ which may not be suitable to the
format of the covered person’s other
disclosures under § 1026.39. This text
may be modified to suit the format of
the covered person’s integrated
disclosure, using a phrase such as ‘‘We
will’’ or ‘‘We are your new lender and
have a different Partial Payment Policy
than your previous lender. Under our
policy we will.’’ Any modifications
must be appropriate and not affect the
substance, clarity, or meaningful
sequence of the disclosure.fi
*
*
*
*
*
Appendix D—Multiple-Advance
Construction Loans
*
*
*
*
*
6. Relation to § 1026.18(s). A creditor must
disclose an interest rate and payment
summary table for flcertainfi transactions
secured by øreal property or¿ a dwelling,
pursuant to § 1026.18(s), instead of the
general payment schedule required by
§ 1026.18(g). Accordingly, flsomefi home
construction loans that are secured by øreal
property or¿ a dwelling are subject to
§ 1026.18(s) and not § 1026.18(g). flSee
comment app. D–7 for a discussion of
transactions that are subject to §§ 1026.37
and 1026.38.fi Under § 1026.17(c)(6)(ii),
when a multiple-advance construction loan
may be permanently financed by the same
creditor, the construction phase and the
permanent phase may be treated as either one
transaction or more than one transaction.
flFollowing are illustrations of the
application of appendix D to transactions
subject to § 1026.18(s), under each of these
two alternatives:fi
i. If a creditor uses appendix D and elects
pursuant to § 1026.17(c)(6)(ii) to disclose the
construction and permanent phases as
separate transactions, the construction phase
must be disclosed according to the rules in
§ 1026.18(s). Under § 1026.18(s), the creditor
must disclose the applicable interest rates
and corresponding periodic payments during
the construction phase in an interest rate and
payment summary table. The provision in
appendix D, part I.A.3, which allows the
creditor to omit the number and amounts of
any interest payments ‘‘in disclosing the
payment schedule under § 1026.18(g)’’ does
not apply because the transaction is governed
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by § 1026.18(s) rather than § 1026.18(g). Also,
because the construction phase is being
disclosed as a separate transaction and its
terms do not repay all principal, the creditor
must disclose a balloon payment, pursuant to
§ 1026.18(s)(5).
ii. On the other hand, if the creditor elects
to disclose the construction and permanent
phases as a single transaction, flwhere
interest is payable on the amount actually
advanced for the time it is outstanding,fi the
construction phase must be disclosed
pursuant to appendix D, part II.Cfl.1fi,
which provides that the creditor shall
disclose the repayment schedule without
reflecting the number or amounts of
payments of interest only that are made
during the construction phase. Appendix D
also provides, however, that creditors must
disclose (outside of the table) the fact that
interest payments must be made and the
timing of such payments. The interest rate
and payment summary table disclosed under
§ 1026.18(s) flin such casesfi must reflect
only the permanent phase of the transaction.
Therefore, in determining the rates and
payments that must be disclosed in the
columns of the table, creditors should apply
the requirements of § 1026.18(s) to the
permanent phase only. For example, under
§ 1026.18(s)(2)(i)(A) or
§ 1026.18(s)(2)(i)(B)(1), as applicable, the
creditor should disclose the interest rate
corresponding to the first installment due
under the permanent phase and not any rate
applicable during the construction phase.
fl7. Relation to §§ 1026.37 and 1026.38. A
creditor must disclose a projected payments
table for certain transactions secured by real
property, pursuant to §§ 1026.37(c) and
1026.38(c), instead of the general payment
schedule required by § 1026.18(g).
Accordingly, some home construction loans
that are secured by real property are subject
to §§ 1026.37(c) and 1026.38(c) and not
§ 1026.18(g). See comment app. D–6 for a
discussion of transactions that are subject to
§ 1026.18(s). Under § 1026.17(c)(6)(ii), when
a multiple-advance construction loan may be
permanently financed by the same creditor,
the construction phase and the permanent
phase may be treated as either one
transaction or more than one transaction.
Following are illustrations of the application
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of appendix D to transactions subject to
§§ 1026.37(c) and 1026.38(c), under each of
these two alternatives:
i. If a creditor uses appendix D and elects
pursuant to § 1026.17(c)(6)(ii) to disclose the
construction and permanent phases as
separate transactions, the construction phase
must be disclosed according to the rules in
§§ 1026.37(c) and 1026.38(c). Under
§§ 1026.37(c) and 1026.38(c), the creditor
must disclose the periodic payments during
the construction phase in a projected
payments table. The provision in appendix
D, part I.A.3, which allows the creditor to
omit the number and amounts of any interest
payments ‘‘in disclosing the payment
schedule under § 1026.18(g)’’ does not apply
because the transaction is governed by
§§ 1026.37(c) and 1026.38(c) rather than
§ 1026.18(g). The creditor determines the
amount of the interest-only payment to be
made during the construction phase using
the assumption in appendix D, part I.A.1.
Also, because the construction phase is being
disclosed as a separate transaction and its
terms do not repay all principal, the creditor
must disclose the construction phase
transaction as a product with a balloon
payment feature, pursuant to
§§ 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii),
in addition to reflecting the balloon payment
in the projected payments table.
ii. If the creditor elects to disclose the
construction and permanent phases as a
single transaction, the repayment schedule
must be disclosed pursuant to appendix D,
part II.C.2. Under appendix D, part II.C.2, the
projected payments table must reflect the
interest-only payments during the
construction phase in a first column,
followed by the appropriate column(s)
reflecting the amortizing payments for the
permanent phase. The creditor determines
the amount of the interest-only payment to be
made during the construction phase using
the assumption in appendix D, part II.A.1.fi
*
*
*
*
*
Appendix H—Closed-End øModel¿ Forms
and Clauses
*
*
*
*
*
16. Samples H–13 through H–15. These
samples illustrate various ømortgage¿
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51457
flclosed-endfi transactions. flSamples H–
13 and H–15 are for transactions subject to
§ 1026.17(a).fi øThey assume that the
mortgages are subject to the Real Estate
Settlement Procedures Act (RESPA). As a
result, no option regarding the itemization of
the amount financed has been included in
the samples, because providing the good faith
estimates of settlement costs required by
RESPA satisfies Truth in Lending’s amount
financed itemization requirement. (See
§ 1026.18(c).)¿ flSamples H–13 and H–15 do
not illustrate the requirements of § 1026.18(c)
or (p) regarding the itemization of the amount
financed and a reference to contract
documents. See form H–2 for a model for
these requirements.fi
*
*
*
*
*
19. Sample H–15. This sample illustrates a
graduated payment ømortgage¿ fltransaction
subject to § 1026.17(a)fi with a 5-year
graduation period and a 71⁄2 percent yearly
increase in payments. The loan amount is
$44,900, payable in 360 monthly installments
at a simple interest rate of 14.75%. Two
points ($898), as well as an initial
ømortgage¿ guarantee insurance premium of
$225.00, are included in the prepaid finance
charge. The ømortgage¿ guarantee insurance
premiums are calculated on the basis of 1⁄4
of 1% of the outstanding principal balance
under an annual reduction plan. The
abbreviated disclosure permitted under
§ 1026.18(g)(2) is used for the payment
schedule for years 6 through 30. The
prepayment disclosure refers to both
penalties and rebates because information
about penalties is required for the simple
interest portion of the obligation and
information about rebates is required for the
ømortgage¿ flguaranteefi insurance portion
of the obligation.
*
*
*
*
*
Dated: July 9, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2012–17663 Filed 8–6–12; 4:15 pm]
BILLING CODE 4810–25–P
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Agencies
[Federal Register Volume 77, Number 164 (Thursday, August 23, 2012)]
[Proposed Rules]
[Pages 51115-51457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17663]
[[Page 51115]]
Vol. 77
Thursday,
No. 164
August 23, 2012
Part II
Bureau of Consumer Financial Protection
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12 CFR Parts 1024 and 1026
Integrated Mortgage Disclosures Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth In Lending Act (Regulation
Z); Proposed Rule
Federal Register / Vol. 77 , No. 164 / Thursday, August 23, 2012 /
Proposed Rules
[[Page 51116]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Parts 1024 and 1026
[Docket No. CFPB-2012-0028]
RIN 3170-AA19
Integrated Mortgage Disclosures Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth In Lending Act (Regulation
Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule with request for public comment.
-----------------------------------------------------------------------
SUMMARY: Sections 1032(f), 1098, and 1100A of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act) direct the
Bureau to issue proposed rules and forms that combine certain
disclosures that consumers receive in connection with applying for and
closing on a mortgage loan under the Truth in Lending Act and the Real
Estate Settlement Procedures Act. Consistent with this requirement, the
Bureau is proposing to amend Regulation X (Real Estate Settlement
Procedures Act) and Regulation Z (Truth in Lending) to establish new
disclosure requirements and forms in Regulation Z for most closed-end
consumer credit transactions secured by real property. In addition to
combining the existing disclosure requirements and implementing new
requirements in the Dodd-Frank Act, the proposed rule provides
extensive guidance regarding compliance with those requirements.
DATES: Comments regarding the proposed amendments to 12 CFR 1026.1(c)
and 1026.4 must be received on or before September 7, 2012. For all
other sections including proposed amendments, comments must be received
on or before November 6, 2012.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0028 or RIN 3170-AA19, by any of the following methods:
Electronic: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to https://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1700 G
Street NW., Washington, DC 20552, on official business days between the
hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment
to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: David Friend, Michael G. Silver and
Priscilla Walton-Fein, Counsels; Andrea Pruitt Edmonds, Richard B.
Horn, Joan Kayagil, and Thomas J. Kearney, Senior Counsels; Paul
Mondor, Senior Counsel & Special Advisor; and Benjamin K. Olson,
Managing Counsel, Office of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of Proposed Rule
A. Background
For more than 30 years, Federal law has required lenders to provide
two different disclosure forms to consumers applying for a mortgage.
The law also has generally required two different forms at or shortly
before closing on the loan. Two different Federal agencies developed
these forms separately, under two Federal statutes: the Truth in
Lending Act (TILA) and the Real Estate Settlement Procedures Act of
1974 (RESPA). The information on these forms is overlapping and the
language is inconsistent. Not surprisingly, consumers often find the
forms confusing. It is also not surprising that lenders and settlement
agents find the forms burdensome to provide and explain.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) directs the Bureau to combine the forms. To accomplish
this, the Bureau has engaged in extensive consumer and industry
research and public outreach for more than a year.\1\ Based on this
input, the Bureau is now proposing a rule with new, combined forms. The
proposed rule also provides a detailed explanation of how the forms
should be filled out and used.
---------------------------------------------------------------------------
\1\ See part III below for a discussion of the Bureau's testing
of the forms with more than 100 consumers, lenders, mortgage
brokers, and settlement agents. This part also describes the
Bureau's outreach efforts, including the panel convened by the
Bureau to examine ways to minimize the burden of the proposed rule
on small businesses.
---------------------------------------------------------------------------
The first new form (the Loan Estimate) is designed to provide
disclosures that will be helpful to consumers in understanding the key
features, costs, and risks of the mortgage for which they are applying.
This form will be provided to consumers within three business days
after they submit a loan application. The second form (the Closing
Disclosure) is designed to provide disclosures that will be helpful to
consumers in understanding all of the costs of the transaction. This
form will be provided to consumers three business days before they
close on the loan.
The forms use clear language and design to make it easier for
consumers to locate key information, such as interest rate, monthly
payments, and costs to close the loan. The forms also provide more
information to help consumers decide whether they can afford the loan
and to compare the cost of different loan offers, including the cost of
the loans over time.
In developing the new Loan Estimate form and Closing Disclosure
form, the Bureau has reconciled the differences between the existing
forms and combined several other mandated disclosures. The Bureau also
has responded to industry complaints of uncertainty about how to fill
out the existing forms by providing detailed instructions on how to
complete the new forms.\2\ This should reduce the burden on lenders and
others in preparing forms in the future.
---------------------------------------------------------------------------
\2\ This guidance is provided in the proposed regulations and
the proposed Official Interpretations, which are in Supplement I.
---------------------------------------------------------------------------
B. Scope of the Proposed Rule
The proposed rule applies to most closed-end consumer mortgages.
The proposed rule does not apply to home-equity lines of credit,
reverse mortgages, or mortgages secured by a mobile home or by a
dwelling that is not attached to real property (in other words, land).
The proposed rule also does not apply to loans made by a creditor who
makes five or fewer mortgages in a year.\3\
---------------------------------------------------------------------------
\3\ For additional discussion of the scope of the proposed rule,
see part VI below regarding section 1026.19, Coverage of Integrated
Disclosure Requirements.
---------------------------------------------------------------------------
C. The Loan Estimate
The Loan Estimate form would replace two current Federal forms. It
would replace the Good Faith Estimate designed by the Department of
Housing
[[Page 51117]]
and Urban Development (HUD) under RESPA and the ``early'' Truth in
Lending disclosure designed by the Board of Governors of the Federal
Reserve System (the Board) under TILA.\4\ The proposed rule and the
Official Interpretations (on which lenders can rely) contain detailed
instructions as to how each line on the Loan Estimate form would be
completed.\5\ There are sample forms for different types of loan
products.\6\ The Loan Estimate form also incorporates new disclosures
required by Congress under the Dodd-Frank Act.\7\
---------------------------------------------------------------------------
\4\ These disclosures are available at https://www.hud.gov/offices/hsg/rmra/res/gfestimate.pdf and https://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
\5\ The requirements for the Loan Estimate are in proposed Sec.
1026.37. Additional discussion of this and other sections of the
proposed rule is provided in the relevant portion of part VI below.
\6\ Appendix H to the proposed rule provides examples of how to
fill out these forms for a variety of different loans, including
loans with fixed or adjustable rates or features such as balloon
payments and prepayment penalties.
\7\ For a discussion of these disclosures, see part V.B below.
---------------------------------------------------------------------------
Provision by mortgage broker. The lender may rely on a mortgage
broker to provide the Loan Estimate form. However, the lender also
remains responsible for the accuracy of the form.\8\
---------------------------------------------------------------------------
\8\ This provision is in proposed Sec. 1026.19(e)(1)(ii).
---------------------------------------------------------------------------
Timing. The lender or broker must give the form to the consumer
within three business days after the consumer applies for a mortgage
loan.\9\ The proposed rule contains a specific definition of what
constitutes an ``application'' for these purposes.\10\
---------------------------------------------------------------------------
\9\ This provision is in proposed Sec. 1026.19(e)(1)(iii).
\10\ The definition of ``application'' is in proposed Sec.
1026.2(a)(3).
---------------------------------------------------------------------------
Limitation on fees. Consistent with current law, the lender
generally cannot charge consumers any fees until after the consumers
have been given the Loan Estimate form and the consumers have
communicated their intent to proceed with the transaction. There is an
exception that allows lenders to charge fees to obtain consumers'
credit reports.\11\
---------------------------------------------------------------------------
\11\ This provision is in proposed Sec. 1026.19(e)(2)(i).
---------------------------------------------------------------------------
Disclaimer on early estimates. Lenders and brokers may provide
consumers with written estimates prior to application. The proposed
rule requires that any such written estimates contain a disclaimer to
prevent confusion with the Loan Estimate form. This disclaimer would
not be required for advertisements.\12\
---------------------------------------------------------------------------
\12\ This provision is in proposed Sec. 1026.19(e)(2)(ii).
---------------------------------------------------------------------------
D. The Closing Disclosure
The Closing Disclosure form would replace the current form used to
close a loan, the HUD-1, which was designed by HUD under RESPA. It
would also replace the revised Truth in Lending disclosure designed by
the Board under TILA.\13\ The proposed rule and the Official
Interpretations (on which lenders can rely) contain detailed
instructions as to how each line on the Closing Disclosure form would
be completed.\14\ The Closing Disclosure form contains additional new
disclosures required by the Dodd-Frank Act and a detailed accounting of
the settlement transaction.
---------------------------------------------------------------------------
\13\ These disclosures are available at https://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf and https://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
\14\ The requirements for the Closing Disclosure are in proposed
Sec. 1026.38.
---------------------------------------------------------------------------
Timing. The lender must give consumers this Closing Disclosure form
at least three business days before the consumer closes on the loan.
Generally, if changes occur between the time the Closing Disclosure
form is given and the closing, the consumer must be provided a new
form. When that happens, the consumer must be given three additional
business days to review that form before closing.\15\ However, the
proposed rule contains an exception from the three-day requirement for
some common changes. These include changes resulting from negotiations
between buyer and seller after the final walk-through. There also is an
exception for minor changes which result in less than $100 in increased
costs.\16\ The Bureau seeks comment on whether to permit additional
changes without requiring a new three-day period before closing.
---------------------------------------------------------------------------
\15\ This provision is in proposed Sec. 1026.19(f)(1)(ii).
\16\ These exceptions are in proposed Sec. 1026.19(f)(2).
---------------------------------------------------------------------------
Provision. Currently, settlement agents are required to provide the
HUD-1, while lenders are required to provide the revised Truth in
Lending disclosure. The Bureau is proposing two alternatives for who is
required to provide consumers with the new Closing Disclosure form.
Under the first option, the lender would be responsible for delivering
the Closing Disclosure form to the consumer. Under the second option,
the lender may rely on the settlement agent to provide the form.
However, under the second option, the lender would also remain
responsible for the accuracy of the form.\17\ The Bureau seeks comment
as to which alternative is preferable.
---------------------------------------------------------------------------
\17\ These alternatives are set forth in proposed Sec.
1026.19(f)(1).
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E. Limits on Closing Cost Increases
Similar to existing law, the proposed rule would restrict the
circumstances in which consumers can be required to pay more for
settlement services--the various services required to complete a loan,
such as appraisals, inspections, etc.--than the amount stated on their
Loan Estimate form. Unless an exception applies, charges for the
following services could not increase: (1) The lender's or mortgage
broker's charges for its own services; (2) charges for services
provided by an affiliate of the lender or mortgage broker; and (3)
charges for services for which the lender or mortgage broker does not
permit the consumer to shop. Also unless an exception applies, charges
for other services generally could not increase by more than 10
percent.\18\
---------------------------------------------------------------------------
\18\ The limitations and the exceptions discussed below are in
proposed Sec. 1026.19(e)(3).
---------------------------------------------------------------------------
The rule would provide exceptions, for example, when: (1) The
consumer asks for a change; (2) the consumer chooses a service provider
that was not identified by the lender; (3) information provided at
application was inaccurate or becomes inaccurate; or (4) the Loan
Estimate expires. When an exception applies, the lender generally must
provide an updated Loan Estimate form within three business days.
F. Changes to APR
The proposed rule redefines the way the Annual Percentage Rate or
``APR'' is calculated. Under the rule, the APR will encompass almost
all of the up-front costs of the loan.\19\ This will make it easier for
consumers to use the APR to compare loans and easier for industry to
calculate the APR.
---------------------------------------------------------------------------
\19\ These revisions are in proposed Sec. 1026.4.
---------------------------------------------------------------------------
G. Recordkeeping
The proposed rule requires lenders to keep records of the Loan
Estimate and Closing Disclosure forms provided to consumers in a
standard electronic format.\20\ This will make it easier for regulators
to monitor compliance. The Bureau seeks comment on whether smaller
lenders should be exempt from this requirement.
---------------------------------------------------------------------------
\20\ This provision is in proposed Sec. 1026.25.
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H. Effective Date
The Bureau is seeking comment on when this final rule should be
effective. Because the final rule will provide important benefits to
consumers, the Bureau seeks to make it effective as soon as possible.
However, the Bureau understands that the final rule will
[[Page 51118]]
require lenders, mortgage brokers, and settlement agents to make
extensive revisions to their software and to retrain their staff. In
addition, some entities will be required to implement other Dodd-Frank
Act provisions, which are subject to separate rulemaking deadlines
under the statute and will have separate effective dates. Therefore,
the Bureau is seeking comment on how much time industry needs to make
these changes. The Bureau is proposing to delay compliance with certain
new disclosure requirements contained in the Dodd-Frank Act until the
Bureau's final rule takes effect.\21\
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\21\ For additional discussion, see part V below.
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II. Background
A. The Mortgage Market
Overview of the Market and the Mortgage Crisis
The mortgage market is the single largest market for consumer
financial products and services in the United States, with
approximately $10.3 trillion in loans outstanding.\22\ During the last
decade, the market went through an unprecedented cycle of expansion and
contraction that was fueled in part by the securitization of mortgages
and creation of increasingly sophisticated derivative products designed
to mitigate accompanying risks. So many other parts of the American
financial system were drawn into mortgage-related activities that when
the bubble collapsed in 2008, it sparked the most severe recession in
the United States since the Great Depression.
---------------------------------------------------------------------------
\22\ Inside Mortgage Finance, Outstanding 1-4 Family Mortgage
Securities, Mortgage Market Statistical Annual (2012).
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The expansion in this market is commonly attributed to both
particular economic conditions and by changes within the industry.
Interest rates dropped significantly--by more than 20 percent--from
2000 through 2003.\23\ Housing prices increased dramatically--about 152
percent--between 1997 and 2006.\24\ Driven by the decrease in interest
rates and the increase in housing prices, the volume of refinances
increased from about 2.5 million loans in 2000 to more than 15 million
in 2003.\25\
---------------------------------------------------------------------------
\23\ See U.S. Dep't. of Hous. and Urban Dev., An Analysis of
Mortgage Refinancing, 2001-2003 (Nov. 2004), available at
www.huduser.org/Publications/pdf/MortgageRefinance03.pdf; Souphala
Chomsisengphet and Anthony Pennington-Cross, The Evolution of the
Subprime Mortgage Market, Federal Reserve Bank of St. Louis Review,
88(1), 31, 48 (Jan./Feb. 2006), available at https://research.stlouisfed.org/publications/review/article/5019.
\24\ The Financial Crisis Inquiry Commission, The Financial
Crisis Inquiry Report (Feb. 25, 2011) (FCIC Report) at 156,
available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
\25\ An Analysis of Mortgage Refinancing, 2001-2003, at 1.
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At the same time, advances in the securitization of mortgages
attracted increasing involvement from financial institutions that were
not directly involved in the extension of credit to consumers and from
investors worldwide. Securitization of mortgages allows originating
lenders to sell off their loans (and reinvest the funds earned in
making new ones) to investors who want an income stream over time.
Securitization had been pioneered by what are now called government
sponsored enterprises (GSEs), such as the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac). But by the early 2000s, large numbers of private
financial institutions were deeply involved in creating increasingly
sophisticated investment mortgage-related vehicles through securities
and derivative products.
Growth in the mortgage loan market was particularly pronounced in
what are known as ``subprime'' and ``Alt-A'' products. Subprime
products were sold both to borrowers with poor or no credit history, as
well as to borrowers with good credit. The Alt-A category of loans
permitted borrowers to provide little or no documentation of income or
other repayment ability. Because these loans involved additional risk,
they were typically more expensive to borrowers than so-called
``prime'' mortgages, though many offered low introductory rates. In
2003, subprime and Alt-A origination volume was about $400 billion. In
2006, it had reached $830 billion.\26\
---------------------------------------------------------------------------
\26\ Inside Mortgage Finance: Mortgage Market Statistical Annual
2011.
---------------------------------------------------------------------------
So long as housing prices were continuing to increase, it was
relatively easy for borrowers to refinance their loans to avoid
interest rate resets and other adjustments. However, housing prices
began to decline as early as 2005, slowing the growth in
refinances.\27\ At the same time, as the economy worsened the rates of
serious delinquency (90 or more days past due or in foreclosure) for
these subprime and Alt-A products began a steep increase from
approximately 10 percent in 2006, to 20 percent in 2007, to over 40
percent in 2010.\28\
---------------------------------------------------------------------------
\27\ FCIC Report at 215.
\28\ Id. at 217.
---------------------------------------------------------------------------
The impact of this level of delinquencies on the private investors
who purchased these loans from the mortgage originators was severe.
Private securitizations of subprime loans peaked at $465 billion in
2005, but were virtually eliminated in 2008. Private securitizations of
Alt-A loans followed a similar trajectory.\29\ This effect was even
felt by Fannie Mae and Freddie Mac, which were large purchasers of
these securitizations, and it resulted in the Federal government in
late 2008 placing the GSEs into conservatorship in order to support the
collapsing mortgage market.
---------------------------------------------------------------------------
\29\ Id. at 124.
---------------------------------------------------------------------------
Four years later, the United States continues to grapple with the
fallout. Home prices are down 35 percent from peak to trough on a
national basis, and it is not clear whether the national market has
reached bottom.\30\ The fall in housing prices is estimated to have
resulted in about $7 trillion in household wealth losses.\31\ Moreover,
mortgage markets continue to rely on extraordinary U.S government
support. In addition, distressed homeownership and foreclosure rates
remain at unprecedented levels. Approximately 5.8 million homeowners
were somewhere between 30 days late on their mortgage and in the
foreclosure process as of April 2012.\32\ Finally, the U.S. continues
to face a stubbornly high unemployment rate, which was at 8.2 percent
at the end of May 2012.\33\
---------------------------------------------------------------------------
\30\ S&P/Case-Shiller 20-City Composite accessed from Bloomberg,
LP on June 6, 2012.
\31\ Board of Governors of the Federal Reserve System, The U.S.
Housing Market: Current Conditions and Policy Considerations (Jan.
4, 2012), available at https://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf.
\32\ Lender Processing Services April 2012 Mortgage Monitor.
\33\ Bureau of Labor Statistics, accessed from Bloomberg, LP on
June 6, 2012.
---------------------------------------------------------------------------
While there remains debate about which market issues definitively
sparked this crisis, there were several mortgage origination issues
that pervaded the mortgage lending system prior to the crisis and are
generally accepted as having contributed to its collapse. First, the
market experienced a steady deterioration of credit standards in
mortgage lending, particularly evidenced by the growth of subprime and
Alt-A loans, which consumers were often unable or unwilling to
repay.\34\
---------------------------------------------------------------------------
\34\ FCIC Report at 88.
---------------------------------------------------------------------------
Second, the mortgage market saw a proliferation of more complex
mortgage products with terms that were often difficult for consumers to
understand. These products included most notably 2/28 and 3/27 Hybrid
Adjustable Rate Mortgages and Option ARM products.\35\
[[Page 51119]]
These products were often marketed to subprime and Alt-A customers. The
appetite on the part of mortgage investors for such products often
created inappropriate incentives for mortgage originators to originate
these more expensive and profitable mortgage products.\36\
---------------------------------------------------------------------------
\35\ Id. at 106. ``Hybrid Adjustable Rate Mortgage'' is a term
frequently used to describe adjustable rate mortgage loans that have
a low fixed introductory rate for a certain period of time. ``Option
ARM'' is a term frequently used to describe adjustable rate mortgage
loans that have a scheduled loan payment that may result in negative
amortization for a certain period of time, but that expressly permit
specified larger payments in the contract or servicing documents,
such as an interest-only payment or a fully amortizing payment. For
these loans, the scheduled negatively amortizing payment was
typically described in marketing and servicing materials as the
``optional payment.''
\36\ Id. at 109.
---------------------------------------------------------------------------
Third, responsibility for the regulation of consumer financial
protection laws was spread across seven regulators including the Board,
HUD, the Office of Thrift Supervision, the Federal Trade Commission,
the Federal Deposit Insurance Corporation, the Office of the
Comptroller of the Currency, and the National Credit Union
Administration. Such a spread in responsibility may have hampered the
government's ability to coordinate regulatory monitoring and response
to such issues.\37\
---------------------------------------------------------------------------
\37\ Id. at 111.
---------------------------------------------------------------------------
In the wake of this financial crisis, Congress passed the Dodd-
Frank Act to address many of these concerns. In this Act, Congress
created the Bureau and consolidated the rulemaking authority for many
consumer financial protection statutes, including the two primary
Federal consumer protection statutes governing mortgage origination,
TILA and RESPA, in the Bureau.\38\ Congress also provided the Bureau
with supervision authority for certain consumer financial protection
statutes over certain entities, including insured depository
institutions with total assets over $10 billion and their affiliates,
and certain other non-depository entities.\39\
---------------------------------------------------------------------------
\38\ Sections 1011 and 1021 of title X of the Dodd-Frank Act,
the ``Consumer Financial Protection Act,'' Public Law 111-203,
sections 1001-1100H, codified at 12 U.S.C. 5491, 5511. The Consumer
Financial Protection Act is substantially codified at 12 U.S.C.
5481-5603.
\39\ Sections 1024 through 1026 of title X of the Dodd-Frank
Act, codified at 12 U.S.C. 5514-5516.
---------------------------------------------------------------------------
At the same time, Congress significantly amended the statutory
requirements governing mortgage practices with the intent to restrict
the practices that contributed to the crisis. For example, in response
to concerns that some lenders made loans to consumers without
sufficiently determining their ability to repay, section 1411 of the
Dodd-Frank Act amended TILA to require that creditors make a reasonable
and good faith determination, based on verified and documented
information, that the consumer will have a reasonable ability to repay
the loan.\40\ Sections 1032(f), 1098, and 1100A of the Dodd-Frank Act
address concerns that Federal mortgage disclosures did not adequately
explain to consumers the terms of their loans (particularly complex
adjustable rate or optional payment loans) by requiring new disclosure
forms that will improve consumer understanding of mortgage transactions
(which is the subject of this proposal).\41\ In addition, the Dodd-
Frank Act established other new standards concerning a wide range of
mortgage lending practices, including compensation for mortgage
originators \42\ and mortgage servicing.\43\ For additional
information, see the discussion below in part II.F.
---------------------------------------------------------------------------
\40\ Section 1411 of the Dodd-Frank Act, codified at 15 U.S.C.
1639c.
\41\ 1032(f) of the Dodd-Frank Act, codified at 12 U.S.C.
5532(f). Sections 1098 and 1100A of the Dodd-Frank Act amend RESPA
and TILA, respectively.
\42\ Sections 1402 through 1405 of the Dodd-Frank Act, codified
at 15 U.S.C. 1639b.
\43\ Sections 1418, 1420, 1463, and 1464 of the Dodd-Frank Act,
codified at 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, and 1639g.
---------------------------------------------------------------------------
Size of the Current Mortgage Origination Market
Even with the economic downturn, approximately $1.28 trillion in
mortgage loans were originated in 2011.\44\ In exchange for a mortgage
loan, borrowers promise to make regular mortgage payments and provide
their home or real property as collateral. The overwhelming majority of
homebuyers use mortgage loans to pay for at least some of their
property. In 2011, 93 percent of all new home purchases were financed
with a mortgage loan.\45\
---------------------------------------------------------------------------
\44\ Moody's Analytics, Credit Forecast (2012). Reflects first-
lien mortgage loans.
\45\ Inside Mortgage Finance, New Homes Sold by Financing,
Mortgage Market Statistical Annual (2012).
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Borrowers may take out mortgage loans in order to purchase a new
home, to refinance an existing mortgage, or to access home equity.
Purchase loans and refinances produced 6.3 million new mortgage loan
originations in 2011 alone.\46\ The proportion of loans that are for
purchases as opposed to refinances varies with the interest rate
environment. In 2011, 65 percent of the market was refinance
transactions and 35 percent was purchase loans, by volume.\47\
Historically the distribution has been more even. In 2000, refinances
accounted for 44 percent of the market while purchase loans comprised
56 percent, and in 2005 the two products were split evenly.\48\
---------------------------------------------------------------------------
\46\ Moody's Analytics, Credit Forecast (2012). Reflects first-
lien mortgage loans.
\47\ Inside Mortgage Finance, Mortgage Originations by Product,
Mortgage Market Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
\48\ Inside Mortgage Finance, Mortgage Originations by Product,
Mortgage Market Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
---------------------------------------------------------------------------
Using a home equity loan, a homeowner can use their equity as
collateral in exchange for a loan. The loan proceeds can be used, for
example, to pay for home improvements or to pay off other debts. These
home equity loans resulted in an additional 1.3 million mortgage loan
originations in 2011.\49\
---------------------------------------------------------------------------
\49\ Moody's Analytics, Credit Forecast (2012). Reflects open-
end and closed-end home equity loans.
---------------------------------------------------------------------------
Shopping for Mortgage Loans
When shopping for a mortgage loan, research has shown that
consumers are most concerned about the interest rate and their monthly
payment.\50\ Consumers may underestimate the possibility that interest
rates and payments can increase later on, or they may not fully
understand that this possibility exists. They also may not appreciate
other costs that could arise later, such as prepayment penalties.\51\
This focus on short term costs while underestimating long term costs
may result in consumers taking out mortgage loans that are more costly
than they realize.\52\
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\50\ Bd. of Governors of the Fed. Reserve Sys., Summary of
Findings: Design and Testing of Truth in Lending Disclosures for
Closed-End Mortgages, prepared by Macro International, Inc. (July
16, 2009), p. 6, available at https://www.federalreserve.gov/boarddocs/meetings/2009/20090723/Full%20Macro%20CE%20Report.pdf.;
see also Kleimann Communication Group, Inc., Know Before You Owe:
Evolution of the Integrated TILA-RESPA Disclosures (July 2012),
available at https://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
\51\ James Lacko and Janis Pappalardo, Improving Consumer
Mortgage Disclosures: An Empirical Assessment of Current and
Prototype Disclosure Forms, Federal Trade Commission, p. 26 (June
2007) (finding borrowers had misunderstood key loan features,
including the overall cost of the loan, future payment amount,
ability to refinance, payment of up-front points and fees, whether
the monthly payment included escrow for taxes and insurance, any
balloon payment, whether the interest rate had been locked, whether
the rate was adjustable or fixed, and any prepayment penalty),
available at https://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf.
\52\ Oren Bar-Gill, The Law, Economics and Psychology of
Subprime Mortgage Contracts, 94 Cornell L. Rev. 1073, 1079 (2009)
(discussing how subprime borrowers may not fully understand the loan
costs due to product complexity and deferral of loan costs into the
future); id. at 1133 (explaining that borrower underestimation of
mortgage loan cost distorts their decision to take out a loan,
resulting in excessive borrowing), available at https://legalworkshop.org/wp-content/uploads/2009/07/cornell-A23090727-bar-gill.pdf.
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[[Page 51120]]
Research points to a relationship between consumer confusion about
loan terms and conditions and an increased likelihood of adopting
higher-cost, higher-risk mortgage loans in the years leading up to the
mortgage crisis. A study of data from the 2001 Survey of Consumer
Finances found that some adjustable-rate mortgage loan borrowers--
particularly those with below median income--underestimated or did not
realize how much their interest rates could change.\53\ These findings
are consistent with a 2006 Government Accountability Office study,
which raised concerns that mortgage loan disclosure laws did not
require specific disclosures for adjustable rate loans.\54\ This
evidence suggests that borrowers who are not presented with clear,
understandable information about their mortgage loan offer may lack an
accurate understanding of the loan costs and risks.
---------------------------------------------------------------------------
\53\ Brian K. Bucks and Karen M. Pence, Do Borrowers Know their
Mortgage Terms?, J. of Urban Econ. (2008), available at https://works.bepress.com/karen_pence/5.
\54\ U.S. Government Accountability Office, Alternative Mortgage
Products: Impact on Default Remains Unclear, but Disclosure of Risks
to Borrowers Could Be Improved (Sept. 20, 2006), available at https://www.gao.gov/new.items/d061112t.pdf.
---------------------------------------------------------------------------
The Mortgage Origination Process
Borrowers must go through a mortgage origination process to take
out a mortgage loan. During this process, borrowers have two
significant factors to consider: the costs that they pay to close the
loan, and the costs over the life of the loan. Both factors can vary
tremendously, making the home purchase especially complex. Furthermore,
there are many actors involved in a mortgage origination. In addition
to the lender and the borrower, a single transaction may involve a
seller, mortgage broker, real estate agent, settlement agent,
appraiser, multiple insurance providers, and local government clerks
and tax offices. These actors typically charge fees or commissions for
the services they provide. Borrowers learn about the loan costs and the
sources of those costs through a variety of sources, including
disclosures provided throughout the mortgage origination process.
Loan Terms. The loan terms affect how the loan is to be repaid,
including the type of loan product,\55\ the interest rate, the payment
amount, and the length of the loan term.
---------------------------------------------------------------------------
\55\ Types of loan products include a fixed rate loan,
adjustable rate loan, and interest-only loan.
---------------------------------------------------------------------------
Among other things, the type of loan product determines whether the
interest rate can change and, if so, when and by how much. A fixed rate
loan sets the interest rate at origination, and the rate stays the same
until the borrower pays off the loan. However, the interest rate on an
adjustable rate loan is periodically reset based on an interest rate
index. This shifting rate could change the borrower's monthly payment.
Typically, an adjustable rate loan will combine both types of rates, so
that the interest rate is fixed for a certain period of time before
adjusting. For example, a 5/1 adjustable rate loan would have a fixed
interest rate for five years, and then adjust every year until the loan
ends. Any changes in the interest rate after the first five years would
change the borrower's payments. Today, fixed rate mortgages are the
most common mortgage product, accounting for 87 percent of the mortgage
loan market in 2011.\56\ Adjustable rate mortgages accounted for only
13 percent of the mortgage loan market in 2011, although they have been
more popular in the past.\57\ Adjustable-rate mortgages accounted for
30 percent of mortgage loan volume in 2000, and reached a recent high
of 50 percent in 2004.\58\
---------------------------------------------------------------------------
\56\ Inside Mortgage Finance, Mortgage Originations by Product,
Mortgage Market Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
\57\ Inside Mortgage Finance, Mortgage Originations by Product,
Mortgage Market Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
\58\ Inside Mortgage Finance, Mortgage Originations by Product,
Mortgage Market Statistical Annual (2012). These percentages are
based on the dollar amount of the loans.
---------------------------------------------------------------------------
Borrowers are usually required to make payments on a monthly basis.
These payments typically are calculated to pay off the entire loan
balance by the time the loan term ends.\59\ The way a borrower's
payments affect the amount of the loan balance over time is called
amortization. Most borrowers take out fully amortizing loans, meaning
that their payments are applied to both principal and interest so that
the loan's principal balance will gradually decrease until it is
completely paid off. The typical 30-year fixed rate loan has fully
amortizing monthly payments that are calculated to pay off the loan in
full over 30 years. However, loan amortization can take other forms. An
interest-only loan would require the borrower to make regular payments
that cover interest but not principal. In some cases, these interest-
only payments end after a period of time (such as five years) and the
borrower must begin making significantly higher payments that cover
both interest and principal to amortize the loan over the remaining
loan term. In other cases, the entire principal balance must be paid
when the loan becomes due.
---------------------------------------------------------------------------
\59\ Some loans may require a large final payment (or
``balloon'' payment) in addition to monthly payments.
---------------------------------------------------------------------------
The time period that the borrower has to repay the loan is known as
the loan term, and is specified in the mortgage contract. Many loans
are set for a term of 30 years. Depending on the amortization type of
the loan, it will either be paid in full or have a balance due at the
end of the term.
Closing Costs. Closing costs are the costs of completing a mortgage
transaction, including origination fees, appraisal fees, title
insurance, taxes, and homeowner's insurance. The borrower may pay an
application or origination fee. Lenders generally also require an
appraisal as part of the origination process in order to determine the
value of the home. The appraisal helps the lender determine whether the
home is valuable enough to act as collateral for the mortgage loan. The
borrower is generally responsible for the appraisal fee, which may be
paid at or before closing. Finally, lenders typically require borrowers
to take out various insurance policies. Insurance protects the lender's
collateral interest in the property. Homeowner's insurance protects
against the risk that the home is damaged or destroyed, while title
insurance protects the lender against the risk of claims against the
borrower's legal right to the property. In addition, the borrower may
be required to take out mortgage insurance which protects the lender in
the event of default.
Application. In order to obtain a mortgage loan, borrowers must
first apply through a loan originator. There are two different kinds of
loan originators. A retail originator works directly for a mortgage
lender. A mortgage lender that employs retail originators could be a
bank or credit union, or it could be a specialized mortgage finance
company. The other kind of loan originator is a mortgage broker.
Mortgage brokers work with many different lenders and facilitate the
transaction for the borrower.
A loan originator may help borrowers determine what kind of loan
best suits their needs, and will collect their completed loan
application. The application includes borrower credit and income
information, along with information about the home to be purchased.
Borrowers can apply to multiple loan originators in order to
compare the loans that they are being offered. Once they have decided
to move forward with the loan, the borrower must notify the loan
originator. The loan originator will
[[Page 51121]]
typically wait to receive this notification before taking more
information from the borrower and giving the borrower's application to
a loan underwriter.
Mortgage Processing. A loan underwriter uses the application and
additional information to confirm initial information provided by the
borrower. The underwriter will assess whether the lender should take on
the risk of making the mortgage loan. In order to make this decision,
the underwriter considers whether the borrower can repay the loan, and
whether the home is worth enough to act as collateral for the loan. If
the underwriter finds that the borrower and the home qualify, the
underwriter will approve the borrower's mortgage application.
Depending on the loan terms, as discussed above, lenders may
require borrowers to retain title insurance, homeowner's insurance,
private mortgage insurance, and other services. The lender may allow
the borrower to shop for certain closing services on their own.
Closing. After being accepted for a mortgage loan, completing any
closing requirements, and receiving necessary disclosures, the borrower
can close on the loan. Multiple parties participate at closing,
including the borrower and the settlement agent.
The settlement agent ensures that all the closing requirements are
met, and that all fees are collected. The settlement agent also
completes all of the closing documents. The settlement agent makes sure
that the borrower signs these closing documents, including a promissory
note and the security instrument. This promissory note is evidence of
the loan debt, and documents the borrower's promise to pay back the
loan. It states the terms of the loan, including the interest rate and
length. The security instrument, in the form of a mortgage, provides
the home as collateral for the loan. A deed of trust is similar to a
mortgage, except that a trustee is named to hold title to the property
as security for the loan. The borrower receives title to the property
after the loan is paid in full. Both a mortgage and deed of trust allow
the lender to foreclose and sell the home if the borrower does not
repay the loan.
In the case of a purchase loan, the funds to purchase the home and
pay closing costs are distributed at closing or shortly thereafter. In
the case of a refinance loan, the funds from the new loan are used to
pay off the old loan, with any additional amount going to the borrower
or to pay off other debts. Refinance loans also have closing costs,
which may be paid by the borrower at closing or, in some cases, rolled
into the loan amount. In home-equity loans, the borrower's funds and
the closing costs are provided upon closing. A settlement agent makes
sure that all amounts are given to the appropriate parties. After the
closing, the settlement agent records the deed at the local government
registry.
B. RESPA and Regulation X
Congress enacted the Real Estate Settlement Procedures Act of 1974
based on findings that significant reforms in the real estate
settlement process were needed to ensure that consumers are provided
with greater and more timely information on the nature and costs of the
residential real estate settlement process and are protected from
unnecessarily high settlement charges caused by certain abusive
practices that Congress found to have developed. 12 U.S.C. 2601(a).
With respect to RESPA's disclosure requirements, the Act's purpose is
to provide ``more effective advance disclosure to home buyers and
sellers of settlement costs.'' Id. 2601(b)(1). In addition to providing
consumers with appropriate disclosures, the purposes of RESPA include
effecting certain changes in the settlement process for residential
real estate that will result in (1) the elimination of kickbacks or
referral fees that Congress found to increase unnecessarily the costs
of certain settlement services; and (2) a reduction in the amounts home
buyers are required to place in escrow accounts established to insure
the payment of real estate taxes and insurance. Id. 2601. In 1990,
Congress amended RESPA by adding a new section 6 covering persons
responsible for servicing mortgage loans and amending statutory
provisions related to mortgage servicers' administration of borrowers'
escrow accounts.\60\
---------------------------------------------------------------------------
\60\ Public Law 101-625, 104 Stat. 4079 (1990), sections 941-42.
---------------------------------------------------------------------------
RESPA's disclosure requirements generally apply to ``settlement
services'' for ``federally related mortgage loans.'' Under the statute,
the term ``settlement services'' includes any service provided in
connection with a real estate settlement. Id. 2602(3). The term
``federally related mortgage loan'' is broadly defined to encompass
virtually any purchase money or refinance loan, with the exception of
temporary financing, that is ``secured by a first or subordinate lien
on residential real property (including individual units of
condominiums and cooperatives) designed principally for the occupancy
of from one to four families * * *.'' Id. 2602(1).
Section 4 of RESPA requires that, in connection with a ``mortgage
loan transaction,'' a disclosure form that includes a ``real estate
settlement cost statement'' be prepared and made available to the
borrower for inspection at or before settlement.\61\ Id. 2603. The law
further requires that form ``conspicuously and clearly itemize all
charges imposed upon the borrower and all charges imposed upon the
seller in connection with the settlement * * *.'' Id. 2603(a). Section
5 of RESPA provides for a booklet to help consumers applying for loans
to finance the purchase of residential real estate from lenders that
make federally related mortgage loans to understand the nature and
costs of real estate settlement services. Id. 2604(a). Further, each
lender must ``include with the booklet a good faith estimate of the
amount or range of charges for specific settlement services the
borrower is likely to incur in connection with the settlement * * *.''
Id. 2604(c). The booklet and the good faith estimate must be provided
not later than three business days after the lender receives an
application, unless the lender denies the application for credit before
the end of the three-day period. Id. 2604(d).
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\61\ Prior to the Dodd-Frank Act, section 4 of RESPA applied to
``all transactions in the United States which involve federally
related mortgage loans.'' 12 U.S.C. 2603 (2009). However, section
1098 of the Dodd-Frank Act deleted the reference to ``federally
related mortgage loan'' in this section and replaced it with
``mortgage loan transactions.'' The regulation implementing this
statutory requirement has historically applied and continues to
apply to ``federally related mortgage loans.'' See 12 CFR 1024.8; 24
CFR 3500.8 (2010).
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Historically, Regulation X of the Department of Housing and Urban
Development (HUD), 24 CFR part 3500, has implemented RESPA. On March
14, 2008, after a 10-year investigatory process, HUD proposed extensive
revisions to the good faith estimate and settlement forms required
under Regulation X, as well as new accuracy standards with respect to
the estimates provided to consumers. 73 FR 14030 (Mar. 14, 2008) (HUD's
2008 RESPA Proposal).\62\ In November 2008, HUD finalized the proposed
revisions in substantially the same form, including new standard good
faith estimate and settlement forms, which lenders, mortgage brokers,
and settlement agents were required to use beginning on January 1,
2010. 73 FR 68204 (Nov. 17, 2008) (HUD's 2008 RESPA Final Rule). HUD's
2008 RESPA Final Rule implemented significant changes to the
[[Page 51122]]
rules regarding the accuracy of the estimates provided to consumers.
The final rule required re-disclosure of the good faith estimate form
when the actual costs increased beyond a certain percentage of the
estimated amounts, and permitted such increases only under certain
specified circumstances. Id. at 68240 (amending 24 CFR 3500.7). HUD's
2008 RESPA Final Rule also included significant changes to the RESPA
disclosure requirements, including prohibiting itemization of certain
amounts and instead requiring the disclosure of aggregate settlement
costs; adding loan terms, such as whether there is a prepayment penalty
and the borrower's interest rate and monthly payment; and requiring use
of a standard form for the good faith estimate. Id. The standard form
was developed through consumer testing conducted by HUD, which included
qualitative testing consisting of one-on-one cognitive interviews.\63\
HUD issued informal guidance regarding the final rule on its Web site,
in the form of frequently asked questions \64\ (HUD RESPA FAQs) and
bulletins \65\ (HUD RESPA Roundups).
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\62\ During this 10-year period, in 2002, HUD published a
proposed rule revising the good faith estimate forms and accuracy
standards for cost estimates, which it never finalized. 67 FR 49134
(July 29, 2002).
\63\ U.S. Dep't. of Hous. and Urban Dev., Summary Report:
Consumer Testing of the Good Faith Estimate Form (GFE), prepared by
Kleimann Communication Group, Inc. (2008), available at https://www.huduser.org/publications/pdf/Summary_Report_GFE.pdf.
\64\ New RESPA Rule FAQs, available at https://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf.
\65\ RESPA Roundup Archive, available at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/resroundup.
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The Dodd-Frank Act (discussed further in part I.D, below)
transferred rulemaking authority for RESPA to the Bureau, effective
July 21, 2011. See sections 1061 and 1098 of the Dodd-Frank Act.
Pursuant to the Dodd-Frank Act and RESPA, as amended, the Bureau
published for public comment an interim final rule establishing a new
Regulation X, 12 CFR part 1024, implementing RESPA. 76 FR 78978 (Dec.
20, 2011). This rule did not impose any new substantive obligations but
did make certain technical, conforming, and stylistic changes to
reflect the transfer of authority and certain other changes made by the
Dodd-Frank Act. The Bureau's Regulation X took effect on December 30,
2011. RESPA section 5's requirements of an information booklet and good
faith estimate of settlement costs (RESPA GFE) are implemented in
Regulation X by Sec. Sec. 1024.6 and 1024.7, respectively. RESPA
section 4's requirement of a real estate settlement statement (RESPA
settlement statement) is implemented by Sec. 1024.8.
C. TILA and Regulation Z
Congress enacted the Truth in Lending Act based on findings that
the informed use of credit resulting from consumers' awareness of the
cost of credit would enhance economic stability and would strengthen
competition among consumer credit providers. 15 U.S.C. 1601(a). One of
the purposes of TILA is to provide meaningful disclosure of credit
terms to enable consumers to compare credit terms available in the
marketplace more readily and avoid the uninformed use of credit. Id.
TILA's disclosures differ depending on whether credit is an open-end
(revolving) plan or a closed-end (installment) loan. TILA also contains
procedural and substantive protections for consumers.
TILA's disclosure requirements apply to a ``consumer credit
transaction'' extended by a ``creditor.'' Under the statute, consumer
credit means ``the right granted by a creditor to a debtor to defer
payment of debt or to incur debt and defer its payment,'' where ``the
party to whom credit is offered or extended is a natural person, and
the money, property, or services which are the subject of the
transaction are primarily for personal, family, or household
purposes.'' Id. 1602(f), (i). A creditor generally is ``a person who
both (1) regularly extends * * * consumer credit which is payable by
agreement in more than four installments or for which the payment of a
finance charge is or may be required, and (2) is the person to whom the
debt arising from the consumer credit transaction is initially payable
on the face of the evidence of indebtedness or, if there is no such
evidence of indebtedness, by agreement.'' Id. 1602(g).
TILA section 128 requires that, for closed-end credit, the
disclosures generally be made ``before the credit is extended.'' Id.
1638(b)(1). For closed-end transactions secured by a consumer's
dwelling and subject to RESPA, good faith estimates of the disclosures
are required ``not later than three business days after the creditor
receives the consumer's written application, which shall be at least 7
business days before consummation of the transaction.'' Id.
1638(b)(2)(A). Finally, if the annual percentage rate (APR) disclosed
in this early TILA disclosure statement becomes inaccurate, ``the
creditor shall furnish an additional, corrected statement to the
borrower, not later than 3 business days before the date of
consummation of the transaction.'' Id. 1638(b)(2)(D).
Historically, Regulation Z of the Board of Governors of the Federal
Reserve System, 12 CFR part 226, has implemented TILA. TILA section
128's requirement that the disclosure statement be provided before the
credit is extended (final TILA disclosure) is implemented in Regulation
Z by Sec. 1026.17(b). The requirements that a good faith estimate of
the disclosure be provided within three business days after application
and at least seven business days prior to consummation (early TILA
disclosure) and that a corrected disclosure be provided at least three
business days before consummation (corrected TILA disclosure), as
applicable, are implemented by Sec. 1026.19(a). The contents of the
TILA disclosures, as required by TILA section 128, are implemented by
Sec. 1026.18.
On July 30, 2008, Congress enacted the Mortgage Disclosure
Improvement Act of 2008 (MDIA).\66\ MDIA, in part, amended the timing
requirements for the early TILA disclosures, requiring that these TILA
disclosures be provided within three business days after an application
for a dwelling-secured closed-end mortgage loan also subject to RESPA
is received and before the consumer has paid any fee (other than a fee
for obtaining the consumer's credit history).\67\ Creditors also must
mail or deliver these early TILA disclosures at least seven business
days before consummation and provide corrected disclosures if the
disclosed APR changes in excess of a specified tolerance. The consumer
must receive the corrected disclosures no later than three business
days before consummation. The Board implemented these MDIA requirements
in final rules published May 19, 2009, which became effective July 30,
2009, as required by the statute. 74 FR 23289 (May 19, 2009) (MDIA
Final Rule).
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\66\ MDIA is contained in sections 2501 through 2503 of the
Housing and Economic Recovery Act of 2008, Public Law 110-289,
enacted on July 30, 2008. MDIA was later amended by the Emergency
Economic Stabilization Act of 2008, Public Law 110-343, enacted on
October 3, 2008.
\67\ MDIA codified some requirements previously adopted by the
Board in a July 2008 final rule. 73 FR 44522 (July 30, 2008) (HOEPA
Final Rule). To ease discussion, the description of MDIA's
disclosure requirements includes the requirements of the 2008 HOEPA
Final Rule.
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MDIA also requires disclosure of payment examples if the loan's
interest rate or payments can change, along with a statement that there
is no guarantee the consumer will be able to refinance the transaction
in the future. Under the statute, these provisions of MDIA became
effective on January 30, 2011. The Board worked to implement these
provisions of MDIA at the same time that it was completing work on a
several
[[Page 51123]]
year review of Regulation Z's provisions concerning home-secured
credit. As a result, the Board issued two sets of proposals
approximately one year apart. On August 26, 2009, the Board published
proposed amendments to Regulation Z containing comprehensive changes to
the disclosures for closed-end credit secured by real property or a
consumer's dwelling, including revisions to the format and content of
the disclosures implementing MDIA's payment examples and refinance
statement requirements, and several new requirements. 74 FR 43232 (Aug.
26, 2009) (2009 Closed-End Proposal).
For the 2009 Closed-End Proposal, the Board developed several new
model disclosure forms through consumer testing consisting of focus
groups and one-on-one cognitive interviews.\68\ In addition, the 2009
Closed-End Proposal proposed an extensive revision to the definition of
``finance charge'' that would replace the ``some fees in, some fees
out'' approach for determining the finance charge with a simpler, more
inclusive ``all-in'' approach. The proposed definition of ``finance
charge'' would include a fee or charge if it is (1) ``payable directly
or indirectly by the consumer'' to whom credit is extended, and (2)
``imposed directly or indirectly by the creditor as an incident to or a
condition of the extension of credit.'' The finance charge would
continue to exclude fees or charges paid in comparable cash
transactions.\69\
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\68\ Bd. of Governors of the Fed. Reserve Sys., Summary of
Findings: Design and Testing of Truth in Lending Disclosures for
Closed-End Mortgages, prepared by Macro International, Inc. (July
16, 2009) (Macro 2009 Closed-End Report), available at https://www.federalreserve.gov/boarddocs/meetings/2009/20090723/Full%20Macro%20CE%20Report.pdf.
\69\ As discussed in the analysis of the proposed amendments to
Sec. 1026.4 in part VI, in response to concerns about the effect of
an ``all-in'' finance charge on the higher-priced and HOEPA coverage
thresholds in Sec. Sec. 1026.35 and 1026.32, respectively, the
Board proposed to implement a different ``transaction coverage
rate'' for higher-priced coverage and to retain the existing ``some
fees in, some fees out'' treatment of certain charges in the
definition of points and fees for purposes of determining HOEPA
coverage. See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598,
11608-09 (Mar. 2, 2011); 75 FR 58539, 58636-38, 58660-61 (Sept. 24,
2010).
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On September 24, 2010, the Board published an interim final rule to
implement MDIA's payment example and refinance statement requirements.
75 FR 58470 (Sept. 24, 2010) (MDIA Interim Rule). The Board's MDIA
Interim Rule effectively adopted those aspects of the 2009 Closed-End
Proposal that implemented these MDIA requirements, without adopting
that proposal's other provisions, which were not subject to the same
January 30, 2011 statutory effective date. The Board later issued
another interim final rule to make certain clarifying changes to the
provisions of the MDIA Interim Rule. 75 FR 81836 (Dec. 29, 2010).
On September 24, 2010, the Board also proposed further amendments
to Regulation Z regarding rescission rights, disclosure requirements in
connection with modifications of existing mortgage loans, and
disclosures and requirements for reverse mortgage loans. This proposal
was the second stage of the comprehensive review conducted by the Board
of TILA's rules for home-secured credit. 75 FR 58539 (Sept. 24, 2010)
(2010 Mortgage Proposal).
The Board also began, on September 24, 2010, issuing proposals
implementing the Dodd-Frank Act, which had been signed on July 21,
2010. The Board issued a proposed rule implementing section 1461 of the
Dodd-Frank Act, which, in part, adjusts the rate threshold for
determining whether escrow accounts are required for ``jumbo loans,''
whose principal amounts exceed the maximum eligible for purchase by
Freddie Mac.\70\ 75 FR 58505 (Sept. 24, 2010). On March 2, 2011, the
Board proposed amendments to Regulation Z implementing other
requirements of sections 1461 and 1462 of the Dodd-Frank Act, which
added new substantive and disclosure requirements regarding escrow
accounts to TILA. 76 FR 11598 (March 2, 2011) (2011 Escrows Proposal).
Sections 1461 and 1462 of the Dodd-Frank Act create new TILA section
129D, which substantially codifies requirements that the Board had
previously adopted in Regulation Z regarding escrow requirements for
higher-priced mortgage loans (including the revised rate threshold for
``jumbo loans'' described above), but also adds disclosure
requirements, and lengthens the period for which escrow accounts are
required.
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\70\ The Board finalized this proposal effective April 1, 2011.
76 FR 11319 (Mar. 2, 2011).
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On May 11, 2011, the Board proposed amendments to Regulation Z to
implement section 1411 of the Dodd-Frank Act, which amends TILA to
prohibit creditors from making mortgage loans without regard to the
consumer's repayment ability. 76 FR 27390 (May 11, 2011) (2011 ATR
Proposal). Section 1411 of the Dodd-Frank Act adds section 129C to
TILA, codified at 15 U.S.C. 1639c, which prohibits a creditor from
making a mortgage loan unless the creditor makes a reasonable and good
faith determination, based on verified and documented information, that
the consumer will have a reasonable ability to repay the loan,
including any mortgage-related obligations (such as property taxes).
Effective July 21, 2011, the Dodd-Frank Act transferred rulemaking
authority for TILA to the Bureau.\71\ See sections 1061 and 1100A of
the Dodd-Frank Act. Along with this authority, the Bureau assumed
responsibility for the proposed rules discussed above. Pursuant to the
Dodd-Frank Act and TILA, as amended, the Bureau published for public
comment an interim final rule establishing a new Regulation Z, 12 CFR
part 1026, implementing TILA (except with respect to persons excluded
from the Bureau's rulemaking authority by section 1029 of the Dodd-
Frank Act). 76 FR 79768 (Dec. 22, 2011). This rule did not impose any
new substantive obligations but did make certain technical, conforming,
and stylistic changes to reflect the transfer of authority and certain
other changes made by the Dodd-Frank Act. The Bureau's Regulation Z
took effect on December 30, 2011.
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\71\ Section 1029 of the Dodd-Frank Act excludes from this
transfer of authority, subject to certain exceptions, any rulemaking
authority over a motor vehicle dealer that is predominantly engaged
in the sale and servicing of motor vehicles, the leasing and
servicing of motor vehicles, or both. 12 U.S.C. 5519.
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D. The History of Integration Efforts
For more than 30 years, TILA and RESPA have required creditors and
settlement agents to give consumers who apply for and obtain a mortgage
loan different but overlapping disclosure forms regarding the loan's
terms and costs. This duplication has long been recognized as
inefficient and confusing for both consumers and industry.
Previous efforts to develop a combined TILA and RESPA disclosure
form were fueled by the amount, complexity, and overlap of information
in the disclosures. On September 30, 1996, Congress enacted the
Economic Growth and Regulatory Paperwork Reduction Act of 1996,\72\
which required the Board and HUD to ``simplify and improve the
disclosures applicable to the transactions under [TILA and RESPA],
including the timing of the disclosures; and to provide a single format
for such disclosures which will satisfy the requirements of each such
Act with respect to such transactions.'' \73\ If the agencies found
that legislative action might be necessary or appropriate to simplify
and unify the disclosures, they were to submit a report to Congress
containing recommendations for such action. In the same legislation,
Congress added
[[Page 51124]]
exemption authority in TILA section 105(f) for classes of transactions
for which, in the determination of the Board (now the Bureau), coverage
under all or part of TILA does not provide a meaningful benefit to
consumers in the form of useful information or protection.\74\
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\72\ Public Law 104-208, 110 Stat. 3009 (1996).
\73\ Id., section 2101.
\74\ Id., section 2102(b).
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The Board and HUD did not propose an integrated disclosure pursuant
to this legislation. Instead, in July 1998, the Board and HUD issued a
``Joint Report to the Congress Concerning Reform to the Truth in
Lending Act and the Real Estate Settlement Procedures Act'' (Board-HUD
Joint Report).\75\ The Board-HUD Joint Report concluded that
``meaningful change could come only through legislation'' and provided
Congress with the Board's and HUD's recommendations for revising TILA
and RESPA.
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\75\ Bd. of Governors of the Fed. Reserve Sys. And U.S. Dep't of
Hous. and Urban Dev., Joint Report to the Congress Concerning Reform
to the Truth in Lending Act and the Real Estate Settlement
Procedures Act (1998), available at https://www.federalreserve.gov/boarddocs/rptcongress/tila.pdf.
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The agencies recommended a number of amendments to TILA and RESPA
in the report, such as amendment of TILA's definition of ``finance
charge'' to eliminate the ``some fees in, some fees out'' approach and
instead include ``all costs the consumer is required to pay in order to
close the loan, with limited exceptions''; the amendment of RESPA to
require either the guaranteeing of closing costs on the GFE or
estimates that are subject to an accuracy standard; and provision of
the final TILA disclosure and settlement statement three days before
closing, so that consumers would be able to study the disclosures in an
unpressured environment.
The Board-HUD Joint Report also recommended several additional
changes to the TILA disclosures. In particular, the report recommended
significant revisions to the ``Fed Box,'' which is the tabular
disclosure provided to consumers in the early and final TILA
disclosures under Regulation Z containing the APR, the finance charge
(which is intended to be the cost of credit expressed as a dollar
amount), the amount financed (which is intended to reflect the loan
proceeds available to the consumer), and the total of payments (which
is the dollar amount of the transaction over the loan term, including
principal and finance charges).\76\ The report recommended, among other
things, eliminating the amount financed from the disclosure for
mortgage loans because it probably was not useful to consumers in
understanding mortgage loans. The report also recommended adding
disclosure of the total closing costs in the Fed Box, citing focus
groups conducted by the Board in which participants stated that
disclosure of the amount needed to close the loan would be useful.
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\76\ See, e.g., Regulation Z, 12 CFR part 1026 app. H-2 Loan
Model Form.
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The Board-HUD Joint Report did not result in legislative action.
Eleven years later, and four months before the revised RESPA
disclosures under HUD's 2008 RESPA Final Rule were to become mandatory,
the Board published the 2009 Closed-End Proposal, which proposed
significant revisions to the TILA disclosures and stated that the Board
would work with HUD towards integrating the two disclosure regimes. The
proposal stated that ``the Board anticipates working with [HUD] to
ensure that TILA and [RESPA] disclosures are compatible and
complementary, including potentially developing a single disclosure
form that creditors could use to combine the initial disclosures
required under TILA and RESPA.'' \77\ The proposal stated that consumer
testing would be used to ensure consumers could understand and use the
combined disclosures. However, only ten months later in July 2010, the
Dodd-Frank Act was enacted by Congress, which transferred rulemaking
authority under both TILA and RESPA to the Bureau and mandated that the
Bureau establish a single disclosure scheme under TILA and RESPA. Now,
nearly 16 years after Congress first directed the Board and HUD to
integrate the disclosures under TILA and RESPA, the Bureau publishes
this proposed rule.
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\77\ 74 FR 43232, 43233.
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E. The Dodd-Frank Act
As noted above, RESPA and TILA historically have been implemented
by regulations of HUD and the Board, respectively, and the Dodd-Frank
Act consolidated this rulemaking authority in the Bureau. In addition,
the Dodd-Frank Act amended both statutes to mandate that the Bureau
establish a single disclosure scheme for use by lenders or creditors in
complying comprehensively with the disclosure requirements discussed
above. Section 1098(2) of the Dodd-Frank Act amended RESPA section 4(a)
to require that the Bureau ``publish a single, integrated disclosure
for mortgage loan transactions (including real estate settlement cost
statements) which includes the disclosure requirements of this section
and section 5, in conjunction with the disclosure requirements of
[TILA] that, taken together, may apply to a transaction that is subject
to both or either provisions of law.'' 12 U.S.C. 2603(a). Similarly,
section 1100A(5) of the Dodd-Frank Act amended TILA section 105(b) to
require that the Bureau ``publish a single, integrated disclosure for
mortgage loan transactions (including real estate settlement cost
statements) which includes the disclosure requirements of this title in
conjunction with the disclosure requirements of [RESPA] that, taken
together, may apply to a transaction that is subject to both or either
provisions of law.'' 15 U.S.C. 1604(b).
The amendments to RESPA and TILA mandating a ``single, integrated
disclosure'' are among numerous conforming amendments to existing
Federal laws found in subtitle H of the Consumer Financial Protection
Act of 2010.\78\ Subtitle C of the Consumer Financial Protection Act,
``Specific Bureau Authorities,'' codified at 12 U.S.C. chapter 53,
subchapter V, part C, contains a similar provision. Specifically,
section 1032(f) of the Dodd-Frank Act provides that, by July 21, 2012,
the Bureau ``shall propose for public comment rules and model
disclosures that combine the disclosures required under [TILA] and
[sections 4 and 5 of RESPA] into a single, integrated disclosure for
mortgage loan transactions covered by those laws, unless the Bureau
determines that any proposal issued by the [Board] and [HUD] carries
out the same purpose.'' 12 U.S.C. 5532(f). The Bureau is publishing
this proposed rule pursuant to that mandate and the parallel mandates
established by the conforming amendments to RESPA and TILA, discussed
above.
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\78\ The Consumer Financial Protection Act is title X, ``Bureau
of Consumer Financial Protection,'' of the Dodd-Frank Act, Public
Law 111-203, 124 Stat. 1376 (2010), sections 1001-1100H. In the
Consumer Financial Protection Act, Congress established the Bureau
and its powers and authorities, transferred to the Bureau various
existing functions of other agencies, mandated certain regulatory
improvements, and prescribed other requirements and conforming
amendments. Subtitle H, ``Conforming Amendments,'' is the last
subtitle and consists of sections 1081-1100H. Certain titles of the
Dodd-Frank Act are codified at 12 U.S.C. chapter 53. Subtitles A
through G (but not H) of title X are codified at 12 U.S.C. chapter
53, subchapter V, parts A through G. Thus, the Consumer Financial
Protection Act is substantially codified at 12 U.S.C. 5481-5603.
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F. Other Rulemakings
In addition to this proposal, the Bureau currently is engaged in
six other rulemakings relating to mortgage credit
[[Page 51125]]
to implement requirements of the Dodd-Frank Act:
HOEPA: On the same day that this proposal is released by
the Bureau, the Bureau is releasing a proposal to implement Dodd-Frank
Act requirements expanding protections for ``high-cost'' mortgage loans
under HOEPA, pursuant to TILA sections 103(bb) and 129, as amended by
Dodd-Frank Act sections 1431 through 1433 (2012 HOEPA Proposal). 15
U.S.C. 1602(bb) and 1639.\79\
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\79\ Available at https://www.consumerfinance.gov/notice-and-comment/.
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Servicing: The Bureau is in the process of developing a
proposal to implement Dodd-Frank Act requirements regarding force-
placed insurance, error resolution, and payment crediting, as well as
forms for mortgage loan periodic statements and ``hybrid'' adjustable-
rate mortgage reset disclosures, pursuant to sections 6 of RESPA and
128, 128A, 129F, and 129G of TILA, as amended or established by Dodd-
Frank Act sections 1418, 1420, 1463, and 1464. The Bureau has publicly
stated that in connection with the servicing rulemaking the Bureau is
considering proposing rules on reasonable information management, early
intervention for troubled and delinquent borrowers, and continuity of
contact, pursuant to the Bureau's authority to carry out the consumer
protection purposes of RESPA in section 6 of RESPA, as amended by Dodd-
Frank Act section 1463. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f,
and 1639g.
Loan Originator Compensation: The Bureau is in the process
of developing a proposal to implement provisions of the Dodd-Frank Act
requiring certain creditors and mortgage loan originators to meet duty
of care qualifications and prohibiting mortgage loan originators,
creditors, and the affiliates of both from receiving compensation in
various forms (including based on the terms of the transaction) and
from sources other than the consumer, with specified exceptions,
pursuant to TILA section 129B as established by Dodd-Frank Act sections
1402 and 1403. 15 U.S.C. 1639b.
Appraisals: The Bureau, jointly with Federal prudential
regulators and other Federal agencies, is in the process of developing
a proposal to implement Dodd-Frank Act requirements concerning
appraisals for higher-risk mortgages, appraisal management companies,
and automated valuation models, pursuant to TILA section 129H as
established by Dodd-Frank Act section 1471, 15 U.S.C. 1639h, and
sections 1124 and 1125 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA) as established by Dodd-Frank Act
sections 1473(f), 12 U.S.C. 3353, and 1473(q), 12 U.S.C. 3354,
respectively. In addition, the Bureau is developing rules to implement
section 701(e) of the Equal Credit Opportunity Act (ECOA), as amended
by Dodd-Frank Act section 1474, to require that creditors provide
applicants with a free copy of written appraisals and valuations
developed in connection with applications for loans secured by a first
lien on a dwelling (collectively, Appraisals Rulemaking). 15 U.S.C.
1691(e).
Ability to Repay: The Bureau is in the process of
finalizing a proposal issued by the Board to implement provisions of
the Dodd-Frank Act requiring creditors to determine that a consumer can
repay a mortgage loan and establishing standards for compliance, such
as by making a ``qualified mortgage,'' pursuant to TILA section 129C as
established by Dodd-Frank Act sections 1411 and 1412 (Ability to Repay
Rulemaking). 15 U.S.C. 1639c.
Escrows: The Bureau is in the process of finalizing a
proposal issued by the Board to implement provisions of the Dodd-Frank
Act requiring certain escrow account disclosures and exempting from the
higher-priced mortgage loan escrow requirement loans made by certain
small creditors, among other provisions, pursuant to TILA section 129D
as established by Dodd-Frank Act sections 1461 and 1462 (Escrows
Rulemaking). 15 U.S.C. 1639d.
With the exception of the requirements being implemented in this
rulemaking, the Dodd-Frank Act requirements referenced above generally
will take effect on January 21, 2013 unless final rules implementing
those requirements are issued on or before that date and provide for a
different effective date. To provide an orderly, coordinated, and
efficient comment process, the Bureau is generally setting the
deadlines for comments on this and other proposed mortgage rules based
on the date the proposal is issued, instead of the date this notice is
published in the Federal Register. Specifically, as discussed below, it
may be appropriate to finalize proposed Sec. Sec. 1026.1(c) and 1026.4
in conjunction with the final rules adopted on or before January 21,
2013. Therefore, the Bureau is providing 60 days for comment on those
proposals (until September 7, 2012), which will ensure that the Bureau
receives comments with sufficient time remaining to issue final rules
by that date. For the other portions of this proposed rule (including
the Paperwork Reduction Analysis in part IX below), the Bureau is
providing 120 days (until November 6, 2012). Because the precise date
this notice will be published cannot be predicted in advance, setting
the deadlines based on the date of issuance will allow interested
parties that intend to comment on multiple proposals to plan
accordingly.
The Bureau regards the foregoing rulemakings as components of a
larger undertaking; many of them intersect with one or more of the
others. Accordingly, the Bureau is coordinating carefully the
development of the proposals and final rules identified above. Each
rulemaking will adopt new regulatory provisions to implement the
various Dodd-Frank Act mandates described above. In addition, each of
them may include other provisions the Bureau considers necessary or
appropriate to ensure that the overall undertaking is accomplished
efficiently and that it ultimately yields a regulatory scheme for
mortgage credit that achieves the statutory purposes set forth by
Congress, while avoiding unnecessary burdens on industry.
Thus, many of the rulemakings listed above involve issues that
extend across two or more rulemakings. In this context, each rulemaking
may raise concerns that might appear unaddressed if that rulemaking
were viewed in isolation. For efficiency's sake, however, the Bureau is
publishing and soliciting comment on proposed answers to certain issues
raised by two or more of its mortgage rulemakings in whichever
rulemaking is most appropriate, in the Bureau's judgment, for
addressing each specific issue. Accordingly, the Bureau urges the
public to review this and the other mortgage proposals identified
above, including those previously published by the Board, together.
Such a review will ensure a more complete understanding of the Bureau's
overall approach and will foster more comprehensive and informed public
comment on the Bureau's several proposals, including provisions that
may have some relation to more than one rulemaking but are being
proposed for comment in only one of them.
For example, as discussed in detail in the section-by-section
analysis under proposed Sec. 1026.4 below, this proposal includes a
simpler, more inclusive definition of the finance charge, similar to
what the Board proposed in its 2009 Closed-End Proposal. See 74 FR
43232, 43241-45 (Aug. 26, 2009). The Board recognized at that time that
the more inclusive finance charge would cause more loans to be
considered higher-priced mortgage loans under Sec. 1026.35 and would
expand the coverage of
[[Page 51126]]
HOEPA and similar State laws. Id. at 43244-45. For these reasons, in
its 2010 Mortgage Proposal, the Board proposed to retain the existing
treatment of third-party charges in the points and fees definition,
notwithstanding the proposed expansion of the finance charge for
disclosure purposes. 75 FR 58539, 58637-38 (Sept. 24, 2010). Similarly,
the Board's 2010 Mortgage Proposal introduced a new metric for
determining coverage of the higher-priced mortgage loan protections to
be used in place of a transaction's APR, known as the ``transaction
coverage rate'' (TCR), which does not reflect the additional charges
that are reflected in the disclosed APR under the more inclusive
finance charge definition. Id. at 58660-62.
The Bureau recognizes, as did the Board, that the proposed more
inclusive finance charge could affect the coverage of the higher-priced
mortgage loan and HOEPA protections. The Bureau also is aware that,
consequently, a more inclusive finance charge has implications for the
HOEPA, Appraisals, Ability to Repay, and Escrows rulemakings identified
above. Those impacts are analyzed below, but the Bureau believes that
it is also helpful to analyze potential mitigation measures on a rule-
by-rule basis. Accordingly, the Bureau expects to seek comment in the
HOEPA and Appraisals rulemakings on whether and how to account for the
implications of the more inclusive finance charge on those specific
regulatory regimes, for instance by adopting the TCR as previously
proposed by the Board.\80\
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\80\ The Board already sought comment on this issue in its
proposals to implement the ability to repay and escrow requirements.
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III. Outreach and Consumer Testing
As noted above, the Dodd-Frank Act established two goals for this
rulemaking: ``to facilitate compliance with the disclosure requirements
of [TILA and RESPA]'' and ``to aid the borrower or lessee in
understanding the transaction by utilizing readily understandable
language to simplify the technical nature of the disclosures.'' Dodd-
Frank Act sections 1098, 1100A. Further, the Bureau has a specific
mandate and authority from Congress to promote consumer comprehension
of financial transactions through clear disclosures. Section 1021(a) of
the Dodd-Frank Act directs the Bureau to ``implement * * * Federal
consumer financial law consistently for the purpose of ensuring,''
inter alia, that ``markets for consumer financial products and services
are fair, transparent, and competitive.'' 12 U.S.C. 5511(a). Section
1021(b) of the Dodd-Frank Act, in turn, authorizes the Bureau as part
of its core mission to exercise its authorities to ensure that, with
respect to consumer financial products and services, ``consumers are
provided with timely and understandable information to make responsible
decisions about financial transactions.'' 12 U.S.C. 5511(b). Consistent
with these goals and in preparation for proposing integrated rules and
forms, the Bureau conducted a multifaceted information gathering
campaign, including researching how consumers interact with and
understand information, testing of prototype forms, developing
interactive online tools to gather public feedback, and hosting
roundtable discussions, teleconferences, and meetings with consumer
advocacy groups, industry stakeholders, and other government agencies.
A. Early Stakeholder Outreach & Prototype Form Design
In September 2010, the Bureau began meeting with consumer
advocates, other banking agencies, community banks, credit unions,
settlement agents, and other industry representatives. This outreach
helped the Bureau better understand the issues that consumers and
industry face when they use the current TILA and RESPA disclosures.
At the same time, the Bureau began to research how consumers
interact with and understand information. Given the complexities and
variability of mortgage loan transactions and their underlying real
estate transactions, the Bureau understood that the integrated
disclosures would have to convey a large amount of complex and
technical information to consumers in a manner that they could use and
understand. Considering that, in January 2011, the Bureau contracted
with a communication, design, consumer testing, and research firm,
Kleimann Communication Group, Inc. (Kleimann), which specializes in
consumer financial disclosures. Kleimann has been hired by other
Federal agencies to perform such design and qualitative testing work in
connection with other financial disclosure forms. For example, the
Federal Trade Commission and the Federal banking agencies contracted
with Kleimann to design and conduct consumer testing for revised model
privacy disclosures.\81\ Also, HUD contracted with Kleimann to assist
in the design and consumer testing for its revised good faith estimate
and settlement statement forms.\82\
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\81\ 72 FR 14940, 14944 (Mar. 29, 2007); 74 FR 62890, 62893
(Dec. 1, 2009).
\82\ 73 FR 14030, 14043; 73 FR 68204, 68265.
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The Bureau and Kleimann reviewed relevant research and the work of
other Federal financial services regulatory agencies to inform the
Bureau's design of the prototype integrated disclosures. One of the
findings of this research was that there is a significant risk to
consumers of experiencing ``information overload'' when the volume or
complexity of information detracts from the consumer decision-making
processes. ``Information overload'' has often been cited as a problem
with financial disclosures.\83\ Researchers suggest that there should
be a balance between the types and amount of information in the
disclosures, because too much information has the potential to detract
from consumers' decision-making processes.\84\ In its 2009 Closed-End
Proposal, the Board cited a reduction in ``information overload'' as
one of the potential benefits of its plan to harmonize the TILA and
RESPA disclosures in collaboration with HUD.\85\ The Board's consumer
testing in connection with its 2009 Closed-End Proposal found that when
participants were asked what was most difficult about their mortgage
experience, the most frequent answer was the amount of paperwork.\86\
HUD also stated that one of its guiding principles for HUD's 2008 RESPA
Proposal was that ``the [mortgage loan settlement process] can be
improved with simplification of disclosures and better borrower
information,'' the complexity of which
[[Page 51127]]
caused many problems with the process.\87\
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\83\ See e.g., Debra Pogrund Stark and Jessica M. Choplin, A
Cognitive and Social Psychological Analysis of Disclosure Laws and
Call for Mortgage Counseling to Prevent Predatory Lending, 16 Psych.
Pub. Pol. and L. 85, 96 (2010); Paula J. Dalley, The Use and Misuse
of Disclosure as a Regulatory System, 34 Fla. St. U.L. Rev. 1089,
1115 (2007); Patricia A. McCoy, The Middle-Class Crunch: Rethinking
Disclosure in a World of Risk-Based Pricing, 44 Harv. J. on Legis.
123, 133 (2007); Lauren E. Willis, Decisionmaking and The Limits of
Disclosure: The Problem of Predatory Lending: Price, 65 Md. L. Rev.
707, 766 (2006); Troy A. Paredes, After the Sarbanes-Oxley Act: The
Future Disclosure System: Blinded by the Light: Information Overload
and its Consequences for Securities Regulation, 81 Wash. U. L. Q.
417 (2003); William N. Eskridge, Jr., One Hundred Years of
Ineptitude: The Need for Mortgage Rules Consonant with the Economic
and Psychological Dynamics of the Home Sale and Loan Transaction, 70
Va. L. Rev. 1083, 1133 (1984).
\84\ John Kozup & Jeanne M. Hogarth, Financial Literacy, Public
Policy, and Consumers' Self-Protection--More Questions, Fewer
Answers, 42 Journal of Consumer Affairs 2, 127 (2008).
\85\ 74 FR 43232, 43234.
\86\ See Macro 2009 Closed-End Report at 19. For additional
discussion regarding information overload, see the section-by-
section analysis to proposed Sec. 1026.37(l).
\87\ 73 FR 14030, 14031.
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The potential for ``information overload'' was also cited by
Congress as one of the reasons it amended the TILA disclosures in the
Truth-in-Lending Simplification and Reform Act of 1980.\88\ According
to the Senate Committee on Banking, Housing and Urban Affairs, this
legislation arose in part because:
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\88\ Public Law 96-221, 94 Stat 132 (1980).
During its hearings the Consumer Affairs Subcommittee heard
testimony from a leading psychologist who has studied the problem of
`informational overload.' The Subcommittee learned that judging from
consumer tests in other areas, the typical disclosure statement
utilized today by creditors is not an effective communication
device. Most disclosure statements are lengthy, written in
legalistic fine print, and have essential Truth in Lending
disclosures scattered among various contractual terms. The result is
a piece of paper which appears to be `just another legal document'
instead of the simple, concise disclosure form Congress
intended.\89\
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\89\ Public Law 96-221, Depository Institutions Deregulation and
Monetary Control Act of 1980, Senate Report No. 96073 (Apr. 24,
1979).
Based on this research, the Bureau is particularly mindful of the risk
of information overload, especially considering the large volume of
other information and paperwork consumers are required to process
throughout the mortgage loan and real estate transaction.
The Bureau began development of the integrated disclosures with
certain design objectives. Considering that the quantity of information
both on the disclosures and in other paperwork throughout the mortgage
loan and real estate transaction may increase the risk of information
overload, the Bureau began development of the integrated disclosures
with the objective of creating a graphic design that used as few words
as possible when presenting the key loan and cost information. The
Bureau's purpose for such a design was to make the information readily
visible so that consumers could quickly and easily find the information
they were looking for, without being confronted with large amounts of
text. Accordingly, the Bureau decided to limit the content of the
disclosures to loan terms, cost information, and certain textual
disclosures and to exclude educational material. The Bureau understood
that consumers would receive educational materials under applicable
law, such as the Special Information Booklet required by section 5 of
RESPA, or through other means. In addition, the Bureau understood that
it would provide additional educational information and tools on its
Web site and place a Web site link on the integrated disclosures
directing consumers to that site, which would obviate the need to place
educational material directly on the disclosures.
The Bureau also believed the design should highlight on the first
page the most important loan information that consumers readily
understand and use to evaluate and compare loans, placing more detailed
and technical information later in the disclosure. In addition, the
Bureau believed the design should use plain language and limit the use
of technical, statutory, or complex financial terms wherever possible.
The Bureau believes these design objectives best satisfy the
purposes of the integrated disclosures set forth by Dodd-Frank Act
sections 1098 and 1100A, as well as the Bureau's mandate under Dodd-
Frank Act section 1021(b) to ensure that consumers are provided with
``understandable information'' to enable them to make responsible
decisions about financial transactions.
From January through May 2011, the Bureau and Kleimann developed a
plan to design integrated disclosure prototypes and conduct qualitative
usability testing, consisting of one-on-one cognitive interviews. The
Bureau and Kleimann worked collaboratively on developing the
qualitative testing plan and several prototype forms for the Loan
Estimate (i.e., the disclosure to be provided in connection with a
consumer's application integrating the RESPA GFE and the early TILA
disclosure). Although qualitative testing is commonly used by Federal
agencies to evaluate the effectiveness of disclosures prior to issuing
a proposal, the qualitative testing plan developed by the Bureau and
Kleimann was unique in that the Bureau conducted qualitative testing
with industry participants as well as consumers. Each round of
qualitative testing included at least two industry participants,
including lenders from several different types of depository
institutions (including credit unions and community banks) and non-
depository institutions, mortgage brokers, and settlement agents.
B. Prototype Testing and the Know Before You Owe (KBYO) Project
In May 2011, the Bureau selected two initial prototype designs of
the Loan Estimate, which were used in qualitative testing interviews in
Baltimore, Maryland. In these interviews, consumers were asked to work
through the prototype forms while conveying their impressions, and also
asked a series of questions designed to assess whether the forms
presented information in a format that enabled them to understand and
compare the mortgage loans presented to them. These questions ranged
from the highly specific (e.g., asking whether the consumer could
identify the loan payment in year 10 of a 30-year, adjustable-rate
loan) to the highly general (e.g., asking consumers to choose the loan
that best met their needs).\90\ Industry participants were asked to use
the prototype forms to explain mortgage loans as they would to a
consumer and to identify implementation issues and areas for
improvement.
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\90\ The consumers who participated in these interviews had
varying levels of education (from consumers with less than a high
school education to consumers with graduate degrees) and varying
levels of experience with the home buying and mortgage loan process
(from consumers who never owned a home to consumers who had been
through the home buying and mortgage loan process before).
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At the same time, to supplement its qualitative testing, the Bureau
launched an initiative, which it titled ``Know Before You Owe,'' to
obtain public feedback on the prototype disclosure forms.\91\ The
Bureau believed this would provide an opportunity to obtain a large
amount of feedback from a broad base of consumers and industry
respondents around the country. This initiative consisted of either
publishing and obtaining feedback on the prototype designs through an
interactive tool on the Bureau's Web site or posting the prototypes to
the Bureau's blog on its Web site and providing an opportunity for the
public to email feedback directly to the Bureau. Individual consumers,
loan officers, mortgage brokers, settlement agents, and others provided
feedback based on their own experiences with the mortgage loan process
by commenting on specific sections of the form, prioritizing
information presented on the form, and identifying additional
information that should be included.\92\
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\91\ See https://www.consumerfinance.gov/knowbeforeyouowe/.
\92\ Examples of consumer and industry responses to the
prototypes of the disclosures can be seen in the CFPB blog,
including at: www.consumerfinance.gov/know-before-you-owe-go;
www.consumerfinance.gov/13000-lessons-learned; and
www.consumerfinance.gov/know-before-you-owe-its-closing-time.
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From May to October 2011, Kleimann and the Bureau conducted a
series of five rounds of qualitative testing of different iterations of
the Loan Estimate with consumer and industry participants. In addition
to Baltimore, Maryland, this testing was conducted in Los Angeles,
California; Chicago,
[[Page 51128]]
Illinois; Springfield, Massachusetts; and Albuquerque, New Mexico. Each
round focused on a different aspect of the integrated disclosure, such
as the overall design, the disclosure of closing costs, and the
disclosure of loan payments over the term of the loan. The overall goal
of this qualitative testing was to ensure that the forms enabled
consumers to understand and compare the terms and costs of the loan.
After each round of testing, Kleimann analyzed and reported to the
Bureau on the results of the testing. Based on these results and
supplemental feedback received through the KBYO process, the Bureau
revised the prototype disclosure forms for the next round of testing.
This iterative process helped the Bureau develop forms that enable
consumers to understand and compare mortgage loans and that assist
industry in complying with the law. For a detailed discussion of this
testing, see the report prepared by Kleimann, Know Before You Owe:
Evolution of the Integrated TILA-RESPA Disclosures (Kleimann Testing
Report), which the Bureau is publishing on its Web site in conjunction
with this proposed rule.\93\
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\93\ Kleimann Communication Group, Inc., Know Before You Owe:
Evolution of the Integrated TILA-RESPA Disclosures (July 2012),
available at https://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
---------------------------------------------------------------------------
After completion of the qualitative testing that focused solely on
the Loan Estimate, the Bureau and Kleimann began work on the prototype
designs for the Closing Disclosure (i.e., the disclosure provided in
connection with the closing of the mortgage loan that integrates the
RESPA settlement statement and the final TILA disclosure). From
November 2011 through March 2012, the Bureau and Kleimann conducted
five rounds of qualitative testing of different iterations of the
Closing Disclosure with consumer and industry participants. This
testing was conducted in five different cities across the country: Des
Moines, Iowa; Birmingham, Alabama; Philadelphia, Pennsylvania; Austin,
Texas; and Baltimore, Maryland.
Similar to the qualitative testing of the Loan Estimate, the Bureau
revised the prototype Closing Disclosure forms after each round based
on the results Kleimann provided to the Bureau and the feedback
received from the KBYO process. The Bureau focused on several aspects
of the prototypes during each round, such as the settlement disclosures
adapted from the HUD-1, new disclosure items required under title XIV
of the Dodd-Frank Act, and tables to help identify changes in the
information disclosed in the initial Loan Estimate. The overall goal of
the qualitative testing of the Closing Disclosure was to ensure that
the forms enabled consumers to understand their actual terms and costs,
and to compare the Closing Disclosure with the Loan Estimate to
identify changes. Accordingly, several rounds included testing of
different iterations of the Loan Estimate with the Closing Disclosure.
Overall, the Bureau performed qualitative testing with 92 consumer
participants and 22 industry participants, for a total of 114
participants. In addition, through the Bureau's KBYO initiative, the
Bureau received over 150,000 visits to the KBYO Web site and over
27,000 public comments and emails about the prototype disclosures.
C. Ongoing Stakeholder Outreach
Throughout the qualitative testing of the prototype disclosure
forms, the Bureau continued to conduct extensive outreach to consumer
advocacy groups, other regulatory agencies, and industry
representatives and trade associations. The Bureau held meetings with
individual stakeholders upon request, and also invited stakeholders to
meetings in which individual views of each stakeholder could be heard.
The Bureau conducted these meetings with a wide range of stakeholders
that may be affected by the integrated disclosures, even if not
directly regulated by the proposed rule. The meetings included
community banks, credit unions, thrifts, mortgage companies, mortgage
brokers, settlement agents, settlement service providers, software
providers, appraisers, not-for-profit consumer and housing groups, and
government and quasi-governmental agencies. Many of the persons
attending these meetings represented small business entities from
different parts of the country. In addition to these meetings, after
each round of qualitative testing, the Bureau received numerous letters
from individuals, consumer advocates, financial services providers, and
trade associations, which provided the Bureau with additional feedback
on the prototype disclosure forms.
In preparing this proposal, the Bureau also considered comments
provided in response to its December 2011 proposal regarding
streamlining of regulations for which rulemaking authority was
inherited by the CFPB from other Federal agencies, including TILA and
RESPA. 76 FR 75825 (Dec. 5, 2011) (2011 Streamlining Proposal). That
proposal specifically sought public comment on provisions of the
inherited regulations that the Bureau should make the highest priority
for updating, modifying, or eliminating because they are outdated,
unduly burdensome, or unnecessary, and sought suggestions for practical
measures to make compliance with the regulations easier. Several
commenters requested that the Bureau reconcile inconsistencies in the
terminology and requirements of Regulations X and Z. Wherever possible,
the Bureau has proposed to do so in this rulemaking. In addition, other
relevant comments received in response to the 2011 Streamlining
Proposal are addressed below.
D. Small Business Review Panel
In February 2012, the Bureau convened a Small Business Review Panel
with the Chief Counsel for Advocacy of the Small Business
Administration (SBA) and the Administrator of the Office of Information
and Regulatory Affairs within the Office of Management and Budget
(OMB).\94\ As part of this process, the Bureau prepared an outline of
the proposals then under consideration and the alternatives considered
(Small Business Review Panel Outline), which it posted on its Web site
for review by the general public as well as the small entities
participating in the panel process.\95\ The Small Business Review Panel
gathered information from representatives of small lenders, mortgage
brokers, settlement agents, and not-for-profit organizations and made
findings and recommendations regarding the potential compliance costs
and other impacts of the proposed rule on those entities. These
findings and recommendations are set forth in the Small Business Review
Panel Report, which will be made part of the administrative record in
this rulemaking.\96\ The Bureau has carefully considered these findings
and recommendations in preparing this proposal and has addressed
certain specific examples below.
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\94\ The Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) requires the Bureau to convene a Small Business Review
Panel before proposing a rule that may have a substantial economic
impact on a significant number of small entities. See Public Law
104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L.
110-28, sec. 8302 (2007)).
\95\ Available at https://www.consumerfinance.gov/blog/sbrefa-small-providers-and-mortgage-disclosure/.
\96\ Final Report of the Small Business Review Panel on CFPB's
Proposals Under Consideration for Integration of TILA and RESPA
Mortgage Disclosure Requirements (Apr. 23, 2012), available at
https://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-sbrefa-feedback.pdf.
---------------------------------------------------------------------------
In addition, the Bureau held roundtable meetings with other Federal
banking and housing regulators, consumer advocacy groups, and
[[Page 51129]]
industry representatives regarding the Small Business Review Panel
Outline. At the Bureau's request, many of the participants provided
feedback, which the Bureau has used in preparing this proposal.
E. Next Steps
The public may submit comments on the proposed rule for 120 days
after issuance (with the exception of the proposed amendments to
Sec. Sec. 1026.1(c) and 1026.4 that have a shorter 60-day comment
period as discussed below). These comments will be available to the
public, as will summaries of written or oral presentations in
accordance with the Bureau's ex parte policy.\97\ During the comment
period and after it closes, the Bureau will carefully review and
analyze the comments.
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\97\ CFPB Bulletin 11-3 (August 16, 2011), available at https://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
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Once the Bureau has completed its review and analysis of the
comments, it will consult with other Federal agencies and determine
whether changes should be made to the proposed forms or rules. If
changes are contemplated to the forms, the Bureau may conduct
additional qualitative testing to evaluate the effectiveness of those
changes. Whether or not changes are made, the Bureau may conduct large-
scale quantitative testing of the forms to confirm that the forms aid
consumers' understanding of mortgage transactions, if appropriate. On
March 28, 2012, the Bureau published a notice for comment under the
Paperwork Reduction Act in connection with this quantitative testing,
specifically inviting comment on whether the information collected will
have practical utility, the accuracy of the Bureau's burden hour
estimates, and ways to enhance the quality of the information collected
and minimize the burden on respondents.\98\ The Bureau received no
comments to this notice.
---------------------------------------------------------------------------
\98\ 77 FR 18793 (Mar. 28, 2012).
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During the Small Business Review Panel, several small business
representatives requested that the Bureau explore the feasibility of
conducting testing of the disclosure forms on actual loans before
issuing a final rule. See Small Business Review Panel Report at 28.
Based on this feedback and consistent with the Small Business Review
Panel's recommendation, the Bureau is considering testing the forms on
actual loans after reviewing comments received in connection with this
proposal, and making any appropriate revisions to the proposed forms.
After the Bureau has completed the appropriate steps, it will
prepare and issue a final rule. However, as discussed below in part
V.A, the Bureau understands from the Small Business Review Panel
process and from other outreach that lenders, settlement agents, and
others will need a period of time to update their systems and processes
to comply with the final rule and to train their employees.
Accordingly, the Bureau is asking for comment on a time period that
strikes the appropriate balance between providing consumers with
improved disclosures as soon as possible and providing industry with
the necessary time to come into compliance.
In addition, during the Small Business Review Panel, several small
business representatives requested that the Bureau provide detailed
guidance on how to complete the integrated forms, including, as
appropriate, samples of completed forms for a variety of loan
transactions. See Small Business Review Panel Report at 28. Similar
feedback was also submitted by several industry trade associations in
response to the Small Business Review Panel Outline. The Bureau also
understands from its other outreach efforts that industry has
experienced difficulties in complying with HUD's 2008 RESPA Final Rule,
in part because of a lack of detailed guidance in HUD's 2008 RESPA
Final Rule, and the many informal interpretations of the rule issued by
HUD in the HUD RESPA FAQs and HUD RESPA Roundups. Based on this
feedback and consistent with the Small Business Review Panel's
recommendation, the proposed rule contains detailed provisions
regarding the completion of the integrated disclosures, multiple
examples of completed disclosures forms in appendix H to Regulation Z,
and additional guidance and clarification in the Bureau's official
commentary to Regulation Z. Such detailed guidance has, of course,
added significant length to the proposed rule. The Bureau solicits
comment on whether the level of detail in the proposed regulations and
guidance (including the number of examples illustrating what is and is
not permitted) will make compliance more, rather than less, burdensome
and whether the Bureau should adopt a less prescriptive approach in the
final rule.
IV. Legal Authority
The Bureau is issuing this proposed rule pursuant to its authority
under TILA, RESPA, and the Dodd-Frank Act. On July 21, 2011, section
1061 of the Dodd-Frank Act transferred to the Bureau all of the HUD
Secretary's consumer protection functions relating to RESPA.\99\
Accordingly, effective July 21, 2011, the authority of HUD to issue
regulations pursuant to RESPA transferred to the Bureau. Section 1061
of the Dodd-Frank Act also transferred to the Bureau the ``consumer
financial protection functions'' previously vested in certain other
Federal agencies, including the Board. The term ``consumer financial
protection function'' is defined to include ``all authority to
prescribe rules or issue orders or guidelines pursuant to any Federal
consumer financial law, including performing appropriate functions to
promulgate and review such rules, orders, and guidelines.'' \100\ TILA,
RESPA, and title X of the Dodd-Frank Act are Federal consumer financial
laws.\101\ Accordingly, the Bureau has authority to issue regulations
pursuant to TILA and RESPA, including the disclosure requirements added
to those statutes by title XIV of the Dodd-Frank Act, as well as title
X of the Dodd-Frank Act.
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\99\ Public Law 111-203, 124 Stat. 1376, section 1061(b)(7); 12
U.S.C. 5581(b)(7).
\100\ 12 U.S.C. 5581(a)(1).
\101\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws'' and the provisions of title X of the
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12)
(defining ``enumerated consumer laws'' to include TILA and RESPA).
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A. The Integrated Disclosure Mandate
Section 1032(f) of the Dodd-Frank Act requires that, ``[n]ot later
than one year after the designated transfer date [of July 21, 2011],
the Bureau shall propose for public comment rules and model disclosures
that combine the disclosures required under [TILA] and sections 4 and 5
of [RESPA], into a single, integrated disclosure for mortgage loan
transactions covered by those laws, unless the Bureau determines that
any proposal issued by the [Board] and [HUD] carries out the same
purpose.'' 12 U.S.C. 5532(f). In addition, the Dodd-Frank Act amended
section 105(b) of TILA and section 4(a) of RESPA to require the
integration of the TILA disclosures and the disclosures required by
sections 4 and 5 of RESPA.\102\ The
[[Page 51130]]
purpose of the integrated disclosure is to facilitate compliance with
the disclosure requirements of TILA and RESPA, and to help the borrower
understand the transaction by utilizing readily understandable language
to simplify the technical nature of the disclosures. Dodd-Frank Act
sections 1098, 1100A.
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\102\ Section 1100A of the Dodd-Frank Act amended TILA section
105(b) to provide that the ``Bureau shall publish a single,
integrated disclosure for mortgage loan transactions (including real
estate settlement cost statements) which includes the disclosure
requirements of this title in conjunction with the disclosure
requirements of the Real Estate Settlement Procedures Act of 1974
that, taken together, may apply to a transaction that is subject to
both or either provisions of law.'' 15 U.S.C. 1604(b). Section 1098
of the Dodd-Frank amended RESPA section 4(a) to require the Bureau
to publish a ``single, integrated disclosure for mortgage loan
transactions (including real estate settlement cost statements)
which includes the disclosure requirements of this section and
section 5, in conjunction with the disclosure requirements of the
Truth in Lending Act that, taken together, may apply to a
transaction that is subject to both or either provisions of law.''
12 U.S.C. 2603(a).
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Although Congress imposed this integrated disclosure requirement,
it did not fully harmonize the underlying statutes. In particular, TILA
and RESPA establish different timing requirements for disclosing
mortgage credit terms and costs to consumers and require that those
disclosures be provided by different parties. TILA generally requires
that, within three business days of receiving the consumer's
application and at least seven business days before consummation of
certain mortgage transactions, creditors must provide consumers a good
faith estimate of the costs of credit.\103\ TILA section 128(b)(2)(A);
15 U.S.C. 1638(b)(2)(A). If the annual percentage rate that was
initially disclosed becomes inaccurate, TILA requires creditors to
redisclose the information at least three business days before
consummation. TILA section 128(b)(2)(D); 15 U.S.C. 1638(b)(2)(D). These
disclosures must be provided in final form at consummation. TILA
section 128(b)(2)(B)(ii); 15 U.S.C. 1638(b)(2)(B)(ii). RESPA also
requires that the creditor or broker provide consumers with a good
faith estimate of settlement charges no later than three business days
after receiving the consumer's application. However, unlike TILA, RESPA
requires that, at or before settlement, ``the person conducting the
settlement'' (which may or may not be the creditor) provide the
consumer with a statement that records all charges imposed upon the
consumer in connection with the settlement. RESPA sections 4(b), 5(c);
12 U.S.C. 2603(b), 2604(c).
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\103\ This requirement applies to extensions of credit that are
both secured by a dwelling and subject to RESPA. TILA section
128(b)(2)(A); 15 U.S.C. 1638(b)(2)(A).
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The Dodd-Frank Act did not reconcile these and other statutory
differences. Therefore, to meet the Dodd-Frank Act's express
requirement to integrate the disclosures required by TILA and RESPA,
the Bureau must do so. Dodd-Frank Act section 1032(f), TILA section
105(b), and RESPA section 4(a) provide the Bureau with implicit
authority to issue regulations that reconcile certain provisions of
TILA and RESPA to carry out Congress's mandate to integrate the
statutory disclosure requirements. For the reasons discussed in this
notice, the Bureau is proposing regulations to carry out the
requirements of Dodd-Frank Act section 1032(f), TILA section 105(b),
and RESPA section 4(a).
B. Other Rulemaking and Exception Authorities
The proposed rule also relies on the rulemaking and exception
authorities specifically granted to the Bureau by TILA, RESPA, and the
Dodd-Frank Act, including the authorities discussed below.\104\
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\104\ As discussed in part II above, prior to the Dodd-Frank
Act, rulemaking authority over TILA was vested in the Board and
rulemaking authority over RESPA was vested in HUD. The Dodd-Frank
Act transferred rulemaking authority for TILA and RESPA to the
Bureau, effective July 21, 2011. See Dodd-Frank Act sections 1061,
1098, and 1100A. The Bureau implements the proposed rule pursuant to
its authorities in section 1061 of the Dodd-Frank Act.
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Truth in Lending Act
TILA section 105(a). As amended by the Dodd-Frank Act, TILA section
105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations
to carry out the purposes of TILA, and provides that such regulations
may contain additional requirements, classifications, differentiations,
or other provisions, and may provide for such adjustments and
exceptions for all or any class of transactions, that the Bureau judges
are necessary or proper to effectuate the purposes of TILA, to prevent
circumvention or evasion thereof, or to facilitate compliance. A
purpose of TILA is ``to assure a meaningful disclosure of credit terms
so that the consumer will be able to compare more readily the various
credit terms available to him and avoid the uninformed use of credit.''
TILA section 102(a); 15 U.S.C. 1601(a). This stated purpose is tied to
Congress' finding that ``economic stabilization would be enhanced and
the competition among the various financial institutions and other
firms engaged in the extension of consumer credit would be strengthened
by the informed use of credit[.]'' TILA section 102(a). Thus,
strengthened competition among financial institutions is a goal of
TILA, achieved through the effectuation of TILA's purposes.
Historically, TILA section 105(a) has served as a broad source of
authority for rules that promote the informed use of credit through
required disclosures and substantive regulation of certain practices.
However, Dodd-Frank Act section 1100A clarified the Bureau's section
105(a) authority by amending that section to provide express authority
to prescribe regulations that contain ``additional requirements'' that
the Bureau finds are necessary or proper to effectuate the purposes of
TILA, to prevent circumvention or evasion thereof, or to facilitate
compliance. This amendment clarified the authority to exercise TILA
section 105(a) to prescribe requirements beyond those specifically
listed in the statute that meet the standards outlined in section
105(a). The Dodd-Frank Act also clarified the Bureau's rulemaking
authority over certain high-cost mortgages pursuant to section 105(a).
As amended by the Dodd-Frank Act, TILA section 105(a) authority to make
adjustments and exceptions to the requirements of TILA applies to all
transactions subject to TILA, except with respect to the provisions of
TILA section 129 \105\ that apply to the high-cost mortgages referred
to in TILA section 103(bb), 15 U.S.C. 1602(bb). For the reasons
discussed in this notice, the Bureau is proposing regulations to carry
out TILA's purposes and is proposing such additional requirements,
adjustments, and exceptions as, in the Bureau's judgment, are necessary
and proper to carry out the purposes of TILA, prevent circumvention or
evasion thereof, or to facilitate compliance. In developing these
aspects of the proposal pursuant to its authority under TILA section
105(a), the Bureau has considered the purposes of TILA, including
ensuring meaningful disclosures, facilitating consumers' ability to
compare credit terms, and helping consumers avoid the uninformed use of
credit, and the findings of TILA, including strengthening competition
among financial institutions and promoting economic stabilization.
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\105\ 15 U.S.C. 1639. TILA section 129 contains requirements for
certain high-cost mortgages, established by the Home Ownership and
Equity Protection Act (HOEPA), which are commonly called HOEPA
loans.
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TILA section 105(f). Section 105(f) of TILA, 15 U.S.C. 1604(f),
authorizes the Bureau to exempt from all or part of TILA any class of
transactions if the Bureau determines that TILA coverage does not
provide a meaningful benefit to consumers in the form of useful
information or protection. In exercising this authority, the Bureau
must consider the factors identified in section 105(f) of TILA and
publish its rationale at the time it proposes an exemption for public
comment. Specifically, the Bureau must consider:
[[Page 51131]]
(a) The amount of the loan and whether the disclosures, right of
rescission, and other provisions provide a benefit to the consumers who
are parties to such transactions, as determined by the Bureau;
(b) The extent to which the requirements of this subchapter
complicate, hinder, or make more expensive the credit process for the
class of transactions;
(c) The status of the borrower, including--
(1) Any related financial arrangements of the borrower, as
determined by the Bureau;
(2) The financial sophistication of the borrower relative to the
type of transaction; and
(3) The importance to the borrower of the credit, related
supporting property, and coverage under this subchapter, as determined
by the Bureau;
(d) Whether the loan is secured by the principal residence of the
consumer; and
(e) Whether the goal of consumer protection would be undermined by
such an exemption.
For the reasons discussed in this notice, the Bureau is proposing to
exempt certain transactions from the requirements of TILA pursuant to
its authority under TILA section 105(f). In developing this proposal
under TILA section 105(f), the Bureau has considered the relevant
factors and determined that the proposed exemptions may be appropriate.
TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA
to add new section 129B(e), 15 U.S.C. 1639B(e). That section authorizes
the Bureau to prohibit or condition terms, acts, or practices relating
to residential mortgage loans on a variety of bases, including when the
Bureau finds the terms, acts, or practices are not in the interest of
the borrower. In developing proposed rules under TILA section 129B(e),
the Bureau has considered whether the proposed rules are in the
interest of the borrower, as required by the statute. For the reasons
discussed in this notice, the Bureau is proposing portions of this rule
pursuant to its authority under TILA section 129B(e).
Real Estate Settlement Procedures Act
Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to
prescribe such rules and regulations and to make such interpretations
and grant such reasonable exemptions for classes of transactions as may
be necessary to achieve the purposes of RESPA. One purpose of RESPA is
to effect certain changes in the settlement process for residential
real estate that will result in more effective advance disclosure to
home buyers and sellers of settlement costs. RESPA section 2(b); 12
U.S.C. 2601(b). In addition, in enacting RESPA, Congress found that
consumers are entitled to be ``provided with greater and more timely
information on the nature and costs of the settlement process and [to
be] protected from unnecessarily high settlement charges caused by
certain abusive practices * * *'' RESPA section 2(a); 12 U.S.C.
2601(a). In the past, section 19(a) has served as a broad source of
authority to prescribe disclosures and substantive requirements to
carry out the purposes of RESPA.
In developing proposed rules under RESPA section 19(a) for this
proposal, the Bureau has considered the purposes of RESPA, including to
cause changes in the settlement process that will result in more
effective advance disclosure of settlement costs. For the reasons
discussed in this notice, the Bureau is proposing portions of this rule
pursuant to its authority under RESPA section 19(a).
Dodd-Frank Act
Dodd-Frank Act section 1021. Section 1021(a) of the Dodd-Frank Act
provides that the Bureau shall seek to implement and, where applicable,
enforce Federal consumer financial law consistently for the purpose of
ensuring that all consumers have access to markets for consumer
financial services and that markets for consumer financial products and
services are fair, transparent, and competitive. 12 U.S.C. 5511(a). In
addition, section 1021(b) of the Dodd-Frank Act provides that the
Bureau is authorized to exercise its authorities under Federal consumer
financial law for the purposes of ensuring that, with respect to
consumer financial products and services: (1) Consumers are provided
with timely and understandable information to make responsible
decisions about financial transactions; (2) consumers are protected
from unfair, deceptive, or abusive acts and practices and from
discrimination; (3) outdated, unnecessary, or unduly burdensome
regulations are regularly identified and addressed in order to reduce
unwarranted regulatory burdens; (4) Federal consumer financial law is
enforced consistently, without regard to the status of a person as a
depository institution, in order to promote fair competition; and (5)
markets for consumer financial products and services operate
transparently and efficiently to facilitate access and innovation. 12
U.S.C. 5511(b).
Accordingly, this proposal is consistent with the purposes of Dodd-
Frank Act section 1021(a) and with the objectives of Dodd-Frank Act
section 1021(b), specifically including Dodd-Frank Act section
1021(b)(1) and (3).
Dodd-Frank Act section 1022(b). Section 1022(b)(1) of the Dodd-
Frank Act authorizes the Bureau to prescribe rules ``as may be
necessary or appropriate to enable the Bureau to administer and carry
out the purposes and objectives of the Federal consumer financial laws,
and to prevent evasions thereof[.]'' 12 U.S.C. 5512(b)(1). Section
1022(b)(2) of the Dodd-Frank Act prescribes certain standards for
rulemaking that the Bureau must follow in exercising its authority
under section 1022(b)(1). 12 U.S.C. 5512(b)(2). As discussed above,
TILA and RESPA are Federal consumer financial laws. Accordingly, the
Bureau proposes to exercise its authority under Dodd-Frank Act section
1022(b) to prescribe rules under TILA and RESPA that carry out the
purposes and prevent evasion of those laws. See part VII for a
discussion of the Bureau's standards for rulemaking under Dodd-Frank
Act section 1022(b)(2).
Dodd-Frank Act section 1032(a). Section 1032(a) of the Dodd-Frank
Act provides that the Bureau ``may prescribe rules to ensure that the
features of any consumer financial product or service, both initially
and over the term of the product or service, are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.'' 12
U.S.C. 5532(a). The authority granted to the Bureau in section 1032(a)
is broad, and empowers the Bureau to prescribe rules regarding the
disclosure of the ``features'' of consumer financial products and
services generally. Accordingly, the Bureau may prescribe rules
containing disclosure requirements even if other Federal consumer
financial laws do not specifically require disclosure of such features.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to section 1032, the Bureau ``shall consider available
evidence about consumer awareness, understanding of, and responses to
disclosures or communications about the risks, costs, and benefits of
consumer financial products or services.'' 12 U.S.C. 5532(c).
Accordingly, in developing proposed rules under Dodd-Frank Act section
1032(a) for this proposal, the Bureau has considered available studies,
reports, and other evidence about consumer
[[Page 51132]]
awareness, understanding of, and responses to disclosures or
communications about the risks, costs, and benefits of consumer
financial products or services. See parts II and III, above. Moreover,
the Bureau has considered the evidence developed through its consumer
testing of the integrated disclosures as well as prior testing done by
the Board and HUD regarding TILA and RESPA disclosures. See part III
for a discussion of the Bureau's testing. For the reasons discussed in
this notice, the Bureau is proposing portions of this rule pursuant to
its authority under Dodd-Frank Act section 1032(a).
In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any
final rule prescribed by the Bureau under this [section 1032] requiring
disclosures may include a model form that may be used at the option of
the covered person for provision of the required disclosures.'' 12
U.S.C. 5532(b)(1). Any model form issued pursuant to that authority
shall contain a clear and conspicuous disclosure that, at a minimum,
uses plain language that is comprehensible to consumers, using a clear
format and design, such as readable type font, and succinctly explains
the information that must be communicated to the consumer. Dodd-Frank
Act 1032(b)(2); 12 U.S.C. 5532(b)(2). As discussed in the section-by-
section analysis for proposed Sec. Sec. 1026.37(o) and 1026.38(t), the
Bureau is proposing certain model disclosures for transactions subject
to TILA, and standard forms for transactions subject to both TILA and
RESPA. For the reasons discussed in this notice, the Bureau is
proposing these model disclosures pursuant to its authority under Dodd-
Frank Act section 1032(b).
Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank
Act provides that, ``[n]otwithstanding any other provision of [title 14
of the Dodd-Frank Act], in order to improve consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures, the Bureau may, by rule, exempt from or
modify disclosure requirements, in whole or in part, for any class of
residential mortgage loans if the Bureau determines that such exemption
or modification is in the interest of consumers and in the public
interest.'' 15 U.S.C. 1601 note. Section 1401 of the Dodd-Frank Act,
which amends TILA section 103(cc)(5), 15 U.S.C. 1602(cc)(5), generally
defines residential mortgage loan as any consumer credit transaction
that is secured by a mortgage on a dwelling or on residential real
property that includes a dwelling other than an open-end credit plan or
an extension of credit secured by a consumer's interest in a timeshare
plan. Notably, the authority granted by section 1405(b) applies to
``disclosure requirements'' generally, and is not limited to a specific
statute or statutes. Accordingly, Dodd-Frank Act section 1405(b) is a
broad source of authority to modify the disclosure requirements of TILA
and RESPA.
In developing proposed rules for residential mortgage loans under
Dodd-Frank Act section 1405(b) for this proposal, the Bureau has
considered the purposes of improving consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures, and the interests of consumers and the
public. For the reasons discussed in this notice, the Bureau is
proposing portions of this rule pursuant to its authority under Dodd-
Frank Act section 1405(b).
V. Mandatory Compliance
A. Implementation Period
As discussed in part II.E above, the Bureau is proposing rules and
disclosures that combine the pre-consummation disclosure requirements
of TILA and sections 4 and 5 of RESPA, not later than July 21, 2012,
consistent with the requirements of sections 1032(f), 1098, and 1100A
of the Dodd-Frank Act. 12 U.S.C. 2603(a); 5532(f); 15 U.S.C. 1604(b).
The Dodd-Frank Act does not impose a deadline for issuing final rules
and disclosures in connection with this mandate to integrate disclosure
requirements or provide a specific amount of time for entities subject
to those rules to come into compliance.
As discussed in part II, above, the Dodd-Frank Act establishes two
goals for the TILA-RESPA mortgage disclosure integration: To improve
consumer understanding of mortgage loan transactions; and to facilitate
industry compliance with TILA and RESPA. Dodd-Frank Act sections 1098
and 1100A. The Bureau must balance these statutory objectives in
considering the length of the implementation period. The Bureau
believes requiring industry to implement the requirements of the final
rule as soon as practicable after its issuance will benefit consumers
by expediting the use of the integrated disclosure forms, which will
improve consumer understanding of mortgage loan transactions. At the
same time, the Bureau recognizes that the creditors, mortgage brokers,
settlement agents, and other entities affected by the proposed rule
will incur one-time compliance costs, such as software upgrades to
generate the integrated disclosure forms, training staff and related
parties to use the new disclosure forms, updating compliance systems
and processes, and obtaining legal guidance.\106\ Consequently, the
Bureau believes that a reasonable implementation period would help
facilitate compliance and potentially reduce the one-time costs that
may be incurred by the entities affected by the rule.
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\106\ These one-time costs are discussed in the section 1022
analysis in part VII, below, with respect to covered persons as
defined for purposes of the Dodd-Frank Act, and the initial
regulatory flexibility analysis in part VIII, below, with respect to
small entities as defined for purposes of the Regulatory Flexibility
Act (RFA).
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The Bureau is mindful that small entities \107\ may face unique
challenges in complying with the rule. During the SBREFA Small Business
Review Panel process,\108\ the Small Business Review Panel received
feedback from small entity representatives requesting that the Bureau
provide a substantial compliance period after issuance of the final
rule. The small entity representatives reported that they anticipated
significant one-time software upgrade and training costs, though their
estimates varied greatly, and they generally stated that these costs
would be less burdensome if the Bureau provided a substantial
compliance period to upgrade systems and to train staff. The small
entity representatives requested a variety of implementation periods,
however.\109\ As detailed in the Panel Report, the Panel recommended
that the Bureau provide a compliance period that permits sufficient
time for small entities to make necessary system upgrades and provide
training, and that the Bureau solicit public comment on the amount of
time needed for such upgrades and training.\110\ Moreover, industry
feedback generally in response to the Bureau's Small Business Review
Panel process stated that an implementation period for the final rule
should provide sufficient time for training, systems development, and
the operational changes that the rule will necessitate.
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\107\ The term ``small entities'' means those entities defined
as small entities for purposes of the RFA, as discussed further in
part VIII, below. The terms ``large entities'' or ``larger
entities'' refer to all entities that are not small entities as
defined for purposes of the RFA.
\108\ See part VIII.A, below, for a discussion of the Bureau's
Small Business Review Panel process.
\109\ Small Business Review Panel Report, at 19. As noted in
chapter 8.1 of the Panel Report, the small entity representatives
generally asked for an implementation period ranging from 12 to 18
months.
\110\ See id. at p. 27.
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In feedback provided during the SBREFA process and through other
[[Page 51133]]
industry outreach, lenders, mortgage brokers, settlement agents, and
forms vendors, as well as several trade associations representing
lenders, brokers, and settlement agents, requested an implementation
period of at least 12 months. Because the TILA-RESPA final rule will
provide important benefits to consumers, the Bureau wishes to make the
rule effective as soon as possible. However, the Bureau understands
that the final rule will require lenders, mortgage brokers, and
settlement agents to make extensive revisions to their software and to
retrain their staff. In addition, some entities will be required to
implement other Dodd-Frank Act provisions, which are subject to
separate rulemaking deadlines under the statute and will have separate
effective dates. Therefore, the Bureau is seeking comment on how much
time industry needs to make these changes, and specifically requests
details on the required updates and changes to systems and other
measures that would be required to implement the rule and the amount of
time needed to make those changes.
Furthermore, in light of the feedback provided by small entity
representatives during the SBREFA process, as reflected in the Panel
Report of the Small Business Review Panel, the Bureau solicits comment
on whether small entities affected by the rule should have more time to
comply with the final rule than larger entities. In soliciting comment
on this issue, however, the Bureau notes its concern that a bifurcated
implementation period could be detrimental to consumers. During any
period where only larger entities must comply with the final rule,
consumers potentially would receive different disclosures and be
subject to different sets of consumer protections depending on their
choice of creditor, mortgage broker, or settlement agent. In addition,
larger entities that are subject to the final rule and that purchase
loans from small entities may nevertheless insist that small entities
comply with the final rules. See, e.g., Small Business Review Panel
Report at 30 (discussing recordkeeping requirements). Accordingly,
based on the Small Business Review Panel recommendation, the Bureau
solicits comment on whether any separate compliance period for larger
entities should take into account the relationship between larger and
smaller entities.
B. Delayed Effective Dates of Certain Disclosure Requirements
Established by Title XIV of the Dodd-Frank Act
As discussed above, the Bureau is proposing rules and disclosures
that combine the pre-consummation disclosure requirements of TILA and
sections 4 and 5 of RESPA, not later than July 21, 2012, consistent
with the requirements of section 1032(f) of the Dodd-Frank Act. 12
U.S.C. 5532(f). The Dodd-Frank Act does not impose a deadline for
issuing final rules and disclosures.
In addition to this integrated disclosure requirement in title X,
various provisions of title XIV of the Dodd-Frank Act amend TILA,
RESPA, and other consumer financial laws to impose new pre-consummation
disclosure requirements for mortgage transactions. These provisions
generally require disclosure of certain information when a consumer
applies for a mortgage loan or shortly before consummation of the loan,
around the same time that consumers will receive the integrated TILA-
RESPA disclosures required by section 1032(f) of the Dodd-Frank Act. If
regulations that are required to implement the disclosure requirements
in title XIV are not prescribed in final form within eighteen months
after the designated transfer date (i.e., by January 21, 2013),
institutions must comply with the statutory requirements on that date.
Dodd-Frank Act section 1400(c)(3); 15 U.S.C. 1601 note.
The Bureau believes that implementing a single, consolidated
disclosure that satisfies section 1032(f) and certain of the disclosure
requirements in title XIV of the Dodd-Frank Act will benefit consumers
and facilitate compliance with TILA and RESPA. That is, the Bureau
believes that both consumers and industry will benefit by incorporating
many of the disclosure requirements in title XIV into this proposal
(collectively, the ``Affected Title XIV Disclosures''). Consumers will
benefit from a consolidated disclosure that conveys loan terms and
costs to consumers in a coordinated way. Lenders and settlement agents
will benefit by integrating two sets of overlapping disclosures into a
single form and by avoiding regulatory burden associated with revising
systems and practices multiple times. However, given the broad scope
and complexity of this rulemaking and the 120-day comment period
provided by this proposal, a final rule will not be issued by January
21, 2013. Absent a final implementing rule, institutions would have to
comply with the Affected Title XIV Disclosures on that date due to the
statutory requirement that any section of title XIV for which
regulations have not been issued by January 21, 2013 shall take effect
on that date. This likely would result in widely varying approaches to
compliance in the absence of regulatory guidance, creating confusion
for consumers, and would impose a significant burden on industry. For
example, this could result in a consumer who shops for a mortgage loan
receiving different disclosures from different creditors. Such
disclosures would not only be unhelpful to consumers, but likely would
be confusing since the same disclosures would be provided in widely
different ways. Moreover, implementing the title XIV disclosures
separately from the integrated TILA-RESPA disclosure would increase
compliance costs and burdens on industry. Nothing in the Dodd-Frank Act
itself or its legislative history suggests that Congress contemplated
how the separate requirements in titles X and XIV would work
together.\111\
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\111\ Certain of the Affected Title XIV Disclosures highlight
that Congress did not intend for the title XIV disclosure
requirements and the integrated TILA-RESPA disclosure to operate
independently. For example, Dodd-Frank Act section 1419 amended
paragraphs (a)(16) through (19) of TILA section 128 to require
additional content on the disclosure provided to consumers within
three days of application and in final form at or before
consummation. 15 U.S.C. 1638(a)(16) through (19). Pursuant to TILA
section 128(b)(1), for residential mortgage transactions, all
disclosures required by TILA section 128(a) must be ``conspicuously
segregated'' from all other information provided in connection with
the transaction. 15 U.S.C. 1638(b)(1). Therefore, these sections are
directly implicated by the integrated TILA-RESPA requirement.
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Accordingly, and for the further reasons set forth below, the
Bureau proposes to implement the Affected Title XIV Disclosures by
delaying those requirements by temporarily exempting entities from the
requirement to comply on January 21, 2013, until a final rule
implementing the integrated TILA-RESPA disclosures take effect,
pursuant to the Bureau's authority under TILA section 105(a), RESPA
section 19(a), Dodd-Frank Act section 1032(a) and, for residential
mortgage loans, Dodd-Frank Act section 1405(b). 15 U.S.C. 1604(a); 12
U.S.C. 2617(a); 12 U.S.C. 5532(a); 15 U.S.C. 1601 note. Implementing
the Affected Title XIV Disclosures as part of the broader integrated
TILA-RESPA rulemaking, rather than issuing rules implementing each
requirement individually or allowing those statutory provisions to take
effect by operation of law, will improve the overall effectiveness of
the integrated disclosure for consumers and reduce burden on industry.
The Bureau will issue a final
[[Page 51134]]
rule finalizing the proposed delay prior to January 21, 2013.
Specifically, as set forth in the section-by-section analysis to
proposed Sec. 1026.1(c), the Bureau proposes to delay those
requirements by temporarily exempting entities from the requirement to
comply on January 21, 2013. This is, in effect, a delay of the
effective date of the following statutory provisions:
Warning regarding negative amortization features. Dodd-
Frank Act section 1414(a); TILA section 129C(f)(1).\112\
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\112\ Dodd-Frank Act section 1414(a) also added to TILA new
section 129C(f)(2), which requires first-time borrowers for certain
residential mortgage loans that could result in negative
amortization to provide the creditor with documentation to
demonstrate that the consumer received homeownership counseling from
organizations or counselors certified by HUD. That provision is
implemented in the Bureau's 2012 HOEPA Proposal, which also
implements the requirement of RESPA section 5(c), added by section
1450 of the Dodd-Frank Act, that lenders provide borrowers with a
list of certified homeownership counselors.
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Disclosure of State law anti-deficiency protections. Dodd-
Frank Act section 1414(c); TILA section 129C(g)(2) and (3).
Disclosure regarding creditor's partial payment policy.
Dodd-Frank Act section 1414(d); TILA section 129C(h).
Disclosure regarding mandatory escrow accounts. Dodd-Frank
Act section 1461(a); TILA section 129D(h).
Disclosure regarding waiver of escrow at consummation.
Dodd-Frank Act section 1462; TILA section 129D(j)(1)(A).
Disclosure of monthly payment, including escrow, at
initial and fully-indexed rate for variable-rate transactions. Dodd-
Frank Act section 1419; TILA section 128(a)(16).
Repayment analysis disclosure to include amount of escrow
payments for taxes and insurance. Dodd-Frank Act section 1465; TILA
128(b)(4).
Disclosure of settlement charges and fees and the
approximate amount of the wholesale rate of funds. Dodd-Frank Act
section 1419; TILA section 128(a)(17).
Disclosure of mortgage originator fees. Dodd-Frank Act
section 1419; TILA section 128(a)(18).
Disclosure of total interest as a percentage of principal.
Dodd-Frank Act section 1419; TILA section 128(a)(19).
Optional disclosure of appraisal management company fee.
Dodd-Frank Act section 1475; RESPA section 4(c).
The Bureau is not proposing to delay the effective date for the
following disclosure requirements found in title XIV of the Dodd-Frank
Act, and therefore these provisions are not Affected Title XIV
Disclosures for purposes of this discussion. These provisions will be
implemented in separate rulemakings, which are expected to be proposed
in summer 2012 and finalized by January 21, 2013, with the specific
effective dates set out in the final rules for those specific
rulemakings.
Disclosure regarding notice of reset of hybrid adjustable
rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(a).
The Bureau does not propose to delay this requirement because it
applies, for the most part, to the period after consummation.
Loan originator identifier requirement. Dodd-Frank section
1402(a)(2); TILA section 129B(b)(1)(B). The Bureau does not propose to
delay this requirement because it applies broadly to ``loan
documents.'' In the integrated TILA-RESPA final rule, the Bureau will
harmonize the loan originator identifier provisions of this proposal
with the separate rulemaking implementing TILA section 129B(b)(1)(B).
Disclosure regarding waiver of escrow after consummation.
Dodd-Frank Act section 1462; TILA section 129D(j)(1)(B). The Bureau
does not propose to delay this requirement because it applies to the
period after consummation and because it will be implemented by final
rule pursuant to an outstanding proposal published by the Board. 76 FR
11598 (Mar. 2, 2011).
Consumer notification regarding appraisals for higher-risk
mortgages. Dodd-Frank Act section 1471; TILA section 129H(d). The
Bureau does not propose to delay this requirement because it overlaps
substantially with an existing disclosure requirement under ECOA (see
below) and must be implemented through an interagency rulemaking. In
the integrated TILA-RESPA final rule, the Bureau plans to harmonize the
appraisal notification provisions of this proposal with the separate
rulemaking implementing TILA section 129H(d), so that once the
integrated form is finalized creditors will be able to use the
integrated forms to satisfy the 129H(d) requirement.
Consumer notification regarding the right to receive an
appraisal copy. Dodd-Frank Act section 1474; ECOA section 701(e)(5).
The Bureau does not propose to delay this requirement because it
replaces an existing disclosure requirement under ECOA that is
typically provided separately from other disclosures. In the integrated
TILA-RESPA final rule, the Bureau will harmonize the provisions with
the separate rulemaking implementing ECOA section 701(e)(5), so that
once the integrated form is finalized creditors will be able to use it
to satisfy the ECOA requirement.
As discussed in the section-by-section analysis to proposed Sec.
1026.19, the integrated disclosure provisions of this proposal apply to
closed-end transactions secured by real property, other than reverse
mortgages as defined in Sec. 1026.33(a). However, under the statute,
the Affected Title XIV Disclosures vary in scope and are in some cases
broader than the scope of the proposed integrated disclosure
provisions.\113\ For example, certain of the Affected Title XIV
Disclosures apply to open-end credit plans,\114\ transactions secured
by dwellings that are not real property,\115\ and/or reverse
mortgages,\116\ which are not the subject of this rulemaking. However,
because the final scope of the integrated disclosure provisions is not
yet known, the Bureau is proposing to delay the Affected Title XIV
Disclosures to the fullest extent those requirements could apply under
the statutory provisions. However, the Bureau also solicits comment on
whether the final rule implementing the integrated disclosures should
implement the Affected Title
[[Page 51135]]
XIV Disclosures for open-end credit plans, transactions secured by
dwellings that are not real property, and reverse mortgages, as
applicable, by requiring creditors to comply with the proposed
provisions that implement those disclosure requirements.
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\113\ Except as described below, the Affected Title XIV
Disclosures apply to ``residential mortgage loans,'' which are
defined in TILA section 103(cc)(5). 15 U.S.C. 1602(cc)(5). TILA
section 129C(f)(1) (requiring a negative amortization warning)
applies to open- or closed-end consumer credit plans secured by a
dwelling. 15 U.S.C. 1639c(f)(1). TILA section 129D(h) (disclosure
regarding mandatory escrow accounts) applies to consumer credit
transactions secured by a first lien on the principal dwelling of
the consumer, other than open-end credit plans and reverse
mortgages. 15 U.S.C. 1639d(h). TILA section 129D(j)(1)(A) applies to
consumer credit transactions secured by real property. 15 U.S.C.
1639d(j)(1)(A). TILA section 128(b)(4) (requiring escrow amounts to
be included in the repayment analysis disclosure) applies to
consumer credit transactions secured by a first lien on the
consumer's principal dwelling, other than open-end plans or reverse
mortgages. 15 U.S.C. 1638(b)(4). RESPA section 4(c) (permitting an
appraisal management fee disclosure) applies to ``federally related
mortgage loans.'' 12 U.S.C. 2603(c). To the extent these statutory
provisions do not cover transactions that are within the scope of
the integrated disclosure provisions of this proposal (e.g., vacant
land), the Bureau is proposing to modify the statutory requirements
to cover those transactions. See the section-by-section analysis to
proposed Sec. 1026.19.
\114\ The following Affected Title XIV Disclosures apply to
open-end credit plans: TILA section 129C(f) (negative amortization
warning); TILA section 129D(j)(1)(A) (disclosure regarding waiver of
escrow at consummation); RESPA section 4(c) (appraisal management
company fee disclosure).
\115\ All of the Affected Title XIV Disclosures, other than TILA
section 129D(j)(1)(A) (disclosure regarding waiver of escrow at
consummation) and RESPA section 4(c) (appraisal management company
fee disclosure), apply to transactions secured by dwellings that are
not real property.
\116\ All of the Affected Title XIV Disclosures, other than TILA
section 128(b)(4) (requiring repayment analysis to include escrow)
and TILA section 12D(h) (mandatory escrow or impound account
disclosure), apply to reverse mortgages.
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Improving Overall Effectiveness of Disclosures
Issuing final rules implementing the Affected Title XIV Disclosures
at the same time as the integrated TILA-RESPA final rule will improve
the overall effectiveness of the integrated disclosure. One of TILA's
primary purposes is to ``assure a meaningful disclosure of credit terms
* * * and avoid the uninformed use of credit.'' TILA section 102(a); 15
U.S.C. 1601(a). Similarly, one purpose of RESPA is to improve advance
disclosure of settlement costs. RESPA section 2(b)(1); 12 U.S.C.
2601(b)(1). As discussed above, however, TILA, RESPA, and current
Regulations Z and X generally require that consumers receive two
separate disclosures after applying for a mortgage loan, and then
receive two additional separate disclosures prior to closing on that
loan. Concerns have been raised that duplicative disclosures may reduce
consumer understanding of mortgage loan transactions and increase
burden on industry. Thus, when viewed together, the duplicative
disclosures required by TILA and RESPA may inhibit consumers'
understanding of their loans. Section 1032(f) of the Dodd-Frank Act
addresses these concerns by directing the Bureau to integrate these
disclosure requirements to improve consumer understanding of mortgage
disclosures.
This same rationale supports delaying the requirements of the
Affected Title XIV Disclosures until such time as the Bureau issues a
final rule implementing the broader TILA-RESPA integration.
Incorporating the Affected Title XIV Disclosures will enable the Bureau
to use the results of its consumer testing and public feedback to
develop forms that include these pre-consummation disclosures in a way
that could improve overall consumer understanding of mortgage loan
transactions. Implementing the Affected Title XIV Disclosures in
isolation could have the opposite effect, by multiplying the number of
individual disclosures that consumers receive, thereby reducing the
likelihood that consumers will focus on any of them.
Through consumer testing, the Bureau has specifically examined how
the required disclosures should work together on the integrated
disclosure to maximize consumer understanding. For example, in its
consumer testing of the integrated disclosures, the Bureau tested and
solicited public feedback on clauses related to the Affected Title XIV
Disclosures to determine how the language will be understood by
consumers, both separately and in the context of the overall form.
The Bureau estimates that, by incorporating Affected Title XIV
Disclosures that would otherwise be provided separately, the total page
count for pre-consummation TILA and RESPA disclosures would be reduced
by as much as 50 percent. The Bureau believes that this reduction will
not only improve consumer understanding of mortgage transactions, but
also facilitate compliance as discussed below. Consumer testing also
indicates that some disclosures are either not helpful or are
detrimental to consumer understanding; as discussed in the section-by-
section analysis below, the Bureau proposes to use its authority to
modify these disclosures to enhance consumer understanding.
Facilitating Compliance by Reducing Regulatory Burden
As noted above, another purpose of the integrated TILA-RESPA
disclosure is to facilitate compliance with the requirements and
purposes of those statutes. TILA section 105(b); 15 U.S.C. 1604(b);
RESPA section 4(a); 12 U.S.C. 2603(a). Delaying the effective date of
the Affected Title XIV Disclosures until a rule implementing the
integrated TILA-RESPA disclosure is final will further this purpose by
reducing regulatory burden. A substantial burden would be imposed if
entities were required to revise their systems and practices twice--
once to comply with the Affected Title XIV Disclosures and again to
comply with the final rule integrating the TILA and RESPA disclosures.
Implementing the changes twice would be particularly burdensome because
compliance with the Affected Title XIV Disclosures will involve
modifying forms and systems, updating compliance manuals, and training
staff regarding the new disclosures.
Implementing the Affected Title XIV Disclosures as part of the
integrated TILA-RESPA rulemaking will reduce regulatory burden by
allowing entities to adopt all the necessary changes at one time.
Implementing a single, consolidated disclosure will also reduce ongoing
regulatory burden because an integrated disclosure is less costly to
provide than a series of disclosures.
Legal Authority
For the reasons discussed above, the Bureau proposes to exercise
its authority under TILA section 105(a) and (f), RESPA section 19(a),
Dodd-Frank section 1032(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to, in effect, delay the effective date of
the Affected Title XIV Disclosures by exempting regulated entities from
these provisions until a final rule implementing Dodd-Frank Act section
1032(f) takes effect. 15 U.S.C. 1604(a); 12 U.S.C. 2617(a); 12 U.S.C.
5532(a); 15 U.S.C. 1601 note. TILA section 105(a) gives the Bureau
authority to adjust or except from the disclosure requirements of TILA
all or any class of transactions to effectuate the purposes of TILA or
facilitate compliance. As set forth above, delaying the Affected Title
XIV Disclosures until such time as a final rule implementing the
integrated TILA-RESPA disclosures takes effect achieves the purpose of
TILA to promote the informed use of credit through a more effective,
consolidated disclosure, and facilitates compliance by reducing
regulatory burden associated with revising systems and practices
multiple times and providing multiple disclosures to consumers.
The Bureau also proposes the exemption pursuant to TILA section
105(f). The Bureau has considered the factors in TILA section 105(f)
and believes that an exemption is appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the importance
of the loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans, regardless of the
amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers.
As discussed above, the Bureau believes that the exemption provides
a benefit to consumers through a more effective, consolidated
disclosure. Absent an exemption, the Affected Title XIV Disclosures
would complicate and hinder the mortgage lending process because
consumers would receive inconsistent disclosures and, likely, numerous
additional pages of Federal disclosures that do not work together in a
meaningful way. The Bureau also believes that the cost of credit would
be increased if the Affected Title XIV Disclosures take effect
independent of the larger TILA-RESPA integration
[[Page 51136]]
because industry would be required to revise systems and practices
multiple times. The Bureau has also considered the status of mortgage
borrowers in issuing the proposed exemptions, and believes the
exemption is appropriate to improve the informed use of credit. The
Bureau does not believe that the goal of consumer protection would be
undermined by the exemption, because of the risk that layering the
Affected Title XIV Disclosures on top of existing mandated disclosures
would lead to consumer confusion. The exemption allows the Bureau to
coordinate the changes in a way that improves overall consumer
understanding of the disclosures.
RESPA section 19(a) provides the Bureau with authority to grant
exemptions from the requirements of RESPA as necessary to achieve the
purposes of RESPA. As discussed above, one purpose of RESPA is to
achieve more effective advance disclosure to home buyers and sellers of
settlement costs. RESPA section 2(b)(1); 12 U.S.C. 2601(b). Delaying
the Affected Title XIV Disclosures until such time as a final rule
implementing the integrated TILA-RESPA disclosures takes effect will
result in a more effective disclosure and improve consumer
understanding and will facilitate compliance by reducing regulatory
burden, as discussed above.
In addition, section 1405(b) of the Dodd-Frank Act gives the Bureau
authority to exempt from or modify disclosure requirements for any
class of residential mortgage loans if the Bureau determines that the
exemption or modification is in the interest of consumers and the
public. As discussed above, implementing the Affected Title XIV
Disclosures with the integrated TILA-RESPA disclosure is in the
interest of consumers because it allows the Bureau to coordinate the
changes in a way that improves overall consumer understanding of the
disclosures. Further, implementing the Affected Title XIV Disclosures
as part of the integrated disclosure rulemaking is in the public
interest because it produces a more efficient regulatory scheme by
incorporating multiple, potentially confusing disclosures into clear
and understandable forms through consumer testing.
Finally, consistent with section 1032(a) of the Dodd-Frank Act,
implementing the Affected Title XIV Disclosures together with the
integrated disclosure would ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances. The Bureau
believes that implementing a single, consolidated disclosure will
benefit consumers and facilitate compliance with TILA and RESPA. For
these reasons, the Bureau is proposing to delay the Affected Title XIV
Disclosures until the Bureau issues a final rule implementing the
integrated TILA-RESPA disclosure required by section 1032(f) of the
Dodd-Frank Act.
The Bureau is proposing to implement the Affected Title XIV
Disclosures in Sec. 1026.1(c), which is discussed further in the
section-by-section analysis below. This proposal, therefore,
incorporates the Affected Title XIV Disclosures as part of the
integrated disclosure. The Bureau views proposed Sec. 1026.1(c) as
prescribing the required rules in final form pursuant to Dodd-Frank Act
section 1400(c)(1)(A) and the effective date of the final rule
implementing the delay of the Affected Title XIV Disclosures as
satisfying Dodd-Frank Act section 1400(c)(1)(B).
The Bureau plans to issue a final rule implementing this exemption
before the statutory provisions take effect in January 2013. For this
reason, the Bureau is providing a comment period of 60 days for the
proposed amendments to Sec. 1026.1(c), rather than the 120-day comment
period provided for all other aspects of this proposed rule other than
Sec. 1026.4, to permit the Bureau to evaluate comments received in
response to this aspect of the proposal before issuing a final rule.
The Bureau plans to issue a final notice that would remove this
regulatory exemption at the time a final rule implementing the
integrated TILA-RESPA disclosure takes effect, but solicits comment on
whether the regulatory exemption should sunset on a specific date.
C. Potential Exemptions from Disclosure Requirements
As discussed in part III, above, one of the Bureau's primary
considerations in developing the integrated disclosures was to minimize
the risk of information overload and enhance consumers' overall
understanding of mortgage loan and real estate transactions. To that
end, the integrated disclosures highlight information that is important
to consumers in comparing and evaluating mortgage loans and deemphasize
information that is secondary to consumer understanding. In addition,
as discussed in the section-by-section analysis, below, the Bureau is
proposing to use its exemption and modification authority to exempt
transactions subject to proposed Sec. 1026.19(e) and (f) from certain
disclosure requirements that consumer testing and research indicate are
confusing and unhelpful to consumers. Specifically, the Bureau is
proposing to use its authority under TILA section 105(a) and (f), Dodd-
Frank Act section 1032(a) and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to omit from the Loan Estimate provided three
business days after receipt of the consumer's application: the amount
financed (TILA section 128(a)(2)), the finance charge (TILA section
128(a)(3)), a statement that the creditor is taking a security interest
in the consumer's property (TILA section 128(a)(9)), a statement that
the consumer should refer to the appropriate contract document for
information about their loan (TILA section 128(a)(12)), a statement
regarding certain tax implications (TILA section 128(a)(15)), and the
creditor's cost of funds (TILA section 128(a)(17)). See the section-by-
section analysis to proposed Sec. 1026.37(l). Although the Bureau is
generally proposing to require these disclosures on the Closing
Disclosure provided three business days prior to consummation, the
Bureau is alternatively proposing to use its exemption and modification
authority to omit the creditor's cost of funds disclosure (TILA section
128(a)(17)) and the total interest percentage disclosure (TILA section
128(a)(19)) from both the Loan Estimate and the Closing Disclosure. See
the section-by-section analysis to proposed Sec. Sec. 1026.37(l) and
1026.38(o).
For these same reasons, the Bureau solicits comment on additional
disclosures that appear on the integrated disclosures that are
unhelpful or potentially confusing to consumers and whether the Bureau
should use its authority under TILA section 105(a) and (f), Dodd-Frank
Act section 1032(a) and, for residential mortgage loans, Dodd-Frank Act
section 1405(b) to exempt transactions subject to proposed Sec.
1026.19(e) and (f) from any such disclosure requirements. The Bureau
believes exempting transactions from those disclosure requirements
would promote the informed use of credit and facilitate compliance,
consistent with TILA section 105(a). For the same reasons, the Bureau
believes such exemptions would be appropriate under TILA section 105(f)
for all affected borrowers, regardless of their other financial
arrangements and financial sophistication and the importance of the
loan to them, and for all affected loans, regardless of the amount of
the loan and whether the loan is secured by the principal residence of
the consumer and
[[Page 51137]]
would simplify the credit process without undermining the goal of
consumer protection or denying important benefits to consumers. Any
such exemption would also ensure that the features of the transaction
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to better understand the costs, benefits,
and risks associated with the mortgage transaction, in light of the
facts and circumstances, consistent with Dodd-Frank Act section
1032(a), and would improve consumer awareness and understanding of
residential mortgage loans, which is in the interest of consumers and
the public, consistent with Dodd-Frank Act section 1405(b).
VI. Section-by-Section Analysis
As discussed above, TILA's mortgage disclosure requirements are
currently implemented in Regulation Z, whereas RESPA's mortgage
disclosure requirements are currently implemented in Regulation X.
Regulation Z contains detailed regulations and guidance regarding
disclosures for mortgage transactions, whereas Regulation X largely
relies on the GFE and HUD-1 forms. The Bureau understands that the
additional detail in Regulation Z facilitates compliance by industry,
which is one of the goals of this rulemaking.\117\ Accordingly, the
Bureau is proposing to establish the integrated disclosure requirements
in Regulation Z, while making conforming and other amendments to
Regulation X.\118\ However, as discussed above, the Bureau solicits
comment on whether the level of detail in the proposed regulations and
guidance (including the number of examples illustrating what is and is
not permitted) will make compliance more, rather than less, burdensome
and whether the Bureau should adopt a less prescriptive approach in the
final rule.
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\117\ For example, the small financial service providers who
advised the Small Business Review Panel stated that ambiguity in the
application or interpretation of the current RESPA disclosure
requirements produces substantial costs in the form of legal fees,
staff training, and, for settlement agents, preparing forms
differently for different lenders. To address this concern, these
providers generally requested that the Bureau provide clear guidance
on how to fill out the forms, similar to that currently provided in
Regulation Z. See Small Business Review Panel Report at 19-20.
\118\ The Bureau is proposing to retain established regulatory
terminology in Regulations X and Z for consistency.
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As discussed in detail below with respect to proposed Sec.
1026.19, certain mortgage transactions that are subject to TILA are not
subject to RESPA and vice versa. As proposed, the integrated mortgage
disclosures would apply to most closed-end consumer credit transactions
secured by real property. Certain types of loans that are currently
subject to TILA but not RESPA (construction-only loans and loans
secured by vacant land or 25 or more acres) would be subject to the
proposed integrated disclosure requirements, whereas others (such as
mobile home loans and other loans that are secured by a dwelling but
not real property) would remain solely subject to the existing
Regulation Z disclosure requirements. Reverse mortgages are excluded
from coverage of the proposed integrated disclosures and would
therefore remain subject to the current Regulation X and Z disclosure
requirements until the Bureau addresses those unique transactions in a
separate, future rulemaking. Finally, consistent with the current rules
under TILA, the integrated mortgage disclosures would not apply to
mortgage loans made by persons who are not ``creditors'' as defined by
Regulation Z (such as persons who make five or fewer mortgage loans in
a year), although such loans would continue to be subject to RESPA.
A. Regulation X
Section 1024.5 Coverage of RESPA
5(a) Applicability
For the reasons discussed below under proposed Sec. 1024.5(c), the
Bureau is proposing to use its authority under RESPA section 19(a) and,
for residential mortgage loans, Dodd-Frank Act section 1405(b) to
exempt certain transactions from the existing RESPA GFE and RESPA
settlement statement requirements of Regulation X. The Bureau therefore
is proposing a conforming amendment to Sec. 1024.5(a) to reflect these
partial exemptions pursuant to the same authority.
5(b) Exemptions
5(b)(1)
Section 1024.5(b)(1) currently exempts from the coverage of RESPA
and Regulation X loans on property of 25 acres or more. The Bureau
believes that most loans that fall into this category are separately
exempt under a provision excluding extensions of credit primarily for
business, commercial, or agricultural purposes, set forth in Sec.
1024.5(b)(2). Accordingly, the Bureau proposes to exercise its
authority under RESPA section 19(a) and, for residential mortgage
loans, Dodd-Frank Act section 1405(b) to eliminate the Regulation X
exemption. This amendment will render the TILA and RESPA regimes more
consistent, which promotes more effective advance disclosure of
settlement costs (which is a purpose of RESPA). In addition, this
consistency will improve consumer awareness and understanding of
transactions involving residential mortgage loans and is therefore in
the interest of consumers and the public, consistent with Dodd-Frank
Act section 1405(b). Because it is unclear whether any mortgages are
exempt based solely on Sec. 1024.5(b)(1), the Bureau solicits comment
on the number of loans that may be affected by this aspect of the
proposal and any reasons for any continued exemption of loans on
property of 25 acres or more.
5(c) Partial Exemptions for Certain Mortgage Loans
As discussed further below, the Bureau proposes to exercise its
authority under RESPA section 19(a), Dodd-Frank Act section 1032(a)
and, for residential mortgage loans, Dodd-Frank Act section 1405(b) to
add new Sec. 1024.5(c), which would exempt two types of federally
related mortgage loans from coverage of the RESPA settlement cost
booklet, GFE, and settlement statement requirements of Sec. Sec.
1024.6, 1024.7, 1024.8, and 1024.10. This partial exemption would apply
to: (1) federally related mortgage loans that are subject to the
integrated disclosures the Bureau is proposing in Regulation Z Sec.
1026.19(e) and (f) and (2) federally related mortgage loans that
satisfy specified criteria associated with certain housing assistance
loan programs for low- and moderate-income persons. As described
further below, these exemptions are designed to create consistency with
the integrated disclosures under Regulation Z and to codify a
disclosure exemption previously granted by HUD. However, the exemptions
would retain coverage of affected loans for all other requirements of
Regulation X, such as the servicing requirements in RESPA section 6,
prohibitions on referral fees and kickbacks in RESPA section 8, and
limits on amounts to be deposited in escrow accounts in RESPA section
10.
5(c)(1)
Pursuant to the authority discussed above, proposed Sec.
1024.5(c)(1) exempts from the RESPA settlement cost booklet, GFE, and
settlement statement requirements of Sec. Sec. 1024.6, 1024.7, 1024.8,
and 1024.10 federally related mortgage loans that are subject to the
special disclosure requirements for certain consumer credit
transactions secured by real property set forth in Regulation Z, under
proposed Sec. 1026.19(e) and (f). As discussed in detail below,
proposed Sec. 1026.19(e) and (f) establishes the integrated
disclosures
[[Page 51138]]
for compliance both with sections 4 and 5 of RESPA and with TILA
disclosures required for mortgage transactions, as mandated by section
1032(f) of the Dodd-Frank Act. Accordingly, compliance with Sec. Sec.
1024.6, 1024.7, 1024.8, and 1024.10 is unnecessary for transactions
that are subject to Sec. 1026.19(e), (f) and (g) of Regulation Z.
Because proposed Sec. 1026.19(e) and (f) governs all closed-end
transactions secured by real property other than reverse mortgages, the
only federally related mortgage loans that will continue to comply with
the Regulation X GFE and settlement statement requirements are reverse
mortgages. The Bureau plans to address the disclosure requirements for
reverse mortgages in a separate later rulemaking, at which time the
Bureau may revise or eliminate the remaining disclosure provisions in
Regulation X.
5(c)(2)
Proposed Sec. 1024.5(c)(2) exempts from the RESPA settlement cost
booklet, GFE, and settlement statement requirements of Sec. Sec.
1024.6, 1024.7, 1024.8, and 1024.10 federally related mortgage loans
that satisfy several criteria associated with certain housing
assistance loan programs for low- and moderate-income persons. This
provision cross-references proposed 12 CFR 1026.3(h), which codifies an
exemption issued by HUD on October 6, 2010.\119\ Under the HUD
exemption, lenders need not provide the GFE and settlement statement
when six prerequisites are satisfied: (1) the loan is secured by a
subordinate lien; (2) the loan's purpose is to finance downpayment,
closing costs, or similar homebuyer assistance, such as principal or
interest subsidies, property rehabilitation assistance, energy
efficiency assistance, or foreclosure avoidance or prevention; (3)
interest is not charged on the loan; (4) repayment of the loan is
forgiven or deferred subject to specified conditions; (5) total
settlement costs do not exceed one percent of the loan amount and are
limited to fees for recordation, application, and housing counseling;
and (6) the loan recipient is provided at or before settlement with a
written disclosure of the loan terms, repayment conditions, and costs
of the loan.
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\119\ See https://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14574.pdf.
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In granting this partial exemption, HUD invoked its authority under
RESPA section 19(a) to grant ``reasonable exemptions for classes of
transactions, as may be necessary to achieve the purposes of [RESPA].''
HUD determined that, for transactions meeting the criteria listed
above, the RESPA GFE and settlement statement forms would be difficult
to complete in a meaningful way and would be likely to confuse
consumers who received them. Moreover, because of the limited, fixed
fees involved with such transactions, the comparison shopping purpose
of the GFE would not be achieved. Finally, the alternative written
disclosure required as a prerequisite of the exemption would ensure
that consumers understand the loan terms and settlement costs charged.
To facilitate compliance, the Bureau is proposing to codify this
exemption in Regulations X and Z for the same reasons and under the
same authority as cited by HUD. In addition, the Bureau relies on its
authority under Dodd-Frank Act section 1405(b) because the proposed
exemption will improve consumer awareness and understanding of
transactions due to these same concerns discussed involving residential
mortgage loans in the identified class of transactions and is therefore
in the interest of consumers and the public.
The Bureau is proposing to adopt this exemption with the same
prerequisites established by HUD. The Bureau seeks comment, however, on
whether the same rationale for the exemption still would exist
regardless of lien position and, therefore, the subordinate lien
position should be eliminated as a requirement for the exemption. The
Bureau also seeks comment concerning the prerequisite that the loan
contract not ``require the payment of interest.'' As noted above, the
exemption as issued by HUD requires that the loan ``carr[y] an interest
rate of -0- percent.'' This wording may be interpreted narrowly to
refer only to the rate of interest stated in the note or loan contract
but not to other requirements or features that may serve as interest
substitutes. For example, such a narrow reading would mean that loans
requiring private mortgage insurance or loans having shared-equity or
shared-appreciation features could qualify for this exemption, provided
the note recites an interest rate of zero percent. The Bureau's
wording, on the other hand, could be interpreted as disallowing such
requirements and features because they are essentially interest
substitutes. The Bureau therefore seeks comment on whether such
requirements and features should be considered ``interest'' and,
therefore, should be impermissible for loans seeking to qualify for
this partial exemption. In addition, the Bureau seeks comment on other
types of loan requirements and features that should be similarly deemed
``interest'' for purposes of this partial exemption. Alternatively, the
Bureau seeks comment on whether this provision should be eliminated.
Appendix A--Instructions for Completing HUD-1 and HUD-1A Settlement
Statements; Sample HUD-1 and HUD-1A Statements
As previously discussed, the Bureau proposes to require creditors
to use the integrated Closing Disclosure required by Sec. Sec.
1026.19(f) and 1026.38 to satisfy the disclosure requirements under
RESPA section 4 for most closed-end transactions covered by RESPA,
except for reverse mortgage transactions. Currently, the manner in
which reverse mortgage transactions are disclosed on the HUD-1 or HUD-
1A under appendix A of Regulation X is a source of confusion for
creditors. HUD attempted to clarify the use of the RESPA settlement
disclosure in reverse mortgage transactions by issuing frequently-asked
questions, the HUD RESPA FAQs, the most recent of which was released on
April 2, 2010. The Bureau proposes to exercise its authority under
RESPA section 19(a) to modify appendix A of Regulation X to incorporate
the guidance provided by the HUD RESPA FAQs because, under the proposed
rule, the closing of reverse mortgage transactions will continue to be
disclosed using the RESPA settlement statement. The proposed revisions
can be found in the instructions for lines 202, 204 and page 3, loan
terms.
The Bureau believes that adopting this guidance will improve the
effectiveness of the disclosures when used for reverse mortgages,
thereby reducing industry confusion and advancing the purpose of RESPA
to provide more effective advanced disclosure of settlement costs to
both the consumer and the seller in the real estate transaction,
consistent with RESPA section 19(a).
Appendix B--Illustrations of Requirements of RESPA
Appendix B to part 1024 contains illustrations of requirements
under RESPA. Illustration 12 provides a factual situation where a
mortgage broker provides origination services to submit a loan to a
lender for approval. The mortgage broker charges the borrower a uniform
fee for the total origination services, as well as a direct up-front
charge for reimbursement of credit reporting, appraisal services, or
similar charges. To address this factual situation, illustration 12
provides a comment that: the mortgage broker's fee
[[Page 51139]]
must be itemized in the Good Faith Estimate and on the HUD-1 Settlement
Statement; other charges that are paid for by the borrower and paid in
advance of consummation are listed as paid outside closing on the HUD-1
Settlement Statement, and reflect the actual provider charge for such
services; and any other fee or payment received by the mortgage broker
from either the lender or the borrower arising from the initial funding
transaction, including a servicing release premium or yield spread
premium, is to be noted on the Good Faith Estimate and listed in the
800 series of the HUD-1 Settlement Statement.
Subsequent to the guidance provided in illustration 12, Regulation
Z Sec. 1026.36(d)(2) was adopted. Section 1026.36(d)(2) states:
If any loan originator receives compensation directly from a
consumer in a consumer credit transaction secured by a dwelling: (i)
No loan originator shall receive compensation, directly or
indirectly, from any person other than the consumer in connection
with the transaction; and (ii) No person who knows or has reason to
know of the consumer-paid compensation to the loan originator (other
than the consumer) shall pay any compensation to a loan originator,
directly or indirectly, in connection with the transaction.
The last sentence in illustration 12 clearly contemplates the loan
originator, a mortgage broker, receiving compensation from the lender
as well as the borrower, which therefore describes a factual situation
prohibited by Sec. 1026.36(d)(2). Accordingly, for consistency with
Sec. 1026.36(d)(2), the Bureau proposes to exercise its authority
under RESPA section 19(a) to delete the last sentence of the comment
provided in illustration 12 in Appendix B to part 1024.
Appendix C--Instructions for Completing Good Faith Estimate (GFE) Form
As previously discussed, the Bureau proposes to require creditors
to use the integrated loan estimate required by Sec. Sec. 1026.19(e)
and 1026.37 to satisfy the disclosure requirements under RESPA section
5 for most closed-end transactions covered by RESPA, except for reverse
mortgage transactions. Currently, the manner in which reverse mortgage
transactions are disclosed on the RESPA GFE under appendix C of
Regulation X is a source of confusion for creditors. HUD clarified the
use of the RESPA GFE in reverse mortgage transactions in the HUD RESPA
FAQs. The Bureau proposes to exercise its authority under RESPA section
19(a) to modify appendix C of Regulation X to incorporate the guidance
provided by the HUD RESPA FAQs because, under the proposed rule,
reverse mortgage transactions will continue to be disclosed using the
RESPA GFE. The proposed revisions can be found in the instructions for
the ``Summary of your loan'' and ``Escrow account information''
sections. The Bureau believes that these revisions satisfy the purpose
of RESPA to provide more effective advanced disclosure of settlement
costs to both the consumer and the seller in the real estate
transaction.
Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement,
and Liability
The Bureau is proposing conforming amendments to Sec. 1026.1 to
reflect the fact that, under this proposal, Regulation Z implements not
only TILA, but also certain provisions of RESPA. The details of the
regulatory implementation of these statutory requirements are discussed
below, under the applicable sections of Regulation Z. To reflect the
expanded statutory scope of Regulation Z, the proposed conforming
amendments revise Sec. 1026.1(a) (authority), (b) (purpose), (d)(5)
(organization of subpart E), and (e) (enforcement and liability) to
include references to the relevant provisions of RESPA.
1(c) Coverage
As discussed in part V.B, the Bureau is proposing to exempt persons
temporarily from the disclosure requirements of sections 128(a)(16)
through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 129C(h),
129D(h), and 129D(j)(1)(A) of TILA and section 4(c) of RESPA, until
regulations implementing the integrated disclosures required by section
1032(f) of the Dodd-Frank Act take effect. 15 U.S.C. 1638(a)(16)-(19),
1638(b)(4), 1639c(f)(1), 1639c(g), 1639c(h), 1639d(h), and
1639d(j)(1)(A); 12 U.S.C. 2604(c); 12 U.S.C. 5532(f). Proposed Sec.
1026.1(c)(5) implements this exemption by stating that no person is
required to provide the disclosures required by the statutory
provisions listed above. Proposed comment 1(c)(5)-1 explains that Sec.
1026.1(c)(5) implements the above-listed provisions of TILA and RESPA
added by the Dodd-Frank Act by exempting persons from the disclosure
requirements of those sections. The comment clarifies that the
exemptions provided in proposed Sec. 1026.1(c)(5) are intended to be
temporary and will apply only until compliance with the regulations
implementing the integrated disclosures required by section 1032(f) of
the Dodd-Frank Act become mandatory. Proposed comment 1(c)(5)-1 also
clarifies that the exemption in proposed Sec. 1026.1(c)(5) does not
exempt any person from any other requirement of Regulation Z,
Regulation X, or of TILA or RESPA. For the reasons discussed in part
V.B, the Bureau is providing a comment period of 60 days for the
proposed amendments to Sec. 1026.1(c). In addition, as discussed above
in part V.B, the Bureau requests comment on whether the exemptions
provided in proposed Sec. 1026.1(c)(5) should expire after a specified
period of time.
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
2(a)(3) Application
Background
Neither TILA nor RESPA defines the term ``application.'' Although
Regulation Z does not define this term, for the good faith estimate
disclosures currently required by Sec. 1026.19(a), Regulation Z
incorporates the Regulation X definition. See comment 19(a)(1)(i)-3.
Section 1024.2(b) of Regulation X defines application as ``the
submission of a borrower's financial information in anticipation of a
credit decision relating to a federally related mortgage loan, which
shall include the borrower's name, the borrower's monthly income, the
borrower's social security number to obtain a credit report, the
property address, an estimate of the value of the property, the
mortgage loan amount sought, and any other information deemed necessary
by the loan originator.'' 12 CFR 1024.2(b). This definition, adopted as
part of HUD's 2008 RESPA Final Rule, was intended to ensure that
consumers received a RESPA GFE containing reliable estimates of
settlement costs early in the process of shopping for a mortgage loan.
However, in response to concerns that a narrow definition of
application might inhibit preliminary underwriting, the definition
adopted by HUD includes seven elements, one of which is ``any other
information deemed necessary by the loan originator.'' HUD added this
``catch-all'' element to enable creditors to collect any additional
information deemed necessary to underwrite a loan.
Concerns With the Current Definition Under Regulation X
While the Bureau believes that creditors should be able to collect
information in addition to the six elements, the Bureau is concerned
that the seventh catch-all element may
[[Page 51140]]
permit creditors to delay providing consumers with the integrated Loan
Estimate. One primary purpose of the integrated Loan Estimate is to
inform consumers of the cost of credit when they have bargaining power
to negotiate for better terms and time to compare other financing
options. It is vital, however, that creditors be able to collect the
information necessary to originate loans in a safe and sound manner.
The Bureau does not believe that these principles conflict. The
definition of application does not define or limit underwriting; it
instead establishes a point in time at which disclosure obligations
begin.
Based on this premise, the definition of ``application'' should
facilitate consumers' ability to receive reliable estimates early in
the loan process, but should not restrict a creditor's ability to
determine which information is necessary for sound underwriting.
Removing the catch-all element from the definition under Regulation X
may ensure that the disclosures are received both early in the loan
process and based on the information most critical to providing
reliable estimates. Consumers would be able to receive the disclosures
as soon as consumers provide creditors with the information needed for
reliable estimation. Creditors would be able to collect whatever
information is, in the creditor's view, necessary for a reasonably
reliable estimate, provided that it collects the additional information
prior to collecting the six pieces of information specified in proposed
Sec. 1026.2(a)(3)(ii), which are the consumer's name, income, and
social security number to obtain a credit report, as well as the
property address, an estimate of the value of the property, and the
mortgage loan amount sought. For example, if a creditor believes that a
reliable estimate cannot be provided without information related to the
consumer's combined current liabilities, the creditor may collect this
information, provided that it does so prior to, or at the same time as,
collecting the six pieces of information specified in Sec.
1026.2(a)(3)(ii). The Bureau acknowledges that creditors could
strategically order information collection in a manner that best suits
the needs of the creditor. Even if the creditor did so, the Bureau
believes that the definition would enable the consumers to receive the
disclosures early in the loan process. This approach may also ensure
that consumers are not required to disclose sensitive information, such
as the consumer's social security number or income, until after the
creditor collects less sensitive information. Thus, removing the
seventh catch-all element, while preserving creditors' ability to
collect any additional necessary information, may strike the
appropriate balance between the needs of consumers and the needs of
industry.
This approach also dovetails with the requirements of proposed
Sec. 1026.19(e) establishing limitations on fee increases for the
purposes of determining good faith, but which are subject to several
exceptions, including exceptions based on the information the creditor
relied on in disclosing the estimated loan costs. Thus, the proposed
definition of application, by requiring creditors to collect any
additional information prior to collecting the six pieces of
information specified in Sec. 1026.2(a)(3)(ii), maintains creditors'
current flexibility in deciding which additional information is
necessary for providing estimates. For example, if a creditor chooses
to collect a consumer's combined liability information prior to
collecting the six pieces of information specified in Sec.
1026.2(a)(3)(ii), the disclosures provided pursuant to Sec. 1026.19(e)
may reflect such information. If the consumer's combined liabilities
subsequently increase, the creditor may issue a revised disclosure
reflecting the change in information relied upon in providing the
original disclosure. If a different creditor chooses to rely on only
the six pieces of information specified in Sec. 1026.2(a)(3)(ii) in
providing the disclosures, but during underwriting information related
to the consumer's combined liabilities is discovered, and such
information requires a revision in loan terms, the creditor may issue a
revised disclosure reflecting such new information not previously
relied on in providing the disclosures. But neither creditor may delay
providing consumers with the disclosures in the first instance by
claiming that additional information related to the consumer's combined
liabilities is required after the consumer has provided the six pieces
of information specified in Sec. 1026.2(a)(3)(ii). Thus, removal of
the seventh catch-all element may achieve the same outcome from the
creditor's perspective as under the current Regulation X definition,
while inhibiting the ability of creditors to delay providing consumers
with the disclosures. This approach has the added benefit of being a
uniform standard for disclosure obligations across all creditors, which
facilitates compliance and supervision.
Accordingly, pursuant to its authority under section 105(a) of TILA
and 19(a) of RESPA, the Bureau is proposing to add Sec.
1026.2(a)(3)(i) to define ``application'' as the submission of a
consumer's financial information for the purposes of obtaining an
extension of credit. Proposed Sec. 1026.2(a)(3)(ii) provides that,
except for purposes of subpart B, subpart F, and subpart G, the term
consists of the consumer's name, income, and social security number to
obtain a credit report, and the property address, an estimate of the
value of the property, and the mortgage loan amount sought. For the
reasons discussed above, removal of the seventh catch-all element from
the definition of application may help carry out the purposes of TILA
by promoting the informed use of credit and achieve the purposes of
RESPA by promoting more effective advance disclosure of settlement
costs by encouraging creditors to provide consumers with good faith
estimates of loan terms and costs earlier in the process.
The Bureau has received feedback, including a comment received in
response to the 2011 Streamlining Proposal, requesting a single
definition of ``application'' under Regulation Z, Regulation B (which
implements the Equal Credit Opportunity Act), and Regulation C (which
implements the Home Mortgage Disclosure Act). The Bureau recognizes the
potential consistency benefits of a single definition. However, for the
reasons discussed above, the Bureau believes that the proposed
definition provides important benefits to consumers in this context.
During the Small Business Panel Review process, several small
entity representatives expressed concern about eliminating the seventh
prong of the definition of application currently under Regulation X.
See Small Business Review Panel Report at 33-34, 49, and 67. Based on
this feedback and consistent with the recommendation of the Small
Business Review Panel, the Bureau solicits comment on what, if any,
additional specific information beyond the six items included under the
proposed definition of application is needed to provide a reasonably
accurate Loan Estimate. See id. at 29.
The proposed definition of application consists of two parts. The
first part establishes a broad definition for all of Regulation Z. The
second part provides that an application consists of six elements of
data. These elements, which are currently set forth in the definition
of application in Regulation X, have an established significance in the
context of closed-end loans secured by real property, but may be less
significant or even inapplicable to other types of credit. Thus, these
six elements
[[Page 51141]]
do not apply to Subpart B (open-end loans), Subpart F (student loans),
and Subpart G (special rules for credit card accounts and open-end
credit offered to college students).
Proposed comment 2(a)(3)-1 explains that a consumer's submission of
financial information is for purposes of obtaining an extension of
credit. A creditor is free to collect information in addition to that
listed in Sec. 1026.2(a)(3)(ii) that it deems necessary in connection
with the request for the extension of credit. However, once a creditor
has received the six listed pieces of information, it has an
application for purposes of Sec. 1026.2(a)(3). The proposed comment
also contains illustrative examples of this provision.
Proposed comment 2(a)(3)-2 clarifies that, if a consumer does not
have a social security number, the creditor may instead request
whatever unique identifier the creditor uses to obtain a credit report.
For example, a creditor has obtained a social security number to obtain
a credit report for purposes of Sec. 1026.2(a)(3)(ii) if the creditor
collects a Tax Identification Number from a consumer who does not have
a social security number, such as a foreign national. This comment is
consistent with guidance provided by HUD in the HUD RESPA FAQs p. 7,
14 (``GFE--General'').
Proposed comment 2(a)(3)-3 clarifies that the creditor's receipt of
a credit report fee does not affect whether an application has been
received. Section 1026.19(a)(1)(iii) permits the imposition of a fee to
obtain the consumer's credit history prior to the delivery of the
disclosures required under Sec. 1026.19(a)(1)(i). Section
1026.19(e)(2)(i)(B) permits the imposition of a fee to obtain the
consumer's credit report prior to the delivery of the disclosures
required under Sec. 1026.19(e)(1)(i). Whether, or when, such fees are
received is irrelevant for the purposes of the definition in Sec.
1026.2(a)(3) and the timing requirements in Sec. 1026.19(a)(1)(i) and
(e)(1)(iii). For example, if, in a transaction subject to Sec.
1026.19(e)(1)(i), a creditor receives the six pieces of information
identified under Sec. 1026.2(a)(3)(ii) on Monday, June 1, but does not
receive a credit report fee from the consumer until Tuesday, June 2,
the creditor does not comply with Sec. 1026.19(e)(1)(iii) if it
provides the disclosures required under Sec. 1026.19(e)(1)(i) after
Thursday, June 4. The three-business-day period beings on Monday, June
1, the date the creditor received the six pieces of information. The
waiting period does not begin on Tuesday, June 2, the date the creditor
received the credit report fee.
2(a)(6) Business Day
Although neither RESPA nor TILA defines ``business day,'' that term
is defined in Regulations X and Z. Both Regulation X Sec. 1024.2(b)
and Regulation Z Sec. 1026.2(a)(6) generally define ``business day''
to mean a day on which the offices of the creditor or other business
entity are open to the public for carrying on substantially all of the
entity's business functions. For certain provisions of Regulation Z,
however, an alternative definition applies. Under this definition,
``business day'' means all calendar days except Sundays and the legal
public holidays specified in 5 U.S.C. 6103(a), i.e., New Year's Day,
the Birthday of Martin Luther King, Jr., Washington's Birthday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
The alternative definition of business day applies to, among other
things, the three-business-day limitation on the imposition of fees in
Sec. 1026.19(a)(1)(ii) and the three- and seven-business-day waiting
periods in Sec. 1026.19(a)(2). As discussed below, the Bureau is
proposing to amend Sec. 1026.19 to implement the integrated disclosure
requirement in section 1032(f) of the Dodd-Frank Act by adding new
paragraphs (e) and (f). Accordingly, for consistency and to facilitate
compliance with TILA, the Bureau is proposing to use its authority
under TILA section 105(a) to amend Sec. 1026.2(a)(6) to apply the
alternative definition of business day to the provisions of paragraphs
(e) and (f) that are analogous to Sec. 1026.19(a)(1)(i), (a)(1)(ii),
and (a)(2). The Bureau also proposes conforming amendments to comment
2(a)(6)-2.
The Bureau recognizes that this issue was previously raised during
the Board's 2008-2009 MDIA rulemaking. See 73 FR 74989 at 74991 (Dec.
10, 2008) and 74 FR 23289 at 23293-23294 (May 19, 2009). However, the
Bureau believes that applying the alternative definition of business
day to the integrated disclosures would facilitate compliance. The
Bureau solicits feedback regarding whether the general definition of
business day instead should apply to the integrated disclosure delivery
requirements. The Bureau also solicits comment on whether the rules
should be analogous to the current rules, where the general business
day requirement applies to some requirements and the alternative
business day requirement applies to other requirements. Finally, the
Bureau seeks feedback regarding whether the business day usage under
current Sec. 1026.19(a) should remain, or if Sec. 1026.19(a) should
be modified to use a single definition of business day consistent with
proposed Sec. 1026.19(e) and (f).
2(a)(17) Creditor
Under current Regulation Z, a person who extended consumer credit
25 or fewer times in the past calendar year, or five or fewer times for
transactions secured by a dwelling, is exempt from the definition of
``creditor.'' See Sec. 1026.2(a)(17)(v). The Bureau's 2011
Streamlining Proposal specifically requested comment on whether these
thresholds should be raised and, if so, to what number of transactions.
In addition, the proposal solicited comment on whether a similar
exemption should be applied to the pre-consummation disclosure
requirements under RESPA that will be integrated with the TILA
requirements pursuant to Dodd-Frank Act section 1032(f). In response,
trade association commenters suggested raising the threshold number of
transactions in order to reduce regulatory burden on more small
lenders. For example, one trade association commenter suggested raising
the threshold number of transactions to 50, regardless of transaction
type. In light of this feedback, the Bureau requests comment on whether
the five-loan exemption threshold is appropriate for transactions
subject to this proposed rule and, if not, what number of transactions
would be appropriate. The Bureau also solicits comment on whether any
transaction-based exemption adopted in this rulemaking should be
applied to the pre-consummation disclosure requirements of sections 4
and 5 of RESPA.
2(a)(25) Security Interest
Pursuant to its authority under TILA section 105(a), the Bureau
proposes a conforming amendment to the definition of ``security
interest'' in current Sec. 1026.2(a)(25). Under the current definition
of security interest, for purposes of the disclosure requirements in
Sec. Sec. 1026.6 and 1026.18, the term does not include an interest
that arises solely by operation of law. For consistency and to
facilitate compliance with TILA, the Bureau's proposed amendment
extends that exemption to disclosures required under proposed
Sec. Sec. 1026.19(e) and (f) and 1026.38(l)(6). The same conforming
amendment would be made to comment 2(a)(25)-2.
[[Page 51142]]
Section 1026.3 Exempt Transactions
The Bureau is proposing a partial exemption from the disclosure
requirements of proposed Sec. 1026.19(e), (f), and (g) for certain
mortgage loans. The Bureau therefore is proposing conforming amendments
to Sec. 1026.3(h) to reflect this exemption. The Bureau is also
proposing amendments to the commentary to Sec. 1026.3(a) to clarify
the current exemption for certain trusts.
3(a) Business, Commercial, Agricultural, or Organizational Credit
TILA section 104(1), 15 U.S.C. 1603(1), excludes from TILA's
coverage extensions of credit to, among others, organizations.
Accordingly, Sec. 1026.3(a)(2) provides that Regulation Z does not
apply to extensions of credit to other than a natural person. The
Bureau is proposing to revise comments 3(a)-9 and -10 to clarify that
credit extended to certain trusts for tax or estate planning purposes
is considered to be extended to a natural person rather than to an
organization and, therefore, is not exempt from the coverage of
Regulation Z under Sec. 1026.3(a)(2).
Existing comment 3(a)-10 discusses land trusts, a relatively
uncommon way of structuring consumer credit in which the creditor holds
title to the property in trust and executes the loan contract as
trustee on behalf of the trust. The comment states that, although a
trust is technically not a natural person, such arrangements are
subject to Regulation Z because ``in substance (if not form) consumer
credit is being extended.'' This proposal amends comment 3(a)-10 to
extend this rationale to more common forms of trusts. Specifically,
proposed comment 3(a)-10 notes that consumers sometimes place their
assets in trust with themselves as trustee(s), and with themselves or
themselves and their families or other prospective heirs as
beneficiaries, to obtain certain tax benefits and to facilitate the
future administration of their estates. Under this proposal, revised
comment 3(a)-10 states that Regulation Z applies to credit that is
extended to such a trust, even if the consumer who is both trustee and
beneficiary executes the loan documents only in the capacity of the
trustee, for the same reason the existing comment notes with respect to
land trusts: Such transactions are extensions of consumer credit in
substance, if not in form. Comment 3(a)-9 would be revised to cross-
reference comment 3(a)-10.
3(h) Partial Exemption for Certain Mortgage Loans
The Bureau is proposing a new Sec. 1026.3(h) to provide an
exemption from proposed Sec. 1026.19(e), (f), and (g) for transactions
that satisfy several criteria associated with certain housing
assistance loan programs for low- and moderate-income persons. As
discussed below, proposed Sec. 1026.19(e) and (f) establishes the
requirement to provide the new integrated disclosures for transactions
secured by real property, other than reverse mortgages, and proposed
Sec. 1026.19(g) establishes the requirement to provide a special
information booklet for those transactions. The partial exemption in
proposed Sec. 1026.3(h) parallels Sec. 1024.5(c)(3), discussed above.
The exemptions are designed to create consistency with Regulation X and
to codify a disclosure exemption previously granted by HUD. Thus, under
the two proposed exemptions, lenders would be exempt from providing the
RESPA-mandated closing cost disclosures for federally related mortgage
loans that satisfy the exemption's conditions, even if the transaction
otherwise would be subject to RESPA.
The Bureau proposes this exemption pursuant to its authority under
TILA section 105(a) and (f), RESPA section 19(a), Dodd-Frank Act
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act
section 1405(b). The Bureau believes that the proposed exemption will
create consistency with Regulation X and therefore facilitate
compliance with TILA and RESPA. In addition, the Bureau believes the
special disclosure requirements that covered persons must meet to
qualify for the proposed exemption will help ensure that the features
of these mortgage transactions are fully, accurately. and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with these mortgage
transactions, consistent with Dodd-Frank Act section 1032(a). The
proposed exemption will also improve consumer awareness and
understanding of transactions involving residential mortgage loans,
which is in the interest of consumers and the public, consistent with
Dodd-Frank Act section 1405(b). The Bureau has considered the factors
in TILA section 105(f) and believes that, for the reasons discussed
above, an exception is appropriate under that provision. Specifically,
the Bureau believes that the proposed exemption is appropriate for all
affected borrowers, regardless of their other financial arrangements
and financial sophistication and the importance of the loan to them.
Similarly, the Bureau believes that the proposed exemption is
appropriate for all affected loans, regardless of the amount of the
loan and whether the loan is secured by the principal residence of the
consumer. Furthermore, the Bureau believes that, on balance, the
proposed exemption will simplify the credit process without undermining
the goal of consumer protection or denying important benefits to
consumers.
The proposed exemption applies only to transactions secured by a
subordinate lien. For the same reasons discussed in the section-by-
section analysis to proposed Sec. 1024.5(c)(3), the Bureau requests
comment on whether the exemption in proposed Sec. 1026.3(h) should
extend to first liens. In addition, for the reasons discussed above,
the Bureau seeks comment on whether requirements and features that may
serve as interest substitutes should be considered ``interest'' and,
therefore, should be impermissible for loans seeking to qualify for
this partial exemption. The Bureau also seeks comment on the types of
loan requirements and features that should be similarly deemed
``interest'' for purposes of this partial exemption. Alternatively, the
Bureau seeks comment on whether such requirements and features should
be permissible within the exemption on the grounds that the disclosure
required by proposed Sec. 1026.3(h)(6) is sufficient to inform
consumers of such loan terms.
Proposed comments provide additional guidance. Proposed comment
3(h)-1 notes that transactions that meet the requirements of Sec.
1026.3(h) are exempt from only the integrated disclosure requirements
and not from any other applicable requirement of Regulation Z. The
comment further clarifies that Sec. 1026.3(h)(6) requires the creditor
to comply with the disclosure requirements of Sec. 1026.18, even if
the creditor would not otherwise be subject to that section because of
proposed Sec. 1026.19(e), (f), and (g). In addition, the comment notes
that the consumer also has the right to rescind the transaction under
Sec. 1026.23, to the extent that provision is applicable.
Proposed comment 3(h)-2 explains that the conditions that the
transaction not require the payment of interest under Sec.
1026.3(h)(3) and that repayment of the amount of credit extended be
forgiven or deferred in accordance with Sec. 1026.3(h)(4) must be
evidenced by terms in the credit contract. The comment further
clarifies that, although the other conditions need not be reflected in
the credit contract, the creditor must retain evidence of compliance
with those requirements, as required by Sec. 1026.25(a). The Bureau
[[Page 51143]]
solicits comment on whether this exemption should be adopted in
Regulation Z.
Section 1026.4 Finance Charge
TILA's Approach to the Finance Charge
Section 106(a) of TILA defines the finance charge as ``the sum of
all charges, payable directly or indirectly by the person to whom the
credit is extended, and imposed directly or indirectly by the creditor
as an incident to the extension of credit,'' excluding charges of a
type payable in a comparable cash transaction. 15 U.S.C. 1605(a).
Despite this broad general definition of the finance charge, TILA
contains numerous exceptions. For example, TILA generally includes in
the finance charge credit insurance and property and liability
insurance charges or premiums, but it also excludes such amounts if
certain conditions are met. 15 U.S.C. 1605(b), (c); TILA section
106(b), (c). TILA also specifically excludes from the finance charge
certain charges related to the perfecting of the security interest, and
various fees in connection with loans secured by real property, such as
title examination fees, title insurance premiums, fees for preparation
of loan-related documents, escrows for future payment of taxes and
insurance, notary fees, appraisal fees, pest and flood-hazard
inspection fees, and credit report fees. 15 U.S.C. 1605(d), (e); TILA
section 106(d), (e). Such amounts would otherwise be included in the
finance charge under the general definition.
Current Regulatory Approach to the Finance Charge
Current Sec. 1026.4 implements TILA section 106 by largely
mirroring the statutory definition of finance charge and the specific
exclusions from that definition. In addition, Sec. 1026.4 contains
certain exclusions from the finance charge that are not specifically
listed in the statute. For example, current Sec. 1026.4(c)
specifically excludes application fees and forfeited interest from the
definition of finance charge, whereas TILA does not.
There are longstanding concerns about the ``some fees in, some fees
out'' approach to the finance charge in TILA and Regulation Z. Early
concerns about the problems with this approach to the finance charge
are outlined in the Board-HUD Joint Report. Board-HUD Joint Report at
10. The Board-HUD Joint Report states that a fundamental problem with
the finance charge is that the ``cost of credit'' has different
meanings from the perspective of the consumer and the creditor. Id.
From the creditor's perspective, the cost of credit may mean the
interest and fee income that the creditor receives in exchange for
providing credit to the consumer. Id. However, the consumer views the
cost of credit as what the consumer pays for the credit, regardless of
the persons to whom such amounts are paid. Id. The current ``some fees
in, some fees out'' approach to the finance charge largely reflects the
creditor's perspective, not the consumer's.
In its 2009 Closed-End Proposal, the Board proposed to broaden the
definition of the finance charge in closed-end transactions secured by
real property or a dwelling, citing the Board-HUD Joint Report and
consumer testing conducted by the Board as support for an expanded
approach to the finance charge. 74 FR 43232, 43243 (Aug. 26, 2009).
First, the Board reasoned that excluding certain fees from the finance
charge undermines the effectiveness of the APR as a measure of the true
cost of credit. Id. Second, the Board's 2009 Closed-End Proposal stated
that the numerous exclusions from the finance charge encourage lenders
to shift the cost of credit to excluded fees. Id. This practice
undermines the usefulness of the APR and has resulted in the creation
of new so-called ``junk fees,'' such as fees for preparing loan-related
documents, which are not part of the finance charge. Third, the Board
cited the complexity of the implementing rules, which create
significant regulatory burden and litigation risk, as support for a
simplified definition of the finance charge. Id.
In light of these concerns about the finance charge, for closed-end
credit transactions secured by real property or a dwelling, the Board's
2009 Closed-End Proposal would have replaced the ``some fees in, some
fees out'' approach to the finance charge with a more inclusive
approach to ensure that the finance charge and corresponding APR
disclosed to consumers provides a more complete and useful measure of
the cost of credit. The Board did not finalize its proposal prior to
the transfer of its TILA rulemaking authority to the Bureau.
The Bureau's Proposal
For the reasons set forth in the Board's 2009 Closed-End Proposal,
discussed above, proposed Sec. 1026.4 revises the test for determining
the finance charge. Except where otherwise noted, the Bureau's proposal
generally mirrors the Board's 2009 Closed-End Proposal. Pursuant to its
authority under TILA section 105(a) and (f), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b), the Bureau is proposing to amend Sec. 1026.4 to replace the
current ``some fees in, some fees out'' approach to the finance charge
with a simpler, more inclusive test based on the general definition of
finance charge in TILA section 106(a). 15 U.S.C. 1601 note; 1604(a),
(f); 12 U.S.C. 5532(a). The proposed changes to Sec. 1026.4 apply to
closed-end transactions secured by real property or a dwelling, and are
not limited to transactions subject to proposed Sec. 1026.19(e) and
(f).
Under proposed Sec. 1026.4, the current exclusions from the
finance charge would be largely eliminated, for closed-end transactions
secured by real property or a dwelling. Specifically, under the
proposed test, a fee or charge is included in the finance charge if it
is (1) ``payable directly or indirectly by the consumer'' to whom
credit is extended, and (2) ``imposed directly or indirectly by the
creditor as an incident to or a condition of the extension of credit.''
However, the finance charge would continue to exclude fees or charges
paid in comparable cash transactions. The proposed rule also retains a
few narrow exclusions from the finance charge. As discussed below,
proposed Sec. 1026.4 continues to exclude from the finance charge late
fees and similar default or delinquency charges, seller's points,
amounts required to be paid into escrow accounts if the amounts would
not otherwise be included in the finance charge, and premiums for
property and liability insurance if certain conditions are met.
The Bureau proposes Sec. 1026.4 pursuant to its authority under
TILA section 105(a) and (f), Dodd-Frank-Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b). The Bureau
has considered the purposes for which it may exercise its authority
under TILA section 105(a) and, based on that review, believes that the
proposed adjustments and exceptions are appropriate. The proposal would
effectuate TILA's purpose by better informing consumers of the total
cost of credit and prevent circumvention or evasion of the statute
through the unbundling or shifting of the cost of credit from items
that are included in the finance charge to fees or charges that are
currently excluded from the finance charge. The Bureau has considered
the factors in TILA section 105(f) and believes that, for the reasons
discussed above, an exception is appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the
[[Page 51144]]
importance of the loan to them. Similarly, the Bureau believes that the
proposed exemption is appropriate for all affected loans, regardless of
the amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. A more inclusive approach to the
finance charge may improve the process of mortgage lending by enhancing
consumer understanding of the finance charge and APR, and will also
reduce compliance costs. The Bureau does not believe that the proposed
exemptions undermine the goal of consumer protection; rather they
promote and are more consistent with the overall purposes of TILA.
Based on that review, the Bureau believes that treating the fees that
are currently exempt as part of the finance charge, for closed-end
transactions secured by real property or a dwelling, is appropriate.
In addition, for the reasons set forth above, the proposed changes
to the finance charge will ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances, consistent
with section 1032(a) of the Dodd-Frank Act. Finally, for closed-end
transactions secured by real property or a dwelling that are also
residential mortgage loans as defined in TILA section 103(cc)(5), the
Bureau proposes Sec. 1026.4 pursuant to its authority under Dodd-Frank
Act section 1405(b). For the reasons set forth above, including
avoiding consumer confusion and preventing the unbundling of the cost
of credit, the Bureau believes this proposed modification may improve
consumer understanding, and therefore is in the interest of consumers
and the public.
Industry feedback in response to the Bureau's Small Business Review
Panel Outline raised concerns about the usefulness of the proposed
expansion of the finance charge in light of the Bureau's proposal to
deemphasize the finance charge and APR in the disclosures provided to
consumers within three days of the consumers' application and prior to
consummation, as discussed below in the section-by-section analysis for
proposed Sec. Sec. 1026.37(l) and 1026.38(o). The Bureau has
considered this feedback in developing the proposed rule, but
nevertheless believes that, in addition to benefiting industry by
simplifying the finance charge and APR calculation, the proposed
approach could provide important benefits to consumers in the form of
an APR that better reflects the true cost of credit. The Bureau intends
to develop supplemental educational materials to further explain how to
use the finance charge and APR in comparing loan costs over the long
term. Accordingly, the Bureau's proposal to remove exclusions from the
finance charge is one of several ways the Bureau intends to improve the
disclosure as a useful measure for consumers.
The Bureau recognizes that the proposed more inclusive finance
charge could affect coverage under other laws, such as higher-priced
mortgage loan and HOEPA protections, and that a more inclusive finance
charge has implications for the HOEPA, Escrow, Appraisals, and Ability
to Repay rulemakings identified in part II.F above. Absent further
action by the Bureau, the more inclusive finance charge would:
Cause more closed-end loans to trigger HOEPA protections
for high-cost loans.\120\ The protections include special disclosures,
restrictions on certain loan features and lender practices, and
strengthened consumer remedies. The more inclusive finance charge would
affect both the points and fees test (which currently uses the finance
charge as its starting point) and the APR test (which under Dodd-Frank
will depend on comparisons to APOR) for defining what constitutes a
high-cost loan.
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\120\ Under the Dodd-Frank Act, a loan is defined as a high-cost
mortgage, subject to HOEPA protections, if the total points and fees
payable in connection with the transaction exceed specified
thresholds (points and fees coverage test); the transaction's APR
exceeds the applicable APOR by a specified threshold (APR coverage
test); or the transaction has certain prepayment penalties. First,
under the points and fees coverage test, the definition of points
and fees includes, as its starting point, all items included in the
finance charge. Therefore, a potential consequence of the more
inclusive finance charge is that more loans might exceed HOEPA's
points and fees threshold because new categories of charges would be
included in the calculation of total points and fees for purposes of
that coverage test. In addition, under the APR coverage test, the
more inclusive finance charge could result in some additional loans
being covered as high-cost mortgages because closed-end loans would
have higher APRs. There are currently some differences between APR
and the average prime offer rate, which is generally calculated
using data that includes only contract interest rate and points but
not other origination fees. See 75 FR 58660-58662. The current APR
includes not only discount points and origination fees but also
other charges the creditor retains and certain third-party charges.
The more inclusive finance charge, which would also include most
third-party charges, would widen the disparity between the APR and
APOR and cause more closed-end loans to qualify as a high-cost
mortgage. The Bureau notes that substantially similar implications
would apply to each respective rulemaking in which coverage depends
on comparing a transaction's APR to the applicable APOR. In
addition, the Bureau notes that the Dodd-Frank Act expands HOEPA to
apply to more types of mortgage transactions, including purchase
money mortgage loans and open-end credit plans secured by a
consumer's principal dwelling. However, the proposed more inclusive
finance charge applies only to closed-end loans. Therefore, the
Bureau notes that the more inclusive finance charge would not affect
the potential coverage of open-end credit plans under HOEPA.
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Cause more loans to trigger Dodd-Frank Act requirements to
maintain escrow accounts for first-lien higher-priced mortgage loans.
Coverage depends on comparing a transaction's APR to the applicable
APOR.
Cause more loans to trigger Dodd-Frank Act requirements to
obtain one or more interior appraisals for ``higher-risk'' mortgage
loans. Coverage depends on comparing a transaction's APR to the
applicable APOR.
Reduce the number of loans that would otherwise be
``qualified mortgages'' under the Dodd-Frank Act Ability to Repay
requirements, given that qualified mortgages cannot have points and
fees in excess of three percent of the loan amount. Also, more loans
could be required to comply with separate underwriting requirements
applicable to higher-priced balloon loans, and could be ineligible for
certain exceptions authorizing creditors to offer prepayment penalties
on fixed-rate, non-higher-priced qualified mortgage loans.\121\ Again,
status as a higher-priced mortgage loan depends on comparing APR to
APOR.
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\121\ Specifically, the Dodd-Frank Act generally prohibits
prepayment penalties on closed-end, dwelling-secured mortgage loans,
except on fixed-rate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank Act generally
requires creditors to assess consumers' ability to repay a higher-
priced loan with a balloon payment using the scheduled payments
required under the terms of the loan including any balloon payment,
and based on income and assets other than the dwelling itself. Only
consumers with substantial income or assets would likely qualify for
such a loan. A separate Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly in rural or
underserved areas is not affected by the finance charge issue.
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During the Small Business Review Panel and in industry feedback
provided in response to the Small Business Review Panel Outline,
concerns were expressed that one unintended consequence of a more
inclusive definition of finance charge could be that more loans would
qualify as high-cost loans subject to additional requirements under
TILA section 129 and under similar State laws. See Small Business
Review Panel Report at 25. Industry feedback generally suggests that
the proposed revisions to the
[[Page 51145]]
finance charge be viewed in the context of other rulemakings
implementing the Dodd-Frank Act revisions to the thresholds for high-
cost mortgages and qualified mortgage determinations, because of the
relationship between the APR and those thresholds and because any
changes to the APR calculation could be costly to implement and should
be done in conjunction with other related changes.
Based on this feedback and consistent with the Small Business
Review Panel's recommendation, the Bureau has considered the
requirements of TILA section 129 (high-cost mortgages) and TILA section
129C (qualified mortgages), including the Dodd-Frank Act amendments to
those provisions, as well as State predatory lending laws, in proposing
the amendments to Sec. 1026.4. For example, the Board previously
proposed two means of reconciling an expanded definition of the finance
charge with existing thresholds for loan APR and points and fees, and
the Bureau expects to seek comment on potential trigger modifications
in each proposal it issues as discussed below. The Bureau will consider
any final or proposed rules implementing those provisions prior to
issuing a final rule on this issue. See Small Business Review Panel
Report at 30.
As described in the Sec. 1022 analysis below, the Bureau is
seeking data that will allow it to perform a quantitative analysis to
determine the impacts of a broader finance charge definition on APR
thresholds for HOEPA and various other regimes.\122\ The Bureau seeks
comment on its plans for data analysis, as well as additional data and
comment on the potential impacts of a broader finance charge definition
and potential modifications to the triggers.
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\122\ In its 2009 Closed-End Proposal, the Board relied on a
2008 survey of closing costs conducted by Bankrate.com that contains
data for hypothetical $200,000 loans in urban areas. Based on that
data, the Board estimated that the share of first-lien refinance and
home improvement loans that are subject to HOEPA would increase by
.6 percent if the definition of finance charge was expanded. The
Bureau is considering the 2010 version of that survey, but as
described below the Bureau is also seeking additional data that
would provide more representative information regarding closing and
settlement costs that would allow for a more refined analysis of the
proposals.
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The Bureau is carefully weighing whether modifications may be
warranted to the thresholds for particular regulatory regimes to
approximate coverage levels under the current definition of finance
charge. It is not clear from the legislative history of the Dodd-Frank
Act whether Congress was aware of the Board's 2009 Closed-End Proposal
to expand the current definition of finance charge or whether Congress
considered the interplay between an expanded definition and coverage
under various thresholds addressed in the Dodd-Frank Act. In light of
this fact and the concerns raised by commenters on the Board's 2009
Closed-End Proposal regarding effects on access to credit, the Bureau
believes that it is appropriate to explore alternatives to
implementation of the expanded finance charge definition for purposes
of coverage under HOEPA and other regulatory regimes.
For example, the Board previously proposed two means of reconciling
an expanded definition of the finance charge with existing APR-based
thresholds. On several occasions, the Board proposed to replace the APR
with a ``transaction coverage rate'' as a transaction-specific metric a
creditor compares to the average prime offer rate to determine whether
the transaction meets the higher-priced loan threshold in Sec.
1026.35(a). See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598,
11608-09 (Mar. 2, 2011); 75 FR 58539, 58660-61 (Sept. 24, 2010).\123\
Although adopting the TCR would mean that lenders would have to
calculate one metric for purposes of disclosure and another for
purposes of regulatory coverage, both metrics would be simpler to
compute than APR today using the current definition of finance
charge.\124\ In addition, the Board proposed to amend Sec. 1026.32 to
retain the existing treatment of certain charges in the definition of
points and fees for purposes of determining HOEPA coverage. 75 FR at
58539, 58636-38 (Sept. 24, 2010). The Bureau has proposed language to
adopt the transaction coverage rate and to exclude the additional
charges from the HOEPA points and fees test in its 2012 HOEPA Proposal.
The Bureau has proposed language to adopt the transaction coverage rate
and to exclude the additional charges from the HOEPA points and fees
test in its 2012 HOEPA Proposal. The Bureau seeks comment on these
prior proposals and other potential methods of addressing the impact of
a more inclusive approach to the finance charge on other regimes.
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\123\ The transaction coverage rate would be determined in
accordance with the applicable rules of Regulation Z for the
calculation of the annual percentage rate for a closed-end
transaction, except that the prepaid finance charge for purposes of
calculating the transaction coverage rate includes only charges that
will be retained by the creditor, mortgage broker, or affiliates of
either. The wording of the Board's proposed definition of
``transaction coverage rate'' varied slightly between the 2010
Mortgage Proposal and the 2011 Escrows Proposal as to treatment of
charges retained by mortgage broker affiliates. In its 2012 HOEPA
Proposal, the Bureau proposes to use the 2011 Escrows Proposal
version, which would include charges retained by broker affiliates.
The Bureau believes that this approach is consistent with the
rationale articulated by the Board in its earlier proposals and with
certain other parts of the Dodd-Frank Act that distinguish between
charges retained by the creditor, mortgage broker, or affiliates of
either company. See, e.g., Dodd-Frank Act sections 1403, 1411(a).
\124\ To the extent that lenders believe that it is burdensome
to calculate two metrics, they could continue to use APR for both
purposes.
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The Bureau also seeks comment on the potential advantages and
disadvantages to both consumers and creditors of using different
metrics for purposes of disclosures and for purposes of determining
coverage of various regulatory regimes. With regard to the transaction
coverage rate, the Bureau believes that the potential compliance burden
is mitigated by the fact that both TCR and APR would be easier to
compute than the APR today using the current definition of finance
charge. However, the Bureau seeks comment on the issue generally and in
particular on whether use of the TCR or other trigger modifications
should be optional, so that creditors could use the broader definition
of finance charge to calculate APR and points and fees triggers if they
would prefer. The Board's 2010 Mortgage Proposal structured TCR as a
mandatory requirement out of concern that identical transactions
extended by two different creditors could have inconsistent coverage
under regulations governing higher-priced mortgage loans, but similarly
sought comment on the issue.
Finally, the Bureau also seeks comment on the timing of
implementation. There is no statutory deadline for issuing final rules
to integrate the mortgage disclosures under TILA and RESPA, and the
Bureau expects that it may take some time to conduct quantitative
testing of the forms prior to issuing final rules. However, the Bureau
expects to issue several final rules to implement provisions of title
XIV of the Dodd-Frank Act by January 21, 2013, that address thresholds
for compliance with various substantive requirements under HOEPA and
other Dodd-Frank Act provisions. In some cases the Dodd-Frank Act
requires that regulations implementing title XIV take effect within one
year of issuance.
The Bureau believes that it would be preferable to make any change
to the definition of finance charge and any related adjustments in
regulatory triggers take effect at the same time, in order to provide
for consistency and efficient systems modification. The Bureau also
believes that it may be advantageous to consumers and creditors to make
any such changes at
[[Page 51146]]
the same time that creditors are implementing new title XIV
requirements involving APR and points and fees thresholds, rather than
waiting until the Bureau finalizes other aspects of this rulemaking
relating to disclosures. If the Bureau expands the definition of
finance charge, this approach would likely provide the benefits to
consumers of the final rule at an earlier date as well as avoid
requiring creditors to make two sets of systems and procedures changes
focused on determining which loans trigger particular regulatory
requirements. However, given that implementation of the disclosure-
related elements of this proposal will also require systems and
procedures changes, there may be advantages to delaying any change in
the definition of finance charge and any related adjustments to
regulatory triggers until those changes occur. The Bureau therefore
seeks comment on whether to sequence any change in the proposal
considering the benefits and costs to both consumers and industry of
both approaches.
In light of these implementation issues, the Bureau wishes to
evaluate comments on the cumulative effect of an expanded definition of
the finance charge simultaneously with comments on the rules to
implement title XIV. The Bureau therefore is providing a comment period
of 60 days for the proposed amendments to Sec. 1026.4, rather than the
120-day comment period provided for all other aspects of this proposed
rule other than Sec. 1026.1(c). The Bureau believes a shorter comment
period is particularly appropriate given that this aspect of the
proposal largely mirrors the proposed changes to Sec. 1026.4 in the
Board's 2009 Closed-End Proposal.
4(a) Definition
Section 1026.4 states the basic test for the finance charge, as set
forth in TILA section 106(a), and specifies that it does not include
types of charges payable in a comparable cash transaction. Consistent
with the Board's 2009 Closed-End Proposal, the Bureau is proposing new
comment 4(a)-6 to clarify that, in a transaction where there is no
seller, such as a refinancing of an existing extension of credit
described in Sec. 1026.20(a), there is no comparable cash transaction
and, therefore, the exclusion from the finance charge in proposed Sec.
1026.4(a) for types of charges payable in a comparable cash transaction
does not apply to such transactions. The Bureau solicits comment on
this proposed clarification.
4(a)(2) Special Rule; Closing Agent Charges
Section 1026.4(a)(2) provides a special rule for the treatment of
closing agent charges in determining the finance charge. That section
excludes from the finance charge fees charged by a third party that
conducts a loan closing unless the creditor (1) requires the particular
service for which the consumer is charged; (2) requires the imposition
of the charge; or (3) retains a portion of the third-party charge.
Under proposed Sec. 1026.4(a)(2), this exclusion is inapplicable to
closed-end transactions secured by real property or a dwelling. Under
the basic test for the finance charge in TILA section 106(a), many
closing agent charges described in Sec. 1026.4(a)(2) would typically
be part of the finance charge because creditors generally require
closing agents to conduct closings who, in turn, impose various fees on
the consumer. As the Board described in its 2009 Closed-End Proposal,
in some cases, the creditor clearly requires the particular fee charged
by the closing agent but that, in other cases, it is not clear whether
a charge is specifically required by the creditor. A case-by-case
determination as to whether the creditor requires the particular
service charged by a closing agent would result in significant burden
and risk for consumers and, likely, inconsistent treatment of such
fees, which would undermine the purpose of disclosing the finance
charge to consumers. 74 FR at 43246. For these reasons, proposed Sec.
1026.4(a)(2) adopts a bright-line rule that includes in the finance
charge fees charged by closing agents, including fees of other third
parties hired by closing agents to perform particular services,
assuming those fees meet the general definition of finance charge and
that no other exclusion applies. Proposed comment 4(a)(2)-3 clarifies
that comments 4(a)(2)-1 and 4(a)(2)-2 do not apply to closed-end
transactions secured by real property or a dwelling.
As the Board noted in its 2009 Closed-End Proposal, the inclusion
of third-party charges in the finance charge may create some risk that
creditors will understate the finance charge if the creditor does not
know that a charge is imposed by a third party or the particular amount
of such charge. 74 FR at 43246. Some industry commenters in response to
the 2009 Closed-End Proposal supported the inclusion of all closing
agent charges in the finance charge as a means of simplifying
compliance. Other industry commenters opposed the inclusion of all
closing agent charges in the finance charge due to the creditor's lack
of control over these charges, and also because including these amounts
in the finance charge makes creditors responsible for settlement fees
under TILA. The Bureau has considered these comments in developing the
proposed rule, but believes that a determination of whether a creditor
requires the particular service for which the consumer is charged
results in significant confusion for consumers and inconsistent
treatment of such fees. In addition, as discussed below, the Dodd-Frank
Act added to TILA a requirement that creditors disclose aggregate
settlement charges, so that creditors now have a statutory disclosure
responsibility for such charges under TILA. Furthermore, creditors are
responsible for disclosing settlement charges subject to certain
estimation requirements and limitations on increases in settlement
costs pursuant to HUD's 2008 RESPA Final Rule and proposed Sec.
1026.19(e), discussed below. The Bureau also notes that the risk of
understating the finance charge is lessened by TILA section 106(f), 15
U.S.C. 1605(f), current Sec. 1026.18(d)(1), and proposed Sec.
1026.38(o)(2), which provide that a disclosed finance charge is treated
as accurate if it does not vary from the actual finance charge by more
than $100 or is greater than the amount required to be disclosed. The
Bureau requests comment on the extent to which settlement costs
increase from the good faith estimate to closing and whether the Bureau
should increase the finance charge tolerance for closed-end
transactions secured by real property or a dwelling in light of the
proposal to include third-party charges in the finance charge, and the
amount of any such increase.
In addition, the Board's 2009 Closed-End Proposal stated that
excluding certain fees from the finance charge because they are
voluntary or optional is inconsistent with the statutory objective of
disclosing the ``cost of credit,'' including charges imposed ``as an
incident to the extension of credit.'' 74 FR at 43246. As the Board
noted, an assumption underlying the exclusion from the finance charge
for certain voluntary or optional charges is that they are not
``imposed directly or indirectly by the creditor.'' Id. However, some
charges may be imposed by the creditor even if the services for which
the fee is imposed are not specifically required by the creditor. Id.
For example, a creditor may require the use of a closing agent, but may
not impose or require certain fees or services imposed by that closing
agent for which
[[Page 51147]]
the consumer is charged, such as administration fees for voluntary
escrow accounts. Excluding such charges from the finance charge
conflicts with the statutory purpose of including charges that are
imposed ``as an incident to the extension of credit.''
The Board historically interpreted the definition of ``finance
charge'' as not dependent on whether a charge is voluntary or required.
See, e.g., 61 FR 49237, 49239 (Sept. 19, 1996) (``The Board has
generally taken a case by case approach in determining whether
particular fees are `finance charges' and does not interpret Regulation
Z to automatically exclude all `voluntary' charges from the finance
charge.''). This approach is reflected in current Regulation Z's
treatment of voluntary credit insurance premiums and debt cancellation
fees, which are by definition voluntary, as excluded from the finance
charge only under certain circumstances. This special rule presupposes
that voluntary credit insurance and debt cancellation charges would be
included in the finance charge under the general definition.
Furthermore, excluding certain fees from the finance charge because
they are voluntary or optional requires a factual determination, which
is not practical in all cases since it may be difficult to determine
whether a fee or charge is truly voluntary. The Board's 2009 Closed-End
Proposal cited the current provisions addressing whether a charge for
credit insurance is optional as an example of an approach to defining a
voluntariness test that has proven unsatisfactory. Id. For this reason,
the Bureau proposes a bright-line rule to include in the finance charge
both voluntary and required charges that are imposed by the creditor to
avoid fact-based analysis and improve consistency in disclosure of the
finance charge and APR.
The Board cited as another basis for the current exclusions from
the finance charge the assumption that creditors cannot know the
amounts of voluntary or optional charges at the time the finance charge
and APR disclosures must be provided to consumers. Id. However, like
the Board, the Bureau believes that creditors know the amounts of their
own voluntary charges, if any, and that creditors know or can readily
determine voluntary charges when disclosing the finance charge and APR
to consumers at least three business days prior to consummation. As a
practical matter, most voluntary fees would be excluded from the
finance charge because they are also payable in a comparable cash
transaction (e.g., home warranty fees). The Board cited voluntary
credit insurance premiums as the primary voluntary third-party charge
in connection with a mortgage transaction that is not otherwise
excluded from the finance charge, noting that creditors generally
solicit consumers for this insurance and that, historically, creditors
had to disclose the premium for voluntary credit insurance to exclude
such amounts from the finance charge. However, the Bureau solicits
comment on whether there are voluntary third-party charges that would
be included in the finance charge under the proposed more-inclusive
approach the amounts of which cannot be determined three business days
before consummation.
The Bureau also recognizes that, within three business days of
receiving the consumer's application, creditors may not know what
voluntary or optional charges the consumer will incur. Regulation Z
generally permits creditors to rely on reasonable assumptions regarding
voluntary or optional charges and label those disclosures as estimates
pursuant to Sec. 1026.17(c) and its commentary. The Bureau requests
comment on whether further guidance is required regarding reasonable
assumptions for the voluntary or optional charges.
4(b) Examples of Finance Charges
The Bureau proposes to amend comment 4(b)-1 to be consistent with
proposed Sec. 1026.4(g), which provides that the exclusions from the
finance charge under Sec. 1026.4(a)(2) and (c) through (e), other than
Sec. 1026.4(c)(2), (c)(5), (c)(7)(v), and (d)(2), do not apply to
closed-end transactions secured by real property or a dwelling, as
discussed below.
4(c) Charges Excluded From the Finance Charge
The Bureau proposes to amend Sec. 1026.4(c), which lists specific
exclusions from the finance charge, to be consistent with proposed
Sec. 1026.4(g). Pursuant to proposed Sec. 1026.4(g), the exclusions
in Sec. 1026.4(c), other than the exclusion for late fees, exceeding a
credit limit, and default, delinquency, or similar charges, seller's
points, and escrowed items that are otherwise not included in the
finance charge, would not apply to closed-end transactions secured by
real property or a dwelling. The Bureau also proposes to amend the
commentary to Sec. 1026.4(c) to be consistent with Sec. 1026.4(g).
4(c)(2)
The Bureau proposes to retain the exclusion from the finance charge
under Sec. 1026.4(c)(2) of fees for actual unanticipated late payment,
exceeding a credit limit, or for delinquency, default, or a similar
occurrence. Although the Bureau is generally proposing a more inclusive
approach to the finance charge through proposed Sec. 1026.4, the
charges described in Sec. 1026.4(c)(2) should be excluded from the
finance charge because they are incurred, if at all, only after
consummation of the transaction. At the time a creditor must disclose
the finance charge and other items affected by the finance charge, the
creditor cannot know whether or how many times such charges may be
imposed.
4(c)(5)
The Bureau proposes to retain the exclusion from the finance charge
under Sec. 1026.4(c)(5) of seller's points. Seller's points include
any charges imposed by the creditor upon the non-creditor seller of
property for providing credit to the buyer or for providing credit on
certain terms. Although the Bureau is generally proposing a more
inclusive approach to the finance charge, the Bureau believes that it
is appropriate to continue to exclude seller's points from the finance
charge because seller's points are not payable by the consumer and
because the extent to which seller's points are passed on to the
consumer in the form of a higher sales price is unknown. However, the
Bureau requests comment on whether seller's points should be included
in the finance charge for closed-end transactions secured by real
property or a dwelling. In particular, the Bureau requests comment on
the frequency with which seller's points are passed on to the borrower
through a higher sales price. In addition, although the scope of the
changes to Sec. 1026.4 under this proposal is limited to closed-end
transactions secured by real property or a dwelling, the Bureau
solicits comment on the potential ramifications of including seller's
points in the finance charge for other types of credit.
4(c)(7) Real-Estate Related Fees
Section 106(e) of TILA, 15 U.S.C. 1605(e), excludes certain charges
from the finance charge for credit secured by an interest in real
property. This provision is implemented in current Sec. 1026.4(c)(7),
which contains exclusions from the finance charge that generally mirror
the statute, for transactions secured by real property or in
residential mortgage transactions, provided that the fees for such
charges are bona fide and reasonable in amount. Specifically, Sec.
1026.4(c)(7) excludes from the finance charge those fees for: title
examination, abstract of title, title insurance, property survey, and
similar
[[Page 51148]]
purposes; preparing loan-related documents, such as deeds, mortgages,
and reconveyance or settlement documents; notary and credit report
fees; property appraisal or inspections to assess the value or
condition of the property prior to closing, including pest-infestation
or flood-hazard determination; and amounts required to be paid into
escrow or trustee accounts if the amounts would not otherwise be
included in the finance charge. These fees fall squarely within the
general statutory definition of the finance charge, and their exclusion
from the finance charge significantly undermines the purpose of the
finance charge as a reflection of the cost of credit since the charges
comprise a significant portion of the up-front costs paid by consumers.
As noted by some industry commenters to the 2009 Closed-End Proposal,
the inclusion of real-estate related fees such as application,
appraisal, and credit report fees in the finance would reduce the
possibility that a creditor can manipulate the APR by shifting some
costs of credit to fees that are currently excluded from the finance
charge. Some commenters also noted that these charges are generally
known to the creditor early in the loan process. Accordingly, proposed
Sec. 1026.4 includes these charges in the finance charge.
However, proposed Sec. 1026.4 retains the exclusion from the
finance charge in current Sec. 1026.4(c)(7)(v) for amounts required to
be paid into escrow or trustee accounts if the amounts would not
otherwise be included in the finance charge. For example, homeowner's
insurance premiums that are excluded from the finance charge pursuant
to Sec. 1026.4(d)(2) would not be included in the finance charge
simply because such premiums will be paid into an escrow account.
Under the Board's 2009 Closed-End Proposal, Sec. 1026.4(c)(7)
would have applied only to open-end credit plans secured by real
property or open-end residential mortgage transactions. Some commenters
interpreted that proposal to mean that amounts required to be paid into
escrow or trustee accounts should be included in the finance charge
calculation, even if such amounts would not otherwise be included in
the finance charge if not paid into an escrow or trustee account.
Concerns about including escrowed taxes and insurance in the finance
charge were raised during the Small Business Review Panel (see Small
Business Review Panel Report at 30), in industry feedback provided in
response to the Small Business Review Panel Outline, and in comment
letters provided to the Board in response to the 2009 Closed-End
Proposal. The Small Business Review Panel specifically recommended that
escrowed taxes and insurance remain excluded from the finance charge,
unless those amounts would otherwise be considered finance charges
under the expanded definition. Small Business Review Panel Report at
30. Commenters to the 2009 Closed-End Proposal noted that including
escrowed taxes and insurance in the finance charge while excluding
those paid outside of escrow may mislead consumers who try to compare
escrowed and non-escrowed loans. Commenters also noted that the APR for
identical loans could be vastly different because the escrow deposit is
calculated based on the date the loan closes and when the next tax
payment is due. Based on this feedback and consistent with the Small
Business Review Panel's recommendation, the Bureau is proposing to
exclude escrowed taxes and insurance from the finance charge, unless
those amounts would otherwise be considered finance charges under the
expanded definition. In short, a fee or charge that is not part of the
finance charge does not become part of the finance charge merely
because it is paid to an escrow account.
Accordingly, proposed comment 4(c)(7)-1 clarifies that the
exclusion of escrowed amounts under Sec. 1026.4(c)(7)(v) applies to
all residential mortgage transactions and to other transactions secured
by real estate. The Bureau also proposes other amendments to the
commentary to Sec. 1026.4(c)(7) to be consistent with proposed Sec.
1026.4(g).
4(d) Insurance and Debt Cancellation and Debt Suspension Coverage
The Bureau proposes to amend Sec. 1026.4(d), which currently
excludes from the finance charge, under certain circumstances,
voluntary credit insurance premiums, property insurance premiums, and
voluntary debt cancellation or debt suspension fees. Consistent with
proposed Sec. 1026.4(g), proposed Sec. 1026.4(d) would not exclude
from the finance charge credit insurance premiums and debt cancellation
or debt suspension fees, for closed-end mortgage transactions. The
Bureau also proposes to amend the commentary to Sec. 1026.4(d) to be
consistent with Sec. 1026.4(g).
4(d)(1) Voluntary Credit Insurance Premiums
4(d)(3) Voluntary Debt Cancellation or Debt Suspension Fees
TILA section 106(b)(7), 15 U.S.C. 1605(b)(7), provides that
premiums for credit life, accident, or health insurance written in
connection with any consumer credit transaction are part of the finance
charge unless (1) the coverage is not a factor in the approval by the
creditor of the extension of credit, and this fact is clearly disclosed
in writing to the consumer; and (2) to obtain the insurance, the
consumer specifically requests the insurance after getting the
disclosures. Current Sec. 1026.4(d)(1) and (d)(3) implement this
provision by providing that the creditor may exclude from the finance
charge any premium for credit life, accident, health or loss-of-income
insurance; any charge or premium paid for debt cancellation coverage
for amounts exceeding the value of the collateral securing the
obligation; or any charge or premium for debt cancellation or debt
suspension coverage in the event of loss of life, health, or income or
in case of accident, whether or not the coverage is insurance, if (1)
the insurance or coverage is not required by the creditor and the
creditor discloses this fact in writing, (2) the creditor discloses the
premium or charge for the initial term of the insurance or coverage,
(3) the creditor discloses the term of insurance or coverage, if the
term is less than the term of the credit transaction, and (4) the
consumer signs or initials an affirmative written request for the
insurance or coverage after receiving the required disclosures. In
addition, under Sec. 1026.4(d)(3)(iii), the creditor must disclose,
for debt suspension coverage, the fact that the obligation to pay loan
principal and interest is only suspended, and that interest will
continue to accrue during the period of suspension.
Proposed Sec. 1026.4(d)(1) and (3) includes credit insurance and
debt cancellation charges in the finance charge for closed-end
transactions secured by real property or a dwelling to be consistent
with Sec. 1026.4(g). Proposed Sec. 1026.4(d) is consistent with the
overall proposed changes to Sec. 1026.4, which remove exclusions from
the finance charge, to make the finance charge and APR more accurately
reflect the cost of credit. As discussed above, the Bureau does not
believe that a rule that excludes fees from the finance charge simply
because they are ``voluntary'' is consistent with the statute, which
says that the finance charge include charges ``imposed as an incident
to the extension of credit,'' and that a determination of whether a fee
is, in fact, voluntary simply has not been effective. As discussed
above and as the Board noted in its 2009 Closed-End Proposal, the
current test for defining
[[Page 51149]]
whether a charge for credit insurance and debt cancellation or
suspension coverage is ``voluntary'' has proven unsatisfactory. See 74
FR at 43246-50. Instead, the Bureau proposes a bright-line rule to
include in the finance charge premiums for credit insurance and debt
suspension fees. The Bureau also proposes to amend the commentary to
Sec. 1026.4(d) to be consistent with Sec. 1026.4(g).
Concerns were raised in industry feedback in response to the Small
Business Review Panel Outline and in comment letters in response to the
2009 Closed-End Proposal that voluntary charges such as credit
insurance and debt cancellation fees should not be part of the finance
charge because they are not ``imposed'' by the creditor. Commenters to
the 2009 Closed-End Proposal also noted that the products are often
sold after consummation of the transaction and that including fees for
these products in the finance charge may confuse consumers into
believing they are mandatory. The Bureau has considered this feedback
in developing the proposed rule, but, as discussed above, believes that
whether or not a fee is ``voluntary'' is not determinative of whether
it is imposed as an ``incident to the extension of credit.'' Concerns
that consumers might mistake voluntary charges for mandatory ones due
to their inclusion in the finance charge are mitigated by the fact that
(1) the TILA disclosures do not itemize the components of the finance
charge or APR, and (2) for transactions secured by real property other
than reverse mortgages, creditors must indicate that voluntary credit
insurance or debt suspension, or cancellation fees are ``optional'' on
the Loan Estimate provided to consumers within three business days of
application and the Closing Disclosure provided three business days
before consummation pursuant to proposed Sec. 1026.37(g)(4)(ii).
Furthermore, existing commentary makes clear that credit insurance and
debt cancellation and suspension products requested by the consumer
after consummation are not considered written in connection with the
credit transaction and therefore do not meet the basic test for
inclusion in the finance charge. See comments 4(b)(7) and (b)(8)-2 and
4(b)(1)-2.
4(d)(2) Property Insurance Premiums
Section 106(c) of TILA, 15 U.S.C. 1605(c), provides that premiums
for insurance, written in connection with any consumer credit
transaction, against loss of or damage to property or against liability
arising out of the ownership or use of property, should be included in
the finance charge unless the creditor provides the consumer with a
clear written statement that discloses the cost of such insurance if
obtained from or through the creditor, and informs the consumer that he
may choose his own insurance provider. Current Sec. 1026.4(d)(2)
implements TILA section 106(c), and generally provides that such
premiums may be excluded from the finance charge if (1) the insurance
may be obtained from a person of the consumer's choice, and that fact
is disclosed to the consumer, and (2) if the coverage is obtained from
or through the creditor, the premium for the initial term of insurance
coverage is disclosed.
The Bureau proposes to retain the current exclusion from the
finance charge under Sec. 1026.4(d)(2) for premiums for insurance
against loss of or damage to property, or against liability arising out
of the ownership or use of property. As the Board noted in its 2009
Closed-End Proposal, property insurance is generally a hybrid product
that protects both the value of the creditor's collateral and the
consumer's equity in the property, such that it is impossible to
segregate the premium into the portion that protects the creditor and
the portion that protects the consumer. 74 FR at 43250. Although
creditors generally require property insurance as a condition to
extending credit secured by real property or a dwelling, consumers who
do not have mortgages also regularly purchase property insurance to
protect themselves from the risk of loss of or damage to property. Id.
For these reasons, the Bureau proposes to retain the current exclusion
from the finance charge under Sec. 1026.4(d)(2).
The Bureau proposes to revise comment 4(d)-8 to conform it to the
statutory language providing that, to be excluded from the finance
charge, premiums for property insurance obtained ``from or through the
creditor'' must be disclosed to the consumer. 15 U.S.C. 1605(c).
Current Sec. 1026.4(d)(2) also provides that if coverage is obtained
``from or through the creditor,'' the premium for the initial term must
be disclosed. However, current comment 4(d)-8 states, in relevant part,
that ``[t]he premium or charge must be disclosed only if the consumer
elects to purchase the insurance from the creditor; in such a case, the
creditor must also disclose the term of the property insurance coverage
if it is less than the term of the obligation.'' (Emphasis added.)
Accordingly, the Bureau proposes to amend comment 4(d)-8 to conform to
the statutory language. In addition, proposed Sec. 1026.4(d)(2) and
comment 4(d)-8 clarify that insurance is available ``from or through a
creditor'' only if it is available from the creditor or the creditor's
``affiliate,'' as that term is defined under the Bank Holding Company
Act, 12 U.S.C. 1841(k). The Bank Holding Company Act defines an
``affiliate'' as ``any company that controls, is controlled by, or is
under common control with another company.'' Thus, if the consumer
elects to purchase property insurance from a company that controls, is
controlled by, or is under common control with the creditor, then the
creditor is required to disclose the cost of the insurance and its
term, if it is less than the term of the obligation, for the charge to
be excluded from the finance charge.
4(e) Certain Security Interest Charges
TILA section 106(d), 15 U.S.C. 1605(d), provides exclusions from
the finance charge for certain government recording taxes and related
fees and the premiums for any insurance in lieu of perfecting a
security interest, provided those amounts are disclosed to the
consumer. This provision is implemented in current Sec. 1026.4(e).
Consistent with the overall approach to largely eliminate the specific
exclusions from the finance charge for closed-end transactions secured
by real property or a dwelling, the Bureau proposes to amend Sec.
1026.4(e) to eliminate those exclusions, consistent with proposed Sec.
1026.4(g). The Bureau believes this approach will better inform
consumers of the total cost of credit and prevent circumvention or
evasion of the statute through the unbundling of the cost of credit to
fees or charges that are currently excluded from the finance charge.
The Bureau also proposes to amend the commentary to Sec. 1026.4(e) to
be consistent with Sec. 1026.4(g).
4(g) Special Rule for Closed-End Mortgage Transactions
The Bureau proposes new Sec. 1026.4(g), which treats certain fees
as part of the finance charge, for closed-end transactions secured by
real property or a dwelling. Specifically, proposed Sec. 1026.4(g)
provides that the exclusions from the finance charge in Sec.
1026.4(a)(2) (closing agent charges) and (c) (fees for actual
unanticipated late payment, exceeding a credit limit, or for
delinquency, default, or similar occurrence), (d) (premiums for credit
insurance and debt cancellation coverage), and (e) (certain security-
interest charges), other than Sec. 1026.4(c)(2) (late, over-limit,
delinquency, default, and similar fees), (5) (seller's points), (7)(v)
(escrowed items that are not included in the finance charge), and
(d)(2) (property and
[[Page 51150]]
liability insurance premiums), do not apply to closed-end transactions
secured by real property or a dwelling.
As discussed above, the Bureau proposes to retain the exclusion
from the finance charge for late, over-limit, delinquency, default and
similar fees in Sec. 1026.4(c)(2), seller's points described in Sec.
1026.4(c)(5), amounts required to be paid into escrow or trustee
accounts if the amounts would not otherwise be included in the finance
charge described in Sec. 1026.4(c)(7)(v), and property and liability
insurance described in Sec. 1026.4(d)(2).
Proposed comments 1026.4(g)-1 through -3 provide guidance to
creditors on compliance with the special rule for closed-end mortgage
transactions provided in proposed Sec. 1026.4(g). Proposed comment
4(g)-1 clarifies that the commentary under the exclusions identified
above no longer applies to closed-end credit transactions secured by
real property or a dwelling. Proposed comment 4(g)-2 clarifies that
third-party charges that meet the definition under Sec. 1026.4(a) and
are not otherwise excluded from the finance charge generally are
included in the finance charge, whether or not the creditor requires
the services for which they are imposed. Proposed comment 4(g)-3
clarifies that charges payable in a comparable cash transaction, such
as property taxes and fees or taxes imposed to record the deed
evidencing transfer of title to the property from the seller to the
buyer, are not part of the finance charge because they would have to be
paid even if no credit were extended to finance the purchase.
Section 1026.17 General Disclosure Requirements
The Bureau is proposing conforming amendments to current Sec.
1026.17 to reflect the proposed rules regarding the format, content,
and timing of disclosures for closed-end transactions secured by real
property, other than reverse mortgages subject to Sec. 1026.33.
17(a) Form of Disclosures
TILA section 128(b)(1) provides that the disclosures required by
TILA sections 128(a) and 106(b), (c), and (d) must be conspicuously
segregated from all other terms, data, or information provided in
connection with the transaction, including any computations or
itemizations. 15 U.S.C. 1638(a), (b)(1); 15 U.S.C. 1605(b), (c), (d).
In addition, TILA section 122(a) requires that the ``annual percentage
rate'' and ``finance charge'' disclosures be more conspicuous than
other terms, data, or information provided in connection with the
transaction, except information relating to the identity of the
creditor. 15 U.S.C. 1632(a). Current Sec. 1026.17(a) implements these
statutory provisions. Current Sec. 1026.17(a)(1) implements TILA
section 128(b)(1) by providing that closed-end credit disclosures must
be grouped together and segregated from all other disclosures and must
not contain any information not directly related to the disclosures.
Current Sec. 1026.17(a)(2) implements TILA section 122(a) for closed-
end credit transactions by requiring that the terms ``annual percentage
rate'' and ``finance charge,'' together with a corresponding amount or
percentage rate, be disclosed more conspicuously than any disclosure
other than the creditor's identity.
The Bureau proposes to revise Sec. 1026.17(a) to reflect the fact
that special rules apply to the disclosures required by Sec.
1026.19(e), (f), and (g), by providing that Sec. 1026.17(a) is
inapplicable to those disclosures. As discussed below, the Bureau is
implementing the grouping and segregation requirements of TILA section
128(b)(1) in proposed Sec. Sec. 1026.37(o) and 1026.38(t). Further,
for the reasons set forth in the section-by-section analysis to
proposed Sec. Sec. 1026.37(l)(3) and 1026.38(o)(2) and (4), the Bureau
proposes to use its authority under TILA section 105(a), Dodd-Frank Act
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act
section 1405(b), to modify the requirements of TILA section 122(a) for
transactions subject to Sec. 1026.19(e) and(f). Proposed comment 17-1
states that, for the disclosures required by proposed Sec. 1026.19(e),
(f), and (g), rules regarding the disclosures' form are found in
proposed Sec. Sec. 1026.19(g), 1026.37(o), and 1026.38(t). In
addition, proposed comment 17(a)(1)-7 reflects the special disclosure
rules for transactions subject to Sec. 1026.18(g) or (s).
17(b) Time of Disclosures
TILA section 128(b)(1) provides that the disclosures required by
TILA section 128(a) shall be made before credit is extended. 15 U.S.C.
1638(b)(1). Special timing rules for transactions subject to RESPA are
found in TILA section 128(b)(2). 15 U.S.C. 1638(b)(2). Current Sec.
1026.17(b) implements TILA section 128(b)(1) by requiring creditors to
make closed-end credit disclosures before consummation. The special
timing rules for transactions subject to RESPA are implemented in
current Sec. 1026.19(a). As discussed below, the Bureau is proposing
special timing rules for the disclosures required by proposed Sec.
1026.19(e), (f), and (g) in those provisions. Proposed Sec. 1026.17(b)
reflects these special rules by providing that Sec. 1026.17(b) is
inapplicable to the disclosures required by Sec. 1026.19(e), (f), and
(g). Proposed comment 17-1 states that, for to the disclosures required
by Sec. 1026.19(e), (f), and (g), rules regarding timing are found in
those sections.
17(c) Basis of Disclosures and Use of Estimates
17(c)(1)
Current Sec. 1026.17(c)(1) requires that the disclosures that
creditors provide pursuant to subpart C of Regulation Z reflect the
terms of the legal obligation between the parties. The commentary to
current Sec. 1026.17(c)(1) provides guidance to creditors regarding
the disclosure of specific transaction types and loan features.
As discussed more fully in the section-by-section analysis to
proposed Sec. Sec. 1026.37 and 1026.38, the Bureau is proposing to
integrate the disclosure requirements of TILA and sections 4 and 5 of
RESPA in the Loan Estimate that creditors must provide to consumers
within three business days after receiving the consumer's application
and the Closing Disclosure that creditors must provide to consumers at
least three business days prior to consummation. Some disclosures
required by RESPA pertain to services performed by third parties, other
than the lender. Accordingly, the Bureau is proposing conforming
amendments to the commentary to Sec. 1026.17(c) to clarify that the
``parties'' referred to in the commentary to Sec. 1026.17(c) are the
consumer and the creditor and that the ``agreement'' referred to in the
commentary to Sec. 1026.17(c) is the legal obligation between the
consumer and the creditor. The proposed conforming amendments to the
commentary also clarify that the ``disclosures'' referred to in the
commentary to current Sec. 1026.17(c) are the finance charge and the
disclosures affected by the finance charge. Finally, the proposed
conforming amendments to the commentary extend existing guidance on
special disclosure rules for transactions subject to Sec. 1026.18(s)
to reflect the addition of new special rules under Sec. 1026.19(e) and
(f).
The Bureau also proposes amendments to the commentary to Sec.
1026.17(c)(1) to address areas of industry uncertainty regarding TILA
disclosures. First, the Bureau proposes to revise comment 17(c)(1)-1 to
provide the general principle that disclosures based on the assumption
that the consumer will abide by the terms of the legal obligation
throughout its term comply with Sec. 1026.17(c)(1). In
[[Page 51151]]
addition, the Bureau proposes to revise comments 17(c)(1)-3 and -4,
regarding third-party and consumer buydowns, respectively. Under
existing Regulation Z, whether the effect of third-party or consumer
buydowns are disclosed depends on State law. To address uncertainty,
the Bureau is proposing to revise the examples in comments 17(c)(1)-3
and -4 to clarify that, in the disclosure of the finance charge and
other disclosures affected by the finance charge, third-party buydowns
must be reflected as an amendment to the contract's interest rate
provision if the buydown is reflected in the credit contract between
the consumer and the creditor and that consumer buydowns must always be
reflected as an amendment to the contract's interest rate provision.
The Bureau also proposes new comment 17(c)(1)-19, regarding
disclosure of rebates and loan premiums offered by a creditor. In its
2009 Closed-End Proposal, the Board proposed to revise comment 18(b)-2,
which provides guidance regarding the treatment of rebates and loan
premiums for the amount financed calculation required by Sec.
1026.18(b). 74 FR at 43385. Comment 18(b)-2 primarily addresses credit
sales, such as automobile financing, and provides that creditors may
choose whether to reflect creditor-paid premiums and seller- or
manufacturer-paid rebates in the disclosures required by Sec. 1026.18.
The Board stated its belief that such premiums and rebates are
analogous to buy-downs because they may or may not be funded by the
creditor and reduce costs that otherwise would be borne by the
consumer. 2009 Closed-End Proposal, 74 FR at 43256. Accordingly, their
impact on the Sec. 1026.18 disclosures properly depends on whether
they are part of the legal obligation, in accordance with Sec.
1026.17(c)(1) and its commentary. The Board therefore proposed to
revise comment 18(b)-2 to clarify that the disclosures, including the
amount financed, must reflect loan premiums and rebates regardless of
their source, but only if they are part of the legal obligation between
the creditor and the consumer. The Board also proposed a parallel
comment under the section requiring disclosure of the amount financed
for transactions subject to the proposed, separate disclosure scheme
for transactions secured by real property or a dwelling. 2009 Closed-
End Proposal, 74 FR at 43417 (proposed comment 38(e)(5)(iii)-2).
The Bureau agrees with the Board's reasoning in proposing the
foregoing revisions to comment 18(b)-2 that the disclosures must
reflect loan premiums and rebates, even if paid by a third party such
as a seller or manufacturer, but only if they are part of the legal
obligation between the creditor and the consumer. The Bureau notes,
however, that the comment's guidance extends beyond the calculation of
the amount financed. For example, the guidance on whether and how to
reflect premiums and rebates applies equally to such disclosures as the
amount financed, the APR, the projected payments table, interest rate
and payment summary table, or payment schedule, as applicable, and
other disclosures affected by those disclosures. The Bureau therefore
is proposing to place the guidance in the commentary to Sec.
1026.17(c)(1), as that section is the basis for the underlying
principal that the impact of premiums and rebates depends on the terms
of the legal obligation.
17(c)(2)
Current Sec. 1026.17(c)(2) and its commentary contain general
rules regarding the use of estimates. The Bureau proposes conforming
amendments to the commentary to Sec. 1026.17(c)(2) to be consistent
with the special disclosure rules for closed-end mortgage transactions
subject to proposed Sec. 1026.19(e) and (f).
Comment 17(c)(2)(i)-1 provides guidance to creditors on the basis
for estimates. The proposed rule amends this comment to specify that it
applies except as otherwise provided in Sec. Sec. 1026.19, 1026.37,
and 1026.38, and that creditors must disclose the actual amounts of the
information required to be disclosed pursuant to Sec. 1026.19(e) and
(f), subject only to the estimation and redisclosure rules in those
sections. The proposed rule also revises comment 17(c)(2)(i)-2, which
gives guidance to creditors on labeling estimated disclosures, to
provide that, for the disclosures required by Sec. 1026.19(e), use of
the Loan Estimate form H-24 in appendix H, pursuant to Sec.
1026.37(o), satisfies the requirement that the disclosure state clearly
that it is an estimate. In addition, consistent with the proposed
revisions to comment 17(c)(1)-1, the proposed rule revises comment
17(c)(2)(i)-3, which provides guidance to creditors regarding
disclosures in simple interest transactions, to reflect that the
comment applies only to the extent that it does not conflict with
proposed Sec. 1026.19. Proposed comment 17(c)(2)(i)-3 also clarifies
that, in all cases, creditors must base disclosures on the assumption
that payments will be made on time and in the amounts required by the
terms of the legal obligation, disregarding any possible differences
resulting from consumers' payment patterns. Finally, proposed comment
17(c)(2)(ii)-1, regarding disclosure of per diem interest, provides
that the creditor shall disclose the actual amount of per diem interest
that will be collected at consummation, subject only to the disclosure
rules in Sec. 1026.19(e) and (f).
17(c)(4)
The proposed rule revises comment 17(c)(4)-1 to clarify that
creditors may disregard payment period irregularities when disclosing
the payment summary tables pursuant to Sec. Sec. 1026.18(s),
1026.37(c), and 1026.38(c), in addition to the payment schedule under
Sec. 1026.18(g) discussed in the existing comment.
17(c)(5)
Current Sec. 1026.17(c)(5) and its commentary contain general
rules regarding the disclosure of demand obligations. The proposed rule
revises comment 17(c)(5)-2, which addresses obligations whose maturity
date is determined by a future event, to reflect the fact that special
rules apply to the disclosures required by Sec. 1026.19(e) and (f). In
addition, the proposal revises comment 17(c)(5)-3, regarding
transactions that convert to demand status only after a fixed period,
to delete obsolete references to specific loan programs and to update
cross-references. Finally, the proposal revises comment 17(c)(5)-4,
regarding balloon payment mortgages, to reflect the fact that special
rules apply to the disclosure of balloon payments in the projected
payments tables required by Sec. Sec. 1026.37(c) and 1026.38(c).
17(d) Multiple Creditors; Multiple Consumers
Current Sec. 1026.17(d) addresses transactions that involve
multiple creditors or consumers. The proposed rule revises comment
17(d)-2, regarding multiple consumers, to clarify that the early
disclosures required by Sec. 1026.19(a), (e), or (g), as applicable,
need be provided to only one consumer who will have primary liability
on the obligation. Material disclosures, as defined in Sec.
1026.23(a)(3)(ii), under Sec. 1026.23(a) and the notice of the right
to rescind required by Sec. 1026.23(b), however, must be given before
consummation to each consumer who has the right to rescind, including
any such consumer who is not an obligor. As the Board stated in its
2010 Mortgage Proposal, the purpose of the TILA section 128 requirement
that creditors provide early and final disclosures is to
[[Page 51152]]
ensure that consumers have information specific to their loan to use
while shopping and evaluating their loan. See 75 FR at 58585. On the
other hand, the purpose of the TILA section 121(a) requirement that
each consumer with a right to rescind receive disclosures regarding
that right is to ensure that each such consumer has the necessary
information to decide whether to exercise that right. Id. For this
reason, the proposed rule requires creditors to provide all consumers
who have the right to rescind with the material disclosures under
Sec. Sec. 1026.18 and 1026.38 and the notice of the right to rescind
required by Sec. 1026.23(b), even if such consumer is not an obligor.
17(e) Effect of Subsequent Events
Current Sec. 1026.17(e) provides rules regarding when a subsequent
event makes a disclosure inaccurate and requires a new disclosure. The
proposed rule revises comment 17(e)-1 to clarify that special rules
apply to transactions subject to proposed Sec. 1026.19(e) and (f).
17(f) Early Disclosures
Current Sec. 1026.17(f) contains rules regarding when a creditor
must redisclose after providing disclosures prior to consummation. As
discussed in the section-by-section analysis to proposed Sec.
1026.19(a), (e), and (f), special timing requirements apply for
transactions subject to those sections. Accordingly, Sec. 1026.17(f)
is revised to reflect the fact that the general early disclosure rules
in Sec. 1026.17(f) are subject to the special rules in Sec.
1026.19(a), (e), and (f). In addition, comments 17(f)-1 through -4
would be revised to conform to the special timing requirements under
proposed Sec. 1026.19(a) or (e) and (f).
17(g) Mail or Telephone Orders--Delay in Disclosures
Current Sec. 1026.17(g) and its commentary permit creditors to
delay disclosures for transactions involving mail or telephone orders
until the first payment is due if specific information, including the
principal loan amount, total sale price, finance charge, annual
percentage rate, and terms of repayment is provided to the consumer
prior to the creditor's receipt of a purchase order or request for
extension of credit. As discussed in the section-by-section analysis to
proposed Sec. 1026.19(a), (e), and (f), the Bureau proposes special
timing requirements for transactions subject to those provisions.
Accordingly, the Bureau proposes to revise Sec. 1026.17(g) and comment
17(g)-1 to clarify that Sec. 1026.17(g) does not apply to transactions
subject to Sec. 1026.19(a), (e), and (f).
17(h) Series of Sales--Delay in Disclosures
Current Sec. 1026.17(h) and its commentary permit creditors to
delay disclosures until the due date of the first payment in
transactions in which a credit sale is one of a series made under an
agreement providing that subsequent sales may be added to the
outstanding balance. As discussed in the section-by-section analysis to
proposed Sec. 1026.19(a), (e), and (f), the Bureau proposes special
timing requirements for transactions subject to those provisions.
Accordingly, the Bureau proposes to revise Sec. 1026.17(h) and comment
17(h)-1 to clarify that Sec. 1026.17(h) does not apply to transactions
subject to Sec. 1026.19(a) or (e) and (f).
1026.18 Content of Disclosures
Section 1026.18 sets forth the disclosure content for closed-end
consumer credit transactions. As discussed in more detail below, the
Bureau is proposing to establish separate disclosure requirements for
closed-end transactions secured by real property, other than reverse
mortgage transactions, through proposed Sec. 1026.19(e) and (f).
Accordingly, the Bureau is proposing to amend Sec. 1026.18's
introductory language to provide that its disclosure content
requirements apply only to closed-end transactions other than mortgage
transactions subject to Sec. 1026.19(e) and (f).
The Bureau is also proposing revisions to Sec. 1026.18(k), which
provides for disclosure of whether, if the obligation is prepaid in
full, a penalty will be imposed or a consumer will be entitled to a
rebate of any finance charge. The proposed revisions conform to the
definition of ``prepayment penalty'' in proposed Sec. 1026.37(b)(4)
and associated commentary. As explained in more detail in the section-
by-section analysis for proposed Sec. 1026.37(b)(4), the Bureau is
coordinating the definition of ``prepayment penalty'' across its
pending mortgage-related rulemakings, and proposed revisions to Sec.
1026.18(k) are part of that comprehensive approach.
The Bureau also is proposing to add a new comment 18-3 clarifying
that, because of the exclusion of transactions subject to Sec.
1026.19(e) and (f), the disclosures required by Sec. 1026.18 apply
only to closed-end transactions that are unsecured or secured by
personal property (including dwellings that are not also secured by
real property) and to reverse mortgages. The comment would also clarify
that, for unsecured transactions and transactions secured by personal
property that is not a dwelling, creditors must disclose a payment
schedule under Sec. 1026.18(g), and for other transactions that are
subject to Sec. 1026.18, creditors must disclose an interest rate and
payment summary table under Sec. 1016.18(s), as adopted by the Board's
MDIA Interim Rule. 75 FR at 58482-84. Finally, the comment would
clarify that, because Sec. 1026.18 does not apply to most transactions
secured by real property, references in the section and its commentary
to ``mortgages'' refer only to transactions secured by personal
property that is not a dwelling and reverse mortgages, as applicable.
18(b) Amount Financed
Section 1026.18(b) addresses the calculation and disclosure of the
amount financed for closed-end transactions. Comment 18(b)-2 currently
provides that creditors may choose whether to reflect creditor-paid
premiums and seller- or manufacturer-paid rebates in the disclosures
required by Sec. 1026.18. For the reasons discussed under Sec.
1026.17(c)(1), above, the Bureau is proposing to remove comment 18(b)-2
and place revised guidance regarding rebates and loan premiums in
proposed comment 17(c)(1)-19.
18(b)(2)
The Bureau is proposing certain conforming changes to comment
18(b)(2)-1, which addresses amounts included in the amount financed
calculation that are not otherwise included in the finance charge. As
discussed more fully under proposed Sec. 1026.4, above, the Bureau
proposes to adopt a simpler and more inclusive definition of the
finance charge. Therefore, references to real estate settlement charges
in comment 18(b)(2)-1 are inappropriate. Proposed comment 18(b)(2)-1
removes those references and substitutes appropriate examples.
18(c) Itemization of Amount Financed
Section 1026.18(c) requires an itemization of the amount financed
and provides guidance on the amounts that must be included in the
itemization. The Bureau proposes certain conforming amendments to two
comments under Sec. 1026.18(c). Under this proposal, Sec. 1026.18
disclosures, including the itemization of amount financed under Sec.
1026.18(c), are required only for closed-end transactions that are not
secured by real property and reverse mortgages;
[[Page 51153]]
transactions secured by real property other than reverse mortgages are
subject instead to the disclosure content required by Sec. Sec.
1026.37 and 1026.38. The Bureau therefore proposes technical revisions
to comments 18(c)-4 and 18(c)(1)(iv)-2 to limit those comments'
discussions of the RESPA disclosures and their interaction with Sec.
1026.18(c) to reverse mortgages.
18(f) Variable Rate
18(f)(1)
18(f)(1)(iv)
Section 1026.18(f)(1)(iv) requires that, for variable-rate
transactions not secured by a consumer's principal dwelling and
variable-rate transactions secured by a consumer's principal dwelling
where the loan term is one year or less, creditors disclose an example
of the payment terms that would result from an interest rate increase.
The Bureau proposes to revise comment 18(f)(1)(iv)-2 by removing
paragraph 2.iii, which provides that such an example is not required in
a multiple-advance construction loan disclosed pursuant to appendix D,
part I. Appendix D, part I provides guidance for disclosing the
construction phase of a construction-to-permanent loan as a separate
transaction pursuant to Sec. 1026.17(c)(6)(ii) (or for disclosing a
construction-only loan). The Bureau's proposal to remove comment
18(f)(1)(iv)-2.iii is intended solely as a conforming amendment, to
reflect the fact that multiple-advance construction loans would no
longer be subject to the Sec. 1026.18 disclosure requirements under
this proposal. The Bureau believes that multiple-advance construction
loans are limited to transactions with real property as collateral, and
are not used for dwellings that are personal property or in reverse
mortgages. Therefore, all construction loans would be subject instead
to the new disclosure content requirements of Sec. Sec. 1026.37 and
1026.38. The Bureau seeks comment, however, on whether any reason
remains to preserve comment 18(f)(1)(iv)-2.iii.
18(g) Payment Schedule
Section 1026.18(g) requires the disclosure of the number, amounts,
and timing of payments scheduled to repay the obligation, for closed-
end transactions other than transactions subject to Sec. 1026.18(s).
Section 1026.18(s) requires an interest rate and payment summary table,
in place of the Sec. 1026.18(g) payment schedule, for closed-end
transactions secured by real property or a dwelling, other than
transactions that are secured by a consumer's interest in a timeshare
plan. As noted above, however, the Bureau is proposing to remove from
the coverage of Sec. 1026.18 transactions secured by real property,
other than reverse mortgages, and subject them to the integrated
disclosures under Sec. Sec. 1026.37 and 1026.38. Thus, under this
proposal, Sec. 1026.18(g) applies only to closed-end transactions that
are unsecured or secured by personal property that is not a dwelling.
All closed-end transactions that are secured by either real property or
a dwelling, including reverse mortgages, are subject instead to either
the interest rate and payment summary table disclosure requirement
under Sec. 1026.18(s) or the projected payments table disclosure
requirement under Sec. Sec. 1026.37(c) and 1026.38(c), as applicable.
In light of these changes to the coverage of Sec. 1026.18
generally, and specifically Sec. 1026.18(g), the Bureau is proposing
several conforming changes to the commentary under Sec. 1026.18(g).
Specifically, comment 18(g)-4 would be revised to remove a reference to
home repairs, and comment 18(g)-5, relating to mortgage insurance,
would be removed and reserved. In addition, comment 18(g)-6, which
currently discusses the coverage of mortgage transactions as between
Sec. Sec. 1026.18(g) and 1026.18(s), would be revised to reflect the
additional effect of proposed Sec. 1026.19(e) and (f), which requires
the new integrated disclosures set forth in proposed Sec. Sec. 1026.37
and 1026.38 for most transactions secured by real property. Finally,
the Bureau also proposes to amend comments 18(g)(2)-1 and -2 to remove
unnecessary, and potentially confusing, references to mortgages and
mortgage insurance.
18(k) Prepayment
Section 1026.18(k) implements the provisions of TILA section
128(a)(11), which requires that the transaction-specific disclosures
for closed-end consumer credit transactions disclose whether (1) a
consumer is entitled to a rebate of any finance charge upon prepayment
in full pursuant to acceleration or otherwise, if the obligation
involves a precomputed finance charge, and (2) a ``penalty'' is imposed
upon prepayment in full of such transactions if the obligation involves
a finance charge computed from time to time by application of a rate to
the unpaid principal balance. 15 U.S.C. 1638(a)(11). Commentary to
Sec. 1026.18(k) provides further guidance regarding the disclosures
and provides examples of prepayment penalties and the types of finance
charges where a consumer may be entitled to a rebate. For further
background on Sec. 1026.18(k), see the section-by-section analysis for
proposed Sec. 1026.37(b)(4), below.
The Bureau defines ``prepayment penalty'' in proposed Sec.
1026.37(b)(4) for transactions subject to Sec. Sec. 1026.19(e) and (f)
as a charge imposed for paying all or part of a loan's principal before
the date on which the principal balance is due, and provides examples
of prepayment penalties and other relevant guidance in proposed
commentary. The Bureau's proposed definition of ``prepayment penalty''
and commentary is based on its consideration of the existing statutory
and regulatory definitions of ``penalty'' and ``prepayment penalty''
under TILA and Regulation Z, the Board's proposed definitions of
prepayment penalty in its 2009 Closed-End Proposal, 2010 Mortgage
Proposal, and 2011 ATR Proposal, and the Bureau's authority under TILA
section 105(a) and Dodd-Frank Act sections 1032(a) and, for residential
mortgage loans, 1405(b). Further background on the Bureau's definition
of prepayment penalty and the basis of its legal authority for
proposing that definition are in the section-by-section analysis for
proposed Sec. 1026.37(b)(4), below.
As discussed in the section-by-section analysis for proposed Sec.
1026.37(b)(4), the Bureau is coordinating the definition of
``prepayment penalty'' in proposed Sec. 1026.37(b)(4) with the
definitions in the Bureau's other pending rulemakings under the Dodd-
Frank Act concerning ability-to-repay requirements, high-cost mortgages
under HOEPA, and mortgage servicing. The Bureau believes that, to the
extent consistent with consumer protection objectives, adopting a
consistent definition of ``prepayment penalty'' across its various
pending rulemakings affecting closed-end mortgages will facilitate
compliance. As an additional part of adopting a consistent regulatory
definition of ``prepayment penalty,'' the Bureau is proposing certain
conforming revisions to Sec. 1026.18(k) and associated commentary.
The Bureau recognizes that, with such conforming revisions to Sec.
1026.18(k) and associated commentary, the revised definition of
``prepayment penalty'' will apply to both closed-end mortgage and non-
mortgage transactions. In particular, the proposed conforming revisions
to Sec. 1026.18(k) define ``prepayment penalty'' with reference to a
prepayment of ``all or part of'' the principal balance of a loan
covered by the provision, while TILA section 128(a)(11) and current
Sec. 1026.18(k) and its associated commentary refer to prepayment ``in
full.'' This revision may lead to an expansion of the set of instances
that trigger disclosure under Sec. 1026.18 of a
[[Page 51154]]
prepayment penalty for closed-end transactions. The Bureau believes
that consumers entering into closed-end mortgage and non-mortgage
transactions alike will benefit from the transparency associated with
more frequent and consistent disclosure of prepayment penalties.
Therefore, the Bureau is using its authority under TILA section 105(a)
to make the proposed conforming revisions to Sec. 1026.18(k) because
they will effectuate the purposes of TILA by promoting the informed use
of credit. Similarly, these revisions will help ensure that the
features of these mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand better the costs, benefits, and risks associated with
mortgage transactions, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). The revisions will also
improve consumer awareness and understanding of residential mortgage
loans, and are in the interest of consumers and the public, consistent
with Dodd-Frank Act section 1405(b). The Bureau solicits comment on
this approach to the definition of prepayment penalty.
To conform with the proposed definition of prepayment penalty in
Sec. 1026.37(b)(4), proposed Sec. 1026.18(k)(1) deletes the phrase
``a statement indicating whether or not a penalty may be imposed if the
obligation is prepaid in full'' and replaces it with the phrase ``a
statement indicating whether or not a charge may be imposed for paying
all or part of a transaction's principal before the date on which the
principal is due.'' Proposed Sec. 1026.18(k)(2) adds the phrase ``or
in part'' at the end of the phrase ``a statement indicating whether or
not the consumer is entitled to a rebate of any finance charge if the
obligation is prepaid in full.''
Proposed revised comments 18(k)-1 through -3 insert the word
``prepayment'' before the words ``penalty'' and ``rebate'' when used,
to standardize the terminology across Regulation Z (i.e., Sec.
1026.32(d)(6) currently refers to ``prepayment penalty,'' and proposed
Sec. 1026.37(b)(4) uses the same phrase). Proposed revised comment
18(k)(1)-1 replaces the existing commentary text with the language from
proposed comments 37(b)(4)-2 and -3. For further background on proposed
comments 37(b)(4)-2 and -3, see the section-by-section analysis for
proposed Sec. 1026.37(b)(4), below.
18(r) Required Deposit
If a creditor requires the consumer to maintain a deposit as a
condition of the specific transactions, Sec. 1026.18(r) requires that
the creditor disclose a statement that the APR does not reflect the
effect of the required deposit. Comment 18(r)-6 provides examples of
arrangements that are not considered required deposits and therefore do
not trigger this disclosure. The Bureau is proposing to remove and
reserve paragraph 6.vi, which states that an escrow of condominium fees
need not be treated as a required deposit. In light of the changes to
the coverage of Sec. 1026.18 under this proposal, the only
transactions to which this guidance could apply are reverse mortgages,
which do not entail escrow accounts for condominium fees or any other
recurring expenses. Accordingly, the Bureau believes that comment
18(r)-6.vi is rendered unnecessary by this proposal. The Bureau seeks
comment, however, on whether any kind of transaction exists for which
this guidance would continue to be relevant under Sec. 1026.18, as
amended by this proposal.
18(s) Interest Rate and Payment Summary for Mortgage Transactions
Section 1026.18(s) currently requires the disclosure of an interest
rate and payment summary table for transactions secured by real
property or a dwelling, other than a transaction secured by a
consumer's interest in a timeshare plan. Under this proposal, however,
Sec. 1026.19(e) and (f) requires new, separate disclosures for
transactions secured by real property, other than reverse mortgages.
Generally, the disclosure requirements of Sec. 1026.19(e) and (f)
apply to transactions currently subject to current Sec. 1026.18(s),
except that reverse mortgages and transactions secured by dwellings
that are personal property would be excluded. In addition, as discussed
in the section-by-section analysis to proposed Sec. 1026.19,
transactions secured by a consumer's interest in a timeshare plan are
covered by the integrated disclosure requirements of Sec. 1026.19(e)
and (f), although such transactions are not currently subject to the
requirements of Sec. 1026.18(s).
The new, integrated disclosures include a different form of
projected payments table, under Sec. Sec. 1026.37(c) and 1026.38(c),
instead of the summary table under Sec. 1026.18(s). Accordingly, the
Bureau proposes to amend Sec. 1026.18(s) to provide that it applies to
transactions that are secured by real property or a dwelling, other
than transactions that are subject to Sec. 1026.19(e) and (f) (i.e.
reverse mortgages and dwellings that are not secured by real property).
The Bureau is proposing parallel revisions to comment 18(s)-1 to
reflect this change in the scope of Sec. 1026.18(s)'s coverage. The
Bureau also proposes to add a new comment 18(s)-4 to explain that Sec.
1026.18(s) governs only closed-end reverse mortgages and closed-end
transactions secured by a dwelling that is personal property.
18(s)(3) Payments for Amortizing Loans
18(s)(3)(i)(C)
Current Sec. 1026.18(s)(3)(i)(C) requires creditors to disclose
whether mortgage insurance is included in monthly escrow payments in
the interest rate and payment summary. The Bureau understands that some
government loan programs impose annual guarantee fees and that
creditors typically collect a monthly escrow for the payment of such
amounts. The Bureau has learned through industry inquiries that
uncertainty exists regarding whether such guarantee fees should be
disclosed as mortgage insurance under Sec. 1026.18(s)(3)(i)(C) if the
guarantee technically is not insurance under applicable law. One way to
comply with Sec. 1026.18(s) is to include such guarantee fees in the
monthly payment amount, without using the check box for ``mortgage
insurance.'' See comment 18(s)(3)(i)(C)-1 (escrowed amounts other than
taxes and insurance may be included but need not be). Although the
Bureau recognizes that government loan program guarantees may be
legally distinguishable from mortgage insurance, they are functionally
very similar. Moreover, such a technical, legal distinction is unlikely
to be meaningful to most consumers. Therefore, the Bureau believes that
the disclosure of such fees would be improved by including them in the
monthly escrow payment amount and using the check box for ``mortgage
insurance.''
For these reasons, pursuant to its authority under TILA section
105(a), Dodd-Frank Act section 1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b), the Bureau proposes to revise
Sec. 1026.18(s)(3)(i)(C) to provide that mortgage insurance or any
functional equivalent must be included in the estimate of the amount of
taxes and insurance, payable with each periodic payment. Proposed
comment 18(s)(3)(i)(C)-2 is revised to conform to Sec.
1026.18(s)(3)(i)(C). Specifically, the proposed comment clarifies that,
for purposes of the interest rate and payment summary disclosure
required by Sec. 1026.18(s), ``mortgage insurance or any functional
equivalent'' includes ``mortgage guarantees'' (such as a United States
Department of Veterans
[[Page 51155]]
Affairs or United States Department of Agriculture guarantee) that
provide coverage similar to mortgage insurance, even if not technically
considered insurance under State or other applicable law. Since
mortgage insurance and mortgage guarantee fees are functionally very
similar, the Bureau believes that including both amounts in the
estimate of taxes and insurance on the table required by Sec.
1026.18(s) will promote the informed use of credit, thereby carrying
out the purposes of TILA, consistent with TILA section 105(a). In
addition, the proposed disclosure will ensure that more of the features
of the mortgage transaction are fully, accurately, and effectively
disclosed to consumers in a manner that will permit consumers to
understand the costs, benefits, and risks associated with the mortgage
transaction, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans and will be in the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b). Proposed comment
18(s)(3)(i)(C)-2 is consistent with the treatment of mortgage guarantee
fees on the projected payments table required by proposed Sec. Sec.
1026.37(c) and 1026.38(c). See proposed comment 37(c)(1)(i)(C)-1.
Section 1026.19 Certain Mortgage and Variable-Rate Transactions
As discussed below, the Bureau proposes to amend Sec. 1026.19 to
define the scope of the proposed integrated disclosures and to
establish the requirements for provision of those disclosures.
Coverage of Integrated Disclosure Requirements
For the reasons discussed in detail below, the Bureau proposes to
require delivery of the integrated disclosures for closed-end consumer
credit transactions secured by real property, other than reverse
mortgages. As discussed above in part IV, section 1032(f) of the Dodd-
Frank Act requires that ``the Bureau shall propose for public comment
rules and model disclosures that combine the disclosures required under
[TILA] and sections 4 and 5 of [RESPA], into a single, integrated
disclosure for mortgage loan transactions covered by those laws.'' 12
U.S.C. 5532(f). In addition, sections 1098 and 1100A of the Dodd-Frank
Act amended RESPA section 4(a) and TILA section 105(b), respectively,
to require the Bureau to publish a ``single, integrated disclosure for
mortgage loan transactions (including real estate settlement cost
statements) which includes the disclosure requirements of [TILA and
sections 4 and 5 of RESPA] that, taken together, may apply to a
transaction that is subject to both or either provisions of law.'' 12
U.S.C. 2604(a); 15 U.S.C. 1604(b). Accordingly, the Bureau is directed
to establish the integrated disclosure requirements for ``mortgage loan
transactions'' that are ``subject to both or either provisions of''
RESPA sections 4 and 5 (the statutory GFE and settlement statement
requirements) and TILA.\125\
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\125\ In addition to, and at the same times as, provision of the
GFE under RESPA section 5(c), section 5(d) also requires lenders to
provide to mortgage applicants the home buying information booklet
prepared by the Bureau pursuant to section 5(a). Although the Bureau
is not proposing to integrate the booklet with the RESPA GFE and
TILA disclosures, in the sense of building all of their contents
into a single form, the Bureau is proposing to implement the booklet
requirement in proposed Sec. 1026.19(g), discussed below. The same
considerations of coverage discussed here with respect to the
integrated disclosures also apply for purposes of the booklet
requirement.
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The Legal Authority discussion in part IV also notes that,
notwithstanding this integrated disclosure mandate, the Dodd-Frank Act
did not reconcile important differences between RESPA and TILA relating
to the timing of delivery of the RESPA settlement statement and the
TILA disclosure, as well as the persons and transactions on whom those
disclosure requirements are imposed. Accordingly, to meet the
integrated disclosure mandate, the Bureau believes that it must
reconcile such statutory differences. In addition to those differences
already noted, RESPA and TILA have certain differences in the types of
transactions to which their respective disclosure requirements apply.
The Bureau also recognizes that application of the integrated
disclosure requirements to certain transaction types may be
inappropriate, even though those transaction types are within the
scopes of one or both statutes. These issues and the Bureau's proposal
for addressing them are discussed below.
Differences in coverage of RESPA and TILA. RESPA applies generally
to ``federally related mortgage loans,'' which means loans (other than
temporary financing such as construction loans) secured by a lien on
residential real property designed principally for occupancy by one to
four families and that are (1) made by a lender with Federal deposit
insurance; (2) made, insured, guaranteed, supplemented, or assisted in
any way by any officer or agency of the Federal government; (3)
intended to be sold to Fannie Mae, Ginnie Mae, or (directly or through
an intervening purchaser) Freddie Mac; or (4) made by a ``creditor,''
as defined under TILA, that makes or invests in real estate loans
aggregating more than $1,000,000 per year, other than a State agency.
12 U.S.C. 2602(1), 2604.\126\ RESPA section 7(a) provides that RESPA
does not apply to credit for business, commercial, or agricultural
purposes or to credit extended to government agencies. Id. 2606(a).
Thus, RESPA disclosures essentially are required for consumer-purpose
loans that have some Federal nexus (or are made by a TILA creditor with
sufficient volume) and that are secured by real property improved by
single-family housing.
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\126\ Although section 4 of RESPA, 12 U.S.C. 2603, originally
recited that it applied to federally related mortgage loans as well,
as amended by the Dodd-Frank Act it no longer does so explicitly.
The Bureau nevertheless regards the RESPA settlement statement
requirement as continuing to apply to federally related mortgage
loans, consistent with the rest of RESPA's scope generally.
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Regulation X Sec. 1024.5 implements these statutory provisions.
Section 1024.5(a) provides that RESPA and Regulation X apply to
federally related mortgage loans, which are defined by Sec. 1024.2(b)
to parallel the statutory definition described above. Section 1024.5(b)
establishes certain exemptions from coverage, including loans on
property of 25 acres or more; loans for a business, commercial, or
agricultural purpose; temporary financing, such as construction loans,
unless the loan is used to finance transfer of title or may be
converted to permanent financing by the same lender; and loans on
unimproved property, unless within two years from settlement the loan
proceeds will be used to construct or place a residence on the land. 12
CFR 1024.5(b)(1) through (4). Unlike the others, the exemption for
loans secured by properties of 25 acres or more is not statutory and is
established by Regulation X only.
TILA, on the other hand, applies generally to consumer credit
transactions of all kinds, including unsecured credit and credit
secured by nonresidential property. 15 U.S.C. 1602(f) (``credit''
defined as ``the right granted by a creditor to a debtor to defer
payment of debt or to incur debt and defer its payment''). Similar to
RESPA, TILA excludes, among others, extensions of credit primarily for
business, commercial, or agricultural purposes, or to government or
governmental agencies or instrumentalities, or to organizations. Id.
1603(1). In contrast with RESPA and Regulation X, however, TILA (and
therefore Regulation Z) has no exclusion
[[Page 51156]]
for property of 25 acres or more, temporary financing, or vacant land.
Moreover, TILA applies only to transactions made by a person who
``regularly extends'' consumer credit. Id. 1602(g) (definition of
creditor).
Regulation Z Sec. Sec. 1026.2(a)(14) and (17) and 1026.3(a)
implement these statutory provisions. In particular, Sec.
1026.2(a)(17) defines creditor in pertinent part as a person who
regularly extends consumer credit, and Sec. 1026.2(a)(17)(v) further
provides that, for transactions secured by a dwelling (other than
``high-cost'' loans subject to HOEPA), a person ``regularly extends''
consumer credit if it extended credit more than five times in the
preceding calendar year. Section 1026.3(a) implements the exclusion of
credit extended primarily for a business, commercial, or agricultural
purpose, as well as credit extended to other than a natural person,
including government agencies or instrumentalities.
Although TILA generally applies to consumer credit that is
unsecured or secured by nonresidential property, Dodd-Frank Act section
1032(f), RESPA section 4(a), and TILA section 105(b) specifically limit
the integrated disclosure requirement to ``mortgage loan
transactions.'' The Dodd-Frank Act did not specifically define
``mortgage loan transaction,'' but did direct that the disclosures be
designed to incorporate disclosure requirements that may apply to ``a
transaction that is subject to both or either provisions of the law.''
As described above, five types of loans are currently covered by
TILA or RESPA, but not both. Under the foregoing provisions, loans to
finance home construction that do not finance transfer of title and for
which the creditor will not extend permanent financing (construction-
only loans), loans secured by unimproved land already owned by the
consumer and on which a residence will not be constructed within two
years (vacant-land loans), and loans secured by land of 25 acres or
more (25-acre loans) all are subject to TILA but are currently exempt
from RESPA coverage. In addition, loans secured by dwellings that are
not real property, such as mobile homes, houseboats, recreational
vehicles, and similar dwellings that are not deemed real property under
State law, (chattel-dwelling loans) could be considered ``mortgage loan
transactions,'' and they also are subject to TILA but not RESPA.
Meanwhile, federally related mortgage loans made by persons who are not
creditors under TILA, because they make five or fewer such loans per
year, are subject to RESPA but not TILA. In addition, some types of
mortgage loan transactions are covered by both statutes, but may
warrant uniquely tailored disclosures because they involve terms or
features that are so different from standard closed-end transactions
that use of the same form may cause significant consumer confusion and
compliance burden for industry.
For the reasons discussed in detail below, the Bureau proposes to
use its authority under TILA section 105(a), (b), and (f), RESPA
sections 4(a) and 19(a), and Dodd-Frank Act sections 1032(a) and (f)
and, for residential mortgage loans, 1405(b) to tailor the scope of
this proposed rule so that the integrated disclosure requirements apply
to all closed-end consumer credit transactions secured by real
property, other than reverse mortgages. Doing so will ensure that, in
most mortgage transactions, consumers receive integrated disclosure
forms developed by the Bureau through extensive testing that will
improve consumers' understanding of the transaction. Furthermore,
applying a consistent set of disclosure requirements to most mortgage
transactions will facilitate compliance by industry. However, for a
subset of mortgage transactions, the Bureau believes that application
of the integrated disclosure requirements would not improve consumer
understanding or facilitate compliance and that these transactions
should therefore be exempted from those requirements.
In some cases, the Bureau is proposing to exempt transactions that
could arguably fall within Dodd-Frank Act sections 1032(f), 1098, and
1100A but are sufficiently different from other mortgage transactions
that application of the integrated disclosure forms would neither
improve consumer understanding nor facilitate compliance by industry
(e.g., reverse mortgages, open-end transactions secured by real
property or a dwelling, and closed-end transactions secured by a
dwelling but not real property). These transactions will remains
subject to the existing disclosure requirements under Regulations X and
Z, as applicable, until the Bureau adopts integrated disclosures
specifically tailored to their distinct features.\127\
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\127\ As discussed below, certain new mortgage disclosure
requirements in the Dodd-Frank Act apply to these transactions,
among others. Accordingly, transactions that are not subject to the
proposed rule would be temporarily exempt from those requirements
until the Bureau adopts a new disclosure scheme specific to those
transactions.
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In other cases, the Bureau is proposing to expand the scope of
certain mortgage disclosure requirements in order to ensure that, in
most mortgage transactions, consumers receive a consistent set of
disclosures, which the Bureau believes will improve consumer
understanding and facilitate compliance. In particular, the proposed
rule applies to certain transactions that are currently subject to
Regulation Z but not Regulation X (construction-only loans, vacant-land
loans, and 25-acre loans). In addition, many of the new Dodd-Frank Act
mortgage disclosure requirements apply to ``residential mortgage
loans,'' which--as noted above--are defined in section 1401 of the
Dodd-Frank Act as any consumer credit transaction that is secured by a
mortgage on a dwelling or on residential real property that includes a
dwelling other than an open-end credit plan or an extension of credit
secured by a consumer's interest in a timeshare plan.\128\ Thus, in
addition to narrowing the application of these disclosures to exempt
temporarily reverse mortgages and transactions that are not secured by
real property, the proposed rule expands the application of these
disclosure requirements to apply to transactions secured by real
property that does not contain a dwelling. Similarly, the proposed rule
both narrows and expands the application of other Dodd-Frank Act
mortgage disclosure requirements to improve consumer understanding and
facilitate compliance.\129\
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\128\ See, e.g., Dodd-Frank Act Sec. 1402(a)(2) (requires
disclosure of loan originator identifier) (codified at TILA Sec.
129B(b)(1)(B)); Dodd-Frank Act Sec. 1414(c) (requires disclosure of
anti-deficiency protections) (codified at TILA Sec. 129C(g)); Dodd-
Frank Act Sec. 1414(d) (requires disclosure of partial payment
policy) (codified at TILA Sec. 129C(h)); Dodd-Frank Act Sec. 1419
(requires disclosure of certain aggregate amounts and wholesale rate
of funds) (codified at TILA Sec. 128(a)(17)); Dodd-Frank Act Sec.
1419 (requires disclosure of loan originator compensation) (codified
at TILA Sec. 128(a)(18)); Dodd-Frank Act Sec. 1419 (requires
disclosure of total interest) (codified at TILA Sec. 128(a)(19)).
\129\ See, e.g., Dodd-Frank Act Sec. 1414(a) (requires negative
amortization disclosure for open or closed end consumer credit plans
secured by a dwelling or residential real property that includes a
dwelling that provides or permits a payment plan that may result in
negative amortization) (codified at TILA Sec. 129C(f)); Dodd-Frank
Act Sec. 1419 (requires certain payment disclosures for variable
rate residential mortgage loans for which an escrow account will be
established) (codified at TILA Sec. 128(a)(16)); Dodd-Frank Act
Sec. Sec. 1461(a), 1462, and 1465 (requires certain payment and
escrow disclosures for consumer credit transactions secured by a
first lien on the principal dwelling of the consumer, other than an
open end credit plan or reverse mortgage) (codified at TILA Sec.
129D(h) and (j) and 128(b)(4)); Dodd-Frank Act Sec. 1475 (permits
disclosure of appraisal management fees for federally related
mortgage loans) (codified at RESPA Sec. 4(c)).
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Accordingly, the Bureau believes adjusting the application of the
provisions of TILA and RESPA is within its general mandate under Dodd-
Frank
[[Page 51157]]
Act section 1032(f) to prescribe integrated disclosures, which requires
that the Bureau reconcile differences in coverage between the two
statutes. The Bureau also believes that this approach is expressly
authorized by sections 4(a) of RESPA and 105(b) of TILA because both
provisions direct the Bureau to prescribe disclosures that ``may apply
to a transaction that is subject to both or either provisions of law.''
(Emphasis added.) Those provisions authorize requiring the integrated
disclosures for any transaction that is subject to either RESPA or
TILA, and not only a transaction that is subject to both, precisely so
that the Bureau has the flexibility necessary to reconcile those
statutes' coverage differences for purposes of the integrated
disclosure mandate.
Furthermore, the Bureau believes that applying the integrated
disclosures to closed-end consumer credit transactions secured by real
property other than reverse mortgages will carry out the purposes of
TILA and RESPA, consistent with TILA section 105(a) and RESPA section
19(a), by promoting the informed use of credit and more effective
advance disclosure of settlement costs, respectively. In addition, the
proposed scope will ensure that the integrated disclosure requirements
are applied only in circumstances where they will permit consumers to
understand the costs, benefits, and risks associated with the mortgage
transaction, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans, consistent with Dodd-Frank Act section 1405(b).
Finally, the Bureau also proposes the exemption pursuant to TILA
section 105(f). The Bureau has considered the factors in TILA section
105(f) and believes that an exemption is appropriate under that
provision. Specifically, the Bureau believes that the proposed
exemption is appropriate for all affected borrowers, regardless of
their other financial arrangements and financial sophistication and the
importance of the loan to them. Similarly, the Bureau believes that the
proposed exemption is appropriate for all affected loans, regardless of
the amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Based on these considerations, the
results of the Bureau's consumer testing, and the analysis discussed
elsewhere in this proposal, the Bureau believes that the proposed
exemptions are appropriate.
Coverage issues with HELOCs. Open-end transactions secured by real
property or a dwelling (home-equity lines of credit, or HELOCs) and
reverse mortgages are within the statutory scope of both TILA and RESPA
and also reasonably could be considered ``mortgage loan transactions.''
Nevertheless, both types of transaction are by their natures
fundamentally different from other forms of mortgage credit. For the
reasons discussed below, the Bureau is proposing to exclude these types
of transaction from the coverage of the integrated disclosure
requirement.
HELOCs are open-end credit plans and therefore are appropriately
subject to the open-end disclosure requirements in subpart B of
Regulation Z. The Bureau looked to the closed-end content requirements
under TILA section 128 in developing the integrated disclosures. It did
so because the Dodd-Frank Act mandate to propose integrated disclosures
includes section 5 of RESPA, which requires the GFE, and only closed-
end transactions are subject to the parallel, early disclosure
requirement under TILA section 128(b)(2)(A). Subjecting open-end
transactions to the integrated disclosure requirements thus would
result in consumers who are obtaining open-end credit receiving closed-
end disclosures, many of which would be inapposite and therefore
potentially confusing or even misleading. Further, in recognition of
the distinct nature of open-end credit, Regulation X effectively
exempts such plans from the RESPA disclosure requirements. Sections
1024.6(a)(2) and 1024.7(h) of Regulation X state that, for HELOCs, the
requirements to provide the ``special information booklet'' regarding
settlement costs and the GFE, respectively, are satisfied by delivery
of the open-end disclosures required by Regulation Z. And Regulation X
Sec. 1024.8(a) exempts HELOCs from the settlement statement
requirement altogether. The Bureau expects to address HELOCs through a
separate, future rulemaking that will establish a distinct disclosure
scheme tailored to their unique features, which will achieve more
effectively the purposes of both RESPA and TILA.\130\
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\130\ In 2009, the Board proposed significant revisions to the
disclosure requirements for HELOCs. See 74 FR 43428 (Aug. 26, 2009).
The Bureau is now responsible for this proposal.
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Coverage issues with reverse mortgages. The Bureau is aware that
lenders and creditors face significant difficulties applying the
disclosure requirements of RESPA and TILA to reverse mortgages, in
light of those transactions' unusual terms and features. The
difficulties appear to stem from the fact that a number of the
disclosed items under existing Regulations X and Z are not relevant to
such transactions and therefore have no meaning. Moreover, the Bureau
developed the proposed integrated disclosure forms for use in
``forward'' mortgage transactions and did not subject those forms,
which implement essentially the same statutory disclosure requirements
as do the current regulations, to any consumer testing using reverse
mortgage transactions. The Bureau therefore is concerned that the use
of the integrated disclosures for reverse mortgages may result in
numerous disclosures of items that are not applicable, difficult to
apply, or potentially even misleading or confusing for consumers.\131\
As with HELOCs, the Bureau expects to address reverse mortgages through
a separate, future rulemaking process that will establish a distinct
disclosure scheme.\132\
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\131\ In addition, many reverse mortgages are structured as
open-end plans and therefore may be subject to the same concerns
noted with respect to HELOCs.
\132\ The Board's 2010 Mortgage Proposal included several
provisions relating to reverse mortgages. See 75 FR 58539, 58638-59.
Specifically, the Board proposed requiring creditors to use new
forms of disclosures designed specifically for reverse mortgages,
rather than the standard TILA disclosures. The 2010 Mortgage
Proposal also proposed significant protections for reverse mortgage
consumers, including with respect to advertising of reverse
mortgages and cross-selling of reverse mortgages with other
financial and insurance products. In addition, section 1076 of the
Dodd-Frank Act required the Bureau to engage in a study of reverse
mortgage transactions and instructed the Bureau to consider
protections with respect to obtaining reverse mortgages for the
purpose of funding investments, annuities, and other investment
products and the suitability of a borrower in obtaining a reverse
mortgage. The Bureau intends that its future rulemaking for reverse
mortgages will address the issues identified in the Board's 2010
Mortgage Proposal and the findings of the Bureau's reverse mortgage
study.
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Coverage issues with chattel-dwelling loans. Chattel-dwelling loans
(such as loans secured by mobile homes) do not involve real property,
by definition. The Bureau estimates that approximately one-half of the
closing-cost content of the integrated disclosures is not applicable to
such transactions because they more closely resemble motor vehicle
transactions than true mortgage transactions. Such transactions
currently are not subject to RESPA and, unlike the transactions above
that involve real property, generally are not consummated with ``real
estate settlements,'' which are the basis of RESPA's coverage. Thus,
were these
[[Page 51158]]
transactions subject to the integrated disclosures under this proposal,
a significant portion of the disclosures' content would be
inapplicable. The Bureau believes that permitting those items to be
omitted altogether could compromise the overall integrity of the
disclosures, which were developed through consumer testing that never
contemplated such extensive omissions, and the Bureau therefore has no
basis for expecting that they would necessarily be as informative to
consumers if so dramatically altered. The Bureau has similar concerns
about keeping the overall forms intact but directing creditors to
complete the inapplicable portions with ``N/A'' or simply to leave them
blank. Moreover, the Bureau believes that such an approach would risk
undermining consumers' understanding of their transactions, which would
be inconsistent with the purpose of this rulemaking, because they could
be distracted by extensive blank or ``N/A'' disclosures from the
relevant disclosures present on the form.
Although chattel-dwelling loans are subject to TILA, excluding them
from coverage of the integrated disclosures would not excuse them from
TILA's disclosure requirements. Rather, they would remain subject to
the existing closed-end TILA disclosure requirements as implemented in
Sec. 1026.18. Thus, this approach preserves the current treatment of
chattel-dwelling loans under both RESPA and TILA. The Bureau expects
that it will undertake improvements to the Sec. 1026.18 disclosures in
the future, through a process similar to the one used in this proposal.
The Bureau believes that the TILA disclosures resulting from that
process would be more appropriate and more beneficial to consumers than
the integrated disclosures under this proposal. Excluding chattel-
dwellings from the integrated disclosure requirements means they would
not be subjected by this rulemaking to certain new disclosure
requirements added to TILA section 128(a) by the Dodd-Frank Act. As
discussed under Sec. 1026.1(c) above, certain new mortgage disclosure
requirements established by the Dodd-Frank Act are being deferred until
such requirements are implemented by regulations. Such regulations
include, but are not limited to, the final rule that will be adopted
under this proposal. As noted above, the Bureau plans to address
chattel-dwellings, as well as reverse mortgages and HELOCs, in future
rulemakings. Accordingly, pursuant to the authority discussed above,
those transactions also are subject to the temporary exemption in
proposed Sec. 1026.1(c) until those rulemakings are completed.
The Bureau's proposal. For the reasons discussed above, proposed
Sec. 1026.19(e) and (f), discussed further below, requires that the
integrated disclosures be provided for closed-end consumer credit
transactions secured by real property, other than a reverse mortgage
subject to Sec. 1026.33. Similarly, proposed Sec. 1026.19(g) requires
provision of the home buying information booklet for closed-end
consumer credit transactions secured by real property and states in
Sec. 1026.19(g)(1)(iii)(C) that the requirement does not apply to
reverse mortgages. Accordingly, construction-only loans and vacant-land
loans are subject to the proposed integrated disclosure and booklet
requirements. On the other hand, chattel-dwelling loans are not subject
to the proposed integrated disclosure or booklet requirements and,
instead, remain subject to the existing disclosure requirements in
Sec. 1026.18. Finally, federally related mortgage loans extended by a
person that is not a creditor, as defined in Regulation Z Sec.
1026.2(a)(17), are not subject to the proposed integrated disclosure or
booklet requirements because such transactions are not subject to
Regulation Z at all.
The Bureau believes that, although construction-only loans, vacant-
land loans, and 25-acre loans all currently are exempt from RESPA
coverage either by statute or regulation, consumers may benefit from
the integrated disclosures in such transactions. If such transactions
were not subjected to the integrated disclosure requirements, they
would remain subject to the existing TILA disclosures under Sec.
1026.18. The Bureau believes this treatment would deprive consumers in
such transactions of the benefits of the enhanced disclosures developed
for this proposal. Moreover, these types of transactions involve real
property and, therefore, are amenable to disclosure of the information
currently disclosed through the RESPA GFE and settlement statement
requirements. Thus, the Bureau expects that creditors should be able to
use existing systems to provide the integrated disclosures for such
transactions. The Bureau solicits comment, however, on whether
application of the integrated disclosures to these transactions will
impose significant burdens on creditors.
The Bureau also believes that, if a lender extends five or fewer
consumer credit transactions secured by a consumer's dwelling in a
year, it should not be subject to TILA or Regulation Z. This treatment
preserves the status of such transactions under existing Regulation Z.
That is, currently, consumers do not receive Regulation Z disclosures
from such lenders because they are not considered ``creditors''
pursuant to Sec. 1026.2(a)(17)(v). The Bureau believes that
eliminating this exemption could represent a significant expansion of
TILA coverage and is unaware of any significant problems encountered by
consumers obtaining credit from such small lenders that might justify
such an expansion. Further, because such small creditors may lack the
systems to comply with TILA, they may cease to extend credit if forced
to establish compliance systems. Although preserving this exemption
means that the integrated disclosures would not be received by
consumers in such transactions, the Bureau expects the impact of such
an exemption to be limited. Based on data reported for 2010 under the
Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., the Bureau
notes that 569 creditors (seven percent of all HMDA reporters) reported
five or fewer originations and, more significantly, that their combined
originations of 1399 loans equaled only 0.02 percent of all
originations reported under HMDA for that year. These transactions
would remain subject to the RESPA disclosure requirements under
Regulation X.
Provision of Current Disclosures Under TILA and RESPA
TILA. Section 128(b)(2)(A) of TILA provides that for an extension
of credit secured by a consumer's dwelling, which is also subject to
RESPA, good faith estimates of the disclosures in section 128(a) shall
be made in accordance with regulations of the Bureau and shall be
delivered or placed in the mail not later than three business days
after the creditor receives the consumer's written application. 15
U.S.C. 1638(b)(2)(A). Section 128(b)(2)(A) also requires these
disclosures to be delivered at least seven business days before
consummation. Regulation Z implements this provision in Sec.
1026.19(a), which generally tracks the statute except that it does not
apply to home equity lines of credit subject to Sec. 1026.40 and
mortgage transactions secured by a consumer's interest in a timeshare
plan subject to Sec. 1026.19(a)(5).
Section 128(b)(2)(A) and (D) of TILA states that, if the
disclosures provided pursuant to section 128(b)(2)(A) contain an annual
percentage rate that is no longer accurate, the creditor shall furnish
an additional, corrected
[[Page 51159]]
statement to the borrower not later than three business days before the
date of consummation of the transaction. 15 U.S.C. 1638(b)(2)(A), (D).
Regulation Z implements TILA's requirement that the creditor deliver
corrected disclosures in Sec. 1026.19(a)(2)(ii).
RESPA. Section 5(c) of RESPA states that lenders shall provide,
within three days of receiving the consumer's application, a good faith
estimate of the amount or range of charges for specific settlement
services the borrower is likely to incur in connection with the
settlement as prescribed by the Bureau.\133\ 12 U.S.C. 2604(c). Section
3(3) of RESPA defines ``settlement services'' as:
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\133\ RESPA section 5(d) provides that ``Each lender referred to
in subsection (a) of this section shall provide the booklet
described in such subsection to each person from whom it receives or
for whom it prepares a written application to borrow money to
finance the purchase of residential real estate. Such booklet shall
be provided by delivering it or placing it in the mail not later
than 3 business days after the lender receives the application, but
no booklet need be provided if the lender denies the application for
credit before the end of the 3-day period.'' RESPA section 5(c)
provides that ``Each lender shall include with the booklet a good
faith estimate of the amount or range of charges for specific
settlement services the borrower is likely to incur in connection
with the settlement as prescribed by the Bureau.'' Thus, the lender
must deliver the good faith estimate not later than three business
days after receiving the consumer's application.
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[A]ny service provided in connection with a real estate settlement
including, but not limited to, the following: title searches, title
examinations, the provision of title certificates, title insurance,
services rendered by an attorney, the preparation of documents,
property surveys, the rendering of credit reports or appraisals, pest
and fungus inspections, services rendered by a real estate agent or
broker, the origination of a federally related mortgage loan
(including, but not limited to, the taking of loan applications, loan
processing, and the underwriting and funding of loans), and the
handling of the processing, and closing or settlement. 12 U.S.C.
2602(3).
Section 1024.7(a)(1) of Regulation X currently provides that, not
later than three business days after a lender receives an application,
or information sufficient to complete an application, the lender must
provide the applicant with the GFE.
In contrast to the TILA and RESPA good faith estimate requirements,
which apply to creditors, the RESPA settlement statement requirement
generally applies to settlement agents. Specifically, section 4 of
RESPA provides that the settlement statement must be completed and made
available for inspection by the borrower at or before settlement by the
person conducting the settlement. 12 U.S.C. 2603(b). Section 4 also
provides that, upon the request of the borrower, the person who will
conduct the settlement shall permit the borrower to inspect those items
which are known to such person on the settlement statement during the
business day immediately preceding the day of settlement. Id. These
requirements are implemented in Regulation X Sec. 1024.10(a).
The Dodd-Frank Act. Sections 1098 and 1100A of the Dodd-Frank Act
amended RESPA and TILA to require an integrated disclosure that ``may
apply to a transaction that is subject to both or either provisions of
law.'' Accordingly, as discussed below, the Bureau is proposing to
integrate the TILA and RESPA good faith estimate requirements in a new
Sec. 1026.19(e). The Bureau is also proposing to integrate the TILA
and RESPA settlement statement requirements in a new Sec. 1026.19(f).
Finally, as appropriate, the Bureau is proposing to incorporate related
statutory and regulatory requirements into Sec. 1026.19 and to make
conforming amendments.
19(a) Reverse Mortgage Transactions Subject to RESPA
As discussed above, the proposal narrows the scope of Sec.
1026.19(a) so that all loans currently subject to Sec. 1026.19(a),
other than reverse mortgages, are instead subject to proposed Sec.
1026.19(e) and (f). Pursuant to its authority under section 105(a) of
TILA, the Bureau proposes to amend Sec. 1026.19(a)(1)(i) to apply only
to reverse mortgage transactions subject to both Sec. 1026.33 and
RESPA. This proposed amendment is consistent with TILA's purpose in
that it seeks to ensure meaningful disclosure of credit terms by
requiring the integrated disclosures only with respect to the loans for
which they were designed--mortgage loans secured by real property other
than reverse mortgages. This modification will also be in the interest
of consumers and the public because consumer understanding will be
improved if consumers of reverse mortgages are not provided with
inapplicable disclosures, consistent with Dodd-Frank Act section
1405(b). The Bureau also proposes to make conforming changes to Sec.
1026.19(a)(1)(ii), to delete Sec. 1026.19(a)(5), to delete comments
19(a)(5)(ii)-1 through -5, and to delete comments 19(a)(5)(iii)-1 and -
2.
19(e) Mortgage Loans Secured by Real Property--Early Disclosures
19(e)(1) Provision
19(e)(1)(i) Creditor
As discussed above, the Bureau is proposing to integrate the good
faith estimate requirements in TILA section 128 and RESPA section 5 in
Sec. 1026.19(e)(1)(i), which provides that in a closed-end consumer
credit transaction secured by real property, other than a reverse
mortgage subject to Sec. 1026.33, the creditor shall make good faith
estimates of the disclosures listed in Sec. 1026.37. Proposed comment
19(e)(1)(i)-1 explains that Sec. 1026.19(e)(1)(i) requires early
disclosure of credit terms in closed-end credit transactions that are
secured by real property, other than reverse mortgages. These
disclosures must be provided in good faith. Except as otherwise
provided in Sec. 1026.19(e), a disclosure is in good faith if it is
consistent with the best information reasonably available to the
creditor at the time the disclosure is provided.
19(e)(1)(ii) Mortgage Broker
Currently, neither TILA's nor RESPA's disclosure requirements apply
to mortgage brokers. The disclosure requirements of Regulation Z also
do not apply to mortgage brokers. Section 1024.7(b) of Regulation X,
however, currently permits mortgage brokers to deliver the GFE,
provided that the mortgage broker otherwise complies with the relevant
requirements of Regulation X, and provided that the lender remains
responsible for ensuring that the mortgage broker does so.
The Bureau recognizes that, in some cases, permitting mortgage
brokers to deliver the integrated disclosure may benefit consumers.
Some consumers may have better relationships with mortgage brokers than
with creditors, which may enable mortgage brokers to assist those
consumers with understanding the GFE more effectively and efficiently.
However, there are concerns regarding the ability of mortgage brokers
to provide the information required by the integrated Loan Estimate
accurately and reliably. For example, it is not clear that mortgage
brokers have the ability to inform the consumer whether the lender
intends to service the consumer's loan, or whether the lender will
permit a person to assume the consumer's loan on the original terms.
Similarly, it is uncertain that mortgage brokers have the ability to
estimate taxes and insurance, which is a new disclosure on the Loan
Estimate that is not included on the current RESPA GFE, to the level
[[Page 51160]]
of specificity required for the Loan Estimate under proposed Sec.
1026.19(e)(3). There is an additional concern that mortgage brokers do
not have the technology necessary to comply with TILA's requirements
regarding delivery of estimates, delivery of revised disclosures, and
recordkeeping.
The Bureau proposes to exercise its authority under TILA section
105(a) and, with respect to residential mortgage loans, Dodd-Frank Act
section 1405(b) to preserve the flexibility in current Regulation X by
permitting the mortgage broker to provide the integrated Loan Estimate
under Sec. 1026.19(e)(1)(ii), subject to certain limitations. This
proposed provision is consistent with TILA's purpose in that consumers
will be able to compare more readily the credit terms available if
mortgage brokers and creditors are able to disclose available credit
terms by use of the Loan Estimate. In addition, this modification will
be in the interest of consumers and the public because consumer
understanding and awareness will be improved if consumers can rely on
the Loan Estimate regardless of whether it is provided by a creditor or
mortgage broker, consistent with Dodd-Frank Act section 1405(b).
Specifically, proposed Sec. 1026.19(e)(1)(ii) provides that, in
providing the Loan Estimate, the mortgage broker must act as the
creditor in every respect, including complying with all of the
requirements of proposed Sec. 1026.19(e) and assuming all related
responsibilities and obligations. The Bureau also seeks comment on the
ability of mortgage brokers to comply with the requirements of TILA. In
addition, the Bureau seeks comment on the ability of creditors to
coordinate their operations with mortgage brokers in a manner that
provides the same or better information to consumers than if the
creditor alone were permitted to provide the disclosures.
Proposed comment 19(e)(1)(ii)-1 explains that a mortgage broker may
provide the disclosures required under Sec. 1026.19(e)(1)(i) instead
of the creditor. By assuming this responsibility, the mortgage broker
becomes responsible for complying with all of the relevant requirements
as if it were the creditor, meaning that ``mortgage broker'' should be
read in the place of ``creditor'' for all the relevant provisions of
Sec. 1026.19(e), except where the context indicates otherwise. The
creditor and mortgage broker must effectively communicate to ensure
timely and accurate compliance with the requirements of Sec.
1026.19(e). Proposed comment 19(e)(1)(ii)-2 provides further guidance
on the mortgage broker's responsibilities in the event that the
mortgage broker provides the disclosures required under Sec.
1026.19(e), explaining that if a mortgage broker issues any disclosure
under Sec. 1026.19(e), the mortgage broker must comply with the
requirements of Sec. 1026.19(e). For example, if the mortgage broker
receives sufficient information to complete an application, the
mortgage broker must issue the disclosures required under Sec.
1026.19(e)(1)(i) within three business days in accordance with Sec.
1026.19(e)(1)(iii). If the broker subsequently receives information
sufficient to establish that a disclosure provided under Sec.
1026.19(e)(1)(i) must be reissued under Sec. 1026.19(e)(3)(iv), then
the mortgage broker is responsible for ensuring that a revised
disclosure is provided.
Proposed comment 19(e)(1)(ii)-3 discusses the creditor's
responsibilities in the event that a mortgage broker provides
disclosures under Sec. 1026.19(e). The proposed comment explains that
if a mortgage broker issues any disclosure required under Sec.
1026.19(e) in the creditor's place, the creditor remains responsible
under Sec. 1026.19(e) for ensuring that the requirements of Sec.
1026.19(e) have been satisfied. For example, the creditor must ensure
that the broker provides the disclosures required under Sec.
1026.19(e) not later than three business days after the mortgage broker
received information sufficient to constitute an application, as
defined in Sec. 1026.2(a)(3)(ii). The creditor does not satisfy the
requirements of Sec. 1026.19(e) if it provides duplicative
disclosures. For example, a creditor does not meet its burden by
issuing disclosures required under Sec. 1026.19(e) that mirror
disclosures already issued by the broker for the purpose of
demonstrating that the consumer received timely disclosures. If the
broker provides an erroneous disclosure, the creditor is responsible
and may not issue a revised disclosure correcting the error. The
creditor is expected to maintain communication with the broker to
ensure that the broker is acting in place of the creditor. This comment
is consistent with guidance provided by HUD in the HUD RESPA FAQs p. 8-
10, 16, 26, 29 (``GFE--General''). Disclosures provided by a
broker in accordance with Sec. 1026.19(e)(1)(ii) satisfy the
creditor's obligation under Sec. 1026.19(e)(1)(i).
Proposed comment 19(e)(1)(ii)-4 discusses when mortgage brokers
must comply with Sec. 1026.19(e)(2)(ii), regarding the provision of
preliminary written estimates specific to the consumer. The proposed
comment explains that Sec. 1026.19(e)(1)(ii) requires mortgage brokers
to comply with Sec. 1026.19(e)(2)(ii) if a mortgage broker provides
any disclosures under Sec. 1026.19(e). For example, if a mortgage
broker never provides disclosures required by Sec. 1026.19(e), the
mortgage broker need not include the disclosure required by Sec.
1026.19(e)(2)(ii) on written information provided to consumers.
19(e)(1)(iii) Timing
Section 128(b)(2)(A) of TILA provides that good faith estimates of
the disclosures under section 128(a) shall be delivered or placed in
the mail not later than three business days after the creditor receives
the consumer's written application. 15 U.S.C. 1638(b)(2)(A). Section
128(b)(2)(A) also requires these disclosures to be delivered at least
seven business days before consummation. RESPA requires lenders to
provide the GFE not later than three business days after receiving the
consumer's application, but does not require provision at least seven
business days before consummation. These requirements are implemented
in Sec. 1026.19(a)(1)(i) and (a)(2)(i) of Regulation Z and Sec.
1024.7(a)(2) of Regulation X, respectively.
The Bureau believes that, for the proposed rule to be consistent
with the requirements of both statutes, both the three-business-day
delivery requirement and the seven-business-day waiting period should
apply to the integrated Loan Estimate. Although RESPA does not contain
a seven-business-day waiting period, this waiting period is consistent
with the purposes of RESPA, and adopting it for the integrated
disclosures may best effectuate the purposes of both TILA and RESPA by
enabling the informed use of credit and ensuring effective advance
disclosure of settlement charges. Accordingly, pursuant to its
authority under TILA section 105(a), RESPA section 19(a), Dodd-Frank
Act section 1032(a), and, for residential mortgage loans, section
1405(b) of the Dodd-Frank Act, the Bureau proposes Sec.
1026.19(e)(1)(iii), which provides that the creditor shall deliver the
disclosures required by Sec. 1026.19(e)(1)(i) not later than the third
business day after the creditor receives the consumer's application, as
defined in proposed Sec. 1026.2(a)(3)(ii), and that the creditor shall
deliver these disclosures not later than the seventh business day
before consummation of the transaction. This proposed provision is
consistent with TILA's purposes in that consumers will be able to
compare more readily the various credit terms available and avoid the
uninformed use of credit, thereby assuring a meaningful
[[Page 51161]]
disclosure of credit terms. This proposed regulation is consistent with
section 19(a) of RESPA because it achieves the purposes of RESPA by
requiring more effective advance disclosure to consumers of settlement
costs. In addition, the Bureau is proposing this provision pursuant to
its authority under Dodd-Frank Act section 1032(a) because the proposal
ensures that the features of the credit transaction are fully,
accurately, and effectively disclosed to the consumer in a manner that
permits consumers to understand the costs, benefits, and risks
associates with the mortgage loan by providing sufficient time to
review, question, and understand the entire cost of the transaction,
which is also in the best interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b).
Proposed comment 19(e)(1)(iii)-1 further clarifies this provision
and provides illustrative examples. Proposed comment 19(e)(1)(iii)-2
discusses the waiting period, providing that the seven-business-day
waiting period begins when the creditor delivers the disclosures or
places them in the mail, not when the consumer receives or is presumed
to have received the disclosures. For example, if a creditor delivers
the early disclosures to the consumer in person or places them in the
mail on Monday, June 1, consummation may occur on or after Tuesday,
June 9, the seventh business day following delivery or mailing of the
early disclosures, because, for the purposes of Sec.
1026.19(e)(1)(iii), Saturday is a business day, pursuant to Sec.
1026.2(a)(6).
Proposed comment 19(e)(1)(iii)-3 relates to denied or withdrawn
applications, explaining that the creditor may determine within the
three-business-day period that the application will not or cannot be
approved on the terms requested, such as when a consumer's credit score
is lower than the minimum score required for the terms the consumer
applied for, or the consumer applies for a type or amount of credit
that the creditor does not offer. In that case, or if the consumer
withdraws the application within the three-business-day period, the
creditor need not make the disclosures required under Sec.
1026.19(e)(1)(i). If the creditor fails to provide early disclosures
and the transaction is later consummated on the terms originally
applied for, then the creditor violates Sec. 1026.19(e)(1)(i). If,
however, the consumer amends the application because of the creditor's
unwillingness to approve it on the terms originally applied for, no
violation occurs for not providing disclosures based on those original
terms. But the amended application is a new application subject to
Sec. 1026.19(e)(1)(i).
19(e)(1)(iv) Delivery
Section 128(b)(2)(E) of TILA provides that, if the disclosures are
mailed to the consumer, the consumer is considered to have received
them three business days after they are mailed. 15 U.S.C.
1638(b)(2)(E). RESPA provides that the GFE may be delivered either in
person or by placing it in the mail. 12 U.S.C. Sec. 2604(c) and (d).
Regulation Z provides that if the disclosures are provided to the
consumer by means other than delivery in person, the consumer is
considered to have received the disclosures three business days after
they are mailed or delivered. See Sec. 1026.19(a)(1)(ii). Regulation X
contains a similar provision. See Sec. 1024.7(a)(4).
To establish a consistent standard for the integrated Loan
Estimate, pursuant to its authority under TILA section 105(a), RESPA
section 19(a), Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, section 1405(b) of the Dodd-Frank Act, the Bureau
proposes Sec. 1026.19(e)(1)(iv), which states that, if the disclosures
are provided to the consumer by means other than delivery in person,
the consumer is presumed to have received the disclosures three
business days after they are mailed or delivered to the address
specified by the consumer.
Proposed comment 19(e)(1)(iv)-1 explains that if any disclosures
required under Sec. 1026.19(e)(1)(i) are not provided to the consumer
in person, the consumer is presumed to have received the disclosures
three business days after they are mailed or delivered. This is a
presumption which may be rebutted by providing evidence that the
consumer received the disclosures earlier than three business days. The
proposed comment also contains illustrative examples. Proposed comment
19(e)(1)(iv)-2 clarifies that the presumption established in Sec.
1026.19(e)(1)(iv) applies to methods of electronic delivery, such as
email. However, creditors using electronic delivery methods, such as
email, must also comply with Sec. 1026.17(a)(1). The proposed comment
also contains illustrative examples.
19(e)(1)(v) Consumer's Waiver of Waiting Period Before Consummation
Section 128(b)(2)(F) of TILA provides that the consumer may waive
or modify the timing requirements for disclosures to expedite
consummation of a transaction, if the consumer determines that the
extension of credit is needed to meet a bona fide personal financial
emergency. Section 128(b)(2)(F) further provides that: (1) the term
``bona fide personal financial emergency'' may be further defined in
regulations issued by the Bureau; (2) the consumer must provide the
creditor with a dated, written statement describing the emergency and
specifically waiving or modifying the timing requirements, which bears
the signature of all consumers entitled to receive the disclosures; and
(3) the creditor must provide, at or before the time of waiver or
modification, the final disclosures. 15 U.S.C. 1638(b)(2)(F). This
provision is implemented in Sec. 1026.19(a)(3) of Regulation Z.
Neither RESPA nor Regulation X contains a similar provision.
Although the Bureau understands that waivers based on a bona fide
personal financial emergency are rare, this exception serves an
important purpose: consumers should be able to waive the protection
afforded by the waiting period if, in the face of a financial
emergency, the waiting period does more harm than good. Accordingly,
pursuant to its authority under TILA section 105(a) and RESPA section
19(a) the Bureau is proposing Sec. 1026.19(e)(1)(v), which allows a
consumer to waive the seven-business-day waiting period in the event of
a bona fide personal financial emergency. In addition, the Bureau seeks
comment on the nature of waivers based on bona fide personal financial
emergencies. The Bureau also seeks comment on whether the bona fide
personal financial emergency exception is needed more in some contexts
than in others (e.g., in refinance transactions or purchase money
transactions).
Proposed comment 19(e)(1)(v)-1 explains that a consumer may modify
or waive the right to the seven-business-day waiting period required by
Sec. 1026.19(e)(1)(iii) only after the creditor makes the disclosures
required by Sec. 1026.19(e)(1)(i). The consumer must have a bona fide
personal financial emergency that necessitates consummating the credit
transaction before the end of the waiting period. Whether these
conditions are met is determined by the individual facts and
circumstances. The imminent sale of the consumer's home at foreclosure,
where the foreclosure sale will proceed unless loan proceeds are made
available to the consumer during the waiting period, is one example of
a bona fide personal financial emergency. Each consumer who is
primarily liable on the legal obligation must sign the written
statement for the waiver to be effective. Proposed comment 19(e)(1)(v)-
2
[[Page 51162]]
provides illustrative examples of this requirement.
19(e)(1)(vi) Shopping for Settlement Service Providers
Neither TILA nor RESPA nor Regulation Z requires creditors to
inform consumers about settlement service providers for whom the
consumer may shop. However, as explained above, Regulation X provides
that where a lender or mortgage broker permits a borrower to shop for
third party settlement services, the lender or broker must provide the
borrower with a written list of settlement services providers at the
time the GFE is provided on a separate sheet of paper. 12 CFR part 1024
app. C. HUD intended this requirement to enable consumers to shop for
settlement service providers, thereby enhancing market competition and
lowering settlement service costs for consumers. See 73 FR at 14030.
The Bureau agrees that the written list of settlement service providers
may benefit consumers by fostering settlement service shopping.
Therefore, the Bureau proposes Sec. 1026.19(e)(1)(vi). As an
initial matter, proposed Sec. 1026.19(e)(1)(vi)(A) provides that a
creditor permits a consumer to shop for a settlement service if the
creditor permits the consumer to select the provider of that service,
subject to reasonable minimum requirements regarding the qualifications
of the provider. Comment 19(e)(1)(vi)-1 provides examples of minimum
requirements that are and are not reasonable. For example, the creditor
may require that a settlement agent chosen by the consumer must be
appropriately licensed in the relevant jurisdiction. In contrast, a
creditor may not require the consumer to choose a provider from a list
provided by creditor. This comment also clarifies that the requirements
of Sec. 1026.19(e)(1)(vi)(B) and (C) do not apply if the creditor does
not permit the consumer to shop.
Proposed Sec. 1026.19(e)(1)(vi)(B) provides that the creditor
shall identify the services for which the consumer is permitted to shop
in the Loan Estimate. Comment 19(e)(1)(vi)-2 clarifies that Sec.
1026.37(f)(3) contains the content and format requirements for this
disclosure.
Proposed Sec. 1026.19(e)(1)(vi)(C) provides that, if the creditor
permits a consumer to shop for a settlement service, the creditor shall
provide the consumer with a written list identifying available
providers of that service and stating that the consumer may choose a
different provider for that service. It further requires that the list
be provided separately from the Loan Estimate but in accordance with
the timing requirements for that disclosure (i.e., within three days
after application).
Comment 19(e)(1)(vi)-3 explains that the settlement service
providers identified on the written list must correspond to the
settlement services for which the consumer may shop, as disclosed on
the Loan Estimate pursuant to Sec. 1026.37(f)(3). It also refers to
the model list provided in form H-27.
Comment 19(e)(1)(vi)-4 clarifies that a creditor does not comply
with the requirement in Sec. 1026.19(e)(1)(vi)(C) to ``identify''
providers unless it provides sufficient information to allow the
consumer to contact the provider, such as the name under which the
provider does business and the provider's address and telephone number.
It also clarifies that a creditor does not comply with the availability
requirement in Sec. 1026.19(e)(1)(vi)(C) if it provides a written list
consisting of only settlement service providers that are no longer in
business or that do not provide services where the consumer or property
is located. However, if the creditor determines that there is only one
available settlement service provider, the comment clarifies that the
creditor need only identify that provider on the written list of
providers. The guidance regarding availability is consistent with
guidance provided by HUD in the HUD RESPA FAQs p. 15, 7
(``GFE--Written list of providers'').
Comment 19(e)(1)(vi)-5 refers to form H-27 for an example of a
statement that the consumer may choose a provider that is not included
on that list. Comment 19(e)(1)(vi)-6 clarifies that the creditor may
include a statement on the written list that the listing of a
settlement service provider does not constitute an endorsement of that
service provider. It further clarifies that the creditor may also
identify in the written list providers of services for which the
consumer is not permitted to shop, provided that the creditor expressly
and clearly distinguishes those services from the services for which
the consumer is permitted to shop. This may be accomplished by placing
the services under different headings.
Finally, comment 19(e)(1)(vi)-7 discusses how proposed Sec.
1026.19(e)(1)(vi) relates to the requirements of RESPA and Regulation
X. The proposed comment explains that Sec. 1026.19 does not prohibit
creditors from including affiliates on the written list under Sec.
1026.19(e)(1)(vi). However, a creditor that includes affiliates on the
written list must also comply with Sec. 1024.15 of Regulation X. This
comment is consistent with guidance provided by HUD in its RESPA FAQs
p. 16, 9 (``GFE--Written list of providers''). The proposed
comment also explains that the written list is a ``referral'' under
Sec. 1024.14(f). This comment is consistent with guidance provided by
HUD in the HUD RESPA FAQs p. 14, 4 (``GFE--Written list of
providers'').
In addition to these proposed regulations and comments, the Bureau
solicits comment regarding whether the final rule should provide more
detailed requirements for the written list of providers. The Bureau
also solicits comment regarding whether the final rule should include
additional guidance regarding the content and format of the provider
list.
This proposal is made pursuant to the Bureau's authority under
sections 105(a) of TILA, 19(a) of RESPA, and, for residential mortgage
loans, sections 129B(e) of TILA and 1405(b) of the Dodd-Frank Act. This
proposed provision is consistent with TILA's purposes in that it will
increase consumer awareness of the costs of the transaction by
informing consumers that settlement costs can be influenced by
shopping, thereby promoting the informed use of credit. This provision
is consistent with section 129B(e) of TILA because failing to inform
borrowers of available settlement service providers increases the
difficulty of shopping for those services, which is not in the interest
of the borrower. It achieves the purposes of RESPA because disclosure
of available settlement service providers encourages consumer shopping
and settlement service provider competition, which will result in the
elimination of kickbacks, referral fees, and other practices that tend
to increase unnecessarily the costs of certain settlement services. In
addition, the requirements in proposed Sec. 1026.19(e)(1)(vi) are in
the interest of consumers and in the public interest because they will
improve consumer understanding and awareness of the mortgage loan
transaction through the use of disclosure by informing consumers about
shopping for settlement service providers and making consumers aware of
different settlement service providers available for the transaction,
consistent with Dodd-Frank Act section 1405(b).
19(e)(2) Pre-Disclosure Activity
19(e)(2)(i) Imposition of Fees on Consumer
19(e)(2)(i)(A) Fee Restriction
Section 128(b)(2)(E) of TILA provides that the ``consumer shall
receive the disclosures required under [TILA
[[Page 51163]]
section 128(b)] before paying any fee to the creditor or other person
in connection with the consumer's application for an extension of
credit that is secured by the dwelling of a consumer.'' 15 U.S.C.
1638(b)(2)(E). This provision is implemented in Sec.
1026.19(a)(1)(ii). Although RESPA does not expressly contain a similar
provision, Regulation X does. See Sec. 1024.7(a)(4). However, unlike
Regulation Z, Regulation X prohibits a consumer from paying a fee until
the consumer indicates an intent to proceed with the transaction after
receiving the disclosures. Id. As discussed below, both Regulation Z
and Regulation X provide an exception only for the cost of obtaining a
credit report.
Thus, Regulation X requires consumers to take an additional
affirmative step before new fees may be charged. The Bureau believes
that the goals of the integrated disclosure are best served by adopting
the approach under Regulation X. The Bureau intends for consumers to
use the integrated disclosure to make informed financial decisions.
This goal may also be inhibited if fees are imposed on consumers before
a consumer indicates intent to proceed. For example, after reviewing
the Loan Estimate a consumer may be uncertain that the disclosed terms
are in the consumer's best interest or that the disclosed terms are
those for which the consumer originally asked. If fees may be imposed
before the consumer decides to proceed with a particular loan,
consumers may not take additional time to understand the costs and
evaluate the risks of the disclosed loan. The Bureau also intends for
consumers to use the integrated disclosure to compare loan products
from different creditors. If creditors can impose fees on consumers
once the Loan Estimate is delivered, but before the consumer indicates
intent to proceed, shopping may be inhibited. For example, after
reviewing the Loan Estimate a consumer may be uncertain that the
disclosed terms are the most favorable terms the consumer could receive
in the market. If fees may be imposed before the consumer decides to
proceed with a particular loan, consumers may determine that too much
cost has been expended on a particular Loan Estimate to continue
shopping, even though the consumer believes more favorable terms could
be obtained from another creditor. Or, consumers may determine that
obtaining a Loan Estimate from multiple creditors is too costly if each
creditor can impose fees for each Loan Estimate.
Accordingly, pursuant to its authority under TILA section 105(a)
and RESPA section 19(a), the Bureau proposes Sec. 1026.19(e)(2)(i)(A),
which provides that no person may impose a fee on a consumer in
connection with the consumer's application before the consumer has
received the disclosures required by Sec. 1026.19(e)(1)(i) and
indicated to the creditor an intent to proceed with the transaction
described by those disclosures. This proposed regulation carries out
the purposes of TILA because requiring the specific identification of
the fee imposed assures meaningful disclosures of credit terms,
consistent with section 105(a) of TILA, and it achieves the purposes of
RESPA because the more specific identification of the fee is a more
effective method of advance disclosure, consistent with section 19(a)
of RESPA.
Proposed comment 19(e)(2)(i)(A)-1 explains that a creditor or other
person may not impose any fee, such as for an application, appraisal,
or underwriting, until the consumer has received the disclosures
required by Sec. 1026.19(e)(1)(i) and indicated an intent to proceed
with the transaction. The only exception to the fee restriction allows
the creditor or other person to impose a bona fide and reasonable fee
for obtaining a consumer's credit report, pursuant to Sec.
1026.19(e)(2)(i)(B). Proposed comment 19(e)(2)(i)(A)-2 explains that
the consumer may indicate intent to proceed in any manner the consumer
chooses, unless a particular manner of communication is required by the
creditor, provided that the creditor does not assume silence is
indicative of intent. The creditor must document this communication to
satisfy the requirements of Sec. 1026.25. The proposed comment also
includes illustrative examples.
Proposed comment 19(e)(2)(i)(A)-3 discusses the collection of fees
and provides that at any time prior to delivery of the required
disclosures, the creditor may impose a credit report fee as provided in
Sec. 1026.19(e)(2)(i)(B). However, the consumer must receive the
disclosures required by Sec. 1026.19(e)(1)(i) and indicate an intent
to proceed with the mortgage loan transaction before paying or
incurring any other fee imposed by a creditor or other person in
connection with the consumer's application for a mortgage loan that is
subject to Sec. 1026.19(e)(1)(i). Proposed comment 19(e)(2)(i)(A)-4
provides illustrative examples regarding these requirements.
Proposed comment 19(e)(2)(i)(A)-5 discusses determining when a
particular charge is ``imposed by'' a person. The proposed comment
provides that, for purposes of Sec. 1026.19(e), a fee is ``imposed
by'' a person if the person requires a consumer to provide a method for
payment, even if the payment is not made at that time. For example, a
creditor may not require the consumer to provide a $500 check to pay a
``processing fee'' before the consumer receives the disclosures
required by Sec. 1026.19(e)(1)(i) and the consumer subsequently
indicates intent to proceed. The creditor in this example does not
comply even if the creditor does not deposit the check until after the
disclosures required by Sec. 1026.19(e)(1)(i) are received by the
consumer and the consumer subsequently indicates intent to proceed.
Similarly, a creditor may not require the consumer to provide a credit
card number before the consumer receives the disclosures required by
Sec. 1026.19(e)(1)(i) and the consumer subsequently indicates intent
to proceed, even if the creditor promises not to charge the consumer's
credit card for the $500 processing fee until after the disclosures
required by Sec. 1026.19(e)(1)(i) are received by the consumer and the
consumer subsequently indicates intent to proceed. In contrast, a
creditor complies with Sec. 1026.19(e)(2) if the creditor requires the
consumer to provide a credit card number before the consumer receives
the disclosures required by Sec. 1026.19(e)(1)(i) and subsequently
indicates intent to proceed if the consumer's authorization is only to
pay for the cost of a credit report. This is so even if the creditor
maintains the consumer's credit card number on file and charges the
consumer a $500 processing fee after the disclosures required by Sec.
1026.19(e)(1)(i) are received and the consumer subsequently indicates
intent to proceed, provided that the creditor requested and received a
separate authorization for the processing fee charge from the consumer
after the consumer received the disclosures required by Sec.
1026.19(e)(1)(i).
19(e)(2)(i)(B) Exception to Fee Restriction
Section 1026.19(a)(1)(iii) of Regulation Z currently provides that
a person may impose a fee for obtaining a consumer's credit history
prior to providing the good faith estimates, which is the lone
exception to the general rule established by Sec. 1026.19(a)(1)(ii)
that fees may not be imposed prior to the consumer's receipt of the
disclosures. Section 1024.7(a)(4) of Regulation X contains a similar
exception, but it differs in two important respects. First, Regulation
Z provides that the fee may be imposed for a consumer's ``credit
history,'' while
[[Page 51164]]
Regulation X specifies that the fee must be for the consumer's ``credit
report.'' The Regulation Z provision could be read as permitting a
broader range of activity than just acquiring a consumer's credit
report. The Bureau believes that the purposes of the integrated
disclosure are better served by adopting the terminology used by
Regulation X. Consumers should be able to receive a reliable estimate
of mortgage loan costs with as little up-front expense and burden as
possible, while creditors should be able to receive sufficient
information from the credit report alone to develop a reasonably
accurate estimate of costs.
Another issue stems from existing commentary under Regulation Z,
which provides that the fee charged pursuant to Sec.
1026.19(a)(1)(iii) may be described or referred to as an ``application
fee,'' provided the fee meets the other requirements of Sec.
1026.19(a)(1)(iii). The Bureau believes that the better approach, for
purposes of the integrated disclosure, is to require a fee for a credit
report to be disclosed with the more precise label. Consumers may be
more likely to understand that a credit report fee is imposed if a fee
for the purpose of obtaining a credit report is clearly described as
such. Additionally, compliance costs are generally reduced when
regulatory requirements are standardized. Accordingly, the Bureau
proposes Sec. 1026.19(e)(2)(i)(B), which provides that a person may
impose a bona fide and reasonable fee for obtaining the consumer's
credit report before the consumer has received the disclosures required
by Sec. 1026.19(e)(1)(i). Proposed comment 19(e)(2)(i)(B)-1 clarifies
that a creditor or other person may impose a fee before the consumer
receives the required disclosures if it is for purchasing a credit
report on the consumer, provided that such fee is bona fide and
reasonable in amount. Also, the creditor must accurately describe or
refer to this fee, for example, as a ``credit report fee.''
19(e)(2)(ii) Written Information Provided to Consumer
The Bureau understands that consumers often request written
estimates of loan terms before receiving the RESPA GFE. The Bureau
recognizes that these written estimates may be helpful to consumers.
However, the Bureau is concerned that consumers may confuse such
written estimates, which are not subject to the good faith requirements
of TILA section 128(b)(2)(A) and RESPA section 5 and may be unreliable,
with the disclosures required under Sec. 1026.19(e)(1)(i), which must
be made in good faith. The Bureau is also concerned that unscrupulous
creditors may use formatting and language similar to the disclosures
required under Sec. 1026.19(e)(1)(i) to deceive consumers into
believing that the creditor's unreliable written estimate is actually
the disclosure required under Sec. 1026.19(e)(1)(i). These concerns
are particularly important in light of section 1405(b) of the Dodd-
Frank Act, which places emphasis on improving ``consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures.''
Creditors may choose to issue, and consumers may want, preliminary
written estimates based on less information than is needed to issue the
disclosures required under Sec. 1026.19(e)(1)(i). However, mortgage
loan costs are often highly sensitive to the information that triggers
the disclosures. Thus, the disclosures required under Sec.
1026.19(e)(1)(i) may be more accurate indicators of cost than
preliminary written estimates. Consumers may better understand the
sensitivity of mortgage loan costs to information about the consumer's
creditworthiness and collateral value if consumers are aware of the
difference between preliminary written estimates and disclosures
required under Sec. 1026.19(e)(1)(i). Additionally, section 1032(a) of
the Dodd-Frank Act authorizes the Bureau to prescribe rules to ensure
the full, accurate, and effective disclosure of mortgage loan costs in
a manner that permits consumers to understand the associated risks.
Consumers may not appreciate that preliminary written estimates, which
are not subject to the good faith requirements, may not constitute a
full, accurate, and effective description of costs, as opposed to
relying on the disclosures required under Sec. 1026.19(e)(1)(i), which
must be made in good faith. The Bureau seeks to foster consumer
understanding of the reliability of the cost information provided,
while permitting the use of preliminary written estimates which may be
beneficial to consumers.
Accordingly, pursuant to its authority under section 105(a) of
TILA, section 1032(a) of the Dodd-Frank Act, and, for residential
mortgage loans, sections 129B(e) of TILA and 1405(b) of the Dodd-Frank
Act, the Bureau proposes to require creditors to distinguish between
preliminary written estimates of mortgage loan costs, which are not
subject to the good faith requirements under TILA and RESPA, and the
disclosures required under Sec. 1026.19(e)(1)(i), which are. Proposed
Sec. 1026.19(e)(2)(ii) would require creditors to provide consumers
with a disclosure indicating that the written estimate is not the Loan
Estimate required by RESPA and TILA, if a creditor provides a consumer
with a written estimate of specific credit terms or costs before the
consumer receives the disclosures under Sec. 1026.19(e)(1)(i) and
subsequently indicates an intent to proceed with the mortgage loan
transaction. This proposed provision is consistent with section 105(a)
of TILA in that it will increase consumer awareness of the costs of the
transaction by informing consumers of the risk of relying on
preliminary written estimates, thereby assuring a meaningful disclosure
of credit terms and promoting the informed use of credit. This proposed
provision is consistent with section 129B(e) of TILA because permitting
creditors to provide borrowers with a preliminary written estimate and
the Loan Estimate required by TILA and RESPA without a disclosure
indicating the difference between the two is not in the interest of the
borrower.
Proposed comment 19(e)(2)(ii)-1 explains that this requirement
applies only to written information specific to the consumer. For
example, if the creditor provides a document showing the estimated
monthly payment for a mortgage loan, and the estimate was based on the
estimated loan amount and the consumer's estimated credit score, then
the creditor must include a notice on the document. In contrast, if the
creditor provides the consumer with a preprinted list of closing costs
common in the consumer's area, the creditor need not include the
warning. The proposed comment also clarifies that this requirement does
not apply to an advertisement, as defined in Sec. 1026.2(a)(2). This
proposed comment also contains a reference to comment 19(e)(1)(ii)-4
regarding mortgage broker provision of written estimates specific to
the consumer.
19(e)(2)(iii) Verification of Information
Section 1024.7(a)(5) of Regulation X currently provides that a
creditor may collect any information from the consumer deemed
necessary, but the creditor may not require the consumer to provide
documentation verifying any information the consumer provided in
connection with the application. In order to minimize the cost to
consumers of obtaining Loan Estimates, the Bureau believes that this
provision should apply to the integrated disclosure. The Bureau
proposes Sec. 1026.19(e)(2)(iii), which provides that a creditor shall
not require a consumer to submit documents verifying information
related
[[Page 51165]]
to the consumer's application before providing the disclosures required
by Sec. 1026.19(e)(1)(i).
The Bureau makes this proposal pursuant to its authority under
section 105(a) of TILA, section 19(a) of RESPA, and, for residential
mortgage loans, section 129B(e) of TILA. The proposed regulation will
effectuate the purposes of TILA by reducing the burden to consumers
associated with obtaining different offers of available credit terms,
thereby facilitating consumers' ability to compare credit terms,
consistent with section 105(a) of TILA. This proposed provision is
consistent with section 129B(e) of TILA because requiring documentation
to verify the information provided in connection with an application
increases the burden on borrowers associated with obtaining different
offers of available credit terms, which is not in the interest of the
borrower. This proposed regulation will enable consumers to receive
information about the mortgage loan without imposing costs or burdens
on the consumer, which will facilitate shopping, thereby effecting
changes in the settlement process that will result in the elimination
of kickbacks, referral fees, and other practices that tend to increase
unnecessarily the costs of certain settlement services, consistent with
the Bureau's authority under section 19(a) of RESPA.
Proposed comment 19(e)(2)(iii)-1 explains that the creditor may
collect from the consumer any information that it requires prior to
providing the early disclosures, including information not listed in
Sec. 1026.2(a)(3)(ii). However, the creditor is not permitted to
require, before providing the disclosures required by Sec.
1026.19(e)(1)(i), that the consumer submit documentation to verify the
information provided by the consumer. For example, the creditor may ask
for the names, account numbers, and balances of the consumer's checking
and savings accounts, but the creditor may not require the consumer to
provide bank statements, or similar documentation, to support the
information the consumer provides orally before providing the
disclosures required by Sec. 1026.19(e)(1)(i).
19(e)(3) Good Faith Determination for Estimates of Closing Costs
Background
As noted above, section 102(a) of TILA provides: ``The Congress
finds that economic stabilization would be enhanced and the competition
among the various financial institutions and other firms engaged in the
extension of consumer credit would be strengthened by the informed use
of credit. The informed use of credit results from an awareness of the
cost thereof by consumers.'' 15 U.S.C. 1601(a). This section further
provides that the purpose of TILA is ``to assure a meaningful
disclosure of credit terms so that the consumer will be able to compare
more readily the various credit terms available to him and avoid the
uninformed use of credit.'' Id.
To further these goals, TILA requires creditors to disclose certain
information about the cost of credit. In the context of certain
mortgage loans, the disclosures required under section 128(a) of TILA
generally are either costs imposed in connection with the extension of
credit, or measures of such costs, such as the annual percentage rate.
15 U.S.C. 1638(b). Examples of items that affect the APR are fees and
charges imposed by creditors, such as points and underwriting fees.
Section 128(b)(2)(A) provides that these disclosures must be delivered
not later than three business days after the creditor receives the
consumer's written application. Section 128(b)(2)(D) requires the
creditor to inform the consumer, no later than three business days
before consummation, if the costs of the mortgage loan, as reflected in
the annual percentage rate, change from what was originally disclosed.
15 U.S.C. 1638(b)(2)(A), (D).
TILA contains tolerances for determining whether an estimated
disclosure is accurate. For example, section 106(f) provides that the
finance charge is not accurate if the estimated finance charge
disclosed to the consumer changes by more than a certain amount. 15
U.S.C. 1605(f). If disclosures such as these become inaccurate, TILA
requires creditors to provide revised disclosures with the corrected
amounts. 15 U.S.C. 1638(b)(2)(D). TILA also permits the creation of new
tolerances if the Bureau deems them necessary. Specifically, section
121(d) provides that the ``Bureau shall determine whether tolerances
for numerical disclosures other than the annual percentage rate are
necessary to facilitate compliance with [TILA], and if it determines
that such tolerances are necessary to facilitate compliance, it shall
by regulation permit disclosures within such tolerances.'' 15 U.S.C.
1631(d). Section 121(d) further provides that the ``Bureau shall
exercise its authority to permit tolerances for numerical disclosures
other than the annual percentage rate so that such tolerances are
narrow enough to prevent such tolerances from resulting in misleading
disclosures or disclosures that circumvent the purposes of [TILA].''
Id.
Historically, TILA has generally focused on the costs imposed by
creditors alone. In contrast, RESPA, in broadly focusing on all costs
associated with real estate transactions, was designed to address
market failures in the real estate settlement services industry.
Echoing TILA, Congress enacted RESPA to ``[e]nsure that consumers
throughout the Nation are provided with greater and more timely
information on the nature and costs of the settlement process and are
protected from unnecessarily high settlement charges caused by certain
abusive practices.'' 12 U.S.C. 2601(a). Congress identified ``more
effective advance disclosure to home buyers and sellers of settlement
costs'' as a specific purpose of RESPA. Id.
RESPA requires early disclosure of settlement costs to further
Congress's stated purpose that consumers should receive effective
advance disclosures of such costs. As discussed above, RESPA requires
lenders to provide consumers with good faith estimates of settlement
costs, which include most fees charged in connection with a real
property settlement, within three days of receiving a consumer's
application for a mortgage loan. 12 U.S.C. 2602(3), 2604(c), (d).
Regulation Z also contains a good faith estimate requirement, which
implements the requirements of TILA section 128(b)(2)(A), in the
context of certain mortgage loans. Section 1026.19(a)(1)(i) of
Regulation Z provides that ``the creditor shall make good faith
estimates of the disclosures required by Sec. 1026.18 and shall
deliver or place them in the mail not later than the third business day
after the creditor receives the consumer's written application.''
Section 1026.18 includes several disclosures related to the cost of
credit, such as the amount financed, finance charge, and annual
percentage rate. Section 1026.18(c)(3) also provides that the
itemization of amount financed need not be delivered if the RESPA GFE
is provided.
After a 10-year investigatory process, HUD amended Regulation X to
establish new regulatory requirements surrounding the content,
accuracy, and delivery of the GFE. HUD's 2008 RESPA Final Rule added
``tolerance'' categories limiting the variation between the estimated
amounts of settlement charges included on the GFE and the actual
amounts included on the RESPA settlement statement. Section
1024.7(e)(1) of Regulation X provides that the actual charges at
settlement may not exceed the amounts included on the
[[Page 51166]]
GFE for (1) the origination charge, (2) while the borrower's interest
rate is locked, the credit or charge for the interest rate chosen, (3)
while the borrower's interest rate is locked, the adjusted origination
charge; and (4) transfer taxes. Section 1024.7(e)(2) provides that the
sum of the charges at settlement for the following services may not be
greater than 10 percent above the sum of the estimated charges for
those services included on the GFE for (1) lender-required settlement
services, where the lender selects the third party settlement service
provider, (2) lender-required services, title services and required
title insurance, and owner's title insurance, when the borrower uses a
settlement service provider identified by the loan originator, and (3)
government recording charges. Section 1024.7(e)(3) provides that all
other estimated charges may change by any amount prior to settlement.
The 2008 RESPA Final Rule also provided that the estimates included
on the GFE are binding, with certain limited exceptions and subject to
variations permitted by the tolerance categories. 73 FR at 68218-19.
Section 1024.7(f)(1) provides: ``If changed circumstances result in
increased costs for any settlement services such that the charges at
settlement would exceed the tolerances for those charges, the loan
originator may provide a revised GFE to the borrower.'' Section
1024.7(f)(2) provides: ``If changed circumstances result in a change in
the borrower's eligibility for the specific loan terms identified in
the GFE, the loan originator may provide a revised GFE to the
borrower.''
``Changed circumstances'' are defined as (1) acts of God, war,
disaster, or other emergency; (2) information particular to the
borrower or transaction that was relied on in providing the GFE and
that changes or is found to be inaccurate after the GFE has been
provided, which may include information about the credit quality of the
borrower, the amount of the loan, the estimated value of the property,
or any other information that was used in providing the GFE; (3) new
information particular to the borrower or transaction that was not
relied on in providing the GFE; or (4) other circumstances that are
particular to the borrower or transaction, including boundary disputes,
the need for flood insurance, or environmental problems. 12 CFR
1024.2(b). Changed circumstances, however, do not include the
borrower's name, the borrower's monthly income, the property address,
an estimate of the value of the property, the mortgage loan amount
sought, and any information contained in any credit report obtained by
the loan originator prior to providing the GFE, unless the information
changes or is found to be inaccurate after the GFE has been provided,
or market price fluctuations by themselves. Id.
Additionally, Sec. 1024.7(f)(3) provides: ``If a borrower requests
changes to the mortgage loan identified in the GFE that change the
settlement charges or the terms of the loan, the loan originator may
provide a revised GFE to the borrower.'' Section 1024.7(f)(4) provides:
``If a borrower does not express an intent to continue with an
application within 10 business days after the GFE is provided, or such
longer time specified by the loan originator * * * the loan originator
is no longer bound by the GFE.''
The exception provided by Sec. 1024.7(f)(4) relates to the ability
of consumers to use the GFE to shop and compare mortgage loans, which
is one of the primary purposes of the 2008 RESPA Final Rule. A related
provision, Sec. 1024.7(c), provides that ``the estimate of the charges
and terms for all settlement services must be available for at least 10
business days from when the GFE is provided, but it may remain
available longer, if the loan originator extends the period of
availability.''
Section 1024.7(f)(5) provides: ``If the interest rate has not been
locked, or a locked interest rate has expired, the charge or credit for
the interest rate chosen, the adjusted origination charges, per diem
interest, and loan terms related to the interest rate may change. When
the interest rate is later locked, a revised GFE must be provided
showing the revised interest rate-dependent charges and terms. All
other charges and terms must remain the same as on the original GFE,
except as otherwise provided [under] this section.''
Section 1024.7(f)(6) provides: ``In transactions involving new
construction home purchases, where settlement is anticipated to occur
more than 60 calendar days from the time a GFE is provided, the loan
originator may provide the GFE to the borrower with a clear and
conspicuous disclosure stating that at any time up until 60 calendar
days prior to closing, the loan originator may issue a revised GFE. If
no such separate disclosure is provided, the loan originator cannot
issue a revised GFE, except as otherwise provided [under] this
section.''
Although settlement charges have historically been the subject of
RESPA, section 1419 of the Dodd-Frank Act amended TILA section 128(a)
to require creditors to disclose: ``In the case of a residential
mortgage loan, the aggregate amount of settlement charges for all
settlement services provided in connection with the loan, the amount of
charges that are included in the loan and the amount of such charges
the borrower must pay at closing * * * and the aggregate amount of
other fees or required payments in connection with the loan.'' 15
U.S.C. 1638(a)(17). ``Settlement charges'' is not defined under TILA.
This amendment expands the disclosure requirements of TILA section
128(a) beyond the cost of credit to include all charges imposed in
connection with the mortgage loan. No distinction is made between
whether those charges relate to the extension of credit or the real
estate transaction, or whether those charges are imposed by the
creditor or another party, so long as the charges arise in the context
of the mortgage loan settlement.
Furthermore, as discussed above, section 1032(f) of the Dodd-Frank
Act requires integration of the disclosure provisions under TILA and
RESPA. Sections 1098 and 1100A of the Dodd-Frank Act further provide
that the purpose of the integrated disclosure is ``to facilitate
compliance with the disclosure requirements of [RESPA] and [TILA], and
to aid the borrower or lessee in understanding the transaction by
utilizing readily understandable language to simplify the technical
nature of the disclosures.'' 15 U.S.C. 1604(b), 12 U.S.C. 2603(a).
These amendments require integration of the regulations related to the
accuracy and delivery of the disclosures, as well as their content.
Issues With Integrating Different Approaches to Good Faith Estimates,
Tolerances, and Redisclosure
As discussed above, TILA generally focused on redisclosure in
response to changes in the cost of credit that occurred during the
mortgage loan origination process. Over time, practices developed that
diminished the value of the disclosures. Congress addressed these
problems by revising TILA from time to time, seeking to ensure that
consumers could use the disclosures to shop for credit.\134\ However,
problems
[[Page 51167]]
in the market persisted, and evidence suggests that consumers were
often surprised by the difference between their expectations of the
cost of credit, based on the good faith estimates provided during the
shopping phase, and the actual cost of credit revealed at
settlement.\135\
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\134\ In explaining the 1980 amendment to TILA, Congress stated
that the amendment ``would also make disclosures more meaningful to
the consumer in mortgage transactions in two respects. First, the
creditor would be required to give truth in lending disclosures
within 3 days after receiving a consumer's written application. * *
* Under current law, Truth in Lending disclosures are provided for
the first time at the real estate closing, making them all but
useless for credit shopping.'' S. Rep. No. 368, 96th Cong., 1st
Sess. 1979, reprinted in 1980 U.S. Code Cong. & Ad. News 236, 266.
Congress also amended the disclosure requirements in 1994 to provide
more extensive disclosure on high-cost mortgage loans. Riegle
Community Development and Regulatory Improvement Act of 1994, Public
Law 103-325, Title I, Sec. 152(d), 108 Stat. 2191 (Sept. 23, 1994);
15 U.S.C. 1639(a). Congress amended the TILA disclosure requirements
again in 1996 to provide disclosures related to variable-rate
mortgage loans. Economic Growth and Regulatory Paperwork Reduction
Act of 1996, Public Law 104-208, Title I, Subtitle A, Sec. 2105,
110 Stat. 3009 (Sept. 30, 1996); 15 U.S.C. 1638(a).
\135\ ``For refinancings and second mortgages that fall below
the HOEPA triggers, the only required written disclosure of the APR
and finance charge is usually given at closing on the TILA
disclosure, after which the borrower has only the three day
rescission period for price shopping, again too short a period to
obtain competing offers.'' Lauren E. Willis, Decisionmaking and the
Limits of Disclosure: The Problem of Predatory Lending: Price, 65
Md. L. Rev. 707, 750 (2006). ``[T]he prices on subprime loans often
turned out to be a moving target. A lender or broker might have the
customer apply for one type of loan, price A, say a fixed rate loan;
changed the loan during underwriting to an adjustable rate mortgage,
price B; and then finally change the loan at closing to something
different at price C, say an interest only mortgage.'' Federal
Reserve Board Public Hearing Re: Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice, 155 (July 11,
2006) (testimony of Patricia McCoy), available at https://www.federalreserve.gov/events/publichearings/hoepa/2006/20060711/transcript.pdf.
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The issues arising under TILA were even more pronounced under
RESPA. HUD spent over ten years investigating problems in the
settlement services industry.\136\ HUD found that the principles of
RESPA were undermined by market forces operating against
consumers.\137\ In the context of home purchases, consumers' actual
settlement costs were sometimes dramatically different from those
originally estimated. Consumers did not realize this until immediately
before settlement--the point in time where consumers are in the weakest
bargaining position. As a result, consumers were often unable to
challenge increases in settlement costs when confronted with them at
the closing table.\138\ HUD found that these high closing costs were
exacerbated by the fact that consumers rarely shopped for settlement
service providers.\139\ Accordingly, settlement service providers were
not accountable to the consumer, and creditors had little motivation to
monitor the legitimacy of settlement costs because those costs were
simply passed on to the consumer.\140\
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\136\ Joint Report to the Congress Concerning Reform of the
Truth in Lending Act and the Real Estate Settlement Procedures Act,
(July 1998); 2000 HUD-Treasury Report; 2002 RESPA Proposal (67 FR
49134).
\137\ ``Estimates appearing on the GFEs can be significantly
lower than the amount ultimately charged at settlement and do not
provide meaningful guidance on the costs borrowers will incur at
settlement. While unforeseeable circumstances can drive up costs in
particular circumstances, in most cases loan originators have the
ability to estimate final settlement costs with great accuracy.'' 73
FR 14030, 14039 (March 14, 2008).
\138\ ``After agreeing to the price of a house, too many
families sit down at the settlement table and discover unexpected
fees that can add hundreds, if not thousands, of dollars to the cost
of their loan. And at that point, they have no other options. On the
spot, the borrower is forced to make an impossible choice: either
hand over the extra cash and sign, or lose either the house or the
funds needed to refinance.'' Reforming the Real Estate Settlement
Procedure: Review of HUD's proposed RESPA Rule, 107th Cong. (October
3, 2002) (testimony of Mel Martinez, Secretary of the U.S.
Department of Housing and Urban Development).
\139\ See 73 FR 14030, 14034 (March 14, 2008).
\140\ ``There is not always an incentive in today's market for
originators to control these costs. Too often, high third-party
costs are simply passed through to the consumer.'' U.S. Dep't. of
Housing and Urban Dev., Office of Pol'y Dev. and Research, RESPA:
Regulatory Impact Analysis and Initial Regulatory Flexibility
Analysis, FR-5180-F-02, Final Rule to Improve the Process of
Obtaining Mortgages and Reduce Consumer Costs, iv (2008). See also
Eskridge, supra note 83, at 1184-1185.
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These problems led HUD to the determination that a subjective
requirement that estimates be made in ``good faith'' was not sufficient
to achieve the purposes of RESPA. The tolerances included in the 2008
RESPA Final Rule established objective measures of good faith that were
designed to ensure that consumers were provided with estimates more
closely tied to the actual costs. The provisions related to
redisclosure provided industry with the flexibility to revise the
charges originally estimated when legitimate and unforeseen issues
arose that affected the cost of settlement services, while also
ensuring that consumers were not pressured into paying unwarranted
costs. The 2008 RESPA Final Rule established a requirement that costs
be available for at least 10 business days, along with requirements
related to allowing consumers to shop for settlement service providers,
sought to re-introduce competition into the markets for both mortgage
loan origination and settlement service providers, in accordance with
RESPA's original principles.
These revisions to Regulation X took effect in 2010. Some concerns
were identified during the implementation process. In particular,
concerns have been raised regarding the treatment of fees charged by
affiliates of the lender.\141\ Under the 2008 rule, affiliates' fees
are permitted to increase by as much as 10 percent prior to the real
estate closing, in addition to increases based on changed circumstances
and other similar events. Settlement service providers such as
appraisal management companies and title companies may be affiliated
with the creditor. Fees paid to these affiliates may constitute a large
percentage of the total settlement service fees paid by consumers at
consummation. Permitting these fees to vary by ten percent may
significantly increase the actual cost of obtaining a mortgage loan.
This variance is of particular concern given the nature of the
relationship between creditors and their affiliates. Regulation X
subjects fees paid to creditors to a zero percent tolerance because
credit providers are expected to know their own costs. The same
reasoning may apply to services provided by affiliates. An affiliate
relationship between a creditor and a provider should facilitate
greater communication and coordination than a relationship between
independent entities acting at arm's length. This is especially so
given that the rules require precise estimates only of costs that are
likely to occur and provide flexibility for cost revisions when an
unexpected event occurs, such as a changed circumstance or a change
requested by the consumer.
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\141\ For purposes of this proposal, ``affiliate'' means any
company that controls, is controlled by, or is under common control
with another company, as set forth in the Bank Holding Company Act
of 1956 (12 U.S.C. 1841 et seq.).
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Additional concerns about affiliate relationships stem from the
fact that no justification is required if affiliate fees increase by as
much as ten percent. Given that the affiliate relationship is
beneficial to the creditor, this may create an incentive to increase
fees at the real estate closing without justification, solely to obtain
all money available under the tolerance. A rule that encourages such
rent-seeking behavior could harm consumers by unjustifiably increasing
settlement costs, which is contrary to the purposes of RESPA.
Another concern with Regulation X centers on the ability of
consumers to shop for settlement service providers. Regulation X
requires loan originators to provide borrowers with a written list of
providers in some cases.\142\ This provision was intended to enable
consumers to shop for settlement
[[Page 51168]]
service providers, based on the principle that such shopping would spur
competition in the settlement service market, thereby reducing the
incidence of unnecessarily high settlement service charges. However,
concerns have been raised that, rather than simply providing consumers
with lists of available settlement service providers to facilitate
shopping, creditors have instead developed ``closed'' lists that
include only the creditor's ``preferred'' providers and are requiring
consumers to select one of those providers. This practice effectively
may limit competition among settlement service providers instead of
promoting competition, contrary to the goals of the regulation.
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\142\ ``Where a loan originator permits a borrower to shop for
third party settlement services, the loan originator must provide
the borrower with a written list of settlement services providers at
the time of the GFE, on a separate sheet of paper.'' 12 CFR 1024,
app. C.
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The Bureau's Proposal
An enhanced reliability standard. The Bureau believes that
consumers would benefit from having more reliable estimates of costs. A
meaningful ``good faith'' estimate should be based on the best
information reasonably available to the person providing the estimate.
In many cases, a creditor should be able to estimate costs with
considerable precision based on its familiarity with its own
underwriting process and its knowledge of the real estate settlement
process. A creditor originating a loan in a geographical area with
which it is unfamiliar, or using settlement service providers with whom
it is not familiar, may not be able to estimate the settlement service
costs as accurately. In cases such as these, the ten-percent tolerance
currently provided by Regulation X may be appropriate.
However, creditors who have affiliate relationships with service
providers should have access to the providers' data about the actual
costs of those services, including how often changed circumstances
occur, and the magnitude of resulting cost increases. Thus, in many
cases, creditors may be able to provide accurate estimates of
settlement costs for services provided by affiliates, and therefore
should not need to rely on the ten-percent tolerance. In addition to
the increased level of knowledge and communication suggested by the
affiliate relationship, the frequency of business with a particular
affiliate provides creditors with even more data, which may be used to
develop more accurate estimates. It may be reasonable to expect
creditors to use the significant amount of historical settlement cost
data available to them, by virtue of the repeat business from affiliate
relationships, to develop highly accurate estimates of costs.
Accordingly, the Bureau proposes to include charges paid to affiliates
of the creditor in the category of fees that may not vary from the
estimated amount disclosed, subject to legitimate reasons for revision
such as changed circumstances and revisions requested by the consumer.
The Bureau also believes that consumers would benefit from a more
competitive market for settlement service providers. A list of service
providers offers consumers the opportunity to speak with multiple
providers and select the providers and services that best fit
consumers' needs. Although the Bureau understands the concerns
regarding preferred provider lists identified above, such lists may be
a natural outgrowth of creditors' business and are not necessarily
harmful to consumers. Indeed, it would be much more difficult for
creditors to provide good faith estimates of settlement service charges
without basing such estimates on charges imposed by actual settlement
service providers in a particular area with whom the creditor has
established relationships and regularly does business.
Creditors that assemble preferred provider lists are in a superior
position of knowledge with respect to the expected costs of the
services of those providers, for reasons similar to those seemingly
inherent in the creditor-affiliate relationship. The relationship
between creditor and preferred provider suggests a level of
communication and knowledge that is absent from a relationship between
a creditor and a settlement service provider who do not regularly do
business. The repeat business afforded by the preferred provider
relationship should also give creditors access to statistically
significant amounts of historical settlement charge data, with which
the creditor can accurately predict the cost of a settlement service,
in the absence of a valid reason for revision such as a changed
circumstance. It may be reasonable to expect the creditor to use this
relationship for the benefit of consumers in the form of more accurate
initial estimates of costs.
The creditor's knowledge may be less certain with preferred
providers, with whom the creditor has some pre-existing relationship or
agreement, than for affiliates, with whom the creditor has an actual
control-based relationship. But this difference is countered when the
creditor does not permit the consumer to shop independently for the
settlement service. Such closed lists require consumers to choose
providers preferred by the creditor and prohibit consumers from
choosing more cost efficient, or perhaps higher quality, settlement
service providers. Consumers presented with a closed list of preferred
providers are neither benefitted by more accurate estimates nor able to
protect their own financial interests. Consumers should have the
ability to influence the quality and cost of settlement services
related to what, for most consumers, will be the most significant
financial obligation of their lives. If the creditor arrogates that
opportunity, then the creditor should also take a greater
responsibility for estimating accurately and assume some of the risk of
under-estimation if it does not. Thus, the Bureau proposes to include
charges paid to non-affiliated third party service providers in the
category of fees that may not vary from the estimated amount disclosed
if the creditor does not permit the consumer to shop for those
services, subject to legitimate reasons for revision such as changed
circumstances and revisions requested by the consumer.
This proposal seeks to strike the appropriate balance between
consumers' need for accurate, timely, and reliable information about
the costs of a mortgage loan and industry's need for flexibility for
the wide range of unexpected issues that arise during the mortgage loan
origination process. Creditors are routine participants in the mortgage
market, but individual consumers are not. As a result, creditors have
access to important cost data that are unavailable to consumers. It
therefore may be reasonable to expect creditors to use this advantage
to provide consumers with reasonably accurate estimates of the costs
associated with a real estate settlement. This consideration is more
compelling when creditors have pre-existing, and advantageous,
relationships with affiliated and ``preferred'' settlement service
providers. More reliable estimates are inherently beneficial because
they enable consumers to make informed and responsible financial
decisions, they promote honest competition among the majority of
industry providers who want a fair and level playing field, and they
prevent financial surprises at the real estate closing that may greatly
harm consumers.
More reliable estimates also make it more likely that consumers
will shop for mortgage loans based on all relevant costs among multiple
providers, furthering one of the key principles of TILA and RESPA.
Encouraging consumers to shop for settlement services further
facilitates a competitive market for those services, thereby preventing
unnecessarily high settlement costs and achieving one of the key
purposes of RESPA. This approach furthers the goals of the 2008
[[Page 51169]]
RESPA Final Rule and the principles upon which TILA and RESPA are
founded.
Legal authority. The Bureau is proposing to adopt an enhanced
reliability standard for settlement costs pursuant to its authority to
prescribe standards for ``good faith estimates'' under TILA section 128
and RESPA section 5, as well as its general rulemaking, exception, and
exemption authorities under TILA sections 105(a) and 121(d), RESPA
section 19(a), section 1032(a) of the Dodd-Frank Act, and, for
residential mortgage loans, section 1405(b) of the Dodd-Frank Act and
section 129B(e) of TILA.
The Bureau has considered the purposes for which it may exercise
its authority under TILA section 105(a) and, based on that review,
believes that the proposed adjustments and exceptions may be
appropriate. The proposal is consistent with the statute's purpose in
that it seeks to ensure that the cost estimates are more meaningful and
better inform consumers of the actual costs associated with obtaining
credit. The proposal has the potential to effectuate the statute's
goals by ensuring more reliable estimates, which may increase the level
of shopping for mortgage loans and foster honest competition for
prospective consumers among financial institutions. The Bureau believes
that technological advances in the mortgage loan origination market,
coupled with the relationships that currently exist between creditors
and the settlement service industry, may have improved the ability of
creditors to provide accurate estimates, subject to reasonable
exceptions. The proposal could also prevent potential circumvention or
evasion of TILA by penalizing underestimation to gain a competitive
advantage in situations where TILA requires good faith.
Section 121(d) of TILA generally authorizes the Bureau to adopt
tolerances necessary to facilitate compliance with the statute,
provided such tolerances are narrow enough to prevent misleading
disclosures or disclosures that circumvent the purposes of the statute.
15 U.S.C. 1631(d). The Bureau has considered the purposes for which it
may exercise its authority under TILA section 121(d) and, based on that
review, believes that the proposed tolerances may be appropriate. The
proposal has the potential to facilitate compliance with the statute by
providing bright line rules for the determination of ``good faith''
based on the knowledge of costs that creditors have, or reasonably
should have. The narrowed tolerances may also prevent misleading
disclosures by forcing creditors who have access to accurate cost
information through affiliate networks or exclusive provider
arrangements, and today use such information strategically to
underestimate cost estimates, to absorb any overages.
The proposal also may prevent circumvention of TILA by preventing
creditors from using the tolerances to capture rent through their
affiliates, and thereby unnecessarily increasing the cost of credit.
The proposed tolerances may be sufficiently narrow by focusing on areas
where the creditor is, or reasonably should be, in a position of
superior knowledge, while maintaining the existing tolerances in areas
where the creditor is providing estimates based on less certain
information, such as cost estimates for services provided by
independent providers.
In addition, the proposed regulation is consistent with Dodd-Frank
Act section 1032(a) because requiring more accurate initial estimates
of the costs of the transaction, thereby limiting the possibility of
strategic underestimation to gain a competitive advantage, will ensure
that the features of mortgage loan transactions and settlement services
will be more fully, accurately, and effectively disclosed to consumer
in a manner than permits consumers to understand the costs, benefits,
and risks associated the mortgage loan. It is also in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b), because providing consumers with more accurate
estimates of the cost of the mortgage loan transaction will improve
consumer understanding and awareness of the mortgage loan transaction
through the use of disclosure.
Section 129B(e) of TILA generally authorizes the Bureau to adopt
regulations prohibiting or conditioning terms, acts, or practices
relating to residential mortgage loans that are not in the interest of
the borrower. The Bureau has considered the purposes for which it may
exercise its authority under TILA section 129B(e) and, based on that
review, believes that the proposed regulations are appropriate because
unreliable estimates are not in the interest of the borrower.
Section 19(a) of RESPA authorizes the Bureau to prescribe
regulations and make interpretations to carry out the purposes of
RESPA, which include more effective advance disclosure of settlement
costs. 12 U.S.C. 2601(a), 2617(a). The Bureau has considered the
purposes for which it may exercise its authority under RESPA section
19(a) and, based on that review, believes that the proposed rules and
interpretations may be appropriate. The proposal has the potential to
ensure more effective advance disclosure of settlement costs by
requiring creditors to disclose accurate estimates when such creditors
are in a position to do so.
The Bureau solicits comment on all aspects of this proposal,
including the cost, burden, and benefits to consumers and to industry
regarding the proposed revisions to the good faith requirements. The
Bureau solicits comment on the frequency, magnitude, and causes of
settlement cost increases. The Bureau also requests comment on any
alternatives to the proposal that would further the purposes of TILA,
RESPA, and the Dodd-Frank Act and provide consumers with more useful
disclosures.
19(e)(3)(i) General Rule
Regulation X currently provides that the amounts imposed for the
origination charge and transfer taxes may not exceed the amounts
included on the RESPA GFE, unless certain exceptions are met. Sec.
1024.7(e)(1). The items included under this category are generally
limited to charges paid to lenders and brokers, in addition to transfer
taxes.
The Bureau is proposing to incorporate this provision in new Sec.
1026.19(e)(3)(i). Furthermore, as discussed above, the Bureau is
proposing to expand the scope of the current regulation. Under the
proposed rule, the default rule is that any charge paid by the consumer
that exceeds the amount originally estimated on the disclosures
provided pursuant to Sec. 1026.19(e)(1)(i) was not provided in good
faith. This default rule is subject to legitimate cost revisions when
an unexpected event occurs, such as a changed circumstance or a change
requested by the consumer. Also, the charges for certain items are
subject to exceptions allowing other increases as permitted under Sec.
1026.19(e)(3)(ii) and (iii). Thus, the Bureau believes that the rule
offers a level of flexibility similar to the current rules under
Regulation X. The Bureau believes that the primary impact of adopting
this bright line default rule will be to protect consumers from
unnecessary increases in charges.
Consequently, the Bureau proposes Sec. 1026.19(e)(3)(i), which
provides that the charges paid by or imposed on the consumer may not
exceed the estimated amounts of those charges provided pursuant to
Sec. 1026.19(e)(1)(i), subject to permissible reasons for revision
such as changed circumstances and revisions requested by the consumer,
and except
[[Page 51170]]
as otherwise provided under Sec. 1026.19(e)(3)(ii) and (iii).
During the Small Business Panel Review process, several small
entity representatives expressed concern about the unintended
consequences that may result from applying the zero-percent tolerance
rule currently under Regulation X to affiliates of the lender or
mortgage broker and to providers selected by the lender. See Small
Business Review Panel Report at 34, 37-38, 40, 64, 67, and 71. The
Small Business Review Panel recommended that the Bureau consider
alternatives to expanding application of the zero-percent tolerance
that would increase the reliability of cost estimates while minimizing
the impacts on small entities. See id. at 29. The Bureau has given
careful consideration to this recommendation, but has not yet
identified any alternatives that would increase disclosure reliability
while minimizing small entity impact. The Bureau solicits comment on
any such alternatives. The Panel also recommended that the Bureau
solicit comment on the effectiveness of the current tolerance rules.
Id. Consistent with the Small Business Review Panel's recommendation,
the Bureau solicits comment on whether the current tolerance rules have
sufficiently improved the reliability of the estimates that lenders
give consumers, while preserving lenders' flexibility to respond to
unanticipated changes that occur during the loan process.
Proposed comment 19(e)(3)(i)-1 explains that Sec. 1026.19(e)(3)(i)
imposes a general rule that an estimated charge disclosed pursuant to
Sec. 1026.19(e) is not in good faith if the charge paid by or imposed
on the consumer exceeds the amount originally disclosed. Although Sec.
1026.19(e)(3)(ii) and (e)(3)(iii) provide exceptions to the general
rule for certain types of charges, those exceptions generally do not
apply to (1) fees paid to the creditor; (2) fees paid to a broker; (3)
fees paid to an affiliate of the creditor or a broker; (4) fees paid to
an unaffiliated third party if the creditor did not permit the consumer
to shop for a third party service provider; and (5) transfer taxes.
Proposed comment 19(e)(3)(i)-2 provides guidance on the issue of
whether an item is ``paid to'' a particular person. In the mortgage
loan origination process, individuals often receive payments for
services and subsequently pass those payments on to others. Similarly,
individuals often pay for services in advance of the real estate
closing and subsequently seek reimbursement from the consumer. This
comment provides examples of how situations such as these are treated
for the purposes of Sec. 1026.19.
Proposed comment 19(e)(3)(i)-3 discusses when items are
characterized as transfer taxes, as opposed to recording fees. Transfer
taxes are analyzed under Sec. 1026.19(e)(3)(i) for purposes of
determining whether an estimate is provided in good faith. Recording
fees are analyzed under Sec. 1026.19(e)(3)(ii) for purposes of
determining whether an estimate is provided in good faith.
Proposed comment 19(e)(3)(i)-4 provides examples illustrating the
good faith requirement in the context of specific credits, rebates, or
reimbursements. An item identified, on the disclosures provided
pursuant to Sec. 1026.19(e), as a payment from a creditor to the
consumer to pay for a particular fee, such as a credit, rebate, or
reimbursement are not subject to the good faith determination
requirements in Sec. 1026.19(e)(3)(i) or (ii) if the increased
specific credit, rebate, or reimbursement actually reduces the cost to
the consumer. Specific credits, rebates, or reimbursements may not be
disclosed or revised in a way that would otherwise violate the
requirements of Sec. 1026.19(e)(3)(i) and (ii). The proposed comment
also provides illustrative examples of these requirements.
Proposed comment 19(e)(3)(i)-5 discusses how to determine ``good
faith'' in the context of lender credits. The proposed comment explains
that the disclosure of ``lender credits,'' as identified in Sec.
1026.37(g)(6)(ii), is required by Sec. 1026.19(e)(1)(i). These are
payments from the creditor to the consumer that do not pay for a
particular fee on the disclosures provided pursuant to Sec.
1026.19(e)(1)(i). These non-specific credits are negative charges to
the consumer--as the lender credit decreases the overall cost to the
consumer increases. Thus, an actual lender credit provided at the real
estate closing that is less than the estimated lender credit provided
pursuant to Sec. 1026.19(e)(1)(i) is an increased charge to the
consumer for purposes of determining good faith under Sec.
1026.19(e)(3)(i). For example, if the creditor provides a $750 estimate
for lender credits in the disclosures required by Sec.
1026.19(e)(1)(i), but only a $500 lender credit is actually provided to
the consumer at the real estate closing, the creditor does not comply
with Sec. 1026.19(e)(3)(i) because, although the actual lender credit
was less than the estimated lender credit provided in the revised
disclosures, the overall cost to the consumer increased and, therefore,
did not comply with Sec. 1026.19(e)(3)(i). See also Sec.
1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of
lender credits in the context of interest rate dependent charges.
19(e)(3)(ii) Limited Increases Permitted for Certain Charges
Regulation X Sec. 1024.7(e)(2) currently provides that the sum of
the amounts charged for all lender-required settlement services where
the consumer does not independently choose a provider, title insurance,
and recording charges may increase by as much as 10 percent prior to
settlement, subject to revisions arising from exceptions such as
changed circumstances. The Bureau believes that a more narrow
regulation may be appropriate in this context. The Bureau therefore
proposes Sec. 1026.19(e)(3)(ii), which permits the sum of all charges
for lender-required settlement services where the lender permits the
consumer to shop for a provider other than those identified by the
creditor and recording fees to increase by 10 percent for the purposes
of determining good faith. As explained in the general discussion under
Sec. 1026.19(e)(3) above, the Bureau believes that the purposes of
TILA and RESPA are better served by removing affiliate fees from this
category and including other settlement services in this category only
if the consumer is permitted to shop independently for a service
provider. Proposed comment 19(e)(3)(ii)-1 explains that Sec.
1026.19(e)(3)(ii) provides that certain estimated charges are in good
faith if the sum of all such charges paid by or imposed on the consumer
does not exceed the sum of all such charges disclosed pursuant to Sec.
1026.19(e) by more than 10 percent. Section 1026.19(e)(3)(ii) permits
this limited increase for only: (1) fees paid to an unaffiliated third
party if the creditor permitted the consumer to shop for the service,
consistent with Sec. 1026.19(e)(1)(vi)(A), and (2) recording fees.
Proposed comment 19(e)(3)(ii)-2 clarifies that pursuant to Sec.
1026.19(e)(3)(ii), whether an individual estimated charge subject to
Sec. 1026.19(e)(3)(ii) is in good faith depends on whether the sum of
all charges subject to Sec. 1026.19(e)(3)(ii) increase by more than 10
percent, even if a particular charge does not increase by more than 10
percent. This proposed comment also clarifies that Sec.
1026.19(e)(3)(ii) provides flexibility in disclosing individual fees by
focusing on aggregate amounts, and provides illustrative examples.
Proposed comment 19(e)(3)(ii)-3 discusses the determination of good
[[Page 51171]]
faith when a consumer is permitted to shop for a settlement service,
but either does not select a settlement service provider, or chooses a
settlement service provider identified by the creditor on the list
required by Sec. 1026.19(e)(1)(vi)(C). The proposed comment explains
Sec. 1026.19(e)(3)(ii), which provides that if the creditor requires a
service in connection with the mortgage loan transaction, and permits
the consumer to shop, then good faith is determined pursuant to Sec.
1026.19(e)(3)(ii)(A), instead of Sec. 1026.19(e)(3)(i) and subject to
the other requirements in Sec. 1026.19(e)(3)(ii)(B) and (C). For
example, if, in the disclosures provided pursuant to Sec.
1026.19(e)(1)(i), a creditor includes an estimated fee for an
unaffiliated settlement agent and permits the consumer to shop for a
settlement agent, but the consumer does not choose a settlement agent,
or chooses an agent identified by the creditor on the list required by
Sec. 1026.19(e)(1)(vi)(C), then the estimated settlement agent fee is
included with the fees that may, in aggregate, increase by no more than
10 percent for the purposes of Sec. 1026.19(e)(3)(ii). If, however,
the consumer chooses a provider that is not on the written list, then
good faith is determined according to Sec. 1026.19(e)(3)(iii).
Proposed comment 19(e)(3)(ii)-4 discusses how the good faith
determination requirements apply to recording fees. Recording fees are
mandated by State or local law and paid to a government agency.
Consequently, several of the requirements regarding good faith do not
apply. The proposed comment explains that the condition specified in
Sec. 1026.19(e)(3)(ii)(B), that the charge not be paid to an affiliate
of the creditor, is inapplicable in the context of recording fees. The
condition specified in Sec. 1026.19(e)(3)(ii)(C), that the creditor
permits the consumer to shop for the service, is similarly
inapplicable. Therefore, estimates of recording fees need only satisfy
the condition specified in Sec. 1026.19(e)(3)(ii)(A) (i.e., that the
aggregate amount increased by no more than 10 percent) to meet the
requirements of Sec. 1026.19(e)(3)(ii).
19(e)(3)(iii) Variations Permitted for Certain Charges
Section 1024.7(e)(3) of Regulation X currently provides that the
amounts charged for services, other than those identified in Sec.
1024.7(e)(1) and Sec. 1024.7(e)(2), may change at settlement. The
Bureau agrees that certain types of estimates, such as those for
property insurance premiums, may change significantly between the time
that the original disclosures are provided and consummation. However,
the Bureau believes that the regulation will be improved by
specifically identifying which items are included in this category.
Clear delineation of these items should facilitate compliance by
reducing the need to question how to categorize those items. Thus, the
Bureau proposes Sec. 1026.19(e)(3)(iii), which provides that estimates
of prepaid interest, property insurance premiums, amounts placed into
an escrow, impound, reserve, or similar account, and charges paid to
third-party service providers selected by the consumer consistent with
Sec. 1026.19(e)(1)(vi)(A) that are not on the list provided pursuant
to Sec. 1026.19(e)(1)(vi)(C) are in good faith regardless of whether
the amount actually paid by the consumer exceeds the estimated amount
disclosed, provided such estimates are consistent with the best
information reasonably available to the creditor at the time the
disclosures were made.
Proposed comments 19(e)(3)(iii)-1, 19(e)(3)(iii)-2, and
19(e)(3)(iii)-3 explain that the disclosures for items subject to Sec.
1026.19(e)(3)(iii) must be made in good faith, even though good faith
is not determined pursuant to a comparison of estimated amounts and
actual costs. The comments clarify that the disclosures must be made
according to the best information reasonably available to the creditor
at the time the disclosures are made. The Bureau is concerned that
unscrupulous creditors may underestimate, or fail to include estimates
for, the items subject to Sec. 1026.19(e)(3)(iii) and mislead
consumers into believing the cost of the mortgage loan is less than it
actually is. This concern must be balanced against the fact that some
items may change significantly and legitimately prior to consummation.
Furthermore, while the creditor should include estimates for all fees
``the borrower is likely to incur,'' it may not be reasonable to expect
the creditor to know every fee, no matter how uncommon, agreed to by
the consumer, for example in the purchase and sale agreement, prior to
providing the estimated disclosures. The proposal strikes a balance
between these considerations by imposing a general good faith
requirement. Thus, proposed comment 19(e)(3)(iii)-1 explains that
estimates of prepaid interest, property insurance premiums, and impound
amounts must be consistent with the best information reasonably
available to the creditor at the time the disclosures are provided.
Differences between the amounts of such charges disclosed pursuant to
Sec. 1026.19(e)(1)(i) and the amounts of such charges paid by or
imposed upon the consumer do not constitute a lack of good faith, so
long as the original estimated charge, or lack of an estimated charge
for a particular service, was based on the best information reasonably
available to the creditor at the time the disclosure was provided. For
example, if the creditor requires homeowner's insurance but fails to
include a homeowner's insurance premium on the estimates provided
pursuant to Sec. 1026.19(e)(1)(i), then the creditor has not complied
with Sec. 1026.19(e)(3)(iii). However, if the creditor does not
require flood insurance and the subject property is located in an area
where floods frequently occur, but not located in a zone where flood
insurance is required, failure to include flood insurance on the
original estimates provided pursuant to Sec. 1026.19(e)(1)(i) does not
constitute a lack of good faith. Or, if the creditor knows that the
loan must close on the 15th of the month but estimates prepaid interest
to be paid from the 30th of that month, then the under-disclosure
violates Sec. 1026.19(e)(3)(iii).
Proposed comment 19(e)(3)(iii)-2 discusses the good faith
requirement for required services chosen by the consumer that has been
permitted to shop consistent with Sec. 1026.19(e)(1)(vi)(A). The
proposed comment explains that, if a service is required by the
creditor, the creditor permits the consumer to shop for that service
consistent with Sec. 1026.19(e)(1)(vi)(A), the creditor provides the
list required by Sec. 1026.19(e)(1)(vi)(C), and the consumer chooses a
service provider that is not on the list to perform that service, then
the actual amounts of such fees need not be compared to the original
estimates for such fees to perform the good faith analysis required by
Sec. 1026.19(e)(3)(i) or (ii). Differences between the amounts of such
charges disclosed pursuant to Sec. 1026.19(e)(1)(i) and the amounts of
such charges paid by or imposed on the consumer do not necessarily
constitute a lack of good faith. However, the original estimated
charge, or lack of an estimated charge for a particular service, must
be made based on the best information reasonably available to the
creditor at that time. For example, if the consumer informs the
creditor that the consumer will choose a settlement agent not
identified by the creditor, and the creditor subsequently discloses an
unreasonably low estimated settlement agent fee, then the under-
disclosure does not comply with Sec. 1026.19(e)(3)(iii). The comment
also
[[Page 51172]]
clarifies that, if the creditor permits the consumer to shop consistent
with Sec. 1026.19(e)(1)(vi)(A) but fails to provide the list required
by Sec. 1026.19(e)(1)(vi)(C), good faith is determined pursuant to
Sec. 1026.19(e)(3)(ii) instead of Sec. 1026.19(e)(3)(iii) regardless
of the provider selected by the consumer, unless the provider is an
affiliate of the creditor in which case good faith is determined
pursuant to Sec. 1026.19(e)(3)(i).
Proposed comment 19(e)(3)(iii)-3 discusses the good faith
requirement for non-required services chosen by the consumer.
Differences between the amounts of estimated charges for services not
required by the creditor disclosed pursuant to Sec. 1026.19(e)(1)(i)
and the amounts of such charges paid by or imposed on the consumer do
not necessarily constitute a lack of good faith. For example, if the
consumer informs the creditor that the consumer will obtain a type of
inspection not required by the creditor, the creditor may include the
charge for that item in the disclosures provided pursuant to Sec.
1026.19(e)(1)(i), but the actual amount of the inspection fee need not
be compared to the original estimate for the inspection fee to perform
the good faith analysis required by Sec. 1026.19(e)(3)(iii). However,
the original estimated charge, or lack of an estimated charge for a
particular service, must still be made based on the best information
reasonably available to the creditor at the time that the estimate was
provided. For example, if the subject property is located in a
jurisdiction where consumers are customarily represented at the real
estate closing by their own attorney, but the creditor fails to include
a fee for the consumer's attorney, or includes an unreasonably low
estimate for such fee, on the original estimates provided pursuant to
Sec. 1026.19(e)(1)(i), then the creditor's failure to disclose, or
under-estimation, does not comply with Sec. 1026.19(e)(3)(iii).
19(e)(3)(iv) Revised Estimates
Regulation X Sec. 1024.7(f) currently provides that the estimates
included on the RESPA GFE are binding, subject to six exceptions. If
the lender establishes one of these six exceptions, the RESPA GFE may
be re-issued with revised estimates. The Bureau agrees that there are
certain situations that may legitimately cause increases over the
amounts originally estimated, and that the regulations should provide a
clear mechanism for providing revised estimates in good faith. The
Bureau proposes Sec. 1026.19(e)(3)(iv), which provides that, for
purposes of determining good faith, a charge paid by or imposed on the
consumer may exceed the originally estimated charge if the revision is
caused by one of the six reasons identified in Sec.
1026.19(e)(3)(iv)(A) through (F). Proposed comment 19(e)(3)(iv)-1
illustrates this provision.
Consistent with current Regulation X,\143\ proposed comment
19(e)(3)(iv)-2 clarifies that, to satisfy the good faith requirement,
revised estimates may increase only to the extent that the reason for
revision actually caused the increase and provides illustrative
examples of this requirement. Proposed comment 19(e)(3)(iv)-3 discusses
the documentation requirements related to the provision of revised
estimates. Regulation X Sec. 1024.7(f) contains a separate regulatory
provision related to documentation requirements. The Bureau believes
that this requirement is encompassed within the requirements of Sec.
1026.25. The proposed comment clarifies that the regulations include a
documentation requirement related to the disclosures, but the
requirements are located under Sec. 1026.25, instead of Sec. 1026.19.
As discussed below, the Bureau is proposing to impose enhanced
recordkeeping requirements under Sec. 1026.25.
---------------------------------------------------------------------------
\143\ See Sec. 1024.7(f)(1), (2), (3), and (5).
---------------------------------------------------------------------------
19(e)(3)(iv)(A) Changed Circumstance Affecting Settlement Charges
In general. Regulation X Sec. 1024.7(f)(1) currently provides that
a revised RESPA GFE may be provided if changed circumstances result in
increased costs for any settlement service such that charges at
settlement would exceed the tolerances for those charges. The Bureau
agrees that creditors should be able to provide revised estimates if
certain situations occur that increase charges. The Bureau proposes
Sec. 1026.19(e)(3)(iv)(A), which provides that a valid reason for re-
issuance exists when changed circumstances cause estimated charges to
increase or, for those charges subject to Sec. 1026.19(e)(3)(ii),
cause the sum of all such estimated charges to increase by more than 10
percent. Proposed comment 19(e)(3)(iv)(A)-1 provides further
explanation of this requirement and includes several practical
examples.
Changed circumstance. As explained in the general discussion under
Sec. 1026.19(e)(3) above, Regulation X Sec. 1024.2 generally defines
changed circumstances as information and events that warrant revision
of the estimated amounts included on the RESPA GFE. The Bureau
generally agrees with the information and events included in the
current definition. However, the Bureau has received feedback that the
current definition is confusing. Thus, the Bureau proposes, within
Sec. 1026.19(e)(3)(iv)(A), a new definition of changed circumstance,
which provides that a changed circumstance is an extraordinary event
beyond the control of any interested party or other unexpected event
specific to the consumer or transaction, information specific to the
consumer or transaction that the creditor relied upon when providing
the disclosures and that was inaccurate or subsequently changed, or new
information specific to the consumer or transaction that was not relied
on when providing the disclosures.
This proposed definition, most significantly, omits the fourth
prong of the existing definition, which provides that: ``[o]ther
circumstances that are particular to the borrower or transaction,
including boundary disputes, the need for flood insurance, or
environmental problems'' is considered a changed circumstance. The
Bureau believes that this prong is not needed because it is covered
elsewhere in the definition, and may be contributing to the current
industry uncertainty surrounding what constitutes a changed
circumstance. However, the Bureau seeks comment on whether this
proposal is appropriate, and specifically on whether there are
scenarios that should be considered a changed circumstance that would
not be captured under any of the other three prongs. Proposed comment
19(e)(3)(iv)(A)-2 provides additional elaboration on this issue and
provides several examples of changed circumstances.
Proposed comment 19(e)(3)(iv)(A)-3 discusses how the definition of
application under Sec. 1026.2(a)(3) relates to the definition of
changed circumstances under Sec. 1026.19(e)(3)(iv)(A). The proposed
comment explains that a creditor is not required to collect the
consumer's name, monthly income, or social security number to obtain a
credit report, the property address, an estimate of the value of the
property, or the mortgage loan amount sought. However, for purposes of
determining whether an estimate is provided in good faith under Sec.
1026.19(e)(1)(i), a creditor is presumed to have collected these six
pieces of information. For example, if a creditor provides the
disclosures required by Sec. 1026.19(e)(1)(i) prior to receiving the
property address from the consumer, the creditor cannot subsequently
claim that the receipt of the property address is a
[[Page 51173]]
changed circumstance, under Sec. 1026.19(e)(3)(iv)(A) or (B).
19(e)(3)(iv)(B) Changed Circumstance Affecting Eligibility
Regulation X Sec. 1024.7(f)(2) currently provides that a revised
RESPA GFE may be provided if a changed circumstance affecting borrower
eligibility results in increased costs for any settlement service such
that charges at settlement would exceed the tolerances for those
charges. The Bureau proposes Sec. 1026.19(e)(3)(iv)(B), which provides
that a valid reason for reissuance exists when a changed circumstance
affecting the consumer's creditworthiness or the value of the
collateral causes the estimated charges to increase. Proposed comment
19(e)(3)(iv)(B)-1 explains that if changed circumstances cause a change
in the consumer's eligibility for specific loan terms disclosed
pursuant to Sec. 1026.19(e)(1)(i) and revised disclosures are provided
reflecting such change, the actual amounts paid by the consumer may be
measured against the revised estimated disclosures to determine if the
actual fee has increased above the estimated fee. The proposed comment
also provides several illustrative examples.
19(e)(3)(iv)(C) Revisions Requested by the Consumer
Regulation X Sec. 1024.7(f)(3) currently provides that a revised
RESPA GFE may be provided if a borrower requests changes to the
mortgage loan identified in the GFE that change the settlement charges
or the terms of the loan. The Bureau agrees that creditors should be
able to provide revised estimates that increase charges from the
original estimates due to revisions requested by the consumer. The
Bureau proposes Sec. 1026.19(e)(3)(iv)(C), which provides that a valid
reason for reissuance exists when a consumer requests revisions to the
credit terms or the settlement that cause estimated charges to
increase. Proposed comment 19(e)(3)(iv)(C)-1 illustrates this
requirement.
19(e)(3)(iv)(D) Interest Rate Dependent Charges
Regulation X Sec. 1024.7(f)(5) currently provides that, if the
interest rate has not been locked, or a locked interest rate has
expired, the charge or credit for the interest rate chosen, the
adjusted origination charges, per diem interest, and loan terms related
to the interest rate may change, provided, however, that when the
interest rate is later locked, a revised GFE must be provided showing
the revised interest rate-dependent charges and terms. The Bureau
agrees that disclosures related to the interest rate should be able to
fluctuate if the consumer's rate has not been set. The Bureau also
agrees that revised disclosures should be provided when the consumer's
rate is later set. However, the Bureau is concerned that this provision
may be used to harm consumers. There is a possibility that unscrupulous
creditors could use this provision to engage in rent-seeking behavior,
or to attempt to circumvent the requirements of TILA or RESPA. The
Bureau acknowledges these concerns, but the Bureau is unaware of any
evidence that creditors are using current Regulation X Sec.
1024.7(f)(5) to harm consumers or to circumvent RESPA. The Bureau
believes that the correct balance may be to retain the current
regulation while monitoring the market to determine if the regulation
is being used to the detriment of consumers. Thus, the Bureau proposes
Sec. 1026.19(e)(3)(iv)(D), which provides that a valid reason for
reissuance exists when a consumer's rate is set, and also provides that
revised disclosures must be provided reflecting the revised interest
rate, bona fide discount points, and lender credits. Proposed comment
19(e)(3)(iv)(D)-1 illustrates this requirement. The Bureau also seeks
comment on the frequency and magnitude of revisions to the interest
rate dependent charges, the frequency of cancellations of contractual
agreements related to interest rate dependent charges, such as rate
lock agreements, and the reasons for such revisions and cancellations.
19(e)(3)(iv)(E) Expiration
Regulation X Sec. 1024.7(f)(4) currently provides that if a
borrower does not express an intent to continue with the transaction
within ten business days after the RESPA GFE is provided, or such
longer time specified by the loan originator, then the loan originator
is no longer bound by the RESPA GFE. The Bureau believes that consumers
should be able to rely on the estimated charges for a sufficient period
of time to permit shopping. The Bureau also believes that, if the
consumer does not indicate intent to proceed within the ten-day period,
creditors should be able to provide revised disclosures reflecting new
charges. The Bureau proposes Sec. 1026.19(e)(3)(iv)(E), which provides
that a valid reason for reissuance exists when a consumer expresses an
intent to proceed more than ten business days after the disclosures are
provided. Proposed comment 19(e)(3)(iv)(E)-1 illustrates this
requirement.
19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
Regulation X Sec. 1024.7(f)(6) currently provides that in
transactions involving new construction home purchases, where
settlement is expected to occur more than 60 calendar days from the
time a GFE is provided, the loan originator cannot issue a revised GFE
unless the loan originator provided the borrower with a clear and
conspicuous disclosure stating that at any time up until 60 calendar
days prior to the real estate closing, the loan originator may issue a
revised GFE. The Bureau believes that the current law under Regulation
X should apply to the integrated disclosures. The Bureau agrees that
creditors should be able to issue revised disclosures for construction
loans where consummation will not occur until well into the future,
likely after construction is completed, provided that the consumer is
aware of this fact. The Bureau proposes Sec. 1026.19(e)(3)(iv)(F),
which provides that a valid reason for revision exists on construction
loans when consummation is scheduled to occur more than 60 days after
delivery of the estimated disclosures, provided that the consumer was
alerted to this fact when the estimated disclosures were provided.
Proposed comment 19(e)(3)(iv)(F)-1 clarifies that a loan for the
purchase of a home either to be constructed or under construction is
considered a construction loan to purchase and build a home for the
purposes of Sec. 1026.19(e)(3)(iv)(F). For example, a loan to build a
home that has yet to be constructed, or a loan to purchase a home on
which construction is currently underway, is a construction loan to
build a home for the purposes of Sec. 1026.19(e)(3)(iv)(F). However,
if a use and occupancy permit has been issued for the home prior to the
issuance of the Loan Estimate, then the home is not considered to be
under construction and the transaction would not be a construction loan
to purchase and build a home for the purposes of Sec.
1026.19(e)(3)(iv)(F). This comment is consistent with guidance provided
by HUD in the HUD RESPA FAQs p. 21, 2 (``GFE--New
construction'').
19(e)(4) Provision of Revised Disclosures
Timing Requirements for Provision of Revised Disclosures
TILA's requirement that creditors provide corrected disclosures is
not linked to the time when a creditor discovers that a correction is
necessary. Instead, section 128(b)(2)(D) of TILA
[[Page 51174]]
provides that the creditor shall furnish additional, corrected
disclosures to the borrower not later than three business days before
the date of consummation of the transaction, if the previously
disclosed annual percentage rate is no longer accurate, as determined
under TILA section 107(c). 15 U.S.C. 1638(b)(2)(D). Regulation Z
implements this requirement in Sec. 1026.19(a)(2)(ii). RESPA does not
expressly address timing requirements for the delivery of revised GFEs,
but Regulation X generally requires that a revised GFE must be provided
within three business days of the creditor receiving information
sufficient to establish a reason for revision.\144\
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\144\ ``If a revised GFE is to be provided, the loan originator
must do so within 3 business days of receiving information
sufficient to establish changed circumstances.'' 12 CFR 1024.7(f)(1)
and (2). ``If a revised GFE is to be provided, the loan originator
must do so within 3 business days of the borrower's request.'' 12
CFR 1024.7(f)(3). ``The loan originator must provide the revised GFE
within 3 business days of the interest rate being locked or, for an
expired interest rate, re-locked.'' 12 CFR 1024.7(f)(5).
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While both regulations contain redisclosure requirements, their
approaches are different. Regulation Z ensures that the consumer is
made aware of changes at a specific point in time before consummation,
but does not require the creditor to keep the consumer informed of
incremental changes during the loan origination process. In contrast,
Regulation X ensures that the consumer is kept aware of certain changes
during the process, but those changes may occur up to the day of
settlement. These different approaches may stem from the underlying
purposes of the respective statutes: TILA focuses primarily on the
disclosure of high-level measures of the costs imposed by the creditor,
such as the APR, while RESPA requires itemized disclosure of all
charges associated with the settlement of a federally related mortgage
loan and any underlying real estate transaction, regardless of who
imposes the charge.
The Bureau believes that the policy goals of both statutes are best
served by adopting the Regulation X requirement that revised
disclosures be delivered within three business days of the creditor
establishing that a valid reason for revision exists. Intermittent
redisclosure of the integrated Loan Estimate is necessary under RESPA
because settlement service provider costs typically fluctuate during
the mortgage loan origination process. Furthermore, intermittent
redisclosure is consistent with the purposes of TILA because it
promotes the informed use of credit by keeping the consumer apprised of
changes in costs.
Accordingly, the Bureau is proposing Sec. 1026.19(e)(4)(i), which
provides that, if a creditor delivers a revised Loan Estimate, the
creditor must do so within three business days of establishing that a
valid reason for revision exists. Proposed comment 19(e)(4)-1 provides
illustrative examples of this requirement.
The Bureau proposes this provision pursuant to its authority under
TILA section 105(a), RESPA section 19(a), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, sections 129B(e) of TILA
and 1405(b) of the Dodd-Frank Act. This proposed provision is
consistent with TILA's purposes in that alerting consumers to
significant settlement cost increases as they occur, rather than prior
to consummation, increases consumer awareness during the mortgage loan
origination process, enabling consumers to avoid the uninformed use of
credit. This provision is consistent with section 129B(e) of TILA
because failing to inform borrowers of significant settlement cost
increases as they occur is not in the interest of the borrower. This
also achieves RESPA's purposes because informing consumers of
significant settlement cost increases as they occur is a more effective
method of advance disclosure of settlement costs than only informing
consumers at or shortly prior to consummation. In addition, the
proposed regulation is consistent with Dodd-Frank Act section 1032(a)
because the features of mortgage loan transactions and settlement
services will be more fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the mortgage loan and settlement
services if consumers are made aware of significant settlement cost
increases as they occur, rather than prior to consummation. It is also
in the interest of consumers and in the public interest, consistent
with Dodd-Frank Act section 1405(b), because alerting consumers to
significant settlement cost increases during the process will improve
consumer understanding and awareness of the mortgage loan transaction
through the use of disclosure.
Prohibition Against Delivering Early Disclosures at the Same Time as
Final Disclosures
As explained above, the purposes of RESPA and TILA include
effective advance disclosure of settlement costs, and the informed use
of credit by consumers. See TILA section 102; RESPA section 2. Section
105(a) of TILA also permits the Bureau to prescribe regulations that
would improve consumers' ability to understand the mortgage loan
transaction. The Dodd-Frank Act enhances TILA's focus by placing
special emphasis on the requirement that disclosures must be made in a
way that is clear and understandable to the consumer. Section 1405 of
the Dodd-Frank Act focuses on improving ``consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures.'' The Bureau is aware that, in some
cases, creditors have provided a revised GFE at the real estate closing
along with the RESPA settlement statement. The Bureau is concerned that
this practice may be confusing for consumers and may diminish their
awareness and understanding of the transaction.
The Bureau recognizes that there are cases in which a consumer may
not be confused by receiving good faith estimates on the same day, or
even at the same time, as the consumer receives the actual settlement
costs. However, because the estimated costs will match the actual
costs, the Bureau is concerned that consumers may be confused by
seemingly duplicative disclosures. The Bureau is also concerned that
this duplication may contribute to information overload stemming from
too many disclosures, which may, in turn, inhibit the consumer's
ability to understand the transaction. Accordingly, proposed Sec.
1026.19(e)(4)(ii) prohibits creditors from providing a consumer with
disclosures of estimated and actual costs at the same time. To draw a
clear line to facilitate compliance, the creditor does not comply with
the requirements of proposed Sec. 1026.19(e) if the consumer receives
revised versions of the disclosures required under Sec.
1026.19(e)(1)(i) on the same business day as the consumer receives the
disclosures required by Sec. 1026.19(f)(1)(i).
Accordingly, the Bureau is proposing Sec. 1026.19(e)(4)(ii), which
provides that the creditor shall deliver revised versions of the
disclosures required by Sec. 1026.19(e) in a manner that ensures such
revised disclosures are not received on the same business day as the
consumer receives the disclosures required by Sec. 1026.19(f)(1)(i).
The Bureau proposes this provision pursuant to its authority under TILA
section 105(a), RESPA section 19(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans, Dodd-Frank Act section 1405(b).
The
[[Page 51175]]
proposed provision is consistent with TILA's purposes because
prohibiting simultaneous provision of a revised Loan Estimate and the
Closing Disclosure promotes the informed use of credit by reducing the
potential for consumer confusion and information overload. Similarly,
this provision achieves RESPA's purposes because the receipt of
settlement cost information on a single disclosure is a more effective
method of advance disclosure of settlement costs. In addition, the
proposed regulation is consistent with Dodd-Frank Act section 1032(a)
because consumers will understand the costs, benefits, and risks
associated with the mortgage loan and settlement services if the actual
terms and costs of the transaction are disclosed on the Closing
Disclosure only. It is also in the interest of consumers and in the
public interest, consistent with Dodd-Frank Act section 1405(b),
because ensuring that consumers do not receive duplicative disclosures
will improve consumer understanding and awareness of the mortgage loan
transaction through the use of disclosure.
Proposed comment 19(e)(4)-2 discusses the requirement that revised
disclosures may not be delivered at the same time as the final
disclosures. The proposed comment explains that creditors comply with
the requirements of Sec. 1026.19(e)(4) if the revised disclosures are
reflected in the disclosures required by Sec. 1026.19(f)(1)(i) (i.e.,
the Closing Disclosure). This comment also includes illustrative
examples of the requirement.
19(f) Mortgage Loans Secured by Real Property--Final Disclosures
As discussed in the preamble text introducing Sec. 1026.19, TILA
applies only to creditors and requires, for certain mortgage
transactions, creditors to furnish a corrected disclosure to the
borrower not later than three business days before the date of
consummation of the transaction if the prior disclosed APR has become
inaccurate. 15 U.S.C. 1638(b)(2)(A), (D). In contrast, RESPA generally
applies to settlement agents and requires the person conducting the
settlement (e.g., the settlement agent) to complete a settlement
statement and make it available for inspection by the borrower at or
before settlement. 12 U.S.C. 2603(b). RESPA also provides that, upon
the request of the borrower, the person who conducts the settlement
must permit the borrower to inspect those items which are known to such
person on the settlement statement during the business day immediately
preceding the day of settlement. Id.
Regulation Z implements TILA's requirement that the creditor
deliver corrected disclosures and provides that, if the annual
percentage rate disclosed in the early TILA disclosure becomes
inaccurate, the creditor shall provide corrected disclosures with all
changed terms. Sec. 1026.19(a)(2)(ii). Regulation Z further provides
that the consumer must receive the corrected disclosures no later than
three business days before consummation. Id. Regulation X provides that
the settlement agent shall permit the borrower to inspect the RESPA
settlement statement, completed to set forth those items that are known
to the settlement agent at the time of inspection, during the business
day immediately preceding settlement. Sec. 1024.10(a).
Section 1032(f) of the Dodd-Frank Act provides that the Bureau
shall propose for public comment rules that combine the disclosures
required under TILA and sections 4 and 5 of RESPA. As noted above,
although the Dodd-Frank Act amended TILA and RESPA to reflect section
1032(f)'s mandate to integrate the rules under TILA and RESPA, Congress
did not reconcile the timing requirements or amend the division of
responsibilities between creditor and settlement agent in TILA and
RESPA.
19(f)(1) Provision
19(f)(1)(i) Scope
As discussed above, the integrated disclosure mandate requires the
Bureau to reconcile what Congress did not. Thus, pursuant to its
authority under sections 105(a) of TILA, 19(a) of RESPA, and 1032(f) of
the Dodd-Frank Act, the Bureau is proposing to integrate the disclosure
requirements in TILA section 128 and RESPA section 4 in Sec.
1026.19(f)(1)(i). This section provides that in a closed-end consumer
credit transaction secured by real property, other than a reverse
mortgage subject to Sec. 1026.33, the creditor shall provide the
consumer with the disclosures in Sec. 1026.38 reflecting the actual
terms of the credit transaction. Proposed comment 19(f)(1)(i)-1
provides illustrative examples of this provision.
19(f)(1)(ii) Timing
19(f)(1)(ii)(A) In General
The Bureau must determine when the integrated disclosures must be
provided, given that the statutory requirements are not in sync. The
Bureau believes that, to comply with both TILA and RESPA, the
integrated disclosure must be delivered no later than three days before
consummation. The Bureau recognizes that RESPA requires settlement
agents to permit borrower inspection of the settlement statement only
one business day in advance of settlement, and even then RESPA requires
disclosure of only the information to the extent that it is known to
the settlement agent. However, the fact that Congress did not alter the
timing requirements under RESPA does not imply that the timing
requirements under TILA were eliminated. It can be safely presumed that
Congress was aware of the requirement that creditors must deliver final
disclosures three business days before consummation because Congress
created the three-business-day waiting period in 2008. Furthermore,
section 1098 of the Dodd-Frank Act, which amends RESPA section 4 to
require integrated disclosures, specifically provides that such
integrated disclosures shall ``include real estate settlement cost
statements.'' This suggests that Congress intended creditors to deliver
the settlement cost statements with the TILA disclosures required to be
delivered no later than three business days before consummation, even
though the language in RESPA section 4 related to settlement agent
delivery remains.\145\
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\145\ The language in section 4 of RESPA requiring settlement
statement delivery one business day in advance of settlement was
added in 1976. See section 3 of Public Law 94-205 (Jan. 2, 1976).
Interpreting the recent amendments in a way that overrides the
legacy language is consistent with Supreme Court precedent. See FDA
v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000)
(``[T]he meaning of one statute may be affected by other Acts,
particularly where Congress has spoken subsequently and more
specifically to the topic at hand.'').
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The expansion of the items required to be disclosed three business
days prior to consummation also supports the Bureau's interpretation.
As discussed above, section 1419 of the Dodd-Frank Act also amended
TILA by adding section 128(a)(17), which requires creditors to disclose
the aggregate amount of settlement charges for all settlement services
provided in connection with the loan and the aggregate amount of other
fees or required payments in connection with the loan. The items
included in this amendment are nearly all of the items that are
included on the RESPA settlement statement, which suggests that
Congress intended for creditors to disclose information that was
traditionally known only to settlement agents in advance of
consummation. This amendment, coupled with the fact that Regulation Z
requires redisclosure of all changed terms three business days before
consummation when the APR is inaccurate, implies that Dodd-Frank
requires provision of the integrated
[[Page 51176]]
disclosure no later than three business days before consummation.
The determination of how to integrate these conflicting statutory
provisions also must be made in light of section 1405(b) of the Dodd-
Frank Act, which focuses on improving ``consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures.'' Consumers may be more aware of and
better understand their transactions if consumers receive the
disclosures reflecting all of the terms and costs associated with their
transactions three days before consummation. This should afford
consumers sufficient time to review, analyze, and question the
information reflected in the disclosure, such that consumers are aware
of and understand the transactions by the time consumers are required
to obligate themselves. This should also provide consumers with
sufficient time to identify and correct errors, discuss and negotiate
cost increases, and have the necessary funds available. This may also
eliminate the opportunity for bad actors to surprise consumers with
unexpected costs at the closing table, when consumers are less able to
question such costs.
In addition, the Bureau is concerned that consumers would not
receive the disclosures far enough in advance of consummation to review
and understand the transaction under an alternate reading of the
statute. As explained above, Regulation Z currently requires creditors
to ensure that consumers receive the corrected TIL disclosures no later
than three business days prior to consummation. A less stringent rule
that allowed consumers to receive the disclosures on the day of
consummation would be inconsistent with both TILA and the goals this
proposal seeks to achieve. However, the Bureau is also concerned that
it would be impractical to require delivery earlier than three business
days before consummation. Thus, the Bureau believes that the proposal
should provide flexibility to industry by requiring creditors to ensure
that consumers receive the disclosures no later than the third business
day before consummation. Under this approach, a creditor need not
complete the disclosures until the third business day before
consummation, provided it can ensure that the consumer will receive the
disclosures that day, such as via electronic mail consistent with
applicable requirements or hand delivery.
As discussed above, the integrated disclosure mandate requires the
Bureau to reconcile what Congress did not. Section 105(a) of TILA
authorizes the Bureau to modify and add requirements under certain
circumstances, and the Bureau believes that requiring redisclosure in
cases where it is not currently required under Regulation Z or
Regulation X is necessary to effectively integrate the disclosures.
Accordingly, the Bureau proposes Sec. 1026.19(f)(1)(ii)(A), which
provides that, except for transactions secured by timeshares, or as
provided under Sec. 1026.19(f)(2), the creditor shall ensure that the
consumer receives the disclosures no later than three business days
before consummation. Proposed comment 19(f)(1)(ii)-1 provides
illustrations of this requirement. Proposed comment 19(f)(1)(ii)-2
explains the requirement that consumers must receive disclosures no
later than three days in advance of consummation, and provides
practical examples illustrating appropriate delivery methods.
The Bureau informed the Small Business Review Panel that the Bureau
was considering requiring reissuance if the APR increased by more than
\1/8\ of 1 percent, certain loan features were added, or if the amount
needed to close increased beyond a certain tolerance. See Small
Business Panel Review Report at 11. While this proposal includes the
tolerance for the amount needed to close and would require reissuance
if certain loan features are added, this proposal does not include an
additional APR tolerance for reissuance. Based on further review, the
Bureau believes that the $100 amount needed to close tolerance provides
sufficient flexibility, thereby making an additional APR tolerance
unnecessary. The Bureau was also concerned that the additional APR
tolerance would harm consumers by allowing potentially large costs to
change immediately prior to closing. Importantly, the Bureau believes
that this proposal is substantially similar to the possibilities
discussed with the Small Business Review Panel. In virtually all cases
where the APR increases by more than \1/8\ of 1 percent, the amount
needed to close would also have increased by more than $100, requiring
re-disclosure. However, the Bureau solicits comment on whether the use
of an APR tolerance would provide any additional benefits.
The Bureau recognizes that this modification would require
redisclosure three days before consummation in circumstances that are
not currently required under Regulation Z. This proposal removes the
condition, provided for under TILA section 128(b)(2)(D), that corrected
disclosures need not be delivered if the estimated APR included in the
early TILA disclosure is accurate at the time of consummation. The
Bureau has received extensive feedback indicating that APR estimates
included in the early TILA disclosures are so rarely accurate that most
creditors provide corrected disclosures as a standard business
practice, instead of analyzing the accuracy of the disclosed APR. Thus,
the Bureau believes that the benefit afforded by the condition under
TILA section 128(b)(2)(D) is more illusory than real, and may, in fact,
impose an unnecessary compliance burden on industry. In addition, the
Bureau suspects that the expansion of the list of items included in the
APR, pursuant to the proposed amendments to Sec. 1026.4, may make it
less likely that a creditor will be able to accurately estimate the APR
within three business days of application. Therefore, this proposal
does not condition disclosure prior to consummation on APR accuracy.
These proposals are made pursuant to the Bureau's legal authority
under sections 105(a) of TILA, 19(a) of RESPA, 1032(a) of the Dodd-
Frank Act, and, for residential mortgage transactions, sections 129B(e)
of TILA and 1405(b) of the Dodd-Frank Act. The Bureau has considered
the purposes for which it may exercise its authority under section
105(a) of TILA and, based on that review, believes that the proposed
modifications are appropriate. The proposal may help consumers avoid
the uninformed use of credit by ensuring that consumers receive
disclosures of the actual terms and costs associated with the mortgage
loan transaction early enough that consumers have sufficient time to
become fully informed as to the cost of their credit. This provision is
consistent with section 129B(e) of TILA because failing to provide
borrowers with enough time to become fully informed of the actual terms
and costs of the transaction is not in the interest of the borrower.
The Bureau has also considered the purposes for which it may
exercise its authority under section 19(a) of RESPA and, based on that
review, believes that the proposed rules and interpretations are
appropriate. The proposal has the potential to ensure more effective
advance disclosure of settlement costs by requiring creditors to
disclose the actual settlement costs associated with the transaction
three business days before consummation.
Proposed Sec. 1026.19(f)(1)(ii)(A) is consistent with Dodd-Frank
Act section 1032(a) because the features of mortgage loan transactions
and settlement services will be more fully, accurately, and effectively
disclosed to consumer in
[[Page 51177]]
a manner than permits consumers to understand the costs, benefits, and
risks associated consumers will understand the costs and risks
associated with the mortgage loan and settlement services if consumers
receive the disclosures reflecting all of the terms and costs
associated with their transactions three days before consummation.
In addition, the Bureau has considered the purposes for which it
may exercise its authority under section 1405(b) of the Dodd-Frank Act
and, based on that review, believes that the proposed modifications are
appropriate. The proposal may improve consumer awareness and
understanding of the mortgage loan transaction by ensuring that
consumers receive the disclosures reflecting all of the terms and costs
associated with their transactions three days in advance of
consummation. The proposal may also be in the interest of consumers and
in the public interest because the proposal may eliminate the
opportunity for bad actors to surprise consumers with unexpected costs
at the closing table, when consumers are less able to question such
costs.
The Bureau recognizes that this is a change from current industry
practice. During the Small Business Review process, several small
entity representatives were opposed to this modification. See Small
Business Review Panel report at 35, 38, 40, 45, 53-54, 59-60, 67-68,
72, and 77. The Small Business Review Panel recommended that the Bureau
explore ways to mitigate the potential impact of the three business day
requirement on small entities. See id at 29. Based on this feedback and
consistent with the Small Business Review Panel's recommendation, the
Bureau solicits comment on alternative approaches, including any that
can minimize the burden on industry, especially small entities, while
serving the needs of consumers and effectively integrating the
disclosures, as required by the Dodd-Frank Act.
19(f)(1)(ii)(B) Timeshares
As explained above, in 2008 Congress amended TILA to require
delivery of final disclosures three business days prior to
consummation. However, Congress explicitly exempted mortgage loans
secured by timeshares, as defined by 11 U.S.C. 101(53D), from the
three-day requirement.\146\ Accordingly, pursuant to its authority
under sections 105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-
Frank Act, the Bureau proposes Sec. 1026.19(f)(1)(ii)(B), which states
that for transactions secured by a consumer's interest in a timeshare
plan described in 11 U.S.C. 101(53D), the creditor shall ensure that
the consumer receives the disclosures required under paragraph
(f)(1)(i) of this section as soon as reasonably practicable, but no
later than consummation. This proposed regulation carries out the
purposes of TILA and RESPA by ensuring meaningful disclosure of credit
terms and effective advance disclosure of settlement costs, consistent
with section 105(a) of TILA and 19(a) of RESPA, respectively. Also,
this proposed regulation will improve consumer awareness and
understanding of transactions involving residential mortgage loans by
requiring effective disclosure within a timeframe appropriate for loans
secured by a timeshare, which will be in the best interest of consumers
and the public consistent with Dodd-Frank Act section 1405(b).
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\146\ Mortgage Disclosure Improvement of 2008, Public Law 110-
289, Title V, Sec. 2502(a)(6), 122 Stat. 2654, 2857 (July 30,
2008); 15 U.S.C. 1638(b)(2)(G).
---------------------------------------------------------------------------
Proposed comment 19(f)(1)(ii)-3 explains that for loans secured by
timeshares, as defined under 11 U.S.C. 101(53D), Sec.
1026.19(f)(1)(ii)(B) requires a creditor to ensure that the consumer
receives the disclosures required under Sec. 1026.19 (f)(1)(i) as soon
as reasonably practicable, but no later than consummation. The proposed
comment also includes illustrative examples of this requirement.
19(f)(1)(iii) Delivery
Section 128(b)(2)(E) of TILA provides that, if the disclosures are
mailed to the consumer, the consumer is considered to have received
them three business days after they are mailed. 15 U.S.C.
1638(b)(2)(E). RESPA does not expressly address delivery requirements.
Regulation Z provides that if the disclosures are provided to the
consumer by means other than delivery in person, the consumer is deemed
to have received the disclosures three business days after they are
mailed or delivered. See Sec. 1026.19(a)(1)(ii). Regulation X provides
that the settlement agent shall deliver the completed RESPA settlement
statement at or before the settlement, except if the borrower waives
the right to delivery of the completed RESPA settlement statement, in
which case the completed RESPA settlement statement shall be mailed or
delivered as soon as practicable after settlement. Sec. 1024.10(b),
(c).
To establish a consistent standard for the integrated Closing
Disclosure, pursuant to its authority under sections 105(a) of TILA,
19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the Bureau proposes
to adopt Sec. 1026.19(f)(1)(iii), which provides that, if any
disclosures required under Sec. 1026.19(f)(1)(i) are not provided to
the consumer in person, the consumer is presumed to have received the
disclosures three business days after they are mailed or delivered to
the address specified by the consumer.
Proposed comment 19(f)(1)(iii)-1 explains that if any disclosures
required under Sec. 1026.19(f)(1)(i) are not provided to the consumer
in person, the consumer is presumed to have received the disclosures
three business days after they are mailed or delivered. This is a
presumption which may be rebutted by providing evidence that the
consumer received the disclosures earlier than three business days. The
proposed comment also contains illustrative examples. Proposed comment
19(f)(1)(iii)-2 clarifies that the presumption established in Sec.
1026.19(f)(1)(iii) applies to methods of electronic delivery, such as
email. However, creditors using electronic delivery methods, such as
email, must also comply with Sec. 1026.17(a)(1). This proposed comment
also contains illustrative examples.
The Bureau recognizes that this requirement is different than the
current requirement in Regulation Z. As explained above, the current
rules deem corrected disclosures mailed or delivered to the consumer by
a method other than in-person delivery to be received three business
days after mailing or delivery. In contrast, the proposed rule instead
creates a presumption that the disclosures are received three business
days after they are mailed or delivered to the address provided by the
consumer. While the current rule may be appropriate for the disclosures
provided under Sec. 1026.19(a), the Bureau is concerned that the
current rule may not be appropriate for the integrated Closing
Disclosure, which contains much more information than the final TILA
disclosures subject to the current rule, and therefore will require
more time to review and understand. It therefore may be appropriate to
create a presumption of receipt, which would provide additional
encouragement for lenders to ensure that the disclosures are received
in a timely manner. However, the Bureau solicits feedback regarding
whether the proposed rules will create uncertainty regarding
compliance. The Bureau also solicits comment on whether the rules
should be analogous to the current rule under Sec. 1026.19(a)(2),
which uses ``deem'' instead of ``presume.'' Finally, the Bureau seeks
feedback regarding
[[Page 51178]]
whether Sec. 1026.19(a) should be modified to reflect Sec.
1026.19(f)(1)(iii), if the final rule adopts the presumption of
receipt.
This proposed provision is consistent with section 105(a) of TILA
in that it may help consumers avoid the uninformed use of credit by
ensuring that consumers receive disclosures of the actual terms and
costs associated with the mortgage loan transaction early enough that
consumers have sufficient time to become fully informed as to the cost
of credit. This proposed provision is also consistent with section
19(a) of RESPA because it has the potential to ensure more effective
advance disclosure of settlement costs by requiring creditors to make
sure that the disclosures are delivered to the address specified by the
consumer three business days before consummation. In addition, the
proposal is consistent with section 1405(b) of the Dodd-Frank Act
because the proposal may improve consumer awareness and understanding
of the mortgage loan transaction by ensuring that disclosures
reflecting all of the terms and costs associated with their
transactions are delivered to the address specified by the consumer
three business days in advance of consummation. Ensuring that consumers
receive disclosures in a timely manner is also in the interest of
consumers and in the public interest because the proposal may allow
consumers to receive the disclosure early enough to question and
understand their mortgage loan transaction.
19(f)(1)(iv) Consumer's Waiver of Waiting Period Before Consummation
Section 128(b)(2)(F) of TILA provides that the consumer may waive
or modify the timing requirements for disclosures to expedite
consummation of a transaction, if the consumer determines that the
extension of credit is needed to meet a bona fide personal financial
emergency. Section 128(b)(2)(F) further provides that: (1) The term
``bona fide personal financial emergency'' may be further defined in
regulations issued by the Bureau; (2) the consumer must provide the
creditor with a dated, written statement describing the emergency and
specifically waiving or modifying the timing requirements, which bears
the signature of all consumers entitled to receive the disclosures; and
(3) the creditor must provide, at or before the time of waiver or
modification, the final disclosures. 15 U.S.C. 1638(b)(2)(F). This
provision is implemented in Sec. 1026.19(a)(3) of Regulation Z.
Neither RESPA nor Regulation X contains a similar provision.
Although the Bureau understands that waivers based on a bona fide
personal financial emergency are rare, this exception serves an
important purpose: consumers should be able to waive the protection
afforded by the waiting period if, in the face of a financial
emergency, the waiting period does more harm than good. Accordingly,
the Bureau is proposing Sec. 1026.19(f)(1)(iv), which allows a
consumer to waive the three-business-day waiting period in the event of
a bona fide personal financial emergency. In addition, the Bureau seeks
comment on the nature of waivers based on bona fide personal financial
emergencies. The Bureau also seeks comment on whether the bona fide
personal financial emergency exception is needed more in some contexts
than in others (e.g., in refinance transactions or purchase money
transactions).
Proposed comment 19(f)(1)(iv)-1 states that, a consumer may modify
or waive the right to the three-business-day waiting period required by
Sec. 1026.19(f)(1)(ii) only after the creditor makes the disclosures
required by Sec. 1026.19(f)(1)(i). This comment is modeled after
comment 19(a)(3)-1, which is based on the same statutory text, and is
consistent with commentary on waiving the rescission period and the
pre-consummation waiting period required for certain high-cost mortgage
transactions. The consumer must have a bona fide personal financial
emergency that necessitates consummating the credit transaction before
the end of the waiting period. Whether these conditions are met is
determined by the facts surrounding individual situations. The imminent
sale of the consumer's home at foreclosure, where the foreclosure sale
will proceed unless loan proceeds are made available to the consumer
during the waiting period, is one example of a bona fide personal
financial emergency. Each consumer who is primarily liable on the legal
obligation must sign the written statement for the waiver to be
effective.
Alternative--Proposed 19(f)(1)(v) Settlement Agent
As discussed above, neither TILA nor Regulation Z contain
requirements related to settlement agents, but RESPA and Regulation X
generally apply to settlement agents with respect to closing disclosure
requirements. Section 1032(f) of the Dodd-Frank Act requires the Bureau
to propose for public comment rules that combine the disclosures
required under TILA and sections 4 and 5 of RESPA. The Dodd-Frank Act
amended TILA and RESPA to reflect section 1032(f)'s mandate to
integrate the rules under TILA and RESPA, but Congress did not
reconcile the division of responsibilities between creditor and
settlement agent in TILA and RESPA.
The Bureau recognizes that people who conduct settlements, such as
settlement agents and closing attorneys, play a valuable role in the
real estate settlement process. The Bureau also believes that
settlement agents may be able to assist consumers with issues that
arise during a real estate settlement as, or perhaps more, effectively
than creditors. However, the Bureau is concerned that, in the context
of providing disclosures, settlement agents may not be able to fulfill
the obligations imposed by TILA. The Bureau is also concerned that
consumers will receive duplicative, inaccurate, or unreliable
disclosures if the responsibility to provide disclosures is divided.
As discussed above, proposed Sec. 1026.19(f)(1)(i) makes the
creditor solely responsible for the provision of the disclosures
required by Sec. 1026.19(f). Although this may be the appropriate
solution, an alternative approach that permits creditors and settlement
agents to split responsibility may also be appropriate. This
alternative would require the creditor and settlement agent to agree on
a division of responsibilities regarding the delivery of the
disclosures. Accordingly, pursuant to its authority under sections
105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the
Bureau proposes alternative Sec. 1026.19(f)(1)(v), which provides that
a settlement agent may provide a consumer with the disclosures required
under Sec. 1026.19(f)(1)(i), provided the settlement agent complies
with all requirements of Sec. 1026.19(f) as if it were the creditor.
As discussed under proposed alternative comment 19(f)(1)(v)-3 below,
this proposed regulation is not intended to relieve the creditor's
responsibility under TILA. The creditor would remain responsible for
ensuring that disclosures are provided in accordance with the
requirements of Sec. 1026.19(f). Disclosures provided by a settlement
agent in accordance with the requirements of Sec. 1026.19(f) satisfy
the creditor's obligation under Sec. 1026.19(f)(1)(i). As discussed
under proposed alternative comment 19(f)(1)(v)-3 below, this proposed
regulation is not intended to relieve the creditor's responsibility
under TILA. The creditor would remain responsible for ensuring that
disclosures are provided in accordance with the requirements of Sec.
1026.19(f). Disclosures provided by a settlement agent in accordance
with the requirements of Sec. 1026.19(f) satisfy the creditor's
[[Page 51179]]
obligation under Sec. 1026.19(f)(1)(i). In addition, the Bureau
invites comment on other methods of dividing responsibility between
creditors and settlement service providers, provided that such other
methods ensure that consumers are provided with prompt, accurate, and
reliable disclosures.
The Bureau informed the Small Business Review Panel that the Bureau
was considering an alternate proposal where the lender would be
responsible for preparing the TILA-required information, the settlement
agent would be responsible for preparing the RESPA-required
information, and the lender and settlement agent would be jointly
responsible for providing the consumer with an integrated Closing
Disclosure three business days before closing. See Small Business Panel
Review Report at 12. While the alternate proposal in this proposed rule
permits shared responsibility, it does not delineate responsibility
between RESPA and TILA content. Based on further review, the Bureau
determined that such a division would be impracticable. There is
significant overlap between the disclosures required by the statutes,
and creditors and settlement agents have access to both RESPA and TILA
information. The Bureau believes that the better approach is to permit
shared responsibility, but allow creditors and settlement agents to
decide how to most effectively divide that responsibility. However, the
Bureau solicits comment on the benefits and costs associated with this
alternative, especially regarding any impact on small businesses that
was not raised during the Small Business Review process.
This proposed regulation carries out the purposes of TILA because
requiring the involvement of a settlement agent could result in
increased consumer awareness and more meaningful disclosure of credit
terms, consistent with section 105(a) of TILA. This proposed regulation
could also achieve the purposes of RESPA by resulting in more effective
advance disclosure of settlement costs, consistent with section 19(a)
of RESPA. This proposed regulation could also improve consumer
understanding and awareness of the transaction by permitting the form
to be completed and provided by settlement agents, who often assist
consumers during a real estate closing, which is in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b).
Proposed alternative comment 19(f)(1)(v)-1 clarifies that a
settlement agent may provide the disclosures required under Sec.
1026.19(f)(1)(i) instead of the creditor. By assuming this
responsibility, the settlement agent becomes responsible for complying
with all of the relevant requirements as if it were the creditor,
meaning that ``settlement agent'' should be read in the place of
``creditor'' for all the relevant provisions of Sec. 1026.19(f),
except where the context indicates otherwise. The creditor and
settlement agent must effectively communicate to ensure timely and
accurate compliance with the requirements of this section.
Proposed alternative comment 19(f)(1)(v)-2 clarifies that if a
settlement agent issues any disclosure under Sec. 1026.19(f), the
settlement agent must comply with the requirements of Sec. 1026.19(f).
This proposed alternative comment also clarifies that the settlement
agent may assume the responsibility to provide some or all of the
disclosures required by Sec. 1026.19(f), provides that the consumer
receives one single disclosure form containing all of the information
required to be disclosed pursuant to Sec. 1026.19(f)(1)(i), in
accordance with the other requirements in Sec. 1026.19(f), such as
requirements related to timing and delivery. The comment also includes
illustrative examples.
Proposed alternative comment 19(f)(1)(v)-3 explains that if a
settlement agent provides disclosures required under Sec. 1026.19(f)
in the creditor's place, the creditor remains responsible under Sec.
1026.19(f) for ensuring that the requirements of Sec. 1026.19(f) have
been satisfied. For example, the creditor does not comply with Sec.
1026.19(f) if the settlement agent does not provide the disclosures
required under Sec. 1026.19(f)(1)(i), or if the consumer receives the
disclosures later than three business days before consummation.
The proposed comment also clarifies that the creditor does not
satisfy the requirements of Sec. 1026.19(f) if it provides duplicative
disclosures. For example, a creditor does not satisfy its obligation by
issuing disclosures required under Sec. 1026.19(f) that mirror ones
already issued by the settlement agent for the purpose of demonstrating
that the consumer received timely disclosures. The creditor is expected
to maintain communication with the settlement agent to ensure that the
settlement agent is acting in place of the creditor. Disclosures
provided by a settlement agent in accordance with Sec.
1026.19(f)(1)(v) satisfy the creditor's obligation under Sec.
1026.19(f)(1)(i).
Proposed alternative comment 19(f)(1)(v)-4 clarifies that the
settlement agent may assume the responsibility to provide some or all
of the disclosures required by Sec. 1026.19(f). However, the consumer
must receive one single disclosure form containing all of the
information required to be disclosed pursuant to Sec.
1026.19(f)(1)(i), in accordance with the other requirements in Sec.
1026.19(f), such as requirements related to timing and delivery. The
proposed alternative comment also includes illustrative examples.
19(f)(2) Subsequent Changes
There are several circumstances where the strict application of the
three-day-waiting period required by Sec. 1026.19(f)(1)(ii) may
operate to the consumer's detriment. The Bureau seeks to provide
flexibility where doing so would benefit the consumer. Thus, the Bureau
is proposing Sec. 1026.19(f)(2), which provides that creditors need
not comply with the timing requirements in Sec. 1026.19(f)(1)(ii) if
the disclosure provided pursuant to Sec. 1026.19(f)(1)(i) is
subsequently revised for any of the reasons described in Sec.
1026.19(f)(2)(i) through (v).
The Bureau proposes Sec. 1026.19(f)(2) pursuant to its authority
under sections 105(a) of TILA and 19(a) of RESPA. As explained in more
detail below, the Bureau believes that these proposed regulations will
carry out the purposes of TILA and RESPA by ensuring meaningful
disclosure of credit terms, more effective advance disclosure of
settlement costs, and will result in the elimination of kickbacks,
referral fees, and other practices that tend to increase unnecessarily
the costs of certain settlement services, consistent with sections
105(a) of TILA and 19(a) of RESPA, respectively.
19(f)(2)(i) Changes Due to Consumer and Seller Negotiations
The Bureau recognizes that sellers and buyers frequently alter the
terms of the real estate transaction based on the condition of the
house at the time of the walk-though inspection, which is often the day
before the scheduled real estate closing, and in some cases even
continue to negotiate the deal at the closing table. These negotiations
may affect items included on the Closing Disclosure, which, under the
proposal, must be delivered three days prior to consummation. The
Bureau believes that the regulations should provide flexibility to
address this common occurrence, so that these changes do not trigger an
additional three-day-waiting period. Thus, pursuant to its authority
under section 105(a) of TILA and section 19(a) of RESPA, the Bureau
proposes Sec. 1026.19(f)(2)(i), which states that if, after the
creditor provides the consumer with the disclosures, the consumer and
the seller agree to make changes to the transaction that affect
[[Page 51180]]
items disclosed, the creditor shall deliver revised disclosures
reflecting such changes at or before consummation. Proposed comment
19(f)(2)(i)-1 provides illustrative examples of this requirement. This
proposed regulation will carry out the purposes of TILA by ensuring
meaningful disclosure of credit terms and enable the informed use of
credit by enabling buyers and sellers to conduct final negotiations
informed by the final credit terms provided in the disclosures, and by
ensuring that the disclosures can be modified to reflect such
negotiations immediately prior to the real estate closing, consistent
with section 105(a) of TILA. This will also help to achieve the
purposes of RESPA by enabling more effective advance disclosure of
settlement costs, and will result in the elimination of kickbacks,
referral fees, and other practices that tend to increase unnecessarily
the costs of certain settlement services, by enabling buyers and
sellers to conduct final negotiations informed by the final credit
terms provided in the disclosures, and by ensuring that the disclosures
can be modified to reflect such negotiations immediately prior to the
real estate closing, consistent with section 19(a) of RESPA.
19(f)(2)(ii) Changes to the Amount Actually Paid by the Consumer
The Bureau does not believe that small miscalculations or minor
changes to the transaction should result in closing delays. Therefore,
the Bureau proposes Sec. 1026.19(f)(2)(ii), which provides that, if
the amount actually paid by the consumer does not exceed the amount
disclosed under Sec. 1026.38(d)(1) by more than $100, the creditor
shall deliver revised disclosures at or before consummation. The Bureau
believes that $100 may be the correct tolerance based on feedback
received regarding the items most likely to change prior to
consummation. The Bureau seeks comment on whether the threshold to
accommodate small miscalculations or minor changes prior to
consummation should be higher or lower than the proposed $100.
The Bureau proposes Sec. 1026.19(f)(2)(ii) pursuant to its
authority under section 105(a) of TILA and section 19(a) of RESPA. This
proposed regulation will carry out the purposes of TILA by ensuring
meaningful disclosure of credit terms and enable the informed use of
credit by permitting minor underestimation in the final amount paid by
the consumer, which will lessen the likelihood that creditors will
overestimate the final amount paid by the consumer, consistent with
section 105(a) of TILA. This will also help to achieve the purposes of
RESPA by enabling more effective advance disclosure of settlement
costs, and will result in the elimination of kickbacks, referral fees,
and other practices that tend to increase unnecessarily the costs of
certain settlement services by permitting minor underestimation in the
final amount paid by the consumer, which will lessen the likelihood
that creditors will unnecessarily increase the cost of settlement
services by overestimating the final amount paid by the consumer,
consistent with section 19(a) of RESPA.
Proposed comment 19(f)(2)(ii)-1 discusses the requirements of Sec.
1026.19(f)(2)(ii), which states that the creditor may provide revised
disclosures without regard to the timing requirements in Sec.
1026.19(f)(1)(ii) if the amount actually paid by the consumer does not
exceed the amount disclosed pursuant to Sec. 1026.38(d)(1) by more
than $100, provided that the creditor delivers revised disclosures at
or before consummation. This proposed comment also includes
illustrative examples of these requirements.
Proposed comment 19(f)(2)(ii)-2 clarifies that revised disclosures
provided at consummation may reflect adjustments pursuant to both Sec.
1026.19(f)(2)(i) and Sec. 1026.19(f)(2)(ii). Thus, although Sec.
1026.19(f)(2)(ii) limits the difference between the amount disclosed
pursuant to Sec. 1026.19(f)(1)(i) and the amount actually paid at the
real estate closing by the consumer to $100, the amount actually paid
by the consumer at the real estate closing may vary by more than $100,
to the extent permitted by Sec. 1026.19(f)(2)(i). This proposed
comment also includes illustrative examples of this provision.
19(f)(2)(iii) Changes Due to Events Occurring After Consummation
The Bureau is aware that some costs are not known with absolute
certainty until the documents are recorded. For example, it is possible
that a locality could change its schedule of recording fees, without
advance notice, the day after the consumer signs the mortgage loan
documents, but before the documents are recorded. The regulations need
to provide sufficient flexibility to accommodate issues, such as these,
when such changes are caused by a government entity. Thus, pursuant to
its authority under section 105(a) of TILA and section 19(a) of RESPA,
the Bureau proposes Sec. 1026.19(f)(2)(iii), which provides that, if
an event occurs after consummation that causes the disclosures to
become inaccurate, and such inaccuracy results solely from payments to
a government entity in connection with the transaction, the creditor
shall deliver revised disclosures to the consumer no later than the
third business day after the event occurs, provided the consumer
receives the corrected disclosures no later than 30 days after
consummation. This proposed regulation will prevent circumvention and
evasion of, and will facilitate compliance with, TILA, by ensuring that
consumers receive correct disclosures of the final terms and costs of
the transaction, consistent with section 105(a) of TILA. This proposed
regulation is also made pursuant to the Bureau's authority to implement
section 4 of RESPA, consistent with section 19(a) of RESPA. Proposed
comment 19(f)(2)(iii)-1 clarifies that this provision applies to
payments imposed by government entities, such as taxes, recording fees,
and other taxes related to the real estate transaction, and provides
several illustrative examples. The Bureau also solicits feedback on
whether changes, other than payments to government entities, may occur
after the real estate closing, and whether the regulation should
provide additional flexibility for such changes.
19(f)(2)(iv) Changes Due to Clerical Errors
Regulation X Sec. 1024.8(c) provides that an inadvertent or
technical error in completing the HUD-1 or HUD-1A shall not be deemed a
violation of section 4 of RESPA if a revised HUD-1 or HUD-1A is
provided within 30 calendar days after settlement. Section 130 of TILA
has a similar provision, with respect to civil liability, which
relieves creditors of civil liability under certain circumstances,
including if, within 60 days of identifying an error, the creditor
notifies the person concerned and makes whatever adjustments are
necessary.\147\ There is no similar provision in RESPA or Regulation Z.
Pursuant to its authority under section 105(a) of TILA and 19(a) of
RESPA, the Bureau proposes
[[Page 51181]]
Sec. 1026.19(f)(2)(iv), which provides that a creditor does not
violate Sec. 1026.19(f)(1)(i) if the disclosures contain non-numeric
clerical errors, provided the creditor delivers corrected disclosures
as soon as reasonably practicable and no later than 30 days after
consummation. Proposed comment 19(f)(2)(iv)-1 clarifies that clerical
errors are errors such as typographical errors, or other minor errors
that do not affect the amount owed by the consumer. This proposed
regulation will prevent circumvention and evasion of, and will
facilitate compliance with, TILA, by ensuring that consumers receive
correct disclosures consistent with section 105(a) of TILA. This
proposed regulation will also result in the elimination of kickbacks,
referral fees, and other practices that tend to increase unnecessarily
the costs of certain settlement services by ensuring that the
consumers' records correctly reflect the terms, payments, and entities
involved in the transaction, consistent with section 19(a) of RESPA.
The Bureau also solicits feedback on whether the regulations should
provide flexibility for numeric clerical errors, and how such
flexibility could be provided without undermining the reliability of
the disclosures provided to consumers at or before consummation.
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\147\ ``A creditor or assignee has no liability under this
section or section 108 or section 112 for any failure to comply with
any requirement imposed under this chapter or chapter 5, if within
sixty days after discovering an error, whether pursuant to a final
written examination or notice issued under section 108(e)(1) or
through the creditor's or assignee's own procedures, and prior to
the institution of an action under this section or the receipt of
written notice of the error from the obligor, the creditor or
assignee notifies the person concerned of the error and makes
whatever adjustments in the appropriate account are necessary to
assure that the person will not be required to pay an amount in
excess of the charge actually disclosed, or the dollar equivalent of
the annual percentage rate actually disclosed, whichever is lower.''
15 U.S.C. 1640(b).
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19(f)(2)(v) Refunds Related to the Good Faith Analysis
Neither RESPA nor Regulation Z expressly require creditors to
refund money to the consumer based on variations between the disclosed
estimated costs of settlement services and the amounts for such
settlement services actually paid by the consumer. Section 1024.7(i) of
Regulation X, however, provides that a lender or mortgage broker
violates section 5 of RESPA if any charges at settlement exceed the
charges listed on the GFE by more than the permitted tolerances,
provided, however, that the loan originator may cure the tolerance
violation by reimbursing to the borrower the amount by which the
tolerance was exceeded at settlement or within 30 calendar days after
settlement. As noted above, section 130 of TILA has a similar
provision, with respect to civil liability, which relieves creditors of
civil liability under certain circumstances, including if, within 60
days of identifying an error, the creditor notifies the person
concerned and makes whatever adjustments are necessary to assure that
the person will not be required to pay an amount in excess of the
charge actually disclosed.
Accordingly, pursuant to its authority under sections 105(a) of
TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the Bureau
proposes Sec. 1026.19(f)(2)(v), which provides that, if amounts paid
by the consumer exceed the amounts specified under Sec.
1026.19(e)(3)(i) or (ii), the creditor complies with Sec.
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer as
soon as reasonably practicable and no later than 30 days after
consummation, and the creditor complies with Sec. 1026.19(f)(1)(i) if
the creditor provides revised disclosures that reflect such refund as
soon as reasonably practicable and no later than 30 days after
consummation. This proposed regulation will enable meaningful
disclosure of credit terms, prevent circumvention and evasion of TILA,
and will facilitate compliance with TILA by enabling creditors to
refund amounts collected in excess of the good faith requirements,
consistent with TILA section 105(a). This will also result in the
meaningful advance disclosure of settlement costs and the elimination
of kickbacks, referral fees, and other practices that tend to increase
unnecessarily the costs of certain settlement services by enabling
creditors to refund amounts collected in excess of the good faith
requirements, thereby furthering the meaningfulness and reliability of
the estimated disclosures, consistent with section 19(a) of RESPA.
Proposed comment 19(f)(2)(v)-1 discusses refunds related to the
good faith analysis. The proposed comment explains the requirement
under Sec. 1026.19(f)(2)(v) providing that, if amounts paid by the
consumer exceed the amounts specified under Sec. 1026.19(e)(3)(i) or
(ii) of this section, the creditor does not violate Sec.
1026.19(e)(1)(i) if the creditor delivers disclosures revised to
reflect the refund of such excess as soon as reasonably practicable and
no later than 30 days after consummation. This proposed comment also
includes illustrative examples of these requirements.
19(f)(3) Charges Disclosed
19(f)(3)(i) Actual Charge
Neither TILA nor Regulation Z addresses the amounts paid to
settlement service providers for settlement services. However, section
4 of RESPA provides that the settlement statement shall contain the
amount imposed upon the consumer in connection with the settlement. 12
U.S.C. 2603(a). Section 1024.8(b)(1) of Regulation X provides the
general rule that the settlement agent shall state the actual charges
paid by the borrower and seller on the HUD-1, or by the borrower on the
HUD-1A. Pursuant to its authority under section 105(a) of TILA, section
19(a) of RESPA, Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section 1405(b), the Bureau proposes
Sec. 1026.19(f)(3)(i), which provides that the amount imposed upon the
consumer for any settlement service shall not exceed the amount
actually received by the service provider for that service, except if
the charge is an average charge, as provided under Sec.
1026.19(f)(3)(ii).
This proposed regulation will prevent circumvention and evasion of,
and will facilitate compliance with, TILA by requiring disclosure of
the actual terms and costs of the transaction, consistent with section
105(a) of TILA. The proposed regulation implements the requirements of
RESPA section 4, pursuant to the Bureau's implementation authority
under RESPA section 19(a). This will also result in the elimination of
kickbacks, referral fees, and other practices that tend to increase
unnecessarily the costs of certain settlement services, consistent with
RESPA sections 2(b) and 8. This will also ensure that the features of
the consumer's mortgage loan are fully and accurately disclosed to the
consumer, consistent with Dodd-Frank Act section 1032(a). The proposed
regulation will also improve consumer awareness and understanding of
transactions involving residential mortgage loans and is in the
interest of consumers and in the public interest, consistent with Dodd-
Frank Act section 1405(b).
Proposed comment 19(f)(3)(i)-1 explains that Sec. 1026.19(f)(3)(i)
provides the general rule that the amount imposed upon the consumer for
any settlement service shall not exceed the amount actually received by
the service provider for that service. Except as otherwise provided in
Sec. 1026.19(f)(3)(ii), a creditor violates Sec. 1026.19(f)(3)(i) if
the amount imposed upon the consumer exceeds the amount actually
received by the service provider for that service.
19(f)(3)(ii) Average Charge
As part of the 2008 RESPA Final Rule, HUD adopted a limited
exception to the requirement that the settlement statement shall
contain the amount imposed on the consumer, which shall not be more
than the amount received by the settlement service provider. 12 U.S.C.
2603(a), 2607(b). A lender or settlement service provider may charge
more for a settlement service than the amount paid for that service if
the charge is an average charge. Specifically, Regulation X Sec.
1024.8(b) provides that the average charge for a settlement service
shall be no more than the average amount paid for a settlement
[[Page 51182]]
service by one settlement service provider to another settlement
service provider on behalf of borrowers and sellers for a particular
class of transactions involving federally related mortgage loans, and
that the total amounts paid by borrowers and sellers for a settlement
service based on the use of an average charge may not exceed the total
amounts paid to the providers of that service for the particular class
of transactions.
Section 1024.8(b)(2) also provides that, the settlement service
provider shall define the particular class of transactions for purposes
of calculating the average charge as all transactions involving
federally related mortgage loans for a period of time as determined by
the settlement service provider, but not less than 30 calendar days and
not more than 6 months, a geographic area as determined by the
settlement service provider, and a type of loan as determined by the
settlement service provider. Regulation X also requires a settlement
service provider to use an average charge in the same class of
transactions for which the charge was calculated, and if the settlement
service provider uses the average charge for any transaction in the
class, then the settlement service provider must use the same average
charge in every transaction within that class for which a GFE was
provided. Id. Regulation X prohibits the use of an average charge for
any settlement service if the charge for the service is based on the
loan amount or property value, such as transfer taxes, interest
charges, reserves or escrow, or any type of insurance, including
mortgage insurance, title insurance, or hazard insurance, and also
requires the settlement service provider to retain all documentation
used to calculate the average charge for a particular class of
transactions for at least three years after any settlement for which
that average charge was used. Id.
Pursuant to its authority under section 105(a) of TILA and 19(a) of
RESPA, the Bureau proposes Sec. 1026.19(f)(3)(ii), which provides that
a creditor or settlement service provider may charge a consumer or
seller the average charge for a settlement service if the average
charge is no more than the average amount paid for that service by or
on behalf of all consumers and sellers for a class of transactions, the
creditor or settlement service provider defines the class of
transactions based on an appropriate period of time, geographic area,
and type of loan, the creditor or settlement service provider uses the
same average charge for every transaction within the defined class, and
the creditor or settlement service provider does not use an average
charge for any type of insurance, for any charge based on the loan
amount or property value, or if doing so is otherwise prohibited by
law. HUD adopted average-charge pricing pursuant to its authority under
section 19(a) of RESPA after finding that average-charge pricing would
benefit consumers by lowering settlement costs and enabling more
effective advance disclosure of such costs, consistent with RESPA
sections 2(b), 4, 5, 8(c)(5), and 19(a).\148\ In addition to this
authority, the Bureau finds that proposed Sec. 1026.19(f)(3)(ii) will
prevent circumvention and evasion of, and will facilitate compliance
with, TILA, consistent with section 105(a) of TILA. This proposed
regulation will also improve consumer awareness and understanding of
the transaction, which will be in the interest of consumers and in the
public interest, consistent with Dodd-Frank Act section 1405(b).
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\148\ See 73 FR 14030, 14051-14052 (March 14, 2008). Section
8(c)(5) of RESPA provided that: ``Nothing in this section shall be
construed as prohibiting * * * such other payments or classes of
payments or other transfers as are specified in regulations
prescribed by the Secretary.'' 12 U.S.C. 2607(c)(5)(2008).
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Proposed comment 19(f)(3)(ii)-1 explains that average-charge
pricing is the exception to the rule in Sec. 1026.19(f)(3)(i) that
consumers shall not pay more than the exact amount charged by a
settlement service provider for the performance of that service. If the
creditor develops representative samples of specific settlement costs
for a particular class of transactions, the creditor may charge the
average cost for that settlement service instead of the actual cost for
such transactions. An average-charge program may not be used in a way
that inflates the cost for settlement services overall.
Proposed comment 19(f)(3)(ii)-2 explains how an appropriate period
of time, geographic area, and type of loan may be defined, and provides
illustrative examples of issues a person may encounter when defining an
appropriate geographic area and an appropriate type of loan. Proposed
comment 19(f)(3)(ii)-3 provides further explanation related to the
requirement that if a creditor chooses to use an average charge for a
settlement service for a particular loan within a class, then the
creditor must use that average charge for that service on all loans
within the class. Proposed comment 19(f)(3)(ii)-3 also provides
practical examples illustrating the uniform use requirement.
Proposed comment 19(f)(3)(ii)-4 illustrates the requirement that
the average charge must be calculated according to the average amount
paid for a settlement service in a prior period, and clarifies that
updates to the average charge may be delayed for an amount of time
sufficient to re-calculate the average charge, provided that such
delays are applied uniformly from one time period to the next.
Proposed comment 19(f)(3)(ii)-5 discusses the requirement that the
total amount of average charges paid by consumers for settlement
services may not exceed the total amount paid for those settlement
services overall. The Bureau has received extensive feedback from
industry that this requirement, which currently exists under RESPA and
Regulation X, has impeded industry adoption of average-charge pricing.
Prohibiting industry from collecting more money than is actually paid
to settlement service providers means that industry cannot actually
average costs over time, and must instead operate at a loss in the long
term if industry chooses to use average-charge pricing. The Bureau
believes that the use of average-charge pricing promotes greater
reliability for consumers. Therefore, the Bureau seeks to address this
concern to facilitate the adoption of average-charge pricing. Proposed
comment 19(f)(3)(ii)-5 addresses this issue and discusses the ways in
which a person may comply with this requirement. A person may refund
the excess amounts collected or may factor in the excesses when
determining the average charge for the next period. A person may also
comply by establishing a rolling monthly period of re-evaluation. A
person complies by re-calculating the average amount every month, and
will be deemed to be in compliance with Sections 4 and 8 of RESPA if
the person uses this method, even if the person collects more for
settlement services than the total amount paid for those settlement
services over time.
Proposed comment 19(f)(3)(ii)-6 explains that adjustments to the
average charge based on prospective analysis are permitted if the
creditor or settlement service provider develops a statistically
accurate and reliable method for doing so. However, the Bureau is
concerned that prospective adjustments may not be practicable in the
context of determining average charges. Accordingly, the Bureau seeks
comment on whether such a provision is appropriate.
Proposed comment 19(f)(3)(ii)-7 discusses the requirement that
average charges may not be used for insurance premiums or for items
that vary according to the loan amount or property value, such as
transfer taxes. Proposed comment 19(f)(3)(ii)-8
[[Page 51183]]
clarifies that an average charge may not be used where prohibited by
any applicable State or local law. Proposed comment 19(f)(3)(ii)-9
explains how the recordkeeping requirements in Sec. 1026.25 apply to
the documents related to the calculation of average charge.
19(f)(4) Transactions Involving a Seller
Neither TILA nor Regulation Z contain requirements related to the
seller. Section 4 of RESPA provides that the integrated disclosure
shall conspicuously and clearly itemize all charges imposed upon the
seller in connection with the settlement. 12 U.S.C. 2603(a). Regulation
X states that the settlement agent shall provide a completed HUD-1 to
any seller at or before the settlement, unless the borrower waives the
right to delivery of the HUD-1 at or before settlement, in which case
the HUD-1 shall be mailed to the seller as soon as practicable after
settlement. Sec. 1024.10(b) and (c). Pursuant to its authority under
sections 105(a) of TILA, 19(a) of RESPA, Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b), the Bureau proposes Sec. 1026.19(f)(4)(i), (ii), and (iii).
Proposed Sec. 1026.19(f)(4)(i) provides that in a closed-end consumer
credit transaction secured by real property, other than a reverse
mortgage subject to Sec. 1026.33, the person conducting the settlement
shall provide the seller with the disclosures in Sec. 1026.38 that
relate to the seller. Proposed Sec. 1026.19(f)(4)(ii) provides that
the person conducting the settlement shall provide these disclosures no
later than the day of consummation. If an event occurs after
consummation that causes such disclosures to become inaccurate, and
such inaccuracy results solely from payments to a government entity,
the person conducting the real estate closing shall deliver revised
disclosures to the seller no later than 30 days after consummation.
Proposed Sec. 1026.19(f)(4)(iii) provides that the amount imposed upon
the seller for any settlement service shall not exceed the amount
actually received by the service provider for that service, except for
average charges calculated pursuant to Sec. 1026.19(f)(3)(ii).
This proposed regulation will prevent circumvention and evasion of,
and will facilitate compliance with, TILA, consistent with section
105(a) of TILA. The proposed regulation implements the requirements of
RESPA section 4, pursuant to the Bureau's implementation authority
under RESPA section 19(a). This proposed regulation will also result in
the meaningful advance disclosure of settlement costs and the
elimination of kickbacks, referral fees, and other practices that tend
to increase unnecessarily the costs of certain settlement services by
ensuring that the terms of the transaction that relate to the seller,
which include amounts owed to the seller, are fully and accurately
disclosed to the seller, consistent with RESPA sections 8 and 19(a).
Receipt of the integrated disclosures in accordance with this proposed
regulation will also ensure that the features of the transaction and
settlement services will be more fully and accurately disclosed to the
consumer in a manner that permits sellers to understand the costs of
the transaction, consistent with Dodd-Frank Act section 1032(a). The
proposed regulation, by requiring sellers to receive the integrated
disclosure, will also improve seller's awareness and understanding of
the seller's transaction, which involves a residential mortgage loan,
which is in the interest of consumers and in the public interest,
consistent with Dodd-Frank Act section 1405(b).
Proposed comment 19(f)(4)(ii)-1 explains that, if an event occurs
after consummation that causes such disclosures to become inaccurate
and such inaccuracy results solely from payments to a government
entity, the person conducting the real estate closing shall deliver
revised disclosures to the seller no later than 30 days after
consummation. Section 1026.19(f)(4)(i) requires disclosure of the items
that relate to the seller's transaction. Thus, the person conducting
the real estate closing need only provide revised disclosures if an
item related to the seller's transaction becomes inaccurate and such
inaccuracy results solely from payments to a government entity. The
proposed comment also provides illustrative examples of this
requirement.
19(f)(5) No Fee
Although TILA does not address fees related to the preparation of
disclosures, RESPA provides that no fee may be imposed on any person,
as a part of settlement costs or otherwise, by a lender in connection
with a federally related mortgage loan made by such lender for the
preparation or delivery of the settlement statement required by section
4 of RESPA or for statements required by TILA. 12 U.S.C. 2610. Although
Regulation Z does not contain a similar requirement, Sec. 1024.12 of
Regulation X implements RESPA's requirement. Pursuant to its authority
under sections 105(a) of TILA and 19(a) of RESPA, the Bureau proposes
Sec. 1026.19(f)(5), which provides that no fee may be imposed on any
person, as a part of settlement costs or otherwise, by a creditor or by
a servicer for the preparation or delivery of the disclosures required
under Sec. 1026.19(f)(1)(i), escrow account statements required
pursuant to section 10 of RESPA, or other statements required by TILA.
This proposed regulation will strengthen the informed use of credit by
ensuring that consumers are not informed that consumers must pay fees
prohibited by law, and enhance competition by ensuring that creditors
do not attempt to gain a competitive advantage by charging prohibited
fees, both of which are consistent with section 105(a) of TILA. This
proposal is also made pursuant to the Bureau's authority to implement
section 10 of RESPA, consistent with section 19(a) of RESPA. This
proposed regulation will also result in the meaningful advance
disclosure of settlement costs and the elimination of kickbacks,
referral fees, and other practices that tend to increase unnecessarily
the costs of certain settlement services by ensuring that illegal fees
are not included on the disclosures, consistent with section 19(a) of
RESPA.
19(g) Special Information Booklet at Time of Application
Section 1024.6 of Regulation X contains the provisions related to
the Special Information Booklet, which is required by section 5 of
RESPA. 12 U.S.C. 2604. The Bureau plans to update the booklet
consistent with the amendments to section 5 of RESPA in section 1450 of
the Dodd-Frank Act and to reflect the integrated disclosures, once
those disclosures are finalized. Pursuant to its authority under TILA
section 105(a) and RESPA section 19(a), the Bureau proposes Sec.
1026.19(g), which is substantially similar to the existing requirements
in Regulation X, but modified to conform to the usage associated with
TILA. The Bureau also solicits feedback on whether the CHARM booklet,
required under Sec. 1026.19(b)(1), should be incorporated into the
Special Information Booklet. This proposed provision is consistent with
TILA's purposes in that it will increase consumer awareness of the
costs of the transaction by informing consumers that settlement costs
can be influenced by shopping, thereby promoting the informed use of
credit. This proposed regulation will enhance consumers' ability to
shop for a mortgage loan, which will effect changes in the settlement
process that will result in the elimination of kickbacks, referral
fees, and other
[[Page 51184]]
practices that tend to increase unnecessarily the costs of certain
settlement services, consistent with the Bureau's authority under
section 19(a) of RESPA.
Proposed comment 19(g)(1)-1 provides that the Bureau may, after
publishing a notice in the Federal Register, issue a revised or
separate special information booklet that addresses transactions
subject to Sec. 1026.19(g). The Bureau may also choose to permit the
forms or booklets of other Federal agencies, in which case the
availability of the booklet or alternate materials for these
transactions will be set forth in a notice in the Federal Register.
Proposed comment 19(g)(1)-2 clarifies that when two or more persons
apply together for a loan, the creditor complies with Sec. 1026.19(g)
if the creditor provides a copy of the booklet to one of the persons
applying.
Proposed comment 19(g)(2)-1 explains that the special information
booklet may be reproduced in any form, provided that no changes are
made, except as otherwise provided under Sec. 1026.19(g). Provision of
the special information booklet as a part of a larger document does not
satisfy the requirements of Sec. 1026.19(g). Any color, size and
quality of paper, type of print, and method of reproduction may be used
so long as the booklet is clearly legible. Proposed comment 19(g)(2)-2
clarifies that the special information booklet may be translated into
languages other than English.
Section 1026.22 Determination of Annual Percentage Rate
22(a) Accuracy of Annual Percentage Rate
The Bureau is proposing conforming amendments to Sec. 1026.22 to
reflect the fact that proposed Sec. 1026.38(o)(2) sets forth finance
charge tolerances for mortgage transactions subject to Sec.
1026.19(f), as discussed below. The tolerances set forth in Sec.
1026.18(d)(1) continue to apply to closed-end transactions that are not
subject to proposed Sec. 1026.19(f). Accordingly, the Bureau proposes
to revise Sec. 1026.22(a)(4) and (5) and comment 22(a)(4)-1 to add
references to Sec. 1026.38(o)(2).
Section 1026.24--Advertising
24(d) Advertisement of Terms That Require Additional Disclosures
24(d)(2) Additional Terms
Comment 24(d)(2)-2 currently provides guidance on how to state the
terms of repayment in an advertisement, as required in Sec.
1026.24(d)(2)(ii). The Bureau is proposing to exercise its authority
under TILA section 105(a) to revise the comment to conform with the
additional forms of repayment term disclosures that may apply to
various types of mortgage transactions under this proposal. Proposed
comment 24(d)(2)-2 clarifies that, in advertisements for closed-end
credit secured by real property or a dwelling, the repayment terms
disclosed in the interest rate and payment summary table or the
projected payments table in Sec. Sec. 1026.18(s) or 1026.37(c) and
1026.38(c), as applicable, can be provided in an advertisement pursuant
to Sec. 1026.24(d)(2)(ii). The use of either the payment schedule
described in Sec. 1026.18(g) or the interest rate and payments summary
table described in Sec. 1026.18(s) to state the terms of repayment can
be provided for transactions secured by real property or a dwelling
under comment 24(d)(2)-2. In light of the existence of the interest
rate and payment summary table described in Sec. 1026.18(s) and the
addition of the projected payments table described in Sec. Sec.
1026.37(c) and 1026.38(c) of this proposed rule, the Bureau believes
that the format of disclosure applicable to a particular transaction is
also the most appropriate format for advertising purposes. Comment
24(d)(2)-2 would therefore be revised to clarify that disclosing the
terms of repayment in the interest rate and payment summary table and
the projected payment tables described in Sec. 1026.18(s) or
Sec. Sec. 1026.37(c) and 1026.38(c), as applicable, satisfies the
requirements in Sec. 1026.24(d)(2)(ii). These revisions would also
make clear that the payment schedule described in Sec. 1026.18(g) is
not the only permissible disclosure under Sec. 1026.24(d)(2)(ii).
Section 1026.25 Record Retention
As discussed below, the Bureau proposes to amend Sec. 1026.25 to
apply the recordkeeping requirements currently under Regulation X to
the proposed integrated disclosures and to require creditors to keep
such records in an electronic, machine readable format.
25(a) General Rule
The Bureau proposes to amend Sec. 1026.25(a) to exempt the
requirements of Sec. Sec. 1026.19(e) and (f). Instead, the record
retention requirements for compliance with these sections will be
established under a new Sec. 1026.25(c)(1).
25(c) Records Related to Certain Requirements for Mortgage Loans
25(c)(1) Records Related to Requirements for Loans Secured by Real
Property
25(c)(1)(i) General Rule
Neither TILA nor RESPA contain record retention requirements.
Section 1026.25 of Regulation Z requires creditors to retain evidence
of compliance with TILA for two years after the date disclosures are
required to be made or action is required to be taken. Section
1024.7(f) of Regulation X requires lenders to retain documentation of
any reason for providing a revised GFE for no less than three years
after settlement. Furthermore, Sec. 1024.10(e) of Regulation X
requires lenders to retain each completed RESPA settlement statement
and related documents for five years after settlement, unless the
lender disposes of its interest in the mortgage and does not service
the mortgage.
The Bureau proposes to reconcile these provisions by generally
requiring a creditor to retain evidence of compliance with the
requirements of Sec. 1026.19(e) and (f) for three years. The Bureau
recognizes that extending the record retention requirement from two
years, as currently provided in Regulation Z, to three years may
increase costs. However, the Bureau is unaware of any issues related to
complying with the three year period currently required by Regulation
X. Creditors may be able to use existing recordkeeping systems to
maintain the integrated disclosure data at no additional cost.
Additionally, several sections of RESPA are subject to a three year
statute of limitations.\149\ Adopting a document retention period of
less than three years may affect legal actions brought under RESPA.
Thus, it may be appropriate to require creditors to maintain records
related to compliance for three years, as opposed to the two year
requirement currently under Regulation Z.
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\149\ ``[A]ctions [under sections 6, 8, or 9] brought by the
Bureau, the Secretary, the Attorney General of any State, or the
insurance commissioner of any State may be brought within 3 years
from the date of the occurrence of the violation.'' RESPA section
16, 12 U.S.C. 2614.
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Pursuant to its authority under section 105(a) of TILA and section
19(a) of RESPA, the Bureau proposes Sec. 1026.25(c)(1)(i), which
states that, except as provided under Sec. 1026.25(c)(1)(ii), a
creditor shall retain evidence of compliance with the requirements of
Sec. 1026.19(e) and (f) for three years after the later of the date of
consummation, the date disclosures are
[[Page 51185]]
required to be made, or the date the action is required to be taken.
The Bureau believes that this proposed modification will ensure that
records associated with the integrated disclosures are kept long enough
to facilitate compliance with both TILA and RESPA, which is necessary
to both prevent circumvention of and facilitate compliance with TILA
and RESPA. The Bureau also solicits comment on whether the three year
period is appropriate, whether the retention requirement should be
extended to five years to match the recordkeeping requirement in
proposed Sec. 1026.25(c)(1)(ii), and whether a shorter time period
would conflict with the statute of limitations under section 16 of
RESPA.
Proposed comment 25(c)(1)(i)-1 applies guidance currently
applicable under Sec. 1026.25(a) to proposed Sec. 1026.25(c). The
proposed comment clarifies that the creditor must retain evidence that
it performed the required actions as well as made the required
disclosures. This includes, for example, evidence that the creditor
properly differentiated between affiliated and independent third party
settlement service providers for determining good faith under Sec.
1026.19(e)(3); evidence that the creditor properly documented the
reason for revisions under Sec. 1026.19(e)(3)(iv); or evidence that
the creditor properly calculated average cost under Sec.
1026.19(f)(3)(ii). Proposed comment 25(c)(1)(i)-2 provides a cross-
reference to Sec. 1026.19(e)(1)(ii), which imposes responsibilities on
mortgage brokers in some situations and may implicate Sec. 1026.25(c).
25(c)(1)(ii) Closing Disclosures
As noted above, while Sec. 1026.25 of Regulation Z generally
requires creditors to retain evidence of compliance with TILA for two
years after the date disclosures are required to be made or action is
required to be taken, Sec. 1024.10(e) of Regulation X requires lenders
to retain each completed RESPA settlement statement and related
documents for five years after settlement, unless the lender disposes
of its interest in the mortgage and does not service the mortgage. If
the lender disposes of its interest and does not service the mortgage,
Sec. 1024.10(e) requires the lender to provide the lender's copy of
the RESPA settlement statement to the owner or servicer of the mortgage
as part of the transfer of the loan file. The owner or servicer to whom
the files are transferred must retain the RESPA settlement statement
for the remainder of the five-year period.
Because the Closing Disclosure contains the settlement information
that is currently provided on the RESPA settlement statement, the
Bureau proposes to adopt the five-year requirement. This information
serves an important purpose as both the record of all fees associated
with the transaction and as part of the official disbursement record.
As such, this information may be needed for more than two years after
the transaction. For example, State and local laws related to
transactions involving real property may depend on the information
being available for five years. Additionally, the current five-year
recordkeeping requirement under Regulation X has been in effect since
1992.\150\ The Bureau is unaware of any problems caused by the five
year requirement and does not believe the time period should be
shortened without evidence that the rule is not operating as intended,
is unnecessary, or otherwise harms consumers. Thus, it appears that
requiring creditors to retain copies of the Closing Disclosure for five
years is appropriate.
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\150\ 57 FR 49600, 49607 (Nov. 2, 1992).
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Pursuant to its authority under section 105(a) of TILA and section
19(a) of RESPA, the Bureau proposes Sec. 1026.25(c)(1)(ii). Proposed
Sec. 1026.25(c)(1)(ii)(A) states that the creditor shall retain each
completed disclosure required under Sec. 1026.19(f)(1)(i) and
(f)(4)(i), and all documents related to such disclosures, for five
years after settlement. The Bureau believes that this proposed
modification will ensure that records associated with the integrated
disclosures are kept long enough to facilitate compliance with both
TILA and RESPA, which is necessary to both prevent circumvention of and
facilitate compliance with TILA. The proposed recordkeeping requirement
will also enable accurate supervision, which will result in the more
effective advance disclosure of settlement costs, consistent with
section 19(a) of RESPA. Proposed Sec. 1026.25(c)(1)(ii)(B) provides
that, if a creditor sells, transfers, or otherwise disposes of its
interest in a mortgage and does not service the mortgage, the creditor
shall provide a copy of the disclosures required under Sec.
1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage
as a part of the transfer of the loan file. Such owner or servicer
shall retain such disclosures for the remainder of the five-year
period. Proposed Sec. 1026.25(c)(1)(ii)(C) provides that the Bureau
shall have the right to require provision of copies of records related
to the disclosures required under Sec. 1026.19(f)(1)(i) or (f)(4)(i).
The Bureau recognizes that this proposal is different from the
current requirements under Regulation X, which does not require a
creditor to maintain these documents if the creditor disposes of its
interest in the mortgage loan and does not service the mortgage loan.
However, the Bureau believes that the current requirement provides
little practical benefit to creditors, because other provisions of
Regulations Z and X require creditors to maintain records of compliance
for several years, even if the creditor transfers, sells, or otherwise
disposes of its interest in the mortgage loan. The Bureau solicits
feedback regarding whether it is appropriate for creditors that
transfer, sell, or otherwise dispose of their interest in the mortgage
loan, and do not service the mortgage loan, to keep these records for
the five-year period. The Bureau also requests feedback on the
additional costs that would result from such a requirement.
25(c)(1)(iii) Electronic Records
Issues Related to Adopting a Standard, Machine Readable, Electronic
Data Format. Neither TILA nor RESPA address electronic recordkeeping.
Regulation Z permits, but does not require, electronic recordkeeping.
Comment 25(a)-2 provides that records can be maintained by any method
that reproduces disclosures accurately, including computer programs.
Regulation X also permits, but does not require, electronic records.
See Sec. 1024.23 and HUD RESPA FAQs p.3, 4 (``GFE--
General'').
The Bureau has sought information regarding the costs of keeping
records in an electronic, machine readable format. ``Machine readable''
means a format where the individual data elements comprising the record
can be transmitted, analyzed, and processed by a computer program, such
as a spreadsheet or database program. Data formats for image
reproductions (e.g., PDF) or document text, such as those used by word
processing programs, are not machine readable for purposes of this
proposal. Based on these discussions, including information learned
from the Small Entity Representatives participating in the Small
Business Review Panel process, the Bureau recognizes that requiring
records in an electronic, machine readable format will impose new costs
on industry. Industry would incur costs for either acquiring a system
to create records in electronic, machine readable format, or for
modifying their current systems to use a standard format required by
regulation. See Small
[[Page 51186]]
Business Review Panel Report at 30. However, feedback provided to the
Small Business Review Panel indicates that creditors currently rely on
electronic systems for most aspects of the mortgage loan origination
process, which include electronic record creation and storage. See id.
Thus, any new costs caused by a machine readable recordkeeping
requirement would be limited to the up-front costs of upgrading
existing computer systems and additional, ongoing data storage costs.
In contrast, the benefits of keeping records in machine readable
format may be significant. A prescribed electronic format may reduce
costs across the entire mortgage loan origination industry due to
efficiency gains associated with a standardized data format.
Information received by the Bureau suggests that creditors, mortgage
brokers, title companies, investors, and other mortgage technology
providers use systems with proprietary data formats. As a result, data
must be translated between formats as it is transmitted from one point
to another throughout the mortgage loan origination process. A standard
electronic record format may eliminate these multiple data formats,
thereby increasing efficiency in the origination process, reducing
industry costs in the long term, and reducing costs to consumers. Also,
the Bureau is aware that many firms currently face significant internal
costs for maintaining multiple internal technological systems. A single
data format may lower overall and long-term costs by enabling creditors
to migrate from older data formats to a single, standard data format.
Other benefits may be realized from a standard, electronic, machine
readable format. A standard format may facilitate innovation in the
financial services industry by making it easier for technology
companies to create new programs that improve the mortgage origination
process and lower industry costs, instead of tailoring programs to each
firm's unique proprietary data format. A standard machine readable
format may also facilitate industry adoption of mortgage documentation
technology. Such developments would reduce industry's reliance on paper
files, which would lower ongoing costs while reducing the paperwork
burden on both industry and consumers. Furthermore, electronic, machine
readable records may allow regulators to monitor some aspects of
compliance remotely. Remote examinations may benefit creditors by
easing the burden associated with devoting staff time and resources to
on-site examinations. All of these benefits may reduce industry cost
and burden in the long run, thereby reducing costs to consumers as
well.
The Bureau believes that the benefits of a standard, machine
readable electronic data format may outweigh the costs associated with
adopting and maintaining such a format. Thus, pursuant to its authority
under section 105(a) of TILA, the Bureau proposes Sec.
1026.25(c)(1)(iii), which provides that a creditor shall retain
evidence of compliance in electronic, machine readable format. The
Bureau believes that this proposed requirement will ensure that records
associated with the integrated disclosures are readily available for
examination, which is necessary to both prevent circumvention of and
facilitate compliance with TILA. This proposed regulation may also
facilitate compliance with TILA by easing the burden of examinations
and ensuring that all entities subject to TILA keep records in a
standard format. Proposed comment 25(c)(1)(iii)-1 clarifies that the
requirements of Sec. 1026.25(c)(1)(iii) are in addition to any other
formats that may be required by administrative agencies responsible for
enforcing the regulation. The Bureau solicits comment on this approach,
including the costs associated with such a requirement.
As discussed in the Initial Regulatory Flexibility Analysis,
section VIII.B.4.b below, the proposed electronic recordkeeping
requirement may not be appropriate for certain classes of entities,
such as small creditors that do not currently have such electronic
filing systems or use vendor software. The upfront and ongoing costs of
such a requirement on small creditors may outweigh any benefits.
However, the Bureau does not have sufficient data to determine whether
and which small creditors should be exempt from the requirements.
Accordingly, pursuant to its authority under section 105(f) of TILA,
the Bureau proposes that, as an alternative to requiring electronic
records, that a class of entities consisting of small creditors be
exempted based on either entity size or the number of loans originated.
The Bureau has considered the factors in TILA section 105(f) and
believes that an exception could be appropriate under that provision if
the costs imposed on small entities outweigh the benefits to consumers.
In such circumstances, an exemption would be appropriate for all
affected borrowers who receive mortgage loans from small entities,
regardless of their other financial arrangements and financial
sophistication and the importance of the loan to them. Similarly, an
exemption would be appropriate for all affected loans issued by exempt
small entities, regardless of the amount of the loan and whether the
loan is secured by the principal residence of the consumer.
Furthermore, on balance, the proposed exemption would simplify the
credit process for small entities without undermining the goal of
consumer protection or denying important benefits to consumers. The
Bureau recognizes that its exemption and exception authorities apply to
a class of transactions, and proposes to apply these authorities to the
loans covered under the proposal of the entities proposed for potential
exemption.
Consistent with the recommendation of the Small Business Review
Panel, the Bureau solicits comment on whether a small business
exemption is appropriate, whether such small business exemption should
be based on entity size or the number of loans originated, and the
appropriate exemption threshold in terms of institution size or the
number of loans originated, respectively. The Bureau solicits feedback
on whether such an exemption for depository institutions should be
different than an exemption for non-depository institutions. The Bureau
also solicits feedback on small business' current technology costs, and
how such costs might be affected by an electronic recordkeeping
requirement.
Based on the Bureau's discussions with industry regarding machine
readable data formats, the Bureau believes that XML may be the most
appropriate format for electronic recordkeeping. However, the Bureau
solicits comment on the costs and challenges associated with adopting
an XML format. The Bureau also solicits feedback on other data formats
that may be more appropriate than XML.
Smart Disclosure. ``Smart disclosure'' generally refers to a
requirement that data be kept in standard, machine readable format that
is also available to the public. In the context of mortgage loans, any
regulation implementing smart disclosure would require creditors to
provide consumers with data related to the loan origination process.
Smart disclosure can facilitate intelligent decision-making by
consumers and encourage innovation. For example, if consumers were
provided with Loan Estimates in electronic format, computer programs
and applications may be developed to allow consumers to compare Loan
Estimates between different creditors. Or, programs may be developed
that assist consumers in assessing the ongoing costs, risks, and
affordability of a single Loan Estimate for the individual consumer.
[[Page 51187]]
The Bureau recognizes that smart disclosures may encourage the
informed use of credit and promote innovation in the consumer financial
services industry. While the Bureau supports these goals, the Bureau is
not proposing a smart disclosure requirement at this time. The Bureau
intends to continue monitoring the consumer financial services market
and will revisit this issue if, in the future, the Bureau determines
that such a requirement is appropriate.
Section 1026.28 Effect on State Laws
TILA preempts State laws to the extent of their inconsistency with
that statute and permits States, creditors, and other interested
parties to request a determination by the Bureau regarding such
inconsistency. Specifically, section 111(a)(1) states that the
provisions of chapters 1 (General Provisions), 2 (Credit Transactions),
and 3 (Credit Advertising and Limits on Credit Card Fees) of TILA do
not annul, alter, or affect the laws of any State relating to the
disclosure of information in connection with credit transactions,
except to the extent that those laws are inconsistent with the
provisions of TILA and then only to the extent of the inconsistency. 15
U.S.C. 1610(a)(1). Upon its own motion or upon the request of any
creditor, State, or other interested party that is submitted in
accordance with procedures prescribed in regulations of the Bureau, the
Bureau shall determine whether any such inconsistency exists. Id. If
the Bureau determines that a State-required disclosure is inconsistent,
creditors located in that State may not make disclosures using the
inconsistent term or form, and shall incur no liability under the State
law for failure to use such term or form, notwithstanding that such
determination is subsequently amended, rescinded, or determined by
judicial or other authority to be invalid for any reason. Id. Section
111(b) generally provides that TILA does not otherwise annul, alter, or
effect in any manner the meaning, scope, or applicability of the laws
of any State, including, but not limited to, laws relating to the
types, amounts, or rates of charges, or any elements of charges,
permissible under such laws in connection with the extension or use of
credit, and neither does TILA extend the applicability of those laws to
any class of persons or transactions to which they would not otherwise
apply. 15 U.S.C. 1610(b).
Regulation Z Sec. 1026.28 implements TILA section 111. Section
1026.28(a) provides that State law requirements that are inconsistent
with the requirements contained in chapters 1 through 3 of TILA and the
implementing provisions of Regulation Z are preempted to the extent of
the inconsistency.\151\ Under Sec. 1026.28(a), a State law is
inconsistent with a TILA provision if it requires a creditor to make
disclosures or take actions that contradict the requirements of TILA. A
State law contradicts a requirement of TILA if it requires the use of
the same term to represent a different amount or a different meaning
than TILA, or if it requires the use of a term different from that
required in TILA to describe the same item. A creditor, State, or other
interested party may request the Bureau to determine whether a State
law requirement is inconsistent, and if the Bureau makes such a
determination a creditor may not make disclosures using the
inconsistent term or form.\152\ The specific procedures for requesting
a State law preemption determination are set forth in Sec. 1026.28(c)
and appendix A to part 1026. Appendix A states, among other things,
that the Bureau reserves the right to reverse a determination for any
reason bearing on the coverage or effect of State or Federal law.
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\151\ There are different rules regarding preemption of State
laws relating to the disclosure of credit information in any credit
or charge card application or solicitation that is subject to the
requirements of section 127 of TILA and the correction of billing
errors, but those rules are outside the scope of this rulemaking.
See Sec. 1026.28(a)(2), (d).
\152\ TILA section 111(a)(2) and Sec. 1026.28(b) generally
permit a creditor, State, or other interested party to request that
the Bureau determine whether a State-required disclosure is
substantially the same in meaning as a TILA disclosure, and if the
Bureau makes such a determination, creditors in the State can
provide the State-required disclosure in lieu of the TILA
disclosure. Comment 28(b)-1 clarifies that under Sec. 1026.28, a
State disclosure can be substituted for a Federal disclosure only
after a determination of substantial similarity. State exemptions
are addressed in more detail under Sec. 1026.29 and associated
commentary.
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Current Regulation Z commentary provides further guidance on the
TILA preemption rules. Comment 28(a)-2 includes examples of State laws
that would be preempted (e.g., a State law requiring use of the term
``finance charge'' but defining the term to include fees that TILA
excludes, or to exclude fees that TILA includes). Comment 28(a)-3
explains that State law requirements calling for disclosure of items
not covered by TILA or that require more detailed disclosures generally
do not contradict the TILA requirements, provides examples of State
laws that would not be preempted, and gives guidance as to whether a
State law requiring itemization of the amount financed would be
preempted. Comment 28(a)-4 explains that a creditor, prior to a
preemption determination, may either (1) give the State disclosures or
(2) apply the preemption standards to a State law, conclude that it is
inconsistent, and choose not to give the State-required disclosures
(but that no immunity is given under Sec. 1026.28(a) for violations of
State law if the creditor chooses not to make State disclosures and the
Bureau later determines that the State law is not preempted). The
comment also states that the Bureau will give sufficient time to
creditors to revise their forms and procedures as necessary to conform
with its preemption determinations. Comments 28(a)-8 through -15
discuss prior determinations made by the Federal Reserve Board prior to
July 21, 2011, and recognized by the Bureau unless and until the Bureau
makes and publishes any contrary determinations, to preempt certain
State laws. For example, comment 28(a)-15 notes that, in Wisconsin,
disclosure of the annual percentage rate under the particular State law
referenced in the comment is preempted, because while the statute
refers to ``annual percentage rate,'' it requires disclosure of a
different amount than under TILA.
Section 18 of RESPA and Regulation X Sec. 1024.13 provide that
State laws that are inconsistent with RESPA or Regulation X are
preempted to the extent of the inconsistency. 12 U.S.C. 2616; 12 CFR
1024.13. RESPA and Regulation X do not annul, alter, affect, or exempt
any person subject to their provisions from complying with the laws of
any State with respect to settlement practices, except to the extent of
the inconsistency. Id. Upon request by any person, the Bureau is
authorized to determine whether such inconsistencies exist, and the
Bureau may not determine that any State law is inconsistent with any
provision of RESPA if the Bureau determines that such law or regulation
gives greater protection to the consumer. 12 CFR 1024.13(b). In making
this determination, the Bureau must consult with ``appropriate Federal
agencies.'' Id.; see also 12 U.S.C. 2616. Section 1024.13(c) sets forth
the process by which the Bureau makes a preemption determination.
Unlike Regulation Z, Regulation X does not list any State laws
preempted by RESPA, and the Bureau is not aware of any.
The preemption provisions in TILA and RESPA and their implementing
regulations thus contain similar language as far as scope of the
preemption (i.e., in both cases State laws generally are preempted only
``to the extent of the inconsistency''), but include different
authority and
[[Page 51188]]
procedures for determining whether State laws are preempted. For
example, unlike Regulation X, Sec. 1026.28 provides a regulatory
standard for determining ``inconsistency'' (i.e., disclosures or
actions that contradict Federal law requirements) along with detailed
commentary. RESPA, but not TILA, requires the preemption determination
to be made by the Bureau in consultation with other appropriate Federal
agencies. Moreover, while the Regulation Z provision addresses the
relationship between Federal and State laws governing credit
transactions, Sec. 1024.13 refers to laws regarding settlement
practices.
As noted previously, section 1032(f) of the Dodd-Frank Act requires
the Bureau to propose rules and forms that combine the disclosures
required under TILA and sections 4 and 5 of RESPA into a single,
integrated disclosure for mortgage loan transactions covered by those
laws. In addition, the Dodd-Frank Act amended sections 105(b) of TILA
and 4(a) of RESPA, respectively, to require the integration of those
disclosure requirements. However, the Dodd-Frank Act did not specify
whether the TILA or the RESPA State law preemption provision applies to
the provision of the integrated mortgage disclosures. In order to meet
the Dodd-Frank Act's mandate, the proposed rule must reconcile the
differences regarding these State law preemption regimes.
Furthermore, there are certain transactions subject to TILA, but
not RESPA, for which the integrated mortgage disclosures must be
delivered under the proposed rule. Pursuant to Sec. 1026.19(e) and
(f), the proposed rule covers all closed-end consumer credit
transactions secured by real property, other than reverse mortgages.
Some of these transactions are not subject to RESPA (i.e., if they are
not a federally related mortgage loan as defined in Regulation X Sec.
1024.2), but consumers in such transactions will receive integrated
mortgage disclosures containing certain content mandated by RESPA. This
may create confusion as to which preemption provision controls were a
State law preemption question to arise with respect to the RESPA-
mandated content on the integrated mortgage disclosures.
Accordingly, Dodd-Frank Act section 1032(f), TILA section 105(b),
and RESPA section 19(a) provide the Bureau with authority to reconcile
the provisions of TILA and RESPA to carry out the integrated disclosure
requirement. Based on such authority and the Bureau's authority under
TILA section 105(a) and RESPA section 19(a) to make rules consistent
with the purposes of those statutes, the Bureau is proposing to require
that the State law preemption provisions of Regulation Z, Sec.
1026.28, apply to any State law preemption question arising with
respect to the requirements of sections 4 and 5 of RESPA (other than
the RESPA section 5(c) requirements regarding provision of a list of
certified homeownership counselors), and Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38. By applying the Regulation Z State law preemption
provision to any State law preemption question arising with respect to
the requirements of Sec. Sec. 1026.19(e) and (f), 1026.37, and
1026.38, this requirement encompasses all closed-end consumer credit
transactions secured by real property that are covered by the proposed
rule, regardless of whether they are independently subject to RESPA.
However, Sec. 1024.13 applies to State law preemption questions
arising with respect to other aspects of RESPA and Regulation X,
including the RESPA section 5(c) requirements regarding provision of a
list of certified homeownership counselors.
To effectuate this change, the Bureau is proposing two
modifications to Sec. 1026.28 and its associated commentary. First,
the proposed rule modifies Sec. 1026.28(a) to provide that a
determination of whether a State law is inconsistent with the
requirements of sections 4 and 5 of RESPA (other than the RESPA section
5(c) requirements regarding provision of a list of certified
homeownership counselors) and proposed Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38 shall be made in accordance with Sec. 1026.28 and
not Regulation X Sec. 1024.13. Second, the proposed rule adds text to
comment 28(a)-1 providing that, to the extent applicable to a
transaction subject to Sec. 1026.19(e) and (f), any reference to
``creditor'' in Sec. 1026.28 includes a creditor, a mortgage broker,
or a closing agent, as applicable. This change coincides with the
alternative proposed Sec. 1026.19(f)(1)(v), which permits the closing
agent to deliver the Closing Disclosure in place of the creditor. If
the alternative permitting the closing agent to deliver the Closing
Disclosure is not adopted, the closing agent reference in the proposed
edit to comment 28(a)-1 will not be adopted.
The Bureau notes that proposed Sec. 1026.28 and associated
commentary do not incorporate the language in RESPA section 18 and
Regulation X Sec. 1024.13(b) providing that the Bureau may not
determine that any State law is inconsistent with any RESPA provision
if the Bureau determines that such law or regulation gives greater
protection to the consumer. However, the Bureau believes that proposed
Sec. 1026.28 is consistent with RESPA section 18. Specifically, a
State disclosure is likely to confuse consumers if it uses the same
term to represent a different amount or a different meaning than, or if
it requires the use of a different term to describe the same item as,
the integrated mortgage disclosures developed in this rulemaking
through extensive consumer testing. Accordingly, for purposes of this
rulemaking, the Bureau believes that such State disclosures generally
do not provide greater protection for consumers.
Nevertheless, the Bureau intends to take a cautious case-by-case
approach to evaluating inconsistency under RESPA section 18. The Bureau
also intends to consult with other Federal agencies, as appropriate,
within the scope of RESPA concerning any evaluations of inconsistency
under RESPA section 18. Furthermore, the Bureau emphasizes that nothing
in this proposed rule is intended to preempt State laws that offer
greater substantive consumer protections than those provided under
sections 4 and 5 of RESPA \153\ and Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38 (e.g., a State law imposing stricter limits on
closing cost increases or requiring disclosures of the final closing
costs seven days before consummation). A more protective State law
would not be inconsistent with such RESPA and Regulation Z provisions,
and therefore would not be preempted by Sec. 1026.28, because a
creditor's compliance with the more protective State law would also
satisfy the requirements of such RESPA and Regulation Z provisions.
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\153\ As discussed above, proposed revised Sec. 1026.28 and
associated commentary do not govern State law preemption questions
arising under the RESPA section 5(c) requirements for provision of a
list of certified homeownership counselors.
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The Bureau believes that the proposed revisions to the regulatory
text and commentary to Sec. 1026.28 effectively specify whether the
Regulation Z or RESPA State law preemption provision applies to any
State law preemption question arising with respect to the requirements
of sections 4 and 5 of RESPA (other than the RESPA section 5(c)
requirements regarding provision of a list of certified homeownership
counselors) and proposed Sec. Sec. 1026.19(e) and (f), 1026.37, and
1026.38.
Section 1026.29 State Exemptions
TILA has several provisions that permit the Bureau to grant State
exemptions from certain TILA disclosure provisions. Section 111(a)(2)
allows the Bureau, upon its own motion
[[Page 51189]]
or upon the request of any creditor, State, or other interested party
that is submitted in accordance with procedures prescribed in
regulations of the Bureau, to determine whether any disclosure required
under any State law is substantially the same in meaning as a
disclosure required under TILA. 15 U.S.C. 1610(a)(2). If the Bureau
makes such a determination, TILA section 111(a)(2) provides that
creditors located in that State may make such disclosure in compliance
with such State law in lieu of the TILA disclosure, except that (1) the
annual percentage rate and finance charge must be disclosed as required
by section 122 of TILA, and (2) State-required disclosures may not be
made in lieu of the high-cost mortgage disclosures under section 129 of
TILA. Section 123 of TILA allows the Bureau by regulation to exempt any
class of credit transactions within any State from the requirements of
chapter 2 of TILA (Credit transactions) if the Bureau determines that
the law of the State subjects the class of transactions to requirements
substantially similar to those imposed under chapter 2 of TILA, and
that there is adequate provision for enforcement.\154\ 15 U.S.C. 1633.
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\154\ Section 171(b) of TILA also addresses State exemptions and
contains nearly identical language to section 123, but section
171(b) applies with respect to TILA chapter 4 (credit billing),
which is not affected by this rulemaking. 15 U.S.C. 1661j(b).
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Regulation Z Sec. 1026.29 and appendix B to part 1026 implement
the TILA State exemption provisions.\155\ Pursuant to Sec. 1026.29(a),
a State may apply to the Bureau to exempt a class of transactions
within the State from the requirements of chapter 2 (Credit
transactions) or chapter 4 (Credit billing) of TILA and the
corresponding provisions of Regulation Z. The Bureau shall grant an
exemption if it determines that (1) the State law is substantially
similar to the Federal law or, in the case of chapter 4 of TILA,
affords the consumer greater protection than the Federal law, and (2)
there is adequate provision for enforcement. Comment 29(a)-2 clarifies
that State law is ``substantially similar'' for purposes of Sec.
1026.29(a) if the State statutory or regulatory provisions and State
interpretations of those provisions are generally the same as TILA and
Regulation Z. Comment 29(a)-3 clarifies that, generally, there is
adequate provision for enforcement if appropriate State officials are
authorized to enforce the State law through procedures and sanctions
comparable to those available to Federal enforcement agencies. Comment
29(a)-4 states that the Bureau recognizes certain TILA exemptions
granted by the Federal Reserve Board to Maine, Connecticut,
Massachusetts, Wyoming, and Oklahoma prior to July 21, 2011, until and
unless the Bureau makes and publishes any contrary determination.
Comment 29(a)-4.i through -4.v currently provides, in relevant part,
that credit transactions in these five States that are subject to the
State consumer credit codes or truth in lending acts enumerated in such
comment are exempt from the requirements of chapter 2 of TILA, which
sets forth, among other provisions, the disclosure requirements for
closed-end mortgages. The specific procedures for requesting a State
exemption are set forth in Sec. 1026.29(c) and appendix B to part
1026. Appendix B states, among other things, that the Bureau reserves
the right to revoke an exemption if at any time it determines that the
standards required for an exemption are not met.
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\155\ As noted earlier, Sec. 1026.28(b) generally permits a
creditor, State, or other interested party to request that the
Bureau determine whether a State-required disclosure is
substantially the same in meaning as a TILA disclosure, and if the
Bureau makes such a determination, creditors in the State can
provide the State-required disclosure in lieu of the TILA
disclosure. Comment 28(b)-1 clarifies that under Sec. 1026.28, a
State disclosure can be substituted for a Federal disclosure only
after a determination of substantial similarity.
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Unlike TILA, RESPA does not contain a State exemption provision for
credit transactions subject to RESPA. Rather, as discussed above with
respect to Sec. 1026.28, section 18 of RESPA and Regulation X Sec.
1024.13 provide that State laws that are inconsistent with RESPA or
Regulation X are preempted to the extent of the inconsistency. 12
U.S.C. 2616; 12 CFR 1024.13.
As noted above, sections 1032(f), 1098, and 1100A of the Dodd-Frank
Act require the Bureau to propose for public comment, rules and forms
that combine the disclosures required under TILA and sections 4 and 5
of RESPA into a single, integrated disclosure for mortgage loan
transactions covered by those laws. However, the Dodd-Frank Act did not
address a number of inconsistencies between TILA and RESPA that affect
the provision of the integrated mortgage disclosures, including
inconsistent provisions regarding the application of State law. In
order to meet the Dodd-Frank Act's mandate, the proposed rule must
reconcile the State exemption provisions.
Accordingly, pursuant to its authority under Dodd-Frank Act section
1032(f), TILA section 105(b), and RESPA section 19(a) as well as its
authority under TILA section 105(a) and RESPA section 19(a) to make
rules consistent with the purposes of those statutes, the Bureau is
proposing to require that the TILA State exemption provision apply to
transactions subject to proposed Sec. 1026.19(e) and (f) (i.e., all
closed-end consumer credit transactions secured by real property, other
than a reverse mortgage). By applying the TILA State exemption
provision to transactions subject to Sec. 1026.19(e) and (f), rather
than the RESPA State preemption provision (which is silent as to the
granting of State exemptions under RESPA), this requirement would cover
all closed-end consumer credit transactions secured by real property
that are covered by the proposed rule, including those subject to
RESPA. The Bureau believes this is consistent with the intent of TILA's
State exemption provision and the integrated disclosure mandate in
Dodd-Frank Act section 1032(f), TILA section 105(b), and RESPA section
19(a) because it allows States to maintain their existing exemptions so
long as consumers receive disclosures and protections that are
substantially similar to those in the proposed rule. Furthermore, using
the TILA State law exemption provision for transactions subject to
Sec. 1026.19(e) and (f) will facilitate compliance with the disclosure
requirements of TILA and RESPA and promote the informed use of credit
and more effective advance notice of settlement costs since creditors,
consistent with TILA section 105(a) and RESPA section 19(a), by
applying a consistent standard to those transactions.
To effectuate this change, the Bureau is proposing two substantive
modifications to the commentary to Sec. 1026.29, in addition to
relabeling some of the section numbering and lettering. First, proposed
revised comment 29(a)-2 modifies the guidance regarding the
``substantially similar'' standard set forth in Sec. 1026.29(a)(1)
(i.e., one of the two preconditions to the granting of an exemption).
Proposed revised comment 29(a)-2 clarifies that, in order for
transactions that would otherwise be subject to the integrated
disclosures required by Sec. 1026.19(e) and (f) to be exempt from
those disclosure requirements, the State statutory or regulatory
provisions and State interpretations of those provisions must require
disclosures that are generally the same as those prescribed by Sec.
1026.19(e) and (f), in the forms prescribed by Sec. Sec. 1026.37 and
1026.38. This means that, in order for an existing State exemption to
be maintained, the State's law must require disclosures that are
generally the same as the integrated disclosures, including the RESPA
content.
Second, proposed revised comment 29(a)-4 states that, although
RESPA and Regulation X do not provide procedures
[[Page 51190]]
for State exemptions, for transactions subject to Sec. 1026.19(e) and
(f), compliance with the requirements of Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38 satisfies the requirements of sections 4 and 5 of
RESPA (other than the RESPA section 5(c) requirements regarding
provision of a list of certified homeownership counselors).
Furthermore, the proposed revised comment states that if the
transaction is subject to a previously-granted State exemption, then
compliance with the requirements of any State laws and regulations
incorporating the requirements of Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38 likewise satisfies the requirements of sections 4
and 5 of RESPA (other than the RESPA section 5(c) requirements
regarding provision of a list of certified homeownership counselors).
Thus, in Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming,
creditors, mortgage brokers, and settlement agents, as applicable, may
satisfy sections 4 and 5 of RESPA (other than the RESPA section 5(c)
requirements regarding provision of a list of certified homeownership
counselors) through compliance with State law so long as the
``substantially similar'' State statutory and regulatory provisions
(i.e., the State consumer codes or truth in lending acts enumerated in
comment 29(a)-4.1 through -4.v, as applicable) expressly mandate
delivery of the integrated mortgage disclosures required by the Dodd-
Frank Act and implemented by the proposed rule.
The Bureau believes that the proposed revisions to the commentary
to Sec. 1026.29 effectively reconcile the conflicting TILA and RESPA
provisions by clarifying the standards for the Bureau's granting of
exemptions from certain relevant TILA and RESPA provisions going
forward. The proposed revisions also clarify how compliance with
sections 4 and 5 of RESPA (other than the RESPA section 5(c)
requirements regarding provision of a list of certified homeownership
counselors) may be accomplished with respect to transactions subject to
the previously-granted TILA exemptions in light of the Dodd-Frank Act's
mandate to integrate the mortgage disclosures under TILA and sections 4
and 5 of RESPA. Finally, the proposed revisions do not change the
existing language in comment 29(a)-4 and appendix B to part 1026
reserving the Bureau's right to make and publish any contrary
determination regarding State exemptions previously granted by the
Federal Reserve Board and, more generally, to revoke State exemptions
if the standards for granting them are no longer met.
The Bureau understands these proposed changes will likely require
some of the five States previously granted State exemptions under 12
CFR 226.29, the predecessor to Sec. 1026.29, to change their laws and/
or regulations, which may be a lengthy process.\156\ This is because to
the extent the ``substantially similar'' State laws and regulations
underlying the TILA State exemptions do not currently require the
integrated disclosures mandated by the Dodd-Frank Act (specifically,
the portions mandated by RESPA), there is a gap in these States'
current statutory and regulatory regimes that must be filled in order
to maintain the State exemptions. As such, the Bureau hereby solicits
comment on the amount of time that will be needed for these States to
change their laws and/or regulations.
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\156\ While these proposed changes may require some of these
five States to change their laws and/or regulations, others
incorporate TILA and Regulation Z into their State laws and/or
regulations by reference. Therefore, the Bureau anticipates that
these other States should not have to take any action to maintain
their existing exemptions directly as a result of this proposed
rule.
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Section 1026.37 Content of Disclosures for Certain Mortgage
Transactions (Loan Estimate)
Proposed Sec. 1026.37 sets forth the required content of the
integrated Loan Estimate disclosures, required by proposed Sec.
1026.19(e) to be provided to a consumer within three business days of
the creditor's receipt of the consumer's application.
As discussed above, the Loan Estimate integrates the disclosures
currently provided in the RESPA GFE and the early TILA disclosure. In
addition, the Loan Estimate integrates several disclosures that would
otherwise be provided separately under various Federal laws. The Bureau
believes the three-page Loan Estimate integrates at least seven pages
of disclosures. Specifically, the Loan Estimate incorporates: (i) three
pages of the RESPA GFE; (ii) two pages typically used for the early
TILA disclosure; (iii) one page typically used for the appraisal
notification provided under ECOA section 701(e); and (iv) one page
typically used for the servicing disclosure provided under RESPA
section 6. In addition, the Loan Estimate incorporates the disclosure
of: (i) The total interest percentage under TILA section 128(a)(19),
which was added by section 1419 of the Dodd-Frank Act; (ii) the
aggregate amount of loan charges and closing costs the consumer must
pay at consummation under TILA section 128(a)(17), which was added by
section 1419 of the Dodd-Frank Act; (iii) for refinance transactions,
the anti-deficiency protection notice under TILA section 129C(g)(3),
which was added by section 1414(c) of the Dodd-Frank Act; and (iv) the
homeowner's insurance disclosure in TILA section 106(c) and Sec.
1026.4(d)(2)(i), which is required to exclude homeowner's insurance
premiums from the finance charge. In absence of the Bureau's
integration of the early TILA disclosure and the RESPA GFE, some these
new disclosures would have been added to the early TILA disclosure,
which potentially could have increased that disclosure's typical two
pages to three pages.
Proposed Sec. 1026.37 provides that the information set forth in
Sec. 1026.37(a) through (n) shall be disclosed ``as applicable.'' The
Bureau is proposing a new comment 37-1 to clarify that a disclosure
that is not applicable to a transaction generally may be eliminated
entirely or may be included but marked ``not applicable'' or ``N/A.''
As discussed below, proposed Sec. 1026.37(o) provides rules for
the form of the disclosures required by Sec. 1026.37(a) through (n).
Proposed comment 37-2 directs creditors to Sec. 1026.37(o) and its
commentary for guidance on format and permissible modifications to the
form of the disclosures.
37(a) General Information
The Bureau proposes Sec. 1026.37(a), which combines and modifies
disclosures currently provided under Regulations X and Z and adds
additional disclosures in the Loan Estimate for transactions subject to
proposed Sec. 1026.19(e). For the reasons discussed below and
consistent with TILA section 105(a), RESPA section 19(a), and the
purposes of those statutes, proposed Sec. 1026.37(a) will promote the
informed use of credit and more effective advance disclosure of
settlement costs. In addition, proposed Sec. 1026.37(a) will enable
consumers to better understand the costs, benefits, and risks
associated with mortgage transactions, consistent with Dodd-Frank Act
section 1032(a). Furthermore, proposed Sec. 1026.37(a) will improve
consumer awareness and understanding of transactions involving
residential mortgage loans and is therefore in the interest of
consumers and the public, consistent with Dodd-Frank Act section
1405(b).
[[Page 51191]]
37(a)(1) Form Title
Although the Dodd-Frank Act requires the Bureau to combine the TILA
and RESPA mortgage disclosures that are currently provided to consumers
within three business days after application, the Act does not
prescribe a title for the integrated form. Under Sec. 1024.2(b) of
Regulation X, the form providing consumers with the RESPA good faith
estimate of settlement charges they are likely to incur is called the
``Good Faith Estimate'' or ``GFE.'' Regulation Z does not prescribe a
name for the TILA good faith estimate required by Sec. 1026.19(a)(1),
although comment 17(a)(1)-5.ix permits the creditor to provide ``[a]
brief caption identifying the disclosures'' and provides as examples of
acceptable titles, ``Federal Truth in Lending Disclosures'' and ``Real
Estate Loan Disclosures.''
Proposed Sec. 1026.37(a)(1) requires the creditor to use the term
``Loan Estimate'' as the title of the integrated disclosures creditors
provide pursuant to proposed Sec. 1026.19(e). The Bureau believes the
adoption of a standardized form name may eliminate confusion for
consumers seeking to compare estimates for different loans and thereby
promote the informed use of credit and more effective advance notice of
settlement costs, consistent with TILA section 105(a) and RESPA section
19(a), and will enable consumers to better understand the costs,
benefits, and risks associated with mortgage transactions, consistent
with Dodd-Frank Act section 1032(a). In addition, the use of standard
terminology for the integrated disclosures will facilitate compliance
for industry, which is a purpose of this rulemaking under Dodd-Frank
Act sections 1098 and 1100A.
37(a)(2) Form Purpose
Proposed Sec. 1026.37(a)(2) requires the creditor to include a
statement regarding one of the primary uses of the Loan Estimate for
consumers, which is to compare with the Closing Disclosure to verify
the loan terms and costs. Specifically, proposed Sec. 1026.37(a)(2)
requires the creditor to provide the following statement at the top of
all Loan Estimates, ``Save this Loan Estimate to compare with your
Closing Disclosure.'' The proposed language may benefit consumers and
promote the informed use of credit by encouraging consumers to use the
Loan Estimate as a tool to help them readily identify any changes to
the loan transaction or costs that may have occurred between issuance
of the initial Loan Estimate and the Closing Disclosure.
Requiring creditors to disclose the purpose for the Loan Estimate
and related disclosures is not a new requirement. Appendix C of
Regulation X currently requires specific language regarding the purpose
of the GFE.\157\ And while the Bureau's proposed language differs from
that prescribed by HUD, the Bureau believes that the disclosure in
proposed Sec. 1026.37(a)(2) accomplishes the same goal in a clearer
and more succinct manner. Accordingly, this disclosure promotes the
informed use of credit and more effective advance notice of settlement
costs, consistent with TILA section 105(a) and RESPA section 19(a), and
will enable consumers to better understand the costs, benefits, and
risks associated with mortgage transactions, consistent with Dodd-Frank
Act section 1032(a).
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\157\ Appendix C to Regulation X requires the following
statement on the GFE under the heading ``Purpose'': ``This GFE gives
you an estimate of your settlement charges and loan terms if you are
approved for this loan. For more information, see HUD's Special
Information Booklet on settlement charges, your Truth-in-Lending
Disclosures, and other consumer information at www.hud.gov/respa. If
you decide you would like to proceed with this loan, contact us.''
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37(a)(3) Creditor
TILA section 128(a)(1) requires disclosure of the ``identity of the
creditor required to make [the] disclosure.'' 15 U.S.C. 1638(a)(1).
Regulation Z Sec. 1026.18(a) implements TILA section 128(a)(1) and
requires for each transaction the identity of the creditor making the
disclosure. HUD imposed a similar requirement in appendix C to
Regulation X, requiring the name and contact information for the ``loan
originator.''
Pursuant to TILA section 105(a), RESPA section 19(a), and Dodd-
Frank Act section 1032(a), proposed Sec. 1026.37(a)(3) mirrors Sec.
1026.18(a) and requires the name of the creditor making the disclosure.
By allowing the consumer to identify the name of the creditor providing
the Loan Estimate, this disclosure will promote the informed use of
credit and more effective advance notice of settlement costs and will
enable consumers to better understand the costs, benefits, and risks
associated with mortgage transactions.
Proposed comment 1026.37(a)(3)-1 cross-references Sec. 1026.17(d)
and comment 17(d)-1 and clarifies that, in transactions with multiple
creditors, only the creditor making the disclosure must be identified.
Proposed comment 37(a)(3)-2 states that, in transactions where the loan
is originated by a mortgage broker, the name of the creditor, if known,
must still be provided even if the mortgage broker provides the
disclosure to the consumer.
37(a)(4) Date Issued
Appendix C to Regulation X requires creditors to provide the date
of the GFE. Proposed Sec. 1026.37(a)(4) mirrors this requirement by
mandating disclosure of the date the Loan Estimate is mailed or
delivered to the consumer. Proposed comment 1026.37(a)-1 clarifies that
the ``date issued'' is the date the creditor delivers the Loan Estimate
to the consumer and is not affected by the creditor's method of
delivery.
The Bureau is proposing this requirement pursuant to its authority
under TILA section 105(a) and RESPA section 19(a) because disclosure of
the date the Loan Estimate is issued will promote the informed use of
credit and more effective advance disclosure of settlement costs, which
are purposes of TILA and RESPA respectively, by enabling consumers to
compare the Loan Estimate with any revised Loan Estimates that may be
issued. In addition, this comparison will enable consumers to identify
changes in loan terms and costs and thereby understand the costs,
benefits, and risks associated with the mortgage transaction,
consistent with Dodd-Frank Act section 1032(a).
37(a)(5) Applicants
Appendix C to Regulation X requires disclosure of the name of the
applicants for the mortgage loan transaction. Similarly, pursuant to
TILA section 105(a), RESPA section 19(a), and Dodd-Frank Act section
1032(a), proposed Sec. 1026.37(a)(5) requires creditors to disclose
the name of the applicants for the loan transaction. By enabling
consumers to confirm that the Loan Estimate is intended for them, this
disclosure will promote the informed use of credit and more effective
advance notice of settlement costs and will enable consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions. Proposed comment 37(a)(5)-1 clarifies that the names of
all applicants for the mortgage loan must be disclosed on the form and
that if the form cannot accommodate the names of all the applicants,
the creditor may attach to the back of the form a separate page listing
the remaining applicants.
37(a)(6) Property
Appendix C to Regulation X requires at the top of the GFE the
``address or location of the property'' for which the financing is
sought. The Bureau proposes to use its authority in TILA
[[Page 51192]]
section 105(a), RESPA section 19(a), and section 1032(a) of the Dodd-
Frank Act to impose a similar requirement for the Loan Estimate
required by proposed Sec. 1026.19(e). The Bureau believes that, by
providing the consumer with basic information about the property that
is the subject of the loan transaction, this disclosure will promote
the informed use of credit and more effective advance notice of
settlement costs and will enable consumers to better understand the
costs, benefits, and risks associated with mortgage transactions.
Accordingly, proposed Sec. 1026.37(a)(6) requires the creditor to
disclose the street address or location of the property that secures
the transaction that is the subject of the Loan Estimate. Proposed
comment 37(a)(6)-1 instructs creditors to provide a legal description
or other locator for the property in cases where there is no street
address. The proposed comment also clarifies that a zip code would be
required in all instances.
37(a)(7) Sale Price
Proposed Sec. 1026.37(a)(7)(i) requires disclosure of the contract
sale price for the property identified in proposed Sec. 1026.37(a)(6).
For transactions that do not involve a seller, proposed Sec.
1026.37(a)(7)(ii) requires disclosure of the estimated value for the
property identified in proposed Sec. 1026.37(a)(6). Proposed comment
37(a)(7)-1 provides guidance regarding the requirement to provide the
estimated value of the property, if a creditor has performed its own
estimate or obtained an appraisal or valuation of the property.
The disclosure of the contract sale price and estimated property
value, as applicable, is a new requirement, which the Bureau proposes
pursuant to its authority under TILA section 105(a), RESPA section
19(a), and section 1032(a) of the Dodd-Frank Act for transactions
subject to proposed Sec. 1026.19(e). The Bureau believes that
including the contract sales price or estimated property value in the
Loan Estimate will help promote the informed use of credit and more
effective advance notice of settlement costs and will enable consumers
to better understand the costs, benefits, and risks associated with
mortgage transactions by ensuring that consumers have in a single
location all the information needed to decide whether to enter into a
legal obligation.
37(a)(8) Loan Term
Existing appendix C to Regulation X requires the loan originator to
disclose the loan term as part of the ``Summary of Your Loan''
disclosure. Regulation Z does not have a similar requirement, although
TILA provides for such a disclosure.\158\ Proposed Sec. 1026.37(a)(8)
essentially mirrors appendix C to Regulation X and requires the
creditor to disclose the term to maturity of the credit. The prototype
mortgage disclosures used at the Bureau's consumer testing displayed
this in terms of years, and consumers were able to understand and
evaluate easily the term to maturity. The Bureau believes that this
unit of time provides a frame of reference to consumers that they use
more regularly and that is easier to understand than months, which may
result in large numbers that are unfamiliar to consumers, such as 180
or 360 months. Accordingly, proposed Sec. 1026.37(a)(8) requires the
loan term to be expressed in years.
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\158\ TILA section 128(a)(6) requires disclosure of the
``number, amount, and due dates or period'' of periodic payments
which, in effect, makes disclosure of the loan term a statutory
requirement. Section 1026.18(g) implements TILA section 128(a)(6)
for non-mortgage transactions, but there is no corresponding
disclosure requirement for mortgage loan transactions in existing
Sec. 1026.18(s). In this proposal, the Bureau intends to implement
TILA section 128(a)(6) by requiring disclosure of the loan term for
mortgages in proposed Sec. 1026.37(a)(8).
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The Bureau understands from industry feedback provided in
connection with the Bureau's stakeholder outreach that some adjustable
rate loans may be structured so that the periodic principal and
interest payment is fixed and increases in the interest rate increase
the loan term instead of the payment. Accordingly, proposed comment
37(a)(8)-1 provides guidance regarding compliance with the requirement
of proposed Sec. 1026.37(a)(8) if the term to maturity is adjustable
under the terms of the legal obligation.
The Bureau proposes Sec. 1026.37(a)(8) pursuant to its authority
under TILA section 105(a), RESPA section 19(a), and section 1032(a) of
the Dodd-Frank Act to implement TILA section 128(a)(6) and because
disclosing the loan term will help promote the informed use of credit
and more effective advance notice of settlement costs and will enable
consumers to better understand the costs, benefits, and risks
associated with mortgage transactions.
37(a)(9) Purpose
Neither Regulation Z nor Regulation X currently requires disclosure
of the purpose of the loan. With the number of loan products available
on the market, some of which are targeted for a particular purpose,
inclusion of this information on the Loan Estimate will promote the
informed use of credit and more effective advance notice of settlement
costs and will enable consumers to better understand the costs,
benefits, and risks associated with mortgage transactions. Accordingly,
the Bureau proposes to use its authority under TILA section 105(a),
RESPA section 19(a), and section 1032(a) of the Dodd-Frank Act to
require creditors to disclose the intended purpose of the extension of
credit.
Under proposed Sec. 1026.37(a)(9), the creditor is required to
disclose as the purpose of the loan one of the following: (1) Purchase;
(2) refinance; (3) construction; or (4) home equity loan. Proposed
comment 37(a)(9)-1 provides general guidance on identifying the most
accurate loan purpose and clarifies that, in disclosing the loan
purpose, the creditor must consider all relevant information available
to the creditor at the time of the disclosure and that, if there is
uncertainty, the creditor may rely on the consumer's stated purpose.
The Bureau seeks comment on whether additional loan purposes should be
added to Sec. 1026.37(a)(9).
37(a)(9)(i) Purchase
If the credit is to finance the acquisition of the property that is
the subject of the loan transaction, proposed Sec. 1026.37(a)(9)(i)
requires the creditor to disclose that the loan is a ``Purchase.''
Proposed comment 37(a)(9)-1.i clarifies the meaning of the term
``purchase.''
37(a)(9)(ii) Refinance
Proposed Sec. 1026.37(a)(9)(ii) requires the creditor to disclose
that the loan is for a ``Refinance'' if, consistent with Sec.
1026.20(a) other than with regard to the identity of the creditor, the
credit is to refinance an existing obligation already secured by the
property that is the subject of the transaction. Like Sec. 1026.20(a),
whether a transaction is a refinancing under proposed Sec.
1026.37(a)(9)(ii) depends on whether the original obligation has been
satisfied or extinguished and replaced by a new obligation, based on
the parties' contract and applicable law. This may include an
obligation under which amounts other than principal remain due under
the existing obligation and are to be paid with the new obligation to
satisfy the existing obligation. Proposed comment 37(a)(9)-1.ii
clarifies the meaning of the term ``refinance'' and that the consumer
may or may not receive cash from the transaction. Proposed comment
37(a)(9)(ii)-1.ii also provides a description of a refinancing with and
without cash provided and provides an example of how a consumer may use
cash received in a refinancing transaction with cash provided. Proposed
comment 37(a)(9)-2 also
[[Page 51193]]
clarifies that proposed Sec. 1026.37(a)(9)(ii), unlike Sec.
1026.20(a), applies to all such transactions even if the refinancing is
undertaken by a new creditor.
37(a)(9)(iii) Construction
If the extension of credit is to finance the construction of a
dwelling on the property, proposed Sec. 1026.37(a)(9)(iii) requires
the creditor to disclose that the loan is for ``Construction.''
Proposed comment 37(a)(9)-1.iii clarifies that the creditor is required
to disclose that the loan is for ``construction'' both in transactions
where the extension of credit is to cover the costs of a construction
project only (``construction-only'' loan), whether it is a new
construction or a renovation project, and in transactions where a
multiple advance loan may be permanently financed by the same creditor
(``construction-to-permanent'' loan). The proposed comment also
clarifies that, in construction-only transactions, the consumer may be
required to make interest-only payments during the construction phase
of the project with the loan balance due at the completion of the
construction project. Finally, proposed comment 37(a)(9)-1.iii cross-
references Sec. 1026.17(c)(6)(ii) and comments 17(c)(6)-2 and -3 for
further guidance regarding construction-to-permanent transactions.
37(a)(9)(iv) Home Equity Loan
If the extension of credit does not involve the purchase of real
property as described in proposed Sec. 1026.37(a)(9)(i) or the
construction of a dwelling as described in proposed Sec.
1026.37(a)(9)(iii) and will not be used to refinance an existing
obligation as described in proposed Sec. 1026.37(a)(9)(ii), proposed
Sec. 1026.37(a)(9)(iv) requires the creditor to state that the
extension of credit is for a ``Home Equity Loan.'' Proposed comment
37(a)(9)(iv)-1.iv clarifies that the home equity loan disclosure
applies whether the transaction will be secured by a first or
subordinate lien on the property.
37(a)(10) Product
Pursuant to TILA section 128(b)(2)(C)(ii), under existing Sec.
1026.18(s), the creditor is required to provide certain information
about the interest rate and payments, which is based on the loan
product. In proposed Sec. 1026.37(a)(10), the Bureau requires a
description of the loan product. The Bureau proposes this new
requirement pursuant to its authority under TILA section 105(a), RESPA
section 19(a), section 1032(a) of the Dodd-Frank Act, and section
1405(b) of the Dodd-Frank Act with respect to residential mortgage
loans. The Bureau believes that requiring the disclosure of the loan
product on the Loan Estimate promotes the informed use of credit and
more effective advance disclosure of settlement charges by providing
consumers with key loan terms early in the transaction and in a clear
and conspicuous manner. This disclosure also enables consumers to
better understand the costs, benefits, and risks associated with
mortgage transactions. In addition, the disclosure of the loan product
may improve consumer awareness and understanding of transactions
involving residential mortgage loans through the use of disclosures,
and is in the interest of consumers and in the public interest.
Specifically, proposed Sec. 1026.37(a)(10)(i) requires the
creditor to identify the type of loan product for which the consumer
has applied and proposed Sec. 1026.37(a)(10)(ii) requires a
description of certain loan features added to the loan product that may
change the consumer's periodic payment. Proposed Sec.
1026.37(a)(10)(iii) provides instructions on how to disclose loan
products that contain one or more loan features, states that the
creditor may disclose only one loan feature, and cross-references
proposed Sec. 1026.37(a)(10)(ii) as establishing the following
hierarchy to be adhered to when disclosing a loan product with more
than one loan feature: (1) Negative amortization; (2) interest-only;
(3) step payment; and (4) balloon payment. Proposed Sec.
1026.37(a)(10)(iv) requires that the disclosure of any loan product or
loan feature be preceded by any introductory rate periods, adjustable
features, and applicable time periods. This aspect of the proposal
would not apply to fixed rate loans with no additional features.
Finally, comments to proposed Sec. 1026.37(a)(10) provide further
descriptions and examples of the loan products and features to be
disclosed, as discussed below.
37(a)(10)(i)
Proposed Sec. 1026.37(a)(10)(i) requires disclosure of one of the
following as the product for which the consumer has applied:
37(a)(10)(i)(A) Adjustable Rate
If the annual percentage rate may increase after consummation, but
the rates that will apply or the periods for which they will apply are
not known at consummation, proposed Sec. 1026.37(a)(10)(i)(A) requires
that the loan be disclosed as an ``Adjustable Rate.'' Proposed comment
37(a)(10)-1.i clarifies the proper format for disclosure of an
adjustable-rate product.
37(a)(10)(i)(B) Step Rate
Under proposed Sec. 1026.37(a)(10)(i)(B), the loan product is
required to be disclosed as a ``Step Rate'' if the interest rate will
change after consummation and the applicable rates and the periods for
the applicable rates are known. Proposed comment 37(a)(10)-1.ii
clarifies that the proper format for disclosure of a step-rate product.
37(a)(10)(i)(C) Fixed Rate
Proposed Sec. 1026.37(a)(10)(i)(C) requires the creditor to
disclose the loan product as a ``Fixed Rate'' if the product is neither
an Adjustable Rate nor a Step Rate, as described in Sec.
1026.37(a)(10)(i)(A) and (B), respectively. Proposed comment 37(a)(10)-
1.iii provides guidance regarding the disclosure required by Sec.
1026.37(a)(10)(i)(C).
37(a)(10)(ii)
Proposed Sec. 1026.37(a)(10)(ii) requires the disclosure of loan
features that may change the consumer's periodic payment. As noted
above, although structured differently, Sec. 1026.18(s) requires a
similar disclosure. Proposed Sec. 1026.37(a)(10)(ii) requires the
consumer to disclose one of the following features, as applicable:
Negative amortization, interest-only, step payment, balloon payment, or
seasonal payment. Proposed comment 37(a)(10)-2 clarifies the
requirements of Sec. 1026.37(a)(10)(iii) and (iv) with respect to the
feature that is disclosed and the time period or the length of the
introductory period and the frequency of the adjustment periods, as
applicable, that preceded the feature. For example: an adjustable-rate
product with an introductory rate that is interest-only for the first
five years and then adjusts every three years starting in year six
would be disclosed as ``5 Year Interest Only, 5/3 Adjustable Rate''; a
step-rate product with an introductory interest rate that lasts for
seven years, and adjusts every year thereafter for the next five years
at a predetermined rate would be disclosed as ``7/1 Step Rate''; and a
fixed rate product that is interest-only for ten years with a balloon
payment due at the end of the ten-year period would be disclosed as
``10 Year Interest Only, Fixed Rate.'' The balloon payment feature,
however, would be disclosed elsewhere on the form as described in the
section-by-section analysis of proposed Sec. 1026.37(b) and (c).
[[Page 51194]]
37(a)(10)(ii)(A) Negative Amortization
Proposed Sec. 1026.37(a)(10)(ii)(A) requires that the creditor
disclose a ``Negative Amortization'' loan feature if, under the terms
of the legal obligation, the loan balance may increase. Proposed
comment 37(a)(10)-2.i provides an example of the disclosure of a loan
product with a negative amortization feature.
37(a)(10)(ii)(B) Interest Only
Proposed Sec. 1026.37(a)(10)(ii)(B) requires that the creditor
disclose an ``Interest Only'' loan feature if, under the legal
obligation, one or more regular periodic payments may be applied only
to interest accrued and not to the loan principal. Proposed comment
37(a)(10)-2.ii provides an example of the disclosure of a loan product
with an interest only feature.
37(a)(10)(ii)(C) Step Payment
Proposed Sec. 1026.37(a)(10)(ii)(C) requires that the creditor
disclose a ``Step Payment'' loan feature if the terms of the legal
obligation include a feature that involves scheduled variations in the
periodic payment during the term of the loan that are not caused by
changes in the interest rate. Proposed comment 37(a)(10)-2.iii
clarifies that the term ``step payment'' is sometimes also called a
``graduated payment'' and provides an example and guidance on the
format to be used when disclosing a loan product with a Step Payment
feature.
37(a)(10)(ii)(D) Balloon Payment
Proposed Sec. 1026.37(a)(10)(ii)(D) requires that the creditor
disclose a ``Balloon Payment'' loan feature if the transaction includes
a balloon payment as defined in proposed Sec. 1026.37(b)(5). Proposed
comment 37(a)(10)-2.iv clarifies that the term ``balloon payment'' has
the same meaning as in proposed Sec. 1026.37(b)(5) and provides
further guidance on the format to be used when disclosing a loan
product with a balloon payment feature.
37(a)(10)(ii)(E) Seasonal Payment
Proposed Sec. 1026.37(a)(10)(ii)(E) requires that the creditor
disclose whether the terms of the legal obligation expressly provide
that regular periodic payments are not scheduled for specified unit-
periods on a regular basis, disclosed as a ``Seasonal Payment''
feature. The Bureau understands from industry feedback provided in
connection with the Bureau's stakeholder outreach that some loans,
which may be more prevalent in the community bank market, may be
structured so that periodic principal and interest payments are not
scheduled to be made by the consumer in between specified unit-periods
on a regular basis. For example, such a loan may be structured so that
payments are not required to be made by the consumer during the months
of June through August each year of the loan term. These loans are
sometimes called ``teacher loans.'' Accordingly, proposed Sec.
1026.37(a)(10)(ii)(E) provides for the disclosure of such a product
feature. Proposed comment 37(a)(10)-2.v provides guidance regarding
this requirement.
37(a)(10)(iii)
Proposed Sec. 1026.37(a)(10)(iii) requires that if more than one
loan feature is applicable to the transaction, the creditor disclose
only the first applicable loan feature from the order in which they are
presented in proposed Sec. 1026.37(a)(10)(ii). This proposed order of
loan features prioritizes the loan features to ensure that consumers
receive information about potential costs and risks in a readily
visible format, understanding that consumers will receive information
about some applicable features elsewhere in the Loan Estimate. For
example, the existence of a balloon payment is also disclosed under
both proposed Sec. 1026.37(b) and (c), and thus, is later in the order
of loan features under proposed Sec. 1026.37(a)(10)(iii). In addition,
seasonal payments do not pose as great a risk to consumers as do
negatively amortizing or non-amortizing payments, and thus, disclosure
of these features is earlier than seasonal payments in the order under
proposed Sec. 1026.37(a)(10)(iii).
37(a)(10)(iv)
Finally, proposed Sec. 1026.37(a)(10)(iv) requires the creditor to
include in the disclosures required by Sec. 1026.37(a)(10)(i) and (ii)
information regarding any introductory rate period, adjustment period,
or time period, as applicable, and that this information should precede
both the loan product and any features disclosed, as applicable. For
example, if the consumer applies for an adjustable-rate loan that
includes a scheduled regular periodic payment that results in negative
amortization in years one through three, interest-only payments in
years four and five, and an interest rate that adjusts every two years
after year three, the creditor would disclose the product as ``3 Year
Negative Amortization, 3/2 Adjustable Rate.''
37(a)(11) Loan Type
Existing appendix A to Regulation X requires disclosure of the loan
type in section B of the RESPA settlement statement. The Bureau
proposes to use its authority under TILA section 105(a), RESPA section
19(a), and Dodd-Frank Act 1032(a) to require a similar disclosure. The
types of transactions disclosed under proposed Sec. 1026.37(a)(11) may
include different cost structures or underwriting requirements. The
disclosure of the type of transaction enables consumers to evaluate
whether it is the type of transaction that is best suited for their
personal situation. The Bureau believes that including information
regarding the type of transaction for which the consumer has applied
will promote the informed use of credit and more effective advance
disclosure of closing costs, and will enable consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions by providing consumers with information regarding
important characteristics of the loan early in the transaction.
Accordingly, under proposed Sec. 1026.37(a)(11), creditors are
required to disclose one of the following loan types: Conventional,
FHA, VA, or Other.
37(a)(11)(i) Conventional
If the loan is not guaranteed or insured by a Federal or State
government agency, proposed Sec. 1026.37(a)(11)(i) requires the
creditor to disclose that the loan is a ``Conventional.''
37(a)(11)(ii) FHA
If the loan is insured by the Federal Housing Administration,
proposed Sec. 1026.37(a)(11)(ii) requires the creditor to disclose
that the loan is a ``FHA.''
37(a)(11)(iii) VA
If the loan is guaranteed by the U.S. Department of Veterans
Affairs, proposed Sec. 1026.37(a)(11)(iii) requires the creditor to
disclose that the loan is a ``VA.''
37(a)(11)(iv) Other
For federally-insured or guaranteed loans that do not fall within
the categories described in proposed Sec. 1026.37(a)(11)(i) through
(iii) and loans insured or guaranteed by a State agency or other
entity, proposed Sec. 1026.37(a)(11)(iv) requires the creditor to
disclose the loan type as ``Other'' and provide a brief description of
the loan. Proposed comment 1026.37(a)(11)-1 provides details on the
type of loans that would be categorized as ``Other'' and an example of
an acceptable description of a loan that falls within that category.
[[Page 51195]]
37(a)(12) Loan Identification Number (Loan ID )
Appendix A to Regulation X requires the settlement agent to provide
the ``loan number'' in the RESPA settlement statement. The Bureau
proposes to use its authority in TILA section 105(a), RESPA section
19(a), and Dodd-Frank Act section 1032(a) to require disclosure of the
loan number on the Loan Estimate. The Bureau believes that including
this information in a prominent position on the Loan Estimate will
promote the informed use of credit and more effective advance
disclosure of settlement costs and will enable consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions by providing consumers with access to information they may
use repeatedly throughout the transaction.
Accordingly, proposed Sec. 1026.37(a)(12) requires the creditor to
provide a unique number that may be used by the lender, consumer, and
other parties to identify the loan transaction, labeled as ``Loan ID
.'' Proposed comment 37(a)(12)-1 clarifies that the lender has
the discretion to create the unique loan identification number and that
different and unrelated loan transactions with the same creditor may
not share the same loan identification number.
37(a)(13) Rate Lock
Existing appendix C to Regulation X requires the loan originator to
disclose information regarding the expiration date for the interest
rate, charges, and related terms offered by the originator in the GFE.
The Bureau believes that this information is critical to the consumer's
ability to understand the transaction and avoid the uninformed use of
credit. Furthermore, disclosure of this information promotes more
effective advance disclosure of settlement costs and will enable
consumers to better understand the costs, benefits, and risks
associated with mortgage transactions. Thus, the Bureau proposes to use
its authority under TILA section 105(a), RESPA section 19(a), and Dodd-
Frank Act section 1032(a) to require creditors to provide the rate lock
information currently provided in the RESPA GFE.
Consistent with this requirement, proposed Sec. 1026.37(a)(13)
requires the creditor to disclose whether the interest rate identified
under proposed Sec. 1026.37(b)(2) has been locked by the consumer and,
if set, proposed Sec. 1026.37(a)(13)(i) requires disclosure of the
date and time (including the applicable time zone) the locked rate
would expire. Proposed Sec. 1026.37(a)(13)(ii) states that the ``rate
lock'' statement required by proposed Sec. 1026.37(a)(13) is to be
accompanied by a statement notifying the consumer that the interest
rate, points, and lender credits provided in the Loan Estimate are
subject to change unless the rate has been set by the consumer and the
date and time (including the applicable time zone) all estimated
closing costs provided in the Loan Estimate will expire. Proposed
comment 37(a)(13)-1 clarifies that for purposes of proposed Sec.
1026.37(a)(13), a disclosed interest rate is set for a specific period
of time even if subject to conditions set forth in the rate-lock
agreement between the creditor and consumer. Proposed comment
37(a)(13)-2 clarifies that the information provided under proposed
Sec. 1026.37(a)(13) is required whether or not the transaction is
consummated or the terms are otherwise not accepted or extended.
Proposed comment 37(a)(13)-3 states that all times provided in the
disclosure must reference the applicable time zone and provides an
example of an appropriate disclosure of the applicable time zone.
37(b) Loan Terms
To shop for and understand the cost of credit, consumers must be
able to identify and understand the key loan terms offered to them. As
discussed below, the Bureau's consumer testing suggests that the
following are key loan terms that consumers recognize and expect to see
on closed-end mortgage disclosures, together with their settlement
charges: Loan amount; interest rate; periodic principal and interest
payment; whether the loan amount, interest rate, or periodic payment
can increase; and whether the loan has a prepayment penalty or balloon
payment.
TILA requires the disclosure of some of these key loan terms, but
not all. Notably, the loan amount and interest rate are currently not
specifically required to be disclosed by TILA section 128. 15 U.S.C.
1638. Although Regulation Z currently requires the interest rate to be
disclosed in the payment schedule required by Sec. 1026.18(s), it does
not require the loan amount to be disclosed for non-HOEPA loans, and
does not require a summary table identifying these key loan terms for
closed-end credit secured by real property. 12 CFR 1026.18. For
federally related mortgage loans, Sec. 1024.7(d) of Regulation X
currently requires the GFE to contain a table on page 1, labeled
``Summary of your loan terms,'' which contains the following
information: (i) Initial loan amount; (ii) loan term; (iii) initial
interest rate; (iv) initial monthly amount owed for principal,
interest, and mortgage insurance; (v) whether the interest rate can
rise, and if so, the maximum interest rate and the date of the first
interest rate change; (vi) whether the loan balance can rise, and if
so, the maximum loan balance; (vii) whether the monthly amount owed for
principal, interest, and mortgage insurance can rise, and if so, the
payment amount at the first change and the maximum payment; (viii)
whether the loan has a prepayment penalty and the maximum prepayment
penalty; and (xi) whether the loan has a balloon payment, the amount,
and when it is due. 12 CFR 1024.7(d).
Pursuant to its authority under TILA section 105(a), RESPA section
19(a), and Dodd-Frank Act section 1032(a), the Bureau proposes to
require creditors to provide the key loan terms described above in a
summary table as part of the integrated Loan Estimate required by
proposed Sec. 1026.19(e) for closed-end transactions secured by real
property (other than reverse mortgages). At the Bureau's consumer
testing, participants were able to use the summary table to identify
and compare easily the key loan terms for different loans. Based on its
consumer testing, the Bureau believes that a concise loan summary table
will improve consumer understanding of the loan terms presented, such
as an understanding of whether the consumer can afford the loan, enable
comparisons of different credit terms offered by the same or multiple
creditors, and enable consumers to verify information about the loan
provided by the creditor orally or in some other form, such as a
worksheet. The Bureau believes that this disclosure will effectuate the
purposes of TILA by promoting the informed use of credit and assuring a
meaningful disclosure to consumers, including more effective advance
disclosure of settlement costs. Furthermore, consistent with section
1032(a) of the Dodd-Frank Act, this disclosure would ensure that the
features of consumer credit transactions secured by real property are
fully, accurately, and effectively disclosed to consumers in a manner
that permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances.
The table appears under the heading ``Loan Terms'' to enhance
visibility. The individual items of information in the table are also
labeled to enhance visibility. The format provides consumers with a
bold ``yes'' or ``no'' answer to the questions of whether the loan
amount, interest rate, or periodic payment can increase, and whether
the loan has a prepayment penalty or
[[Page 51196]]
balloon payment. The format of the Loan Terms table will help consumers
quickly and easily identify their key loan terms.
The Bureau proposes comment 37(b)-1 to provide additional guidance
to creditors regarding the Loan Terms table. Proposed comment 37(b)-1
clarifies that the Loan Terms table should reflect the terms of the
legal obligation that the consumer will enter into, based on
information the creditor knows or reasonably should know. A discussion
of the specific items included in the table follows.
37(b)(1) Loan Amount
Neither TILA nor RESPA specifically requires the disclosure of the
loan amount for the transaction. TILA section 128(a)(2) requires
disclosure of the amount financed, of which the principal amount of the
loan is the most significant component, but the section does not
require a separate disclosure of the principal amount of the loan. 15
U.S.C. 1638(a)(2). Regulation Z Sec. 1026.32(c)(5) currently requires
the disclosure of the total amount the consumer will borrow, as
reflected by the face amount of the note, for loans subject to HOEPA.
For federally related mortgage loans under RESPA, Sec. 1024.7(d) of
Regulation X currently requires the disclosure of the loan amount in
the summary table on page 1 of the GFE with the text, ``Your initial
loan amount is.''
The Bureau believes, based on its consumer testing, that the loan
amount is important to consumers to understand readily, compare, and
verify the amount of credit offered to them. The principal amount of
the loan is a basic element of the transaction that should be disclosed
to consumers.
Pursuant to its authority under TILA section 105(a), Dodd-Frank Act
section 1032(a), and RESPA section 19(a), the Bureau proposes to
require a disclosure of the principal amount of the transaction for
closed-end transactions secured by real property (other than reverse
mortgages). The Bureau proposes this requirement to effectuate the
purposes of TILA to promote the informed use of credit and ensure a
meaningful disclosure of credit terms to consumers. In addition,
consistent with section 1032(a) of the Dodd-Frank Act, the Bureau
believes that the disclosure of the loan amount in the Loan Terms table
may ensure that the features of consumer credit transactions secured by
real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances. Further, like HUD, the Bureau believes the
loan amount is necessary to understanding the transaction and its
disclosure would effectuate the purposes of RESPA.
Proposed Sec. 1026.37(b)(1) requires creditors to disclose the
``loan amount,'' which is defined as the amount of credit to be
extended under the terms of the legal obligation. This disclosure is
labeled ``Loan Amount'' to enhance visibility. Disclosing the loan
amount may also alert the consumer to fees that are financed in
addition to the amount of credit sought for the consumer's purchase,
refinance, or other purpose.
37(b)(2) Interest Rate
TILA section 128(a)(3) and (4) requires disclosure of the finance
charge and the annual percentage rate, for which the interest rate is a
factor in the calculation. 15 U.S.C. 1638(a)(3), (4).\159\ However, the
statute does not require a separate disclosure of the interest rate.
Currently, Regulation Z requires creditors to disclose the interest
rate only in the interest rate and payment summary table required by
Sec. 1026.18(s). For federally related mortgage loans, Sec. 1024.7(d)
of Regulation X requires that the GFE state the interest rate with the
text ``your initial interest rate is'' in the summary table on page 1.
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\159\ As discussed below, the finance charge disclosure is
implemented in proposed Sec. 1026.38(o)(2). The APR disclosure is
implemented in proposed Sec. Sec. 1026.37(l)(2) and 1026.38(o)(4).
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The Bureau believes that the interest rate is an important loan
term that consumers should be able to locate readily on the disclosure,
because it is the basis for the periodic payments of principal and
interest that the consumer will be obligated to make. Participants in
the Bureau's consumer testing used the interest rate as one of the
primary factors when evaluating, comparing, and verifying loan terms.
The Bureau proposes to use its authority under TILA section 105(a)
to require disclosure of the interest rate for the transaction to
effectuate the purposes of TILA to promote the informed use of credit
and ensure a meaningful disclosure of credit terms to consumers. In
addition, consistent with section 1032(a) of the Dodd-Frank Act, the
Bureau believes that the disclosure of the interest rate in the Loan
Terms table may ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances. Further,
like HUD, which required disclosure of the interest rate in its good
faith estimate form, the Bureau proposes to use its authority under
RESPA section 19(a) to require disclosure of the interest rate, because
the interest rate is important to consumer understanding of the
transaction.
Proposed Sec. 1026.37(b)(2) requires disclosure of the initial
interest rate that will be applicable to the transaction, labeled the
``Interest Rate.'' If the initial interest rate may adjust based on an
index, the creditor must disclose the fully-indexed rate, which is
defined within that paragraph. Proposed comment 37(b)(2)-1 provides
guidance regarding how to calculate the fully-indexed rate to be
disclosed.
37(b)(3) Principal and Interest Payment
TILA section 128(a)(6) requires disclosure of the number, amount,
and due dates or period of payments scheduled to repay the loan. 15
U.S.C. 1638(a)(6). TILA section 128(b)(2)(C)(ii) requires the maximum
principal and interest payment and examples of other potential
principal and interest payments to be disclosed when the ``annual rate
of interest is variable * * * or the regular payments may otherwise be
variable.'' 15 U.S.C. 1638(b)(2)(C)(ii).
Currently, for closed-end transactions secured by real property or
a dwelling, Regulation Z requires creditors to disclose the periodic
principal and interest payment only in the interest rate and payment
summary table required by Sec. 1026.18(s). For federally related
mortgage loans, Sec. 1024.7(d) of Regulation X requires the GFE to
contain the initial periodic payment for principal and interest and
mortgage insurance with the text ``Your initial monthly amount owed for
principal, interest, and any mortgage insurance is.''
The Bureau believes that, like the interest rate, the periodic
principal and interest payment is a key loan term that consumers should
be able to locate readily on the form. The Bureau's consumer testing
indicates that consumers use the periodic principal and interest
payment of the loan as a primary factor in evaluating and comparing a
loan. The Bureau believes that a specific disclosure of the periodic
principal and interest payment in the Loan Terms table will assist
consumers in readily evaluating, comparing, and verifying possible loan
terms. This payment enables consumers to compare loans of one or
multiple creditors based on the same measure, rather than a payment
that may include estimates for escrow payments for property costs or
[[Page 51197]]
mortgage insurance. Accordingly, the Bureau proposes Sec.
1026.37(b)(3) to require the Loan Terms table to include the periodic
principal and interest payment simply labeled ``Principal & Interest,''
with an indication of the applicable unit-period. If the initial
periodic payment may adjust based on changes to an index, the payment
disclosed is required to be based on the fully-indexed rate disclosed
under proposed Sec. 1026.37(b)(2). The unit-period that is applicable
to a transaction is currently described in appendix J to Regulation Z.
Proposed comment 37(b)(3)-1 clarifies that the label of the periodic
principal and interest payment should reflect the appropriate unit-
period for the transaction. Proposed comment 37(b)(3)-2 provides
guidance regarding how to calculate the payment to be disclosed if the
initial interest rate is adjustable based on an index.
The Bureau believes that the total periodic payment the consumer
would be responsible to make to the creditor, including any required
mortgage insurance and escrow payments, is also important for the
consumer to consider when evaluating a loan offer. This amount allows a
consumer to determine the affordability of the credit transaction and
underlying real estate transaction. Accordingly, the Bureau proposes to
include with the principal and interest payment a statement referring
the consumer to the total periodic payment, including estimated amounts
for any escrow and mortgage insurance payments, which is disclosed in
the Projected Payments table under proposed Sec. 1026.37(c),
immediately below the Loan Terms table.
The Bureau proposes to use its authority under TILA section 105(a)
to require disclosure of the periodic principal and interest payment,
along with a reference to the total periodic payment, in the Loan Terms
table to effectuate the purposes of TILA to promote the informed use of
credit and ensure a meaningful disclosure of credit terms to consumers.
In addition, consistent with section 1032(a) of the Dodd-Frank Act, the
Bureau believes that this disclosure may ensure that the features of
consumer credit transactions secured by real property are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances. Further, the Bureau proposes to use its authority under
RESPA section 19(a) to require this disclosure because the disclosure
will improve consumer understanding of the transaction, including
settlement costs. The Bureau also proposes this requirement pursuant to
its authority under section 1405(b) of the Dodd-Frank Act. The Bureau
believes this disclosure may improve consumer awareness and
understanding of transactions involving residential mortgage loans
through the use of disclosures, and is in the interest of consumers and
in the public interest.
37(b)(4) Prepayment Penalty
Currently, TILA section 128(a)(11), 15 U.S.C. 1638(a)(11), and
Regulation Z Sec. 1026.18(k)(1) require the creditor to disclose
whether or not a penalty may be imposed if the obligation is prepaid in
full for a transaction that includes a finance charge computed from
time to time by application of a rate to the unpaid principal balance.
For federally related mortgage loans, Sec. 1024.7(d) of Regulation X
requires the summary table on page 1 of the GFE to state whether or not
the loan has a prepayment penalty with the text, ``Does your loan have
a prepayment penalty?''
The Bureau's consumer testing indicates that consumers use the
existence of a prepayment penalty as an important factor in
understanding and evaluating loan offers. Accordingly, because of the
importance to consumers of prepayment penalties, proposed Sec.
1026.37(b)(4) requires disclosure of whether the loan has a prepayment
penalty in the Loan Terms table, labeled ``Prepayment Penalty.'' As
discussed below, under proposed Sec. 1026.37(b)(7), the existence or
non-existence of a prepayment penalty provision in the loan contract is
indicated by an affirmative or negative answer (designed as a simple
``yes'' or ``no'') to the question, ``Does the loan have these
features?'' In the Bureau's consumer testing, consumers were able to
use this disclosure to determine easily if the loan had a prepayment
penalty.
The Bureau proposes to require disclosure of whether the
transaction includes a prepayment penalty under TILA section
128(a)(11), its implementation authority under TILA section 105(a), and
RESPA section 19(a). The Bureau believes this additional information
will promote consumer understanding of the cost of credit and more
effective disclosure of the terms of the credit.
Definition of Prepayment Penalty
TILA establishes certain disclosure requirements for transactions
for which a penalty is imposed upon prepayment, but does not define the
term ``prepayment penalty.'' TILA section 128(a)(11) requires that the
transaction-specific disclosures for closed-end consumer credit
transactions disclose whether (1) a consumer is entitled to a rebate of
any finance charge upon refinancing or prepayment in full pursuant to
acceleration or otherwise, if the obligation involves a precomputed
finance charge, and (2) a ``penalty'' is imposed upon prepayment in
full if the obligation involves a finance charge computed from time to
time by application of a rate to the unpaid principal balance. 15
U.S.C. 1638(a)(11). Also, TILA section 128(a)(12) requires that the
transaction-specific disclosures state that the consumer should refer
to the appropriate contract document for information regarding certain
loan terms or features, including ``prepayment rebates and penalties.''
15 U.S.C. 1638(a)(12).
Section 1026.18(k) implements (and largely mirrors) TILA section
128(a)(11). Section 1026.18(k)(1) provides that ``when an obligation
includes a finance charge computed from time to time by application of
a rate to the unpaid principal balance,'' the creditor must disclose
``a statement indicating whether or not a penalty may be imposed if the
obligation is prepaid in full.'' Comment 18(k)(1)-1 clarifies that such
a ``penalty'' includes, for example, ``interest charges for any period
after prepayment in full is made'' and a minimum finance charge, but
does not include, for example, loan guarantee fees. Section
1026.18(k)(2) provides for the disclosure of a statement indicating
whether or not the consumer is entitled to a rebate of any finance
charge if the obligation is prepaid in full when an obligation includes
a finance charge other than the finance charge described in Sec.
1026.18(k)(1). Comment 18(k)(2)-1 clarifies that Sec. 1026.18(k)(2)
applies to any finance charges that do not take account of each
reduction in the principal balance of an obligation, such as recomputed
finance charges and charges that take account of some but not all
reductions in principal.
In addition, TILA section 129(c)(1) limits the circumstances in
which a high-cost mortgage may include a prepayment penalty where the
consumer pays all or part of the principal before the date on which the
principal is due. 15 U.S.C. 1639(c)(1)(A). In the high-cost mortgage
context, any method of computing a refund of unearned scheduled
interest is a prepayment penalty if it is less favorable than the
actuarial method, as defined by section 933(d) of the Housing and
Community Development Act of 1992. 15 U.S.C. 1639(c)(1)(B). Section
1026.32(d)(6) implements these TILA provisions.
Although the disclosure requirements under current Sec. 1026.18(k)
apply to
[[Page 51198]]
closed-end mortgage and non-mortgage transactions, in its 2009 Closed-
End Proposal, the Board proposed to establish a new Sec. 226.38(a)(5)
for disclosure of prepayment penalties for closed-end mortgage
transactions. See 74 FR at 43334, 43413. In proposed comment 38(a)(5)-
2, the Board stated that examples of prepayment penalties include
charges determined by treating the loan balance as outstanding for a
period after prepayment in full and applying the interest rate to such
``balance,'' a minimum finance charge in a simple-interest transaction,
and charges that a creditor waives unless the consumer prepays the
obligation. 74 FR at 43413. In addition, the Board's proposed comment
38(a)(5)-3 listed loan guarantee fees and fees imposed for preparing a
payoff statement or other documents in connection with the prepayment
as examples of charges that are not prepayment penalties. Id. The
Board's 2010 Mortgage Proposal included amendments to existing comment
18(k)(1)-1 and proposed comment 38(a)(5)-2 stating that prepayment
penalties include ``interest'' charges after prepayment in full even if
the charge results from interest accrual amortization used for other
payments in the transaction. See 75 FR at 58756, 58781.\160\
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\160\ The preamble to the Board's 2010 Mortgage Proposal
explained that the proposed revisions to current Regulation Z
commentary and the proposed comment 38(a)(5) from the Board's 2009
Closed-End Proposal regarding interest accrual amortization were in
response to concerns about the application of prepayment penalties
to certain Federal Housing Administration (FHA) and other loans
(i.e., when a consumer prepays an FHA loan in full, the consumer
must pay interest through the end of the month in which prepayment
is made). See 75 FR at 58586.
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Prepayment penalties were also addressed in the Board's 2011 ATR
Proposal implementing sections 1411, 1412, and 1414 of the Dodd-Frank
Act (codified at 15 U.S.C. 1629c), which expand the scope of the
ability-to-repay requirement under TILA and establish ``qualified
mortgage'' standards for complying with such requirement. See 76 FR at
27482, 27491. Specifically, the Board's proposed Sec. 226.43(b)(10)
generally followed the current Regulation Z guidance on prepayment
penalties (i.e., comment 18(k)(1)-1) and the proposed definitions and
guidance in the Board's 2009 Closed-End Proposal and 2010 Mortgage
Proposal. However, the Board's 2011 ATR Proposal differed from the
prior proposals and current guidance in the following respects: (1)
Proposed Sec. 226.43(b)(10) defined prepayment penalty with reference
to a payment of ``all or part of'' the principal in a transaction
covered by the provision, while Sec. 1026.18(k) and associated
commentary and the Board's 2009 Closed-End Proposal and 2010 Mortgage
Proposal referred to payment ``in full,'' (2) the examples provided
omitted reference to a minimum finance charge and loan guarantee
fees,\161\ and (3) proposed Sec. 226.43(b)(10) did not incorporate,
and the Board's 2011 ATR Proposal did not otherwise address, the
language in Sec. 1026.18(k)(2) and associated commentary regarding
disclosure of a rebate of a precomputed finance charge.
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\161\ The preamble to the Board's 2011 ATR Proposal addressed
why the Board chose to omit these two items. The Board reasoned that
a minimum finance charge need not be included as an example of a
prepayment penalty because such a charge typically is imposed with
open-end, rather than closed-end, transactions. The Board stated
that loan guarantee fees are not prepayment penalties because they
are not charges imposed for paying all or part of a loan's principal
before the date on which the principal is due. See 76 FR at 27416.
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Based on the Bureau's consideration of the existing statutory and
regulatory definitions of ``penalty'' and ``prepayment penalty'' under
TILA sections 128(a) and 129(c) and Sec. Sec. 1026.18(k) and
1026.32(d)(6), the Board's proposed definitions of prepayment penalty,
and the Bureau's authority under TILA section 105(a) and Dodd-Frank Act
sections 1032(a) and, for residential mortgage transactions, 1405(b),
the Bureau is proposing to define ``prepayment penalty'' in proposed
Sec. 1026.37(b)(4) for transactions subject to Sec. Sec. 1026.19(e)
and (f) as a charge imposed for paying all or part of a transaction's
principal before the date on which the principal is due. The proposed
definition of prepayment penalty as applicable to the transactions
subject to Sec. Sec. 1026.19(e) and (f) broadens the existing
statutory and regulatory definitions under TILA section 128(a)(11) and
Sec. 1026.18(k), and thereby may result in more frequent disclosures
of prepayment penalties to consumers than would be made under the
existing definitions. Therefore, the Bureau believes that the
disclosures of prepayment penalties under proposed Sec. 1026.37(b)(4)
will effectuate the purposes of TILA and RESPA by facilitating the
informed use of credit and more effective advance disclosure of
settlement costs. In addition, the revised disclosures will ensure that
the features of mortgage loan products initially and over their terms
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the loan products in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a).
Furthermore, these disclosures will improve consumers' awareness and
understanding of residential mortgage transactions, which is in the
interest of consumers and the public, consistent with Dodd-Frank Act
section 1405(b).
Proposed comment 37(b)(4)-1 clarifies that the disclosure of the
prepayment penalty under Sec. 1026.37(b)(4) applies to transactions
where the terms of the loan contract provide for a prepayment penalty,
even though it is not certain at the time of the disclosure whether the
consumer will, in fact, make a payment to the creditor that would cause
imposition of the penalty. This proposed comment also clarifies that if
the transaction includes a prepayment penalty, Sec. 1026.37(b)(7) sets
forth the information that must be disclosed under Sec. 1026.37(b)(4).
Proposed comment 37(b)(4)-2.i through -2.iv gives the following
examples of prepayment penalties: (1) A charge determined by treating
the loan balance as outstanding for a period of time after prepayment
in full and applying the interest rate to such ``balance,'' even if the
charge results from interest accrual amortization used for other
payments in the transaction under the terms of the loan contract; (2) a
fee, such as an origination or other loan closing cost, that is waived
by the creditor on the condition that the consumer does not prepay the
loan; (3) a minimum finance charge in a simple interest transaction;
and (4) computing a refund of unearned interest by a method that is
less favorable to the consumer than the actuarial method, as defined by
section 933(d) of the Housing and Community Development Act of 1992, 15
U.S.C. 1615(d). Proposed comment 37(b)(4)-2.i further clarifies that
``interest accrual amortization'' refers to the method by which the
amount of interest due for each period (e.g., month) in a transaction's
term is determined and notes, for example, that ``monthly interest
accrual amortization'' treats each payment as made on the scheduled,
monthly due date even if it is actually paid early or late (until the
expiration of any grace period). The proposed comment also provides an
example where a prepayment penalty of $1,000 is imposed because a full
month's interest of $3,000 is charged even though only $2,000 in
interest was earned in the month during which the consumer prepaid.
Proposed comment 37(b)(4)-3 clarifies that a prepayment penalty
does not include: (1) Fees imposed for preparing and providing
documents when a loan is paid in full, whether or not the loan is
prepaid, such as a loan
[[Page 51199]]
payoff statement, a reconveyance document, or another document
releasing the creditor's security interest in the dwelling that secures
the loan; or (2) loan guarantee fees.
Proposed comment 37(b)(4)-4 clarifies that, with respect to an
obligation that includes a finance charge that does not take into
account each reduction in the principal balance of the obligation
(e.g., precomputed finance charges), Sec. 1026.37(b)(4) satisfies
disclosure of whether or not the consumer is entitled to a rebate of
any finance charge if the obligation is prepaid in full or part. The
comment further clarifies that if the transaction involves both a
precomputed finance charge and a finance charge computed by application
of a rate to an unpaid balance, disclosures about both the prepayment
rebate and the prepayment penalty are made under Sec. 1026.37(b)(4) as
one disclosure to the question required by Sec. 1026.37(b)(7). For
example, if in such a transaction, a portion of the precomputed finance
charge will not be provided as a rebate and also a prepayment penalty
based on the amount prepaid is provided for by the loan contract, both
disclosures are made under Sec. 1026.37(b)(4) as one aggregate amount,
stating the maximum amount and time period under Sec. 1026.37(b)(7).
If the transaction instead provides a rebate of the precomputed finance
charge upon prepayment, but imposes a prepayment penalty based on the
amount prepaid, the disclosure required by Sec. 1026.37(b)(4) is an
affirmative answer and the information required by Sec. 1026.37(b)(7).
This proposed comment incorporates existing guidance in Regulation Z
commentary regarding disclosure of whether the consumer is entitled to
a rebate of finance charges that do not take into account each
reduction in principal balance. See comments 18(k)-2 and -3 and
18(k)(2)-1.
The definition of prepayment penalty in proposed Sec.
1026.37(b)(4) and associated commentary substantially incorporates the
definitions of and guidance on prepayment penalty from the Board's 2009
Closed-End Proposal, 2010 Mortgage Proposal, and 2011 ATR Proposal and,
as necessary, reconciles their differences. For example, the Bureau
proposes that the prepayment penalty definition in Sec. 1026.37(b)(4)
refer to payment of ``all or part of a covered transaction's
principal,'' rather than merely payment ``in full,'' because knowledge
of whether a partial prepayment triggers a penalty is important for
consumers. Also, the Bureau is proposing to incorporate the language
from the Board's 2009 Closed-End Proposal and 2010 Mortgage Proposal
but omitted in the Board's 2011 ATR Proposal listing a minimum finance
charge as an example of a prepayment penalty and stating that loan
guarantee fees are not prepayment penalties, because similar language
is found in longstanding Regulation Z commentary. Based on the
differing approaches taken by the Board in its recent mortgage
proposals, however, the Bureau seeks comment on whether a minimum
finance charge should be listed as an example of a prepayment penalty
and whether loan guarantee fees should be excluded from the definition
of prepayment penalty.
The Bureau expects to coordinate the definition of prepayment
penalty in proposed Sec. 1026.37(b)(4) with the definitions in the
Bureau's other pending rulemakings mandated by the Dodd-Frank Act
concerning ability-to-repay, high-cost mortgages under HOEPA, and
mortgage servicing. To the extent consistent with consumer protection
objectives, the Bureau believes that adopting a consistent definition
of ``prepayment penalty'' across its various pending rulemakings
affecting closed-end mortgages will facilitate compliance. As an
additional part of this effort to adopt a consistent regulatory
definition of ``prepayment penalty,'' the Bureau is also proposing
certain conforming revisions to Sec. 1026.18(k) and associated
commentary, as discussed earlier in the section-by-section analysis for
the proposed revised Sec. 1026.18(k).
37(b)(5) Balloon Payment
TILA section 128(a)(6) requires disclosure of the number, amount,
and due dates or period of payments scheduled to repay the loan.
Currently, for closed-end transactions secured by real property or a
dwelling, Regulation Z requires balloon payments to be disclosed only
in connection with the interest rate and payment summary table required
by Sec. 1026.18(s). For federally related mortgage loans, Sec.
1024.7(d) of Regulation X requires the GFE to state in the summary
table on page 1 whether or not the loan has a balloon payment with the
text, ``Does your loan have a balloon payment?''
Pursuant to its authority under TILA section 128(a)(6), TILA
section 105(a), RESPA section 19(a), and Dodd-Frank Act section
1032(a), the Bureau proposes Sec. 1026.37(b)(5), which requires
disclosure of whether the credit transaction requires a balloon
payment, as defined within the provision. This disclosure is provided
in the Loan Terms table, labeled ``Balloon Payment.'' As discussed
below, under proposed Sec. 1026.37(b)(7), the existence or non-
existence of a balloon payment provision is indicated by a ``yes'' or
``no'' answer to the question, ``Does the loan have these features?''
In the Bureau's consumer testing, consumers were able to determine
readily whether a loan had a balloon payment. The Bureau's consumer
testing indicates that consumers consider whether a loan has a balloon
payment to be an important factor in evaluating loans. The Bureau
believes that this disclosure will effectuate the purposes of TILA and
RESPA because it will promote the informed use of credit and assure a
meaningful disclosure to consumers, and thus, will benefit consumers
and the public and result in more effective advance disclosure.
Definition of Balloon Payment
Sections 1412 and 1432(b) of the Dodd-Frank Act both define
``balloon payment'' as ``a scheduled payment that is more than twice as
large as the average of earlier scheduled payments.'' These definitions
are incorporated into TILA sections 129C(b)(2)(A)(ii) and 129(e),
respectively. 15 U.S.C. 1639c(b)(2)(A)(ii), 1639(e). Regulation Z Sec.
1026.18(s)(5)(i), however, defines ``balloon payment'' as ``a payment
that is more than two times a regular periodic payment.''
The Board's 2011 ATR Proposal implementing section 1412 of the
Dodd-Frank Act incorporates Regulation Z's existing definition of
``balloon payment'' in Sec. 1026.18(s)(5)(i) rather than the
definition in section 1412. See proposed Sec. 226.43(e)(2)(i)(C), 76
FR 27390, 27484. The Board noted that this definition is substantially
similar to the statutory one, except that it uses as its benchmark any
regular periodic payment rather than the average of earlier scheduled
payments. 76 FR at 27455. The Board also reasoned that incorporating
the Regulation Z, rather than Dodd-Frank Act, definition of ``balloon
payment'' facilitates compliance by affording creditors a single
definition of the term within Regulation Z. Id. at 27456.
By defining ``balloon payment'' in the 2011 ATR Proposal based on
the Regulation Z definition, the Board proposed to adjust the Dodd-
Frank Act statutory definition. In doing so, the Board stated that it
was relying on TILA section 105(a) authority to make such adjustments
for all or any class of transactions as in the judgment of the Board
are necessary or proper to facilitate compliance with TILA. Id.; 15
U.S.C. 1604(a). The class of transactions for which the adjustment was
proposed encompassed all transactions covered
[[Page 51200]]
by the 2011 ATR Proposal, i.e., closed-end consumer credit transactions
that are secured by a dwelling. The Board, however, solicited comment
on the appropriateness of the proposed adjustment. The Board also
stated that the proposed adjustment was supported by the Board's
authority under TILA section 129B(e) to condition terms, acts, or
practices relating to residential mortgage loans that the Board finds
necessary or proper to facilitate compliance. 15 U.S.C. 1639b(e).
In view of the different definitions of ``balloon payment'' between
the Dodd-Frank Act and Regulation Z and the approach taken by the Board
in the 2011 ATR Proposal, and based on the Bureau's authority under
TILA section 105(a) and Dodd-Frank Act sections 1032(a), and for
residential mortgage loans, Dodd-Frank Act section 1405(b), the Bureau
is proposing a definition of ``balloon payment'' in proposed Sec.
1026.37(b)(5) that largely incorporates the existing Regulation Z
definition in Sec. 1026.18(s)(5)(i), i.e., a payment that is more than
two times a regular periodic payment. For the reasons discussed below,
the Bureau believes that the proposed definition will promote the
informed use of credit and facilitate compliance with TILA, consistent
with TILA section 105(a). In addition, this definition will enhance
consumer understanding of the costs, benefits, and risks associated
with the transaction in light of the facts and circumstances
(consistent with Dodd-Frank Act section 1032(a)), and improve
consumers' awareness and understanding of residential mortgage
transactions, which is in the interest of consumers and the public
(consistent with Dodd-Frank Act section 1405(b)).
The proposed definition in Sec. 1026.37(b)(5) revises the current
regulatory language to state that a balloon payment cannot be a regular
periodic payment. This revision is intended to prevent a regular
periodic payment following a scheduled or permitted payment increase
under the terms of a loan contract (e.g., based on a rate adjustment
under an adjustable rate loan) from being characterized as a balloon
payment if it is more than two times a regular periodic payment
occurring prior to the payment increase. Moreover, proposed commentary
to Sec. 1026.37(b)(5) clarifies the meaning of regular periodic
payment and discusses how all regular periodic payments during the loan
term are used to determine whether a particular payment is a balloon
payment (i.e., if the particular payment is more than two times any one
regular periodic payment during the loan term, it is disclosed as a
balloon payment under Sec. 1026.37(b)(5) unless the particular payment
itself is a regular periodic payment). These clarifications are
intended to resolve ambiguity in the current regulatory definition and
associated commentary, and thereby facilitate compliance.\162\
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\162\ According to existing comment 32(d)(1)(i), a payment is a
``regular periodic payment'' if it is not more than twice the amount
of other payments. This definition, which is essentially the mirror
image of the balloon payment definition in Sec. 1026.18(s)(5)(i)
(i.e., a payment that is more than two times a regular periodic
payment), leaves uncertainty as to how to determine whether a
payment is a balloon payment when there are multiple regular
periodic payments during the loan term (e.g., if the regularly
scheduled payments increase due to an adjustable rate feature).
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This definition applies to all transactions subject to proposed
Sec. 1026.19(e). The Bureau recognizes that this proposed definition
deviates from that prescribed in the Dodd-Frank Act. However, for the
reasons set forth in the 2011 ATR Proposal, the Bureau believes that
adopting a consistent definition within Regulation Z will promote the
informed use of credit and facilitate compliance and, therefore, will
also benefit consumers and the public. See 76 FR at 27456.
The Bureau recognizes that these additional clarifications may
result in more payments being disclosed as balloon payments than under
the current regulatory definition. The Bureau believes that more
frequent disclosure of balloon payment terms facilitates the informed
use of credit, ensures that the features of mortgage loan products
initially and over their terms are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the loan products in
light of the facts and circumstances, and improves consumers' awareness
and understanding of residential mortgage transactions, which is in the
interest of consumers and the public. The Bureau seeks comment,
however, on whether the definition of balloon payment in proposed Sec.
1026.37(b)(5) should be revised to exclude any particular type of
payment. Furthermore, the Bureau believes that a payment that is twice
any one regular periodic payment using the regulatory definition, as
revised in this proposed rule, would be equal to or less than a payment
that is twice the average of earlier scheduled payments using the
statutory definition. The Bureau notes that the range of scheduled
payment amounts under the first approach is more limited and defined.
For example, if the regular periodic payment is $200, a payment of
greater than $400 would constitute a balloon payment. Under the
statutory definition, however, the threshold amount for a balloon
payment could be greater than $400 if, for example, the regular
periodic payments were increased by $100 each year. Under this
scenario, the amount constituting a ``balloon payment'' could increase
with the incremental increase of the average of earlier scheduled
payments. The Bureau believes that under the existing regulatory
definition, as revised by the proposed rule, consumers would have a
better understanding of the highest possible regular periodic payment
in a repayment schedule and may experience less ``payment shock'' as a
result. Therefore, the Bureau believes that the existing regulatory
definition may better protect consumers and would be in their interest.
In addition, the Bureau believes that the definition of ``balloon
payment'' based on the existing regulatory definition would facilitate
and simplify compliance by eliminating the need to average earlier
scheduled payments.
Proposed comment 37(b)(5)-1 clarifies that the ``regular periodic
payment'' used to determine whether a payment is a ``balloon payment''
for purposes of Sec. 1026.37(b)(5) is the payment of principal and
interest (or interest only, depending on the loan features) payable
under the terms of the loan contract for two or more unit periods in
succession. The comment also clarifies that all regular periodic
payments during the loan term are used to determine whether a
particular payment is a balloon payment, regardless of whether the
regular periodic payments change during the loan term due to rate
adjustments or other payment changes permitted or required under the
loan contract (i.e., if the particular payment is more than two times
any one regular periodic payment during the loan term, it is disclosed
as a balloon payment under Sec. 1026.37(b)(5) unless the particular
payment itself is a regular periodic payment). Proposed comment
37(b)(5)-1.i gives an example of a step-rate mortgage with two
different regular periodic payment amounts. Proposed comment 37(b)(5)-
1.ii clarifies the definition of ``regular periodic payment'' in the
context of a loan with an adjustable rate, where, under the terms of
the loan contract, the regular periodic payments may increase after
consummation, but the amounts of such payment increases (if any) are
unknown at the time of consummation. In such instance, the proposed
comment clarifies that the ``regular periodic payments'' are based on
the fully-indexed rate, except as otherwise
[[Page 51201]]
determined by any premium or discounted rates, the application of any
interest rate adjustment caps, or any other known, scheduled rates
under the terms specified in the loan contract. The proposed comment
also refers to the analogous guidance provided in current comments
17(c)(1)-8 and -10, and gives an example of an adjustable rate mortgage
with two different periodic payment amounts.
Proposed comment 37(b)(5)-1.iii clarifies that for a loan with a
negative amortization feature, the ``regular periodic payment'' does
not take into account the possibility that the consumer may exercise an
option to make a payment greater than the minimum scheduled periodic
payment. Proposed comment 37(b)(5)-1.iv clarifies that, for purposes of
Sec. 1026.37(c), Sec. 1026.37(b)(5) governs the threshold
determination of whether a loan has a balloon payment feature, but
Sec. 1026.37(c) governs the disclosure of balloon payments in the
``Projected Payments'' table under that section.
The proposed definition of balloon payment in proposed Sec.
1026.37(b)(5) includes the payments of a single or double payment
transaction. Proposed comment 37(b)(5)-2 provides clarification
regarding such single and double-payment transactions, which require a
single payment due at maturity or only two payments during the loan
term, and do not require regular periodic payments. A single payment
transaction does not have regular periodic payments, because regular
periodic payments must be made two or more unit periods in succession
(see proposed comment 37(b)(5)-1, described above). And while a loan
with only two scheduled payments, depending on the circumstances, may
have regular periodic payments (e.g., if the two payments are made
during the last month of years one and two of a two-year loan term),
there is no third payment that could potentially be the balloon payment
(i.e., a payment that is more than twice the amount of the regular
periodic payments). The Bureau believes the payments of such
transactions are essentially equivalent, economically and practically,
from the perspective of a consumer, to a balloon payment. The comment
clarifies that notwithstanding the fact that there is no regular
periodic payment to compare such single or double payments to, any
payment in a single payment transaction or a transaction with only two
scheduled payments is a ``balloon payment'' under Sec. 1026.37(b)(5).
The Bureau is coordinating the definition of ``balloon payment'' in
proposed Sec. 1026.37(b)(5) with the definitions of ``balloon
payment'' in the Bureau's other pending rulemakings under the Dodd-
Frank Act concerning ability-to-repay and high-cost mortgages under
HOEPA. To the extent consistent with consumer protection objectives,
the Bureau believes that adopting a consistent definition of ``balloon
payment'' across the Bureau's Dodd-Frank Act rulemakings affecting
closed-end credit transactions will facilitate compliance, as discussed
in part II above.
37(b)(6) Increases after Consummation
TILA section 128(b)(2)(C)(ii) requires, for closed-end credit
transactions secured by a dwelling in which the interest rate or
payments may vary, the disclosure of examples of adjustments to the
regular required payment based on changes in the interest rates,
including the maximum payment amount of the regular required payments
based on the maximum interest rate under the contract. TILA section
128(b)(2)(C)(ii) also requires the Bureau to conduct consumer testing
so that consumers can easily understand the fact that the initial
regular payments are for a specific time period and will end on a
certain date and that payments will subsequently adjust to a
potentially higher amount. Currently, Regulation Z's disclosures for
closed-end credit transactions secured by real property or a dwelling
require information about whether the interest rate, periodic principal
and interest payment, and loan amount can change. The disclosures are
given in the interest rate and payment table required by Sec.
1026.18(s). For federally related mortgage loans, Sec. 1024.7(d) of
Regulation X requires this information to be disclosed in the summary
table on page 1 of the GFE, as affirmative or negative answers to the
questions ``Can your interest rate rise,'' ``Even if you make payments
on time, can your loan balance rise,'' and ``Even if you make payments
on time, can your monthly amount owed for principal, interest, and any
mortgage insurance rise?''
As discussed above, the Bureau conducted consumer testing of
prototype mortgage disclosures over ten rounds. During each round of
testing, consumers placed significant emphasis when evaluating loans on
whether the loan amount, interest rate, or periodic principal and
interest payment could increase, the amount and timing of such
increases, and whether they were scheduled increases or only potential
increases. Accordingly, the Bureau believes that this information
should be disclosed so that consumers can easily find and understand
it.
The Bureau proposes Sec. 1026.37(b)(6) to require that this
information be disclosed in the Loan Terms table. Specifically,
proposed Sec. 1026.37(b)(6) requires disclosure of whether the amounts
required to be disclosed by proposed Sec. 1026.37(b)(1) through (3)
may increase. If those amounts may increase, the creditor must also
disclose, as applicable: (i) The maximum principal balance for the
transaction and the date when the last payment for which the principal
balance is permitted to increase will occur; (ii) the frequency of
interest rate adjustments, the date when the interest rate begins to
adjust, the maximum interest rate under the terms of the transaction,
and the first adjustment that could result in the maximum interest
rate; (iii) the frequency of adjustments to the periodic principal and
interest payment, the date when the principal and interest payment
begins to adjust, the maximum principal and interest under the
transaction, and the first adjustment that can result in the maximum
principal and interest payment; and (iv) the periods of any features
that permit the periodic principal and interest payment to adjust
without an adjustment to the interest rate, such as information about
interest-only periods. The Bureau also understands from industry
feedback provided in connection with the Bureau's stakeholder outreach
that some adjustable rate loans, which may be more prevalent in the
community bank market, may be structured so that the periodic principal
and interest payment is fixed and increases in the interest rate
increase the loan term instead of the payment. Accordingly, the
information required by proposed Sec. 1026.37(b)(6)(ii) also includes
a statement of that fact for transactions that contain such a feature.
The Bureau proposes a format that provides this information as
affirmative or negative answers to one comprehensive question, ``Can
this amount increase after closing?'' The answers to this question are
capitalized and in bold text. In addition, bullet-pointed text
immediately to the right of these answers provides the maximum amounts,
frequencies of changes, references to more detailed information
disclosed elsewhere on the form, and other relevant information. Bold
text will be used for important information in these statements, to
enable consumers to see it quickly. Proposed form H-24 in appendix H of
Regulation Z illustrates the disclosure of such information, including
the bullet-pointed text required and the portions of such text that are
to be bolded.
The Bureau tested prototype versions of this table in its consumer
testing.
[[Page 51202]]
During testing, consumers were able to understand and use this
information in the proposed format when evaluating and comparing terms
of credit. Based on these results, the Bureau believes that this format
will enable consumers to find the information readily, to use it for
evaluating and comparing terms of credit, and to understand the
information.
Accordingly, pursuant to TILA section 128(b)(2)(C)(ii) and the
Bureau's authority under TILA section 105(a), RESPA section 19(a),
Dodd-Frank Act section 1032(a), and Dodd-Frank Act 1405(b), the Bureau
proposes Sec. 1026.37(b)(6) to require this information in the Loan
Terms table and in the format required to be used by proposed Sec.
1026.37(o). The Bureau believes that this disclosure will effectuate
the purposes of TILA because it will promote the informed use of credit
and assure a meaningful disclosure to consumers, and thus, will benefit
consumers and the public. The Bureau believes this information improves
consumer awareness and understanding of residential mortgage loans and
is in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b). The Bureau also believes that, consistent
with Dodd-Frank Act section 1032(a), this requirement may ensure that
the features of any consumer financial product or service, both
initially and over the term of the product or service, are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances. In addition, like HUD, the Bureau believes this
information is important to consumer understanding of the transaction
and as a result, will promote more effective advance disclosure of
settlement costs and should be provided on the disclosure.
37(b)(7) Details about Prepayment Penalty and Balloon Payment
Currently, for closed-end credit transactions secured by real
property or a dwelling, Sec. 1026.18(k) of Regulation Z does not
require the disclosure of the maximum prepayment penalty that may be
charged. While Sec. 1026.18(s) currently requires the balloon payment
that may be charged on a loan to be disclosed, it is not required to be
disclosed with other key terms of the transaction. For federally
related mortgage loans, Sec. 1024.7(d) of Regulation X currently
requires the maximum prepayment penalty and balloon payment in the
summary table on page 1 of the GFE with the text, ``your maximum
prepayment penalty is $-- and ``you have a balloon payment of $-- due
in -- years.''
Proposed Sec. 1026.37(b)(7) requires the information in proposed
Sec. 1026.37(b)(4) and (5) to be disclosed as an affirmative or
negative answer to the question ``Does the loan have these features?''
The section also requires disclosure of the maximum prepayment penalty,
the period in which a prepayment penalty may be imposed, the amounts of
any balloon payments and the dates of such payments. Like the
information required to be disclosed by proposed Sec. 1026.37(b)(6),
the format required for this information by proposed Sec. 1026.37(o)
emphasizes the maximum amounts by using bold text, to enable consumers
to find these amounts quickly.
In the Bureau's consumer testing, consumers were able to use this
disclosure to determine easily if the loan had a prepayment penalty,
the maximum amount, and the period during which the penalty applied,
and the amount and time of a balloon payment. The Bureau's consumer
testing has indicated that consumers place significant emphasis when
evaluating loans on the potential for large balloon or prepayment
penalty amounts.
The Bureau proposes to use its authority under TILA sections
105(a), Dodd-Frank Act section 1032(a), and RESPA section 19(a) to
require disclosure of this information in the Loan Terms table of the
Loan Estimate. The Bureau believes that placing these details about
prepayment penalties and balloon payments in the summary table with
bold text for the maximum amounts allows consumers to find this
information easily, enabling consumers to understand and evaluate
loans, promoting meaningful disclosure of credit terms to consumers.
The Bureau believes that this disclosure will effectuate the purposes
of TILA because it will promote the informed use of credit and assure a
meaningful disclosure to consumers, and thus, will benefit consumers
and the public. In addition, like HUD, the Bureau believes this
information is important to consumer understanding of the transaction
and as a result, will promote more effective advance disclosure of
settlement costs and should be provided on the disclosure. Proposed
comment 37(b)(7)(i)-1 provides guidance regarding calculating the
maximum amount of the prepayment penalty.
37(b)(8) Timing
The Bureau's consumer testing indicated the references to the dates
required to be disclosed by proposed Sec. 1026.37(b)(6) and (7) are
easily understood by consumers if disclosed in whole years. The
prototype mortgage disclosures used at the Bureau's consumer testing
displayed these dates as years, and consumers were able to understand
and evaluate the risks posed by these maximum amounts. The Bureau
believes that this unit of time provides a frame of reference to
consumers that they use more regularly and that is easier to understand
than ``payments'' or high-number values of ``months,'' such as 60
months.
Accordingly, pursuant to its authority under TILA section 105(a),
Dodd-Frank section 1032(a), and RESPA section 19(a), proposed Sec.
1026.37(b)(8) requires the information required to be disclosed by
paragraphs (b)(6) and (7) to be disclosed by stating the number of the
year in which the payment or adjustment occurs, counting from the date
that interest for the regularly scheduled periodic payment begins to
accrue. Proposed comment 37(b)(8)-1 provides examples of how to
disclose dates using the timing rules of proposed Sec. 1026.37(b)(8).
The Bureau believes this disclosure provides a meaningful disclosure of
credit terms, promotes the informed use of credit by consumers, and may
ensure that the features of consumer credit transactions secured by
real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
37(c) Projected Payments
Statutory Requirements
TILA section 128(a)(6) requires creditors to disclose the number,
amount, and due dates or period of payments scheduled to repay the
total of payments. 15 U.S.C. 1638(a)(6). TILA section 128(b)(2)(C)(ii)
requires the disclosure of certain payment-related information for
closed-end variable-rate transactions, or transactions where the
regular payment may otherwise be variable, that are secured by a
dwelling, including examples of payments. 15 U.S.C. 1638(b)(2)(C)(ii).
Specifically, creditors must provide examples of adjustments to the
regular required payment on the extension of credit based on the change
in the interest rates specified by the contract for such extension of
credit. Id. Among the examples required is an example that reflects the
maximum payment amount
[[Page 51203]]
of the regular required payments on the extension of credit, based on
the maximum interest rate allowed under the contract. Id. TILA section
128(b)(2)(C)(i) also provides that these examples must be in
conspicuous type size and format and that the payment schedule be
labeled ``Payment Schedule: Payments Will Vary Based on Interest Rate
Changes.'' Section 128(b)(2)(C)(ii) requires the Bureau to conduct
consumer testing to determine the appropriate format for providing the
disclosures to consumers so that the disclosures can be easily
understood.
In addition, TILA section 128(a)(16)(A), added to TILA by section
1419 of the Dodd-Frank Act, provides that, for variable-rate
residential mortgage loans for which an escrow account will be
established, the creditor must disclose both the initial monthly
principal and interest payment, and the initial monthly principal and
interest payment including any amount deposited in an escrow account
for the payment of applicable taxes, insurance, and assessments. 15
U.S.C. 1638(a)(16)(A). New TILA section 128(a)(16)(B) also requires
that, for variable-rate residential mortgage loans for which an escrow
account will be established, the creditor disclose the amount of the
fully-indexed monthly payment due under the loan for the payment of
principal and interest, and the fully-indexed monthly payment including
any amount deposited in an escrow account for the payment of applicable
taxes, insurance, and assessments. 15 U.S.C. 1638(a)(16)(B). TILA
section 128(b)(4)(A), added by section 1465 of the Dodd-Frank Act,
provides that, in the case of any consumer credit transaction secured
by a first mortgage on the principal dwelling of the consumer, other
than an open-end credit plan or reverse mortgage, for which an escrow
account has been or will be established, the disclosures required by
TILA section 128(a)(6) must take into account the amount of any monthly
payment to such account, in accordance with section 10(a)(2) of
RESPA.\163\ 15 U.S.C. 1638(b)(4)(A); 12 U.S.C. 2609(a)(2). New TILA
section 128(b)(4)(B) generally requires creditors to take into account
the taxable assessed value of the property during the first year after
consummation, including the value of any improvements constructed or to
be constructed on the property, if known, and the replacement costs of
the property for hazard insurance, when disclosing taxes and insurance
escrows pursuant to TILA section 128(b)(4)(A). 15 U.S.C. 1638(b)(4)(B).
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\163\ Section 10(a)(2) of RESPA prohibits the lender, over the
life of the escrow account, from requiring the borrower to make
payments to an escrow account that exceed one-twelfth of the total
annual escrow disbursements that the lender reasonably anticipates
paying from the escrow account during the year, plus the amount
necessary to maintain a one-sixth cushion. 12 U.S.C. 2609(a)(2).
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Current Rules
Current Sec. 1026.18(s) implements the requirements of TILA
sections 128(a)(6) and 128(b)(2)(C) for all closed-end transactions
secured by real property or a dwelling, other than transactions secured
by the consumer's interest in a timeshare plan described in 11 U.S.C.
101(53D). Section 1026.18(s) requires creditors to disclose the
contract interest rate, regular periodic payment, and any balloon
payment. For adjustable-rate or step-rate amortizing mortgages, the
creditor must disclose up to three interest rates and corresponding
periodic payments. If payments are scheduled to increase independent of
an interest-rate adjustment, the creditor must disclose the increased
payment. If a borrower may make one or more payments of interest only,
all payment amounts disclosed must be itemized to show the amount that
will be applied to interest and the amount that will be applied to
principal. Current Sec. 1026.18(s) requires special interest rate and
payment disclosures for loans that permit negative amortization. Also
under current Sec. 1026.18(s), creditors must separately itemize an
estimate of the amount for taxes and insurance, including mortgage
insurance, if the creditor will establish an escrow account for the
payment of such amounts. The Board adopted this requirement pursuant to
its authority under TILA section 105(a), based on consumer testing
which indicated that consumers compare loans based on the monthly
payment amount and that escrow payment information is necessary for
consumers to understand the monthly amount they will pay. MDIA Interim
Rule, 75 FR at 58476-77. Current Sec. 1026.18(s) also requires the
disclosure of total periodic payments. Creditors must provide the
information about interest rates and payments in the form of a table,
and creditors are not permitted to include other, unrelated information
in the table.
Current Sec. 1026.18(s) expands the scope of TILA section
128(b)(2)(C) to all closed-end transactions secured by real property or
a dwelling, other than transactions secured by the consumer's interest
in a timeshare plan, including transactions in which the interest rate
and regular payments do not vary and those that are secured by real
property that does not include a dwelling. The Board adjusted the scope
of this provision pursuant to its authority under TILA section 105(a).
The Board reasoned that providing examples of increased interest rates
and payments will help consumers understand the risks involved in
certain loans, and that consistent disclosure requirements for all
mortgage-secured, closed-end consumer credit transactions, whether or
not they include a dwelling, would ease compliance burden for mortgage
creditors. MDIA Interim Rule, 75 FR at 58473-74. The Board also stated
that applying Sec. 1026.18(s) to transactions where the interest rate
or regular payments do not vary would simplify compliance for creditors
and make it easier for consumers to compare different loan products.
For all other closed-end credit transactions, Sec. 1026.18(g) provides
the rules for disclosing the payment schedule.
The Bureau's Proposal
Pursuant to its authority under TILA section 105(a) and Dodd-Frank
Act sections 1032(a) and 1405(b), the Bureau proposes to incorporate
the requirements of current Sec. 1026.18(s) into new Sec. 1026.37(c),
for closed-end mortgages subject to proposed Sec. 1026.19(e), with
certain adjustments that are outlined below. The Bureau believes that
these requirements are necessary and proper to effectuate the purposes
of TILA by promoting the informed use of credit. Accordingly, proposed
Sec. 1026.37(c) implements the requirements of TILA sections 128(a)(6)
and 128(b)(2)(C), and also implements the requirements of new TILA
sections 128(a)(16) and (b)(4), for closed-end mortgages subject to
proposed Sec. 1026.19(e). For all other closed-end transactions, Sec.
1026.18(g) and (s) would continue to apply.
Like existing Sec. 1026.18(s), proposed Sec. 1026.37(c) requires
creditors to disclose, in a separate table, an itemization of each
separate periodic payment or range of payments required after
consummation under the terms of the legal obligation. Proposed Sec.
1026.37(c) also requires disclosure of an estimate of taxes, insurance,
and assessments and the payments to be made with escrow account funds.
Specifically, the table required by proposed Sec. 1026.37(c) must
contain the projected principal and interest, mortgage insurance,
estimated escrowed taxes and insurance, estimated total monthly
payment, and estimated taxes, insurance, and assessment disclosures,
required by Sec. 1026.37(c)(1) through (4). Pursuant to proposed Sec.
1026.37(o) and form H-24, the table required by
[[Page 51204]]
proposed Sec. 1026.37(c) will appear on the first page of the Loan
Estimate. The Bureau proposes that, as under Sec. 1026.18(s), the
table required by proposed Sec. 1026.37(c) must be disclosed in all
transactions subject to proposed Sec. 1026.19(e), even in transactions
where the interest rate will not vary and those that are secured by
real property that does not include a dwelling. Unlike current Sec.
1026.18(s), the projected payment table required by proposed Sec.
1026.37(c) applies to transactions secured by the consumer's interest
in a timeshare plan but does not apply to transactions secured by a
dwelling that is not real property, for the reasons discussed in the
section-by-section analysis to proposed Sec. 1026.19.
The Bureau proposes to exercise its authority under TILA section
105(a), Dodd-Frank Act 1032(a), and, for residential mortgage loans,
Dodd-Frank Act section 1405(b) to require the information disclosed
pursuant to proposed Sec. 1026.37(c) to appear under the heading
``Projected Payments.'' As discussed above, TILA section
128(b)(2)(C)(i) requires the payment schedule to be labeled ``Payment
Schedule: Payments Will Vary Based on Interest Rate.'' The Bureau
believes that ``Projected Payments'' conveys the same substantive
meaning, in plainer and simpler language, and is a more accurate
heading for the table required by proposed Sec. 1026.37(c) since
payment amounts may vary for reasons other than interest rate, such as
in graduated-payment plans or the termination of mortgage insurance
under applicable law. The heading also performed well in consumer
testing. Using the table under the heading ``Projected Payments,''
participants in the Bureau's consumer testing were able to readily
identify that their monthly payments might change in the future.
Furthermore, the Bureau believes that the Loan Terms table required by
proposed Sec. 1026.37(b) effectively discloses when payments and
interest rate will vary, and that consumers will not benefit from
disclosure of that information in multiple places on the disclosure.
Accordingly, this proposed adjustment promotes the informed use of
credit, improves consumer awareness and understanding of transactions
involving residential mortgage loans, and is in the interest of
consumers and the public, consistent with the purpose of TILA and with
Dodd-Frank Act section 1405(b). In addition, the Bureau believes that
this disclosure would ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances, consistent
with section 1032(a) of the Dodd-Frank Act.
Proposed comment 37(c)-1 provides that, for purposes of proposed
Sec. 1026.37(c), the terms ``adjustable rate,'' ``fixed rate,''
``negative amortization,'' and ``interest-only'' have the meanings
prescribed in Sec. 1026.37(a)(10).
37(c)(1) Periodic Payment or Range of Payments
37(c)(1)(i)
Proposed Sec. 1026.37(c)(1)(i) provides rules regarding the
separate periodic payments or ranges of payments to be disclosed on the
table required by Sec. 1026.37(c). Specifically, proposed Sec.
1026.37(c)(1)(i) provides that the initial periodic payment or range of
payments is a separate periodic payment or range of payments and,
except as otherwise provided in Sec. 1026.37(c)(1)(ii), the following
events require the disclosure of additional separate periodic payments
or ranges of payments: (A) periodic principal and interest payment or
range of such payments may change; (B) a scheduled balloon payment; and
(C) the creditor must automatically terminate mortgage insurance
coverage, or any functional equivalent, under applicable law.
Proposed comments 37(c)(1)(i)-1, 37(c)(1)(i)(A)-1 through -3,
37(c)(1)(i)(B)-1, and 37(c)(1)(i)(C)-1 through -3 provide guidance to
creditors on the events requiring the disclosure of a separate periodic
payment or range of payments. Proposed comment 37(c)(1)(i)-1 clarifies
that, for purposes of Sec. 1026.37(c)(1)(i), the periodic payment is
the regularly scheduled payment of principal and interest, mortgage
insurance, and escrow payments described in Sec. 1026.37(c)(2) without
regard to any final payment that differs from other payments because of
rounding to account for payment amounts including fractions of cents.
Proposed comment 37(c)(1)(i)(A)-1 provides that periodic principal and
interest payments may change when the interest rate, applicable
interest rate caps, required periodic principal and interest payments,
or ranges of such payments may change. Minor payment variations
resulting solely from the fact that months have different numbers of
days are not changes to periodic principal and interest payments. For a
loan that permits negative amortization, proposed comment
37(c)(1)(i)(A)-2 clarifies that periodic principal and interest
payments may change at the time of a scheduled recast of the mortgage
loan and when the consumer must begin making fully amortizing payments
of principal and interest. The comment also provides that the
disclosure should be based on the assumption that the consumer will
make only the minimum payment required under the terms of the legal
obligation, for the maximum amount of time permitted, taking into
account changes to interest rates that may occur under the terms of the
legal obligation, and that the table required by Sec. 1026.37(c)
should reflect any balloon payment that would result from making the
minimum payment required under the terms of the legal obligation. In a
loan that permits payment of only interest for a specified period,
proposed comment 37(c)(1)(i)(A)-3 clarifies that periodic principal and
interest payments may change for purposes of Sec. 1026.37(c)(1)(i)(A)
when the consumer must begin making fully amortizing periodic payments
of principal and interest.
Proposed comment 37(c)(1)(i)(B)-1 states that, for purposes of
Sec. 1026.37(c)(1)(i)(B), whether a balloon payment occurs is
determined pursuant to Sec. 1026.37(b)(5) and its commentary. Although
the existence of a balloon payment is determined pursuant to Sec.
1026.37(b)(5) and its commentary, balloon payment amounts to be
disclosed under Sec. 1026.37(c) are calculated in the same manner as
periodic principal and interest payments under Sec. 1026.37(c). For
example, for a balloon payment amount that can change depending on
previous interest rate adjustments that are based on the value of an
index at the time of the adjustment, the balloon payment amounts are
calculated using the assumptions for minimum and maximum interest rates
described in Sec. 1026.37(c)(1)(iii) and its commentary, and should be
disclosed as a range of payments.
Proposed comments 37(c)(1)(i)(C)-1 through -3 provide guidance to
creditors regarding the disclosure of mortgage insurance. Proposed
comment 37(c)(1)(i)(C)-1 states that ``mortgage insurance'' means
insurance against the nonpayment of, or default on, an individual
mortgage, and that, for purposes of proposed Sec. 1026.37(c),
``mortgage insurance or any functional equivalent'' includes any
mortgage guarantee that provides coverage similar to mortgage insurance
(such as a United States Department of Veterans Affairs or United
States Department of Agriculture guarantee), even if not technically
considered insurance under State or other applicable law. The Bureau
[[Page 51205]]
understands that some governmental loan programs impose an annual
guarantee fee, and that creditors typically collect a monthly escrow
for the payment of such amounts. Current Sec. 1026.18(s) requires
creditors to disclose whether mortgage insurance is included in monthly
escrow payments, but industry uncertainty exists as to whether it is
permissible to identify such guarantees as mortgage insurance on the
disclosure required by Sec. 1026.18(s). Although the Bureau recognizes
that such guarantees are legally distinguishable from mortgage
insurance, they are functionally very similar. Accordingly, proposed
comment 37(c)(1)(i)(C)-1 clarifies that creditors should disclose any
mortgage guarantee that provides coverage similar to mortgage
insurance, even if not considered insurance under State or other
applicable law, as mortgage insurance on the disclosure required by
Sec. 1026.37(c). Proposed comment 37(c)(1)(i)(C)-1 is consistent with
the treatment of mortgage guarantee fees under proposed comment
18(s)(3)(i)(C)-2.
Proposed comment 37(c)(1)(i)(C)-2 gives guidance to creditors on
the calculation and termination of mortgage insurance premiums by
providing that, for purposes of proposed Sec. 1026.37(c)(1)(i)(C),
mortgage insurance premiums should be calculated based on the declining
principal balance that will occur as a result of changes to the
interest rate and payment amounts, assuming the fully-indexed rate at
consummation, taking into account any introductory rates. Finally,
proposed comment 37(c)(1)(i)(C)-3 clarifies that the table required by
proposed Sec. 1026.37(c) reflects the consumer's mortgage insurance
payments until the date on which the creditor must automatically
terminate coverage under applicable law, even though the consumer may
have a right to request that the insurance be cancelled earlier. Unlike
termination of mortgage insurance, a subsequent decline in the
consumer's mortgage insurance premiums is not, by itself, an event that
requires the disclosure of additional separate periodic payments or
ranges of payments in the table required by Sec. 1026.37(c). For
example, some mortgage insurance programs annually adjust premiums
based on the declining loan balance. Such annual adjustment to the
amount of premiums would not require a separate disclosure of a
periodic payment or range payments.
37(c)(1)(ii)
Proposed Sec. 1026.37(c)(1)(ii) contains special rules for the
disclosure of separate periodic payments or ranges of payments
described in Sec. 1026.37(c)(1)(i). Specifically, proposed Sec.
1026.37(c)(1)(ii) provides that the table required by Sec. 1026.37(c)
shall not disclose more than four separate periodic payments or ranges
of payments. For all events requiring disclosure of additional separate
periodic payments or ranges of payments described in Sec.
1026.37(c)(1)(i) after the second to occur, the separate periodic
payments or ranges of payments shall be disclosed as a single range of
payments, subject to the special rules listed in proposed Sec.
1026.37(c)(1)(ii)(A) through (C).
Proposed Sec. 1026.37(c)(1)(ii)(A) contains a special rule for
final balloon payments. That section would require that a final balloon
payment shall always be disclosed as a separate periodic payment or
range of payments and that, if a final balloon payment is disclosed, no
more than three other separate periodic payments or ranges of payments
are disclosed. Proposed comment 37(c)(1)(ii)(A)-1 clarifies that Sec.
1026.37(c)(1)(ii)(A) is an exception to the general rule in Sec.
1026.37(c)(1)(ii), and requires that a balloon payment that is
scheduled as a final payment under the terms of the legal obligation is
always disclosed as a separate periodic payment or range of payments.
Balloon payments that are not final payments, such as a balloon payment
due at the scheduled recast of a loan that permits negative
amortization, are disclosed pursuant to the general rule in Sec.
1026.37(c)(1)(ii). Proposed Sec. 1026.37(c)(1)(ii)(B) provides a
special rule for disclosure of mortgage insurance premiums, requiring
that the automatic termination of mortgage insurance, or any functional
equivalent, under applicable law shall be disclosed as a separate
periodic payment or range of payments only if the total number of
events that require disclosure of additional separate periodic payments
or ranges of payments described in Sec. 1026.37(c)(1)(i), other than
the termination of mortgage insurance or any functional equivalent,
does not exceed two.
Finally, proposed Sec. 1026.37(c)(1)(ii)(C) provides a special
rule for events that require additional separate periodic payments or
ranges of payments that occur during the same year. Under proposed
Sec. 1026.37(c)(1)(ii)(C), if changes to periodic principal and
interest payments described in Sec. 1026.37(c)(1)(i)(A) would require
more than one separate disclosure during a single year, such periodic
payments must be disclosed as a single range of payments.
37(c)(1)(iii)
Proposed Sec. 1026.37(c)(1)(iii) provides rules for the disclosure
of ranges of payments. A range of payments is disclosed when the
periodic principal and interest payment may adjust based on index rates
at the time an interest rate adjustment may occur or multiple events
are combined in a range of payments pursuant to proposed Sec.
1026.37(c)(1)(ii). When a range of payments is required, the creditor
must disclose the minimum and maximum possible payment amount for both
the principal and interest payment under proposed Sec.
1026.37(c)(2)(i) and the total periodic payment under proposed Sec.
1026.37(c)(2)(iv). In the case of an interest rate adjustment, the
maximum payment amounts are determined by assuming that the interest
rate in effect throughout the loan term is the maximum possible
interest, and the minimum payment amounts are determined by assuming
that the interest rate in effect throughout the loan term is the
minimum possible interest rate.
Proposed comment 37(c)(1)(iii)-1 clarifies that a range of payments
must be disclosed when the periodic principal and interest payments are
not known at the time the disclosure is provided because they are
subject to changes based on index rates at the time of an interest rate
adjustment or when multiple events are disclosed as a range of payments
pursuant to Sec. 1026.37(c)(1)(ii). For such transactions, proposed
Sec. 1026.37(c)(3)(iii) requires the creditor to disclose both the
minimum and maximum periodic principal and interest payments, expressed
as a range. In disclosing the maximum possible interest rate for
purposes of Sec. 1026.37(c), the creditor assumes that the interest
rate will rise as rapidly as possible after consummation, taking into
account the terms of the legal obligation, including any applicable
caps on interest rate adjustments and lifetime interest rate cap. For a
loan with no lifetime interest rate cap, the maximum rate is determined
by reference to other applicable laws, such as State usury law. In
disclosing the minimum possible interest rate for purposes of Sec.
1026.37(c), the creditor assumes that the interest rate will decrease
as rapidly possible after consummation, taking into account any
introductory rates, caps on interest rate adjustments, and lifetime
interest rate floor. For an adjustable rate mortgage based on an index
that has no lifetime interest rate floor, the minimum interest rate is
equal to the margin. Proposed comment
[[Page 51206]]
37(c)(1)(iii)-2 clarifies that, when a range of payments is required,
the amount required to be disclosed for mortgage insurance premiums
pursuant to Sec. 1026.37(c)(2)(ii) and the amount payable into escrow
pursuant to Sec. 1026.37(c)(2)(iii) shall not be disclosed as a range.
Proposed comment 37(c)(1)(iii)-3 provides guidance to creditors on the
disclosure of ranges of payments in adjustable rate mortgages.
37(c)(2) Itemization
Proposed Sec. 1026.37(c)(2) requires that each separate periodic
payment or range of payments included in the table required by proposed
Sec. 1026.37(c) must be itemized to include the following: (1) The
amount payable for principal and interest, labeled as ``Principal &
Interest,'' including the term ``only interest'' if the payment or
range of payments includes any interest-only payment; (2) the maximum
amount payable for mortgage insurance premiums corresponding to the
principal and interest payment disclosed pursuant to Sec.
1026.37(c)(2)(i), labeled ``Mortgage Insurance''; (3) the amount
payable into an escrow account to pay for some or all of the charges
described in Sec. 1026.37(c)(4)(ii)(A) through (E), labeled
``Estimated Escrow,'' including a statement that the amount disclosed
can increase over time; and (4) the total periodic payment, calculated
as the sum of the amounts disclosed pursuant to Sec. 1026.37(c)(2)(i)
through (iii), labeled ``Total Monthly Payment.'' As discussed in the
Kleimann Testing Report, the Bureau's consumer testing indicates that
consumers understand the table and can identify the components of their
total monthly payment using this itemization of payments.
Proposed comment 37(c)(2)(ii)-1 clarifies that mortgage insurance
payments should be reflected on the disclosure required by Sec.
1026.37(c) even if no escrow account is established for the payment of
mortgage insurance premiums. If the consumer is not required to
purchase mortgage insurance, the creditor discloses the mortgage
insurance premium as ``0''. Proposed comment 37(c)(2)(ii)-2 clarifies
that the creditor must disclose mortgage insurance pursuant to Sec.
1026.37(c)(2)(ii) on the same periodic basis that payments for
principal and interest are disclosed pursuant to Sec.
1026.37(c)(2)(i), even if mortgage insurance premiums are actually paid
on some other periodic basis.
The Bureau proposes to require creditors to disclose the amount of
estimated escrow payments pursuant to its authority under TILA sections
128(a)(16), 128(b)(4)(A), and 105(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans, Dodd-Frank Act section 1405(b). As
discussed above, TILA section 128(a)(16) requires that, for variable-
rate residential mortgage loans for which an escrow account will be
established, the creditor must disclose the initial total monthly
payment, including escrow payments for taxes and insurance. The Bureau
proposes to modify this requirement to cover all transactions subject
to proposed Sec. 1026.19(e) for which an escrow account will be
established, including fixed-rate loans. Additionally, TILA section
128(b)(4)(A) requires that, for any consumer credit transaction secured
by a first lien on the principal dwelling of the consumer for which an
escrow account will be established, the creditor must take into account
escrow payments when making the disclosures required by TILA section
128(a)(6). The Bureau also proposes to modify the scope of this
requirement to cover all transactions subject to proposed Sec.
1026.19(e) for which an escrow account will be established, pursuant to
its authority under TILA sections 128(a)(16), 128(b)(4)(A), and 105(a),
Dodd-Frank Act section 1032(a), and, for residential mortgage loans,
Dodd-Frank Act section 1405(b). These modifications are consistent with
the purposes of TILA, as they may promote the informed use of credit by
allowing consumers to more readily compare loans. Further, applying a
single disclosure rule to all transactions subject to proposed Sec.
1026.19(e) may ease compliance burden for creditors. Accordingly, these
modifications will improve consumer awareness and understanding of
residential mortgage loans and are in the interest of consumers and the
public, consistent with Dodd-Frank Act section 1405(b). In addition,
consistent with section 1032(a) of the Dodd-Frank Act, this disclosure
would ensure that the features of consumer credit transactions secured
by real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
Further, the Bureau proposes to require creditors to disclose the
maximum periodic payment for mortgage insurance premiums corresponding
to the periodic principal and interest payment disclosed pursuant to
Sec. 1026.37(c)(2)(i), separately from other escrowed amounts,
pursuant to its authority under TILA section 105(a), Dodd-Frank Act
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act
section 1405(b), even if no escrow account is established for the
payment of such amounts. Current Sec. 1026.18(s) requires creditors to
include mortgage insurance in the disclosure of the amounts required to
be paid into escrow. However, Sec. 1026.18(s) does not require
creditors to separately disclose payments for mortgage insurance. The
Bureau believes that consumers would benefit from disclosure of the
periodic amount of mortgage insurance payments required by the
creditor, and believes that consumers would benefit from the disclosure
of any required mortgage insurance payments even if no escrow account
for the payment of such amounts will be established. Requiring such
disclosure in all cases may facilitate comparison between loans and
improve overall understanding of credit terms. Accordingly, the Bureau
believes this requirement promotes the informed use of credit, will
improve consumer awareness and understanding of transactions involving
residential mortgage loans, and is in the interest of consumers and the
public, consistent with the purpose of TILA and with Dodd-Frank Act
section 1405(b). Further, consistent with section 1032(a) of the Dodd-
Frank Act, this disclosure would ensure that the features of consumer
credit transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.
In addition, the Bureau understands that some mortgage insurance
plans are structured such that periodic mortgage insurance payments
decrease over time. Accordingly, the Bureau proposes to require
creditors to disclose the maximum amount payable for mortgage insurance
premiums, or any functional equivalent, corresponding to the periodic
principal and interest payment disclosed pursuant to Sec.
1026.37(c)(2)(i). The Bureau believes this disclosure will enhance
consumer understanding of and facilitate comparison between loans by
more accurately reflecting the amount of mortgage insurance payments
over time.
Proposed comment 37(c)(2)(iii)-1 clarifies that the disclosure of
taxes and insurance described in Sec. 1026.37(c)(2)(iii) is required
only if the creditor will establish an escrow account for the payment
of the amounts described in Sec. 1026.37(c)(4)(ii)(A) through (E),
consistent with TILA
[[Page 51207]]
section 128(b)(4)(A) and current Sec. 1026.18(s).
37(c)(3) Subheadings
Proposed Sec. 1026.37(c)(3)(i) provides that the labels required
pursuant to Sec. 1026.37(c)(2) must be listed under the subheading
``Payment Calculation.'' Proposed Sec. 1026.37(c)(3)(ii) provides that
each separate, itemized periodic payment or range of payments to be
disclosed under Sec. 1026.37(c) must be disclosed under a subheading
that states the number of years of the loan during which that payment
or range of payments will apply. The subheadings must be stated in a
sequence of whole years from the date that the first such payment is
due. Proposed comment 37(c)(3)(ii)-1 provides additional guidance on
the disclosure of the number of years of the loan during which the
payment or range of payments will apply, and proposed comment
37(c)(3)(ii)-2 provides guidance on disclosure of the years of the loan
for transactions with variable terms, such as transactions where the
loan term may increase based on an adjustment of the interest rate.
37(c)(4) Taxes, Insurance, and Assessments
As discussed above, the Bureau is proposing to require creditors in
transactions subject to proposed Sec. 1026.19(e) to disclose estimated
payments to escrow accounts pursuant to its authority under TILA
sections 128(a)(16), 128(b)(4)(A), and 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b). The Bureau also proposes Sec. 1026.37(c)(4) pursuant to this
authority. Proposed Sec. 1026.37(c)(4)(i) provides that creditors must
disclose the label ``Estimated Taxes, Insurance & Assessments.''
Proposed Sec. 1026.37(c)(4)(ii) requires creditors to disclose the sum
of property taxes, mortgage-related insurance premiums required by the
creditor other than amounts payable for mortgage insurance premiums,
homeowner's association, condominium or cooperative fees, ground rent
or leasehold payments, and special assessments, as applicable,
expressed as a monthly amount. The creditor must disclose this amount
even if no escrow account for the payment of some or any such charges
will be established. Proposed comments 37(c)(4)(ii)-1 and -2 provide
guidance to creditors on the meaning of mortgage-related insurance
premiums and special assessments.
Proposed Sec. 1026.37(c)(4)(iii) requires creditors to state that
the amount disclosed pursuant to Sec. 1026.37(c)(4)(ii) can increase
over time. Proposed Sec. 1026.37(c)(4)(iv) requires creditors to state
whether the amount disclosed pursuant to Sec. 1026.37(c)(4)(ii)
includes payments for property taxes, hazard insurance, and other
amounts described in Sec. 1026.37(c)(4)(ii), along with a description
of any such amounts, and an indication of whether such amounts will be
paid by the creditor using escrow account funds. Proposed Sec.
1026.37(c)(4)(v) requires creditors to provide a statement that the
consumer must pay separately any amounts described in Sec.
1026.37(c)(4)(ii) that are not paid by the creditor using escrow funds.
Finally, proposed Sec. 1026.37(c)(4)(vi) requires creditors to provide
a reference to the information disclosed pursuant to Sec.
1026.37(g)(3).
Under proposed Sec. 1026.37(c)(4), the disclosure of estimated
taxes, insurance, and assessments is required even where no escrow
account will be established for the payment some or any such amounts.
The Bureau proposes this requirement pursuant to its authority under
TILA section 105(a), Dodd-Frank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b). As
discussed in the Kleimann Testing Report, consumer testing indicates
that consumers view the total monthly payment amount as a key piece of
information and look for this amount when shopping for mortgages. Even
when no escrow account is established for the payment of taxes and
insurance, this is an important measure of the consumer's ability to
afford the transaction. For this reason, the Bureau believes that
consumers would benefit from the disclosure of the amounts that will
required to be paid for taxes, insurance, and assessments, even if no
escrow account will be established for the payment of such amounts.
Absent such a disclosure, consumers may not fully comprehend the cost
of their home loan on a periodic basis, and may not be as readily able
to compare credit terms and make an informed decision about whether to
proceed with the transaction. Accordingly, the Bureau believes this
modification is consistent with the purpose of TILA to promote the
informed use of credit, and will improve consumer awareness and
understanding of residential mortgage loans and is in the interest of
consumers and the public, consistent with Dodd-Frank Act section
1405(b). In addition, consistent with section 1032(a) of the Dodd-Frank
Act, this disclosure would ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.
37(c)(5) Calculation of Taxes and Insurance
As previously discussed, section 1465 of the Dodd-Frank Act added
to TILA new section 128(b)(4)(A), which provides that, in the case of
any consumer credit transaction secured by a first mortgage on the
principal dwelling of the consumer, other than an open-end credit plan
or reverse mortgage, for which an escrow account has been or will be
established in connection with the transaction for the payment of
property taxes, homeowner's (also referred to and including hazard) and
flood insurance premiums, as applicable, or other periodic payments
with respect to the property, the disclosures required by TILA section
128(a)(6) must take into account the amount of any monthly payment to
such account, in accordance with section 10(a)(2) of RESPA. In
addition, new TILA section 128(b)(4)(B) requires that the amount taken
into account under TILA section 128(b)(4)(A) for the payment of
property taxes, hazard or flood insurance premiums, or other periodic
payments or premiums with respect to the property shall reflect the
taxable assessed value of the real property securing the transaction
after consummation of the transaction. That amount must include the
value of any improvements on the property or to be constructed on the
property, if known, even if such construction costs are not financed
from the proceeds of the transaction, and the replacement costs of the
property for hazard insurance, in the initial year after the
transaction.
Pursuant to the Bureau's implementation authority under TILA
section 105(a), proposed Sec. 1026.37(c)(5) implements this
requirement for transactions subject to Sec. 1026.19(e) and requires
that the estimated escrow and estimated taxes, insurance, and
assessments disclosures required pursuant to Sec. 1026.37(c)(2)(iii)
and (4)(ii), respectively, reflect (1) the taxable assessed value of
the real property securing the transaction after consummation,
including the value of any improvements on the property or to be
constructed on the property, whether or not such construction will be
financed from the proceeds of the transaction, if known, for property
taxes; and (2) the replacement costs of the property during the initial
year after the transaction, for hazard and flood insurance.
[[Page 51208]]
Pursuant to its authority under TILA section 105(a) and Dodd-Frank
Act sections 1032(a) and 1405(b), the Bureau proposes to expand the
requirements of TILA section 128(b)(4)(A) and (B) to cover all
transactions subject to proposed Sec. 1026.19(e), including
transactions where no escrow account will be established for the
payment of property taxes or hazard insurance, transactions that are
secured by real property that does not include the principal dwelling
of the consumer, and transactions secured by subordinate liens. These
modifications appear to be consistent with the purposes of TILA, as
they may promote the informed use of credit by allowing consumers to
more readily compare loans. Further, applying a single disclosure rule
to all transactions subject to proposed Sec. 1026.19(e) may ease
compliance burden for creditors. Accordingly, these modifications will
improve consumer awareness and understanding of residential mortgage
loans and are in the interest of consumers and the public, consistent
with Dodd-Frank Act section 1405(b). In addition, consistent with
section 1032(a) of the Dodd-Frank Act, the proposed disclosure would
ensure that the features of consumer credit transactions secured by
real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
37(d) Cash to Close
Pursuant to its authority under TILA section 105(a) and Dodd-Frank
section 1032(a), the Bureau proposes to require creditors to provide
the estimated total closing costs imposed upon the consumer and the
estimated amount of cash needed at consummation from the consumer. This
disclosure will effectuate the purposes of TILA by promoting the
informed use of credit and will ensure the features of the mortgage
transaction are fully, accurately and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the mortgage transaction, in light
of the facts and circumstances, because it will indicate to the
consumer the amount the consumer will have to pay at consummation of
the credit transaction and closing of the real estate transaction.
Accordingly, proposed Sec. 1026.37(d) requires the disclosure of an
estimate of the cash needed from the consumer at consummation of the
transaction, with a breakdown of the amounts of loan costs and other
costs associated with the transaction.
Under Sec. 1026.37(d)(1), the dollar amount due from the consumer
is the same amount as calculated in accordance with proposed Sec.
1026.37(h)(4) and is disclosed under the heading of ``Cash to Close''
and labeled ``Estimated Cash to Close.'' The total dollar amount of the
loan costs to be paid by the consumer at closing as calculated under
proposed Sec. 1026.37(f)(4) is disclosed under proposed Sec.
1026.37(d)(2). The total dollar amount of the other costs to be paid by
the consumer at closing as calculated under proposed Sec.
1026.37(g)(5) is disclosed under proposed Sec. 1026.37(d)(3). The
amount of lender credits disclosed under Sec. 1026.37(g)(6)(ii) is
disclosed under Sec. 1026.37(d)(4). The sum of the amounts disclosed
under proposed Sec. 1026.37(d)(2), through 1026.37(d)(4) is disclosed
with a description of ``Closing Costs'' under Sec. 1026.37(d)(5). A
statement directing the consumer to refer to the location of the Loan
Estimate that contains the tables required under Sec. 1026.37(f) and
(g) is required under Sec. 1026.37(d)(6).
37(e) Web Site Reference
Appendix C to Regulation X includes a statement in the RESPA GFE
that directs consumers to HUD's Web site and other sources of
additional information, stating the following, ``For more information,
see HUD's Special Information Booklet on settlement charges, your
Truth-in-Lending Disclosures, and other consumer information at
www.hud.gov/respa.'' Regulation Z does not contain a similar provision.
The Bureau proposes to use its authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank Act section 1032(a) to require
disclosure of the Bureau's Web site in proposed Sec. 1026.37(e). The
Bureau believes that a disclosure in the Loan Estimate directing
consumers to additional information and tools on its Web site may help
consumers understand the mortgage process and the various loan products
in the market, and consequently better understand their loan
transaction and make informed decisions about whether to enter into a
loan transaction or which loan product best meets their needs.
Accordingly, this disclosure will effectuate the purposes of TILA and
RESPA by promoting the informed use of credit and more effective
advance notice of settlement costs, consistent with TILA section 105(a)
and RESPA section 19(a), and will ensure that the features of the
mortgage transactions are fully, accurately, and effectively disclosed
to consumers in a manner that permits consumers to better understand
the costs, benefits, and risks associated with mortgage transactions,
in light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a).
Therefore, proposed Sec. 1026.37(e) requires creditors to include
a statement notifying the consumer that additional information and
tools regarding mortgage loans may be found at the Bureau's Web site.
Proposed Sec. 1026.37(e) also requires a reference to the link/uniform
resource locator (URL) address for the Bureau's Web site.
37(f) Closing Cost Details; Loan Costs
Under section 5(c) of RESPA creditors must provide mortgage loan
applicants with a good faith estimate of the amount or range of charges
for specific settlement services the applicant is likely to incur in
connection with the consummation of the loan. 12 U.S.C. 2604(c).
Section 1024.7 of Regulation X implements this mandate by requiring
creditors and mortgage brokers to provide the RESPA GFE, which must be
completed in accordance with the instructions in appendix C to
Regulation X. Appendix C sets out specific instructions for the
information that must be disclosed on the RESPA GFE, including the loan
costs that must be included and how to identify those costs on the
disclosure.
As discussed above, Dodd-Frank Act section 1032(f) requires the
Bureau to combine these RESPA disclosures with the disclosures required
by TILA. In addition to existing TILA disclosure requirements, section
1419 of the Dodd-Frank Act amended TILA section 128(a) to require, in
the case of a residential mortgage loan, disclosure of the aggregate
amount of settlement charges for all settlement services provided in
connection with the loan and the aggregate amount of other fees or
required payments in connection with the loan. 15 U.S.C. 1638(a)(17).
Pursuant to its authority under TILA section 105(a), RESPA section
19(a), and Dodd-Frank Act sections 1032(f) and, for residential
mortgage loans, 1405(b), the Bureau proposes to require creditors to
provide the loan costs and other costs imposed upon the consumer in
tables as part of the integrated Loan Estimate. Proposed Sec.
1026.37(f) and (g) implement these early disclosure requirements of
TILA and RESPA by setting out details relating to the costs for
consummating the mortgage loan, including loan costs and other costs.
Based on its consumer testing, the Bureau believes that early
disclosure of estimated loan costs and other costs, as set forth in
proposed
[[Page 51209]]
Sec. 1026.37(f) and (g), will improve consumer understanding of the
credit and property transactions. The Bureau believes that these
disclosures will effectuate the purpose of TILA by promoting the
informed use of credit and assuring a meaningful disclosure to
consumers. The Bureau believes that the disclosures will also satisfy
the RESPA requirement to provide a consumer with a good faith estimate
of the amount or range of charges for specific settlement services the
consumer is likely to incur in connection with the closing. In
addition, these disclosures will ensure that the features of the
mortgage transactions are fully, accurately, and effectively disclosed
to consumers in a manner that permits consumers to understand the
costs, benefits, and risks associated with the mortgage transaction, in
light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a).
In particular, proposed Sec. 1026.37(f) requires the creditor to
itemize, as ``Loan Costs,'' its fees and other charges to the consumer
for extending the credit or that compensate a mortgage broker for
originating the transaction. The creditor must disclose the individual
itemized charges, along with subtotals for prescribed categories of
those itemized charges, and the total of all such itemized charges. In
general, these charges are currently required to be disclosed--as
itemized or aggregate charges and amounts--on the RESPA GFE, the RESPA
settlement statement, or both.\164\
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\164\ On June 20, 2012, HUD's Office of Policy Development and
Research and the Urban Institute released a study entitled ``What
Explains Variation in Title Charges? A Study of Five Large
Markets,'' https://www.huduser.org/portal/publications/hsgfin/title_charges_2012.html, based on HUD-1 settlement statements of FHA
loans from 2001. See p. 13. The study discusses, among other things,
that an observed positive association between the number of items
listed and net service fees was statistically significant after
taking home prices into account. See p. 29. However, the report
could not determine whether this indicates additional value to the
consumer or additional costs to the settlement agent due to
limitations of the data. Id. The study states that ``there is no way
to ascertain from the data whether an itemized cost is an attempt to
confuse consumers or the provision of an additional, valuable
service that the homebuyer is willing to pay for. Both
interpretations are plausible.'' Id. Under this proposal,
itemization is permitted on the Loan Estimate, but highly visible
subtotals in gray shading and bold font are displayed above the
itemized charges for specific categories of costs. Based on its
consumer testing, the Bureau believes the highly visible subtotals,
along with the highly visible ``Services You Can Shop For''
subcategory of Closing Costs on the Loan Estimate, will inform
consumers that they can shop for their own service providers and
provide them with, along with the itemization, readily comparable
cost categories to shop between creditors and service providers.
Such shopping for settlement service providers, according to the
study, could provide ``significant benefits to consumers.'' See p.
28. The study suggests that future research using more detailed data
on costs incurred by settlement agents would be valuable. See p. 29.
The Bureau welcomes additional comments and studies on the issue of
itemization of costs on the Loan Estimate and Closing Disclosure
during the comment period.
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Proposed comment 37(f)-1 explains that the items disclosed as Loan
Costs pursuant to Sec. 1026.37(f) are those that the creditor or
mortgage broker require for consummation. Proposed comment 37(f)-2
provides a cross-reference to the commentary under Sec.
1026.19(e)(1)(ii), which discusses the requirements and
responsibilities of mortgage brokers that provide the disclosures
required under Sec. 1026.19(e) and Sec. 1026.37(f).
37(f)(1) Origination Charges
Under proposed Sec. 1026.37(f)(1), charges included on the Loan
Estimate under the subheading of ``Origination Charges'' are those that
the consumer will pay to the creditor and any loan originator for
originating and extending the credit. The points that the consumer will
pay to the creditor to reduce the interest rate are specifically
identified and itemized as the first item under this subheading.
As discussed above in part II.F, the Bureau currently is engaged in
six other rulemakings that relate to mortgage credit and intends that
the rulemakings function collectively as a whole. Accordingly, the
Bureau may have to modify aspects of this proposed rule not only in
response to public comment on this proposal, but also to maintain
consistency with final determinations made after opportunity for public
comment in the other, related rulemakings. For example, Dodd-Frank Act
section 1403 amended TILA section 129B(c)(2) to prohibit an origination
fee or charge that is paid to a mortgage originator by any person other
than the consumer, unless the mortgage originator does not receive
compensation directly from the consumer and the consumer does not make
an upfront payment of discount points, origination points, or fees
(other than certain third-party fees). 15 U.S.C. 1639b(c)(2)(B).
Amended TILA section 129B(c)(2) also provides the Bureau with the
authority to waive or create exemptions from this prohibition with
respect to the clause against the consumer making an upfront payment of
discount points, origination points, or fees, where doing so is in the
interest of consumers and in the public interest. Id. As discussed in
the materials distributed for the Small Business Review Panel convened
for the Residential Mortgage Loan Origination Standards rulemaking
implementing amended TILA section 129B(c)(2), the Bureau is considering
exercising its waiver or exemption authority in that rulemaking.\165\
The Bureau will coordinate these rulemakings and, if applicable and
appropriate, will modify the disclosure of origination charges under
Sec. 1026.37(f)(1) for consistency with the final rule implementing
amended TILA section 129B(c)(2). The Bureau invites comment on how, in
light of amended TILA section 129B(c)(2), the Bureau should refine or
modify the way in which origination charges are disclosed under
proposed Sec. 1026.37(f)(1). The public will also have the opportunity
to comment on the Bureau's implementation of amended TILA section
129B(c)(2) when a proposed rule is published later this summer. The
Bureau expects the comment period for the proposal set forth in this
notice will still be open at that time.
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\165\ Small Business Review Panel for Residential Mortgage Loan
Origination Standards Rulemaking: Outline of Proposals Under
Consideration and Alternatives Considered (May 19, 2012), available
at https://files.consumerfinance.gov/f/201205_cfpb_MLO_SBREFA_Outline_of_Proposals.pdf.
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TILA section 128(a)(18), as added by Dodd-Frank Act section 1419,
requires the creditor to disclose, for residential mortgage loans, the
aggregate amount of fees paid to the mortgage originator in connection
with the loan, the amount of such fees paid directly by the consumer,
and any additional amount received by the originator from the creditor.
In the discussion of proposed Sec. 1026.37(l) below, the Bureau notes
that research regarding consumer comprehension and behavior and the
results of the Bureau's consumer testing suggest that an effective
disclosure regime minimizes the risk of consumer distraction and
information overload by providing only information that will assist
most consumers. The Bureau has evaluated the usefulness to consumers
and others at early stages of the loan process of the disclosures
required by TILA section 128(a)(18), as added by Dodd-Frank Act section
1419. Based on that evaluation, and as discussed further below, the
Bureau is proposing to use its authority under TILA section 105(a) and
(f), RESPA section 19(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b), to exempt transactions subject to proposed
Sec. 1026.19(e) from certain of the itemized disclosures required by
TILA section 128(a)(18). In particular, for transactions subject to
proposed Sec. 1026.19(e), proposed Sec. 1026.37(f)(1) requires the
creditor to disclose the amounts of origination fees paid by the
consumer to creditors and loan
[[Page 51210]]
originators in connection with the loan, but not any amounts received
by a loan originator from the creditor. However, as discussed below
with respect to proposed Sec. 1026.38(f)(1), the full disclosure
required by TILA section 128(a)(18) is included in the disclosure
requirements for transactions subject to proposed Sec. 1026.19(f). In
other words, although certain TILA section 128(a)(18) disclosures would
not be included in the Loan Estimate, they would be provided in the
Closing Disclosure.
The RESPA GFE currently required by Regulation X aggregates all
compensation paid to all loan originators and includes a separate item
that reflects as a ``credit'' to the consumer fees received by mortgage
brokers from the creditor rather than the consumer. A major goal of the
RESPA GFE disclosure requirements was to provide consumers with a clear
disclosure of any rate-based payments being made by creditors to
mortgage brokers who may be working with the consumer. Regulation X
provides generally that lender and mortgage broker origination charges
are to be included on page 2 of the RESPA GFE, in Block 1 (``Our
origination charge''), Block 2 (``Your credit or charge (points) for
the specific interest rate chosen''), and Line A (Your Adjusted
Origination Charges''). See 12 CFR part 1024, appendix C (instructions
for ``Your Adjusted Origination Charges''). Under the disclosure
requirements in Regulation X, all charges for services related to the
creation of the mortgage loan are to be included on the RESPA GFE in
the single amount stated in Block 1 and the single amount in Block 2,
as applicable. The RESPA GFE disclosure requirements prohibit creditors
and mortgage brokers from charging any fees for getting the loan that
are in addition to the amounts included in Blocks 1 and 2. Id.
(instructions for ``Block 1'').
The requirements related to the disclosures in Blocks 1 and 2 of
the GFE have been a source of uncertainty for creditors, mortgage
brokers, and consumers. HUD provided informal guidance to address some
of the uncertainty in a number of its HUD RESPA FAQs and HUD RESPA
Roundups, much of which involved where and how to disclose compensation
paid directly and indirectly to mortgage brokers.
In 2010, subsequent to the issuance of HUD's 2008 RESPA Final Rule,
the Board established by regulation in Sec. 1026.36 of Regulation Z
restrictions on the compensation of loan originators, including
mortgage brokers.\166\ The Board adopted these restrictions only after
concluding that disclosure of creditor-paid compensation did not
provide sufficient protection for consumers.\167\
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\166\ 75 FR 58509 (Sept. 24, 2010) (Board's 2010 Compensation
Final Rule).
\167\ The Board's 2010 Compensation Final Rule discussed the
history of efforts by the Board to address concerns regarding
consumers' understanding of fees received by mortgage brokers from
creditors. Before issuing that final rule, the Board considered
proposed disclosures of such compensation, but had withdrawn the
proposed disclosures because of concern that they could confuse
consumers and undermine their decisionmaking rather than improve it.
75 FR at 58511. A 2008 study referenced in the Board's 2010
Compensation Final Rule indicated additional disclosures may not
help consumers understand and avoid financial incentives for loan
originators that may be contrary to consumer interests. Id. The
study found that consumers were confused by, and in some cases did
not appropriately apply, the information provided in disclosures
about mortgage broker compensation arrangements. Macro
International, Consumer Testing of Mortgage Broker Disclosures (July
10, 2008), available at https://www.federalreserve.gov/newsevents/press/bcreg/20080714regzconstest.pdf.
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Section 1403 of the Dodd-Frank Act codified similar restrictions.
15 U.S.C. 1639b(c). As a result of these additional consumer
protections and based on consumer testing, the Bureau believes that
consumers may not benefit from any additional disclosure of rate-based
compensation when shopping for and considering the costs of a mortgage
loan. Therefore, in proposed Sec. 1026.37(f)(1), the Bureau proposes
to eliminate the separate GFE Blocks 1 and 2 disclosures, thereby
eliminating the need to follow different instructions for loans
involving a mortgage broker than for loans originated without one.
Consistent with Dodd-Frank section 1405(b), disclosure of only the
direct charges the consumer will pay will reduce both consumer
confusion and the possibility of information overload, improve consumer
understanding of the Loan Estimate form, and make it easier for
creditors or mortgage brokers to complete the estimates of closing
costs, which is in the interest of consumers and in the public
interest. In addition, consistent with TILA section 105(a) and RESPA
section 19(a), the proposed disclosure will effectuate the purposes of
TILA and RESPA by promoting the informed use of credit and more
effective disclosure of settlement costs by allowing consumers to focus
only on the amounts they will pay. Furthermore, consistent with section
1032(a) of the Dodd-Frank Act, proposed Sec. 1026.37(f) would ensure
that the origination costs for consumer credit transactions secured by
real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
As noted above, Sec. 1026.37(f) is also proposed pursuant to the
Bureau's exemption authority under TILA section 105(f). The Bureau has
considered the factors in TILA section 105(f) and believes that, for
the reasons discussed above, an exception is appropriate under that
provision. Specifically, the Bureau believes that the proposed
exemption is appropriate for all affected borrowers, regardless of
their other financial arrangements and financial sophistication and the
importance of the loan to them. Similarly, the Bureau believes that the
proposed exemption is appropriate for all affected loans, regardless of
the amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Accordingly, the Bureau is proposing
to exempt the disclosures required pursuant to Sec. 1026.19(e) from
the requirement in TILA section 128(a)(18) to itemize fees received by
loan originators from the creditor.
The Bureau invites comment on whether the final rule should require
that fees received by loan originators from the creditor be included in
the Loan Estimate. In addition, because the foregoing analysis under
TILA section 105(f) and the Bureau's other exemption authorities may
apply to the disclosure of creditor-paid compensation on the Closing
Disclosure pursuant to proposed Sec. 1026.38(f)(1), the Bureau
solicits comments on whether the disclosure should be omitted there as
well. While a goal of the proposed forms and requirements is to develop
clear disclosures that help consumers understand the credit transaction
and closing costs, another goal is to facilitate consumer comparison of
the actual charges at consummation with the charges estimated soon
after application. If, as proposed, the amounts received by loan
originators from the creditor are not itemized in the Loan Estimate,
the consumer-comparison purpose of the disclosure forms is not advanced
by itemizing those amounts in the Closing Disclosure. In fact,
itemizing amounts in the Closing Disclosure that are not itemized on
the Loan Estimate may add to consumer confusion without any offsetting
benefit.
The Bureau believes, however, that certain additional information
about
[[Page 51211]]
origination costs may benefit consumers at early stages of the loan
process. In its 2008 RESPA Final Rule, HUD explained its reason for
limiting to lump-sum amounts certain disclosures, such as for
origination and title charges, as avoiding consumer confusion resulting
from a proliferation of itemized fees. HUD described the RESPA GFE that
was in place before the effective date of the 2008 RESPA final rule as
``not inform[ing] consumers what the major costs are so that they can
effectively shop and compare mortgage offers among different loan
originators.'' 73 FR at 68260. Therefore HUD sought to simplify the
mortgage loan origination process by consolidating costs into a few
major cost categories on the RESPA GFE. Id.
The Bureau understands HUD's reasoning in its 2008 RESPA final rule
for establishing revised requirements for the disclosure of
origination-related charges in the RESPA GFE form. The Bureau notes,
however, that HUD did not specifically test the effect of separating
the lump sum amounts for major categories of loan costs into component
charges.\168\ As discussed in the Kleimann Testing Report, in several
rounds of testing, the Bureau examined the effect of such itemization
of loan costs on consumers' understanding of the loan transaction and
their tendency and ability to shop. As a result of its testing, the
Bureau proposes to modify the requirements for disclosing origination-
related items on the Loan Estimate. As discussed in the Kleimann
Testing Report, at the Bureau's consumer testing, participants were
more likely to question loan costs when they were presented in an
itemized format, rather than as only an aggregate or lump sum of those
costs. While participants commented favorably on lump-sum totals, they
also asked for more detail about the fees that were included in the
lump sum, especially when the total was a significant amount, such as
for origination charges or title fees.
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\168\ See, U.S. Dep't. of Hous. and Urban Dev., Summary Report:
Consumer Testing of the Good Faith Estimate Form (GFE), prepared by
Kleimann Communications Group, Inc. (2008), available at https://www.huduser.org/publications/pdf/Summary_Report_GFE.pdf.
---------------------------------------------------------------------------
Further, as discussed in the Kleimann Testing Report, participants
more often indicated a desire to negotiate origination charges and shop
for third-party services when provided the additional details about
these closing costs. Itemized closing costs also prompted participants
to ask more questions about the other costs in the Loan Estimate.
Although participants also responded favorably to lump-sum disclosures,
without the additional information about the cost category they were
less likely to indicate a desire to negotiate costs, shop for
providers, and ask for additional detail about a large cost. As
discussed in the Kleimann Testing Report, testing indicates that
descriptive, itemized listings of the component charges in a category
of closing costs related to improved performance of the participants in
understanding both the underlying services provided and the amounts
imposed for those services. In addition, testing participants stated
that they felt more comfortable with the transaction when provided with
additional detail, in part because they believed they were more
responsible consumers when they were more informed. The more-complete
information also may help a consumer determine whether to shop for a
particular service or services. During its outreach efforts, the Bureau
heard anecdotal reports that creditors are often prepared to provide
consumers with additional detail about aggregate amounts disclosed on
the RESPA GFE, in any event. State law also may require creditors to
provide such additional detail about certain categories of costs by
consummation or before accepting a fee,\169\ or to retain such detail
in their loan files.\170\
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\169\ See, e.g., Tex. Ins. Code Ann. Sec. 2702.053 (title
charges); Ga. Comp. R. & Regs. 80-11-1-.01 (origination charges).
\170\ See, e.g., North Carolina Commissioner of Banks
Memorandum, Disclosure of Origination Fees under HUD's New RESPA
Rules (December 3, 2010), available at https://www.nccob.gov/public/docs/Financial%20Institutions/Mortgage/OCOB_Letter_Regarding_Disclosure_of_Origination_Fees_under_HUDs_new_RESPA_Rules.pdf.
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Therefore, proposed Sec. 1026.37(f)(1) does not limit the
disclosure of origination-related closing costs to an aggregate amount
with two lines under predefined headings (as is the case with the RESPA
GFE). Instead, proposed Sec. 1026.37(f)(1) requires that the Loan
Estimate include a subtotal of the amounts for all ``Origination
Charges,'' but permits the creditor to list up to 13 component items.
The creditor must use a descriptive label for each component fee or
charge, and must disclose the amount of that fee or charge. Proposed
Sec. 1026.37(f)(1) requires the creditor to include under the
subheading ``Origination Charges'' the percentage of the loan amount,
and the resulting calculation of the dollar amount, that is charged to
the consumer as points to lower the interest rate. The Loan Estimate
form H-24, in appendix H to Regulation Z, includes a line for this
disclosure immediately under the subheading ``Origination Charges.''
The line's label reads: ``--% of Loan Amount (Points),'' and the blank
before the percentage sign is to be filled in with the applicable
number.
The Bureau does not propose to eliminate the disclosure of a single
total amount of origination charges from the Loan Estimate form,
however. The RESPA GFE currently shows a subtotal of the origination
charges on Line A (``Your Adjusted Origination Charges''). Pursuant to
Sec. 1026.37(f)(1), the Bureau proposes to show in the Loan Estimate a
similar subtotal accompanying the subheading ``Origination Charges.''
The Bureau's testing of the Loan Estimate forms indicates that
consumers can easily find and use this subtotal of the origination
charges to evaluate and compare loans, as discussed in the Kleimann
Testing Report. Further, the testing indicates that consumers easily
understand that the subtotal represents the sum of the itemized fees
and charges.
The Bureau is proposing the requirements in Sec. 1026.37(f)(1)
pursuant to its implementation authority under TILA section 105(a) and
RESPA section 19(a) because disclosure of the points, component
charges, and total origination charges will promote the informed use of
credit and more effective advance disclosure of settlement costs, which
are purposes of TILA and RESPA respectively. Dodd-Frank Act sections
1032(a) and 1405(b) are also sources of authority for the proposed
requirements in Sec. 1026.37(f)(1). The information disclosed under
Sec. 1026.37(f)(1) will enable consumers to understand and negotiate
fees, shop for origination services, and compare the Loan Estimate with
any revised Loan Estimate and the Closing Disclosure, thereby ensuring
that the features of the mortgage transactions are fully, accurately,
and effectively disclosed to consumers in a manner that permits
consumers to understand the costs, benefits, and risks associated with
the mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the
reasons stated above, the proposed rule is in the interest of consumers
and in the public interest, consistent with Dodd-Frank Act section
1405(b).
The Bureau is aware of concerns that permitting itemization may
encourage creditors to list numerous component charges that the RESPA
GFE currently requires to be consolidated into one
[[Page 51212]]
charge.\171\ Based on its testing, however, the Bureau believes that
proposed Sec. 1026.37(f)(1), which permits some itemization but also
requires disclosure of the subtotal of origination charges, provides
consumers with information they want without encumbering their ability
to compare credit offers among different creditors. The Bureau invites
comment on whether other limits on itemization, in addition to the
proposed limits on the number of charges that may be itemized pursuant
to Sec. 1026.37(f)(1), should be included in the final rule and, if
so, what those limits should be.
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\171\ In its 2008 RESPA Final Rule, HUD stated that: ``Current
RESPA regulations have led to a proliferation of charges that makes
consumer shopping and the mortgage settlement process both difficult
and confusing, even for the most informed shoppers. Long lists of
charges certainly do not highlight the bottom-line costs so
consumers can shop and compare mortgage offers among different
originators.'' 73 FR 68204, 68267 (Nov. 17, 2008).
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Proposed comment 37(f)(1)-1 clarifies that charges that are
included under the subheading ``Origination Charges'' pursuant to Sec.
1026.37(f)(1) are those charges paid by the consumer for which the
amount is paid to the creditor or loan originator for originating and
extending the mortgage credit. The comment includes cross-references to
Sec. 1026.37(o)(4) for rules on rounding amounts disclosed, comment
19(e)(3)(i)-2 for a discussion of when a fee is considered to be ``paid
to'' a person, and comment 36(a)-1 for a discussion of the meaning of
``loan originator.'' Proposed comment 37(f)(1)-2 clarifies that only
loan originator charges paid directly by the consumer are included in
the items listed pursuant to Sec. 1026.37(f)(1), but notes that
charges paid by the creditor through the interest rate are disclosed on
the Closing Disclosure pursuant to Sec. 1026.38(f)(1). Proposed
comment 37(f)(1)-3 provides examples of the items that might be
disclosed as ``Origination Charges'' on the Loan Estimate. Proposed
comment 37(f)(1)-4 explains that if the consumer is not charged any
points for the loan, the creditor may leave blank the percentage of
points required by Sec. 1026.37(f)(1)(i), but must disclose the dollar
amount of ``$0.'' Proposed comment 37(f)(1)-5 clarifies that the
creditor may decide the level of itemization of origination charges
that is appropriate, subject to the limitations in Sec.
1026.37(f)(1)(ii) on the number of lines.
37(f)(2) Services You Cannot Shop For
The fees and charges listed under the subheading ``Services You
Cannot Shop For'' pursuant to proposed Sec. 1026.37(f)(2) are for
services that the creditor would require in connection with the
transaction, but that would be provided by persons other than the
creditor or mortgage broker. Only items for which the creditor does not
permit the consumer to shop in accordance with Sec.
1026.19(e)(1)(vi)(A) are listed under this subheading. As discussed
above, Sec. 1026.19(e)(3)(ii) applies the same criterion in
determining whether an estimated charge is subsequently permitted to
increase by a limited amount, absent other considerations set out in
Sec. 1026.19(e)(3).
Currently, Regulation X provides that third-party services required
by the creditor and for which the creditor does not permit the consumer
to shop are to be included, as applicable, in Blocks 3 (``Required
services that we select'') and 4 (``Title services and lender's title
insurance'') on the RESPA GFE. Regulation X also provides that charges
for title services, like charges for origination services, are not
itemized on the RESPA GFE, but are disclosed only as a total. See
appendix C to Regulation X (instructions for Blocks 3, 4 (``all fees
for title searches, examinations, and endorsements, for example, would
be included in this total''), and 6).
As discussed in connection with proposed Sec. 1026.37(f)(1),
consumer testing performed on Loan Estimate forms indicated that
itemization related to improved performance of the participants in
understanding both the services provided and the charges imposed for
those services. Participants appeared more likely to negotiate fees and
shop for services when provided additional details that helped them to
understand the nature of the services and the potential value of
shopping for a particular service. Pursuant to Sec. 1026.37(f)(2) and
(3), the Bureau proposes to show in the Loan Estimate subtotals and
itemized amounts for loan costs, including for title-related services,
on the highlighted lines with the subheadings ``Services You Cannot
Shop For'' and ``Services You Can Shop For.'' The Bureau's testing of
the forms indicates that consumers can easily find and appropriately
use the subtotals of these amounts, as discussed in the Kleimann
Testing Report.
Pursuant to Sec. 1026.37(f)(2), each item disclosed under the
subheading ``Services You Cannot Shop For'' must include a descriptive
name and the estimated charge, and the creditor must provide a subtotal
of all such items. All items for which the charges relate to the
provision of title insurance and the handling of the closing must be
identified beginning with ``Title--.'' The creditor may use up to 13
lines to itemize charges under the subheading for ``Services You Cannot
Shop For.''
The Bureau is proposing the requirements in Sec. 1026.37(f)(2)
pursuant to its authority under TILA section 105(a) and RESPA section
19(a) because disclosure of third-party services required by a creditor
for consummation of the loan, their component and total charges, and
the fact that the creditor will limit the choice of providers for those
services will promote the informed use of credit and more effective
advance disclosure of settlement costs, which are purposes of TILA and
RESPA respectively. Dodd-Frank Act sections 1032(a) and 1405(b) are
also sources of authority for the proposed requirements in Sec.
1026.37(f)(2). The information disclosed under Sec. 1026.37(f)(2) will
enable consumers to understand and negotiate fees, shop for a mortgage
loan, and compare the Loan Estimate with any revised Loan Estimate and
the Closing Disclosure, thereby ensuring that the features of the
mortgage transactions are fully, accurately, and effectively disclosed
to consumers in a manner that permits consumers to understand the
costs, benefits, and risks associated with the mortgage transaction, in
light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a). Furthermore, for the reasons stated above, the
proposed disclosure is in the interest of consumers and in the public
interest, consistent with Dodd-Frank Act section 1405(b).
As discussed above, the Bureau is aware of concerns that permitting
itemization may encourage creditors to list numerous component charges
that the RESPA GFE currently requires to be consolidated. The Bureau
invites comment on whether other limits on itemization, in addition to
the proposed limits on the number of charges that may be itemized
pursuant to Sec. 1026.37(f)(2), should be included in the final rule
and, if so, what those limits should be.
Proposed comment 37(f)(2)-1 cross-references comments 19(e)(1)(iv)-
1, 19(3)(i)-1, and 19(e)(3)(iv)-1 through -3 for discussions of the
factors relevant to determining whether a consumer is permitted to shop
and whether a creditor has exercised good faith in providing estimates
of charges. Proposed comment 37(f)(2)-2 provides examples of the
services that might be listed under ``Services You Cannot Shop For.''
Proposed comment 37(f)(2)-3 provides examples of services that would be
listed using a phrase beginning with ``Title--.'' Proposed comment
37(f)(2)-4 clarifies that the
[[Page 51213]]
amount listed for the lender's title insurance coverage is the amount
of the premium without any adjustment that might be made for the
simultaneous purchase of an owner's title insurance policy, and it
cross-references comment 37(g)(4)-1 for the disclosure of the premium
for owner's title insurance.
37(f)(3) Services You Can Shop For
The fees and charges listed under the subheading ``Services You Can
Shop For'' pursuant to proposed Sec. 1026.37(f)(3) are for services
that the creditor would require in connection with its decision to make
the loan, but that would be provided by persons other than the creditor
or mortgage broker. Only items for which the creditor permits the
consumer to shop in accordance with Sec. 1026.19(e)(1)(vi)(A) are
listed under this subheading. Thus, all Loan Costs that are not paid to
the creditor or mortgage broker are itemized exclusively under either
this subheading or the subheading ``Services You Cannot Shop For.''
Currently, Regulation X provides that third-party services required
by the creditor but for which the creditor permits the consumer to shop
are to be included, as applicable, in Blocks 4 (``Title services and
lender's title insurance'') and 6 (``Required services that you can
shop for'') on the RESPA GFE. Regulation X also provides that charges
for title services, like charges for origination services, are not
itemized on the RESPA GFE, but are disclosed only as a total. See
appendix C to Regulation X (instructions for Blocks 3, 4 (``all fees
for title searches, examinations, and endorsements, for example, would
be included in this total''), and 6).
As discussed in connection with proposed Sec. 1026.37(f)(1) and
(2), consumer testing performed on Loan Estimate forms indicated that
itemization related to improved performance of the participants in
understanding both the services charged and the costs of those
services. Participants appeared more likely to negotiate fees and shop
for services when provided additional details that helped them to
understand the nature of the services and the potential value of
shopping for a particular service. Pursuant to Sec. 1026.37(f)(2) and
(3), the Bureau proposes to show in the Loan Estimate subtotals and
itemized amounts for loan costs, including for title-related services,
on the highlighted lines with the subheadings ``Services You Cannot
Shop For'' and ``Services You Can Shop For.'' The Bureau's testing of
the forms indicates that consumers can easily find and appropriately
use the subtotals of these amounts.
Pursuant to Sec. 1026.37(f)(3), each item disclosed under the
subheading ``Services You Can Shop For'' must include a descriptive
name and the estimated charge, and the creditor must provide a subtotal
of all such items. All items for which the fees and charges relate to
the provision of title insurance and the handling of the closing must
be identified beginning with ``Title--.'' The creditor may use up to 14
lines to itemize charges under this subheading.
The Bureau is proposing the requirements in Sec. 1026.37(f)(3)
pursuant to its authority under TILA section 105(a) and RESPA section
19(a) because disclosure of third-party services required by a creditor
for consummation of the loan, their component and total charges, and
the fact that the creditor will permit the consumer to choose the
providers for those services will promote the informed use of credit
and more effective advance disclosure of settlement costs, which are
purposes of TILA and RESPA respectively. Dodd-Frank Act sections
1032(a) and 1405(b) are also sources of authority for the proposed
requirements in Sec. 1026.37(f)(3). The information disclosed under
Sec. 1026.37(f)(3) will enable consumers to understand and negotiate
fees, shop for a mortgage loan, and compare the Loan Estimate with any
revised Loan Estimate and the Closing Disclosure, thereby ensuring that
the features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the
reasons stated above, the proposed disclosure is in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b).
As discussed above, the Bureau is aware of concerns that
itemization may encourage creditors to list numerous component charges
that the RESPA GFE currently requires to be consolidated. The Bureau
invites comment on whether other limits on itemization, in addition to
the proposed limits on the number of charges that may be itemized
pursuant to Sec. 1026.37(f)(3), should be included in the final rule
and, if so, what those limits should be.
Proposed comment 37(f)(3)-1 provides cross-references to comments
19(e)(3)(ii)-1 through -3, 19(e)(3)(iii)-2, and 19(e)(3)(iv)-1 through
-3 for discussions of determining good faith in estimating the costs
for required services when the consumer is permitted to choose the
provider of those services. Proposed comment 37(f)(3)-2 provides
examples of the services that might be listed under ``Services You Can
Shop For.'' Proposed comment 37(f)(3)-3 provides cross-references to
comments 37(f)(2)-3 and -4 for guidance on services that would be
labeled beginning with ``Title--'' and on calculating the amount
disclosed for lender's title insurance, and it cross-references comment
37(g)(4)-1 for the disclosure of the premium for owner's title
insurance.
37(f)(4) Total Loan Costs
Proposed Sec. 1026.37(f)(4) requires the creditor to disclose,
labeled ``Total Loan Costs,'' the sum of the subtotals disclosed under
Sec. 1026.37(f)(1) through (3) for Origination Charges, Services You
Cannot Shop For, and Services You Can Shop For, respectively. This
total represents all costs that the creditor and mortgage broker impose
in connection with the transaction.
Although a comparable total is not required to be stated on the
current RESPA GFE, the same costs are included in other subtotals on
the RESPA GFE. The Bureau believes that grouping and subtotaling these
items in this way will provide better information to the consumer about
costs that are specific to obtaining the mortgage loan from the
creditor. Other costs that the consumer may encounter as part of the
transfer of ownership of the property are generally related to items
and requirements for which the amounts are controlled by other entities
or persons, including governmental jurisdictions and the consumer, and
are addressed in proposed Sec. 1026.37(g). Accordingly, disclosure of
this information will promote the informed use of credit and more
effective advance notice of settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a). It will also ensure that the
features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to better understand the costs, benefits, and risks associated with
mortgage transactions, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the
reasons stated above, the proposed disclosure is in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b).
37(f)(5) Item Descriptions and Ordering
Proposed Sec. 1026.37(f)(5) requires the creditor to use
terminology that briefly
[[Page 51214]]
and clearly describes each item disclosed under Sec. 1026.37(f).
Except for the item for points that the consumer will pay, which must
be listed as the first item under the subheading ``Origination
Charges,'' all items must be listed in alphabetical order under the
applicable subheading. The current RESPA GFE and early TILA disclosure
do not include a similar requirement. The Bureau believes that a
consistent listing of the costs that appear on the Loan Estimate and
the Closing Disclosure will facilitate the consumer's comparison of the
two disclosure documents and understanding of the transaction as a
whole. Accordingly, this requirement will effectuate the purposes of
TILA and RESPA by promoting the informed use of credit and more
effective advance notice of settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a), and will ensure that the
features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to better understand the costs, benefits, and risks associated with
mortgage transactions, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a).
37(f)(6) Use of Addenda
Proposed Sec. 1026.37(f)(6) provides that addenda may not be used
to itemize disclosures required by Sec. 1026.37(f)(1) or (2). If the
creditor is not able to itemize all of the charges required to be
disclosed in the number of lines provided under Sec. 1026.37(f)(1)(ii)
and (f)(2)(ii), the remaining charges must be disclosed as an aggregate
amount in the last line permitted under the applicable paragraph. An
addendum may be used to itemize disclosures required by Sec.
1026.37(f)(3), or any remaining charges may be disclosed as an
aggregate amount in the last line permitted under paragraph (f)(3). The
Bureau is proposing the requirements in Sec. 1026.37(f)(6) pursuant to
its authority under TILA section 105(a) and RESPA section 19(a) because
standardization of the information provided on the disclosures required
under Sec. 1026.19(e) will provide consistent information that
consumers will be able to use to better understand the mortgage
transaction, shop for loans, and compare the Loan Estimate with any
revised Loan Estimate and the Closing Disclosure, thereby promoting the
informed use of credit and more effective advance disclosure of
settlement costs, which are purposes of TILA and RESPA respectively.
This standardization will also ensure that the features of the mortgage
transactions are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to more readily understand
the costs, benefits, and risks associated with the mortgage
transaction, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), which is also a source of authority for
the proposed requirements.
Proposed comment 37(f)(6)-1 clarifies that a creditor is permitted
to provide additional disclosures that are required by State law, as
long as those disclosures are provided on a document whose pages are
separate from, and are not presented as part of, the disclosures
provided in accordance with Sec. 1026.37(f). Proposed comment
37(f)(6)-2 provides an example of a label that may be used to reference
an addendum as permitted under Sec. 1026.37(f)(6)(ii).
37(g) Closing Cost Details; Other Costs
Under section 5(c) of RESPA, creditors must provide mortgage loan
applicants with a good faith estimate of the amount or range of charges
for specific settlement services the applicant is likely to incur in
connection with the consummation of the loan. 12 U.S.C. 2604(c).
Section 1024.7 of Regulation X implements this mandate by requiring
creditors and mortgage brokers to provide the GFE, which must be
completed in accordance with the instructions in appendix C to
Regulation X. Appendix C sets out specific instructions for the
information that must be disclosed on the GFE, including which loan
costs must be included and how to identify those costs on the GFE.
As discussed above, Dodd-Frank Act section 1032(f) requires the
Bureau to combine these RESPA disclosures with the pre-consummation
disclosures required by TILA. In addition to existing TILA disclosure
requirements, section 1419 of the Dodd-Frank Act amended TILA section
128(a) to require, in the case of a residential mortgage loan,
disclosure of the aggregate amount of settlement charges for all
settlement services provided in connection with the loan and the
aggregate amount of other fees or required payments in connection with
the loan. 15 U.S.C. 1638(a)(17).
Pursuant to its authority under Dodd-Frank Act section 1032(f),
TILA section 105(a), and RESPA section 19(a), the Bureau proposes to
require creditors to disclose the loan costs and other costs imposed
upon the consumer in tables as part of the integrated Loan Estimate.
Proposed Sec. 1026.37(f) and (g) implement the early disclosure
requirements in TILA and RESPA by setting out details relating to the
costs for consummating the mortgage loan, including loan costs and
other costs. Based on its consumer testing, the Bureau believes that
early disclosure of estimated loan costs and other costs, as set forth
in proposed Sec. 1026.37(f) and (g), will improve consumer
understanding of the credit and property transactions. The Bureau
believes that these disclosures will effectuate the purpose of TILA by
promoting the informed use of credit and assuring a meaningful
disclosure to consumers. The Bureau believes that the disclosures will
also satisfy the RESPA requirement to provide a consumer with a good
faith estimate of the amount or range of charges for specific
settlement services the consumer is likely to incur in connection with
the closing. Dodd-Frank Act sections 1032(a) and 1405(b) are also
sources of authority for the proposed rule. These disclosures will
ensure that the features of the mortgage transactions are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the mortgage transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated above, the proposed rule is in the
interest of consumers and in the public interest, consistent with Dodd-
Frank Act section 1405(b).
Proposed Sec. 1026.37(g) requires creditors to disclose as ``Other
Costs'' on the Loan Estimate certain items that are in addition to the
Loan Costs that are specifically required by the creditor before
consummation of a credit transaction and are disclosed pursuant to
Sec. 1026.37(f). The ``Other Costs'' disclosed pursuant to Sec.
1026.37(g) are necessary to complete the real estate closing. These
items usually concern payments for governmental requirements, insurance
premiums, and items that are charged by parties to the property
transaction other than the creditor. The creditor must disclose under
four subheadings individual itemized charges, along with subtotals for
categories of those itemized charges.
Consumer feedback from the Bureau's consumer testing indicated that
clear amounts for the total costs of the loan and real estate closing
were also important to consumers' understanding of the complete
transaction. Consistent with that feedback, under two additional
subheadings, the creditor must disclose the total of Other Costs and
the total of Loan Costs plus Other Costs. In general, all of these
charges are currently required to be disclosed--as itemized or
aggregate charges and
[[Page 51215]]
amounts--on the RESPA GFE, the RESPA settlement statement, or both.
Combining these charges and totals into the disclosures required by
Sec. 1026.19(e) will enable consumers to understand the services and
charges related to the loan and property transactions, shop for the
loan and certain services, and compare the Loan Estimate with any
revised Loan Estimate and the Closing Disclosure, thereby ensuring that
the features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). Proposed comment 37(g)-
1 describes the kinds of charges that are disclosed under Sec.
1026.37(g). Proposed comment 37(g)-2 clarifies that items that are paid
at or before closing under the real estate contract are not disclosed
on the Loan Estimate, except to the extent the creditor is aware of
those charges at the time the Loan Estimate is issued. These items will
be disclosed, however, in the Closing Disclosure pursuant to Sec.
1026.38(f), (g), (j) and (k).
37(g)(1) Taxes and Other Government Fees
Proposed Sec. 1026.37(g)(1) requires the disclosure of taxes and
other government fees for recording of documents and transfer taxes
assessed against the purchase price of a real estate contract or the
loan amount. Recording fees differ from transfer taxes because
recording fees are based on the nature or physical characteristics of
the document being recorded and are not based on the sales price or
loan amount. The Bureau is proposing the requirements in Sec.
1026.37(g)(1) pursuant to its authority under TILA section 105(a) and
RESPA section 19(a) because disclosure of taxes and government fees
required to be paid in the real estate closing will educate consumers
about costs they must be prepared to pay in the transaction, thereby
promoting the informed use of credit and more effective advance
disclosure of settlement costs, which are purposes of TILA and RESPA
respectively. Dodd-Frank Act sections 1032(a) and 1405(b) are also
sources of authority for the proposed requirements in Sec.
1026.37(g)(1). This information also ensures that the features of the
mortgage transactions are fully, accurately, and effectively disclosed
to consumers in a manner that permits consumers to understand the
costs, benefits, and risks associated with the mortgage transaction, in
light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a). Furthermore, for the reasons stated above, the
proposed disclosure is in the interest of consumers and in the public
interest, consistent with Dodd-Frank Act section 1405(b).
Proposed comment 37(g)(1)-1 clarifies that recording fees are
assessed by a government authority in order to record and index
documents related to property transfers under State or local law.
Proposed comment 37(g)(1)-2 clarifies that government charges that are
not transfer taxes are disclosed with recording fees under Sec.
1026.37(g)(1)(i). Proposed comment 37(g)(1)-3 explains that, in
general, transfer taxes are State and local government fees on
mortgages and home sales that are based on the loan amount or sales
price. Proposed comment 37(g)(1)-4 clarifies that the only transfer
taxes disclosed under Sec. 1026.37(g)(1) are transfer taxes imposed on
the consumer, as determined under State or local law, and that if
unpaid transfer taxes can result in a lien being placed on the property
of the consumer, the transfer tax is disclosed under Sec.
1026.37(g)(1). The comment further clarifies that if State or local law
is unclear, or does not specifically attribute the transfer tax, the
creditor may use common practice in the locality of the property to
apportion the amount of the transfer tax disclosed as paid by the
consumer under Sec. 1026.37(g)(1). This comment is consistent with
guidance provided by HUD in the HUD RESPA FAQs p.34, 2 (``GFE-
Block 8''). Proposed comment 37(g)(1)-5 explains that although transfer
taxes paid by the seller in a purchase transaction are not disclosed
pursuant to Sec. 1026.37(g), they will be disclosed on the Closing
Disclosure under Sec. 1026.38(g)(1)(ii). Proposed comment 37(g)(1)-6
clarifies that the lines and labels required under Sec. 1026.37(g)(1)
may not be deleted, and that additional items may not be listed under
the subheading.
37(g)(2) Prepaids
Proposed Sec. 1026.37(g)(2) requires the disclosure of prepaid
charges for real estate property taxes, insurance premiums, and other
items that must be paid to insure the property or satisfy real estate
tax obligations, as well as other charges that must be satisfied before
consummation of the credit transaction and the real estate closing.
Proposed Sec. 1026.37(g)(2) also prescribes some of the items, and
additional information about those items, that must be included under
the subheading ``Prepaids.'' The Bureau is proposing the requirements
in Sec. 1026.37(g)(2) pursuant to its authority under TILA section
105(a) and RESPA section 19(a) because disclosure of charges that must
be satisfied as part of the mortgage transaction will educate consumers
about costs they must be prepared to pay, thereby promoting the
informed use of credit and more effective advance disclosure of
settlement costs, which are purposes of TILA and RESPA respectively.
Dodd-Frank Act sections 1032(a) and 1405(b) are also sources of
authority for the proposed requirements. This information ensures that
the features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
transaction, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a). Furthermore, for the reasons stated
above, the proposed disclosure is in the interest of consumers and in
the public interest, consistent with Dodd-Frank Act section 1405(b).
Proposed comment 37(g)(2)-1 provides examples of other periodic
charges that are required to be paid at consummation and are disclosed
under Sec. 1026.37(g)(2). Proposed comment 37(g)(2)-2 clarifies that
the interest rate disclosed under Sec. 1026.37(g)(2)(iii) is the same
interest rate that is disclosed under Sec. 1026.37(b)(2). Proposed
comment 37(g)(2)-3 clarifies that the terms ``property taxes,''
``homeowner's insurance,'' and ``mortgage insurance'' have the same
meaning as those terms are used under Sec. 1026.37(c) and its
commentary. Proposed comment 37(g)(2)-4 clarifies that the lines and
labels required under Sec. 1026.37(g)(2) may not be deleted.
37(g)(3) Initial Escrow Payment at Closing
Proposed Sec. 1026.37(g)(3) requires the disclosure of the initial
payments to establish an escrow account to pay for future recurring
charges. Disclosure of these amounts is required under Sec. 1024.7 and
Sec. 1024.17 of Regulation X, and the items and amounts must be
disclosed in Block 9 of the RESPA GFE. Proposed Sec. 1026.37(g)(3)
also prescribes some of the items, and additional information about
those items, that must be included under the subheading ``Initial
Escrow Payment at Closing.'' The Bureau is proposing the requirements
in Sec. 1026.37(g)(3) pursuant to its authority under TILA section
105(a) and RESPA section 19(a) because disclosure of initial payments
that consumers are required to make to establish escrow accounts for
future recurring charges will educate
[[Page 51216]]
consumers about costs they must be prepared to pay in the mortgage
transaction, thereby promoting the informed use of credit and more
effective advance disclosure of settlement costs, which are purposes of
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and
1405(b) are also sources of authority for the proposed requirements.
This information ensures that the features of the mortgage transactions
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated above, the proposed disclosure is
in the interest of consumers and in the public interest, consistent
with Dodd-Frank Act section 1405(b).
Proposed comment 37(g)(3)-1 clarifies that for any item required to
be listed that is not charged to the consumer, the monthly payment
amount and time period may be left blank, but the dollar amount for the
item must be shown as zero. Proposed comment 37(g)(3)-2 clarifies that
the aggregate escrow account adjustment required for the HUD-1
settlement statement under Regulation X Sec. 1024.17(d)(2) is not
included on the Loan Estimate, but is included on the Closing
Disclosure under Sec. 1026.38(g)(3). Proposed comment 38(g)(3)-3
clarifies that ``property taxes,'' ``homeowner's insurance,'' and
``mortgage insurance'' have the same meaning as those terms are used
under Sec. 1026.37(c) and its commentary. Proposed comment 37(g)(3)-4
clarifies that the lines and labels required under Sec. 1026.37(g)(3)
may not be deleted.
37(g)(4) Other
Proposed Sec. 1026.37(g)(4) requires the disclosure of any other
items that the consumer has become legally obligated to pay in
connection with the transaction, to the extent that the existence of
these items is known by the creditor at the time the Loan Estimate is
issued. The label for any item that is a component of title insurance
must include the description ``Title--'' at the beginning. The label
for all items for which the amounts disclosed are premiums for separate
optional insurance, warranty, guarantee, or event-coverage products
must include the parenthetical ``(optional)'' at the end. The items
disclosed under proposed Sec. 1026.37(g)(4) are not required by the
creditor. These items are also not additional coverage or endorsements
added to products required by the creditor. Accordingly, they are not
disclosed under other paragraphs of proposed Sec. 1026.37(f) or (g)
and are disclosed under the subheading ``Other.'' These items are
voluntary products that the consumer may be likely or may have already
elected to purchase, and of which the creditor knows or is aware. The
Bureau is proposing the requirements in Sec. 1026.37(g)(4) pursuant to
its authority under TILA section 105(a) and RESPA section 19(a) because
disclosure of payments that consumers are likely to pay in a mortgage
transaction will educate consumers about costs they must be prepared to
pay at closing, thereby promoting the informed use of credit and more
effective advance disclosure of settlement costs, which are purposes of
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and
1405(b) are also sources of authority for the proposed requirements.
This information ensures that the features of the mortgage transactions
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the transaction in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated above, the proposed disclosure is
in the interest of consumers and in the public interest, consistent
with Dodd-Frank Act section 1405(b).
Proposed comment 37(g)(4)-1 clarifies that any owner's title
insurance policy premium disclosed under Sec. 1026.37(g)(4) is based
on a basic rate, and not an ``enhanced'' premium. This comment is
consistent with guidance provided in the HUD RESPA FAQs p.33,
3 (``GFE-Block 5''). Proposed comment 37(g)(4)-1 also provides
an example of a label for owner's title insurance and cross-references
comment 37(f)(2)-4 for disclosure of the premium for lender's title
insurance. Proposed comment 37(g)(4)-2 clarifies that any title
insurance policy disclosed on the Loan Estimate based on a simultaneous
issuance calculation must be disclosed by adding the full owner's title
insurance premium plus the simultaneous issuance premium, and then
deducting the amount of the lender's title at the full premium rate.
Proposed comment 37(g)(4)-3 provides examples of products to which the
description ``(optional'') applies and cross-references comments
4(b)(7) and (b)(8)-1 through -3 and comments 4(b)(10)-1 and -2 for
descriptions and guidance concerning disclosure of premiums for credit
life, debt suspension, and debt cancellation coverage. Proposed comment
37(g)(4)-4 provides examples of other items that are disclosed under
Sec. 1026.37(g)(4) if known by the creditor at the time the Loan
Estimate is issued and refers to comment 19(e)(3)(iii)-3 concerning
application of the good faith requirement for services that are not
required by the creditor.
37(g)(5) Total Other Costs
Proposed Sec. 1026.37(g)(5) requires disclosure under the
subheading ``Total Other Costs'' of the sum of the subtotals disclosed
pursuant to paragraphs (g)(1) through (g)(4). The Bureau is proposing
the requirements in Sec. 1026.37(g)(5) pursuant to its authority under
TILA section 105(a) and RESPA section 19(a) because disclosure of the
total of the charges consumers must pay, in addition to charges for
consummating the loan, will promote the informed use of credit and more
effective advance disclosure of settlement costs, which are purposes of
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and
1405(b) are also sources of authority for the proposed requirements.
This information ensures that the features of the mortgage transactions
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the mortgage transaction in light of the facts
and circumstances, consistent with Dodd-Frank Act section 1032(a).
Furthermore, for the reasons stated above, the proposed disclosure is
in the interest of consumers and in the public interest, consistent
with Dodd-Frank Act section 1405(b).
37(g)(6) Total Closing Costs
Proposed Sec. 1026.37(g)(6) requires the disclosure under the
subheading ``Total Closing Costs'' of a subtotal of the items disclosed
as ``Total Loan Costs'' and ``Total Other Costs'' pursuant to
paragraphs (f)(4) and (g)(5); the amount of any generalized lender
credits to be provided at consummation, stated as a negative number;
and the sum of the subtotal of loan and other costs and the (negative)
amount of lender credits. The Bureau is proposing the requirements in
Sec. 1026.37(g)(6) pursuant to its authority under TILA section 105(a)
and RESPA section 19(a) because disclosure of the total amounts
consumers must pay to consummate the loan and close the property
transaction will promote the informed use of credit and more effective
advance disclosure of settlement costs, which are purposes of TILA and
RESPA respectively. Dodd-
[[Page 51217]]
Frank Act sections 1032(a) and 1405(b) are also sources of authority
for the proposed requirements. This information ensures that the
features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
mortgage transaction in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the
reasons stated above, the proposed disclosure is in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b). Proposed comment 37(g)(6)(iii)-1 clarifies that
generalized lender credits not associated with a particular service are
disclosed under Sec. 1026.37(g)(6)(iii), but lender credits for
specific items disclosed on the Loan Estimate are disclosed as paid by
others on the Closing Disclosure under Sec. 1026.38(f) and (g), as
applicable.
37(g)(7) Item Descriptions and Ordering
In identifying the items listed as Other Costs, the creditor is
required to use terminology that briefly and clearly describes the
item. All items must be listed in alphabetical order following the
items prescribed to be included under the subheading. The current RESPA
GFE and early TILA disclosure do not include a similar requirement. The
Bureau is proposing the requirements in Sec. 1026.37(g)(7) pursuant to
its authority under TILA section 105(a) and RESPA section 19(a) because
a consistent listing of the costs that appear on the Loan Estimate and
the Closing Disclosure will facilitate the consumer's comparison of the
two disclosure documents and understanding of the transaction as a
whole, thereby promoting the informed use of credit and more effective
advance disclosure of settlement costs, which are purposes of TILA and
RESPA respectively. This requirement also will ensure that the features
of the mortgage transactions are fully, accurately, and effectively
disclosed to consumers in a manner that permit consumers to understand
the costs, benefits, and risks associated with the mortgage transaction
in light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a).
37(g)(8) Use of Addenda
Proposed Sec. 1026.37(g)(8) provides that addenda may not be used
to itemize disclosures required by Sec. 1026.37(g). If the creditor is
not able to itemize all of the charges required to be disclosed in the
number of lines provided under a subheading, the remaining charges must
be disclosed as an aggregate amount in the last line permitted under
the applicable subheading. The Bureau is proposing the requirements in
Sec. 1026.37(g)(8) pursuant to its authority under TILA section 105(a)
and RESPA section 19(a) because standardization of the information
provided on the disclosures required under Sec. 1026.19(e) will
provide consistent information that consumers will be able to use to
better understand the mortgage transaction, shop for loans, and compare
the Loan Estimate with any revised Loan Estimate and the Closing
Disclosure, thereby promoting the informed use of credit and more
effective advance disclosure of settlement costs, which are purposes of
TILA and RESPA respectively. This standardization will also ensure that
the features of the mortgage transactions are fully, accurately, and
effectively disclosed to consumers in a manner that permit consumers to
more readily understand the costs, benefits, and risks associated with
the mortgage transaction in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a), which is also a source
of authority for the proposed requirements.
Proposed comment 37(g)(8)-1 clarifies that a creditor is permitted
to provide additional disclosures that are required by State law, as
long as those disclosures are provided on a separate document whose
pages are physically separate from, and are not presented as part of,
the disclosures provided in accordance with Sec. 1026.37.
37(h) Calculating Cash To Close
Pursuant to its authority under TILA section 105(a) and Dodd-Frank
Act section 1032(a), the Bureau proposes Sec. 1026.37(h), which
requires the disclosure of the calculation of an estimate of the cash
needed from the consumer at consummation of the transaction. In
addition to promoting the informed use of credit (which is a purpose of
TILA), this disclosure would ensure that the features of the
transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product, in light of the facts
and circumstances, consistent with section 1032(a) of the Dodd-Frank
Act. Proposed comment 37(h)-1 clarifies that the labels to be used on
the Loan Estimate for each amount must match their description in
proposed Sec. 1026.37(h)(1) to (7).
37(h)(1) Total Closing Costs
37(h)(2) Closing Costs To Be Financed
Under Sec. 1026.37(h)(1), the total closing costs would be
disclosed as calculated under Sec. 1026.37(g)(6) as a positive number.
Under Sec. 1026.37(h)(2), the amount of the closing costs to be paid
from loan proceeds would be disclosed as a negative number.
37(h)(3) Downpayment and Other Funds From Borrower
Under Sec. 1026.37(h)(3), the amount of the downpayment and other
funds from consumer at consummation would be disclosed as a positive
number. In a purchase transaction the downpayment would be calculated
as the difference between the purchase price of the property and the
principal amount of the credit. In all other transactions, the funds
from the consumer would be calculated under Sec. 1026.37(h)(5).
37(h)(4) Deposit
Under proposed Sec. 1026.37(h)(4), the amount that is paid to the
seller or held in trust or escrow by a third party pursuant to the
terms of a contract for sale of real estate disclosed as a negative
number. Proposed comment 37(h)(4)-1 clarifies that in any transaction
other than a purchase transaction, the amount disclosed under proposed
Sec. 1026.37(h)(4) must be $0.
37(h)(5) Funds for Borrower
Under proposed Sec. 1026.37(h)(5), the amounts to be disclosed
under both Sec. 1026.37(h)(3) and Sec. 1026.37(h)(5) are calculated
by subtracting the amount of debt being satisfied by the real estate
transaction and the amount of the credit extended by the new loan,
excluding any amount under Sec. 1026.37(h)(2) since that amount of the
credit extended has already been accounted for in the cash to close
calculation by inclusion in Sec. 1026.37(h)(2). Funds for Borrower''
is intended to generally represent the amount anticipated to be
disbursed to the consumer or used at consumer's discretion at
consummation of the transaction, such as in cash-out refinance
transactions. The determination of whether the transaction will result
in ``Funds for Borrower'' is made under proposed Sec. 1026.37(h)(5).
When the result of the calculation is positive, that amount is
disclosed under Sec. 1026.37(h)(3), and $0.00 is disclosed under Sec.
1026.37(h)(5). When the result of the calculation is negative, that
amount is disclosed under Sec. 1026.37(h)(5), and $0.00 is disclosed
under Sec. 1026.37(h)(3). When the result is $0.00, $0.00 is disclosed
in both Sec. Sec. 1026.37(h)(3) and 1026.37(h)(5).
[[Page 51218]]
37(h)(6) Seller Credits
Under proposed Sec. 1026.37(h)(6), the amount of any seller
credit, to the extent known by the creditor, is disclosed as a negative
number. Proposed comment 37(6)-1 clarifies that seller credits known by
the creditor at the time of application are disclosed under Sec.
1026.37(h)(6), and that seller credits that are not known by the
creditor are not disclosed under Sec. 1026.37(h)(6).
37(h)(7) Adjustments and Other Credits
Under proposed Sec. 1026.37(h)(7) the amount of other credits for
all loan costs and other costs, to the extent known, that are to be
paid by persons other than the loan originator, creditor, consumer, or
seller disclosed as a negative number. Proposed comment 37(h)(7)-1
clarifies that amounts expected to be paid by third parties not
involved in the transaction, such as gifts from family members and not
otherwise identified under Sec. 1026.37(h), would be included in this
amount to the extent known by the creditor. Proposed comment 37(h)(7)-2
clarifies that the term ``persons'' as used in Sec. 1026.37(h)(7)
includes all individuals and any entity, regardless of the legal
structure of such entity. Proposed comment 37(h)(7)-3 clarifies that
only credits from parties other than the creditor or seller can be
disclosed pursuant to Sec. 1026.37(h)(7). Seller credits and credits
from the creditor are disclosed pursuant to Sec. 1026.37(h)(6) and
Sec. 1026.37(g)(6)(ii), respectively. Proposed comment 37(h)(7)-4
clarifies that other credits known by the creditor at the time of
application are disclosed under Sec. 1026.37(h)(7), and that other
credits that are not known by the creditor are not disclosed under
Sec. 1026.37(h)(6).
37(h)(8) Estimated Cash To Close
Under proposed Sec. 1026.37(h)(8) the total of the amounts
disclosed under proposed Sec. 1026.37(h)(1) to (7) is disclosed.
Proposed comment 37(h)(8)-1 clarifies that the sum total of Sec.
1026.37(h)(1) through (7) must be disclosed pursuant to Sec.
1026.37(h)(8) as either a positive number, a negative number, or zero.
A positive number indicates the estimated amount that the consumer can
be expected to pay at consummation to complete the transaction. A
negative number indicates the estimated amount that the consumer can
receive from the transaction at consummation. A result of zero
indicates that the consumer is anticipated to neither need to pay any
amount or receive any amount from the transaction at consummation.
37(i) Adjustable Payment Table
For certain credit transactions secured by a dwelling, TILA section
128(b)(2)(C)(ii) requires the disclosure of examples of adjustments to
the regular required payment on the extension of credit based on the
change in the interest rates specified by the contract. Among the
examples must be the maximum regular required payment based on the
maximum interest rate allowed under the contract. While this section
requires examples based on changes to the interest rates, the
requirement is triggered if either the interest rate may change or the
``regular payments may otherwise be variable.'' 15 U.S.C.
1638(b)(2)(C)(ii). TILA section 128(b)(2)(C)(ii) does not, however,
require the disclosure of the existence of loan terms that may cause
the periodic payment to adjust without a change to the interest rate.
The Bureau believes that, to promote the informed use of credit,
loan terms that may cause the periodic principal and interest payment
to adjust without a change to the interest rate (such as an optional
payment loan) or include a period during which the payment may not pay
principal (such as an interest-only period) or is not required to make
payments should be clearly disclosed to consumers. In the Bureau's
consumer testing, participants generally were able to use this
information to evaluate the credit terms of the loan disclosed.
For example, the Bureau provided mortgage disclosures for interest-
only loans to participants using a prototype of an ``adjustable payment
table'' at its consumer testing. The table displayed whether the loan
had an interest-only, optional-payment, or step-payment period; the
length of such period; the amount of the periodic principal and
interest payment at the first adjustment; the frequency and amounts of
subsequent adjustments; and the maximum possible principal and interest
payment under the terms of the loan. Participants were able to use this
table to determine the presence of the interest-only period and the
length of the period, as well as how the principal and interest
payments would change as a result. Also, participants were able to
understand that the purpose of the table generally was to inform them
about such features. They were able to determine from the prototype
table that the credit terms did not include one of the other features,
such as an optional-payment or step-payment period.
Proposed Sec. 1026.37(i) requires an Adjustable Payment (AP) table
to disclose examples of the required periodic principal and interest
payment, including the maximum possible required principal and interest
payment, for loans with terms that allow the principal and interest
payment to adjust not based on adjustments to the interest rate. In
contrast, proposed Sec. 1026.37(j) requires provision of an Adjustable
Interest Rate table for credit transactions with terms that permit the
interest rate to adjust after consummation. Proposed Sec.
1026.37(i)(1) through (3) requires the disclosure to state
affirmatively or negatively whether the loan has an interest-only,
payment-option, or step-payment period, and the length of such period.
Proposed Sec. 1026.37(i)(4) also requires the disclosure to state
affirmatively or negatively whether the loan has a seasonal payment
feature and the period during which periodic payments are affected by
such feature. As discussed above with respect to proposed Sec.
1026.37(a)(10), the Bureau understands that some loans may be
structured so that periodic principal and interest payments are not
required to be made by the consumer in between specified unit-periods
on a regular basis.
The format of the table as required by proposed Sec. 1026.37(o),
and as illustrated by form H-24 in appendix H to Regulation Z, provides
the affirmative or negative statement in bold text in the form of a
question and answer. In addition, the examples of the periodic
principal and interest payments are set apart from these answers by a
subheading in bold text. The Bureau believes, based on consumer
testing, that this format displays the information in a readily
visible, clear, and understandable manner for consumers.
The Bureau proposes these requirements pursuant to TILA section
128(b)(2)(C)(ii), and its authority under TILA section 105(a), section
1032(a) of the Dodd-Frank Act, and, for residential mortgage loans,
section 1405(b) of the Dodd-Frank Act. The Bureau proposes to use its
authority under TILA section 105(a) to require this information to be
disclosed for all transactions subject to Sec. 1026.19(e) and (f). The
Bureau believes this information may effectuate the purposes of TILA by
allowing consumers to compare more readily the different loan terms
available to them, and specifically, whether they contain such
adjustable or seasonal payment terms. In addition, consistent with
section 1032(a) of the Dodd-Frank Act, this disclosure would ensure
that the features of the transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks. In addition, the Bureau
believes this information may improve consumer awareness and
[[Page 51219]]
understanding of transactions involving residential mortgage loans and
is in the interest of consumers and the public interest.
Proposed comment 37(i)-1 clarifies that under Sec. 1026.37(i), the
AP table may only be disclosed if the periodic principal and interest
payment may change after consummation based on an adjustment that is
not an adjustment to the interest rate, or if the transaction is a
seasonal payment product as described in proposed Sec.
1026.37(a)(10)(ii)(E). The creditor is not permitted to disclose the
table if the loan terms do not meet these requirements, even if the
table is left blank or disclosed with an ``N/A'' within each row. The
Bureau believes that the inclusion of the AP table in such cases would
be unduly distracting and confusing to a consumer and could contribute
to information overload--especially if an entire table is included only
to be marked ``not applicable.'' As the information within the table
must be determined dynamically, depending on each transaction's terms,
the Bureau believes a requirement that it be omitted when not
applicable is unlikely to be a significant additional burden. This
comment references proposed comment 37-1, which clarifies the general
permission in proposed Sec. 1026.37 to provide the required
disclosures ``as applicable'' is subject to the more specific
prohibition in proposed Sec. 1026.37(i), which does not permit
disclosure of the AP table when it is not applicable. As the two
tables' numbers of rows and columns are determined dynamically,
depending on each transaction's terms, the Bureau believes a
requirement that they be omitted when not applicable is unlikely to be
a significant additional burden. The Bureau seeks comment on whether
this dynamic inclusion/exclusion requirement would be unduly burdensome
for creditors.
Proposed comment 37(i)-2 provides guidance and examples of how the
information required by proposed Sec. 1026.37(i)(1) through (4) should
be disclosed. Proposed comment 37(i)(5)-1 clarifies that the applicable
unit-period should be disclosed in the subheading required by proposed
Sec. 1026.37(i)(5). Proposed comment 38(i)(5)-2 provides guidance on
how to disclose the first payment adjustment required to be disclosed
by proposed Sec. 1026.37(i)(5)(i) when the exact payment number is
unknown at the time of the disclosure. Proposed comment 38(i)(5)-3
provides guidance regarding how to disclose the frequency of
adjustments to the periodic principal and interest payment after the
initial adjustment, as required by proposed Sec. 1026.37(i)(5)(ii).
Proposed comment 37(i)(5)-4 provides guidance regarding how to
calculate the maximum periodic principal and interest payment for
purposes of the disclosure required by proposed Sec.
1026.37(i)(5)(iii).
The format required by proposed Sec. 1026.37(o), and illustrated
by forms H-24(b) and (c) in appendix H to this part, provides the
information required by proposed Sec. 1026.37(i) in a concise,
organized table. This table appears immediately adjacent to the
Adjustable Interest Rate (AIR) Table required by proposed Sec.
1026.37(j) for loans that also permit the interest rate to adjust after
consummation. The table uses bold text for the questions and
capitalized ``yes'' and ``no'' text for the answers required by
proposed Sec. 1026.37(i)(1), (2), (3), and (4). The AP table also uses
bold text for the subheading required by proposed Sec. 1026.37(i)(5).
Based on its testing, the Bureau believes this format displays the
information in a clear, readily visible, and understandable manner for
consumers.
37(j) Adjustable Interest Rate Table
Currently, TILA does not expressly require disclosure of the
interest rate for closed-end credit. However, as noted above, for
closed-end credit secured by a dwelling, TILA section 128(b)(2)(C)(ii)
requires disclosure of examples of the periodic principal and interest
payment based on changes to the interest rate, including the maximum
principal and interest payment during the life of the loan. 15 U.S.C.
1638(b)(2)(C)(ii). Regulation Z Sec. 1026.18(s) currently requires,
for closed-end credit transactions with adjustable interest rates
secured by real property or a dwelling, disclosure of examples of the
interest rate and periodic principal and interest payments, including
the maximum of these amounts under the terms of the loan. For federally
related mortgage loans, Sec. 1024.7(d) of Regulation X currently
requires the summary table on page one of the RESPA GFE to disclose the
initial interest rate, labeled ``Your initial interest rate is.'' Then
below another row of the summary table stating the initial monthly
payment, the RESPA GFE states whether the interest rate is adjustable
as an affirmative or negative answer, labeled ``Can your interest rate
rise?'' If the answer is affirmative, the RESPA GFE states the maximum
interest rate and when the first change in the interest rate will occur
within the following sentence: ``It can rise to a maximum of ----%. The
first change will be in ----------.''
The Bureau believes that loan terms that can cause the interest
rate to adjust should be clearly disclosed to consumers. At the
Bureau's consumer testing, participants generally stated that
information regarding potential changes to the interest rate was
important in their evaluation of a loan. Participants generally
understood that the interest rate affected the amount of interest due
under the loan and used the information regarding potential changes to
the interest rate to evaluate loans. Although proposed Sec.
1026.37(b)(2) provides key information about interest rate adjustments,
the Bureau believes more detail regarding an adjustable interest rate
is important because it would provide consumers with additional detail
regarding potential changes to the interest and periodic payments that
may be useful in evaluating and comparing loans.
The Bureau provided mortgage disclosures for adjustable interest
rate loans to participants using a prototype of an ``Adjustable
Interest Rate Table'' at its consumer testing. The table displayed
information about the index and margin applicable to the loan, the
initial interest rate, the minimum and maximum interest rates during
the life of the loan, the frequency of changes to the interest rate,
and limits on the interest rate changes. Participants were able to
understand that the purpose of the table generally was to inform them
about the adjustable interest rate terms under the loan and often used
the table to compare adjustable-rate loans. The table enabled consumers
to determine the interest rate terms of the transaction and to compare
two adjustable-rate loans with different terms.
Therefore, the Bureau proposes to use its authority under TILA
section 105(a), section 1032(a) of the Dodd-Frank Act, and, for
residential mortgage loans, section 1405(b) of the Dodd-Frank Act to
require more detailed information regarding the terms of an adjustable
interest rate to be disclosed in a separate table, called the
Adjustable Interest Rate (AIR) Table, under proposed Sec. 1026.37(j).
The information regarding the index and margin applicable to the
interest rate changes, the lifetime cap and floor on the interest rate,
and limits on interest rate adjustments are not currently provided
together to consumers in a clear, readily visible, and understandable
manner. Consumers can find this information within the promissory note,
but they typically do not receive the promissory note until they are at
the closing table. Disclosure of this information in the Loan Estimate
and Closing Disclosure will enable consumers to verify whether these
terms
[[Page 51220]]
have changed during the loan process. This is especially important if
the index and margin have changed or the lifetime maximum interest rate
has changed, because such changes can significantly affect the amounts
of periodic payments over the life of the loan.
As described above, participants in the Bureau's consumer testing
used much of this information and generally considered interest rate
information to be an important factor in evaluating a loan.
Participants were able to compare this information between loans and
between the disclosures provided after application and prior to loan
closing. The Bureau believes this information may enable consumers to
understand and compare credit terms more readily, effectuating the
purposes of TILA. For similar reasons, the Bureau believes this
disclosure will ensure that the features of the transactions are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks, in
light of the facts and circumstances, consistent with section 1032(a)
of the Dodd-Frank Act. The Bureau also believe this information will
improve consumer awareness and understanding of transactions involving
residential mortgage loans through the use of disclosures, and is in
the interest of consumers and in the public interest.
Proposed Sec. 1026.37(j) requires disclosure of the index and
margin for an adjustable rate loan for which the interest rate will
adjust according to an external index. For a loan with an interest rate
that changes based on scheduled or pre-determined interest rate
adjustments and does not also change based on the adjustment of an
external index, such as a ``step-rate'' product, proposed Sec.
1026.37(j) requires disclosure of the amount of any adjustments to the
interest rate that are scheduled and their frequency. The table also
requires disclosure of: (i) The interest rate at consummation of the
loan transaction; (ii) the minimum and maximum possible interest rates
after the introductory rate expires; (iii) the maximum possible change
for the first adjustment of the interest rate; (iv) the maximum
possible change for subsequent adjustments of the interest rate; (v)
the number of months after interest for the first regularly scheduled
periodic principal and interest payment begins to accrue when the
interest rate may first change; and (vi) the frequency of subsequent
interest rate adjustments.
Proposed comment 37(j)-1 clarifies that the table required by
proposed Sec. 1026.37(j) may only be provided in the Loan Estimate
when the interest rate may change after consummation. The creditor is
not permitted to disclose the table in the Loan Estimate if the
interest rate will remain fixed, even if the table is left blank or
disclosed with an ``N/A'' within each row. As with the AP table, the
Bureau believes that the inclusion of the AIR table in such cases would
be unduly distracting and confusing to a consumer and potentially cause
information overload--especially if an entire table is included only to
be marked ``not applicable.'' As the information within the table must
be determined dynamically, depending on each transaction's terms, the
Bureau believes a requirement that it be omitted when not applicable is
unlikely to be a significant additional burden. In the discussion of
proposed Sec. 1026.37(i) above, the Bureau seeks comment on whether
this dynamic inclusion/exclusion requirement would be unduly burdensome
for creditors.
Proposed comment 37(j)(1)-1 provides guidance regarding how the
name of the index may be shortened. Proposed comment 37(j)(2)-1
clarifies that the table discloses the information required by proposed
Sec. 1026.37(j)(2) only if the loan does not also permit the interest
rate to adjust according to an external index. Proposed comment
37(j)(3)-1 provides guidance regarding the initial interest rate that
must be disclosed. Proposed comment 37(j)(4)-1 clarifies how the
minimum interest rate should be disclosed if the legal obligation does
not state a minimum rate. Proposed comment 37(j)(4)-2 clarifies how the
maximum interest rate should be disclosed if the legal obligation does
not state a maximum interest rate. While Sec. 1026.30 currently
provides that a creditor must include a maximum interest rate in any
closed-end consumer credit contract secured by a dwelling for which the
annual percentage rate may increase after consummation, that section
applies only to transactions secured by a dwelling. The disclosure
required by proposed Sec. 1026.37(j)(4) applies to transactions
subject to Sec. 1026.19(e), which includes consumer credit
transactions secured by real property, which may not include a
dwelling.
Proposed comment 37(j)(5)-1 clarifies that if the exact month of
the first adjustment to the interest rate is not known at the time the
disclosure is provided, the earliest possible month must be disclosed
under proposed Sec. 1026.37(j)(6). Proposed comment 37(j)(6)-1
clarifies that when more than one limit applies to subsequent
adjustments to the interest rate, the largest amount must be disclosed
under proposed Sec. 1026.37(j)(6).
The format required by proposed Sec. 1026.37(o), and illustrated
by proposed form H-24(C) in appendix H to this part, provides the
information required by proposed Sec. 1026.37(j) in a concise, single
table. This table appears immediately adjacent to the AP table required
by proposed Sec. 1026.37(i) for loans that permit the periodic
principal and interest payment to adjust based on an adjustment other
than an adjustment to the interest rate. The table uses concise labels
and bold subheadings for disclosures of the frequency of interest rate
changes and the limits on interest rate changes. Based on its testing,
the Bureau believes this format displays the information in a clear,
readily visible, and understandable manner for consumers.
37(k) Contact Information
Under TILA section 128(a)(1) and Regulation Z Sec. 1026.18(a), the
TILA disclosures must include the identity of the creditor. Comment
18(a)-1 clarifies that the ``identity'' of the creditor must include
the name of the creditor, but may also include the creditor's address
and/or telephone number. As stated in appendix C to Regulation X, the
RESPA GFE must include the name, address, phone number, and email
address (if any) of the loan originator.
TILA, RESPA, and their implementing regulations do not currently
require the disclosure of contact information for the individual loan
officer, however. Therefore, the Bureau is proposing to require that
the Loan Estimate contain certain contact information for the loan
officer as set forth in proposed Sec. 1026.37(k) based on its
authority under TILA section 105(a), RESPA section 19(a), Dodd-Frank
Act section 1032(a), and, for residential mortgage loans, Dodd-Frank
Act section 1405(b). The Bureau believes that this contact information
will effectuate the purposes of TILA and RESPA by facilitating the
informed use of credit and ensuring that consumers are provided with
greater and more timely information on the costs of the settlement
process. Providing consumers with multiple types of contact information
for the loan officers with whom they interact on the transaction will
allow consumers easier access to information relevant to the
transaction (including costs), which in turn ensures that the features
of the transaction are fully, accurately, and effectively disclosed to
consumers in a matter that permits consumers to understand the costs,
benefits, and risks associated with the transaction in light of the
facts and circumstances, consistent with Dodd-Frank Act section
1032(a). The Bureau also believes such
[[Page 51221]]
disclosure will improve consumers' awareness and understanding of
residential mortgage transactions, which is in the interest of
consumers and the public, consistent with Dodd-Frank Act section
1405(b).
In light of the differing requirements under TILA and RESPA with
regard to the types of contact information disclosed on the early TILA
disclosure and RESPA GFE, respectively, the Bureau also is proposing
Sec. 1026.37(k) based on its mandate under sections 1032(f), 1098, and
1100A of the Dodd-Frank Act to propose rules and forms that combine the
disclosures required under TILA and sections 4 and 5 of RESPA into a
single, integrated disclosure for mortgage loan transactions covered by
those laws. As discussed above, appendix C to Regulation X states that
the RESPA GFE must include the name, address, phone number, and email
address (if any) of the loan originator. Thus, as part of the Bureau's
statutory mandate to integrate the TILA and RESPA disclosures, the
Bureau must integrate the disclosures currently required under
Regulation X with the TILA-mandated disclosures of the creditor's
identity, discussed above.
Furthermore, TILA section 129B(b)(1)(B), 15 U.S.C. 1639b(b)(1)(B),
which was added by section 1402(a)(2) of the Dodd-Frank Act, mandates
that each mortgage originator include on all loan documents any unique
identifier of the mortgage originator provided by the Nationwide
Mortgage Licensing System and Registry (NMLSR or NMLS). TILA section
129B(b)(1)(B) will be implemented in a separate rulemaking. The Bureau
proposes to use its authority under TILA section 105(a) and Dodd-Frank
Act sections 1032(a) and, for residential mortgage loans, 1405(b) of
the Dodd-Frank Act to propose Sec. 1026.37(k) for transactions subject
to proposed Sec. 1026.19(e). Proposed Sec. 1026.37(k) requires
creditors to provide certain contact and licensing information for
themselves, the mortgage broker, and their respective loan officers, as
applicable. The Bureau expects to harmonize this proposal with the
rulemaking implementing TILA section 129B(b)(1)(B).
The Bureau believes that requiring on the Loan Estimate the
disclosure of the name and NMLSR identification number (NMLSR ID)
number, if any, for the creditor, mortgage broker, and the loan
officers employed by such entities, as applicable (or, if none, the
license number or other unique identifier, if any, issued by the
applicable State, locality, or other regulatory body with
responsibility for licensing and/or registering such entity's or
individual's business activities) may provide consumers with the
information they need to conduct the due diligence necessary to ensure
that any creditor, mortgage broker, and associated loan officer
selected to originate the loan are appropriately licensed. Having this
information may help consumers assess the risks associated with
services and service providers retained in connection with the
transaction, which in turn promotes the informed use of credit
(consistent with TILA section 105(a)), ensures that consumers are
provided with greater and more timely information on the costs of the
settlement process (consistent with RESPA section 19(a)), ensures that
the features of the transaction are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the transaction in light
of the facts and circumstances (consistent with Dodd-Frank Act section
1032(a)), and improves consumers' awareness and understanding of
residential mortgage transactions, which is in the interest of
consumers and the public (consistent with Dodd-Frank Act section
1405(b)).
Thus, under the master heading ``Additional Information About This
Loan,'' proposed Sec. 1026.37(k)(1) requires the name and NMLSR ID, if
any, for the creditor and the mortgage broker, if applicable. Proposed
Sec. 1026.37(k)(2) requires the name and NMLSR ID for the loan officer
associated with the creditor and mortgage broker identified in proposed
Sec. 1026.37(k)(1), if applicable. In the event the creditor, mortgage
broker, or individual loan officer has not been assigned an NMLSR ID,
proposed Sec. 1026.37(k)(1) and (2) require the license number or
other unique identifier issued by the applicable jurisdiction or
regulating body with which the creditor or mortgage broker is licensed
and/or registered to be disclosed, if any. Proposed Sec. 1026.37(k)(3)
requires an email address and phone number for each loan officer
identified in proposed Sec. 1026.37(k)(2).
Proposed comment 37(k)-1 provides a description of the NMLSR ID.
Proposed comment 37(k)-1 also references provisions of the Secure and
Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)
requiring individuals to register or obtain a license through the
NMLSR, and clarifies that the information required in Sec.
1026.37(k)(1) and (2) must be provided for any creditor, mortgage
broker, and loan officer that has obtained an NMLSR ID. Proposed
comment 37(k)-2 provides clarification as to the nature of the license
or other unique identifier that is to be disclosed in the event the
creditor, mortgage broker, or individual loan officer has not been
assigned an NMLSR ID. Proposed comment 37(k)-3 clarifies that the loan
officer is the individual who interacts most frequently with the
consumer and who has an NMLSR identification number or, if none, a
license number, or other unique identifier to be disclosed under
proposed Sec. 1026.37(k)(2), as applicable.
37(l) Comparisons
TILA generally focuses on disclosing the long-term cost of credit.
However, many of the disclosures required by the statute have proven
confusing for consumers. As discussed below and in part II above,
Federal agencies have long recognized that certain statutorily-required
disclosures, such as the finance charge and amount financed, are not
effective for communicating the cost of credit to consumers and that,
in some cases, the disclosures hinder consumers' ability to understand
their credit terms.
One problem with the TILA disclosures is consumer confusion between
common contract terms, such as interest rate and loan amount, and the
required statutory disclosures. For example, as discussed below,
consumer testing conducted by the Board indicates that consumers are
confused about the difference between the required TILA disclosure of
the ``amount financed'' and the amount of their loan or sale price of
the property. Similarly, the Board-HUD Joint Report and consumer
testing conducted by the Board and the Bureau indicates consumer
confusion over the difference between the contract interest rate and
the APR, in part because both are expressed in the form of a rate and
in part because of the difficulty in communicating to consumers the
meaning of the APR. Third, the TILA disclosures focus on the cost of
credit over the entire life of the loan, which is of limited use in the
context of mortgage lending since consumers generally do not hold those
loans for the entire loan term. As discussed below and in part III
above, the results of the Bureau's consumer testing is consistent with
these concerns.
The Bureau believes that providing consumers with useful tools to
compare loans is critical to carrying out the purposes of TILA, RESPA,
and the Dodd-Frank Act. Accordingly, for the reasons described below,
the Bureau is proposing to group several key metrics together on the
first page of the Loan Estimate and shift others to the last page of
the Loan Estimate. In addition, the
[[Page 51222]]
Bureau is proposing to provide certain items only on the Closing
Disclosure because they are less useful to consumers early in the
lending process and create the risk of undermining the effectiveness of
the Loan Estimate. The Bureau proposes this approach to the TILA
disclosures because consumer testing conducted by the Bureau, as well
as prior testing conducted by the Board, strongly indicates that
consumers benefit from a disclosure that highlights loan terms that are
useful to consumers in evaluating the cost of credit and consumers'
ability to afford those costs, such as the interest rate, monthly
payment amount, and amount of cash needed to close the loan, and
deemphasizes terms that have proven confusing or unhelpful to
consumers.
The proposed rule shifts some statutorily required disclosures from
the first page because the Bureau's consumer testing shows that
consumers benefit from this approach. The proposed forms focus on
presenting the basic loan terms and risk features to consumers first,
because these disclosures are critical to evaluating affordability and
facilitating comparison of loans. The Bureau's consumer testing
confirms that consumers are able to locate the longer-term measures of
the cost of credit, notwithstanding the fact that the proposed forms
shift those disclosures from the first page of the disclosure.
Moreover, the Bureau's consumer testing suggests that moving the
disclosure of the APR away from the disclosure of the loan's contract
interest rate and placing the APR with other long-term metrics may
reduce consumer confusion and highlight the APR as a special tool for
comparing costs over time.
Accordingly, proposed Sec. 1026.37(l) requires creditors to
disclose, under the master heading ``Additional Information About This
Loan,'' information required by TILA section 128(a)(4), (5), (8), and
(19) in a separate table under the heading ``Comparisons,'' along with
the statement, ``Use these measures to compare this loan with other
loans.'' Specifically, the table required by proposed Sec. 1026.37(l)
must contain the total payments (of principal, interest, mortgage
insurance, and loan costs) a consumer will have made through the end of
the 60th month after the due date of the first periodic payment (In 5
Years), the annual percentage rate (APR), and the total interest
percentage (TIP), as described in Sec. 1026.37(l)(1) through (3).
Pursuant to proposed Sec. 1026.37(o) and proposed form H-24, the table
required by proposed Sec. 1026.37(l) will appear on the final page of
the Loan Estimate, apart from the key loan terms identified on the
first page of the Loan Estimate. Based on research regarding consumer
comprehension and behavior and the results of the Bureau's consumer
testing, as discussed above, the Bureau believes that the disclosure of
these calculations on the final page of the Loan Estimate and apart
from the key loan terms may enhance the overall understanding of the
disclosures.
37(l)(1) In Five Years
TILA section 128(a)(5) and (8) requires creditors to disclose the
sum of the amount financed and the finance charge using the term
``Total of Payments,'' and a descriptive explanation of that term. 15
U.S.C. 1638(a)(5), (8). Current Sec. 1026.18(h) implements these
statutory provisions by requiring creditors to disclose the ``total of
payments,'' using that term, and a descriptive explanation that the
figure represents the amount the consumer will have paid after making
all scheduled payments. Current comment 18(h)-2 provides that creditors
calculate the total of payments amount for transactions subject to
current Sec. 1026.18(s) using the rules in current Sec. 1026.18(g)
and associated commentary and, for adjustable-rate transactions,
comments 17(c)(1)-8 and -10. Current comment 18(g)-1 provides guidance
to creditors on the amounts to be included in the total of payments
calculation. Current comment 18(h)-1 allows creditors to revise the
total of payments descriptive statement for variable-rate transactions
to convey that the disclosed amount is based on the annual percentage
rate and may change. In addition, current comments 18(h)-3 and -4
permit creditors to omit the total of payments disclosure in certain
single-payment transactions and for demand obligations that have no
alternate maturity rate.
The total of payments disclosure has historically been confusing
for consumers. For example, consumer testing conducted for purposes of
the Board's 2009 Closed-End Proposal found that many consumers did not
understand the total of payments disclosure and that, even when
consumers understood the meaning, most did not consider it important in
their decision-making process. Macro 2009 Closed-End Report at 11, v.
Based on the Board's testing and prior research about the total of
payment disclosure, the Bureau considered alternative metrics that
might prove more useful to consumers. As discussed above, one problem
with the TILA-required disclosures is that they are calculated over the
entire length of the loan, although the Bureau understands that
consumers may typically only hold mortgage loans for five to seven
years before selling the property or refinancing. Accordingly, the
total of payments over the life of the loan is such a large number that
consumers often find it overwhelming or unrealistic, and therefore not
a meaningful disclosure of the cost of credit. Furthermore, the total
of payments over the life of the loan does not provide an accurate
basis for identifying the lowest cost loan for the time a consumer will
realistically hold the loan.
Since the Board's testing has already shown that consumers do not
understand the total of payments disclosure, the Bureau's testing
focused on expressions of dollar amounts that are more likely to be
understood and used by consumers. The Bureau also recognized that
simply providing one disclosure would not give consumers an accurate
view of how much their payments actually reduce the principal balance
of the loan, which would help consumers pick the loan that puts them in
the best financial position after the five to seven year mark if they
do not sell the property or refinance. Accordingly, the Bureau
developed a two-element disclosure.
First, proposed Sec. 1026.37(l)(1)(i) requires the creditor to
disclose the dollar amount of the total principal, interest, mortgage
insurance, and loan costs (disclosed pursuant to proposed Sec.
1026.37(f)) scheduled to be paid through the end of the 60th month
after the due date of the first periodic payment, expressed as a dollar
amount, along with the statement ``Total you will have paid in
principal, interest, mortgage insurance, and loan costs.'' Proposed
comment 37(l)(1)(i)-1 clarifies that the amount disclosed pursuant to
Sec. 1026.37(l)(1)(i) is the sum of principal, interest, mortgage
insurance, and loan costs scheduled to be paid through the end of the
60th month after the due date of the first periodic payment. The
comment also clarifies that, for purposes of Sec. 1026.37(l)(1)(i),
interest is calculated using the fully-indexed rate at consummation and
includes any prepaid interest. The comment further provides that, for
purposes of Sec. 1026.37(l)(1)(i), the creditor assumes that the
consumer makes payments as scheduled and on time. In addition, proposed
comment 37(l)(1)(i)-1 provides that, for purposes of Sec.
1026.37(l)(1)(i), mortgage insurance is defined pursuant to comment
37(c)(1)(i)(C)-1, and includes prepaid or escrowed mortgage insurance,
and that loan costs are those costs disclosed
[[Page 51223]]
pursuant to paragraph 1026.37(f). Proposed comment 37(l)(1)(i)-2
provides guidance to creditors on calculating principal and interest
disclosures for loans with negative amortization features.
Second, proposed Sec. 1026.37(l)(1)(ii) requires the creditor to
disclose the dollar amount of principal scheduled to be paid through
the end of the 60th month after the due date of the first periodic
payment, expressed as a dollar amount, along with the statement
``Principal you will have paid off.'' Proposed comment 37(l)(1)(ii)-1
clarifies that the disclosure required by proposed Sec.
1026.37(l)(1)(ii) is calculated in the same manner as the disclosure
required by proposed Sec. 1026.37(l)(1)(i), provided, however, that
the disclosed amount reflects only the total payments to principal
through the end of the 60th month after the due date of the first
periodic payment.
Proposed Sec. 1026.37(l)(1)(i) implements the requirements of TILA
section 128(a)(5) and (8) for transactions subject to proposed Sec.
1026.19(e). The Bureau proposes to modify the total of payments
disclosure to reflect the total payments over five years, rather than
the life of the loan, on the Loan Estimate provided to consumers near
the time of application. The Bureau proposes this modification pursuant
to its authority under TILA section 105(a), Dodd-Frank Act 1032(a),
and, for residential mortgage loans, Dodd-Frank Act section 1405(b). By
reducing the scope of the total of payments disclosure to five years
after the due date of the first periodic payment, the disclosure more
accurately reflects the typical life of a mortgage loan, thus
effectuating the purposes of TILA by enhancing consumer understanding
of mortgage transactions. For this same reason, the proposed
modification will ensure that the features of the mortgage transaction
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the mortgage transaction, in light of the facts
and circumstances, consistent with Dodd-Frank Act section 1032(a), and
will improve consumer awareness and understanding of residential
mortgage loans and is in the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b).
As discussed in the Kleimann Testing Report, consumer testing
conducted by the Bureau indicates that consumers can use the ``In 5
Years'' disclosure to compare loans they are considering and that, in
some instances, these disclosures increase consumers' understanding of
loan costs. For example, some consumers who did not understand from
page one of the Loan Estimate that a loan provided for interest-only
payments for a specified period were able to recognize that they would
be making interest-only payments as a result of the principal paid ``In
5 Years'' disclosure. Consumer participants understood the relationship
of principal and interest and generally wanted to choose loans with
more principal paid off during the first five years. Industry feedback
provided in response to the Bureau's Small Business Review Panel
Outline stated that implementation of the ``In 5 Years'' disclosure
will require additional training and systems changes, and that it is
unclear that the disclosure will assist consumers. The Bureau has
considered this feedback but, in light of the research and consumer
testing results discussed above, nevertheless believes that the ``In 5
Years'' disclosure will provide important benefits to consumers by
disclosing the total of payments over a period that more accurately
reflects the typical life of a mortgage loan.
The Bureau also proposes to exercise its authority under TILA
section 105(a), Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section 1405(b) to include mortgage
insurance and other loan costs in the ``In 5 Years'' calculation. TILA
section 128(a)(5) defines the total of payments as the sum of the
amount financed and the finance charge. However, the Bureau believes
including mortgage insurance and other loan costs, rather than the
finance charge, in the calculation may enhance consumer understanding
of mortgage transactions because consumers can cross-reference other
sections of the Loan Estimate to determine what costs are actually
included in the ``In 5 Years'' disclosure, permitting consumers to more
readily compare loans, consistent with the purposes of TILA. In
contrast, as discussed below, consumers have no way to know which costs
are included in the finance charge. For these same reasons, the Bureau
believes that the proposed modification will ensure that the features
of consumer credit transactions secured by real property are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances, consistent with section 1032(a) of the Dodd-Frank Act,
and will improve consumer awareness and understanding of residential
mortgage loans and be in the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b).
Proposed Sec. 1026.37(l)(1)(ii) requires creditors to disclose the
dollar amount of principal scheduled to be paid through the end of the
60th month after the due date of the first periodic payment. The Bureau
proposes this additional requirement pursuant to its authority under
TILA section 105(a) and Dodd-Frank Act section 1032(a). As discussed
above, the Bureau believes the proposed disclosure will enhance
consumer understanding of the allocation of their payments between
principal and interest and help consumers pick the loan that puts them
in the best financial position after the five to seven year mark if
they do not sell the property or refinance, consistent with the
purposes of TILA. For these same reasons, consistent with section
1032(a) of the Dodd-Frank Act, the Bureau believes that the disclosure
would ensure that the features of consumer credit transactions secured
by real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
The Bureau recognizes, however, that the total of payments
disclosure is commonly used by creditors and supervisory agencies for
compliance purposes, as well as consumer advocates. Therefore, under
the proposal, creditors would be required to disclose a modified total
of payments over the loan's full term in the Closing Disclosure
provided to consumers at least three days prior to consummation. See
proposed Sec. 1026.38(o)(1).
37(l)(2) Annual Percentage Rate
TILA section 128(a)(4) and (8) requires creditors to disclose the
annual percentage rate, together with a brief descriptive statement of
the annual percentage rate. 15 U.S.C. 1638(a)(4), (a)(8). Current Sec.
1026.18(e) implements these statutory provisions by requiring creditors
to disclose the ``annual percentage rate,'' using that term, and a
brief description such as ``the cost of your credit as a yearly rate.''
In addition, TILA section 122(a) requires that the annual percentage
rate be more conspicuous than other disclosures, except the disclosure
of the creditor's identity. 15 U.S.C. 1632(a). This requirement is also
implemented in current Sec. 1026.18(e).
Concerns have been raised repeatedly over the last two decades that
consumers are confused by what the APR represents and do not use it for
its intended purpose: to compare loans.
[[Page 51224]]
The Board-HUD Joint Report noted that consumers generally do not
understand what the APR represents or how to use it, and that some
consumers mistake the APR with the interest rate. Board-HUD Joint
Report at 10. Consumer testing conducted for purposes of the Board's
2009 Closed-End Proposal revealed these same problems with the APR. 74
FR at 43296. The Board tested alternative descriptions and formats for
the APR, but the APR continued to confuse consumers. Id. The Board's
consumer testing also indicated that consumers did not use the APR to
compare loans but, instead, focused on the interest rate, monthly
payment amount, and settlement costs when comparing loan offers. Id. at
43296-97.
As discussed in the Kleimann Testing Report, the Bureau's consumer
testing similarly indicates consumer confusion regarding the APR
disclosure and that consumers do not use the APR when comparing loans.
Like the prior testing, the Bureau's consumer testing indicates that
consumers do not grasp the concept of the APR and often confuse it with
the loan's interest rate. Most consumers confused the APR with the
interest rate and misinterpreted the meaning of the disclosure. In
Round 3 of the Bureau's consumer testing, the statement ``This is not
your interest rate'' was added to the description of the APR to reduce
consumer confusion between the interest rate and the APR. While most
consumer participants understood from that statement that the interest
rate and APR were separate items, they still had trouble understanding
what the APR means, how it relates to the interest rate, and how it is
useful as a comparison. Participants also misunderstood the APR in
other ways, such as the average interest rate of other loans, an
interest rate imposed once a year, and an interest rate listed by the
creditor to mislead the consumer.
Pursuant to its implementation authority under TILA section 105(a),
the Bureau proposes Sec. 1026.37(l)(2) to implement the requirements
of TILA section 128(a)(4) and (8) for transactions subject to proposed
Sec. 1026.19(e) by requiring creditors to disclose the ``annual
percentage rate'' and the abbreviation ``APR,'' together with the
following statement: ``Your costs over the loan term expressed as a
rate. This is not your interest rate.'' Further, in light of consumer
confusion over the APR and the fact that consumers do not appear to use
the APR in comparing loan offers, the Bureau proposes to exercise its
authority under TILA section 105(a) and (f), Dodd-Frank Act section
1032(a) and, for residential mortgage loans, Dodd-Frank Act section
1405(b), to except transactions subject to Sec. 1026.19(e) from the
requirement of TILA section 122(a) that the annual percentage rate
disclosure be more conspicuous than other disclosures, except the
disclosure of the creditor's identity. As discussed above, testing
conducted by the Board and the Bureau consistently indicate consumer
confusion over the APR. When the Bureau added the statement ``this is
not your interest rate'' to the descriptive explanation of the APR
during its consumer testing, although confusion was reduced,
participants still did not understand how to use the APR. Instead,
participants used measures they readily understood, such as the maximum
interest rates, maximum periodic payments, and closing cost details to
evaluate, compare, and verify loan terms. Participants were able to use
these measures to evaluate and compare loans, making sophisticated
trade-offs, often based on rationales involving their personal
circumstances.
Accordingly, the Bureau believes the proposed exemption may enhance
consumer understanding by separating the APR disclosure from the
interest rate disclosure, which could prevent consumer confusion over
the two rates and reduce the possibility of information overload for
consumers attempting to compare loan terms, consistent with the
purposes of TILA. The Bureau believes that grouping the APR with the
``In 5 Years'' and Total Interest Percentage disclosures will also
enhance consumer understanding by emphasizing that the APR is a special
metric created specifically for comparison purposes that may help
consumers think about their costs over their life of the loan. In
addition, the purpose of the integrated disclosure under TILA section
105(b) and RESPA section 4(a) is to ``aid the borrower * * * in
understanding the transaction by utilizing readily understandable
language to simplify the technical nature of the disclosures.'' The
Bureau believes that placing measures that are readily understandable
to consumers on the first page of the Loan Estimate, and complex
measures that consumers find confusing on latter pages, meets this
statutory objective.
The Bureau has also considered the factors in TILA section 105(f)
and believes that an exception is appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the importance
of the loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans, regardless of the
amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. As discussed above, consumer testing
and historical research indicate that consumers do not understand the
APR and do not use it when shopping for a loan. Highlighting the APR on
the disclosure form contributes to overall consumer confusion and
information overload, complicates the mortgage lending process, and
hinders consumers' ability to understand important loan terms. As such,
the Bureau believes that the proposed exemption from the requirement
that the APR be disclosed more conspicuously than other disclosures
will not undermine the goal of consumer protection but, instead, will
improve consumer understanding of the loans. For all these reasons, the
Bureau believes that the proposed APR disclosure will improve consumer
awareness and understanding of residential mortgage loans and is in the
interest of consumers and the public, consistent with Dodd-Frank Act
section 1405(b), and that, consistent with section 1032(a) of the Dodd-
Frank Act, the disclosure would ensure that the features of consumer
credit transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.
In response to the Bureau's Small Business Review Panel Outline,
some consumer advocacy groups expressed concern about disclosing the
APR on the final page of the Loan Estimate and, as discussed below, on
the final page of the Closing Disclosure. Specifically, this feedback
stated that the APR is a widely recognized disclosure that is a useful
tool for consumers in comparing and understanding mortgage loans, and
that deemphasizing the APR is not the most effective way of dealing
with known problems with the APR disclosure. Instead, these groups
suggested that the APR disclosure can be improved through an all-in
APR, better descriptive language of the APR, or by supplementing the
APR with other disclosures. For example, consumer advocacy groups
recommended that the APR be more prominent than the
[[Page 51225]]
interest rate on the Loan Estimate and to be disclosed in a graphic
format.
The Bureau has considered this feedback, but based on the long
history of consumer confusion of the APR, the Board's prior efforts to
improve the APR disclosure, and the Bureau's testing of various
descriptive statements of the APR, described above, the Bureau believes
that the proposed approach to the APR could provide important benefits
to consumers by emphasizing the difference between the APR and the
contract interest rate. The Bureau is, however, proposing to improve
the APR disclosure through a more inclusive definition of the finance
charge, as discussed above, and a descriptive statement that clearly
distinguishes the APR from the interest rate. The Bureau also intends
to develop supplemental educational materials in booklets and its Web
site that will further explain how the APR differs from the interest
rate, how it provides a good way of comparing the entire costs of the
loan over the entire term, and why consumers may want to use both the
``In 5 Years'' and APR figures to think about their financial futures.
37(l)(3) Total Interest Percentage
The Dodd-Frank Act amended TILA to add new section 128(a)(19),
which requires that, in the case of a residential mortgage loan, the
creditor disclose the total amount of interest that the consumer will
pay over the life of the loan as a percentage of the principal of the
loan. That section also requires that the disclosure be computed
assuming the consumer makes each monthly payment in full and on time,
and does not make any over-payments.
The Bureau proposes Sec. 1026.37(l)(3) to implement TILA section
128(a)(19) by requiring creditors to disclose the total interest
percentage, using that term and the abbreviation ``TIP,'' and requiring
creditors to disclose the descriptive statement ``The total amount of
interest that you will pay over the loan term as a percentage of your
loan amount.'' Proposed Sec. 1026.37(l)(3) also provides that the
``total interest percentage'' is the total amount of interest that the
consumer will pay over the life of the loan, expressed as a percentage
of the principal of the loan. Proposed comments 37(l)(3)-1 through -3
provide further guidance to creditors on calculation of the total
interest percentage. Proposed comment 37(l)(3)-1 provides that, when
calculating the total interest percentage, the creditor assumes that
the consumer will make each payment in full and on time, and will not
make any additional payments. Proposed comment 37(l)(3)-2 provides
that, for adjustable-rate mortgages, Sec. 1026.37(l)-(3) requires that
the creditor compute the total interest percentage using the fully-
indexed rate and that, for step-rate mortgages, Sec. 1026.37(l)(3)
requires that the creditor compute the total interest percentage in
accordance with Sec. 1026.17(c)(1) and its commentary. Proposed
comment 37(l)(3)-3 provides that, for loans that permit negative
amortization, Sec. 1026.37(l)(3) requires that the creditor compute
the total interest percentage using the minimum payment amount until
the consumer must begin making fully amortizing payments under the
terms of the legal obligation.
As discussed in the Kleimann Testing Report, the Bureau's consumer
testing indicates that consumers are able to use the total interest
percentage to compare loans, and can generally recognize that better
loans disclose a lower total interest percentage. Along with the ``In
Five Years'' disclosure, total interest percentage was cited as the
most useful comparative tool. However, some consumers did not
understand the total interest disclosure and questioned why it is
included on the form. Even consumers who used the total interest
percentage disclosure generally did not understand the more technical
aspects of the total interest percentage disclosure, such as the
difficulty of using the measure in an adjustable-rate loan. Concerns
were also raised during the Bureau's Small Business Review Panel, by
industry in feedback provided in response to the Small Business Review
Panel Outline, and in feedback received through the Bureau's Web site
that the total interest percentage could be difficult to calculate and
explain to consumers, and would not likely be helpful to consumer. See,
e.g., Small Business Review Panel Report at 20.
In light of the Bureau's testing of the total interest percentage
disclosure and the concerns about consumers' ability to understand the
disclosure, the Bureau proposes to require creditors to disclose the
descriptive statement, ``The total amount of interest that you will pay
over the loan term as a percentage of your loan amount.'' The Bureau
proposes this pursuant to its authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and, for residential mortgage loans,
Dodd-Frank Act section 1405(b). Based on consumer testing, the Bureau
believes that consumer understanding of the total interest percentage
disclosure may be enhanced through the descriptive statement of the
total interest percentage, consistent with the purposes of TILA, and
that the proposed descriptive statement is in the interest of consumers
and the public, consistent with section 1405(b) of the Dodd-Frank Act.
For these reasons, the Bureau also believes that the disclosure of the
descriptive statement regarding the total interest percentage may
ensure that the features of consumer credit transactions secured by
real property are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances, consistent with section 1032(a) of the
Dodd-Frank Act.
Notwithstanding the proposed modifications, based on concerns
raised by the Small Business Review Panel, industry feedback, and its
own consumer testing, the Bureau remains concerned that the total
interest percentage may not be a useful tool for consumers and could
create confusion and contribute to information overload. In light of
these concerns, the Bureau alternatively proposes to use its exception
and modification authority under TILA section 105(a) and (f), Dodd-
Frank Act section 1032(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to exempt transactions subject to proposed
Sec. 1026.19(e) and (f) from the requirements of TILA section
128(a)(19). The Bureau believes the proposed exemption will carry out
the purposes of TILA, consistent with TILA section 105(a), by avoiding
consumer confusion and information overload, thereby promoting the
informed use of credit. For these same reasons, the proposed exemption
will help ensure that the features of the mortgage transaction are
fully, accurately and effectively disclosed to consumers in a manner
that permits consumers to understand the costs, benefits, and risks
associated with the mortgage transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans and is in the interest of consumers and the public, consistent
with Dodd-Frank Act section 1405(b). Finally, the Bureau has considered
the factors in TILA section 105(f) and believes that, for the reasons
discussed above, an exception may be appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the importance
of the loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans, regardless of the
amount of the loan and
[[Page 51226]]
whether the loan is secured by the principal residence of the consumer.
Furthermore, the Bureau believes that, on balance, the proposed
exemption will simplify the credit process without undermining the goal
of consumer protection or denying important benefits to consumers.
Based on these considerations, the results of the Bureau's consumer
testing, and the analysis discussed elsewhere in this proposal, the
Bureau believes that the proposed exemption may be appropriate. The
Bureau solicits comment on the proposed exemption and, alternatively,
whether the Bureau should implement the total interest percentage
disclosure only in the Closing Disclosure.
Other Statutory Disclosures
As discussed above, the research regarding consumer comprehension
and behavior and the results of the Board's and the Bureau's consumer
testing suggest that an effective disclosure regime minimizes the risk
of consumer distraction and information overload by providing only
information that will assist most consumers. The Bureau therefore
carefully evaluated each statutory element required under TILA, whether
the element has been required for decades or is newly imposed by Dodd-
Frank, as to its usefulness to consumers and others at early stages of
the loan process, during the real estate closing process, and as
general reference information over the life of the loan. Based on that
analysis, the Bureau is proposing to use its authority under TILA
section 105(a) and (f), Dodd-Frank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b), to except
from and modify the timing requirements for certain disclosures
required by TILA section 128. Specifically, those disclosures are: The
amount financed (TILA section 128(a)(2)), the finance charge (TILA
section 128(a)(3)), a statement that the creditor is taking a security
interest in the consumer's property (TILA section 128(a)(9)), a
statement that the consumer should refer to the appropriate contract
document for information about their loan (TILA section 128(a)(12)), a
statement regarding certain tax implications (TILA section 128(a)(15)),
and the creditor's cost of funds (TILA section 128(a)(17)).
The Bureau believes the proposed exemptions discussed above will
carry out the purposes of TILA, consistent with TILA section 105(a), by
avoiding consumer confusion and information overload, thereby promoting
the informed use of credit, as discussed above. For these same reasons,
the proposed exemptions will help ensure that the features of the
mortgage transaction are fully, accurately, and effectively disclosed
to consumers in a manner that permits consumers to understand the
costs, benefits, and risks associated with the mortgage transaction,
consistent with Dodd-Frank Act section 1032(a), and will improve
consumer awareness and understanding of residential mortgage loans and
are in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b). The Bureau has considered the factors in
TILA section 105(f) and believes that, for the reasons discussed above,
an exception is appropriate under that provision. Specifically, the
Bureau believes that the proposed exemption is appropriate for all
affected borrowers, regardless of their other financial arrangements
and financial sophistication and the importance of the loan to them.
Similarly, the Bureau believes that the proposed exemption is
appropriate for all affected loans, regardless of the amount of the
loan and whether the loan is secured by the principal residence of the
consumer. Furthermore, the Bureau believes that, on balance, the
proposed exemption will simplify the credit process without undermining
the goal of consumer protection or denying important benefits to
consumers. Based on these considerations, the results of the Bureau's
consumer testing, and the analysis discussed elsewhere in this
proposal, the Bureau believes that the proposed exemptions are
appropriate. The proposed exclusion of the finance charge and the
amount financed from the Loan Estimate is discussed at length below.
Finance charge. TILA section 128(a)(3) and (8) requires creditors
to disclose the ``finance charge'' and a brief descriptive statement of
the finance charge. 15 U.S.C. 1638(a)(3), (a)(8). For transactions
subject to RESPA, TILA section 128(b)(2)(A) requires creditors to
provide this disclosure not later than three business days after the
creditor receives the consumer's application, and at least seven
business days before consummation. 15 U.S.C. 1638(b)(2)(A). Current
Sec. 1026.18(d) implements TILA section 128(a)(3) and (8) by requiring
creditors to disclose the ``finance charge,'' using that term, and a
brief description such as ``the dollar amount the credit will cost
you.'' For transactions subject to RESPA, current Sec. 1026.19(a)
requires creditors to provide the finance charge disclosure not later
than the third business day after the creditor receives the consumer's
application.
Federal agency research has long recognized consumer confusion over
the finance charge. The Board-HUD Joint Report found that TILA
disclosures fall short of meeting their goal of informing consumers
about the cost of credit, in part because of consumer confusion over
the finance charge. Board-HUD Joint Report at III. Evidence of consumer
confusion over the finance charge was echoed in the Board's 2009
Closed-End Proposal. 74 FR at 43307-08. The Board's consumer testing
indicates that consumers often fail to understand that the finance
charge contains both interest and fees,\172\ and that consumers place
very little value on the finance charge when making decisions regarding
their loan.\173\ The report stated that ``[testing] participants * * *
generally disregarded the finance charge when reading their TILA
statements.''\174\
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\172\ Macro 2009 Closed-End Report at 11, 41 (stating that, in
Round 8 of the testing, ``[m]ost [participants] thought the finance
charges were equal to the amount of interest that the borrower would
pay over time; only a few understood the finance charges shown on
the form included fees as well as interest'').
\173\ For example, only one of the nine participants in one
round of the Board's testing found the finance charge useful. Id. at
35. In another round, most participants said that they would not use
the finance charge in their decision-making. Id. at 28.
\174\ Id. at 41.
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For these reasons, the Bureau proposes to exercise its authority
under TILA section 105(a) and (f) and Dodd-Frank sections 1032(a) and,
for residential mortgage loans, 1405(b), to except transactions subject
to proposed Sec. 1026.19(e) from the requirements of TILA section
128(a)(3) and (8) as it applies to the Loan Estimate provided to
consumers within three business days of application. As discussed
above, the Bureau believes that the proposed exclusion of the finance
charge disclosure from the Loan Estimate effectuates the purposes of
TILA by avoiding consumer confusion and information overload
historically associated with the finance charge disclosure, thereby
improving the informed use of credit. The Bureau has considered the
factors in TILA section 105(f) and believes that, for the reasons
discussed above, an exception is appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the importance
of the loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans, regardless of the
amount of the loan and whether the loan is secured by the principal
[[Page 51227]]
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Based on these considerations, the
results of the Bureau's consumer testing, and the analysis discussed
above, the Bureau believes that the proposed exemption is appropriate.
Specifically, the Bureau does not believe that disclosure of the
finance charge on the Loan Estimate provides a meaningful benefit to
consumers in the form of useful information or protection. Rather, the
Bureau believes that disclosure of the finance charge to consumers
early in the lending process actually complicates and hinders the
process of mortgage lending because consumers do not understand the
disclosure. Removing the finance charge disclosure from the Loan
Estimate that consumers receive early in the lending process may assure
meaningful disclosure of credit terms, facilitate consumer comparison
of credit terms, and improve the informed use of credit by avoiding
information overload and improving consumer understanding of loan
terms, consistent with the purposes of TILA and with section 1405(b) of
the Dodd-Frank Act. As consumer testing indicates that consumers
generally do not use the finance charge when shopping for a loan, the
absence of the finance charge from the Loan Estimate should not detract
from consumers' understanding of their credit terms but, instead, will
permit consumers to focus on other important terms. In addition,
consistent with Dodd-Frank Act section 1032(a), removal of the finance
charge from the Loan Estimate would help ensure that the features of
consumer credit transactions secured by real property are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances.
The Bureau recognizes that creditors, consumer advocates, and State
and Federal supervisory agencies use the finance charge when
calculating or verifying the calculation of the APR, determining
compliance with certain price thresholds, and for a range of other
purposes, including the right of rescission pursuant to TILA section
125. 15 U.S.C. 1635. Accordingly, to preserve the finance charge
disclosure for these purposes, proposed Sec. 1026.38(o)(2) requires
creditors to disclose the finance charge on the Closing Disclosure
provided to consumers at least three days prior to prior to
consummation. Although concerns regarding consumer distraction and
information overload persist at the stage of the transaction where the
consumer receives the Closing Disclosure, the Bureau believes that
disclosing the finance charge with other loan calculations on the final
page of the Closing Disclosure as a general reference for the consumer
after closing will mitigate these concerns. In addition, though the
finance charge is not disclosed on the Loan Estimate, creditors must,
in order to comply with the record retention requirements in Sec.
1026.25, document the finance charge used to calculate the APR
disclosed on the Loan Estimate. As discussed above, the Bureau is
proposing conforming amendments to Sec. 1026.22 to reflect the
accuracy standards applicable to the finance charge disclosed on the
Closing Disclosure under proposed Sec. 1026.38(o)(2). The Bureau seeks
comment on whether the final rule should contain similar accuracy
standards for the finance charge used in the APR calculation for the
Loan Estimate.
Amount financed. TILA section 128(a)(2) and (8) requires creditors
to disclose the ``amount financed,'' using that term, and a brief
descriptive statement of the amount financed. 15 U.S.C. 1638(a)(2),
(a)(8). Current Sec. 1026.18(b) implements this requirement and
requires creditors to disclose the amount financed, using that term,
together with a brief description that the amount financed represents
the amount of credit of which the consumer has actual use. Like the
finance charge disclosure, for transactions subject to RESPA, TILA
section 128(b)(2)(A) requires that creditors provide a good faith
estimate of this disclosure not later than three business days after
the creditor receives the consumer's application, and at least seven
business days before consummation. 15 U.S.C. 1638(b)(2)(A). This
requirement is implemented in current Sec. 1026.19(a).
Like the finance charge, the amount financed disclosure has
historically been viewed as confusing for consumers. The Board-HUD
Joint Report recommended removing the amount financed from consumer
disclosures altogether because it ``is probably not a useful disclosure
for mortgage lending.'' \175\ The Board-HUD Joint Report found that the
primary use of the ``amount financed'' is to help supervisory agencies
confirm APR calculations, and is not a useful shopping tool for
consumers.\176\ The Board's consumer testing in connection with the
2009 Closed-End Proposal also indicated consumer confusion about the
``amount financed.'' Some testing participants incorrectly assumed that
the ``amount financed'' was their loan amount or the sale price of the
home.\177\ Based on this testing, the Board concluded that the ``amount
financed'' disclosure detracted from, rather than enhanced, consumers'
understanding of other disclosures \178\ and that consumers ``would not
consider the amount financed when shopping for a mortgage or evaluating
competing loan offers.'' \179\ The Board also found that ``requiring
creditors to disclose the amount financed in the loan summary with
other key loan terms would add unnecessary complexity and result in
`information overload.' '' \180\
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\175\ Board-HUD Joint Report at 16.
\176\ Id. at 17.
\177\ Macro 2009 Closed-End Report at v. For example, in Round 8
of testing, participants were ``confused about the difference
between the `loan amount' and the `amount financed.''' Id. at 26. In
Round 9, participants gave a variety of incorrect explanations of
the term, including that it was ``how much escrow they would have,''
the amount they would have to pay back, or the amount that they
borrowed. Id. at 35. In both of these rounds, some participants
believed the ``amount financed'' was equal to the amount of money
they would be borrowing. Id. at 40. In Round 11, the ``amount
financed'' was moved to the second page, under the heading ``Total
Payments'' in the ``More Information About Your Payments'' section.
Id. at 51. As in previous rounds, no participant was able to explain
the meaning of ``amount financed.'' Id. at 55. In Round 12, with the
``amount financed'' in the same place on the second page, two
participants incorrectly believed they were borrowing the ``amount
financed.'' Id. at 55. In the final round of testing, none of the
participants understood the meaning of ``amount financed.'' Id. at
72.
\178\ 74 FR at 43308. For example, ``sample disclosures were
used to try to explain that the difference between the loan amount
and amount financed is attributable to prepaid finance charges, but
this explanation did not appear to improve consumer comprehension.''
Id.
\179\ Id.
\180\ Id.
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For these reasons, the Bureau proposes to exercise its authority
under TILA section 105(a) and (f), Dodd-Frank section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b), to modify
and except transactions subject to proposed Sec. 1026.19(e) from the
requirements of TILA section 128(a)(2) and (8) as it applies to the
Loan Estimate provided to consumers within three business days of
application. As discussed above, the Bureau believes that the proposed
exclusion of the amount financed disclosure from the Loan Estimate
effectuates the purposes of TILA by avoiding consumer confusion and
information overload historically associated with the disclosure,
thereby improving the informed use of credit. In addition, the Bureau
has considered the factors in TILA section 105(f) and
[[Page 51228]]
believes that, for the reasons discussed above, an exception is
appropriate under that provision. Specifically, the Bureau believes
that the proposed exemption is appropriate for all affected borrowers,
regardless of their other financial arrangements and financial
sophistication and the importance of the loan to them. Similarly, the
Bureau believes that the proposed exemption is appropriate for all
affected loans, regardless of the amount of the loan and whether the
loan is secured by the principal residence of the consumer.
Furthermore, the Bureau believes that, on balance, the proposed
exemption will simplify the credit process without undermining the goal
of consumer protection or denying important benefits to consumers.
Based on these considerations, the results of the Bureau's consumer
testing, and the analysis discussed above, the Bureau believes that the
proposed exemption is appropriate.
The Bureau does not believe that disclosure of the amount financed
on the Loan Estimate provides a meaningful benefit to consumers in the
form of useful information or protection. Rather, the Bureau believes
that disclosure of the amount financed to consumers early in the
lending process actually complicates and hinders the process of
mortgage lending because consumers do not understand the disclosure.
Removing the amount financed from the Loan Estimate may improve the
informed use of credit by avoiding information overload and improving
consumer understanding of loan terms, consistent with the purposes of
TILA and will be in the interest of consumers and the public,
consistent with section 1405(b) of the Dodd-Frank Act. Enhanced
consumer understanding of mortgage transactions is also in the interest
of consumers and the public. In addition, consistent with Dodd-Frank
Act section 1032(a), removal of the amount financed from the Loan
Estimate would help ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.
However, the Bureau recognizes that, like the finance charge, the
amount financed is commonly used by creditors and supervisory agencies
for compliance purposes, as well as by consumer advocates. Therefore,
under the proposal, creditors would be required to disclose the amount
financed in the Closing Disclosure provided to consumers at least three
business days prior to consummation. Like the finance charge, the
Bureau believes that disclosing the amount financed with other loan
calculations on the final page of the Closing Disclosure as a general
reference for the consumer after closing will mitigate concerns about
consumer distraction and information overload at the Closing Disclosure
stage.
37(m) Other Considerations
Under proposed Sec. 1026.37(m), creditors disclose certain
information pertaining to: (1) The consumer's right to receive copies
of appraisals; (2) future assumability of the loan; (3) at the
creditor's option, homeowner's insurance requirements; (4) the
creditor's late payment policy; (5) loan refinancing; (6) loan
servicing, and (7) in refinance transactions, the consumer's liability
for deficiency after foreclosure. This information is provided under
the master heading ``Additional Information About This Loan'' required
by Sec. 1026.37(k) and under the heading ``Other Considerations.''
As set forth below, consumers already receive most of these
disclosures at or after application or prior to consummation. Thus, by
incorporating all of these disclosures into the Loan Estimate, the
proposed rule will reduce the number of separate disclosures that
consumers receive. Instead, consumers will receive these disclosures in
a single, integrated document, which will reduce the potential for
information overload, promote the informed use of credit by the
consumer, and facilitate compliance by industry.
37(m)(1) Appraisal
Prior to the Dodd-Frank Act, ECOA section 701(e) required creditors
to provide to applicants, upon written request, a copy of the appraisal
report used in connection with the consumer's application for a loan
secured by a lien on residential real property. Section 1474 of the
Dodd-Frank Act amended ECOA section 701(e) to remove the provision
requiring consumers to request a copy of their appraisal. That section
now requires the creditor to provide the consumer with a copy of any
written appraisal or valuation developed in connection with an
application for a loan that is or will be secured by a first lien on a
dwelling promptly upon completion, and no later than three days prior
to the closing of the loan, even if the creditor denies the consumer's
application or the application is incomplete or withdrawn. 15 U.S.C.
1691(e)(1). Under ECOA section 701(e)(5), the creditor must notify the
consumer in writing at the time of application of the right to receive
a copy of any appraisal or valuation. 15 U.S.C. 1691(e)(5).
In addition, section 1471(a) of the Dodd-Frank Act added to TILA
new appraisal requirements for higher-risk mortgages. Specifically, new
TILA section 129H(c) requires creditors to provide consumers, at least
three days prior to closing, a copy of any appraisal prepared in
connection with a higher-risk mortgage. 15 U.S.C. 1639h(c). Section
1471(f) of the Dodd-Frank Act defines the term ``higher-risk mortgage''
generally as a residential mortgage loan, other than a reverse
mortgage, that is secured by a principal dwelling with an APR that
exceeds the average prime offer rate for a comparable transaction by a
specified percentage. 15 U.S.C. 1639h(f). New TILA section 129H(d)
contains a disclosure requirement that creditors must provide
consumers, at the time of the initial mortgage application, a statement
that any appraisal prepared for the mortgage is for the creditor's sole
use and that the consumer may choose to have a separate appraisal
conducted at his or her own expense. 15 U.S.C. 1639h(d).
ECOA section 701(e), as amended by the Dodd-Frank Act, and new TILA
section 129H(c) and (d) will be implemented in separate Bureau and
joint interagency rulemakings, respectively. However, the Bureau
proposes to use its authority under TILA section 105(a) and Dodd-Frank
Act section 1032(a) to include on the Loan Estimate disclosure of the
new requirements regarding the consumer's right to appraisal copies for
loans subject to ECOA section 701(e)(5) or TILA section 129H(c) and
(d). In the integrated TILA-RESPA final rule, the Bureau will harmonize
this proposal with its rulemaking implementing amended ECOA section
701(e) and the interagency rulemaking implementing new TILA section
129H(c) and (d), so that creditors may satisfy the ECOA section
701(e)(5) and TILA section 129H requirements in a single disclosure.
Proposed Sec. 1026.37(m)(1) applies only to closed-end credit
transactions subject to proposed Sec. 1026.19(e) and ECOA section
701(e) or TILA section 129H, as implemented in Regulation B, 12 CFR
part 1002, and Regulation Z, respectively. For such transactions,
proposed Sec. 1026.37(m)(1) requires the disclosure under the label
``Appraisal.'' The disclosure may be omitted for other transactions.
Proposed Sec. 1026.37(m)(1)(i) requires the disclosure to state that
the creditor may order an appraisal to determine the
[[Page 51229]]
value of the property that is the subject of the transaction and may
charge the consumer the cost for any such appraisal. Proposed Sec.
1026.37(m)(1)(ii) requires the disclosure to state that the creditor
will promptly provide the consumer a copy of the appraisal, even if the
transaction is not consummated. Finally, proposed Sec.
1026.37(m)(1)(iii) requires the disclosure to state that the consumer
has the right to order an additional appraisal of the property for the
consumer's own use. Proposed comment 37(m)(1)-1 clarifies that if a
transaction subject to proposed Sec. 1026.19(e) is not also subject to
either ECOA section 701(e) or TILA section 129H, as implemented in
Regulations B and Z, respectively, the disclosure required by proposed
Sec. 1026.37(m)(1) may be omitted from the Loan Estimate.
The Bureau believes that including these appraisal disclosures on
the Loan Estimate is consistent with the purposes of TILA and will
reduce burden on industry. Rather than requiring two separate appraisal
disclosures in addition to the Loan Estimate consumers will receive
after application, the Bureau believes one integrated disclosure will
facilitate compliance for creditors, promote the informed use of credit
by consumers, and ensure effective disclosure to consumers, consistent
with the purposes of TILA and TILA section 105(a). In addition, the
Bureau believes that incorporating the appraisal disclosures into the
Loan Estimate in a way that is consistent with the presentation of
other disclosures will ensure that the features of the transaction are
fully, accurately, and effectively disclosed to consumers in a manner
that permits consumers to understand the costs, benefits, and risks
associated with the mortgage transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a).
37(m)(2) Assumption
TILA section 128(a)(13) requires the creditor to disclose, in any
residential mortgage transaction, a statement indicating whether a
subsequent purchaser may be permitted to assume the remaining loan
obligation on its original terms. 15 U.S.C. 1638(a)(13). This provision
is currently implemented in Sec. 1026.18(q), and applies only to
residential mortgage transactions. TILA section 103(x) defines
``residential mortgage transaction'' as a ``transaction in which a
mortgage, deed of trust, purchase money security interest arising under
an installment sales contract, or equivalent consensual security
interest is created or retained against the consumer's dwelling to
finance the acquisition or initial construction of a dwelling.'' 15
U.S.C. 1602(x).
Proposed Sec. 1026.37(m)(2) implements TILA section 128(a)(13) for
all transactions subject to Sec. 1026.19(e) by requiring the creditor
to disclose whether a subsequent purchaser of the property may be
permitted to assume the remaining loan obligation on its original
terms. Proposed comment 37(m)(2)-1 clarifies that the creditor must
disclose whether or not a third party may be allowed to assume the loan
on its original terms if the property is sold or transferred by the
consumer. Proposed comment 37(m)(2)-1 also notes that in many
mortgages, the creditor may be unable to determine whether the loan is
assumable at the time the Loan Estimate is provided and cites to the
Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation as examples of entities that as a common practice
condition assumability on a number of factors such as the subsequent
borrower's creditworthiness. Proposed comment 37(m)(2)-1 clarifies
that, if the creditor can determine that such assumption is not
permitted, the creditor complies with Sec. 1026.37(m)(2) by disclosing
that the loan is not assumable. In all other situations, including
where assumption of a loan is permitted or is dependent on certain
conditions or factors, or uncertainty exists as to the future
assumability of a mortgage, the creditor complies with Sec.
1026.37(m)(2) by disclosing that, under certain conditions, the
creditor may allow a third party to assume the loan on its original
terms. Proposed comment 37(m)(2)-2 clarifies that the phrase ``original
terms'' as used in Sec. 1027.37(m)(2) does not preclude an assumption
fee but may represent different terms, and provides an example of a
modified term.
The Bureau proposes Sec. 1026.37(m)(2) to implement TILA section
128(a)(13) for transactions subject to Sec. 1026.19(e), pursuant to
its authority under TILA section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b). In addition, the Bureau proposes to modify the scope of TILA
section 128(a)(13), pursuant to its authority under TILA section 105(a)
and Dodd-Frank Act sections 1032(a) and 1405(b), to apply to all
transactions subject to proposed Sec. 1026.19(e), even if not a
``residential mortgage transaction'' as defined in TILA section 103(x).
The Bureau believes that consumers in transactions secured by real
property would benefit from the disclosure, even if the property does
not contain a dwelling. Accordingly, the proposed modification promotes
the informed use of credit, consistent with the purposes of TILA. For
this same reason, the proposed modification will ensure that the
features of the transaction are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the mortgage
transaction, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a), and will improve consumer awareness and
understanding of residential mortgage loans and is in the interest of
consumers and the public, consistent with Dodd-Frank Act section
1405(b). Transactions subject to the disclosure requirements of Sec.
1026.18 continue to be subject to Sec. 1026.18(q).
37(m)(3) Homeowner's Insurance
TILA section 106(c) provides that premiums for homeowner's
insurance written in connection with any consumer credit transaction
shall be included in the finance charge unless a clear and specific
statement in writing is furnished by the creditor to the person to whom
credit is extended, setting forth the cost of the insurance if obtained
from or through the creditor, and stating that the person to whom
credit is extended may choose the insurance provider. 15 U.S.C.
1605(c). Current Sec. Sec. 1026.4(d)(2)(i) and 1026.18(n) implement
this provision.
The Bureau understands that many creditors provide consumers the
disclosure described in TILA section 106(c) and Sec. 1026.4(d)(2)(i)
in order to exclude homeowner's insurance premiums from the finance
charge. To reduce the number of individual disclosures provided to
consumers and facilitate compliance for creditors, the Bureau proposes
Sec. 1026.37(m)(3) which provides that, at the creditor's option, the
creditor may disclose a statement of whether homeowner's insurance is
required on the property and whether the consumer may choose the
insurance provider, labeled ``Homeowner's Insurance.'' Proposed comment
37(m)(3)-1 clarifies that the disclosure required in Sec.
1026.37(m)(3) is optional. Proposed comment 37(m)(3)-2 clarifies that a
creditor satisfies the condition for excluding homeowner's insurance
premiums from the finance charge described in Sec. 1026.4(d)(2)(i) by
disclosing the statement described in Sec. 1026.37(m)(3).
The Bureau proposes Sec. 1026.37(m)(3) pursuant to its authority
under TILA section 105(a), Dodd-Frank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b).
[[Page 51230]]
The Bureau believes that combining the optional disclosure regarding
homeowner's insurance premiums with the other disclosures on the Loan
Estimate may avoid information overload and therefore promote the
informed use of credit, consistent with the purposes of TILA. In
addition, the proposed disclosure will help ensure that the features of
the transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the mortgage transaction,
consistent with Dodd-Frank Act section 1032(a), and will improve
consumer awareness and understanding of residential mortgage loans, in
the interest of consumers and the public, consistent with Dodd-Frank
Act section 1405(b).
37(m)(4) Late Payment
TILA section 128(a)(10) requires disclosure of ``any dollar charge
or percentage amount which may be imposed by a creditor solely on
account of a late payment.'' 15 U.S.C. 1638(a)(10). This requirement is
currently implemented in Sec. 1026.18(l), which requires a statement
detailing any ``dollar or percentage charge that may be imposed before
maturity due to a late payment.''
Proposed Sec. 1026.37(m)(4) implements TILA section 128(a)(10) for
transactions subject to Sec. 1026.19(e) and requires the creditor to
disclose a statement detailing any charge that may be imposed on the
consumer for a late payment and the number of days a payment must be
late before a penalty for late payment may be assessed. Proposed
comment 37(m)(4)-1 clarifies that the late payment disclosure is
required if charges are added to an individual delinquent installment
of a transaction that remains ongoing on its original terms. Proposed
comment 37(m)(4)-1 also clarifies which charges and creditor actions
under the legal obligation do not qualify as a late payment charge and
that an increase in the interest rate is a late payment charge to the
extent of the increase. Comment 37(m)(4)-2 clarifies that the creditor
may make changes to the disclosure to reflect the requirements imposed
and alternatives allowed under State law.
The Bureau proposes Sec. 1026.37(m)(4) to implement TILA section
128(a)(10) for transactions subject to Sec. 1026.19(e), pursuant to
its implementation authority under TILA section 105(a). In addition,
the Bureau proposes to require creditors to disclose the number of days
that a payment must be late to trigger the late payment charge pursuant
to its authority under TILA section 105(a) and Dodd-Frank Act section
1032(a). The Bureau believes the additional disclosure enhances the
late payment disclosure by describing the conditions that may trigger a
late payment charge and therefore promotes the informed use of credit,
consistent with the purpose of TILA. For this same reason, the Bureau
believes the proposed disclosure will ensure that the features of the
transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the mortgage transaction, in light
of the facts and circumstances, consistent with Dodd-Frank Act section
1032(a).
37(m)(5) Refinance
TILA section 128(b)(2)(C)(ii) requires that, for variable-rate
transactions or transactions where the regular payment may otherwise be
variable and that are secured by the consumer's dwelling, the borrower
be provided with a disclosure that there is no guarantee to refinance
to a lower amount. Current Sec. 1026.18(t) implements this provision
by requiring creditors to disclose a statement that there is no
guarantee that the consumer may refinance to lower the interest rate or
monthly payment. Current Sec. 1026.18(t) also expands the no-
guarantee-to-refinance disclosure to apply to, not only variable-rate
or variable-payment transactions, but all closed-end transactions
secured by real property or a dwelling, other than transactions secured
by the consumer's interest in a timeshare.
The Bureau proposes Sec. 1026.37(m)(5) to implement TILA section
128(b)(2)(C)(ii) for transactions subject to proposed Sec. 1026.19(e).
Based on the results of several rounds of consumer testing of language
regarding the refinance disclosure, Sec. 1026.37(m)(5) specifically
requires disclosure of the following statement: ``Refinancing this loan
will depend on your future financial situation, the property value, and
market conditions. You may not be able to refinance this loan.'' As
discussed in the Kleimann Testing Report, consumers in the Bureau's
consumer testing understood this language to mean that they are
permitted to try, but may not be able to refinance their loan in the
future.
In implementing TILA section 128(b)(2)(C)(ii), the Bureau proposes
to use its authority under section TILA section 105(a) and Dodd-Frank
Act sections 1032(a) and 1405(b) to expand the requirement to all
transactions subject to Sec. 1026.19(e). Like the Board, the Bureau is
concerned that some consumers may accept loan terms that could present
refinancing problems similar to those experienced by consumers in
variable-rate or variable-payment transactions (e.g., a three-year
fixed rate mortgage with a balloon payment), and that all consumers
would benefit from a statement that encourages consideration of
possible future market rate increases on refinancing. See 2009 Closed-
End Proposal, 74 FR at 43310. Accordingly, the Bureau believes the
proposed disclosure effectuates the purpose of TILA to help consumers
avoid the uninformed use of credit. In addition, the proposed
disclosure helps to ensure that the features of mortgage transactions
are fully and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with a financial product, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans, which is in is the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b). Transactions subject to
the disclosure requirements of Sec. 1026.18 continue to be subject to
Sec. 1026.18(t).
37(m)(6) Servicing
RESPA section 6(a) requires disclosures to loan applicants
concerning the assignment, sale, or transfer of the servicing of the
loan to another party. 12 U.S.C. 2605(a). Current appendix C to
Regulation X implements RESPA section 6(a) and requires a statement in
the GFE regarding loan servicing under the section ``If your loan is
sold in the future,'' albeit using relatively generic language that
does not express the creditor's actual intent.\181\ Proposed Sec.
1026.37(m)(6) requires the creditor to disclose in the Loan Estimate
whether it intends to service the loan directly or transfer its
servicing. Proposed comment 37(m)(6)-1 clarifies that the disclosure
required in proposed Sec. 1026.37(m)(6) requires only that the
creditor state its intent at the time the disclosure is issued.
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\181\ The standard RESPA GFE form in appendix C to Regulation X
reads as follows: ``Some lenders may sell your loan after
settlement. Any fees lenders receive in the future cannot change the
loan you receive or the charges you paid at settlement.''
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For transactions subject to RESPA, the Bureau proposes Sec.
1026.37(m)(6) to implement RESPA section 6(a), pursuant to its
authority under RESPA section 19(a). For transactions subject the
requirements of proposed Sec. 1026.19(e) but that are not subject to
RESPA, the Bureau proposes to require creditors to provide the
servicing disclosure described in Sec. 1026.37(m)(6)
[[Page 51231]]
pursuant to its authority under TILA section 105(a) and Dodd-Frank Act
1032(a). The Bureau believes that requiring the disclosure regarding
loan servicing in these transactions will improve consumer
understanding and avoid the uninformed use of credit, consistent with
the purposes of TILA, and that the disclosure will ensure that the
features of the transaction are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the mortgage
transaction, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
37(m)(7) Liability After Foreclosure
Section 1414(c) of the Dodd-Frank Act created new TILA section
129C(g), which establishes certain requirements for residential
mortgage loans subject to protection under a State anti-deficiency law.
15 U.S.C. 1639c(g). TILA section 129C(g)(2) requires that, prior to
consummation, the creditor or mortgage originator provide a written
notice to the consumer describing the protection provided by the anti-
deficiency law and the significance to the consumer of the loss of such
protection. TILA section 129C(g)(3) requires that any creditor or
mortgage originator that provides an application to a consumer or
receives an application from a consumer, for any type of refinancing
for such loan that would cause the loan to lose the protection of an
anti-deficiency law, the creditor or mortgage originator shall provide
a written notice to the consumer describing the protection provided by
the anti-deficiency law and the significance for the consumer of the
loss of such protection before any agreement for refinancing is
consummated. TILA section 129C(g)(1) defines anti-deficiency law to
mean the law of any State which provides that, in the event of
foreclosure on the residential property of a consumer securing a
mortgage, the consumer is not liable, in accordance with the terms and
limitations of such State law, for any deficiency between the sale
price obtained from a foreclosure sale and the outstanding balance of
the mortgage.
Proposed Sec. 1026.37(m)(7) implements TILA section 129C(g)(3),
which applies to refinance transactions. Specifically, proposed Sec.
1026.37(m)(7) provides that, if the credit is to refinance an extension
of credit as described in Sec. 1026.37(a)(9)(ii) or (iii), the
creditor must disclose a brief statement that certain State law
protections against liability for any deficiency after foreclosure may
be lost upon refinancing, the potential consequences of the loss of
such protections, and a statement that the consumer should consult an
attorney for additional information, labeled ``Liability after
Foreclosure.''
The Bureau proposes this requirement pursuant to its implementation
authority under TILA section 105(a). TILA section 129C(g)(3) requires
creditors to provide the anti-deficiency disclosure prior to
consummation. The Bureau believes that consumers would benefit from
receiving the disclosure in the Loan Estimate provided three days after
application since the disclosure informs consumers of the potentially
significant consequences of refinancing and is therefore an important
consideration for a consumer evaluating whether to proceed with the
loan. Further, the Bureau believes that the anti-deficiency disclosure
is appropriately tied to the submission of the consumer's application
since TILA section 129C(g)(3) requires creditors to provide the
disclosure to all consumers to whom it provides an application or from
whom it receives an application. The Bureau does not believe that it is
feasible to require the disclosure to be provided to any consumer to
whom the creditor ``provides'' a loan application because, as discussed
above in the section-by-section analysis of proposed Sec.
1026.2(a)(3), ``application'' is defined by proposed Sec. 1026.2(a)(3)
as the consumer's submission of certain specific information to a
creditor. The requirements of TILA section 129C(g)(2) are implemented
in proposed Sec. 1026.38(p)(3).
37(n) Signature Statement
TILA section 128(b)(2)(B)(i) requires the following statement in
transactions that are also subject to RESPA and where the extension of
credit is secured by the consumer's dwelling, other than timeshares:
``You are not required to complete this agreement merely because you
have received these disclosures or signed a loan application.'' 15
U.S.C. 1638(b)(2)(B)(i). Current Sec. 1026.19(a)(4) implements this
provision by requiring, for transactions subject to RESPA that are
secured by the consumer's dwelling (other than home equity lines of
credit subject to Sec. 1026.5(b) and timeshares), the statement
required by TILA section 128(b)(2)(B)(i) in the good faith estimates
and corrected disclosures provided pursuant to Sec. 1026.19(a)(1)
and(2).
The Bureau proposes to implement the signature requirement of TILA
section 128(b)(2)(B)(i) in proposed Sec. 1026.37(n), for all
transactions subject to proposed Sec. 1026.19(e). Proposed Sec.
1026.37(n)(1) states that, at the creditor's option, lines for the
signatures of the consumers in the transaction may be provided. The
optional signatures lines would be located under the master heading
``Additional Information About This Loan'' required by proposed Sec.
1026.37(k) and under the heading ``Confirm Receipt.'' Proposed Sec.
1026.37(n)(1) also states that if the creditor includes a line for the
consumer's signature, the creditor is required to disclose to that, by
signing the Loan Estimate, the consumer is only confirming receipt of
the form and is not required to accept the loan. For transactions where
the creditor does not include a line for the consumer's signature,
proposed Sec. 1026.37(n)(2) requires disclosure of the statement that
the consumer does not have to accept the loan because the consumer
received or signed the Loan Estimate. The statement required by
proposed Sec. 1026.37(n)(2) is located under the heading ``Other
Considerations'' required by proposed Sec. 1026.37(m), labeled ``Loan
Acceptance.''
Proposed comment 37(n)-1 clarifies that it is at the creditor's
discretion whether to provide a signature line for the consumer's
signature, but if a signature line is provided, the statement in
proposed Sec. 1026.37(n)(1) must be provided. Proposed comment 37(n)-2
clarifies that, if there is more than one consumer in the transaction,
the first consumer signs as the applicant and each additional consumer
signs as a ``co-applicant.'' Proposed comment 37(n)-2 also clarifies
that the creditor may add an additional signature page to the back of
the form if additional signature lines are necessary to accommodate the
number of consumers in the transaction.
The Bureau proposes to modify the signature language required by
TILA section 128(b)(2)(B)(i) pursuant to its authority under TILA
section 105(a), Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section 1405(b). While the substance of
the disclosure required by proposed Sec. 1026.37(n) is the same as the
statutory language, as discussed in the Kleimann Testing Report, the
Bureau's consumer testing indicated that consumers more easily
understand from the proposed language that a signature does not bind
them to accept the loan. Accordingly, the proposed modification
promotes the informed use of credit, consistent with the purposes of
TILA. For this same reason, the proposed modification will ensure that
the features of the transaction are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs,
[[Page 51232]]
benefits, and risks associated with the mortgage transaction,
consistent with Dodd-Frank Act section 1032(a), and will improve
consumer awareness and understanding of residential mortgage loans and
is in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b).
The Bureau also proposes to use its authority under TILA section
105(a), Dodd-Frank Act section 1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b) to expand the scope of TILA
section 128(b)(2)(B)(i) to apply to all transactions subject to
proposed Sec. 1026.19(e). As discussed above, TILA section
128(b)(2)(B)(i) applies only to transactions subject to both TILA and
RESPA that are secured by the consumer's dwelling, and excludes
transactions secured by the consumer's interest in a timeshare.
However, the Bureau believes that consumers in all transactions subject
to proposed Sec. 1026.19(e) will benefit from the disclosure because
it ensures that consumers understand they are not obligated to complete
the loan transaction just because they signed or received the Loan
Estimate. Accordingly, the proposed disclosure promotes the informed
use of credit, consistent with the purposes of TILA. For these same
reasons, the Bureau believes that the proposed disclosure will ensure
that the features of the transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
mortgage transaction, consistent with Dodd-Frank Act section 1032(a),
and will improve consumer awareness and understanding of residential
mortgage loans and is in the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b).
37(o) Form of Disclosures
TILA section 122(a) provides that the information required to be
disclosed under TILA shall be disclosed clearly and conspicuously, in
accordance with regulations of the Bureau. 15 U.S.C. 1632(a). TILA
section 128(b)(1) provides that the disclosures required by sections
128(a) and 106(b) through (d) generally shall be conspicuously
segregated from all other terms, data, or information provided in
connection with a transaction, including any computations or
itemization. Id. 1638(b)(1). Regulation Z currently implements these
requirements for closed-end transactions in Sec. 1026.17(a)(1), which
provides that the disclosures shall be made clearly and conspicuously
in writing, in a form that the consumer may keep. Section 1026.17(a)(1)
further provides that the disclosures shall be grouped together, shall
be segregated from everything else, and shall not contain any
information not directly related to the disclosures under Sec. 1026.18
(and Sec. 1026.47 for private education loans).
As discussed above, the Bureau is proposing to exclude transactions
subject to Sec. 1026.19(e) and (f) from the coverage of Sec.
1026.17(a) and (b). Consequently, the requirements of TILA sections
122(a) and 128(b)(1) must be implemented elsewhere. The Bureau,
pursuant to its implementation authority under TILA section 105(a),
therefore proposes to implement the statutory segregation and clear and
conspicuous requirements of TILA sections 122(a) and 128(b)(1) for
those disclosures in new Sec. Sec. 1026.37(o) and 1026.38(t). The
Bureau believes these requirements will effectuate the purposes of TILA
by assuring a meaningful disclosure of credit terms so that the
consumer will be able to compare more readily the various credit terms
available to him and avoid the uninformed use of credit. In addition,
Sec. 1026.37(o) establishes a standard form requirement for
transactions subject to RESPA and provides flexibility for certain
aspects of the integrated disclosures.
37(o)(1) General Requirements
Proposed Sec. 1026.37(o)(1)(i) establishes the requirements that
the disclosures required by Sec. 1026.37 be clear and conspicuous, in
writing, and grouped together, segregated from everything else, and
provided on separate pages that are not commingled with any other
documents or disclosures, including any other disclosures required by
State or other laws. Proposed comment 37(o)-1 clarifies that the clear
and conspicuous standard requires that the disclosures be legible and
in a readily understandable form. This guidance is adopted from
existing comment 17(a)(1)-1. The comment also clarifies that proposed
Sec. 1026.37(o)(1)(i) requires that the disclosures required by Sec.
1026.37 be provided in a form that is physically separate from any
other documents or disclosures, including any other disclosures
required by State or other laws. This requirement is stricter than the
guidance found in existing comment 17(a)(1)-2, which provides that the
disclosures may be grouped together and segregated from other
information in a variety of ways other than a separate piece of paper.
The Bureau recognizes that, in certain credit sale and other non-
mortgage, closed-end credit transactions, creditors include the
disclosures required by Sec. 1026.18 in the loan contract or some
other document and ensure that they are grouped together and segregated
by outlining them in a box or other means authorized by comment
17(a)(1)-2. The Bureau understands, however, that this approach is
virtually never employed for mortgage credit, for which the new
disclosures under proposed Sec. Sec. 1026.19(e) and 1026.37, rather
than Sec. 1026.18 disclosures, are required. Mortgage creditors
generally use a standardized note that cannot accommodate dynamically
generated, transaction-specific disclosures, and they almost
universally employ the model disclosure forms provided in appendix H to
Regulation Z as stand-alone, separate documents for providing required
TILA disclosures. The RESPA GFE and RESPA settlement statement forms
required by RESPA for federally related mortgage loans currently are
delivered as separate documents, in accordance with the standard form
requirements of Regulation X. Moreover, the forms in this proposal were
developed as stand-alone documents through an extensive outreach and
consumer testing process, as discussed above, and the Bureau is
concerned that much of the informative benefit of the forms could be
lost or compromised if they were permitted to be included within other
documents. For these reasons, it appears that requiring the Sec.
1026.37 disclosures to be delivered as a separate document maximizes
the benefits of the forms and does not present any significant new
obligation that mortgage creditors do not already effectively observe.
The Bureau seeks comment, however, on whether there currently are
transactions subject to proposed Sec. 1026.19(e) that may be burdened
by the adoption of this requirement.
Proposed Sec. 1026.37(o)(1)(ii) also provides that, except as
provided in Sec. 1026.37(o)(5), the disclosures shall contain only the
information required by Sec. 1026.37(a) through (n) and that they
generally shall be made in the same order, and positioned relative to
the master headings, headings, subheadings, labels, and similar
designations in the same manner, as shown in form H-24. Proposed
comment 37(o)(1)-2 clarifies that, even if a creditor elects not to use
the form as a model (when so permitted because the transaction is not a
federally related mortgage loan, as discussed above), failure to comply
with these requirements, to designate as ``estimated'' all disclosures
designated as such in the form, or to use letter size paper as shown in
form H-24
[[Page 51233]]
constitutes noncompliance with the requirement of Sec.
1026.37(o)(3)(ii) that the disclosures be made with headings, content,
and format substantially similar to the model form.
37(o)(2) Estimated Disclosures
Proposed Sec. 1026.37(o)(2) provides that, wherever form H-24
discloses the required master heading, heading, subheading, label, or
similar designation for a disclosure as ``estimated,'' that
corresponding master heading, heading, subheading, label, or similar
designation required by Sec. 1026.37 must contain the word
``estimated,'' even if the provision requiring such headings, label, or
similar designation does not. As noted below under Sec. 1026.38, many
of the disclosure items required by that section cross-reference their
estimated counterparts in Sec. 1026.37, although the same items may
not be estimates as required by Sec. 1026.19(f). To avoid confusion
over which items are estimates and which are not, the content
provisions of Sec. 1026.37 do not qualify any of the master headings,
headings, subheadings, labels, and similar designations of the items
disclosed as ``estimated.'' Instead, proposed Sec. 1026.37(o)(2)
incorporates by reference the ``estimated'' designations reflected on
form H-24, and as discussed below, proposed Sec. 1026.38(t)(2)
incorporates by reference the ``estimated'' designations reflected on
form H-25.
37(o)(3) Form
Proposed Sec. 1026.37(o)(3)(i) also provides that, for a
transaction that is a federally related mortgage loan, as defined in
Regulation X, the disclosures must be made using form H-24, set forth
in appendix H to Regulation Z. The Bureau is proposing to require that
creditors use a standard form (form H-24 of appendix H) for federally
related mortgage loans pursuant to RESPA section 4, as amended by the
Dodd-Frank Act. 12 U.S.C. 2603(a). Section 4 has long authorized the
use of standard forms. As discussed above, the Dodd-Frank Act amended
section RESPA section 4(a) to require the integrated disclosures that
are the subject of this proposal, which specifically include both the
settlement statement under section 4 and the good faith estimate under
section 5(c). Although the Dodd-Frank Act eliminated one reference in
section 4(a) to a ``standard'' form, it left another reference in
place, as well as another reference to a ``standard'' form in section
4(c). And by including the cross-reference to section 5(c) in section 4
in relation to the integrated disclosure mandate, Congress effectively
extended RESPA's existing standard-form authority to the good faith
estimate as well as the settlement statement requirement. More notably,
in amending section 4(a), Congress did not include an explicit
prohibition of a mandatory-use form as is found in TILA section
105(b).\182\ For this reason, the Bureau does not believe that Congress
intended to eliminate standard-form authority from RESPA section 4.
---------------------------------------------------------------------------
\182\ TILA section 105(b) states that ``nothing in this title
may be construed to require a creditor or lessor to use any such
model form or clause prescribed by the Bureau under this section.''
15 U.S.C. 1604(b).
---------------------------------------------------------------------------
The Bureau also proposes a mandatory form pursuant to its authority
under RESPA section 19(a) to prescribe such rules and regulations as
may be necessary to achieve RESPA's purposes. 12 U.S.C. 2617(a).
RESPA's purposes include the establishment of more effective advance
disclosure to home buyers and sellers of settlement costs. Id.
2601(b)(1). The Bureau believes, based on consumer testing results,
that the purpose of more effective advance disclosure of settlement
costs is better achieved if all lenders provide those disclosures in a
standardized format that consumers can recognize and understand.
Moreover, the credit terms included in the Loan Estimate facilitate and
enhance the consumer's ability to shop for the best-priced loan,
including settlement charges, which have a direct relationship to, and
can overlap with, credit terms. Disclosure of the settlement costs
alone, without the context provided by the credit terms, is therefore
far less effective. This is consistent with HUD's rationale in HUD's
2008 RESPA Final Rule for including credit terms in its good faith
estimate form. See 73 FR 68204, 68214-15 (Nov. 17, 2008). Accordingly,
the Bureau is authorized under section 19(a) to require the standard
form for the disclosure of all of the information it contains, both
settlement costs and credit terms alike.
Certain closed-end consumer credit transactions are subject to the
requirements of proposed Sec. 1026.19(e) but do not fall within the
Regulation X definition of ``federally related mortgage loan.'' These
include construction-only loans with terms of less than two years that
do not finance the transfer of title to the borrower and loans secured
by vacant land on which a home will not be constructed or placed using
the loan proceeds within two years after settlement of the loan. See
Sec. 1024.5(b)(3) and (4). In addition, transactions subject to
proposed Sec. 1026.19(e) but not subject to RESPA would include loans
secured by non-residential real property, provided they have a consumer
purpose as required by Sec. 1026.1(c)(1)(iv). See Sec. 1024.2,
definition of ``federally related mortgage loan,'' paragraph (1)(i)
(requiring that the securing property be ``residential real
property'').
For such transactions that are subject to proposed Sec. 1026.19(e)
because they are subject to TILA and are secured by real property, but
that are not subject to RESPA, the Bureau does not mandate the use of
form H-24 as a standard form. As noted above, TILA section 105(b)
explicitly provides that nothing in TILA may be construed to require a
creditor to use any model form or clause prescribed by the Bureau under
that section. Accordingly, proposed Sec. 1026.37(o)(3)(ii) provides
that, for transactions subject to Sec. 1026.37 that are not federally
related mortgage loans, the disclosures must be made with headings,
content, and format substantially similar to form H-24 but does not
mandate the use of that form. Consistent with TILA section 105(b),
proposed comment 37(o)(3)-1 explains that, although use of the form as
a standard form is not mandatory for such transactions, its use as a
model form, if properly completed with accurate content, constitutes
compliance with the clear and conspicuous and segregation requirements
of Sec. 1026.37(o). In consideration of the recommendation of the
Small Business Review Panel, the Bureau seeks comment on the
advantages, such as cost-saving benefits, and disadvantages of
requiring a standard form for the Loan Estimate for federally related
mortgage loans and model forms for other credit transactions subject to
proposed Sec. 1026.19(e). See Small Business Review Panel Report at
28.
Proposed Sec. 1026.37(o)(3)(iii) also provides that the
disclosures may be provided in electronic form, subject to compliance
with the Electronic Signatures in Global and National Commerce Act (15
U.S.C. 7001 et seq.). This provision parallels existing Sec.
1026.17(a)(1).
37(o)(4) Rounding
The prototype disclosure forms used in the Bureau's consumer
testing displayed rounded numbers for certain information required to
be disclosed by proposed Sec. 1026.37. For example, rounded numbers
were disclosed for the information required by proposed Sec.
1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii),
(f), (g), (h), (i), and (l). In addition, the total monthly payment
required by proposed Sec. 1026.37(c)(2)(iv) was rounded if any of its
component amounts were required to be rounded. The loan amount required
[[Page 51234]]
to be disclosed by proposed Sec. 1026.37(b)(1) and percentage amounts
required to be disclosed by proposed Sec. 1026.37(b)(2) and (6),
(f)(1)(i), (g)(2)(iii), (j), and (l)(2) and (3) that did not contain
cents or fractional amounts were disclosed without decimal places.
In the Bureau's consumer testing, using rounded numbers in this
manner, consumers were able to see and evaluate the information
required by the above-mentioned paragraphs of proposed Sec. 1026.37
quickly. The Bureau is concerned that a large number of exact dollar
amounts and percentages has the potential to cause information overload
and reduce the overall effectiveness of the disclosure. The Bureau
believes that rounding certain amounts on the Loan Estimate reduces the
quantity of numbers on the form and the complexity of information about
potential risks. For example, participants at the Bureau's testing were
able to evaluate the risks of maximum payments and interest rates in
the Loan Terms table using rounded numbers, as well as evaluate the
rounded closing cost estimates, enhancing the utility of the disclosure
for consumers. The Bureau believes the exact number of cents or decimal
places for information required to be disclosed by the above-mentioned
paragraphs of proposed Sec. 1026.37 at the time the Loan Estimate is
provided would not provide a benefit to consumers that would outweigh
the risk of information overload.
Accordingly, the Bureau proposes to use its implementation
authority under TILA section 105(a), its authority under section
1032(a) of the Dodd-Frank Act, and its authority under section 1405(b)
of the Dodd-Frank Act with respect to residential mortgage loans, to
require only rounded numbers and percentages without fractional amounts
to be disclosed without decimal places for certain information on the
Loan Estimate. Whole dollar and certain whole percentage amounts appear
to be sufficient to inform consumers of the estimated periodic payment
amounts, estimated closing costs, financial risks posed by maximum
amounts, and ensure a meaningful disclosure of credit terms. In
addition, the disclosure of exact amounts could suggest to consumers a
degree of accuracy that may not be warranted for some of the estimated
figures. The Bureau believes this requirement ensures the meaningful
disclosure of credit terms to consumers and promotes the informed use
of credit. In addition, the Bureau believes this requirement may ensure
that the features of any consumer financial product or service, both
initially and over the term of the product or service, are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances. Further, the Bureau believes this requirement may
improve consumer awareness and understanding of transactions involving
residential mortgage loans and is in the interest of consumers and in
the public interest.
Proposed Sec. 1026.37(o)(4)(i)(A) requires only rounded numbers
for the information disclosed pursuant to proposed Sec. 1026.37(b)(6)
and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h),
(i), and (l). Proposed Sec. 1026.37(o)(4)(i)(B) requires the loan
amount disclosed pursuant to proposed Sec. 1026.37(b)(1) to be
disclosed without decimal places denoting cents if the amount of cents
are zero. Proposed Sec. 1026.37(o)(4)(i)(C) requires the total monthly
payment disclosed pursuant to proposed Sec. 1026.37(c)(2)(iv) to be
disclosed as a rounded number if any of its component amounts are
required to be rounded. Proposed Sec. 1026.37(o)(4)(ii) requires
percentages without fractional amounts that are disclosed pursuant to
proposed Sec. 1026.37(b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and
(l)(2) and (3) to be disclosed without decimal places.
Proposed comment 37(o)(4)-1 provides clarifies that consistent with
Sec. 1026.2(b)(4) all numbers are to be disclosed as exact numbers,
unless required to be rounded by proposed Sec. 1026.37(o)(4). Proposed
comments 37(o)(4)-2, 37(o)(4)(i)(A)-1, 37(o)(4)(i)(B)-1, and
37(o)(4)(ii)-1 provide guidance regarding rounding amounts on the Loan
Estimate.
37(o)(5) Exceptions
The Bureau's consumer testing has indicated that the format of
information on the disclosures required by proposed Sec. 1026.37
substantially affects the way in which a consumer interacts with and
understands the information disclosed. In addition, the Bureau
understands that credit and real estate transactions involve
significant variability and believes that it is important to provide
industry with clear guidance regarding permissible changes to the
format requirements to accommodate this variability. Accordingly, the
Bureau believes it must specify the changes to the format that are
required and permissible, to ensure the disclosures provided to
consumers convey the information required by proposed Sec. 1026.37 in
a clear, understandable, and effective manner for consumers.
As described above, pursuant to RESPA section 19(a), 12 U.S.C.
2617(a), Sec. 1024.7 of Regulation X currently requires the use of a
standard from to provide the disclosures required by section 5 of
RESPA, 12 U.S.C. 2604. In contrast, TILA section 105(b), 15 U.S.C.
1604(b), provides for model disclosures instead of a standard form.
However, TILA permits creditors to delete information not required
under the statute, other than numerical disclosures, and rearrange the
format, only if doing so does not affect the substance, clarity, or
meaningful sequence of the disclosure. Pursuant to its authority under
RESPA section 19(a), its implementation authority under TILA section
105(a), and its authority under section 1032(a) of the Dodd-Frank Act,
the Bureau proposes Sec. 1026.37(o)(5), which sets forth the required
changes to the format required to be used by proposed Sec.
1026.37(o)(3), illustrated by form H-24 in appendix H to Regulation Z,
and the permissible changes that do not affect the substance, clarity,
or meaningful sequence of the disclosure. In addition, consistent with
section 1032(a) of the Dodd-Frank Act, providing specified changes to
the form would ensure that the features of consumer credit transactions
secured by real property are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the product or service,
in light of the facts and circumstances. The Bureau believes providing
for only specified changes to the form effectuates the purposes of TILA
set forth in TILA section 102(a) and the purpose of the integrated
disclosure set forth in TILA section 105(b), because it would ensure
meaningful disclosure of credit terms to consumers, promote the
informed use of credit, and facilitate compliance by providing
flexibility where warranted. In addition, the Bureau believes this
requirement would effectuate the purposes of RESPA by promoting more
effective advance disclosure of settlement costs.
Accordingly, proposed Sec. 1026.37(o)(5) specifies certain changes
to form H-24 that are required or that do not affect the substance,
clarity, or meaningful sequence of the disclosure and therefore are
permissible. Proposed Sec. 1026.37(o)(5)(i) requires the substitution
of the words ``month'' or ``monthly'' on the form H-24, where used to
designate the frequency of payments or the applicable unit-period of
the transaction, with a different word representing the frequency of
payments or unit-period under the transaction's actual terms, if
different from monthly. Proposed Sec. 1026.37(o)(5)(ii) permits the
[[Page 51235]]
deletion of lender credits from the Cash to Close table, required by
proposed Sec. 1026.37(d)(4), if the amount is zero. Proposed Sec.
1026.37(o)(5)(iii) permits the use of a logo for, or addition of a
slogan with, the information required by proposed Sec. 1026.37(a)(3),
and requires the information disclosed pursuant to Sec. 1026.37(a)(3),
if no logo is used, to be disclosed in a similar format as form H-24 of
appendix H to Regulation Z. Proposed Sec. 1026.37(o)(5)(iv) permits
the attachment of a business card over the information required by
proposed Sec. 1026.37(a)(3). Proposed Sec. 1026.37(o)(5)(v) permits
the insertion of administrative information above the information
required to be disclosed by proposed Sec. 1026.37(a)(2) and adjacent
to the information required to be disclosed by proposed Sec.
1026.37(a)(3) to assist in the identification of the form or the
information contained on the form.
Proposed Sec. 1026.37(o)(5)(vi) permits the form to be translated
into languages other than English. The Bureau understands that some
State laws require versions of the disclosures required under TILA and
RESPA to be provided to consumers in a language other than English when
the negotiation of the transaction is conducted in that language.\183\
In addition, some of the regulatory authorities in these States publish
their own translations of these disclosures for use by the public.\184\
The Bureau's consumer testing included two rounds of testing with
Spanish-speaking consumers of Spanish-language prototype disclosure
forms to determine whether co-development of a non-English version of
the disclosure would be beneficial to consumers.\185\ The Bureau
determined that co-development of a separate non-English version of the
disclosures would likely yield little benefit to consumers, because any
differences in performance with the Spanish prototypes during testing
were caused more by translation than design and structure issues. This
may be due, in part, because the Bureau intentionally pursued a more
graphic than textual design for the Loan Estimate with as few words as
possible. This design highlights key information and allows consumers
to quickly recognize and find the key information about the transaction
without large amounts of text. The differences in language did not
necessitate changes to the design of the disclosure. Accordingly, the
proposed rule only includes English-language disclosure forms and
permits the translation of these forms. The Bureau plans to review
issues surrounding translations of the integrated disclosures after
issuance of this proposal. As discussed below with respect to appendix
H, the Bureau solicits comment on whether the final rule should include
sample Spanish-language or other non-English language forms.
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\183\ See Cal. Civ. Code Sec. Sec. 1632, 1632.5, Or. Rev. Stat.
Sec. 86A.198.
\184\ The California Department of Corporations has translated
the RESPA GFE into Chinese, Korean, Tagalog, and Vietnamese,
available at https://www.corp.ca.gov/Forms/Default.asp. The Oregon
Division of Finance and Corporate Securities provides version of the
RESPA GFE and early TILA disclosure in Russian, Spanish, and
Vietnamese, available at https://www.cbs.state.or.us/dfcs/ml/mortgage_disclosures_translations.html.
\185\ According to the U.S. Census Bureau, based on data from
the 2007 American Community Survey, 55.4 million people spoke a
language other than English at home, and of those people, 62 percent
spoke Spanish. U.S. Census Bureau, Language Use in the United
States: 2007, ACS-12 (Apr. 2010), available at https://www.census.gov/hhes/socdemo/language/data/acs/ACS-12.pdf.
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Proposed comment 37(o)(5)-1 clarifies that creditors making any
changes that are not expressly permitted may lose their protection from
civil liability under TILA. Proposed comment 37(o)(5)-2 clarifies that
the form may be completed by hand, typewriter, computer, or other word
processing device, as long as the method produces clear and legible
text and uses the required formatting, including bold font where shown
on form H-24. Such completion by hand or typewriter would not exempt
the creditor from the requirement to keep records in an electronic,
machine readable format under proposed Sec. 1026.25.
Proposed comment 1026.37(o)(5)-3 clarifies that if there are
multiple creditors or mortgage brokers for a transaction, a creditor
may alter the space provided on form H-24 and add labels to disclose
additional contact information under proposed Sec. 1026.37(m), or
disclose the additional information on a separate page with an
appropriate cross-reference, if the space provided does not accommodate
the information to be disclosed on the page. Proposed comment
1026.37(o)(5)-4 clarifies that a creditor may add signature lines to
form H-24 under the ``Confirm Receipt'' heading required by proposed
Sec. 1026.37(n), or an additional page with an appropriate cross-
reference, if the space provided by form H-24 cannot accommodate the
signature lines for multiple applicants. Proposed comment
1026.37(o)(5)-5 clarifies the requirements of proposed Sec. 1026.37(o)
as they apply to the use of a separate page.
Section 1026.38 Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
Proposed Sec. 1026.38 sets forth the required content of the
integrated Closing Disclosure, required by proposed Sec. 1026.19(f) to
be provided to a consumer no later than three business days prior to
consummation.
As discussed above, the Closing Disclosure integrates the
disclosures currently provided in the RESPA settlement statement and
the final TILA disclosure. In addition, the Closing Disclosure
integrates several disclosures, including new disclosures under the
Dodd-Frank Act, that otherwise would likely have been provided
separately. The Bureau believes that the five-page Closing Disclosure
integrates at least nine pages of disclosures. Specifically, the
Closing Disclosure incorporates: (i) Three pages of the RESPA
settlement statement; (ii) two pages typically used for the final TILA
disclosure; (iii) one page for the negative amortization statement
under TILA section 129C(f), which was added by section 1414(a) of the
Dodd-Frank Act; (iv) one page for the anti-deficiency protection notice
under TILA section 129C(g)(2), which was added by section 1414(c) of
the Dodd-Frank Act; (v) one page for the partial payment policy
disclosure under TILA section 129C(h), which was added by section
1414(d) of the Dodd-Frank Act; and (vi) one page for the escrow account
disclosures under TILA sections 129D(h) and (j), which were added by
sections 1461 and 1462 of the Dodd-Frank Act. In addition, the Closing
Disclosure incorporates the disclosure of: (i) The total interest
percentage under TILA section 128(a)(19), which was added by section
1419 of the Dodd-Frank Act; (ii) the approximate amount of the
wholesale rate of funds in connection with the loan under TILA section
128(a)(17), which was added by section 1419 of the Dodd-Frank Act; and
(iii) the aggregate amount of settlement charges for all settlement
services provided in connection with the loan and the aggregate amount
of other fees or required payments in connection with the loan under
TILA section 128(a)(17), which was added by section 1419 of the Dodd-
Frank Act. In absence of the Bureau's integration of the final TILA
disclosure and the RESPA settlement statement, these disclosures would
have been added to the final TILA disclosure, which potentially could
have increased that disclosure's typical two pages to three pages.
As in the case of the disclosure content required by proposed Sec.
1026.37,
[[Page 51236]]
discussed above, Sec. 1026.38 provides that the information set forth
in proposed Sec. 1026.38(a) through (s) shall be disclosed ``as
applicable.'' Accordingly, the Bureau is proposing parallel commentary
under Sec. 1026.38 to that proposed under Sec. 1026.37. Thus,
proposed comment 38-1 clarifies that a disclosure that is not
applicable to a transaction generally may be eliminated entirely or may
be included and marked ``not applicable'' or ``N/A.''
38(a) General Information
As with the Loan Estimate in proposed Sec. 1026.37(a), the Bureau
proposes to use its authority under TILA section 105(a), and its
authority under RESPA section 19(a), Dodd-Frank Act sections 1032(a)
and (f), 1098, and 1100A, and for residential mortgage loans, Dodd-
Frank Act section 1405(b), to combine and modify disclosures and
related requirements currently provided under Regulations X and Z and
add additional disclosures in the Closing Disclosure for transactions
subject to proposed Sec. 1026.19(f).
38(a)(1) Form Title
Like the integrated disclosure provided three business days after
application, TILA, RESPA, and the Dodd-Frank Act do not expressly
prescribe a title for the form that must be provided in connection with
a settlement. RESPA refers to the form as the ``uniform settlement
statement,'' although Sec. 1024.8 of Regulation X uses the titles HUD-
1 and HUD-1A to refer to the forms used to document settlement charges
in connection with the purchase of a property or refinancing of an
existing mortgage loan, respectively. Regulation Z, however, does not
prescribe a title for the disclosures that must be provided to the
consumer three business days prior to settlement.
Proposed Sec. 1026.38(a)(1) requires the creditor to use the term
``Closing Disclosure'' as the name of the integrated disclosures
provided to consumers three business days prior to settlement pursuant
to proposed Sec. 1026.19(f). The Bureau believes the adoption of a
standardized form name will effectuate the purposes of TILA and RESPA
by promoting the informed use of credit and more effective advance
notice of settlement costs, consistent with TILA section 105(a) and
RESPA section 19(a), and will ensure that the features of the
transaction are fully, accurately and effectively disclosed to
consumers in a manner that permits consumers to better understand the
costs, benefits, and risks associated with mortgage transactions in
light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a). In addition, the use of standard terminology for the
integrated disclosures will facilitate compliance for industry, which
is a purpose of this rulemaking under Dodd-Frank Act sections 1098 and
1100A. The Bureau also believes that, consistent with section 1405(b)
of the Dodd-Frank Act, the requirement of a standard form name may
improve consumer awareness and understanding of transactions involving
residential mortgage loans through the use of disclosures, and is in
the interest of consumers and in the public interest.
38(a)(2) Form Purpose
Proposed Sec. 1026.38(a)(2) requires the creditor to include a
statement regarding the purpose of the Closing Disclosure.
Specifically, proposed Sec. 1026.38(a)(2) requires creditors to
provide the following statement: ``This form is a statement of final
loan terms and closing costs. Compare this document with your Loan
Estimate.'' Providing the purpose of the Closing Disclosure is a new
requirement, as neither creditors nor settlement agents are currently
required to provide this type of information in the disclosures
required by TILA, RESPA, and their implementing regulations.
Nonetheless, this disclosure will benefit consumers and promote the
informed use of credit by encouraging consumers to use both the Loan
Estimate and Closing Disclosure as tools to identify changes in costs
and terms that may have occurred after issuance of the Loan Estimate.
Accordingly, this disclosure will benefit consumers and effectuate the
purposes of TILA and RESPA by promoting the informed use of credit and
more effective advance notice of settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a), and will ensure that the
features of the transaction are fully, accurately and effectively
disclosed to consumers in a manner that permits consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
38(a)(3) Closing Information
Appendix A to Regulation X currently requires the settlement agent
to include in the RESPA settlement statement basic information about
the settlement process, including the name of the settlement agent, the
place of settlement, the property location, and the settlement date. In
addition to this information, with the exception of the place of
settlement, proposed Sec. 1026.38(a)(3) requires creditors to
disclose: (1) The date the Closing Disclosure is issued; (2) the dates
funds are disbursed to the seller and consumer, as applicable; (3) the
sale price of the property that is the subject of the transaction; and
(4) the file number assigned to the transaction by the closing agent.
All of the aforementioned information would be located under the
heading ``Closing Information.'' The Bureau believes that this
information and the additional information discussed below effectuate
the purposes of TILA and RESPA by promoting the informed use of credit
and more effective advance notice of settlement costs, consistent with
TILA section 105(a) and RESPA section 19(a), and will ensure that the
features of the transaction are fully, accurately and effectively
disclosed to consumers in a manner that permits consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
38(a)(3)(i) Date Issued
Proposed Sec. 1026.38(a)(3)(i) requires the creditor to disclose
the date the disclosures required for transactions subject to Sec.
1026.19(f) are issued to the consumer, labeled ``Date Issued.''
Proposed comment Sec. 1026.38(a)(3)(i)-1 cross-references the
commentary to proposed Sec. 1026.37(a)(4).
38(a)(3)(ii) Closing Date
Proposed Sec. 1026.38(a)(3)(ii) requires the creditor to disclose
the consummation date for the mortgage loan transaction, labeled
``Closing Date.''
38(a)(3)(iii) Disbursement Date
Proposed Sec. 1026.38(a)(3)(iii) requires the disclosure of the
date the amounts disclosed pursuant to proposed Sec.
1026.38(j)(3)(iii) and (k)(3)(iii) are expected to be paid to the
consumer and seller, respectively, labeled ``Disbursement Date.''
38(a)(3)(iv) Agent
Proposed Sec. 1026.38(a)(3)(iv) requires the identity of the
settlement agent conducting the closing, labeled ``Agent.'' Proposed
comment 38(a)(3)(iv)-1 clarifies that the name of the agency that
employs the settlement agent should be provided in the disclosure
required by Sec. 1026.38(a)(3)(iv) and that the name of the individual
conducting the closing is not required.
[[Page 51237]]
38(a)(3)(v) File Number
Proposed Sec. 1026.38(a)(3)(v) requires disclosure of the number
assigned to the transaction by the closing agent for identification
purposes, labeled ``File .''
38(a)(3)(vi) Property
Proposed Sec. 1026.38(a)(3)(vi) requires the street address of the
property required to be disclosed under proposed Sec. 1026.37(a)(6),
labeled ``Property.'' Proposed comment 38(a)(3)(iv)-1 cross-references
the commentary to Sec. 1026.37(a)(6), which provides guidance
regarding the information that must be provided in response to this
requirement when a standard property address is unavailable.
38(a)(3)(vii) Sale Price
In credit transactions where there is a seller, proposed Sec.
1026.38(a)(3)(vii)(A) requires disclosure of the contract sale price
for the property identified in proposed Sec. 1026.38(a)(3)(vi),
labeled ``Sale Price.'' In transactions where there is no seller,
proposed Sec. 1026.38(a)(3)(vii)(B) requires disclosure of the
appraised value of the property in proposed Sec. 1026.38(a)(3)(vi),
labeled ``Appraised Prop. Value.'' Proposed comment 38(a)(3)(vii)-1
provides guidance regarding disclosing the property value when there is
no seller that is a party to the transaction.
38(a)(4) Transaction Information
Proposed Sec. 1026.38(a)(4) requires the creditor to disclose the
names and addresses of the parties to the transaction: The borrower,
seller, and lender, as applicable. This information would appear under
the heading ``Transaction Information.'' These disclosures are
currently provided in the RESPA settlement statement. See appendix A to
Regulations X. In addition, TILA section 128(a)(1) and Regulation Z
Sec. 1026.18(a) require disclosure of the identity of the creditor.
The Bureau believes that these disclosures effectuate the purposes of
TILA and RESPA by promoting the informed use of credit and more
effective advance notice of settlement costs, consistent with TILA
section 105(a) and RESPA section 19(a), and will ensure that the
features of the transaction are fully, accurately and effectively
disclosed to consumers in a manner that permits consumers to better
understand the costs, benefits, and risks associated with mortgage
transactions, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Proposed comment 38(a)(4)-1 clarifies that the name and address for
each consumer and seller must be provided and refers creditors to the
commentary to proposed Sec. 1026.37(a)(5) for further guidance.
Proposed comment 38(a)(4)-1 also clarifies that the name and address of
each consumer must be provided and that if the form does not provide
enough space to include the required information for each seller, an
additional page with that information may be appended to the end of the
form, provided the creditor is in compliance with proposed Sec.
1026.38(t)(3). Proposed comment 38(a)(5)-2 clarifies that, in
transactions where there is no seller such as in a refinancing or home
equity loan, the creditor must provide the name of the person or
persons primarily liable under the obligation or who have a right of
rescission. Finally, proposed comment 38(a)(4)-3 cross-references the
commentary to proposed Sec. 1026.37(a)(3) for information regarding
the identification of multiple creditors.
38(a)(5) Loan Information
Proposed Sec. 1026.38(a)(5) requires the creditor to provide
certain information about the mortgage loan that is the subject of the
transaction. With the exception of the mortgage insurance case number
required by proposed Sec. 1026.38(a)(5)(vi), all of the disclosures
required under proposed Sec. 1026.38(a)(5) mirror the disclosures
required by proposed Sec. 1026.37(a)(8) through (12). The Bureau
believes that these disclosures effectuate the purposes of TILA and
RESPA by promoting the informed use of credit and more effective
advance notice of settlement costs, consistent with TILA section 105(a)
and RESPA section 19(a), and will ensure that the features of the
transaction are fully, accurately and effectively disclosed to
consumers in a manner that permits consumers to better understand the
costs, benefits, and risks associated with mortgage transactions, in
light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a).
Proposed comment 38(a)(5)-1 refers the creditor to the commentary
to proposed Sec. 1026.37(a)(9) through (11) for further guidance on
the general requirements and definitions applicable to proposed Sec.
1026.38(a)(5)(i) through (v). The disclosures required by proposed
Sec. 1026.38(a)(5) appear under the heading ``Loan Information.''
38(a)(5)(i) Loan Term
Proposed Sec. 1026.38(a)(5)(i) requires disclosure of the term of
the loan, consistent with proposed Sec. 1026.37(a)(8) and labeled
``Loan Term.''
38(a)(5)(ii) Purpose
Proposed Sec. 1026.38(a)(5)(ii) requires disclosure of the purpose
of the loan, consistent with proposed Sec. 1026.37(a)(9) and labeled
``Purpose.''
38(a)(5)(iii) Product
Proposed Sec. 1026.38(a)(5)(iii) requires disclosure of the loan
product, consistent with proposed Sec. 1026.37(a)(10) and labeled
``Product.''
38(a)(5)(iv) Loan Type
Proposed Sec. 1026.38(a)(5)(iv) requires disclosure of the loan
type, consistent with proposed Sec. 1026.37(a)(11) and labeled ``Loan
Type.''
38(a)(5)(v) Loan Identification Number
Proposed Sec. 1026.38(a)(5)(v) requires disclosure of the loan
identification number, consistent with proposed Sec. 1026.37(a)(12)
and labeled ``Loan ID .''
38(a)(5)(vi) Mortgage Insurance Case Number
The mortgage insurance case number currently is disclosed in
section B of the RESPA settlement statement. See appendix A to
Regulation X. Proposed Sec. 1026.38(a)(5)(vi) incorporates this
disclosure into the Closing Disclosure, labeled ``MIC .''
38(b) Loan Terms
For transactions subject to proposed Sec. 1026.19(f), proposed
Sec. 1026.38(b) implements the requirements of TILA section 128(a)(6),
(a)(11), and (b)(2)(C)(ii) by requiring creditors to disclose on the
Closing Disclosure the table of key loan terms provided on the Loan
Estimate pursuant to proposed Sec. 1026.37(b). This information
includes the loan amount; interest rate; periodic principal and
interest payment; whether the loan amount, interest rate, or periodic
payment may increase; and whether the loan has a prepayment penalty or
balloon payment. For a detailed description of the Bureau's
implementation of these statutory provisions and its legal authority
for this proposal, see the section-by-section analysis to proposed
Sec. 1026.37(b).
The requirements of proposed Sec. 1026.38(b) generally mirror
those of proposed Sec. 1026.37(b). Accordingly, proposed comment
38(b)-1 directs creditors to the commentary to proposed Sec.
1026.37(b) for guidance on the disclosures required by proposed Sec.
1026.38(b).
38(c) Projected Payments
Proposed Sec. 1026.38(c) implements the requirements of TILA
section 128(a)(6), (a)(16), (b)(2)(C), and (b)(4) for
[[Page 51238]]
transactions subject to proposed Sec. 1026.19(f), by requiring
creditors to disclose on the Closing Disclosure the periodic payment or
range of payments, together with an estimate of the taxes, insurance,
and assessments and the payments to be made with escrow account funds.
15 U.S.C. 128(a)(6), (a)(16), (b)(2)(C), (b)(4). The requirements of
proposed Sec. 1026.38(c) generally mirror those of proposed Sec.
1026.37(c), with certain exceptions which are discussed below.
Accordingly, proposed comment 38(c)-1 directs creditors to Sec.
1026.37(c) and its commentary for guidance on the disclosures required
by Sec. 1026.38(c). For a detailed description of the Bureau's
implementation of these statutory provisions and its legal authority
for this proposal, see the section-by-section analysis to proposed
Sec. 1026.37(c) above. As discussed below in the section-by-section
analysis to proposed Sec. 1026.38(t), the items required to be
disclosed pursuant to Sec. 1026.38 will be actual terms and costs, as
required by Sec. 1026.19(f).
Proposed Sec. 1026.38(c) differs from proposed Sec. 1026.37(c) in
several ways. First, proposed Sec. 1026.38(c)(2) requires an
additional reference to the information required by proposed Sec.
1026.38(l)(7). The Bureau believes, based on consumer testing, that
this additional reference will help consumers to understand the
specific payment amounts to be made with escrow funds and those that
must be paid separately by the consumer. Second, proposed Sec.
1026.38(c) contains different rules for estimating escrow payments. As
discussed in the section-by-section analysis to proposed Sec.
1026.37(c), the Dodd-Frank Act amended TILA to add new requirements
regarding the disclosure of escrow payments in consumer credit
transactions secured by a first mortgage on the principal dwelling of
the consumer, other than an open-end credit plan or reverse mortgage.
Specifically, TILA section 128(b)(4)(A) provides that the disclosures
required by TILA section 128(a)(6) must take into account the amount of
any monthly payment to an escrow account, in accordance with section
10(a)(2) of RESPA. 15 U.S.C. 1638(b)(4)(A); 12 U.S.C. 2609(a)(2). In
addition, new TILA section 128(b)(4)(B) generally requires creditors to
take into account the taxable assessed value of the property during the
first year after consummation, including the value of any improvements
constructed or to be constructed on the property, if known, and the
replacement costs of the property for hazard or flood insurance, when
disclosing estimated escrow payments pursuant to TILA section
128(b)(4)(A). 15 U.S.C. 1638(b)(4)(B). For the Loan Estimate provided
to consumers near the time of application, proposed Sec. 1026.37(c)
generally incorporates these statutory provisions, but expands the
requirements to all transactions subject to Sec. 1026.37(c). However,
the Bureau believes that separate treatment is required for the Closing
Disclosure because the statutory requirements may conflict with certain
provisions of Regulation X, which implements the provisions of RESPA
sections 6(g) and 10, regarding the administration of escrow accounts.
12 U.S.C. 2605(g); 2609.
Regulation X Sec. 1024.17(c)(7) specifies how a creditor
conducting an escrow account analysis must estimate disbursement
amounts. If the creditor knows the charge for a particular escrow item,
the creditor must use that amount in estimating the disbursement. If
the charge is unknown, the creditor may base the estimate on the
preceding year's charge, but may adjust the estimate to account for
inflation. The Regulation X requirement that the creditor use actual
charges, if known, in estimating escrow payment amounts may conflict
with the TILA section 128(b)(4)(B) requirement that the creditor take
into account the replacement costs of the property for hazard insurance
when determining the estimated escrow amount. Under the plain language
of TILA section 128(b)(4)(B), a creditor must base estimated escrows
for hazard insurance on the replacement costs of the property, even if
it knows that the actual charges will be different. While the Bureau
believes that the TILA requirement for estimating escrow payments is
appropriate for the Loan Estimate because it requires creditors to use
a uniform standard for estimates and therefore facilitates comparison,
the disclosure of actual payment amounts, when known, is appropriate
for the Closing Disclosure.
Accordingly, the Bureau proposes to use its authority under TILA
section 105(a), Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section 1405(b) to modify the
requirements of TILA section 128(b)(4)(B) for the estimation of escrow
payment amounts on the Closing Disclosure. Proposed Sec. 1026.38(c)
provides that, in disclosing estimated escrow payments as described in
Sec. 1026.37(c)(2)(iii) and (4)(ii), the amount disclosed on the
Closing Disclosure: (1) For transactions subject to RESPA, is
determined under the escrow account analysis described in Regulation X,
12 CFR 1024.17, and (2) for transactions not subject to RESPA, may be
determined under the escrow account analysis described in Regulation X,
12 CFR 1024.17, or in the manner set forth in Sec. 1026.37(c)(5).
Comment 38(c)(1)-1 clarifies that the amount of estimated escrow
payments disclosed on the Closing Disclosure is accurate if it differs
from the estimated escrow payment disclosed on the Loan Estimate due to
the escrow account analysis described in Regulation X, 12 CFR 1024.17.
The Bureau believes the proposed modification will effectuate the
purposes of TILA by promoting the informed use of credit by allowing
disclosure of actual escrow amounts for hazard insurance, when known.
Additionally, the proposed modification will ease compliance burden for
creditors. In particular, permitting creditors in transactions not
subject to RESPA to rely on the accounting rules described in
Regulation X, 12 CFR 1024.17, to calculate the escrow payment
disclosure will avoid requiring creditors to follow a separate
disclosure requirement for the relatively small number of transactions
that are subject to TILA but not RESPA. The proposed modification will
also improve consumer awareness and understanding of residential
mortgage loans and is in the interest of consumers and the public,
consistent with Dodd-Frank Act section 1405(b). The Bureau also
believes that the disclosure ensures that the features of consumer
credit transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances, consistent
with Dodd-Frank Act section 1032(a).
38(d) Cash To Close
Pursuant to its authority under TILA section 105(a) and Dodd-Frank
section 1032(a), the Bureau proposes to require creditors to provide
the actual total closing costs imposed upon the consumer and the amount
of the cash required at consummation from the consumer. This disclosure
will promote the informed use of credit and consumer understanding of
the costs, benefits, and risks associated with the loan because it will
indicate to the consumer the amount the consumer will pay at
consummation of the credit transaction and closing of the real estate
transaction. Accordingly, proposed Sec. 1026.38(d) requires the
disclosure of the cash required from the consumer at consummation of
the transaction, with a
[[Page 51239]]
breakdown of the amounts of loan costs and other costs associated with
the transaction.
38(d)(1) to (d)(6)
Under proposed Sec. 1026.38(d)(1), the dollar amount due from the
consumer is the same amount as calculated in accordance with proposed
Sec. 1026.38(j)(3)(iii) and is disclosed under a heading of ``Cash to
Close'' and labeled ``Cash to Close.'' The total dollar amount of the
loan costs to be paid by the consumer at closing as calculated under
proposed Sec. 1026.38(f)(4) is disclosed under proposed Sec.
1026.38(d)(2). The total dollar amount of the other costs to be paid by
the consumer at closing as calculated under proposed Sec.
1026.38(g)(5) is disclosed under proposed Sec. 1026.38(d)(3). The
amount of lender credits disclosed under Sec. 1026.38(h)(3) is
disclosed under Sec. 1026.38(d)(4). The sum of the amounts disclosed
under Sec. 1026.38(d)(2), 1026.38(d)(3), and 1026.38(d)(4) is
disclosed with a description of ``Closing Costs'' under Sec.
1026.38(d)(5). A statement directing the consumer to refer to the page
of the Closing Disclosure that contains the tables required under Sec.
1026.38(f) and (g) is required under Sec. 1026.38(d)(6).
38(f),(g), and (h) Closing Cost Details
Currently, RESPA section 4(a) requires that the forms published by
the Bureau ``* * * shall conspicuously and clearly itemize all charges
imposed upon the borrower and all charges imposed upon the seller in
connection with the settlement * * *.'' 12 U.S.C. 2603(a). The current
RESPA settlement statement used in residential real estate transactions
is promulgated under Regulation X Sec. 1024.8, with instructions in
appendix A of Regulation X.
As discussed above, Dodd-Frank Act section 1032(f) requires the
Bureau to combine these RESPA disclosures with the disclosures required
by TILA. However, section 1419 of the Dodd-Frank Act amended TILA
section 128(a) to also require, in the case of a residential mortgage
loan, disclosure of the aggregate amount of settlement charges for all
settlement services provided in connection with the loan and the
aggregate amount of other fees or required payments in connection with
the loan. 15 U.S.C. 1638(a)(17).
Pursuant to its authority under Dodd-Frank Act section 1032(a) and
(f), TILA section 105(a), and RESPA section 19(a), the Bureau proposes
to require creditors to provide the loan costs and other costs imposed
upon the consumer and the seller in tables as part of the integrated
Closing Disclosure for closed-end transactions secured by real property
(other than reverse mortgages). Based on its consumer testing, the
Bureau believes that the disclosure of loan costs and other costs in
the format illustrated in proposed form H-25 of appendix H to
Regulation Z may improve consumer understanding of the loan costs and
other costs being imposed. The Bureau tested several different
prototype formats for disclosing actual closing costs on the Closing
Disclosure, including prototypes that were similar in format to the
current RESPA settlement statement, with a similar three-and four-digit
line numbering system, and other prototypes that more closely matched
the Loan Estimate. Consumer participants at the Bureau's consumer
testing performed better at identifying closing costs, including
whether closing costs had changed between the estimated and actual
amounts, when using a format for closing costs that closely matched
that of the Loan Estimate. Participants gained a familiarity with the
organization of closing costs on the Loan Estimate and benefited from
this experience when engaging with the Closing Disclosure. In addition,
consumer participants often placed the Loan Estimate and Closing
Disclosure prototypes side-by-side to compare the closing costs, and
this method of comparing the two disclosures was better enabled and
assisted by a closely matching organization of closing costs between
them. Accordingly, the Bureau is proposing a format for the disclosure
of closing cost information required by proposed Sec. 1026.38(f) and
(g) that closely matches the format and organization of the closing
cost information on the Loan Estimate, as required by proposed Sec.
1026.38(t) and illustrated by proposed form H-25.
This format of form H-25 also uses a different line numbering
system than that of the current RESPA settlement statement. Both
consumer and industry participants at the Bureau's testing stated that
line numbers would be useful to facilitate conversations between
consumers, creditors, and other participants in the credit and
underlying real estate transaction. However, consumer participants at
the Bureau's testing appeared overwhelmed by the three-and four-digit
line numbers on the prototypes similar to the current RESPA settlement
statement, and performed worse with prototypes containing that system.
As discussed above in part III, the Bureau is particularly mindful of
the potential risk of information overload for consumers, given the
amount of numbers and complexity involved in the credit transaction and
the underlying real estate transaction. The Bureau tested prototypes
with a two-digit line numbering system, which performed better with
both consumer and industry participants at the Bureau's testing, with
some industry participants at the Bureau's testing preferring it over
the system of the current RESPA settlement statement. Accordingly, the
format for the information required by proposed Sec. 1026.38(f) and
(g), as required by proposed Sec. 1026.38(t) and illustrated by form
H-25, also contains a two-digit line numbering system that is different
than the current RESPA settlement statement.
The Bureau believes that this disclosure may effectuate the purpose
of TILA by promoting the informed use of credit and assuring a
meaningful disclosure to consumers. The Bureau believes that this
disclosure may also satisfy the purpose of RESPA to provide more
effective advanced disclosure of settlement costs to both the consumer
and the seller in the real estate transaction. In addition, consistent
with section 1032(a) of the Dodd-Frank Act, this disclosure may ensure
that the features of consumer credit transactions secured by real
property are fully, accurately, and effectively disclosed to consumers
in a manner that permits consumers to understand the costs, benefits,
and risks associated with the product or service, in light of the facts
and circumstances.
As discussed below, proposed Sec. 1026.38(f), (g), and (h) require
the creditor or closing agent to disclose the details of the closing
costs at closing and totals of those costs. The costs related to the
consummation of the credit transaction and the closing of the real
estate transaction would be disclosed under Sec. 1026.38(f), (g), and
(h), as discussed below, regardless of the person responsible for
paying the cost.\186\
---------------------------------------------------------------------------
\186\ The permitted itemization of closing costs under Sec.
1026.38(f) and (g) allows creditors to provide itemizations required
by State law without using additional pages. See, e.g., Indiana
Department of Insurance, Title Insurance Division ``New RESPA Rules
and Indiana Code FAQs'' (May 1, 2010) available at https://www.in.gov/idoi/files/Indiana_Department_of_Insurance_FAQs.pdf;
North Carolina Commissioner of Banks Memorandum ``Disclosure of
Origination Fees under HUD's New RESPA Rules'' (December 3, 2010)
available at https://www.nccob.gov/public/docs/Financial%20Institutions/Mortgage/OCOB_Letter_Regarding_Disclosure_of_Origination_Fees_under_HUDs_new_RESPA_Rules.pdf; Tex. Ins. Code Ann. art. Sec. 2702.053 (West 2005).
---------------------------------------------------------------------------
During the Small Business Review Panel, several settlement agents
and one mortgage company requested that the
[[Page 51240]]
line numbers from the current RESPA settlement statement be retained,
stating that using the revised line numbers in the prototype integrated
Closing Disclosure would significantly increase programming costs. See
Small Business Review Panel Report at 20, 28-9. Based on this feedback,
the Bureau seeks comment on whether the use of line numbers will lower
software-related costs on industry, and the exact amount of the savings
given the rest of the changes in the integrated closing disclosure
contemplated by this proposal, while improving consumer understanding
of the loan terms and costs at the consummation of the credit
transaction and the closing of the real estate transaction.
38(f) Closing Cost Details; Loan Costs
Under proposed Sec. 1026.38(f), the closing cost details are
disclosed under a master heading of ``Closing Cost Details'' with
columns stating whether the charge is paid at or before consummation by
the consumer or the seller, or paid by others. All loan costs in the
credit transaction would be disclosed in a table under a heading of
``Loan Costs'' in three subcategories.
38(f)(1) Origination Charges
The first subcategory of loan costs would be disclosed under the
label ``Origination Charges,'' which encompasses the same items as
disclosed on the Loan Estimate under proposed Sec. 1026.37(f)(1)
together with any compensation of a loan originator paid by the
creditor. Each cost would be disclosed in the appropriate column
designated borrower-paid at or before closing, seller-paid at or before
closing, or paid by others. Proposed comment 38(f)(1)-1 clarifies that
comments 37(f)(1)-1, -2 and -3 provide additional guidance for the
charges listed under Sec. 1026.38(f)(1). Proposed comment 38(f)(1)-2
clarifies that all compensation paid to a loan originator must be
provided under Sec. 1026.38(f)(1), that compensation from the creditor
to a loan originator must be disclosed in the paid by others column,
and that compensation from both the consumer and the creditor to the
loan originator is prohibited under Sec. 1026.36(d)(2). Proposed
comment 38(f)(1)-3 clarifies that any amount disclosed as paid from the
creditor to the loan originator is calculated as the dollar value of
all compensation to the loan originator and refers to comments
36(d)(1)-1, -2, -3 and -6 for further guidance on the components of
compensation a to loan originator. The Bureau believes that the
origination charges disclosed under Sec. 1026.38(f)(1) satisfies Dodd-
Frank Act section 1419, which amended section 128(a) of TILA to add
paragraph (18), requiring disclosure of the aggregate amount of fees
paid to the mortgage originator, amount of those fees paid directly by
the consumer, and any additional amount received by the originator from
the creditor. As discussed above in part II.F, the Bureau currently is
engaged in six other rulemakings that relate to mortgage credit and
intends that the rulemakings function collectively as a whole.
Accordingly, the Bureau may have to modify aspects of this proposed
rule for consistency with determinations made in the other rulemakings.
For example, the Bureau would modify the disclosure of origination
charges under Sec. 1026.38(f)(1) as appropriate for consistency with
other rulemakings related to permissible mortgage loan originator
compensation.
Alternatively, the Bureau invites comment on whether it should
require itemization in the Closing Disclosure of fees received by loan
originators from the creditor, and whether it should require
itemization of any compensation paid by consumers to loan originators,
which does not include creditors, in the Loan Estimate and Closing
Disclosure. As discussed above with respect to proposed Sec.
1026.37(f)(1), the Bureau is proposing to use its authority under TILA
section 105(a) and (f), RESPA section 19(a), and Dodd-Frank Act section
1405(b) to exempt the disclosures required by proposed Sec. 1026.19(e)
from the TILA section 128(a)(18) requirement that creditors disclose
the amount of origination fees received by loan originators from the
creditor. The Bureau solicits comment on whether a similar exemption
should be applied here.
38(f)(2) Services Borrower Did Not Shop For
The second subcategory of loan costs would be disclosed under the
label ``Services Borrower Did Not Shop For.'' The costs of services
that were required by the creditor and provided by persons other than
the creditor for which the consumer could not or did not shop would
disclosed under Sec. 1026.38(f)(2). All items that were required to be
disclosed under Sec. 1026.37(f)(2), plus those items that would be
disclosed under Sec. 1026.37(f)(3) when the consumer did not shop for
the service under Sec. 1026.19(e)(1)(vi). Any additional items that
were required by the creditor but were not disclosed on the Loan
Estimate under Sec. 1026.37(f)(2) would be disclosed under Sec.
1026.38(f)(2) when the consumer did not shop for the service under
Sec. 1026.19(e)(1)(vi). Each cost would be disclosed in the
appropriate column designated borrower-paid at or before closing,
seller-paid charges at or before closing, or paid by others. Proposed
comment 38(f)(2)-1 refers to comments 37(f)(2)-1, through -4 to provide
additional guidance for the charges listed under Sec. 1026.38(f)(2).
38(f)(3) Services Borrower Did Shop For
The third subcategory of loan costs would be disclosed under the
label ``Services Borrower Did Shop For.'' The services required by the
creditor but for which the consumer independently shopped are disclosed
under Sec. 1026.38(f)(3). Each cost is disclosed in the appropriate
column for borrower-paid at or before closing, seller-paid at or before
closing, or paid by others. Proposed comment 38(f)(3)-1 clarifies that
all items that were disclosed under Sec. 1026.37(f)(3) that the
consumer did not shop for the service under Sec. 1026.19(e)(1)(vi) are
disclosed under Sec. 1026.38(f)(2), and not under Sec. 1026.38(f)(3).
38(f)(4) and (5) Total Loan Costs and Subtotal of Loan Costs
With the label ``Total Loan Costs (Borrower-Paid),'' the total
costs designated borrower-paid charges at closing and borrower-paid
charges before closing would be disclosed under Sec. 1026.38(f)(4).
The costs disclosed under Sec. 1026.38(f)(1), (2), and (3) would be
subtotaled and disclosed in the appropriate column designated borrower-
paid at or before closing under Sec. 1026.38(f)(5). Proposed comment
38(f)(5)-1 clarifies that costs that are seller-paid at or before
closing, or paid by others, are not subtotaled under Sec.
1026.38(f)(5), and that the subtotal of charges that are seller-paid at
or before closing, or paid by others, would be disclosed under Sec.
1026.38(h)(2).
38(g) Closing Cost Details; Other Costs
Under proposed Sec. 1026.38(g), all other costs in the credit
transaction and the real estate transaction are disclosed in a table
under the heading of ``Other Costs'' in four subcategories. Proposed
comment 38(g)-1 would refer to comment 38(f)-1 and comment 37(g)-1 to
provide guidance related to Sec. 1026.38(g).
38(g)(1) Taxes and Other Government Fees
The first subcategory is disclosed under the label ``Taxes and
Other Government Fees.'' The amount of recording fees and an
itemization of transfer taxes would be disclosed under Sec.
1026.38(g)(1). Proposed comment
[[Page 51241]]
38(g)(1)-1 refers to comments 37(g)(1)-1, -2, -3 and -4 for guidance on
disclosures required under Sec. 1026.38(g)(1).
38(g)(2) Prepaids
The second subcategory is disclosed under the label ``Prepaids.''
The items that were identified under are stated with the actual costs
in the applicable columns is disclosed under Sec. 1026.38(g)(2).
Proposed comment 38(g)(2)-1 refers to comment 37(g)(2)-1 to provide
guidance on disclosures required under Sec. 1026.38(g)(2). Proposed
comment 38(g)(2)-2 clarifies that the amount of prepaid interest can be
disclosed as a negative number if the calculation of prepaid interest
results in a negative number. Proposed comment 38(g)(2)-3 clarifies
that if interest is not collected for a portion of a month or other
period between closing and the date from which interest will be
collected with the first monthly payment, then $0.00 must be disclosed
under Sec. 1026.38(g)(2) for prepaid interest. This guidance is
consistent with instructions for RESPA settlement statement line 901 in
appendix A of Regulation X.
38(g)(3) Initial Escrow Payment at Closing
The third subcategory is disclosed under the subheading ``Initial
Escrow Payment at Closing.'' The items that were identified under Sec.
1026.37(g)(3) are stated with their actual cost and the applicable
aggregate adjustment required under 12 CFR 1024.17(d)(2) and disclosed
under Sec. 1026.38(g)(3). Proposed comment 38(g)(3)-1 clarifies that
the creditor would be required to state the amount that it would
require the consumer to place into a reserve or escrow account at
consummation to be applied to recurring charges for property taxes,
homeowner's and similar insurance, mortgage insurance, homeowner's
association dues, condominium dues, and other periodic charges. Each
charge identified would be disclosed with a relevant label, monthly
payment amount, and number of months collected at consummation.
Proposed comment 38(g)(3)-2 clarifies that the method used to determine
the aggregate adjustment for purposes of establishing the reserve or
escrow account is described in Regulation X Sec. 1024.17(d)(2), that
examples of the calculation methodology can be found in appendix E of
Regulation X, and that the result of the calculation will always be a
negative number or zero, except for amounts due to rounding. This
comment incorporates guidance provided in appendix A to Regulation X
relating to the instructions to complete the current RESPA settlement
statement section 1000.
38(g)(4) Other
The fourth subcategory would be disclosed under the label
``Other.'' The services required to be performed or are to be obtained
in the real estate closing by the consumer, seller, or other party are
described and the costs for the services disclosed under Sec.
1026.38(g)(4). The label for any cost that is a component of title
insurance must include the description ``Title--''. The label for costs
of premiums for separate insurance, warranty, guarantee, or event-
coverage products must include the parenthetical ``(optional)'' at the
end. Proposed comment 38(g)(4)-1 clarifies that the charges disclosed
under Sec. 1026.38(g)(4) include all real estate brokerage fees,
homeowner's or condominium association charges paid at closing, home
warranties, inspection fees, and other fees that are part of the real
estate transaction but not required by the creditor or disclosed
elsewhere in Sec. 1026.38. Proposed comment 38(g)(4)-2 clarifies that
any owner's title insurance premium disclosed under Sec. 1026.38(g)(4)
in a jurisdiction that permits simultaneous issuance title insurance
rates is calculated by using the full owner's title insurance premium,
adding any simultaneous issuance premium for issuance of lender's
coverage, and then deducting the full premium for lender's coverage
disclosed under Sec. 1026.38(f)(2) or (f)(3) and that the cost of a
premium for an owner's title insurance policy will be always labeled
with ``Title--'' at the beginning, and labeled ``(optional)'' at the
end when designated borrower-paid at or before closing. Proposed
comment 38(g)(4)-3 refers to comment 37(g)(4)-3 for additional guidance
on the use of the parenthetical ``(optional)'' at the end of label on a
cost under Sec. 1026.38(g)(4)(ii).
38(g)(5) Total Other Costs
38(g)(6) Subtotal of Costs
With the label ``Total Other Costs (Borrower-Paid),'' the total of
the consumer paid charges at closing and the consumer paid charges
before closing would be disclosed under proposed Sec. 1026.38(g)(5).
The costs disclosed under Sec. 1026.38(g)(1) through (4) are be
subtotaled and disclosed in the appropriate column designated borrower-
paid at or before closing under Sec. 1026.38(g)(6). Proposed comment
38(g)(6)-1 would clarify that the only costs subtotaled under Sec.
1026.38(g)(6) are those that are designated borrower-paid at or before
closing. Charges that are other costs seller-paid at closing, seller-
paid before closing, or paid by others are not disclosed under Sec.
1026.38(g)(6), but are subtotaled under Sec. 1026.38(h)(2).
38(h) Closing Cost Totals
38(h)(1) and (2)
Subtotals of closing costs and total closing costs paid by the
consumer must be disclosed under proposed Sec. 1026.38(h). With the
label ``Total Closing Costs (Borrower-Paid),'' the total amount of
consumer paid closing costs would be disclosed under Sec.
1026.38(h)(1). With a description of ``Closing Costs Subtotal (Loan
Costs + Other Costs),'' the subtotal of all charges disclosed under
Sec. 1026.38(f) and (g) in each column described in Sec. 1026.38(f)
would be disclosed under Sec. 1026.38(h)(2). Comment 38(h)(2)-1
clarifies that the loan costs and other costs that are seller-paid at
closing, seller-paid before closing, and paid by others are also
subtotaled under Sec. 1026.38(h)(2).
The Bureau proposes Sec. 1026.38(h) pursuant to its authority
under TILA section 105(a) and Dodd-Frank Act section 1032(a) because
disclosure of this closing cost information will promote the informed
use of credit and consumer understanding of the costs, benefits, and
risks associated with the mortgage transaction. Furthermore, for the
reasons stated above, the proposed rule is in the interest of consumers
and in the public interest, consistent with Dodd-Frank Act section
1405(b). In addition, proposed Sec. 1026.38(h) implements Dodd-Frank
Act Section 1419, which amended section 128(a) of TILA to add a new
paragraph (17) requiring disclosure of, among other amounts, the amount
of settlement charges the borrower must pay at closing and the
aggregate amount of all settlement charges for all settlement services
provided in connection with the loan.
38(h)(3)
Section 1026.38(h)(3) requires the creditor to disclose the amount
of credits provided by the creditor to the consumer at consummation.
Proposed comment 38(h)(3)-1 provides a cross reference to guidance
provided in comments 17(c)(1)-19, 19(e)(3)(i)-4, and 19(e)(3)(i)-5
concerning the disclosure of lender credits, including those that are
disclosed under Sec. 1026.37(g)(6). Proposed comment 38(h)(3)-2
clarifies that any amounts disclosed under Sec. 1026.38(h)(3) can also
be used for disclosing any credits from the creditor to remediate
excess costs determined
[[Page 51242]]
under Sec. 1026.19(e)(3)(i) or (e)(3)(ii). This comment incorporates
guidance provided in the HUD RESPA Roundup dated April 2010.
38(h)(4)
Section 1026.38(h)(4) requires the creditor to use terminology
describing the charges on the Closing Disclosure in a manner that is
consistent with the descriptions used for charges disclosed on the Loan
Estimate under Sec. 1026.37. The creditor would also be required to
list the charges on the Closing Disclosure in the same sequential order
on the Loan Estimate under Sec. 1026.37. Proposed comment 38(h)(4)-1
clarifies that the creditor would be required to use the same
terminology and order to make it easier for the consumer to compare
charges listed on the Loan Estimate and Closing Disclosure. Also, if
charges move between subheadings under Sec. 1026.38(f)(2) and (3),
listing the charges in alphabetical order in each subheading category
would be considered to be in compliance with Sec. 1026.38(h)(4).
38(i) Calculating Cash To Close
As discussed above, the total amount of cash or other funds that
the consumer must provide at consummation is commonly known as the
``cash to close.'' Prior to the enactment of the Dodd-Frank Act,
neither TILA nor Regulation Z expressly required disclosure of the cash
to close amount or its critical components. The Dodd-Frank Act added
section 128(a)(17) to TILA, which requires the disclosure of ``the
aggregate amount of settlement charges for all settlement services
provided in connection with the loan, the amount of charges that are
included in the loan and the amount of such charges the borrower must
pay at closing * * * and the aggregate amount of other fees or required
payments in connection with the loan.'' 15 U.S.C. 1638(a)(17).
The ``Summary of Borrower's Transaction'' on page 1 of the RESPA
settlement statement, line 303, includes a box that shows the amount of
cash due to or from the consumer. See appendix A to Regulation X. Page
3 of the RESPA settlement statement also includes a chart entitled
``Comparison of Good Faith Estimate (GFE) and HUD-1 Charges,'' which
highlights any changes between the estimated and actual amounts for
settlement service charges that are subject to the limitations on
increases under 12 CFR 1024.7(e). However, these settlement service
charges comprise only a portion of the total amount of funds that the
consumer would need to consummate the transaction. Thus, the cash to
close box on line 303 and the comparison chart on page 3 of the RESPA
settlement statement together provide an incomplete picture of how the
cash to close amount is calculated and whether it is different than the
consumer expects based on the GFE.
Consequently, and based on its authority under TILA section 105(a),
RESPA section 19(a), and Dodd-Frank Act sections 1032(a) and, for
residential mortgage loans, 1405(b), the Bureau is proposing to require
that the Closing Disclosure contain a ``Calculating Cash to Close''
table that highlights the cash to close amount and its critical
components and compares those amounts to the corresponding disclosures
shown on the Loan Estimate under Sec. 1026.37(h). The Bureau believes
that this disclosure will effectuate the purposes of TILA and RESPA by
facilitating the informed use of credit and ensuring that consumers are
provided with greater and timelier information on the costs of the
closing process. Providing consumers with information about the cash to
close amount, its critical components, and how such amounts changed
from the estimated amounts disclosed on the Loan Estimate helps ensure
that the features of the transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to better understand the costs, benefits, and risks associated with the
transaction, in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a). The Bureau also believes such
disclosure will improve consumers' awareness and understanding of
residential mortgage transactions, which is in the interest of
consumers and the public, consistent with Dodd-Frank Act section
1405(b).
The ``Calculating Cash to Close'' table in the Closing Disclosure
under proposed Sec. 1026.38(i) mirrors the format of, and updates the
amounts shown on, the ``Calculating Cash to Close'' table in the Loan
Estimate under proposed Sec. 1026.37(h). The Bureau believes that
including separate ``Calculating Cash to Close'' tables on both the
Loan Estimate and the Closing Disclosure will aid the consumer in
ascertaining whether the cash to close amount and its critical
components changed between the Loan Estimate and the Closing
Disclosure, and by how much. The two tables are similar in format and
designed to be used in tandem when the consumer is reviewing the
Closing Disclosure and comparing its content to that shown on the Loan
Estimate. However, the table on the Closing Disclosure includes
additional information under the subheading ``Did this change?'' which
is intended to assist the consumer in identifying and understanding the
reasons for any such changes.
The Bureau's consumer testing indicated that consumers were able to
use the detailed comparison table to understand how and why the actual
cash to close amount on the Closing Disclosure differs from the
estimated amounts shown on the Loan Estimate. During testing, consumers
tended to use the ``Calculating Cash to Close'' table in conjunction
with the ``Closing Cost Details'' tables showing itemized charges and
subtotals on the Closing Disclosure, to identify the differences
between the estimated and actual cash to close amount and its critical
components and to gain a better understanding of the numbers underlying
the cash to close amount. The consumers also benefited from the ``Did
this change?'' subheading containing statements that components of the
cash to close changed and simple explanations as to why. The Bureau has
incorporated this feedback into the design of the table and its choice
of language to be used under the ``Did this change?'' subheading, as
applicable.
Requiring disclosure of the ``Calculating Cash to Close'' table
also complements proposed Sec. 1026.19(f)(1)(ii), which requires
delivery of the Closing Disclosure three business days prior to
consummation. TILA section 128(b)(2)(D) requires that a corrected TILA
disclosure be given to the consumer not later than three business days
prior to consummation if the APR as initially disclosed becomes
inaccurate, and the Bureau understands that the annual percentage rate
changes triggering the redisclosure obligation occur so frequently that
many creditors currently provide the corrected TILA disclosure as a
matter of course even if redisclosure is not required. RESPA section 4
provides that the RESPA settlement statement be provided ``at or before
closing,'' however, and the Bureau understands that it typically is
given the day of closing. As discussed above, proposed Sec.
1026.19(f)(1)(ii) merges the two provisions by requiring that consumers
be given the integrated disclosures three business days prior to
consummation. During this three-business-day period, the consumer can
review the Closing Disclosure, contact the creditor with questions
regarding the information contained on the Closing Disclosure, and
correct any errors prior to consummation. Disclosing the cash to close
amount and how it was calculated three business days in advance of
consummation generally provides the consumer with a
[[Page 51243]]
three-business-day window to make arrangements to have the necessary
funds available for the consummation. This will help alleviate concerns
that, in some cases, consumers may not know until shortly before
consummation--or even the day of consummation--how much of their own
funds they will be expected to bring to the closing table.
The ``Calculating Cash to Close'' table to be disclosed on the
Closing Disclosure under Sec. 1026.38(i) consists of four columns and
nine rows. The first column, which does not have a subheading, includes
labels for the amounts of cash to close (listed in the final row of the
table, in more prominent fashion) and its critical components. Total
closing costs, which are listed in the first row, is the sum total of
creditor, third party settlement service, and other transaction-related
charges disclosed on the ``Closing Cost Details'' tables on the Closing
Disclosure. Subsequent rows list other components of the cash to close
amount, such as the closing costs paid before consummation, closing
costs financed, and the deposit. These component amounts are discussed
in more detail under Sec. 1026.38(i)(1) through (8), below. The second
column, under the subheading ``Estimate,'' includes the estimated
amounts of cash to close and its components. These amounts match the
estimates given on the ``Calculating Cash to Close'' table in the Loan
Estimate, which are shown to the nearest whole dollar amount. The third
column, under the subheading ``Final,'' includes the actual amounts of
the cash to close and its components without rounding. In both the
second and the third columns, the amounts that increase the total cash
to close amount are shown as positive numbers, and the amounts that
reduce the total cash to close amount are shown as negative numbers.
The fourth column, under the subheading ``Did this change?'' contains
in each row (1) a statement, more prominent than other disclosures
under proposed Sec. 1026.38(i), as to whether the actual amount is
different from or increased above the estimated amount and (2) if the
actual amount is different from or increased over the estimated amount,
a simple explanation for the difference or increase along with cross-
references to other relevant information disclosed on the Closing
Disclosure, as applicable.
Proposed comment 38(i)-1 discusses how, under each subparagraph
(iii) of Sec. 1026.38(i)(1) through (i)(8), the statement as to
whether the ``Final'' amount disclosed under each subparagraph (ii) of
Sec. Sec. 1026.38(i)(1) through (i)(8) is greater than, equal to, or
less than the corresponding ``Estimate'' amount disclosed under each
subparagraph (i) of Sec. Sec. 1026.38(i)(1) through (i)(8) is
disclosed more prominently than the other disclosures under Sec.
1026.38(i). The proposed comment clarifies that this more prominent
statement can take the form, for example, of a ``Yes'' or ``No''
disclosed in capital letters and boldface font, as shown on the Closing
Disclosure form H-25 set forth in appendix H to this part, the standard
form or model form, as applicable, pursuant to Sec. 1026.38(t). The
comment also discusses how, in the event a difference or an increase in
costs has occurred, certain words within the narrative text that are
included under the subheading ``Did this change?'' are displayed more
prominently than other disclosures, and gives an example of such a
prominent statement.
Proposed comment 38(i)-2 describes how a final amount shown to two
decimal places on the ``Calculating Cash to Close'' table disclosed
under Sec. 1026.38(i) could appear to be a larger number than its
corresponding estimate shown to the nearest dollar when, in fact, the
apparent increase is due solely to rounding. The comment further
clarifies that any statement disclosed under the subheading ``Did this
change?'' as to whether an actual amount is higher than its
corresponding estimated amount is based on the actual, non-rounded
estimate that would have been disclosed on the Loan Estimate under
Sec. 1026.37(h) if it had been shown to two decimal places rather than
a whole dollar amount. The proposed comment also provides an example of
how a contrary rule could result in inaccurate disclosures of
increases. The proposed comment reflects the Bureau's intention that
the statements of increases to be disclosed under each subparagraph
(iii) under Sec. 1026.38(i)(1) through (i)(8) capture true increases
rather than increases due solely to rounding rules.
Proposed comments 38(i)-3 and 4 provide guidance regarding the
statements required by each of Sec. 1026.38(i)(4)(iii)(A),
1026.38(i)(5)(iii)(A), 1026.38(i)(6)(iii)(A), 1026.38(i)(7)(iii)(A),
and 1026.38(i)(8)(iii)(A) that the consumer should see the details
disclosed pursuant to another subsection or other subsections within
Sec. 1026.38, or that an amount has increased or decreased from an
estimated amount, as applicable. The comments note that, for example,
Sec. 1026.38(i)(7)(iii)(A) requires a statement that the consumer
should see the details disclosed pursuant to Sec. 1026.38(j)(2)(v),
and, as shown on Closing Disclosure form H-25, that statement can read:
``See Seller Credits in Section L.'' These comments also provide
guidance regarding the required statements that are not illustrated as
samples in form H-25 in appendix H.
38(i)(1) Total Closing Costs
Proposed Sec. 1026.38(i)(1)(i) and (ii) requires the disclosure of
a comparison of the consumer's estimated and actual ``Total Closing
Costs'' amounts. The estimated ``Total Closing Costs'' amount is the
same amount that is disclosed on the Loan Estimate in the ``Calculating
Cash to Close'' table under proposed Sec. 1026.37(h)(1). This amount
also matches the ``Total Closing Costs'' amount that is disclosed on
the Loan Estimate under proposed Sec. 1026.37(g)(6). The actual
``Total Closing Costs'' amount is the same amount disclosed on the
Closing Disclosure under Sec. 1026.38(h)(1), reduced by the amount of
any lender credits disclosed under Sec. 1026.38(h)(3). Proposed
comment 38(i)(1)(i)-1 provides guidance regarding the requirement under
Sec. 1026.38(i)(1)(i) that the amount disclosed is labeled ``Total
Closing Costs'' and that such label is accompanied by a reference to
the disclosure of ``Total Closing Costs'' under Sec. 1026.38(h)(1).
Proposed Sec. 1026.38(i)(1)(iii)(A) specifies that if the actual
amount of ``Total Closing Costs'' is different than the estimated
amount of such costs as shown on the Loan Estimate (unless the
difference is due to rounding), the creditor or closing agent must
state, under the subheading ``Did this change?'', that the consumer
should see the total loan costs and total other costs subtotals
disclosed on the Closing Disclosure under Sec. 1026.38(f)(4) and
(g)(5), and must include a reference to such disclosures, as
applicable. This language is intended to direct the consumer to the
more detailed itemization on the Closing Disclosure of the costs that
comprise the ``Total Closing Costs.''
Under proposed Sec. 1026.38(i)(1)(iii)(A), the creditor or closing
agent must also state the dollar amount of any excess amount of closing
costs above the limitations on increases in closing costs under Sec.
1026.19(e)(3), if applicable, along with language stating that the
increase exceeds the legal limits by the dollar amount of the excess.
The dollar amount to be disclosed must reflect the different methods of
calculating such excess amounts under Sec. 1026.19(e)(3)(i) and (ii).
Proposed comment 38(i)(1)(iii)(A)-1 contains examples of how to
calculate such excess amounts
[[Page 51244]]
and clarifies that because certain closing costs, individually, are
subject to the limitations on increases in closing costs under Sec.
1026.19(e)(3)(i) (e.g., origination fees, transfer taxes, charges paid
by the consumer to an affiliate of the creditor), while other closing
costs are collectively subject to the limitations on increases in
closing costs under Sec. 1026.19(e)(3)(ii) (e.g., recordation fees,
fees paid to an unaffiliated third party if the creditor permitted the
consumer to shop for the service provider), the creditor or closing
agent calculates subtotals for each type of excess amount, and then
adds such subtotals together to yield the dollar amount to be disclosed
in the table. The proposed comment also clarifies that the calculation
of the excess amounts above the limitations on increases in closing
costs takes into account the fact that the itemized, estimated closing
costs disclosed on the Loan Estimate will not result in charges to the
consumer if the service is not actually provided at or before
consummation, and that certain itemized charges listed on the Loan
Estimate under the subheading ``Services You Can Shop For'' may be
subject to different limitations depending on the circumstances.
Proposed comments 38(i)(1)(iii)(A)-2.i through -2.iii complement
commentary to proposed Sec. 1026.19(e)(3). Pursuant to proposed Sec.
1026.19(f)(2)(v), the creditor or closing agent must refund to the
consumer any such excess amounts at consummation or within thirty days
thereafter. Accordingly, this disclosure may help the consumer identify
when a refund may be required, and this information can be used by the
consumer to request that the creditor or closing agent provide such
refund at consummation or within thirty days thereafter.
38(i)(2) Closing Costs Subtotal Paid Before Closing
Proposed Sec. 1026.38(i)(2) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Total Closing
Costs'' that are paid before consummation of the transaction. The
estimated ``Closing Costs Subtotal Paid Before Closing'' must be
disclosed as $0. Proposed comment 38(i)(2)(i)-1 clarifies that this
requirement is because the Loan Estimate does not have an equivalent
disclosure under proposed Sec. 1026.37(h). The actual ``Closing Costs
Subtotal Paid Before Closing'' is the sum of the amount disclosed on
the Closing Disclosure under proposed Sec. 1026.38(h)(2) and
designated ``Borrower-Paid Before Closing.'' Proposed Sec.
1026.38(i)(2)(iii) specifies that if the actual amount of ``Closing
Costs Subtotal Paid Before Closing'' is different than the estimated
amount, in this case $0 (unless the difference is due to rounding), the
creditor or closing agent must state under the subheading ``Did this
change?'' that the consumer paid such costs before consummation. This
language is intended to remind the consumer that he or she paid certain
transaction closing costs prior to consummation and that such costs
will be subtracted from the actual cash to close amount. Proposed
comment 38(i)(2)(iii)(B)-1 provides guidance regarding the requirement
to disclose whether the estimated and final amounts are equal.
38(i)(3) Closing Costs Financed
Proposed Sec. 1026.38(i)(3) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Total Closing
Costs'' that are financed. The estimated ``Closing Costs Financed''
amount is the same amount that is disclosed in the ``Calculating Cash
to Close'' table in the Loan Estimate under proposed Sec.
1026.37(h)(2). The actual ``Closing Costs Financed'' amount reflects
any changes to the amount previously disclosed on the Loan Estimate.
Proposed Sec. 1026.38(i)(3)(iii) specifies that if the actual amount
of ``Closing Costs Financed'' is different than the estimated amount
(unless the excess is due to rounding), the creditor or closing agent
must state under the subheading ``Did this change?'' that the consumer
included these closing costs in the loan amount, which increased the
loan amount. The Bureau believes this explanatory language will be
particularly helpful to consumers for two reasons. First, an increase
in closing costs financed may trigger a sizeable decrease in the cash
to close, which in turn could create a false impression that the
overall transaction costs to the consumer decreased. Second, during
consumer testing, when consumers were presented with a scenario
involving a loan amount that increased after delivery of the Loan
Estimate, some of the consumers had difficultly isolating the increase
in closing costs financed as the reason for the increased loan amount.
The Bureau believes this disclosure may assist consumers in
understanding that the financed portion of the closing costs are paid
for through the loan proceeds.
38(i)(4) Downpayment/Funds From Borrower
Proposed Sec. 1026.38(i)(4) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Downpayment/
Funds from Borrower.'' Downpayment and funds from borrower are related
concepts, but downpayment is applicable to a transaction that is a
purchase as defined in proposed Sec. 1026.37(a)(9)(i), while funds
from borrower relates to a transaction other than a purchase. Under
proposed Sec. 1026.38(i)(4)(i), the estimated ``Downpayment/Funds from
Borrower'' amount is the same amount that is disclosed on the
``Calculating Cash to Close'' table in the Loan Estimate under proposed
Sec. 1026.37(h)(3). Under proposed Sec. 1026.38(i)(4)(ii)(A), in a
transaction that is a purchase as defined in proposed Sec.
1026.37(a)(9)(i), the actual amount of the ``Downpayment/Funds from
Borrower'' is the actual amount of the difference between the purchase
price of the property and the principal amount of the credit extended,
stated as a positive number. Under proposed Sec. 1026.38(i)(4)(ii)(B),
in a transaction other than a purchase as defined in proposed Sec.
1026.37(a)(9)(i), the actual amount of ``Funds from Borrower'' is
determined in accordance with Sec. 1026.38(i)(6)(iv), by subtracting
from the total amount of all existing debt being satisfied in the real
estate closing and disclosed under Sec. 1026.38(j)(1)(v) (except to
the extent the satisfaction of such existing debt is disclosed under
Sec. 1026.38(g)) the principal amount of the credit extended. If such
calculation yields a positive number, then the positive number is
disclosed under proposed Sec. 1026.38(i)(4)(ii)(B); otherwise, $0.00
is disclosed.
Proposed comment 38(i)(4)(ii)(A)-1 provides an example of the
downpayment changing in a particular transaction. Proposed comment
38(i)(4)(ii)(B)-1 provides further clarification about how the actual
``Funds from Borrower'' amount is determined under Sec.
1026.38(i)(6)(iv), and gives an example of when that actual amount may
change from the corresponding estimated amount.
Proposed Sec. 1026.38(i)(4)(iii)(A) specifies that if the actual
amount of ``Downpayment/Funds from Borrower'' is different than the
estimated amount (unless the difference is due to rounding), the
creditor or closing agent must state under the subheading ``Did this
change?'' that the consumer increased or decreased the payment, as
applicable, and also state that the consumer should see the details
disclosed under Sec. 1026.38(j)(1) or (j)(2), as applicable. This
language is intended to remind the consumer that he or she will be
contributing a different amount of his or her own funds toward the cash
to close, and therefore must make arrangements prior to the date of
consummation to procure any necessary funds. Comment 38(i)(4)(iii)(A)-1
clarifies the requirement under
[[Page 51245]]
Sec. 1026.38(i)(4)(iii)(A) that a statement be given that the consumer
has increased or decreased this payment, as applicable, along with a
statement that the consumer should see the details disclosed under
Sec. 1026.38(j)(1) or (j)(2), as applicable. The comment notes that,
in the event the purchase price of the property increased, that
statement can read, for example: ``You increased this payment. See
details in Section K.'' In the event the loan amount decreased, that
statement can read, for example, ``You increased this payment. See
details in Section L.'' This language is intended to direct the
consumer to the section within the Closing Disclosure containing the
information that accounts for the increase in the ``Downpayment/Funds
from Borrower'' amount.
38(i)(5) Deposit
Proposed Sec. 1026.38(i)(5) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Deposit.'' The
estimated ``Deposit'' amount is the same amount that is disclosed in
the ``Calculating Cash to Close'' table on the Loan Estimate under
proposed Sec. 1026.37(h)(4). The actual ``Deposit'' amount is the same
amount that is disclosed on the Closing Disclosure under proposed Sec.
1026.38(j)(2)(ii). Proposed Sec. 1026.38(i)(5)(iii) specifies that if
the actual amount of ``Deposit'' is different than the estimated amount
(unless the difference is due to rounding), the creditor or closing
agent must state, under the subheading ``Did this change?'', that the
consumer increased or decreased this payment, as applicable, and should
see the details disclosed under Sec. 1026.38(j)(2)(ii). This language
is intended to direct the consumer to the section within the Closing
Disclosure containing the itemization of the deposit in the Closing
Disclosure.
38(i)(6) Funds for Borrower
Proposed Sec. 1026.38(i)(6) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Funds for
Borrower.'' Like proposed Sec. 1026.37(h)(5), this amount is intended
to generally represent the amount to be disbursed to the consumer or
used at consumer's discretion at consummation of the transaction, such
as in cash-out refinance transactions. The determination of whether the
transaction will result in ``Funds for Borrower'' is made under
proposed Sec. 1026.38(i)(6)(iv). The estimated ``Funds for Borrower''
amount disclosed under Sec. 1026.38(i)(6)(i) is the same amount that
is disclosed in the ``Calculating Cash to Close'' table in the Loan
Estimate under proposed Sec. 1026.37(h)(5). Proposed Sec.
1026.38(i)(6)(ii) provides that the actual ``Funds for Borrower''
amount disclosed is determined pursuant to Sec. 1026.38(i)(6)(iv), by
subtracting from the total amount of all existing debt being satisfied
in the real estate closing and disclosed under Sec. 1026.38(j)(1)(v)
(except to the extent the satisfaction of such existing debt is
disclosed under Sec. 1026.38(g)) the principal amount of the credit
extended (excluding any amount disclosed under Sec.
1026.38(i)(3)(ii)). The exclusion of any amount disclosed under Sec.
1026.38(i)(3)(ii) is necessary since that amount of the credit extended
has already been accounted for in the cash to close calculation by
inclusion in Sec. 1026.38(i)(3)(ii). If such calculation yields a
negative number, then the negative number is disclosed under proposed
Sec. 1026.38(i)(6)(ii); otherwise, $0.00 is disclosed.
Proposed comment 38(i)(6)(ii)-1 provides further clarification
about how the actual ``Funds for Borrower'' amount is determined under
Sec. 1026.38(i)(6)(iv), and to whom such amount is disbursed. Proposed
Sec. 1026.38(i)(6)(iii) clarifies that, if the actual amount of
``Funds for Borrower'' is different than the estimated amount (unless
the difference is due to rounding), the creditor or closing agent must
state in the subheading ``Did this change?'' that the consumer's
available funds from the loan amount have increased or decreased, as
applicable. This language is intended to remind the consumer that a
different amount of loan proceeds will be available following payoff of
existing loans.
38(i)(7) Seller Credits
Proposed Sec. 1026.38(i)(7) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Seller
Credits.'' ``Seller Credits'' are described in proposed
1026.38(j)(2)(v) and corresponding commentary. The estimated ``Seller
Credits'' amount is the same amount that is disclosed on the
``Calculating Cash to Close'' table in the Loan Estimate under proposed
Sec. 1026.37(h)(6). The actual ``Seller Credits'' amount is the same
amount disclosed on the Closing Disclosure under proposed Sec.
1026.38(j)(2)(v). Proposed comment 38(i)(7)(ii)-1 clarifies that the
``Final'' amount reflects any change, following the delivery of the
Loan Estimate, in the amount of funds given by the seller to the
consumer for generalized credits for closing costs or for allowances
for items purchased separately, as distinguished from payments by the
seller for items attributable to periods of time prior to consummation
(which are considered ``Adjustments and Other Credits'' separately
disclosed under proposed Sec. 1026.38(i)(8)).
Proposed Sec. 1026.38(i)(7)(iii) specifies that, if the actual
amount of ``Seller Credits'' is different than the estimated amount
(unless the difference is due to rounding), the creditor or closing
agent must state that fact under the subheading ``Did this change?,''
and state that the consumer should see the details disclosed under
Sec. 1026.38(j)(2)(v). This language is intended to direct the
consumer to the section within the Closing Disclosure containing the
itemization of seller credits.
38(i)(8) Adjustments and Other Credits
Proposed Sec. 1026.38(i)(8) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Adjustments and
Other Credits.'' ``Adjustments and Other Credits'' are described in
proposed Sec. 1026.38(j)(2)(vi) through (xi) and corresponding
commentary. The estimated ``Adjustments and Other Credits'' amount is
the same amount that is disclosed on the ``Calculating Cash to Close''
table in the Loan Estimate under proposed Sec. 1026.37(h)(7). The
actual ``Adjustments and Other Credits'' amount is equal to the total
amount of the adjustments and other credits due from the consumer at
consummation (i.e., the amounts disclosed on the Closing Disclosure
under Sec. Sec. 1026.38(j)(1)(v) through (x)), reduced by the total
amount of the adjustments and other credits paid already by or on
behalf of the consumer at consummation (i.e., the amounts disclosed on
the Closing Disclosure under Sec. Sec. 1026.38(j)(2)(vi) through
(xi)). Proposed Sec. 1026.38(i)(8)(iii) specifies that if the actual
amount of ``Adjustments and Other Credits'' is different than the
estimated amount (unless the difference is due to rounding), the
creditor or closing agent must state that fact under the subheading
``Did this change?,'' and state that the consumer should see the
details disclosed under Sec. Sec. 1026.38(j)(1)(v) through (x) and
(j)(2)(vi) through (xi). This language is intended to direct the
consumer to the sections within the Closing Disclosure containing the
itemization of the adjustments and other credits. Proposed comment
38(i)(8)(ii)-1 gives examples of items that may be adjustments and
other credits, and clarifies that if the calculation required by Sec.
1026.38(i)(8)(ii) yields a negative
[[Page 51246]]
number, the creditor or closing agent discloses it as such.
38(i)(9) Cash To Close
Proposed Sec. 1026.38(i)(9) requires the disclosure of a
comparison of the estimated and actual amounts of the ``Cash to
Close.'' The estimated ``Cash to Close'' amount is the same amount that
is disclosed on the ``Calculating Cash to Close'' table in the Loan
Estimate under proposed Sec. 1026.37(h)(8) as ``Estimated Cash to
Close.'' The actual ``Cash to Close'' amount is the sum of the amounts
disclosed under proposed Sec. Sec. 1026.38(i)(1) through (8). The
label ``Cash to Close'' and the estimated and actual amounts listed in
the table are disclosed more prominently than other disclosures in
Sec. 1026.38(i), as a means of emphasizing the importance of the cash
to close amount. Proposed comment 38(i)(9)(ii)-1 clarifies that the
``Final'' amount of ``Cash to Close'' disclosed under Sec.
1026.38(i)(9)(ii) equals the amount disclosed on the Closing Disclosure
as ``Cash to Close'' under Sec. 1026.38(j)(3)(iii). The proposed
comment also clarifies that if the calculation required by Sec.
1026.38(i)(9)(ii) yields a negative number, the creditor or closing
agent discloses it as such. Proposed comment 38(i)(9)(ii)-2 discusses
how the disclosure of the ``Final'' amount of ``Cash to Close'' under
Sec. 1026.38(i)(9)(ii) is more prominent than the other disclosures
under Sec. 1026.38(i) and clarifies that this more prominent
disclosure can take the form, for example, of boldface font, as shown
on the Closing Disclosure form H-25.
38(j) and (k) Summaries of Borrower's and Seller's Transactions
Currently, RESPA section 4 requires the settlement agent to clearly
and conspicuously itemize all charges imposed upon the borrower and
seller in connection with the settlement. See 12 U.S.C. 2603.
Regulation X implements these requirements by requiring the settlement
agent to provide summaries of the consumer's and seller's transactions
on the RESPA settlement statement. See Regulation X Sec. 1024.8 and
appendix A. Dodd-Frank Act section 1032(f) requires that the Bureau
propose disclosures that combine the disclosures required under TILA
and RESPA sections 4 and 5 into a single, integrated disclosure for
mortgage loan transactions covered under TILA and RESPA.
In addition to effectuating Dodd-Frank Act section 1032(f), the
Bureau believes that including on the Closing Disclosure summaries of
the consumer's and seller's transactions will effectuate the purposes
of TILA and RESPA by promoting the informed use of credit and more
effective advance notice to home buyers and sellers of settlement
costs, respectively. The summaries will assist consumers in
understanding of the resolution of their legal obligations to sellers
under the terms of the sales contract for the property which will be
used to secure the credit extended to facilitate the purchase. The
summaries will also assist sellers in understanding the charges they
are required to pay under the sales contract. In addition, consistent
with section 1032(a) of the Dodd-Frank Act, the addition of the
summaries of the consumer's and seller's transactions would ensure that
the features of consumer credit transactions secured by real property
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the product or service, in light of the facts and
circumstances. Therefore, the Bureau proposes to exercise its authority
under TILA section 105(a), RESPA section 19(a), and Dodd-Frank Act
section 1032(a) to require the creditor or closing agent to provide the
summaries of the consumer's and seller's transactions that are
currently provided in the RESPA settlement statement. The required
information regarding the consumer's transaction would be set forth in
Sec. 1026.38(j) and the required information regarding the seller's
transaction would be set forth in Sec. 1026.38(k). Furthermore, for
the reasons stated above, the proposed rule is in the interest of
consumers and in the public interest, consistent with Dodd-Frank Act
section 1405(b). The Bureau is not proposing to alter the current
method for calculating these summaries as currently provided in
appendix A to Regulation X except as specifically described below.
However, based on the results of consumer testing, the Bureau is
proposing to revise the wording of headings, labels, and references to
make them more understandable for consumers.
In addition, the format required by proposed Sec. 1026.38(t), as
illustrated by proposed form H-25 of appendix H to Regulation Z, for
the information required by proposed Sec. 1026.38(j) and (k) contains
a two-digit line numbering system, in contrast to the three-digit line
numbering system for this information on the current RESPA settlement
statement. At the Bureau's consumer testing, consumer participants
appeared overwhelmed by the three- and four-digit line numbers on
prototypes that contained line numbers similar to the current RESPA
settlement statement. As described above in part III, the Bureau is
also mindful of the risks of information overload to consumers. The
Bureau believes that the increased amount of numbers on the page from
the three- and four-digit line numbering system may significantly
detract from the consumer's ability to engage with the Closing
Disclosure. The prototypes that the Bureau tested that contained only a
two-digit line numbering system performed better with consumers, and
were more effective at enabling them to understand their actual closing
costs and the differences between the estimated and actual amounts. In
addition, as described above in the analysis of proposed Sec.
1026.38(f) and (g), the use of this two-digit line numbering system for
the information required by proposed Sec. 1026.38(f) and (g) allows
the Loan Estimate and Closing Disclosure to match more closely, which
the Bureau's consumer testing indicates better enables consumers to
understand their transaction. See the analysis of proposed Sec.
1026.38(f) and (g) for more detail regarding the two-digit line
numbering system. During the Small Business Review Panel, several
settlement agents and one mortgage company requested that the line
numbers from the current RESPA settlement statement be retained,
stating that using the revised line numbers in the prototype integrated
Closing Disclosure would significantly increase programming costs. See
Small Business Review Panel Report at 20, 28. Based on this feedback,
the Bureau seeks comment on whether the use of line numbers will lower
software-related costs on industry, and the exact amount of the savings
given the rest of the changes contemplated by this proposal, while
improving consumer understanding of the loan terms and costs at the
consummation of the credit transaction and the closing of the real
estate transaction.
38(j) Summary of Borrower's Transaction
Proposed Sec. 1026.38(j) requires that the creditor or closing
agent provide the summaries of the consumer's and seller's transactions
in separate tables under the heading ``Summaries of Transactions'' with
a statement that the purpose of the table is to summarize the
transaction. Proposed Sec. 1026.38(j) also lists the information that
must be provided under the subheading ``Borrower's Transaction.''
Proposed comment 38(j)-1 clarifies that it is permissible to give two
separate Closing Disclosures to the consumer and seller. This comment
incorporates guidance
[[Page 51247]]
provided in the HUD RESPA FAQs p. 44, 4 (``HUD-1--
``General''). Comment 38(j)-2 clarifies that additional lines can be
added to the Closing Disclosure to show customary recitals and
information used locally in real estate closings. This comment
incorporates guidance provided in HUD RESPA FAQs p. 44, 5 and
10 (``HUD-1--General''). Proposed comment 38(j)-3 clarifies
that the amounts disclosed under the following provisions of Sec.
1026.38(j) are the same as the amounts disclosed under the
corresponding provisions of Sec. 1026.38(k): Sec. 1026.38(j)(1)(ii)
and Sec. 1026.38(k)(1)(ii); Sec. 1026.38(j)(1)(iii) and Sec.
1026.38(k)(1)(iii); if the amount disclosed under Sec.
1026.38(j)(1)(v) is attributable to contractual adjustments between the
consumer and seller, Sec. 1026.38(j)(1)(v) and Sec.
1026.38(k)(1)(iv); Sec. 1026.38(j)(1)(vii) and Sec.
1026.38(k)(1)(vi); Sec. 1026.38(j)(1)(viii) and Sec.
1026.38(k)(1)(vii); Sec. 1026.38(j)(1)(ix) and Sec.
1026.38(k)(1)(viii); Sec. 1026.38(j)(1)(x) and Sec.
1026.38(k)(1)(ix); Sec. 1026.38(j)(2)(iv) and Sec. 1026.38(k)(2)(iv);
Sec. 1026.38(j)(2)(v) and Sec. 1026.38(k)(2)(vii); Sec.
1026.38(j)(2)(viii) and Sec. 1026.38(k)(2)(x); Sec. 1026.38(j)(2)(ix)
and Sec. 1026.38(k)(2)(xi); Sec. 1026.38(j)(2)(x) and Sec.
1026.38(k)(2)(xii); and Sec. 1026.38(j)(2)(xi) and Sec.
1026.38(k)(2)(xiii).
38(j)(1) Itemization of Amount Due From Borrower
Proposed Sec. 1026.38(j)(1)(i) requires the creditor or closing
agent to disclose the label ``Due from Borrower at Closing'' and the
total amount due from the consumer at closing, calculated as the sum of
items required to be disclosed under Sec. 1026.38(j)(1)(ii) through
(x), excluding items paid from funds other than closing funds defined
under Sec. 1026.38(j)(4)(i). Below this label Sec. 1026.38(j)(ii)
requires the creditor or closing agent to provide a reference to the
sale price of the property and the amount of the contract sales price
of the property being sold, excluding the price of any items of
tangible personal property if the consumer and seller have agreed to a
separate price for such items. In addition, below the same label, a
reference to the subtotal of closing costs paid at closing by the
consumer with adjustments for items paid by the seller in advance must
also be provided by the creditor or closing agent. Proposed comment
38(j)(1)(ii)-1 clarifies that, for purposes of this disclosure,
personal property is defined by state law, but could include such items
as carpets, drapes, and appliances. Manufactured homes are not
considered personal property for purposes of Sec. 1026.38(j)(1)(ii).
This comment incorporates guidance currently provided in the
instructions for RESPA settlement statement line 102 in appendix A to
Regulation X. Proposed Sec. 1026.38(j)(1)(iii) requires the creditor
or closing agent to provide a reference to the sales price of any
tangible personal property included in the sale that are not included
in the sales price disclosed under Sec. 1026.38(j)(1)(ii).
Proposed Sec. 1026.38(j)(1)(iv) requires the creditor or closing
agent to provide a reference to the subtotal of closing costs paid at
closing by the consumer and to disclose the amount of closing costs
paid by the consumer at closing. Proposed Sec. 1026.38(j)(1)(v)
requires the creditor or closing agent to describe and disclose the
amount of any additional items that the seller has already paid but are
attributable to a time after closing and therefore will be used by the
consumer. Also, proposed Sec. 1026.38(j)(1)(v) requires a description
and the cost of any other items owed by the consumer not otherwise
disclosed under proposed Sec. 1026.38(f), (g), or (j). Proposed
comment 38(j)(1)(v)-1 clarifies that items described and disclosed
under Sec. 1026.38(j)(v) can include: any balance in the seller's
reserve account held in connection with an existing loan, if assigned
to the consumer in a loan assumption case; any rent the consumer would
collect after closing for a time period prior to closing; or to show
the treatment of a security deposit. Proposed comment 38(j)(1)(v)-2
clarifies costs owed by the consumer not otherwise disclosed under
Sec. 1026.38(f), (g), or (j) will not have a parallel amount disclosed
under proposed Sec. 1026.38(k)(1)(iv).
Proposed Sec. 1026.38(j)(1)(vi) requires the creditor or closing
agent to provide a reference to adjustments paid by seller in advance.
Proposed Sec. 1026.38(j)(1)(vii) requires the creditor or closing
agent to provide a reference to city/town taxes, the time period that
the consumer is responsible to reimburse the seller for any such
prepaid taxes, and the prorated amount of any such prepaid taxes due
from the consumer at closing. Proposed Sec. 1026.38(j)(1)(viii)
requires the creditor or closing agent to provide a reference to county
taxes, the time period that the consumer is responsible for reimbursing
the seller for any such prepaid taxes, and the prorated amount of any
such prepaid taxes due from the consumer at closing. Proposed Sec.
1026.38(j)(1)(ix) requires the creditor or closing agent to provide a
reference to assessments, the time period that the consumer is
responsible for reimbursing the seller for any such prepaid
assessments, and the prorated amount of any such prepaid assessment due
from the consumer at closing. Proposed Sec. 1026.38(j)(1)(x) requires
the creditor or closing agent to provide a description and amount of
any additional items paid by the seller prior to closing that are due
from the consumer at closing. Proposed comment 38(j)(1)(x)-1 clarifies
that amounts disclosed under Sec. 1026.38(j)(1)(x) could be for
additional taxes not disclosed under Sec. 1026.38(j)(1)(vii) and
(viii), flood and hazard insurance premiums where the consumer is being
substituted as an insured under the same policy, mortgage insurance in
loan assumptions, planned unit development or condominium association
assessments paid in advance, fuel or other supplies on hand purchased
by the seller which the consumer will use when consumer takes
possession of the property, and ground rent paid in advance. This
comment incorporates instructions for RESPA settlement statement lines
106-112 in appendix A to Regulation X.
38(j)(2) Itemization of Amounts Already Paid by or on Behalf of
Borrower
Proposed Sec. 1026.38(j)(2)(i) requires the creditor or closing
agent to disclose the label ``Paid Already by or on Behalf of Borrower
at Closing'' and the total amount paid by or on behalf of the consumer
prior to closing, calculated as the sum of items required to be
disclosed under Sec. 1026.38(j)(2)(ii) through (xi), excluding items
paid from funds other than closing funds defined under Sec.
1026.38(j)(4)(i). Below this label, Sec. 1026.38(j)(2)(ii) requires
the creditor or closing agent to provide a reference to the amount of
the deposit, the consumer's loan amount, the existing loans assumed or
taken subject to at closing, seller credit, other credits, and
adjustments for items unpaid by seller. Proposed comment 38(j)(2)(ii)-1
clarifies that the deposit is any amount paid into a trust account by
the consumer under the contract of sale for real estate. This is a
change from the current definition of deposit in the instructions for
RESPA settlement statement line 201 in appendix A to Regulation X, that
define the deposit as any amount paid against the sales price prior to
settlement, because the amount of the downpayment or funds from the
consumer disclosed under Sec. 1026.38(i)(4) may also be paid prior to
closing. To differentiate between the downpayment amount and the
deposit amount in Sec. 1026.38(i)(4), the amount of the deposit needs
to be specified separately from other payments by the consumer against
the sales price prior to
[[Page 51248]]
closing. Proposed comment 38(j)(2)(ii)-2 clarifies that the amount of
the deposit should be reduced by a commensurate amount if any of the
deposit is used to pay for a closing cost before closing. Instead, the
charge for the closing cost paid from the deposit will be designated as
borrower-paid before closing under Sec. 1026.38(f)(1) or (g)(1), as
applicable.
Proposed Sec. 1026.38(j)(2)(iii) requires the creditor or closing
agent to provide a reference to the principal amount of the consumer's
new loan and the amount of the new loan made by the creditor or the
amount of the first user loan. Proposed comment 38(j)(2)(iii)-1
clarifies that first user loan amount disclosed under Sec.
1026.38(j)(2)(iii) is used to finance construction of a new structure
or purchase of a manufactured home and that how to disclose a first
user loan will depend on whether it is known if the manufactured home
will be considered real property at the time of consummation. This
comment incorporates guidance currently provided in the instructions
for RESPA settlement statement line 202 in appendix A to Regulation X
and HUD RESPA FAQs p. 47, 2 (``HUD-1--200 series'').
Proposed Sec. 1026.38(j)(2)(iv) requires the creditor or closing
agent to provide a reference to existing loans assumed or taken subject
at closing to by the consumer and the amount of those loans. Proposed
comment 38(j)(2)(iv)-1 clarifies that the amount disclosed under Sec.
1026.38(j)(2)(iv) is the outstanding amount of any loan that the
consumer is assuming, or subject to which the consumer is taking title
to the property, must be disclosed under Sec. 1026.38(j)(2)(iv). This
comment incorporates guidance currently provided in the instructions
for RESPA settlement statement line 203 in appendix A to Regulation X.
Proposed Sec. 1026.38(j)(2)(v) requires the creditor or closing
agent to provide a reference to seller credits and the total amount of
money that the seller will provide in a lump sum at closing for closing
costs, designated borrower-paid at or before closing, as disclosed
under Sec. 1026.38(f)(1) and (g)(1), as applicable. Proposed comment
38(j)(2)(v)-1 clarifies that any amount disclosed under Sec.
1026.38(j)(2)(v) is for generalized seller credits, and that seller
credits attributable to a specific closing cost would be reflected with
a seller-paid designation under Sec. 1026.38(f)(1) or (g)(1), as
applicable. Proposed comment 38(j)(2)(v)-2 clarifies that any other
obligations of the seller to be paid directly to the consumer, such as
for issues identified at a walk-through of the property prior to
closing, are disclosed under Sec. 1026.38(j)(2)(v).
Proposed Sec. 1026.38(j)(2)(vi) requires the creditor or closing
agent to provide a reference to other credits and the amount of items
paid by or on behalf of the consumer and not otherwise disclosed under
Sec. 1026.38(j)(2), (f)(1), (g)(1), or (h)(3). Proposed comment
38(j)(2)(vi)-1 clarifies that any amounts disclosed under Sec.
1026.38(j)(2)(vi) are for other credits from parties other than the
seller or creditor, but credits attributable to a specific closing cost
closing would be reflected with a paid by other party designation under
Sec. 1026.38(f)(1) or (g)(1). For example, a credit from a real estate
agent would be listed as a credit along with a description of the
rebate and include the name of the party giving the credit. This
comment incorporates guidance provided by HUD RESPA FAQs p. 47-48,
4 (``HUD-1--200 series'').
Proposed comment 38(j)(2)(vi)-2 clarifies that any amounts
disclosed under Sec. 1026.38(j)(2)(vi) can also be used for disclosing
subordinate financing proceeds. For subordinate financing, the
principal amount of the loan must be disclosed with a brief
explanation. If the net proceeds of the loan are less than the
principal amount, the net proceeds may be listed on the same lines as
the principal amount. This comment incorporates guidance provided by
the instructions for RESPA settlement statement lines 204 to 209 in
appendix A to Regulation X and the HUD RESPA Roundup dated December
2010.
Proposed comment 38(j)(2)(vi)-3 clarifies that any amounts
disclosed under Sec. 1026.38(j)(2)(vi) can also be used for the
disclosure of satisfaction of existing subordinate liens by the
consumer. Any amounts paid to satisfy existing subordinate liens by the
consumer with funds outside of closing funds must be disclosed with a
statement that such amounts were paid outside of closing under Sec.
1026.38(j)(4). This comment incorporates guidance provided by the
instructions for completing the RESPA settlement disclosure lines 204
to 209 in appendix A to Regulation X and the HUD RESPA Roundup dated
September 2010.
Proposed comment 38(j)(2)(vi)-4 clarifies that any amounts
disclosed under Sec. 1026.38(j)(2)(vi) can also be used for disclosing
a transferred escrow balance in a refinance transaction as a credit
along with a description of the transferred escrow balance. This
comment incorporates guidance provided by the HUD RESPA FAQs p. 47,
3 (``HUD-1--200 series''). Proposed comment 38(j)(2)(vi)-5
clarifies that any amounts disclosed under Sec. 1026.38(j)(2)(vi) can
also be used for gift funds provided on the consumer's behalf by
parties not otherwise associated with the transaction.
Proposed Sec. 1026.38(j)(2)(vii) requires the creditor or closing
agent to provide a reference to adjustments for items unpaid by seller.
Proposed Sec. 1026.38(j)(2)(viii) requires the creditor or closing
agent to provide a reference to city/town taxes, the time period that
the seller is responsible for the payment of any such unpaid taxes, and
the prorated amount of any such taxes dues from the seller at closing.
Proposed Sec. 1026.38(j)(2)(ix) requires the creditor or closing agent
to provide a reference to county taxes, the time period that the seller
is responsible for the payment of any such unpaid taxes, and the
prorated amount of any such unpaid taxes due from the seller at
closing. Proposed Sec. 1026.38(j)(2)(x) requires the creditor or
closing agent to provide a reference to assessments, the time period
that the seller is responsible for paying any such unpaid taxes, and
the prorated amount of any such unpaid assessments due from the seller
at closing.
Proposed Sec. 1026.38(j)(2)(xi) requires the creditor or closing
agent to provide a description and the amount of any additional items
which have not yet been paid and which the consumer is expected to pay,
but which are attributable to a period of time prior to closing.
Proposed comment 38(j)(2)(xi)-1 clarifies that any amounts disclosed
under Sec. 1026.38(j)(2)(xi) are for other items not paid by the
seller, such as utilities used by the seller, rent collected in advance
by the seller from a tenant for a period extending beyond the closing
date, and interest on loan assumptions.
38(j)(3) Calculation of Borrower's Transaction
Proposed Sec. 1026.38(j)(3) requires the creditor or closing agent
to disclose the label ``Calculation.'' Proposed Sec. 1026.38(j)(3)(i)
requires the creditor or closing agent to provide a reference to the
total amount due from the consumer at closing under Sec.
1026.38(j)(1)(i). Proposed Sec. 1026.38(j)(3)(ii) requires the
creditor or closing agent to provide a reference to the total amount
paid already by or on behalf of the consumer at closing as a negative
number under Sec. 1026.38(j)(2)(i).
Proposed Sec. 1026.38(j)(3)(iii) requires the creditor or closing
agent to provide a reference to cash to close, a statement of whether
the disclosed amount is due from or to the consumer, and the amount due
from or to the consumer at closing. Proposed comment 38(j)(3)(iii)-
[[Page 51249]]
1 clarifies that the creditor or closing agent must state either the
cash required from the consumer at closing, or cash payable to the
consumer at closing. Proposed comment 38(j)(3)(iii)-2 clarifies that
the amount disclosed under Sec. 1026.38(j)(3)(iii) is the sum of the
amounts disclosed under Sec. 1026.38(j)(3)(i) and (ii). If the result
is positive, the amount is due from the consumer. If the result is
negative, the amount is due to the consumer.
38(j)(4) Items Paid Outside of Closing Funds
Proposed Sec. 1026.38(j)(4)(i) requires the creditor or closing
agent to state amounts paid outside of closing with the phrase ``paid
outside closing'' or ``P.O.C.'' Proposed comment 38(j)(4)(i)-1
clarifies that any charges not paid from closing funds but otherwise
disclosed under Sec. 1026.38(j) must be marked with the designation
``paid outside of closing'' or ``P.O.C.'' with a designation of the
party making the payment. This comment incorporates guidance provided
by the general instructions for the RESPA settlement statement in
appendix A to Regulation X. Proposed comment 38(j)(4)(i)-2 clarifies
that charges paid outside of closing funds are not included in
computing totals under Sec. 1026.38(j). Proposed Sec.
1026.38(j)(4)(ii) would define closing funds to mean fund collected and
disbursed at closing for purposes of Sec. 1026.38(j).
38(k) Summary of Seller's Transaction
Proposed Sec. 1026.38(k) would require that the creditor or
closing agent provide the summaries of the seller's transaction in a
separate tables under the heading ``Summaries of Transactions''
required under Sec. 1026.38(j). Proposed Sec. 1026.38(k) also lists
the information that must be provided under the subheading ``Seller's
Transaction.'' Proposed comment 38(k)-1 clarifies that Sec. 1026.38(k)
does not apply in transaction where there is no seller, such as a
refinance transaction. Proposed comment 38(k)-2 clarifies that Sec.
1026.38(k) refers to comment 38(j)-2 related to the use of addendums to
the Closing Disclosure. Proposed comment 38(k)-3 refers to comment
38(j)-3 for guidance on the amounts disclosed under certain provisions
of Sec. 1026.38(k) that are the same as the amounts disclosed under
certain provisions of Sec. 1026.38(j).
38(k)(1) Itemization of Amounts Due to Seller
Proposed Sec. 1026.38(k)(1)(i) requires the creditor or closing
agent to disclose the label ``Due to Seller at Closing'' and the total
amount due to the seller at closing, calculated as the sum of items
required to be disclosed under Sec. 1026.38(k)(1)(ii) through (ix),
excluding items paid from funds other than closing funds as described
in Sec. 1026.38(k)(4)(i). Below this label, Sec. 1026.38(k)(1)(ii)
requires the creditor or closing agent to provide a reference to the
sale price of the property and the amount of the real estate contract
sales price of the property being sold, excluding the price of any
items of tangible personal property if the consumer and seller have
agreed to a separate price for such items. In addition, below the same
subheading, a reference for adjustments for items paid by seller in
advance must also be provided by the creditor or closing agent.
Proposed Sec. 1026.38(k)(1)(iii) requires the creditor or closing
agent to provide a reference to the sale price of any personal property
included in the sale and the amount of the sale price of any personal
property excluded from the contract sales price under Sec.
1026.38(k)(ii). Proposed comment 38(k)(1)(iii)-1 clarifies that
guidance regarding the classification of personal property is provided
at Sec. 1026.38(j)(1)(ii) and comment 38(j)(1)(ii)-1.
Proposed Sec. 1026.38(k)(1)(iv) requires the creditor or closing
agent to provide a description and the amount of other items to be paid
to the seller by the consumer under the contract of sale or other
agreement, such as charges that were not listed on the Loan Estimate or
items paid by the seller prior to closing but reimbursed by the
consumer at consummation. Proposed Sec. 1026.38(k)(1)(v) requires the
creditor or closing agent to provide a reference to adjustments for
items paid by the seller in advance. Proposed Sec. 1026.38(k)(1)(vi)
requires the creditor or closing agent to provide a reference to city/
town taxes, the time period that the consumer is responsible for
reimbursing the seller for any such prepaid taxes, and the prorated
amount of any such prepaid taxes due from the consumer at closing.
Proposed Sec. 1026.38(k)(1)(vii) requires the creditor or closing
agent to provide a reference to county taxes, the time period that the
consumer is responsible for reimbursing the seller for any such prepaid
taxes, and the prorated amount of any such prepaid taxes due from the
consumer at closing.
Proposed Sec. 1026.38(k)(1)(viii) requires the creditor or closing
agent to provide a reference to assessments, the time period that the
consumer is responsible for reimbursing the seller for any such prepaid
assessments, and the prorated amount of any such assessments due from
the consumer at closing. Proposed Sec. 1026.38(k)(1)(ix) requires the
creditor or closing agent to provide a description and amount of
additional items paid by the seller prior to closing that are
reimbursed by the consumer at closing.
38(k)(2) Itemization of Amounts Due From Seller
Proposed Sec. 1026.38(k)(2)(i) requires the creditor or closing
agent to disclose label ``Due from Seller at Closing'' and the total
amount due from the seller at closing, calculated as the sum of items
required to be disclosed under Sec. 1026.38(k)(2)(ii) through (xiii),
excluding items paid from funds other than closing funds as described
in Sec. 1026.38(k)(4)(i). Below this label, Sec. 1026.38(k)(2)(ii)
would require the creditor or closing agent to provide a reference to
the amount of excess deposit, the consumer's loan amount, the existing
loans assumed or taken subject to at closing, the payoff amount of
first mortgage loan, the payoff of second mortgage loan, seller credit,
and adjustments for items unpaid by seller. Proposed comment
38(k)(2)(ii)-1 clarifies that any excess deposit disbursed to the
seller by a party other than the closing agent must be disclosed under
Sec. 1026.38(k)(2)(ii) if the party will provide the excess deposit
directly to the seller. Proposed comment 38(k)(2)(ii)-2 clarifies that
any amounts of the deposit that were disbursed to the seller prior to
closing must be disclosed under Sec. 1026.38(k)(2)(ii).
Proposed Sec. 1026.38(k)(2)(iii) requires the creditor or closing
agent to provide a reference and amount of the subtotal closing costs
paid at closing by seller as calculated under Sec. 1026.38(h)(1).
Proposed Sec. 1026.38(k)(2)(iv) requires the creditor or closing agent
to provide a reference to existing loans assumed or taken subject to by
the consumer and the amount of those loans. Proposed comment
38(k)(2)(iv)-1 clarifies that the amount of the outstanding balance of
any lien that the consumer is assuming or taking title subject and is
to be deducted from the sales price must be disclosed under Sec.
1026.38(k)(2)(iv).
Proposed Sec. 1026.38(k)(2)(v) would require the creditor or
closing agent to provide a reference to the payoff of the first
mortgage loan and the amount of any first loan that will be paid off as
part of closing. Proposed Sec. 1026.38(k)(2)(vi) would require the
creditor or closing agent to provide a reference to the payoff of the
second mortgage loan and the amount of any second loan that will be
paid off as part of closing.
Proposed Sec. 1026.38(k)(2)(vii) requires the creditor or closing
agent to provide
[[Page 51250]]
a reference to seller credits and the total amount of money that the
seller will provide as a lump sum at closing to pay for loan costs and
other costs, designated borrower-paid at or before closing, as
disclosed under Sec. 1026.38(f)(1) and (g)(1), as applicable. Any
costs disclosed as seller-paid at or before closing under Sec.
1026.38(f)(1) and (g)(1) are not disclosed under Sec. 1026.38(k)(vii).
Proposed comment (k)(2)(vii)-1 clarifies that any other obligations of
the seller to be paid directly to the consumer, such as credits for
issues identified at a walk-through of the property prior to closing,
are disclosed under Sec. 1026.38(k)(2)(vii).
Proposed Sec. 1026.38(k)(2)(viii) requires the creditor or closing
agent to provide a description and the amount or any and all other
obligations required to be paid by the seller at closing, including any
lien-related payoffs, fees, or obligations. Proposed comment
38(k)(2)(viii)-1 clarifies that amounts that must be paid in order to
satisfy other seller obligations to clear title to the property must be
disclosed under Sec. 1026.38(k)(2)(viii). Proposed comment
38(k)(2)(viii)-2 clarifies that the satisfaction of existing liens by
the consumer that are not deducted from the sales price are disclosed
under Sec. 1026.38(k)(2)(viii) and must be disclosed as paid outside
of closing under Sec. 1026.38(k)(4)(i). This guidance tracks comment
38(j)(2)(vi)-2, and incorporates guidance provided by the HUD RESPA
Roundup dated December 2010. Proposed comment 38(k)(2)(viii)-3
clarifies that escrowed funds held by the closing agent for payment of
invoices related to repairs, water, fuel, or other utility bills
received after closing that cannot be prorated are disclosed under
Sec. 1026.38(k)(2)(viii), and that subsequent disclosure of the
amounts paid after consummation is optional. This guidance is
consistent with the instructions for RESPA settlement statement lines
506 to 509 in appendix A to Regulation X.
Proposed Sec. 1026.38(k)(2)(ix) requires the creditor or closing
agent to provide a reference to adjustments for items unpaid by seller.
Proposed Sec. 1026.38(k)(2)(x) requires the creditor or closing agent
to provide a reference to city/town taxes, the time period that the
seller is responsible for payment of any such unpaid taxes, and the
prorated amount of any such unpaid taxes due from the seller at
closing. Proposed Sec. 1026.38(k)(2)(xi) requires the creditor or
closing agent to provide a reference to county taxes, the time period
that the seller is responsible for the payment of any such unpaid
taxes, and the prorated amount of any such unpaid assessments due from
the seller at closing. Proposed Sec. 1026.38(k)(2)(xii) requires the
creditor or closing agent to provide a reference to assessments, the
time period that the seller is responsible for payment of any such
unpaid assessments, and the prorated amount of any such unpaid
assessments due from the seller at closing. Proposed Sec.
1026.38(k)(2)(xiii) would require the creditor or closing agent to
provide a description and the amount of any additional items that have
not yet been paid, and which the seller is expected to pay at closing,
but which are attributable in part to a period of time prior to the
closing.
38(k)(3) Calculation of Seller's Transaction
Proposed Sec. 1026.38(k)(3) would require the creditor or closing
agent to disclose the subheading ``Calculation.'' Proposed Sec.
1026.38(k)(3)(i) requires the creditor or closing agent to provide a
reference to total due to seller at closing and the amount described
under Sec. 1026.38(k)(1)(i). Proposed Sec. 1026.38(ii) requires the
creditor or closing agent to provide a reference to total due from
seller at closing and the amount described as a negative number under
Sec. 1026.38(k)(2)(i).
Proposed Sec. 1026.38(k)(3)(iii) requires the creditor or closing
agent to provide a reference to cash, a statement of whether the
disclosed amount is due from or to the seller, and the amount due from
or to the seller at closing. Proposed comment 38(k)(3)(iii)-1 clarifies
that the creditor or closing agent must state either the cash required
from the seller at closing, or the cash payable to the seller at
closing. Comment 38(k)(3)(iii)-2 clarifies that the amount disclosed
under Sec. 1026.38(k)(3)(iii) is the sum of the amounts disclosed
under Sec. 1026.38(k)(3)(i) and the amount disclosed under Sec.
1026.38(k)(ii). If the result is positive, the amount is due to the
seller. If the result is negative, the amount is due from the seller.
38(k)(4) Items Paid Outside of Closing Funds
Proposed Sec. 1026.38(k)(4)(i) requires the creditor or closing
agent to state amounts paid outside of closing with the phrase ``paid
outside closing'' or ``P.O.C.'' and that closing funds are funds
collected and disbursed at consummation by the creditor or closing
agent. Proposed Sec. 1026.38(k)(4)(ii) would define closing funds to
mean funds collected and disbursed at consummation for purposes of
Sec. 1026.38(k).
38(l) Loan Disclosures
As discussed below, TILA requires that creditors provide consumers
with a variety of disclosures prior to consummation regarding
requirements in or arising from the legal obligation: Assumption,
demand feature, late payment, negative amortization, partial payment
policy, security interest, and escrow account information. For purposes
of the integrated disclosure form required by proposed Sec.
1026.19(f), these disclosure requirements must be grouped together
under the master heading ``Additional Information About This Loan'' and
under the heading ``Loan Disclosures.''
38(l)(1) Assumption
Proposed Sec. 1026.38(l)(1) implements TILA section 128(a)(13) for
transactions subject to Sec. 1026.19(f) by requiring the creditor to
disclose the statement required by Sec. 1026.37(m)(2), which describes
whether a subsequent purchaser may be permitted to assume the remaining
loan obligation. For a detailed description of the Bureau's
implementation of TILA section 128(a)(13) and the legal authority for
this proposal, see the section-by-section analysis to proposed Sec.
1026.37(m)(2).
38(l)(2) Demand Feature
TILA section 128(a)(12) requires the creditor to disclose a
statement that the consumer should refer to the appropriate contract
document for information about certain loan features, including the
right to accelerate the maturity of the debt. 15 U.S.C. 1638(a)(12).
Current Sec. 1026.18(p) implements TILA section 128(a)(12) by
requiring, among other things, a statement that the consumer should
refer to the appropriate contract document for information about
nonpayment, default, and the right to accelerate the maturity of the
obligation, and prepayment rebates and penalties. In addition, current
Sec. 1026.18(i) requires the creditor to disclose whether the legal
obligation includes a demand feature and, if the disclosures are based
on the assumed maturity of one year as described in Sec.
1026.17(c)(5), the creditor must state that fact.
Pursuant to the Bureau's implementation authority under TILA
section 105(a), proposed Sec. 1026.38(l)(2) incorporates certain of
the requirements of current Sec. 1026.18(i) and (p) for transactions
subject to Sec. 1026.19(f) by requiring that the creditor disclose
whether the legal obligation permits the creditor to demand early
repayment of the loan and, if so, a statement that the consumer should
review the loan
[[Page 51251]]
document for more details. The information required by proposed Sec.
1026.38(l)(2) must be labeled ``Demand Feature.'' Proposed comment
38(l)(3)-1 provides a cross-reference to comment 18(i)-2 for a
description of demand features that would trigger the disclosure
requirement in proposed Sec. 1026.38(l)(2).
Pursuant to its authority under TILA section 105(a) and (f), Dodd-
Frank Act section 1032(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b), the Bureau does not propose to incorporate
into Sec. 1026.38(l)(2) the special disclosure requirement regarding
assumed maturity of one year in current Sec. 1026.18(i) or the
optional contract reference disclosures in current Sec. 1026.18(p). By
exempting disclosure of information that will not be useful to
consumers, the disclosure effectuates the purposes of TILA by enhancing
consumer understanding of mortgage transactions, consistent with TILA
section 105(a). Similarly, the Bureau has considered the factors in
TILA section 105(f) and believes that an exception is appropriate under
that provision. Specifically, the Bureau believes that the proposed
exemption is appropriate for all affected borrowers, regardless of
their other financial arrangements and financial sophistication and the
importance of the loan to them. Similarly, the Bureau believes that the
proposed exemption is appropriate for all affected loans, regardless of
the amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Furthermore, the proposed exemption
will ensure that the features of the mortgage transaction are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the mortgage transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans, which is in the interest of consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
38(l)(3) Late Payment
TILA section 128(a)(10) requires disclosure of any dollar charge or
percentage amount which may be imposed by a creditor due to a late
payment, other than a deferral or extension charge. 15 U.S.C.
1638(a)(10). This requirement is currently implemented in Sec.
1026.18(l). Proposed Sec. 1026.38(l)(3) implements TILA section
128(a)(10) for loans subject to Sec. 1026.19(f) by requiring the
creditor to disclose the statement required by Sec. 1026.37(m)(4),
which details any charge that may be imposed for a late payment, stated
as a dollar amount or percentage charge of the late payment amount, and
the number of days that a payment may be late to trigger the late
payment fee. For a detailed description of the Bureau's implementation
of TILA section 128(a)(10) and the legal authority for this proposal,
see the section-by-section analysis to proposed Sec. 1026.37(m)(4).
38(l)(4) Negative Amortization
New TILA section 129C(f), which was added by section 1414(a) of the
Dodd-Frank Act, provides that no creditor may extend credit to a
borrower in connection with a transaction secured by a dwelling or
residential real property that includes a dwelling, other than a
reverse mortgage, that provides for or permits a payment plan that may
result in negative amortization unless the creditor provides the
consumer with a notice that the transaction may or will result in
negative amortization. 15 U.S.C. 1639c(f). Under TILA section 129C(f),
before consummation of the transaction, the creditor must provide the
consumer with a statement that: (1) The pending transaction will or
may, as applicable, result in negative amortization; (2) describes
negative amortization in the manner prescribed by the Bureau; (3)
negative amortization increases the loan balance; and (4) negative
amortization decreases the consumer's equity in the property. 15 U.S.C.
1639c(f)(1).
Although TILA section 129C(f) is new, both Regulations Z and X
currently contain disclosure requirements for loan products that may
negatively amortize. In Regulation Z, if the loan product contains
features that may cause the loan amount to increase, Sec.
1026.18(s)(4)(C) requires a statement that warns the consumer that the
minimum payment covers only some interest, does not repay any
principal, and will cause the loan amount to increase, for closed-end
transactions secured by real property or a dwelling. Current appendix A
to Regulation X requires a similar statement in the ``Loan Terms''
section of the RESPA settlement statement, which discloses whether the
loan balance may increase even if loan payments are made on time.
The Bureau proposes Sec. 1026.38(l)(4) to implement TILA section
129C(f) for transactions subject to Sec. 1026.19(f), pursuant to its
implementation authority under TILA section 105(a). Specifically,
proposed Sec. 1026.38(l)(4) requires a statement of whether the
regular periodic payment may cause the principal balance to increase.
If the regular periodic payment does not cover all of the interest due,
proposed Sec. 1026.38(l)(4)(i) requires a statement that the principal
balance will increase, that the principal balance will likely exceed
the original loan amount, and that increases in the principal balance
will lower the consumer's equity in the property. In transactions in
which the consumer has the option of making regular periodic payments
that do not cover all of the interest accrued that month, proposed
Sec. 1026.38(l)(4)(ii) requires a statement that, if the consumer
chooses a periodic payment option that does not cover all of the
interest due, the principal balance may exceed the original loan amount
and that increases in the principal balance decrease the consumer's
equity in the property. The statements required by proposed Sec.
1026.38(l)(4)(i) and (ii) are located under the subheading ``Negative
Amortization (Increase in Loan Amount).''
38(l)(5) Partial Payment Policy
TILA section 129C(h), added by section 1414(d) of the Dodd-Frank
Act, provides that, in any residential mortgage loan, the creditor must
disclose, prior to consummation or at the time such person becomes the
creditor for an existing loan, the creditor's policy regarding the
acceptance of partial payments, and if partial payments are accepted,
how such payments will be applied to the mortgage and whether such
payments will be placed in escrow. 15 U.S.C. 1631c(h).
The Bureau proposes Sec. 1026.38(l)(5) to implement the pre-
consummation disclosure requirements of TILA section 129C(h), pursuant
to its implementation authority under TILA section 105(a).\187\
Specifically, Sec. 1026.38(l)(5) requires the creditor to disclose,
under the subheading ``Partial Payment Policy,'' a statement of whether
it will accept monthly payments that are less than the full amount due
and that, if the loan is sold, the new creditor may have a different
policy. If partial payments are accepted, the creditor must also
provide a brief description of its partial payment policy, including
the manner and order in which any partial payments are applied to the
principal, interest, or an
[[Page 51252]]
escrow account for partial payments and whether any penalties apply.
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\187\ The disclosure requirements of TILA section 129C(h) that
apply after consummation are implemented in proposed Sec. 1026.39.
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38(l)(6) Security Interest
TILA section 128(a)(9) requires the creditor to provide a statement
that a security interest has been taken in the property that secures
the transaction or in property not purchased as part of the transaction
by item or type. 15 U.S.C. 1638(a)(9). This requirement is implemented
in current Sec. 1026.18(m), which requires disclosure of the fact that
the creditor has or will acquire a security interest in the property
purchased as part of the transaction, or in other property identified
by item or type.
The Bureau proposes Sec. 1026.38(l)(6) to implement TILA section
128(a)(9) for transactions subject to Sec. 1026.19(f), pursuant to its
implementation authority under TILA section 105(a). Specifically, if
the creditor will take a security interest in the property that is the
subject of a mortgage loan transaction, proposed Sec. 1026.38(l)(6)
requires the creditor to disclose that the consumer is granting it a
security interest in that property, the address of the property, and a
statement that the consumer may lose the property if the consumer fails
to make payments or satisfy other requirements of the legal obligation.
The information required by proposed Sec. 1026.38(l)(6) is located
under the subheading ``Security Interest.''
The Bureau proposes to require creditors to disclose the address of
the property in which a security interest will be taken and a statement
that the consumer may lose the property if he does not make payments or
satisfy other requirements, pursuant to its authority under TILA
section 105(a) and Dodd-Frank Act section 1032(a). The Bureau believes
the proposed disclosures promote the informed use of credit, which is a
purpose of TILA, by clearly disclosing the property in which a security
interest is being granted and informing consumers of the potential
consequences of the creditor's security interest in the property. In
addition, the Bureau believes the proposed disclosures will ensure that
the features of the mortgage transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a).
38(l)(7) Escrow Account
Sections 1461 and 1462 of the Dodd-Frank Act amended TILA to create
a new section 129D, which establishes certain requirements for escrow
accounts for consumer credit transactions secured by a first lien on a
consumer's principal dwelling (other than a consumer credit transaction
under an open-end credit plan or a reverse mortgage). 15 U.S.C.
1639d(a) through (j). In particular, new TILA section 129D(h) and (j)
require certain disclosures when an escrow account is established and
certain other disclosures when an escrow account is refused or
cancelled by the consumer, respectively. Under TILA section 129D(b),
however, application of the mandatory escrow requirements is limited to
the following situations: (1) Where an escrow account is required by
Federal or State law; (2) where the loan is made, guaranteed, or
insured by a Federal or State agency; (3) where the transaction's APR
exceeds the average prime offer rate by prescribed margins; and (4)
where an escrow account is required by regulation.
As discussed above, the Board's 2011 Escrows Proposal proposed to
implement the new TILA escrow requirements. Although the Bureau expects
to implement most aspects of that proposal in a separate rulemaking,
there are certain key disclosures in the Board's 2011 Escrows Proposal
that complement the integrated Closing Disclosure. Thus, the Bureau
proposes to implement those disclosure requirements in proposed Sec.
1026.38(l)(7).
Like the Board's 2011 Escrows Proposal, the Bureau proposes to
apply the TILA section 129D escrow requirements to all transactions
subject to proposed Sec. 1026.19(f) even if the disclosures are not
mandated by TILA section 129D(b). In doing so, the Bureau relies on its
authority under TILA section 105(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans, Dodd-Frank Act section 1405(b).
The Bureau believes that requiring disclosures regarding the
establishment of an escrow account, as well as the non-establishment of
an escrow account, will provide consumers with information needed to
evaluate the costs and fees associated with mortgage loans and to
understand their ongoing monthly obligations regardless of whether the
transaction would include an escrow account. Disclosure of this
information will ensure that consumers have the facts needed to
understand a key requirement of their mortgage loan and avoid the
uninformed use of credit, consistent with the purposes of TILA. In
addition, the Bureau believes that the proposed disclosures will ensure
that the features of the mortgage transaction are fully, accurately,
and effectively disclosed to consumers in a manner that permits
consumers to understand the costs, benefits, and risks associated with
the mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a), and will improve
consumer awareness and understanding of residential mortgage loans,
which is in the interest of consumers and the public, consistent with
Dodd-Frank Act section 1405(b).
Accordingly, the Bureau proposes to implement the disclosure
requirements of TILA section 129D(h) and (j) in proposed Sec.
1026.38(l)(7), pursuant to its authority under TILA section 105(a),
Dodd-Frank Act section 1032(a), and, for residential mortgage loans,
Dodd-Frank Act section 1405(b). Under the subheading ``Escrow
Account,'' proposed Sec. 1026.38(l)(7) requires the creditor to
disclose whether the consumer's loan will have an escrow account, and
certain details about the payments made using escrow account funds and
those the consumer must make directly. Under the ``Escrow Account''
subheading and under the reference ``For now,'' proposed Sec.
1026.38(l)(7)(i) requires a statement that an escrow account may also
be called an ``impound'' or ``trust'' account and a statement of
whether the creditor has or will establish an escrow account at or
before consummation. Proposed Sec. 1026.38(l)(7)(i)(A) requires the
following disclosures under the ``For now'' reference: (1) A statement
that the creditor may be liable for penalties and interest if it fails
to make a payment for any costs for which the escrow account has been
established, (2) a statement that the consumer would be required to pay
such costs directly if no account is established, and (3) a table
titled ``Escrow'' that contains, if an escrow account is or will be
established, an itemization of the following: (i) The total amount the
consumer will be required to pay into an escrow account over the first
year after consummation for payment of the charges described in Sec.
1026.37(c)(4)(ii), labeled ``Escrowed Property Costs over Year 1,''
together with a descriptive name of each such charge, calculated as the
amount disclosed under Sec. 1026.38(l)(7)(i)(A)(4) multiplied by the
number of periodic payments scheduled to be made to the escrow account
during the first year after consummation; (ii) the estimated amount the
consumer is likely to pay during the first year after consummation for
charges described in Sec. 1026.37(c)(4)(ii) that are known to the
creditor and that will not be paid using escrow account funds, labeled
``Non-
[[Page 51253]]
Escrowed Property Costs over Year 1,'' together with a descriptive name
of each such charge and a statement that the consumer may have to pay
other costs that are not listed; (iii) the total amount disclosed
pursuant to Sec. 1026.37(g)(3), a statement that the payment is a
cushion for the escrow account, labeled ``Initial Payment,'' and a
reference to the information disclosed pursuant to Sec. 1026.38(g)(3);
and (iv) the amount the consumer will be required to pay into the
escrow account with each periodic payment during the first year after
consummation for payment of the charges described in Sec.
1026.37(c)(4)(ii), labeled ``Monthly Payment.'' Proposed Sec.
1026.38(l)(7)(i)(A)(5) provides that a creditor complies with the
requirements of Sec. 1026.38(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) if the
creditor bases the numerical disclosures required by those paragraphs
on amounts derived from the escrow account analysis required under
Regulation X, 12 CFR 1024.17. Proposed comment 38(l)(7)(i)(A)(2)-1 and
38(l)(7)(i)(A)(4)-1 provide guidance to creditors on the calculation of
the itemized amounts disclosed pursuant to Sec. 1026.38(l)(7)(i)(A).
Proposed Sec. 1026.38(l)(7)(i)(B) requires a statement of whether
the loan will not have an escrow account and the reason the loan will
not have an escrow account. For example, if the loan will not have an
escrow account because either the consumer declined to have one or the
creditor does not require or offer them, the disclosure must state that
fact. Proposed Sec. 1026.38(l)(7)(i)(B) also requires a statement that
the consumer must pay all property costs, such as taxes and homeowner's
insurance, directly, as well as a statement that the consumer may
contact the creditor to inquire about the availability of an escrow
account. Finally, proposed Sec. 1026.38(l)(7)(i)(B) requires a table
titled ``No Escrow,'' that contains, if an escrow account will not be
established, an itemization of the following: (1) The estimated total
amount the consumer will pay directly for charges described in Sec.
1026.37(c)(4)(ii) during the first year after consummation that are
known to the creditor and a statement that, without an escrow account,
the consumer must pay the identified costs, possibly in one or two
large payments, labeled as ``Estimated Property Costs over Year 1,''
and (2) the amount of any fee that the creditor may impose for not
establishing an escrow account, labeled ``Escrow Waiver Fee.'' The
disclosures required in Sec. 1026.38(l)(7)(i)(B) are under the ``For
now'' reference required in Sec. 1026.38(l)(7)(i). Proposed comment
38(l)(7)(i)(B)(1)-1 provides guidance to creditors on calculation of
the amounts required to be disclosed pursuant to Sec.
1026.38(l)(7)(i)(B).
Under the subheading ``Escrow Account'' required by proposed Sec.
1026.38(l)(7) and under the reference ``In the future,'' proposed Sec.
1026.38(l)(7)(ii) requires information about future requirements for
property costs. Specifically, proposed Sec. 1026.38(l)(7)(ii)(A)
requires a statement that the consumer's property costs may change and,
as a result, the consumer's escrow amount may change. Proposed Sec.
1026.38(l)(7)(ii)(B) requires a statement that the consumer may be able
to cancel an established escrow account, but if the account is
cancelled the consumer would be required to pay those costs directly
unless a new escrow account is established. Proposed Sec.
1026.38(l)(7)(ii)(C) requires a description of the consequences of
failing to pay the property costs, including the imposition of fines
and penalties or imposition of a tax lien by the consumer's State and
local government, and possible actions by the creditor, such as adding
the outstanding amounts to the loan balance, adding an escrow account
for the loan, or purchasing property insurance on the consumer's behalf
(with the statement that it is likely to be more expensive and provide
fewer benefits than what the consumer could purchase directly).
38(m) Adjustable Payment Table
For transactions subject to proposed Sec. 1026.19(f), the Bureau
proposes Sec. 1026.38(m) pursuant to TILA section 128(b)(2)(C)(ii),
its implementation authority under TILA section 105(a), and its
authority under section 1032(a) of the Dodd-Frank Act and RESPA section
19(a). Proposed Sec. 1026.38(m) requires creditors to disclose on the
Closing Disclosure the Adjustable Payment table required by proposed
Sec. 1026.37(i) if, under the terms of the legal obligation, the
principal and interest payment may adjust without a corresponding
adjustment to the interest rate or if the loan is a seasonal payment
product under Sec. 1026.38(a)(5)(iii). The information required to be
disclosed in the table includes: The periodic payment at the first
adjustment of the payment; the number of the earliest number payment
that could reflect an adjustment to the amount of the periodic payment;
the maximum possible principal and interest payment; the number of the
earliest payment that could reflect the maximum possible periodic
payment; an affirmative or negative statement of whether the loan has
an interest-only, payment-option, step-payment period, or seasonal
payment period; and the length of such a period and the payments
affected. For a detailed description of the Bureau's implementation of
TILA section 128(b)(2)(C)(ii) and use of its authority under TILA
section 105(a), Dodd-Frank Act section 1032(a), and RESPA section
19(a), see the section-by-section analysis to proposed Sec.
1026.37(i).
The requirements of proposed Sec. 1026.38(m) mirror those of
proposed Sec. 1026.37(i). Accordingly, proposed comment 38(m)-1
directs creditors to the commentary to proposed Sec. 1026.37(i) for
guidance on the disclosures required by proposed Sec. 1026.38(m).
Proposed comment 38(m)-2 clarifies that, although the disclosure
required by proposed Sec. 1026.38(m) is to be presented under a
different master heading than the disclosure required by proposed Sec.
1026.37(i), the other requirements applicable to proposed Sec.
1026.37(i) apply to proposed Sec. 1026.38(m). Proposed comment 38(m)-3
clarifies that the prohibition against presenting the table required by
proposed Sec. 1026.37(i) except if the conditions of that paragraph
are satisfied applies to proposed Sec. 1026.38(m). Proposed comment
38(m)-4 clarifies that the final terms that will apply to the credit
transaction must be disclosed pursuant to proposed Sec. 1026.38(m).
38(n) Adjustable Interest Rate Table
For transactions subject to proposed Sec. 1026.19(f), proposed
Sec. 1026.38(n) uses the implementation authority of TILA section
105(a), and the authority of Dodd-Frank Act section 1032(a) and RESPA
section 19(a) to require creditors to disclose on the Closing
Disclosure the Adjustable Interest Rate table required by proposed
Sec. 1026.37(j) if, under the final terms of the legal obligation, the
interest rate may adjust after consummation. The information required
to be disclosed in the table includes: (i) The index and margin for an
adjustable rate loan for which the interest rate will adjust according
to an index that is beyond the control of the creditor; (ii) for a loan
with an interest rate that changes based on something other than such
an index, such as a ``step-rate'' product, the amount of the scheduled
adjustments and their frequency; (iii) the interest rate at
consummation; (iv) the minimum and maximum possible interest rates
after consummation of the loan, after any introductory or teaser rate
expires; (v) the maximum possible change in the interest rate at the
first adjustment; (vi) the maximum possible change for subsequent
adjustments of the interest
[[Page 51254]]
rate; (vii) the month after consummation when the interest rate may
first change, counted from the date that interest begins to accrue for
the first periodic principal and interest payment; and (viii) the
frequency of subsequent interest rate adjustments after consummation.
For a detailed description of the Bureau's implementation of these
rules and use of TILA section 105(a), Dodd-Frank Act section 1032(a),
and RESPA section 19(a) authority, see the section-by-section analysis
to proposed Sec. 1026.37(j) above.
The requirements of proposed Sec. 1026.38(n) mirror those of
proposed Sec. 1026.37(j). Accordingly, proposed comment 38(n)-1
directs creditors to the commentary to proposed Sec. 1026.37(j) for
guidance on the disclosures required by proposed Sec. 1026.38(n).
Proposed comment 38(n)-4 clarifies that, although the disclosure
required pursuant to proposed Sec. 1026.38(n) is to be presented under
a different master heading than the disclosure required by proposed
Sec. 1026.37(j), the other requirements applicable to proposed Sec.
1026.37(j) apply to proposed Sec. 1026.38(n). Proposed comment 38(n)-3
clarifies that the prohibition against presenting the table required by
proposed Sec. 1026.37(j) if the interest rate will not change after
consummation applies to proposed Sec. 1026.38(n). Proposed comment
38(n)-4 clarifies that the final terms that will apply to the credit
transaction must be disclosed pursuant to proposed Sec. 1026.38(n).
38(o) Loan Calculations
Proposed Sec. 1026.38(o) requires creditors to disclose in a
separate table under the heading ``Loan Calculations,'' certain
information required by TILA section 128(a)(2) through (5), (8), (17),
and (19). Specifically, the table required by proposed Sec. 1026.38(o)
must contain the total of payments, finance charge, amount financed,
annual percentage rate, total interest percentage, and the approximate
cost of funds disclosures described in proposed Sec. 1026.38(o)(1)
through (6). Pursuant to proposed Sec. 1026.38(t) and form H-25, the
table required by proposed Sec. 1026.38(o) will appear on the final
page of the Closing Disclosure, apart from key loan terms identified on
the first page of the Closing Disclosure. Based on research regarding
consumer comprehension and behavior and the results of the Bureau's
consumer testing, the Bureau believes that the disclosure of these
calculations on the final page of the Closing Disclosure and apart from
key loan terms may reduce information overload and enhance the overall
understanding of the Closing Disclosure.
As discussed above, research suggests that consumers can process
only a finite amount of information when making complex decisions. As a
result, an effective disclosure regime minimizes the risk of
distraction and overload by emphasizing information that is important
to consumer comprehension, while placing less emphasis on disclosures
that are less useful to consumers. Consumer testing conducted by the
Bureau for purposes of developing the Closing Disclosure and by the
Board for purposes of its 2009 Closed-End Proposal indicates that
consumer understanding is enhanced if the loan calculations in proposed
Sec. 1026.38(o) are disclosed together and less prominently than
disclosures that are most important to consumers' understanding of
their mortgage transactions, such as interest rate and monthly payment.
74 FR at 43293-98, 43306-09. The Bureau requests comment on whether the
disclosures in Sec. 1026.38(o) enhance consumers' ability to
understand their loan transactions or serve other important purposes
and, if not, whether the Bureau should use its authority under TILA
section 105(a) and (f) and Dodd-Frank Act sections 1032(a) and 1405(b)
to exempt transactions subject to Sec. 1026.19(f) from certain of
these requirements, as set forth below.
38(o)(1) Total of Payments
TILA section 128(a)(5) and (8) requires creditors to disclose the
sum of the amount financed and the finance charge using the term
``Total of Payments,'' and a descriptive explanation of that term. 15
U.S.C. 1638(a)(5), (8). Current Sec. 1026.18(h) implements these
statutory provisions by requiring creditors to disclose the ``total of
payments,'' using that term, and a descriptive explanation that the
figure represents the amount the consumer will have paid after making
all scheduled payments. Current comment 18(h)-2 provides that creditors
must calculate the total of payments amount for transactions subject to
Sec. 1026.18(s) using the rules in Sec. 1026.18(g) and associated
commentary and, for adjustable-rate transactions, comments 17(c)(1)-8
and -10. Current comment 18(g)-1 provides guidance to creditors on the
amounts to be included in the total of payments calculation. Current
comment 18(h)-1 allows creditors to revise the total of payments
descriptive statement for variable-rate transactions to convey that the
disclosed amount is based on the annual percentage rate and may change.
In addition, current comments 18(h)-3 and -4 permit creditors to omit
the total of payments disclosure in certain single-payment transactions
and for demand obligations that have no alternate maturity rate.
Proposed Sec. 1026.38(o)(1) implements the requirements of TILA
section 128(a)(5) and (8) for transactions subject to proposed Sec.
1026.19(f), pursuant to the Bureau's implementation authority under
TILA section 105(a). Specifically, proposed Sec. 1026.38(o)(1)
requires creditors to disclose on the Closing Disclosure the term
``Total of Payments,'' and the statement that the disclosure is the
total you will have paid after you make all payments of principal,
interest, mortgage insurance, and loan costs, as scheduled. Proposed
comment 38(o)(1)-1 clarifies that, for purposes of Sec. 1026.18(o)(1),
the total of payments is calculated in the same manner as the ``In 5
Years'' disclosure pursuant to Sec. 1026.37(l)(1)(i), except that the
disclosed amount reflects the total payments through the end of the
loan term. The comment also refers creditors to comment 37(1)(1)(i)-1
for guidance on the amounts included in the total of payments
calculation.
As discussed in the section-by-section analysis to proposed Sec.
1026.37(l), consumers have historically misunderstood the total of
payments disclosure and do not use it when evaluating their loan.
Accordingly, for the reasons set forth in the section-by-section
analysis to proposed Sec. 1026.37(l)(1)(i), the Bureau proposes to
modify the requirement of TILA section 128(a)(5) that the total of
payments disclose the sum of the amount financed and the finance
charge. Instead, the Bureau proposes to include in the total of
payments calculation principal, interest, mortgage insurance (including
any prepaid or escrowed mortgage insurance), and loan costs disclosed
pursuant to proposed Sec. 1026.37(f). The Bureau proposes this
modification pursuant to TILA section 105(a), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b). The Bureau believes that this modification will enhance
consumer understanding of mortgage transactions because including loan
costs, rather than the finance charge, in the total of payments
calculation will allow consumers to identify the costs that are
included in the total of payments calculation. Consumers can refer to
other parts of the Closing Disclosure to determine which loan costs are
included in the total of payments disclosure, in contrast to the
components of the finance charge, which the consumer has no way to
identify. Further, the Bureau believes
[[Page 51255]]
that including the same costs and fees in the total of payments
disclosure as are in the ``In 5 Years'' disclosure pursuant to proposed
Sec. 1026.37(l)(1)(i) will ease compliance burden for creditors. The
Bureau believes this proposed modification will improve consumer
awareness and understanding of residential mortgage loans, which is in
the interest of consumers and the public, consistent with Dodd-Frank
Act section 1405(b). In addition, the Bureau believes that the
disclosure ensures that the features of consumer credit transactions
secured by real property are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the product or service,
in light of the facts and circumstances, consistent with Dodd-Frank Act
section 1032(a).
The proposed rule does not allow creditors to modify the
descriptive statement that accompanies the total of payments disclosure
for variable-rate transactions or to omit the total of payments
disclosure in single-payment transactions and for demand obligations
that have no alternate maturity rate, in contrast to current comments
18(h)-1, -3, and -4. The Bureau believes that consistent disclosures
will better enhance consumer understanding of credit terms and will
ease compliance burden for creditors.
38(o)(2) Finance Charge
TILA section 128(a)(3) and (8) requires creditors to disclose the
``finance charge'' and a brief descriptive statement of the finance
charge. 15 U.S.C. 1638(a)(3), (8). Current Sec. 1026.18(d) implements
these provisions by requiring creditors to disclose the ``finance
charge,'' using that term, and a brief description such as ``the dollar
amount the credit will cost you.'' Current comment 18(d)-1 allows
creditors to modify the descriptive statement for variable rate
transactions with a phrase indicating that the disclosed amount is
subject to change. In addition, current Sec. 1026.17(a)(2), which
implements TILA section 122(a), requires creditors to disclose the
finance charge more conspicuously than any other required disclosure,
except the creditor's identity. The rules addressing which charges must
be included in the finance charge are set forth in TILA section 106,
and are discussed more fully above with respect to proposed Sec.
1026.4.
The Bureau proposes Sec. 1026.38(o)(2) to implement TILA section
128(a)(3) and (8) for transactions subject to Sec. 1026.19(f),
pursuant to its implementation authority under TILA section 105(a).
Proposed Sec. 1026.38(o)(2) requires creditors to disclose the finance
charge, using that term, and the descriptive statement ``the dollar
amount the loan will cost you,'' in the table required by proposed
Sec. 1026.38(o). Proposed comments 38(o)(2)-1 and -2 provide guidance
to creditors on how to disclose and calculate the finance charge. The
proposed rule does not allow creditors to modify the descriptive
statement that accompanies the finance charge disclosure for variable-
rate transactions, in contrast to current comment 18(d)-1, because the
Bureau believes that consistent disclosures will better enhance
consumer understanding of credit terms and will ease compliance burden
for creditors. Proposed Sec. 1026.38(o)(2) also provides that the
disclosed finance charge and other disclosures affected by the
disclosed finance charge (including the amount financed and the annual
percentage rate) shall be treated as accurate if the amount disclosed
as the finance charge is understated by no more than $100 or is greater
than the amount required to be disclosed. However, as discussed in the
section-by-section analysis to proposed Sec. 1026.4 above, the Bureau
solicits comment on whether and the amount by which this tolerance
should be raised in light of the expanded definition of the finance
charge for closed-end transactions secured by real property or a
dwelling.
The Bureau proposes to exercise its authority under TILA section
105(a) and (f), Dodd-Frank Act section 1032(a), and, for residential
mortgage loans, Dodd-Frank Act section 1405(b) to except transactions
subject to proposed Sec. 1026.19(f) from the requirement under TILA
section 122(a) that the finance charge be disclosed more conspicuously
than other disclosures. The Bureau has considered the purposes for
which it may exercise its authority under TILA section 105(a) and,
based on that review, believes that the proposed exception is
appropriate. Here, the proposed exception from the TILA section 122(a)
requirement that the finance charge be more conspicuously disclosed
than other disclosures effectuates TILA's purpose of achieving a
meaningful disclosure of credit terms for transactions subject to
proposed Sec. 1026.19(f). As discussed in the section-by-section
analysis to proposed Sec. 1026.37(l), consumers generally do not
understand the finance charge and do not use it when making decisions
about their loan. Accordingly, the Bureau believes that consumer
understanding is enhanced by disclosing the finance charge with other
loan calculations, such as total of payments, amount financed, and
total interest percentage, for transactions subject to proposed Sec.
1026.19(f), and that a more prominent disclosure of the finance charge
may not provide a meaningful benefit to consumers. Rather, disclosure
of the finance charge separately from the information that is important
to consumer understanding of credit terms may enhance consumer
understanding by avoiding information overload.
The Bureau also proposes this exception pursuant to its authority
under TILA section 105(f). 15 U.S.C. 1604(f)(1). The Bureau has
considered the factors in TILA section 105(f) and believes that, for
the reasons discussed above, an exception is appropriate under that
provision. Specifically, the Bureau believes that the proposed
exemption is appropriate for all affected borrowers, regardless of
their other financial arrangements and financial sophistication and the
importance of the loan to them. Similarly, the Bureau believes that the
proposed exemption is appropriate for all affected loans, regardless of
the amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Highlighting the finance charge on the
disclosure form contributes to overall consumer confusion and
information overload, complicates the mortgage lending process, and
hinders consumers' ability to understand important loan terms. For
these same reasons, the Bureau believes that the proposed disclosure of
the finance charge would ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances, consistent
with 1032(a) of the Dodd-Frank Act, and will improve consumer awareness
and understanding of residential mortgage loans, which is in the
interest of consumers and the public, consistent with Dodd-Frank Act
section 1405(b).
38(o)(3) Amount Financed
TILA section 128(a)(2) and (8) requires creditors to disclose the
``amount financed,'' using that term, and a brief descriptive
statement. 15 U.S.C. 1638(a)(2), (8). Current Sec. 1026.18(b)
implements this provision by requiring creditors to disclose the amount
[[Page 51256]]
financed, using that term, together with a brief description that the
amount financed represents the amount of credit of which the consumer
has actual use.
The Bureau proposes new Sec. 1026.38(o)(3) to implement TILA
section 128(a)(2) and (8) for transactions subject to proposed Sec.
1026.19(f), pursuant to its implementation authority under TILA section
105(a). Proposed Sec. 1026.38(o)(3) requires creditors to disclose the
amount financed, using that term, together with the descriptive
statement, ``the loan amount available after paying your upfront
finance charge.'' Based on consumer testing, the Bureau believes this
approach is appropriate to serve TILA's purpose of assuring a
meaningful disclosure of credit terms. Proposed comment 38(o)(3)-1
clarifies that, for purposes of Sec. 1026.38(o)(3), the amount
financed disclosure is calculated in accordance with the requirements
of Sec. 1026.18(b) and its commentary.
38(o)(4) Annual Percentage Rate
TILA section 128(a)(4) and (8) requires creditors to disclose the
annual percentage rate, together with a brief descriptive statement. 15
U.S.C. 1638(a)(4), (8). Current Sec. 1026.18(e) implements this
requirement by requiring creditors to disclose the ``annual percentage
rate,'' using that term, and a brief description such as ``the cost of
your credit as a yearly rate.'' 15 U.S.C. 1632(a). In addition, TILA
section 122(a) requires that the annual percentage rate be more
conspicuous than other disclosures, except the disclosure of the
creditor's identity. This requirement is implemented in current Sec.
1026.18(e).
Proposed Sec. 1026.38(o)(4) implements the requirements of TILA
section 128(a)(4) and (8) for transactions subject to Sec. 1026.19(f)
by requiring creditors to disclose the ``annual percentage rate'' and
the abbreviation ``APR,'' together with the following statement: ``Your
costs over the loan term expressed as a rate. This is not your interest
rate.'' For the reasons discussed in the section-by-section analysis to
proposed Sec. 1026.37(l)(2), the Bureau proposes to exercise its
authority under TILA section 105(a) and (f), Dodd-Frank Act section
1032(a), and, for residential mortgage loans, Dodd-Frank Act section
1405(b) to except the annual percentage rate from the conspicuous
disclosure requirement under TILA section 122(a), for transactions
subject to proposed Sec. 1026.19(f).
As discussed in the section-by-section analysis to proposed Sec.
1026.37(l), in response to the Bureau's Small Business Review Panel
Outline, some consumer advocates expressed concern about disclosing the
APR on the final page of the Closing Disclosure and suggested that the
APR should be more prominently displayed on the disclosure. The Bureau
has considered this feedback, but for the reasons discussed above,
believes that the proposed approach to the APR could provide important
benefits to consumers by emphasizing the difference between the APR and
the contract interest rate and by deemphasizing historically confusing
disclosures that contribute to information overload, and that other
possible approaches to improving the APR would be less effective at
improving the disclosure.
38(o)(5) Total Interest Percentage
As discussed in the section-by-section analysis to proposed Sec.
1026.37(l)(3), section 1419 of the Dodd-Frank Act amended TILA to add
new section 128(a)(19), which requires that, in the case of a
residential mortgage loan, the creditor disclose the total amount of
interest that the consumer will pay over the life of the loan as a
percentage of the principal of the loan. 15 U.S.C. 1638(a)(19). TILA
section 128(a)(19) also requires that the amount be computed assuming
the consumer makes each monthly payment in full and on time, and does
not make any overpayments.
Pursuant to the Bureau's implementation authority under TILA
section 105(a), proposed Sec. 1026.38(o)(5) implements this new
statutory requirement by requiring creditors to disclose the ``total
interest percentage,'' using that term and the abbreviation ``TIP.''
For guidance on disclosure and calculation of the total interest
percentage on the Closing Disclosure, proposed comment 38(o)(5)-1
refers creditors to the disclosure of the total interest percentage on
the Loan Estimate, found in Sec. 1026.37(l)(3) and its commentary. In
addition, for the reasons discussed in the section-by-section analysis
to proposed Sec. 1026.37(l)(3), the Bureau proposes to exercise its
authority under TILA section 105(a), Dodd-Frank Act section 1032(a),
and, for residential mortgage loans, Dodd-Frank Act section 1405(b) to
require creditors to disclose the following descriptive statement of
the total interest percentage: ``This rate is the total amount of
interest that you will pay over the loan term as a percentage of your
loan amount.''
Concerns were raised during the Small Business Review Panel, by
industry feedback provided in response to the Small Business Review
Panel Outline, and in feedback received through the Bureau's Web site
that the total interest percentage would be difficult to calculate and
explain to consumers, would not likely be helpful to consumers, and may
distract consumers from more important disclosures. See Small Business
Review Panel Report at 20. In particular, industry feedback provided in
response to the Bureau's Small Business Review Panel Outline noted that
the disclosure will always be inaccurate in an adjustable-rate loan and
in any loan that is paid off before final maturity.
Based on this feedback and consistent with the Small Business
Review Panel's recommendation, the Bureau alternatively proposes to use
its authority under TILA section 105(a) and (f) and Dodd-Frank Act
sections 1032(a) and 1405(b) to remove the total interest percentage
from the Closing Disclosure required by proposed Sec. 1026.19(f). The
Bureau's rationale for the proposed exemption is found in the section-
by-section analysis to proposed Sec. 1026.37(l)(3). The Bureau
solicits comment on the proposed exemption.
38(o)(6) Approximate Cost of Funds
The Dodd-Frank Act amended TILA to add new section 128(a)(17). 15
U.S.C. 1638(a)(17). Among other things, that section requires creditors
to disclose, in the case of residential mortgage loans, ``the
approximate amount of the wholesale rate of funds in connection with
the loan.''
The Bureau notes several interpretive challenges in TILA section
128(a)(17). First, the statute refers to an ``amount'' of a ``rate,''
whereas amounts are typically absolute, while rates are typically
expressed as percentages. Second, the intended meaning of the phrase
``wholesale rate of funds'' is unclear. Wholesale transactions have
historically had a ``wholesale rate,'' which is generally the rate at
which a wholesale lender is willing to extend credit to a particular
consumer, before any increase to recoup compensation paid to a mortgage
broker. The resulting increased rate is the ``retail rate'' paid by the
consumer. However, there are other components of overall pricing such
as discount points and other up-front charges, which calls into
question the use of the term ``wholesale rate'' as a meaningful
disclosure.
The Bureau is unaware of the phrase ``wholesale rate of funds''
having a known standard usage in the mortgage industry. ``Wholesale''
generally is used by industry participants to refer to loans made
through mortgage brokers, as opposed to loans made directly by the
creditor through its own employees, which are commonly referred to as
``retail'' originations. Yet, there is
[[Page 51257]]
nothing in TILA section 128(a)(17) limiting its applicability to
wholesale transactions. In addition, the meaning of the term ``rate of
funds'' is unclear.
In light of these uncertainties, the Bureau proposes to interpret
the ``wholesale rate of funds'' to mean the actual cost of borrowing
funds for use in mortgage lending. As discussed in the Kleimann Testing
Report, the Bureau conducted consumer testing using the terms ``lender
cost of funds,'' ``average cost of funds,'' and ``approximate cost of
funds,'' along with descriptive statements of these terms. First, the
Bureau conducted consumer testing using the phrase ``lender cost of
funds,'' which was the actual cost of funds used to make mortgage
loans. Consumers were generally unable to understand or use this
disclosure, and the Bureau received significant negative feedback about
this disclosure from industry representatives. Second, the Bureau
conducted consumer testing using the phrase ``average cost of funds,''
which is an average or approximate cost of funds in lieu of the
creditor's actual costs. Again, consumers were unable to use or
understand this disclosure, and the Bureau received negative industry
feedback. In all cases, experienced and non-experienced consumers that
participated in the Bureau's consumer testing of the cost of funds
disclosure questioned the disclosure and were unable to articulate how
to use the information. During five rounds of consumer testing, only
one consumer showed any interest in the disclosure, stating that it was
``interesting,'' but did not use it to evaluate the loan. All other
consumers were either confused by the disclosure or simply did not find
it helpful. Several consumers expressed a feeling of offense in
reaction to the cost of funds. Industry participants also believed that
consumers would be confused by the cost of funds disclosure.
Accordingly, the Bureau is soliciting comment on both ``lender cost
of funds'' and ``average cost of funds'' pursuant to its authority
under TILA section 105(a), Dodd-Frank Act section 1032(a), and, for
residential mortgage loans, Dodd-Frank Act section 1405(b). Proposed
Sec. 1026.38(o)(6) requires creditors to disclose the ``approximate
cost of funds,'' using that term and the abbreviation ``ACF'' and
expressed as a percentage, and the statement ``The approximate cost of
funds used to make this loan. This is not a direct cost to you.'' For
purposes of proposed Sec. 1026.38(o)(6), ``approximate cost of funds''
means either the most recent ten-year Treasury constant maturity rate
or the creditor's actual cost of borrowing the funds used to extend the
credit, at the creditor's option. The Bureau solicits comment on
whether another index, such as the London Interbank Offer Rate (LIBOR),
would be a more appropriate measure of the approximate cost of funds.
The Bureau also solicits comment on what would be required for
creditors to disclose their actual costs of funds.
Based on consumer testing, the Bureau believes that consumer
understanding of the cost of funds disclosure will be enhanced through
the descriptive statement, consistent with the purposes of TILA, and
will improve consumer awareness and understanding of residential
mortgage loans, which is in the interest of consumers and the public,
consistent with section 1405(b) of the Dodd-Frank Act. For these
reasons, the Bureau also believes that the disclosure of the
descriptive statement of the cost of funds disclosure may ensure that
the features of consumer credit transactions secured by real property
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the product or service, in light of the facts and
circumstances, consistent with section 1032(a) of the Dodd-Frank Act.
Notwithstanding these proposed modifications, consumer testing
conducted by the Bureau suggests that consumers do not understand the
disclosure and that it does not provide a meaningful benefit to
consumers. In addition, based on concerns raised by the Small Business
Review Panel, industry feedback provided in response to the Bureau's
Small Business Review Panel Outline, and feedback provided through the
Bureau's Web site, the Bureau believes that the disclosure may be very
burdensome for creditors to calculate and explain, and that consumers
would not find the disclosures helpful. See Small Business Review Panel
Report at 20. Accordingly, the Bureau remains concerned that the cost
of funds disclosure may not be a useful tool for consumers and could
create confusion and contribute to information overload. Consistent
with the recommendation of the Small Business Review Panel, the Bureau
alternatively proposes to use its exception and modification authority
under TILA section 105(a) and (f), Dodd-Frank Act section 1032(a), and,
for residential mortgage loans, Dodd-Frank Act section 1405(b) to
exempt transactions subject to proposed Sec. 1026.19(e) and (f) from
the cost of funds disclosure requirement in TILA section 128(a)(17).
The Bureau believes the proposed exemption will carry out the purposes
of TILA, consistent with TILA section 105(a), by avoiding consumer
confusion and information overload, thereby promoting the informed use
of credit. For these same reasons, the proposed exemption will help
ensure that the features of the transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to better understand the costs, benefits, and risks associated with the
mortgage transaction, in light of the facts and circumstances,
consistent with Dodd-Frank Act section 1032(a), and will improve
consumer awareness and understanding of residential mortgage loans,
which is in the interest of consumers and the public, consistent with
Dodd-Frank Act section 1405(b). Finally, the Bureau has considered the
factors in TILA section 105(f) and believes that, for the reasons
discussed above, an exception is appropriate under that provision.
Specifically, the Bureau believes that the proposed exemption is
appropriate for all affected borrowers, regardless of their other
financial arrangements and financial sophistication and the importance
of the loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans, regardless of the
amount of the loan and whether the loan is secured by the principal
residence of the consumer. Furthermore, the Bureau believes that, on
balance, the proposed exemption will simplify the credit process
without undermining the goal of consumer protection or denying
important benefits to consumers. Based on these considerations, the
results of the Bureau's consumer testing, and the analysis discussed
elsewhere in this proposal, the Bureau believes that the proposed
exemption may be appropriate. The Bureau solicits comment on this
proposed exemption.
38(p) Other Disclosures
As discussed below, proposed Sec. 1026.38(p) implements statutory
provisions requiring creditors to disclose information regarding
appraisals, contract details, liability after foreclosure, refinancing,
and tax deductions. Under the proposal, these disclosures would be
provided under the heading ``Other Disclosures.''
38(p)(1) Appraisal
As noted above in the discussion of proposed Sec. 1026.37(m)(1),
the Dodd-Frank Act amended ECOA to require creditors to provide
consumers with a copy of any written appraisal conducted for a loan
that is or will be secured by
[[Page 51258]]
a first lien on a dwelling, and also added a requirement that creditors
disclose that right to consumers at the time of application. ECOA
section 701(e); 15 U.S.C. 1691(e). In addition, the Dodd-Frank Act
amended TILA to require creditors to provide consumers with an
appraisal copy at least three days prior to consummation of certain
``higher-risk'' mortgages. TILA section 129H(c)-(d); 15 U.S.C.
1639h(c)-(d). As discussed above, these provisions are being
implemented in separate Bureau and joint interagency rulemakings,
respectively. Although the Bureau is not implementing these statutory
provisions through this proposed rule, the Bureau is proposing
appraisal disclosures similar to those required by the statutes to be
included on the Loan Estimate in transactions subject to either ECOA
section 701(e) or TILA section 129H, as implemented in Regulations B
and Z, respectively, pursuant to its authority under TILA section
105(a) and Dodd-Frank Act section 1032(a). The Bureau intends to
harmonize these requirements with the final rules implementing the
statutory appraisal disclosure requirements at the time it issues a
rule finalizing this proposal.
In addition, the Bureau is proposing, pursuant to its authority
under TILA section 105(a) and Dodd-Frank Act section 1032(a), that
creditors provide a disclosure regarding the right to receive an
appraisal on the Closing Disclosure the consumer receives three days
prior to consummation. Like Sec. 1026.37(m)(1), this disclosure
requirement applies only to transactions subject to either ECOA section
701(e) or TILA section 129H, as implemented in Regulations B and Z,
respectively. Specifically, proposed Sec. 1026.38(p)(1)(i) requires
the creditor to disclose that, if there was an appraisal of the
property in connection with the loan, the creditor is required to
provide the consumer with a copy of such appraisal at no additional
cost to the consumer at least three days prior to consummation.
Proposed Sec. 1026.38(p)(1)(ii) requires the creditor to disclose
that, if the consumer has not yet received a copy of the appraisal, the
consumer should contact the creditor using the information disclosed
pursuant to proposed Sec. 1026.38(r). Proposed Sec. 1026.38(p)(1)
requires these disclosures to be provided under the subheading
``Appraisal.'' Proposed comment 38(p)(1)-1 provides guidance regarding
the applicability of proposed Sec. 1026.38(p)(1). The comment states
that if a transaction is not subject to either ECOA section 701(e) or
TILA section 129H, as implemented in Regulations B and Z, respectively,
the disclosure required by proposed Sec. 1026.38(p)(1) may be omitted
from the Closing Disclosure.
The Bureau believes the additional disclosure reminding consumers
of their right to receive a copy of an appraisal conducted for their
loan will promote the informed use of credit by consumers, consistent
with TILA section 105(a), and ensure that the features of mortgage
transactions are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the loans, in light of the facts
and circumstances, consistent with Dodd-Frank Act section 1032(a).
38(p)(2) Contract Details
TILA section 128(a)(12) requires the creditor to provide a
statement that ``[t]he consumer should refer to the appropriate
document for any information such document provides about nonpayment,
default, the right to accelerate the maturity of the debt, and
prepayment rebates and penalties.'' 15 U.S.C. 1638(a)(12). This
requirement is currently implemented in Sec. 1026.18(p), which
requires the creditor to provide a statement that the consumer should
refer to the appropriate contract document for information pertaining
to nonpayment, default, the right to accelerate the maturity of the
loan obligation, and prepayment rebates and penalties. Section
1026.18(p) also provides the creditor the option to disclose a
reference to the contract document for information regarding security
interests and assumption of the legal obligation.
The Bureau proposes Sec. 1026.18(p)(2) to implement TILA section
128(a)(12) for transactions subject to Sec. 1026.19(f), pursuant to
its implementation authority under TILA section 105(a). Like current
Sec. 1026.18(p), proposed Sec. 1026.38(p)(2) requires the creditor to
disclose a statement that the consumer should review the loan contract
for additional information about loan terms. Specifically, under
proposed Sec. 1026.38(p)(2), the creditor is required to state that
the consumer should refer to the appropriate loan document and security
instrument for information about nonpayment, what constitutes a default
under the legal obligation, circumstances under which the creditor may
accelerate the maturity of the obligation, and prepayment rebates and
penalties. Proposed Sec. 1026.38(p)(2) requires this information to be
disclosed is under the subheading ``Contract Details.''
38(p)(3) Liability After Foreclosure
As discussed in the section-by-section analysis to proposed Sec.
1026.37(m)(7), section 1414(c) of the Dodd-Frank Act created new TILA
section 129C(g), which establishes certain requirements for residential
mortgage loans subject to protection under a State's anti-deficiency
law. 15 U.S.C. 1639c(g). TILA section 129C(g)(2) generally requires the
creditor to provide a written notice to the consumer describing the
protection provided by the applicable State's anti-deficiency law and
the significance for the consumer of the loss of such protection. For
refinance transactions only, TILA section 129C(g)(3) generally requires
creditors that receive from or provide to the consumer an application
for refinancing that would cause the loan to lose the protection of an
anti-deficiency law to provide a written notice to the consumer
describing the protection provided by the anti-deficiency law and the
significance for the consumer of the loss of such protection. As
discussed above, TILA section 129C(g)(3), which applies to refinance
transactions only, is implemented in proposed Sec. 1026.37(m)(7).
Proposed Sec. 1026.38(p)(3) implements the requirements of TILA
section 129C(g)(2) for transactions subject to Sec. 1026.19(f),
pursuant to the Bureau's implementation authority under TILA section
105(a). Specifically, under proposed Sec. 1026.38(p)(3), if State law
may offer consumers protection from liability, the creditor must
disclose a brief statement that State law may protect the consumer from
liability for the unpaid balance. The statement must also advise the
consumer that any protection afforded under State law may be lost if
the consumer refinances the loan or incurs additional debt on the
property and that the consumer should consult an attorney for
additional information. However, if State law does not protect the
consumer from liability for the unpaid balance, proposed Sec.
1026.38(p)(3) requires the creditor to disclose that fact. The
information required by proposed Sec. 1026.38(p)(3) is provided under
the subheading ``Liability after Foreclosure.'' Proposed comment
38(p)(3)-1 clarifies that whether the consumer is afforded protection
from liability in a foreclosure varies by State and that proposed Sec.
1026.38(p)(3) requires the creditor to provide a general description of
the applicable State's requirements. Proposed comment 38(p)(3)-1 also
clarifies that any type of protection afforded by State law, other than
a statute of limitations, requires a
[[Page 51259]]
statement that State law may protect the consumer from liability for
the unpaid balance.
Pursuant to its authority under TILA section 105(a), Dodd-Frank Act
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act
section 1405(b), the Bureau proposes to modify the statutory
requirement that the creditor or loan originator must describe the
protection provided by the applicable State's anti-deficiency law, for
all transactions subject to proposed Sec. 1026.19(f). The Bureau
believes that the more generalized anti-deficiency disclosure required
by proposed Sec. 1026.38(p)(3) is effective at informing consumers
about the existence or absence of State anti-deficiency laws, and that
a more detailed state-specific disclosure could be confusing for
consumers and costly and burdensome to implement. The Bureau recognizes
that significant State law variations exist regarding anti-deficiency
protection. For this reason, proposed Sec. 1026.38(p)(3) requires
creditors to disclose a statement that consumers should consult a
lawyer for more information about any applicable anti-deficiency laws.
The Bureau believes the proposed modification will ensure that the
features of the transaction are fully, accurately and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the mortgage
transaction, consistent with Dodd-Frank Act section 1032(a), and will
improve consumer awareness and understanding of residential mortgage
loans, which is in the interest of consumers and the public, consistent
with Dodd-Frank Act section 1405(b).
38(p)(4) Refinance
Proposed Sec. 1026.38(p)(4) implements TILA section
128(b)(2)(C)(ii) for transactions subject to Sec. 1026.19(f) by
requiring the creditor to disclose the statement required by proposed
Sec. 1026.37(m)(5), regarding the consumer's future ability to
refinance their loan. For a detailed discussion of the Bureau's
proposed implementation of TILA section 128(b)(2)(C)(ii), see the
section-by-section analysis to proposed Sec. 1026.37(m)(5).
38(p)(5) Tax Deductions
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(Bankruptcy Act) amended TILA to add new section 128(a)(15), 15 U.S.C.
1638(a)(15), which requires that, in the case of a consumer credit
transaction that is secured by the principal dwelling of the consumer
in which the extension of credit may exceed the fair market value of
the collateral, the creditor must disclose certain tax implications for
the consumer. Public Law 109-8,119 Stat. 23. The Board stated its
intent to implement the Bankruptcy Act amendments in an advance notice
of proposed rulemaking published in October 2005 as part of its ongoing
review of Regulation Z. 70 FR 60235 (Oct. 17, 2005). The issue was
addressed again in the Board's 2009 Closed-End Proposal, although a
final rule was not adopted. 74 FR 43232, 43310.
In the 2009 Closed-End Proposal, the Board proposed to implement
TILA section 128(a)(15) by requiring creditors to provide the
disclosure required by TILA section 128(a)(15) for transactions secured
by a dwelling. 74 FR at 43310-11. The proposed rule permitted, but did
not require, creditors to provide the disclosure in transactions
secured by real property that does not include a dwelling, even though
the statute limits the disclosure to transactions secured by the
principal dwelling of the consumer. Id. The Board reasoned that it
would be unnecessarily burdensome to require creditors to create
separate disclosures for transactions secured by real property and
those secured by a dwelling and proposed that the creditor be
permitted, but not required, to provide disclosures regarding Federal
tax implications for transactions secured by real property. Id.
Proposed Sec. 1026.38(p)(5) implements the requirements of TILA
section 128(a)(15) for transactions subject to proposed Sec.
1026.19(f), including transactions secured by real property that does
not include a dwelling, pursuant to its authority under TILA section
105(a), Dodd-Frank Act section 1032(a), and, for residential mortgage
loans, Dodd-Frank Act section 1405(b). Specifically, for all
transactions subject to Sec. 1026.19(f), proposed Sec. 1026.38(p)(5)
requires creditors to state that, if the consumer borrows more than the
value of the property, the interest on the loan amount above the market
value is not deductible from Federal income taxes. Proposed Sec.
1026.38(p)(5) also requires a statement advising the consumer to
consult a tax professional for additional information. The Bureau
believes that the proposed disclosure promotes the informed use of
credit in all transactions subject to Sec. 1026.19(f), and is
therefore consistent with the purposes of TILA. Moreover, requiring the
disclosure for all transactions subject to proposed Sec. 1026.19(f),
whether secured by the consumer's principal dwelling or other real
property, facilitates industry compliance by reducing the time and
resources that would be expended to determine whether a loan
transaction is subject to the disclosure requirements regarding the
deductibility of Federal income taxes. In addition, the Bureau believes
that the proposed disclosure ensures that the features of mortgage
transactions are disclosed in manner that ensures that the features of
the transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the cost,
benefits, and risks associated with the transaction, consistent with
Dodd-Frank Act section 1032(a) and will improve consumer awareness and
understanding of residential mortgage loans, which is in the interest
of consumers and the public, consistent with Dodd-Frank Act section
1405(b).
38(q) Questions Notice
Proposed Sec. 1026.38(q) requires the creditor or closing agent to
provide a statement that the consumer should contact the creditor with
any questions about the disclosures required under Sec. 1026.19(f), a
reference to the Bureau's Web site to obtain more information or to
make a complaint, and a prominent question mark. Although this notice
is not currently expressly required by TILA, RESPA, or their
implementing regulations, the Bureau is proposing to require that the
Closing Disclosure contain such a notice based on its authority under
TILA section 105(a), RESPA section 19(a), and Dodd-Frank Act section
1032(a). The Bureau believes that this disclosure will effectuate the
purposes of TILA and RESPA by facilitating the informed use of credit
and ensuring that consumers are provided with greater and timelier
information on the costs of the closing process, and will also ensure
that the features of the transaction are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to better understand the costs, benefits, and risks associated with the
transaction in light of the facts and circumstances, consistent with
Dodd-Frank Act section 1032(a).
Requiring disclosure of this notice complements proposed Sec.
1026.19(f)(1)(ii), which requires delivery of the Closing Disclosure
three business days prior to consummation. TILA section 128(b)(2)(D)
requires that a corrected TILA disclosure be given to the consumer
three business days prior to consummation if the APR as initially
disclosed becomes inaccurate, and the Bureau understands that because
of the high frequency of annual percentage rate changes triggering the
corrected TILA disclosure obligation, many creditors currently provide
the corrected TILA disclosure as a matter of course
[[Page 51260]]
even if it is not required. RESPA section 4 requires that the RESPA
settlement statement be provided ``at or before closing,'' however, and
the Bureau understands that it is typically given at closing. Proposed
Sec. 1026.19(f)(1)(ii) reconciles the two provisions by requiring that
consumers be given all of the RESPA- and TILA-mandated disclosures
three business days prior to consummation. During this three-business-
day period, the consumer can review the Closing Disclosure, contact the
creditor with questions regarding the information contained on the
Closing Disclosure, and correct any errors prior to consummation.
Under proposed Sec. 1026.38(q), the required notice includes a
statement directing the consumer to contact the creditor with any
questions about the disclosures required under Sec. 1026.19(f). If the
alternative language proposed in Sec. 1026.19(f)(1)(v) is adopted in a
final rule, however, the closing agent may provide the disclosures
required under Sec. 1026.19(f) instead of the creditor.
Notwithstanding this fact, the Bureau believes the notice required
under proposed Sec. 1026.38(q) should in all cases reference the
creditor, rather than the closing agent, because the creditor is better
positioned to answer the consumer's questions relating to the
disclosures provided under Sec. 1026.19(f). The creditor is familiar
with the loan terms and is responsible for disclosing the aggregate
amount of closing costs under TILA section 128(a)(17). Moreover, it is
more likely that the creditor will have been in communication with the
consumer previously. The Bureau seeks comment, however, on whether the
notice required under proposed Sec. 1026.38(q) should include a
statement directing the consumer to contact the creditor or the closing
agent with questions, or a statement directing the consumer to contact
the closing agent, if the disclosures required under Sec. 1026.19(f)
are provided by the closing agent.
Moreover, the Bureau's Web site will offer important information
and useful tools that consumers can access at key points in the
mortgage origination process, including during the three-business-day
period between the consumer's receipt of the Closing Disclosure and
consummation. Directing consumers to this Web site therefore promotes
consumer understanding of credit terms and closing costs and of
benefits and risks associated with the transaction in light of the
facts and circumstances.
The notice required under proposed Sec. 1026.38(q) also includes a
prominent question mark. This prominent question mark is an aspect of
the Closing Disclosure form H-25 set forth in appendix H to Regulation
Z, the standard form or model form, as applicable, pursuant to Sec.
1026.38(t). Consumer testing by the Bureau indicated that use of the
prominent question mark icon in the questions notice drew consumers'
attention to the notice.
38(r) Contact Information
Under TILA section 128(a)(1) and Regulation Z Sec. 1026.18(a), the
TILA disclosures must include the identity of the creditor. Comment
18(a)-1 clarifies that the ``identity'' of the creditor must include
the name of the creditor, but may also include the creditor's address
and/or telephone number. As stated in appendix C to Regulation X, the
RESPA GFE must include the name, address, phone number, and email
address (if any) of the loan originator. As stated in appendix A to
Regulation X, the RESPA settlement statement must include the name and
mailing address of the lender and the name, address, and phone number
of the settlement agent. Moreover, TILA section 129B(b)(1)(B), which
was added to TILA by section 1402 of the Dodd-Frank Act, provides that
each mortgage originator must include on all loan documents any unique
identifier of the mortgage originator provided by the Nationwide
Mortgage Licensing System and Registry. However, TILA, RESPA, and their
implementing regulations currently do not expressly require the
disclosure of: (1) The email address of the creditor (unless the
creditor is also the loan originator, in which case it must be
disclosed on the GFE but not on the RESPA settlement statement); (2)
the name, email address, and phone number of the primary contact with
the creditor; (3) the email address of the closing agent; (4) the name,
email address, and phone number of the consumer's and seller's real
estate brokers, if any; or (5) the license number or other unique
identifier issued by the applicable jurisdiction or regulating body
with which a closing agent or real estate broker is licensed and/or
registered, if any.
The Bureau received feedback from the public through its Know
Before You Owe initiative that requested contact information on the
disclosure to appear only on one part of the Closing Disclosure. Based
on this feedback, the Bureau tested a prototype design with contact
information for the creditor, mortgage broker, and other parties
related to the transaction in one table. During consumer testing,
consumers and industry participants found the contact information table
useful and easy to follow, and indicated that it contained the basic
information they needed to follow up with the various parties related
to the transaction.
Therefore, the Bureau is proposing to require that the Closing
Disclosure contain a contact information table as set forth in proposed
Sec. 1026.38(r) based on its authority under TILA section 105(a),
RESPA section 19(a), Dodd-Frank Act section 1032(a) and, for
residential mortgage loans, Dodd-Frank Act section 1405(b). The Bureau
believes that the contact information table required to be disclosed
under proposed Sec. 1026.38(r) will effectuate the purposes of TILA
and RESPA by facilitating the informed use of credit and ensuring that
consumers are provided with greater and more timely information on the
costs of the closing process. Providing consumers with multiple types
of contact information for the critical non-seller parties
participating in the transaction will allow consumers easier access to
information relevant to the transaction (including costs), which in
turn enhances consumer understanding of the costs, benefits, and risks
associated with the transaction in light of the facts and circumstances
(which is consistent with Dodd-Frank Act section 1032(a)). The Bureau
also believes such disclosure will improve consumers' awareness and
understanding of residential mortgage transactions, which is in the
interest of consumers and the public (which is consistent with Dodd-
Frank Act section 1405(b)).
Moreover, the Bureau is proposing Sec. 1026.38(r) based on its
mandate under sections 1032(f), 1098, and 1100A of the Dodd-Frank Act
to propose rules and forms that combine the disclosures required under
TILA and sections 4 and 5 of RESPA into a single, integrated disclosure
for mortgage loan transactions covered by those laws. As discussed
above, appendix C to Regulation X states that the RESPA GFE must
include the name, address, phone number, and email address (if any) of
the loan originator, and pursuant to appendix A to Regulation X, the
RESPA settlement statement must include the name and mailing address of
the lender and the name, address, and phone number of the settlement
agent. Thus, as part of the Bureau's statutory mandate to integrate the
TILA and RESPA disclosures, the Bureau must integrate the disclosures
currently required under Regulation X with the TILA-mandated
disclosures of the creditor's identity, discussed above.
As noted above, TILA section 129B(b)(1)(B), as added by section
1402
[[Page 51261]]
of the Dodd-Frank Act, provides that each mortgage originator must
include on all loan documents any unique identifier of the mortgage
originator provided by NMLSR. New TILA section 129B(b)(1)(B) will be
implemented in a separate Bureau rulemaking concerning mortgage loan
origination compensation. However, the Bureau is proposing to use its
authority under TILA section 105(a), Dodd-Frank Act section 1032(a)
and, for residential mortgage loans, Dodd-Frank section 1405(b) to
include in the contact information table to be disclosed under Sec.
1026.38(r) the NMLSR identification number for the creditors, mortgage
brokers, and the individual persons employed by such entities, as
applicable, since the additional information of the NMLSR and license
numbers for State regulated settlement service providers will improve
consumer awareness and understanding of transactions involving
residential mortgage loans and is therefore in the interest of
consumers and the public by providing the consumer with information
about the licensing of the settlement service providers. In the
integrated TILA-RESPA final rule, the Bureau expects to harmonize this
proposal with its rulemaking implementing TILA section 129B(b)(1)(B).
The Bureau also believes that the disclosure of contact information
in a tabular format as required by proposed Sec. 1026.38(r)
complements proposed Sec. 1026.19(f)(1)(ii), which requires delivery
of the Closing Disclosure three business days prior to consummation. As
noted above, proposed Sec. 1026.19(f)(1)(ii) reconciles the TILA and
RESPA timing provisions by requiring that consumers be given the
integrated disclosures three business days prior to consummation.
During this three-business-day period, the consumer can review the
Closing Disclosure, contact the creditor, closing agent, mortgage
broker, and real estate brokers with questions regarding the
information contained on the Closing Disclosure, and correct any errors
prior to consummation. Thus, the contact information table required
under proposed Sec. 1026.38(r) makes it easier for consumers to
contact the critical non-seller parties participating in the
transaction during the three-business-day period prior to consummation.
The inclusion of primary contact email addresses in the table
facilitates efficient communication between the consumer and the other
parties.
As applicable, the table required by proposed Sec. 1026.38(r)
would include contact information for the creditor, the mortgage
broker, the consumer's real estate broker, the seller's real estate
broker, and the closing agent. The table would include the following
contact information for each party, as applicable: Name, address, NMLSR
identification/license number, name of primary contact, NMLSR
identification/license number of the primary contact, email address of
primary contact, and phone number of primary contact.
Proposed comments 38(r)-1 through -6 provide additional guidance
regarding these required disclosures. For instance, proposed comment
38(r)-3 clarifies that the address disclosed in the contact information
table is the identified party's place of business where the primary
contact for the transaction is located (usually the local office),
rather than a general corporate headquarters address. Similarly,
proposed comment 38(r)-6 clarifies that the primary contact working at
the identified party is the individual who interacts most frequently
with the consumer and who has an NMLSR identification number or, if
none, a license number, or other unique identifier to be disclosed
under proposed Sec. 1026.38(r)(3) and (5), as applicable, and provides
examples of the primary contact to be disclosed in a given transaction.
38(s) Signature Statement
For the reasons and based on the legal authority set forth in the
section-by-section analysis to proposed Sec. 1026.37(n), proposed
Sec. 1026.38(s) implements the requirements of TILA section
128(b)(2)(B)(i) for transactions subject to Sec. 1026.19(f). The
disclosure requirements in proposed Sec. 1026.38(s) mirror the
requirements in proposed Sec. 1026.37(n). Proposed comment 38(s)-1
cross-references the commentary to proposed Sec. 1026.37(n) for
guidance regarding optional signature requirements and signature lines
for multiple consumers.
During the Bureau's Small Business Review Panel, some industry
participants expressed concern that consumers might be confused about
the effect of signing the Closing Disclosure to acknowledge receipt.
Small Business Review Panel Report at 29. Based on this feedback, the
Panel recommended that the Bureau consider whether to revise the
signature statement on the prototype form, or whether additional
guidance should be provided to clarify the effect of a signature line
on the consumer's legal obligation. Id. The Bureau has considered the
Panel's recommendation and believes, based on several rounds of
consumer testing, that consumers understand the disclosure in proposed
Sec. 1026.38(s) to mean that they are not obligated to complete the
loan transaction just because they signed the Closing Disclosure. As a
result, the Bureau believes that the proposed disclosure is
appropriate, but solicits comment on this issue.
38(t) Form of Disclosures
As discussed above, the Bureau is proposing to exclude transactions
subject to proposed Sec. 1026.19(f) from the coverage of Sec.
1026.17(a) and (b). Consequently, the implementation of TILA sections
122(a) and 128(b)(1) in Sec. 1026.17(a)(1), requiring that the
disclosures be clear and conspicuous and that they be segregated from
everything else, does not apply to the integrated disclosures set forth
in Sec. 1026.38 under this proposal. As described in the analysis of
proposed Sec. 1026.37(o), the Bureau, pursuant to its implementation
authority under TILA section 105(a), proposes to implement the
statutory segregation and clear and conspicuous requirements of TILA
sections 122(a) and 128(b)(1) for the disclosure required by proposed
Sec. 1026.38 in new Sec. 1026.38(t). The Bureau believes these
requirements will assure a meaningful disclosure of credit terms so
that the consumer will be able to compare more readily the various
credit terms available to him and avoid the uninformed use of credit.
38(t)(1) General Requirements
Similar to proposed Sec. 1026.37(o)(1), proposed Sec.
1026.38(t)(1) establishes the requirements that the disclosures
required by Sec. 1026.38 be clear and conspicuous, in writing, and
grouped together, segregated from everything else, and provided on
separate pages that are not commingled with any other documents or
disclosures, including any other disclosures required by State or other
laws. Proposed comment 38(t)-1 clarifies that the clear and conspicuous
standard requires that the disclosures be legible and in a readily
understandable form. This guidance is adopted from existing comment
17(a)(1)-1. The comment also clarifies that proposed Sec.
1026.37(o)(1) requires that the disclosures be grouped together,
segregated from everything else, and provided on separate pages that
are not commingled with any other documents or disclosures, including
any other disclosures required by State or other laws. This requirement
is stricter than the guidance found in existing comment 17(a)(1)-2,
which provides that the disclosures may be grouped together and
segregated from other information in a variety of ways other than a
separate piece of paper.
[[Page 51262]]
The Bureau recognizes that, in certain credit sale and other non-
mortgage, closed-end credit transactions, creditors include the
disclosures required by Sec. 1026.18 in the loan contract or some
other document and ensure that they are grouped together and segregated
by outlining them in a box or other means authorized by comment
17(a)(1)-2. However, as described above in the discussion of proposed
Sec. 1026.37(o), the Bureau believes that this approach is virtually
never employed for mortgage credit, for which the new disclosures under
proposed Sec. Sec. 1026.19(f) and 1026.38, rather than Sec. 1026.18
disclosures, are required. For the reasons stated in that discussion,
the Bureau believes that requiring the Sec. 1026.38 disclosures to be
delivered as a separate document does not present any significant new
obligation that mortgage creditors do not already effectively observe
and maximizes the benefits of the forms. The Bureau seeks comment,
however, on whether there currently are transactions subject to Sec.
1026.19(f) that may be burdened by the adoption of this requirement.
Also, similar to proposed Sec. 1026.37(o)(1)(ii), proposed Sec.
1026.38(t)(1)(ii) provides that the disclosures shall contain only the
information required by Sec. 1026.38(a) through (s) and that they
generally shall be made in the same order, and positioned relative to
the master headings, headings, subheadings, labels, and similar
designations in the same manner, as shown in form H-25. Proposed
comment 38(t)-2 clarifies that the treatment of balloon payment loans
with leasing characteristics.
38(t)(2) Estimated Disclosures
Similar to proposed Sec. 1026.37(o)(2), proposed Sec.
1026.38(t)(2) provides that, wherever form H-25 designates the required
master heading, heading, subheading, label, or similar designation for
a disclosure as ``estimated,'' that corresponding master heading,
heading, subheading, label, or similar designation required by Sec.
1026.38 must include the word ``estimated,'' even if the provision
requiring such heading, label, or similar designation does not contain
the word. Many of the items that are required to be only good faith
estimates when included in the Sec. 1026.37 disclosures, in accordance
with Sec. 1026.19(e), will be actual terms and costs when stated in
the Sec. 1026.38 disclosures, as required by Sec. 1026.19(f). As
noted above in the section-by-section analysis of proposed Sec.
1026.37(o), many of the disclosure items required by Sec. 1026.38
cross-reference their counterparts in Sec. 1026.37. To avoid confusion
over which items must be designated as ``estimates,'' the content
provisions of Sec. 1026.37 do not include in any of the master
headings, headings, subheadings, labels, and similar designations the
word ``estimated.'' Instead, proposed Sec. 1026.37(o)(2) effectively
incorporates by reference the ``estimated'' designations reflected on
form H-24 of appendix H to this part. Accordingly, proposed Sec.
1026.38(t)(2) also incorporates by reference the ``estimated''
designations reflected on form H-25 of appendix H to this part.
Proposed comment 38(t)(2)-1 provides guidance regarding the requirement
to disclose certain amounts as estimated amounts based on the
designations within form H-25.
38(t)(3) Form
Similar to proposed Sec. 1026.37(o)(3), proposed Sec.
1026.38(t)(3) also provides that, for a transaction that is a federally
related mortgage loan, as defined in Regulation X, the disclosures must
be made using form H-25 of appendix H to this part. Certain closed-end
consumer credit transactions are subject to the requirements of
proposed Sec. 1026.19(f) but do not fit the Regulation X definition of
``federally related mortgage loan.'' These include construction-only
loans with terms of less than two years that do not finance the
transfer of title to the consumer and loans secured by vacant land on
which a home will not be constructed or placed using the loan proceeds
within two years after settlement of the loan. See Sec. 1024.5(b)(3)
and (4). In addition, transactions subject to proposed Sec. 1026.19(f)
but not subject to RESPA would include loans secured by non-residential
real property, provided they have a consumer purpose as required by
Sec. 1026.1(c)(1)(iv). See Sec. 1024.2, definition of ``federally
related mortgage loan, paragraph (1)(i) (requiring that the securing
property be ``residential real property'').
As with transactions subject to proposed Sec. 1026.19(e), for such
transactions that are subject to proposed Sec. 1026.19(f), because
they are subject to TILA and are secured by real property, but that are
not subject to RESPA, the Bureau is not mandating the use of form H-25
as a standard form. TILA section 105(b) provides that nothing in TILA
may be construed to require a creditor to use any model form or clause
prescribed by the Bureau under that section. Accordingly, proposed
Sec. 1026.38(t)(3) provides that, for transactions subject to Sec.
1026.38 that are not federally related mortgage loans, the disclosures
must be made with headings, content, and format substantially similar
to form H-25 but does not mandate the use of that form. Consistent with
TILA section 105(b), proposed comment 38(t)(3)-1 explains that,
although use of the form as a standard form is not mandatory for such
transactions, its use as a model form, if properly completed with
accurate content, constitutes compliance with the clear and conspicuous
and segregation requirements of Sec. 1026.38(t)(1).
As discussed in the analysis of proposed Sec. 1026.37(o)(3), the
Bureau is proposing the requirement that creditors use the standard
form for federally related mortgage loans pursuant to RESPA section
4(a), as amended by the Dodd-Frank Act. 12 U.S.C. 2603(a). As discussed
above, although the Dodd-Frank Act eliminated one reference in RESPA
section 4(a) to a ``standard'' form, it left the other such reference
in place, as well as another such reference in section 4(c). More
notably, in amending section 4(a), Congress did not include an explicit
prohibition of a mandatory-use form. For this reason, the Bureau does
not believe that Congress intended to eliminate standard-form authority
from RESPA section 4.
The Bureau also proposes the mandatory form pursuant to its
authority in RESPA section 19(a) to prescribe such rules and
regulations as may be necessary to achieve RESPA's purposes. 12 U.S.C.
2617(a). RESPA's purposes include the establishment of more effective
advance disclosure to home buyers and sellers of settlement costs. Id.
2601(b)(1). The Bureau believes, based on consumer testing results,
that the purpose of more effective advance disclosure of settlement
costs is better achieved if all lenders provide those disclosures in a
standardized format. In the Bureau's consumer testing, participants
were able to compare the costs disclosed on the Loan Estimate and
Closing Disclosure more easily when they were provided in a format that
matched closely. In addition, participants better understood the costs
disclosed in the Closing Disclosure after gaining experience using the
matching format of the Loan Estimate. Further, disclosure of settlement
costs alone, without the context provided by the credit terms, is far
less effective in aiding consumer understanding of the transaction.
This is consistent with HUD's rationale for including credit terms in
the required GFE, in HUD's 2008 RESPA Final Rule. See 73 FR 68204,
68214-15 (Nov. 17, 2008). This is also the stated purpose of the
integrated disclosure under RESPA section 4(a).
Accordingly, the Bureau is authorized under section 19(a) to
require the
[[Page 51263]]
standard form for the disclosure of all of the information it contains,
both settlement costs and credit terms alike. The Bureau uses this
authority to require a standard form for federally related mortgage
loans under proposed Sec. 1026.38(t)(3)(i). As described above, for
transactions subject to proposed Sec. 1026.19(f), proposed Sec.
1026.38(t)(3)(ii) uses the authority TILA section 105(b) to establish a
model disclosure for credit transactions subject to TILA and not RESPA.
For a detailed description of the Bureau's implementation of these
rules and use of TILA section 105(a) authority, see the section-by-
section analysis of proposed Sec. 1026.37(o)(3).
During the Small Business Review Panel, several settlement agents
requested that the Bureau require the use of a standard integrated
disclosure form. The settlement agents stated that if the forms were
only models, creditors would establish inconsistent requirements, which
would be more expensive for small settlement agents. See Small Business
Review Panel Report at 19. Feedback requesting both standard and model
forms was also submitted by industry trade associations in response to
the Small Business Review Panel Outline. In consideration of the
recommendation of the Small Business Review Panel, the Bureau seeks
comment on the advantages, such as cost-saving benefits, and
disadvantages of requiring a standard form for the Closing Disclosure
for federally related mortgage loans and model forms for other credit
transactions subject to proposed Sec. 1026.19(f). Id. at 28.
Similar to proposed Sec. 1026.37(o)(3)(iii), proposed Sec.
1026.38(t)(3)(iii) also provides that the disclosures may be provided
in electronic form, subject to compliance with the Electronic
Signatures in Global and National Commerce Act (15 U.S.C. 7001 et
seq.). This provision parallels existing Sec. 1026.17(a)(1).
38(t)(4) Rounding
Similar to proposed Sec. 1026.37(o)(4), proposed Sec.
1026.38(t)(4) requires certain numerical amounts on the Closing
Disclosure to be rounded. The Bureau proposes this requirement for the
same reasons as the requirements of proposed Sec. 1026.37(o)(4),
namely to reduce information overload, aid in consumer understanding of
the transaction, prevent misconceptions regarding the accuracy of
certain estimated amounts (e.g., estimated property costs over the life
of the loan), and ensure a meaningful disclosure of credit terms. For a
detailed description of the Bureau's use of its authority under TILA
section 105(a), RESPA section 19(a), and section 1405(b) of the Dodd-
Frank Act in requiring rounded numbers on the integrated disclosures,
see the analysis of proposed Sec. 1026.37(o)(4). Proposed comment
38(t)(4)-1 clarifies that consistent with Sec. 1026.2(b)(4) all
numbers are to be disclosed as exact numbers, unless required to be
rounded by proposed Sec. 1026.38(t)(4). Proposed comment 38(t)(4)-2
refers to commentary to proposed Sec. 1026.37(o)(4) for guidance.
38(t)(5) Exceptions
The Bureau believes it must specify the changes to the format of
the Closing Disclosure that are required and permissible, to ensure the
disclosures provided to consumers convey the information required by
proposed Sec. 1026.38 in a clear, understandable, and effective manner
for consumers. Accordingly, pursuant to its authority under RESPA
section 19(a), TILA section 105(a), and section 1032(a) of the Dodd-
Frank Act, the Bureau proposes Sec. 1026.38(t)(5) to provide for a
specific list of exceptions to the format of the Closing Disclosure, as
illustrated in form H-25 of appendix H to Regulation Z. For a detailed
description of the Bureau's use of its authority under TILA section
105(a), RESPA section 19(a), and section 1405(b) of the Dodd-Frank Act
in providing for a list of exceptions to the required format, see the
analysis of proposed Sec. 1026.37(o)(5).
The requirements of proposed Sec. 1026.38(t)(5) mirror those of
proposed Sec. 1026.37(o)(5), with appropriate differences for the
different format, timing, and use of the two disclosures. Like proposed
Sec. 1206.37(o), proposed Sec. 1026.38(t)(5)(i) requires modification
to indicate the frequency of payment or applicable unit-period for the
transaction; proposed Sec. 1026.38(t)(5)(ii) permits lender credits to
be deleted from the Cash to Close disclosure required by proposed Sec.
1026.38(d); proposed Sec. 1026.38(t)(5)(iii) permits the addition of
administrative information in certain space on the form; and proposed
Sec. 1026.38(t)(5)(ix) permits translation of the form into languages
other than English.
In contrast to proposed Sec. 1026.37(o), unlike proposed Sec.
1026.37(o)(5)(iii), proposed Sec. 1026.38(t)(5) does not permit the
font size or type to be altered from, or a slogan or logo to be
provided for or with, the creditor information required by proposed
Sec. 1026.38(a)(4)(iii).
While proposed Sec. 1026.37(o)(5) does not permit the deletion of
lines from the proposed form H-24 in appendix H to Regulation Z for the
information required to be disclosed by proposed Sec. 1026.37(f) and
(g), proposed Sec. 1026.38(t)(5)(iv) does permit the deletions of
lines in certain circumstances from proposed form H-25 in appendix H to
Regulation Z. While proposed Sec. 1026.37(o) does not permit the use
of additional pages for closing cost details on the Loan Estimate,
except for the services for which a consumer can shop under proposed
Sec. 1026.37(f)(3), proposed Sec. 1026.38(t)(5)(v) does permits the
expansion of the information required by proposed Sec. 1026.38(f),
(g), and (h) over two pages in certain circumstances to accommodate the
closing costs and itemization required on the Closing Disclosure,
provided that the Loan Costs and Other Costs under proposed Sec.
1026.38(f) and (g), respectively, are each disclosed on a single page.
In addition, the Bureau understands that the Closing Disclosure may
be provided to parties other than consumers, unlike the Loan Estimate.
In light of privacy considerations that may arise, proposed Sec.
1026.38(t)(5)(vi) permits the creditor or settlement agent preparing
the disclosure to leave certain information regarding the consumer's
transaction blank in the disclosure provided to the seller and vice
versa. Similarly, proposed Sec. 1026.38(t)(5)(vii) permits the
creditor or settlement agent preparing the disclosure to delete certain
information regarding the consumer's transaction from the disclosure
provided to a seller or third party. For example, proposed Sec.
1026.38(t)(5)(vii) permits the disclosures regarding the consumer's
credit transaction required by proposed Sec. 1026.38(l) through (s) to
be deleted from the form provided to a seller. An illustration of such
form is provided in proposed form H-25(I) in appendix H to Regulation
Z. Further, considering that some credit transactions may not involve
sellers, proposed Sec. 1026.38(t)(5)(viii) also permits use of a
modified version of the form for credit transactions that do not
involve a seller, such as a refinance transaction, which is illustrated
in proposed form H-25(J). Proposed Sec. 1026.38(t)(5)(x) also permits
the addition of a page for customary recitals and information used
locally in real estate settlements.
Proposed comment 38(t)(5)-1 clarifies that any changes not
specified in proposed Sec. 1026.38(t)(5) may affect the substance,
clarity, or meaningful sequence of the disclosure and cause the
creditor to lose protection from civil liability under TILA. Similar to
proposed comments 37(o)(t)-2 through -5, proposed comments 38(t)(5)-2
through -5 provide guidance regarding manual completion of the form,
[[Page 51264]]
modifications to accommodate additional contact information, the
addition of signature lines, and the formatting of additional pages
permitted by Sec. 1026.38(t)(5). In addition, because certain
disclosures required by proposed Sec. 1026.38 are permitted by
proposed Sec. 1026.38(t) to be disclosed over two pages, even though
they are illustrated on form H-25 of appendix H to this part as
disclosed on one page, proposed comment 38(t)(5)-6 permits
modifications to the page number references illustrated on form H-25
accordingly.
Proposed comment 38(t)(5)(iv)-1 provides guidance regarding the
deletion and addition of line numbers on form H-25 for the disclosures
requirements of Sec. 1026.38(f) through (h). Proposed comments
38(t)(5)(v)-1 and -2 provide guidance regarding the permission to
disclose the information required by proposed Sec. 1026.38(f) through
(h) over two pages. Proposed comments 38(t)(5)(viii)-1 and -2 provide
guidance regarding the effect of the modifications permitted by
proposed Sec. 1026.38(t)(5)(viii) on the Calculating Cash to Close
table required by proposed Sec. 1026.38(t)(i) and with respect to the
disclosure required by proposed Sec. 1026.38(a)(3)(vii)(B). Proposed
comment 38(t)(5)(x)-1 provides guidance regarding the permission to add
an additional page for customary recitals and information.
Section 1026.39 Mortgage Transfer Disclosures
Section 1414(d) of the Dodd-Frank Act amended TILA section 129C to
add section 129C(h), which requires at the time a person becomes a
creditor of an existing residential mortgage loan, disclosure of the
following: (i) The creditor's policy regarding the acceptance of
partial payments; and (ii) if they are accepted, how such payments will
be applied to the mortgage loan and if such payments will be placed in
escrow. 15 U.S.C. 1639c(h). This requirement is in addition to the
identical disclosure required before settlement that was added to TILA
by section 1414(d) of the Dodd-Frank Act, which the Bureau proposes to
implement in proposed Sec. 1026.38(l)(5) pursuant to its authority
under TILA section 105(a), as described above.
Section 1401 of the Dodd-Frank Act amended TILA section 103 to
define ``residential mortgage loan'' as essentially closed-end credit
transactions secured by a dwelling or residential real property with a
dwelling. Specifically, the definition includes any consumer credit
transaction that is secured by a mortgage, deed of trust, or other
equivalent consensual security interest on a dwelling, or residential
real property that includes a dwelling, other than a consumer credit
transaction under an open credit plan or, for purposes of certain
sections of TILA, including TILA section 129C, timeshare plans
described in section 101(53D) of title 11 of the United States Code. 15
U.S.C. 1602(cc)(5).
On May 20, 2009, the Helping Families Save Their Homes Act of 2009
was signed into law.\188\ Section 404(a) of the Helping Families Save
Their Homes Act of 2009 amended TILA to establish a new requirement for
notifying consumers of the sale or transfer of their mortgage loans.
The creditor that is the new owner or assignee of a mortgage loan must
provide the required disclosures no later than 30 days after the date
on which it acquired the loan. This provision is contained in TILA
section 131(g), 15 U.S.C. 1641(g), and applies to any consumer credit
transaction secured by the principal dwelling of a consumer. The Board
implemented TILA section 131(g) in Regulation Z Sec. 1026.39.\189\
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\188\ Public Law 111-22, 123 Stat. 1632 (2009).
\189\ 75 FR 58489 (Sept. 24, 2010).
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Scope of Coverage
The disclosures required by TILA sections 129C(h) and 131(g) must
be provided in connection with the transfer or assignment of a mortgage
loan generally. However, the disclosures apply to different types of
mortgage loans. The requirements in TILA section 131(g) apply to both
closed-end credit transactions and open-end home equity lines of credit
secured by the principal dwelling of a consumer. But the requirement of
TILA section 129C(h) applies to closed-end credit secured by a dwelling
or residential real property with a dwelling, which is broader than a
consumer's principal dwelling, but specifically excludes open-end
credit. Further, the TILA section 131(g) disclosure is specifically
required by statute to be provided no later than 30 days after the date
on which a mortgage loan is sold or otherwise transferred or assigned
to a third party. TILA section 129C(h), on the other hand, simply
provides that a new creditor of an existing residential mortgage loan
must disclose its partial payment policy at the time the person becomes
a creditor. In other words, TILA section 129C(h) requires the
disclosure when the person acquires the loan.
The Bureau believes that combining the partial payment policy
disclosure required after consummation with the mortgage loan transfer
disclosure currently required by Sec. 1026.39, and adjusting the scope
of the mortgage loan transfer disclosure to include credit transactions
secured by all dwellings, rather than principal dwellings only, would
promote the informed use of credit by consumers and facilitate
compliance by persons covered by these requirements. The disclosures
regarding the identity of a consumer's new creditor, and the new
creditor's partial payment policy, would be just as useful to a
consumer whose closed-end credit transaction is secured by a second or
vacation home as it would to a consumer whose closed-end loan is
secured by a principal dwelling. In addition, adjustment of the scope
of Sec. 1206.39 to include closed-end credit transactions secured by a
dwelling would eliminate much of the analysis that covered persons
would have to undertake to determine whether and which disclosures
would be triggered when a closed-end transaction secured by a dwelling
is transferred.
The Bureau also proposes to adjust the scope of the current
mortgage loan transfer disclosure to include closed-end credit
transactions subject to proposed Sec. 1026.19(f) (i.e., closed-end
transactions secured by real estate other than reverse mortgage
transactions subject to Sec. 1026.33 of this part), as well as closed-
end transactions secured by a dwelling. This adjustment would expand
the coverage of the mortgage loan transfer disclosure, and the post-
consummation partial payment policy disclosure, to the same types of
property covered by the pre-consummation partial payment policy
disclosure, which includes closed-end transactions secured by real
estate but not a dwelling. The Bureau believes that requiring the post-
consummation partial payment policy disclosure for the same loans as
the pre-consummation partial payment policy disclosure would promote
the informed use of credit, because consumers who receive the
disclosure before consummation would be informed if the policy has
changed with the new ownership of the loan. In addition, the Bureau
believes disclosures regarding the identity of a consumer's new
creditor, and the new creditor's partial payment policy, would be just
as useful to a consumer whose closed-end consumer credit transaction is
secured by real estate that does not include a dwelling, or non-
residential real estate, as it would to a consumer whose closed-end
loan is secured by a dwelling.
This adjustment to the scope does not exclude reverse mortgage
transactions subject to Sec. 1026.33, as does
[[Page 51265]]
Sec. 1026.19(f), as such transactions are not currently excluded from
coverage under Sec. 1026.39 generally. However, reverse mortgage
transactions do not require consumers to make regular periodic payments
to the creditor, and thus, the Bureau proposes to exclude reverse
mortgage transactions subject to Sec. 1026.33 from the requirement to
disclose a partial payment policy. The Bureau believes this exclusion
of reverse mortgage transactions from the partial payment disclosure is
appropriate and facilitates compliance with the statute.
In addition, although the scope also does not contain the specific
exclusion for credit transactions relating to timeshare plans as
described in 11 U.S.C. 101(53D), as defined by section 1401 of the
Dodd-Frank Act, that the definition of ``residential mortgage loan''
does under TILA section 103, such transactions would generally be
covered by proposed Sec. 1026.19(f) as transactions secured by real
estate. The Bureau believes that a new creditor's partial payment
policy would be just as useful to a consumer whose closed-end credit
transaction is secured by a such a timeshare plan as to a consumer of a
principal-dwelling secured transaction.
The Bureau proposes the aforementioned adjustments pursuant to its
authority under TILA section 105(a) to effectuate the purposes of TILA
and Regulation Z and facilitate compliance with the statute. The Bureau
believes this adjustment effectuates the purposes of TILA under TILA
section 102(a), because it would ensure meaningful disclosure of credit
terms to consumers and facilitate compliance with the statute. In
addition, consistent with section 1032(a) of the Dodd-Frank Act, this
adjustment would ensure that the features of consumer credit
transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances. Further,
the Bureau proposes this modification of the disclosure requirements
for residential mortgage loans on its authority under Dodd-Frank Act
section 1405(b), as it believes the modification may improve consumer
awareness and understanding of transactions involving residential
mortgage loans through the use of disclosures, and is in the interest
of consumers and in the public interest.
39(a) Scope
For the reasons discussed above, the Bureau proposes amendments to
Sec. 1026.39(a) to expand the coverage of the disclosures required
when ownership of a mortgage loan is transferred to closed-end credit
transactions secured by a dwelling or real property. The Bureau
proposes to retain the scope for open-end credit transactions to those
secured by the consumer's principal dwelling.
The Bureau is not proposing to change the scope of the term
``covered person'' under Sec. 1026.39(a)(1). When the Board
promulgated Sec. 1026.39, it applied the section to ``covered
persons,'' rather than ``creditors'' as defined under TILA and
Regulation Z.\190\ The Board stated that Congress did not intend the
word ``creditor'' under section 404(a) of the Helping Families Save
Their Homes Act of 2009 to have the same meaning as ``creditor'' under
TILA and Regulation Z.\191\ The term ``creditor'' generally refers to a
person to whom the credit obligation is initially made payable and that
regularly engages in extending consumer credit. 15 U.S.C. 1602(g); 12
CFR 1026.2(a)(17). However, as described above, the requirement of
section 404(a) of the Helping Families Save Their Homes Act of 2009
applies to a ``creditor that is the new owner or assignee of the
debt.'' \192\ The Board concluded that ``to give effect to the
legislative purpose, the term `creditor' in Section 404(a) must be
construed to refer to the owner of the debt following the sale,
transfer or assignment, without regard to whether that party would be a
`creditor' for other purposes under TILA or Regulation Z.'' \193\
Similar to section 404(a) of the Helping Families Save Their Homes Act
of 2009, the post-consummation disclosure requirement of TILA section
129C(h) applies to persons who become creditors after the transaction
is consummated. The requirement under TILA section 129C applies to ``a
person becoming a creditor with respect to an existing residential
mortgage loan.'' \194\ The Bureau believes that, for the same reasons
cited by the Board in implementing TILA section 131(g), to give effect
to the legislative purpose of section 1414(d) of the Dodd-Frank Act,
the post-consummation disclosure requirement of TILA section 129C(h)
should apply without regard to whether the person would be a
``creditor'' under TILA and Regulation Z.\195\ For these reasons, the
Bureau proposes to retain the term ``covered person'' under Sec.
1026.39(a)(1) and its definition.
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\190\ Id.
\191\ Id. at 58490-1.
\192\ Public Law 111-22, Sec. 404(a); 15 U.S.C. 1641(g).
\193\ 75 FR 58489, 58490-1.
\194\ 15 U.S.C. 1639c(h).
\195\ See 75 FR 58489, 58490-1.
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39(d) Content of Required Disclosure
As discussed above, the Bureau believes the adjustment to the scope
of Sec. 1026.39 may promote the informed use of credit and facilitate
compliance with the statute. The Bureau proposes amendments to Sec.
1026.39(d) to add the additional requirement of TILA section 129C(h) to
the disclosure required by that section. Pursuant to its authority
under TILA Section 105(a), the Bureau proposes to integrate the timing
of this disclosure requirement with the disclosure required by TILA
section 131(g). The Bureau believes that consumers may be better
informed regarding the transfer of ownership of their mortgage loans if
the required disclosures integrated the information applicable to the
new creditor into one single disclosure, rather than consumer having to
receive separate mailings at different times. In addition, consistent
with section 1032(a) of the Dodd-Frank Act, the integration of these
disclosure requirements would ensure that the features of consumer
credit transactions secured by real property are fully, accurately, and
effectively disclosed to consumers in a manner that permits consumers
to understand the costs, benefits, and risks associated with the
product or service, in light of the facts and circumstances.
The Bureau believes this integrated mortgage transfer disclosure
will also facilitate compliance with the statute. Covered persons will
have to analyze the timing requirements and scope of only one transfer
disclosure, rather than two separate disclosures for one transfer of a
mortgage loan. However, because the partial payment policy disclosure
required by TILA section 129C(h) is not required for open-end credit
transactions, and the pre-consummation partial payment policy
disclosure as implemented by proposed Sec. 1026.38(l)(5) for loans
subject to proposed Sec. 1026.19(f) is not required for closed-end
credit reverse mortgage transactions subject to Sec. 1026.33, and for
the aforementioned reasons, the partial payment policy disclosure
requirement under proposed Sec. 1026.39(d) is not required for these
types of transactions.
The proposed amendments also add comment 39(d)-2, which clarifies
that the partial payment policy disclosure is required only for closed-
end mortgage loans secured by a dwelling or real property, other than
reverse mortgage transactions subject to Sec. 1026.33. Proposed
comment 39(d)(5)-1 clarifies that covered persons are permitted to use
the format for the disclosure that is
[[Page 51266]]
illustrated in proposed form H-25 of appendix H to Regulation Z for the
information required to be disclosed by proposed Sec. 1026.38(l)(5),
with appropriate modifications that do not affect the substance,
clarity, or meaningful sequence of the disclosure.
Appendix D--Multiple Advance Construction Loans
Currently, appendix D to Regulation Z provides guidance concerning
the disclosure of multiple-advance construction loans, including such
loans that may be permanently financed by the same creditor. Dodd-Frank
Act section 1032(f) requires that the Bureau propose rules and forms
that combine the disclosures required under TILA and RESPA sections 4
and 5 into a single, integrated disclosure for mortgage loan
transactions covered under TILA and RESPA. The Bureau proposes to
exercise its authority under TILA section 105(a) and Dodd-Frank Act
section 1405(b) to amend appendix D to Regulation Z by revising the
guidance provided in that appendix D to assist in the integration of
these disclosures. In addition to effectuating Dodd-Frank Act section
1032(f), the Bureau believes that these proposed revisions are
necessary and proper to effectuate the purposes of TILA by promoting
the informed use of credit because the proposed revisions assist
consumers' understanding of their legal obligations to the creditor. In
addition, consistent with section 1405(b) of the Dodd-Frank Act, these
revisions will improve consumer awareness and understanding of
transactions involving residential mortgage loans and are therefore in
the interest of consumers and the public.
Proposed revisions to part II of appendix D exclude loans that are
subject to Sec. 1026.19(e) and (f) from the guidance provided under
paragraph A.1 of part II, but include those loans in the guidance
provided under paragraph A.2 of part II. Proposed revised comment app.
D-6 clarifies that some home construction loans that are secured by a
dwelling are subject to Sec. 1026.18(s) and not Sec. 1026.18(g), with
a reference to proposed comment app. D-7. One illustration of the
application of appendix D to transactions subject to Sec. 1026.18(s)
also clarifies that, where interest is payable on the amount actually
advanced for the time it is outstanding, the construction phase must be
disclosed pursuant to appendix D, part II.C.1, and the interest rate
and payment summary table disclosed under Sec. 1026.18(s) in such
cases must reflect only the permanent phase of the transaction.
Proposed comment app. D-7 clarifies that some home construction
loans that are secured by real property are subject to Sec. Sec.
1026.37(c) and 1026.38(c) and not Sec. 1026.18(g). Under Sec.
1026.17(c)(6)(ii), when a multiple-advance construction loan may be
permanently financed by the same creditor, the construction phase and
the permanent phase may be treated as either one transaction or more
than one transaction. Two illustrations further clarify the application
of appendix D to transactions subject to Sec. Sec. 1026.37(c) and
1026.38(c).
The first illustration clarifies that, if a creditor uses appendix
D and elects pursuant to Sec. 1026.17(c)(6)(ii) to disclose the
construction and permanent phases as separate transactions, the
construction phase must be disclosed according to the rules in
Sec. Sec. 1026.37(c) and 1026.38(c). Under Sec. Sec. 1026.37(c) and
1026.38(c), the creditor must disclose the periodic payments during the
construction phase in a projected payments table. The provision in
appendix D, part I.A.3, which allows the creditor to omit the number
and amounts of any interest payments ``in disclosing the payment
schedule under Sec. 1026.18(g)'' does not apply because the
transaction is governed by Sec. Sec. 1026.37(c) and 1026.38(c) rather
than Sec. 1026.18(g). The creditor determines the amount of the
interest-only payment to be made during the construction phase using
the assumption in appendix D, part I.A.1. Also, because the
construction phase is being disclosed as a separate transaction and its
terms do not repay all principal, the creditor must disclose the
construction phase transaction as a balloon product, pursuant to
Sec. Sec. 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), in addition to
reflecting the balloon payment in the projected payments table. The
second illustration clarifies that, if the creditor elects to disclose
the construction and permanent phases as a single transaction, the
repayment schedule must be disclosed pursuant to appendix D, part
II.C.2. Under appendix D, part II.C.2, the projected payments table
must reflect the interest-only payments during the construction phase
in a first column, followed by the appropriate column(s) reflecting the
amortizing payments for the permanent phase. The creditor determines
the amount of the interest-only payment to be made during the
construction phase using the assumption in appendix D, part II.A.1.
Appendix H--Closed-End Forms and Clauses
The Bureau proposes to add forms H-24, H-25, H-26, and H-27 to
appendix H to Regulation Z. Forms H-24 and H-25 provide blank forms for
the Loan Estimate and Closing Disclosure illustrating the inclusion or
exclusion of information as required, prohibited, or applicable under
Sec. Sec. 1026.37 and 1026.38. In addition, form H-24 provides
examples of completed Loan Estimates in whole or in relevant part for a
fixed-rate transaction, an interest only adjustable-rate transaction, a
refinance with a prepayment penalty, a loan with a balloon payment, and
a loan with negative amortization. Form H-25 provides examples of
completed Closing Disclosures in whole or in relevant part for a fixed-
rate transaction, a purchase transaction with funds from a second loan,
a transaction in which a second loan is satisfied outside of closing,
samples of a refinance transaction, and examples of the modifications
to the Closing Disclosure permitted pursuant to proposed Sec.
1026.38(t)(5)(v) through (viii).
The Bureau proposes forms H-24 and H-25 pursuant to the authority
and for the reasons described above with respect to Sec. Sec.
1026.37(o) and 1026.38(t). Specifically, the Bureau proposes forms H-24
and H-25 as standard forms that are required for transactions that are
subject to proposed Sec. 1026.19(e) and (f) and are federally related
mortgage loans, as defined in Regulation X. For transactions that are
subject to proposed Sec. 1026.19(e) and (f) but are not federally
related mortgage loans, the forms in H-24 and H-25 are models for
compliance with the applicable requirements of Sec. Sec. 1026.19,
1026.37, and 1026.38.\196\
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\196\ For these transactions, the Bureau also proposes these
forms pursuant to its authority to publish model forms under TILA
section 105(b) and (c).
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Transactions subject to Sec. 1026.19(e) are subject to additional
disclosure requirements under proposed Sec. 1026.19(e)(1)(vi),
(2)(ii), and (3)(ii)(C). Form H-26 provides a model for compliance with
the statement required by proposed Sec. 1026.19(e)(2)(ii) if a
creditor provides a written estimate of terms or costs specific to a
consumer before the consumer receives the disclosures required under
Sec. 1026.19(e)(1)(i) and indicates intent to proceed with the
transaction. Consistent with Sec. 1026.19(e)(2)(ii), this statement
must be placed at the top of the front of the first page of the
estimate in a font size that is no smaller than 12-point font.
Form H-27(A) provides a model for the written list of settlement
service providers required by proposed Sec. 1026.19(e)(1)(vi) and the
statement required by Sec. 1026.19(e)(3)(ii)(C) that
[[Page 51267]]
the consumer may select a settlement service provider that is not on
the list. Forms H-27(B) and (C) are samples for this form. The Bureau
proposes forms H-26 and H-27 pursuant to its authority to publish model
forms under TILA section 105(b) and (c). The Bureau also proposes to
make conforming amendments to samples H-13 and H-15 and their
associated comments pursuant to its authority to publish model forms
under TILA section 105(b) and (c).
As noted above, during the Small Business Review Panel, several
small business representatives requested that the Bureau provide
detailed guidance on how to complete the integrated forms, including,
as appropriate, samples of completed forms for a variety of loan
transactions. See Small Business Review Panel Report at 28. Similar
feedback was also submitted by several industry trade associations in
response to the Small Business Review Panel Outline. Based on this
feedback and consistent with the Small Business Review Panel's
recommendation, the Bureau has proposed the examples described above,
which of course, have added significant length to the proposed rule.
The Bureau seeks comment on whether the number and types of examples
are beneficial to industry or whether certain examples should be added
to or deleted from the rule, including sample forms in other languages,
such as Spanish.
The Bureau has also received feedback from industry stakeholders
during its outreach that samples of a construction-only transaction and
a transaction with both a construction and permanent financing phase
would be beneficial to industry. The Bureau has proposed amendments to
appendix D to Regulation Z and its commentary, as described above, that
relate to such construction financing and provide guidance regarding
its disclosure on the Loan Estimate. The Bureau believes the proposed
Forms H-24(C) and (E) provide the necessary illustration for such
financing, because these samples contain the interest-only period and
final balloon payment, respectively, which, as described above, are
product features that would be disclosed in connection with such
construction financing. The Bureau notes that one difference for the
disclosure of such financing is that the purpose of the transaction
disclosed under proposed Sec. Sec. 1026.37(a)(9) and 1026.38(a)(5)(ii)
would be ``Construction.'' The Bureau seeks comment on whether, in
light of the proposed amendments to appendix D and its commentary,
additional samples for a construction-only or construction with
permanent financing would be beneficial to industry.
VII. Section 1022(b)(2) Analysis
In developing the proposed rule, the Bureau has considered
potential benefits, costs, and impacts, and has consulted or offered to
consult with the prudential regulators, the Department of Housing and
Urban Development, and the Federal Trade Commission, including
regarding consistency with any prudential, market, or systemic
objectives administered by such agencies.\197\ The Bureau also held
discussions with or solicited feedback from the United States
Department of Agriculture Rural Housing Service, the Farm Credit
Administration, the Federal Housing Administration, the Federal Housing
Finance Agency, and the Department of Veterans Affairs regarding the
potential impacts of the proposed rule on those entities' loan
programs.
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\197\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on depository institutions and
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act; and the impact on consumers
in rural areas.
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The Bureau is proposing to implement section 1032(f) of the Dodd-
Frank Act by proposing rules and forms combining the pre-consummation
TILA and RESPA disclosures for loans subject to either law or to both
laws by July 21, 2012. Sections 1098 and 1100A of the Dodd-Frank Act,
which revise RESPA and TILA, respectively, to mandate the integrated
disclosures, state that the purposes of the disclosures are to
facilitate compliance with the statutes and ``to aid the borrower or
lessee in understanding the transaction by utilizing readily
understandable language to simplify the technical nature of the
disclosures.'' The Bureau is also proposing to implement several new
disclosure requirements added to TILA and RESPA by the Dodd-Frank Act.
In addition, the Bureau is proposing to revise current regulations
implementing the pre-consummation disclosure requirements of TILA and
RESPA to improve consumer understanding of mortgage transactions and
upfront disclosure of loan costs and terms, consistent with the
purposes of TILA and RESPA.
TILA and RESPA currently require creditors and settlement agents to
give consumers who take out mortgage loans different but overlapping
disclosure forms regarding the loan's terms and costs. This duplication
has long been recognized as inefficient and confusing for consumers and
industry. Prior to the creation of the Bureau, the Board and HUD
independently took steps to address these shortcomings, but neither
agency had the authority to combine the duplicative disclosures. On
July 21, 2011, the Dodd-Frank Act transferred authority over TILA and
RESPA to the Bureau. As noted above, the Act specifically directs the
Bureau to combine the TILA and RESPA mortgage disclosures.
A. Provisions To Be Analyzed
The proposal contains both specific proposed provisions with
regulatory or commentary language (proposed provisions) as well as
requests for comment on modifications where regulatory or commentary
language was not specifically included (additional proposed
modifications). The analysis below considers the benefits, costs, and
impacts of the following major proposed provisions and the additional
proposed modifications:
1. The integration of the initial and closing disclosures (the Loan
Estimate and Closing Disclosure, respectively),
2. The definition of application,
3. The disclaimer on pre-application written estimates,
4. Permissible changes to settlement costs and re-disclosure of
initial disclosures,
5. Provision of the Closing Disclosure,
6. Recordkeeping,
7. The definition of the finance charge, and
8. Implementation of new disclosures mandated by the Dodd-Frank
Act.
With respect to each provision, the analysis considers the benefits and
costs to consumers and covered persons. The analysis also addresses
certain alternative provisions that were considered by the Bureau in
the development of the rule. The Bureau requests comments and data on
the potential benefits, costs, and impacts of the proposal.
B. Baseline for Analysis
The analysis examines the benefits, costs, and impacts of the major
provisions of the proposed rule against a pre-statutory baseline. To
the extent there are benefits, costs, or other relevant impacts
emanating from the relevant provisions of the Dodd-Frank Act, those
costs are combined with the benefits, costs, and impact of the
regulation itself in conducting this analysis. The Bureau has
discretion in future rulemakings to choose the most appropriate
baseline for that particular rulemaking.
[[Page 51268]]
C. Coverage of the Proposal
The proposed rule requires provision of the integrated disclosures
for closed-end consumer credit transactions secured by real property,
other than a reverse mortgage subject to Sec. 1026.33. As discussed in
part VI above, section-by-section analysis for proposed Sec. 1026.19,
the Dodd-Frank Act generally directs the Bureau to establish an
integrated disclosure for ``mortgage loan transactions'' that are
``subject to both or either provisions of'' RESPA sections 4 and 5 and
TILA. However, TILA and RESPA differ in the types of transactions to
which their respective disclosure requirements apply. The proposed
scope of the integrated disclosure provisions reconciles these
differences, recognizing that certain transaction types may be
inappropriate for the integrated disclosure.
Notably, the integrated disclosure provisions of the proposed rule
do not apply to reverse mortgages and HELOCs, which are within the
statutory scope of TILA and RESPA, because those transactions are
fundamentally different from other types of mortgage credit. The
integrated disclosure provisions also do not apply to dwellings that
are not secured by real property, which are subject to TILA but not
RESPA, nor to creditors that originate fewer than five loans in a year,
who are subject to RESPA but not TILA. The integrated disclosure
provisions do, however, apply to construction-only loans, vacant-land
loans, and loans secured by more than 25 acres, although these
transactions are currently exempt from RESPA coverage, because the
Bureau believes that excluding these transactions would deprive
consumers of the benefit of enhanced disclosures. The proposed
revisions to the definition of finance charge, discussed below and in
part VI, section-by-section analysis for Sec. 1026.4, apply to all
closed-end credit transactions secured by real property or a dwelling.
D. Potential Benefits and Costs to Consumers and Covered Persons
1. Integrated Initial and Closing Disclosures
The proposed rule requires that the Loan Estimate be provided to
consumers within three business days after receipt of the consumer's
application, to replace the early TILA disclosure and RESPA GFE, and
that the Closing Disclosure be provided to consumers at least three
business days prior to consummation, to replace the final TILA
disclosure and RESPA settlement statement. As discussed above, TILA
authorizes the Bureau to publish model forms for the TILA disclosures,
while RESPA authorizes the Bureau to require the use of standard forms
(e.g., the prescribed RESPA GFE and settlement statement forms).
Accordingly, the Bureau is proposing to require the use of standard
Loan Estimate and Closing Disclosure forms for mortgage loan
transactions that are subject to RESPA, other than reverse mortgages.
For transactions that are subject only to TILA, however, the forms
would be model disclosures, consistent with the provisions of that
statute. The proposed rule also incorporates prior informal guidance
regarding compliance with HUD's 2008 Final RESPA Rule into Regulation Z
and official commentary, as necessary and appropriate.
In considering the benefits and costs of the Loan Estimate and
Closing Disclosure, the Bureau notes that the costs associated with the
proposal would likely be one-time costs associated with adjusting to
the new requirements while the benefits would persist over time. Some
of the benefits--the benefits to consumers of reduced mortgage costs--
may actually grow over time as more consumers pay off existing
mortgages and take out new mortgages. The Bureau believes that because
the proposed disclosures would likely lead to consumers making more
informed choices, some of them would obtain mortgages that were lower
cost than, or in some other way preferable to, the mortgages they would
obtain otherwise. In particular, if consumers do obtain mortgages at a
lower cost, these benefits accrue over time; as more borrowers take out
loans with the new disclosures, the share of all mortgage borrowers
receiving these benefits would grow.
a. Benefits to Consumers
i. The Loan Estimate. The integration of the early TILA disclosure
and the RESPA GFE into the Loan Estimate would have several benefits to
consumers. The Bureau believes that the Loan Estimate would facilitate
consumer understanding of the loan terms and closing costs of possible
loans. The Loan Estimate would also make it easier for consumers to
compare different loans, either different products from a single
creditor or loans from different creditors. In addition, the
harmonization of the Loan Estimate and Closing Disclosure forms would
make it easier for consumers to compare the estimated information they
initially receive from creditors with the actual costs of the loan. The
benefits of this third effect are discussed below, in the section on
the benefits of the Closing Disclosure.
The Loan Estimate would make it easier for consumers to understand
their loan in several ways. First, the Loan Estimate would make it
easier for consumers to understand the loan terms and closing costs of
potential loans. The Loan Estimate emphasizes information that is
important to consumer understanding of the mortgage transaction, and
deemphasizes information that is either confusing or unhelpful to
consumers, such as the APR, which current TILA disclosures focus on as
a measure of the cost of credit. As discussed in part VI above,
section-by-section analysis for proposed Sec. 1026.37(l), research
conducted by the Board and HUD, as well as consumer testing conducted
by the Board and Bureau, indicate that consumers do not understand the
APR or how to use it when comparing loans and often confuse the APR
with the loan's interest rate. Instead, the Bureau's testing indicates
that consumers focus on other information that is less prominently
disclosed on current Federal disclosures than the APR, or that is not
required on current Federal disclosures. See Macro 2009 Closed-End
Report at iv-v. Accordingly, the Bureau developed the proposed Loan
Estimate to prioritize and clearly display the information that
consumers readily understand and is most important to them in
understanding the loan and the underlying transaction, such as the
interest rate, monthly payment amount, and settlement costs. The design
displays this key information in a manner that enables consumers to
locate it quickly on the form by using highly visible headings and
labels and limiting the amount of text on the form. Based on the
results of its consumer testing and outreach, described in part III
above and in the Kleimann Testing Report, the Bureau believes the Loan
Estimate is easier for consumers to use and understand.
The Loan Estimate may also make it easier for consumers to
understand the risks associated with a loan because the form emphasizes
risk factors that are either less prominently disclosed or are not
found on current Federal disclosures. For example, the first page of
the Loan Estimate clearly discloses whether a loan will or may
experience future changes to the interest rate, monthly payment amount,
or to the loan's principal balance as a result of negative
amortization, by using simple text and highly visible capitalized type
in a bold font to indicate the possibility of such changes. These
disclosures would help reduce the likelihood that consumers will
experience payment
[[Page 51269]]
shock due to future payment changes. In addition, unlike current
Federal forms, the Loan Estimate prominently discloses total monthly
payment amounts, including estimated amounts for taxes, insurance, and
assessments, whether or not an escrow account would be established for
the payment of such amounts. This disclosure would make it easier for
consumers to consider the loan and underlying real estate transaction's
overall affordability, as compared to current Federal forms.
The integration of the forms would also reduce the sheer volume of
paper that consumers receive, mitigating ``information overload'' and
making it easier for consumers to identify important information. With
the current Federal disclosures, consumers need to work through four
separate forms to compare two loan products, which amount to a total of
ten pages. But with the Loan Estimate, consumers need to work with only
two forms to compare two loan products, and only six total pages. In
addition, because the format of the Loan Estimate prioritizes the
information that consumers actually use to understand and compare
loans, placing it on the first page, consumers could potentially
compare two loans using only the first page of the Loan Estimate for
each. The Bureau therefore believes that the Loan Estimate would be
substantially more understandable for consumers than the current TILA
disclosure and RESPA GFE and would enable consumers to make more
informed choices when they are considering a mortgage.
Better understanding of closing costs and loan terms would benefit
consumers in several ways. It would help consumers to make better
decisions about whether to take out a loan at all, which type of loan
to take out, and which creditor to borrow from. Some consumers, such as
those who may benefit slightly from refinancing or for whom whether to
rent or buy is a difficult decision, will be close to the margin of
taking out a loan or not taking out a loan. Improved understanding of
the costs of borrowing will allow those consumers to make a more
informed decision about whether to borrow.
For consumers that are borrowing, a better understanding of closing
costs and loan terms will enable them to better pick the loan product
that suits their needs and circumstances. It may also enable consumers
to identify loans with features that are only suitable for some
consumers, such as negative amortization or balloon payments, and
evaluate whether those features make sense for them. The Bureau is
concerned that, prior to the mortgage crisis, some consumers entered
into loans with such features when they were not suited to them because
they were unaware of such features or the risk they posed.
The forms may also facilitate shopping amongst loan offers and
creditors, affecting both the evaluation of different offers and the
number of offers consumers obtain. Existing research suggests that
consumers arguably do not shop extensively when selecting a mortgage.
Surveys of mortgage borrowers suggest that roughly 20-30 percent of
borrowers contact one creditor and a similar fraction consider only two
creditors.\198\
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\198\ Jinkook Lee and Jeanne M. Hogarth, Consumer Information
Search for Home Mortgages: Who, What, How Much, and What Else?, Fin.
Services Rev. 9, 277-293 (2000), available at https://www2.stetson.edu/fsr/abstracts/vol_9_num3_p277.pdf; see also
Lacko and Pappalardo, Improving Consumer Mortgage Disclosure,
available at https://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf.
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Further, available evidence indicates that some mortgage borrowers
may have difficulty understanding or at least recalling details of
their mortgage, particularly the terms and features of adjustable-rate
mortgages.\199\ Making the terms of a given loan easier to understand
would make it easier for consumers to compare loans. As noted above,
the Loan Estimate prioritizes on the first page the information that
consumers generally use to compare loans (e.g., interest rate, monthly
payment, and closing costs). As discussed in part III, above, the
Bureau conducted extensive qualitative consumer testing of the Loan
Estimate to ensure that forms enable consumers to understand and
compare the terms and costs of various loans. During the testing
process, consumers were able to use the form to compare loans and
select the loan that best met their preferences (e.g., a fixed rate or
lower closing costs). In addition, Regulation Z currently uses model
forms and language, not standard forms and language, so it does not
ensure that consumers are presented information about loan terms and
costs in the same way across multiple loans and multiple creditors. The
proposed regulation would require that all creditors use a standard
format for transactions that are subject to RESPA, which the Bureau
understands to be the majority of mortgage transactions, making
comparisons easier.
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\199\ See Bucks and Pence, Do Homeowners Know Their House Values
and Mortgage Terms, available at https://www.federalreserve.gov/Pubs/feds/2006/200603/200603pap.pdf; see also Lacko and Pappalardo.
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Making it easier for consumers to compare products may have two
effects. It may make shopping more effective, leading consumers to make
better choices for themselves amongst a given set of loans. It may also
lead to more shopping, because the task of comparing loans is simpler.
The estimated benefits of shopping for mortgages and for settlement
services are substantial. Hall and Woodward estimate that the borrowers
who obtain loans through mortgage brokers could save roughly $1,000 on
the transaction through additional search.\200\
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\200\ Hall and Woodward, Diagnosing Consumer Confusion and Sub-
Optimal Shopping Effort: Theory and Mortgage-Market Evidence (2012),
available at https://www.stanford.edu/~rehall/
DiagnosingConsumerConfusionJune2012. In the data used in the paper,
yield spread premiums are common. As a result, the results may
overstate some of the current savings from changes in shopping
behavior. However, these results only include settlement charges
retained by the broker and therefore any savings on other charges
are additive to these.
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In addition to providing consumers with clear information about
important loan terms and closing costs, the Loan Estimate makes clear
to consumers which settlement services they can shop for. To the extent
that consumers use this information to shop for some settlement
services, they may identify service providers that offer better prices
or better suit their needs than settlement service providers selected
by the creditor. In a recently released study of title services and
title insurance based on RESPA settlement statements for FHA loans, HUD
and the Urban Institute estimate that borrowers in some jurisdictions
could save several hundred dollars if they searched for title services
and title insurance.\201\
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\201\ U.S. Department of Housing and Urban Development and The
Urban Institute, What Explains Variation in Title Charges? A Study
of Five Large Markets (2012) (HUD Title Charge Study), available at
https://www.huduser.org/portal/publications/hsgfin/title_charges_2012.html.
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ii. The Closing Disclosure. The Bureau believes that the
integration of the final TILA disclosure and the RESPA settlement
statement would benefit consumers by allowing them to better understand
the actual terms of their loan and the other costs of the loan
transaction. As with the Loan Estimate, the Bureau developed the
integrated Closing Disclosure through several rounds of form design and
testing.
The Bureau believes that the Closing Disclosure is more
understandable for consumers than the current TILA disclosure and RESPA
settlement statement and, as described below, the proposal would
include a requirement that the Closing Disclosure be provided to
consumers three business days prior to closing, giving consumers time
to review the Closing Disclosure.
[[Page 51270]]
The Bureau also believes the Closing Disclosure would improve the
ability of consumers to compare the terms and costs on the Loan
Estimate with the actual loan terms and closing costs. The Bureau
designed the Loan Estimate and Closing Disclosure to work together; the
two forms use consistent formatting and language to facilitate
consumers' ability to identify any changes that occurred during the
underwriting process. For example, the first page of the Loan Estimate,
where key loan terms are disclosed to consumers, is nearly identical to
the first page of the Closing Disclosure, and the first page of the
Closing Disclosure specifically directs consumers to compare the two
forms. The second page of the Loan Estimate and Closing Disclosure also
use the same order and groupings of costs, making it easier for
consumers to identify changes. At the Bureau's consumer testing,
consumers were able to use the second pages of the Loan Estimate and
Closing Disclosure together to identify changes in individual costs,
often placing the forms side by side, which was enabled by the matching
order and groupings. In addition, page three of the Closing Disclosure
contains a table that identifies categories of costs that changed from
the time the Loan Estimate was issued to the time of issuance of the
Closing Disclosure. The Bureau believes these features would improve
consumers' ability to understand their actual loan terms and costs, and
compare early and final disclosures and identify changes in loan terms,
which may better enable consumers to recognize and question changes in
settlement costs or loan terms from the Loan Estimate. This may
encourage all creditors to take care to ensure that Loan Estimates are
accurate and may discourage unscrupulous creditors from attempting to
``bait and switch'' consumers with initial Loan Estimates that have
better loan terms or lower settlement costs than the final transaction.
b. Magnitude of the Benefits to Consumers of the Revised Disclosures
Quantifying the magnitude of the benefits of the new Loan Estimate
or Closing Disclosure would be very challenging. With regard to the
Loan Estimate, important factors in the magnitude of the benefits to
consumers would include: (1) How many consumers avoid loans that do not
suit their needs; (2) how much more consumers shop; (3) how much more
effective that shopping would be; and (4) how those changes in behavior
would translate into changes in the overall market for mortgage loans.
The Bureau is unaware of data that would make possible reliable
estimates of these effects. There is some evidence showing that slight
increases in shopping--just contacting one more creditor or loan
originator--can lead to substantial savings for a consumer. See Hall
and Woodward. This evidence is based on market conditions with current
consumer shopping behavior, however, so it is difficult to project to
the effects of shopping if many consumers shopped more.
Similarly, quantifying the magnitude of the benefits of the
integrated Closing Disclosure would also be very challenging. The
Bureau is unaware of any data that can provide reliable market-wide
estimates of the prevalence of changes between early TILA disclosures
and RESPA GFEs and final loan terms and closing costs. As described
below, however, the Bureau may obtain a substantial sample of these
forms from several lenders prior to finalizing the proposal. This would
provide the Bureau with better information about this phenomenon. Other
important factors affecting the consumer benefits of improved final
disclosures include how much the Closing Disclosure would affect
whether consumers recognize those changes or how they react to them and
the effects on creditors' and settlement service providers' behavior.
Despite the challenges to quantifying the benefits of the Loan
Estimate or Closing Disclosure, simple hypothetical calculations
demonstrate that, because the mortgage market is so large, even very
small effects on improving consumers' ability to make informed
decisions or small effects on prices from greater shopping would lead
to large savings for consumers. For example, if the new disclosures
only affect ten percent of consumers, and only lower their interest
rates by .125% (\1/8\ of a percentage point, the smallest typical unit
of price difference in the mortgage market), this would lead to an
annual savings of $1,250,000,000 for mortgage borrowers if all
mortgages were originated with the proposed disclosures and total
outstanding mortgage balances were to remain at their current level of
roughly $10 trillion. If consumers were to benefit from a reduction in
costs like this, some of the savings would come from reduced profits to
creditors and brokers, as creditors and brokers receive lower prices
from better-informed consumers, while other savings would come from a
shift of business from less efficient to more efficient creditors and
brokers. The reallocation to more efficient creditors and brokers that
can originate loans at lower cost represents a savings to society in
terms of the total resources used to originate loans.
A similar hypothetical can illustrate the potential effects of the
improved ability of consumers to better understand closing costs.
Bankrate.com collects information on average closing costs, as
estimated on creditor RESPA GFEs, by State, for a $200,000 mortgage. It
shows that average closing costs on such a mortgage, including lender
fees, vary from roughly $2,300 to roughly $5,000. Taking average
closing costs of $3,000, for example, if a consumer was able to use the
Loan Estimate to shop more effectively for loans that came with lower
closing costs or to shop for the various settlement services themselves
and thereby obtain a loan with closing costs five percent lower, this
would translate into savings of $150. This assumption seems reasonable,
given the HUD and Urban Institute estimates that borrowers in some
jurisdictions could save several hundred dollars by shopping for these
services. See HUD Title Charge Study. The most recent year for which
detailed mortgage origination information is available is 2010. The
Bureau estimates that there were a total of about 8,000,000 mortgages
originated that year. If ten percent of consumers saved $150 each, it
would translate into roughly $120,000,000 per year. As with any savings
on loan costs, these savings would come from a mix of reduced profits
to settlement service providers and from shifting demand from less
efficient to more efficient providers.
c. Costs to Consumers
The Bureau does not believe that adoption of the integrated Loan
Estimate or Closing Disclosure would impose any direct costs on
consumers. Consumers may bear some costs of the disclosures if lenders
or loan originators pass through some or all of the costs that would be
imposed on them by the proposal. However, the Bureau estimates that any
increased cost per origination would be small and that, after one-time
costs are absorbed, the proposal would likely reduce the cost per
origination. Therefore, the Bureau does not anticipate any material
adverse effect on credit access in the long or short term. Over the
longer term, the rule could increase credit access if the expected cost
savings materialize and competition forces lenders to pass the savings
to consumers.
Requiring the use of standard Loan Estimate and Closing Disclosure
forms has the potential to impose costs on some consumers if it
supplants forms
[[Page 51271]]
that are currently in use by creditors or mortgage brokers that are
more effective at conveying information to consumers than the proposed
forms, or if the requirement to use the forms prevents the development
of more effective forms. The Bureau does not believe that there is a
substantial risk of this occurring. Current Regulation X prescribes a
standard form for the RESPA GFE and settlement statement. Although
Regulation Z provides model forms and language rather than standard
forms, the Bureau understands that many creditors do not provide
disclosures that differ significantly from the model forms and language
in Regulation Z due to the complexity of the Regulation Z disclosure
requirements and the safe harbor provision in TILA section 105(b).
Therefore, creditors are limited in their ability to develop forms that
are substantially better at conveying information to consumers. The
Bureau is unaware of any efforts by creditors of the scale undertaken
by the Bureau to develop and test disclosures. And creditors that do
believe that they can communicate loan terms or other important
information more effectively than the required forms would not be
prevented from doing so, so long as they also provide the required
forms and communicate that information separately from the required
forms.
d. Benefits to Covered Persons
The integration of the early TILA disclosure and the RESPA GFE, and
the revised TILA disclosure and the RESPA settlement statement, may
benefit creditors, mortgage brokers, and settlement agents that provide
the disclosures. It will reduce the number of disclosures that covered
persons need to prepare and provide and the number of disclosure-
provision systems and processes that covered persons need to maintain.
In addition, the three-page Loan Estimate would replace a three-page
RESPA GFE, a two-page early TILA disclosure, a one-page appraisal
notification provided under ECOA section 701(e), and a one-page
servicing disclosure provided under RESPA section 6, as well as
incorporating other new disclosure requirements in the Dodd-Frank Act
that might otherwise be provided as separate documents.
Most small entities that participated in the Small Business Review
Panel process stated that the integrated forms would make it easier to
explain transactions to consumers. One letter from several small entity
settlement agents indicated that the new forms could actually lead to
more questions during a closing; however, the Bureau is alternatively
proposing and soliciting comment on removing from the integrated forms
certain disclosures, such as the total interest percentage and cost of
funds, which may be difficult to explain to consumers. Information
submitted by several settlement agents indicates that requiring the use
of standard forms and providing clearer regulatory guidance could save
as much as 30 minutes per closing by standardizing practices across
lenders and reducing confusion. Based on industry estimates, the
typical hourly wage of a settlement agent is $31 per hour; therefore,
this translates into a dollar savings from the simplified closing forms
of $16.50 per closing. Some portion of these savings would likely be
passed on to the consumers.
The integrated disclosures also permit creditors to consolidate
certain numerical calculations. For example, Regulations Z and X
currently require two different calculations for the disclosure of
monthly payment information on the early TILA disclosure and the RESPA
GFE. The integrated Loan Estimate consolidates these calculations into
one monthly payment disclosure, which may facilitate compliance and
ease burden on covered persons. Other examples of overlapping but
potentially different numerical disclosures required under Regulations
Z and X include information about balloon payments and prepayment
penalties.
e. Costs to Covered Persons
As just described, the Bureau believes that the ongoing costs of
compliance with the proposed disclosure requirements would likely be
equal to or less than current ongoing compliance costs. The integrated
Loan Estimate and the Closing Disclosure, however, would result in
certain one-time costs to revise software and compliance systems. The
Bureau believes that many of the costs of complying with these
requirements would be common across the two disclosures, and therefore
discusses them together here. Under the proposal, responsibility for
delivering the Loan Estimate would lie with the creditor. The Bureau
believes that in some circumstances the Loan Estimate may be delivered
by a mortgage broker acting on behalf of the creditor, as is currently
the case with the RESPA GFE. The Bureau believes the costs would be
similar for Loan Estimates delivered by brokers, and the estimates
presented here are based on the assumption that the creditor delivers
the Loan Estimate. The Bureau is proposing two alternatives for the
provision of the Closing Disclosure. Under the first alternative, the
creditor would be solely responsible for providing the disclosure to
the consumer. Under the second alternative, the creditor and the
settlement agent would be jointly responsible. For the purposes of this
analysis, the Bureau is assuming that the creditor will bear the costs
of revising software and compliance systems. If, instead, settlement
agents bore those costs, the costs would likely be similar, although
borne by different parties.\202\ The Bureau requests comment on this
approach to estimating costs, including whether mortgage brokers and
settlement agents would incur costs that are substantially different
from those incurred by creditors if they were responsible for providing
the disclosures.
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\202\ As described below, two major vendors currently provide
software services to the vast majority of small mortgage originators
to produce the RESPA GFE and initial TILA disclosures. RESPA
settlement statements are currently issued by settlement agents
using software provided by a different, but similarly small, set of
vendors; however, the Bureau understands that the originators'
systems are capable of producing the RESPA settlement statements. As
a result, the Bureau believes that it is reasonable to measure costs
assuming that the originators' vendors will provide both the Loan
Estimate and the Closing Disclosure to their clients under existing
contracts. Were the current software providers for settlement agents
to have to update their systems (under the second alternative or
under other contractual arrangements), those vendors would have to
incur the stated costs.
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Creditors would need to adapt their software and compliance systems
to produce the new forms. In addition to changing the format of the
required forms, the new proposed forms would include numerous new
disclosures that are required by the Dodd-Frank Act. The Bureau
believes that this additional information would be added to the forms
as part of the process of adapting software and compliance systems to
produce the new forms, and therefore does not provide separate
estimates for the costs of this additional information.
Based on information provided by creditors and by software vendors,
the Bureau believes that, in general, larger creditors develop and
maintain their own compliance software and systems, while smaller
creditors primarily rely on software and compliance systems provided by
outside vendors. Based on industry feedback, the Bureau believes that
roughly the top 20 mortgage originators maintain their own systems,
while 95 percent of smaller creditors (those outside the top 50) rely
on vendors.
Mid-size creditors (those roughly ranked between 20 and 50 in
origination volume) are served by a range of vendors, and in some cases
have
[[Page 51272]]
customized systems provided by these vendors. For the purposes of this
analysis, the Bureau treats all creditors outside the top 20 the same.
The use of vendors by smaller creditors will substantially mitigate
the costs of revising software and compliance systems, as the efforts
of a single vendor would address the needs of a large number of
creditors. There are two primary vendors of this software to mortgage
creditors outside the top 50. Based on discussions with vendors that
provide software and compliance systems to mortgage lenders, the Bureau
estimates that each of these vendors would spend roughly $500,000 to
$2,000,000 to determine what changes need to be made to come into
compliance and to update the software that they provide to creditors.
Based on discussions with a leading origination technology provider,
the Bureau believes that these updates, however, would likely be
included in regular annual updates, and therefore the costs would not
be directly passed on to the client creditors.\203\ As many as 95
percent of creditors outside the top 20, therefore, would not pay
directly for software updates to comply with the new rules.
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\203\ Note that the vendors themselves are not covered persons.
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Based on estimates from small entities that participated in the
Small Business Review Panel process, the Bureau estimates that the
small fraction of smaller creditors that maintain their own compliance
software and systems would incur costs of roughly $100,000 to update
their systems to comply with the proposal. Firms are expected to
amortize this cost over a period of years. In this analysis, all costs
are amortized over five years, using a simple straight-line
amortization. Thus, about five percent of smaller creditors are
expected to incur a cost of $20,000 per year. The Bureau estimates that
there were a total of 14,374 banks, savings institutions, credit
unions, and mortgage companies that originated mortgages in 2010,\204\
the most recent year for which complete data are available, for a total
of 14,354 outside the top 20.\205\ The total one-time cost for the
roughly five percent of smaller creditors that maintain their own
compliance software and systems is therefore $100,000 * 14,354 * 5% =
$71,800,000 (rounded to the nearest $100,000). Amortized over five
years, the estimated total annual cost for this small fraction of small
creditors to update compliance systems is about $14,360,000 for all
small creditors combined.
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\204\ As discussed above, this analysis assumes that the
creditor, rather than a mortgage broker, delivers the Loan Estimate
and that the creditor also delivers the Closing Disclosure, rather
than sharing responsibility for delivery with a settlement agent.
Accordingly, the Bureau excludes mortgage brokers and settlement
agents from this calculation.
\205\ Creditors and originator estimates based on analysis of
HMDA, SNL Call Reports, NCUA Call Reports, and NMLS Call Reports.
See part VIII below for additional details.
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The largest 20 mortgage creditors would need to revise their
compliance software and systems. Based on information from
conversations with large creditors and with software vendors, the costs
to these creditors of updating compliance software and systems would
vary considerably with the size and complexity of the institution. The
Bureau estimates that on average the cost per creditor for this
category of creditor would be $1,000,000, for a total of $20,000,000.
Amortized over five years, the estimated annual cost for large
creditors to update compliance systems is $4,000,000 for the largest 20
mortgage creditors combined.
Covered persons would incur one-time costs associated with training
employees to use new forms and any new compliance software and systems.
The Bureau estimates that each loan officer or other loan originator
will need to receive two hours of training, and that one trainer could
train ten loan officers at a time, for an additional one hour of
trainer time per ten hours of trainee time. The Bureau estimates that
there are approximately 83,000 loan officers and other originators that
would need training. Based on data from the Bureau of Labor Statistics,
the Bureau estimates that the average total compensation is $46 per
hour for a loan officer and $39 per hour for a trainer, for a total
training cost of (83,000 * 2 * $46) + (8,300 * 2 * $39) = $8,300,000
(rounded to the nearest $100,000). Amortized over five years, this is
an annual cost of $1,660,000 for all mortgage creditors combined.
Taken together, the Bureau estimates that the total one-time costs
of complying with the proposed Loan Estimate and Closing Disclosure
would be roughly $100,100,000. Amortized over five years, this is an
annual cost of $20,020,000 for all mortgage creditors combined. For
additional perspective, there were approximately 8,000,000 mortgage
originations in 2010. The estimated one-time cost, annualized using a
five-year amortization, is therefore less than three dollars per
origination. Note that these costs would not recur, and the Bureau
expects that ongoing costs would be equal to or less than current
compliance costs.
The proposed rule also requires itemization of certain settlement
charges that are not permitted to be itemized on the current RESPA GFE
and settlement statement forms, which may lead to increased costs for
covered persons. In its 2008 RESPA Final Rule, HUD predicted that
removing itemization from the disclosures would relieve creditors from
preparing lengthy lists of fees and addressing consumer questions about
such fees. 73 FR at 68276. However, the Bureau understands that
creditors and settlement agents often provide this itemization on
separate disclosures currently to comply with State law or investor
requirements, which mitigates any increased costs associated with
itemization.
2. Definition of Loan Application
The proposed rule revises the regulatory definition of loan
application to encourage earlier provision of the Loan Estimate to
consumers.
Under TILA and RESPA, a creditor or mortgage broker is not required
to provide the good faith estimates of loan terms and settlement costs
in the early TILA disclosure and RESPA GFE until it has received an
``application.'' As discussed more fully in part VI above, section-by-
section analysis for proposed Sec. 1026.2(a)(3), under current
regulations, the receipt of the following information by the creditor
or mortgage broker constitutes receipt of an ``application'': (1)
Borrower's name; (2) monthly income; (3) social security number to
obtain a credit report; (4) the property address; (5) an estimate of
the value of the property; (6) loan amount sought; and (7) any other
information deemed necessary by the lender. The seventh item could
allow creditors and mortgage brokers to delay providing the integrated
Loan Estimate until relatively late in the loan process by delaying
collection of information deemed ``necessary.'' The Bureau understands
that some creditors currently provide non-binding written estimates of
loan terms or settlement charges prior to issuing the early TILA
disclosure or RESPA GFE. The current rules encourage creditors and
mortgage brokers to provide the good faith estimates early in the loan
process by prohibiting creditors from collecting any fees from a
consumer (other than a credit report fee) until the estimates are
provided. To further encourage early provision of estimates, the
proposed rule removes the seventh item (``any other information deemed
necessary by the lender'') from the definition of ``application.''
a. Benefits to Consumers
The Bureau believes that the proposed rule may benefit consumers by
ensuring
[[Page 51273]]
that consumers receive Loan Estimates early enough in the lending
process to use them in shopping for their loan. Removing the seventh
item may allow consumers to receive Loan Estimates that are subject to
the limitations on increases discussed above with respect to proposed
Sec. 1026.19(e)(3) earlier in the lending process, whereas today
consumers may receive only informal estimates that are not subject to
those protections. Improved consumer shopping for mortgages may result
in lower costs to consumers. As described above, the Bureau cannot
estimate the magnitude of the benefits of improved shopping, but
believes that they could be very large. The Bureau also believes that
the Loan Estimate is a better shopping tool for consumers than informal
estimates provided to consumers prior to receipt of the consumers'
application, both because it was developed through an extensive testing
and design process and because certain costs disclosed in the Loan
Estimate are subject to limitations on increases, described below. The
Bureau believes that lenders will be able to provide reliable estimates
based on the six items that together would constitute an application
under the proposal and that, by receiving more reliable cost estimates
earlier in the mortgage lending process, consumers would be less
frequently surprised by increases in costs near the time of closing.
However, the Bureau seeks input and information on whether the proposed
change to the definition of application would result in less accurate
estimates, or in more frequent re-disclosures that could cause consumer
confusion.
b. Costs to Consumers
The Bureau does not believe that eliminating the seventh item in
the definition of application would lead to costs to consumers beyond
any costs that are passed through to consumers by creditors or loan
originators.
c. Costs to Covered Persons
The Bureau understands that eliminating creditors' and mortgage
brokers' ability to wait to provide a good faith estimate until after
they receive ``any other information deemed necessary'' could increase
the burden on creditors and mortgage brokers to the extent that it
causes them to issue more Loan Estimates than they would under the
current definition of application. If a creditor or mortgage broker
obtains additional information from the consumer after the Loan
Estimate has been issued that affects the costs of the settlement
service for the loan, the creditor may need to issue a revised Loan
Estimate. The Bureau is unaware of information that would allow it to
estimate how often this would occur. The Bureau believes, however, if
this were to impose substantial costs, creditors and mortgage brokers
would mitigate this by adjusting their business practices surrounding
the receipt of applications to gather other important information prior
to, or at the same time as, they obtain the six items that together
constitute an ``application.'' As discussed in section F, below, the
Bureau is working to obtain such data prior to issuing a final rule and
is seeking comment on its plans for data analysis, as well as
additional data and comment relevant to this issue.
In developing the proposed rule, the Bureau also considered
removing additional items from the regulatory definition of
``application.'' However, the Bureau does not believe the other items
in the current definition of application raise similar concerns
regarding creditors' ability to delay provision of the early
disclosures. Furthermore, the Bureau believes that many or all of the
six items may be necessary for a creditor to provide reliable estimates
in many circumstances.
3. Disclaimer on Pre-Application Estimates
The Bureau is proposing to require that any pre-application,
consumer-specific written estimate of loan terms or settlement charges
contain a prominent disclaimer indicating that the document is not the
Loan Estimate required by TILA and RESPA. This requirement would not
apply to general advertisements.
a. Benefits to Consumers
The Bureau believes that the disclaimer may benefit consumers by
clearly distinguishing disclosures that are subject to TILA and RESPA
protections from those that are not.
b. Costs to Consumers
This new disclosure requirement could impose costs on consumers, in
the form of reduced information about mortgage loan options, if it
makes creditors or mortgage brokers less willing to provide written
pre-application estimates of loan terms. The Bureau believes, however,
that any such effect on creditors or mortgage brokers would be small or
non-existent, especially when they are acting in good faith.
c. Costs to Covered Persons
To the extent covered persons currently provide such pre-
application written estimates to consumers they would bear the costs of
adding a disclaimer to those communications. However, the Bureau
expects such costs to be de minimis since the Bureau is proposing a
brief, standard statement for use by creditors, which should not
require significant redesign of existing estimate materials or require
additional pages.
4. Changes in Settlement Costs/Redisclosures
The proposed rule revises current rules regarding the circumstances
in which a consumer may be charged more at closing for settlement
services than the creditor estimated in the disclosure provided to the
consumer three business days after application.
As discussed more fully in part VI, section-by-section analysis for
proposed Sec. 1026.19(e)(3), HUD's 2008 RESPA Final Rule limits the
circumstances in which a creditor can charge the consumer more at
consummation for settlement services than the creditor estimated in the
RESPA GFE provided to the consumer three business days after
application. These rules generally place charges into three categories:
The creditor's charges for its own services, which cannot exceed the
creditor's estimates unless an exception applies (``zero tolerance'');
charges for settlement services provided by third parties, which cannot
exceed estimated amounts by more than ten percent unless an exception
applies (``ten percent tolerance''); and other charges that are not
subject to any limitation on increases (``no tolerance''). The rule
permits certain limited exceptions in which higher charges are
permitted, such as when the consumer requests a change, when the RESPA
GFE expires, or when valid changes in circumstance occur. The Bureau is
aware of concerns that HUD's 2008 RESPA Final Rule is both too lax and
too restrictive, and also that the rule is difficult to understand. The
proposed rule attempts to address these concerns by balancing the
objective of improving the reliability of the estimates creditors give
consumers shortly after application with the objective of preserving
creditors' flexibility to respond to unanticipated changes that occur
during the loan process. Specifically, the proposed rule applies the
zero tolerance category to a larger range of charges, including fees
charged by an affiliate of the creditor and charges for services for
which the creditor does not permit the consumer to shop. A service
provider would be considered selected by the creditor if consumers are
required to choose only from a list of service providers prepared
[[Page 51274]]
by the creditor (i.e., if consumers are not permitted to shop for their
own provider).
In developing the proposed rule, the Bureau considered narrowing
the exceptions permitting increases in settlement charges in order to
restrict the ability of a creditor to charge more for its own services
or for third-party settlement services than the creditor initially
estimated. However, the Bureau is concerned that this approach could
prevent creditors from increasing settlement charges to reflect
justifiable increases in costs. The Bureau also considered preserving
HUD's 2008 RESPA Final Rule in its entirety. However, as discussed
above, the Bureau believes that the rule can likely be improved by
requiring creditors to provide consumers with more accurate estimates
of settlement charges and reducing compliance burden for industry.
a. Benefits to Consumers
The Bureau believes that consumers may benefit when fewer fees are
permitted to change from the Loan Estimate. Consumers that rely on the
Loan Estimate to shop for a loan would be able to make decisions based
on estimated costs that more closely reflect the actual costs they
would bear, making shopping more effective. For some consumers, such as
those considering a refinancing that they may or may not decide to take
out, more reliable information may allow them to make a better-informed
decision about whether to take out a loan at all. Firmer fee estimates
may also reduce ``gaming'' by unscrupulous creditors that provide low-
ball initial estimates and then impose new or different charges near
the time of consummation.
The Bureau cannot quantify the magnitude of these benefits. The
Bureau is unaware of any data that can provide reliable market-wide
estimates of the prevalence of changes between early TILA disclosures
and RESPA GFEs and final loan terms and closing costs or of the causes
for those changes that occur. As noted above, the Bureau may obtain
data on a sample of TILA disclosures and RESPA GFEs from several
lenders, which would provide additional information about this issue.
For a sense of the scale of the potential impact, it is worth
considering an extreme hypothetical example where all of the settlement
services move from the ten percent tolerance category to the zero
tolerance category. This is unlikely to happen in practice, but
illustrates the largest possible effect of the regulatory change. For a
loan with a total of $3,000 in settlement costs, the maximum effect of
the proposal would be that the creditor could not pass on $300 in cost
increases that occurred without an exception allowing the increase to
be passed on to the consumer.
Expanding the set of costs covered by the zero tolerance may also
benefit consumers by giving creditors an incentive to control the costs
imposed by third parties. Currently, creditors have limited incentives
to control third-party costs. By applying the zero tolerance category
to a larger range of charges, including charges by affiliates of the
creditor, creditors are required to absorb more increases in costs
(when no exception applies), and may seek to minimize the chance that
these increases would occur. Creditors are in a better position than
consumers to control these costs, as they are much more familiar with
these markets than are typical consumers, and they are likely to have
ongoing relationships with settlement service providers that give them
some ability to encourage these providers not to charge more than the
initial estimate.
b. Costs to Consumers
The expansion of the set of costs that are subject to a zero
tolerance could impose costs on some consumers. The restriction on
changes to these costs may cause some creditors to provide higher
initial estimates, making shopping less effective as consumers rely on
less accurate information. The Bureau believes, however, that these
effects are likely to be mitigated by competitive pressures that
encourage brokers and creditors not to inflate cost estimates.
c. Benefits to Covered Persons
Covered persons may benefit from the proposed rule because it
reduces compliance burden by resolving current regulatory ambiguities.
For example, the proposed rule makes clear that creditors need not
reissue Loan Estimates unless and until the costs that are subject to
the ten percent tolerance standard increase based on valid changes in
circumstance by more than ten percent in total. The proposed rule also
revises the rule and provides more guidance to facilitate use of
average cost pricing and reconciles certain inconsistencies between
RESPA and TILA terminology. The proposed rule further streamlines and
clarifies HUD's 2008 RESPA Final Rule by incorporating prior HUD
guidance into Regulation Z and its commentary, as necessary and
appropriate. Further, to the extent the proposed rule reduces
unnecessary redisclosure of the RESPA content currently provided on the
GFE, the rule would decrease costs to creditors, although the extent to
which the proposed rule would have such an effect is unknown. Reducing
unnecessary redisclosure may also benefit consumers, to the extent that
redisclosures lead to consumer confusion.
The Bureau is unaware of reliable data showing how often creditors
are providing additional disclosures that are not required by the
current rule and that they would no longer send if the rules were
clarified. As discussed in section F, below, the Bureau is working to
obtain such data prior to issuing a final rule and is seeking comment
on its plans for data analysis, as well as additional data and comment
relevant to this issue. Some creditors, however, have reported that
additional clarity regarding redisclosure requirements for the RESPA
GFE and average cost pricing would reduce the cost of compliance, in
part, by reducing confusion over when redisclosure is permitted or
required, and thereby reducing the need for legal advice.
To the extent that restricting certain changes in fees reduces
bait-and-switch tactics by some creditors, this provision may also
benefit honest creditors that do not use these tactics.
d. Costs to Covered Persons
The Bureau understands that covered persons may experience
increased costs as a result of a rule that applied the zero tolerance
category to a larger range of charges. Since the proposed rule would
expand the circumstances in which creditors could not pass increased
costs to consumers when the initial estimate is lower than the actual
costs but there is not a legitimate change in circumstances or other
exception, creditors may be required to absorb more costs. This impact
should be mitigated to the extent creditors are in a position to know
the typical charges of affiliated firms and firms they engage
repeatedly and require consumers to use, and can therefore provide
estimates that are accurate when there is no changed circumstance. As
discussed above, the Bureau is unaware of any data that can provide
reliable market-wide estimates of the prevalence of changes between
early TILA disclosures and RESPA GFEs and final loan terms and closing
costs, and the causes of those changes. Therefore, the Bureau cannot
provide estimates of how often creditors would have to absorb higher
than expected costs that cannot be attributed to a changed
circumstance. The discussion of average settlement costs provided in
the ``Consumer Benefits'' section applies here, as well,
[[Page 51275]]
suggesting that these costs to creditors would be quite modest.
The Bureau also understands that the proposed rule may result in
increased use of affiliated service providers, so that creditors can
more directly control changes in settlement costs, which could have a
negative impact on independent providers. Some have argued that the
negative impact on independent providers could lead to reduced
competition for settlement services and ultimately higher costs. The
Bureau is unaware of any evidence that the ultimate increase in costs
is likely to occur. Alternatively, the proposed rule may encourage
creditors to allow consumers to choose settlement service providers
that are not on a list provided to the consumer (although in this case
the creditor would be required to provide consumers with a list of
settlement service providers that the consumers could use, if they so
choose), so that the zero tolerance requirement would not apply. This
would appear to benefit independent service providers, or at least be
neutral relative to current practices.
5. Provision of Closing Disclosure
The proposed rule requires delivery of the integrated Closing
Disclosure three business days before consummation in all cases.
However, the Bureau is proposing two alternative approaches for
assigning responsibility for providing the integrated Closing
Disclosure to the consumer. Alternative 1 places sole responsibility
for provision of the Closing Disclosure on the creditor, while
Alternative 2 makes the creditor and settlement agent jointly
responsible for providing the Closing Disclosure.
a. Timing of Closing Disclosure Provision
TILA and RESPA establish different timing requirements for
disclosing final loan terms and costs to consumers. As discussed more
fully in part VI, section-by-section analysis for proposed Sec.
1026.19(f), TILA generally provides that, if the early disclosures
contain an APR that is no longer accurate, the creditor shall furnish
an additional, corrected disclosure to the consumer not later than
three business days before consummation. RESPA, on the other hand,
requires that the final statement of loan costs and terms is provided
to the consumer at or before settlement. To meet the Dodd-Frank Act's
mandate to integrate the disclosures required by TILA and RESPA, and to
better facilitate consumer understanding of the costs, the proposed
rule would require delivery of the integrated Closing Disclosure three
business days before closing in all circumstances. However, to prevent
unnecessary closing delays, the proposed rule would permit limited
changes after provision of the Closing Disclosure to reflect common
adjustments, such as changes to recording fees. In addition, reissuance
of the Closing Disclosure and an additional three-business day waiting
period would not be required if, during the three business days after
issuance of the Closing Disclosure, the amount needed to close shown on
the Closing Disclosure increases by $100 or less.
i. Benefits to Consumers. Consumers may benefit from the proposed
rule because it would ensure that consumers receive the disclosures far
enough in advance of consummation that they can review the final
details of the transaction. Together with the improved clarity of the
Closing Disclosure and the comparability of the Loan Estimate and the
Closing Disclosure, this should allow consumers to have a better
understanding of the final terms of the transaction and how and whether
those terms have changed since the consumer received the Loan Estimate.
Improved ability to compare early and final disclosures and identify
changes in loan terms may better enable consumers to recognize and
challenge increased settlement costs or loan terms that are different
from the initial disclosure. This may encourage all creditors to take
greater care to ensure that Loan Estimates are accurate and may
discourage unscrupulous creditors from attempting to ``bait and
switch'' consumers with initial Loan Estimates that have better loan
terms or lower settlement costs than the final transaction. Some of
these changes are not permissible under the current or revised
regulation, but making it easier for consumers to identify these
changes may provide an additional incentive for creditors to avoid such
changes.
The Bureau cannot quantify the magnitude of the benefits of the
three-day period for consumers to review the integrated Closing
Disclosure. The Bureau is unaware of any data that can provide reliable
market-wide estimates of the prevalence of changes between early TILA
disclosures and RESPA GFEs and final loan terms and closing costs. The
Bureau also does not know how much the three-day period would improve
consumers' ability to recognize those changes or how consumers would
react to changes, or the effects on creditors' behavior.
ii. Costs to Consumers. The proposal to require provision of the
Closing Disclosure three business days prior to consummation in all
circumstances may result in closing delays, which could come at a cost
to consumers. In extreme cases, such delays could cause a transaction
to fall through if a consumer is under a contractual obligation to
close by a certain date. Creditors and closing agents, however,
currently coordinate to provide RESPA closing documents at closing.
Both closing agents and creditors would have incentives to complete
closings as scheduled, and therefore the Bureau believes that they
would adjust their business practices such that the Closing Disclosure
could be provided in a timely manner and closing problems would be
infrequent.
iii. Costs to Covered Persons. If the requirement does lead to
delayed or canceled closings, this would impose costs on covered
persons as well. Such closing delays could result in loss of revenue
for transactions that fall through due to a delay. The proposed rule
may also create legal and reputational risks for creditors or
settlement agents that are unable to close loans as planned.
iv. Alternatives Considered. In developing the proposed rule, the
Bureau considered requiring provision of the Closing Disclosure three
business days before closing only when the APR in the Loan Estimate
increases beyond a tolerance or certain risky features are added to the
loan. In all other circumstances, the Closing Disclosure would have
been provided at or before closing. However, the Bureau is concerned
that this approach would allow significant increases in the cash needed
to close the transaction without sufficient notice to consumers.
Further, the Bureau has received feedback indicating that the APR
estimates included in the early TILA disclosures typically change by
more than \1/8\ of 1 percent, such that most creditors provide
corrected disclosures as a standard business practice, rather than
analyzing the accuracy of the disclosed APR. Therefore, the Bureau
believes that any additional burden associated with requiring the
disclosure three business days before closing in all cases is small
given current creditor practices. In addition, the Bureau considered
expanding current rules allowing consumers to waive the three-business
day waiting period in cases of bona fide personal financial emergency.
However, the Bureau is concerned that such an expansion would be
subject to abuse.
b. Responsibility for Providing the Closing Disclosure
TILA and RESPA require that different parties provide the final
disclosures to consumers. Specifically, TILA requires the creditor to
provide
[[Page 51276]]
the TILA disclosures to consumers, while RESPA requires that the person
conducting the settlement provide the final statement of settlement
costs to the consumer. However, section 1419 of the Dodd-Frank Act
amended TILA to make creditors responsible for disclosing settlement
cost information. See TILA section 128(a)(17). To reconcile these
statutory differences and implement TILA section 128(a)(17), the Bureau
is proposing two alternative approaches for assigning responsibility
for provision of the integrated Closing Disclosure to consumers. Under
Alternative 1, the creditor would be solely responsible for delivering
the Closing Disclosure to the consumer. Under Alternative 2, the
creditor and settlement agent would be jointly responsible for
providing the consumer with an integrated Closing Disclosure three
business days before closing.
i. Benefits and Costs to Consumers. The Bureau believes that
consumer benefits and costs would not differ between the two proposals,
so long as disclosures are accurate and provided in a timely manner.
ii. Benefits to Covered Persons. Because the difference between
Alternatives 1 and 2 is about which party would be responsible for
providing a disclosure, the relative benefits of each proposal to
different covered persons are likely to consist of avoided costs. The
most useful way to consider these alternatives, therefore, is to
consider their respective costs.
iii. Costs to Covered Persons--Alternative 1. Alternative 1 would
likely place increased costs on creditors. As discussed above, RESPA
and current Regulation X require that the person conducting the
settlement provide the RESPA-required disclosures to consumers at or
before consummation. Since, under Alternative 1, the creditor would be
responsible for provision of both the TILA and RESPA content to the
consumer, the creditor would incur additional logistical burden and
legal risk. Creditors and settlement agents may incur one-time legal
fees under Alternative 1, since those entities may need to
contractually stipulate their respective duties or amend existing
contractual arrangements in light of the rule. Creditors may also need
to hire additional staff to handle the increased workload associated
with collecting the settlement costs and coordinating with the
settlement agents and third party service providers and preparing the
disclosures. However, since the current regulatory scheme of split
responsibility, as well as the different roles of creditors and
settlement agents in the transaction, already requires a great deal of
coordination, it is not clear that giving the creditor sole
responsibility for providing the disclosures would impose much
additional burden. As a general matter, shifting responsibility for
delivery of final RESPA disclosures from settlement agents to creditors
may change the role of settlement agents, though the exact impact of
such a rule is unclear. Settlement agents play a unique role in working
through local real estate transaction requirements and practices, which
creditors may be unlikely to take on.
iv. Costs to Covered Persons--Alternative 2. The costs to creditors
and to settlement agents under the proposed alternative that gives
joint responsibility for provision of the Closing Disclosure to
creditors and settlement agents would depend on how creditors and
settlement agents go about fulfilling the joint requirement. Joint
provision would likely require coordination on the part of creditors
and settlement agents similar to what is done today. One additional
cost, however, may entail re-working that coordination to adjust to the
new forms and timing requirement (discussed above).
v. Alternative Considered. In developing the proposed rule, the
Bureau also considered an alternative under which the settlement agent
would have sole responsibility for providing the Closing Disclosure to
the consumer. However, the Bureau is concerned that settlement agents
do not have access to much of the information regarding loan terms that
must be included in the Closing Disclosure. In addition, in response to
industry feedback, the Bureau considered an approach that would
bifurcate the Closing Disclosure into TILA-required and RESPA-required
disclosures. However, the Bureau is concerned that such an approach
would be confusing for consumers, would be impracticable and result in
additional regulatory burden because of the amount of overlap between
TILA and RESPA disclosures, and is inconsistent with the Dodd-Frank Act
requirement to integrate the disclosures.
6. Recordkeeping of Machine Readable Data
The proposed rule imposes new data retention requirements for the
Loan Estimate and the Closing Disclosure by requiring creditors to
maintain evidence of compliance in machine readable, electronic format.
The proposed retention period is three years for the Loan Estimates and
five years for the Closing Disclosures. See proposed Sec. 1026.25.
a. Benefits to Consumers
The proposed rule may benefit consumers because comprehensive data
on the extent to which settlement costs and loan terms change between
the initial and final disclosures may improve the ability of the Bureau
and other regulators to monitor compliance with applicable requirements
and to evaluate whether the rules adequately protect consumers against
impermissible changes in settlement costs and loan terms.
b. Costs to Consumers
The Bureau does not believe the recordkeeping requirements would
lead to costs to consumers, beyond any costs that are passed through to
consumers by creditors or loan originators.
c. Benefits to Covered Persons
A prescribed electronic format may reduce costs across the entire
mortgage loan origination industry due to the efficiency gains
associated with a standardized data format. Based on industry feedback,
the Bureau understands that creditors, mortgage brokers, title
companies, investors, and other mortgage technology providers use
systems with proprietary data formats. As a result, data must be
translated between formats as it is transmitted from one point to
another throughout the mortgage loan origination process. A standard
format should lower those coordination costs. In addition, a standard
format may also facilitate innovation in the financial services
industry by making it easier for technology companies to create new
programs that improve the mortgage origination process and lower
industry costs, instead of tailoring programs to each firm's unique
proprietary data format; may lower ongoing costs by facilitating
industry adoption of mortgage documentation technology and reducing
industry's reliance on paper files; and may ease the burden of staff
time and resources devoted to on-site supervisory examinations by
allowing for remote examinations of compliance. All of these benefits
may reduce industry cost and burden in the long run, thereby reducing
costs to consumers as well.
The Bureau is aware that there are various efforts currently
underway to standardize the format for storage and transmission of
mortgage origination-related data. To the extent that the Bureau's
proposal may advance these efforts toward a standard electronic record
format, the proposal may help eliminate multiple data formats, thereby
increasing efficiency in the origination
[[Page 51277]]
process, reducing industry costs in the long term, and reducing costs
to consumers. Also, the Bureau is aware that many firms currently face
significant internal costs for maintaining multiple internal
technological systems. To the extent the Bureau's efforts reduce
uncertainly regarding the eventual standard, a single data format
specified by the Bureau may lower costs by enabling creditors to
migrate from older data formats to a single, standard data format.
d. Costs to Covered Persons
The proposed rule may result in costs to covered persons. Under
current rules, creditors must retain evidence of compliance with the
disclosure requirements in Regulation X (i.e., a copy of the RESPA
settlement statement) and Regulation Z (i.e., evidence of compliance
generally) for five years and two years, respectively, but are not
required to maintain such evidence an electronic, readable format. 12
CFR 1024.10(e); 1026.25. Based on industry feedback, the Bureau
understands that firms currently rely on electronic systems for most
aspects of the mortgage loan origination process, including electronic
record creation and storage. Not all lenders currently maintain data in
a machine-readable format, and those who do may not retain it in the
format that may ultimately be adopted. To comply with the proposed
record retention provisions, therefore, creditors may be required to
reconfigure existing document production and retention systems. For
creditors that maintain their own compliance systems and software, the
Bureau does not believe that adding the capacity to maintain data in a
standard machine readable format will impose a substantial burden, as
the only requirement will be to output existing data to a new format
and then store that data. The Bureau believes that the primary cost
will be one-time systems changes that could be accomplished at the same
time that systems changes are carried out to comply with the new
proposed Loan Estimate and Closing Disclosure. Similarly, creditors
that rely on vendors would likely rely on vendor software and systems
to comply with the data retention requirement; at least one vendor
already offers indefinite data storage to customers that use their Web-
based origination services.
The Bureau estimates that creditors with existing electronic
storage systems would need to expend 40 hours of software and IT staff
time to develop the ability to export data from existing systems to a
standardized format. This would apply to the creditors that maintain
their own systems--the 20 largest and five percent of other creditors
(14,354*0.05 = 718, rounded to the nearest whole entity)--for a total
of (718+20)*40 = 29,520 hours. Assuming an hourly labor cost of
software and IT staff of $54, based on information from the Bureau of
Labor Statistics, gives a total dollar cost of 29,520*$54 = $1,600,000
(rounded to nearest $100,000). Amortized over five years, this is an
annual cost of roughly $320,000 for all mortgage creditors combined.
Compared to total mortgage originations of 8,000,000 per year, this
amounts to pennies per origination.
The Bureau understands that requiring standardized, electronic
records may be a significant burden for covered persons that do not
currently have such electronic filing systems. To reduce the burden on
small entities, the Bureau is considering an exemption from the
electronic data retention requirements. See part VI, section-by-section
analysis for proposed Sec. 1026.25.
7. Expanded Definition of Finance Charge
The proposed rule expands the definition of the finance charge for
closed-end transactions secured by real property or a dwelling,
consistent with the Board's 2009 Closed-End Proposal.
As discussed more fully in part VI, section-by-section analysis for
proposed Sec. 1026.4, TILA and current Regulation Z exclude many types
of charges from the finance charge, particularly for mortgage
transactions. Concerns have long been raised that these exclusions
undermine the potential usefulness of the finance charge and
corresponding APR as a tool for consumers to compare the total cost of
one loan to another. In addition, these exclusions create compliance
burden and litigation risk for creditors and may encourage creditors to
shift the cost of credit to excluded fees, a practice that is
inefficient.
a. Proposed Definition of Finance Charge and Other Federal Regulation
The Bureau recognizes that the proposed more inclusive finance
charge could affect coverage under other laws, such as higher-priced
mortgage loan and HOEPA protections, and that a more inclusive finance
charge has implications for the HOEPA, Escrows, Appraisals, and Ability
to Repay rulemakings identified in part II.F above. Absent further
action by the Bureau, the more inclusive finance charge would:
Cause more closed-end loans to trigger HOEPA protections
for high-cost loans.\206\ The protections include special disclosures,
restrictions on certain loan features and lender practices, and
strengthened consumer remedies. The more inclusive finance charge would
affect both the points and fees test (which currently uses the finance
charge as its starting point) and the APR test (which under Dodd-Frank
will depend on comparisons to the average prime offer rate (APOR)) for
defining what constitutes a high-cost loan.
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\206\ Under the Dodd-Frank Act, a loan is defined as a high-cost
mortgage, subject to HOEPA protections, if the total points and fees
payable in connection with the transaction exceed specified
thresholds (points and fees coverage test); the transaction's APR
exceeds the applicable APOR by a specified threshold (APR coverage
test); or if the transaction has certain prepayment penalties.
First, under the points and fees coverage test, the definition of
points and fees includes, as its starting point, all items included
in the finance charge. Therefore, a potential consequence of the
more inclusive finance charge is that more loans might exceed
HOEPA's points and fees threshold because new categories of charges
would be included in the calculation of total points and fees for
purposes of that coverage test. In addition, under the APR coverage
test, the more inclusive finance charge could result in some
additional loans being covered as high-cost mortgages because
closed-end loans would have higher APRs. There are currently some
differences between APR and the average prime offer rate, which is
generally calculated using data that includes only contract interest
rate and points but not other origination fees. See 75 FR 58660-
58662. The current APR includes not only discount points and
origination fees but also other charges the creditor retains and
certain third-party charges. The more inclusive finance charge,
which would also include most third-party charges, would widen the
disparity between the APR and APOR and cause more closed-end loans
to qualify as a high-cost mortgage. The Bureau notes that
substantially similar implications would apply to each respective
rulemaking in which coverage depends on comparing a transaction's
APR to the applicable APOR. In addition, the Bureau notes that the
Dodd-Frank Act expands HOEPA to apply to more types of mortgage
transactions, including purchase money mortgage loans and open-end
credit plans secured by a consumer's principal dwelling. However,
the proposed more inclusive finance charge applies only to closed-
end loans. Therefore, the Bureau notes that the more inclusive
finance charge would not affect the potential coverage of open-end
credit plans under HOEPA.
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Cause more loans to trigger Dodd-Frank Act requirements to
maintain escrow accounts for first-lien higher-priced mortgage loans.
Coverage depends on comparing a transaction's APR to the applicable
APOR.
Cause more loans to trigger Dodd-Frank Act requirements to
obtain one or more interior appraisals for ``higher-risk'' mortgage
loans. Coverage depends on comparing a transaction's APR to the
applicable APOR.
Reduce the number of loans that would otherwise be
``qualified mortgages'' under the Dodd-Frank Act Ability to Repay
requirements, given that qualified mortgages cannot have points and
fees in excess of three
[[Page 51278]]
percent of the loan amount. Also, more loans could be required to
comply with separate underwriting requirements applicable to higher-
priced balloon loans, and could be ineligible for certain exceptions
authorizing creditors to offer prepayment penalties on fixed-rate, non-
higher-priced qualified mortgage loans.\207\ Again, status as a higher-
priced mortgage loan depends on comparing APR to APOR.
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\207\ Specifically, the Dodd-Frank Act generally prohibits
prepayment penalties on closed-end, dwelling-secured mortgage loans,
except on fixed-rate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank Act generally
requires creditors to assess consumers' ability to repay a higher-
priced loan with a balloon payment using the scheduled payments
required under the terms of the loan including any balloon payment,
and based on income and assets other than the dwelling itself. Only
consumers with substantial income or assets would likely qualify for
such a loan. A separate Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly in rural or
underserved areas is not affected by the finance charge issue.
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As discussed above in part VI, section-by-section analysis for
proposed Sec. 1026.4, and below in section F, the Bureau is seeking
data to model the impact of the more expansive definition of finance
charge on coverage of each of these regulatory regimes or the impact of
potential modifications that the Bureau could make to the triggers to
more closely approximate existing coverage levels prior to issuing a
final rule and is seeking comment on its plans for data analysis, as
well as additional data and comment on the potential impacts of a
broader finance charge definition and potential modifications to the
triggers.\208\
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\208\ In its 2009 proposal, the Board relied on a 2008 survey of
closing costs conducted by Bankrate.com that contains data for
hypothetical $200,000 loans in urban areas. Based on that data, the
Board estimated that the share of first-lien refinance and home
improvement loans that are subject to HOEPA would increase by .6
percent if the definition of finance charge was expanded, and that
the share of first-lien loans in the range of typical home purchases
or refinancings ($175,000 to $225,000) that qualified as higher-
priced mortgage loans would increase by 3 percent. The Board also
looked at the impact on two states and the District of Columbia
because their anti-predatory lending laws had triggers below the
level of the historical HOEPA APR threshold, which is benchmarked to
U.S. Treasury securities. The Board concluded that the percentage of
first-lien loans subject to those laws would increase by 2.5 percent
in the District of Columbia and 4.0 percent in Illinois, but would
not increase in Maryland. The Bureau is considering the 2010 version
of the Bankrate.com survey, but as described in this notice the
Bureau is also seeking additional data that would provide more
representative information regarding closing and settlement costs
that would allow for a more refined analysis of the proposals.
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The Board previously proposed to address these effects by adopting
an adjusted points and fees definition and a new metric for determining
coverage under APR thresholds, known as the ``transaction coverage
rate'' (TCR). The TCR would be based on a modified prepaid finance
charge that would include only finance charges retained by the
creditor, mortgage broker, or their affiliates, and would therefore
more closely approximate existing coverage levels than a more inclusive
finance charge. See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598,
11608-09 (Mar. 2, 2011); 75 FR 58539, 58660-61 (Sept. 24, 2010).\209\
The Bureau has incorporated these measures into its 2012 HOEPA
Proposal, and is seeking comment both in that proposal and this
rulemaking on additional trigger modifications that could approximate
coverage levels under the existing definition of finance charge, such
as adjusting the numeric percentage point triggers for APR under HOEPA
or other regimes.
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\209\ The wording of the Board's proposed definition of
``transaction coverage rate'' varied slightly between the 2010
Mortgage Proposal and the 2011 Escrows Proposal as to treatment of
charges retained by mortgage broker affiliates. In its 2012 HOEPA
Proposal, the Bureau proposes to use the 2011 Escrows Proposal
version, which would include charges retained by broker affiliates.
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If the adjusted points and fees definition, the TCR, or other
trigger modifications were adopted in the other rules, the more
inclusive finance charge definition would have little or no effect on
coverage under those rules although there might still be effects from
the expanded definition of finance charge on the coverage of various
State mortgage laws and regulations. In addition, because the TCR
excludes fees to unaffiliated third-parties, the TCR might result in
some loans not triggering one or more of the regulatory regimes
discussed above that would qualify under an APR threshold using the
current definition of finance charge.\210\ The discussion of the costs
and benefits of a more inclusive definition of finance charge, below,
assumes that the Bureau does not adopt the adjusted points and fees
definition, the TCR, or other methods of addressing the impact of a
more inclusive approach to the finance charge in the other rulemakings.
If the Bureau does adopt those measures, the effects of the proposed
definition of finance charge would be muted. For instance, the benefits
of a simpler APR calculation may be lessened if creditors are required
to use different metrics for purposes of disclosure and for determining
coverage under various regulatory regimes, although as discussed below
with regard to transaction coverage rate both metrics would be easier
to calculate than APR using the existing definition of finance charge.
In addition, the effects (both benefits and costs) through expanded
coverage of those other rules would be eliminated or (in the case of
TCR) somewhat reduced.
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\210\ As discussed above in part VI, section-by-section analysis
for proposed Sec. 1026.4, the Bureau believes that the margin of
differences between the TCR and current APR is significantly smaller
than the margin between the current APR and the APR calculated using
the expanded finance charge definition because relatively few third-
party fees would be excluded by the TCR that are not already
excluded under current rules. The Bureau is considering ways to
supplement the data analysis described above to better assess this
issue, and seeks comment and data regarding the potential impacts of
the TCR relative to APR calculated using the current and proposed
definitions of finance charge.
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b. Benefits to Consumers
The proposed rule may benefit consumers by making the finance
charge and corresponding APR more meaningful disclosures of the cost of
credit for closed-end transactions secured by real property or a
dwelling. Certain limitations on the usefulness of APR as a price
comparison tool, however, such as the assumption in the calculation
that the loan will be paid as according to the note to maturity and not
pre-paid, may limit this benefit. Consumers may benefit from the
expanded finance charge definition to the extent it discourages the
proliferation of certain ``junk fees,'' such as fees for preparing
loan-related documents, which are currently excluded from the finance
charge.
As discussed above, if the expanded definition of finance charge is
adopted without modifications to the triggers, the more inclusive
finance charge definition would cause more loans to be classified as
high-cost mortgages under HOEPA, higher-priced mortgage loans under the
Escrows and Ability to Repay rulemakings, and/or higher-risk mortgage
loans under the Appraisals rulemaking. The more inclusive finance
charge could also affect the number of mortgages that meet the
definition of a qualified mortgage under the Ability to Repay
rulemaking.
Absent modifications to the triggers, this would result in more
consumers receiving the benefits of one or more of the regulatory
regimes described above. In the context of the HOEPA rulemaking, the
benefits to consumers could include, for example, a better
understanding of the risks associated with the loan through additional
disclosures (which, in turn, may reduce the likelihood a consumer takes
out a mortgage he or she cannot afford), better loan terms due to
increased shopping, and an absence of loan features whose associated
risks may be difficult for consumers to understand. Consumers
[[Page 51279]]
could also benefit from more loans being classified as higher-priced
under the Escrows or Ability to Repay rulemakings. Under the Escrows
rulemaking, more transactions would be required to include escrow
accounts for the payment of recurring costs such as taxes and hazard
insurance, which could assist more consumers in planning for such
costs. Under the Ability to Repay rulemaking, fewer loans could be
permitted to have prepayment penalties whose associated risks may be
difficult for consumers to understand, more loans could be subject to
the separate underwriting standards required for higher-priced balloon
loans, which could help to ensure consumers' ability to repay such
loans, and fewer loans would be classified as ``qualified mortgages.''
Finally, in the Appraisals rulemaking, an increase in the number of
loans classified as higher-risk could benefit consumers because more
transactions would be subject to the requirement that creditors obtain
one or more interior appraisals before extending credit.
Alternatively, the expanded definition of finance charge may
benefit consumers if creditors lower the fees or interest rate on the
loan a consumer receives so as to maintain eligibility as a qualified
mortgage or to avoid coverage by those other consumer protection laws.
c. Costs to Consumers
Without modifications to the triggers, the proposed more inclusive
finance charge could impose direct costs on some consumers. For
instance, the cost of obtaining an initial interior appraisal may be
passed on to consumers under the Dodd-Frank Act requirements for
higher-risk mortgages. The additional protections required under the
various regulations may also lead to higher cost of credit for some
consumers or reduced access to credit if creditors choose not to make
loans that would be classified as high-cost, higher-priced, or higher-
risk, or if consumers cannot qualify for credit as a result of the
separate underwriting standards that could apply to higher-priced
balloon loans.
d. Benefits to Covered Persons
The proposed rule may benefit covered persons by easing regulatory
burden and litigation risk associated with the current complex rules
for determining which fees are part of the finance charge. Because the
current rules for determining which fees are part of the finance charge
are complicated and unclear, creditors will benefit from a simpler,
more inclusive definition. In particular, feedback received by the
Bureau and comments on a similar proposal issued by the Board in the
2009 indicate that, because a failure to calculate the finance charge
and the APR accurately gives rise to the right of rescission, creditors
incur substantial compliance costs attempting to make accurate
calculations and incur substantial litigation costs defending against
claims of inaccurate calculations.
e. Costs to Covered Persons
To comply with the proposed rule, creditors may be required to
update compliance systems to reflect changes to the finance charge
calculation. These updates may involve one-time costs associated with
software updates, legal expenses, and personnel training time. As
discussed above, if the Bureau adopts the proposal, it expects to
provide an implementation period that would coincide either with
implementation of the disclosure modifications or with implementation
of certain changes to coverage of HOEPA and other regulatory regimes
that would be affected by the change in definition. Accordingly, the
Bureau believes that software changes and other expenses would be
incurred as part of the overall software and compliance system
revisions required to comply with the other simultaneous changes, and
therefore would not impose a substantial additional burden.
As discussed above, the proposed rule if it were implemented
without modifications to the triggers for various regulatory regimes
might cause more loans to cross Federal and State high-cost or high-
priced loan thresholds based on APR or points and fees. With respect to
the HOEPA and Appraisals rulemakings, creditors may incur costs
associated with generating and providing HOEPA and appraisal
disclosures for additional loans. Creditors may incur additional costs
in the context of the Appraisals rulemaking because the Dodd-Frank Act
prohibits creditors from charging consumers for second appraisals
conducted in connection with certain properties that have been sold in
the last 180 days. Similarly, in the context of the Escrows rulemaking,
creditors may incur costs associated with maintaining escrow accounts
on more transactions if not subject to other exceptions provided by the
Dodd-Frank Act. With respect to the Ability to Repay rulemaking,
creditors may incur costs associated with making fewer loans with
prepayment penalties, or may incur costs from the additional
underwriting requirements and/or liability associated with making more
loans that are higher-priced balloon loans or that are not qualified
mortgages.
In addition, a small number of creditors may also lose a very small
fraction of revenue if they are reluctant to make high-cost, higher-
priced, or higher-risk mortgage loans and cannot offer alternatives
that are as profitable as those loans.
As discussed in more detail in the 2012 HOEPA Proposal, modifying
the triggers would require some one-time implementation costs and would
create some additional compliance complexity if creditors must use
different metrics for disclosure purposes and for determining coverage
under particular regulatory regimes. However, with regard to the TCR,
the Bureau believes that such impacts would be addressed by the fact
that both TCR and APR using the expanded definition of finance charge
would be easier to calculate than APR under the current definition. On
balance, the Bureau believes adoption of the proposed trigger
modifications would reduce the economic impacts on creditors of the
more expansive definition of finance charge.
8. Implementation of New Disclosures Mandated by the Dodd-Frank Act
The proposed rule exempts creditors temporarily from compliance
with certain new disclosure requirements added to TILA and RESPA by the
Dodd-Frank Act until the TILA-RESPA rule takes effect.
As discussed more fully in part V.B, above, title XIV of the Dodd-
Frank Act adds new disclosure requirements to TILA and RESPA for
mortgage transactions. Although the Dodd-Frank Act does not
specifically require inclusion of all of these new disclosures in the
Loan Estimate and the Closing Disclosure, the Bureau believes these
disclosures should be included in the integrated forms because doing so
would improve the overall effectiveness of the integrated disclosure,
which may benefit consumers and covered persons, and also reduce burden
on covered persons. Finalizing the rules implementing these title XIV
disclosures simultaneously with the final TILA-RESPA rule would avoid
unnecessary regulatory burden by preventing creditors from having to
implement multiple rounds of disclosure rules. The Bureau does not
anticipate additional costs to covered persons as a result of delayed
implementation of the new disclosure requirements, although, as noted
above, covered persons may incur additional recurring costs associated
with calculating and disclosing this
[[Page 51280]]
additional information to consumers once the implementing rules take
effect.
9. Other Costs of Complying with the Proposed Regulation
Covered persons will need to learn about the requirements of the
regulation and determine what changes to their business practices they
would be required to make to come into compliance. These costs will
vary considerably across institutions, depending on the size and
complexity of their operations. In addition, some firms will rely on
their own staff to conduct this analysis, while others will rely on
outside counsel, industry sources, or compliance firms. Firms that use
compliance systems provided by outside vendors, especially smaller
creditors, will likely rely in large part on those vendors to determine
what changes they need to make, reducing the burden on those creditors.
E. Potential Specific Impacts of the Proposed Rule
1. Depository Institutions and Credit Unions with $10 Billion or Less
in Total Assets, As Described in Section 1026
Other than as noted here, the Bureau believes that the impact of
the rule on depository institutions and credit unions with $10 billion
or less in total assets will be similar to those for creditors as a
whole. The primary difference in the impact on these institutions is
likely to come from differences in the compliance systems and software
of these institutions.
As discussed above, based on information provided by creditors and
by software vendors, the Bureau believes that, in general, larger
creditors develop and maintain their own compliance software and
systems, while 95 prercent of smaller creditors, which includes the
vast majority of those with assets less than $10 billion, primarily
rely on software and compliance systems provided by outside vendors. As
described above, the use of vendors by smaller creditors will
substantially mitigate the costs of revising software and compliance
systems, as vendor software updates would likely be included in regular
annual updates, and therefore the costs would not be directly passed on
to the client creditors.
As discussed above, based on small entities that participated in
the Small Business Review Panel process, the Bureau estimates that the
small fraction of smaller creditors that maintain their own compliance
software and systems would incur costs of roughly $100,000 to update
their systems to comply with the proposal. The Bureau estimates that
there were a total of 11,749 banks, savings institutions, and credit
unions with assets less than $10 billion that originated mortgages in
2010, the most recent year for which complete data are available, and
that all but one of them was outside the top twenty mortgage
originators.\211\ The total estimated cost for these few smaller
creditors that maintain their own compliance software and systems is
therefore $100,000*11,749*5% = $58,700,000 (rounded to the nearest
$100,000). Amortized over five years, the annual costs are $11,750,000
for all smaller depository mortgages lenders and credit unions that
make mortgages combined.
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\211\ Estimate based on analysis of HMDA, SNL Call Reports, NCUA
Call Reports, and NMLS Call Reports.
---------------------------------------------------------------------------
The one creditor in the largest 20 mortgage creditors that is a
depository institution and has assets under $10,000,000 would need to
revise its compliance software and systems. The Bureau estimates that
the cost for this creditor would be $1,000,000; amortized over five
years this is an annual cost of $200,000.
Covered persons would incur one-time costs associated with training
employees to use new forms and any new compliance software and systems.
The Bureau estimates that each loan officer or other loan originator
will need to receive two hours of training, and, as described above,
each ten hours of trainee time would require an additional hour of
trainer time. Assuming the same ratio of loan officers to originations
at these institutions as for the industry as a whole, the Bureau
estimates that there are roughly 28,000 loan officers that would need
training at these institutions.\212\ Based on data from the Bureau of
Labor Statistics, the Bureau estimates that the average total
compensation is $46 per hour for a loan officer and $39 per hour for a
trainer, for a total training cost of (28,000*2*$46)+(2,800*2*$39) =
2,800,000 (rounded to the nearest $100,000). Amortized over five years,
this is an annual cost of $560,000 for all smaller depository mortgage
lenders and credit unions that make mortgage loans combined.
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\212\ Originations estimates based on analysis of HMDA, SNL Call
Reports, NCUA Call Reports, and NMLS Call Reports.
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Taken together, the Bureau estimates that the total one-time costs
of complying with the proposed Loan Estimate and Closing Disclosure for
these institutions would be roughly $62,500,000. Amortized over five
years, this is an annual cost of $12,500,000 for all smaller depository
mortgage lenders and credit unions that make mortgage loans combined.
The Bureau estimates that these creditors made roughly 2.6 million
originations in 2010. The estimated one-time cost is therefore less
than $5.00 per origination.
As discussed above, to comply with the proposed record retention
provisions, creditors may be required to reconfigure existing document
production and retention systems. The Bureau estimates that creditors
with existing electronic storage systems would need to expend 40 hours
of software and IT staff time to develop the ability to export data
from existing systems to a standardized format. This would apply to the
creditors that maintain their own systems--the one depository
institution with assets less than $10 billion that is one of the 20
largest mortgage creditors and five percent of other institutions, for
a total of 40+(11,749*.05*40) = 23,538 hours. Assuming an hourly labor
cost for software and IT staff of $54, based on information from the
Bureau of Labor Statistics, gives a total dollar cost of 23,538*$54 =
$1,300,000 (rounded to nearest $100,000). Amortized over five years,
this is an annual cost of $260,000 for all smaller depository mortgage
lenders and credit unions that make mortgage loans combined.
The Bureau understands that requiring standardized, electronic
records may be a significant burden for covered persons that do not
currently have such electronic filing systems. To reduce the burden on
small entities, which will include some depository institutions and
credit unions with $10 billion or less in total assets, the Bureau is
considering an exemption from the electronic data retention
requirements. See part VI, section-by-section analysis for proposed
Sec. 1026.25.
2. Impact of the Proposed Provisions on Consumers in Rural Areas
Consumers in rural areas may experience benefits and costs from the
proposed rule that are different in certain respects to those
experienced by consumers in general. The extent to which rural
consumers shop for mortgages and the ways in which they shop may differ
than the extent to which other consumers shop, which may affect the
benefits of the revised Loan Estimate. The Bureau is unaware of
information on these differences, however. To the extent that the
impacts of the proposal on creditors differ by type of creditor, this
may affect the costs and benefits of the proposal on consumers in rural
areas.
The Bureau will further consider the impact of the proposed rule on
consumers in rural areas. The Bureau
[[Page 51281]]
therefore asks interested parties to provide data, research results and
other factual information on the impact of the proposed rule on
consumers in rural areas.
F. Additional Analysis Being Considered and Request for Information
The Bureau will further consider the benefits, costs, and impacts
of the proposed provisions before finalizing the proposal. As noted
above, there are a number of areas where additional information would
allow the Bureau to better estimate the benefits, costs, and impacts of
this proposal and more fully inform the rulemaking. In particular, the
Bureau seeks additional data to analyze the frequency, magnitude, and
type of differences between initial estimates of settlement costs and
actual costs. This will enable the Bureau to better estimate the
effects of the various aspects of this proposal that relate to
settlement costs and how they change between the initial RESPA GFE and
closing. In addition, the Bureau asks interested parties to provide
general information, data, and research results on:
How consumers might respond to better mortgage costs
disclosures;
The benefits to consumers of clearer information about
their mortgages;
The potential impact on the functioning of the market and
on creditors if consumers better understood their loan;
The potential impact on creditors of the elimination of
the ten percent tolerance for cost changes for certain settlement fees;
The effects on the role of different market participants
of various aspects of the proposal, such as the elimination of the ten
percent tolerance for cost changes on certain settlement fees and the
alternative proposal that creditors be solely responsible for the
provision of the Closing Disclosure;
The effects of adopting a more inclusive finance charge,
including with respect to the rulemakings on HOEPA, Escrows,
Appraisals, and Ability to Repay;
The costs to covered persons of complying with the
proposal, such as revising compliance software and systems;
How often creditors or mortgage brokers obtain additional
information from the consumer after the Loan Estimate has been issued
that affects the costs of settlement services for the loan and that may
cause the creditor or broker to issue a revised Loan Estimate; and
How often creditors are providing additional disclosures
that are not required by the current rules and that they would no
longer send if the rules are clarified.
To supplement the information discussed in this preamble and any
information that the Bureau may receive from commenters, the Bureau is
currently working to gather additional data that may be relevant to
this and other mortgage related rulemakings. These data may include
additional data from Nationwide Mortgage Licensing System and Registry
and the NMLS Mortgage Call Report, loan file extracts from various
lenders, and data from the pilot phases of the National Mortgage
Database. The Bureau expects that each of these datasets will be
confidential. This section now describes each dataset in turn.
First, as the sole system supporting licensure/registration of
mortgage companies for 53 agencies for states and territories and
mortgage loan originators under the SAFE Act, NMLS contains basic
identifying information for nondepository mortgage loan origination
companies. Firms that hold a State license or State registration
through NMLS are required to complete either a standard or expanded
Mortgage Call Report (MCR). The Standard MCR includes data on each
firm's residential mortgage loan activity including applications,
closed loans, individual mortgage loan originator (MLO) activity, line
of credit and other data repurchase information by State. It also
includes financial information at the company level. The expanded
report collects more detailed information in each of these areas for
those firms that sell to Fannie Mae or Freddie Mac.\213\ To date, the
Bureau has received basic data on the firms in the NMLS and de-
identified data and tabulations of data from the Mortgage Call Report.
These data were used, along with HMDA data, to help estimate the number
and characteristics of nondepository institutions active in various
mortgage activities. In the near future, the Bureau may receive
additional data on loan activity and financial information from the
NMLS including loan activity and financial information for identified
lenders. The Bureau anticipates that these data will provide additional
information about the number, size, type, and level of activity for
nondepository lenders engaging in various mortgage origination and
servicing activities. As such, it supplements the Bureau's current data
for nondepository institutions reported in HMDA and the data already
received from NMLS. For example, these new data will include
information about the number and size of closed-end first and second
loans originated, fees earned from origination activity, levels of
servicing, revenue estimates for each firm and other information. The
Bureau may compile some simple counts and tabulations and conduct some
basic statistical modeling to better model the levels of various
activities at various types of firms. In particular, the information
from the NMLS and the MCR may help the Bureau refine its estimates of
benefits, costs, and impacts for each of the revisions to the RESPA GFE
and settlement statement forms, changes to the HOEPA thresholds,
changes to requirements for appraisals, updates to loan originator
compensation rules, proposed new servicing requirements, and the new
ability to repay standards.
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\213\ More information about the Mortgage Call Report can be
found at https://mortgage.nationwidelicensingsystem.org/slr/common/mcr/Pages/default.aspx.
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Second, the Bureau is working to obtain a random selection of loan-
level data from several lenders. The Bureau intends to request loan
file data from lenders of various sizes and geographic locations to
construct a representative dataset. In particular, the Bureau will
request a random sample of RESPA GFE and RESPA settlement statement
forms from loan files for closed-end loans. These forms include data on
some or all loan characteristics including settlement charges,
origination charges, appraisal fees, flood certifications, mortgage
insurance premiums, homeowner's insurance, title charges, balloon
payments, prepayment penalties, origination charges, and credit charges
or points. Through conversations with industry, the Bureau believes
that such loan files exist in standard electronic formats allowing for
the creation of a representative sample for analysis. The Bureau may
use these data to further measure the impacts of certain proposed
changes. Calculations of various categories of settlement and
origination charges may help the Bureau calculate the various impacts
of proposed changes to the definition of finance charge and other
aspects of the proposal, including proposed changes in the number and
characteristics of loans that exceed the HOEPA thresholds, loans that
would meet the high rate or high risk definitions mandating additional
consumer protections, and loans that meet the points and fees
thresholds contained in the ability to repay provisions of Dodd-Frank.
Third, the Bureau may also use data from the pilot phases of the
National Mortgage Database (NMDB) to refine its proposals and/or its
assessments of the benefits, costs, and impacts of these proposals. The
NMDB is a
[[Page 51282]]
comprehensive database, currently under development, of loan-level
information on first lien single-family mortgages. It is designed to be
a nationally representative sample (1 percent) and contains data
derived from credit reporting agency data and other administrative
sources along with data from surveys of mortgage borrowers. The first
two pilot phases, conducted over the past two years, vetted the data
development process, successfully pretested the survey component and
produced a prototype dataset. The initial pilot phases validated that
sampled credit repository data are both accurate and comprehensive and
that the survey component yields a representative sample and a
sufficient response rate. A third pilot is currently being conducted
with the survey being mailed to holders of five thousand newly
originated mortgages sampled from the prototype NMDB. Based on the 2011
pilot, a response rate of fifty percent or higher is expected. These
survey data will be combined with the credit repository information of
non-respondents, and then de-identified. Credit repository data will be
used to minimize non-response bias, and attempts will be made to impute
missing values. The data from the third pilot will not be made public.
However, to the extent possible, the data may be analyzed to assist the
Bureau in its regulatory activities and these analyses will be made
publically available.
The survey data from the pilots may be used by the Bureau to
analyze consumers' shopping behavior regarding mortgages. For instance,
the Bureau may calculate the number of consumers who use brokers, the
number of lenders contacted by borrowers, how often and with what
patterns potential borrowers switch lenders, and other behaviors.
Questions may also assess borrowers' understanding of their loan terms
and the various charges involved with origination. Tabulations of the
survey data for various populations and simple regression techniques
may be used to help the Bureau with its analysis.
The Bureau requests commenters to submit data and to provide
suggestions for additional data to assess the issues discussed above
and other potential benefits, costs, and impacts of the proposed rule.
The Bureau also requests comment on the use of the data described
above.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), as amended by SBREFA,
requires each agency to consider the potential impact of its
regulations on small entities, including small businesses, small
governmental units, and small not-for-profit organizations. 5 U.S.C.
601 et seq. The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 603, 604. The Bureau also is subject to certain
additional procedures under the RFA involving the convening of a panel
to consult with small business representatives prior to proposing a
rule for which an IRFA is required. 5 U.S.C. 609.
The Bureau has not certified that the proposed rule would not have
a significant economic impact on a substantial number of small entities
within the meaning of the RFA. Accordingly, the Bureau convened and
chaired a Small Business Review Panel to consider the impact of the
proposed rule on small entities that would be subject to that rule and
to obtain feedback from representatives of such small entities. The
Small Business Review Panel for this rulemaking is discussed below in
part VIII.A.
The Bureau is publishing an IRFA. Among other things, the IRFA
estimates the number of small entities that will be subject to the
proposed rule and describe the impact of that rule on those entities.
The IRFA for this rulemaking is set forth below in part VIII.B.
A. Small Business Review Panel
Under section 609(b) of the RFA, as amended by SBREFA and the Dodd-
Frank Act, the Bureau seeks, prior to conducting the IRFA, information
from representatives of small entities that may potentially be affected
by its proposed rules to assess the potential impacts of that rule on
such small entities. 5 U.S.C. 609(b). Section 609(b) sets forth a
series of procedural steps with regard to obtaining this information.
The Bureau first notifies the Chief Counsel for Advocacy (Chief
Counsel) of the U.S. Small Business Administration (SBA) and provides
the Chief Counsel with information on the potential impacts of the
proposed rule on small entities and the types of small entities that
might be affected. 5 U.S.C. 609(b)(1). Not later than 15 days after
receipt of the formal notification and other information described in
section 609(b)(1) of the RFA, the Chief Counsel then identify
individuals representative of affected small entities for the purpose
of obtaining advice and recommendations from those individuals about
the potential impacts of the proposed rule (the small entity
representatives, or SERs). 5 U.S.C. 609(b)(2). The Bureau convenes a
review panel for such rule consisting wholly of full time Federal
employees of the office within the Bureau responsible for carrying out
the proposed rule, the Office of Information and Regulatory Affairs
(OIRA) within the U.S. Office of Management and Budget (OMB), and the
Chief Counsel (collectively, the Small Business Review Panel or Panel).
5 U.S.C. 609(b)(3). The Panel reviews any material the Bureau has
prepared in connection with the SBREFA process and collects advice and
recommendations of each individual small entity representative
identified by the Bureau after consultation with the Chief Counsel on
issues related to sections 603(b)(3) through (b)(5) and 603(c) of the
RFA.\214\ 5 U.S.C. 609(b)(4). Not later than 60 days after the date the
Bureau convenes the Small Business Review Panel, the Panel reports on
the comments of the SERs and its findings as to the issues on which the
Panel consulted with the SERs, and the report is made public as part of
the rulemaking record. 5 U.S.C. 609(b)(5). Where appropriate, the
Bureau modifies the rule or the IRFA in light of the foregoing process.
5 U.S.C. 609(b)(6).
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\214\ As described in the IRFA in part VIII.B, below, sections
603(b)(3) through (b)(5) and 603(c) of the RFA, respectively,
require a description of and, where feasible, provision of an
estimate of the number of small entities to which the proposed rule
will apply; a description of the projected reporting, recordkeeping,
and other compliance requirements of the proposed rule, including an
estimate of the classes of small entities which will be subject to
the requirement and the type of professional skills necessary for
preparation of the report or record; an identification, to the
extent practicable, of all relevant Federal rules which may
duplicate, overlap, or conflict with the proposed rule; and a
description of any significant alternatives to the proposed rule
which accomplish the stated objectives of applicable statutes and
which minimize any significant economic impact of the proposed rule
on small entities. 5 U.S.C. 603(b)(3)-(5), 603(c).
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On February 7, 2012, the Bureau provided the Chief Counsel with the
formal notification and other information required under section
609(b)(1) of the RFA. To obtain feedback from small entity
representatives to inform the Panel pursuant to sections 609(b)(2) and
609(b)(4) of the RFA, the Bureau, in consultation with the Chief
Counsel, identified six categories of small entities that may be
subject to the proposed rule for purposes of the IRFA: commercial
banks/savings institutions, credit unions, mortgage brokers, mortgage
companies (non-bank lenders), settlement (closing) agents, and
nonprofit organizations. These are the categories of entities that may
be required to provide, and maintain
[[Page 51283]]
related records on, the integrated mortgage disclosures, either because
they may make mortgage loans subject to the proposed rule or because
they may be responsible for completing or providing required
disclosures. Part VIII.B.3, below, describes in greater detail the
Bureau's analysis of the number and types of entities that may be
affected by the proposed rule. Having identified the categories of
small entities that may be subject to the proposed rule for purposes of
an IRFA, the Bureau, in consultation with the Chief Counsel, selected
16 SERs to participate in the SBREFA process. As described in chapter 7
of the Panel's report (described below), the SERs included
representatives from each of the categories identified by the Bureau
and comprised a diverse group of individuals with regard to geography
and type of locality (i.e., rural, urban, or suburban areas).
On February 21, 2012, the Bureau convened the Panel pursuant to
section 609(b)(3) of the RFA. To collect the advice and recommendations
of the SERs under section 609(b)(4) of the RFA, the Panel held an
outreach meeting/teleconference with the SERs on March 6, 2012 (the
Panel Outreach Meeting). To help the SERs prepare for the Panel
Outreach Meeting, the Panel circulated briefing materials prepared in
connection with section 609(b)(4) of the RFA that summarized the
proposals under consideration at that time, posed discussion issues,
and provided information about the SBREFA process generally.\215\ All
16 SERs participated in the Panel Outreach Meeting either in person or
by telephone. The Panel also provided the SERs with an opportunity to
submit written feedback. In response, the Panel received written
feedback from 12 of the representatives.\216\
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\215\ The Bureau posted these materials on its Web site and
invited the public to email remarks on the materials. See https://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-convenes-small-business-panel-for-know-before-you-owe-mortgage-disclosures/ (the materials are accessible via the links
within this document).
\216\ This written feedback is attached as appendix A to the
written report of the Panel, discussed below.
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On April 23, 2012, the Panel submitted to the Director of the
Bureau, Richard Cordray, a written report (the Small Business Review
Panel Report) that includes the following: background information on
the proposals under consideration at the time; information on the types
of small entities that would be subject to those proposals and on the
SERs who were selected to advise the Panel; a summary of the Panel's
outreach to obtain the advice and recommendations of those SERs; a
discussion of the comments and recommendations of the SERs; and a
discussion of the Panel findings, focusing on the statutory elements
required under section 603 of the RFA. 5 U.S.C. 609(b)(5).\217\
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\217\ Final Report of the Small Business Review Panel on the
CFPB's Proposals Under Consideration for Integration of TILA and
RESPA Mortgage Disclosure Requirements, dated April 23, 2012. As
discussed above, this report is available on the Bureau's Web site.
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In preparing this proposed rule and the IRFA, the Bureau has
carefully considered the feedback from the SERs participating in the
SBREFA process and the findings and recommendations in the Small
Business Review Panel Report. The section-by-section analysis of the
proposed rule in part VI, above, and the IRFA discuss this feedback and
the specific findings and recommendations of the Panel, as applicable.
The SBREFA process provided the Panel and the Bureau with an
opportunity to identify and explore opportunities to minimize the
burden of the rule on small entities while achieving the rule's
purposes. It is important to note, however, that the Panel prepared the
Small Business Review Panel Report at a preliminary stage of the
proposal's development and that the Panel Report--in particular, the
Panel's findings and recommendations--should be considered in that
light. Also, the Small Business Review Panel Report expressly stated
that options it identified for reducing the proposed rule's regulatory
impact on small entities were subject to further consideration,
analysis, and data collection by the Bureau to determine if the options
identified were practicable, enforceable, and consistent with TILA,
RESPA, the Dodd-Frank Act, and their statutory purposes. The proposed
rule and the IRFA reflect further consideration, analysis, and data
collection by the Bureau.
B. Initial Regulatory Flexibility Analysis
Under section 603(a) of the RFA, an IRFA ``shall describe the
impact of the proposed rule on small entities.'' 5 U.S.C. 603(a).
Section 603(b) of the RFA sets forth the required elements of the IRFA.
Section 603(b)(1) requires the IRFA to contain a description of the
reasons why action by the agency is being considered. 5 U.S.C.
603(b)(1). Section 603(b)(2) requires a succinct statement of the
objectives of, and the legal basis for, the proposed rule. 5 U.S.C.
603(b)(2). The IRFA further must contain a description of and, where
feasible, provision of an estimate of the number of small entities to
which the proposed rule will apply. 5 U.S.C. 603(b)(3). Section
603(b)(4) requires a description of the projected reporting,
recordkeeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirement and the types of professional skills
necessary for the preparation of the report or record. 5 U.S.C.
603(b)(4). In addition, the Bureau must identify, to the extent
practicable, all relevant Federal rules which may duplicate, overlap,
or conflict with the proposed rule. 5 U.S.C. 603(b)(5). The Bureau,
further, must describe any significant alternatives to the proposed
rule which accomplish the stated objectives of applicable statutes and
which minimize any significant economic impact of the proposed rule on
small entities. 5 U.S.C. 603(b)(6). Finally, as amended by the Dodd-
Frank Act, section 603(d) of the RFA requires that the IRFA include a
description of any projected increase in the cost of credit for small
entities, a description of any significant alternatives to the proposed
rule which accomplish the stated objectives of applicable statutes and
which minimize any increase in the cost of credit for small entities
(if such an increase in the cost of credit is projected), and a
description of the advice and recommendations of representatives of
small entities relating to the cost of credit issues. 5 U.S.C.
603(d)(1); Dodd-Frank Act section 1100G(d)(1).
1. Description of the Reasons Why Agency Action Is Being Considered
As discussed in part II, above, for more than 30 years, TILA and
RESPA have required lenders and settlement agents to give to consumers
who take out a mortgage loan different but overlapping disclosure forms
regarding the loan's terms and costs. This duplication has long been
recognized as inefficient and confusing for consumers and industry. The
following two paragraphs briefly summarize the statutory differences,
which are described in more detail in part I and part II, above.
a. TILA/Regulation Z
In connection with any closed-end credit transaction secured by a
consumer's dwelling and subject to RESPA, TILA and Regulation Z require
creditors to provide good faith estimates of loan terms (such as the
APR) within three business days after receiving the consumer's mortgage
application (i.e., the early TILA disclosure). If the APR on the early
TILA disclosure becomes inaccurate, TILA requires the creditor to
[[Page 51284]]
provide a corrected disclosure at least three business days before
closing (i.e., the corrected TILA disclosure). TILA requires that the
disclosures be provided in final form at the time of consummation
(i.e., the final TILA disclosure). See part II.C, above.
b. RESPA/Regulation X
In connection with any federally related mortgage loan, RESPA and
Regulation X require that lenders provide a good faith estimate of the
amount or range of charges for certain settlement services the borrower
is likely to incur in connection with the settlement (such as fees for
an appraisal or a title search) and related loan information within
three business days after receiving the consumer's application (i.e.,
the RESPA GFE). RESPA also requires that ``the person conducting the
settlement'' (typically, the settlement or closing agent) provide the
consumer with a completed, itemized statement of settlement charges at
or before settlement (i.e., the RESPA settlement statement). See part
II.B above.
Furthermore, the recent mortgage crisis highlighted deficiencies in
consumer understanding of mortgage transactions, which may be
attributed in part to shortcomings in mortgage disclosures. Part II.A
above discusses in greater detail the background of the mortgage
market. Prior to the creation of the Bureau, other government agencies
took steps to address these shortcomings. Specifically, HUD, which was
previously responsible for implementing RESPA, finalized rules in 2008
that substantially revised the RESPA mortgage disclosures (i.e., HUD's
2008 RESPA Final Rule). In addition, the Board, which was previously
responsible for TILA, proposed rules in 2009 that would have
substantially revised the TILA mortgage disclosures (i.e., the Board's
2009 Closed-End Proposal). However, neither HUD nor the Board had the
authority to combine the TILA and RESPA disclosures.
As noted above, the Dodd-Frank Act consolidated rulemaking
authority for RESPA and TILA in the Bureau. In addition, the Dodd-Frank
Act amended both statutes to mandate specifically that the Bureau
propose rules and forms combining the TILA and RESPA disclosures for
mortgage loans subject to either law or both laws by July 21, 2012.
Dodd-Frank Act sections 1032(f), 1098, 1100A. The Dodd-Frank Act
establishes two goals for the consolidation: to improve consumer
understanding of mortgage loan transactions; and to facilitate industry
compliance with TILA and RESPA. The Dodd-Frank Act also made several
amendments to the disclosure requirements in TILA and RESPA. In
particular, the Dodd-Frank Act amended TILA to require the creditor to
disclose in the early and final TILA disclosures the aggregate amount
of settlement charges provided in connection with the loan, which was
previously disclosed only by the settlement agent in the RESPA
settlement statement.\218\
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\218\ Section 1419 of the Dodd-Frank Act, adding section
128(a)(17) to TILA.
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The proposed rule, therefore, both follows on the prior efforts of
HUD and the Board to address shortcomings in the mortgage market with
regard to mortgage disclosures and effectuates Congress's specific
mandate to the Bureau to integrate the mortgage disclosures under TILA
and RESPA. For a further description of the reasons why agency action
is being considered, see the background discussion for the proposed
rule in part II, above.
2. Statement of the Objectives of, and Legal Basis for, the Proposed
Rule
As described above, the proposed rule effectuates Congress's
mandate to integrate the mortgage disclosures required under TILA and
RESPA. In particular, sections 1098 and 1100A of the Dodd-Frank Act
state that the purposes of the integrated disclosures are to facilitate
compliance with TILA and RESPA and ``to aid the borrower or lessee in
understanding the transaction by utilizing readily understandable
language to simplify the technical nature of the disclosures.'' The
integrated disclosures also effectuate the underlying statutory
purposes of RESPA and TILA. One of the statutory purposes of RESPA is
``more effective advance disclosure to home buyers and sellers of
settlement costs.'' 12 U.S.C. 2601(b)(1). And one statutory purpose of
TILA is to ``to assure a meaningful disclosure of credit terms so that
the consumer will be able to compare more readily the various credit
terms available to him and avoid the uninformed use of credit.'' 15
U.S.C. 1601(a).
Furthermore, this rulemaking promotes consumer comprehension of
financial disclosures. Section 1021(b) of the Dodd-Frank Act authorizes
the Bureau to exercise its authorities to ensure that, with respect to
consumer financial products and services, ``consumers are provided with
timely and understandable information to make responsible decisions
about financial transactions.'' 12 U.S.C. 5511(b). Section 1032(a) of
the Dodd-Frank Act provides the Bureau with the authority to
``prescribe rules to ensure that the features of any consumer financial
product or service, both initially and over the term of the product or
service, are fully, accurately, and effectively disclosed to consumers
in a manner that permits consumers to understand the costs, benefits,
and risks associated with the product or service, in light of the facts
and circumstances.'' 12 U.S.C. 5532(a).
The proposed rule also is intended to provide other benefits for
consumers. First, the new prototype disclosure forms are simpler and
more comprehensible, and their design has been refined to incorporate
extensive consumer and industry feedback gathered through online tools
and one-on-one testing across the country. See part III, above. By
conveying information on key loan terms clearly, the redesigned
disclosure forms may improve the ability of consumers to shop for and
compare mortgage terms across loan offers and improve their
understanding of mortgage loan transactions. Second, the proposed rule
seeks to improve consumers' ability to shop by more clearly delineating
between estimates regulated by TILA and RESPA and non-binding
preapplication estimates. Third, the proposed rule may reduce the
magnitude and frequency of changes in costs between application and
consummation and may decrease the likelihood that consumers will face
unexpected changes in costs due to ``bait and switch'' tactics.\219\
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\219\ This discussion of the proposed rule's benefits to
consumers is intended to be illustrative, not exhaustive. Additional
consumer benefits that may result from the proposed rule are
discussed in other sections of the proposed rule.
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Lastly, the Bureau is seeking to reconcile differences in the
scope, terminology, and requirements of TILA, RESPA, and their current
implementing regulations. As discussed above, the Dodd-Frank Act did
not reconcile a number of statutory differences between TILA and RESPA
(e.g., the different requirements on the timing of disclosures and
which party is responsible for providing the disclosures), which the
Bureau needs to do in order to satisfy the mandate to integrate the
disclosures. Moreover, the proposed rule clarifies and streamlines
aspects of the current rules that have been identified as confusing by
lenders, mortgage brokers, mortgage companies, and settlement agents,
as well as for consumers who receive the disclosures. The Bureau
believes that these clarifications will resolve ambiguities, eliminate
redundant or unnecessary disclosures, and more effectively
[[Page 51285]]
disclose mortgage loan terms and costs to consumers.
The legal basis for the proposed rule is discussed in detail in the
legal authority analysis in part IV and in the section-by-section
analysis in part VI, above.
3. Description and, Where Feasible, Provision of an Estimate of the
Number of Small Entities to Which the Proposed Rule Will Apply
As discussed in the Small Business Review Panel Report, for
purposes of assessing the impacts of the proposed rule on small
entities, ``small entities'' is defined in the RFA to include small
businesses, small nonprofit organizations, and small government
jurisdictions. 5 U.S.C. 601(6). A ``small business'' is determined by
application of SBA regulations and reference to the North American
Industry Classification System (NAICS) classifications and size
standards.\220\ 5 U.S.C. 601(3). Under such standards, banks and other
depository institutions are considered ``small'' if they have $175
million or less in assets, and for other financial businesses, the
threshold is average annual receipts (i.e., annual revenues) that do
not exceed $7 million.\221\
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\220\ The current SBA size standards are found on SBA's Web site
at https://www.sba.gov/content/table-small-business-size-standards.
\221\ See id.
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During the Small Business Review Panel process, the Bureau
identified six categories of small entities that may be subject to the
proposed rule for purposes of the RFA. These are the categories of
entities that may be required to provide, and maintain related records
on, the integrated disclosures, either because they may make
residential mortgage loans or because they may be responsible for
completing or providing required disclosures. The categories and the
SBA small entity thresholds for those categories are: (1) Commercial
banks \222\ with up to $175,000,000 in assets, (2) credit unions with
up to $175,000,000 in assets, (3) mortgage brokers with up to
$7,000,000 in annual revenue, (4) mortgage companies (non-bank lenders)
with up to $7,000,000 in annual revenue, (5) settlement (closing)
agents with up to $7,000,000 in annual revenue, and (6) nonprofit
organizations that are not for profit, independently owned and
operated, and not dominant in the field.
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\222\ For purposes of the Bureau's Small Business Review Panel
Outline circulated in advance of the Panel Outreach Meeting, the
categories of commercial banks and savings institutions were
combined under the label ``commercial banks.'' The list of SERs
identified in chapter 7 of the Small Business Review Panel Report
includes one representative of a savings institution.
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Since the time the Small Business Review Panel Report was
completed, some of the data sources that the Bureau used to estimate
the numbers of small entities of different types have released updated
information and the Bureau has revised some aspects of the estimation
procedure. The following table provides the Bureau's revised estimates
of the number and types of entities that may be affected by the
proposed rule: \223\
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\223\ In the Small Business Review Panel Report, chapter 9.1, a
preliminary estimate of affected entities and small entities was
included in a similar format (a chart with clarifying notes). See
Small Business Review Panel Report at 26-27.
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[[Page 51286]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.999
[[Page 51287]]
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Proposed Rule, Including an Estimate of the Classes
of Small Entities Which Will Be Subject to the Requirement and the Type
of Professional Skills Necessary for the Preparation of the Report
The proposed rule does not impose new reporting requirements. The
proposed rule does, however, impose new recordkeeping and compliance
requirements on certain small entities. The requirements to integrate
the TILA and RESPA disclosures and the imposition of new disclosure
requirements under the Dodd-Frank Act, title XIV, appear specifically
in the Dodd-Frank Act, while the recordkeeping requirements do not.
Thus, to a large extent, the impacts discussed below are impacts of the
statute, not of the regulation per se--that is, the Bureau discusses
impacts against a pre-statute baseline.
a. Reporting Requirements
The proposed rule does not impose new reporting requirements.
b. Recordkeeping Requirements
The proposed rule imposes new data retention requirements for the
Loan Estimate and the Closing Disclosure by requiring creditors to
maintain evidence of compliance in machine readable, electronic format.
The proposed retention period is three years for the Loan Estimates and
five years for the Closing Disclosures. See part VI above, section-by-
section analysis for proposed Sec. 1026.25.
i. Benefits to Small Entities
A prescribed electronic format may reduce costs across the entire
mortgage loan origination industry due to the efficiency gains
associated with a standardized data format. Based on industry feedback,
the Bureau understands that creditors, mortgage brokers, title
companies, investors, and other mortgage technology providers use
systems with proprietary data formats. As a result, data must be
translated between formats as it is transmitted from one point to
another throughout the mortgage loan origination process. A standard
format should lower those coordination costs. In addition, a standard
format may also facilitate innovation in the financial services
industry by making it easier for technology companies to create new
programs that improve the mortgage origination process and lower
industry costs, instead of tailoring programs to each firm's unique
proprietary data format; may lower ongoing costs by facilitating
industry adoption of mortgage documentation technology and reducing
industry's reliance on paper files; and may ease the burden of staff
time and resources devoted to on-site supervisory examinations by
allowing for remote examinations of compliance. All of these benefits
may reduce industry cost and burden in the long run, thereby reducing
costs to consumers as well.
The Bureau is aware that there are various efforts currently
underway to standardize the format for storage and transmission of
mortgage origination related data. To the extent that the Bureau's
proposal may advance these efforts toward a standard electronic record
format, the proposal may help eliminate multiple data formats, thereby
increasing efficiency in the origination process, reducing industry
costs in the long term, and reducing costs to consumers. Also, the
Bureau is aware that many firms currently face significant internal
costs for maintaining multiple internal technological systems. To the
extent the Bureau's efforts reduce uncertainly regarding the eventual
standard, a single data format specified by the Bureau may lower costs
by enabling creditors to migrate from older data formats to a single,
standard data format.
ii. Costs to Small Entities
The proposed rule may result in costs to small entities. Under
current rules, creditors must retain evidence of compliance with the
disclosure requirements in Regulation X (i.e., a copy of the RESPA
settlement statement) and Regulation Z (i.e., evidence of compliance
generally) for five years and two years, respectively, but are not
required to maintain such evidence an electronic, machine readable
format. 12 CFR 1024.10(e); 1026.25. Based on industry feedback, the
Bureau understands that firms currently rely on electronic systems for
most aspects of the mortgage loan origination process, including
electronic record creation and storage. Not all small creditors
currently maintain data in a machine-readable format, however, and
those who do may not retain it in the format that may ultimately be
adopted. To comply with the proposed record retention provisions,
therefore, creditors may be required to reconfigure existing document
production and retention systems. For small creditors that maintain
their own compliance systems and software, the Bureau does not believe
that adding the capacity to maintain data in a standard machine
readable format will impose a substantial burden, as the only
requirement will be to output existing data to a new format and then
store that data. The Bureau believes that the primary cost will be one-
time systems changes that could be accomplished at the same time that
systems changes are carried out to comply with the new proposed Loan
Estimate and Closing Disclosure. Similarly, small creditors that rely
on vendors would likely rely on vendor software and systems to comply
with the data retention requirement; at least one vendor already offers
indefinite data storage to customers that use their web-based
compliance tool.
The Bureau understands, however, that requiring standardized,
electronic records may be a significant burden for small creditors that
do not currently have such electronic filing systems or use vendor
software. To reduce the burden on small entities, the Bureau is
considering an exemption from the electronic data retention
requirements. See part VI above, section-by-section analysis for
proposed Sec. 1026.25.
c. Compliance Requirements
The proposal contains both specific proposed provisions with
regulatory or commentary language (proposed provisions) as well as
requests for comment on modifications where regulatory or commentary
language was not specifically included (additional proposed
modifications). The analysis below considers the benefits, costs, and
impacts of the following major proposed provisions and the additional
proposed modifications on small entities:
1. The integration of the initial and closing disclosures (the Loan
Estimate and Closing Disclosure, respectively),
2. The definition of application,
3. The disclaimer on pre-application written estimates,
4. Permissible changes to settlement costs and re-disclosure of
initial disclosures,
5. Provision of the Closing Disclosure,
6. The definition of the finance charge, and
7. Implementation of new disclosures mandated by the Dodd-Frank
Act.
The analysis examines the benefits, costs, and impacts of the major
provisions of the proposed rule against a pre-statutory baseline. This
means that to the extent there are benefits, costs, or other relevant
impacts emanating from the relevant provisions of the Dodd-Frank Act,
those are combined with the benefits, costs, and impact of the
regulation itself in conducting this analysis. The Bureau has
discretion in future rulemakings to choose the most appropriate
baseline for that particular rulemaking.
[[Page 51288]]
The Bureau generally requests comment on the proposed provisions
and additional proposed modifications and on the Bureau's assessment of
the benefits, costs, and impacts on small entities of the major
proposed provisions and additional proposed modifications.
i. Integrated Initial and Closing Disclosures
The proposed rule requires that the Loan Estimate be provided to
consumers within three business days after receipt of the consumer's
application, to replace the early TILA disclosure and RESPA GFE, and
that the Closing Disclosure be provided to consumers at least three
business days prior to consummation, to replace the final TILA
disclosure and RESPA settlement statement. As discussed above, TILA
authorizes the Bureau to publish model forms for the TILA disclosures,
while RESPA authorizes the Bureau to require the use of standard forms
(e.g., the prescribed RESPA GFE and settlement statement forms).
Accordingly, the Bureau is proposing to require the use of standard
Loan Estimate and Closing Disclosure forms for mortgage loan
transactions that are subject to RESPA, other than reverse mortgages.
For transactions that are subject only to TILA, however, the forms
would be model disclosures, consistent with the provisions of that
statute. The proposed rule also incorporates prior informal guidance
regarding compliance with HUD's 2008 Final RESPA Rule into Regulation Z
and official commentary, as necessary and appropriate.
Benefits to Small Entities. The integration of the early TILA
disclosure and the RESPA GFE, and the revised TILA disclosure and the
RESPA settlement statement, may benefit small entities, including small
creditors, mortgage brokers, and settlement agents that provide the
disclosures. It will reduce the number of disclosures that covered
persons need to prepare and provide and the number of disclosure-
provision systems and processes that covered persons need to maintain.
In addition, the three-page Loan Estimate would replace a three-page
RESPA GFE and two-page early TILA disclosure, as well as incorporate
other new disclosure requirements in the Dodd-Frank Act that might
otherwise be provided separately.
Most small entities that participated in the Small Business Review
Panel process stated that the integrated forms would make it easier to
explain transactions to consumers. One letter from several small entity
settlement agents indicated that the new forms could actually lead to
more questions during a closing; however, the Bureau is alternatively
proposing and soliciting comment on removing from the integrated forms
certain disclosures, such as the total interest percentage and costs of
funds, which may be difficult to explain to consumers. Information
submitted by several settlement agents indicates that requiring the use
of standard forms and providing clearer regulatory guidance could save
as much as 30 minutes per closing by standardizing practices across
lenders and reducing confusion. Based on an industry estimate of a
typical hourly wage of a settlement agent of $31 per hour, this
translates into a dollar savings from the simplified closing forms of
$16.50 per closing. Some portion of these savings would likely be
passed on to the consumers.
The integrated disclosures also permit creditors to consolidate
certain numerical calculations. For example, Regulations Z and X
currently require two different calculations for the disclosure of
monthly payment information on the early TILA disclosure and the RESPA
GFE. The integrated Loan Estimate consolidates these calculations into
one monthly payment disclosure, which may facilitate compliance and
ease burden on small entities. Other examples of overlapping but
potentially different numerical disclosures required under Regulations
Z and X include information about balloon payments and prepayment
penalties.
Costs to Small Entities. The integrated Loan Estimate and the
Closing Disclosure would result in certain compliance costs to small
entities. The Bureau believes that many of the costs of complying with
these requirements would be common across the two disclosures, and
therefore discusses them together here. In addition, the Bureau
believes that these costs would consist primarily of one-time costs to
revise software and compliance systems, as other costs of compliance
should not vary significantly from the costs of complying with existing
regulations.
Small entities would need to adapt their software and compliance
systems to produce the new forms. In addition to changing the format of
the required forms, the new proposed forms would include several new
disclosures that are required by the Dodd-Frank Act. The Bureau
believes that this additional information would be added to the forms
as part of the process of adapting software and compliance systems to
produce the new forms, and therefore does not provide separate
estimates for the costs of this additional information.
Based on information provided by creditors and by software vendors,
the Bureau believes that, in general, small creditors primarily rely on
software and compliance systems provided by outside vendors. Based on
industry feedback, the Bureau believes that that 95 percent of
creditors outside the top 20 rely on vendors, and it is likely the case
that the percentage of small creditors using vendors is even higher
than this. The use of vendors by small creditors will substantially
mitigate the costs of revising software and compliance systems, as the
efforts of a single vendor would address the needs of a large number of
creditors. Based on discussions with a leading mortgage origination
technology provider, the Bureau believes that these updates would
likely be included in regular annual updates, and therefore the costs
would not be directly passed on to the client creditors. More than 95
percent of small creditors, therefore, would not pay directly for
software updates to comply with the new rules.
Based on small entities that participated in the Small Business
Review Panel process, the Bureau estimates that smaller creditors that
maintain their own compliance software and systems would incur costs of
roughly $100,000 to determine what changes need to be made and to
update their systems to comply with the proposal.\224\ The total cost
for these smaller creditors that maintain their own compliance software
and systems is therefore $100,000*9,807*5%=$49,000,000 (rounded to the
nearest $100,000). As noted above, the share of small entities that
maintain their own compliance software and systems is likely less than
five percent, so this is likely an over-estimate of the costs of
revising these systems.
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\224\ Small entities that participated in the Small Business
Review Panel process provided a wide range of estimates. See Small
Business Review Panel Report at 17-20.
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Covered persons would incur one-time costs associated with training
employees to use new forms and any new compliance software and systems.
The Bureau estimates that each loan officer or other loan originator
will need to receive two hours of training, and that one trainer would
be needed for each ten trainees. Assuming the same ratio of loan
officers to originations at small creditors as for the industry as a
whole, the Bureau estimates that there are 20,000 loan officers that
would need training at these institutions.\225\ Based
[[Page 51289]]
on data from the Bureau of Labor Statistics, the Bureau estimates that
the average total compensation is $46 per hour for a loan officer and
$39 per hour for a trainer, for a total training cost of
(20,000*2*$46)+(2,000*2*$39) = $2,000,000 (rounded to the nearest
100,000).
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\225\ Originations estimates based on analysis of HMDA, SNL Call
Reports, NCUA Call Reports, and NMLS Call Reports.
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Taken together, the Bureau estimates that the total one-time costs
for small entities of complying with the proposed Loan Estimate and
Closing Disclosure would be roughly $51,000,000. As discussed above,
firms are expected to amortize this cost over a period of years and in
this analysis all costs are amortized over five years, using a simple
straight-line amortization. Amortizing this one-time cost of compliance
over five years yields an annual cost of $10,200,000. The Bureau
estimates that these creditors made roughly 1.4 million originations in
2010. The estimated annualized one-time cost is therefore less than $8
per origination.
ii. Definition of Loan Application
The proposed rule revises the regulatory definition of loan
application to encourage earlier provision of the Loan Estimate to
consumers.
Under TILA and RESPA, a creditor or mortgage broker is not required
to provide the good faith estimates of loan terms and settlement costs
in the early TILA disclosure and RESPA GFE until it has received an
``application.'' As discussed more fully in part VI above, section-by-
section analysis for proposed Sec. 1026.2(a)(3), under current
regulations, the receipt of the following information by the creditor
or mortgage broker constitutes receipt of an ``application'': (1)
Borrower's name; (2) monthly income; (3) social security number to
obtain a credit report; (4) the property address; (5) an estimate of
the value of the property; (6) loan amount sought; and (7) any other
information deemed necessary by the lender. The seventh item could
allow creditors and mortgage brokers to delay providing the integrated
Loan Estimate until relatively late in the loan process by delaying
collection of information deemed ``necessary.'' The Bureau understands
that some creditors currently provide non-binding written estimates of
loan terms or settlement charges prior to issuing the early TILA
disclosure or RESPA GFE. The current rules encourage creditors and
mortgage brokers to provide the good faith estimates early in the loan
process by prohibiting creditors from collecting any fees from a
consumer (other than a credit report fee) until the estimates are
provided. To further encourage early provision of estimates, the
proposed rule removes the seventh item (``any other information deemed
necessary by the lender'') from the definition of ``application.''
Costs to Small Entities. The Bureau understands that eliminating
creditors' and mortgage brokers' ability to wait to provide a good
faith estimate until after they receive ``any other information deemed
necessary'' could increase the burden on small creditors and mortgage
brokers to the extent that it causes them to issue more Loan Estimates
than they would under the current definition of application. If a
creditor or mortgage broker obtains additional information from the
consumer after the Loan Estimate has been issued that affects the costs
of the settlement service for the loan, the creditor may need to issue
a revised Loan Estimate. The Bureau is unaware of information that
would allow it to estimate how often this would occur. The Bureau
believes, however, if this were to impose substantial costs, creditors
and mortgage brokers would mitigate this by adjusting their business
practices surrounding the receipt of applications to gather other
important information prior to, or at the same time as, they obtain the
six items that together constitute an ``application.'' As discussed in
part VII.F, above, the Bureau is working to obtain such data prior to
issuing a final rule and is seeking comment on its plans for data
analysis, as well as additional data and comment relevant to this
issue.
iii. Disclaimer on Pre-Application Estimates
The Bureau is proposing to require that any pre-application,
consumer-specific written estimate of loan terms or settlement charges
contain a prominent disclaimer indicating that the document is not the
Loan Estimate required by TILA and RESPA. This requirement would not
apply to general advertisements.
Costs to Small Entities. To the extent small creditors and mortgage
brokers currently provide such pre-application written estimates to
consumers they would bear the costs of adding a disclaimer to those
communications. However, the Bureau expects such costs to be de minimis
since the Bureau is proposing a brief, standard statement for use by
creditors, which should not require significant redesign of existing
estimate materials or require additional pages.
iv. Changes in Settlement Costs/Redisclosures
The proposed rule revises current rules regarding the circumstances
in which a consumer may be charged more at closing for settlement
services than the creditor estimated in the disclosure provided to the
consumer three business days after application.
As discussed more fully in part VI, section-by-section analysis for
proposed Sec. 1026.19(e)(3), HUD's 2008 RESPA Final Rule limits the
circumstances in which a creditor can charge the consumer more at
consummation for settlement services than the creditor estimated in the
RESPA GFE provided to the consumer three business days after
application. These rules generally place charges into three categories:
the creditor's charges for its own services, which cannot exceed the
creditor's estimates unless an exception applies (``zero tolerance'');
charges for settlement services provided by third parties, which cannot
exceed estimated amounts by more than ten percent unless an exception
applies (``ten percent tolerance''); and other charges that are not
subject to any limitation on increases (``no tolerance''). The rule
permits certain limited exceptions in which higher charges are
permitted, such as when the consumer requests a change, when the RESPA
GFE expires, or when valid changes in circumstance occur. The Bureau is
aware of concerns that HUD's 2008 RESPA Final Rule is both too lax and
too restrictive, and also that the rule is difficult to understand. The
proposed rule attempts to address these concerns by balancing the
objective of improving the reliability of the estimates creditors give
consumers shortly after application with the objective of preserving
creditors' flexibility to respond to unanticipated changes that occur
during the loan process. Specifically, the proposed rule applies the
zero tolerance category to a larger range of charges, including fees
charged by an affiliate of the creditor and charges for services for
which the creditor does not permit the consumer to shop. A service
provider would be considered selected by the creditor if consumers are
required to choose only from a list of service providers prepared by
the creditor (i.e., if consumers are not permitted to shop for their
own provider).
For a sense of the scale of the potential impact, it is worth
considering an extreme hypothetical example where all of the settlement
services move from the ten percent tolerance category to the zero
tolerance category. This is unlikely to happen in practice, but
illustrates the largest possible effect of the regulatory change. For a
loan with a total of $3,000 in settlement costs the maximum effect of
the proposal would be that the creditor could not pass on $300 in cost
[[Page 51290]]
increases that occurred without an exception allowing the increase to
be passed on the consumers.
Benefits to Small Entities. Small entities may benefit from the
proposed rule because it reduces compliance burden by resolving current
regulatory ambiguities. For example, the proposed rule makes clear that
creditors need not reissue Loan Estimates unless and until the costs
that are subject to the ten percent tolerance standard increase based
on valid changes in circumstance by more than ten percent in total. The
proposed rule also revises the rule and provides more guidance to
facilitate use of average cost pricing and reconciles certain
inconsistences between RESPA and TILA terminology. The proposed rule
further streamlines and clarifies HUD's 2008 RESPA Final Rule by
incorporating prior HUD guidance into Regulation Z and its commentary,
as necessary and appropriate. Further, to the extent the proposed rule
reduces unnecessary redisclosure of the RESPA content currently
provided on the GFE, the rule would decrease costs to creditors,
although the extent to which the proposed rule would have such an
effect is unknown. Reducing unnecessary redisclosure may also benefit
consumers, to the extent that redisclosures lead to consumer confusion.
The Bureau is not aware of reliable data showing how often
creditors are providing additional disclosures that are not required by
the current rule and that they would no longer send if the rules are
clarified. As discussed in part VII.F, above, the Bureau is working to
obtain such data prior to issuing a final rule and is seeking comment
on its plans for data analysis, as well as additional data and comment
relevant to this issue. Some creditors, however, have reported that
additional clarity regarding redisclosure requirements for the RESPA
GFE and average cost pricing would reduce the cost of compliance, in
part, by reducing confusing over when redisclosure is permitted or
required, and thereby reducing the need for legal advice.
Costs to Small Entities. The Bureau understands that small entities
may experience increased costs as a result of the proposal to apply the
zero tolerance category to a larger range of charges. Since the
proposed rule would expand the circumstances in which creditors could
not pass increased costs to consumers when the initial estimate is
lower than the actual costs but there is not a legitimate change in
circumstances or other exception, creditors may be required to absorb
more costs. This impact should be mitigated to the extent creditors are
in a position to know the typical charges of affiliated firms and firms
they engage repeatedly and require consumers to use, and can therefore
provide estimates that are accurate when there is no changed
circumstance. As discussed above, the Bureau is unaware of any data
that can provide reliable market-wide estimates of the prevalence of
changes between early TILA disclosures and RESPA GFEs and final loan
terms and closing costs, and the causes of those changes. Therefore,
the Bureau cannot provide estimates of how often creditors would have
to absorb higher than expected costs that cannot be attributed to a
changed circumstance. As discussed above, however, even in
circumstances where settlement costs increase substantially and the
creditor is unable to pass those charges on to the consumer, the
difference between a ten percent tolerance and a zero tolerance will be
limited.
The Bureau also understands that the proposed rule may result in
increased use of affiliated service providers, so that creditors can
more directly control changes in settlement costs, which could have a
negative impact on independent providers who are typically small
entities. Some have argued that the negative impact on independent
providers could lead to reduced competition for settlement services and
ultimately higher costs. The Bureau is unaware of any evidence to
suggest that costs are likely to increase in this way. Alternatively,
the proposed rule may encourage creditors to allow consumers to choose
settlement service providers that are not on a list provided to the
consumer (although in this case the creditor would be required to
provide consumers with a list of settlement service providers that the
consumers could use, if they so choose), so that the zero tolerance
requirement would not apply. This would appear to benefit independent
service providers, or at least be neutral relative to current
practices.
v. Provision of Closing Disclosure
The proposed rule requires delivery of the integrated Closing
Disclosure three business days before consummation in all cases.
However, the Bureau is proposing two alternative approaches for
assigning responsibility for providing the integrated Closing
Disclosure to the consumer. Alternative 1 places sole responsibility
for provision of the Closing Disclosure on the creditor, while
Alternative 2 makes the creditor and settlement agent jointly
responsible for providing the Closing Disclosure.
Timing of Closing Disclosure Provision
TILA and RESPA establish different timing requirements for
disclosing final loan terms and costs to consumers. As discussed more
fully in part VI above, section-by-section analysis for proposed Sec.
1026.19(f), TILA generally provides that, if the early disclosures
contain an APR that is no longer accurate, the creditor shall furnish
an additional, corrected disclosure to the consumer not later than
three business days before consummation. RESPA, on the other hand,
requires that the final statement of loan costs and terms is provided
to the consumer at or before settlement. To meet the Dodd-Frank Act's
mandate to integrate the disclosures required by TILA and RESPA, and to
better facilitate consumer understanding of the costs, the proposed
rule would require delivery of the integrated Closing Disclosure three
business days before closing in all circumstances. However, to prevent
unnecessary closing delays, the proposed rule would permit limited
changes after provision of the Closing Disclosure to reflect common
adjustments, such as changes to recording fees. In addition, reissuance
of the Closing Disclosure and an additional three-business day waiting
period would not be required if, during the three business days after
issuance of the Closing Disclosure, the amount needed to close shown on
the Closing Disclosure increases by $100 or less.
Costs to Small Entities. The proposal to require provision of the
Closing Disclosure three business days prior to consummation in all
circumstances may result in closing delays. In extreme cases, such
delays could cause a transaction to fall through if a consumer is under
a contractual obligation to close by a certain date. Creditors and
closing agents, however, currently coordinate to provide RESPA closing
documents at closing. Both closing agents and creditors would have
incentives to complete closings as scheduled, and therefore the Bureau
believes that they would adjust their business practices such that the
Closing Disclosure could be provided in a timely manner and closing
problems would be infrequent. If the requirement does lead to delayed
or canceled closings, this would impose costs on small entities. Such
closing delays could result in loss of revenue for transactions that
fall through due to a delay. The proposed rule may also create legal
and reputational risks for creditors or settlement agents that are
unable to close loans as planned.
[[Page 51291]]
Responsibility for Providing the Closing Disclosure
TILA and RESPA require that different parties provide the final
disclosures to consumers. Specifically, TILA requires the creditor to
provide the TILA disclosures to consumers, while RESPA requires that
the person conducting the settlement provide the final statement of
settlement costs to the consumer. However, section 1419 of the Dodd-
Frank Act amended TILA to make creditors responsible for disclosing
settlement cost information. See TILA section 128(a)(17). To reconcile
these statutory differences and implement TILA section 128(a)(17), the
Bureau is proposing two alternative approaches for assigning
responsibility for provision of the integrated Closing Disclosure to
consumers. Under Alternative 1, the creditor would be solely
responsible for delivering the Closing Disclosure to the consumer.
Under Alternative 2, the creditor and settlement agent would be jointly
responsible for providing the consumer with an integrated Closing
Disclosure three business days before closing.
Benefits to Small Entities. Because the difference between
Alternatives 1 and 2 is about which party would be responsible for
providing a disclosure, the relative benefits of each proposal to
different small entities are likely to consist of avoided costs. The
most useful way to consider these alternatives, therefore, is to
consider their respective costs.
Costs to Small Entities--Alternative 1. Alternative 1 would likely
place increased costs on creditors, including small creditors. As
discussed above, RESPA and current Regulation X require that the person
conducting the settlement provide the RESPA-required disclosures to
consumers at or before consummation. Since, under Alternative 1, the
creditor would be responsible for provision of both the TILA and RESPA
content to the consumer, the creditor would incur additional logistical
burden and legal risk.\226\ Small creditors and settlement agents may
incur one-time legal fees under Alternative 1, since those entities may
need to contractually stipulate their respective duties or amend
existing contractual arrangements in light of the rule. Small creditors
may also need to hire additional staff to handle the increased workload
associated with collecting the settlement costs and coordinating with
the settlement agents and third party service providers and preparing
the disclosures. Since the current regulatory scheme of split
responsibility, as well as the different roles of creditors and
settlement agents in the transaction, already requires a great deal of
coordination, it is not clear that giving the creditor sole
responsibility for providing the disclosures would impose much
additional burden. As a general matter, shifting responsibility for
delivery of final RESPA disclosures from settlement agents to creditors
may change the role of settlement agents, though the exact impact of
such a rule is unclear. Settlement agents play a unique role in working
through local real estate transaction requirements and practices, which
creditors may be unlikely to take on.
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\226\ As described in part VII, above, two major vendors
currently provide software services to the vast majority of small
mortgage originators to produce the RESPA GFE and initial TILA
disclosures. RESPA settlement statements are currently issued by
settlement agents using software provided a different, but similarly
small, set of vendors; however, the Bureau understands that the
originators' systems are capable of producing the RESPA settlement
statements. As a result, the Bureau believes that it is reasonable
to measure costs assuming that the originators' vendors will provide
both the Loan Estimate and the Closing Disclosure to their clients
under existing contracts. Were the current software providers for
settlement agents to have to update their systems (under the second
alternative or under other contractual arrangements), those vendors
would have to incur the stated costs.
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Costs to Small Entities--Alternative 2. The costs to creditors and
to settlement agents under the proposed alternative that gives joint
responsibility for provision of the Closing Disclosure to creditors and
settlement agents would depend on how creditors and settlement agents
go about fulfilling the joint requirement. Joint provision would likely
require coordination on the part of creditors and settlement agents
similar to what is done today. One additional cost, however, may entail
re-working that coordination to adjust to the new forms and timing
requirement (discussed above).
vi. Expanded Definition of Finance Charge
The proposed rule expands the definition of the finance charge for
closed-end transactions secured by real property or a dwelling,
consistent with the Board's 2009 Closed-End Proposal.
As discussed more fully in part VI above, section-by-section
analysis for proposed Sec. 1026.4, TILA and current Regulation Z
exclude many types of charges from the finance charge, particularly for
mortgage transactions. Concerns have long been raised that these
exclusions undermine the potential usefulness of the finance charge and
corresponding APR as a tool for consumers to compare the total cost of
one loan to another. In addition, these exclusions create compliance
burden and litigation risk for creditors and may encourage creditors to
shift the cost of credit to excluded fees, a practice that is
inefficient.
The Bureau recognizes that the proposed more inclusive finance
charge could affect coverage under other laws, such as such as higher-
priced mortgage loan and HOEPA protections, and that a more inclusive
finance charge has implications for the HOEPA, Escrows, Appraisals, and
Ability to Repay rulemakings identified in part II.F above. Absent
further action by the Bureau, the more inclusive finance charge would:
Cause more closed-end loans to trigger HOEPA protections
for high-cost loans.\227\ The protections include special disclosures,
restrictions on certain loan features and lender practices, and
strengthened consumer remedies. The more inclusive finance charge would
affect both the points and fees test (which currently uses the finance
charge as its starting point) and the APR test (which under Dodd-Frank
will depend on comparisons to APOR) for defining what constitutes a
high-cost loan.
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\227\ See part VII.D.7 above, for a detailed description of the
potential effects of an expanded finance charge on the HOEPA
rulemaking.
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Cause more loans to trigger Dodd-Frank Act requirements to
maintain escrow accounts for first-lien higher-priced mortgage loans.
Coverage depends on comparing a transaction's APR to the applicable
APOR.
Cause more loans to trigger Dodd-Frank Act requirements to
obtain one or more interior appraisals for ``higher-risk'' mortgage
loans. Coverage depends on comparing a transaction's APR to the
applicable APOR.
Reduce the number of loans that would otherwise be
``qualified mortgages'' under the Dodd-Frank Act Ability to Repay
requirements, given that qualified mortgages cannot have points and
fees in excess of three percent of the loan amount. Also, more loans
could be required to comply with separate underwriting requirements
applicable to higher-priced balloon loans, and could be ineligible for
certain exceptions authorizing creditors to offer prepayment penalties
on fixed-rate, non-higher-priced qualified mortgage loans.\228\ Again,
status as a higher-
[[Page 51292]]
priced mortgage loan depends on comparing APR to APOR.
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\228\ Specifically, the Dodd-Frank Act generally prohibits
prepayment penalties on closed-end, dwelling-secured mortgage loans,
except on fixed-rate qualified mortgages that are not higher-priced
mortgage loans. For balloon loans, the Dodd-Frank Act generally
requires creditors to assess consumers' ability to repay a higher-
priced loan with a balloon payment using the scheduled payments
required under the terms of the loan including any balloon payment,
and based on income and assets other than the dwelling itself. Only
consumers with substantial income or assets would likely qualify for
such a loan. A separate Dodd-Frank Act provision authorizing balloon
loans made by creditors that operate predominantly in rural or
underserved areas is not affected by the finance charge issue.
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As discussed above in part VI, section-by-section analysis for
proposed Sec. 1026.4 and in part VII, the Bureau is seeking data to
model the impact of the more expansive definition of finance charge on
coverage of each of these regulatory regimes or the impact of potential
modifications that the Bureau could make to the triggers to more
closely approximate existing coverage levels.\229\ The Bureau is
working to obtain such data prior to issuing a final rule and is
seeking comment on its plans for data analysis, as well as additional
data and comment on the potential impacts of a broader finance charge
definition and potential modifications to the triggers.
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\229\ In its 2009 proposal, the Board relied on a 2008 survey of
closing costs conducted by Bankrate.com that contains data for
hypothetical $200,000 loans in urban areas. Based on that data, the
Board estimated that the share of first-lien refinance and home
improvement loans that are subject to HOEPA would increase by .6
percent if the definition of finance charge was expanded, and that
the share of first-lien loans in the range of typical home purchases
or refinancings ($175,000 to $225,000) that qualified as higher-
priced mortgage loans would increase by 3 percent. The Board also
looked at the impact on two states and the District of Columbia
because their anti-predatory lending laws had triggers below the
level of the historical HOEPA APR threshold, which is benchmarked to
U.S. Treasury securities. The Board concluded that the percentage of
first-lien loans subject to those laws would increase by 2.5 percent
in the District of Columbia and 4.0 percent in Illinois, but would
not increase in Maryland. The Bureau is considering the 2010 version
of the Bankrate.com survey, but as described in this notice, the
Bureau is also seeking additional data that would provide more
representative information regarding closing and settlement costs
that would allow for a more refined analysis of the proposals.
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The Board previously proposed to address these effects by adopting
an adjusted points and fees definition and a new metric for determining
coverage under APR thresholds, known as the ``transaction coverage
rate'' (TCR). The TCR would be based on a modified prepaid finance
charge that would include only finance charges retained by the
creditor, mortgage broker, or their affiliates, and would therefore
more closely approximate existing coverage levels than a more inclusive
finance charge. See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598,
11608-09 (Mar. 2, 2011); 75 FR 58539, 58660-61 (Sept. 24, 2010).\230\
The Bureau has incorporated these measures into its 2012 HOEPA
Proposal, and is seeking comment both in that proposal and this
rulemaking on additional trigger modifications that could approximate
coverage levels under the existing definition of finance charge, such
as adjusting the numeric percentage point triggers for APR under HOEPA
or other regimes.
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\230\ The wording of the Board's proposed definition of
``transaction coverage rate'' varied slightly between the 2010
Mortgage Proposal and the 2011 Escrows Proposal as to treatment of
charges retained by mortgage broker affiliates. In its 2012 HOEPA
Proposal, the Bureau proposes to use the 2011 Escrows Proposal
version, which would include charges retained by broker affiliates.
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If the adjusted points and fees definition, the TCR, or other
trigger modifications were adopted in the other rules, the more
inclusive finance charge definition would have little or no effect on
coverage under those rules although there might still be effects from
the expanded definition of finance charge on the coverage of various
State mortgage laws and regulations. In addition, because the TCR
excludes fees to unaffiliated third parties, the TCR might result in
some loans not triggering one or more of the regulatory regimes
discussed above that would qualify under an APR threshold using the
current definition of finance charge.\231\ The discussion of the costs
and benefits of a more inclusive definition of finance charge, below,
assumes that the Bureau does not adopt the adjusted points and fees
definition, the TCR, or other methods of addressing the impact of a
more inclusive approach to the finance charge in the other rulemakings.
If the Bureau does adopt those measures, the effects of the proposed
definition of finance charge would be muted. For instance, the benefits
of a simpler APR calculation may be lessened if creditors are required
to use different metrics for purposes of disclosure and for determining
coverage under various regulatory regimes, although as discussed below
with regard to transaction coverage rate both metrics would be easier
to calculate than APR using the existing definition of finance charge.
In addition, the effects (both benefits and costs) through expanded
coverage of those other rules would be eliminated or (in the case of
TCR) somewhat reduced.
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\231\ As discussed above in part VI, section-by-section analysis
for proposed Sec. 1026.4, the Bureau believes that the margin of
differences between the TCR and current APR is significantly smaller
than the margin between the current APR and the APR calculated using
the expanded finance charge definition because relatively few third-
party fees would be excluded by the TCR that are not already
excluded under current rules. The Bureau is considering ways to
supplement the data analysis described above to better assess this
issue, and seeks comment and data regarding the potential impacts of
the TCR relative to APR calculated using the current and proposed
definitions of finance charge.
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Benefits to Small Entities
The proposed rule may benefit small entities by easing regulatory
burden and litigation risk associated with the current complex rules
for determining which fees are part of the finance charge. Because the
current rules for determining which fees are part of the finance charge
are complicated and unclear, creditors will benefit from a simpler,
more inclusive definition. In particular, feedback received by the
Bureau and comments on a similar proposal issued by the Board in the
2009 indicate that, because a failure to calculate the finance charge
and the APR accurately gives rise to the right of rescission, creditors
incur substantial compliance costs attempting to make accurate
calculations and incur substantial litigation costs defending against
claims of inaccurate calculations.
Costs to Small Entities
To comply with the proposed rule, small entities may be required to
update compliance systems to reflect changes to the finance charge
calculation. These updates may involve one-time costs associated with
software updates, legal expenses, and personnel training time. As
discussed above, if the Bureau adopts the proposal, it expects to
provide an implementation period that would coincide either with
implementation of the disclosure modifications or with implementation
of certain changes to coverage of HOEPA and other regulatory regimes
that would be affected by the change in definition. Accordingly, the
Bureau believes that software changes and other expenses would be
incurred as part of the overall software and compliance system
revisions required to comply with the other simultaneous changes, and
therefore would not impose a substantial additional burden.
As discussed above, the proposed rule if it were implemented
without modifications to the triggers for various regulatory regimes
might cause more loans to cross Federal and State high cost or high
priced loan thresholds based on APR or points and fees. With respect to
the HOEPA and Appraisals rulemakings, creditors may incur costs
associated with generating and providing HOEPA and appraisal
disclosures for additional loans. Creditors may incur additional costs
in the context of the Appraisals
[[Page 51293]]
rulemaking because the Dodd-Frank Act prohibits creditors from charging
consumers for second appraisals conducted in connection with certain
properties that have been sold in the last 180 days. Similarly, in the
context of the Escrows rulemaking, creditors may incur costs associated
with maintaining escrow accounts on more transactions if not subject to
other exceptions provided by the Dodd-Frank Act. With respect to the
Ability to Repay rulemaking, creditors may incur costs associated with
making fewer loans with prepayment penalties, or may incur costs from
the additional underwriting requirements and/or liability associated
with making more loans that are higher-priced balloon loans or that are
not qualified mortgages.
In addition, a small number of creditors may also lose a very small
fraction of revenue if they are reluctant to make high-cost, higher-
priced, or higher-risk mortgage loans and cannot offer alternatives
that are as profitable as those loans.
As discussed in more detail in the 2012 HOEPA Proposal, modifying
the triggers would require some one-time implementation costs and would
create some additional compliance complexity if creditors must use
different metrics for disclosure purposes and for determining coverage
under particular regulatory regimes. However, with regard to the
transaction coverage rate, the Bureau believes that such impacts would
be addressed by the fact that both TCR and APR using the expanded
definition of finance charge would be easier to calculate than APR
under the current definition. On balance, the Bureau believes adoption
of the proposed trigger modifications would reduce the economic impacts
on small entities of the more expansive definition of finance charge.
vii. Implementation of New Disclosures Mandated by the Dodd-Frank Act
The proposed rule exempts creditors temporarily from compliance
with certain new disclosure requirements added to TILA and RESPA by the
Dodd-Frank Act until the TILA-RESPA rule takes effect.
As discussed more fully in part V.B, above, title XIV of the Dodd-
Frank Act adds new disclosure requirements to TILA and RESPA for
mortgage transactions. Although the Dodd-Frank Act does not
specifically require inclusion of all of these new disclosures in the
Loan Estimate and the Closing Disclosure, the Bureau believes these
disclosures should be included in the integrated forms because doing so
would improve the overall effectiveness of the integrated disclosure,
which may benefit consumers and covered persons, and also reduce burden
on covered persons. Finalizing the rules implementing these title XIV
disclosures simultaneously with the final TILA-RESPA rule would avoid
unnecessary regulatory burden by preventing creditors from having to
implement multiple rounds of disclosure rules. The Bureau does not
anticipate additional costs to covered persons as a result of delayed
implementation of the new disclosure requirements, although, as noted
above, small entities may incur additional recurring costs associated
with calculating and disclosing this additional information to
consumers once the implementing rules take effect.
viii. Costs Associated with Reviewing the Regulation
Small entities will need to learn about the requirements of the
regulation and determine what changes to their business practices they
would be required to make to come into compliance. These costs will
vary considerably across institutions, depending on the size and
complexity of their operations. In addition, some firms will rely on
their own staff to conduct this analysis, while others will rely on
outside counsel, industry sources, or compliance firms. Firms that use
compliance systems provided by outside vendors, especially smaller
creditors, will likely rely in large part on those vendors to determine
what changes they need to make, reducing the burden on those creditors.
d. Estimate of the Classes of Small Entities Which Will Be Subject to
the Requirement and the Type of Professional Skills Necessary for the
Preparation of the Report or Record
Section 603(b)(4) of the RFA requires an estimate of the classes of
small entities which will be subject to the requirement. The classes of
small entities which will be subject to the recordkeeping and
compliance requirements of the proposed rule are the same classes of
small entities that are identified above in part VIII.B.3.
Section 603(b)(4) of the RFA also requires an estimate of the type
of professional skills necessary for the preparation of the reports or
records. The Bureau does not anticipate that, except in certain rare
circumstances, any professional skills will be required for
recordkeeping and other compliance requirements of this proposed rule
that are not otherwise required in the ordinary course of business of
the small entities affected by the proposed rule. Part VIII.B.4.b and
4.c summarize the recordkeeping and compliance requirements of the
proposed rule that would affect small entities.
With regard to the proposed recordkeeping requirements, the SERs
reported that they generally use vendor-supplied computer systems to
prepare the TILA and RESPA disclosures and retain scanned images of
those disclosures electronically, but they do not retain those records
in a machine readable format.\232\ As discussed above, however, the
Bureau believes that vendors will update their software and provide
small creditors with the ability to retain the required data. The one
situation in which a small entity would require professional skills
that are not otherwise required in the ordinary course of business
would be if a small creditor does not use computerized systems to store
loan information and therefore will either need to hire staff with the
ability to implement a machine-readable data retention system or
contract with one of the vendors that provides this service.
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\232\ See Small Business Review Panel Report at 25.
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With regard to the proposed compliance requirements, as discussed
above, the Bureau understands that, based on feedback from the SERs,
the small entities that will be affected by the proposed rule will
continue to perform the basic functions that they perform today:
generating disclosure forms (and answering consumers' questions about
them), taking loan applications, redisclosing estimates of settlement
costs, providing final disclosures, maintaining recordkeeping systems
that store documents electronically (but not necessarily in a machine
readable format), and maintaining systems to calculate the APR. The
major elements of the proposed rule, described earlier in this part
VIII, relate to these continuing functions. Therefore, the Bureau
believes that small entities will have the professional skills
necessary to comply with the proposed rule.
Specifically with regard to the requirement to use the integrated
disclosure forms, the SERs identified potentially significant one-time
costs associated with changing software systems to produce the forms
and provided a wide range of estimates of one-time costs of training
staff and related parties to use the new integrated forms and update
systems and processes.\233\ The SERs also reported that they typically
contract out to third party software vendors the design of the
disclosure forms provided to consumers, and pay annual fees to such
[[Page 51294]]
vendors for upgrades. The SERs did not express any concerns that the
design and implementation of the forms or the use of the integrated
disclosure forms on an ongoing basis would require their staff to
possess a different set of professional skills than that required in
the ordinary course of business currently. Furthermore, while the SERs
identified potential upfront and ongoing training costs as a result of
the proposals under consideration at the time, the Bureau believes
efforts to train small entity staff on the updated software and
compliance systems would be reinforcing existing professional skills
sets above those needed in the ordinary course of business and to
comply with HUD's 2008 Final RESPA Rule (which, as discussed above,
significantly overhauled the design and content of the RESPA GFE and
settlement statement disclosures given to consumers).
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\233\ See id. at 18.
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In addition, although the Bureau acknowledges the possibility that
certain small entities may have to hire additional staff as a result of
certain aspects of the proposed rule, the Bureau has no evidence that
such additional staff will have to possess a qualitatively different
set of professional skills than small entity staff employed currently.
The Bureau presumes that additional staff that small entities may need
to hire would generally be of the same professional skill set as
current staff. For example, if the Bureau were to adopt the Alternative
1 proposal regarding responsibility for who provides the Closing
Disclosure (i.e. making creditors responsible), small creditors may
need to hire additional staff to handle the increased work load
resulting from the reallocation of existing responsibilities between
creditors and settlement agents. As a more general matter, to the
extent the proposed rule adds new disclosures that will need to be
generated and explained to consumers, the Bureau anticipates that any
incremental increase in the complexity of such tasks for small entity
staff will be counterbalanced by the regulatory streamlining and
clearer guidance provided by the proposed rule.
5. Identification, to the Extent Practicable, of All Relevant Federal
Rules which May Duplicate, Overlap, or Conflict with the Proposed Rule.
The proposed rule is intended to consolidate the overlapping and,
in some cases, duplicative mortgage disclosure regulations under TILA
and RESPA into a single set of requirements and to resolve conflicts
between the two. The Bureau is not aware of any other Federal
regulations that currently duplicate, overlap, or conflict with the
proposed rule.
However, the Bureau is currently developing other proposed or final
rules required by title XIV of the Dodd-Frank Act, including rules
addressing ability-to-pay standards for qualified mortgages, mortgage
loan originator compensation, mortgage loans subject to HOEPA, mortgage
servicing, and appraisal practices. As discussed above, the Bureau is
aware of concerns that aspects of the proposed rule could affect the
Bureau's rulemakings concerning HOEPA, Escrows, Appraisals, and
Ability-to-Repay. In particular, some SERs expressed concern that an
unintended consequence of a more inclusive approach to the finance
charge could be that more loans would qualify as high-cost loans
subject to additional requirements under HOEPA or similar State
statutes that use the finance charge or the APR as a trigger.\234\ As a
result, the SERs generally requested that the Bureau adjust these
thresholds, to the extent possible, to account for the more inclusive
finance charge. In response to this feedback, the Panel recommended in
the Small Business Review Panel Report that, before issuing a final
rule, the Bureau consider the impact of the more inclusive finance
charge on its other rulemakings, and that it adopt any alternatives or
adjustments in the final rule or the Bureau's other rulemakings that
would reduce burden on small entities while still accomplishing the
goals of the more inclusive finance charge.
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\234\ The Bureau acknowledged this possible effect in the Small
Business Review Panel Outline.
---------------------------------------------------------------------------
Based on this feedback and consistent with the Small Business
Review Panel's recommendation, the Bureau has considered the
requirements of TILA section 129 (high-cost mortgages) and TILA section
129C (qualified mortgages), including the Dodd-Frank Act amendments to
those provisions, as well as State predatory lending laws, in proposing
the amendments to Sec. 1026.4. For example, the Board previously
proposed two means of reconciling an expanded definition of the finance
charge with existing thresholds for loan APR and points and fees. The
Bureau believes that it is helpful to analyze any threshold adjustments
on a rule-by-rule basis, so in addition to seeking general comment in
this rulemaking it has incorporated these adjustments into its 2012
HOEPA Proposal and is seeking comment on additional adjustments that
could approximate coverage levels under the existing definition of
finance charge, such as adjusting the numeric percentage point triggers
for APR under HOEPA.
The Bureau will consider any final or proposed rules implementing
the regulatory regimes that rely on APR and points and fees triggers
prior to issuing a final rule on definition of finance charge. As
discussed above, the Bureau believes that it would be preferable to
make any change to the definition of finance charge and any related
adjustments in regulatory triggers take effect at the same time, in
order to provide for consistency and efficient systems modification,
and is seeking comment on the best sequencing for implementation
periods in light of the related rulemakings.
In addition, title XIV of the Dodd-Frank Act amends TILA and RESPA
to add new disclosures that must be provided in the Loan Estimate or
Closing Disclosure (e.g., disclosure of escrow payment amounts and
aggregate settlement charges). In addition, title XIV adds other new
mortgage disclosure requirements (e.g., warnings regarding negative
amortization and State anti-deficiency laws). Although the Dodd-Frank
Act does not specifically mandate inclusion of these new disclosures in
the Loan Estimate and Closing Disclosure, the Bureau is proposing that,
to avoid duplication, overlaps, and conflicts, these new disclosures be
included in the integrated forms. See part V.B above for further
discussion.
6. Description of Any Significant Alternatives to the Proposed Rule
which Accomplish the Stated Objectives of Applicable Statutes and
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities.
a. Initial and Final Disclosures
As noted above, under the proposed rule, the Loan Estimate would be
provided to consumers within three business days after application and
replace the early TILA disclosure and RESPA GFE, and the Closing
Disclosure would be provided to consumers at least three business days
prior to the closing of the loan transaction and replace the final TILA
disclosure and RESPA settlement statement. In the Small Business Review
Panel Report, the Panel made a number of recommendations regarding the
Loan Estimate and Closing Disclosure that could potentially reduce the
impact of the proposed rule on small entities, while accomplishing the
stated objectives of applicable statutes.
i. Prototype Forms
As discussed in the Small Business Review Panel Report, on the
whole, the
[[Page 51295]]
SERs strongly preferred the Bureau's prototype integrated disclosure
forms to the current TILA and RESPA disclosure forms, but expressed
concerns about the one-time costs and ongoing costs associated with
generating the prototype integrated forms. In particular, the SERs
anticipated significant one-time software upgrade and training costs,
though their estimates varied greatly. (These costs are described in
greater detail in part VIII.B.4.c.i, above.) SERs generally stated that
these costs would be less burdensome if the Bureau provided a
substantial compliance period to upgrade systems and to train staff,
but SERs requested a variety of periods. The Panel recommended that the
Bureau provide a compliance period that permits sufficient time for
small entities to make necessary system upgrades and provide training,
and that the Bureau solicit public comment on the amount of time needed
for such upgrades and training.
In part V.A, above, the Bureau discusses the mandatory compliance
period for the proposed rule and notes that, although Bureau wishes to
make the rule effective as soon as possible because it will provide
important benefits to consumers, the Bureau understands that the final
rule will require lenders, mortgage brokers, and, under Alternative 2
regarding provision of the Closing Disclosure, settlement agents to
make extensive revisions to their software and to retrain their staff.
The Bureau is seeking comment on how much time industry needs to make
these changes, and specifically requests details on the required
updates and changes to systems and other measures that would be
required to implement the rule and the amount of time needed to make
those changes. Furthermore, with respect to small entities, the Bureau
is following the Panel's recommendation and soliciting comment on
whether small entities affected by the rule should have additional time
to comply with the final rule.
ii. Testing
As discussed in the Small Business Review Panel Report, the SERs
suggested that the prototype forms could be further improved through
testing on actual loan transactions. The Panel recognized that the
Bureau has developed the prototype forms through qualitative, one-on-
one testing with consumers, lenders, mortgage brokers, and settlement
agents and that the Bureau has solicited extensive public feedback on
the prototype forms through its Web site, but recommended that the
Bureau explore the feasibility of conducting such testing before
issuing a final rule. Based on this recommendation, the Bureau plans to
explore the feasibility of conducting such testing before issuing a
final rule.
iii. Clear Guidance
As discussed in the Small Business Review Panel Report, the Bureau
indicated in the Small Business Review Panel Outline that it was
considering proposing to require the use of standard forms for mortgage
loan transactions that are subject to RESPA and to promulgate model
forms for TILA-only transactions, and sought feedback from the SERs
regarding their preference for promulgation of standard or model
disclosure forms. Moreover, the Bureau indicated that it was
considering providing additional guidance regarding compliance with the
regulations affecting mortgage disclosures. On both issues, however,
the Bureau sought feedback from SERs. As discussed in the Small
Business Review Panel Report, the SERs generally stated a preference
for standard forms and clearer guidance. In response to this feedback,
the Panel recommended that the Bureau provide more detailed guidance on
how to complete the integrated forms (including, as appropriate,
samples of completed forms for a variety of loan transactions) and that
the Bureau consider whether mandating use of the integrated forms would
result in more consistent disclosures for consumers while also easing
the compliance burden on small entities. The Panel also recommended
that, in the proposed rule, the Bureau solicit public comment on
mandating use of the integrated forms. As discussed above, the Bureau
is proposing to require the use of standard forms for mortgage loan
transactions that are subject to RESPA, but for transactions that are
subject only to TILA, the forms would be models, consistent with the
provisions of that statute.
iv. Total Interest Percentage and Average Cost of Funds
As discussed in the Small Business Review Panel Report, the SERs
expressed concerns that the total interest percentage and average cost
of funds disclosures required under the Dodd-Frank Act would be
difficult to calculate, difficult to explain to consumers, and likely
not helpful to consumers.\235\ The Panel recognized that these
disclosures are required by the Dodd-Frank Act, but recommended that
the Bureau consider revisions to these disclosures that would minimize
the burden on small entities while still ensuring that consumers
receive important information about mortgage transactions. The Panel
also recommended that the Bureau solicit comment on whether these
disclosures would be helpful to consumers and the costs, if any, these
disclosures would impose on small entities. The prototype disclosure
forms appended to the proposed rule include the total interest
percentage and average cost of funds disclosures. However, following
the Panel's recommendation, the Bureau is alternatively proposing to
exempt transactions subject to this proposal from disclosing the total
interest percentage disclosure and the lender cost of funds, as
discussed in part VI above, section-by-section analysis for proposed
Sec. Sec. 1026.37(l)(3) and 1026.38(o)(5) and (6).
---------------------------------------------------------------------------
\235\ However, as the Small Business Review Panel Report notes
on page 28, the SERs did not provide specific estimates of the costs
to calculate these amounts or to explain these amounts to consumers,
nor did they provide evidence to support the claim that this
information would be unhelpful to consumers.
---------------------------------------------------------------------------
v. Use of Line Numbers
As discussed in the Small Business Review Panel Report, several
SERs stated that removing the current RESPA settlement statement line
numbers from the integrated Closing Disclosure would significantly
increase the cost of software upgrades. The Panel recognized that the
prototype Closing Disclosure was developed through consumer testing to
enable consumers to compare the final costs to those provided in the
Loan Estimate and that the proposed form of the Closing Disclosure
would necessitate reordering and relabeling of many of the line numbers
on the current disclosures (e.g., due to the proposed revisions being
considered to the tolerance rules). The Panel recommended that the
Bureau solicit comment on whether an alternative design or numbering
format (including incorporating the current RESPA settlement statement
line numbers to the extent consistent with the proposals) would impose
a lower amount of software-related costs on lenders, mortgage brokers,
mortgage companies, and settlement agents while enabling consumers to
compare loan terms to the same extent as the current prototype forms.
Following the Panel's recommendation, the Bureau is soliciting comment
on these issues in part VI above, section-by-section analysis for
proposed Sec. 1026.37(f).
vi. Optional Signature Line
As discussed in the Small Business Review Panel Report, page five
of the prototype Closing Disclosure includes a signature block for the
consumer to
[[Page 51296]]
acknowledge receipt of the Closing Disclosure. Some SERs were concerned
that consumers might be confused about the effect of signing to
acknowledge receipt of the Closing Disclosure. In response to these
concerns, the Panel recommended that the Bureau consider whether the
language on the prototype forms should be revised, or whether
additional guidance should be provided to clarify the effect of a
signature on the consumer's legal obligations. Following the Panel's
recommendation, the Bureau is soliciting comment on such issues in part
VI above, section-by-section analysis for proposed Sec. 1026.38(s).
b. Definition of Loan Application
As discussed in the Small Business Review Panel Report, the Bureau
has considered eliminating the seventh element of the application
definition and replacing it with additional items that would, along
with the six specific items in the current definition that the Bureau
proposes to retain, enable the creditor or mortgage broker to provide a
reasonably accurate Loan Estimate. The Panel recognized that the SERs
disagreed about whether the seventh item in the application definition
was necessary to provide a reasonably accurate Loan Estimate, and there
was a lack of consensus among the SERs who opposed elimination of the
seventh item about what additional information would be needed.
Following the Panel's recommendation, the Bureau is soliciting public
comment in part VI above, section-by-section analysis for the proposed
Sec. 1026.2(a)(3) on what, if any, additional specific information
beyond the six specific items included under the proposed definition of
application is needed to provide a reasonably accurate Loan Estimate.
c. Changes in Settlement Costs; Redisclosure
As discussed in the Small Business Review Panel Report, the Bureau
indicated in the Small Business Review Panel Outline that it has
considered preserving HUD's 2008 RESPA Final Rule in its entirety.
However, as mentioned in such materials and as discussed further in
part VI above, section-by-section analysis for proposed Sec.
1026.19(e), above, the Bureau believes that the current rules can
likely be improved by requiring creditors to provide consumers with
more accurate estimates of settlement charges and reducing compliance
burden for industry.
As discussed in the Small Business Review Panel Report, the SERs
generally expressed concern about the potential unintended consequences
of applying the proposed zero percent tolerance standard (instead of
the current ten percent tolerance) to affiliate fees and fees charged
by creditor-selected providers. However, the SERs generally supported
additional clarifications and guidance regarding the current tolerance
rules. In response to this feedback, the Panel recommended that the
Bureau consider alternatives to expanding application of the zero
percent tolerance that would increase the reliability of cost estimates
while minimizing the impacts on small entities. The Panel also
recommended that the Bureau solicit comment on whether the current
tolerance rules have sufficiently improved the reliability of the
estimates that creditors give consumers, while preserving creditors'
flexibility to respond to unanticipated changes that occur during the
loan process. The Bureau has adopted these recommendations in the
proposed rule. See part VI, section-by-section analysis for proposed
Sec. 1026.19(e).
As discussed in the Small Business Review Panel Report, the Bureau
also considered narrowing the exceptions permitting increases in
settlement charges in order to restrict the ability of a creditor to
charge more for its own services or for third-party settlement services
than the creditor initially estimated. Such an approach, if adopted,
would have likely reduced the ability of creditors, including small
entity creditors, to pass on changes in settlement costs to consumers
and, accordingly, increased the extent to which creditors bore the
associated risk. However, the Bureau chose not to incorporate this
approach into the proposal because of its concern that it could prevent
creditors from increasing settlement charges to reflect justifiable
increases in costs.
d. Provision of the Closing Disclosure
As discussed in the Small Business Review Panel Report, the Bureau
has also considered requiring provision of the Closing Disclosure three
business days before closing only when, after the Loan Estimate is
given, the APR in the Loan Estimate increases by more than one-eighth
of one percent or an adjustable-rate feature is added to the loan. In
all other circumstances, the Closing Disclosure would have been
provided at or before consummation. However, the Bureau is concerned
that this approach would allow significant increases in the cash needed
to close without sufficient notice to the consumer.
In addition, the Bureau has considered expanding the current rules
allowing consumers to waive the three-business-day waiting period in
cases of bona fide personal financial emergency. However, the Bureau is
concerned that such an expansion would enable creditors to pressure
consumers into waiving the waiting period because consumers may be
unwilling or unable to challenge a cost increase that occurs shortly
before consummation.
As noted in the Small Business Review Panel Report, the SERs
generally opposed requiring provision of the integrated Closing
Disclosure three business days before consummation. The Panel
acknowledged this feedback, but recognized that statutory requirements
limit the discretion of the Bureau to shorten the three-business-day
waiting period. Therefore, the Panel recommended that the Bureau
continue to explore whether the potential impact of the three-business-
day requirement on small entities can be mitigated while maintaining
the benefits to consumers by, for example, permitting limited changes
after provision of the Closing Disclosure. Following the Panel's
recommendation, the Bureau has included in proposed Sec. 1026.19(f)(2)
a list of permitted changes after provision of the Closing Disclosure.
Regarding which party is responsible for providing the Closing
Disclosure to the consumer, the Bureau has also considered making the
settlement agent solely responsible for this task. However, the Bureau
understands that settlement agents may not have access to much of the
information regarding loan terms that must be disclosed in the Closing
Disclosure.
e. Recordkeeping and Data Collection
The issues regarding the Bureau's proposed record retention
requirements and the alternatives the Bureau has considered (i.e., a
small entity exemption) are discussed in part VIII.B.4.b, above.
f. Annual Percentage Rate
As discussed in the Small Business Review Panel Report, most lender
SERs supported the more-inclusive definition of finance charge, but
some expressed concern about including taxes and insurance that are
required to be paid to an escrow account in the finance charge. In
response to this feedback, the Panel recommended that the Bureau
consider excluding escrowed taxes and insurance from the more inclusive
finance charge, unless those amounts would otherwise be considered
finance charges under the expanded definition. The Bureau has proposed
a revised definition of finance charge in Sec. 1026.4 that
incorporates the Panel's recommendation.
[[Page 51297]]
Moreover, the Panel recommended that, before issuing a final rule
to integrate the TILA and RESPA mortgage disclosure requirements, the
Bureau consider the impact of the more inclusive finance charge on its
other rulemakings, and that it adopt any alternatives or adjustments in
the final TILA-RESPA rule or the Bureau's other rulemakings that would
reduce burden on small entities while still accomplishing the goals of
the more inclusive finance charge. As discussed above in part II.F, in
the section-by-section analysis for proposed Sec. 1026.4 in part VI,
and in part VIII.B.5, the Bureau has carefully considered alternatives
that would mitigate the impact of the more inclusive finance charge on
all entities subject to the proposed rule, including small entities.
Addition discussion will be provided in other proposed and final rules
issues by the Bureau. Furthermore, the Bureau will carefully consider
the comments received on this issue and perform further analysis prior
to issuing a final rule.
7. Discussion of Impact on Cost of Credit for Small Entities
Section 603(d) of the RFA requires the Bureau to consult with small
entities regarding the potential impact of the proposed rule on the
cost of credit for small entities and related matters. 5 U.S.C. 603(d).
To satisfy these statutory requirements, the Bureau provided
notification to the Chief Counsel on February 7, 2012, that the Bureau
would collect the advice and recommendations of the same small entity
representatives identified in consultation with the Chief Counsel
through the Small Business Review Panel process concerning any
projected impact of the proposed rule on the cost of credit for small
entities.\236\ The Bureau sought to collect the advice and
recommendations of the small entity representatives during the Small
Business Review Panel Outreach Meeting regarding the potential impact
on the cost of business credit because, as small financial service
providers, the SERs could provide valuable input on any such impact
related to the proposed rule.\237\
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\236\ See 5 U.S.C. 603(d)(2)(A). The Bureau provided this
notification as part of the notification and other information
provided to the Chief Counsel with respect to the Small Business
Review Panel process pursuant to section 609(b)(1) of the RFA.
\237\ See 5 U.S.C. 603(d)(2)(B).
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At the time the Bureau circulated the Small Business Review Panel
Outline to the SERs in advance of the Panel Outreach Meeting, it had no
evidence that the proposals then-under consideration would result in an
increase in the cost of business credit for small entities. Instead,
the summary of the proposals stated that the proposals would apply to
only mortgage loans obtained by consumers primarily for personal,
family, or household purposes, and the proposals would not apply to
loans obtained primarily for business purposes.\238\
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\238\ See TILA section 104(1); RESPA section 7(a)(1).
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At the Panel Outreach Meeting, the Bureau asked the SERs a series
of questions regarding cost of business credit issues.\239\ The
questions were focused on two areas. First, the SERs from commercial
banks/savings institutions, credit unions, and mortgage companies were
asked whether, and how often, they extend to their customers closed-end
mortgage loans to be used primarily for personal, family, or household
purposes but that are used secondarily to finance a small business, and
whether the proposals then-under consideration would result in an
increase in their customers' cost of credit. Second, the Bureau
inquired as to whether, and how often, the SERs themselves take out
closed-end, home-secured loans to be used primarily for personal,
family, or household purposes and use them secondarily to finance their
small businesses, and whether the proposals under consideration would
increase the SERs' cost of credit.
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\239\ See the Small Business Review Panel Report at appendix D,
154-155 (PowerPoint slides from the Panel Outreach Meeting, ``Topic
7: Impact on the Cost of Business Credit'').
---------------------------------------------------------------------------
In general, the lender SERs reported making few mortgage loans that
are used primarily for personal, family, or household purposes (and
therefore are covered by TILA and RESPA) but that are used,
secondarily, to finance a small business. In addition, the few loans
they described making would appear to fall within the TILA and RESPA
exceptions for loans made primarily for business purposes,\240\ and
therefore would not be subject to the proposed rule.
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\240\ See TILA section 104(1); RESPA section 7(a)(1).
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The Bureau recognizes that some mortgages, especially second lien
mortgages or cash-out refinancings, may be used in part or in whole to
finance small businesses, without the knowledge of the creditor. Based
on the overall impact of the proposal, however, the Bureau does not
believe that the proposal would lead to an increase in the cost of
mortgage lending. As discussed above in part VII, the Bureau estimates
that the most burdensome aspect of the proposal, the systems revision
required to provide the new Loan Estimate and Closing Disclosure, would
lead to a one-time cost that, on an annualized basis, is equivalent to
less than $3 dollars per mortgage origination. The proposal, therefore
would not lead to an increase in the cost of credit to small businesses
even if small businesses were to use closed-end mortgages credit for
financing.
As discussed in the Small Business Review Panel Report, the Bureau
considered various alternatives regarding the regulatory definition of
application, permissible changes in settlement costs, timing and
provision of the Closing Disclosure, and recordkeeping requirements,
and consulted with the Small Business Review Panel on those
alternatives. See Small Business Review Panel Report at 9-12. For
example, the Bureau considered an exemption for small entities from the
electronic data recordkeeping requirements in proposed Sec. 1026.25.
Id. at 12. The Bureau consulted on alternatives that would achieve the
statutory objectives while minimizing the cost of credit for small
entities.
IX. Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking, and identified as such, will be submitted to the Office of
Management and Budget (OMB) for review under section 3507(d) of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (Paperwork
Reduction Act or PRA). Under the PRA, the Bureau may not conduct or
sponsor, and a person is not required to respond to, this information
collection unless the information collection displays a currently valid
control number.
This proposed rule would amend 12 CFR part 1024 (Regulation X) and
12 CFR part 1026 (Regulation Z). Both Regulations X and Z currently
contain collections of information approved by OMB. The Bureau's OMB
control number for Regulation X is 3170-0016 and for Regulation Z is
3170-0015. As described below, the proposed rule would amend the
collections of information currently in Regulation X and Regulation Z.
As previously discussed, the Dodd-Frank Act amended TILA and RESPA to
mandate specifically that the Bureau propose rules and forms combining
the TILA and RESPA disclosures for mortgage loans subject to either law
or both laws. Dodd-Frank Act sections 1098, 1100A. The Dodd-Frank Act
requires the Bureau to publish proposed rules and forms combining the
disclosures by July 21, 2012. Dodd-Frank Act section 1032(f). The Dodd-
Frank Act also made
[[Page 51298]]
several amendments to the disclosure requirements in TILA and RESPA.
Based on the specific statutory mandate to combine the disclosures
under TILA and RESPA, the Bureau is proposing to amend Regulation X and
Regulation Z to establish new disclosure requirements and forms in
Regulation Z for closed-end consumer credit transactions secured by
real property, other than reverse mortgages. Accordingly, the proposed
rule requires that an integrated Loan Estimate be provided to consumers
within three business days after receipt of the consumer's application
to replace the early TILA disclosure and RESPA GFE, and that an
integrated Closing Disclosure be provided to consumers at least three
business days prior to consummation to replace the final TILA
disclosure and RESPA settlement statement. The proposed rule also
contains new electronic recordkeeping requirements.
The information collection in the proposed rule is required to
provide benefits for consumers and would be mandatory. See 15 U.S.C.
1601 et seq.; 12 U.S.C. 2601 et seq., 5532(f). Because the Bureau does
not collect any information under the proposed rule, no issue of
confidentiality arises. The likely respondents would be commercial
banks/savings institutions, credit unions, mortgage companies (non-bank
lenders), mortgage brokers, and settlement agents \241\ that would be
required under the proposed amendments to Regulations Z and X, to
provide to consumers, and maintain related electronic records on, the
integrated TILA-RESPA mortgage disclosures, either because they make
mortgage loans subject to the proposed rule or because they may be
responsible for completing or providing required disclosures.\242\
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\241\ Although respondents under PRA for Regulation Z also
include mortgage brokers and settlement agents, for purposes of the
PRA analysis, the Bureau assumes that the creditor takes on the
obligation to deliver the Loan Estimate and Closing Disclosure.
Accordingly, there is minimal burden attributed to brokers and
settlement agents.
\242\ For purposes of this PRA analysis, references to
``creditors'' or ``lenders'' shall be deemed to refer collectively
to commercial banks, savings institutions, credit unions, and
mortgage companies (i.e., nondepository lenders), unless otherwise
stated. Moreover, reference to ``respondents'' shall generally mean
all categories of entities identified in the sentence to which this
footnote is appended, except as otherwise stated or if the context
indicates otherwise.
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Under the proposed rule, the Bureau would account for the entire
paperwork burden for respondents under Regulation X. The Bureau
generally would also account for the paperwork burden associated with
Regulation Z for the following respondents pursuant to its
administrative enforcement authority: insured depository institutions
with more than $10 billion in total assets, their depository
institution affiliates, and certain nondepository institutions. The
Bureau and the FTC generally both have enforcement authority over
nondepository institutions for Regulation Z. Accordingly, the Bureau
has allocated to itself half of the estimated burden to nondepository
institutions. Other Federal agencies are responsible for estimating and
reporting to OMB the total paperwork burden for the institutions for
which they have administrative enforcement authority. They may, but are
not required to, use the Bureau's burden estimation methodology.
For purposes of this analysis, the Bureau assumes that any burden
increase associated with the proposed rule is allocated to Regulation
Z. As discussed in part IX.B.2, below, under the proposed rule there
would be no burden increase associated with Regulation X, and in fact
there is a burden reduction attributed to Regulation X because the
RESPA GFE and settlement statement disclosures would be eliminated for
all of the mortgage market, other than reverse mortgages, and replaced
by the Loan Estimate and Closing Disclosures, under Regulation Z. Using
the Bureau's burden estimation methodology, the total estimated burden
for the approximately 14,354 banks, savings institutions, credit
unions, and mortgage companies subject to the proposed rule,\243\
including Bureau respondents, would be approximately 2.12 million hours
for one-time changes and 2.35 million hours annually. The estimates
presented in this part IX represent weighted averages across
respondents. The Bureau expects that the amount of time required to
implement each of the proposed changes for a given institution may vary
based on the size, complexity, and practices of the respondent.
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\243\ For the reasons described above, this figure excludes
mortgage brokers and settlement agents.
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A. Information Collection Requirements
The Bureau believes the following aspects of the proposed rule
would be information collection requirements under the PRA: (1) The
development, implementation, and continuing use of new, integrated Loan
Estimate and Closing Disclosure forms required for closed-end mortgage
transactions subject to the proposed rule and the generation and
provision of additional Loan Estimates in particular transactions as a
result of increases in the closing costs that were included in the
initial Loan Estimate,\244\ and (2) the imposition of new requirements
to maintain evidence of compliance in standardized, machine readable,
electronic format.\245\
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\244\ The proposal also provides that, if the creditor permits a
consumer to shop for a settlement service, the creditor shall
provide the consumer with a written list identifying available
providers of that service and stating that the consumer may choose a
different provider for that service. Accordingly, creditors must
comply with this additional requirement in certain transactions
where consumers are permitted to shop for settlement services. This
is an existing requirement under current Regulation X, 12 CFR part
1024 app. C, but is not specifically itemized as a separate
information collection under Regulation X. Because the timing of
this requirement coincides with the provision of the initial Loan
Estimate to consumers, the burden associated with the written list
of providers requirement under the proposed rule is included in the
burden calculation for the Loan Estimate.
\245\ Under the proposal, these information collections apply to
closed-end transactions secured by real property, other than reverse
mortgages subject to Sec. 1026.33. As discussed in part VI,
section-by-section analysis for Sec. 1026.19, above, construction-
only loans, vacant-land loans, and loans secured by more than 25
acres, are subject to the integrated disclosure provisions although
these transactions are currently exempt from RESPA coverage, because
the Bureau believes that excluding these transactions would deprive
consumers of the benefit of enhanced disclosures. However, the
Bureau believes that the number of such transactions is negligible
as compared to the entire mortgage market.
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1. Initial and Final Disclosures
As discussed above in part VII, the integrated Loan Estimate and
the Closing Disclosure would result in certain compliance costs to
covered persons. The Bureau believes that many of the costs of
complying with these requirements would be common across the two
disclosures, and therefore discusses them together here. Under the
proposal, responsibility for delivering the Loan Estimate would lie
with the creditor. The Bureau believes that in some circumstances the
Loan Estimate may be delivered by a mortgage broker acting on behalf of
the creditor. The Bureau believes the costs would be similar for Loan
Estimates delivered by creditors and brokers, and the estimates
presented here are based on the assumption that the creditor delivers
the Loan Estimate. Similarly, the Bureau is proposing two alternatives
with respect to the responsibility to deliver the Closing Disclosure.
Under the first alternative, the creditor would be solely responsible
for delivering the Closing Disclosure; under the second alternative,
the creditor and settlement agent would be jointly responsible. These
estimates assume that the creditor takes on the obligation to deliver
the Closing Disclosure. The Bureau believes
[[Page 51299]]
that if settlement agents were to take on a substantial portion of the
responsibility for delivering the Closing Disclosure the costs would be
similar, although they may be borne by different parties.
a. One-Time Costs
Covered persons would incur one-time costs associated with training
and reviewing the regulation. In addition, covered persons who maintain
their own software and compliance systems would incur one-time costs to
adapt their software and compliance systems to produce the new
forms.\246\ Based on information provided by creditors and by software
vendors, the Bureau believes that, in general, larger creditors develop
and maintain their own compliance software and systems, while smaller
creditors primarily rely on software and compliance systems provided by
outside vendors. The Bureau estimates that the top 20 creditors
typically maintain their own systems, while 95 percent of smaller
creditors rely on vendors.
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\246\ In addition to changing the format of the required forms,
the new proposed forms include numerous new disclosures that are
required by the Dodd-Frank Act. The Bureau believes that this
additional information would be added to the forms as part of the
process of adapting software and compliance systems to produce the
new forms, and therefore does not provide separate estimates for the
costs of adding this additional information.
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The use of vendors would substantially mitigate the costs of
revising software and compliance systems, as the efforts of a single
vendor would address the needs of a large number of creditors. Based on
discussions with a leading mortgage origination technology provider,
the Bureau believes that these updates, however, would likely be
included in regular annual updates, and therefore the costs would not
be directly passed on to the client creditors. Based on small entities
that participated in the Small Business Review Panel process, the
Bureau estimates that creditors that maintain their own compliance
software and systems would incur costs of roughly $100,000 to determine
what changes need to be made and to update their systems to comply with
the proposal. Larger creditors with proprietary systems would need to
revise their compliance software and systems. Based on information from
conversations with large creditors and with software vendors, the
Bureau estimates that the cost per creditor for this category of
creditor would be $1,000,000.
Covered persons would incur one-time costs associated with training
employees to use new forms and any new compliance software and systems.
The Bureau estimates that each loan officer or other loan originator
will need to receive two hours of training. The Bureau further
estimates that a trainer will spend an hour for every ten hours of
trainee time.
The Bureau estimates that, for each covered person, one attorney
and one compliance officer would each take seven hours to read and
review the sections of the proposed regulation that describe the
contents of the Loan Estimate and Closing Disclosure requirements,
based on the length of each of the sections.
The Bureau estimates the total one-time costs of reading the
relevant sections of the Federal Register, revising systems to provide
the new disclosures, and training personnel for the Bureau respondents
to be approximately $30.9 million, which corresponds to approximately
574,600 hours. Annualized over five years, this is an annual cost of
$6.2 million. The Bureau estimates the one-time costs to the 128
depository institutions (including their depository affiliates) that
are mortgage originator respondents of the Bureau under Regulation Z
\247\ would be $20.1 million, or 391,000 hours. For the estimated 2,515
nondepository institutions that are subject to the Bureau's
administrative enforcement authority, the Bureau is taking the burden
of half of those nondepository institutions for purposes of this PRA
analysis.\248\ The Bureau estimates the one-time costs would be $10.8
million, or 183,700 hours.\249\
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\247\ There are 154 depository institutions (and their
depository affiliates) that are subject to the Bureau's
administrative enforcement authority. For purposes of this PRA
analysis, the Bureau has calculated its burden hours and costs based
on the estimated 128 depository institutions subject to Regulation Z
that are mortgage originators.
\248\ Unless otherwise specified, all references to burden hours
and costs for the Bureau respondents are based on a calculation of
half of the estimated 2,515 nondepository institutions.
\249\ For additional information, please see the proposed
amended Supporting Statement for OMB Control Number 3170-0016,
available at www.reginfo.gov.
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b. Ongoing Costs
In addition to one-time costs to revise systems and train
employees, covered persons will have ongoing costs from providing the
disclosures. Based on industry feedback, the Bureau understands that
most disclosures will be generated by automated systems that use data
collected by covered entities in the normal course of business. The
Bureau believes that a small number of the disclosures in the Loan
Estimate and Closing Disclosure would be generated using data that may
not otherwise be collected in the normal course of business, and has
considered this in calculating the ongoing burden associated with the
information collection. However, the Bureau may adjust its calculation
in a final rule if it determines that such information is collected in
the normal course of business or that automated sources of such data
exist that would make any burden associated with collecting that data
negligible. The Bureau's estimates also account for the time covered
persons would spend to review the forms for accuracy.
In calculating the total burden of providing Loan Estimates and
Closing Disclosures, the Bureau assumes that Loan Estimates will be
provided in response to applications for mortgages and Closing
Disclosures will be provided three business days before mortgages are
consummated. The Bureau further estimates entities will reissue on
average two Loan Estimates per loan originated.
Table 2 summarizes these ongoing costs, which total an estimated
$68.4 million per year. This represents an average cost of
approximately $15 per origination.\250\
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\250\ Bureau respondents are estimated to originate
approximately 4.8 million mortgages per year that would be subject
to these information collections.
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[[Page 51300]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.998
2. Recordkeeping
The proposed rule imposes new data retention requirements on
certain respondents. As discussed above in part VII, the proposed rule
will require creditors and mortgage brokers to retain evidence of
compliance with the Loan Estimate and Closing Disclosure requirements
in machine readable,\251\ electronic format. The proposed retention
period is three years for the Loan Estimates and five years for the
Closing Disclosures. See part VI above, section-by-section analysis for
proposed Sec. 1026.25.
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\251\ As discussed in part VI, section-by-section analysis for
proposed Sec. 1026.25(c), ``machine readable'' means a format where
the individual data elements comprising the record can be
transmitted, analyzed, and processed by a computer program, such as
a spreadsheet or database program. Data formats for image
reproductions (e.g., PDF) or document text, such as those used by
word processing programs, are not machine readable for purposes of
this proposal.
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The proposed rule may result in costs to covered persons. Under
current rules, creditors must retain evidence of compliance with the
disclosure requirements in Regulation X (i.e., a copy of the RESPA
settlement statement) and Regulation Z (i.e., evidence of compliance
generally), but are not required to maintain such evidence an
electronic, machine readable format. 12 CFR 1024.10(e); 1026.25. Based
on industry feedback, the Bureau understands that firms currently rely
on electronic systems for most aspects of the mortgage loan origination
process, including electronic record creation and storage. Not all
creditors currently maintain data in a machine-readable format, and
those who do may not retain it in the format that may ultimately be
adopted. To comply with the proposed record retention provisions,
therefore, creditors may be required to reconfigure existing document
production and retention systems. For creditors that maintain their own
compliance systems and software, the Bureau does not believe that
adding the capacity to maintain data in a standard machine readable
format will impose a substantial burden, as the only requirement will
be to output existing data to a new format and then store that data.
The Bureau believes that the primary cost will be one-time systems
changes that could be accomplished at the same time that systems
changes are carried out to comply with the new proposed Loan Estimate
and Closing Disclosure. The Bureau estimates that creditors that
maintain their own compliance systems will need to expend 40 hours of
software and IT staff time to develop the capacity to export data from
existing data formats to the standard format. As discussed above, the
Bureau estimates that 2,643 creditors are its respondents for purposes
of the PRA, of which 152 creditors maintain their own compliance
systems. At 40 hours each, the one-time burden is an estimated 6,080
hours.
Additionally, for each covered person, the Bureau estimates that
one attorney and one compliance officer would each take 7.5 minutes to
read and review the portion of the regulation pertaining to data
retention, based on the length of that section. Accordingly, the total
one-time burden associated with the data retention provision of the
proposed rule would be 6,400 hours, or $376,400.
Creditors that rely on vendors would likely rely on vendor software
and systems to comply with the data retention requirement; at least one
vendor already offers indefinite data storage to customers that use
their web-based origination services.
The Bureau understands that requiring standardized, electronic
records may be a significant burden for covered persons that do not
currently have such electronic filing systems. To reduce the burden on
small entities, the Bureau is considering an exemption from the
electronic data retention requirements. See part VI above, section-by-
section analysis for proposed Sec. 1026.25.
In addition, the proposed rule requires creditors and mortgage
brokers to retain documentation sufficient to show their supervisory
agencies that one of the exceptions applies whenever a cost for a
service provided by a company that is owned by or affiliated with the
creditor proves to be higher than estimated in the Loan Estimate,
similar to the current document retention requirements under Regulation
X for when the RESPA GFE is reissued. This retention requirement may
result in additional cost to respondents that are creditors and
mortgage brokers.
B. Summary of Burden Hours
1. Regulation Z
The below table summarizes the one time and annual burdens under
Regulation Z associated with information collections affected by the
proposal for Bureau respondents under the PRA.
[[Page 51301]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.997
2. Regulation X
The proposal does not increase PRA burden associated with
Regulation X, and instead removes the majority of the burden associated
with two information collections: (i) The RESPA GFE and (ii) the RESPA
settlement statement. Currently, the RESPA GFE and settlement statement
disclosures account for approximately 10.9 million annual burden
hours.\252\ Under the proposal, the majority of this burden would be
eliminated, with only reverse mortgage transactions remaining subject
to the RESPA GFE and settlement statement requirements. The remaining
burden associated with these disclosures in Regulation X would total
approximately 62,400 hours, assuming no change in the time required to
respond. The below table summarizes the annual burdens under Regulation
X associated with information collections affected by the proposal.
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\252\ The annual burdens attributed to the RESPA GFE and
settlement statement (HUD-1/HUD-1A) are 3,612,500 hours and
7,250,000 hours, respectively. See Supporting Statement for OMB
Control Number 3170-0016, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201110-3170-013 (CFPB); Supporting
Statement for OMB Control Number 2502-0265, available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=200810-2502-001
(HUD).
[GRAPHIC] [TIFF OMITTED] TP23AU12.996
3. Net Effect on PRA Estimates of Ongoing Burden
As discussed above, by integrating the TILA and RESPA disclosures,
the proposal eliminates the majority of the ongoing PRA burden under
Regulation X for the RESPA GFE and settlement statement disclosures,
while simultaneously creating ongoing burden attributable to the
integrated disclosures in Regulation Z. On a market-wide basis, annual
PRA burden in Regulation X decreases by approximately 10.8 million
hours. The Bureau cannot similarly quantify the change in ongoing
burden under Regulation Z, because current burden estimates neither
itemize the burden hours attributable to the early, revised, and final
TILA disclosures nor limit burden hours to mortgage transactions (but,
instead, estimate for closed-end credit, generally). However, the total
PRA burden associated with the new integrated disclosures for all
institutions subject to Regulation Z is estimated to be 2.35 million
hours annually. These changes reflect the decrease in the number of
mortgages originated, increased systems automation, changes in
methodology for calculating burden under the PRA, and the effects of
the proposal.
C. Comments
Comments are specifically requested concerning: (i) Whether the
proposed collections of information are necessary for the proper
performance of the functions of the Bureau, including whether the
information will have practical utility; (ii) the accuracy of the
estimated burden associated with the proposed collections of
information; (iii) how to enhance the quality, utility, and clarity of
the information to be collected; and (iv) how to minimize the burden of
complying with the proposed collections of information, including the
application of automated collection techniques or other forms of
information technology. Comments on the collection of information
requirements should be sent to the Office of Management and Budget
(OMB), Attention: Desk Officer
[[Page 51302]]
for the Consumer Financial Protection Bureau, Office of Information and
Regulatory Affairs, Washington, DC 20503, or by the internet to http://oira_submission@omb.eop.gov, with copies to the Bureau at the Consumer
Financial Protection Bureau (Attention: PRA Office), 1700 G Street NW.,
Washington, DC 20552, or by the internet to CFPB_Public_PRA@cfpb.gov.
List of Subjects
12 CFR Part 1024
Condominiums, Consumer protection, Housing, Mortgage servicing,
Mortgages, Recordkeeping requirements, Reporting.
12 CFR Part 1026
Advertising, Consumer protection, Credit, Credit unions, Mortgages,
National banks, Recordkeeping requirements, Reporting, Savings
associations, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside bold arrows, and language that
would be deleted is shown inside bold brackets.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau proposes to
amend Regulation X, 12 CFR part 1024, and Regulation Z, 12 CFR part
1026, as set forth below:
PART 1024--REAL ESTATE SETTLEMENT PROCEDURES (REGULATION X)
1. The authority citation for part 1024 continues to read as
follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5581.
2. Section 1024.5 is amended by revising paragraph (a), removing
and reserving paragraph (b)(1), and adding paragraph (c), to read as
follows:
Sec. 1024.5 Coverage of RESPA.
(a) Applicability. RESPA and this part apply to [lsqbb]all[rsqbb]
federally related mortgage loans, except [rtrif]as[ltrif] [lsqbb]for
the exemptions[rsqbb] provided in paragraph[rtrif]s[ltrif] (b)
[rtrif]and (c)[ltrif] of this section.
(b) Exemptions. (1) [rtrif][Reserved][ltrif] [lsqbb]A loan on
property of 25 acres or more.[rsqbb]
* * * * *
[rtrif](c) Partial exemptions for certain mortgage loans. Sections
1024.6, 1024.7, 1024.8, 1024.10, and 1024.21(b) and (c) do not apply to
a federally related mortgage loan:
(1) That is subject to the special disclosure requirements for
certain consumer credit transactions secured by real property set forth
in Regulation Z, 12 CFR 1026.19(e) and (f); or
(2) That satisfies the criteria in Regulation Z, 12 CFR
1026.3(h).[ltrif]
3. Appendix A to part 1024 is revised to read as follows:
Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-1A
Settlement Statements; Sample HUD-1 and HUD-1A Statements
The following are instructions for completing the HUD-1
settlement statement, required under section 4 of RESPA and 12 CFR
part 1024 (Regulation X) of the Bureau of Consumer Financial
Protection (Bureau) regulations. This form is to be used as a
statement of actual charges and adjustments paid by the borrower and
the seller, to be given to the parties in connection with the
settlement. The instructions for completion of the HUD-1 are
primarily for the benefit of the settlement agents who prepare the
statements and need not be transmitted to the parties as an integral
part of the HUD-1. There is no objection to the use of the HUD-1 in
transactions in which its use is not legally required. Refer to the
definitions section of the regulations (12 CFR 1024.2) for specific
definitions of many of the terms that are used in these
instructions.
General Instructions
Information and amounts may be filled in by typewriter, hand
printing, computer printing, or any other method producing clear and
legible results. Refer to the Bureau's regulations (Regulation X)
regarding rules applicable to reproduction of the HUD-1 for the
purpose of including customary recitals and information used locally
in settlements; for example, a breakdown of payoff figures, a
breakdown of the Borrower's total monthly mortgage payments, check
disbursements, a statement indicating receipt of funds, applicable
special stipulations between Borrower and Seller, and the date funds
are transferred.
The settlement agent shall complete the HUD-1 to itemize all
charges imposed upon the Borrower and the Seller by the loan
originator and all sales commissions, whether to be paid at
settlement or outside of settlement, and any other charges which
either the Borrower or the Seller will pay at settlement. Charges
for loan origination and title services should not be itemized
except as provided in these instructions. For each separately
identified settlement service in connection with the transaction,
the name of the person ultimately receiving the payment must be
shown together with the total amount paid to such person. Items paid
to and retained by a loan originator are disclosed as required in
the instructions for lines in the 800-series of the HUD-1 (and for
per diem interest, in the 900-series of the HUD-1).
As a general rule, charges that are paid for by the seller must
be shown in the seller's column on page 2 of the HUD-1 (unless paid
outside closing), and charges that are paid for by the borrower must
be shown in the borrower's column (unless paid outside closing).
However, in order to promote comparability between the charges on
the GFE and the charges on the HUD-1, if a seller pays for a charge
that was included on the GFE, the charge should be listed in the
borrower's column on page 2 of the HUD-1. That charge should also be
offset by listing a credit in that amount to the borrower on lines
204-209 on page 1 of the HUD-1, and by a charge to the seller in
lines 506-509 on page 1 of the HUD-1. If a loan originator (other
than for no-cost loans), real estate agent, other settlement service
provider, or other person pays for a charge that was included on the
GFE, the charge should be listed in the borrower's column on page 2
of the HUD-1, with an offsetting credit reported on page 1 of the
HUD-1, identifying the party paying the charge.
Charges paid outside of settlement by the borrower, seller, loan
originator, real estate agent, or any other person, must be included
on the HUD-1 but marked ``P.O.C.'' for ``Paid Outside of Closing''
(settlement) and must not be included in computing totals. However,
indirect payments from a lender to a mortgage broker may not be
disclosed as P.O.C., and must be included as a credit on Line 802.
P.O.C. items must not be placed in the Borrower or Seller columns,
but rather on the appropriate line outside the columns. The
settlement agent must indicate whether P.O.C. items are paid for by
the Borrower, Seller, or some other party by marking the items paid
for by whoever made the payment as ``P.O.C.'' with the party making
the payment identified in parentheses, such as ``P.O.C. (borrower)''
or ``P.O.C. (seller)''.
In the case of ``no cost'' loans where ``no cost'' encompasses
third party fees as well as the upfront payment to the loan
originator, the third party services covered by the ``no cost''
provisions must be itemized and listed in the borrower's column on
the HUD-1/1A with the charge for the third party service. These
itemized charges must be offset with a negative adjusted origination
charge on Line 803 and recorded in the columns.
Blank lines are provided in section L for any additional
settlement charges. Blank lines are also provided for additional
insertions in sections J and K. The names of the recipients of the
settlement charges in section L and the names of the recipients of
adjustments described in section J or K should be included on the
blank lines.
Lines and columns in section J which relate to the Borrower's
transaction may be left blank on the copy of the HUD-1 which will be
furnished to the Seller. Lines and columns in section K which relate
to the Seller's transaction may be left blank on the copy of the
HUD-1 which will be furnished to the Borrower.
Line Item Instructions
Instructions for completing the individual items on the HUD-1
follow.
Section A. This section requires no entry of information.
Section B. Check appropriate loan type and complete the
remaining items as applicable.
Section C. This section provides a notice regarding settlement
costs and requires no additional entry of information.
Sections D and E. Fill in the names and current mailing
addresses and zip codes of
[[Page 51303]]
the Borrower and the Seller. Where there is more than one Borrower
or Seller, the name and address of each one is required. Use a
supplementary page if needed to list multiple Borrowers or Sellers.
Section F. Fill in the name, current mailing address and zip
code of the Lender.
Section G. The street address of the property being sold should
be listed. If there is no street address, a brief legal description
or other location of the property should be inserted. In all cases
give the zip code of the property.
Section H. Fill in name, address, zip code and telephone number
of settlement agent, and address and zip code of ``place of
settlement.''
Section I. Fill in date of settlement.
Section J. Summary of Borrower's Transaction. Line 101 is for
the contract sales price of the property being sold, excluding the
price of any items of tangible personal property if Borrower and
Seller have agreed to a separate price for such items.
Line 102 is for the sales price of any items of tangible
personal property excluded from Line 101. Personal property could
include such items as carpets, drapes, stoves, refrigerators, etc.
What constitutes personal property varies from State to State.
Manufactured homes are not considered personal property for this
purpose.
Line 103 is used to record the total charges to Borrower
detailed in section L and totaled on Line 1400.
Lines 104 and 105 are for additional amounts owed by the
Borrower, such as charges that were not listed on the GFE or items
paid by the Seller prior to settlement but reimbursed by the
Borrower at settlement. For example, the balance in the Seller's
reserve account held in connection with an existing loan, if
assigned to the Borrower in a loan assumption case, will be entered
here. These lines will also be used when a tenant in the property
being sold has not yet paid the rent, which the Borrower will
collect, for a period of time prior to the settlement. The lines
will also be used to indicate the treatment for any tenant security
deposit. The Seller will be credited on Lines 404-405.
Lines 106 through 112 are for items which the Seller had paid in
advance, and for which the Borrower must therefore reimburse the
Seller. Examples of items for which adjustments will be made may
include taxes and assessments paid in advance for an entire year or
other period, when settlement occurs prior to the expiration of the
year or other period for which they were paid. Additional examples
include flood and hazard insurance premiums, if the Borrower is
being substituted as an insured under the same policy; mortgage
insurance in loan assumption cases; planned unit development or
condominium association assessments paid in advance; fuel or other
supplies on hand, purchased by the Seller, which the Borrower will
use when Borrower takes possession of the property; and ground rent
paid in advance.
Line 120 is for the total of Lines 101 through 112.
Line 201 is for any amount paid against the sales price prior to
settlement.
Line 202 is for the amount of the new loan made by the Lender
when a loan to finance construction of a new structure constructed
for sale is used as or converted to a loan to finance purchase. Line
202 should also be used for the amount of the first user loan, when
a loan to purchase a manufactured home for resale is converted to a
loan to finance purchase by the first user. For other loans covered
by 12 CFR Part 1024 (Regulation X) which finance construction of a
new structure or purchase of a manufactured home, list the sales
price of the land on Line 104, the construction cost or purchase
price of manufactured home on Line 105 (Line 101 would be left blank
in this instance) and amount of the loan on Line 202. The remainder
of the form should be completed taking into account adjustments and
charges related to the temporary financing and permanent financing
and which are known at the date of settlement. [rtrif]For reverse
mortgage transactions, the amount disclosed on Line 202 is the
initial principal limit.[ltrif]
Line 203 is used for cases in which the Borrower is assuming or
taking title subject to an existing loan or lien on the property.
Lines 204-209 are used for other items paid by or on behalf of
the Borrower. Lines 204-209 should be used to indicate any financing
arrangements or other new loan not listed in Line 202. For example,
if the Borrower is using a second mortgage or note to finance part
of the purchase price, whether from the same lender, another lender
or the Seller, insert the principal amount of the loan with a brief
explanation on Lines 204-209. Lines 204-209 should also be used
where the Borrower receives a credit from the Seller for closing
costs, including seller-paid GFE charges. They may also be used in
cases in which a Seller (typically a builder) is making an
``allowance'' to the Borrower for items that the Borrower is to
purchase separately. [rtrif]For reverse mortgages, the amount of any
initial draw at settlement is disclosed on Line 204.[ltrif]
Lines 210 through 219 are for items which have not yet been
paid, and which the Borrower is expected to pay, but which are
attributable in part to a period of time prior to the settlement. In
jurisdictions in which taxes are paid late in the tax year, most
cases will show the proration of taxes in these lines. Other
examples include utilities used but not paid for by the Seller, rent
collected in advance by the Seller from a tenant for a period
extending beyond the settlement date, and interest on loan
assumptions.
Line 220 is for the total of Lines 201 through 219.
Lines 301 and 302 are summary lines for the Borrower. Enter
total in Line 120 on Line 301. Enter total in Line 220 on Line 302.
Line 303 must indicate either the cash required from the
Borrower at settlement (the usual case in a purchase transaction),
or cash payable to the Borrower at settlement (if, for example, the
Borrower's earnest money exceeds the Borrower's cash obligations in
the transaction or there is a cash-out refinance). Subtract Line 302
from Line 301 and enter the amount of cash due to or from the
Borrower at settlement on Line 303. The appropriate box should be
checked. If the Borrower's earnest money is applied toward the
charge for a settlement service, the amount so applied should not be
included on Line 303 but instead should be shown on the appropriate
line for the settlement service, marked ``P.O.C. (Borrower)'', and
must not be included in computing totals.
Section K. Summary of Seller's Transaction. Instructions for the
use of Lines 101 and 102 and 104-112 above, apply also to Lines 401-
412. Line 420 is for the total of Lines 401 through 412.
Line 501 is used if the Seller's real estate broker or other
party who is not the settlement agent has received and holds a
deposit against the sales price (earnest money) which exceeds the
fee or commission owed to that party. If that party will render the
excess deposit directly to the Seller, rather than through the
settlement agent, the amount of excess deposit should be entered on
Line 501 and the amount of the total deposit (including commissions)
should be entered on Line 201.
Line 502 is used to record the total charges to the Seller
detailed in section L and totaled on Line 1400.
Line 503 is used if the Borrower is assuming or taking title
subject to existing liens which are to be deducted from sales price.
Lines 504 and 505 are used for the amounts (including any
accrued interest) of any first and/or second loans which will be
paid as part of the settlement.
Line 506 is used for deposits paid by the Borrower to the Seller
or other party who is not the settlement agent. Enter the amount of
the deposit in Line 201 on Line 506 unless Line 501 is used or the
party who is not the settlement agent transfers all or part of the
deposit to the settlement agent, in which case the settlement agent
will note in parentheses on Line 507 the amount of the deposit that
is being disbursed as proceeds and enter in the column for Line 506
the amount retained by the above-described party for settlement
services. If the settlement agent holds the deposit, insert a note
in Line 507 which indicates that the deposit is being disbursed as
proceeds.
Lines 506 through 509 may be used to list additional liens which
must be paid off through the settlement to clear title to the
property. Other Seller obligations should be shown on Lines 506-509,
including charges that were disclosed on the GFE but that are
actually being paid for by the Seller. These Lines may also be used
to indicate funds to be held by the settlement agent for the payment
of either repairs, or water, fuel, or other utility bills that
cannot be prorated between the parties at settlement because the
amounts used by the Seller prior to settlement are not yet known.
Subsequent disclosure of the actual amount of these post-settlement
items to be paid from settlement funds is optional. Any amounts
entered on Lines 204-209 including Seller financing arrangements
should also be entered on Lines 506-509.
Instructions for the use of Lines 510 through 519 are the same
as those for Lines 210 to 219 above.
Line 520 is for the total of Lines 501 through 519.
[[Page 51304]]
Lines 601 and 602 are summary lines for the Seller. Enter the
total in Line 420 on Line 601. Enter the total in Line 520 on Line
602.
Line 603 must indicate either the cash required to be paid to
the Seller at settlement (the usual case in a purchase transaction),
or the cash payable by the Seller at settlement. Subtract Line 602
from Line 601 and enter the amount of cash due to or from the Seller
at settlement on Line 603. The appropriate box should be checked.
Section L. Settlement Charges.
Line 700 is used to enter the sales commission charged by the
sales agent or real estate broker.
Lines 701-702 are to be used to state the split of the
commission where the settlement agent disburses portions of the
commission to two or more sales agents or real estate brokers.
Line 703 is used to enter the amount of sales commission
disbursed at settlement. If the sales agent or real estate broker is
retaining a part of the deposit against the sales price (earnest
money) to apply towards the sales agent's or real estate broker's
commission, include in Line 703 only that part of the commission
being disbursed at settlement and insert a note on Line 704
indicating the amount the sales agent or real estate broker is
retaining as a ``P.O.C.'' item.
Line 704 may be used for additional charges made by the sales
agent or real estate broker, or for a sales commission charged to
the Borrower, which will be disbursed by the settlement agent.
Line 801 is used to record ``Our origination charge,'' which
includes all charges received by the loan originator, except any
charge for the specific interest rate chosen (points). This number
must not be listed in either the buyer's or seller's column. The
amount shown in Line 801 must include any amounts received for
origination services, including administrative and processing
services, performed by or on behalf of the loan originator.
Line 802 is used to record ``Your credit or charge (points) for
the specific interest rate chosen,'' which states the charge or
credit adjustment as applied to ``Our origination charge,'' if
applicable. This number must not be listed in either column or shown
on page one of the HUD-1.
For a mortgage broker originating a loan in its own name, the
amount shown on Line 802 will be the difference between the initial
loan amount and the total payment to the mortgage broker from the
lender. The total payment to the mortgage broker will be the sum of
the price paid for the loan by the lender and any other payments to
the mortgage broker from the lender, including any payments based on
the loan amount or loan terms, and any flat rate payments. For a
mortgage broker originating a loan in another entity's name, the
amount shown on Line 802 will be the sum of all payments to the
mortgage broker from the lender, including any payments based on the
loan amount or loan terms, and any flat rate payments.
In either case, when the amount paid to the mortgage broker
exceeds the initial loan amount, there is a credit to the borrower
and it is entered as a negative amount. When the initial loan amount
exceeds the amount paid to the mortgage broker, there is a charge to
the borrower and it is entered as a positive amount. For a lender,
the amount shown on Line 802 may include any credit or charge
(points) to the Borrower.
Line 803 is used to record ``Your adjusted origination
charges,'' which states the net amount of the loan origination
charges, the sum of the amounts shown in Lines 801 and 802. This
amount must be listed in the columns as either a positive number
(for example, where the origination charge shown in Line 801 exceeds
any credit for the interest rate shown in Line 802 or where there is
an origination charge in Line 801 and a charge for the interest rate
(points) is shown on Line 802) or as a negative number (for example,
where the credit for the interest rate shown in Line 802 exceeds the
origination charges shown in Line 801).
In the case of ``no cost'' loans, where ``no cost'' refers only
to the loan originator's fees, the amounts shown in Lines 801 and
802 should offset, so that the charge shown on Line 803 is zero.
Where ``no cost'' includes third party settlement services, the
credit shown in Line 802 will more than offset the amount shown in
Line 801. The amount shown in Line 803 will be a negative number to
offset the settlement charges paid indirectly through the loan
originator.
Lines 804-808 may be used to record each of the ``Required
services that we select.'' Each settlement service provider must be
identified by name and the amount paid recorded either inside the
columns or as paid to the provider outside closing (``P.O.C.''), as
described in the General Instructions.
Line 804 is used to record the appraisal fee.
Line 805 is used to record the fee for all credit reports.
Line 806 is used to record the fee for any tax service.
Line 807 is used to record any flood certification fee.
Lines 808 and additional sequentially numbered lines, as needed,
are used to record other third party services required by the loan
originator. These Lines may also be used to record other required
disclosures from the loan originator. Any such disclosures must be
listed outside the columns.
Lines 901-904. This series is used to record the items which the
Lender requires to be paid at the time of settlement, but which are
not necessarily paid to the lender (e.g., FHA mortgage insurance
premium), other than reserves collected by the Lender and recorded
in the 1000-series.
Line 901 is used if interest is collected at settlement for a
part of a month or other period between settlement and the date from
which interest will be collected with the first regular monthly
payment. Enter that amount here and include the per diem charges. If
such interest is not collected until the first regular monthly
payment, no entry should be made on Line 901.
Line 902 is used for mortgage insurance premiums due and payable
at settlement, including any monthly amounts due at settlement and
any upfront mortgage insurance premium, but not including any
reserves collected by the Lender and recorded in the 1000-series. If
a lump sum mortgage insurance premium paid at settlement is included
on Line 902, a note should indicate that the premium is for the life
of the loan.
Line 903 is used for homeowner's insurance premiums that the
Lender requires to be paid at the time of settlement, except
reserves collected by the Lender and recorded in the 1000-series.
Lines 904 and additional sequentially numbered lines are used to
list additional items required by the Lender (except for reserves
collected by the Lender and recorded in the 1000-series), including
premiums for flood or other insurance. These lines are also used to
list amounts paid at settlement for insurance not required by the
Lender.
Lines 1000-1007. This series is used for amounts collected by
the Lender from the Borrower and held in an account for the future
payment of the obligations listed as they fall due. Include the time
period (number of months) and the monthly assessment. In many
jurisdictions this is referred to as an ``escrow,'' ``impound,'' or
``trust'' account. In addition to the property taxes and insurance
listed, some Lenders may require reserves for flood insurance,
condominium owners' association assessments, etc. The amount in line
1001 must be listed in the columns, and the itemizations in lines
1002 through 1007 must be listed outside the columns.
After itemizing individual deposits in the 1000 series, the
servicer shall make an adjustment based on aggregate accounting.
This adjustment equals the difference between the deposit required
under aggregate accounting and the sum of the itemized deposits. The
computation steps for aggregate accounting are set out in 12 CFR
1024.17(d). The adjustment will always be a negative number or zero
(-0-), except for amounts due to rounding. The settlement agent
shall enter the aggregate adjustment amount outside the columns on a
final line of the 1000 series of the HUD-1 or HUD-1A statement.
Appendix E to this part sets out an example of aggregate analysis.
Lines 1100-1108. This series covers title charges and charges by
attorneys and closing or settlement agents. The title charges
include a variety of services performed by title companies or
others, and include fees directly related to the transfer of title
(title examination, title search, document preparation), fees for
title insurance, and fees for conducting the closing. The legal
charges include fees for attorneys representing the lender, seller,
or borrower, and any attorney preparing title work. The series also
includes any settlement, notary, and delivery fees related to the
services covered in this series. Disbursements to third parties must
be broken out in the appropriate lines or in blank lines in the
series, and amounts paid to these third parties must be shown
outside of the columns if included in Line 1101. Charges not
included in Line 1101 must be listed in the columns.
Line 1101 is used to record the total for the category of
``Title services and lender's title insurance.'' This amount must be
listed in the columns.
[[Page 51305]]
Line 1102 is used to record the settlement or closing fee.
Line 1103 is used to record the charges for the owner's title
insurance and related endorsements. This amount must be listed in
the columns.
Line 1104 is used to record the lender's title insurance premium
and related endorsements.
Line 1105 is used to record the amount of the lender's title
policy limit. This amount is recorded outside of the columns.
Line 1106 is used to record the amount of the owner's title
policy limit. This amount is recorded outside of the columns.
Line 1107 is used to record the amount of the total title
insurance premium, including endorsements, that is retained by the
title agent. This amount is recorded outside of the columns.
Line 1108 used to record the amount of the total title insurance
premium, including endorsements, that is retained by the title
underwriter. This amount is recorded outside of the columns.
Additional sequentially numbered lines in the 1100-series may be
used to itemize title charges paid to other third parties, as
identified by name and type of service provided.
Lines 1200-1206. This series covers government recording and
transfer charges. Charges paid by the borrower must be listed in the
columns as described for lines 1201 and 1203, with itemizations
shown outside the columns. Any amounts that are charged to the
seller and that were not included on the Good Faith Estimate must be
listed in the columns.
Line 1201 is used to record the total ``Government recording
charges,'' and the amount must be listed in the columns.
Line 1202 is used to record, outside of the columns, the
itemized recording charges.
Line 1203 is used to record the transfer taxes, and the amount
must be listed in the columns.
Line 1204 is used to record, outside of the columns, the amounts
for local transfer taxes and stamps.
Line 1205 is used to record, outside of the columns, the amounts
for State transfer taxes and stamps.
Line 1206 and additional sequentially numbered lines may be used
to record specific itemized third party charges for government
recording and transfer services, but the amounts must be listed
outside the columns.
Line 1301 and additional sequentially numbered lines must be
used to record required services that the borrower can shop for,
such as fees for survey, pest inspection, or other similar
inspections. These lines may also be used to record additional
itemized settlement charges that are not included in a specific
category, such as fees for structural and environmental inspections;
pre-sale inspections of heating, plumbing or electrical equipment;
or insurance or warranty coverage. The amounts must be listed in
either the borrower's or seller's column.
Line 1400 must state the total settlement charges as calculated
by adding the amounts within each column.
Page 3
Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges
The HUD-1/1-A is a statement of actual charges and adjustments.
The comparison chart on page 3 of the HUD-1 must be prepared using
the exact information and amounts for the services that were
purchased or provided as part of the transaction, as that
information and those amounts are shown on the GFE and in the HUD-1.
If a service that was listed on the GFE was not obtained in
connection with the transaction, pages 1 and 2 of the HUD-1 should
not include any amount for that service, and the estimate on the GFE
of the charge for the service should not be included in any amounts
shown on the comparison chart on Page 3 of the HUD-1. The comparison
chart is comprised of three sections: ``Charges That Cannot
Increase'', ``Charges That Cannot Increase More Than 10%'', and
``Charges That Can Change''.
``Charges That Cannot Increase''. The amounts shown in Blocks 1
and 2, in Line A, and in Block 8 on the borrower's GFE must be
entered in the appropriate line in the Good Faith Estimate column.
The amounts shown on Lines 801, 802, 803 and 1203 of the HUD-1/1A
must be entered in the corresponding line in the HUD-1/1A column.
The HUD-1/1A column must include any amounts shown on page 2 of the
HUD-1 in the column as paid for by the borrower, plus any amounts
that are shown as P.O.C. by or on behalf of the borrower. If there
is a credit in Block 2 of the GFE or Line 802 of the HUD-1/1A, the
credit should be entered as a negative number.
``Charges That Cannot Increase More Than 10%''. A description of
each charge included in Blocks 3 and 7 on the borrower's GFE must be
entered on separate lines in this section, with the amount shown on
the borrower's GFE for each charge entered in the corresponding line
in the Good Faith Estimate column. For each charge included in
Blocks 4, 5 and 6 on the borrower's GFE for which the loan
originator selected the provider or for which the borrower selected
a provider identified by the loan originator, a description must be
entered on a separate line in this section, with the amount shown on
the borrower's GFE for each charge entered in the corresponding line
in the Good Faith Estimate column. The loan originator must identify
any third party settlement services for which the borrower selected
a provider other than one identified by the loan originator so that
the settlement agent can include those charges in the appropriate
category. Additional lines may be added if necessary. The amounts
shown on the HUD-1/1A for each line must be entered in the HUD-1/1A
column next to the corresponding charge from the GFE, along with the
appropriate HUD-1/1A line number. The HUD-1/1A column must include
any amounts shown on page 2 of the HUD-1 in the column as paid for
by the borrower, plus any amounts that are shown as P.O.C. by or on
behalf of the borrower.
The amounts shown in the Good Faith Estimate and HUD-1/1A
columns for this section must be separately totaled and entered in
the designated line. If the total for the HUD-1/1A column is greater
than the total for the Good Faith Estimate column, then the amount
of the increase must be entered both as a dollar amount and as a
percentage increase in the appropriate line.
``Charges That Can Change''. The amounts shown in Blocks 9, 10
and 11 on the borrower's GFE must be entered in the appropriate
lines in the Good Faith Estimate column. Any third party settlement
services for which the borrower selected a provider other than one
identified by the loan originator must also be included in this
section. The amounts shown on the HUD-1/1A for each charge in this
section must be entered in the corresponding line in the HUD-1/1A
column, along with the appropriate HUD-1/1A line number. The HUD-1/
1A column must include any amounts shown on page 2 of the HUD-1 in
the column as paid for by the borrower, plus any amounts that are
shown as P.O.C. by or on behalf of the borrower. Additional lines
may be added if necessary.
Loan Terms
This section must be completed in accordance with the
information and instructions provided by the lender. The lender must
provide this information in a format that permits the settlement
agent to simply enter the necessary information in the appropriate
spaces, without the settlement agent having to refer to the loan
documents themselves. [rtrif]For reverse mortgages, the initial
monthly amount owed for principal, interest, and any mortgage
insurance must read ``N/A'' and the loan term is disclosed as ``N/
A'' when the loan term is conditioned upon the occurrence of a
specified event, such as the death of the borrower or the borrower
no longer occupying the property for a certain period of time.
Additionally, for reverse mortgages the question ``Even if you make
payments on time, can your loan balance rise?'' must be answered as
``Yes'' and the maximum amount disclosed as ``Unknown.''
For reverse mortgages that establish an arrangement for the
payment of property taxes, homeowner's insurance, or other recurring
charges through draws from the principal limit, the second box in
the ``Total monthly amount owed including escrow payments'' section
must be checked. The blank following the first $ must be completed
with ``0'' and an asterisk, and all items that will be paid using
draws from the principal limit, such as for property taxes, must
also be indicated. An asterisk must also be placed in this section
with the following statement: ``Paid by or through draws from the
principal limit.'' Reverse mortgage transactions are not considered
to be balloon transactions for the purposes of the loan terms
disclosed on page 3 of the HUD-1.[ltrif]
Instructions for Completing HUD-1A
Note: The HUD-1A is an optional form that may be used for
refinancing and subordinate-lien federally related mortgage loans,
as well as for any other one-party transaction that does not involve
the transfer of title to residential real property. The HUD-1 form
may also be used for such transactions, by
[[Page 51306]]
utilizing the borrower's side of the HUD-1 and following the
relevant parts of the instructions as set forth above. The use of
either the HUD-1 or HUD-1A is not mandatory for open-end lines of
credit (home-equity plans), as long as the provisions of Regulation
Z are followed.
Background
The HUD-1A settlement statement is to be used as a statement of
actual charges and adjustments to be given to the borrower at
settlement, as defined in this part. The instructions for completion
of the HUD-1A are for the benefit of the settlement agent who
prepares the statement; the instructions are not a part of the
statement and need not be transmitted to the borrower. There is no
objection to using the HUD-1A in transactions in which it is not
required, and its use in open-end lines of credit transactions
(home-equity plans) is encouraged. It may not be used as a
substitute for a HUD-1 in any transaction that has a seller.
Refer to the ``definitions'' section (Sec. 1024.2) of 12 CFR
part 1024 (Regulation X) for specific definitions of terms used in
these instructions.
General Instructions
Information and amounts may be filled in by typewriter, hand
printing, computer printing, or any other method producing clear and
legible results. Refer to 12 CFR 1024.9 regarding rules for
reproduction of the HUD-1A. Additional pages may be attached to the
HUD-1A for the inclusion of customary recitals and information used
locally for settlements or if there are insufficient lines on the
HUD-1A. The settlement agent shall complete the HUD-1A in accordance
with the instructions for the HUD-1 to the extent possible,
including the instructions for disclosing items paid outside closing
and for no cost loans.
Blank lines are provided in section L for any additional
settlement charges. Blank lines are also provided in section M for
recipients of all or portions of the loan proceeds. The names of the
recipients of the settlement charges in section L and the names of
the recipients of the loan proceeds in section M should be set forth
on the blank lines.
Line-Item Instructions
Page 1
The identification information at the top of the HUD-1A should
be completed as follows: The borrower's name and address is entered
in the space provided. If the property securing the loan is
different from the borrower's address, the address or other location
information on the property should be entered in the space provided.
The loan number is the lender's identification number for the loan.
The settlement date is the date of settlement in accordance with 12
CFR 1024.2, not the end of any applicable rescission period. The
name and address of the lender should be entered in the space
provided.
Section L. Settlement Charges. This section of the HUD-1A is
similar to section L of the HUD-1, with minor changes or omissions,
including deletion of lines 700 through 704, relating to real estate
broker commissions. The instructions for section L in the HUD-1
should be followed insofar as possible. Inapplicable charges should
be ignored, as should any instructions regarding seller items.
Line 1400 in the HUD-1A is for the total settlement charges
charged to the borrower. Enter this total on line 1601. This total
should include section L amounts from additional pages, if any are
attached to this HUD-1A.
Section M. Disbursement to Others. This section is used to list
payees, other than the borrower, of all or portions of the loan
proceeds (including the lender, if the loan is paying off a prior
loan made by the same lender), when the payee will be paid directly
out of the settlement proceeds. It is not used to list payees of
settlement charges, nor to list funds disbursed directly to the
borrower, even if the lender knows the borrower's intended use of
the funds.
For example, in a refinancing transaction, the loan proceeds are
used to pay off an existing loan. The name of the lender for the
loan being paid off and the pay-off balance would be entered in
section M. In a home improvement transaction when the proceeds are
to be paid to the home improvement contractor, the name of the
contractor and the amount paid to the contractor would be entered in
section M. In a consolidation loan, or when part of the loan
proceeds is used to pay off other creditors, the name of each
creditor and the amount paid to that creditor would be entered in
section M. If the proceeds are to be given directly to the borrower
and the borrower will use the proceeds to pay off existing
obligations, this would not be reflected in section M.
Section N. Net Settlement. Line 1600 normally sets forth the
principal amount of the loan as it appears on the related note for
this loan. In the event this form is used for an open-ended home
equity line whose approved amount is greater than the initial amount
advanced at settlement, the amount shown on Line 1600 will be the
loan amount advanced at settlement. Line 1601 is used for all
settlement charges that both are included in the totals for lines
1400 and 1602, and are not financed as part of the principal amount
of the loan. This is the amount normally received by the lender from
the borrower at settlement, which would occur when some or all of
the settlement charges were paid in cash by the borrower at
settlement, instead of being financed as part of the principal
amount of the loan. Failure to include any such amount in line 1601
will result in an error in the amount calculated on line 1604. Items
paid outside of closing (P.O.C.) should not be included in Line
1601.
Line 1602 is the total amount from line 1400.
Line 1603 is the total amount from line 1520.
Line 1604 is the amount disbursed to the borrower. This is
determined by adding together the amounts for lines 1600 and 1601,
and then subtracting any amounts listed on lines 1602 and 1603.
Page 2
This section of the HUD-1A is similar to page 3 of the HUD-1.
The instructions for page 3 of the HUD-1 should be followed insofar
as possible. The HUD-1/1A Column should include any amounts shown on
page 1 of the HUD-1A in the column as paid for by the borrower, plus
any amounts that are shown as P.O.C. by the borrower. Inapplicable
charges should be ignored.
4. Appendix B to part 1024 is amended by revising paragraph 12 to
read as follows:
Appendix B to Part 1024--Illustrations of Requirements of RESPA
* * * * *
12. Facts. A is a mortgage broker who provides origination
services to submit a loan to a lender for approval. The mortgage
broker charges the borrower a uniform fee for the total origination
services, as well as a direct up-front charge for reimbursement of
credit reporting, appraisal services, or similar charges.
Comment. The mortgage broker's fee must be
[rtrif]reflected[ltrif] [lsqbb]itemized[rsqbb] in the Good Faith
Estimate and on the HUD-1 Settlement Statement. Other charges which
are paid for by the borrower and paid in advance are listed as
P.O.C. on the HUD-1 Settlement Statement, and reflect the actual
provider charge for such services. [lsqbb]Also, any other fee or
payment received by the mortgage broker from either the lender or
the borrower arising from the initial funding transaction, including
a servicing release premium or yield spread premium, is to be noted
on the Good Faith Estimate and listed in the 800 series of the HUD-1
Settlement Statement.[rsqbb]
5. Appendix C to part 1024 is revised to read as follows:
Appendix C to Part 1024--Instructions for Completing Good Faith
Estimate (GFE) Form
The following are instructions for completing the GFE required
under section 5 of RESPA and 12 CFR 1024.7 of the Bureau
regulations. The standardized form set forth in this Appendix is the
required GFE form and must be provided exactly as specified;
provided, however, preparers may replace HUD's OMB approval number
listed on the form with the Bureau's OMB approval number when they
reproduce the GFE form. The instructions for completion of the GFE
are primarily for the benefit of the loan originator who prepares
the form and need not be transmitted to the borrower(s) as an
integral part of the GFE. The required standardized GFE form must be
prepared completely and accurately. A separate GFE must be provided
for each loan where a transaction will involve more than one
mortgage loan.
General Instructions
The loan originator preparing the GFE may fill in information
and amounts on the form by typewriter, hand printing, computer
printing, or any other method producing clear and legible results.
Under these instructions, the ``form'' refers to the required
[[Page 51307]]
standardized GFE form. Although the standardized GFE is a prescribed
form, Blocks 3, 6, and 11 on page 2 may be adapted for use in
particular loan situations, so that additional lines may be inserted
there, and unused lines may be deleted.
All fees for categories of charges shall be disclosed in U.S.
dollar and cent amounts.
Specific Instructions
Page 1
Top of the Form--The loan originator must enter its name,
business address, telephone number, and email address, if any, on
the top of the form, along with the applicant's name, the address or
location of the property for which financing is sought, and the date
of the GFE.
``Purpose.''--This section describes the general purpose of the
GFE as well as additional information available to the applicant.
``Shopping for your loan.''--This section requires no loan
originator action.
``Important dates.''--This section briefly states important
deadlines after which the loan terms that are the subject of the GFE
may not be available to the applicant. In Line 1, the loan
originator must state the date and, if necessary, time until which
the interest rate for the GFE will be available. In Line 2, the loan
originator must state the date until which the estimate of all other
settlement charges for the GFE will be available. This date must be
at least 10 business days from the date of the GFE. In Line 3, the
loan originator must state how many calendar days within which the
applicant must go to settlement once the interest rate is locked. In
Line 4, the loan originator must state how many calendar days prior
to settlement the interest rate would have to be locked, if
applicable.
``Summary of your loan.''--In this section, for all loans the
loan originator must fill in, where indicated:
(i) The initial loan amount;
(ii) The loan term; and
(iii) The initial interest rate.
[rtrif]For reverse mortgage transactions:
(i) The initial loan amount disclosed on the GFE is the amount
of the initial principal limit of the loan;
(ii) The loan term is disclosed as ``N/A'' when the loan term is
conditioned upon the occurrence of a specified event, such as the
death of the borrower or the borrower no longer occupying the
property for a certain period of time; and
(iii) The initial interest rate is the interest rate indicated
on the legal obligation.[ltrif]
The loan originator must fill in the initial monthly amount owed
for principal, interest, and any mortgage insurance. The amount
shown must be the greater of: (1) The required monthly payment for
principal and interest for the first regularly scheduled payment,
plus any monthly mortgage insurance payment; or (2) the accrued
interest for the first regularly scheduled payment, plus any monthly
mortgage insurance payment. [rtrif]For reverse mortgage transactions
where there are no regular payment periods, the loan originator must
disclose ``Not Applicable'' or ``N/A'' for the initial monthly
amount owed for principal, interest, and any mortgage
insurance.[ltrif]
The loan originator must indicate whether the interest rate can
rise, and, if it can, must insert the maximum rate to which it can
rise over the life of the loan. The loan originator must also
indicate the period of time after which the interest rate can first
change.
The loan originator must indicate whether the loan balance can
rise even if the borrower makes payments on time, for example in the
case of a loan with negative amortization. If it can, the loan
originator must insert the maximum amount to which the loan balance
can rise over the life of the loan. For Federal, State, local, or
tribal housing programs that provide payment assistance, any
repayment of such program assistance should be excluded from
consideration in completing this item. If the loan balance will
increase only because escrow items are being paid through the loan
balance, the loan originator is not required to check the box
indicating that the loan balance can rise. [rtrif]For reverse
mortgage transactions, the loan originator must indicate that the
loan balance can rise even if the borrower makes payments on time
and the maximum amount to which the loan balance can rise must be
disclosed as ``Unknown.''[ltrif]
The loan originator must indicate whether the monthly amount
owed for principal, interest, and any mortgage insurance can rise
even if the borrower makes payments on time. If the monthly amount
owed can rise even if the borrower makes payments on time, the loan
originator must indicate the period of time after which the monthly
amount owed can first change, the maximum amount to which the
monthly amount owed can rise at the time of the first change, and
the maximum amount to which the monthly amount owed can rise over
the life of the loan. The amount used for the monthly amount owed
must be the greater of: (1) The required monthly payment for
principal and interest for that month, plus any monthly mortgage
insurance payment; or (2) the accrued interest for that month, plus
any monthly mortgage insurance payment. [rtrif]For reverse mortgage
transactions, the loan originator must disclose that the monthly
amount owed for principal, interest, and any mortgage insurance
cannot rise.[ltrif]
The loan originator must indicate whether the loan includes a
prepayment penalty, and, if so, the maximum amount that it could be.
The loan originator must indicate whether the loan requires a
balloon payment and, if so, the amount of the payment and in how
many years it will be due. [rtrif]Reverse mortgage transactions are
not considered to be balloon transactions for the purposes of this
disclosure on the GFE.[ltrif]
``Escrow account information.''--The loan originator must
indicate whether the loan includes an escrow account for property
taxes and other financial obligations. The amount shown in the
``Summary of your loan'' section for ``Your initial monthly amount
owed for principal, interest, and any mortgage insurance'' must be
entered in the space for the monthly amount owed in this section.
[rtrif]For reverse mortgage transactions where the lender will
establish an arrangement to pay for such items as property taxes and
homeowner's insurance through draws from the principal limit, the
loan originator must indicate that an escrow account is included and
the amount shown in this section must be disclosed as ``N/
A.''[ltrif]
``Summary of your settlement charges.''--On this line, the loan
originator must state the Adjusted Origination Charges from subtotal
A of page 2, the Charges for All Other Settlement Services from
subtotal B of page 2, and the Total Estimated Settlement Charges
from the bottom of page 2.
Page 2
``Understanding your estimated settlement charges.''--This
section details 11 settlement cost categories and amounts associated
with the mortgage loan. For purposes of determining whether a
tolerance has been met, the amount on the GFE should be compared
with the total of any amounts shown on the HUD-1 in the borrower's
column and any amounts paid outside closing by or on behalf of the
borrower.
``Your Adjusted Origination Charges.''
Block 1, ``Our origination charge.''--The loan originator must
state here all charges that all loan originators involved in this
transaction will receive, except for any charge for the specific
interest rate chosen (points). A loan originator may not separately
charge any additional fees for getting this loan, including for
application, processing, or underwriting. The amount stated in Block
1 is subject to zero tolerance, i.e., the amount may not increase at
settlement.
Block 2, ``Your credit or charge (points) for the specific
interest rate chosen.''--For transactions involving mortgage
brokers, the mortgage broker must indicate through check boxes
whether there is a credit to the borrower for the interest rate
chosen on the loan, the interest rate, and the amount of the credit,
or whether there is an additional charge (points) to the borrower
for the interest rate chosen on the loan, the interest rate, and the
amount of that charge. Only one of the boxes may be checked; a
credit and charge cannot occur together in the same transaction.
For transactions without a mortgage broker, the lender may
choose not to separately disclose in this block any credit or charge
for the interest rate chosen on the loan; however, if this block
does not include any positive or negative figure, the lender must
check the first box to indicate that ``The credit or charge for the
interest rate you have chosen'' is included in ``Our origination
charge'' above (see Block 1 instructions above), must insert the
interest rate, and must also insert ``0'' in Block 2. Only one of
the boxes may be checked; a credit and charge cannot occur together
in the same transaction.
For a mortgage broker, the credit or charge for the specific
interest rate chosen is the net payment to the mortgage broker from
the lender (i.e., the sum of all payments to the mortgage broker
from the lender, including payments based on the loan amount, a flat
rate, or any other computation, and in a table funded transaction,
the loan amount less the price paid for the loan by the lender).
When the net payment to the mortgage broker from the lender is
positive, there is a credit to the borrower and it is entered as a
negative
[[Page 51308]]
amount in Block 2 of the GFE. When the net payment to the mortgage
broker from the lender is negative, there is a charge to the
borrower and it is entered as a positive amount in Block 2 of the
GFE. If there is no net payment (i.e., the credit or charge for the
specific interest rate chosen is zero), the mortgage broker must
insert ``0'' in Block 2 and may check either the box indicating
there is a credit of ``0'' or the box indicating there is a charge
of ``0''.
The amount stated in Block 2 is subject to zero tolerance while
the interest rate is locked, i.e., any credit for the interest rate
chosen cannot decrease in absolute value terms and any charge for
the interest rate chosen cannot increase. (Note: An increase in the
credit is allowed since this increase is a reduction in cost to the
borrower. A decrease in the credit is not allowed since it is an
increase in cost to the borrower.)
Line A, ``Your Adjusted Origination Charges.''--The loan
originator must add the numbers in Blocks 1 and 2 and enter this
subtotal at highlighted Line A. The subtotal at Line A will be a
negative number if there is a credit in Block 2 that exceeds the
charge in Block 1. The amount stated in Line A is subject to zero
tolerance while the interest rate is locked.
In the case of ``no cost'' loans, where ``no cost'' refers only
to the loan originator's fees, Line A must show a zero charge as the
adjusted origination charge. In the case of ``no cost'' loans where
``no cost'' encompasses third party fees as well as the upfront
payment to the loan originator, all of the third party fees listed
in Block 3 through Block 11 to be paid for by the loan originator
(or borrower, if any) must be itemized and listed on the GFE. The
credit for the interest rate chosen must be large enough that the
total for Line A will result in a negative number to cover the third
party fees.
``Your Charges for All Other Settlement Services''
There is a 10 percent tolerance applied to the sum of the prices
of each service listed in Block 3, Block 4, Block 5, Block 6, and
Block 7, where the loan originator requires the use of a particular
provider or the borrower uses a provider selected or identified by
the loan originator. Any services in Block 4, Block 5, or Block 6
for which the borrower selects a provider other than one identified
by the loan originator are not subject to any tolerance and, at
settlement, would not be included in the sum of the charges on which
the 10 percent tolerance is based. Where a loan originator permits a
borrower to shop for third party settlement services, the loan
originator must provide the borrower with a written list of
settlement services providers at the time of the GFE, on a separate
sheet of paper.
Block 3, ``Required services that we select.''--In this block,
the loan originator must identify each third party settlement
service required and selected by the loan originator (excluding
title services), along with the estimated price to be paid to the
provider of each service. Examples of such third party settlement
services might include provision of credit reports, appraisals,
flood checks, tax services, and any upfront mortgage insurance
premium. The loan originator must identify the specific required
services and provide an estimate of the price of each service. Loan
originators are also required to add the individual charges
disclosed in this block and place that total in the column of this
block. The charge shown in this block is subject to an overall 10
percent tolerance as described above.
Block 4, ``Title services and lender's title insurance.''--In
this block, the loan originator must state the estimated total
charge for third party settlement service providers for all closing
services, regardless of whether the providers are selected or paid
for by the borrower, seller, or loan originator. The loan originator
must also include any lender's title insurance premiums, when
required, regardless of whether the provider is selected or paid for
by the borrower, seller, or loan originator. All fees for title
searches, examinations, and endorsements, for example, would be
included in this total. The charge shown in this block is subject to
an overall 10 percent tolerance as described above.
Block 5, ``Owner's title insurance.''--In this block, for all
purchase transactions the loan originator must provide an estimate
of the charge for the owner's title insurance and related
endorsements, regardless of whether the providers are selected or
paid for by the borrower, seller, or loan originator. For non-
purchase transactions, the loan originator may enter ``NA'' or ``Not
Applicable'' in this Block. The charge shown in this block is
subject to an overall 10 percent tolerance as described above.
Block 6, ``Required services that you can shop for.''--In this
block, the loan originator must identify each third party settlement
service required by the loan originator where the borrower is
permitted to shop for and select the settlement service provider
(excluding title services), along with the estimated charge to be
paid to the provider of each service. The loan originator must
identify the specific required services (e.g., survey, pest
inspection) and provide an estimate of the charge of each service.
The loan originator must also add the individual charges disclosed
in this block and place the total in the column of this block. The
charge shown in this block is subject to an overall 10 percent
tolerance as described above.
Block 7, ``Government recording charge.''--In this block, the
loan originator must estimate the State and local government fees
for recording the loan and title documents that can be expected to
be charged at settlement. The charge shown in this block is subject
to an overall 10 percent tolerance as described above.
Block 8, ``Transfer taxes.''--In this block, the loan originator
must estimate the sum of all State and local government fees on
mortgages and home sales that can be expected to be charged at
settlement, based upon the proposed loan amount or sales price and
on the property address. A zero tolerance applies to the sum of
these estimated fees.
Block 9, ``Initial deposit for your escrow account.''--In this
block, the loan originator must estimate the amount that it will
require the borrower to place into a reserve or escrow account at
settlement to be applied to recurring charges for property taxes,
homeowner's and other similar insurance, mortgage insurance, and
other periodic charges. The loan originator must indicate through
check boxes if the reserve or escrow account will cover future
payments for all tax, all hazard insurance, and other obligations
that the loan originator requires to be paid as they fall due. If
the reserve or escrow account includes some, but not all, property
taxes or hazard insurance, or if it includes mortgage insurance, the
loan originator should check ``other'' and then list the items
included.
Block 10, ``Daily interest charges.''--In this block, the loan
originator must estimate the total amount that will be due at
settlement for the daily interest on the loan from the date of
settlement until the first day of the first period covered by
scheduled mortgage payments. The loan originator must also indicate
how this total amount is calculated by providing the amount of the
interest charges per day and the number of days used in the
calculation, based on a stated projected closing date.
Block 11, ``Homeowner's insurance.''--The loan originator must
estimate in this block the total amount of the premiums for any
hazard insurance policy and other similar insurance, such as fire or
flood insurance that must be purchased at or before settlement to
meet the loan originator's requirements. The loan originator must
also separately indicate the nature of each type of insurance
required along with the charges. To the extent a loan originator
requires that such insurance be part of an escrow account, the
amount of the initial escrow deposit must be included in Block 9.
Line B, ``Your Charges for All Other Settlement Services.''--The
loan originator must add the numbers in Blocks 3 through 11 and
enter this subtotal in the column at highlighted Line B.
Line A+B, ``Total Estimated Settlement Charges.''--The loan
originator must add the subtotals in the right-hand column at
highlighted Lines A and B and enter this total in the column at
highlighted Line A+B.
Page 3
``Instructions.''
``Understanding which charges can change at settlement.''--This
section informs the applicant about which categories of settlement
charges can increase at closing, and by how much, and which
categories of settlement charges cannot increase at closing. This
section requires no loan originator action.
``Using the tradeoff table.''--This section is designed to make
borrowers aware of the relationship between their total estimated
settlement charges on one hand, and the interest rate and resulting
monthly payment on the other hand. The loan originator must complete
the left hand column using the loan amount, interest rate, monthly
payment figure, and the total estimated settlement charges from page
1 of the GFE. The loan originator, at its option, may provide the
borrower with the same information for two alternative loans, one
with a higher interest rate, if available, and one with a lower
[[Page 51309]]
interest rate, if available, from the loan originator. The loan
originator should list in the tradeoff table only alternative loans
for which it would presently issue a GFE based on the same
information the loan originator considered in issuing this GFE. The
alternative loans must use the same loan amount and be otherwise
identical to the loan in the GFE. The alternative loans must have,
for example, the identical number of payment periods; the same
margin, index, and adjustment schedule if the loans are adjustable
rate mortgages; and the same requirements for prepayment penalty and
balloon payments. If the loan originator fills in the tradeoff
table, the loan originator must show the borrower the loan amount,
alternative interest rate, alternative monthly payment, the change
in the monthly payment from the loan in this GFE to the alternative
loan, the change in the total settlement charges from the loan in
this GFE to the alternative loan, and the total settlement charges
for the alternative loan. If these options are available, an
applicant may request a new GFE, and a new GFE must be provided by
the loan originator.
``Using the shopping chart.''--This chart is a shopping tool to
be provided by the loan originator for the borrower to complete, in
order to compare GFEs.
``If your loan is sold in the future.''--This section requires
no loan originator action.
PART 1026--TRUTH IN LENDING (REGULATION Z)
6. The authority citation for part 1026 is revised to read as
follows:
Authority: 12 U.S.C. [rtrif]2601; 2603-2605, 2607, 2609, 2617,
5511,[ltrif] 5512, [rtrif]5532,[ltrif] 5581; 15 U.S.C. 1601 et seq.
7. Section 1026.1 is amended by revising paragraphs (a), (b),
(c)(5), (d)(5), and (e) to read as follows:
Sec. 1026.1 Authority, purpose, coverage, organization, enforcement,
and liability.
(a) Authority. This part, known as Regulation Z, is issued by the
Bureau of Consumer Financial Protection to implement the Federal Truth
in Lending Act, which is contained in title I of the Consumer Credit
Protection Act, as amended (15 U.S.C. 1601 et seq.). This part also
implements title XII, section 1204 of the Competitive Equality Banking
Act of 1987 (Pub. L. 100-86, 101 Stat. 552). [rtrif]Furthermore, this
part implements certain provisions of the Real Estate Settlement
Procedures Act of 1974, as amended (12 U.S.C. 2601 et seq.).[ltrif]
Information-collection requirements contained in this part have been
approved by the Office of Management and Budget under the provisions of
44 U.S.C. 3501 et seq. and have been assigned OMB No. 3170-0015
[rtrif](Truth in Lending)[ltrif].
(b) Purpose. The purpose of this part is to promote the informed
use of consumer credit by requiring disclosures about its terms and
cost[rtrif], to ensure that consumers are provided with greater and
more timely information on the nature and costs of the residential real
estate settlement process, and to result in a more effective advance
disclosure to home buyers and sellers of settlement costs[ltrif]. The
regulation also includes substantive protections. It gives consumers
the right to cancel certain credit transactions that involve a lien on
a consumer's principal dwelling, regulates certain credit card
practices, and provides a means for fair and timely resolution of
credit billing disputes. The regulation does not generally govern
charges for consumer credit, except that several provisions in subpart
G set forth special rules addressing certain charges applicable to
credit card accounts under an open-end (not home-secured) consumer
credit plan. The regulation requires a maximum interest rate to be
stated in variable-rate contracts secured by the consumer's dwelling.
It also imposes limitations on home-equity plans that are subject to
the requirements of Sec. 1026.40 and mortgages that are subject to the
requirements of Sec. 1026.32. The regulation prohibits certain acts or
practices in connection with credit secured by a dwelling in Sec.
1026.36, and credit secured by a consumer's principal dwelling in Sec.
1026.35. The regulation also regulates certain practices of creditors
who extend private education loans as defined in Sec. 1026.46(b)(5).
[rtrif]In addition, it imposes certain limitations on increases in
costs for mortgage transactions subject to Sec. 1026.19(e) and
(f).[ltrif]
(c) Coverage. * * *
[rtrif](5) No person is required to provide the disclosures
required by sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1),
129C(g)(2) and (3), 129C(h), 129D(h), or 129D(j)(1)(A) of the Truth in
Lending Act or section 4(c) of the Real Estate Settlement Procedures
Act.[ltrif]
(d) Organization. * * *
(5) Subpart E contains special rules for mortgage transactions.
Section 1026.32 requires certain disclosures and provides limitations
for closed-end loans that have rates or fees above specified amounts.
Section 1026.33 requires special disclosures, including the total
annual loan cost rate, for reverse mortgage transactions. Section
1026.34 prohibits specific acts and practices in connection with
closed-end mortgage transactions that are subject to Sec. 1026.32.
Section 1026.35 prohibits specific acts and practices in connection
with closed-end higher-priced mortgage loans, as defined in Sec.
1026.35(a). Section 1026.36 prohibits specific acts and practices in
connection with an extension of credit secured by a dwelling.
[rtrif]Sections 1026.37 and 1026.38 set forth the special disclosure
requirements for certain closed-end transactions secured by real
property, as required by Sec. 1026.19(e), (f), and (g).[ltrif]
* * * * *
(e) Enforcement and liability. Section 108 of the [rtrif]Truth in
Lending[ltrif] Act contains the administrative enforcement provisions
[rtrif]for that Act[ltrif]. Sections 112, 113, 130, 131, and 134
contain provisions relating to liability for failure to comply with the
requirements of the [rtrif]Truth in Lending[ltrif] Act and the
regulation. Section 1204(c) of title XII of the Competitive Equality
Banking Act of 1987, Pub. L. 100-86, 101 Stat. 552, incorporates by
reference administrative enforcement and civil liability provisions of
sections 108 and 130 of the [rtrif]Truth in Lending[ltrif] Act.
[rtrif]Section 19 of the Real Estate Settlement Procedures Act contains
the administrative enforcement provisions for that Act.[ltrif]
8. Section 1026.2 is amended by revising paragraphs (a)(3), (a)(6),
and (a)(25) to read as follows:
Sec. 1026.2 Definitions and rules of construction.
(a) Definitions. For purposes of this regulation, the following
definitions apply:
* * * * *
[rtrif](3)(i) Application means the submission of a consumer's
financial information for the purposes of obtaining an extension of
credit.
(ii) Except for purposes of subpart B, subpart F, and subpart G of
this part, an application consists of the submission of the consumer's
name, the consumer's income, the consumer's social security number to
obtain a credit report, the property address, an estimate of the value
of the property, and the mortgage loan amount sought.[ltrif]
* * * * *
(6) Business day means a day on which the creditor's offices are
open to the public for carrying on substantially all of its business
functions. However, for purposes of rescission under Sec. Sec. 1026.15
and 1026.23, and for purposes of Sec. Sec. 1026.19(a)(1)(ii),
1026.19(a)(2), [rtrif]1026.19(e)(1)(iii), 1026.19(e)(1)(iv),
1026.19(e)(2)(i)(A), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii),[ltrif]
1026.31, and 1026.46(d)(4), the term means all calendar days except
Sundays and the legal public holidays specified in 5 U.S.C. 6103(a),
such as New Year's Day, the Birthday of Martin Luther King, Jr.,
Washington's Birthday, Memorial Day, Independence Day, Labor Day,
[[Page 51310]]
Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
* * * * *
(25) Security interest means an interest in property that secures
performance of a consumer credit obligation and that is recognized by
State or Federal law. It does not include incidental interests such as
interests in proceeds, accessions, additions, fixtures, insurance
proceeds (whether or not the creditor is a loss payee or beneficiary),
premium rebates, or interests in after-acquired property. For purposes
of disclosures under Sec. Sec. 1026.6[rtrif],[ltrif] [lsqbb]and[rsqbb]
1026.18, [rtrif]1026.19(e) and (f), and 1026.38(l)(6),[ltrif] the term
does not include an interest that arises solely by operation of law.
However, for purposes of the right of rescission under Sec. Sec.
1026.15 and 1026.23, the term does include interests that arise solely
by operation of law.
* * * * *
9. Section 1026.3 is amended by revising the introductory text and
adding new paragraph (h) to read as follows:
Sec. 1026.3 Exempt transactions.
[rtrif]The following transactions are not subject to this part or,
if the exemption is limited to specified provisions of this part, are
not subject to those provisions[ltrif] [lsqbb]This part does not apply
to the following[rsqbb]:
* * * * *
[rtrif](h) Partial exemption for certain mortgage loans. The
special disclosure requirements in Sec. 1026.19(e), (f), and (g) do
not apply to a transaction that satisfies all of the following
criteria:
(1) The transaction is secured by a subordinate lien;
(2) The transaction is for the purpose of:
(i) Downpayment, closing costs, or other similar homebuyer
assistance, such as principal or interest subsidies;
(ii) Property rehabilitation assistance;
(iii) Energy efficiency assistance; or
(iv) Foreclosure avoidance or prevention;
(3) The credit contract does not require the payment of interest;
(4) The credit contract provides that repayment of the amount of
credit extended is:
(i) Forgiven either incrementally or in whole, at a date certain,
and subject only to specified ownership and occupancy conditions, such
as a requirement that the consumer maintain the property as the
consumer's principal dwelling for five years;
(ii) Deferred for a minimum of 20 years;
(iii) Deferred until sale of the property securing the transaction;
or
(iv) Deferred until the property securing the transaction is no
longer the principal dwelling of the consumer;
(5) The total of closing costs payable by the consumer in
connection with the transaction is less than one percent of the amount
of credit extended and includes no charges other than:
(i) Fees for recordation of security instruments, deeds, and
similar documents;
(ii) A bona fide and reasonable application fee; and
(iii) A bona fide and reasonable fee for housing counseling
services; and
(6) The creditor complies with all other applicable requirements of
this part in connection with the transaction, including without
limitation the disclosures required by Sec. 1026.18 even if the
creditor would not otherwise be subject to the disclosure requirements
of Sec. 1026.18.[ltrif]
10. Section 1026.4 is amended by revising paragraphs (a)(2), (c)
introductory text, (d)(1), (d)(2), (d)(3), and (e), and adding new
paragraph (g), to read as follows:
Sec. 1026.4 Finance charge.
(a) * * *
(2) Special rule; closing agent charges. [rtrif]Except as provided
in Sec. 1026.4(g), fees[ltrif] [lsqbb]Fees[rsqbb] charged by a third
party that conducts the loan closing (such as a settlement agent,
attorney, or escrow or title company) are finance charges only if the
creditor:
(i) Requires the particular services for which the consumer is
charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of
the portion retained.
* * * * *
(c) Charges excluded from the finance charge. [rtrif]Except as
provided in Sec. 1026.4(g), the[ltrif] [lsqbb]The[rsqbb] following
charges are not finance charges:
* * * * *
(d) Insurance and debt cancellation and debt suspension coverage.
(1) Voluntary credit insurance premiums. [rtrif]Except as provided in
Sec. 1026.4(g), premiums[ltrif] [lsqbb]Premiums[rsqbb] for credit
life, accident, health, or loss-of-income insurance may be excluded
from the finance charge if the following conditions are met:
(i) The insurance coverage is not required by the creditor, and
this fact is disclosed in writing.
(ii) The premium for the initial term of insurance coverage is
disclosed in writing. If the term of insurance is less than the term of
the transaction, the term of insurance also shall be disclosed. The
premium may be disclosed on a unit-cost basis only in open-end credit
transactions, closed-end credit transactions by mail or telephone under
Sec. 1026.17(g), and certain closed-end credit transactions involving
an insurance plan that limits the total amount of indebtedness subject
to coverage.
(iii) The consumer signs or initials an affirmative written request
for the insurance after receiving the disclosures specified in this
paragraph, except as provided in paragraph (d)(4) of this section. Any
consumer in the transaction may sign or initial the request.
(2) Property insurance premiums. Premiums for insurance against
loss of or damage to property, or against liability arising out of the
ownership or use of property, including single interest insurance if
the insurer waives all right of subrogation against the consumer, may
be excluded from the finance charge if the following conditions are
met:
(i) The insurance coverage may be obtained from a person of the
consumer's choice, and this fact is disclosed. (A creditor may reserve
the right to refuse to accept, for reasonable cause, an insurer offered
by the consumer.)
(ii) If the coverage is obtained from or through the creditor
[rtrif]or from an affiliate of the creditor,[ltrif] the premium for the
initial term of insurance coverage shall be disclosed. If the term of
insurance is less than the term of the transaction, the term of
insurance shall also be disclosed. The premium may be disclosed on a
unit-cost basis only in open-end credit transactions, closed-end credit
transactions by mail or telephone under Sec. 1026.17(g), and certain
closed-end credit transactions involving an insurance plan that limits
the total amount of indebtedness subject to coverage.
(3) Voluntary debt cancellation or debt suspension fees.
[rtrif]Except as provided in Sec. 1026.4(g), charges[ltrif]
[lsqbb]Charges[rsqbb] or premiums paid for debt cancellation coverage
for amounts exceeding the value of the collateral securing the
obligation or for debt cancellation or debt suspension coverage in the
event of the loss of life, health, or income or in case of accident may
be excluded from the finance charge, whether or not the coverage is
insurance, if the following conditions are met:
(i) The debt cancellation or debt suspension agreement or coverage
is not
[[Page 51311]]
required by the creditor, and this fact is disclosed in writing;
(ii) The fee or premium for the initial term of coverage is
disclosed in writing. If the term of coverage is less than the term of
the credit transaction, the term of coverage also shall be disclosed.
The fee or premium may be disclosed on a unit-cost basis only in open-
end credit transactions, closed-end credit transactions by mail or
telephone under Sec. 1026.17(g), and certain closed-end credit
transactions involving a debt cancellation agreement that limits the
total amount of indebtedness subject to coverage;
(iii) The following are disclosed, as applicable, for debt
suspension coverage: That the obligation to pay loan principal and
interest is only suspended, and that interest will continue to accrue
during the period of suspension.
(iv) The consumer signs or initials an affirmative written request
for coverage after receiving the disclosures specified in this
paragraph, except as provided in paragraph (d)(4) of this section. Any
consumer in the transaction may sign or initial the request.
* * * * *
(e) Certain security interest charges. [rtrif]Except as provided in
Sec. 1026.4(g), if[ltrif] [lsqbb]If[rsqbb] itemized and disclosed, the
following charges may be excluded from the finance charge:
* * * * *
[rtrif](g) Special rule for closed-end mortgage transactions.
Paragraphs (a)(2) and (c) through (e) of this section, other than
paragraphs (c)(2), (c)(5), (c)(7)(v), and (d)(2), do not apply to
closed-end transactions secured by real property or a dwelling.[ltrif]
11. Section 1026.17 is amended by adding introductory text to
paragraph (a) and revising paragraphs (b), (f) introductory text, (g)
introductory text, and (h) introductory text to read as follows:
Sec. 1026.17 General disclosure requirements.
(a) Form of disclosures. [rtrif]Except for the disclosures required
by Sec. 1026.19(e), (f), and (g):[ltrif]
* * * * *
(b) Time of disclosures. The creditor shall make disclosures before
consummation of the transaction. In certain residential mortgage
transactions, special timing requirements are set forth in Sec.
1026.19(a). In certain variable-rate transactions, special timing
requirements for variable-rate disclosures are set forth in Sec.
1026.19(b) and Sec. 1026.20(c). For private education loan disclosures
made in compliance with Sec. 1026.47, special timing requirements are
set forth in Sec. 1026.46(d). In certain transactions involving mail
or telephone orders or a series of sales, the timing of disclosures may
be delayed in accordance with paragraphs (g) and (h) of this section.
[rtrif]This paragraph (b) does not apply to the disclosures required by
Sec. 1026.19(e), (f), and (g).[ltrif]
* * * * *
(f) Early disclosures. Except for private education loan
disclosures made in compliance with Sec. 1026.47, if disclosures
required by this subpart are given before the date of consummation of a
transaction and a subsequent event makes them inaccurate, the creditor
shall disclose before consummation (subject to the provisions of Sec.
1026.19(a)(2)[rtrif], (e), and (f)):[ltrif] [lsqbb]and Sec.
1026.19(a)(5)(iii)):[rsqbb]
* * * * *
(g) Mail or telephone orders--delay in disclosures. Except for
private education loan disclosures made in compliance with Sec.
1026.47 [rtrif]and mortgage disclosures made in compliance with Sec.
1026.19(a), (e), and (f)[ltrif], if a creditor receives a purchase
order or a request for an extension of credit by mail, telephone, or
facsimile machine without face-to-face or direct telephone
solicitation, the creditor may delay the disclosures until the due date
of the first payment, if the following information for representative
amounts or ranges of credit is made available in written form or in
electronic form to the consumer or to the public before the actual
purchase order or request:
* * * * *
(h) Series of sales--delay in disclosures. [rtrif]Except for
mortgage disclosures made in compliance with Sec. 1026.19(a), (e), and
(f), if[ltrif] [lsqbb]If[rsqbb] a credit sale is one of a series made
under an agreement providing that subsequent sales may be added to an
outstanding balance, the creditor may delay the required disclosures
until the due date of the first payment for the current sale, if the
following two conditions are met:
* * * * *
12. Section 1026.18 is amended by revising the introductory text
and paragraphs (k), (s) introductory text, (s)(3)(i)(C), and (t)(1) to
read as follows:
Sec. 1026.18 Content of disclosures.
For each transaction [rtrif]other than a mortgage transaction
subject to Sec. 1026.19(e) and (f)[ltrif], the creditor shall disclose
the following information as applicable:
* * * * *
(k) Prepayment. (1) When an obligation includes a finance charge
computed from time to time by application of a rate to the unpaid
principal balance, a statement indicating whether or not a
[rtrif]charge[ltrif] [lsqbb]penalty[rsqbb] may be imposed [rtrif]for
paying all or part of a loan's principal balance before the date on
which the principal is due.[ltrif] [lsqbb]if the obligation is prepaid
in full.[rsqbb]
(2) When an obligation includes a finance charge other than the
finance charge described in paragraph (k)(1) of this section, a
statement indicating whether or not the consumer is entitled to a
rebate of any finance charge if the obligation is prepaid in full
[rtrif]or in part[ltrif].
* * * * *
(s) Interest rate and payment summary for mortgage transactions.
For a closed-end transaction secured by real property or a dwelling,
other than a transaction [rtrif]that is subject to Sec. 1026.19(e) and
(f)[ltrif] [lsqbb]secured by a consumer's interest in a timeshare plan
described in 11 U.S.C. 101(53D)[rsqbb], the creditor shall disclose the
following information about the interest rate and payments:
* * * * *
(3) Payments for amortizing loans. (i) Principal and interest
payments. * * *
(C) If an escrow account will be established, an estimate of the
amount of taxes and insurance, including any mortgage insurance
[rtrif]or any functional equivalent[ltrif], payable with each periodic
payment; and
* * * * *
(t) ``No-guarantee-to-refinance'' statement. (1) Disclosure. For a
closed-end transaction secured by real property or a dwelling, other
than a transaction [rtrif]that is subject to Sec. 1026.19(e) and
(f)[ltrif] [lsqbb]secured by a consumer's interest in a timeshare plan
described in 11 U.S.C. 101(53D)[rsqbb], the creditor shall disclose a
statement that there is no guarantee the consumer can refinance the
transaction to lower the interest rate or periodic payments.
* * * * *
13. Section 1026.19 is amended by revising paragraph (a)(1)(i) and
(ii), removing paragraph (a)(5), and adding new paragraphs (e), (f),
and (g), to read as follows:
Sec. 1026.19 Certain mortgage and variable-rate transactions.
(a) [rtrif]Reverse mortgage[ltrif] [lsqbb]Mortgage[rsqbb]
transactions subject to RESPA. (1)(i) Time of disclosures. In a
[rtrif]reverse[ltrif] mortgage transaction subject to [rtrif]both Sec.
1026.33 and[ltrif] the Real Estate Settlement Procedures Act (12 U.S.C.
[[Page 51312]]
2601 et seq.) that is secured by the consumer's dwelling, [lsqbb]other
than a home equity line of credit subject to Sec. 1026.40 or mortgage
transaction subject to paragraph (a)(5) of this section,[rsqbb] the
creditor shall make good faith estimates of the disclosures required by
Sec. 1026.18 and shall deliver or place them in the mail not later
than the third business day after the creditor receives the consumer's
written application.
(ii) Imposition of fees. Except as provided in paragraph
(a)(1)(iii) of this section, neither a creditor nor any other person
may impose a fee on a consumer in connection with the consumer's
application for a [rtrif]reverse[ltrif] mortgage transaction subject to
paragraph (a)(1)(i) of this section before the consumer has received
the disclosures required by paragraph (a)(1)(i) of this section. If the
disclosures are mailed to the consumer, the consumer is considered to
have received them three business days after they are mailed.
(iii) Exception to fee restriction. A creditor or other person may
impose a fee for obtaining the consumer's credit history before the
consumer has received the disclosures required by paragraph (a)(1)(i)
of this section, provided the fee is bona fide and reasonable in
amount.
* * * * *
[lsqbb](5) Timeshare plans. In a mortgage transaction subject to
the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that
is secured by a consumer's interest in a timeshare plan described in 11
U.S.C. 101(53(D)):
(i) The requirements of paragraphs (a)(1) through (a)(4) of this
section do not apply;
(ii) The creditor shall make good faith estimates of the
disclosures required by Sec. 1026.18 before consummation, or shall
deliver or place them in the mail not later than three business days
after the creditor receives the consumer's written application,
whichever is earlier; and
(iii) If the annual percentage rate at the time of consummation
varies from the annual percentage rate disclosed under paragraph
(a)(5)(ii) of this section by more than \1/8\ of 1 percentage point in
a regular transaction or more than \1/4\ of 1 percentage point in an
irregular transaction, as defined in Sec. 1026.22, the creditor shall
disclose all the changed terms no later than consummation or
settlement.[rsqbb]
* * * * *
[rtrif](e) Mortgage loans secured by real property--Early
disclosures. (1) Provision. (i) Creditor. In a closed-end consumer
credit transaction secured by real property, other than a reverse
mortgage subject to Sec. 1026.33, the creditor shall make good faith
estimates of the disclosures in Sec. 1026.37.
(ii) Mortgage broker. A mortgage broker may provide a consumer with
the disclosures required under paragraph (e)(1)(i) of this section,
provided the broker complies with all requirements of this paragraph
(e) as if it were the creditor. The creditor shall ensure that
disclosures are provided in accordance with the requirements of this
paragraph (e). Disclosures provided by a broker in accordance with the
requirements of this paragraph (e) satisfy the creditor's obligation
under paragraph (e)(1)(i) of this section.
(iii) Timing. The creditor shall deliver the disclosures required
under paragraph (e)(1)(i) of this section not later than the third
business day after the creditor receives the consumer's application, as
defined in Sec. 1026.2(a)(3). The creditor shall deliver the
disclosures required under paragraph (e)(1)(i) of this section not
later than the seventh business day before consummation of the
transaction.
(iv) Delivery. If any disclosures required under paragraph
(e)(1)(i) of this section are not provided to the consumer in person,
the consumer is presumed to have received the disclosures three
business days after they are mailed or delivered to the address
specified by the consumer.
(v) Consumer's waiver of waiting period before consummation. If the
consumer determines that the extension of credit is needed to meet a
bona fide personal financial emergency, the consumer may modify or
waive the seven-business-day waiting period for early disclosures
required under paragraph (e)(1)(iii) of this section, after receiving
the disclosures required under paragraph (e)(1)(i) of this section. To
modify or waive a waiting period, the consumer shall give the creditor
a dated written statement that describes the emergency, specifically
modifies or waives the waiting period, and bears the signature of all
the consumers who are primarily liable on the legal obligation. Printed
forms for this purpose are prohibited.
(vi) Shopping for settlement service providers. (A) Shopping
permitted. A creditor permits a consumer to shop for a settlement
service if the creditor permits the consumer to select the provider of
that service, subject to reasonable requirements.
(B) Disclosure of services. The creditor shall identify the
services for which the consumer is permitted to shop in the disclosures
provided pursuant to paragraph 19(e)(1)(i) of this section.
(C) Written list of providers. If the consumer is permitted to shop
for a settlement service, the creditor shall provide the consumer with
a written list identifying available providers of that settlement
service and stating that the consumer may choose a different provider
for that service. The creditor shall provide this written list of
settlement service providers separately from the disclosures required
by paragraph (e)(1)(i) of this section but in accordance with the
timing requirements in paragraph (e)(1)(iii) of this section.
(2) Pre-disclosure activity. (i) Imposition of fees on consumer.
(A) Fee restriction. Except as provided in paragraph (e)(2)(i)(B) of
this section, neither a creditor nor any other person may impose a fee
on a consumer in connection with the consumer's application for a
mortgage transaction subject to paragraph (e)(1)(i) of this section
before the consumer has received the disclosures required under
paragraph (e)(1)(i) of this section and indicated to the creditor an
intent to proceed with the transaction described by those disclosures.
(B) Exception to fee restriction. A creditor or other person may
impose a bona fide and reasonable fee for obtaining the consumer's
credit report before the consumer has received the disclosures required
under paragraph (e)(1)(i) of this section.
(ii) Written information provided to consumer. If a creditor
provides a consumer with a written estimate of terms or costs specific
to that consumer before the consumer receives the disclosures required
under paragraph (e)(1)(i) of this section and indicates intent to
proceed with the transaction, the creditor shall clearly and
conspicuously state at the top of the front of the first page of the
estimate in a font size that is no smaller than 12-point font: ``Your
actual rate, payment, and costs could be higher. Get an official Loan
Estimate before choosing a loan.''
(iii) Verification of information. The creditor shall not require a
consumer to submit documents verifying information related to the
consumer's application before providing the disclosures required by
paragraph (e)(1)(i) of this section.
(3) Good faith determination for estimates of closing costs. (i)
General rule. An estimated closing cost is in good faith if the charge
paid by or imposed on the consumer does not exceed the amount disclosed
under paragraph (e)(1)(i) of this section, except as otherwise provided
in paragraph (e)(3)(ii) through (iv) of this section.
[[Page 51313]]
(ii) Limited increases permitted for certain charges. An estimate
of a charge for a third-party service or a recording fee is in good
faith if:
(A) The aggregate amount of charges for third-party services and
recording fees paid by or imposed on the consumer does not exceed the
aggregate amount of such charges disclosed under paragraph (e)(1)(i) of
this section by more than 10 percent;
(B) The charge is not paid to an affiliate of the creditor; and
(C) The creditor permits the consumer to shop for the service,
consistent with paragraph (e)(1)(vi)(A) of this section.
(iii) Variations permitted for certain charges. An estimate of the
following charges is in good faith if it is consistent with the best
information reasonably available to the creditor at the time it is
disclosed, regardless of whether the amount actually paid by the
consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this
section:
(A) Prepaid interest;
(B) Property insurance premiums;
(C) Amounts placed into an escrow, impound, reserve, or similar
account; and
(D) Charges paid to third-party service providers selected by the
consumer consistent with paragraph (e)(1)(vi)(A) of this section that
are not on the list provided pursuant to paragraph (e)(1)(vi)(C) of
this section.
(iv) Revised estimates. For the purpose of determining good faith
under paragraph (e)(3)(i) and (ii) of this section, a charge paid by or
imposed on the consumer may exceed the originally estimated charge if
the revision is due to one of the following reasons:
(A) Changed circumstance affecting settlement charges. Changed
circumstances cause the estimated charges to increase or, in the case
of estimated charges identified in paragraph (e)(3)(ii) of this
section, cause the aggregate amount of such charges to increase by more
than 10 percent. For purposes of this paragraph, ``changed
circumstance'' means:
(1) An extraordinary event beyond the control of any interested
party or other unexpected event specific to the consumer or
transaction;
(2) Information specific to the consumer or transaction that the
creditor relied upon when providing the disclosures required under
paragraph (e)(1)(i) of this section and that was inaccurate or changed
after the disclosures were provided; or
(3) New information specific to the consumer or transaction that
the creditor did not rely on when providing the original disclosures.
(B) Changed circumstance affecting eligibility. The consumer is
ineligible for an estimated charge previously disclosed because a
changed circumstance, as defined under paragraph (e)(3)(iv)(A) of this
section, affected the consumer's creditworthiness or the value of the
security for the loan.
(C) Revisions requested by the consumer. The consumer requests
revisions to the credit terms or the settlement that cause an estimated
charge to increase.
(D) Interest rate dependent charges. The points or lender credits
change because the interest rate was not set when the disclosures
required under paragraph (e)(1)(i) of this section were provided. On
the date the interest rate is set, the creditor shall provide revised
disclosures under paragraph (e)(1)(i) of this section to the consumer
with the revised interest rate, bona fide discount points, and lender
credits.
(E) Expiration. The consumer expresses an intent to proceed with
the transaction more than ten business days after the disclosures
required under paragraph (e)(1)(i) of this section are provided.
(F) Delayed settlement date on a construction loan. In transactions
involving new construction, where the creditor reasonably expects that
settlement will occur more than 60 days after the disclosures required
under paragraph (e)(1)(i) of this section are originally provided, the
creditor may provide revised disclosures to the consumer if the
original disclosures state clearly and conspicuously that at any time
prior to 60 days before consummation, the creditor may issue revised
disclosures. If no such statement is provided, the creditor may not
issue revised disclosures, except as otherwise provided in paragraph
(f) of this section.
(4) Provision of revised disclosures. (i) Except as provided in
paragraph (e)(4)(ii) of this section, if a creditor provides a revised
disclosure pursuant to paragraph (e)(3)(iv) of this section, the
creditor shall provide such revised disclosure within three business
days of receiving information sufficient to establish that one of the
reasons for revision provided under paragraph (e)(3)(iv)(A) through (F)
of this section applies.
(ii) The creditor shall not deliver a revised disclosure pursuant
to paragraph (e)(3)(iv) of this section on or after the date on which
the creditor delivers the disclosures required under paragraph
(f)(1)(i) of this section. The consumer must receive a revised version
of the disclosure required under paragraph (e)(1)(i) of this section no
later than four days prior to consummation.
Alternative 1--Paragraph (f)(1)
(f) Mortgage loans secured by real property--Final disclosures. (1)
Provision. (i) Scope. In a closed-end consumer credit transaction
secured by real property, other than a reverse mortgage subject to
Sec. 1026.33, the creditor shall provide the consumer with the
disclosures in Sec. 1026.38 reflecting the actual terms of the
transaction.
(ii) Timing. (A) In general. Except as provided in paragraph
(f)(1)(ii)(B) or (f)(2) of this section, the creditor shall ensure that
the consumer receives the disclosures required under paragraph
(f)(1)(i) of this section no later than three business days before
consummation.
(B) Timeshares. For transactions secured by a consumer's interest
in a timeshare plan described in 11 U.S.C. 101(53D), the creditor shall
ensure that the consumer receives the disclosures required under
paragraph (f)(1)(i) of this section no later than consummation.
(iii) Delivery. If any disclosures required under paragraph
(f)(1)(i) of this section are not provided to the consumer in person,
the consumer is presumed to have received the disclosures three
business days after they are mailed or delivered to the address
specified by the consumer.
(iv) Consumer's waiver of waiting period before consummation. If
the consumer determines that the extension of credit is needed to meet
a bona fide personal financial emergency, the consumer may modify or
waive the three-business-day waiting period for the disclosures
required under paragraph (f)(1)(ii) of this section, after receiving
the disclosures required under paragraph (f)(1)(i) of this section. To
modify or waive a waiting period, the consumer shall give the creditor
a dated written statement that describes the emergency, specifically
modifies or waives the waiting period, and bears the signature of all
consumers who are primarily liable on the legal obligation. Printed
forms for this purpose are prohibited.
Alternative 2--Paragraph (f)(1)
(f) Mortgage loans secured by real property--Final disclosures. (1)
Provision. (i) Scope. In a closed-end consumer credit transaction
secured by real property, other than a reverse mortgage subject to
Sec. 1026.33, the creditor shall provide the consumer with the
disclosures in Sec. 1026.38 reflecting the actual terms of the
transaction.
[[Page 51314]]
(ii) Timing. (A) In general. Except as provided in paragraph
(f)(1)(ii)(B) or (f)(2) of this section, the creditor shall ensure that
the consumer receives the disclosures required under paragraph
(f)(1)(i) of this section no later than three business days before
consummation.
(B) Timeshares. For transactions secured by a consumer's interest
in a timeshare plan described in 11 U.S.C. 101(53D), the creditor shall
ensure that the consumer receives the disclosures required under
paragraph (f)(1)(i) of this section no later than consummation.
(iii) Delivery. If any disclosures required under paragraph
(f)(1)(i) of this section are not provided to the consumer in person,
the consumer is presumed to have received the disclosures three
business days after they are mailed or delivered to the address
specified by the consumer.
(iv) Consumer's waiver of waiting period before consummation. If
the consumer determines that the extension of credit is needed to meet
a bona fide personal financial emergency, the consumer may modify or
waive the three-business-day waiting period for the disclosures
required under paragraph (f)(1)(ii) of this section, after receiving
the disclosures required under paragraph (f)(1)(i) of this section. To
modify or waive a waiting period, the consumer shall give the creditor
a dated written statement that describes the emergency, specifically
modifies or waives the waiting period, and bears the signature of all
consumers who are primarily liable on the legal obligation. Printed
forms for this purpose are prohibited.
(v) Settlement agent. A settlement agent may provide a consumer
with the disclosures required under paragraph (f)(1)(i) of this
section, provided the settlement agent complies with all requirements
of this paragraph (f) as if it were the creditor. The creditor shall
ensure that disclosures are provided in accordance with the
requirements of this paragraph (f). Disclosures provided by a
settlement agent in accordance with the requirements of this paragraph
(f) satisfy the creditor's obligation under paragraph (f)(1)(i) of this
section.
(2) Subsequent changes. If the disclosure provided pursuant to
paragraph (f)(1)(i) of this section is subsequently revised for any of
the reasons described in this paragraph (f)(2), a creditor need not
comply with the timing requirements in paragraph (f)(1)(ii) of this
section when providing a revised disclosure:
(i) Changes due to consumer and seller negotiations. If, after the
creditor provides the consumer with the disclosures required under
paragraph (f)(1)(i) of this section, the consumer and the seller agree
to make changes to the transaction that affect items disclosed pursuant
to paragraph (f)(1)(i) of this section, the creditor shall deliver
revised disclosures reflecting such changes at or before consummation.
(ii) Changes to the amount actually paid by the consumer. If the
amount actually paid by the consumer does not exceed the amount
disclosed pursuant to Sec. 1026.38(d)(1) by more than one hundred
dollars the creditor shall deliver revised disclosures at or before
consummation.
(iii) Changes due to events occurring after consummation. If an
event occurs after consummation that causes disclosures required under
paragraph (f)(1)(i) of this section to become inaccurate, and such
inaccuracy results solely from payments to a government entity in
connection with the transaction, the creditor shall deliver revised
disclosures to the consumer not later than the third business day after
the event occurs, provided the consumer receives the revised
disclosures no later than 30 days after consummation.
(iv) Changes due to clerical errors. A creditor does not violate
section (f)(1)(i) if the disclosures provided under (f)(1)(i) contain
non-numeric clerical errors, provided the creditor delivers revised
disclosures as soon as reasonably practicable and no later than 30 days
after consummation.
(v) Refunds related to the good faith analysis. If amounts paid by
the consumer exceed the amounts specified under paragraph (e)(3)(i) or
(ii) of this section, the creditor complies with paragraph (e)(1)(i) of
this section if the creditor refunds the excess to the consumer as soon
as reasonably practicable and no later than 30 days after consummation,
and the creditor complies with paragraph (f)(1)(i) of this section if
the creditor delivers revised disclosures that reflect such refund as
soon as reasonably practicable and no later than 30 days after
consummation.
(3) Charges disclosed. (i) Actual charge. The amount imposed upon
the consumer for any settlement service shall not exceed the amount
actually received by the service provider for that service, except as
otherwise provided in paragraph (f)(3)(ii) of this section.
(ii) Average charge. A creditor or settlement service provider may
charge a consumer or seller the average charge for a settlement service
if the following conditions are satisfied:
(A) The average charge is no more than the average amount paid for
that service by or on behalf of all consumers and sellers for a class
of transactions;
(B) The creditor or settlement service provider defines the class
of transactions based on an appropriate period of time, geographic
area, and type of loan;
(C) The creditor or settlement service provider uses the same
average charge for every transaction within the defined class; and
(D) The creditor or settlement service provider does not use an
average charge:
(1) For any type of insurance;
(2) For any charge based on the loan amount or property value; or
(3) If doing so is otherwise prohibited by law.
(4) Transactions involving a seller. (i) Provision to seller. In a
closed-end consumer credit transaction secured by real property that
involves a seller, other than a reverse mortgage subject to Sec.
1026.33, the person conducting the real estate closing shall provide
the seller with the disclosures in Sec. 1026.38 that relate to the
seller's transaction.
(ii) Timing. The person conducting the real estate closing shall
provide the disclosures required under paragraph (f)(4)(i) of this
section no later than the day of consummation. If an event occurs after
consummation that causes disclosures required under paragraph (f)(4)(i)
of this section to become inaccurate, and such inaccuracy results
solely from payments to a government entity, the person conducting the
real estate closing shall deliver revised disclosures to the seller no
later than 30 days after consummation.
(iii) Charges disclosed. The amount imposed on the seller for any
settlement service shall not exceed the amount actually received by the
service provider for that service, except as otherwise provided in
paragraph (f)(3)(ii) of this section.
(5) No fee. No fee may be imposed on any person, as a part of
settlement costs or otherwise, by a creditor or by a servicer (as that
term is defined under 12 U.S.C. 2605(i)(2)) for the preparation or
delivery of the disclosures required under paragraph (f)(1)(i) of this
section, escrow account statements required pursuant to section 10 of
RESPA (12 U.S.C. 2609), or statements required by the Truth in Lending
Act, 15 U.S.C. 1601 et seq.
(g) Special information booklet at time of application. (1)
Creditor to provide special information booklet. Except as provided in
paragraphs (g)(1)(ii) and (iii) of this section, the creditor shall
provide a copy of the special information booklet to a consumer who
applies for a consumer credit transaction secured by real property.
[[Page 51315]]
(i) The creditor shall deliver the special information booklet to
the consumer not later than three business days after the application
is received. However, if the creditor denies the consumer's application
for credit before the end of the three-day period, the creditor need
not provide the booklet. If a consumer uses a mortgage broker, the
mortgage broker shall provide the special information booklet and the
creditor need not do so.
(ii) In the case of a home equity line of credit subject to Sec.
1026.40, a creditor or mortgage broker that provides the consumer with
a copy of the brochure entitled ``When Your Home is On the Line: What
You Should Know About Home Equity Lines of Credit,'' or any successor
brochure issued by the Bureau, is deemed to be in compliance with this
section.
(iii) The creditor or mortgage broker need not provide the booklet
to the consumer for the following types of transactions:
(A) Refinancing transactions;
(B) Closed-end loans when the lender takes a subordinate lien;
(C) Reverse mortgages; and
(D) Any other consumer credit transaction secured by real property
whose purpose is not the purchase of a one-to-four family residential
property.
(2) Permissible changes. No changes to, deletions from, or
additions to the special information booklet shall be made other than
the permissible changes specified in paragraphs (g)(2)(i) through (iv)
of this section.
(i) In the Complaints section of the booklet, it is a permissible
change to substitute ``the Bureau of Consumer Financial Protection''
for ``HUD's Office of RESPA'' and ``the RESPA office.''
(ii) In the Avoiding Foreclosure section of the booklet, it is a
permissible change to inform homeowners that homeowners may find
information on and assistance in avoiding foreclosures at https://www.consumerfinance.gov. The deletion of the reference to the HUD Web
page, https://www.hud.gov/foreclosure/, in the Avoiding Foreclosure
section of the booklet is not a permissible change.
(iii) In the No Discrimination Section of the Appendix to the
booklet, it is a permissible change to substitute ``the Bureau of
Consumer Financial Protection'' for the reference to the ``Board of
Governors of the Federal Reserve System.'' In the Contact Information
section of the Appendix to the booklet, it is a permissible change to
add the following contact information for the Bureau: ``Bureau of
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552;
www.consumerfinance.gov/learnmore.'' It is also a permissible change to
remove the contact information for HUD's Office of RESPA and Interstate
Land Sales from the Contact Information section of the Appendix to the
booklet.
(iv) The cover of the booklet may be in any form and may contain
any drawings, pictures or artwork, provided that the words ``settlement
costs'' are used in the title. Names, addresses, and telephone numbers
of the lender or others and similar information may appear on the
cover, but no discussion of the matters covered in the booklet shall
appear on the cover. References to HUD on the cover of the booklet may
be changed to references to the Bureau.[ltrif]
14. Section 1026.22 is amended by revising paragraphs (a)(4)(ii)(A)
and (a)(5) to read as follows:
Sec. 1026.22 Determination of annual percentage rate.
(a) Accuracy of annual percentage rate. * * *
(4) Mortgage loans. If the annual percentage rate disclosed in a
transaction secured by real property or a dwelling varies from the
actual rate determined in accordance with paragraph (a)(1) of this
section, in addition to the tolerances applicable under paragraphs
(a)(2) and (3) of this section, the disclosed annual percentage rate
shall also be considered accurate if:
(i) The rate results from the disclosed finance charge; and
(ii)(A) The disclosed finance charge would be considered accurate
under Sec. 1026.18(d)(1) [rtrif]or 1026.38(o)(2), as
applicable[ltrif]; or
(B) For purposes of rescission, if the disclosed finance charge
would be considered accurate under Sec. 1026.23(g) or (h), whichever
applies.
(5) Additional tolerance for mortgage loans. In a transaction
secured by real property or a dwelling, in addition to the tolerances
applicable under paragraphs (a)(2) and (3) of this section, if the
disclosed finance charge is calculated incorrectly but is considered
accurate under Sec. 1026.18(d)(1)[rtrif] or 1026.38(o)(2), as
applicable,[ltrif] or Sec. 1026.23(g) or (h), the disclosed annual
percentage rate shall be considered accurate:
(i) If the disclosed finance charge is understated, and the
disclosed annual percentage rate is also understated but it is closer
to the actual annual percentage rate than the rate that would be
considered accurate under paragraph (a)(4) of this section;
(ii) If the disclosed finance charge is overstated, and the
disclosed annual percentage rate is also overstated but it is closer to
the actual annual percentage rate than the rate that would be
considered accurate under paragraph (a)(4) of this section.
* * * * *
15. Section 1026.25 is amended by revising paragraph (a) and adding
new paragraph (c) to read as follows:
Sec. 1026.25 Record retention.
(a) General rule. A creditor shall retain evidence of compliance
with this part (other than advertising requirements under Sec. Sec.
1026.16 and 1026.24[rtrif], and other than the requirements under Sec.
1026.19(e) and (f)[ltrif]) for [lsqbb]2[rsqbb][rtrif]two[ltrif] years
after the date disclosures are required to be made or action is
required to be taken. The administrative agencies responsible for
enforcing the regulation may require creditors under their
jurisdictions to retain records for a longer period if necessary to
carry out their enforcement responsibilities under section 108 of the
Act.
* * * * *
[rtrif](c) Records related to certain requirements for mortgage
loans. (1) Records related to requirements for loans secured by real
property. (i) General rule. Except as provided under paragraph
(c)(1)(ii) of this section, a creditor shall retain evidence of
compliance with the requirements of Sec. 1026.19(e) and (f) for three
years after the later of the date of consummation, the date disclosures
are required to be made, or the date the action is required to be
taken.
(ii) Closing Disclosures. (A) A creditor shall retain each
completed disclosure required under Sec. 1026.19(f)(1)(i) or
(f)(4)(i), and all documents related to such disclosures, for five
years after consummation.
(B) If a creditor sells, transfers, or otherwise disposes of its
interest in a mortgage and does not service the mortgage, the creditor
shall provide a copy of the disclosures required under Sec.
1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage
as a part of the transfer of the loan file. Such owner or servicer
shall retain such disclosures for the remainder of the five-year period
described under paragraph (c)(1)(ii)(A) of this section.
(C) The Bureau shall have the right to require provision of copies
of records related to the disclosures required under Sec.
1026.19(f)(1)(i) and (f)(4)(i).
(iii) Electronic records. A creditor shall retain evidence of
compliance in electronic, machine readable format.
(2) [Reserved][ltrif]
16. Section 1026.28 is amended by revising paragraph (a)(1) to read
as follows:
[[Page 51316]]
Sec. 1026.28 Effect on State laws.
(a) Inconsistent disclosure requirements. (1) Except as provided in
paragraph (d) of this section, State law requirements that are
inconsistent with the requirements contained in chapter 1 (General
Provisions), chapter 2 (Credit Transactions), or chapter 3 (Credit
Advertising) of the Act and the implementing provisions of this part
are preempted to the extent of the inconsistency. A State law is
inconsistent if it requires a creditor to make disclosures or take
actions that contradict the requirements of the Federal law. A State
law is contradictory if it requires the use of the same term to
represent a different amount or a different meaning than the Federal
law, or if it requires the use of a term different from that required
in the Federal law to describe the same item. A creditor, State, or
other interested party may request the Bureau to determine whether a
State law requirement is inconsistent. After the Bureau determines that
a State law is inconsistent, a creditor may not make disclosures using
the inconsistent term or form. [rtrif]A determination as to whether a
State law is inconsistent with the requirements of sections 4 and 5 of
RESPA (other than the RESPA section 5(c) requirements regarding
provision of a list of certified homeownership counselors) and
Sec. Sec. 1026.19(e) and (f), 1026.37, and 1026.38 shall be made in
accordance with this section and not 12 CFR 1024.13.[ltrif]
* * * * *
17. New Sec. 1026.37 is added to read as follows:
[rtrif]Sec. 1026.37 Content of disclosures for certain mortgage
transactions (Loan Estimate).
For each transaction subject to Sec. 1026.19(e), the creditor
shall disclose the information in this section, as applicable:
(a) General information. (1) Form title. The title of the form,
``Loan Estimate,'' using that term.
(2) Form purpose. The statement, ``Save this Loan Estimate to
compare with your Closing Disclosure.''
(3) Creditor. The name and address of the creditor making the
disclosure.
(4) Date issued. The date the disclosures are mailed or delivered
to the consumer by the creditor, labeled ``Date Issued.''
(5) Applicants. The consumer's name and mailing address, labeled
``Applicants.''
(6) Property. The street address or location of the property that
secures the transaction, labeled ``Property.''
(7) Sale price. (i) For credit transactions that involve a seller,
the contract sale price of the property identified in paragraph (a)(6)
of this section, labeled ``Sale Price.''
(ii) For credit transactions that do not involve a seller, the
estimated value of the property identified in paragraph (a)(6), labeled
``Est. Prop. Value.''
(8) Loan term. The term to maturity of the credit transaction,
stated in years, labeled ``Loan Term.''
(9) Purpose. The consumer's intended use for the credit, labeled
``Purpose,'' using one of the following terms:
(i) Purchase. If the credit is to finance the acquisition of the
property identified in paragraph (a)(6) of this section, the creditor
shall disclose that the loan is for a ``Purchase.''
(ii) Refinance. The creditor shall disclose that the loan is for a
``Refinance'' if the credit is a refinance of an existing obligation,
consistent with Sec. 1026.20(a), by any creditor, that is secured by
the property identified in paragraph (a)(6) of this section.
(iii) Construction. If the credit will be used to finance the
construction of a dwelling on the property identified in paragraph
(a)(6) of this section, the creditor shall disclose that the loan is
for ``Construction.''
(iv) Home equity loan. If the credit is not for one of the purposes
described in paragraphs (a)(9)(i)-(iii) of this section, the creditor
shall disclose that the loan is for a ``Home Equity Loan.''
(10) Product. A description of the loan product, labeled
``Product.'' (i) The description of the loan product shall include one
of the following terms, as applicable:
(A) Adjustable rate. If the interest rate may increase after
consummation, but the rates that will apply or the periods for which
they will apply are not known at consummation, the creditor shall
disclose the loan product as an ``Adjustable Rate.''
(B) Step rate. If the interest rate will change after consummation,
and the rates that will apply and periods for which they will apply are
known at consummation, the creditor shall disclose the loan product as
a ``Step Rate.''
(C) Fixed rate. If the loan product is not an Adjustable Rate or a
Step Rate, as described in paragraphs (a)(10)(i)(A) and (B) of this
section, respectively, the creditor shall disclose the loan product as
a ``Fixed Rate.''
(ii) The description of the loan product shall include the features
that may change the periodic payment, using the following terms as
required by paragraph (a)(10)(iii), as applicable:
(A) Negative amortization. If the principal balance may increase
due to the addition of accrued interest to the principal balance, the
creditor shall disclose that the loan product has a ``Negative
Amortization'' feature.
(B) Interest only. If one or more regular periodic payments may be
applied only to interest accrued and not to the loan principal, the
creditor shall disclose that the loan product has an ``Interest Only''
feature.
(C) Step payment. If scheduled variations in regular periodic
payment amounts occur that are not caused by changes to the interest
rate during the loan term, the creditor shall disclose that the loan
product has a ``Step Payment'' feature.
(D) Balloon payment. The creditor shall disclose that the loan has
a ``Balloon Payment'' feature if the transaction includes a ``balloon
payment,'' as that term is defined in Sec. 1026.37(b)(5).
(E) Seasonal payment. If the terms of the legal obligation
expressly provide that regular periodic payments are not scheduled in
between specified unit-periods on a regular basis, the creditor shall
disclose that the loan product has a ``Seasonal Payment'' feature.
(iii) The disclosure of a loan feature under paragraph (a)(10)(ii)
of this section shall precede the disclosure of the loan product under
paragraph (a)(10)(i) of this section. If a transaction has more than
one of the loan features described in paragraph (a)(10)(ii) of this
section, the creditor shall disclose only the first applicable feature
in the order the features are listed in paragraph (a)(10)(ii) of this
section.
(iv) The disclosures required by paragraphs (a)(10)(i) and (ii) of
this section must each be preceded by a description of any introductory
rate period, adjustment period, or other time period, as applicable.
(11) Loan type. The type of loan, labeled ``Loan Type,'' offered to
the consumer using one of the following terms, as applicable:
(i) Conventional. If the loan is not guaranteed or insured by a
Federal or State government agency, the creditor shall disclose that
the loan is a ``Conventional.''
(ii) FHA. If the loan is insured by the Federal Housing
Administration, the creditor shall disclose that the loan is an
``FHA.''
(iii) VA. If the loan is guaranteed by the U.S. Department of
Veterans Affairs, the creditor shall disclose that the loan is a
``VA.''
(iv) Other. For federally-insured or guaranteed loans other than
those described in paragraphs (a)(11)(ii) and
[[Page 51317]]
(iii) of this section and loans insured or guaranteed by a State
agency, the creditor shall disclose the loan type as ``Other,'' and
provide a brief description of the loan type.
(12) Loan identification number (Loan ID #). A unique number that
may be used by the creditor, consumer, and other parties to identify
the transaction, labeled as ``Loan ID .''
(13) Rate lock. A statement of whether the interest rate disclosed
pursuant to paragraph (b)(2) of this section is set for a specific
period of time, labeled ``Rate Lock.''
(i) For transactions in which the interest rate is set for a
specific period of time, the creditor must provide the date and time
(including the applicable time zone) when that period ends.
(ii) The ``Rate Lock'' statement required by this paragraph (a)(13)
shall be accompanied by a statement that the interest rate, any points,
and any lender credits may change unless the interest rate has been
set, and the date and time (including the applicable time zone) at
which estimated closing costs expire.
(b) Loan terms. A separate table labeled ``Loan Terms'' that
includes the following information and satisfies the following
requirements:
(1) Loan amount. The amount of credit to be extended under the
terms of the legal obligation, labeled the ``Loan Amount.''
(2) Interest rate. The initial interest rate that will be
applicable to the transaction, labeled the ``Interest Rate.'' If the
initial interest rate may adjust based on an index, the amount
disclosed shall be the fully-indexed rate, which, for purposes of this
paragraph, means the interest rate calculated using the index value and
margin at the time of consummation.
(3) Principal and interest payment. The initial periodic payment
amount that will be due under the terms of the legal obligation,
labeled ``Principal & Interest,'' immediately preceded by the
applicable unit-period, and a statement referring to the payment amount
that includes any mortgage insurance and escrow payments that is
required to be disclosed pursuant to paragraph (c) of this section. If
the initial periodic payment amount may adjust based on an index, the
amount disclosed shall be calculated using the fully-indexed rate
disclosed under paragraph (b)(2) of this section.
(4) Prepayment penalty. A statement of whether the transaction
includes a prepayment penalty, labeled ``Prepayment Penalty.'' For
purposes of this paragraph (b)(4), ``prepayment penalty'' means a
charge imposed for paying all or part of a transaction's principal
before the date on which the principal is due.
(5) Balloon payment. A statement of whether the transaction
includes a balloon payment, labeled ``Balloon Payment.'' For purposes
of this paragraph (b)(5), ``balloon payment'' means a payment that is
more than two times a regular periodic payment and is not itself a
regular periodic payment. ``Balloon payment'' includes the payment or
payments under a transaction that requires only one or two payments
during the loan term.
(6) Adjustments after consummation. For each amount required to be
disclosed by paragraphs (b)(1) through (3) of this section, a statement
of whether the amount may increase after consummation as an affirmative
or negative answer to the question ``Can this amount increase after
closing?'' and, if in the case of an affirmative answer, the following
additional information, as applicable:
(i) Adjustment in loan amount. The maximum principal balance for
the transaction and the due date of the last payment that may cause the
principal balance to increase. The disclosure shall indicate whether
the maximum principal balance is potential or is scheduled to occur
under the terms of the legal obligation using the phrase ``Can go as
high as'' or ``Will go as high as,'' respectively.
(ii) Adjustment in interest rate. The frequency of interest rate
adjustments, the date when the interest rate may first adjust, the
maximum interest rate, and the first date when the interest rate can
reach the maximum interest rate, followed by a reference to the
disclosure required by paragraph (j) of this section. If the loan term,
as defined under paragraph (a)(8) of this section, may increase based
on an adjustment of the interest rate, the disclosure required by this
paragraph (b)(6)(ii) shall also state that fact and the maximum
possible loan term.
(iii) Increase in periodic payment. The scheduled frequency of
adjustments to the periodic principal and interest payment, the due
date of the first adjusted principal and interest payment, the maximum
possible periodic principal and interest payment, and the date when the
periodic principal and interest payment may first equal the maximum
principal and interest payment. If any adjustments to the principal and
interest payment are not the result of a change to the interest rate, a
reference to the disclosure required by paragraph (i) of this section.
If there is a period during which only interest is required to be paid,
the disclosure required by this paragraph (b)(6)(iii) shall also state
that such periodic payments will include ``only interest'' and ``no
principal'' and the due date of the last periodic payment of such
period.
(7) Details about prepayment penalty and balloon payment. The
information required to be disclosed by paragraphs (b)(4) and (5) of
this section shall be disclosed as an affirmative or negative answer to
the question ``Does the loan have these features?'' If an affirmative
answer for a prepayment penalty or balloon payment is required to be
disclosed, the following information, as applicable:
(i) The maximum amount of the prepayment penalty that may be
imposed and the date when the period under which the penalty may be
imposed terminates; and
(ii) The maximum amount of the balloon payment(s) and the due
date(s).
(8) Timing. The dates required to be disclosed by paragraphs (b)(6)
and (7) of this section shall be disclosed as the year in which the
date occurs, counting from the date that interest for the first
scheduled periodic payment begins to accrue after consummation.
(c) Projected payments. In a separate table under the heading
``Projected Payments,'' an itemization of each separate periodic
payment or range of payments, together with an estimate of taxes,
insurance, and assessments and the payments to be made with escrow
account funds.
(1) Periodic payment or range of payments. (i) The initial periodic
payment or range of payments is a separate periodic payment or range of
payments and, except as otherwise provided in paragraph (c)(1)(ii) of
this section, the following events require the disclosure of additional
separate periodic payments or ranges of payments:
(A) The periodic principal and interest payment or range of such
payments may change;
(B) A scheduled balloon payment; and
(C) The creditor must automatically terminate mortgage insurance
coverage, or any functional equivalent, under applicable law.
(ii) The table required by this paragraph (c) shall not disclose
more than four separate periodic payments or ranges of payments. For
all events requiring disclosure of additional separate periodic
payments or ranges of payments described in paragraph (c)(1)(i) of this
section after the second to occur, the separate periodic payments or
ranges of payments shall be disclosed as a single range of payments,
subject to the following exceptions:
[[Page 51318]]
(A) A final balloon payment shall always be disclosed as a separate
periodic payment or range of payments, in which case no more than three
other separate periodic payments or ranges of payments are disclosed.
(B) The automatic termination of mortgage insurance coverage, or
any functional equivalent, under applicable law shall require
disclosure of a separate periodic payment or range of payments only if
the total number of events that require disclosure of additional
separate periodic payments or ranges of payments described in paragraph
(c)(1)(i) of this section, other than the termination of mortgage
insurance, or any functional equivalent, does not exceed two.
(C) If changes to periodic principal and interest payments
described in paragraph (c)(1)(i)(A) of this section would require more
than one separate disclosure during a single year, such periodic
payments shall be disclosed as a single range of payments.
(iii) A range of payments is required under this paragraph (c)(1)
when the periodic principal and interest payment may adjust based on
index rates at the time an interest rate adjustment may occur or
multiple events are combined in a range of payments pursuant to
paragraph (c)(1)(ii) of this section. When a range of payments is
required, the creditor must disclose the minimum and maximum amount for
both the principal and interest payment under paragraph (c)(2)(i) of
this section and the total periodic payment under paragraph (c)(2)(iv)
of this section. In the case of an interest rate adjustment, the
maximum payment amounts are determined by assuming that the interest
rate in effect throughout the loan term is the maximum possible
interest rate, and the minimum payment amounts are determined by
assuming that the interest rate in effect throughout the loan term is
the minimum possible interest rate.
(2) Itemization. Each separate periodic payment or range of
payments included in the table required by this paragraph (c) shall be
itemized as follows:
(i) The amount payable for principal and interest, labeled
``Principal & Interest,'' including the term ``only interest'' if the
payment or range of payments includes any interest-only payment;
(ii) The maximum amount payable for mortgage insurance premiums
corresponding to the principal and interest payment disclosed pursuant
to paragraph (c)(2)(i) of this section, labeled ``Mortgage Insurance'';
(iii) The amount payable into an escrow account to pay some or all
of the charges described in paragraphs (c)(4)(ii)(A) through (E) of
this section, as applicable, labeled ``Estimated Escrow,'' together
with a statement that the amount disclosed can increase over time; and
(iv) The total periodic payment, calculated as the sum of the
amounts disclosed pursuant to paragraphs (c)(2)(i) through (iii) of
this section, labeled ``Total Monthly Payment.''
(3) Subheadings. (i) The labels required pursuant to paragraph
(c)(2) of this section must be listed under the subheading ``Payment
Calculation.''
(ii) Each separate periodic payment or range of payments to be
disclosed under this paragraph (c) must be disclosed under a subheading
that states the number of years of the loan during which that payment
or range of payments will apply. The subheadings must be stated in a
sequence of whole years from the date that the first such payment is
due.
(4) Taxes, insurance, and assessments. Under the information
required by paragraphs (c)(1) through (3) of this section:
(i) The label ``Estimated Taxes, Insurance & Assessments'';
(ii) The sum of the following charges, if applicable, expressed as
a monthly amount, even if no escrow account for the payment of some or
any of such charges will be established:
(A) Property taxes;
(B) Mortgage-related insurance premiums required by the creditor,
other than amounts payable for mortgage insurance premiums;
(C) Homeowner's association, condominium, or cooperative fees;
(D) Ground rent or leasehold payments; and
(E) Special assessments;
(iii) A statement that the amount disclosed pursuant to paragraph
(c)(4)(ii) of this section can increase over time;
(iv) A statement of whether the amount disclosed pursuant to
paragraph (c)(4)(ii) of this section includes payments for property
taxes, homeowner's insurance, and other amounts described in paragraph
(c)(4)(ii) of this section, along with a description of any such other
amounts, and an indication of whether such amounts will be paid by the
creditor using escrow account funds;
(v) A statement that the consumer must pay separately any amounts
described in paragraph (c)(4)(ii) of this section that are not paid by
the creditor using escrow account funds; and
(vi) A reference to the information disclosed pursuant to paragraph
(g)(3) of this section.
(5) Calculation of taxes and insurance. For purposes of paragraphs
(c)(2)(iii) and (4)(ii) of this section, estimated property taxes and
homeowner's insurance shall reflect:
(i) The taxable assessed value of the real property securing the
transaction after consummation, including the value of any improvements
on the property or to be constructed on the property, if known, whether
or not such construction will be financed from the proceeds of the
transaction, for property taxes; and
(ii) The replacement costs of the property during the initial year
after the transaction, for homeowner's insurance.
(d) Cash to close. In a separate table, under the heading ``Cash to
Close'':
(1) The dollar amount as calculated in accordance with paragraph
(h)(8) of this section, labeled ``Estimated Cash to Close'';
(2) The dollar amount calculated in accordance with paragraph
(f)(4) of this section, described as ``Loan Costs'';
(3) The dollar amount calculated in accordance with paragraph
(g)(5) of this section, described as ``Other Costs'';
(4) The dollar amount disclosed pursuant to paragraph (g)(6)(ii) of
this section, described as ``Lender Credits'';
(5) The sum of the amounts disclosed pursuant to paragraphs (d)(2),
(d)(3) and (d)(4) of this section, described as ``Closing Costs''; and
(6) A statement referring the consumer to the location where tables
required pursuant to paragraphs (f) and (g) of this section are
provided for details.
(e) Web site reference. A statement that the consumer may obtain
additional information and tools at the Web site of the Bureau, and the
link/URL address to the Web site: www.consumerfinance.gov/learnmore.
(f) Closing cost details; loan costs. Under the master heading
``Closing Cost Details,'' in a table under the heading ``Loan Costs,''
all loan costs associated with the transaction. The table shall contain
the items and amounts listed under four subheadings, described in
paragraphs (f)(1) through (4) of this section.
(1) Origination charges. Under the subheading ``Origination
Charges,'' an itemization of each amount, and a subtotal of all such
amounts, that the consumer will pay to each creditor and loan
originator for originating and extending the credit.
(i) The points that the consumer will pay to the creditor to reduce
the interest rate shall be separately itemized, as both a percentage of
the amount of credit extended and a dollar amount, and labeled '' ----%
of Loan Amount
[[Page 51319]]
(Points).'' If points are not paid by the consumer, the disclosure
required by this paragraph (f)(1)(i) shall show the amount as zero.
(ii) The number of items disclosed under this paragraph (f)(1),
including the points disclosed under paragraph (f)(1)(i) of this
section, shall not exceed 13.
(2) Services you cannot shop for. Under the subheading ``Services
You Cannot Shop For,'' an itemization of each amount, and a subtotal of
all such amounts, for services for which the consumer cannot shop in
accordance with Sec. 1026.19(e)(1)(vi)(A) and that are provided by
persons other than the creditor or mortgage broker.
(i) For any item that is a component of title insurance or is for
conducting the closing, the introductory description ``Title--'' shall
appear at the beginning of the label for that item.
(ii) The number of items disclosed under this paragraph (f)(2)
shall not exceed 13.
(3) Services you can shop for. Under the subheading ``Services You
Can Shop For,'' an itemization of each amount, and a subtotal of all
such amounts, for services for which the consumer can shop in
accordance with Sec. 1026.19(e)(1)(vi)(A) and that are provided by
persons other than the creditor or mortgage broker.
(i) For any item that is a component of title insurance or is for
conducting the closing, the introductory description ``Title--'' shall
appear at the beginning of the label for that item.
(ii) The number of items disclosed under this paragraph (f)(3)
shall not exceed 14.
(4) Total loan costs. Under the subheading ``Total Loan Costs,''
the sum of the subtotals disclosed under paragraphs (f)(1) through (3)
of this section.
(5) Item descriptions and ordering. The items listed as loan costs
pursuant to this paragraph (f) shall be labeled using terminology that
briefly and clearly describes each item, subject to the requirements of
paragraphs (f)(1)(i), (f)(2)(i), and (f)(3)(i) of this section.
(i) The item prescribed in paragraph (f)(1)(i) of this section for
points shall be the first item listed in the disclosure pursuant to
paragraph (f)(1) of this section.
(ii) All other items must be listed in alphabetical order by their
labels under the applicable subheading.
(6) Use of addenda. (i) An addendum to a form of disclosures
prescribed by Sec. 1026.37(o) may not be used for items required to be
disclosed by paragraph (f)(1) or (2) of this section. If the creditor
is not able to itemize all of the charges required to be disclosed in
the number of lines provided by paragraph (f)(1)(ii) or (2)(ii) of this
section, the remaining charges shall be disclosed as an aggregate
amount in the last line permitted under paragraph (f)(1)(ii) or
(2)(ii), as applicable, using the label ``Additional Charges'' to
describe such charges.
(ii) An addendum to a form of disclosures prescribed by Sec.
1026.37(o) may be used for items required to be disclosed by paragraph
(f)(3) of this section. If the creditor is not able to itemize all of
the charges required to be disclosed in the number of lines provided by
paragraph (f)(3)(ii), the remaining charges shall be disclosed as
follows:
(A) Label the last line permitted under paragraph (f)(3)(ii) with
an appropriate reference to an addendum and list the remaining items on
the addendum in accordance with the requirements in paragraphs (f)(3)
and (5) of this section; or
(B) Disclose the remaining charges as an aggregate amount in the
last line permitted under paragraph (f)(3)(ii), using the label
``Additional Charges.''
(g) Closing cost details; other costs. Under the master heading
``Closing Cost Details,'' costs associated with the transaction that
are in addition to the costs disclosed under Sec. 1026.37(f), listed
in a table under the heading ``Other Costs.'' The table consists of the
items and amounts listed under six subheadings, described in paragraphs
(g)(1) through (6) of this section.
(1) Taxes and other government fees. Under the subheading ``Taxes
and Other Government Fees,'' the amounts to be paid to State and local
governments for taxes and other government fees, and the subtotal of
all such amounts, as follows:
(i) On the first line, using the label ``Recording Fees and Other
Taxes,'' the sum of all recording fees and other government fees and
taxes, except for transfer taxes.
(ii) On the second line, using the label ``Transfer Taxes,'' the
sum of all transfer taxes.
(iii) If an amount for recording fees or transfer taxes is not
charged to the consumer, the dollar amount disclosed on the applicable
line required by this paragraph (g)(1) must be zero.
(2) Prepaids. Under the subheading ``Prepaids,'' an itemization of
the amounts to be paid by the consumer in advance of the first
scheduled payment, and the subtotal of all such amounts, as follows:
(i) On the first line, using the label ``Homeowner's Insurance
Premium (-- months),'' the number of months for which homeowner's
premiums are to be paid by the consumer at consummation and the total
dollar amount to be paid.
(ii) On the second line, using the label ``Mortgage Insurance
Premium (-- months),'' the number of months for which mortgage
insurance premiums are to be paid by the consumer at consummation and
the total dollar amount to be paid.
(iii) On the third line, using the label ``Prepaid Interest (----
per day for -- days @ --%),'' the amount of interest to be paid per
day, the number of days for which prepaid interest will be collected,
the interest rate, and the total dollar amount to be paid.
(iv) On the fourth line, using the label ``Property Taxes,'' the
number of months for which property taxes are to be paid by the
consumer and the total dollar amount to be paid.
(v) If an amount is not charged to the consumer for any item for
which this paragraph (g)(2) prescribes a label, the dollar amount
disclosed on that line must be zero.
(vi) A maximum of three additional items may be disclosed under
this paragraph (g)(2), and each additional item must be identified and
include the applicable time period covered by the amount to be paid by
the consumer at consummation and the total amount to be paid.
(3) Initial escrow payment at closing. Under the subheading
``Initial Escrow Payment at Closing,'' an itemization of the amounts
that the consumer will be expected to place into a reserve or escrow
account at consummation to be applied to recurring periodic charges,
and the subtotal of all such amounts, as follows:
(i) On the first line, using the label ``Homeowner's Insurance $--
per month for -- mo.,'' the amount escrowed per month, the number of
months covered by an escrowed amount collected at consummation, and the
total amount to be paid into the escrow account by the consumer to
insure the property against hazards.
(ii) On the second line, using the label ``Mortgage Insurance $--
per month for -- mo.,'' the amount escrowed per month, the number of
months covered by an escrowed amount collected at consummation, and the
total amount to be paid by the consumer for mortgage insurance.
(iii) On the third line, using the label ``Property Taxes $-- per
month for -- mo.,'' the amount escrowed per month, the number of months
covered by an escrowed amount collected at consummation, and the total
amount to be paid by the consumer for property taxes.
[[Page 51320]]
(iv) If an amount is not charged to the consumer for any item for
which this paragraph (g)(3) prescribes a label, the dollar amount
disclosed on that line must be zero.
(v) A maximum of five additional items may be disclosed under this
paragraph (g)(3), and each additional item must be identified and
include the applicable amount per month, the number of months collected
at consummation, and the total amount to be paid.
(4) Other. Under the subheading ``Other,'' an itemization of any
other amounts the consumer is likely to pay or has contracted with a
person other than the creditor or loan originator to pay at closing and
of which the creditor is aware at the time of issuing the Loan
Estimate, and the subtotal of all amounts itemized.
(i) For any item that is a component of title insurance, the
introductory description ``Title--'' shall appear at the beginning of
the label for that item.
(ii) The parenthetical description ``(optional)'' shall appear at
the end of the label for items disclosing any premiums paid for
separate insurance, warranty, guarantee, or event-coverage products.
(iii) The number of items disclosed under this paragraph (g)(4)
shall not exceed five.
(iv) If there are no such amounts, this table must be left blank.
(5) Total other costs. With the label ``Total Other Costs,'' the
sum of the amounts disclosed pursuant to paragraphs (g)(1) through (4)
of this section.
(6) Total closing costs. With the label ``Total Closing Costs,''
the component amounts and their sum, as follows:
(i) The sum of the amounts disclosed as Loan Costs and Other Costs
under paragraphs (f)(4) and (g)(5) of this section, disclosed with the
label ``D + I'';
(ii) The amount of any lender credits, disclosed as a negative
number with the label ``Lender Credits''; and
(iii) Add the amount calculated under paragraph (g)(6)(i) and the
(negative) amount disclosed under paragraph (g)(6)(ii) and disclose
this sum as ``Total Closing Costs.''
(7) Item descriptions and ordering. In identifying the items listed
as Other Costs pursuant to this paragraph (g), the creditor must use
terminology that briefly and clearly describes the item.
(i) The items prescribed in paragraphs (g)(1)(i) and (ii),
(g)(2)(i) through (iv), and (g)(3)(i) through (iii) of this section
must be listed in the order prescribed as the initial items under the
applicable subheading, with any additional items to follow.
(ii) All additional items must be listed in alphabetical order
under the applicable subheading.
(8) Use of addenda. An addendum to a form of disclosures prescribed
by Sec. 1026.37(o) may not be used for items required to be disclosed
by this paragraph (g). If the creditor is not able to itemize all of
the charges required to be disclosed in the number of lines provided by
paragraph (g)(2)(vi), (3)(v), or (4)(iii) of this section, the
remaining charges shall be disclosed as an aggregate amount in the last
line permitted under paragraph (g)(2)(vi), (3)(v), or (4)(iii), as
applicable, using the label ``Additional Charges.''
(h) Calculating cash to close. In a separate table, under the
master heading ``Closing Cost Details,'' required by paragraph (f) of
this section, under the heading ``Calculating Cash to Close,'' the
total amount of cash or other funds that must be provided by the
consumer at consummation must be disclosed, with an itemization of that
amount into the following component amounts:
(1) Total closing costs. The amount disclosed under paragraph
(g)(6)(iii) of this section, disclosed as a positive number;
(2) Closing costs to be financed. The amount of any closing costs
to be paid out of loan proceeds, disclosed as a negative number;
(3) Downpayment and other funds from borrower. (i) In a purchase
transaction, as defined in Sec. 1026.37(a)(9)(i), the actual amount of
the difference between the purchase price of the property and the
principal amount of the loan, disclosed as a positive number; or
(ii) In all other transactions, the estimated ``Funds from
Borrower,'' labeled using that term, as determined in accordance with
paragraph (h)(5) of this section;
(4) Deposit. The amount that is paid to the seller or held in trust
or escrow by an attorney or other party under the terms of the
agreement for the sale of the property, disclosed as a negative number;
(5) Funds for borrower. The amount of ``Funds from Borrower,'' to
be disclosed under paragraph (h)(3)(ii) of this section, and of ``Funds
for Borrower,'' disclosed under this paragraph (h)(5) of this section,
are determined by subtracting the principal amount of the credit
extended (excluding any amount disclosed pursuant to paragraph (h)(2)
of this section) from the total amount of all existing debt being
satisfied in the transaction (except to the extent the satisfaction of
such existing debt is disclosed under paragraph (g) of this section).
(i) If the calculation under this paragraph (h)(5) of this section
yields an amount that is a positive number, such amount shall be
disclosed under paragraph (h)(3)(ii) of this section, and $0.00 shall
be disclosed under paragraph (h)(5) of this section.
(ii) If the calculation under this paragraph (h)(5) yields an
amount that is a negative number, such amount shall be disclosed under
paragraph (h)(5) of this section as a negative number, and $0.00 shall
be disclosed under paragraph (h)(3)(ii) of this section.
(iii) If the calculation under this paragraph (h)(5) of this
section yields $0.00, then $0.00 shall be disclosed pursuant to
paragraph (h)(3)(ii) of this section and pursuant to paragraph (h)(5)
of this section.
(6) Seller credits. Seller credits are the total amount of money
that the seller will provide to pay for total loan costs as determined
by paragraph (f)(4) of this section and total other costs as determined
by paragraph (g)(5) of this section, to the extent known, disclosed as
a negative number;
(7) Adjustments and other credits. Other credits include all loan
costs and other costs, to the extent known, that are paid by persons
other than the loan originator, creditor, consumer, or seller,
disclosed as a negative number; and
(8) Estimated Cash to Close. The total of the amounts disclosed by
paragraphs (h)(1) thorough (h)(7).
(i) Adjustable payment table. If the periodic principal and
interest payment may change after consummation but not based on an
adjustment to the interest rate, or if the transaction is a seasonal
payment product as described in Sec. 1026.37(a)(10)(ii)(E), a separate
table under the master heading ``Closing Cost Details'' required by
paragraph (f) of this section and under the heading ``Adjustable
Payment (AP) Table'' that includes the following information and
satisfies the following requirements:
(1) Interest-only payments. Whether the transaction is an interest
only product pursuant to paragraph (a)(10)(ii)(B) of this section as an
affirmative or negative answer to the question ``Interest Only
Payments?'' and, if an affirmative answer is disclosed, the period
during which interest-only periodic payments are scheduled.
(2) Optional payments. Whether the terms of the legal obligation
expressly provide that the consumer may elect to pay a specified
periodic principal and interest payment other than the scheduled amount
of the payment, as an affirmative or negative answer to the question
``Optional Payments?'' and, if an affirmative answer is disclosed, the
[[Page 51321]]
period during which the consumer may elect to make such payments.
(3) Step payments. Whether the transaction is a step payment
product pursuant to paragraph (a)(10)(ii)(C) of this section as an
affirmative or negative answer to the question ``Step Payments?'' and,
if an affirmative answer is disclosed, the period during which the
regular periodic payments are scheduled to increase.
(4) Seasonal payments. Whether the transaction is a seasonal
payment product pursuant to paragraph (a)(10)(ii)(E) of this section as
an affirmative or negative answer to the question ``Seasonal
Payments?'' and, if an affirmative answer is disclosed, the period
during which periodic payments are not scheduled.
(5) Principal and interest payments. Under the subheading
``Principal and Interest Payments,'' which subheading is immediately
preceded by the applicable unit period, the following information:
(i) The number of the payment of the first periodic principal and
interest payment that may change under the terms of the legal
obligation disclosed under this paragraph (i), counting from the first
periodic payment due after consummation, and the amount or range of the
periodic principal and interest payment for such payment, labeled,
``First Change/Amount'';
(ii) The frequency of subsequent changes to the periodic principal
and interest payment; and
(iii) The maximum periodic principal and payment that may occur
during the term of the transaction, and the first periodic principal
and interest payment that can reach such maximum, counting from the
first periodic payment due after consummation.
(j) Adjustable interest rate table. If the interest rate may
increase after consummation, a separate table under the master heading
``Closing Cost Details'' required by paragraph (f) of this section and
under the heading ``Adjustable Interest Rate (AIR) Table'' that
includes the following information and satisfies the following
requirements:
(1) Index and margin. If the interest rate may adjust, the index
upon which the adjustments to the interest rate are based and the
margin that is added to the index to determine the interest rate, if
any, labeled ``Index + Margin.''
(2) Increases in interest rate. If the product type is a ``Step
Rate'' and not also an ``Adjustable Rate'' under paragraph (a)(10) of
this section, the maximum amount of any adjustments to the interest
rate that are scheduled and pre-determined, labeled ``Interest Rate
Adjustments.''
(3) Initial interest rate. The interest rate at consummation of the
loan transaction.
(4) Minimum and maximum interest rate. The minimum and maximum
interest rates for the loan, after any introductory period expires.
(5) Frequency of adjustments. The following information, under the
subheading ``Change Frequency'':
(i) The month when the interest rate after consummation may first
change, calculated from the date interest begins to accrue for the
first regular periodic principal and interest payment, labeled ``First
Change''; and
(ii) The frequency of interest rate adjustments after the initial
adjustment to the interest rate, labeled, ``Subsequent Changes.''
(6) Limits on interest rate changes. The following information,
under the subheading ``Limits on Interest Rate Changes'':
(i) The maximum possible change for the first adjustment of the
interest rate after consummation, labeled ``First Change''; and
(ii) The maximum possible change for subsequent adjustments of the
interest rate after consummation, labeled ``Subsequent Changes.''
(k) Contact information. Under the master heading, ``Additional
Information About This Loan,'' the following information:
(1) The name and Nationwide Mortgage Licensing System and Registry
identification number (NMLSR ID) (labeled ``NMLS ID/License
'') for the creditor (labeled ``Lender'') and the mortgage
broker (labeled ``Mortgage Broker''), if any, together with the name of
a primary contact for the consumer of the lender or mortgage broker. In
the event the creditor or the mortgage broker has not been assigned an
NMLSR ID, the license number or other unique identifier issued by the
applicable jurisdiction or regulating body with which the creditor or
mortgage broker is licensed and/or registered shall be disclosed, if
any;
(2) The name and NMLSR ID of the individual loan officer (labeled
``Loan Officer'' and ``NMLS ID/License ,'' respectively) who
is primary contact for the consumer. In the event the individual loan
officer has not been assigned an NMLSR ID, the license number or other
unique identifier issued by the applicable jurisdiction or regulating
body with which the creditor or mortgage broker is licensed and/or
registered shall be disclosed, if any; and
(3) The email address and telephone number of the loan officer
(labeled ``Email'' and ``Phone,'' respectively).
(l) Comparisons. Under the master heading, ``Additional Information
About This Loan,'' in a separate table under the heading
``Comparisons'' along with the statement ``Use these measures to
compare this loan with other loans'':
(1) In five years. Using the label ``In 5 Years'':
(i) The total principal, interest, mortgage insurance, and loan
costs scheduled to be paid through the end of the 60th month after the
due date of the first periodic payment, expressed as a dollar amount,
along with the statement ``Total you will have paid in principal,
interest, mortgage insurance, and loan costs''; and
(ii) The principal scheduled to be paid through the end of the 60th
month after the due date of the first periodic payment, expressed as a
dollar amount, along with the statement ``Principal you will have paid
off.''
(2) Annual percentage rate. The ``Annual Percentage Rate,'' using
that term and the abbreviation ``APR'' and expressed as a percentage,
and the following statement: ``Your costs over the loan term expressed
as a rate. This is not your interest rate.''
(3) Total interest percentage. The ``Total Interest Percentage,''
using that term and the abbreviation ``TIP'' and expressed as a
percentage, and the statement ``The total amount of interest that you
will pay over the loan term as a percentage of your loan amount.'' The
total interest percentage is the total amount of interest that the
consumer will pay over the life of the loan, expressed as a percentage
of the amount of credit extended.
(m) Other considerations. Under the master heading ``Additional
Information About This Loan'' required by paragraph (k) of this section
and under the heading ``Other Considerations'':
(1) Appraisal. For transactions subject to 15 U.S.C. 1639h or
1691(e), as implemented in this part or Regulation B, 12 CFR part 1002,
respectively, a statement, labeled ``Appraisal,'' that:
(i) The creditor may order an appraisal to determine the value of
the property identified in paragraph (a)(6) of this section and may
charge the consumer for that appraisal;
(ii) The creditor will promptly provide the consumer a copy of any
completed appraisal, even if the transaction is not consummated; and
(iii) The consumer may choose to pay for an additional appraisal of
the property for the consumer's use.
(2) Assumption. A statement of whether a subsequent purchaser of
the property may be permitted to assume the remaining loan obligation
on its original terms, labeled ``Assumption.''
[[Page 51322]]
(3) Homeowner's insurance. At the option of the creditor, a
statement of whether homeowner's insurance is required on the property
and whether the consumer may choose the insurance provider, labeled
``Homeowner's Insurance.''
(4) Late payment. A statement detailing any charge that may be
imposed for a late payment, stated as a dollar amount or percentage
charge of the late payment amount, and the number of days that a
payment must be late to trigger the late payment fee, labeled ``Late
Payment.''
(5) Refinance. The following statement, labeled ``Refinance,''
``Refinancing this loan will depend on your future financial situation,
the property value, and market conditions. You may not be able to
refinance this loan.''
(6) Servicing. A statement of whether the loan will be serviced by
the creditor or transferred to another servicer, labeled ``Servicing.''
(7) Liability after foreclosure. If the purpose of the credit
transaction is to refinance an extension of credit as described in
paragraph (a)(9)(ii) of this section, a brief statement that certain
State law protections against liability for any deficiency after
foreclosure may be lost, the potential consequences of the loss of such
protections, and a statement that the consumer should consult an
attorney for additional information, labeled ``Liability after
Foreclosure.''
(n) Signature statement. (1) At the creditor's option, under the
master heading required by paragraph (k) of this section and under the
heading ``Confirm Receipt,'' a line for the signatures of the consumers
in the transaction. If the creditor includes a line for the consumer's
signature, the creditor must disclose the following below the signature
line: ``By signing, you are only confirming that you have received this
form. You do not have to accept this loan because you have signed or
received this form.''
(2) If the creditor does not include a line for the consumer's
signature, the creditor must disclose the following statement under the
heading ``Other Considerations'' required by paragraph (m) of this
section, labeled ``Loan Acceptance'': ``You do not have to accept this
loan because you have received this form or signed a loan
application.''
(o) Form of disclosures. (1) General requirements. (i) The creditor
shall make the disclosures required by this section clearly and
conspicuously in writing, in a form that the consumer may keep. The
disclosures also shall be grouped together, segregated from everything
else, and provided on separate pages that are not commingled with any
other documents or disclosures, including any other disclosures
required by State or other laws.
(ii) Except as provided in paragraph (o)(5) of this section, the
disclosures shall contain only the information required by paragraphs
(a) through (n) of this section and shall be made in the same order,
and positioned relative to the master headings, headings, subheadings,
labels, and similar designations in the same manner, as shown in form
H-24, set forth in appendix H to this part.
(2) Estimated disclosures. If a master heading, heading,
subheading, label, or similar designation contains the word
``estimated'' in form H-24, set forth in appendix H to this part, that
heading, label, or similar designation shall contain the word
``estimated.''
(3) Form. Except as provided in paragraph (o)(5) of this section:
(i) For a transaction subject to this section that is a federally
related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the
disclosures must be made using form H-24, set forth in appendix H to
this part.
(ii) For any other transaction subject to this section, the
disclosures must be made with headings, content, and format
substantially similar to form H-24, set forth in appendix H to this
part.
(iii) The disclosures required by this section may be provided to
the consumer in electronic form, subject to compliance with the
consumer consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.).
(4) Rounding. (i) Nearest dollar. (A) The dollar amounts required
to be disclosed by paragraphs (b)(6) and (7), (c)(1)(iii), (c)(2)(ii)
and (iii), (c)(4)(ii), (f), (g), (h), (i), and (l) of this section
shall be rounded to the nearest whole dollar.
(B) The dollar amount required to be disclosed by paragraph (b)(1)
of this section shall be disclosed as an exact number, except that
decimal places shall not be disclosed if the amount of cents is zero.
(C) The dollar amounts required to be disclosed by paragraph
(c)(2)(iv) of this section shall be rounded to the nearest whole
dollar, if any of the component amounts are required by paragraph
(o)(4)(i)(A) of this section to be rounded to the nearest whole dollar.
(ii) Percentages. The percentage amounts required to be disclosed
under paragraphs (b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and
(l)(3) of this section shall be disclosed as an exact number up to two
or three decimal places. The percentage amount required to be disclosed
under paragraph (l)(2) of this section shall be disclosed up to three
decimal places. Decimal places shall not be disclosed if the amount is
a whole number.
(5) Exceptions. (i) Unit-period. Wherever the form or this section
uses ``monthly'' to describe the frequency of any payments or uses
``month'' to describe the applicable unit-period, the creditor shall
substitute the appropriate term to reflect the fact that the
transaction's terms provide for other than monthly periodic payments,
such as bi-weekly or quarterly payments.
(ii) Lender credits. The amount required to be disclosed by
paragraph (d)(4) of this section may be omitted from the form if the
amount is zero.
(iii) Logo or slogan. The creditor providing the form may use a
logo for, and include a slogan with, the information required by
paragraph (a)(3) of this section in any font size or type, provided
that such logo or slogan does not cause the information required by
paragraph (a)(3) of this section to exceed the space provided for that
information, as illustrated in form H-24(a) in appendix H to this part.
If the creditor does not use a logo for the information required by
paragraph (a)(3) of this section, the information shall be disclosed in
a similar format as form H-24.
(iv) Business card. The creditor may physically attach a business
card over the information required to be disclosed by paragraph (a)(3)
of this section.
(v) Administrative information. The creditor may insert immediately
above the information required to be disclosed by paragraph (a)(2) of
this section and adjacent to the information required to be disclosed
by paragraph (a)(3) of this section any administrative information,
text, or codes that assist in identification of the form or the
information disclosed on the form, provided that the space provided on
form H-24 of appendix H to this part for the information required by
paragraph (a)(3) of this section is not altered.
(vi) Translation. The form may be translated into languages other
than English.[ltrif]
18. New Sec. 1026.38 is added to read as follows:
[rtrif]Sec. 1026.38 Content of disclosures for certain mortgage
transactions (Closing Disclosure).
For each transaction subject to Sec. 1026.19(f), the creditor
shall disclose the information in this section, as applicable:
[[Page 51323]]
(a) General information. (1) Form title. The title of the form,
``Closing Disclosure,'' using that term.
(2) Form purpose. The following statement: ``This form is a
statement of final loan terms and closing costs. Compare this document
with your Loan Estimate.''
(3) Closing information. Under the heading ``Closing Information'':
(i) Date issued. The date the disclosures required by this section
are delivered to the consumer, labeled ``Date Issued.''
(ii) Closing date. The date of consummation, labeled ``Closing
Date.''
(iii) Disbursement date. The date the amounts disclosed pursuant to
paragraphs (j)(3)(iii) and (k)(3)(iii) of this section are expected to
be paid to the consumer and seller, respectively, as applicable,
labeled ``Disbursement Date.''
(iv) Agent. The name of the settlement agent conducting the
closing, labeled ``Agent.''
(v) File number. The number assigned to the transaction by the
settlement agent for identification purposes, labeled ``File
.''
(vi) Property. The street address or location of the property
required to be disclosed under Sec. 1026.37(a)(6), labeled
``Property.''
(vii) Sale price. (A) In credit transactions where there is a
seller, the contract sale price of the property identified in paragraph
(a)(3)(vi) of this section, labeled ``Sale Price.''
(B) In credit transactions where there is no seller, the appraised
value of the property identified in paragraph (a)(3)(vi) of this
section, labeled ``Appraised Prop. Value.''
(4) Transaction information. Under the heading ``Transaction
Information'':
(i) Borrower. The consumer's name and mailing address, labeled
``Borrower.''
(ii) Seller. Where applicable, the seller's name and mailing
address, labeled ``Seller.''
(iii) Lender. The name of the creditor making the disclosure,
labeled ``Lender.''
(5) Loan information. Under the heading ``Loan Information'':
(i) Loan term. The information required to be disclosed under Sec.
1026.37(a)(8), labeled ``Loan Term.''
(ii) Purpose. The information required to be disclosed under Sec.
1026.37(a)(9), labeled ``Purpose.''
(iii) Product. The information required to be disclosed under Sec.
1026.37(a)(10), labeled ``Product.''
(iv) Loan type. The information required to be disclosed under
Sec. 1026.37(a)(11), labeled ``Loan Type.''
(v) Loan identification number. The information required to be
disclosed under Sec. 1026.37(a)(12), labeled ``Loan ID .''
(vi) Mortgage insurance case number. The case number for any
mortgage insurance policy, if required by the creditor, labeled ``MIC
.''
(b) Loan terms. A separate table under the heading ``Loan Terms''
that includes the information required by Sec. 1026.37(b).
(c) Projected payments. A separate table, under the heading
``Projected Payments,'' that includes and satisfies the following
information and requirements:
(1) Projected payments or range of payments. The information
required to be disclosed pursuant to Sec. 1026.37(c)(1) through (4),
other than Sec. 1026.37(c)(4)(vi). In disclosing estimated escrow
payments as described in Sec. 1026.37(c)(2)(iii) and (4)(ii), the
amount disclosed on the Closing Disclosure:
(i) For transactions subject to RESPA, is determined under the
escrow account analysis described in Regulation X, 12 CFR 1024.17;
(ii) For transactions not subject to RESPA, may be determined under
the escrow account analysis described in Regulation X, 12 CFR 1024.17
or in the manner set forth in Sec. 1026.37(c)(5).
(2) Estimated taxes, insurance, and assessments. A reference to the
disclosure required by Sec. 1026.38(l)(7).
(d) Cash to close. In a separate table, under the heading ``Cash to
Close'':
(1) The sum of the dollar amounts calculated in accordance with
paragraph (j)(3)(iii) of this section, labeled ``Cash to Close'';
(2) The dollar amount of loan costs that are disclosed as borrower-
paid at closing calculated in accordance with paragraph (f)(4) of this
section, described as ``Loan Costs'';
(3) The dollar amount of other costs that are disclosed as
borrower-paid at closing and calculated in accordance with paragraph
(g)(5) of this section, described as ``Other Costs'';
(4) The dollar amount disclosed pursuant to paragraph (h)(3) of
this section, described as ``Lender Credit'';
(5) The sum of the amounts disclosed pursuant to paragraphs (d)(2),
(d)(3), and (d)(4) of this section, described as ``Closing Costs''; and
(6) A statement referring the consumer to the tables required
pursuant to paragraphs (f) and (g) of this section for details.
(e) [Reserved]
(f) Closing cost details; loan costs. Under the master heading
``Closing Cost Details'' with columns stating whether the charge was
borrower-paid at or before closing, seller-paid at or before closing,
or paid by others, all loan costs associated with the transaction,
listed in a table under the heading ``Loan Costs.'' The table consists
of the items and amounts listed under five labels, described in
paragraphs (f)(1) through (5) of this section.
(1) Origination charges. Under the label ``Origination Charges,''
an itemization of the items described in Sec. 1026.37(f)(1) and
compensation paid by the creditor to a loan originator in the
applicable column and the total of all such itemized amounts that are
designated borrower-paid at or before closing.
(2) Services borrower did not shop for. Under the label ``Services
Borrower Did Not Shop For,'' an itemization of the costs for services
required by the creditor and provided by persons other than the
creditor or mortgage broker in the applicable column, and the total of
all such itemized amounts that are designated borrower-paid at or
before closing. Items that were disclosed pursuant to Sec.
1026.37(f)(3) must be disclosed under this paragraph (f)(2) when the
consumer was provided a written list under Sec. 1026.19(e)(1)(vi)(C)
and the consumer selected a provider contained on that written list.
(3) Services borrower did shop for. Under the label ``Services
Borrower Did Shop For,'' an itemization of the costs for services
required by the creditor and provided by persons other than the
creditor or mortgage broker where the consumer was provided a written
list under Sec. 1026.19(e)(1)(vi)(C) and the consumer did not select a
provider contained on that written list, and the total of all such
itemized costs that are designated borrower-paid at or before closing.
(4) Total loan costs. The total of the amounts disclosed under
Sec. 1026.38(f)(5) with the label ``Total Loan Costs (Borrower-
Paid).''
(5) Subtotal of loan costs. The sum of loan costs, calculated by
totaling the amounts described in paragraphs (f)(1), (2), and (3) of
this section for costs designated borrower-paid at or before closing,
with the label ``Loan Costs Subtotal.''
(g) Closing cost details; other costs. Under the master heading
``Closing Cost Details'' disclosed pursuant to paragraph (f) of this
section, all other costs associated with the transaction listed in a
table with a heading disclosed as ``Other Costs.'' The table comprises
items and amounts listed under five labels, described in paragraphs
(g)(1) through (6) of this section.
[[Page 51324]]
(1) Taxes and other government fees. Under the label ``Taxes and
Other Government Fees,'' each amount that is expected to be paid to
State and local governments for taxes and government fees and the total
of all such itemized amounts that are designated borrower-paid at or
before closing, as follows:
(i) Recording fees and the amounts paid in the applicable columns;
and
(ii) An itemization of transfer taxes and the amounts paid in the
applicable columns.
(2) Prepaids. Under the subheading ``Prepaids,'' the charges
disclosed pursuant to Sec. 1026.37(g)(2) with the actual costs in the
applicable columns, and the total of all such itemized amounts that are
designated borrower-paid at or before closing.
(3) Initial escrow payment at closing. Under the label ``Initial
escrow payment at closing,'' the items described in Sec. 1026.37(g)(3)
with their actual costs, the applicable aggregate adjustment pursuant
to 12 CFR 1024.17(d)(2), and the total of all such itemized amounts
that are designated borrower-paid at or before closing.
(4) Other. Under the label ``Other,'' identify and state any other
actual costs for services that are required or obtained in the real
estate closing by the consumer, the seller, or other party, and the
total of all such itemized amounts that are designated borrower-paid at
or before closing.
(i) For any actual cost that is a component of title insurance, the
introductory description ``Title--'' shall appear at the beginning of
the label for that actual cost.
(ii) The parenthetical description ``(optional)'' shall appear at
the end of the label for actual costs designated borrower-paid at or
before closing for any premiums paid for separate insurance, warranty,
guarantee, or event-coverage products.
(5) Total other costs. With the label ``Total Other Costs
(Borrower-Paid),'' the sum of the amounts disclosed pursuant to
paragraphs (g)(6) of this section.
(6) Subtotal of costs. The sum of other costs, calculated by
totaling the costs disclosed in paragraphs (g)(1) through (4) of this
section designated borrower-paid at or before closing, labeled ``Other
Costs Subtotal.''
(h) Closing cost totals. (1) The total of the costs designated
borrower-paid at or before closing that are disclosed pursuant to
paragraph (h)(2) of this section, labeled ``Total Closing Costs
(Borrower-Paid).''
(2) The total of the amounts disclosed in paragraphs (f)(5) and
(g)(6) of this section and the total of the costs designated seller-
paid at or before closing, or paid by others are disclosed pursuant to
paragraphs (f) and (g) of this section, and the sum of the amount
disclosed in (h)(3) of this section and the amounts designated
borrower-paid at closing, labeled ``Closing Costs Subtotal (Loan Costs
+ Other Costs).''
(3) The amount disclosed pursuant to Sec. 1026.37(g)(6)(ii) as a
negative number, with the label ``Lender Credit'' and designated
borrower-paid at closing.
(4) The creditor must use descriptions for the charges disclosed
pursuant to paragraphs (f) and (g) of this section on the Closing
Disclosure in a manner that are consistent with the descriptions used
for the charges disclosed on the Loan Estimate pursuant to Sec.
1026.37 of this part. The creditor must also list the charges on the
Closing Disclosure in the same sequential order as on the Loan Estimate
pursuant to Sec. 1026.37.
(i) Calculating cash to close. In a separate table, under the
heading ``Calculating Cash to Close,'' together with the statement
``Use this table to see what has changed from your Loan Estimate'':
(1) Total closing costs. (i) Under the subheading ``Estimate,'' the
``Total Closing Costs'' disclosed on the Loan Estimate under Sec.
1026.37(h)(1), labeled using that term together with a reference to the
disclosure of ``Total Closing Costs'' under paragraph (h)(1) of this
section.
(ii) Under the subheading ``Final,'' the amount disclosed under
paragraph (h)(1) of this section, reduced by the amount of any lender
credits disclosed under Sec. 1026.38(h)(3).
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(1)(ii) of this
section is different than the amount disclosed under paragraph
(i)(1)(i) of this section (unless the difference is due to rounding):
(1) A statement of that fact;
(2) If the difference in the ``Total Closing Costs'' is
attributable to differences in itemized charges that are included in
either or both subtotals, a statement that the consumer should see the
total loan costs and total other costs subtotals disclosed under
paragraphs (f)(4) and (g)(5) of this section (together with references
to such disclosures), as applicable; and
(3) If the increase exceeds the limitations on increases in closing
costs under Sec. 1026.19(e)(3), a statement that such increase exceeds
the legal limits by the dollar amount of the excess. Such dollar amount
shall equal the sum total of all excesses of the limitations on
increases in closing costs under Sec. 1026.19(e)(3), taking into
account the different methods of calculating excesses of the
limitations on increases in closing costs under Sec. 1026.19(e)(3)(ii)
and (iii).
(B) If the amount disclosed under paragraph (i)(1)(ii) of this
section is equal to the amount disclosed under paragraph (i)(1)(i) of
this section, a statement of that fact.
(2) Closing costs subtotal paid before closing. (i) Under the
subheading ``Estimate,'' the dollar amount ``$0,'' labeled ``Closing
Costs Subtotal Paid Before Closing.''
(ii) Under the subheading ``Final,'' the amount of ``Total Closing
Costs'' disclosed under paragraph (h)(2) of this section and designated
as borrower-paid before closing, stated as a negative number.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(2)(ii) of this
section is different than the amount disclosed under paragraph
(i)(2)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer paid
such amounts prior to consummation of the transaction; or
(B) If the amount disclosed under paragraph (i)(2)(ii) of this
section is equal to the amount disclosed under paragraph (i)(2)(i) of
this section, a statement of that fact.
(3) Closing costs financed. (i) Under the subheading ``Estimate,''
the amount disclosed under Sec. 1026.37(h)(2), labeled ``Closing Costs
Financed.''
(ii) Under the subheading ``Final,'' the actual amount of the
closing costs that are to be paid out of loan proceeds, stated as a
negative number.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(3)(ii) of this
section is different than the amount disclosed under paragraph
(i)(3)(i) of this section (unless the difference is due to rounding), a
statement that the amount is different, along with a statement that the
consumer included the closing costs in the loan amount, which increased
the loan amount; or
(B) If the amount disclosed under paragraph (i)(3)(ii) of this
section is equal to the amount disclosed under paragraph (i)(3)(i) of
this section, a statement of that fact.
[[Page 51325]]
(4) Downpayment/funds from borrower. (i) Under the subheading
``Estimate,'' the amount disclosed under Sec. 1026.37(h)(3), labeled
``Downpayment/Funds from Borrower.''
(ii) Under the subheading ``Final'':
(A) In a transaction that is a purchase as defined in Sec.
1026.37(a)(9)(i), the actual amount of the difference between the
purchase price of the property and the principal amount of the credit
extended, stated as a positive number, labeled using the term
``Downpayment/Funds from Borrower''; or
(B) In a transaction other than the one described in paragraph
(i)(4)(ii)(A) of this section, the ``Funds from Borrower'' as
determined in accordance with paragraph (i)(6)(iv) of this section,
labeled using the term ``Downpayment/Funds from Borrower.''
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(4)(ii) of this
section is different than the amount disclosed under paragraph
(i)(4)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer
increased or decreased this payment and that the consumer should see
the details disclosed under paragraph (j)(1) or (j)(2) of this section,
as applicable; or
(B) If the amount disclosed under paragraph (i)(4)(ii) of this
section is equal to the amount disclosed under paragraph (i)(4)(i) of
this section, a statement of that fact.
(5) Deposit. (i) Under the subheading ``Estimate,'' the amount
disclosed under Sec. 1026.37(h)(4), labeled ``Deposit.''
(ii) Under the subheading ``Final,'' the amount disclosed under
paragraph (j)(2)(ii) of this section, stated as a negative number.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(5)(ii) of this
section is different than the amount disclosed under paragraph
(i)(5)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer
increased or decreased this payment, as applicable, and that the
consumer should see the details disclosed under paragraph (j)(2)(ii) of
this section; or
(B) If the amount disclosed under paragraph (i)(5)(ii) of this
section is equal to the amount disclosed under paragraph (i)(5)(i) of
this section, a statement of that fact.
(6) Funds for borrower. (i) Under the subheading ``Estimate,'' the
amount disclosed under Sec. 1026.37(h)(5), labeled ``Funds for
Borrower.''
(ii) Under the subheading ``Final,'' the ``Funds for Borrower,''
labeled using that term, as determined in accordance with paragraph
(i)(6)(iv) of this section.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(6)(ii) of this
section is different than the amount disclosed under paragraph
(i)(6)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer's
available funds from the loan amount have increased or decreased, as
applicable; or
(B) If the amount disclosed under paragraph (i)(6)(ii) of this
section is equal to the amount disclosed under paragraph (i)(6)(i) of
this section, a statement of that fact.
(iv) The ``Funds from Borrower'' to be disclosed under paragraph
(i)(4)(ii)(B) of this section and ``Funds for Borrower'' to be
disclosed under paragraph (i)(6)(ii) of this section are determined by
subtracting the principal amount of the credit extended (excluding any
amount disclosed pursuant to paragraph (i)(3)(ii) of this section) from
the total amount of all existing debt being satisfied in the real
estate closing and disclosed under Sec. 1026.38(j)(1)(v) (except to
the extent the satisfaction of such existing debt is disclosed under
Sec. 1026.38(g)).
(A) If the calculation under this paragraph (i)(6)(iv) yields an
amount that is a positive number, such amount shall be disclosed under
paragraph (i)(4)(ii)(B) of this section, and $0.00 shall be disclosed
under paragraph (i)(6)(ii) of this section.
(B) If the calculation under this paragraph (i)(6)(iv) yields an
amount that is a negative number, such amount shall be disclosed under
paragraph (i)(6)(ii) of this section, stated as a negative number, and
$0.00 shall be disclosed under paragraph (i)(4)(ii)(B) of this section.
(C) If the calculation under this paragraph (i)(6)(iv) yields
$0.00, $0.00 shall be disclosed under paragraph (i)(4)(ii)(B) of this
section and under paragraph (i)(6)(ii) of this section.
(7) Seller credits. (i) Under the subheading ``Estimate,'' the
amount disclosed under Sec. 1026.37(h)(6), labeled ``Seller Credits.''
(ii) Under the subheading ``Final,'' the amount disclosed under
paragraph (j)(2)(v) of this section, stated as a negative number.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(7)(ii) of this
section is different than the amount disclosed under paragraph
(i)(7)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer should
see the details disclosed under paragraph (j)(2)(v) of this section; or
(B) If the amount disclosed under paragraph (i)(7)(ii) of this
section is equal to the amount disclosed under paragraph (i)(7)(i) of
this section, a statement of that fact.
(8) Adjustments and other credits. (i) Under the subheading
``Estimate,'' the amount disclosed on the Loan Estimate under Sec.
1026.37(h)(7) rounded to the nearest whole dollar, labeled
``Adjustments and Other Credits.''
(ii) Under the subheading ``Final,'' the amount equal to the total
of the amounts disclosed under paragraphs (j)(1)(v) through (x) of this
section reduced by the total of the amounts disclosed under paragraphs
(j)(2)(vi) through (xi) of this section.
(iii) Disclosed more prominently than the other disclosures under
this paragraph (i), under the subheading ``Did this change?'':
(A) If the amount disclosed under paragraph (i)(8)(ii) of this
section is different than the amount disclosed under paragraph
(i)(8)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer should
see the details disclosed under paragraphs (j)(1)(v) through (x) and
(j)(2)(vi) through (xi) of this section; or
(B) If the amount disclosed under paragraph (i)(8)(ii) of this
section is equal to the amount disclosed under paragraph (i)(8)(i) of
this section, a statement of that fact.
(9) Cash to close. (i) Under the subheading ``Estimate,'' the
amount disclosed on the Loan Estimate under Sec. 1026.37(h)(8),
labeled ``Cash to Close'' and disclosed more prominently than the other
disclosures under this paragraph (i).
(ii) Under the subheading ``Final,'' the sum of the amounts
disclosed under paragraphs (i)(1) through (i)(8) of this section, and
disclosed more prominently than the other disclosures under this
paragraph (i).
(j) Summary of borrower's transaction. Under the heading
``Summaries of Transactions,'' with a statement to ``Use this table to
see a summary of your transaction,'' two separate tables are disclosed.
The first
[[Page 51326]]
table shall include, under the subheading ``Borrower's Transaction,''
the following information and shall satisfy the following requirements:
(1) Itemization of amount due from borrower. (i) The total amount
due from the consumer at closing, calculated as the sum of items
required to be disclosed by paragraph (j)(1)(ii) through (x) of this
section, excluding items paid from funds other than closing funds as
described in paragraph (j)(4)(i) of this section, labeled ``Due from
Borrower at Closing'';
(ii) The amount of the contract sales price of the property being
sold in a purchase real estate transaction, excluding the price of any
tangible personal property if the consumer and seller have agreed to a
separate price for such items, labeled ``Sale Price of Property'';
(iii) The amount of the sales price of any tangible personal
property excluded from the contract sales price pursuant to paragraph
(j)(1)(ii) of this section, labeled ``Sale Price of Any Personal
Property Included in Sale'';
(iv) The total amount of closing costs disclosed that are
designated borrower-paid at closing, calculated pursuant to paragraph
(h)(1) of this section, the labeled ``Subtotal Closing Costs Paid at
Closing by Borrower'';
(v) A description and the amount of any additional items that the
seller has paid prior to the real estate closing, but reimbursed by the
consumer at the real estate closing, and a description and the amount
of any other items owed by the consumer at the real estate closing not
otherwise disclosed pursuant to paragraph (f), (g), or (j) of this
section;
(vi) The description ``Adjustments for Items Paid by Seller in
Advance'';
(vii) The time period that the consumer is responsible for
reimbursing the seller for any prepaid taxes, and the prorated amount
of any prepaid taxes due from the consumer at the real estate closing,
labeled ``City/Town Taxes'';
(viii) The time period that the consumer is responsible for
reimbursing the seller for any prepaid taxes, and the prorated amount
of any prepaid taxes due from the consumer at the real estate closing,
labeled ``County Taxes'';
(ix) The time period that the consumer is responsible for
reimbursing the seller for any prepaid assessments, and the prorated
amount of any prepaid assessments due from the consumer at the real
estate closing, labeled ``Assessments''; and
(x) A description and the amount of any additional items paid by
the seller prior to the real estate closing that are due from the
consumer at the real estate closing.
(2) Itemization of amounts already paid by or on behalf of
borrower. (i) The sum of the amounts disclosed in this paragraphs
(j)(2)(ii) through (xi) of this section, excluding items paid from
funds other than closing funds as described in paragraph (j)(4)(i) of
this section, labeled ``Paid Already by or on Behalf of Borrower at
Closing'';
(ii) Any amount that is paid to the seller or held in trust or
escrow by an attorney or other party under the terms of the agreement
for the sale of real estate, labeled ``Deposit'';
(iii) The amount of the consumer's new loan or first user loan as
disclosed pursuant to paragraph (b)(1) of this section, labeled
``Borrower's Loan Amount'';
(iv) The amount of those existing loans assumed or taken subject to
by the consumer, labeled ``Existing Loan(s) Assumed or Taken Subject
to'';
(v) The total amount of money that the seller will provide at the
real estate closing as a lump sum to pay for loan costs as determined
by paragraph (f) of this section and other costs as determined by
paragraph (g) of this section and any other obligations of the seller
to be paid directly to the consumer, labeled ``Seller Credit'';
(vi) The amount of other items paid by or on behalf of the consumer
and not otherwise disclosed pursuant to paragraphs (f), (g), (h), and
(j)(2) of this section, labeled ``Other Credits'';
(vii) The description ``Adjustments for Items Unpaid by Seller'';
(viii) The time period that the seller is responsible for the
payment of any unpaid taxes, and the prorated amount of any unpaid
taxes due from the seller at the real estate closing, labeled ``City/
Town Taxes'';
(ix) The time period that the seller is responsible for the payment
of any unpaid taxes, and the prorated amount of any unpaid taxes due
from the seller at the real estate closing, labeled ``County Taxes'';
(x) The time period that the seller is responsible for the payment
of any unpaid assessments, and the prorated amount of any unpaid
assessments due from the seller at the real estate closing, labeled
``Assessments''; and
(xi) A description and the amount of any additional items which
have not yet been paid and which the consumer is expected to pay after
the real estate closing, but which are attributable in part to a period
of time prior to the real estate closing.
(3) Calculation of borrower's transaction. Under the label
``Calculation'':
(i) The amount disclosed pursuant to paragraph (j)(1)(i) of this
section, labeled ``Total Due from Borrower at Closing'';
(ii) The amount disclosed pursuant to paragraph (j)(2)(i) of this
section, disclosed as a negative number, labeled ``Total Paid Already
by or on Behalf of Borrower at Closing''; and
(iii) A statement that the disclosed amount is due from or to the
consumer, and the amount due from or to the consumer at the real estate
closing, calculated by the sum of the amounts disclosed under
paragraphs (j)(3)(i) and (j)(3)(ii) of this section, labeled ``Cash to
Close.''
(4) Items paid outside of closing funds. (i) Costs that are not
paid from closing funds but that would otherwise be disclosed in the
table required pursuant to paragraph (j) of this section, should be
marked with the phrase ``Paid Outside of Closing'' or the abbreviation
``P.O.C.'' and include the name of the party making the payment.
(ii) For purposes of this paragraph (j), ``closing funds'' means
funds collected and disbursed at closing.
(k) Summary of seller's transaction. Under the heading required by
paragraph (j) of this section, a second table under the subheading
``Seller's Transaction,'' that includes the following information and
satisfies the following requirements:
(1) Itemization of amounts due to seller. (i) The total amount due
to the seller at the real estate closing, calculated as the sum of
items required to be disclosed pursuant to paragraph (k)(1)(ii) through
(ix) of this section, excluding items paid from funds other than
closing funds as described in paragraph (k)(4)(i) of this section,
labeled ``Due to Seller at Closing'';
(ii) The amount of the contract sales price of the property being
sold, excluding the price of any tangible personal property if the
consumer and seller have agreed to a separate price for such items,
labeled ``Sale Price of Property'';
(iii) The amount of the sales price of any tangible personal
property excluded from the contract sales price pursuant to paragraph
(k)(1)(ii) of this section, labeled ``Sale Price of Any Personal
Property Included in Sale'';
(iv) A description and the amount of other items paid to the seller
by the consumer pursuant to the contract of sale or other agreement,
such as charges that were not disclosed pursuant to Sec. 1026.37 on
the Loan Estimate or items paid by the seller prior to the real estate
closing but reimbursed by the consumer at the real estate closing;
(v) The description ``Adjustments for Items Paid by Seller in
Advance'';
[[Page 51327]]
(vi) The time period that the consumer is responsible for
reimbursing the seller for any prepaid taxes, and the prorated amount
of any prepaid taxes due from the consumer at the real estate closing,
labeled ``City/Town Taxes'';
(vii) The time period that the consumer is responsible for
reimbursing the seller for any prepaid taxes, and the prorated amount
of any prepaid taxes due from the consumer at the real estate closing,
labeled ``County Taxes'';
(viii) The time period that the consumer is responsible for
reimbursing the seller for any prepaid assessments, and the prorated
amount of any prepaid assessments due from the consumer at the real
estate closing, labeled ``Assessments''; and
(ix) A description and the amount of additional items paid by the
seller prior to the real estate closing that are reimbursed by the
consumer at the real estate closing.
(2) Itemization of amounts due from seller. (i) The total amount
due from the seller at the real estate closing, calculated as the sum
of items required to be disclosed pursuant to paragraph (k)(2)(ii)
through (xiii) of this section, excluding items paid from funds other
than closing funds as described in paragraph (k)(4)(i) of this section,
labeled ``Due from Seller at Closing'';
(ii) The amount of any excess deposit retained by the seller at the
time of the real estate closing, labeled ``Excess Deposit'';
(iii) The amount of closing costs designated seller-paid at closing
disclosed pursuant to paragraph (h)(1) of this section, labeled
``Subtotal Closing Costs Paid at Closing by Seller'';
(iv) The amount of those existing loans assumed or taken subject to
at the real estate closing by the consumer, labeled ``Existing Loan(s)
Assumed or Taken Subject to'';
(v) The amount of any first loan secured by the property that will
be paid off as part of the real estate closing, labeled ``Payoff of
First Mortgage Loan'';
(vi) The amount of any second loan secured by the property that
will be paid off as part of the real estate closing, labeled ``Payoff
of Second Mortgage Loan'';
(vii) The total amount of money that the seller will provide at the
real estate closing as a lump sum to pay for loan costs as determined
by paragraph (f) of this section and other costs as determined by
paragraph (g) of this section and any other obligations of the seller
to be paid directly to the consumer, labeled ``Seller Credit'';
(viii) A description and amount of any and all other obligations
required to be paid by the seller at the real estate closing, including
any lien-related payoffs, fees, or obligations;
(ix) The description ``Adjustments for Items Unpaid by Seller'';
(x) The time period that the seller is responsible for the payment
of any unpaid taxes, and the prorated amount of any unpaid taxes due
from the seller at the real estate closing, labeled ``City/Town
Taxes'';
(xi) The time period that the seller is responsible for the payment
of any unpaid taxes, and the prorated amount of any unpaid taxes due
from the seller at the real estate closing, labeled ``County Taxes'';
(xii) The time period that the seller is responsible for the
payment of any unpaid assessments, and the prorated amount of any
unpaid assessments due from the seller at the real estate closing,
labeled ``Assessments''; and
(xiii) A description and the amount of any additional items which
have not yet been paid and which the consumer is expected to pay after
the real estate closing, but which are attributable in part to a period
of time prior to the real estate closing.
(3) Calculation of seller's transaction. Under the label
``Calculation'':
(i) The amount described in paragraph (k)(1)(i) of this section,
labeled ``Total Due to Seller at Closing'';
(ii) The amount described in paragraph (k)(2)(i) of this section,
disclosed as a negative number, labeled ``Total Due from Seller at
Closing''; and
(iii) A statement that the disclosed amount is due from or to the
seller, and the amount due from or to the seller at closing, calculated
by the sum of the amounts disclosed pursuant to paragraphs (k)(3)(i)
and (k)(3)(ii) of this section, labeled ``Cash.''
(4) Items paid outside of closing funds. (i) Charges that are not
paid from closing funds but that would otherwise be disclosed in the
table described in paragraph (k) of this section, should be marked with
the phrase ``Paid Outside of Closing'' or the acronym ``P.O.C.'' and
include a statement of the party making the payment.
(ii) For purposes of this paragraph (k), ``closing funds'' are
defined as funds collected and disbursed at closing.
(l) Loan disclosures. Under the master heading ``Additional
Information About This Loan'' and under the heading ``Loan
Disclosures'':
(1) Assumption. Under the subheading ``Assumption,'' the
information required by Sec. 1026.37(m)(2).
(2) Demand feature. Under the subheading ``Demand Feature,'' a
statement of whether the legal obligation permits the creditor to
demand early repayment of the loan and, if the statement is
affirmative, a reference to the note or other loan contract for
details.
(3) Late payment. Under the subheading ``Late Payment,'' the
information required by Sec. 1026.37(m)(4).
(4) Negative amortization. Under the subheading ``Negative
Amortization (Increase in Loan Amount),'' a statement of whether the
regular periodic payments may cause the principal balance to increase.
(i) If the regular periodic payments do not cover all of the
interest due, the creditor must provide a statement that the principal
balance will increase, such balance will likely become larger than the
original loan amount, and increases in such balance lower the
consumer's equity in the property.
(ii) If the consumer may make regular periodic payments that do not
cover all of the interest due, the creditor must provide a statement
that, if the consumer chooses a monthly payment option that does not
cover all of the interest due, the principal balance may become larger
than the original loan amount and the increases in the principal
balance lower the consumer's equity in the property.
(5) Partial payment policy. Under the subheading ``Partial Payment
Policy'':
(i) A statement whether the creditor will accept monthly payments
that are less than the full amount due and that, if the loan is sold,
the new creditor may have a different policy; and
(ii) If partial payments are permitted, a brief description of the
creditor's partial payment policy, including the manner and order in
which the partial payment would be applied to the principal, interest,
or an escrow account for partial payments and whether any penalties
apply.
(6) Security interest. Under the subheading ``Security Interest,''
a statement that the creditor will acquire a security interest in the
property securing the transaction, the property address, and a
statement that the consumer may lose the property if the consumer does
not make the required payments or satisfy other requirements under the
legal obligation.
(7) Escrow account. Under the subheading ``Escrow Account'':
(i) Under the reference ``For now,'' a statement that an escrow
account may also be called an impound or trust account, a statement of
whether the creditor has established or will establish, at or before
consummation, an escrow account in connection with the transaction for
the costs that will be paid using escrow account funds described in
paragraph (l)(7)(i)(A)(1) of this section:
[[Page 51328]]
(A) A statement that the creditor may be liable for penalties and
interest if it fails to make a payment for any cost for which the
escrow account is established, a statement that the consumer would have
to pay such costs directly in the absence of the escrow account, and a
table, titled ``Escrow'' that contains, if an escrow account is or will
be established, an itemization of the following:
(1) The total amount the consumer will be required to pay into an
escrow account over the first year after consummation for payment of
the charges described in Sec. 1026.37(c)(4)(ii), labeled ``Escrowed
Property Costs over Year 1,'' together with a descriptive name of each
such charge, calculated as the amount disclosed under paragraph
(l)(7)(i)(A)(4) of this section multiplied by the number of periodic
payments scheduled to be made to the escrow account during the first
year after consummation;
(2) The estimated amount the consumer is likely to pay during the
first year after consummation for charges described in Sec.
1026.37(c)(4)(ii) that are known to the creditor and that will not be
paid using escrow account funds, labeled ``Non-Escrowed Property Costs
over Year 1,'' together with a descriptive name of each such charge and
a statement that the consumer may have to pay other costs that are not
listed;
(3) The total amount disclosed pursuant to paragraph (g)(3) of this
section, a statement that the payment is a cushion for the escrow
account, labeled ``Initial Payment,'' and a reference to the
information disclosed pursuant to paragraph (g)(3) of this section;
(4) The amount the consumer will be required to pay into the escrow
account with each periodic payment during the first year after
consummation for payment of the charges described in Sec.
1026.37(c)(4)(ii), labeled ``Monthly Payment.''
(5) A creditor complies with the requirements of paragraphs
(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) of this section if the creditor
bases the numerical disclosures required by those paragraphs on amounts
derived from the escrow account analysis required under Regulation X,
12 CFR 1024.17.
(B) A statement of whether the consumer will not have an escrow
account, the reason why an escrow account will not be established, a
statement that the consumer must pay all property costs, such as taxes
and homeowner's insurance, directly, a statement that the consumer may
contact the creditor to inquire about the availability of an escrow
account, and a table, titled ``No Escrow,'' that contains, if an escrow
account will not be established, an itemization of the following:
(1) The estimated total amount the consumer will pay directly for
charges described in Sec. 1026.37(c)(4)(ii) during the first year
after consummation that are known to the creditor and a statement that,
without an escrow account, the consumer must pay the identified costs,
possibly in one or two large payments, labeled as ``Estimated Property
Costs over Year 1''; and
(2) The amount of any fee the creditor imposes on the consumer for
not establishing an escrow account in connection with the transaction,
labeled ``Escrow Waiver Fee.''
(ii) Under the reference ``In the future'':
(A) A statement that the consumer's property costs may change and
that, as a result, the consumer's escrow payments may change;
(B) A statement that the consumer may be able to cancel any escrow
account that has been established, but that the consumer is responsible
for directly paying all property costs in the absence of an escrow
account; and
(C) A description of the consequences if the consumer fails to pay
property costs, including the actions that a State or local government
may take if property taxes are not paid and the actions the creditor
may take if the consumer does not pay some or all property costs, such
as adding amounts to the loan balance, adding an escrow account to the
loan, or purchasing a property insurance policy on the consumer's
behalf that may be more expensive and provide fewer benefits than what
the consumer could obtain directly.
(m) Adjustable payment table. Under the master heading ``Additional
Information About This Loan'' required by paragraph (l) of this
section, and under the heading ``Adjustable Payment (AP) Table,'' the
table required to be disclosed by Sec. 1026.37(i).
(n) Adjustable interest rate table. Under the master heading
``Additional Information About This Loan'' required by paragraph (l) of
this section, and under the heading ``Adjustable Interest Rate (AIR)
Table,'' the table required to be disclosed by Sec. 1026.37(j).
(o) Loan calculations. In a separate table under the heading ``Loan
Calculations'':
(1) Total of payments. The ``Total of Payments,'' using that term
and expressed as a dollar amount, and a statement that the disclosure
is the total the consumer will have paid after making all payments of
principal, interest, mortgage insurance, and loan costs, as scheduled.
(2) Finance charge. The ``Finance Charge,'' using that term and
expressed as a dollar amount, and the following statement: ``The dollar
amount the loan will cost you.'' The disclosed finance charge and other
disclosures affected by the disclosed financed charge (including the
amount financed and the annual percentage rate) shall be treated as
accurate if the amount disclosed as the finance charge:
(i) is understated by no more than $100; or
(ii) is greater than the amount required to be disclosed.
(3) Amount financed. The ``Amount Financed,'' using that term and
expressed as a dollar amount, and the following statement: ``The loan
amount available after paying your upfront finance charge.''
(4) Annual percentage rate. The ``Annual Percentage Rate,'' using
that term and the abbreviation ``APR'' and expressed as a percentage,
and the following statement: ``Your costs over the loan term expressed
as a rate. This is not your interest rate.''
(5) Total interest percentage. The ``Total Interest Percentage,''
using that term and the abbreviation ``TIP'' and expressed as a
percentage, and the following statement: ``The total amount of interest
that you will pay over the loan term as a percentage of your loan
amount.''
(6) Approximate cost of funds. The ``Approximate Cost of Funds,''
using that term and the abbreviation ``ACF'' and expressed as a
percentage, and the following statement: ``The approximate cost of
funds used to make this loan. This is not a direct cost to you.'' For
purposes of this paragraph (o)(6), ``approximate cost of funds'' means
either the most recent ten-year Treasury constant maturity rate or the
creditor's actual cost of borrowing the funds used to extend the
credit, at the creditor's option.
(p) Other disclosures. Under the heading ``Other Disclosures'':
(1) Appraisal. For transactions subject to 15 U.S.C. 1639h or
1691(e), as implemented in this part or Regulation B, 12 CFR part 1002,
respectively, under the subheading ``Appraisal,'' that:
(i) If there was an appraisal of the property in connection with
the loan, the creditor is required to provide the consumer with a copy
at no additional cost to the consumer at least three days prior to
consummation; and
(ii) If the consumer has not yet received a copy of the appraisal,
the consumer should contact the creditor
[[Page 51329]]
using the information disclosed pursuant to paragraph (r) of this
section.
(2) Contract details. A statement that the consumer should refer to
the appropriate loan document and security instrument for information
about nonpayment, what constitutes a default under the legal
obligation, circumstances under which the creditor may accelerate the
maturity of the obligation, and prepayment rebates and penalties, under
the subheading ``Contract Details.''
(3) Liability after foreclosure. A brief statement of whether, and
the conditions under which, the consumer may remain responsible for any
deficiency after foreclosure under applicable State law, a brief
statement that certain protections may be lost if the consumer
refinances or incurs additional debt on the property, and a statement
that the consumer should consult an attorney for additional
information, under the subheading ``Liability after Foreclosure.''
(4) Refinance. Under the subheading ``Refinance,'' the statement
required by Sec. 1026.37(m)(5).
(5) Tax deductions. Under the subheading ``Tax Deductions,'' a
statement that, if the extension of credit exceeds the fair market
value of the property, the interest on the portion of the credit
extension that is greater than the fair market value of the property is
not tax deductible for Federal income tax purposes and a statement that
the consumer should consult a tax adviser for further information.
(q) Questions notice. In a separate notice labeled ``Questions?'':
(1) A statement that the consumer should contact the creditor with
any questions about the disclosures required pursuant to Sec.
1026.19(f);
(2) A reference to the Bureau's Web site to obtain more information
or to make a complaint; and
(3) A prominent question mark.
(r) Contact information. In a separate table, under the heading
``Contact Information,'' the following information for each creditor
(under the subheading ``Lender''), mortgage broker (under the
subheading ``Mortgage Broker''), consumer's real estate broker (under
the subheading ``Real Estate Broker (B)''), seller's real estate broker
(under the subheading ``Real Estate Broker (S)''), and closing agent
(under the subheading ``Closing Agent'') participating in the
transaction:
(1) Name of the person, labeled ``Name'';
(2) Address, using that label;
(3) Nationwide Mortgage Licensing System & Registry identification
number or, if none, license number or other unique identifier issued by
the applicable jurisdiction or regulating body with which the person is
licensed and/or registered, for the persons identified in paragraph
(r)(1) of this section, labeled ``NMLS/License ID'';
(4) Name of the natural person who is the primary contact for the
consumer with the person identified in paragraph (r)(1) of this
section, labeled ``Contact'';
(5) Nationwide Mortgage Licensing System & Registry identification
number or, if none, license number or other unique identifier issued by
the applicable jurisdiction or regulating body with which the person is
licensed and/or registered, for the natural person identified in
paragraph (r)(4) of this section, labeled ``Contact NMLS/License ID'';
(6) Email address for the person identified in paragraph (r)(4) of
this section, labeled ``Email''; and
(7) Telephone number for the person identified in paragraph (r)(4)
of this section, labeled ``Phone.''
(s) Signature statement. (1) At the creditor's option, under the
heading ``Confirm Receipt,'' a line for the signatures of the consumers
in the transaction. If the creditor provides a line for the consumer's
signature, the creditor must disclose the statement required to be
disclosed under Sec. 1026.37(n)(1).
(2) If the creditor does not provide a line for the consumer's
signature under the heading ``Other Disclosures'' required by paragraph
(p) of this section, the statement required to be disclosed under Sec.
1026.37(n)(2).
(t) Form of disclosures. (1) General requirements. (i) The creditor
shall make the disclosures required by this section clearly and
conspicuously in writing, in a form that the consumer may keep. The
disclosures also shall be grouped together, segregated from everything
else, and provided on separate pages that are not commingled with any
other documents or disclosures, including any other disclosures
required by State or other laws.
(ii) Except as provided in paragraph (t)(5), the disclosures shall
contain only the information required by paragraphs (a) through (s) of
this section and shall be made in the same order, and positioned
relative to the master headings, headings, subheadings, labels, and
similar designations in the same manner, as shown in form H-25, set
forth in appendix H to this part.
(2) Estimated disclosures. If a master heading, heading,
subheading, label, or similar designation contains the word
``estimated'' in form H-25, set forth in appendix H to this part, that
heading, label, or similar designation shall contain the word
``estimated.''
(3) Form. Except as provided in paragraph (t)(5) of this section:
(i) For a transaction subject to this section that is a federally
related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the
disclosures must be made using form H-25, set forth in appendix H to
this part.
(ii) For any other transaction subject to this section, the
disclosures must be made with headings, content, and format
substantially similar to form H-25, set forth in appendix H to this
part.
(iii) The disclosures required by this section may be provided to
the consumer in electronic form, subject to compliance with the
consumer consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.).
(4) Rounding. (i) Nearest dollar. The following dollar amounts are
required to be rounded to the nearest whole dollar:
(A) The dollar amounts required to be disclosed by paragraph (b) of
this section that are required to be rounded by Sec.
1026.37(o)(4)(i)(A) when disclosed under Sec. 1026.37(b)(6) and (7);
(B) The dollar amounts required to be disclosed by paragraph (c) of
this section that are required to be rounded by Sec.
1026.37(o)(4)(i)(A) when disclosed under Sec. 1026.37(c)(1)(iii);
(C) The dollar amounts required to be disclosed by paragraph (i) of
this section under the subheading ``Estimate'';
(D) The dollar amounts required to be disclosed by paragraph (m) of
this section; and
(E) The dollar amounts required to be disclosed by paragraph (c) of
this section that are required to be rounded by Sec.
1026.37(o)(4)(i)(B) when disclosed under Sec. 1026.37(c)(2)(iv).
(ii) Percentages. The percentage amounts required to be disclosed
under paragraphs (b), (f)(1)(i), (g)(2)(iii), (l), (n), and (o)(5) and
(6) of this section shall be disclosed as an exact number up to two or
three decimal places. The percentage amount required to be disclosed
under paragraph (o)(4) of this section shall be disclosed up to three
decimal places. Decimal places shall not be disclosed if the amount is
a whole number.
(5) Exceptions. (i) Unit-period. Wherever the form or this section
uses ``monthly'' to describe the frequency of any payments or uses
``month'' to describe the applicable unit-period, the creditor shall
substitute the appropriate term to reflect the fact that the
transaction's terms provide for other than monthly periodic payments,
such as bi-weekly or quarterly payments.
[[Page 51330]]
(ii) Lender credits. The amount required to be disclosed by
paragraph (d)(4) of this section may be omitted from the form if the
amount is zero.
(iii) Administrative information. The creditor may insert
immediately above the information required to be disclosed by paragraph
(a)(2) of this section and adjacent to the information required to be
disclosed by paragraph (a)(3) of this section any administrative
information, text, or codes that assist in identification of the form
or the information disclosed on the form.
(iv) Line numbers (Closing Cost Details). Line numbers provided on
form H-25 in Appendix H to this part for the disclosure of the
information required by paragraphs (f)(1), (2), and (3) and (g)(1),
(2), (3), and (4) of this section that are not used may be deleted and
the deleted line numbers added to the space provided for any other of
those paragraphs as necessary to accommodate the disclosure of
additional items.
(v) Additional page (Closing Cost Details). The information
required to be disclosed by paragraphs (f), (g), and (h) of this
section may be disclosed on two pages if form H-25 in appendix H to
this part, as altered pursuant to paragraph (t)(5)(iv) of this section,
does not accommodate an itemization of all of the information required
to be disclosed by paragraphs (f), (g), and (h) on one page, provided
that the information required by paragraph (f) is disclosed on a page
separate from the information required by paragraph (g). The
information required by paragraph (g), if disclosed on a page separate
from paragraph (f), shall be disclosed on the same page as the
information required by paragraph (h).
(vi) Separation of consumer and seller information. The creditor or
settlement agent preparing the form may use form H-25 in appendix H to
this part for the disclosure provided to both the consumer and the
seller, with the following modifications to separate the information of
the consumer and seller, as necessary:
(A) The information required to be disclosed by paragraphs (j) and
(k) of this section may be disclosed on separate pages to the consumer
and the seller, respectively, with the information required by the
other paragraph left blank. The information disclosed to the consumer
pursuant to paragraph (j) of this section must be disclosed on the same
page as the information required by paragraph (i) of this section.
(B) The information required to be disclosed by paragraphs (f) and
(g) of this section with respect to costs paid by the consumer may be
left blank on the disclosure provided to the seller.
(C) The information required by paragraphs (a)(2), (a)(4)(iii),
(a)(5), (b) through (d), (i), (l) through (p), (r) with respect to the
creditor and mortgage broker, and (s)(2) of this section may be left
blank on the disclosure provided to the seller.
(vii) Modified version of the form for a seller or third-party. The
information required by paragraphs (a)(2), (a)(4)(iii), (a)(5), (b)
through (d), (f) and (g) with respect to costs paid by the consumer,
(i), (j), (l) through (p), (q)(1), (r) with respect to the creditor and
mortgage broker, and (s) of this section may be deleted from the form
provided to the seller or a third-party, as illustrated by form H-25(I)
in appendix H to this part.
(viii) Transaction without a seller. The following modifications to
form H-25 in appendix H to this part may be made for a transaction that
does not involve a seller, as illustrated by form H-25(J) in appendix H
to this part:
(A) The information required by paragraphs (a)(4)(ii), (f), (g),
and (h) with respect to costs paid by the seller, and (k) of this
section may be deleted.
(B) A table under the master heading ``Closing Cost Details''
required by paragraph (f) of this section may be added with the heading
``Disbursements to Others'' that itemizes the amounts of payments made
at closing to other parties from the credit extended to the consumer or
funds provided by the consumer in connection with the transaction,
including designees of the consumer; the payees of such disbursements
under the subheading ``To''; and the total amount of such payments
labeled ``Total Disbursements to Others.''
(C) The information required by paragraphs (i)(5), (7), and (8) of
this section may be deleted from the table required by paragraph (i) of
this section. These deletions must be factored into the calculation and
disclosure required by paragraph (i)(9) of this section.
(D) The tables required to be disclosed by paragraphs (j) and (k)
of this section may be deleted.
(ix) Translation. The form may be translated into languages other
than English.
(x) Customary recitals and information. An additional page may be
attached to the form for the purpose of including customary recitals
and information used locally in real estate settlements.[ltrif]
19. Section 1026.39 is amended by revising paragraphs (a)(2) and
(d) and adding new paragraph (d)(5) to read as follows:
Sec. 1026.39 Mortgage transfer disclosures.
(a) Scope. The disclosure requirements of this section apply to any
covered person except as otherwise provided in this section. For
purposes of this section:
* * * * *
(2) A ``mortgage loan'' means [rtrif]:
(i) An open-end consumer credit transaction that is secured by the
principal dwelling of a consumer; and
(ii) A closed-end consumer credit transaction secured by a dwelling
or real property.[ltrif]
* * * * *
(d) Content of required disclosures. The disclosures required by
this section shall identify the loan that was sold, assigned or
otherwise transferred, and state the following [rtrif], except that the
information required by paragraph (d)(5) of this section shall be
stated only for a mortgage loan that is a closed-end consumer credit
transaction other than a reverse mortgage transaction subject to Sec.
1026.33 of this part[ltrif]:
* * * * *
[rtrif](5) The following statements, labeled ``Partial Payment
Policy'':
(i) Whether the covered person will accept payments that are less
than the amount due;
(ii) If such payments are accepted, a description of how the
covered person will apply such payments to the amount due, including
whether such payments will be placed in an escrow account; and
(iii) A statement that, if the loan is sold, the new covered
person, using the term ``lender,'' may have a different policy.[ltrif]
* * * * *
20. Appendix D to part 1026 is amended by revising paragraph C of
part II to read as follows:
Appendix D to Part 1026--Multiple Advance Construction Loans
* * * * *
Part II--Construction and Permanent Financing Disclosed as One
Transaction
* * * * *
C. The creditor shall disclose the repayment schedule as
follows:
1. For loans under paragraph A.1 of part II, [rtrif]other than
loans that are subject to Sec. 1026.19(e) and (f),[ltrif] without
reflecting the number or amounts of payments of interest only that
are made during the construction period. The fact that interest
payments must be made and the timing of such payments shall be
disclosed.
2. For loans under paragraph A.2 of part II [rtrif]and loans
under paragraph A.1 of part II that are subject to Sec. 1026.19(e)
and (f)[ltrif], including any payments of interest only that are
made during the construction period.
* * * * *
[[Page 51331]]
21. Appendix H to part 1026 is amended by revising H-13 and H-15,
adding new H-24 through H-27, and revising and adding their respective
entries to the table of contents at the beginning of the appendix in
numerical order as follows:
Appendix H to Part 1026--Closed-End [lsqbb]Model[rsqbb] Forms and
Clauses
* * * * *
H-13 [rtrif]Closed-End[ltrif] [lsqbb]Mortgage[rsqbb] Transaction With
Demand Feature Sample
* * * * *
H-15 [rtrif]Closed-End[ltrif] Graduated-Payment [lsqbb]Mortgage[rsqbb]
[rtrif]Transaction[ltrif] Sample
* * * * *
[rtrif]H-24(A) Mortgage Loan Transaction Loan Estimate--Blank
H-24(B) Mortgage Loan Transaction Loan Estimate--Fixed-Rate Loan
Sample
H-24(C) Mortgage Loan Transaction Loan Estimate--Interest Only
Adjustable-Rate Loan Sample
H-24(D) Mortgage Loan Transaction Loan Estimate--Refinance Sample
H-24(E) Mortgage Loan Transaction Loan Estimate--Balloon Payment
Sample
H-24(F) Mortgage Loan Transaction Loan Estimate--Negative
Amortization Sample
H-25(A) Mortgage Loan Transaction Closing Disclosure--Blank
H-25(B) Mortgage Loan Transaction Closing Disclosure--Fixed-Rate
Loan Sample
H-25(C) Mortgage Loan Transaction Closing Disclosure--Sample of
Borrower Funds From Second-Lien Loan in Summaries of Transactions
H-25(D) Mortgage Loan Transaction Closing Disclosure--Sample of
Borrower Satisfaction of Seller's Second-Lien Loan Outside of
Closing in Summaries of Transactions
H-25(E) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction
H-25(F) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction (19(e)(3) violation)
H-25(G) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction With Financed Closing Costs
H-25(H) Mortgage Loan Transaction Closing Disclosure--Modification
to Closing Cost Details
H-25(I) Mortgage Loan Transaction Closing Disclosure--Modification
to Closing Disclosure for Disclosure Provided to Seller
H-25(J) Mortgage Loan Transaction Closing Disclosure--Modification
to Closing Disclosure for Transaction Not Involving Seller
H-26(A) Mortgage Loan Transaction--Pre-Loan Estimate Statement
H-26(B) Mortgage Loan Transaction--Pre-Loan Estimate Statement on
Worksheet
H-27(A) Mortgage Loan Transaction--Written List of Providers
H-27(B) Mortgage Loan Transaction--Sample of Written List of
Providers
H-27(C) Mortgage Loan Transaction--Sample of Written List of
Providers With Services You Cannot Shop For[ltrif]
* * * * *
BILLING CODE 4810-25-P
H-13 [rtrif]Closed-End Transaction[ltrif] [lsqbb]Mortgage[rsqbb] With
Demand Feature Sample
[GRAPHIC] [TIFF OMITTED] TP23AU12.000
* * * * *
H-15 [rtrif]Closed-End[ltrif] Graduated Payment
[rtrif]Transaction[ltrif] [lsqbb]Mortgage[rsqbb] Sample
[[Page 51332]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.001
* * * * *
[rtrif]H-24(A) Mortgage Loan Transaction Loan Estimate--Blank
Description: This is a blank Loan Estimate that illustrates the
application of the content requirements in Sec. 1026.37. This form
provides two variations of page one, four variations of page two,
and eight variations of page three, reflecting the variable content
requirements in Sec. 1026.37.
[[Page 51333]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.002
[[Page 51334]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.003
[[Page 51335]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.004
[[Page 51336]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.005
[[Page 51337]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.006
[[Page 51338]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.007
[[Page 51339]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.008
[[Page 51340]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.009
[[Page 51341]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.010
[[Page 51342]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.011
[[Page 51343]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.012
[[Page 51344]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.013
[[Page 51345]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.014
[[Page 51346]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.015
H-24(B) Mortgage Loan Transaction Loan Estimate--Fixed-Rate Loan Sample
Description: This is an example of a completed Loan Estimate for
a fixed-rate loan. This loan is for the purchase of property at a
sale price of $180,000 and has a loan amount of $162,000, a 30-year
loan term, and a fixed interest rate of 3.875 percent. The consumer
has elected to lock the interest rate. The creditor requires an
escrow account and that the consumer pay for private mortgage
insurance.
[[Page 51347]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.016
[[Page 51348]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.017
[[Page 51349]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.018
H-24(C) Mortgage Loan Transaction Loan Estimate--Interest Only
Adjustable-Rate Loan Sample
Description: This is an example of a completed Loan Estimate for
an adjustable-rate loan with interest-only payments. This loan is
for the purchase of property at a sale price of $240,000 and has a
loan amount of $211,000 and a 30-year loan term. For the first five
years of the loan term, the scheduled payments cover only interest
and the loan has an adjustable interest rate that is fixed at 4.375
percent. After five years, the payments include principal and the
interest rate adjusts every three years based on the value of the
London Interbank Offered Rate plus a margin of 4.00 percent. The
consumer has elected to lock the interest rate. The creditor
requires an escrow account and that the consumer pay for private
mortgage insurance.
[[Page 51350]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.019
[[Page 51351]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.020
[[Page 51352]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.021
H-24(D) Mortgage Loan Transaction Loan Estimate--Refinance Sample
Description: This is an example of a completed Loan Estimate for
a transaction that is for a refinance and includes a prepayment
penalty equal to 2.00 percent of the principal amount prepaid for
the first two years after consummation of the transaction. The
consumer estimated the balance of the existing loan to be $121,000.
[[Page 51353]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.022
[[Page 51354]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.023
[[Page 51355]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.024
H-24(E) Mortgage Loan Transaction Loan Estimate--Balloon Payment Sample
Description: This is an example of the information required by
Sec. 1026.37(a) through (c) for a transaction with a loan term of 7
years that includes a final balloon payment.
[[Page 51356]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.025
H-24(F) Mortgage Loan Transaction Loan Estimate--Negative Amortization
Sample
Description: This is an example of the information required by
Sec. 1026.37(a) and (b) for a transaction with negative
amortization.
[[Page 51357]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.026
H-25(A) Mortgage Loan Transaction Closing Disclosure--Blank
Description: This is a blank Closing Disclosure that illustrates
the content requirements in Sec. 1026.38. This form provides two
variations of page one, one page two, one page three, four
variations of page four, and two variations of page five, reflecting
the variable content requirements in Sec. 1026.38. This form does
not reflect modifications permitted under Sec. 1026.38(t).
[[Page 51358]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.027
[[Page 51359]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.028
[[Page 51360]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.029
[[Page 51361]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.030
[[Page 51362]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.031
[[Page 51363]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.032
[[Page 51364]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.033
[[Page 51365]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.034
[[Page 51366]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.035
[[Page 51367]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.036
H-25(B) Mortgage Loan Transaction Closing Disclosure--Fixed-Rate Loan
Sample
Description: This is an example of a completed Closing
Disclosure for the fixed-rate loan illustrated by form H-24(B). The
purpose, sale price, loan amount, loan term, and interest rate have
not changed from the estimates provided on the Loan Estimate. The
creditor requires an escrow account and that the consumer pay for
private mortgage insurance for the transaction.
[[Page 51368]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.037
[[Page 51369]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.038
[[Page 51370]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.039
[[Page 51371]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.040
[[Page 51372]]
[GRAPHIC] [TIFF OMITTED] TP23AU12.041
H-25(C) Mortgage Loan Transaction Closing Disclosure--Sample of
Borrower Funds From Second-Lien Loan in Summaries of Transactions
Description: This is an example of the information required on
the Closing Disclosure by Sec. 1026.38(j) for disclosure of
consumer funds from a simultaneous second-lien credit transaction
not otherwise disclosed pursuant to Sec. 1026.38(j)(2)(iii) or (iv)
that is used to finance part of the purchase price of the property
subject to the transaction.
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H-25(D) Mortgage Loan Transaction Closing Disclosure--Sample of
Borrower Satisfaction of Seller's Second-Lien Loan Outside of Closing
in Summaries of Transactions
Description: This is an example of the information required on
the Closing Disclosure by Sec. 1026.38(j) and (k) for the
satisfaction of a junior-lien transaction by the consumer, which was
not paid from closing funds.
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H-25(E) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction
Description: This is an example of a completed Closing
Disclosure for the refinance transaction illustrated by form H-
24(D). The purpose, loan amount, loan term, interest rate, and
prepayment penalty have not changed from the estimates provided on
the Loan Estimate. The creditor requires an escrow account and that
the consumer pay for private mortgage insurance for the transaction.
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H-25(F) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction (19(e)(3) violation)
Description: This is an example of a completed Closing
Disclosure for the refinance transaction illustrated by form H-
24(D). The Closing Costs have increased in violation of Sec.
1026.19(e)(3) by $100, for which the creditor has provided a credit.
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H-25(G) Mortgage Loan Transaction Closing Disclosure--Sample of
Refinance Transaction With Financed Closing Costs
Description: This is an example of a completed Closing
Disclosure for the refinance transaction illustrated by form H-
24(D). The consumer has financed $4,500 of the Closing Costs in the
Loan Amount.
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H-25(H) Mortgage Loan Transaction Closing Disclosure--Modification to
Closing Cost Details
Description: This is an example of the modification to Closing
Cost Details permitted by Sec. 1026.38(t)(5)(v).
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H-25(I) Mortgage Loan Transaction Closing Disclosure--Modification to
Closing Disclosure for Disclosure Provided to Seller
Description: This is an example of the modification permitted by
Sec. 1026.38(t)(5)(vii).
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H-25(J) Mortgage Loan Transaction Closing Disclosure--Modification to
Closing Disclosure for Transaction Not Involving Seller
Description: This is an example of the modification permitted by
Sec. 1026.38(t)(5)(viii).
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H-26(A) Mortgage Loan Transaction--Disclaimer
[GRAPHIC] [TIFF OMITTED] TP23AU12.072
H-26(B) Mortgage Loan Transaction--Disclaimer on Worksheet
Description: This is an example of the placement of the
disclaimer required by Sec. 1026.19(e)(2)(ii) on the first page of
a consumer-specific worksheet for which a creditor uses a format
similar to the Loan Estimate in H-24 of this appendix.
[[Page 51403]]
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H-27(A) Mortgage Loan Transaction--Written List of Providers
Description: This is a model for the written list of settlement
service providers required by Sec. 1026.19(e)(1)(vi) and the
statement required by Sec. 1026.19(e)(1)(vi)(C) that the consumer
may select a settlement service provider that is not on the list.
[[Page 51404]]
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H-27(B) Mortgage Loan Transaction--Sample of Written List of Providers
Description: This is a sample of the Written List of Providers
for the transaction in the sample Loan Estimate illustrated by form
H-24(B) of this appendix.
[[Page 51405]]
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H-27(C) Mortgage Loan Transaction--Sample of Written List of Providers
With Services You Cannot Shop For
Description: This is a sample of the Written List of Providers
with information about the providers selected by the creditor for
the charges disclosed pursuant to Sec. 1026.37(f)(2).
[[Page 51406]]
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[ltrif]
BILLING CODE 4810-25-C
22. In Supplement I to Part 1026:
A. Under Section 1026.1--Authority, Purpose, Coverage,
Organization, Enforcement and Liability, subheading 1(c) Coverage, the
subheading Paragraph 1(c)(5) and paragraph 1. under that subheading are
added.
B. Under Section 1026.2--Definitions and Rules of Construction:
i. The subheading 2(a)(3) Application and paragraphs 1., 2., and 3.
under that subheading are added.
ii. Under subheading 2(a)(6) Business day, paragraph 2. is revised.
iii. Under subheading 2(a)(25) Security interest, paragraph 2. is
revised.
C. Under Section 1026.3--Exempt Transactions:
i. Under subheading 3(a) Business, commercial, agricultural, or
organizational credit, paragraphs 9. and 10. are revised.
ii. The subheading 3(h) Partial exemption for certain mortgage
loans and paragraphs 1. and 2. under that subheading are added.
D. Under Section 1026.4--Finance Charge:
i. Under subheading 4(a) Definition, paragraph 6. is added.
ii. Under subheading 4(a)(2) Special rule; closing agent charges,
paragraph 3. is added.
iii. Under subheading 4(b) Examples of finance charges, paragraph
1. is revised.
iv. Under subheading 4(c) Charges excluded from the finance charge:
a. Under subheading Paragraph 4(c)(1), paragraph 1. is revised.
b. Under subheading 4(c)(7) Real-estate related fees, paragraphs 1.
and .3 are revised.
v. Under subheading 4(d) Insurance and debt cancellation and debt
suspension coverage, paragraphs 8. and 12. are revised.
[[Page 51407]]
vi. Under subheading 4(e) Certain security interest charges,
paragraph 1. is revised.
vii. The subheading 4(g) Special rule for closed-end mortgage
transactions and paragraphs 1., 2., and 3. under that subheading are
added.
E. Under Section 1026.17--General Disclosure Requirements:
i. Paragraph 1. is added.
ii. Under subheading 17(a) Form of disclosures, subheading
Paragraph 17(a)(1), paragraph 7. is revised.
iii. Under subheading 17(c) Basis of disclosures and use of
estimates:
a. Under subheading Paragraph 17(c)(1), paragraphs 1., 2., 3., 4.,
5., 8., 10., 11., and 12. are revised and paragraph 19. is added.
b. Under subheading Paragraph 17(c)(2)(i), paragraphs 1., 2., and
3. are revised.
c. Under subheading Paragraph 17(c)(2)(ii), paragraph 1. is
revised.
d. Under subheading Paragraph 17(c)(4), paragraph 1. is revised.
e. Under subheading Paragraph 17(c)(5), paragraphs 2., 3., and 4.
are revised.
iv. Under subheading 17(d) Multiple creditors; multiple consumers,
paragraph 2. is revised.
v. Under subheading 17(e) Effect of subsequent events, paragraph 1.
is revised.
vi. Under subheading 17(f) Early disclosures, paragraphs 1., 2.,
3., and 4. are revised.
vii. Under subheading 17(g) Mail or telephone orders--delay in
disclosures, paragraph 1. is revised.
viii. Under subheading 17(h) Series of sales--delay in disclosures,
paragraph 1. is revised.
F. Under Section 1026.18--Content of Disclosures:
i. Paragraph 3. is added.
ii. Under subheading 18(b) Amount financed:
a. Paragraph 2. is removed.
b. Under subheading Paragraph 18(b)(2), paragraph 1. is revised.
iii. Under subheading 18(c) Itemization of amount financed:
a. Paragraph 4. is revised.
b. Under subheading Paragraph 18(c)(1)(iv), paragraph 2. is
revised.
iv. Under subheading 18(f) Variable rate, subheading Paragraph
18(f)(1)(iv), paragraph 2. is revised.
v. Under subheading 18(g) Payment schedule:
a. Paragraphs 4. and 6. are revised.
b. Paragraph 5. is removed and reserved.
c. Under subheading Paragraph 18(g)(2), paragraphs 1. and 2. are
revised.
vi. Under subheading 18(k) Prepayment:
a. Paragraphs 1., 2., and 3. are revised.
b. Under subheading Paragraph 18(k)(1), paragraph 1. is revised and
paragraph 2. is added.
c. Under subheading Paragraph 18(k)(2), paragraph 1. is revised.
vii. Under subheading 18(r) Required deposit, paragraph 6.vi is
removed and reserved.
viii. Under subheading 18(s) Interest rate and payment summary for
mortgage transactions:
a. Paragraph 1. is revised and paragraph 4. is added.
b. Under subheading 18(s)(3) Payments for amortizing loans,
subheading Paragraph 18(s)(3)(i)(C), paragraph 2. is revised.
G. Under Section 1026.19--Certain Mortgage and Variable-Rate
Transactions:
i. Under subheading 19(a)(1)(i) Time of disclosures, paragraph 1.
is revised.
ii. Under subheading 19(a)(5) Timeshare plans:
a. The subheading 19(a)(5) Timeshare plans is removed.
b. The subheading Paragraph 19(a)(5)(ii) and paragraphs 1., 2., 3.,
4., and 5. under that subheading are removed.
c. The subheading Paragraph 19(a)(5)(iii) and paragraphs 1. and 2.
under that subheading are removed.
iii. New 19(e) Mortgage loans secured by real property--Early
disclosures, 19(f) Mortgage loans secured by real property--Final
disclosures, and 19(g) Special information booklet at time of
application are added.
H. Under Section 1026.22--Determination of Annual Percentage Rate,
subheading 22(a) Accuracy of annual percentage rate, subheading
22(a)(4) Mortgage loans, paragraph 1. is revised.
I. Under Section 1026.24--Advertising, 24(d) Advertisement of terms
that require additional disclosures, subheading 24(d)(2) Additional
terms, paragraph 2. is revised.
J. Under Section 1026.25--Record Retention:
i. The subheading 25(c) Records related to certain requirements for
mortgage loans is added.
ii. The subheading 25(c)(1) Records related to requirements for
loans secured by real property and paragraphs 1. and 2. under that
subheading are added.
iii. The subheading 25(c)(1)(iii) Electronic records and paragraph
1. under that subheading are added.
K. Under Section 1026.28--Effect on State Laws, subheading 28(a)
Inconsistent disclosure requirements, paragraph 1. is revised.
L. Under Section 1026.29--State Exemptions, subheading 29(a)
General rule, paragraphs 2. and 4. are revised.
M. New Section 1026.37--Content of Disclosures for Certain Mortgage
Transactions (Loan Estimate) is added.
N. New Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure) is added.
O. Under Section 1026.39--Mortgage transfer disclosures, subheading
39(d) Content of required disclosures:
i. Paragraph 2. is added.
ii. The subheading Paragraph 39(d)(5) and paragraph 1. under that
subheading are added.
The revisions and additions read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
SUBPART A--GENERAL
Section 1026.1--Authority, Purpose, Coverage, Organization, Enforcement
and Liability 1(c) Coverage
* * * * *
[rtrif]Paragraph 1(c)(5).
1. Temporary exemption. Section 1026.1(c)(5) implements sections
128(a)(16) through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3),
129C(h), 129D(h), and 129D(j)(1)(A) of the Truth in Lending Act and
section 4(c) of the Real Estate Settlement Procedures Act, by exempting
persons from the disclosure requirements of those sections. These
exemptions are intended to be temporary, lasting only until regulations
implementing the integrated disclosures required by section 1032(f) of
the Dodd-Frank Act (12 U.S.C. 5532(f)) becomes mandatory. Section
1026.1(c)(5) does not exempt any person from any other requirement of
this part, Regulation X (12 CFR part 1024), the Truth in Lending Act,
or the Real Estate Settlement Procedures Act.[ltrif]
* * * * *
Section 1026.2--Definitions and Rules of Construction
* * * * *
[rtrif]2(a)(3) Application.
1. In general. An application means the submission of a consumer's
financial information for purposes of obtaining an extension of credit.
Except for purposes of subpart B, subpart F, and subpart G, the term
consists of the consumer's name, the consumer's income, the consumer's
social security number to obtain a credit report, the property address,
an estimate of the value of the property, and the mortgage loan amount
sought. This definition
[[Page 51408]]
does not prevent a creditor from collecting whatever additional
information it deems necessary in connection with the request for the
extension of credit. However, once a creditor has received these six
pieces of information, it has an application for purposes of the
requirements of Regulation Z. A submission may be in written or
electronic format and includes a written record of an oral application.
The following examples are illustrative of this provision:
i. Assume a creditor provides a consumer with an application form
containing 20 questions about the consumer's credit history and the
collateral value. The consumer submits answers to nine of the questions
and informs the creditor that the consumer will contact the creditor
the next day with answers to the other 11 questions. Although the
consumer provided nine pieces of information, the consumer did not
provide a social security number. The creditor has not yet received an
application for purposes of Sec. 1026.2(a)(3).
ii. Assume a creditor requires all applicants to submit 20 pieces
of information. The consumer submits only six pieces of information and
informs the creditor that the consumer will contact the creditor the
next day with answers to the other 14 questions. The six pieces of
information provided by the consumer were the consumer's name, income,
social security number, property address, estimate of the value of the
property, and the mortgage loan amount sought. Even though the creditor
requires 14 additional pieces of information to process the consumer's
request for a mortgage loan, the creditor has received an application
for the purposes of Sec. 1026.2(a)(3) and therefore must comply with
the relevant requirements under Sec. 1026.19.
2. Social security number to obtain a credit report. If a consumer
does not have a social security number, the creditor may substitute
whatever unique identifier the creditor uses to obtain a credit report
on the consumer. For example, a creditor has obtained a social security
number to obtain a credit report for purposes of Sec. 1026.2(a)(3)(ii)
if the creditor collects a Tax Identification Number from a consumer
who does not have a social security number, such as a foreign national.
3. Receipt of credit report fees. Section 1026.19(a)(1)(iii)
permits the imposition of a fee to obtain the consumer's credit history
prior to the delivery of the disclosures required under Sec.
1026.19(a)(1)(i). Section 1026.19(e)(2)(i)(B) permits the imposition of
a fee to obtain the consumer's credit report prior to the delivery of
the disclosures required under Sec. 1026.19(e)(1)(i). Whether, or
when, such fees are received does not affect whether an application has
been received for the purposes of the definition in Sec. 1026.2(a)(3)
and the timing requirements in Sec. 1026.19(a)(1)(i) and (e)(1)(iii).
For example, if, in a transaction subject to Sec. 1026.19(e)(1)(i), a
creditor receives the six pieces of information identified under Sec.
1026.2(a)(3)(ii) on Monday, June 1, but does not receive a credit
report fee from the consumer until Tuesday, June 2, the creditor does
not comply with Sec. 1026.19(e)(1)(iii) if it provides the disclosures
required under Sec. 1026.19(e)(1)(i) after Thursday, June 4. The
three-business-day period begins on Monday, June 1, the date the
creditor received the six pieces of information. The waiting period
does not begin on Tuesday, June 2, the date the creditor received the
credit report fee.[ltrif]
* * * * *
2(a)(6) Business day.
* * * * *
2. Rule for rescission, disclosures for certain mortgage
transactions, and private education loans. A more precise rule for what
is a business day (all calendar days except Sundays and the Federal
legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of
rescission, the receipt of disclosures for certain dwelling-secured
mortgage transactions under Sec. Sec. 1026.19(a)(1)(ii),
1026.19(a)(2), [rtrif]1026.19(e)(1)(iii), 1026.19(e)(1)(iv),
1026.19(e)(2)(i)(A), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii),[ltrif]
1026.31(c), or the receipt of disclosures for private education loans
under Sec. 1026.46(d)(4) is involved. Four Federal legal holidays are
identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day,
January 1; Independence Day, July 4; Veterans Day, November 11; and
Christmas Day, December 25. When one of these holidays (July 4, for
example) falls on a Saturday, Federal offices and other entities might
observe the holiday on the preceding Friday (July 3). In cases where
the more precise rule applies, the observed holiday (in the example,
July 3) is a business day.
* * * * *
2(a)(25) Security interest.
* * * * *
2. Exclusions. The general definition of security interest excludes
three groups of interests: Incidental interests, interests in after-
acquired property, and interests that arise solely by operation of law.
These interests may not be disclosed with the disclosures required
under [rtrif]Sec. [ltrif]Sec. 1026.18, [rtrif]1026.19(e) and (f), and
1026.38(l)(6)[ltrif], but the creditor is not precluded from preserving
these rights elsewhere in the contract documents, or invoking and
enforcing such rights, if it is otherwise lawful to do so. If the
creditor is unsure whether a particular interest is one of the excluded
interests, the creditor may, at its option, consider such interests as
security interests for Truth in Lending purposes.
* * * * *
Section 1026.3--Exempt Transactions
* * * * *
3(a) Business, commercial, agricultural, or organizational credit.
* * * * *
9. Organizational credit. The exemption for transactions in which
the borrower is not a natural person applies, for example, to loans to
corporations, partnerships, associations, churches, unions, and
fraternal organizations. The exemption applies regardless of the
purpose of the credit extension and regardless of the fact that a
natural person may guarantee or provide security for the credit.
[rtrif]But see comment 3(a)-10 concerning credit extended to
trusts.[ltrif]
10. [rtrif]Trusts. Credit extended for consumer purposes to certain
trusts is considered to be credit extended to a natural person rather
than credit extended to an organization. Specifically:
i. Trusts for tax or estate planning purposes. In some instances, a
creditor may extend credit for consumer purposes to a trust that a
consumer has created for tax or estate planning purposes (or both).
Consumers sometimes place their assets in trust with themselves as
trustee(s), and with themselves or themselves and their families or
other prospective heirs as beneficiaries, to obtain certain tax
benefits and to facilitate the future administration of their estates.
During their lifetimes, however, such consumers continue to use the
assets of such trusts as their property. A creditor extending credit to
finance the acquisition of, for example, a consumer's dwelling that is
held in such a trust, or to refinance existing debt secured by such a
dwelling, may prepare the note, security instrument, and similar loan
documents for execution by the consumer either in both the consumer's
individual capacity and as trustee or in only one capacity or the
other. Regardless of the capacity or capacities in which the consumer
executes the loan documents, assuming the transaction is for personal,
family, or household purposes, the transaction is subject to the
regulation because in
[[Page 51409]]
substance (if not form) consumer credit is being extended.
ii. [ltrif]Land trusts. [lsqbb]Credit extended for consumer
purposes to a land trust is considered to be credit extended to a
natural person rather than credit extended to an organization.[rsqbb]
In some jurisdictions, a financial institution financing a residential
real estate transaction for an individual uses a land trust mechanism.
Title to the property is conveyed to the land trust for which the
financial institution itself is trustee. The underlying installment
note is executed by the financial institution in its capacity as
trustee and payment is secured by a trust deed, reflecting title in the
financial institution as trustee. In some instances, the consumer
executes a personal guaranty of the indebtedness. The note provides
that it is payable only out of the property specifically described in
the trust deed and that the trustee has no personal liability on the
note. Assuming the transactions are for personal, family, or household
purposes, these transactions are subject to the regulation because in
substance (if not form) consumer credit is being extended.
* * * * *
[rtrif]3(h) Partial exemption for certain mortgage loans.
1. Partial exemption. Section 1026.3(h) exempts certain
transactions from only the disclosures required by Sec. 1026.19(e),
(f), and (g), and not from any of the other applicable requirements of
this part. As provided by Sec. 1026.3(h)(6), creditors must comply
with all other applicable requirements of this part. In addition, the
creditor must provide the disclosures required by Sec. 1026.18, even
if the creditor would not otherwise be subject to the disclosure
requirements of Sec. 1026.18. The consumer also has the right to
rescind the transaction under Sec. 1026.23, to the extent that
provision is applicable.
2. Requirements of exemption. The conditions that the transaction
not require the payment of interest under Sec. 1026.3(h)(3) and that
repayment of the amount of credit extended be forgiven or deferred in
accordance with Sec. 1026.3(h)(4) is determined by the terms of the
credit contract. The other requirements of Sec. 1026.3(h) need not be
reflected in the credit contract, but the creditor must retain evidence
of compliance with those provisions, as required by Sec. 1026.25(a).
In particular, because the exemption from Sec. 1026.19(e), (f), and
(g) means the consumer will not receive the disclosures of closing
costs under Sec. 1026.37 or Sec. 1026.38, the creditor must have
information reflecting that the total of closing costs imposed in
connection with the transaction is less than one percent of the amount
of credit extended and include no charges other than recordation,
application, and housing counseling fees, in accordance with Sec.
1026.3(h)(5). Unless an itemization of the amount financed sufficiently
details this requirement, the creditor must establish compliance with
Sec. 1026.3(h)(5) by some other written document and retain it in
accordance with Sec. 1026.25(a).[ltrif]
Section 1026.4--Finance Charge
4(a) Definition.
* * * * *
[rtrif]6. Transactions with no seller. In a transaction where there
is no seller, such as a refinancing of an existing extension of credit
described in Sec. 1026.20(a), there is no comparable cash transaction.
Thus, the exclusion from the finance charge for charges of a type
payable in a comparable cash transaction does not apply to such
transactions.[ltrif]
* * * * *
4(a)(2) Special rule; closing agent charges.
* * * * *
[rtrif]3. Closed-end mortgage transactions. Comments 4(a)(2)-1 and
4(a)(2)-2 do not apply to closed-end transactions secured by real
property or a dwelling, pursuant to Sec. 1026.4(g).[ltrif]
* * * * *
4(b) Examples of finance charges.
1. Relationship to other provisions. Charges or fees shown as
examples of finance charges in Sec. 1026.4(b) may be excludable under
Sec. 1026.4(c), (d), or (e). For example [lsqbb]:
i. Premiums[rsqbb][rtrif], premiums[ltrif] for credit life
insurance, shown as an example of a finance charge under Sec.
1026.4(b)(7), may be excluded if the requirements of Sec. 1026.4(d)(1)
are met. [rtrif]They may not be excluded, however, in closed-end
transactions secured by real property or a dwelling, pursuant to Sec.
1026.4(g).[ltrif]
[lsqbb]ii. Appraisal fees mentioned in Sec. 1026.4(b)(4) are
excluded for real property or residential mortgage transactions under
Sec. 1026.4(c)(7).[rsqbb]
* * * * *
4(c) Charges excluded from the finance charge.
Paragraph 4(c)(1).
1. Application fees. An application fee that is excluded from the
finance charge is a charge to recover the costs associated with
processing applications for credit. The fee may cover the costs of
services such as credit reports, credit investigations, and appraisals.
The creditor is free to impose the fee in only certain of its loan
programs, such as [rtrif]automobile[ltrif] [lsqbb]mortgage[rsqbb]
loans. However, if the fee is to be excluded from the finance charge
under Sec. 1026.4(c)(1), it must be charged to all applicants, not
just to applicants who are approved or who actually receive credit.
* * * * *
4(c)(7) Real-estate related fees.
1. Real estate or residential mortgage transaction charges. The
list of charges in [lsqbb]Sec. 1026.4(c)(7)[rsqbb] [rtrif]Sec.
1026.4(c)(7)(i) through (iv)[ltrif] applies [rtrif]only to open-end
credit plans secured by real property and open-end residential mortgage
transactions because Sec. 1026.4(g) makes them inapplicable to closed-
end transactions secured by real property or a dwelling. The exclusion
of escrowed amounts under Sec. 1026.4(c)(7)(v), on the other hand,
applies to all[ltrif] [lsqbb]both to[rsqbb] residential mortgage
transactions (which may include, for example, the purchase of a mobile
home) and to other transactions secured by real estate. The fees are
excluded from the finance charge even if the services for which the
fees are imposed are performed by the creditor's employees rather than
by a third party. In addition, the cost of verifying or confirming
information connected to the item is also excluded. For example,
credit-report fees cover not only the cost of the report but also the
cost of verifying information in the report. In all cases, charges
excluded under Sec. 1026.4(c)(7) must be bona fide and reasonable.
* * * * *
3. Charges assessed during the loan term. [rtrif]Charges[ltrif]
[lsqbb]Real estate or residential mortgage transaction charges[rsqbb]
excluded under Sec. 1026.4(c)(7) are those charges imposed solely in
connection with the initial decision to grant credit. This would
include, for example, a fee to search for tax liens on the property or
to determine if flood insurance is required. The exclusion does not
apply to fees for services to be performed periodically during the loan
term, regardless of when the fee is collected. For example, a fee for
one or more determinations during the loan term of the current tax-lien
status or flood-insurance requirements is a finance charge, regardless
of whether the fee is imposed at closing, or when the service is
performed. If a creditor is uncertain about what portion of a fee to be
paid at consummation or loan closing is related to the initial decision
to grant credit, the entire fee may be treated as a finance charge.
[[Page 51410]]
4(d) Insurance and debt cancellation and debt suspension coverage.
* * * * *
8. Property insurance. To exclude property insurance premiums or
charges from the finance charge, the creditor must allow the consumer
to choose the insurer and disclose that fact. This disclosure must be
made whether or not the property insurance is available from or through
the creditor. The requirement that an option be given does not require
that the insurance be readily available from other sources. The premium
or charge must be disclosed only if the consumer elects to purchase the
insurance from [rtrif]or through[ltrif] the creditor; in such a case,
the creditor must also disclose the term of the property insurance
coverage if it is less than the term of the obligation.
[rtrif]Insurance is available ``from or through a creditor'' only if it
is available from the creditor or the creditor's affiliate, as defined
under the Bank Holding Company Act, 12 U.S.C. 1841(k).[ltrif]
* * * * *
12. Initial term; alternative. i. General. A creditor has the
option of providing cost disclosures on the basis of one year of
insurance or debt cancellation or debt suspension coverage instead of a
longer initial term (provided the premium or fee is clearly labeled as
being for one year) if:
A. The initial term is indefinite or not clear, or
B. The consumer has agreed to pay a premium or fee that is assessed
periodically but the consumer is under no obligation to continue the
coverage, whether or not the consumer has made an initial payment.
ii. Open-end plans. For open-end plans, a creditor also has the
option of providing unit-cost disclosure on the basis of a period that
is less than one year if the consumer has agreed to pay a premium or
fee that is assessed periodically, for example monthly, but the
consumer is under no obligation to continue the coverage.
iii. Examples. To illustrate:
A. A credit life insurance policy providing coverage for a
[rtrif]four-year automobile[ltrif] [lsqbb]30-year mortgage[rsqbb] loan
has an initial term of [rtrif]four[ltrif] [lsqbb]30[rsqbb] years, even
though premiums are paid monthly and the consumer is not required to
continue the coverage. Disclosures may be based on the initial term,
but the creditor also has the option of making disclosures on the basis
of coverage for an assumed initial term of one year.
* * * * *
4(e) Certain security interest charges.
1. Examples.
i. Excludable charges. Sums must be actually paid to public
officials to be excluded from the finance charge under Sec.
1026.4(e)(1) and (e)(3). Examples are charges or other fees required
for filing or recording security agreements, mortgages [rtrif](for
open-end credit; but see Sec. 1026.4(g) regarding closed-end mortgage
credit)[ltrif], continuation statements, termination statements, and
similar documents, as well as intangible property or other taxes even
when the charges or fees are imposed by the state solely on the
creditor and charged to the consumer (if the tax must be paid to record
a security agreement). See comment 4(a)-5 regarding the treatment of
taxes, generally.
* * * * *
[rtrif]4(g) Special rule for closed-end mortgage transactions.
1. Applicability of commentary to mortgages. The commentary to
Sec. 1026.4(a)(2) and (c) through (e), other than that under Sec.
1026.4(c)(2), (c)(5), (c)(7) (to the extent it relates to escrowed
items as described in paragraph (c)(7)(v) of that section), and (d) (to
the extent it relates to property insurance premiums described in
paragraph (d)(2) of that section), does not apply to closed-end
transactions secured by real property or a dwelling. Commentary under
Sec. 1026.4(a) (other than paragraph (a)(2) of that section), (c)(2),
(c)(5), (c)(7) (to the extent it relates to escrowed items as described
in paragraph (c)(7)(v) of that section), and (d) (to the extent it
relates to property insurance premiums described in paragraph (d)(2) of
that section), however, does apply to such transactions.
2. Third-party charges. Charges imposed by third parties are
included in the finance charge if they meet the general definition
under Sec. 1026.4(a). Thus, if a third-party charge is payable
directly or indirectly by the consumer and imposed directly or
indirectly by the creditor as an incident to the extension of credit,
it is a finance charge unless it would be payable in a comparable cash
transaction. For example, appraisal and credit report fees are included
in the finance charge because they meet the definition in Sec.
1026.4(a). This test generally does not depend on whether the creditor
requires the service for which the charge is imposed. In addition,
charges imposed by closing agents, if the creditor requires that a
closing agent conduct the loan closing, generally are included in the
finance charge unless otherwise excluded. Insurance premiums generally
are included in the finance charge, whether imposed by a closing agent
or another insurer, although premiums for property insurance are
excluded if Sec. 1026.4(d)(2) is satisfied. Premiums for credit
insurance (or fees for debt cancellation or debt suspension agreements)
and premiums for lender's coverage under a title insurance policy are
included in the finance charge because they are imposed as an incident
to the extension of credit. In contrast, premiums for owner's title
insurance coverage are not included in the finance charge because they
are not imposed as an incident to the extension of credit.
3. Charges in comparable cash transactions. While the exclusions in
Sec. 1026.4(c) through (e), other than Sec. 1026.4(c)(2), (c)(5),
(c)(7)(v), and (d)(2), are inapplicable to closed-end transactions
secured by real property or a dwelling, charges in connection with such
transactions that are payable in a comparable cash transaction are not
included in the finance charge. See comment 4(a)-1. For example,
property taxes imposed to record the deed evidencing transfer from the
seller to the buyer of title to the property are not included in the
finance charge because they would be paid even if no credit were
extended to finance the purchase. In contrast, fees or taxes imposed to
record the mortgage, deed of trust, or other security instrument
evidencing the creditor's security interest in the property securing
transaction are included in the finance charge because they would not
be incurred in a cash transaction.[ltrif]
* * * * *
Subpart C--Closed-End Credit
Section 1026.17--General Disclosure Requirements[rtrif]
1. Rules for certain mortgage disclosures. Section 1026.17(a) and
(b) does not apply to the disclosures required by Sec. 1026.19(e),
(f), and (g). For those disclosures, rules regarding the disclosures'
form are found in Sec. Sec. 1026.19(g), 1026.37(o), and 1026.38(t) and
rules regarding timing are found in Sec. 1026.19(e), (f), and
(g).[ltrif]
17(a) Form of disclosures.
Paragraph 17(a)(1).
* * * * *
7. Balloon payment financing with leasing characteristics. In
certain credit sale or loan transactions, a consumer may reduce the
dollar amount of the payments to be made during the course of the
transaction by agreeing to make, at the end of the loan term, a large
final payment based on the expected residual value of the property. The
consumer may have a number of options with respect to the final
payment, including,
[[Page 51411]]
among other things, retaining the property and making the final
payment, refinancing the final payment, or transferring the property to
the creditor in lieu of the final payment. Such transactions may have
some of the characteristics of lease transactions subject to Regulation
M (12 CFR Part 1013), but are considered credit transactions where the
consumer assumes the indicia of ownership, including the risks, burdens
and benefits of ownership upon consummation. These transactions are
governed by the disclosure requirements of this part instead of
Regulation M. Creditors should not include in the segregated Truth in
Lending disclosures additional information. Thus, disclosures should
show the large final payment in the payment schedule [rtrif]or interest
rate and payment summary table under Sec. 1026.18(g) or (s), as
applicable,[ltrif] and should not, for example, reflect the other
options available to the consumer at maturity.
* * * * *
17(c) Basis of disclosures and use of estimates.
Paragraph 17(c)(1).
1. Legal obligation. The disclosures shall reflect the
[lsqbb]credit[rsqbb] terms to which the [lsqbb]parties[rsqbb]
[rtrif]consumer and creditor[ltrif] are legally bound as of the outset
of the transaction. In the case of disclosures required under Sec.
1026.20(c), the disclosures shall reflect the credit terms to which the
[lsqbb]parties[rsqbb] [rtrif]consumer and creditor[ltrif] are legally
bound when the disclosures are provided. The legal obligation is
determined by applicable State law or other law. [rtrif]Disclosures
based on the assumption that the consumer will abide by the terms of
the legal obligation throughout the term of the transaction comply with
Sec. 1026.17(c)(1).[ltrif] (Certain transactions are specifically
addressed in this commentary. See, for example, the discussion of
buydown transactions elsewhere in the commentary to Sec. 1026.17(c).)
The fact that a term or contract may later be deemed unenforceable by a
court on the basis of equity or other grounds does not, by itself, mean
that disclosures based on that term or contract did not reflect the
legal obligation.
2. Modification of obligation. The legal obligation normally is
presumed to be contained in the note or contract that evidences the
agreement [rtrif]between the consumer and the creditor[ltrif]. But this
presumption is rebutted if another agreement between the
[lsqbb]parties[rsqbb] [rtrif]consumer and creditor[ltrif] legally
modifies that note or contract. If the [lsqbb]parties[rsqbb]
[rtrif]consumer and creditor[ltrif] informally agree to a modification
of the legal obligation, the modification should not be reflected in
the disclosures unless it rises to the level of a change in the terms
of the legal obligation. For example:
* * * * *
3. Third-party buydowns. In certain transactions, a seller or other
third party may pay an amount, either to the creditor or to the
consumer, in order to reduce the consumer's payments [lsqbb]or buy down
the interest rate[rsqbb] for all or a portion of the credit term. For
example, a consumer and a bank agree to a mortgage with an interest
rate of 15% and level payments over 25 years. By a separate agreement,
the seller of the property agrees to subsidize the consumer's payments
for the first two years of the mortgage, giving the consumer an
effective rate of 12% for that period.
i. If the [lsqbb]lower rate[rsqbb] [rtrif]third-party
buydown[ltrif] is reflected in the credit contract between the consumer
and the bank, the [rtrif]finance charge and all other disclosures
affected by it[ltrif] [lsqbb]disclosures[rsqbb] must take the buydown
into account [rtrif]as an amendment to the contract's interest rate
provision[ltrif]. For example, the annual percentage rate must be a
composite rate that takes account of both the lower initial rate and
the higher subsequent rate, and the [lsqbb]payment schedule
disclosures[rsqbb] [rtrif]disclosures required under Sec. Sec.
1026.18(g), 1026.18(s), 1026.37(c), and 1026.38(c), as
applicable,[ltrif] must reflect the two payment levels[rtrif], except
as otherwise provided in those paragraphs[ltrif]. However, the amount
paid by the seller would not be specifically reflected in the
[rtrif]disclosure of the finance charge and other disclosures affected
by it[ltrif] [lsqbb]disclosures[rsqbb] given by the bank, since that
amount constitutes seller's points and thus is not part of the finance
charge. [rtrif]The seller-paid amount is disclosed, however, as a
credit from the seller in the summaries of transactions disclosed
pursuant to Sec. 1026.38(j) and (k).[ltrif]
ii. If the [lsqbb]lower rate[rsqbb] [rtrif]third-party
buydown[ltrif] is not reflected in the credit contract between the
consumer and the bank and the consumer is legally bound to the 15% rate
from the outset, the [rtrif]disclosure of the finance charge and other
disclosures affected by it[ltrif] [lsqbb]disclosures[rsqbb] given by
the bank must not reflect the seller buydown in any way. For example,
the annual percentage rate and [lsqbb]payment schedule[rsqbb]
[rtrif]disclosures required under Sec. Sec. 1026.18(g), 1026.18(s),
1026.37(c), and 1026.38(c), as applicable,[ltrif] would not take into
account the reduction in the interest rate and payment level for the
first two years resulting from the buydown. [rtrif]The seller-paid
amount is, however, disclosed as a credit from the seller in the
summaries of transactions disclosed pursuant to Sec. 1026.38(j) and
(k).[ltrif]
4. Consumer buydowns. In certain transactions, the consumer may pay
an amount to the creditor to reduce the payments [lsqbb]or obtain a
lower interest rate[rsqbb] on the transaction. Consumer buydowns must
be reflected [rtrif]as an amendment to the contract's interest rate
provision[ltrif] in the [rtrif] disclosure of the finance charge and
other disclosures affected by it [ltrif] [lsqbb]disclosures[rsqbb]
given for that transaction. To illustrate, in a mortgage transaction,
the creditor and consumer agree to a note specifying a 14 percent
interest rate. However, in a separate document, the consumer agrees to
pay an amount to the creditor at consummation in return for [lsqbb]a
reduction in the interest rate to 12 percent[rsqbb] [rtrif]lower
payments[ltrif] for a portion of the mortgage term. The amount paid by
the consumer may be deposited in an escrow account or may be retained
by the creditor. Depending upon the buydown plan, the consumer's
prepayment of the obligation may or may not result in a portion of the
amount being credited or refunded to the consumer. In the [rtrif]
disclosure of the finance charge and other disclosures affected by it
[ltrif] [lsqbb]disclosures[rsqbb] given for the mortgage, the creditor
must reflect the terms of the buydown agreement.
i. For example:
* * * * *
C. The [lsqbb]payment schedule[rsqbb] [rtrif]disclosures under
Sec. Sec. 1026.18(g) and (s), 1026.37(c), and 1026.38(c), as
applicable,[ltrif] must reflect the multiple [rtrif]rate and[ltrif]
payment levels resulting from the buydown, [rtrif]except as otherwise
provided in those sections. Further, for example, the transaction is
disclosed as a step rate product under Sec. Sec. 1026.37(a)(10) and
1026.38(a)(5)(iii).[ltrif]
ii. The rules regarding consumer buydowns do not apply to
transactions known as ``lender buydowns.'' In lender buydowns, a
creditor pays an amount (either into an account or to the party to whom
the obligation is sold) to reduce the consumer's payments or interest
rate for all or a portion of the credit term. Typically, these
transactions are structured as a buydown of the interest rate during an
initial period of the transaction with a higher than usual rate for the
remainder of the term. The [rtrif]disclosure of the finance charge and
other disclosures affected by it[ltrif]
[[Page 51412]]
[lsqbb]disclosures[rsqbb] for lender buydowns should be based on the
terms of the legal obligation between the consumer and the creditor.
See comment 17(c)(1)-3 for the analogous rules concerning third-party
buydowns.
5. Split buydowns. In certain transactions, a third party (such as
a seller) and a consumer both pay an amount to the creditor to reduce
the interest rate. The creditor must include the portion paid by the
consumer in the finance charge and disclose the corresponding multiple
payment levels[rtrif], except as otherwise provided in Sec. Sec.
1026.18(s), 1026.37(c), and 1026.38(c),[ltrif] and composite annual
percentage rate. The portion paid by the third party and the
corresponding reduction in interest rate, however, should not be
reflected in the [rtrif]disclosure of the finance charge and other
disclosures affected by it [ltrif] [lsqbb]disclosures[rsqbb] unless the
lower rate is reflected in the credit contract. See the discussion on
third-party and consumer buydown transactions elsewhere in the
commentary to Sec. 1026.17(c).
* * * * *
8. Basis of disclosures in variable-rate transactions.
[rtrif]Except as otherwise provided in Sec. Sec. 1026.18(s), 1026.37
and 1026.38, as applicable, the[ltrif] [lsqbb]The[rsqbb] disclosures
for a variable-rate transaction must be given for the full term of the
transaction and must be based on the terms in effect at the time of
consummation. Creditors should base the disclosures only on the initial
rate and should not assume that this rate will increase[rtrif], except
as otherwise provided in Sec. Sec. 1026.18(s), 1026.37 and
1026.38[ltrif]. For example, in a loan with an initial rate of 10
percent and a 5 percentage points rate cap, creditors should base the
disclosures on the initial rate and should not assume that this rate
will increase 5 percentage points. However, in a variable-rate
transaction with a seller buydown that is reflected in the credit
contract, a consumer buydown, or a discounted or premium rate,
disclosures should not be based solely on the initial terms. In those
transactions, the disclosed annual percentage rate should be a
composite rate based on the rate in effect during the initial period
and the rate that is the basis of the variable-rate feature for the
remainder of the term. See the commentary to Sec. 1026.17(c) for a
discussion of buydown, discounted, and premium transactions and the
commentary to Sec. 1026.19(a)(2) [rtrif], (e), and (f)[ltrif] for a
discussion of the redisclosure in certain mortgage transactions with a
variable-rate feature. [rtrif]See Sec. Sec. 1026.37(c) and 1026.38(c)
for rules regarding disclosure of variable-rate transactions in the
projected payments table for transactions subject to Sec. 1026.19(e)
and (f).[ltrif]
* * * * *
10. Discounted and premium variable-rate transactions. * * *
i. When creditors use an initial interest rate that is not
calculated using the index or formula for later rate adjustments, the
disclosures should reflect a composite annual percentage rate based on
the initial rate for as long as it is charged and, for the remainder of
the term, the rate that would have been applied using the index or
formula at the time of consummation. The rate at consummation need not
be used if a contract provides for a delay in the implementation of
changes in an index value. For example, if the contract specifies that
rate changes are based on the index value in effect 45 days before the
change date, creditors may use any index value in effect during the 45
day period before consummation in calculating a composite annual
percentage rate.
ii. The effect of the multiple rates must also be reflected in the
calculation and disclosure of the finance charge, total of payments,
and [lsqbb]payment schedule[rsqbb] [rtrif]the disclosures required
under Sec. Sec. 1026.18(g) and (s), 1026.37(c), and 1026.38(c), as
applicable[ltrif].
* * * * *
v. Examples of discounted variable-rate transactions include:
A. A 30-year loan for $100,000 with no prepaid finance charges and
rates determined by the Treasury bill rate plus two percent. Rate and
payment adjustments are made annually. Although the Treasury bill rate
at the time of consummation is 10 percent, the creditor sets the
interest rate for one year at 9 percent, instead of 12 percent
according to the formula. The disclosures should reflect a composite
annual percentage rate of 11.63 percent based on 9 percent for one year
and 12 percent for 29 years. Reflecting those two rate levels, the
payment schedule [rtrif]disclosed pursuant to Sec. 1026.18(g)[ltrif]
should show 12 payments of $804.62 and 348 payments of $1,025.31.
[rtrif]Similarly, the disclosures required by Sec. Sec. 1026.18(s),
1026.37(c), and 1026.38(c) should reflect the effect of this
calculation.[ltrif] The finance charge should be $266,463.32
and[rtrif], for transactions subject to Sec. 1026.18,[ltrif] the total
of payments $366,463.32.
B. Same loan as above, except with a two-percent rate cap on
periodic adjustments. The disclosures should reflect a composite annual
percentage rate of 11.53 percent based on 9 percent for the first year,
11 percent for the second year, and 12 percent for the remaining 28
years. Reflecting those three rate levels, the payment schedule
[rtrif]disclosed pursuant to Sec. 1026.18(g)[ltrif] should show 12
payments of $804.62, 12 payments of $950.09, and 336 payments of
$1,024.34. [rtrif]Similarly, the disclosures required by Sec. Sec.
1026.18(s), 1026.37(c), and 1026.38(c) should reflect the effect of
this calculation.[ltrif] The finance charge should be $265,234.76
and[rtrif], for transactions subject to Sec. 1026.18,[ltrif] the total
of payments $365,234.76.
C. Same loan as above, except with a 7\1/2\ percent cap on payment
adjustments. The disclosures should reflect a composite annual
percentage rate of 11.64 percent, based on 9 percent for one year and
12 percent for 29 years. Because of the payment cap, five levels of
payments should be reflected. The payment schedule [rtrif]disclosed
pursuant to Sec. 1026.18(g)[ltrif] should show 12 payments of $804.62,
12 payments of $864.97, 12 payments of $929.84, 12 payments of $999.58,
and 312 payments of $1,070.04. [rtrif]Similarly, the disclosures
required by Sec. Sec. 1026.18(s), 1026.37(c), and 1026.38(c) should
reflect the effect of this calculation.[ltrif] The finance charge
should be $277,040.60, and[rtrif], for transactions subject to Sec.
1026.18,[ltrif] the total of payments $377,040.60.
* * * * *
11. Examples of variable-rate transactions. Variable-rate
transactions include:
* * * * *
v. ``Price level adjusted mortgages'' or other indexed mortgages
that have a fixed rate of interest but provide for periodic adjustments
to payments and the loan balance to reflect changes in an index
measuring prices or inflation. Disclosures are to be based on the fixed
interest rate[rtrif], except as otherwise provided in Sec. Sec.
1026.18(s), 1026.37, and 1026.38, as applicable[ltrif].
12. Graduated payment adjustable rate mortgages. These mortgages
involve both a variable interest rate and scheduled variations in
payment amounts during the loan term. For example, under these plans, a
series of graduated payments may be scheduled before rate adjustments
affect payment amounts, or the initial scheduled payment may remain
constant for a set period before rate adjustments affect the payment
amount. In any case, the initial payment amount may be insufficient to
cover the scheduled interest, causing negative amortization from the
outset of the transaction. In these transactions, [rtrif]except as
otherwise provided in
[[Page 51413]]
Sec. Sec. 1026.18(s), 1026.37(c), and 1026.38(c)[ltrif], the
disclosures should treat these features as follows:
* * * * *
iv. The [lsqbb]schedule of payments discloses[rsqbb]
[rtrif]disclosures required by Sec. 1026.18(g) and (s) reflect[ltrif]
the amount of any scheduled initial payments followed by an adjusted
level of payments based on the initial interest rate. Since some
mortgage plans contain limits on the amount of the payment adjustment,
the [lsqbb]payment schedule[rsqbb] [rtrif]disclosures required by Sec.
1026.18(g) and (s)[ltrif] may require several different levels of
payments, even with the assumption that the original interest rate does
not increase. [rtrif]For transactions subject to Sec. 1026.19(e) and
(f), see Sec. 1026.37(c) and its commentary for a discussion of
different rules for graduated payment adjustable rate mortgages.[ltrif]
* * * * *
[rtrif]19. Rebates and loan premiums. In a loan transaction, the
creditor may offer a premium in the form of cash or merchandise to
prospective borrowers. Similarly, in a credit sale transaction, a
seller's or manufacturer's rebate may be offered to prospective
purchasers of the creditor's goods or services. Such premiums and
rebates must be reflected in accordance with the terms of the legal
obligation between the consumer and the creditor. Thus, if the creditor
is legally obligated to provide the premium or rebate to the consumer
as part of the credit transaction, the disclosures should reflect its
value in the manner and at the time the creditor is obligated to
provide it.[ltrif]
Paragraph 17(c)(2)(i).
1. Basis for estimates. [rtrif]Except as otherwise provided in
Sec. Sec. 1026.19, 1026.37, and 1026.38, disclosures[ltrif]
[lsqbb]Disclosures[rsqbb] may be estimated when the exact information
is unknown at the time disclosures are made. Information is unknown if
it is not reasonably available to the creditor at the time the
disclosures are made. The ``reasonably available'' standard requires
that the creditor, acting in good faith, exercise due diligence in
obtaining information. For example, the creditor must at a minimum
utilize generally accepted calculation tools, but need not invest in
the most sophisticated computer program to make a particular type of
calculation. The creditor normally may rely on the representations of
other parties in obtaining information. For example, the creditor might
look to the consumer for the time of consummation, to insurance
companies for the cost of insurance, or to realtors for taxes and
escrow fees. The creditor may utilize estimates in making disclosures
even though the creditor knows that more precise information will be
available by the point of consummation. However, new disclosures may be
required under Sec. 1026.17(f) or Sec. 1026.19. [rtrif]For purposes
of Sec. 1026.17(c)(2)(i), creditors must provide the actual amounts of
the information required to be disclosed pursuant to Sec. 1026.19(e)
and (f), subject to the estimation and redisclosure rules in those
provisions.[ltrif]
2. Labeling estimates. Estimates must be designated as such in the
segregated disclosures. [rtrif]For the disclosures required by Sec.
1026.19(e), use of the Loan Estimate form H-24 in appendix H to this
part, pursuant to Sec. 1026.37(o), satisfies the requirement that the
disclosure state clearly that the disclosure is an estimate. For all
other disclosures, even though they[ltrif] [lsqbb]Even though other
disclosures[rsqbb] are based on the same assumption on which a specific
estimated disclosure was based, the creditor has [lsqbb]some[rsqbb]
flexibility in labeling the estimates. Generally, only the particular
disclosure for which the exact information is unknown is labeled as an
estimate. However, when several disclosures are affected because of the
unknown information, the creditor has the option of labeling either
every affected disclosure or only the disclosure primarily affected.
For example, when the finance charge is unknown because the date of
consummation is unknown, the creditor must label the finance charge as
an estimate and may also label as estimates the total of payments and
the payment schedule. When many disclosures are estimates, the creditor
may use a general statement, such as ``all numerical disclosures except
the late payment disclosure are estimates,'' as a method to label those
disclosures as estimates.
3. Simple-interest transactions. If consumers do not make timely
payments in a simple-interest transaction, some of the amounts
calculated for Truth in Lending disclosures will differ from amounts
that consumers will actually pay over the term of the transaction.
Creditors may label disclosures as estimates in these
transactions[rtrif], except as otherwise provided by Sec.
1026.19[ltrif]. For example, because the finance charge and total of
payments may be larger than disclosed if consumers make late payments,
creditors may label the finance charge and total of payments as
estimates. On the other hand, creditors may choose not to label
disclosures as estimates[rtrif]. In all cases, creditors[ltrif]
[lsqbb]and may[rsqbb] [rtrif]comply with Sec. 1026.17(c)(2)(i) by
basing[ltrif] [lsqbb]base all[rsqbb] disclosures on the assumption that
payments will be made on time [rtrif]and in the amounts required by the
terms of the legal obligation[ltrif], disregarding any possible
[lsqbb]inaccuracies[rsqbb] [rtrif]differences[ltrif] resulting from
consumers' payment patterns.
Paragraph 17(c)(2)(ii).
1. Per-diem interest. Section 1026.17(c)(2)(ii) applies to any
numerical amount (such as the finance charge, annual percentage rate,
or payment amount) that is affected by the amount of the per-diem
interest charge that will be collected at consummation. If the amount
of per-diem interest used in preparing the disclosures for consummation
is based on the information known to the creditor at the time the
disclosure document is prepared, the disclosures are considered
accurate under this rule, and affected disclosures are also considered
accurate, even if the disclosures are not labeled as estimates. For
example, if the amount of per-diem interest used to prepare disclosures
is less than the amount of per-diem interest charged at consummation,
and as a result the finance charge is understated by $200, the
disclosed finance charge is considered accurate even though the
understatement is not within the $100 tolerance of Sec. 1026.18(d)(1),
and the finance charge was not labeled as an estimate. In this example,
if in addition to the understatement related to the per-diem interest,
a $90 fee is incorrectly omitted from the finance charge, causing it to
be understated by a total of $290, the finance charge is considered
accurate because the $90 fee is within the tolerance in Sec.
1026.18(d)(1). [rtrif]For purposes of transactions subject to Sec.
1026.19(e) and (f), the creditor shall disclosure the actual amount of
per diem interest that will be collected at consummation, subject only
to the disclosure rules in those sections.[ltrif]
* * * * *
Paragraph 17(c)(4).
1. Payment schedule irregularities. When one or more payments in a
transaction differ from the others because of a long or short first
period, the variations may be ignored in disclosing the payment
schedule [rtrif] pursuant to Sec. 1026.18(g) or the disclosures
required pursuant to Sec. Sec. 1026.18(s), 1026.37(c), or
1026.38(c)[ltrif], finance charge, annual percentage rate, and other
terms. For example:
* * * * *
Paragraph 17(c)(5).
* * * * *
2. Future event as maturity date. An obligation whose maturity date
is
[[Page 51414]]
determined solely by a future event, as for example, a loan payable
only on the sale of property, is not a demand obligation. Because no
demand feature is contained in the obligation, demand disclosures under
Sec. 1026.18(i) are inapplicable [rtrif]and demand disclosures under
Sec. 1026.38(l)(2) are answered in the negative[ltrif]. The
disclosures should be based on the creditor's estimate of the time at
which the specified event will occur and [rtrif], except as otherwise
provided in Sec. 1026.19(e) and (f),[ltrif] may indicate the basis for
the creditor's estimate, as noted in the commentary to Sec.
1026.17(a).
3. Demand after stated period. Most demand transactions contain a
demand feature that may be exercised at any point during the term, but
certain transactions convert to demand status only after a fixed
period. [lsqbb]For example, in States prohibiting due-on-sale clauses,
the Federal National Mortgage Association (FNMA) requires mortgages
that it purchases to include a call option rider that may be exercised
after 7 years. These mortgages are generally written as long-term
obligations, but contain a demand feature that may be exercised only
within a 30-day period at 7 years.[rsqbb] The disclosures for
[lsqbb]these transactions[rsqbb] [rtrif]a transaction that converts to
demand status after a fixed period[ltrif] should be based upon the
legally agreed-upon maturity date. Thus, [rtrif]for example,[ltrif] if
a mortgage containing [lsqbb]the 7-year FNMA call option[rsqbb]
[rtrif]a call option that the creditor may exercise during the first 30
days of the eighth year after loan origination[ltrif] is written as a
20-year obligation, the disclosures should be based on the 20-year
term, with the demand feature disclosed under Sec. 1026.18(i)[rtrif]or
Sec. 1026.38(l)(2), as applicable[ltrif].
4. Balloon mortgages. Balloon payment mortgages, with payments
based on a long-term amortization schedule and a large final payment
due after a shorter term, are not demand obligations unless a demand
feature is specifically contained in the contract. For example, a
mortgage with a term of five years and a payment schedule based on 20
years would not be treated as a mortgage with a demand feature, in the
absence of any contractual demand provisions. In this type of mortgage,
disclosures should be based on the five-year term. [rtrif]See
Sec. Sec. 1026.37(c) and 1026.38(c) and their commentary for projected
payment disclosures for balloon payment mortgages.[ltrif]
* * * * *
17(d) Multiple creditors; multiple consumers.
* * * * *
2. Multiple consumers. When two consumers are joint obligors with
primary liability on an obligation, the disclosures may be given to
either one of them. If one consumer is merely a surety or guarantor,
the disclosures must be given to the principal debtor. In rescindable
transactions, however, separate disclosures must be given to each
consumer who has the right to rescind under Sec. 1026.23, although the
disclosures required under Sec. 1026.19(b) need only be provided to
the consumer who expresses an interest in a variable-rate loan program.
[rtrif]In addition, the early disclosures required by Sec. 1026.19(a),
(e), or (g), as applicable, may be provided to any consumer with
primary liability on the obligation. Material disclosures, as defined
in Sec. 1026.23(a)(3)(ii), under Sec. 1026.23(a) and the notice of
the right to rescind required by Sec. 1026.23(b), however, must be
given before consummation to each consumer who has the right to
rescind, even if such consumer is not an obligor. See Sec. Sec.
1026.2(a)(11), 1026.17(b), 1026.19(a), 1026.19(f), and
1026.23(b).[ltrif]
17(e) Effect of subsequent events.
1. Events causing inaccuracies. [rtrif]Subject to Sec. 1026.19(e)
and (f), inaccuracies[ltrif] [lsqbb]Inaccuracies[rsqbb] in disclosures
are not violations if attributable to events occurring after the
disclosures are made. For example, when the consumer fails to fulfill a
prior commitment to keep the collateral insured and the creditor then
provides the coverage and charges the consumer for it, such a change
does not make the original disclosures inaccurate. The creditor may,
however, be required to make new disclosures under Sec. 1026.17(f) or
Sec. 1026.19 if the events occurred between disclosure and
consummation or under Sec. 1026.20 if the events occurred after
consummation. [rtrif]For rules regarding permissible changes to the
information required to be disclosed by Sec. 1026.19(e) and (f), see
Sec. 1026.19(e)(3) and (f)(4) and their commentary.[ltrif]
17(f) Early disclosures.
1. Change in rate or other terms. Redisclosure is required for
changes that occur between the time disclosures are made and
consummation if the annual percentage rate in the consummated
transaction exceeds the limits prescribed in [lsqbb]this
section,[rsqbb] [rtrif]Sec. 1026.17(f)[ltrif] even if the
[lsqbb]initial[rsqbb] [rtrif]prior[ltrif] disclosures would be
considered accurate under the tolerances in Sec. 1026.18(d) or
1026.22(a). To illustrate:
i. [lsqbb]General.[rsqbb] [rtrif]Transactions not secured by real
property.[ltrif] A. [rtrif]For transactions not secured by real
property, if[ltrif] [lsqbb]If[rsqbb] disclosures are made in a regular
transaction on July 1, the transaction is consummated on July 15, and
the actual annual percentage rate varies by more than \1/8\ of 1
percentage point from the disclosed annual percentage rate, the
creditor must either redisclose the changed terms or furnish a complete
set of new disclosures before consummation. Redisclosure is required
even if the disclosures made on July 1 are based on estimates and
marked as such.
B. In a regular transaction [rtrif]not secured by real property
[ltrif], if early disclosures are marked as estimates and the disclosed
annual percentage rate is within \1/8\ of 1 percentage point of the
rate at consummation, the creditor need not redisclose the changed
terms (including the annual percentage rate).
[lsqbb]ii. Nonmortgage loan.[rsqbb] [rtrif]C.[ltrif] If disclosures
[rtrif]for transactions not secured by real property[ltrif] are made on
July 1, the transaction is consummated on July 15, and the finance
charge increased by $35 but the disclosed annual percentage rate is
within the permitted tolerance, the creditor must at least redisclose
the changed terms that were not marked as estimates. See Sec.
1026.18(d)(2) of this part.
[lsqbb]iii.[rsqbb] [rtrif]ii. Reverse
mortgages.[ltrif][lsqbb]Mortgage loan[rsqbb]. [lsqbb]At[rsqbb]
[rtrif]In a transaction subject to Sec. 1026.19(a) and not Sec.
1026.19(e) and (f), at[ltrif] the time [lsqbb]TILA disclosures[rsqbb]
[rtrif]the disclosures required by Sec. 1026.19(a)[ltrif] are prepared
in July, the loan closing is scheduled for July 31 and the creditor
does not plan to collect per-diem interest at consummation.
Consummation actually occurs on August 5, and per-diem interest for the
remainder of August is collected as a prepaid finance charge.
[lsqbb]Assuming there were no other changes requiring redisclosure,
the[rsqbb] [rtrif]The[ltrif] creditor may rely on the disclosures
prepared in July that were accurate when they were prepared. However,
if the creditor prepares new disclosures in August that will be
provided at consummation, the new disclosures must take into account
the amount of the per-diem interest known to the creditor at that time.
[rtrif]iii. Mortgages other than reverse mortgages and mortgage
loans not secured by real property. For transactions secured by real
property other than reverse mortgages, at the time the disclosures
required by Sec. 1026.19(e) are prepared in July, the loan closing is
scheduled for July 31 and the creditor does not plan to collect per-
diem interest at consummation. Consummation actually occurs on August
5, and per-diem interest for the remainder of August is collected as a
[[Page 51415]]
prepaid finance charge. The creditor must make the disclosures required
by Sec. 1026.19(f) three days before consummation, and the disclosures
required by Sec. 1026.19(f) must take into account the amount of per-
diem interest that will be collected at consummation.[ltrif]
2. Variable rate. The addition of a variable rate feature to the
credit terms, after early disclosures are given, requires new
disclosures. [rtrif]See Sec. 1026.19(e) and (f) to determine when new
disclosures are required for transactions secured by real
property.[ltrif]
3. Content of new disclosures. [rtrif]Except as provided by Sec.
1026.19(e) and (f), if[ltrif][lsqbb]If[rsqbb] redisclosure is required,
the creditor has the option of either providing a complete set of new
disclosures, or providing disclosures of only the terms that vary from
those originally disclosed. See the commentary to Sec. 1026.19(a)(2).
4. Special rules. In mortgage transactions subject to Sec. 1026.19
[rtrif](a)[ltrif], the creditor must redisclose if, between the
delivery of the required early disclosures and consummation, the annual
percentage rate changes by more than a stated tolerance. When
subsequent events occur after consummation, new disclosures are
required only if there is a refinancing or an assumption within the
meaning of Sec. 1026.20.
* * * * *
17(g) Mail or telephone orders--delay in disclosures.
1. Conditions for use. [rtrif]Except for extensions of credit
subject to Sec. 1026.19(a) or (e), (f), and (g), when[ltrif]
[lsqbb]When[rsqbb] the creditor receives a mail or telephone request
for credit, the creditor may delay making the disclosures until the
first payment is due if the following conditions are met:
* * * * *
17(h) Series of sales--delay in disclosures.
1. Applicability. [rtrif]Except for extensions of credit covered by
Sec. 1026.19(a) or (e), (f), and (g), the [ltrif] [The] creditor may
delay the disclosures for individual credit sales in a series of such
sales until the first payment is due on the current sale, assuming the
two conditions in this paragraph are met. If those conditions are not
met, the general timing rules in Sec. 1026.17(b) apply.
* * * * *
Section 1026.18--Content of Disclosures
* * * * *
[rtrif]3. Scope of coverage.
i. Section 1026.18 applies to closed-end consumer credit
transactions, other than transactions that are subject to Sec.
1026.19(e) and (f). Section 1026.19(e) and (f) applies to closed-end
consumer credit transactions that are secured by real property, other
than reverse mortgages subject to Sec. 1026.33. Accordingly, the
disclosures required by Sec. 1026.18 apply only to closed-end consumer
credit transactions that are:
A. Unsecured;
B. Secured by personal property that is not a dwelling;
C. Secured by personal property that is a dwelling and is not also
secured by real property; or
D. Reverse mortgages subject to Sec. 1026.33.
ii. Of the foregoing transactions that are subject to Sec.
1026.18, the creditor discloses a payment schedule pursuant to Sec.
1026.18(g) for those described in paragraphs i.A and i.B of this
comment. For transactions described in paragraphs i.C and i.D of this
comment, the creditor discloses an interest rate and payment summary
table pursuant to Sec. 1026.18(s). See also comments 18(g)-6 and
18(s)-4 for additional guidance on the applicability to different
transaction types of Sec. Sec. 1026.18(g) or (s) and 1026.19(e) and
(f).
iii. Because Sec. 1026.18 does not apply to transactions secured
by real property, other than reverse mortgages, references in the
section and its commentary to ``mortgages'' refer only to transactions
described in paragraphs i.C and i.D of this comment, as
applicable.[ltrif]
* * * * *
18(b) Amount financed.
* * * * *
[lsqbb]2. Rebates and loan premiums. In a loan transaction, the
creditor may offer a premium in the form of cash or merchandise to
prospective borrowers. Similarly, in a credit sale transaction, a
seller's or manufacturer's rebate may be offered to prospective
purchasers of the creditor's goods or services. At the creditor's
option, these amounts may be either reflected in the Truth in Lending
disclosures or disregarded in the disclosures. If the creditor chooses
to reflect them in the Sec. 1026.18 disclosures, rather than disregard
them, they may be taken into account in any manner as part of those
disclosures.[rsqbb]
* * * * *
Paragraph 18(b)(2).
1. Adding other amounts. Fees or other charges that are not part of
the finance charge and that are financed rather than paid separately at
consummation of the transaction are included in the amount financed.
Typical examples are [lsqbb]real estate settlement charges and premiums
for voluntary credit life and disability insurance[rsqbb]
[rtrif]government recording fees for deeds and premiums for insurance
against loss of or damage to property[ltrif] excluded from the finance
charge under Sec. 1026.4. This paragraph does not include any amounts
already accounted for under Sec. 1026.18(b)(1), such as taxes, tag and
title fees, or the costs of accessories or service policies that the
creditor includes in the cash price.
* * * * *
18(c) Itemization of amount financed.
* * * * *
4. RESPA transactions. The Real Estate Settlement Procedures Act
(RESPA) requires creditors to provide a good faith estimate of closing
costs and a settlement statement listing the amounts paid by the
consumer. [rtrif]Reverse mortgages[ltrif] [lsqbb]Transactions[rsqbb]
subject to RESPA [rtrif]and Sec. 1026.18[ltrif] are exempt from the
requirements of Sec. 1026.18(c) if the creditor complies with RESPA's
requirements for a good faith estimate and settlement statement. The
itemization of the amount financed need not be given, even though the
content and timing of the good faith estimate and settlement statement
under RESPA differ from the requirements of Sec. Sec. 1026.18(c) and
1026.19(a)(2). If a creditor chooses to substitute RESPA's settlement
statement for the itemization when redisclosure is required under Sec.
1026.19(a)(2), the statement must be delivered to the consumer at or
prior to consummation. The disclosures required by Sec. Sec.
1026.18(c) and 1026.19(a)(2) may appear on the same page or on the same
document as the good faith estimate or the settlement statement, so
long as the requirements of Sec. 1026.17(a) are met.
* * * * *
Paragraph 18(c)(1)(iv).
* * * * *
2. Prepaid mortgage insurance premiums. [rtrif]Regulation X
under[ltrif] RESPA[rtrif], 12 CFR 1024.8,[ltrif] requires creditors to
give consumers a settlement statement disclosing the costs associated
with [rtrif]reverse[ltrif] mortgage loan transactions. Included on the
settlement statement are mortgage insurance premiums collected at
settlement, which are prepaid finance charges. In calculating the total
amount of prepaid finance charges, creditors should use the amount for
mortgage insurance listed on the line for mortgage insurance on the
settlement statement (line 1003 on HUD-1 or HUD 1-A), without
adjustment, even if the actual amount collected at settlement may vary
because of RESPA's escrow accounting rules. Figures for mortgage
insurance disclosed in conformance with RESPA
[[Page 51416]]
shall be deemed to be accurate for purposes of Regulation Z.
* * * * *
18(f) Variable rate.
* * * * *
Paragraph 18(f)(1)(iv).
* * * * *
2. Hypothetical example not required. The creditor need not provide
a hypothetical example in the following transactions with a variable-
rate feature:
i. Demand obligations with no alternate maturity date.
ii. Private education loans as defined in Sec. 1026.46(b)(5).
[lsqbb]iii. Multiple-advance construction loans disclosed pursuant
to Appendix D, Part I.[rsqbb]
* * * * *
18(g) Payment schedule.
* * * * *
4. Timing of payments.
i. General rule. * * *
ii. Exception. In a limited number of circumstances, the beginning-
payment date is unknown and difficult to determine at the time
disclosures are made. For example, a consumer may become obligated on a
credit contract that contemplates the delayed disbursement of funds
based on a contingent event, such as the completion of [home] repairs.
Disclosures may also accompany loan checks that are sent by mail, in
which case the initial disbursement and repayment dates are solely
within the consumer's control. In such cases, if the beginning-payment
date is unknown the creditor may use an estimated date and label the
disclosure as an estimate pursuant to Sec. 1026.17(c). Alternatively,
the disclosure may refer to the occurrence of a particular event, for
example, by disclosing that the beginning payment is due ``30 days
after the first loan disbursement.'' This information also may be
included with an estimated date to explain the basis for the creditor's
estimate. See comment 17(a)(1)-5.iii.
5. [rtrif][lsqbb]Reserved[rsqbb][ltrif][lsqbb]Mortgage insurance.
The payment schedule should reflect the consumer's mortgage insurance
payments until the date on which the creditor must automatically
terminate coverage under applicable law, even though the consumer may
have a right to request that the insurance be cancelled earlier. The
payment schedule must reflect the legal obligation, as determined by
applicable State or other law. For example, assume that under
applicable law, mortgage insurance must terminate after the 130th
scheduled monthly payment, and the creditor collects at closing and
places in escrow two months of premiums. If, under the legal
obligation, the creditor will include mortgage insurance premiums in
130 payments and refund the escrowed payments when the insurance is
terminated, the payment schedule should reflect 130 premium payments.
If, under the legal obligation, the creditor will apply the amount
escrowed to the two final insurance payments, the payment schedule
should reflect 128 monthly premium payments. (For assumptions in
calculating a payment schedule that includes mortgage insurance that
must be automatically terminated, see comments 17(c)(1)-8 and 17(c)(1)-
10.)[rsqbb]
6. Mortgage transactions. Section 1026.18(g) applies
[lsqbb]only[rsqbb] to closed-end transactions, other than transactions
that are subject to Sec. 1026.18(s)[rtrif]or Sec. 1026.19(e) and
(f)[ltrif]. Section 1026.18(s) applies to closed-end transactions
secured by real property or a dwelling[rtrif], unless they are subject
to Sec. 1026.19(e) and (f). Section 1026.19(e) and (f) applies to
closed-end transactions secured by real property, other than reverse
mortgages[ltrif]. Thus, if a closed-end consumer credit transaction is
secured by real property or a dwelling [rtrif]and the transaction is a
reverse mortgage or the dwelling is personal property[ltrif], the
creditor discloses an interest rate and payment summary table in
accordance with Sec. 1026.18(s) [lsqbb]and does not observe[rsqbb].
[rtrif]See comment 18(s)-4. If a closed-end consumer credit transaction
is secured by real property and is not a reverse mortgage, the creditor
discloses a projected payments table in accordance with Sec. Sec.
1026.37(c) and 1026.38(c), as required by Sec. 1026.19(e) and (f). In
all such cases, the creditor is not subject to[ltrif] the requirements
of Sec. 1026.18(g). On the other hand, if a closed-end consumer credit
transaction is not secured by real property or a dwelling [rtrif](for
example, if it is unsecured or secured by an automobile)[ltrif], the
creditor discloses a payment schedule in accordance with Sec.
1026.18(g) and [lsqbb]does not observe[rsqbb] [rtrif]is not subject
to[ltrif] the requirements of Sec. 1026.18(s) [rtrif]or Sec. Sec.
1026.37(c) and 1026.38(c)[ltrif].
* * * * *
Paragraph 18(g)(2).
1. Abbreviated disclosure. The creditor may disclose an abbreviated
payment schedule when the amount of each regularly scheduled payment
(other than the first or last payment) includes an equal amount to be
applied on principal and a finance charge computed by application of a
rate to the decreasing unpaid balance. [lsqbb]This option is also
available when mortgage-guarantee insurance premiums, paid either
monthly or annually, cause variations in the amount of the scheduled
payments, reflecting the continual decrease or increase in the premium
due.[rsqbb] In addition, in transactions where payments vary because
interest and principal are paid at different intervals, the two series
of payments may be disclosed separately and the abbreviated payment
schedule may be used for the interest payments. For example, in
transactions with fixed quarterly principal payments and monthly
interest payments based on the outstanding principal balance, the
amount of the interest payments will change quarterly as principal
declines. In such cases the creditor may treat the interest and
principal payments as two separate series of payments, separately
disclosing the number, amount, and due dates of principal payments,
and, using the abbreviated payment schedule, the number, amount, and
due dates of interest payments. This option may be used when interest
and principal are scheduled to be paid on the same date of the month as
well as on different dates of the month. The creditor using this
alternative must disclose the dollar amount of the highest and lowest
payments and make reference to the variation in payments.
2. Combined payment schedule disclosures. Creditors may combine the
option in this paragraph with the general payment schedule requirements
in transactions where only a portion of the payment schedule meets the
conditions of Sec. 1026.18(g)(2). For example, in a
[rtrif]transaction[ltrif] [lsqbb]graduated payment mortgage[rsqbb]
where payments rise sharply for five years and then decline over the
next 25 years [lsqbb]because of decreasing mortgage insurance
premiums[rsqbb], the first five years would be disclosed under the
general rule in Sec. 1026.18(g) and the next 25 years according to the
abbreviated schedule in Sec. 1026.18(g)(2).
* * * * *
18(k) Prepayment.
1. Disclosure required. The creditor must give a definitive
statement of whether or not a [rtrif]prepayment[ltrif] penalty will be
imposed or a [rtrif]prepayment[ltrif] rebate will be given.
i. The fact that no [rtrif]prepayment[ltrif] penalty will be
imposed may not simply be inferred from the absence of a
[rtrif]prepayment[ltrif] penalty disclosure; the creditor must indicate
that prepayment will not result in a [rtrif]prepayment[ltrif] penalty.
ii. If a [rtrif]prepayment[ltrif] penalty or
[rtrif]prepayment[ltrif] refund is possible for one type of prepayment,
even though not for all, a positive disclosure is
[[Page 51417]]
required. This applies to any type of prepayment, whether voluntary or
involuntary as in the case of prepayments resulting from acceleration.
iii. Any difference in [rtrif]prepayment[ltrif] rebate or
[rtrif]prepayment[ltrif] penalty policy, depending on whether
prepayment is voluntary or not, must not be disclosed with the
segregated disclosures.
2. Rebate-penalty disclosure. A single transaction may involve both
a precomputed finance charge and a finance charge computed by
application of a rate to the unpaid balance (for example, mortgages
with mortgage-guarantee insurance). In these cases, disclosures about
both prepayment rebates and [rtrif]prepayment[ltrif] penalties are
required. Sample form H-15 in appendix H to this part illustrates a
mortgage transaction in which both rebate and penalty disclosures are
necessary.
3. Prepaid finance charge. The existence of a prepaid finance
charge in a transaction does not, by itself, require a disclosure under
Sec. 1026.18(k). A prepaid finance charge is not considered a
[rtrif]prepayment[ltrif] penalty under Sec. 1026.18(k)(1), nor does it
require a disclosure under Sec. 1026.18(k)(2). At its option, however,
a creditor may consider a prepaid finance charge to be under Sec.
1026.18(k)(2). If a disclosure is made under Sec. 1026.18(k)(2) with
respect to a prepaid finance charge or other finance charge, the
creditor may further identify that finance charge. For example, the
disclosure may state that the borrower ``will not be entitled to a
refund of the prepaid finance charge'' or some other term that
describes the finance charge.
Paragraph 18(k)(1).[rtrif]
1. Examples of prepayment penalties. For purposes of Sec.
1026.18(k)(1), the following are examples of prepayment penalties:
i. A charge determined by treating the loan balance as outstanding
for a period of time after prepayment in full and applying the interest
rate to such ``balance,'' even if the charge results from interest
accrual amortization used for other payments in the transaction under
the terms of the loan contract. ``Interest accrual amortization''
refers to the method by which the amount of interest due for each
period (e.g., month) in a transaction's term is determined. For
example, ``monthly interest accrual amortization'' treats each payment
as made on the scheduled, monthly due date even if it is actually paid
early or late (until the expiration of any grace period). Thus, under
the terms of a loan contract providing for monthly interest accrual
amortization, if the amount of interest due on May 1 for the preceding
month of April is $3,000, the loan contract will require payment of
$3,000 in interest for the month of April whether the payment is made
on April 20, on May 1, or on May 10. In this example, if the consumer
prepays the loan in full on April 20 and if the accrued interest as of
that date is $2,000, then assessment of a charge of $3,000 constitutes
a prepayment penalty of $1,000 because the amount of interest actually
earned through April 20 is only $2,000.
ii. A fee, such as an origination or other loan closing cost, that
is waived by the creditor on the condition that the consumer does not
prepay the loan.
iii. A minimum finance charge in a simple interest transaction.
2. Fees that are not prepayment penalties. For purposes of Sec.
1026.18(k)(1), fees which are not prepayment penalties include, for
example:
i. Fees imposed for preparing and providing documents when a loan
is paid in full, whether or not the loan is prepaid, such as a loan
payoff statement, a reconveyance document, or another document
releasing the creditor's security interest in the dwelling that secures
the loan.
ii. Loan guarantee fees.[ltrif]
[lsqbb]1. Penalty. This applies only to those transactions in which
the interest calculation takes account of all scheduled reductions in
principal, as well as transactions in which interest calculations are
made daily. The term penalty as used here encompasses only those
charges that are assessed strictly because of the prepayment in full of
a simple-interest obligation, as an addition to all other amounts.
Items which are penalties include, for example:
i. Interest charges for any period after prepayment in full is
made. (See the commentary to Sec. 1026.17(a)(1) regarding disclosure
of interest charges assessed for periods after prepayment in full as
directly related information.)
ii. A minimum finance charge in a simple-interest transaction. (See
the commentary to Sec. 1026.17(a)(1) regarding the disclosure of a
minimum finance charge as directly related information.) Items which
are not penalties include, for example, loan guarantee fees.[rsqbb]
Paragraph 18(k)(2).
1. Rebate of finance charge. i. This applies to any finance charges
that do not take account of each reduction in the principal balance of
an obligation. This category includes, for example:
A. Precomputed finance charges such as add-on charges. [rtrif]This
includes computing a refund of unearned finance charge, such as
precomputed interest, by a method that is less favorable to the
consumer than the actuarial method, as defined by section 933(d) of the
Housing and Community Development Act of 1992, 15 U.S.C. 1615(d). For
purposes of computing a refund of unearned interest, if using the
actuarial method defined by applicable State law results in a refund
that is greater than the refund calculated by using the method
described in section 933(d) of the Housing and Community Development
Act of 1992, creditors should use the State law definition in
determining if a refund is a prepayment penalty.[ltrif]
B. Charges that take account of some but not all reductions in
principal, such as mortgage guarantee insurance assessed on the basis
of an annual declining balance, when the principal is reduced on a
monthly basis.
ii. No description of the method of computing earned or unearned
finance charges is required or permitted as part of the segregated
disclosures under this section.
* * * * *
18(r) Required deposit.
* * * * *
6. Examples of amounts excluded. The following are among the types
of deposits that need not be treated as required deposits:
i. Requirement that a borrower be a customer or a member even if
that involves a fee or a minimum balance.
ii. Required property insurance escrow on a mobile home
transaction.
iii. Refund of interest when the obligation is paid in full.
iv. Deposits that are immediately available to the consumer.
v. Funds deposited with the creditor to be disbursed (for example,
for construction) before the loan proceeds are advanced.
vi. [rtrif][lsqbb]Reserved[rsqbb][ltrif] [lsqbb]Escrow of
condominium fees.[rsqbb]
vii. Escrow of loan proceeds to be released when the repairs are
completed.
18(s) Interest rate and payment summary for mortgage transactions.
1. In general. Section 1026.18(s) prescribes format and content for
disclosure of interest rates and monthly (or other periodic) payments
for [rtrif]reverse mortgages and certain transactions secured by
dwellings that are personal property[ltrif] [lsqbb]mortgage
loans[rsqbb]. The information in Sec. 1026.18(s)(2) through (4) is
required to be in the form of a table, except as otherwise provided,
with headings and format substantially similar to model clause H-4(E),
H-4(F), H-4(G), or H-
[[Page 51418]]
4(H) in appendix H to this part. A disclosure that does not include the
shading shown in a model clause but otherwise follows the model
clause's headings and format is substantially similar to that model
clause. Where Sec. 1026.18(s)(2) through (4) or the applicable model
clause requires that a column or row of the table be labeled using the
word ``monthly'' but the periodic payments are not due monthly, the
creditor should use the appropriate term, such as ``bi-weekly'' or
``quarterly.'' In all cases, the table should have no more than five
vertical columns corresponding to applicable interest rates at various
times during the loan's term; corresponding payments would be shown in
horizontal rows. Certain loan types and terms are defined for purposes
of Sec. 1026.18(s) in Sec. 1026.18(s)(7).
* * * * *
[rtrif]4. Scope of coverage in relation to Sec. 1026.19(e) and
(f). Section 1026.18(s) applies to transactions secured by a real
property or a dwelling, other than transactions that are subject to
Sec. 1026.19(e) and (f). Those provisions apply to closed-end
transactions secured by real property, other than reverse mortgages.
Accordingly, Sec. 1026.18(s) governs only closed-end reverse mortgages
and closed-end transactions secured by a dwelling that is personal
property (such as a mobile home that is not deemed real property under
State or other applicable law).[ltrif]
* * * * *
18(s)(3) Payments for amortizing loans.
* * * * *
Paragraph 18(s)(3)(i)(C).
* * * * *
2. Mortgage insurance [rtrif]or any functional equivalent[ltrif].
[rtrif]For purposes of Sec. 1026.18(s), ``mortgage insurance'' means
insurance against the nonpayment of, or default on, an individual
mortgage. ``Mortgage guarantees'' (such as a United States Department
of Veterans Affairs or United States Department of Agriculture
guarantee) provide coverage similar to mortgage insurance, even if not
technically considered insurance under State or other applicable law.
For purposes of Sec. 1026.18(s), ``mortgage insurance or any
functional equivalent'' includes any mortgage guarantee.[ltrif] Payment
amounts under Sec. 1026.18(s)(3)(i) should reflect the consumer's
mortgage insurance payments [rtrif]or any functionally equivalent
fee[ltrif] until the date on which the creditor must automatically
terminate coverage under applicable law, even though the consumer may
have a right to request that the insurance be cancelled earlier. The
payment amount must reflect the terms of the legal obligation, as
determined by applicable State or other law. For example, assume that
under applicable law, mortgage insurance must terminate after the 130th
scheduled monthly payment, and the creditor collects at closing and
places in escrow two months of premiums. If, under the legal
obligation, the creditor will include mortgage insurance premiums in
130 payments and refund the escrowed payments when the insurance is
terminated, payment amounts disclosed through the 130th payment should
reflect premium payments. If, under the legal obligation, the creditor
will apply the amount escrowed to the two final insurance payments,
payments disclosed through the 128th payment should reflect premium
payments. The escrow amount reflected on the disclosure should include
mortgage insurance premiums even if they are not escrowed and even if
there is no escrow account established for the transaction.
* * * * *
Section 1026.19--Certain Mortgage and Variable-Rate Transactions
19(a)(1)(i) Time of disclosures.
1. Coverage. This section requires early disclosure of credit terms
in [rtrif]reverse[ltrif] mortgage transactions [rtrif]subject to Sec.
1026.33[ltrif] that are secured by a consumer's dwelling [lsqbb](other
than home equity lines of credit subject to Sec. 1026.40 or mortgage
transactions secured by an interest in a timeshare plan)[rsqbb] that
are also subject to the Real Estate Settlement Procedures Act (RESPA)
and its implementing Regulation X. To be covered by Sec.
1026.19[rtrif](a)[ltrif], a transaction must be a Federally related
mortgage loan under RESPA. ``Federally related mortgage loan'' is
defined under RESPA (12 U.S.C. 2602) and Regulation X (12 CFR 1024.2),
and is subject to any interpretations by the Bureau.
* * * * *
[lsqbb]19(a)(5) Timeshare plans.
Paragraph 19(a)(5)(ii).
1. Timing. A mortgage transaction secured by a consumer's interest
in a ``timeshare plan,'' as defined in 11 U.S.C. 101(53D), that is also
a Federally related mortgage loan under RESPA is subject to the
requirements of Sec. 1026.19(a)(5) instead of the requirements of
Sec. 1026.19(a)(1) through Sec. 1026.19(a)(4). See comment
19(a)(1)(i)-1. Early disclosures for transactions subject to Sec.
1026.19(a)(5) must be given (a) before consummation or (b) within three
business days after the creditor receives the consumer's written
application, whichever is earlier. The general definition of ``business
day'' in Sec. 1026.2(a)(6)--a day on which the creditor's offices are
open to the public for substantially all of its business functions--
applies for purposes of Sec. 1026.19(a)(5)(ii). See comment 2(a)(6)-1.
These timing requirements are different from the timing requirements
under Sec. 1026.19(a)(1)(i). Timeshare transactions covered by Sec.
1026.19(a)(5) may be consummated any time after the disclosures
required by Sec. 1026.19(a)(5)(ii) are provided.
2. Use of estimates. If the creditor does not know the precise
credit terms, the creditor must base the disclosures on the best
information reasonably available and indicate that the disclosures are
estimates under Sec. 1026.17(c)(2). If many of the disclosures are
estimates, the creditor may include a statement to that effect (such as
``all numerical disclosures except the late-payment disclosure are
estimates'') instead of separately labeling each estimate. In the
alternative, the creditor may label as an estimate only the items
primarily affected by unknown information. (See the commentary to Sec.
1026.17(c)(2).) The creditor may provide explanatory material
concerning the estimates and the contingencies that may affect the
actual terms, in accordance with the commentary to Sec. 1026.17(a)(1).
3. Written application. For timeshare transactions, creditors may
rely on comment 19(a)(1)(i)-3 in determining whether a ``written
application'' has been received.
4. Denied or withdrawn applications. For timeshare transactions,
creditors may rely on comment 19(a)(1)(i)-4 in determining that
disclosures are not required by Sec. 1026.19(a)(5)(ii) because the
consumer's application will not or cannot be approved on the terms
requested or the consumer has withdrawn the application.
5. Itemization of amount financed. For timeshare transactions,
creditors may rely on comment 19(a)(1)(i)-5 in determining whether
providing the good faith estimates of settlement costs required by
RESPA satisfies the requirement of Sec. 1026.18(c) to provide an
itemization of the amount financed.
Paragraph 19(a)(5)(iii).
* * * * *
1. Consummation or settlement. For extensions of credit secured by
a consumer's timeshare plan, when corrected disclosures are required,
they must be given no later than ``consummation or settlement.''
[[Page 51419]]
``Consummation'' is defined in Sec. 1026.2(a). ``Settlement'' is
defined in Regulation X (12 CFR 1024.2(b)) and is subject to any
interpretations issued by the Bureau. In some cases, a creditor may
delay redisclosure until settlement, which may be at a time later than
consummation. If a creditor chooses to redisclose at settlement,
disclosures may be based on the terms in effect at settlement, rather
than at consummation. For example, in a variable-rate transaction, a
creditor may choose to base disclosures on the terms in effect at
settlement, despite the general rule in comment 17(c)(1)-8 that
variable-rate disclosures should be based on the terms in effect at
consummation.
2. Content of new disclosures. Creditors may rely on comment
19(a)(2)(ii)-2 in determining the content of corrected disclosures
required under Sec. 1026.19(a)(5)(iii).[rsqbb]
* * * * *
[rtrif]19(e) Mortgage loans secured by real property--Early
disclosures.
19(e)(1)(i) Creditor.
1. Requirements. Section 1026.19(e)(1)(i) requires early disclosure
of credit terms in closed-end credit transactions that are secured by
real property, other than reverse mortgages. These disclosures must be
provided in good faith. Except as otherwise provided in Sec.
1026.19(e), a disclosure is in good faith if it is consistent with the
best information reasonably available to the creditor at the time the
disclosure is provided.
19(e)(1)(ii) Mortgage broker.
1. Requirements. A mortgage broker may provide the disclosures
required under Sec. 1026.19(e)(1)(i) instead of the creditor. By
assuming this responsibility, the mortgage broker becomes responsible
for complying with all of the relevant requirements as if it were the
creditor, meaning that ``mortgage broker'' should be read in the place
of ``creditor'' for all the relevant provisions of Sec. 1026.19(e),
except to the extent that such a reading would create responsibility
for mortgage brokers under Sec. 1026.19(f). For example, comment
19(e)(4)-2 states that creditors comply with the requirements of Sec.
1026.19(e)(4) if the revised disclosures are reflected in the
disclosures required by Sec. 1026.19(f)(1)(i). ``Mortgage broker''
could not be read in place of ``creditor'' in comment 19(e)(4)-2
because the mortgage brokers are not responsible for the disclosures
required by Sec. 1026.19(f)(1)(i).
2. Broker responsibilities. If a mortgage broker issues any
disclosure under Sec. 1026.19(e), the mortgage broker must comply with
the requirements of Sec. 1026.19(e). For example, if the mortgage
broker receives sufficient information to complete an application, the
mortgage broker must issue the disclosures required under Sec.
1026.19(e)(1)(i) within three business days in accordance with Sec.
1026.19(e)(1)(iii). If the mortgage broker subsequently receives
information sufficient to establish that a disclosure provided under
Sec. 1026.19(e)(1)(i) must be reissued under Sec. 1026.19(e)(3)(iv),
then the mortgage broker is responsible for ensuring that a revised
disclosure is provided. If a mortgage broker issues any disclosure
under Sec. 1026.19(e), the mortgage broker must also comply with the
requirements of Sec. 1026.25. For example, if a mortgage broker issues
the disclosure required under Sec. 1026.19(e)(1)(i), it must maintain
records for three years, in compliance with Sec. 1026.25(c)(1)(i), and
must maintain such records in an electronic, machine-readable format,
in compliance with Sec. 1026.25(c)(1)(iii).
3. Creditor responsibilities. If a mortgage broker issues any
disclosure required under Sec. 1026.19(e) in the creditor's place, the
creditor remains responsible under Sec. 1026.19(e) for ensuring that
the requirements of Sec. 1026.19(e) have been satisfied. For example,
the creditor must ensure that the broker provides the disclosures
required under Sec. 1026.19(e) not later than three business days
after the mortgage broker received information sufficient to constitute
an application, as defined in Sec. 1026.2(a)(3)(ii). The creditor does
not satisfy the requirements of Sec. 1026.19(e) if it provides
duplicative disclosures. For example, a creditor does not meet its
burden by issuing disclosures required under Sec. 1026.19(e) that
mirror ones already issued by the broker for the purpose of
demonstrating that the consumer received timely disclosures. If the
broker provides an erroneous disclosure, the creditor is responsible
and may not issue a revised disclosure correcting the error. The
creditor is expected to maintain communication with the broker to
ensure that the broker is acting in place of the creditor. Disclosures
provided by a broker in accordance with Sec. 1026.19(e)(1)(ii) satisfy
the creditor's obligation under Sec. 1026.19(e)(1)(i).
4. Broker provision of preliminary written estimates specific to
the consumer. Section 1026.19(e)(2)(ii) requires creditors to provide
consumers with a disclosure indicating that the written estimate is not
the Loan Estimate required by RESPA and TILA, if a creditor provides a
consumer with certain written estimates of specific credit terms or
costs. Section 1026.19(e)(1)(ii) states that, if a mortgage broker
provides any disclosure required by Sec. 1026.19(e), the mortgage
broker must comply with the requirements in Sec. 1026.19(e) related to
such disclosure. Thus, Sec. 1026.19(e)(1)(ii) requires mortgage
brokers to comply with Sec. 1026.19(e)(2)(ii) if a mortgage broker
provides any disclosures under Sec. 1026.19(e). For example, if a
mortgage broker never provides disclosures required by Sec.
1026.19(e), the mortgage broker need not include the disclosure
required by Sec. 1026.19(e)(2)(ii) on written information provided to
consumers.
19(e)(1)(iii) Timing.
1. Timing and use of estimates. The disclosures required by Sec.
1026.19(e)(1)(i) must be delivered not later than three business days
after the creditor receives the consumer's application. For example, if
an application is received on Monday, the creditor satisfies this
requirement by either hand delivering the disclosures on or before
Thursday, or placing them in the mail on or before Thursday, assuming
each weekday is a business day. For purposes of Sec.
1026.19(e)(1)(iii), the term ``business day'' means all calendar days
except Sundays and legal public holidays referred to in Sec.
1026.2(a)(6). See comment 2(a)(6)-2. If the creditor does not know the
precise credit terms, the creditor must base the disclosures on the
best information reasonably available.
2. Waiting period. The seven-business-day waiting period begins
when the creditor delivers the disclosures or places them in the mail,
not when the consumer receives or is presumed to have received the
disclosures. For example, if a creditor delivers the early disclosures
to the consumer in person or places them in the mail on Monday, June 1,
consummation may occur on or after Tuesday, June 9, the seventh
business day following delivery or mailing of the early disclosures,
because, for the purposes of Sec. 1026.19(e)(1)(iii), Saturday is a
business day, pursuant to Sec. 1026.2(a)(6).
3. Denied or withdrawn applications. The creditor may determine
within the three-business-day period that the application will not or
cannot be approved on the terms requested, such as when a consumer's
credit score is lower than the minimum score required for the terms the
consumer applied for, or the consumer applies for a type or amount of
credit that the creditor does not offer. In that case, or if the
consumer withdraws the application within the
[[Page 51420]]
three-business-day period, the creditor need not make the disclosures
required under Sec. 1026.19(e)(1)(i). If the creditor fails to provide
early disclosures and the transaction is later consummated on the terms
originally applied for, then the creditor does not comply with Sec.
1026.19(e)(1)(i). If, however, the consumer amends the application
because of the creditor's unwillingness to approve it on the terms
originally applied for, no violation occurs for not providing
disclosures based on those original terms. But the amended application
is a new application subject to Sec. 1026.19(e)(1)(i).
19(e)(1)(iv) Delivery.
1. Mail delivery. Section 1026.19(e)(1)(iv) provides that, if any
disclosures required under Sec. 1026.19(e)(1)(i) are not provided to
the consumer in person, the consumer is presumed to have received the
disclosures three business days after they are mailed or delivered to
the address specified by the consumer. This presumption may be rebutted
by providing evidence that the consumer received the disclosures
earlier than three business days. For example, if the creditor sends
the disclosures via overnight mail on Monday, and the consumer signs
for receipt of the overnight delivery on Tuesday, the creditor could
demonstrate that the disclosures were received on Tuesday, thereby
rebutting the presumption that the disclosures were received on
Thursday, three business days after the disclosures were sent.
2. Electronic delivery. The presumption established in Sec.
1026.19(e)(1)(iv) applies to methods of electronic delivery, such as
email. For example, if a creditor sends a disclosure required under
Sec. 1026.19(e) via email on Monday, pursuant to Sec.
1026.19(e)(1)(iv) the consumer is presumed to have received the
disclosure on Thursday, three business days later. However, the
creditor may rebut the presumption by providing evidence that the
consumer received the emailed disclosures earlier. Creditors using
electronic delivery methods, such as email, must also comply with Sec.
1026.17(a)(1). For example, if a creditor delivers the disclosures
required by Sec. 1026.19(e)(1)(i) to a consumer via email, but the
creditor did not obtain the consumer's consent to receive disclosures
via email prior to delivering the disclosures, then the creditor does
not comply with Sec. 1026.17(a)(1), and the creditor does not comply
with Sec. 1026.19(e)(1)(i), assuming the disclosures were not provided
in a different manner in accordance with the timing requirements of
Sec. 1026.19(e)(1)(iii).
19(e)(1)(v) Consumer's waiver of waiting period before
consummation.
1. Modification or waiver. A consumer may modify or waive the right
to the seven-business-day waiting period required by Sec.
1026.19(e)(1)(iii) only after the creditor makes the disclosures
required by Sec. 1026.19(e)(1)(i). The consumer must have a bona fide
personal financial emergency that necessitates consummating the credit
transaction before the end of the waiting period. Whether these
conditions are met is determined by the facts surrounding individual
situations. The imminent sale of the consumer's home at foreclosure,
where the foreclosure sale will proceed unless loan proceeds are made
available to the consumer during the waiting period, is one example of
a bona fide personal financial emergency. Each consumer who is
primarily liable on the legal obligation must sign the written
statement for the waiver to be effective.
2. Examples of waivers within the seven-business-day waiting
period. If the early disclosures are delivered to the consumer in
person on Monday, June 1, the seven-business-day waiting period ends on
Tuesday, June 9. If on Monday, June 1, the consumer executes a waiver
of the seven-business-day waiting period, the final disclosures
required by Sec. 1026.19(f)(1)(i) could then be delivered three days
before consummation, as required by Sec. 1026.19(f)(1)(ii), on
Tuesday, June 2, and the loan can be consummated on Friday, June 5.
19(e)(1)(vi) Shopping for settlement service providers.
1. Permission to shop. Section 1026.19(e)(1)(vi)(A) states that the
creditor may impose reasonable minimum requirements regarding the
qualifications of the provider. For example, the creditor may require
that a settlement agent chosen by the consumer must be appropriately
licensed in the relevant jurisdiction. Similarly, the creditor may
require that the homeowner's insurance carrier chosen by the consumer
have a minimum rating by an independent insurance rating service. In
contrast, a creditor does not permit a consumer to shop for purposes of
Sec. 1026.19(e)(1)(vi) if the creditor requires the consumer to choose
a provider from a list provided by creditor. The requirements of Sec.
1026.19(e)(1)(vi)(B) and (C) do not apply if the creditor does not
permit the consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A).
2. Disclosure of services for which the consumer may shop. Section
1026.19(e)(1)(vi)(C) requires the creditor to identify the services for
which the consumer is permitted to shop in the disclosures provided
pursuant to Sec. 1026.19(e)(1)(i). See Sec. 1026.37(f)(3) regarding
the content and format for this disclosure.
3. Written list of providers. If the creditor permits the consumer
to shop for a settlement service, Sec. 1026.19(e)(1)(vi)(C) requires
the creditor to provide the consumer with a written list identifying
available providers of that service and stating that the consumer may
choose a different provider for that service. The settlement service
providers identified on such written list must correspond to the
settlement services for which the consumer may shop, disclosed pursuant
to Sec. 1026.37(f)(3). See form H-27 in appendix H to this part for a
model list. See also comment 19(e)(1)(ii)-4 regarding mortgage broker
provision of the written list of settlement service providers.
4. Identification of available providers. Section
1026.19(e)(1)(vi)(C) provides that the creditor must identify
settlement service providers that are available to the consumer. A
creditor does not comply with the identification requirement in Sec.
1026.19(e)(1)(vi)(C) unless it provides sufficient information to allow
the consumer to contact the provider, such as the name under which the
provider does business and the provider's address and telephone number.
Similarly, a creditor does not comply with the availability requirement
in Sec. 1026.19(e)(1)(vi)(C) if it provides a written list consisting
of only settlement service providers that are no longer in business or
that do not provide services where the consumer or property is located.
If the creditor determines that there is only one available settlement
service provider, the creditor need only identify that provider on the
written list.
5. Statement that consumer may choose different provider. Section
1026.19(e)(1)(vi)(C) requires the creditor to include in the written
list a statement that the consumer may choose a provider that is not
included on that list. See form H-27 in appendix H to this part for an
example of such a statement.
6. Additional information on written list. The creditor may include
a statement on the written list that the listing of a settlement
service provider does not constitute an endorsement of that service
provider. The creditor may also identify in the written list providers
of services for which the consumer is not permitted to shop, provided
that the creditor clearly and expressly
[[Page 51421]]
distinguishes those services from the services for which the consumer
is permitted to shop. This may be accomplished by placing the services
under different headings. For example, if the list provided pursuant to
Sec. 1026.19(e)(1)(vi)(C) identifies providers of pest inspections,
homeowner's insurance, and surveys, but the consumer may select a
provider, other than those identified on the list, for only the
homeowner's insurance carrier and surveyor, then the list must
specifically inform the consumer that the consumer is permitted to
select a provider, other than a provider identified on the list, for
only the homeowner's insurance carrier and the surveyor.
7. Relation to RESPA and Regulation X. Section 1026.19 does not
prohibit creditors from including affiliates on the written list under
Sec. 1026.19(e)(1)(vi). However, a creditor that includes affiliates
on the written list must also comply with 12 CFR 1024.15. Furthermore,
the written list is a ``referral'' under 12 CFR 1024.14(f).
19(e)(2) Pre-disclosure activity.
19(e)(2)(i) Imposition of fees on consumer.
19(e)(2)(i)(A) Fee restriction.
1. Fees restricted. A creditor or other person may not impose any
fee, such as for an application, appraisal, or underwriting, until the
consumer has received the disclosures required by Sec.
1026.19(e)(1)(i) and indicated an intent to proceed with the
transaction. The only exception to the fee restriction allows the
creditor or other person to impose a bona fide and reasonable fee for
obtaining a consumer's credit report, pursuant to Sec.
1026.19(e)(2)(i)(B).
2. Intent to proceed. A consumer may indicate intent to proceed
with a transaction in any manner the consumer chooses, unless a
particular manner of communication is required by the creditor,
provided that the creditor does not assume silence is indicative of
intent. The creditor must document this communication to satisfy the
requirements of Sec. 1026.25. For example, oral communication in
person immediately upon delivery of the disclosures required by Sec.
1026.19(e)(1)(i) is sufficiently indicative of intent. Oral
communication over the phone, written communication via email, or
signing a pre-printed form are also sufficiently indicative of intent
if such actions occur after receipt of the disclosures required by
Sec. 1026.19(e)(1)(i). However, a creditor may not deliver the
disclosures, wait for some period of time for the consumer to respond,
and then charge the consumer a fee for an appraisal if the consumer
does not respond, even if the creditor disclosed that it would do so.
3. Timing of fees. At any time prior to delivery of the required
disclosures, the creditor may impose a credit report fee as provided in
Sec. 1026.19(e)(2)(i)(B). The consumer must receive the disclosures
required by this section and indicate an intent to proceed with the
mortgage loan transaction before paying or incurring any other fee
imposed by a creditor or other person in connection with the consumer's
application for a mortgage loan that is subject to Sec.
1026.19(e)(1)(i).
4. Collection of fees. A creditor complies with Sec.
1026.19(e)(2)(i)(A) if:
i. The creditor receives a consumer's written application directly
from the consumer and does not collect any fee, other than a fee for
obtaining a consumer's credit report, until the consumer receives the
early mortgage loan disclosure and indicates an intent to proceed.
ii. A third party submits a consumer's written application to a
creditor and both the creditor and third party do not collect any fee,
other than a fee for obtaining a consumer's credit report, until the
consumer receives the early mortgage loan disclosure from the creditor
and indicates an intent to proceed.
iii. A third party submits a consumer's written application to a
creditor following a different creditor's denial of the consumer's
application (or following the consumer's withdrawal of that
application), and, if a fee already has been assessed, the new creditor
or third party does not collect or impose any additional fee until the
consumer receives an early mortgage loan disclosure from the new
creditor and indicates an intent to proceed.
5. Fees ``imposed by'' a person. For purposes of Sec. 1026.19(e),
a fee is ``imposed by'' a person if the person requires a consumer to
provide a method for payment, even if the payment is not made at that
time. For example, if a creditor requires the consumer to provide a
$500 check to pay for a ``processing fee'' before the consumer receives
the disclosures required by Sec. 1026.19(e)(1)(i) and the consumer
subsequently indicates intent to proceed, then the creditor does not
comply with Sec. 1026.19(e)(2), even if the creditor states that the
check will not be cashed until after the disclosures required by Sec.
1026.19(e)(1)(i) are received by the consumer and the consumer
indicates intent to proceed. Similarly, a creditor does not comply with
the requirements of Sec. 1026.19(e)(2) if the creditor requires the
consumer to provide a credit card number before the consumer receives
the disclosures required by Sec. 1026.19(e)(1)(i) and the consumer
subsequently indicates intent to proceed, even if the creditor promises
not to charge the consumer's credit card for the $500 processing fee
until after the disclosures required by Sec. 1026.19(e)(1)(i) are
received by the consumer and the consumer subsequently indicates intent
to proceed. In contrast, a creditor complies with Sec. 1026.19(e)(2)
if the creditor requires the consumer to provide a credit card number
before the consumer receives the disclosures required by Sec.
1026.19(e)(1)(i) and subsequently indicates intent to proceed if the
consumer's authorization is only to pay for the cost of a credit
report. This is so even if the creditor maintains the consumer's credit
card number on file and charges the consumer a $500 processing fee
after the disclosures required by Sec. 1026.19(e)(1)(i) are received
and the consumer subsequently indicates intent to proceed, provided
that the creditor requested and received a separate authorization for
the processing fee from the consumer after the consumer received the
disclosures required by Sec. 1026.19(e)(1)(i).
19(e)(2)(i)(B) Exception to fee restriction.
1. Requirements. A creditor or other person may impose a fee before
the consumer receives the required disclosures if it is for purchasing
a credit report on the consumer. The fee also must be bona fide and
reasonable in amount. For example, a creditor may collect a fee for
obtaining a credit report if it is in the creditor's ordinary course of
business to obtain a credit report. If the criteria in Sec.
1026.19(e)(2)(i)(B) are met, the creditor must accurately describe or
refer to this fee, for example, as a ``credit report fee.''
19(e)(2)(ii) Written information provided to consumer.
1. Requirements. Section 1026.19(e)(2)(ii) requires the creditor to
include a notice on certain written estimates provided to the consumer
before the disclosures required by Sec. 1026.19(e)(1)(i) are provided.
The requirement applies only to written information specific to the
consumer. For example, if the creditor provides a document showing the
estimated monthly payment for a mortgage loan, and the estimate was
based on the estimated loan amount and the consumer's estimated credit
score, then the creditor must include the warning on the document. In
contrast, if the creditor provides the consumer with a preprinted list
of closing costs common in the consumer's area, the creditor
[[Page 51422]]
need not include the warning. Similarly, the warning would not be
required on a preprinted list of available rates for different loan
products. This requirement does not apply to an advertisement, as
defined in Sec. 1026.2(a)(2). See also comment 19(e)(1)(ii)-4
regarding mortgage broker provision of written estimates specific to
the consumer.
19(e)(2)(iii) Verification of information.
1. Requirements. The creditor may collect from the consumer any
information that it requires prior to providing the early disclosures,
including information not listed in Sec. 1026.2(a)(3)(ii). However,
the creditor is not permitted to require, before providing the
disclosures required by Sec. 1026.19(e)(1)(i), that the consumer
submit documentation to verify the information provided by the
consumer. For example, the creditor may ask for the names, account
numbers, and balances of the consumer's checking and savings accounts,
but the creditor may not require the consumer to provide bank
statements, or similar documentation, to support the information the
consumer provides orally before providing the disclosures required by
Sec. 1026.19(e)(1)(i). See also Sec. 1026.2(a)(3) and the related
commentary regarding the definition of application.
19(e)(3) Good faith determination for estimates of closing costs.
19(e)(3)(i) General rule.
1. Requirement. Section 1026.19(e)(3)(i) provides the general rule
that an estimated charge disclosed pursuant to Sec. 1026.19(e) is not
in good faith if the charge paid by or imposed upon the consumer
exceeds the amount originally disclosed. Although Sec.
1026.19(e)(3)(ii) and (iii) provide exceptions to the general rule, the
charges that remain subject to Sec. 1026.19(e)(3)(i) include, but are
not limited to, the following:
i. Fees paid to the creditor.
ii. Fees paid to a mortgage broker.
iii. Fees paid to an affiliate of the creditor or a mortgage
broker.
iv. Fees paid to an unaffiliated third party if the creditor did
not permit the consumer to select a third party service provider, other
than those providers identified on the written list provided pursuant
to Sec. 1026.19(e)(1)(vi).
v. Transfer taxes.
2. Fees ``paid to'' a person. For purposes of Sec. 1026.19(e), a
fee is not considered ``paid to'' a person if the person does not
retain the fee, or if the person retains the fee as reimbursement for
an amount it has already paid to another party. For example, if a
consumer pays the creditor an appraisal fee in advance of the real
estate closing and the creditor subsequently uses those funds to pay
another party for an appraisal, then the appraisal fee is not ``paid
to'' the creditor for the purposes of Sec. 1026.19(e). Similarly, if a
creditor pays for an appraisal in advance of the real estate closing
and the consumer pays the creditor an appraisal fee at the real estate
closing, then the fee is not ``paid to'' the creditor for the purposes
of Sec. 1026.19(e), even though the creditor retains the fee, because
the payment is a reimbursement for an amount already paid.
3. Transfer taxes and recording fees. See comments 37(g)(1)-1, -2,
-3 and -4 for a discussion of the difference between transfer taxes and
recording fees.
4. Specific credits, rebates, or reimbursements. An item
identified, on the disclosures provided pursuant to Sec. 1026.19(e),
as a payment from a creditor to the consumer to pay for a specific fee,
such as a credit, rebate, or reimbursement, is not subject to the good
faith determination requirements in Sec. 1026.19(e)(3)(i) or (ii) if
the increased specific credit, rebate, or reimbursement actually
reduces the cost to the consumer. Specific credits, rebates, or
reimbursements may not be disclosed or revised in a way that achieves
what would otherwise violate the requirements of Sec. 1026.19(e)(3)(i)
and (ii). For example, assume the creditor originally disclosed a $100
pest inspection fee credit to cover the cost of a $100 pest inspection
fee paid to an affiliated provider and subject to Sec.
1026.19(e)(3)(i). If the pest inspection fee subsequently increases to
$150, and the creditor increases the amount of the pest inspection fee
credit from $100 to $150 to pay for the increase, the credit is not
being revised in a way that would otherwise violate the requirements of
Sec. 1026.19(e)(3)(i) because, although the disclosed amount
increased, the amount paid by the consumer did not. However, if the
creditor disclosed a $150 pest inspection fee credit to cover the cost
of a $150 pest inspection fee paid to an affiliated provider and
subject to Sec. 1026.19(e)(3)(i), and the creditor subsequently
decreases the pest inspection fee credit from $150 to $100, even though
the pest inspection fee remained at $150, then the requirements of
Sec. 1026.19(e)(3)(i) have been violated because, although the
disclosed amount did not increase, the amount paid by the consumer for
this service did increase.
5. Lender credits. The disclosure of ``lender credits,'' as
identified in Sec. 1026.37(g)(6)(ii), is required by Sec.
1026.19(e)(1)(i). These are payments from the creditor to the consumer
that do not pay for a particular fee on the disclosures provided
pursuant to Sec. 1026.19(e)(1)(i). These non-specific credits are
negative charges to the consumer--as the lender credit decreases, the
overall cost to the consumer increases. Thus, an actual lender credit
provided at the real estate closing that is less than the estimated
lender credit provided pursuant to Sec. 1026.19(e)(1)(i) is an
increased charge to the consumer for purposes of determining good faith
under Sec. 1026.19(e)(3)(i). For example, if the creditor provides a
$750 estimate for lender credits in the disclosures required by Sec.
1026.19(e)(1)(i), but only a $500 lender credit is actually provided to
the consumer at the real estate closing, the creditor has not complied
with Sec. 1026.19(e)(3)(i) because, although the actual lender credit
was less than the estimated lender credit provided in the revised
disclosures, the overall cost to the consumer increased and, therefore,
did not comply with Sec. 1026.19(e)(3)(i). See also Sec.
1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of
lender credits in the context of interest rate dependent charges.
19(e)(3)(ii) Limited increases permitted for certain charges.
1. Requirements. Section 1026.19(e)(3)(ii) provides that certain
estimated charges are in good faith if the sum of all such charges paid
by or imposed on the consumer does not exceed the sum of all such
charges disclosed pursuant to Sec. 1026.19(e) by more than ten
percent. Section 1026.19(e)(3)(ii) permits this limited increase for
only the following items:
i. Fees paid to an unaffiliated third party if the creditor
permitted the consumer to select a settlement service provider that is
not on the list provided pursuant to Sec. 1026.19(e)(1)(vi) and
discloses that the consumer may do so on that list.
ii. Recording fees.
2. Aggregate increase limited to ten percent. Pursuant to Sec.
1026.19(e)(3)(ii), whether an individual estimated charge subject to
Sec. 1026.19(e)(3)(ii) is in good faith depends on whether the sum of
all charges subject to Sec. 1026.19(e)(3)(ii) increase by more than
ten percent, even if a particular charge does not increase by more than
ten percent. For example, if, in the disclosures provided pursuant to
Sec. 1026.19(e)(1)(i), the creditor includes a $300 estimated fee for
a settlement agent, the settlement agent fee is included in the
category of charges subject to Sec. 1026.19(e)(3)(ii), and the sum of
all charges subject to Sec. 1026.19(e)(3)(ii) (including the
[[Page 51423]]
settlement agent fee) equals $1,000, then the creditor does not violate
Sec. 1026.19(e)(3)(ii) if the actual settlement agent fee exceeds ten
percent (i.e., exceeds $330), provided that the sum of all such charges
does not exceed ten percent (i.e., $1,100). Section 1026.19(e)(3)(ii)
also provides flexibility in disclosing individual fees by focusing on
aggregate amounts. For example, assume that, in the disclosures
provided pursuant to Sec. 1026.19(e)(1)(i), the sum of all estimated
charges subject to Sec. 1026.19(e)(3)(ii) equals $1,000. If the
creditor does not include an estimated charge for a notary fee but a
$10 notary fee is charged to the consumer, and the notary fee is
subject to Sec. 1026.19(e)(3)(ii), then the creditor does not violate
Sec. 1026.19(e)(1)(i) if the sum of all amounts charged to the
consumer subject to Sec. 1026.19(e)(3)(ii) does not exceed $1,100,
even though an individual notary fee was not included in the estimated
disclosures provided pursuant to Sec. 1026.19(e)(1)(i).
3. Services for which the consumer may, but does not, select a
settlement service provider. Good faith is determined pursuant to Sec.
1026.19(e)(3)(ii), instead of Sec. 1026.19(e)(3)(i), if the creditor
permits the consumer to shop for a settlement service provider,
consistent with Sec. 1026.19(e)(1)(vi)(A). Section 1026.19(e)(3)(ii)
provides that if the creditor requires a service in connection with the
mortgage loan transaction, and permits the consumer to shop for that
service consistent with Sec. 1026.19(e)(1)(vi)(A), but the consumer
either does not select a settlement service provider or chooses a
settlement service provider identified by the creditor on the list,
then good faith is determined pursuant to Sec. 1026.19(e)(3)(ii)(A),
instead of Sec. 1026.19(e)(3)(i) and subject to the other requirements
in Sec. 1026.19(e)(3)(ii)(B) and (C). For example, if, in the
disclosures provided pursuant to Sec. Sec. 1026.19(e)(1)(i) and
1026.37(f)(3), a creditor discloses an estimated fee for an
unaffiliated settlement agent and permits the consumer to shop for that
service, but the consumer either does not choose a provider, or chooses
a provider identified by the creditor on the written list provided
pursuant to Sec. 1026.19(e)(1)(vi)(C), then the estimated settlement
agent fee is included with the fees that may, in aggregate, increase by
no more than ten percent for the purposes of Sec. 1026.19(e)(3)(ii).
If, however, the consumer chooses a provider that is not on the written
list, then good faith is determined according to Sec.
1026.19(e)(3)(iii).
4. Recording fees. Section 1026.19(e)(3)(ii) provides that an
estimate of recording fees is in good faith if the conditions specified
in Sec. 1026.19(e)(3)(ii)(A), (B), and (C) are satisfied. However, the
condition specified in Sec. 1026.19(e)(3)(ii)(B), that the charge not
be paid to an affiliate of the creditor, is inapplicable for recording
fees. The condition specified in Sec. 1026.19(e)(3)(ii)(C), that the
creditor permits the consumer to shop for the service, is similarly
inapplicable. Therefore, estimates of recording fees need only satisfy
the condition specified in Sec. 1026.19(e)(3)(ii)(A) to meet the
requirements of Sec. 1026.19(e)(3)(ii).
19(e)(3)(iii) Variations permitted for certain charges.
1. Good faith requirement for prepaid interest, property insurance
premiums, and impound amounts. Estimates of prepaid interest, property
insurance premiums, and impound amounts must be consistent with the
best information reasonably available to the creditor at the time the
disclosures are provided. Differences between the amounts of such
charges disclosed under Sec. 1026.19(e)(1)(i) and the amounts of such
charges paid by or imposed on the consumer do not necessarily
constitute a lack of good faith, so long as the original estimated
charge, or lack of an estimated charge for a particular service, was
based on the best information reasonably available to the creditor at
the time the disclosure was provided. For example, if the creditor
requires homeowner's insurance but fails to include a homeowner's
insurance premium on the estimates provided pursuant to Sec.
1026.19(e)(1)(i), then the creditor's failure to disclose does not
comply with Sec. 1026.19(e)(3)(iii). However, if the creditor does not
require flood insurance and the subject property is located in an area
where floods frequently occur, but not specifically located in a zone
where flood insurance is required, failure to include flood insurance
on the original estimates provided pursuant to Sec. 1026.19(e)(1)(i)
does not constitute a lack of good faith under Sec.
1026.19(e)(3)(iii). Or, if the creditor knows that the loan must close
on the 15th of the month but estimates prepaid interest to be paid from
the 30th of that month, then the under-disclosure does not comply with
Sec. 1026.19(e)(3)(iii).
2. Good faith requirement for required services chosen by the
consumer. If a service is required by the creditor, the creditor
permits the consumer to shop for that service consistent with Sec.
1026.19(e)(1)(vi)(A), the creditor provides the list required by Sec.
1026.19(e)(1)(vi)(C), and the consumer chooses a service provider that
is not on that list to perform that service, then the actual amounts of
such fees need not be compared to the original estimates for such fees
to perform the good faith analysis required by Sec. 1026.19(e)(3)(i)
or (ii). Differences between the amounts of such charges disclosed
pursuant to Sec. 1026.19(e)(1)(i) and the amounts of such charges paid
by or imposed on the consumer do not necessarily constitute a lack of
good faith. However, the original estimated charge, or lack of an
estimated charge for a particular service, must be made based on the
best information reasonably available to the creditor at that time. For
example, if the consumer informs the creditor that the consumer will
choose a settlement agent not identified by the creditor on the written
list provided pursuant to Sec. 1026.19(e)(1)(vi)(C), and the creditor
subsequently discloses an unreasonably low estimated settlement agent
fee, then the under-disclosure does not comply with Sec.
1026.19(e)(3)(iii). If the creditor permits the consumer to shop
consistent with Sec. 1026.19(e)(1)(vi)(A) but fails to provide the
list required by Sec. 1026.19(e)(1)(vi)(C), good faith is determined
pursuant to Sec. 1026.19(e)(3)(ii) instead of Sec. 1026.19(e)(3)(iii)
regardless of the provider selected by the consumer, unless the
provider is an affiliate of the creditor in which case good faith is
determined pursuant to Sec. 1026.19(e)(3)(i).
3. Good faith requirement for non-required services chosen by the
consumer. Differences between the amounts of estimated charges for
services not required by the creditor disclosed pursuant to Sec.
1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on
the consumer do not necessarily constitute a lack of good faith. For
example, if the consumer informs the creditor that the consumer will
obtain a type of inspection not required by the creditor, the creditor
may include the charge for that item in the disclosures provided
pursuant to Sec. 1026.19(e)(1)(i), but the actual amount of the
inspection fee need not be compared to the original estimate for the
inspection fee to perform the good faith analysis required by Sec.
1026.19(e)(3)(iii). However, the original estimated charge, or lack of
an estimated charge for a particular service, must still be made based
on the best information reasonably available to the creditor at the
time that the estimate was provided. For example, if the subject
property is located in a jurisdiction where
[[Page 51424]]
consumers are customarily represented at closing by their own attorney,
but the creditor fails to include a fee for the consumer's attorney, or
includes an unreasonably low estimate for such fee, on the original
estimates provided pursuant to Sec. 1026.19(e)(1)(i), then the
creditor's failure to disclose, or under-estimation, does not comply
with Sec. 1026.19(e)(3)(iii).
19(e)(3)(iv) Revised estimates.
1. Requirement. Pursuant to Sec. 1026.19(e)(3)(i) and (ii), good
faith is determined by calculating the difference between the estimated
charges originally provided pursuant to Sec. 1026.19(e)(1)(i) and the
actual charges paid by the consumer. Section 1026.19(e)(3)(iv) provides
the exception to this rule. Pursuant to Sec. 1026.19(e)(3)(iv), a
charge paid by or imposed on the consumer may exceed the originally
estimated charge if the revision is due to one of the reasons specified
in Sec. 1026.19(e)(3)(iv)(A) through (F).
2. Actual increase. The revised disclosures may reflect increased
charges only to the extent that the reason for revision, as identified
in Sec. 1026.19(e)(3)(iv)(A) through (F), actually increased the
particular charge. For example, if a consumer requests a rate lock
extension, then the revised disclosures may reflect a new rate lock
extension fee, but the fee may be no more than the rate lock extension
fee charged by the creditor in its usual course of business, and other
charges unrelated to the rate lock extension may not change.
3. Documentation requirement. In order to comply with Sec.
1026.25, creditors must retain records demonstrating compliance with
the requirements of Sec. 1026.19(e). For example, if revised
disclosures are provided because of a changed circumstance under Sec.
1026.19(e)(3)(iv)(A) affecting settlement costs, the creditor must be
able to show compliance with Sec. 1026.19(e) by documenting the
original estimate of the cost at issue, explaining the reason for
revision and how it affected settlement costs, showing that the
corrected disclosure increased the estimate only to the extent that the
reason for revision actually increased the cost, and showing that the
timing requirements of Sec. 1026.19(e)(4) were satisfied. However, the
documentation requirement does not require separate corrected
disclosures for each change. A creditor may provide corrected
disclosures reflecting multiple changed circumstances, provided that
the creditor's documentation demonstrates that each correction complies
with the requirements of Sec. 1026.19(e).
19(e)(3)(iv)(A) Changed circumstance affecting settlement charges.
1. Requirement. Except for the items identified in Sec.
1026.19(e)(3) (iii), revised charges are compared to actual charges if
the revision was caused by a changed circumstance. See also comment
19(e)(3)(iv)(A)-2 regarding the definition of a changed circumstance.
The following examples illustrate the application of this provision:
i. Assume a creditor provides a $200 estimated appraisal fee
pursuant to Sec. 1026.19(e)(1)(i), which will be paid to an affiliated
appraiser and therefore may not increase for purposes of determining
good faith under Sec. 1026.19(e)(3)(i), except as provided in Sec.
1026.19(e)(3)(iv). The estimate was based on information provided by
the consumer at application, which included information indicating that
the subject property was a single-family dwelling. Upon arrival at the
subject property, the appraiser discovers that the property is actually
a single-family dwelling located on a farm. A different schedule of
appraisal fees applies to residences located on farms. A changed
circumstance has occurred (i.e., information provided by the consumer
is found to be inaccurate after the disclosures required under Sec.
1026.19(e)(1)(i) were provided), which caused an increase in the cost
of the appraisal. Therefore, if the creditor issues revised disclosures
with the corrected appraisal fee, the actual appraisal fee of $400 paid
at the real estate closing by the consumer will be compared to the
revised appraisal fee of $400 to determine if the actual fee has
increased above the estimated fee. However, if the creditor failed to
provide revised disclosures, then the actual appraisal fee of $400 must
be compared to the originally disclosed estimated appraisal fee of
$200.
ii. Assume a creditor provides a $400 estimate of title fees, which
are included in the category of fees which may not increase by more
than ten percent for the purposes of determining good faith under Sec.
1026.19(e)(3)(ii), except as provided in Sec. 1026.19(e)(3)(iv). An
unreleased lien is discovered and the title company must perform
additional work to release the lien. However, the additional costs
amount to only a five percent increase over the sum of all fees
included in the category of fees which may not increase by more than
ten percent. A changed circumstance has occurred (i.e., new
information), but costs have not increased by more than ten percent.
Therefore, if the creditor issues revised disclosures, when the
disclosures required by Sec. 1026.19(f)(1)(i) are delivered, the
actual title fees of $500 may not be compared to the revised title fees
of $500; they must be compared to the originally estimated title fees
of $400.
2. Changed circumstance. A changed circumstance may be an
extraordinary event beyond the control of any interested party. For
example, a war or a natural disaster would be an extraordinary event
beyond the control of an interested party. A changed circumstance may
also be an unexpected event specific to the consumer or the
transaction. For example, if the creditor provided an estimate of title
insurance on the disclosures required under Sec. 1026.19(e)(1)(i), but
the title insurer goes out of business during underwriting, then this
unexpected event specific to the transaction is a changed circumstance.
A changed circumstance may also be information specific to the consumer
or transaction that the creditor relied upon when providing the
disclosures required under Sec. 1026.19(e)(1)(i) and that was
inaccurate or changed after the disclosures were provided. For example,
if the creditor relied on the consumer's income when providing the
disclosures required under Sec. 1026.19(e)(1)(i), and the consumer
represented to the creditor that the consumer had an annual income of
$90,000, but underwriting determines that the consumer's annual income
is only $80,000, then this inaccuracy in information relied upon is a
changed circumstance. Or, assume two co-applicants applied for a
mortgage loan. One applicant's income was $30,000, while the other
applicant's income was $50,000. If the creditor relied on the combined
income of $80,000 when providing the disclosures required under Sec.
1026.19(e)(1)(i), but the applicant earning $30,000 becomes unemployed
during underwriting, thereby reducing the combined income to $50,000,
then this change in information relied upon is a changed circumstance.
A changed circumstance may also be the discovery of new information
specific to the consumer or transaction that the creditor did not rely
on when providing the original disclosures. For example, if the
creditor relied upon the value of the property in providing the
disclosures required under Sec. 1026.19(e)(1)(i), but during
underwriting a neighbor of the seller, upon learning of the impending
sale of the property, files a claim contesting the boundary of the
property to be sold, then this new information specific to
[[Page 51425]]
the transaction is a changed circumstance.
3. Six pieces of information presumed collected, but not required.
Section 1026.19(e)(1)(iii) requires creditors to deliver the
disclosures not later than the third business day after the creditor
receives the consumer's application, which Sec. 1026.2(a)(3)(ii)
defines as six pieces of information. A creditor is not required to
collect the consumer's name, monthly income, or social security number
to obtain a credit report, the property address, an estimate of the
value of the property, or the mortgage loan amount sought. However, for
purposes of determining whether an estimate is provided in good faith
under Sec. 1026.19(e)(1)(i), a creditor is presumed to have collected
these six pieces of information. For example, if a creditor provides
the disclosures required by Sec. 1026.19(e)(1)(i) prior to receiving
the property address from the consumer, the creditor cannot
subsequently claim that the receipt of the property address is a
changed circumstance pursuant to Sec. 1026.19(e)(3)(iv)(A) or (B).
19(e)(3)(iv)(B) Changed circumstance affecting eligibility.
1. Requirement. If changed circumstances cause a change in the
consumer's eligibility for specific loan terms disclosed pursuant to
Sec. 1026.19(e)(1)(i) and revised disclosures are provided reflecting
such change, the final amounts paid by the consumer may be compared to
the revised estimated disclosures to determine if the actual fee has
increased above the estimated fee. For example, assume that, prior to
providing the disclosures required by Sec. 1026.19(e)(1)(i), the
creditor believed that the consumer was eligible for a loan program
that did not require an appraisal. The creditor then provides the
estimated disclosures required by Sec. 1026.19(e)(1)(i), which do not
include an estimated charge for an appraisal. During underwriting it is
discovered that the consumer was delinquent on mortgage loan payments
in the past, making the consumer ineligible for the loan program
originally identified on the estimated disclosures, but the consumer
remains eligible for a different program that requires an appraisal. If
the creditor provides revised disclosures reflecting the new program
and including the appraisal fee, then the actual appraisal fee will be
compared to the revised appraisal fee to determine if the actual fee
has increased above the estimated fee. However, if the revised
disclosures also include increased estimates for title fees, the actual
title fees must be compared to the original estimates because the
increased title fees do not stem from the change in eligibility. See
also Sec. 1026.19(e)(3)(iv)(A) and comment 19(e)(3)(iv)(A)-2 regarding
the definition of changed circumstances.
19(e)(3)(iv)(C) Revisions requested by the consumer.
1. Requirement. If the consumer requests revisions to the
transaction that affect items disclosed pursuant to Sec.
1026.19(e)(1)(i), and the creditor provides revised disclosures
reflecting the consumer's requested changes, the final disclosures are
compared to the revised disclosures to determine whether the actual fee
has increased above the estimated fee. For example, assume that the
consumer decides to grant a power of attorney authorizing a family
member to consummate the transaction on the consumer's behalf after the
disclosures required under Sec. 1026.19(e)(1)(i) are provided. If the
creditor provides revised disclosures reflecting the fee to record the
power of attorney, then the actual charges will be compared to the
revised charges to determine if the fees have increased.
19(e)(3)(iv)(D) Interest rate dependent charges.
1. Requirements. If the interest rate is not set when the
disclosures required by Sec. 1026.19(e)(1)(i) are delivered, a valid
reason for revision exists when the interest rate is subsequently set,
at which point Sec. 1026.19(e)(3)(iv)(D) requires the creditor to
issue a revised version of the disclosures required by Sec.
1026.19(e)(1)(i) reflecting the revised interest rate, bona fide
discount points, and lender credits. The following examples illustrate
this requirement:
i. Assume a creditor sets the interest rate by executing a rate
lock agreement with the consumer. If such an agreement exists when the
disclosures required by Sec. 1026.19(e)(1)(i) are originally provided,
then the actual bona fide discount points and lender credits are
compared to the estimated bona fide discount points and lender credits
included in the disclosures originally provided pursuant to Sec.
1026.19(e)(1)(i) for the purpose of determining good faith pursuant to
Sec. 1026.19(e)(3)(i). If the consumer enters into a rate lock
agreement with the creditor after the disclosures required by Sec.
1026.19(e)(1)(i) were provided, then Sec. 1026.19(e)(3)(iv)(D)
requires the creditor to provide revised disclosures reflecting any
revised bona fide discount points and lender credits, in which case the
actual bona fide discount points and lender credits are compared to the
revised bona fide discount points and lender credits for the purpose of
determining good faith pursuant to Sec. 1026.19(e)(3)(i).
ii. Assume a creditor does not offer rate lock agreements, but
instead sets the interest rate on all mortgage loan transactions
according to the interest rate in effect seven days prior to
consummation. Section 1026.19(e)(3)(iv)(D) requires the creditor to
issue a revised version of the disclosures required by Sec.
1026.19(e)(1)(i) reflecting the set interest rate, bona fide discount
points, and lender credits. The actual bona fide discount points and
lender credits are compared to the revised bona fide discount points
and lender credits for the purpose of determining good faith pursuant
to Sec. 1026.19(e)(3)(i).
19(e)(3)(iv)(E) Expiration.
1. Requirements. Section 1026.19(e)(3)(i) provides the general rule
that the actual fees charged cannot exceed the fees disclosed pursuant
to Sec. 1026.19(e)(1)(i). An exception to that rule applies if the
creditor provides revised versions of the disclosures required by Sec.
1026.19(e)(1)(i) because the consumer indicates an intent to proceed
with the transaction more than ten business days after the disclosures
were originally provided. However, Sec. 1026.19(e)(3)(iv)(E) requires
no justification for the change other than the lapse of ten business
days. For example, assume a creditor includes a $500 underwriting fee
on the disclosures provided pursuant to Sec. 1026.19(e)(1)(i) and the
creditor delivers those disclosures on a Monday. If the consumer
indicates intent to proceed 11 business days later, the creditor may
provide new disclosures with a $700 underwriting fee. In this example
Sec. 1026.19(e) and Sec. 1026.25 require the creditor to document
that a new disclosure was provided pursuant to Sec.
1026.19(e)(3)(iv)(E), but do not require the creditor to document a
reason for the increase in the underwriting fee.
19(e)(3)(iv)(F) Delayed settlement date on a construction loan.
1. Requirements. A loan for the purchase of a home either to be
constructed or under construction is considered a construction loan to
build a home for the purposes of Sec. 1026.19(e)(3)(iv)(F). For
example, a loan to purchase and build a home that has yet to be
constructed, or a loan to purchase a home on which construction is
currently underway, is a construction loan to build a home for the
purposes of Sec. 1026.19(e)(3)(iv)(F). However, if a use and occupancy
permit has been issued for the home prior to the issuance of the Loan
Estimate, then the home is not considered to be under construction and
the transaction would not be a construction loan to build a
[[Page 51426]]
home for the purposes of Sec. 1026.19(e)(3)(iv)(F).
19(e)(4) Provision of revised disclosures.
1. Three-day requirement. Section 1026.19(e)(4) provides that the
creditor must deliver revised disclosures within three business days of
receiving information sufficient to establish that a reason for
revision, as specified under Sec. 1026.19(e)(3)(iv)(A) through (F),
has occurred. The following examples illustrate these requirements:
i. Assume a creditor requires a pest inspection. The unaffiliated
pest inspection company informs the creditor on Monday that the subject
property contains evidence of termite damage, requiring a further
inspection, the cost of which will cause an increase in estimated
settlement charges subject to Sec. 1026.19(e)(3)(ii) by more than ten
percent. The creditor must deliver revised disclosures by Thursday to
comply with Sec. 1026.19(e)(4)(i).
ii. Assume a creditor receives information on Monday that, because
of a changed circumstance under Sec. 1026.19(e)(3)(iv)(A), the title
fees will increase by an amount totaling six percent of the originally
estimated settlement charges subject to Sec. 1026.19(e)(3)(ii). The
creditor had received information three weeks before that, because of a
changed circumstance under Sec. 1026.19(e)(3)(iv)(A), the appraisal
fees increased by an amount totaling five percent of the originally
estimated settlement charges subject to Sec. 1026.19(e)(3)(ii). Thus,
on Monday, the creditor has received sufficient information to
establish a valid reason for revision and must provide revised
disclosures reflecting the 11 percent increase by Thursday to comply
with Sec. 1026.19(e)(4)(i).
iii. Assume a creditor requires an appraisal. The creditor receives
the appraisal report, which indicates that the value of the home is
significantly lower than expected. However, the creditor has reason to
doubt the validity of the appraisal report. A reason for revision has
not been established because the creditor reasonably believes that the
appraisal report is incorrect. The creditor then chooses to send a
different appraiser for a second opinion, but the second appraiser
returns a similar report. At this point, the creditor has received
information sufficient to establish that a reason for revision has, in
fact, occurred, and must provide corrected disclosures within three
business days of receiving the second appraisal report. In this
example, in order to comply with Sec. 1026.19(e)(3)(iv) and Sec.
1026.25, the creditor must maintain records documenting the creditor's
doubts regarding the validity of the appraisal to demonstrate that the
reason for revision did not occur upon receipt of the first appraisal
report.
2. Revised disclosures may not be delivered at the same time as the
final disclosures. Creditors comply with the requirements of Sec.
1026.19(e)(4) if the revised disclosures are reflected in the
disclosures required by Sec. 1026.19(f)(1)(i). For example, if the
creditor is scheduled to meet with the consumer and provide the
disclosures required by Sec. 1026.19(f)(1)(i) on Wednesday, and the
APR becomes inaccurate on Tuesday, the creditor would comply with the
requirements of Sec. 1026.19(e)(4) by providing the disclosures
required by Sec. 1026.19(f)(1)(i) reflecting the revised APR on
Wednesday. However, the creditor would not comply with the requirements
of Sec. 1026.19(e)(4) if it provided both a revised version of the
disclosures required by Sec. 1026.19(e)(1)(i) reflecting the revised
APR on Wednesday, and also provided the disclosures required by Sec.
1026.19(f)(1)(i) on Wednesday. Or, if the creditor is scheduled to
email the disclosures required by Sec. 1026.19(f)(1)(i) to the
consumer on Wednesday, and the consumer requests a change to the loan
that would result in revised disclosures pursuant to Sec.
1026.19(e)(3)(iv)(C) on Tuesday, the creditor would comply with the
requirements Sec. 1026.19(e)(4) by providing the disclosures required
by Sec. 1026.19(f)(1)(i) reflecting the consumer requested changes on
Wednesday. However, the creditor would not comply if it provided both
the disclosures required by Sec. 1026.19(e)(1)(i) reflecting consumer
requested changes and the disclosures required by Sec.
1026.19(f)(1)(i) on Wednesday.
Alternative 1--Paragraph (f)(1)
19(f) Mortgage loans secured by real property--Final disclosures.
19(f)(1) Provision.
19(f)(1)(i) Scope.
1. Requirements. Section 1026.19(f)(1)(i) requires disclosure of
the actual terms of the credit transaction, and the actual costs
associated with the settlement of that transaction, for closed-end
credit transactions that are secured by real property, other than
reverse mortgages subject to Sec. 1026.33. For example, if the
creditor requires the consumer to pay money into a reserve account for
the future payment of taxes, the creditor must disclose to the consumer
the exact amount that the consumer is required to pay into the reserve
account. If the disclosures provided pursuant to Sec. 1026.19(f)(1)(i)
do not contain the actual terms of the transaction, the creditor does
not violate Sec. 1026.19(f)(1)(i) if the creditor provides new
disclosures that contain the actual terms of the transaction and
complies with the other requirements of Sec. 1026.19(f), including the
timing requirements in Sec. 1026.19(f)(1)(ii). For example, if the
creditor provides the disclosures required by Sec. 1026.19(f)(1)(i) on
Monday, June 1, but the consumer requests a change to the terms of the
transaction on Tuesday, June 2, the creditor complies with Sec.
1026.19(f)(1)(i) if it provides disclosures reflecting the revised
terms of the transaction on or after Tuesday, June 2, assuming that the
revised disclosures are also provided no later than three business days
before consummation.
19(f)(1)(ii) Timing.
1. Timing. Except as provided in Sec. 1026.19(f)(1)(ii)(B) or
(f)(2), the disclosures required by Sec. 1026.19(f)(1)(i) must be
received by the consumer no later than three business days before
consummation. For example, if consummation is scheduled for Thursday,
the creditor satisfies this requirement by hand delivering the
disclosures on Monday, assuming each weekday is a business day. For
purposes of Sec. 1026.19(f)(1)(ii), the term ``business day'' means
all calendar days except Sundays and legal public holidays referred to
in Sec. 1026.2(a)(6). See comment 2(a)(6)-2. See comment 2(a)(6)-1.
2. Receipt of disclosures three business days before consummation.
Section 1026.19(f)(1)(ii) provides that the consumer must receive the
disclosures no later than three business days before consummation. To
comply with this requirement, the creditor must arrange for delivery
accordingly. For example, if the consummation is scheduled for
Thursday, the creditor satisfies this requirement by delivering the
disclosures on Monday by way of electronic mail, provided the
requirements of Sec. 1026.17(a)(1) relating to disclosures in
electronic form are satisfied and assuming that each weekday is a
business day. However, a creditor does not satisfy the requirements of
Sec. 1026.19(f)(1)(ii) in this example if the creditor places the
disclosures in the mail on Monday. A creditor would satisfy the
requirements of Sec. 1026.19(f)(1)(ii) in this example if the creditor
places the disclosures in the mail on Thursday of the previous week,
because, for the purposes of Sec. 1026.19(f)(1)(ii), Saturday as a
business day, pursuant to Sec. 1026.2(a)(6).
3. Timeshares. For loans secured by timeshares, as defined under 11
U.S.C.
[[Page 51427]]
101(53D), Sec. 1026.19(f)(1)(ii)(B) requires a creditor to ensure that
the consumer receives the disclosures required under Sec.
1026.19(f)(1)(i) as soon as reasonably practicable, but no later than
consummation. For example, if a consumer provides the creditor with an
application, as defined by Sec. 1026.2(a)(3), for a mortgage loan
secured by a timeshare on Monday, June 1, the creditor may provide the
consumer with the disclosures required by Sec. 1026.19(e)(1)(i) on the
same day, pursuant to Sec. 1026.19(e)(1)(iii). If consummation of this
transaction is scheduled for Friday, June 5, the creditor may provide
the consumer with the disclosures required by Sec. 1026.19(f)(1)(i) on
Tuesday, June 2, if doing so is reasonably practicable. If, however,
consummation is scheduled for Tuesday, June 2, then the creditor
complies with Sec. 1026.19(f)(1)(ii)(B) by providing the disclosures
required by Sec. 1026.19(f)(1)(i) on Tuesday, June 2, the day of
consummation. If the consumer provides the creditor with an
application, as defined by Sec. 1026.2(a)(3), for a mortgage loan
secured by a timeshare on Monday, June 1, and wishes to consummate the
transaction on that same day, then the creditor complies with Sec.
1026.19(e)(4)(ii) by providing the disclosures required by Sec.
1026.19(f)(1)(i) instead of the disclosures required by Sec.
1026.19(e)(1)(i) on Monday, June 1, and the creditor also complies with
Sec. 1026.19(f)(1)(ii)(B) by providing the disclosures required by
Sec. 1026.19(f)(1)(i) on Monday, June 1.
19(f)(1)(iii) Delivery.
1. Mail delivery. Section 1026.19(f)(1)(iii) provides that, if any
disclosures required under Sec. 1026.19(f)(1)(i) are not provided to
the consumer in person, the consumer is presumed to have received the
disclosures three business days after they are mailed or delivered to
the address specified by the consumer. This is a presumption which may
be rebutted by providing evidence that the consumer received the
disclosures earlier than three business days. For example, if the
creditor sends the disclosures via overnight mail on Monday, and the
consumer signs for receipt of the overnight delivery on Tuesday, the
creditor could demonstrate that the disclosures were received on
Tuesday, thereby rebutting the presumption that the disclosures were
received on Thursday, three business days after the disclosures were
sent.
2. Electronic delivery. The presumption established in Sec.
1026.19(f)(1)(iii) applies to methods of electronic delivery, such as
email. For example, if a creditor sends a disclosure required under
Sec. 1026.19(f) via email on Monday, pursuant to Sec.
1026.19(f)(1)(iii) the consumer is presumed to have received the
disclosure on Thursday, three business days later. However, the
creditor may rebut the presumption by providing evidence that the
consumer received the emailed disclosures earlier. Creditors using
electronic delivery methods, such as email, must also comply with Sec.
1026.17(a)(1). For example, if a creditor delivers the disclosures
required by Sec. 1026.19(f)(1)(i) to a consumer via email, but the
creditor did not obtain the consumer's consent to receive disclosures
via email prior to delivering the disclosures, then the creditor does
not comply with Sec. 1026.17(a)(1), and the creditor does not comply
with Sec. 1026.19(f)(1)(i), assuming the disclosures were not provided
in a different manner in accordance with the timing requirements of
Sec. 1026.19(f)(1)(ii).
19(f)(1)(iv) Consumer's waiver of waiting period before
consummation.
1. Modification or waiver. A consumer may modify or waive the right
to the three-business-day waiting period required by Sec.
1026.19(f)(1)(ii) only after the creditor makes the disclosures
required by Sec. 1026.19(f)(1)(i). The consumer must have a bona fide
personal financial emergency that necessitates consummating the credit
transaction before the end of the waiting period. Whether these
conditions are met is determined by the facts surrounding individual
situations. The imminent sale of the consumer's home at foreclosure,
where the foreclosure sale will proceed unless loan proceeds are made
available to the consumer during the waiting period, is one example of
a bona fide personal financial emergency. Each consumer who is
primarily liable on the legal obligation must sign the written
statement for the waiver to be effective.
Alternative 2--Paragraph (f)(1)
19(f) Mortgage loans secured by real property--Final disclosures.
19(f)(1) Provision.
19(f)(1)(i) Scope.
1. Requirements. Section 1026.19(f)(1)(i) requires disclosure of
the actual terms of the credit transaction, and the actual costs
associated with the settlement of that transaction, for closed-end
credit transactions that are secured by real property, other than
reverse mortgages subject to Sec. 1026.33. For example, if the
creditor requires the consumer to pay money into a reserve account for
the future payment of taxes, the creditor must disclose to the consumer
the exact amount that the consumer is required to pay into the reserve
account. If the disclosures provided pursuant to Sec. 1026.19(f)(1)(i)
do not contain the actual terms of the transaction, the creditor does
not violate Sec. 1026.19(f)(1)(i) if the creditor provides new
disclosures that contain the actual terms of the transaction and
complies with the other requirements of Sec. 1026.19(f), including the
timing requirements in Sec. 1026.19(f)(1)(ii). For example, if the
creditor provides the disclosures required by Sec. 1026.19(f)(1)(i) on
Monday, June 1, but the consumer requests a change to the terms of the
transaction on Tuesday, June 2, the creditor complies with Sec.
1026.19(f)(1)(i) if it provides disclosures reflecting the revised
terms of the transaction on or after Tuesday, June 2, assuming that the
revised disclosures are also provided no later than three business days
before consummation.
19(f)(1)(ii) Timing.
1. Timing. Except as provided in Sec. 1026.19(f)(1)(ii)(B) or
(f)(2), the disclosures required by Sec. 1026.19(f)(1)(i) must be
received by the consumer no later than three business days before
consummation. For example, if consummation is scheduled for Thursday,
the creditor satisfies this requirement by hand delivering the
disclosures on Monday, assuming each weekday is a business day. For
purposes of Sec. 1026.19(f)(1)(ii), the term ``business day'' means
all calendar days except Sundays and legal public holidays referred to
in Sec. 1026.2(a)(6). See comment 2(a)(6)-2. See comment 2(a)(6)-1.
2. Receipt of disclosures three business days before consummation.
Section 1026.19(f)(1)(ii) provides that the consumer must receive the
disclosures no later than three business days before consummation. To
comply with this requirement, the creditor must arrange for delivery
accordingly. For example, if the consummation is scheduled for
Thursday, the creditor satisfies this requirement by delivering the
disclosures on Monday by way of electronic mail, provided the
requirements of Sec. 1026.17(a)(1) relating to disclosures in
electronic form are satisfied and assuming that each weekday is a
business day. However, a creditor does not satisfy the requirements of
Sec. 1026.19(f)(1)(ii) in this example if the creditor places the
disclosures in the mail on Monday. A creditor would satisfy the
requirements of Sec. 1026.19(f)(1)(ii) in this example if the creditor
places the disclosures in the mail on Thursday of the previous week,
because, for the purposes of
[[Page 51428]]
Sec. 1026.19(f)(1)(ii), Saturday as a business day, pursuant to Sec.
1026.2(a)(6).
3. Timeshares. For loans secured by timeshares, as defined under 11
U.S.C. 101(53D), Sec. 1026.19(f)(1)(ii)(B) requires a creditor to
ensure that the consumer receives the disclosures required under Sec.
1026.19(f)(1)(i) as soon as reasonably practicable, but no later than
consummation. For example, if a consumer provides the creditor with an
application, as defined by Sec. 1026.2(a)(3), for a mortgage loan
secured by a timeshare on Monday, June 1, the creditor may provide the
consumer with the disclosures required by Sec. 1026.19(e)(1)(i) on the
same day, pursuant to Sec. 1026.19(e)(1)(iii). If consummation of this
transaction is scheduled for Friday, June 5, the creditor may provide
the consumer with the disclosures required by Sec. 1026.19(f)(1)(i) on
Tuesday, June 2, if doing so is reasonably practicable. If, however,
consummation is scheduled for Tuesday, June 2, then the creditor
complies with Sec. 1026.19(f)(1)(ii)(B) by providing the disclosures
required by Sec. 1026.19(f)(1)(i) on Tuesday, June 2, the day of
consummation. If the consumer provides the creditor with an
application, as defined by Sec. 1026.2(a)(3), for a mortgage loan
secured by a timeshare on Monday, June 1, and wishes to consummate the
transaction on that same day, then the creditor complies with Sec.
1026.19(e)(4)(ii) by providing the disclosures required by Sec.
1026.19(f)(1)(i) instead of the disclosures required by Sec.
1026.19(e)(1)(i) on Monday, June 1, and the creditor also complies with
Sec. 1026.19(f)(1)(ii)(B) by providing the disclosures required by
Sec. 1026.19(f)(1)(i) on Monday, June 1.
19(f)(1)(iii) Delivery.
1. Mail delivery. Section 1026.19(f)(1)(iii) provides that, if any
disclosures required under Sec. 1026.19(f)(1)(i) are not provided to
the consumer in person, the consumer is presumed to have received the
disclosures three business days after they are mailed or delivered to
the address specified by the consumer. This is a presumption which may
be rebutted by providing evidence that the consumer received the
disclosures earlier than three business days. For example, if the
creditor sends the disclosures via overnight mail on Monday, and the
consumer signs for receipt of the overnight delivery on Tuesday, the
creditor could demonstrate that the disclosures were received on
Tuesday, thereby rebutting the presumption that the disclosures were
received on Thursday, three business days after the disclosures were
sent.
2. Electronic delivery. The presumption established in Sec.
1026.19(f)(1)(iii) applies to methods of electronic delivery, such as
email. For example, if a creditor sends a disclosure required under
Sec. 1026.19(f) via email on Monday, pursuant to Sec.
1026.19(f)(1)(iii) the consumer is presumed to have received the
disclosure on Thursday, three business days later. However, the
creditor may rebut the presumption by providing evidence that the
consumer received the emailed disclosures earlier. Creditors using
electronic delivery methods, such as email, must also comply with Sec.
1026.17(a)(1). For example, if a creditor delivers the disclosures
required by Sec. 1026.19(f)(1)(i) to a consumer via email, but the
creditor did not obtain the consumer's consent to receive disclosures
via email prior to delivering the disclosures, then the creditor does
not comply with Sec. 1026.17(a)(1), and the creditor does not comply
with Sec. 1026.19(f)(1)(i), assuming the disclosures were not provided
in a different manner in accordance with the timing requirements of
Sec. 1026.19(f)(1)(ii).
19(f)(1)(iv) Consumer's waiver of waiting period before
consummation.
1. Modification or waiver. A consumer may modify or waive the right
to the three-business-day waiting period required by Sec.
1026.19(f)(1)(ii) only after the creditor makes the disclosures
required by Sec. 1026.19(f)(1)(i). The consumer must have a bona fide
personal financial emergency that necessitates consummating the credit
transaction before the end of the waiting period. Whether these
conditions are met is determined by the facts surrounding individual
situations. The imminent sale of the consumer's home at foreclosure,
where the foreclosure sale will proceed unless loan proceeds are made
available to the consumer during the waiting period, is one example of
a bona fide personal financial emergency. Each consumer who is
primarily liable on the legal obligation must sign the written
statement for the waiver to be effective.
19(f)(1)(v) Settlement agent
1. Requirements. A settlement agent may provide the disclosures
required under Sec. 1026.19(f)(1)(i) instead of the creditor. By
assuming this responsibility, the settlement agent becomes responsible
for complying with all of the relevant requirements as if it were the
creditor, meaning that ``settlement agent'' should be read in the place
of ``creditor'' for all the relevant provisions of Sec. 1026.19(f),
except where such a reading would create responsibility for settlement
agent under Sec. 1026.19(e). For example, comment 19(f)(1)(ii)-3
states that, if a consumer provides the creditor with an application
for a mortgage loan secured by a timeshare on Monday, June 1, the
creditor may provide the consumer with the disclosures required by
Sec. 1026.19(e)(1)(i) on the same day, pursuant to Sec.
1026.19(e)(1)(iii). ``Settlement agent'' could not be read in place of
``creditor'' in comment 19(f)(1)(ii)-3 because the settlement agents
are not responsible for the disclosures required by Sec.
1026.19(e)(1)(i). To ensure timely and accurate compliance with the
requirements of this section, the creditor and settlement agent need to
effectively communicate.
2. Settlement agent responsibilities. If a settlement agent issues
any disclosure under Sec. 1026.19(f), the settlement agent must comply
with the requirements of Sec. 1026.19(f). For example, the settlement
agent must ensure that the consumer received the disclosures required
under Sec. 1026.19(f)(1)(i) no later than three business days before
consummation in accordance with Sec. 1026.19(f)(1)(ii). The settlement
agent may assume the responsibility to provide some or all of the
disclosures required by Sec. 1026.19(f). For example, both the
creditor and the settlement agent comply with the requirements of Sec.
1026.19(f)(1)(v) if the settlement agent agrees to complete only the
portion of the disclosures required by Sec. 1026.19(f)(1)(i) related
to closing costs for taxes, title fees, and insurance premiums, the
creditor agrees to complete the remainder of the disclosures required
by Sec. 1026.19(f)(1)(i), and either the settlement agent or the
creditor provides the consumer with one single disclosure form
containing all of the information required to be disclosed pursuant to
Sec. 1026.19(f)(1)(i), in accordance with the other requirements in
Sec. 1026.19(f), such as requirements related to timing and delivery.
3. Creditor responsibilities. If a settlement agent provides
disclosures required under Sec. 1026.19(f) in the creditor's place,
the creditor remains responsible under Sec. 1026.19(f) for ensuring
that the requirements of Sec. 1026.19(f) have been satisfied. For
example, the creditor does not comply with Sec. 1026.19(f) if the
settlement agent does not provide the disclosures required under Sec.
1026.19(f)(1)(i), or if the consumer receives the disclosures later
than three business days before consummation, in accordance with Sec.
1026.19(f)(1)(ii). The creditor does not satisfy the requirements of
Sec. 1026.19(f) if it provides duplicative disclosures. For example, a
creditor does not satisfy its obligation by issuing disclosures
[[Page 51429]]
required under Sec. 1026.19(f) that mirror ones already issued by the
settlement agent for the purpose of demonstrating that the consumer
received timely disclosures. The creditor is expected to maintain
communication with the settlement agent to ensure that the settlement
agent is acting in place of the creditor. Disclosures provided by a
settlement agent in accordance with Sec. 1026.19(f)(1)(v) satisfy the
creditor's obligation under Sec. 1026.19(f)(1)(i).
4. Shared responsibilities permitted. The settlement agent may
assume the responsibility to provide some or all of the disclosures
required by Sec. 1026.19(f). For example, the creditor complies with
the requirements of Sec. 1026.19(f)(1)(i) and the settlement agent
complies with the requirements of Sec. 1026.19(f)(1)(v) if the
settlement agent agrees to complete only the portion of the disclosures
required by Sec. 1026.19(f)(1)(i) related to closing costs for taxes,
title fees, and insurance premiums, the creditor agrees to complete the
remainder of the disclosures required by Sec. 1026.19(f)(1)(i), and
either the settlement agent or the creditor provides the consumer with
one single disclosure form containing all of the information required
to be disclosed pursuant to Sec. 1026.19(f)(1)(i), in accordance with
the other requirements in Sec. 1026.19(f), such as requirements
related to timing and delivery.
19(f)(2) Subsequent changes.
19(f)(2)(i) Changes due to consumer and seller negotiations.
1. Requirements. Section 1026.19(f)(2)(i) provides that the
creditor need not comply with the timing requirements in Sec.
1026.19(f)(1)(ii) if the revisions reflect changes to the transaction
due to negotiations between the seller and the consumer, and such
changes occur after the creditor provides the consumer with the
disclosures required by Sec. 1026.19(f)(1)(i). For example:
i . Assume consummation is scheduled for Thursday, the consumer
received the disclosures required under Sec. 1026.19(f)(1)(i) on
Monday, and a walk-through inspection occurs on Wednesday morning.
During the walk-through the consumer discovers damage to the
dishwasher. The seller agrees to credit the consumer $500 towards a new
dishwasher. The creditor complies with the requirements of Sec.
1026.19(f) if the creditor provides a revised disclosure at or before
consummation on Thursday.
ii. Assume consummation is scheduled for Friday and on Monday
morning the creditor sends the disclosures via overnight delivery to
the consumer, ensuring that the consumer receives the disclosures on
Tuesday. On Monday night, the seller agrees to sell certain household
furnishings to the consumer for an additional $1,000, to be paid at the
real estate closing, and the consumer immediately informs the creditor
of the change. The creditor may deliver revised disclosures at or
before consummation. The creditor does not violate Sec. 1026.19(f)
because the change to the transaction resulting from negotiations
between the seller and consumer occurred after the creditor provided
the final disclosures, regardless of the fact that the change occurred
before the consumer had received the final disclosures.
19(f)(2)(ii) Changes to the amount actually paid by the consumer.
1. Requirements. Section 1026.19(f)(2)(ii) states that the creditor
may provide revised disclosures without complying with the timing
requirements in Sec. 1026.19(f)(1)(ii) if the amount actually paid by
the consumer does not exceed the amount disclosed pursuant to Sec.
1026.19(f)(1)(i) by more than $100, provided that the creditor delivers
revised disclosures at or before consummation. For example, assume the
disclosures provided pursuant to Sec. 1026.19(f)(1)(i) reflect $18,700
as the total amount the consumer must pay at the real estate closing.
If the disclosures reflect a homeowner's insurance premium of $800, but
the premium is actually $850, the $50 understatement is not a violation
of Sec. 1026.19(f)(1)(i). In such case, the creditor complies with
Sec. 1026.19(f)(1)(i) by providing revised disclosures to the consumer
at or before consummation, pursuant to Sec. 1026.19(f)(2)(ii),
reflecting the revised $850 homeowner's insurance premium and the
revised $18,750 as the total amount the consumer must pay at the real
estate closing. See also comment 38(i)(9)(ii)-1.
2. Other adjustments permitted. Revised disclosures provided at
consummation may reflect adjustments pursuant to both Sec.
1026.19(f)(2)(i) and (f)(2)(ii). Thus, although Sec. 1026.19(f)(2)(ii)
limits the difference between the amount disclosed pursuant to Sec.
1026.19(f)(1)(i) and the amount actually paid by the consumer to $100,
the amount actually paid by the consumer may vary by more than $100 to
the extent permitted by Sec. 1026.19(f)(2)(i). For example, if the
disclosures reflect a homeowner's insurance premium of $800, but the
premium is actually $850, the $50 understatement is not a violation of
Sec. 1026.19(f)(1)(i). If, in addition to this understatement, the
total amount due from the buyer increases by $500 as a result of
consumer and seller negotiations, the creditor complies with Sec.
1026.19(f)(1)(i) by providing revised disclosures reflecting the $550
increase to the consumer at or before closing, pursuant to Sec.
1026.19(f)(2)(ii). However, to comply with Sec. 1026.25, the creditor
must maintain documentation demonstrating that $500 of the increase was
due to negotiations between the consumer and the seller under Sec.
1026.19(f)(2)(i), and that the remainder of the increase complied with
Sec. 1026.19(f)(2)(ii).
19(f)(2)(iii) Changes due to events occurring after consummation.
1. Requirements. Section 1026.19(f)(2)(iii) requires the creditor
to deliver revised disclosures within three business days of an event
that occurs after consummation that causes the disclosures to become
inaccurate, provided such inaccuracy results solely from payments to a
government entity in connection with the transaction. For example:
i. Assume consummation occurs on a Monday and the security
instrument is recorded on Tuesday, the day after consummation. If the
fees charged by the recorder's office differ from those disclosed
pursuant to Sec. 1026.19(f)(1)(i), the creditor complies with Sec.
1026.19(f)(1)(i) by revising the disclosures accordingly and delivering
or placing them in the mail no later than Friday, three business days
after Tuesday. However, if the fees charged by the recorder's office
differ from those disclosed pursuant to Sec. 1026.19(f)(1)(i), but the
security instrument is not recorded until the 28th day after
consummation, the creditor does not comply with Sec. 1026.19(f)(1)(i)
by placing the revised disclosures in the mail on that day, unless the
creditor otherwise ensures that the consumer receives the revised
disclosures by no later than 30 days after consummation, pursuant to
Sec. 1026.19(f)(2)(iii).
ii. Assume consummation occurs on a Monday and the security
instrument is recorded on Tuesday, the day after consummation. If the
transfer taxes owed to the State differ from those disclosed pursuant
to Sec. 1026.19(f)(1)(i), then the creditor complies with Sec.
1026.19(f)(1)(i) by revising the disclosures accordingly and delivering
or placing them in the mail no later than Friday, three business days
after Tuesday, and the consumer receives them no later than 30 days
after consummation, pursuant to Sec. 1026.19(f)(2)(iii).
iii. Assume consummation occurs on a Monday and the security
instrument is recorded on Tuesday, the day after consummation. During
the recording process it is discovered that the property is subject to
an unpaid $500
[[Page 51430]]
nuisance abatement assessment, which was not disclosed pursuant to
Sec. 1026.19(f)(1)(i). The creditor complies with Sec.
1026.19(f)(1)(i) by revising the disclosures accordingly and delivering
or placing them in the mail no later than Friday, three business days
after Tuesday, and the consumer receives them no later than 30 days
after consummation, pursuant to Sec. 1026.19(f)(2)(iii).
iv. Assume consummation occurs on a Monday and the security
instrument is recorded on Tuesday, the day after consummation. Assume
further that ten days after consummation the municipality in which the
property is located raises property taxes. Section 1026.19(f)(2)(iii)
does not require the creditor to provide the consumer with a revised
version of the disclosure required pursuant to Sec. 1026.19(f)(1)(i),
because the increase in property tax rates is not in connection with
the consumer's transaction.
19(f)(2)(iv) Changes due to clerical errors.
1. Requirements. Section 1026.19(f)(2)(iv) requires the creditor to
deliver revised disclosures to the consumer if the disclosures provided
pursuant to Sec. 1026.19(f)(1)(i) contain non-numeric clerical errors.
An error is considered clerical if it does not affect a numerical
disclosure and does not affect requirements imposed by Sec. 1026.19(e)
or (f). For example, if the disclosure identifies the incorrect
settlement service provider as the recipient of a payment, then Sec.
1026.19(f)(2)(iv) requires the creditor to provide revised disclosures
reflecting the corrected non-numeric disclosure as soon as reasonably
practicable, but no later than 30 days after consummation.
19(f)(2)(v) Refunds related to the good faith analysis.
1. Requirements. Section 1026.19(f)(2)(v) provides that, if amounts
paid at closing exceed the amounts specified under Sec.
1026.19(e)(3)(i) or (ii), the creditor does not violate Sec.
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer as
soon as reasonably practicable and no later than 30 days after
consummation, and the creditor does not violate Sec. 1026.19(f)(1)(i)
if the creditor delivers disclosures revised to reflect the refund of
such excess as soon as reasonably practicable and no later than 30 days
after consummation. For example, assume that at closing the consumer
must pay four itemized charges that are subject to the good faith
determination under Sec. 1026.19(e)(3)(i). If the actual amounts paid
by the consumer for the four itemized charges subject to Sec.
1026.19(e)(3)(i) exceeded their respective estimates on the disclosures
required under Sec. 1026.19(e)(1)(i) by $30, $25, $25, and $10, then
there would be a $90 excess amount above the limitations prescribed by
Sec. 1026.19(e)(3)(i). If, further, the amounts paid by the consumer
for services that are subject to the good faith determination under
Sec. 1026.19(e)(3)(ii) totaled $1,190, but the respective estimates on
the disclosures required under Sec. 1026.19(e)(1)(i) totaled only
$1,000, then there would be a $90 excess amount above the limitations
prescribed by Sec. 1026.19(e)(3)(ii). Consequently, to comply with
Sec. 1026.19(f)(1)(i), the creditor must provide revised disclosures
to the consumer reflecting the $180 refund of the excess amount
collected. See comment 38(h)(3)-2 for additional guidance on disclosing
refunds such as these.
19(f)(3) Charges disclosed.
19(f)(3)(i) Actual charge.
1. Requirement. Section 1026.19(f)(3)(i) provides the general rule
that the amount imposed on the consumer for any settlement service
shall not exceed the amount actually received by the service provider
for that service. Except as otherwise provided in Sec.
1026.19(f)(3)(ii), a creditor violates Sec. 1026.19(f)(3)(i) if the
amount imposed upon the consumer exceeds the amount actually received
by the service provider for that service.
19(f)(3)(ii) Average charge.
1. Requirements. Average-charge pricing is the exception to the
rule in Sec. 1026.19(f)(3)(i) that consumers shall not pay more than
the exact amount charged by a settlement service provider for the
performance of that service. See comment 19(f)(3)(i)-1. If the creditor
develops representative samples of specific settlement costs for a
particular class of transactions, the creditor may charge the average
cost for that settlement service instead of the actual cost for such
transactions. An average-charge program may not be used in a way that
inflates the cost for settlement services overall.
2. Defining the class of transactions. Section 1026.19(f)(3)(ii)(B)
requires a creditor to use an appropriate period of time, appropriate
geographic area, and appropriate type of loan to define a particular
class of transaction. For purposes of Sec. 1026.19(f)(3)(ii)(B), a
period of time is appropriate if the sample size is sufficient to
obtain a representative sample, provided that the period of time is not
less than 30 days and not more than six months. For purposes of Sec.
1026.19(f)(3)(ii)(B), a geographic area and loan type are appropriate
if the sample size is sufficient to obtain a representative sample,
provided that the area and loan type are not defined in a way that
pools costs between dissimilar populations. For example:
i. Assume a creditor defines a geographic area that contains two
subdivisions, one with a median appraisal cost of $200, and the other
with a median appraisal cost of $1,000. This geographic area would not
satisfy the requirements of Sec. 1026.19(f)(3)(ii) because the cost
characteristics of the two populations are dissimilar. However, a
geographic area would be appropriate if both subdivisions had a
relatively normal distribution of appraisal costs, even if the
distribution ranges from below $200 to above $1,000.
ii. Assume a creditor defines a type of loan that includes two
distinct rate products. The median recording fees for one product are
$80, while the median recording fees for the other product are $130.
This definition of loan type would not satisfy the requirements of
Sec. 1026.19(f)(3)(ii) because the cost characteristics of the two
products are dissimilar. However, a type of loan would be appropriate
if both products had a relatively normal distribution of recording
fees, even if the distribution ranges from below $80 to above $130.
3. Uniform use. If a creditor chooses to use an average charge for
a settlement service for a particular loan within a class, Sec.
1026.19(f)(3)(ii)(C) requires the creditor to use that average charge
for that service on all loans within the class. For example:
i. Assume a creditor elects to use an average charge for appraisal
fees. The creditor defines a class of transactions as all fixed-rate
loans originated between January 1 and April 30 secured by real
property located within a particular metropolitan statistical area. The
creditor must then charge the average appraisal charge to all consumers
obtaining fixed-rate loans originated between May 1 and August 30
secured by real property located within the same metropolitan
statistical area.
ii. The example in paragraph i of this comment assumes that a
consumer would not be required to pay the average appraisal charge
unless an appraisal was required on that particular loan. Using the
example above, if a consumer applies for a loan within the defined
class, but already has an appraisal report acceptable to the creditor
from a prior loan application, the creditor may not charge the consumer
the average appraisal fee because an acceptable appraisal report has
already been obtained for the consumer's application. Similarly,
[[Page 51431]]
although the creditor defined the class broadly to include all fixed-
rate loans, the creditor may not require the consumer to pay the
average appraisal charge if the particular fixed-rate loan program the
consumer applied for does not require an appraisal.
4. Average amount paid. The average charge must correspond to the
average amount paid by or imposed on consumers and sellers during the
prior defined time period. For example, assume a creditor calculates an
average tax certification fee based on four-month periods starting
January 1 of each year. The tax certification fees charged to a
consumer on May 20 may not exceed the average tax certification fee
paid from January 1 through April 30. A creditor may delay the period
by a reasonable amount of time if such delay is needed to perform the
necessary analysis and update the affected systems, provided that each
subsequent period is scheduled accordingly. For example, a creditor may
define a four-month period from January 1 to April 30 and begin using
the average charge from that period on May 15, provided the average
charge is used until September 15, at which time the average charge for
the period from May 1 to August 31 becomes effective.
5. Adjustments based on retrospective analysis required. Creditors
using average charges must ensure that the total amount paid by or
imposed on consumers for a service does not exceed the total amount
paid to the providers of that service for the particular class of
transactions. A creditor may find that, even though it developed an
average-cost pricing program in accordance with the requirements of
Sec. 1026.19(f)(3)(ii), over time it has collected more from consumers
than it has paid to settlement service providers. For example, assume a
creditor defines a class of transactions and uses that class to develop
an average charge of $135 for pest inspections. The creditor then
charges $135 per transaction for 100 transactions from January 1
through April 30, but the actual average cost to the creditor of pest
inspections during this period is $115. The creditor then decreases the
average charge for the May to August period to account for the lower
average cost during the January to April period. At this point, the
creditor has collected $2,000 more than it has paid to settlement
service providers for pest inspections. The creditor then charges $115
per transaction for 70 transactions from May 1 to August 30, but the
actual average cost to the creditor of pest inspections during this
period is $125. Based on the average cost to the creditor from the May
to August period, the average charge to the consumer for the September
to December period should be $125. However, while the creditor spent
$700 more than it collected during the May to August period, it
collected $1,300 more than it spent from January to August. In cases
such as these, the creditor remains responsible for ensuring that the
amount collected from consumers does not exceed the total amounts paid
for the corresponding settlement services over time. The creditor may
develop a variety of methods that achieve this outcome. For example,
the creditor may choose to refund the proportional overage paid to the
affected consumers. Or the creditor may choose to factor in the excess
amount collected to decrease the average charge for an upcoming period.
Although any method may comply with this requirement, a creditor is
deemed to have complied if it defines a six-month time period and
establishes a rolling monthly period of reevaluation. For example,
assume a creditor defines a six-month time period from January 1 to
June 30 and the creditor uses the average charge starting July 1. If,
at the end of July, the creditor recalculates the average cost from
February 1 to July 31, and then uses the recalculated average cost for
transactions starting August 1, the creditor complies with the
requirements of Sec. 1026.19(f)(3)(ii), even if the creditor actually
collected more from consumers than was paid to providers over time.
6. Adjustments based on prospective analysis permitted, but not
required. A creditor may prospectively adjust average charges if it
develops a statistically reliable and accurate method for doing so. For
example, assume a creditor calculates average charges based on two time
periods: winter (October 1 to March 31), and summer (April 1 to
September 30). If the creditor can demonstrate that the average cost of
a particular settlement service is always at least 15 percent more
expensive during the winter period than the summer period, the creditor
may increase the average charge for the next winter period by 15
percent over the average cost for the current summer period, provided,
however, that the creditor performs retrospective periodic adjustments,
as explained in comment 19(f)(3)(ii)-5.
7. Charges that vary with loan amount or property value. An average
charge may not be used for any charge that varies according to the loan
amount or property value. For example, an average charge may not be
used for a transfer tax if the transfer tax is calculated as a
percentage of the loan amount or property value. Average charges also
may not be used for any insurance premium. For example, average charges
may not be used for title insurance or for either the upfront premium
or initial escrow deposit for hazard insurance.
8. Prohibited by law. An average charge may not be used where
prohibited by any applicable State or local law. For example, a
creditor may not impose an average charge for an appraisal if
applicable law prohibits creditors from collecting any amount in excess
of the actual cost of the appraisal.
9. Documentation required. To comply with Sec. 1026.25, a creditor
must retain all documentation used to calculate the average charge for
a particular class of transactions for at least two years after any
settlement for which that average charge was used. The documentation
must support the components and methods of calculation. For example, if
a creditor calculates an average charge for a particular county
recording fee by simply averaging all of the relevant fees paid in the
prior month, the creditor need only retain the receipts for the
individual recording fees, a ledger demonstrating that the total amount
received did not exceed the total amount paid over time, and a document
detailing the calculation. However, if a creditor develops complex
algorithms for determining averages, not only must the creditor
maintain the underlying receipts and ledgers, but the creditor must
maintain documentation sufficiently detailed to allow an examiner to
verify the accuracy of the calculations.
19(f)(4) Transactions involving a seller.
19(f)(4)(ii) Timing.
1. Requirement. Section 1026.19(f)(4)(ii) provides that the person
conducting the closing shall provide the disclosures required under
Sec. 1026.19(f)(4)(i) no later than the day of consummation. If an
event occurs after consummation that causes such disclosures to become
inaccurate and such inaccuracy results solely from payments to a
government entity, the person conducting the closing shall deliver
revised disclosures to the seller no later than 30 days after
consummation. Section 1026.19(f)(4)(i) requires disclosure of the items
that relate to the seller's transaction. Thus, the person conducting
the closing need only redisclose if an item related to the seller's
transaction becomes inaccurate and such inaccuracy results solely from
payments to a government entity. For example, assume a transaction
where the seller pays the transfer tax, the consummation occurs on
Monday, and the security instrument is recorded on
[[Page 51432]]
Tuesday, the day after consummation. If the transfer taxes owed to the
State differ from those disclosed pursuant to Sec. 1026.19(f)(4)(i),
the person conducting the settlement complies with Sec.
1026.19(f)(4)(ii) by revising the disclosures accordingly and providing
them to the seller no later than 30 days after consummation.
19(g) Special information booklet at time of application.
19(g)(1) Creditor to provide special information booklet.
1. Revision of booklet. The Bureau may, after publishing a notice
in the Federal Register, issue a revised or separate special
information booklet that addresses transactions subject to Sec.
1026.19(g). The Bureau may also choose to permit the forms or booklets
of other Federal agencies. In such an event, the availability of the
booklet or alternate materials for these transactions will be set forth
in a notice in the Federal Register. The current version of the booklet
can be accessed on the Bureau's Web site, www.consumerfinance.gov/learnmore.
(2.) Multiple applicants. When two or more persons apply together
for a loan, the creditor complies with Sec. 1026.19(g) if the creditor
provides a copy of the booklet to one of the persons applying.
19(g)(2) Permissible changes.
1. Reproduction. The special information booklet may be reproduced
in any form, provided that no changes are made, except as otherwise
provided under Sec. 1026.19(g). Provision of the special information
booklet as a part of a larger document does not satisfy the
requirements of Sec. 1026.19(g). Any color, size and quality of paper,
type of print, and method of reproduction may be used so long as the
booklet is clearly legible.
2. Other permissible changes. The special information booklet may
be translated into languages other than English. Changes to the
booklet, other those specified in Sec. 1026.19(g)(2)(i) through (iv),
do not comply with Sec. 1026.19(g).[ltrif]
Section 1026.22--Determination of Annual Percentage Rate
22(a) Accuracy of annual percentage rate.
* * * * *
22(a)(4) Mortgage loans.
1. Example. If a creditor improperly omits a $75 fee from the
finance charge on a regular transaction, the understated finance charge
is considered accurate under Sec. 1026.18(d)(1) [rtrif]or
1026.38(o)(2), as applicable[ltrif], and the annual percentage rate
corresponding to that understated finance charge also is considered
accurate even if it falls outside the tolerance of \1/8\ of 1
percentage point provided under Sec. 1026.22(a)(2). Because a $75
error was made, an annual percentage rate corresponding to a $100
understatement of the finance charge would not be considered accurate.
* * * * *
Section 1026.24--Advertising
* * * * *
24(d) Advertisement of terms that require additional disclosures.
* * * * *
24(d)(2) Additional terms.
* * * * *
2. Disclosure of repayment terms. The phrase ``terms of repayment''
generally has the same meaning as the ``payment schedule'' required to
be disclosed under Sec. 1026.18(g)[rtrif], the interest rate and
payment summary table required to be disclosed pursuant to Sec.
1026.18(s), or the projected payments table required to be disclosed
pursuant to Sec. Sec. 1026.37(c) and 1026.38(c), as applicable[ltrif].
Section 1026.24(d)(2)(ii) provides flexibility to creditors in making
this disclosure for advertising purposes. Repayment terms may be
expressed in a variety of ways in addition to an exact repayment
schedule; this is particularly true for advertisements that do not
contemplate a single specific transaction. Repayment terms, however,
must reflect the consumer's repayment obligations over the full term of
the loan, including any balloon payment, see comment 24(d)(2)-3, not
just the repayment terms that will apply for a limited period of time.
For example:
i. A creditor may use a unit-cost approach in making the required
disclosure, such as ``48 monthly payments of $27.83 per $1,000
borrowed.''
ii. In an advertisement for credit secured by a dwelling, when any
series of payments varies because of the inclusion of mortgage
insurance premiums, a creditor may state the number and timing of
payments, the fact that payments do not include amounts for mortgage
insurance premiums, and that the actual payment obligation will be
higher.
iii. In an advertisement for credit secured by a dwelling, when one
series of monthly payments will apply for a limited period of time
followed by a series of higher monthly payments for the remaining term
of the loan, the advertisement must state the number and time period of
each series of payments, and the amounts of each of those payments. For
this purpose, the creditor must assume that the consumer makes the
lower series of payments for the maximum allowable period of time.
* * * * *
Subpart D--Miscellaneous
Section 1026.25--Record Retention
* * * * *
[rtrif]25(c) Records related to certain requirements for mortgage
loans.
25(c)(1) Records related to requirements for loans secured by real
property.
1. Evidence of required actions. The creditor must retain evidence
that it performed the required actions as well as made the required
disclosures. This includes, for example, evidence that the creditor
properly differentiated between affiliated and independent third party
settlement service providers for determining good faith under Sec.
1026.19(e)(3); evidence that the creditor properly documented the
reason for revisions under Sec. 1026.19(e)(3)(iv); or evidence that
the creditor properly calculated average cost under Sec.
1026.19(f)(3)(ii).
2. Mortgage brokers. See comment 19(e)(1)(ii)-2 regarding instances
where Sec. 1026.19(e) imposes Sec. 1026.25(c) responsibilities on
mortgage brokers.
25(c)(1)(iii) Electronic records. (1.) Other recordkeeping formats
may also be required. The requirements of Sec. 1026.25(c)(1)(iii) are
in addition to any other recordkeeping formats that may be required by
administrative agencies responsible for enforcing the
regulation.[ltrif]
* * * * *
Section 1026.28--Effect on State Laws
28(a) Inconsistent disclosure requirements.
1. General. There are three sets of preemption criteria: one
applies to the general disclosure and advertising rules of the
regulation, and two apply to the credit billing provisions. Section
1026.28 also provides for Bureau determinations of preemption.
[rtrif]For purposes of determining whether a State law is inconsistent
with the requirements of sections 4 and 5 of RESPA (other than the
RESPA section 5(c) requirements regarding provision of a list of
certified homeownership counselors) and Sec. Sec. 1026.19(e) and (f),
1026.37, and 1026.38 under Sec. 1026.28, any reference to ``creditor''
in Sec. 1026.28 or this commentary includes a creditor, a mortgage
broker, or a closing agent, as applicable.[ltrif]
* * * * *
Section 1026.29--State Exemptions
29(a) General rule.
* * * * *
[[Page 51433]]
2. Substantial similarity. The ``substantially similar'' standard
requires that State statutory or regulatory provisions and State
interpretations of those provisions be generally the same as the
Federal Act and Regulation Z. This includes the requirement that State
provisions for reimbursement to consumers for overcharges be at least
equivalent to those required in section 108 of the Act. A State will be
eligible for an exemption even if its law covers classes of
transactions not covered by the Federal law. For example, if a State's
law covers agricultural credit, this will not prevent the Bureau from
granting an exemption for consumer credit, even though agricultural
credit is not covered by the Federal law. [rtrif]For transactions
subject to Sec. 1026.19(e) and (f), Sec. 1026.29(a)(1) requires that
the State statutory or regulatory provisions and State interpretations
of those provisions require disclosures that are generally the same as
the disclosures required by Sec. 1026.19(e) and (f), with form and
content as prescribed by Sec. Sec. 1026.37 and 1026.38.[ltrif]
* * * * *
4. Exemptions granted. [rtrif]i.[ltrif] The Bureau recognizes
exemptions granted by the Board of Governors of the Federal Reserve
System prior to July 21, 2011, until and unless the Bureau makes and
publishes any contrary determination. Effective October 1, 1982, the
Board of Governors granted the following exemptions from portions of
the revised Truth in Lending Act:
[lsqbb]i.[rsqbb] [rtrif]A.[ltrif] Maine. Credit or lease
transactions subject to the Maine Consumer Credit Code and its
implementing regulations are exempt from chapters 2, 4 and 5 of the
Federal Act. (The exemption does not apply to transactions in which a
Federally chartered institution is a creditor or lessor.)
[lsqbb]ii.[rsqbb] [rtrif]B.[ltrif] Connecticut. Credit transactions
subject to the Connecticut Truth in Lending Act are exempt from
chapters 2 and 4 of the Federal Act. (The exemption does not apply to
transactions in which a Federally chartered institution is a creditor.)
[lsqbb]iii.[rsqbb] [rtrif]C.[ltrif] Massachusetts. Credit
transactions subject to the Massachusetts Truth in Lending Act are
exempt from chapters 2 and 4 of the Federal Act. (The exemption does
not apply to transactions in which a Federally chartered institution is
a creditor.)
[lsqbb]iv.[rsqbb] [rtrif]D.[ltrif] Oklahoma. Credit or lease
transactions subject to the Oklahoma Consumer Credit Code are exempt
from chapters 2 and 5 of the Federal Act. (The exemption does not apply
to sections 132 through 135 of the Federal Act, nor does it apply to
transactions in which a Federally chartered institution is a creditor
or lessor.)
[lsqbb]v.[rsqbb] [rtrif]E.[ltrif] Wyoming. Credit transactions
subject to the Wyoming Consumer Credit Code are exempt from chapter 2
of the Federal Act. (The exemption does not apply to transactions in
which a Federally chartered institution is a creditor.)
[rtrif]ii. Although RESPA and its implementing Regulation X do not
provide procedures for granting State exemptions, for transactions
subject to Sec. 1026.19(e) and (f), compliance with the requirements
of Sec. Sec. 1026.19(e) and (f), 1026.37, and 1026.38 satisfies the
requirements of sections 4 and 5 of the Real Estate Settlement
Procedures Act (RESPA) (other than the RESPA section 5(c) requirements
regarding provision of a list of certified homeownership counselors).
If such a transaction is subject to one of the State exemptions
previously granted by the Board of Governors and noted in comment
29(a)-4.i above, however, then compliance with the requirements of any
State laws and regulations incorporating the requirements of Sec. Sec.
1026.19(e) and (f), 1026.37, and 1026.38 likewise satisfies the
requirements of sections 4 and 5 of RESPA (other than the RESPA section
5(c) requirements regarding provision of a list of certified
homeownership counselors) and the provisions of Regulation X (12 CFR
part 1024) implementing those sections of RESPA.[ltrif]
* * * * *
[rtrif]Section 1026.37--Content of Disclosures for Certain Mortgage
Transactions (Loan Estimate)
1. As applicable. The disclosures required by Sec. 1026.37 are to
be made only as applicable, except as otherwise provided in Sec.
1026.37(o). A disclosure that is not applicable to a particular
transaction generally may be eliminated entirely. For example, in a
transaction for which the creditor does not require homeowner's
insurance, the disclosure required by Sec. 1026.37(m)(3) need not be
included. Alternatively, the creditor generally may include disclosures
that are not applicable to the transaction and note that they are ``not
applicable'' or ``N/A.'' As provided in Sec. 1026.37(i) and (j),
however, the adjustable payment and adjustable interest rate tables
required by those paragraphs may be included only if those disclosures
are applicable to the transaction and otherwise must be excluded.
2. Format. See Sec. 1026.37(o) and its commentary for guidance on
the proper format to be used in making the disclosures, as well as
permissible modifications.
37(a) General information.
37(a)(3) Creditor.
1. Multiple creditors. For transactions with multiple creditors,
see Sec. 1026.17(d) and comment 17(d)-1 for further guidance. The
creditor making the disclosures, however, must be identified as the
creditor for purposes of Sec. 1026.37(a)(3).
2. Mortgage broker as loan originator. In transactions involving a
mortgage broker, the name of the creditor must be disclosed, if known,
even if the mortgage broker provides the disclosures to the consumer.
37(a)(4) Date issued.
1. Applicable date. Section 1026.37(a)(4) requires disclosure of
the date the creditor mails or delivers the Loan Estimate to the
consumer. The creditor's method of delivery does not affect the date
issued.
37(a)(5) Applicants.
1. Multiple consumers. If there is more than one consumer applying
for the credit, Sec. 1026.37(a)(5) requires disclosure of the name and
mailing address of each consumer on the Loan Estimate. If the number of
consumers applying for the credit does not fit in the space allocated
on the Loan Estimate, an additional page with that information may be
appended to the end of the form. For additional information on
permissible changes, see Sec. 1026.37(o) and its commentary.
37(a)(6) Property.
1. Alternate property address. Section 1026.37(a)(6) requires
disclosure of the street address, if available, and the city, state,
and zip code for the property that secures the credit. If there is no
street address, Sec. 1026.37(a)(6) requires disclosure of a legal
description or other location information for the property; however,
disclosure of a zip code is required in all instances.
37(a)(7) Sale price.
1. Estimated property value. In transactions where there is no
seller, such as in a refinancing, Sec. 1026.37(a)(7)(ii) requires the
creditor to disclose the estimated value of the property identified in
Sec. 1026.37(a)(6) at the time the disclosure is issued to the
consumer. The creditor may use the estimate provided by the consumer at
application, or if it has performed its own estimate of the property
value by the time the disclosure is provided to the consumer, use that
estimate. If the creditor has obtained any appraisals or valuations of
the property for the application at the time the disclosure is
[[Page 51434]]
issued to the consumer, the value determined by the appraisal or
valuation to be used during underwriting for the application is
disclosed as the estimated property value.
37(a)(8) Loan term.
1. Adjustable loan term. Section 1026.37(a)(8) requires disclosure
of the term to maturity of the credit transaction. If the term to
maturity is adjustable, to comply with Sec. 1026.37(a)(8), the
possible range of the loan term, including the maximum number of years
possible under the terms of the legal obligation, must be disclosed.
For example, if the loan term depends on the value of interest rate
adjustments during the term of the loan, to calculate the maximum loan
term, the creditor should assume that the interest rate rises as
rapidly as possible after consummation, taking into account the terms
of the legal obligation, including any applicable caps on interest rate
adjustments and lifetime interest rate cap.
37(a)(9) Purpose.
1. General. Section 1026.37(a)(9) requires disclosure of the
consumer's intended use of the credit extended. In ascertaining the
consumer's intended use, Sec. 1026.37(a)(9) requires the creditor to
consider all relevant information known to the creditor at the time of
the disclosure. To the extent the purpose is not known, the creditor
may rely on the consumer's stated purpose. The following examples
illustrate when each of the permissible purposes should be disclosed:
i. Purchase. The consumer intends to use the credit to purchase the
property.
ii. Refinance. The consumer refinances an existing obligation
already secured by the consumer's dwelling to change the rate, term, or
other loan features and may or may not receive cash from the
transaction. For example, in a refinance with no cash provided, the new
amount financed does not exceed the unpaid principal balance, any
earned unpaid finance charge on the existing debt, and amounts
attributed solely to the costs of the refinancing. Conversely, in a
refinance with cash provided, the consumer refinances an existing
mortgage obligation and receives money from the transaction that is in
addition to the funds used to pay the unpaid principal balance, any
earned unpaid finance charge on the existing debt, and amounts
attributed solely to the costs of the refinancing. In such a
transaction, the consumer may, for example, use the newly-extended
credit to pay off the balance of the existing mortgage and other
consumer debt, such as a credit card balance.
iii. Construction. Section 1026.37(a)(9)(iii) requires the creditor
to disclose that the loan is for construction in transactions where the
creditor extends credit to finance only the cost of construction
(``construction-only'' loan), whether it is new construction or a
renovation project, and in transactions where a multiple advance loan
may be permanently financed by the same creditor (``construction-to-
permanent'' loan). In a construction-only loan, the borrower may be
required to make interest-only payments during the loan term with the
balance commonly due at the end of the construction project. For
additional guidance on disclosing construction-to-permanent loans, see
Sec. 1026.17(c)(6)(ii) and comments 17(c)(6)-2 and -3.
iv. Home equity loan. The creditor is required to disclose that the
credit is for a ``home equity loan'' if the creditor extends credit for
any purpose other than a purchase, refinancing, or construction. This
disclosure applies whether the property that secures the loan is a
first or subordinate lien.
2. Refinance coverage. The disclosure requirements under Sec.
1026.37(a)(9)(ii) apply to credit transactions that meet the definition
of a refinancing under Sec. 1026.20(a) but that are made by any
creditor. This differs from Sec. 1026.20(a), which applies only to
refinancings undertaken by the original creditor or a holder or
servicer of the original debt.
37(a)(10) Product.
1. No features. If the loan product disclosed pursuant to Sec.
1026.37(a)(10) does not include any of the features described in Sec.
1026.37(a)(10)(ii), only the product type and introductory and
adjustment periods, if applicable, are disclosed. For example:
i. Adjustable rate. When disclosing an adjustable rate product, the
disclosure of the loan product must be preceded by the length of the
introductory period and the frequency of the adjustment periods
thereafter. Thus, for example, if the loan product is an adjustable
rate with an introductory rate that remains the same for the first five
years of the loan term and then adjusts every three years starting in
year six, the disclosure required by Sec. 1026.37(10)(i) is ``5/3
Adjustable Rate.''
ii. Step rate. If the loan product is a step rate with an
introductory interest rate that lasts for ten years and adjusts every
year thereafter for the next five years, and then adjusts every three
years for the next 15 years, the disclosure required by Sec.
1026.37(a)(10)(i) is ``10/1/3 Step Rate.''
iii. Fixed rate. If the loan product is not an adjustable rate or a
step rate, as described in Sec. 1026.37(a)(10)(i), even if an
additional feature described in Sec. 1026.37(a)(10)(ii) may change the
consumer's periodic payment, the disclosure required by Sec.
1026.37(a)(10)(i) is ``Fixed Rate.''
2. Additional features. When disclosing a loan product with at
least one of the features described in Sec. 1026.37(a)(10)(ii), Sec.
1026.37(a)(10)(iii) and (iv) requires the disclosure of only the first
applicable feature in the order of Sec. 1026.37(a)(10)(ii) and that it
be preceded by the time period or the length of the introductory period
and the frequency of the adjustment periods, as applicable, followed by
a description of the loan product and its time period as provided for
in Sec. 1026.37(a)(10)(i). For example:
i. Negative amortization. Some loan products, such as payment-
option loans, permit the borrower to make payments that are
insufficient to cover all of the interest accrued, and the unpaid
interest is added to the principal balance. Where the loan product
includes a loan feature that may cause the loan balance to increase,
the disclosure required by Sec. 1026.37(a)(10)(ii)(A) is preceded by
the time period that the negative amortization is permitted (e.g., ``2
Year Negative Amortization''), followed by the loan product type. Thus,
a fixed-rate product with a step-payment feature for the first two
years of the legal obligation that may negatively amortize is disclosed
as ``2 Year Negative Amortization, Fixed Rate.''
ii. Interest only. When disclosing an ``Interest Only'' feature, as
that term is defined in Sec. 1026.18(s)(7)(iv), the applicable time
period must precede the label ``Interest Only.'' Thus, a fixed rate
loan with only interest due for the first five years of the loan term
is disclosed as ``5 Year Interest Only, Fixed Rate.'' If the interest
only feature fails to cover the total interest due then the disclosure
must reference the negative amortization feature and not the interest-
only feature (i.e., ``5 Year Negative Amortization, Fixed Rate'').
iii. Step payment. When disclosing a step payment feature (which is
sometimes also referred to as a graduated payment), the period of time
over which the scheduled payments will increase must precede the label
``Step Payment'' (e.g., ``5 Year Step Payment'') followed by the name
of the loan product. Thus, a fixed-rate mortgage subject to a 5-year
step-payment plan is disclosed as a ``5-Year Step Payment, Fixed
Rate.''
iv. Balloon payment. If a loan product includes a ``balloon
payment,'' as that
[[Page 51435]]
term is defined in Sec. 1026.37(b)(5), the disclosure of the balloon
payment feature, including the year the payment is due, precedes the
disclosure of the loan product. Thus, if the loan product is an
adjustable rate with an introductory rate that lasts for three years
and adjusts each year thereafter until the balloon payment is due in
the seventh year of the loan term, the disclosure required is ``Year 7
Balloon Payment, 3/1 Step Rate.''
v. Seasonal payment. If a loan product includes a seasonal payment
feature, Sec. 1026.37(a)(10)(ii)(E) requires that the creditor
disclose the feature. The feature is not, however, required to be
disclosed with any preceding time period. Disclosure of the label
``Seasonal Payment'' without any preceding number of years satisfies
this requirement.
37(a)(11) Loan type.
1. Other loan type. If the transaction is a type other than a
conventional, FHA, or VA loan, Sec. 1026.37(a)(11) requires the
creditor to provide a name or brief description of the loan type. For
example, a loan that is guaranteed or funded by the Federal government
under the Rural Housing Service (RHS) of the U.S. Department of
Agriculture is required to be disclosed under the subcategory
``Other,'' because it is guaranteed or funded by a Federal agency, and
therefore is not ``Conventional,'' but is neither a ``VA'' nor an
``FHA'' loan. Section 1026.37(a)(11)(iv) requires a brief description
of the loan type (e.g., ``RHS''). A loan that is insured or guaranteed
by a State agency must also be disclosed as ``Other.''
37(a)(12) Loan identification number (Loan ID #).
1. Unique identifier. The unique loan identification number is
determined by the lender. Because the number must be unique under Sec.
1026.37(a)(12), different, but related, loan transactions with a single
creditor may not share the same loan identification number.
37(a)(13) Rate lock.
1. Interest rate. For purposes of Sec. 1026.37(a)(13), the
interest rate is set for a specific period of time if the rate will not
vary during that period, other than under circumstances that are
described in any rate-lock agreement between the creditor and consumer.
2. Expiration date. Whether or not the interest rate is set for a
specific period of time, Sec. 1026.37(a)(13) requires the creditor to
provide the date and time the terms and costs disclosed in the Loan
Estimate expire if the transaction is not yet consummated, or the terms
and costs are not otherwise accepted or extended.
3. Time zone. The disclosures required by Sec. 1026.37(13)
requires the applicable time zone for all times provided, as determined
by the creditor. For example, if the creditor is located in New York
and determines that the Loan Estimate will expire at 5:00 p.m. in the
time zone applicable to its location, while standard time is in effect,
the disclosure must include a reference to the Eastern time zone (i.e.,
5:00 p.m. EST).
37(b) Loan terms.
1. Legal obligation. The disclosures required by Sec. 1026.37 must
reflect good faith estimates of the credit terms to which the parties
will be legally bound for the transaction. If certain terms of the
transaction are known or reasonably should be known to the creditor,
based on information such as the consumer's selection of a product type
or other information in the consumer's application, Sec. 1026.37
requires the creditor to disclose those credit terms. For example, if
the consumer selects a product type with a prepayment penalty, the
terms of the prepayment penalty known to the creditor at the time the
disclosure is provided shall be set forth in the disclosure.
37(b)(2) Interest rate.
1. Initial interest rate if adjustable. The fully-indexed rate is
defined in Sec. 1026.37(b)(2) as the index plus the margin at
consummation. Although Sec. 1026.37(b)(2) refers to the index plus
margin ``at consummation,'' if the index value that will be in effect
at consummation is unknown at the time the disclosure is provided
pursuant to Sec. 1026.19(e), such as for the disclosure delivered
within three business days after receipt of a consumer's application,
the fully-indexed rate disclosed under Sec. 1026.37(b)(2) may be based
on the index in effect at the time the disclosure is provided. The
index in effect at consummation (or the time the disclosure is provided
pursuant to Sec. 1026.19(e)) need not be used if the contract provides
for a delay in the implementation of changes in an index value. For
example, if the contract specifies that rate changes are based on the
index value in effect 45 days before the change date, creditors may use
any index value in effect during the 45 days before consummation (or
any earlier date of disclosure) in calculating the fully-indexed rate
to be disclosed.
37(b)(3) Principal and interest payment.
1. Frequency of principal and interest payment. Pursuant to Sec.
1026.37(o)(5)(i), if the contract provides for a unit-period of a
month, such as a monthly payment schedule, the payment disclosed under
Sec. 1026.37(b)(3) should be labeled ``Monthly Principal & Interest.''
If the contract requires bi-weekly payments of principal or interest,
the payment should be labeled ``Bi-Weekly Principal & Interest.'' If a
creditor voluntarily permits a payment schedule not provided for in the
contract, such as an informal principal-reduction arrangement, the
disclosure should reflect only the payment frequency provided for in
the contract. See Sec. 1026.17(c)(1).
2. Initial periodic payment if adjustable. Pursuant to Sec.
1026.37(b)(3), the initial periodic payment amount that will be due
under the terms of the legal obligation must be disclosed. If the
initial periodic payment may vary based on an adjustment to an index,
Sec. 1026.37(b)(3) requires that the disclosure be based on the fully-
indexed rate disclosed under Sec. 1026.37(b)(2). See comment 37(b)(2)-
1 for guidance regarding calculating the fully-indexed rate.
37(b)(4) Prepayment penalty.
1. Transaction includes a prepayment penalty. Section 1026.37(b)(4)
requires disclosure of a statement of whether the transaction includes
a prepayment penalty. If the transaction includes a prepayment penalty,
Sec. 1026.37(b)(7) sets forth the information that must be disclosed
under Sec. 1026.37(b)(4) (i.e., the maximum amount of the prepayment
penalty that may be imposed under the terms of the loan contract and
the date when the penalty will no longer be imposed). For an example of
such disclosure, see form H-24 in appendix H to this part. The
disclosure under Sec. 1026.37(b)(4) would apply to transactions where
the terms of the loan contract provide for a prepayment penalty, even
though it is not certain at the time of the disclosure whether the
consumer will, in fact, make a payment to the creditor that would cause
imposition of the penalty. For example, if the monthly interest accrual
amortization method described in comment 37(b)(4)-2.i is used such that
interest is assessed on the balance for a full month even if the
consumer makes a full prepayment before the end of the month, as
discussed in comment 37(b)(4)-2.i, the transaction includes a
prepayment penalty that must be disclosed pursuant to Sec.
1026.37(b)(4).
2. Examples of prepayment penalties. For purposes of Sec.
1026.37(b)(4), the following are examples of prepayment penalties:
i. A charge determined by treating the loan balance as outstanding
for a period of time after prepayment in full and applying the interest
rate to such ``balance,'' even if the charge results from interest
accrual amortization used
[[Page 51436]]
for other payments in the transaction under the terms of the loan
contract. ``Interest accrual amortization'' refers to the method by
which the amount of interest due for each period (e.g., month) in a
transaction's term is determined. For example, ``monthly interest
accrual amortization'' treats each payment as made on the scheduled,
monthly due date even if it is actually paid early or late (until the
expiration of any grace period). Thus, under the terms of a loan
contract providing for monthly interest accrual amortization, if the
amount of interest due on May 1 for the preceding month of April is
$3,000, the loan contract will require payment of $3,000 in interest
for the month of April whether the payment is made on April 20, on May
1, or on May 10. In this example, if the consumer prepays the loan in
full on April 20 and if the accrued interest as of that date is $2,000,
then assessment of a charge of $3,000 constitutes a prepayment penalty
of $1,000 because the amount of interest actually earned through April
20 is only $2,000.
ii. A fee, such as an origination or other loan closing cost, that
is waived by the creditor on the condition that the consumer does not
prepay the loan.
iii A minimum finance charge in a simple interest transaction.
iv. Computing a refund of unearned interest by a method that is
less favorable to the consumer than the actuarial method, as defined by
section 933(d) of the Housing and Community Development Act of 1992, 15
U.S.C. 1615(d). For purposes of computing a refund of unearned
interest, if using the actuarial method defined by applicable State law
results in a refund that is greater than the refund calculated by using
the method described in section 933(d) of the Housing and Community
Development Act of 1992, creditors should use the State law definition
in determining if a refund is a prepayment penalty.
3. Fees that are not prepayment penalties. For purposes of Sec.
1026.37(b)(4), fees which are not prepayment penalties include, for
example:
i. Fees imposed for preparing and providing documents when a loan
is paid in full, whether or not the loan is prepaid, such as a loan
payoff statement, a reconveyance document, or another document
releasing the creditor's security interest in the dwelling that secures
the loan.
ii. Loan guarantee fees.
4. Rebate of finance charge. For an obligation that includes a
finance charge that does not take into account each reduction in the
principal balance of the obligation, the disclosure under Sec.
1026.37(b)(4) reflects whether or not the consumer is entitled to a
rebate of any finance charge if the obligation is prepaid in full or
part. Finance charges that do not take into account each reduction in
the principal balance of an obligation may include precomputed finance
charges. If any portion of an unearned precomputed finance charge will
not be provided as a rebate upon full prepayment, the disclosure
required by Sec. 1026.37(b)(4) will be an affirmative answer, indicate
the maximum amount of such precomputed finance charge that may not be
provided as a rebate to the consumer upon any prepayment, and when the
period during which a full rebate would not be provided terminates, as
required by Sec. 1026.37(b)(7). If, instead, there will be a full
rebate of the precomputed finance charge and no other prepayment
penalty imposed on the consumer, to comply with the requirements of
Sec. 1026.37(b)(4) and (7), the creditor states a negative answer
only. If the transaction involves both a precomputed finance charge and
a finance charge computed by application of a rate to an unpaid
balance, disclosure about both the entitlement to any rebate of the
finance charge upon prepayment and any other prepayment penalty are
made as one disclosure under Sec. 1026.37(b)(4), stating one
affirmative or negative answer and an aggregated amount and time period
for the information required by Sec. 1026.37(b)(7). For example, if in
such a transaction, a portion of the precomputed finance charge will
not be provided as a rebate and the loan contract also provides for a
prepayment penalty based on the amount prepaid, both disclosures are
made under Sec. 1026.37(b)(4) as one aggregate amount, stating the
maximum amount and time period under Sec. 1026.37(b)(7). If the
transaction instead provides a rebate of the precomputed finance charge
upon prepayment, but imposes a prepayment penalty based on the amount
prepaid, to comply with Sec. 1026.37(b)(4), the creditor states an
affirmative answer and the information about the prepayment penalty, as
required by Sec. 1026.37(b)(7). For further guidance and examples of
these types of charges, see comment 18(k)(2)-1. For analogous guidance,
see comment 18(k)-2. For further guidance on prepaid finance charges
generally, see comment 18(k)-3.
5. Additional guidance. For additional guidance generally on
disclosures of prepayment penalties, see comment 18(k)-1.
37(b)(5) Balloon payment.
1. Regular periodic payment. The regular periodic payments used to
determine whether a payment is a balloon payment under Sec.
1026.37(b)(5) are the payments of principal and interest (or interest
only, depending on the loan features) specified under the terms of the
loan contract that are due from the consumer for two or more unit
periods in succession. All regular periodic payments during the loan
term are used to determine whether a particular payment is a balloon
payment, regardless of whether the regular periodic payments have
changed during the loan term due to rate adjustments or other payment
changes permitted or required under the loan contract. If a specific
payment is more than two times any one regular periodic payment during
the loan term, then it is disclosed as a balloon payment under Sec.
1026.37(b)(5) unless the specific payment itself is a regular periodic
payment.
i. For example, assume that, under a 15-year step-rate mortgage,
the loan contract provides for scheduled monthly payments of $300 each
during the years one through three and scheduled monthly payments of
$700 each during years four through 15. If an irregular payment of
$1,000 is scheduled during the final month of year 15, that payment is
disclosed as a balloon payment under Sec. 1026.37(b)(5), because it is
more than two times the regular periodic payment amount of $300 during
years one through three. This is the case even though the irregular
payment is not more than two times the regular periodic payment of $700
per month during years four through fifteen. The $700 monthly payments
during years four through fifteen are not balloon payments even though
they are more than two times the regular periodic payments during years
one through three, because they are regular periodic payments.
ii. If the loan has an adjustable rate under which the regular
periodic payments may increase after consummation, but the amounts of
such payment increases (if any) are unknown at the time of
consummation, then the regular periodic payments are based on the
fully-indexed rate, except as otherwise determined by any premium or
discounted rates, the application of any interest rate adjustment caps,
or any other known, scheduled rates under the terms specified in the
loan contract. For analogous guidance, see comments 17(c)(1)-8 and -10.
For example, assume that, under a 30-year adjustable rate mortgage, (1)
the loan contract requires monthly payments of $300 during years one
through five, (2) the loan contract permits interest rate increases
every three years starting in
[[Page 51437]]
the sixth year up to the fully-indexed rate, subject to caps on
interest rate adjustments specified in the loan contract, (3) based on
the application of the interest rate adjustment caps, the interest rate
may increase to the fully-indexed rate starting in year nine, and (4)
the monthly payment based on the fully-indexed rate is $700. The
regular periodic payments during years one through five are $300 per
month, because they are known and scheduled. The regular periodic
payments during years six through eight are up to $700 per month, based
on the fully-indexed rate but subject to the application of interest
rate adjustment caps specified under the loan contract. The regular
periodic payments during years nine through thirty are $700, based on
the fully-indexed rate. Therefore, if an irregular payment of $1,000 is
scheduled during the final month of year 30, that payment is disclosed
as a balloon payment under Sec. 1026.37(b)(5), because it is more than
two times the regular periodic payment amount of $300 during years one
through five. This is the case even though the irregular payment is not
more than two times the regular periodic payment during years nine
through thirty (i.e., based on the fully-indexed rate). However, the
regular periodic payments during years six through thirty themselves
are not balloon payments, even though they may be more than two times
the regular periodic payments during years one through five.
iii. For a loan with a negative amortization feature, the regular
periodic payment does not take into account the possibility that the
consumer may exercise an option to make a payment greater than the
scheduled periodic payment specified under the terms of the loan
contract, if any.
iv. The disclosure of balloon payments in the ``Projected
Payments'' table under Sec. 1026.37(c) is governed by that section and
its commentary, rather than Sec. 1026.37(b)(5), except that the
determination, as a threshold matter, of whether a payment disclosed
under Sec. 1026.37(c) is a balloon payment is made in accordance with
Sec. 1026.37(b)(5) and its commentary.
2. Single and double payment transactions. The definition of a
``balloon payment'' under Sec. 1026.37(b)(5) includes the payments
under transactions that require only one or two payments during the
loan term, even though a single payment transaction does not require
regular periodic payments, and a transaction with only two scheduled
payments during the loan term may not require regular periodic
payments.
37(b)(7) Details about prepayment penalty and balloon payment.
Paragraph 37(b)(7)(i).
1. Maximum prepayment penalty. Section 1026.37(b)(7)(i) requires
disclosure of the maximum amount of the prepayment penalty that may be
imposed under the terms of the legal obligation. The creditor complies
with Sec. 1026.37(b)(7)(i) when it assumes that the consumer prepays
at a time when the prepayment penalty may be charged and that the
consumer makes all payments prior to the prepayment on a timely basis
and in the amount required by the terms of the legal obligation. The
creditor must determine the maximum of each amount used in calculating
the prepayment penalty. For example, if a transaction is fully
amortizing and the prepayment penalty is two percent of the loan
balance at the time of prepayment, the prepayment penalty amount should
be determined by using the highest loan balance possible during the
period in which the penalty may be imposed. If the loan is negatively
amortizing and the prepayment penalty equals three percent of the loan
balance in the first year and two percent in the second year during the
first two years after loan origination, the creditor must determine the
highest loan balance in each year and apply the respective two percent
or three percent rate to such balance to determine the maximum amount.
If more than one type of prepayment penalty applies, the creditor must
aggregate the maximum amount of each type of prepayment penalty in the
maximum penalty disclosed.
37(b)(8) Timing.
1. Timing. The timing of information required by Sec.
1026.37(b)(8) starts with year number ``1,'' counting from the date
that interest for the first scheduled periodic payment begins to
accrue. For example, an interest rate that can first adjust at the
beginning of the 13th month from the date that interest for the
regularly scheduled periodic payment began to accrue would be disclosed
as beginning to adjust in ``year 2.'' An interest rate that can first
adjust at the beginning of the 61st month from the date that interest
for the regularly scheduled periodic payment began to accrue would be
disclosed as beginning to adjust in ``year 6.'' A monthly periodic
principal and interest payment that begins to adjust at the 13th
payment would be disclosed as beginning to adjust in ``year 2.''
37(c) Projected payments.
1. Definitions. For purposes of Sec. 1026.37(c), the terms
``adjustable rate,'' ``fixed rate,'' ``negative amortization,'' and
``interest-only'' have the meanings in Sec. 1026.37(a)(10).
37(c)(1) Periodic payment or range of payments.
Paragraph 37(c)(1)(i).
1. Periodic payments. For purposes of Sec. 1026.37(c)(1)(i), the
periodic payment is the regularly scheduled payment of principal and
interest, mortgage insurance, and escrow payments described in Sec.
1026.37(c)(2) without regard to any final payment that differs from
other payments because of rounding to account for payment amounts
including fractions of cents.
Paragraph 37(c)(1)(i)(A).
1. Periodic principal and interest payments. For purposes of Sec.
1026.37(c)(1)(i)(A), periodic principal and interest payments may
change when the interest rate, applicable interest rate caps, required
periodic principal and interest payments, or ranges of such payments
may change. Minor payment variations resulting solely from the fact
that months have different numbers of days are not changes to periodic
principal and interest payments.
2. Negative amortization. In a loan that permits negative
amortization, periodic principal and interest payments may change at
the time of a scheduled recast of the mortgage loan and when the
consumer must begin making fully amortizing payments of principal and
interest. The disclosure should be based on the assumption that the
consumer will make only the minimum payment required under the terms of
the legal obligation, for the maximum amount of time permitted, taking
into account potential changes to the interest rate. The table required
by Sec. 1026.37(c) should also reflect any balloon payment that would
result from making the minimum payment required under the terms of the
legal obligation.
3. Interest-only. In a loan that permits payment of only interest
for a specified period, periodic principal and interest payments may
change for purposes of Sec. 1026.37(c)(1)(i)(A) when the consumer must
begin making fully amortizing periodic payments of principal and
interest.
Paragraph 37(c)(1)(i)(B).
1. Balloon payment. For purposes of Sec. 1026.37(c)(1)(i)(B),
whether a balloon payment occurs is determined pursuant to Sec.
1026.37(b)(5) and its commentary. Although the existence of a balloon
payment is determined pursuant to Sec. 1026.37(b)(5) and its
commentary, balloon payment amounts to be disclosed under Sec.
1026.37(c) are calculated in the same manner as periodic principal and
interest
[[Page 51438]]
payments under Sec. 1026.37(c). For example, for a balloon payment
amount that can change depending on previous interest rate adjustments
that are based on the value of an index at the time of the adjustment,
the balloon payment amounts are calculated using the assumptions for
minimum and maximum interest rates described in Sec.
1026.37(c)(1)(iii) and its commentary, and should be disclosed as a
range of payments.
Paragraph 37(c)(1)(i)(C).
1. General. ``Mortgage insurance'' means insurance against the
nonpayment of, or default on, an individual mortgage. For purposes of
Sec. 1026.37(c), ``mortgage insurance coverage or any functional
equivalent'' includes any mortgage guarantee that provides coverage
similar to mortgage insurance (such as a United States Department of
Veterans Affairs or United States Department of Agriculture guarantee),
even if not technically considered insurance under State or other
applicable law. The fees for such a guarantee are included in
``mortgage insurance premiums.''
2. Calculation. For purposes of Sec. 1026.37(c)(1)(i)(C), mortgage
insurance premiums should be calculated based on the declining
principal balance that will occur as a result of changes to the
interest rate and payment amounts, assuming the fully-indexed rate
applies at consummation, taking into account any introductory interest
rates.
3. Disclosure. The table required by Sec. 1026.37(c) should
reflect the consumer's mortgage insurance premiums until the date on
which the creditor must automatically terminate coverage under
applicable law, even though the consumer may have a right to request
that the insurance be cancelled earlier. Unlike termination of mortgage
insurance, a subsequent decline in the consumer's mortgage insurance
premiums is not, by itself, an event that requires the disclosure of
additional separate periodic payments or ranges of payments in the
table required by Sec. 1026.37(c). For example, some mortgage
insurance programs annually adjust premiums based on the declining loan
balance. Such annual adjustment to the amount of premiums would not
require a separate disclosure of a periodic payment or range payments.
Paragraph 37(c)(1)(ii).
Paragraph 37(c)(1)(ii)(A).
1. Balloon payments that are final payments. Section
1026.37(c)(1)(ii)(A) is an exception to the general rule in Sec.
1026.37(c)(1)(ii), and requires that a balloon payment that is
scheduled as a final payment under the terms of the legal obligation is
always disclosed as a separate periodic payment or range of payments.
Balloon payments that are not final payments, such as a balloon payment
due at the scheduled recast of a loan that permits negative
amortization, are disclosed pursuant to the general rule in Sec.
1026.37(c)(1)(ii).
Paragraph 37(c)(1)(iii).
1. Calculation of minimum and maximum payments. A range of payments
is disclosed under Sec. 1026.37(c)(1)(iii) when the periodic principal
and interest payments are not known at the time the disclosure is
provided because they are subject to changes based on index rates at
the time of an interest rate adjustment, or when multiple events are
disclosed as a range of payments pursuant to Sec. 1026.37(c)(1)(ii).
For such transactions, Sec. 1026.37(c)(1)(iii) requires the creditor
to disclose both the minimum and maximum periodic principal and
interest payments, expressed as a range. In disclosing the maximum
possible interest rate under Sec. 1026.37(c), the creditor assumes
that the interest rate will rise as rapidly as possible after
consummation, taking into account the terms of the legal obligation,
including any applicable caps on interest rate adjustments and lifetime
interest rate cap. For a loan with no lifetime interest rate cap, the
maximum rate is determined by reference to other applicable laws, such
as State usury law. In disclosing the minimum possible interest rate
for purposes of Sec. 1026.37(c), the creditor assumes that the
interest rate will decrease as rapidly possible after consummation,
taking into account any introductory rates, caps on interest rate
adjustments, and lifetime interest rate floor. For an adjustable rate
mortgage based on an index that has no lifetime interest rate floor,
the minimum interest rate is equal to the margin.
2. Ranges of payments. When a range of payments is required, Sec.
1026.37(c)(1)(iii) requires the creditor to disclose the minimum and
maximum amount for both the principal and interest payment under Sec.
1026.37(c)(2)(i) and the total periodic payment under Sec.
1026.37(c)(2)(iv). The amount required to be disclosed for mortgage
insurance premiums pursuant to Sec. 1026.37(c)(2)(ii) and the amount
payable into an escrow account pursuant to Sec. 1026.37(c)(2)(iii)
shall not be disclosed as a range.
3. Adjustable rate mortgages. For an adjustable rate mortgage, the
periodic principal and interest payment at each time the interest rate
may change will depend on the rate that applies at the time of the
adjustment, which is not known at the time the disclosure is provided.
As a result, the creditor discloses the minimum and maximum periodic
principal and interest payment that could apply during each period
disclosed pursuant to Sec. 1026.37(c)(1) after the first period.
37(c)(2) Itemization.
Paragraph 37(c)(2)(ii).
1. Mortgage insurance. Mortgage insurance premiums should be
reflected on the disclosure required by Sec. 1026.37(c) even if no
escrow account is established for the payment of mortgage insurance
premiums. If the consumer is not required to purchase mortgage
insurance, the creditor shall disclose the mortgage insurance premium
as ``0''.
2. Periodic payments. The creditor discloses mortgage insurance
premiums pursuant to Sec. 1026.37(c)(2)(ii) on the same periodic basis
that payments for principal and interest are disclosed pursuant to
Sec. 1026.37(c)(2)(i), even if mortgage insurance premiums are
actually paid on some other periodic basis.
Paragraph 37(c)(2)(iii).
1. Escrow. The disclosure described in Sec. 1026.37(c)(2)(iii) is
required only if the creditor will establish an escrow account for the
payment of some or all of the charges described in Sec.
1026.37(c)(4)(ii)(A) through (E).
37(c)(3) Subheadings.
Paragraph 37(c)(3)(ii).
1. Years. Section 1026.37(c)(3)(ii) requires that each periodic
payment or range of payments be disclosed under a subheading that
states the number of years during which that payment or range of
payments will apply and that such subheadings be stated in a sequence
of whole years. For purposes of Sec. 1026.37(c), ``year'' is defined
as the twelve-month interval beginning on the due date of the first
periodic payment and each anniversary thereafter. For example, for a
loan with a 30-year term that does not require mortgage insurance and
requires interest-only payments for the first 60 months of the loan,
then requires fixed, fully amortizing payments of principal and
interest for the duration of the loan, the creditor would label the
first disclosure of periodic payments as ``Years 1-5'' and the second
disclosure of periodic payments or range of payments as ``Years 6-30.''
However, if that loan requires interest-only payments for the first 54
months of the loan, then requires fixed, fully amortizing payments of
principal and interest for the duration of the loan, the creditor would
label the first disclosure of periodic payments as ``Years 1-4'' and
the second disclosure of periodic
[[Page 51439]]
payments or range of payments as ``Years 5-30.'' Finally, if the loan
that requires interest-only payments for the first 54 months also
requires mortgage insurance that would automatically terminate under
applicable law after the 100th month of the loan's term, the creditor
would label the first disclosure of periodic payments as ``Years 1-4,''
the second disclosure of periodic payments or range of payments as
``Years 5-8,'' and the third disclosure of periodic payments or range
of payments as ``Years 9-30.''
2. Loans with variable terms. If the loan term may increase based
on an adjustment of the interest rate, the creditor must disclose the
maximum loan term possible under the legal obligation. To calculate the
maximum loan term, the creditor assumes that the interest rate rises as
rapidly as possible, taking into account the terms of the legal
obligation, including any applicable caps on interest rate adjustments
and lifetime interest rate cap. See comment 37(a)(8)-1.
37(c)(4) Taxes, insurance, and assessments.
Paragraph 37(c)(4)(ii).
1. Mortgage-related insurance premiums. Mortgage-related insurance
premiums required by the creditor are those described Sec.
1026.35(b)(3)(i) and its commentary, except that, for purposes of Sec.
1026.37(c)(4)(ii), mortgage-related insurance premiums do not include
mortgage insurance premiums disclosed pursuant to Sec.
1026.37(c)(2)(ii). A creditor need not include premiums for mortgage-
related insurance that are not required as part of the legal obligation
or under applicable law, such as optional earthquake insurance or
credit insurance, or fees for optional debt suspension and debt
cancellation agreements.
2. Special assessments. Special assessments are imposed on the
consumer at or before consummation, such as a one-time homeowners'
association fee that will not be paid by the consumer in full at or
before consummation.
37(f) Closing cost details; loan costs.
1. General description. The items disclosed under Sec. 1026.37(f)
include services that the creditor or mortgage broker require for
consummation, such as underwriting, appraisal, and title services.
2. Mortgage broker. Official commentary under Sec.
1026.19(e)(1)(ii) discusses the requirements and responsibilities of
mortgage brokers that provide the disclosures required by Sec.
1026.19(e), which include the disclosures set forth in Sec.
1026.37(f).
37(f)(1) Origination charges.
1. Origination charges. Charges included under the subheading
``Origination Charges'' pursuant to Sec. 1026.37(f)(1) are those
charges paid by the consumer to the creditor and each loan originator
for originating and extending the credit, regardless of how such fees
are denominated. In accordance with Sec. 1026.37(o)(4), the dollar
amounts disclosed under Sec. 1026.37(f)(1) must be rounded to the
nearest whole dollar and the percentage amounts must be disclosed as an
exact number up to three decimal places, except that decimal places
shall not be disclosed if the percentage is a whole number. See comment
19(e)(3)(i)-2 for a discussion of when a fee is considered to be ``paid
to'' a person. See comment 36(a)-1 for a discussion of the meaning of
``loan originator'' in connection with limits on compensation in a
consumer credit transaction secured by a dwelling.
2. Indirect loan originator compensation. Only charges paid
directly by the consumer to compensate a loan originator are included
in the amounts listed under Sec. 1026.37(f)(1). Compensation of a loan
originator paid indirectly by the creditor through the interest rate is
not itemized on the Loan Estimate required by Sec. 1026.19(e).
However, pursuant to Sec. 1026.38(f)(1) such compensation is itemized
on the Closing Disclosure required by Sec. 1026.19(f).
3. Description of charges. Other than for points that the consumer
will pay to the creditor to reduce the interest rate, for which
specific language must be used, the creditor may use a general
description to identify each service that is disclosed as an
origination charge pursuant to Sec. 1026.37(f)(1). Items that are
listed under the subheading ``Origination Charges'' may include, for
example, application fee, origination fee, underwriting fee, processing
fee, verification fee, and rate-lock fee.
4. Points. If the consumer is not charged any points to reduce the
interest rate, the creditor may leave blank the percentage of points
disclosed under Sec. 1026.37(f)(1)(i), but must disclose a dollar
amount of ``$0.''
5. Itemization. Creditors determine the level of itemization of
``Origination Charges'' that is appropriate under Sec. 1026.37(f)(1),
subject to the limitations in Sec. 1026.37(f)(1)(ii).
37(f)(2) Services you cannot shop for.
1. Services disclosed. Items included under the subheading
``Services You Cannot Shop For'' pursuant to Sec. 1026.37(f)(2) are
for those services that the creditor requires in connection with the
transaction that would be provided by persons other than the creditor
or mortgage broker and for which the creditor does not permit the
consumer to shop in accordance with Sec. 1026.19(e)(1)(vi)(A). Comment
19(e)(1)(iv)-1 clarifies that a consumer is not permitted to shop if
the consumer must choose a provider from a list provided by the
creditor. Comment 19(e)(3)(i)-1 addresses determining good faith in
providing estimates under Sec. 1026.19(e), including estimates for
services for which the consumer cannot shop. Comments 19(e)(3)(iv)-1
through -3 discuss limits and requirements applicable to providing
revised estimates for services for which the consumer cannot shop.
2. Examples of charges. Examples of the services to be disclosed
pursuant to Sec. 1026.37(f)(2) might include appraisal fee, appraisal
management company fee, credit report fee, flood determination fee,
lender's attorney, tax status research fee, title--closing protection
letter, and title--lender's coverage.
3. Title insurance services. The services required to be labeled
beginning with ``Title--'' pursuant to Sec. 1026.37(f)(2) or (3) are
those required for the issuance of title insurance policies to the
creditor in connection with the consummation of the transaction. These
services may include, for example:
i. Examination and evaluation, based on relevant law and title
insurance underwriting principles and guidelines, of the title evidence
to determine the insurability of the title being examined and what
items to include or exclude in any title commitment and policy to be
issued;
ii. Preparation and issuance of the title commitment or other
document that discloses the status of the title as it is proposed to be
insured, identifies the conditions that must be met before the policy
will be issued, and obligates the insurer to issue a policy of title
insurance if such conditions are met;
iii. Resolution of underwriting issues and taking the steps needed
to satisfy any conditions for the issuance of the policies;
iv. Preparation and issuance of the policy or policies of title
insurance;
v. Premiums for any title insurance coverage for the benefit of the
creditor; and
vi. Conducting the closing.
4. Lender's title insurance policy. The amount disclosed for
lender's title insurance coverage pursuant to Sec. 1026.37(f)(2) or
(3) is the amount of the premium without any adjustment that might be
made for the simultaneous purchase of an owner's title insurance
policy. This amount should be disclosed as ``Title--Premium for
Lender's Coverage,'' or in any similar manner
[[Page 51440]]
that clearly indicates the amount of the premium disclosed pursuant to
Sec. 1026.37(f)(2) is for the lender's title insurance coverage. See
comment 37(g)(4)-1 for a discussion of the disclosure of the premium
for owner's title insurance coverage.
37(f)(3) Services you can shop for.
1. Services disclosed. Items included under the subheading
``Services You Can Shop For'' pursuant to Sec. 1026.37(f)(3) are for
those services: that the creditor requires in connection with its
decision to make the loan; that would be provided by persons other than
the creditor or mortgage broker; and for which the creditor allows the
consumer to shop in accordance with Sec. 1026.19(e)(1)(vi)(A).
Comments 19(e)(3)(ii)-1 through -3 address the determination of good
faith in providing estimates of charges for services for which the
consumer can shop. Comment 19(e)(3)(iii)-2 discusses the determination
of good faith when the consumer chooses a provider that is not on the
list the creditor provides to the consumer when the consumer is
permitted to shop consistent with Sec. 1026.19(e)(1)(vi)(A). Comments
19(e)(3)(iv)-1 through -3 discuss limits and requirements applicable to
providing revised estimates for services for which the consumer can
shop.
2. Example of charges. Examples of the services to be listed under
this subheading pursuant to Sec. 1026.37(f)(3) might include pest
inspection fee, survey fee, title--closing agent fee, and title--
closing protection letter.
3. Title insurance. See comments 37(f)(2)-3 and -4 for guidance on
services that are to be labeled beginning with ``Title--'' and on
calculating and labeling the amount disclosed for lender's title
insurance pursuant to Sec. 1026.37(f)(3). See comment 37(g)(4)-1 for a
discussion of the disclosure of the premium for owner's title insurance
coverage.
37(f)(6) Use of addenda.
1. State law disclosures. If a creditor is required by State law to
make additional disclosures that, pursuant to Sec. 1026.37(f)(6)(i),
cannot be included in the disclosures required under Sec. 1026.37(f),
the creditor may make those additional State law disclosures on a
document whose pages are separate from, and are not presented as part
of, the disclosures prescribed in Sec. 1026.37. See comment 37(o)(1)-
1.
2. Reference to addendum. If an addendum is used as permitted under
Sec. 1026.37(f)(6)(ii), an example of a label that would comply with
the requirement for an appropriate reference on the last line is: ``See
attached page for additional items you can shop for.''
37(g) Closing cost details; other costs.
1. General description. The items listed under the heading of
``Other Costs'' pursuant to Sec. 1026.37(g) include services that are
ancillary to the creditor's decision to evaluate the collateral and the
consumer for the loan. The amounts disclosed for these items are:
established by government action; determined by standard calculations
applied to ongoing fixed costs; or based on an obligation incurred by
the consumer independently of any requirement imposed by the creditor.
Except for prepaid interest under Sec. 1026.37(g)(2)(iii), the
creditor does not retain any of the amounts or portions of the amounts
disclosed as Other Costs, nor does the creditor use any of the services
listed to evaluate the collateral and the consumer for the loan.
2. Charges pursuant to property contract. The creditor is required
to disclose charges that are described in Sec. 1026.37(g)(1) through
(3). Other charges that are required to be paid at or before closing
pursuant to the property contract for sale between the consumer and
seller are not disclosed on the Loan Estimate, except to the extent the
creditor is aware of those charges when it issues the Loan Estimate.
See Sec. 1026.37(g)(4) and comment 37(g)(4)-3.
37(g)(1) Taxes and other government fees.
1. Recording fees. Recording fees listed under Sec. 1026.37(g)(1)
are fees assessed by a government authority to record and index the
loan and title documents as required under State or local law.
Recording fees are assessed based on the type of document to be
recorded or its physical characteristics, such as the number of pages.
Unlike transfer taxes, recording fees are not based on the sales price
of the property or loan amount. For example, a fee for recording a
subordination agreement that is $20, plus $3 for each page over three
pages, is a recording fee, but a fee of $1,250 based on 0.5% of the
loan amount is a transfer tax, and not a recording fee.
2. Other government charges. Any charges or fees imposed by a State
or local government that are not transfer taxes are aggregated with
recording fees and disclosed under Sec. 1026.37(g)(1)(i).
3. Transfer taxes--terminology. In general, transfer taxes listed
under Sec. 1026.37(g)(1) are State and local government fees on
mortgages and home sales that are based on the loan amount or sales
price, while recording fees are State and local government fees for
recording the loan and title documents. The name that is used under
State or local law to refer to these amounts is not determinative of
whether they are disclosed as transfer taxes or as recording fees and
other taxes under Sec. 1026.37(g)(1).
4. Transfer taxes--consumer. Only transfer taxes imposed on the
consumer are disclosed on the Loan Estimate pursuant to Sec.
1026.37(g)(1). State and local government transfer taxes are governed
by State or local law, which determines if the seller or consumer is
ultimately responsible for paying the transfer taxes. For example, if
State law indicates a lien can attach to the consumer's acquired
property if the transfer tax is not paid, the transfer tax is
disclosed. If State or local law is unclear or does not specifically
attribute transfer taxes to the seller or the consumer, the creditor is
in compliance with requirements of Sec. 1026.37(g)(1) as long as the
amount of the transfer tax disclosed is not less than the amount
apportioned to the consumer using common practice in the locality of
the property.
5. Transfer taxes--seller. Transfer taxes paid by the seller in a
purchase transaction are not disclosed on the Loan Estimate under Sec.
1026.37(g)(1), but will be disclosed on the Closing Disclosure pursuant
to Sec. 1026.38(g)(1)(ii).
6. Deletion and addition of items. The lines and labels required by
Sec. 1026.37(g)(1) may not be deleted, even if recording fees or
transfer taxes are not charged to the consumer. No additional items may
be listed under the subheading in Sec. 1026.37(g)(1).
37(g)(2) Prepaids.
1. Examples. Prepaid items required to be disclosed pursuant to
Sec. 1026.37(g)(2) include the interest due at consummation for the
period of time before the first scheduled payment is due and certain
periodic charges that are required by the creditor to be paid at
consummation. Each periodic charge listed as a prepaid item indicates,
as applicable, the time period that the charge will cover, the daily
amount, the percentage used to calculate the charge, and the total
dollar amount of the charge. Examples of periodic charges that the
creditor may require the consumer to pay at consummation include:
i. Real estate property taxes due within 60 days after consummation
of the transaction;
ii. Past-due real estate property taxes;
iii. Mortgage insurance premiums;
iv. Flood insurance premiums; and
v. Homeowner's insurance premiums.
2. Interest rate. The interest rate disclosed pursuant to Sec.
1026.37(g)(2)(iii) is the same interest rate disclosed pursuant to
Sec. 1026.37(b)(2).
[[Page 51441]]
3. Terminology. As used in Sec. 1026.37(g)(2), the terms
``property taxes,'' ``homeowner's insurance,'' ``mortgage insurance''
have the same meaning as those terms are used in Sec. 1026.37(c) and
its commentary.
4. Deletion of items. The lines and labels required by paragraph
(g)(2) may not be deleted, even if amounts for those labeled items are
not charged to the consumer. If an amount for a labeled item is not
charged to the consumer, the time period, daily amount, and percentage
may be left blank.
37(g)(3) Initial escrow payment at closing.
1. Listed item not charged. Pursuant to Sec. 1026.37(g)(3), each
periodic charge to be included in the escrow or reserve account must be
itemized under the ``Initial Escrow Payment at Closing'' subheading,
with a relevant label, monthly payment amount, and number of months
expected to be collected at consummation. If an item required to be
listed under Sec. 1026.37(g)(3)(i) through (iii) is not charged to the
consumer, the monthly payment amount and time period may be left blank.
2. Aggregate escrow account calculation. The aggregate escrow
account adjustment required under Sec. 1026.38(g)(3) and 12 CFR
1024.17(d)(2) is not included on the Loan Estimate under Sec.
1026.37(g)(3).
3. Terminology. As used in Sec. 1026.37(g)(3), the terms
``property taxes,'' ``homeowner's insurance,'' and ``mortgage
insurance'' have the same meaning as those terms are used in Sec.
1026.37(c) and its commentary.
4. Deletion of items. The lines and labels required by Sec.
1026.37(g)(3) may not be deleted, even if amounts for those labeled
items are not charged to the consumer.
37(g)(4) Other.
1. Basic owner's policy rate. The amount disclosed for an owner's
title insurance premium pursuant to Sec. 1026.37(g)(4) is based on a
basic owner's policy rate, and not on an ``enhanced'' title insurance
policy premium. This amount should be disclosed as ``Title--Owner's
Title Policy (optional),'' or in any similar manner that includes the
introductory description ``Title--'' at the beginning of the label for
the item, the parenthetical description ``(optional)'' at the end of
the label, and clearly indicates the amount of the premium disclosed
pursuant to Sec. 1026.37(g)(4) is for the owner's title insurance
coverage. See comment 37(f)(2)-4 for a discussion of the disclosure of
the premium for lender's title insurance coverage.
2. Simultaneous title insurance premium rate in purchase
transactions. The premium for an owner's title insurance policy for
which a special rate may be available based on the simultaneous
issuance of a lender's and an owner's policy is calculated and
disclosed pursuant to Sec. 1026.37(g)(4) as follows:
i. The title insurance premium for a lender's title policy is based
on the full premium rate, consistent with Sec. 1026.37(f)(2) or
(f)(3).
ii. The owner's title insurance premium is calculated 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.
3. Designation of optional items. Products disclosed under Sec.
1026.37(g)(4) for which the parenthetical description ``(optional)'' is
included at the end of the label for the item include only items that
are separate from any item disclosed on the Loan Estimate under
paragraphs other than Sec. 1026.37(g)(4). For example, such items may
include owner's title insurance, credit life insurance, debt suspension
coverage, debt cancellation coverage, warranties of home appliances and
systems, and similar products, when coverage is written in connection
with a credit transaction that is subject to Sec. 1026.19(e). However,
because the requirement in Sec. 1026.37(g)(4)(ii) applies to separate
products only, additional coverage and endorsements on insurance
otherwise required by the lender are not disclosed under Sec.
1026.37(g)(4). See comments 4(b)(7) and (b)(8)-1 through -3 and
comments 4(b)(10)-1 and -2 for descriptions of credit life insurance,
debt suspension coverage, debt cancellation coverage, and similar
coverage and for guidance on determining when such coverage is written
in connection with a transaction subject to Sec. 1026.19(e).
4. Examples. Examples of other items that are disclosed under Sec.
1026.37(g)(4) if the creditor is aware of those items when it issues
the Loan Estimate include commissions of real estate brokers or agents,
additional payments to the seller to purchase personal property
pursuant to the property contract, homeowner's association and
condominium charges associated with the transfer of ownership, and fees
for inspections not required by the creditor but paid by the consumer
pursuant to the property contract. Although the consumer is obligated
for these costs, they are not imposed upon the consumer by the creditor
or loan originator. Therefore, they are not disclosed with the
parenthetical description ``(optional)'' at the end of the label for
the item, and they are disclosed pursuant to Sec. 1026.37(g) rather
than Sec. 1026.37(f). Even if such items are not required to be
disclosed on the Loan Estimate under Sec. 1026.37(g)(4), however, they
may be required to be disclosed on the Closing Disclosure pursuant to
Sec. 1026.38. Comment 19(e)(3)(iii)-3 discusses application of the
good faith requirement for services chosen by the consumer that are not
required by the creditor.
37(g)(6) Total closing costs.
Paragraph 37(g)(6)(ii).
1. Lender credits. Section 1026.19(e)(1)(i) requires disclosure of
lender credits as provided in Sec. 1026.37(g)(6)(ii). Comment
19(e)(3)(i)-5 describes such lender credits as payments from the
creditor to the consumer that do not pay for a particular fee on the
disclosures provided under Sec. 1026.37. Comment 19(e)(3)(i)-4
addresses payments by a creditor to a consumer to pay for particular
fees.
37(g)(8) Use of addenda.
1. State law disclosures. If a creditor is required by State law to
make additional disclosures that, pursuant to Sec. 1026.37(g)(8),
cannot be included in the disclosures required under Sec. 1026.37(g),
the creditor may make those additional State law disclosures on a
separate document whose pages are physically separate from, and are not
presented as part of, the disclosures prescribed in Sec. 1026.37. See
comment 37(o)(1)-1.
37(h) Calculating cash to close.
1. Labels for amounts disclosed. Paragraph 37(h) describes the
amounts that are used to calculate the estimated amount of cash or
other form of payment that the consumer must provide at consummation.
The labels used on the chart must correspond to the italicized
descriptions of Sec. 1026.37(h)(1) through (7).
37(h)(4) Deposit.
1. A deposit must be disclosed in a purchase transaction. In any
other type of transaction, any deposit amount is disclosed under Sec.
1026.37(h)(4) as $0.
37(h)(6) Seller credits.
1. Credits to be disclosed. The seller credits known to the
creditor at the time of application are disclosed under Sec.
1026.37(h)(6). Seller credits that are not known by the creditor at the
time of application are not disclosed under Sec. 1026.37(h)(6).
37(h)(7) Adjustments and other credits.
1. Other credits known at the time the Loan Estimate is issued.
Amounts expected to be paid by third parties not involved in the
transaction, such as gifts from family members and not otherwise
[[Page 51442]]
identified under Sec. 1026.37(h), would be included in the amount
disclosed pursuant to Sec. 1026.37(h)(7) to the extent known by the
creditor.
2. Persons. The term ``persons'' as used in Sec. 1026.37(h)(7)
includes all individuals and any entity, regardless of the legal
structure of such entity.
3. Credits. Only credits from parties other than the creditor or
seller can be disclosed pursuant to Sec. 1026.37(h)(7). Seller credits
and credits from the creditor are disclosed pursuant to Sec.
1026.37(h)(6) and Sec. 1026.37(g)(6)(ii), respectively.
4. Other credits to be disclosed. Other credits known to the
creditor at the time of application are disclosed under Sec.
1026.37(h)(7). Other credits that are not known by the creditor at the
time of application are not disclosed under Sec. 1026.37(h)(7).
37(h)(8) Estimated cash to close.
1. Result of cash to close calculation. The total of Sec.
1026.37(h)(1) through (7) is disclosed under Sec. 1026.37(h)(8) as
either a positive number, a negative number, or zero. A positive number
indicates the estimated amount that the consumer can be expected to pay
at consummation. A negative number indicates the estimated amount that
the consumer can receive at consummation. A result of zero indicates
that the consumer is anticipated to neither pay any amount or receive
any amount at consummation.
37(i) Adjustable payment table.
1. When table is not permitted to be disclosed. The disclosure
described in Sec. 1026.37(i) is required only if the periodic
principal and interest payment may change after consummation based on a
loan term other than a change to the interest rate, or the transaction
contains a seasonal payment product feature as described in Sec.
1026.37(a)(10)(ii)(E). If the transaction does not contain such loan
terms, this table may not appear on the Loan Estimate. See comment 37-
1.
2. Periods to be disclosed. Section 1026.37(i)(1) through (4)
requires disclosure of the periods during which interest-only, optional
payment, step-payment, and seasonal payment product features will be in
effect. The periods required to be disclosed should be disclosed by
describing the number of payments counting from the first periodic
payment due after consummation. The period of seasonal payments
required to be disclosed by Sec. 1026.37(i)(4), to be clear and
conspicuous, should be disclosed with a noun that identifies the unit-
period, because such feature may apply on a regular basis during the
loan term that does not depend on when regular periodic payments begin.
For example:
i. Period from date of consummation. If a loan has an interest-only
period for the first 60 regular periodic payments due after
consummation, the disclosure states ``for your first 60 payments.''
ii. Period during middle of loan term. If the loan has an interest-
only period between the 61st and 85th payments, the disclosure states
``from your 61st to 85th payment.''
iii. Multiple successive periods. If there are multiple periods
during which a certain adjustable payment term applies, such as a
period of step payments that occurs from the first to 12th payment,
does not apply to the 13th through 24th payments, and occurs again from
the 25th through 36th payments, the period disclosed is the entire span
of all such periods. Accordingly, such period is disclosed as ``for
your first 36 payments.''
iv. Seasonal payments. For a seasonal payment product with a unit-
period of a month that does not require periodic payments for the
months of June, July, and August each year during the loan term,
because such feature depends on calendar months and not on when regular
periodic payments begin, the period is disclosed as ``from June to
August.'' For a transaction with a quarterly unit-period that does not
require a periodic payment every third quarter during the loan term and
does not depend on calendar months, the period is disclosed as ``every
third payment.'' In the same transaction, if the seasonal payment
feature ends after the twentieth quarter, the period is disclosed as
``every quarter until the 20th quarter.''
37(i)(5) Principal and interest payments.
1. Statement of periodic payment frequency. The subheading required
by Sec. 1026.37(i)(5) must include the unit-period of the transaction,
such as ``quarterly,'' ``bi-weekly,'' or ``annual.'' This unit period
should be the same as disclosed under Sec. 1026.37(b)(3). See Sec.
1026.37(o)(5)(i).
2. Initial payment adjustment unknown. The disclosure required by
Sec. 1026.37(i)(5) must state the number of the first payment for
which the regular periodic principal and interest payment may change.
This payment is typically set forth in the legal obligation. However,
if the exact payment number of the first adjustment is not known at the
time the creditor provides the Loan Estimate, the creditor must
disclose the earliest possible payment that may change under the terms
of the legal obligation, based on the information available to the
creditor at the time, as the initial payment number and amount.
3. Subsequent changes. The disclosure required by Sec.
1026.37(i)(5) must state the frequency of adjustments to the regular
periodic principal and interest payment after the initial adjustment,
if any, expressed in years, except if adjustments are more frequent
than once every year, in which case the disclosure should be expressed
as payments. If there is only one adjustment of the periodic payment
under the terms of the legal obligation (for example, if the loan has
an interest-only period for the first 60 payments and there are no
adjustments to the payment after the end of the interest-only period),
the disclosure should state: ``No subsequent changes.'' If the loan has
graduated increases in the regular periodic payment every 12th payment,
the disclosure should state: ``Every year.'' If the frequency of
adjustments to the periodic payment may change under the terms of the
legal obligation, the disclosure should state the smallest period of
adjustments that may occur. For example, if an increase in the periodic
payment is scheduled every sixth payment for 36 payments, and then
every 12th payment for the next 24 payments, the disclosure should
state: ``Every 6th payment.''
4. Maximum payment. The disclosure required by Sec. 1026.37(i)(5)
must state the larger of the maximum scheduled or maximum potential
amount of a regular periodic principal and interest payment under the
terms of the legal obligation, as well as the payment number of the
first periodic principal and interest payment that can reach such
amount. If the disclosed payment is scheduled, Sec. 1026.37(i)(5)
requires that the disclosure state the payment number when such payment
is reached with the preceding text, ``starting at.'' If the disclosed
payment is only potential, as may be the case for a loan that permits
optional payments, the disclosure states the earliest payment number
when such payment can be reached with the preceding text, ``as early
as.'' Section 1026.37(i)(5) requires that the first possible periodic
principal and interest that can reach the maximum be disclosed. For
example, for a fixed interest rate optional-payment loan with scheduled
payments that result in negative amortization, the maximum periodic
payment disclosed should be based on the consumer having elected to
make the periodic payments that would increase the principal balance to
the maximum amount at the latest time possible before the loan begins
to fully amortize, which would cause the periodic principal and
interest payment
[[Page 51443]]
to be the maximum possible. For example, if the earliest payment that
could reach the maximum principal balance was the 41st payment at which
time the loan would begin to amortize and the periodic principal and
interest payment would be recalculated, but the last payment that
permitted the principal balance to increase was the 60th payment, the
disclosure required by Sec. 1026.37(i)(5) must assume the consumer
only reached the maximum principal balance at the 60th payment because
this would result in the maximum possible principal and interest
payment under the terms of the legal obligation. The disclosure must
state the periodic principal and interest payment based on this
assumption and state ``as early as the 61st payment.''
5. Payments that do not pay principal. Although the label of the
disclosure required by Sec. 1026.37(i)(5) is ``Principal and Interest
Payments,'' and the section refers to periodic principal and interest
payments, it includes a scheduled periodic payment that only covers
some or all of the interest that is due and not any principal (i.e., an
interest-only or negatively amortizing payment).
37(j) Adjustable interest rate table.
1. When table is permitted to be disclosed. The disclosure
described in Sec. 1026.37(j) is only required if the interest rate may
increase after consummation, either based on changes to an index or
scheduled changes to the interest rate. If the legal obligation does
not permit the interest rate to adjust after consummation, such as for
a ``Fixed Rate'' product under Sec. 1026.37(a)(10), this table is not
permitted to appear on the Loan Estimate. The creditor may not disclose
a blank table or a table with ``N/A'' inserted within each row. See
comment 37-1.
37(j)(1) Index and margin.
1. Index and margin. The index disclosed pursuant to Sec.
1026.37(j)(1) must be stated such that a consumer reasonably can
identify it. A common abbreviation or acronym of the name of the index
may be disclosed in place of the proper name of the index, if it is a
commonly used public method of identifying the index. For example,
``LIBOR'' may be disclosed instead of London Interbank Offered Rate.
The margin should be disclosed as a percentage. For example, if the
contract determines the interest rate by adding 4.25 percentage points
to the index, the margin should be disclosed as ``4.25%.''
37(j)(2) Increases in interest rate.
1. Adjustments not based on an index. If the legal obligation
includes both adjustments to the interest rate based on an external
index and scheduled and pre-determined adjustments to the interest
rate, such as for a ``Step Rate'' product under Sec. 1026.37(a)(10),
the disclosure required by Sec. 1026.37(j)(1), and not Sec.
1026.37(j)(2), must be provided pursuant to Sec. 1026.37(j)(2). The
disclosure described in Sec. 1026.37(j)(2) is stated only if the
product type does not permit the interest rate to adjust based on an
external index.
37(j)(3) Initial interest rate.
1. Interest rate at consummation. In all cases, the interest rate
in effect at consummation must be disclosed as the initial interest
rate, even if it will apply only for a short period, such as one month.
37(j)(4) Minimum and maximum interest rate.
1. Minimum interest rate. The minimum rate required to be disclosed
by Sec. 1026.37(j)(4) is the minimum interest rate that may occur at
any time during the term of the transaction, after any introductory or
``teaser'' interest rate expires, under the terms of the legal
obligation, such as an interest rate ``floor.'' If the terms of the
legal obligation do not state a minimum interest rate, the minimum
interest rate that applies to the transaction under applicable law must
be disclosed. If the terms of the legal obligation do not state a
minimum interest rate, and no other minimum interest rate applies to
the transaction under applicable law, the amount of the margin is
disclosed.
2. Maximum interest rate. The maximum interest rate required to be
disclosed pursuant to Sec. 1026.37(j)(4) is the maximum interest rate
possible under the terms of the legal obligation, such as an interest
rate ``cap.'' If the terms of the legal obligation do not specify a
maximum interest rate, the maximum interest rate permitted by
applicable law, such as State usury law, must be disclosed.
37(j)(5) Frequency of adjustments.
1. Exact month unknown. The disclosure required by Sec.
1026.37(j)(5) must state the first month for which the interest rate
may change. This month is typically scheduled in the terms of the legal
obligation. However, if the exact month is not known at the time the
creditor provides the Loan Estimate, the creditor must disclose the
earliest possible month under the terms of the legal obligation, based
on the information available to the creditor at the time.
37(j)(6) Limits on interest rate changes.
1. Different limits on subsequent interest rate adjustments. If
more than one limit applies to the amount of adjustments to the
interest rate after the initial adjustment, the greatest limit on
subsequent adjustments must be disclosed. For example, if the initial
interest rate adjustment is capped at two percent, the second
adjustment is capped at two and a half percent, and all subsequent
adjustments are capped at three percent, the disclosure required by
Sec. 1026.37(j)(6)(ii) states ``3%.''
37(k) Contact information.
1. NMLSR ID. Section 1026.37(k) requires the disclosure of an NMLSR
identification (ID) number for each creditor, mortgage broker, and loan
officer identified on the Loan Estimate. The NMLSR ID is a unique
number or other identifier generally assigned by the Nationwide
Mortgage Licensing System and Registry (NMLSR) to individuals
registered or licensed through NMLSR to provide loan originating
services. For more information, see the Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE Act) sections 1503(3) and (12) and
1504 (12 U.S.C. 5102(3) and (12) and 5103), and its implementing
regulations (i.e., 12 CFR 1007.103(a) and 1008.103(a)(2)). An entity
may also have an NMLSR ID. Thus, if the creditor, mortgage broker, or
loan officer has obtained an NMLSR ID, the NMLSR IDs must be provided
in the disclosures required by Sec. 1026.37(k)(1) and (2).
2. License number or unique identifier. Section 1026.37(k)(1) and
(2) requires the disclosure of a license number or unique identifier
for the creditor, mortgage broker, and loan officer if such entity or
individual has not obtained an NMLSR ID. In such event, if the
applicable State, locality, or other regulatory body with
responsibility for licensing and/or registering such entity's or
individual's business activities has issued a license number or other
unique identifier to such entity or individual, that number is
disclosed.
3. Contact. Section 1026.37(k)(2) requires the disclosure of the
name and NMLSR ID of the loan officer for the consumer. The loan
officer is generally the natural person employed by the person
disclosed under Sec. 1026.37(k)(2) who interacts most frequently with
the consumer and who has an NMLSR ID or, if none, a license number or
other unique identifier to be disclosed under Sec. 1026.38(k)(2), as
applicable.
37(l) Comparisons.
37(l)(1) In five years.
1. Loans with terms of less than five years. In transactions with a
scheduled loan term of less than 60 months, to comply with Sec.
1026.37(l)(1), the creditor discloses the amounts paid through the end
of the loan term.
Paragraph 37(l)(1)(i).
[[Page 51444]]
1. Calculation of total payments in five years. The amount
disclosed pursuant to Sec. 1026.37(l)(1)(i) is the sum of principal,
interest, mortgage insurance, and loan costs scheduled to be paid
through the end of the 60th month after the due date of the first
periodic payment. For purposes of Sec. 1026.37(l)(1)(i), interest is
calculated using the fully-indexed rate at consummation and includes
any prepaid interest. In addition, for purposes of Sec.
1026.37(l)(1)(i), the creditor should assume that the consumer makes
payments as scheduled and on time. For purposes of Sec.
1026.37(l)(1)(i), mortgage insurance is defined pursuant to comment
37(c)(1)(i)(C)-1 and includes prepaid or escrowed mortgage insurance.
Loan costs are those costs disclosed pursuant to Sec. 1026.37(f).
2. Negative amortization loans. For loans that permit negative
amortization, the creditor calculates the total payments in five years
using the negatively amortizing payment amount until the consumer must
begin making fully amortizing payments under the terms of the legal
obligation.
Paragraph 37(l)(1)(ii).
1. Calculation of principal paid in five years. The disclosure
required by Sec. 1026.37(l)(1)(ii) is calculated in the same manner as
the disclosure required by Sec. 1026.37(l)(1)(i), except that the
disclosed amount reflects only the total payments to principal through
the end of the 60th month after the due date of the first periodic
payment.
37(l)(3) Total interest percentage.
1. General. When calculating the total interest percentage, the
creditor assumes that the consumer will make each payment in full and
on time, and will not make any additional payments.
2. Adjustable-rate and step-rate mortgages. For adjustable-rate
mortgages, Sec. 1026.37(1)(3) requires that the creditor compute the
total interest percentage using the fully-indexed rate. For step-rate
mortgages, Sec. 1026.37(l)(3) requires that the creditor compute the
total interest percentage in accordance with Sec. 1026.17(c)(1) and
its associated commentary.
3. Negative amortization loans. For loans that permit negative
amortization, Sec. 1026.37(l)(3) requires that the creditor compute
the total interest percentage using the negatively amortizing payment
amount until the consumer must begin making fully amortizing payments
under the terms of the legal obligation.
37(m) Other considerations.
37(m)(1) Appraisal.
1. Applicability. Section 1026.37 requires the disclosures required
by this section to be made as applicable. The disclosure required by
Sec. 1026.37(m)(1) is only applicable to transactions subject to Sec.
1026.19(e) that are also subject either to 15 U.S.C. 1639h or 1691(e),
as implemented by this part or Regulation B, 12 CFR part 1002,
respectively. Accordingly, if a transaction is not also subject to
either of these provisions, the disclosure required by Sec.
1026.37(m)(1) may be omitted from the Loan Estimate.
37(m)(2) Assumption.
1. Disclosure. Section 1026.37(m)(2) requires the creditor to
disclose whether or not a third party may be allowed to assume the loan
on its original terms if the property is sold or transferred by the
consumer. In many cases, the creditor cannot determine, at the time the
disclosure is made, whether a loan may be assumable at a future date on
its original terms. For example, the assumption clause commonly used in
mortgages sold to the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation conditions an assumption on a
variety of factors, such as the creditworthiness of the subsequent
borrower, the potential for impairment of the creditor's security, and
the execution of an assumption agreement by the subsequent borrower. If
the creditor can determine that such assumption is not permitted, the
creditor complies with Sec. 1026.37(m)(2) by disclosing that the loan
is not assumable. In all other situations, including where assumption
of a loan is permitted or is dependent on certain conditions or
factors, or uncertainty exists as to the future assumability of a
mortgage, the creditor complies with Sec. 1026.37(m)(2) by disclosing
that, under certain conditions, the creditor may allow a third party to
assume the loan on its original terms.
2. Original terms. For purposes of Sec. 1026.37(m)(2), the phrase
``original terms'' does not preclude the imposition of an assumption
fee, but a modification of the legal obligation, such as a change in
the contract interest rate, represents different terms.
37(m)(3) Homeowner's insurance.
1. Optional disclosure. Section 1026.37(m)(3) provides that
creditors may, but are not required to, disclose a statement of whether
homeowner's insurance is required on the property and whether the
consumer may choose the insurance provider, labeled ``Homeowner's
Insurance.''
2. Relation to the finance charge. Section 1026.4(d)(2) describes
the conditions under which a creditor may exclude premiums for
homeowner's insurance from the finance charge. A creditor satisfies
Sec. 1026.4(d)(2)(i) by disclosing the statement described in Sec.
1026.37(m)(3).
37(m)(4) Late payment.
1. Definition. Section 1026.37(m)(4) requires a disclosure if
charges are added to an individual delinquent installment by a creditor
that otherwise considers the transaction ongoing on its original terms.
Late payment charges do not include: (i) the right of acceleration;
(ii) fees imposed for actual collection costs, such as repossession
charges or attorney's fees; (iii) referral and extension charges; or
(iv) the continued accrual of simple interest at the contract rate
after the payment due date. However, an increase in the interest rate
on account of a late payment by the consumer is a late payment charge
to the extent of the increase.
2. Applicability of State law. Many State laws authorize the
calculation of late charges as either a percentage of the delinquent
payment amount or a specified dollar amount, and permit the imposition
of the lesser or greater of the two calculations. The language provided
in the disclosure may reflect the requirements and alternatives allowed
under State law.
37(m)(6) Servicing.
1. Creditor's intent. Section 1026.37(m)(6) requires the creditor
to disclose whether it intends to service the loan directly or transfer
servicing to another servicer after closing. A creditor complies with
Sec. 1026.37(m)(6) if the disclosure reflects the creditor's intent at
the time the Loan Estimate is issued.
37(m)(7) Liability after foreclosure.
1. When statement is not permitted to be disclosed. The statement
required by Sec. 1026.37(m)(7) is permitted only under the condition
specified by Sec. 1026.37(m)(7), specifically, if the purpose of the
credit transaction is a refinance under Sec. 1026.37(a)(9).
37(n) Signature statement.
1. Signature line optional. Whether a signature line is provided
under Sec. 1026.37(n) is determined solely by the creditor. If a
signature line is provided, however, the disclosure must include the
statement required by Sec. 1026.37(n)(1).
2. Multiple consumers. If there is more than one consumer in the
transaction, the first consumer signs as the applicant and each
additional consumer signs as a ``co-applicant.'' If there is not enough
space under the heading ``Confirm Receipt'' to provide signature lines
for every consumer in the transaction, the creditor may add additional
signature pages, as needed, at the end of the form for the remaining
consumers' signatures.
37(o) Form of disclosures.
37(o)(1) General requirements.
[[Page 51445]]
1. Clear and conspicuous; segregation. The clear and conspicuous
standard requires that the disclosures required by Sec. 1026.37 be
legible and in a readily understandable form. Section 1026.37(o)(1)(i)
requires that the disclosures be grouped together, segregated from
everything else, and provided on separate pages that are not commingled
with any other documents or disclosures, including any other
disclosures required by State or other laws. As required by Sec.
1026.37(o)(3)(i), the disclosures for any transaction that is a
federally related mortgage loan under Regulation X, 12 CFR 1024.2, must
be made using the standard form H-24 in appendix H to this part.
Accordingly, use of that form constitutes compliance with the clear and
conspicuous and segregation requirements of Sec. 1026.37(o).
2. Balloon payment financing with leasing characteristics. In
certain credit sale or loan transactions, a consumer may reduce the
dollar amount of the payments to be made during the transaction by
agreeing to make, at the end of the loan term, a large final payment
based on the expected residual value of the property. The consumer may
have a number of options with respect to the final payment, including,
among other things, retaining the property and making the final
payment, refinancing the final payment, or transferring the property to
the creditor in lieu of the final payment. Such transactions may have
some of the characteristics of lease transactions subject to Regulation
M (12 CFR part 1013), but are considered credit transactions where the
consumer assumes the indicia of ownership, including the risks,
burdens, and benefits of ownership, upon consummation. These
transactions are governed by the disclosure requirements of this part
instead of Regulation M. Under Sec. 1026.37(o)(1)(ii), creditors may
not include any additional information with the disclosures required by
Sec. 1026.37, except as provided in Sec. 1026.37(o)(5). Thus, the
disclosures must show the large final payment as a balloon payment in
the projected payments table required by Sec. 1026.37(c) and should
not, for example, reflect the other options available to the consumer
at maturity.
37(o)(2) Estimated disclosures.
1. Estimated amounts. Section 1026.37(o)(2) incorporates the
``estimated'' designations reflected on form H-24 in appendix H to this
part into the disclosure requirements of Sec. 1026.37, even if the
relevant provision of Sec. 1026.37 does not expressly require
disclosure of the word ``estimate.'' For example, Sec.
1026.37(c)(2)(iv) requires disclosure of the total periodic payment
labeled ``Total Monthly Payment,'' but the label on form H-24 contains
the designation ``Estimated'' and thus, the label required by Sec.
1026.37(c)(2)(iv) must contain the designation ``Estimated.'' Although
many of the disclosures required by Sec. 1026.38 cross-reference their
counterparts in Sec. 1026.37, Sec. 1026.38(t) incorporates the
``estimated'' designations reflected on form H-25, not form H-24.
37(o)(3) Form.
1. Non-federally related mortgage loans. For a non-federally
related mortgage loan, the creditor is not required to use form H-24 in
appendix H to this part, although its use as a model form for such
transactions, if properly completed with accurate content, constitutes
compliance with the clear and conspicuous and segregation requirements
of Sec. 1026.37(o)(1)(i). Even when the creditor elects not to use the
model form, Sec. 1026.37(o)(1) requires that the disclosures be
grouped together and segregated from everything else; contain only the
information required by Sec. 1026.37(a) through (n); and be provided
in the same order as they occur in form H-24, using the same relative
positions of the headings, labels, and similar designations as shown in
the form. In addition, Sec. 1026.37(o)(2) requires that the creditor
include the designation of ``estimated'' for all headings, subheading,
labels, and similar designations required by Sec. 1026.37 for which
form H-24 contains the ``estimated'' designation in such heading,
subheading, label, or similar designation. The disclosures required by
this section comply with the requirement to be in a format
substantially similar to form H-24 when provided on letter size (8.5''
x 11'') paper.
37(o)(4) Rounding.
1. Rounding. Consistent with Sec. 1026.2(b)(4), except as
otherwise provided in Sec. 1026.37(o)(4), any amount required to be
disclosed by Sec. 1026.37 must be disclosed as an exact numerical
amount using decimal places where applicable, unless otherwise
provided.
2. Calculations. If a dollar amount that is required to be rounded
by Sec. 1026.37(o)(4)(i) on the Loan Estimate is a total of one or
more dollar amounts that are not required to be rounded, the total
amount must be rounded consistent with Sec. 1026.37(o)(4)(i), but such
component amounts used in the calculation must such exact numbers. In
addition, if any such exact component amount is required to be
disclosed under Sec. 1026.37, consistent with Sec. 1026.2(b)(4), it
should be disclosed as an exact number. If an amount that is required
to be rounded by Sec. 1026.37(o)(4)(i) on the Loan Estimate is a total
of one or more components that are also required to be rounded by Sec.
1026.37(o)(4)(i), the total amount must be calculated using such
rounded amounts. For example, the subtotals required to be disclosed by
Sec. 1026.37(f)(1), (2), and (3) are calculated using the rounded
amounts disclosed under those subsections. See comment 37(o)(4)(i)(C)-
1. However, the amounts required to be disclosed by Sec. 1026.37(l)
reference actual amounts for their components, rather than other
amounts disclosed under Sec. 1026.37 and rounded pursuant to Sec.
1026.37(o)(4)(i), and thus, they are calculated using exact numbers.
37(o)(4)(i) Nearest dollar.
Paragraph 37(o)(4)(i)(A).
1. Rounding of dollar amounts. Section 1026.37(o)(4)(i)(A) requires
that certain dollar amounts be rounded to the nearest whole dollar. For
example, pursuant to Sec. 1026.37(o)(4)(i)(A), if Sec.
1026.37(c)(2)(ii) requires disclosure of periodic mortgage insurance
payments of $164.50, the creditor would disclose $165. However, if the
periodic mortgage insurance payment required to be disclosed by Sec.
1026.37(c)(2)(ii) were $164.49, the creditor would disclose $164.
Paragraph 37(o)(4)(i)(B).
1. Rounding of loan amount. Section 1026.37(o)(4)(i)(B) requires
the loan amount to be disclosed without decimal places denoting cents
if the amount of cents is zero. For example, if Sec. 1026.37(b)(1)
requires disclosure of a loan amount of $481,516.23, the creditor
discloses the amount as $481,516.23. However, if the loan amount
required to be disclosed were $481,516.00, the creditor would disclose
$481,516.
Paragraph 37(o)(4)(i)(C).
1. Rounding of the total monthly payment. Section
1026.37(o)(4)(i)(C) requires the total monthly payment amount disclosed
under Sec. 1026.37(c)(2)(iv) to be rounded if any of its components
are rounded. For example, if the total monthly payment disclosed under
disclosed under Sec. 1026.37(c)(2)(iv) is composed of a $2,000.49
periodic principal and interest payment required to be disclosed by
Sec. 1026.37(c)(2)(i) and a $164.49 periodic mortgage insurance
payment required to be disclosed by Sec. 1026.37(c)(2)(ii), the
creditor would calculate the total monthly payment by adding the exact
periodic principal and interest payment of $2,000.49 and the rounded
periodic mortgage insurance
[[Page 51446]]
payment of $164, round the total, and disclose $2,164.
37(o)(4)(ii) Percentages.
1. Decimal places. Section 1026.37(o)(4)(ii) requires the
percentage amounts disclosed not to use decimal places, if the amount
is a whole number. For example, a 7.005 percent annual percentage rate
is disclosed in compliance with Sec. 1026.37(o)(4)(ii) as ``7.005%,''
but a 7.000 percent annual percentage rate would be disclosed as
``7%.''
37(o)(5) Exceptions.
1. Permissible changes. The changes required or permitted by Sec.
1026.37(o)(5) do not affect the substance, clarity, or meaningful
sequence of the disclosure and therefore, are permissible. Any changes
to the disclosure not specified in Sec. 1026.37(o)(5) or not permitted
by other provisions of Sec. 1026.37, may affect the substance,
clarity, or meaningful sequence of the disclosure and therefore are not
permissible. Creditors making any changes that affect substance,
clarity, or meaningful sequence will lose their protection from civil
liability under TILA.
2. Manual completion. Section 1026.37(o) does not require the
creditor to use a computer, typewriter, or other word processor to
complete the disclosure form. The person may fill in information and
amounts required to be disclosed by Sec. 1026.37 on form H-24 in
appendix H to this part by hand printing or using any other method,
provided the person produces clear and legible text and uses the
formatting required by form H-24, including replicating bold font where
required. Completion by hand or typewriter does not provide an
exemption from the requirement to keep records in an electronic,
machine readable format under Sec. 1026.25.
3. Contact information. If a transaction involves more than one
creditor or mortgage broker, the space provided on form H-24 in
appendix H to this part for the contact information required by Sec.
1026.37(m) may be altered to add additional labels to accommodate the
additional information of such parties, provided that the information
required by Sec. 1026.37(l), (m), and (n) are disclosed on the same
page as illustrated by form H-24. If the space provided on form H-24 in
appendix H to this part does not allow for the disclosure of such
contact and other information on the same page, an additional page may
be added to provide the required contact information with an
appropriate reference to the additional page.
4. Signature lines. Section 1026.37(o) does not restrict the
addition of signature lines to the disclosure required by Sec.
1026.37, provided any signature lines appear only under the ``Confirm
Receipt'' heading required by Sec. 1026.37(n) as illustrated by form
H-24 in appendix H to this part. If the number of signatures requested
by the creditor requires space for signature lines in excess of that
provided on form H-24, an additional page may be added to accommodate
the additional signature lines with an appropriate reference to the
additional page. Such additional page should also contain the heading
and statement required by Sec. 1026.37(n) in the format provided on
form H-24.
5. Additional page. Information required or permitted to be
disclosed by Sec. 1026.37(o)(5) on a separate page should be formatted
similarly to form H-24 in appendix H to this part, so as not affect the
substance, clarity, or meaningful sequence of the disclosure. In
addition, information provided on additional pages should be
consolidated on as few pages as necessary to not affect the substance,
clarity, or meaningful sequence of the disclosure.
Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
1. As applicable. The disclosures required by Sec. 1026.38 are to
be made only as applicable. A disclosure that is not applicable to a
particular transaction generally may be eliminated entirely. For
example, the disclosure required by Sec. 1026.38(r) of the consumer or
seller's real estate brokers may be eliminated for a transaction that
does not involve such real estate brokers, such as a refinance or home
equity loan. Alternatively, the creditor generally may include
disclosures that are not applicable to the transaction and note that
they are ``not applicable'' or ``N/A.''
2. Format. See Sec. 1026.38(t) and its commentary for guidance on
the proper format to be used in making the disclosures, as well as
required and permissible modifications.
38(a) General information.
38(a)(3) Closing information.
38(a)(3)(i) Date issued.
1. Applicable date. For general guidance on identifying the date
issued for the Closing Disclosure, see the commentary to Sec.
1026.37(a)(4).
38(a)(3)(iv) Agent.
1. Agency name. Section 1026.38(a)(3)(iv) requires the name of the
agency that employs the settlement agent. The name of the individual
conducting the closing is not required.
38(a)(3)(vi) Property.
1. Alternative property location. For guidance on providing the
location of a property that does not have a standard street address,
see the commentary to Sec. 1026.37(a)(6).
38(a)(3)(vii) Sale price.
1. No seller. In transactions where there is no seller, such as in
a refinancing, Sec. 1026.38(a)(3)(vii)(B) requires the creditor to
disclose the appraised value of the property. To comply with this
requirement, the creditor discloses the value determined by the
appraisal or valuation used to determine approval of the credit
transaction, or if a more recent appraisal or valuation has been obtain
by the creditor, the value determined by the more recent appraisal or
valuation.
38(a)(4) Transaction information.
1. Multiple borrowers and sellers. The name and address of each
consumer and seller in the transaction must be provided under the
heading ``Transaction Information.'' If the form does not provide
enough space to include the required information for each seller, an
additional page may be used and appended to the end of the form
provided that the creditor complies with the requirements of Sec.
1026.38(t)(3). For additional guidance on disclosing multiple
borrowers, see the commentary to Sec. 1026.37(a)(5).
2. No seller. In transactions where there is no seller, such as in
a refinancing or home equity loan, this disclosure may be left blank.
3. Multiple creditors. See commentary to Sec. 1026.37(a)(3)
regarding identification requirements for multiple creditors.
38(a)(5) Loan information.
1. General. See commentary to Sec. 1026.37(a)(8) through (12) for
guidance on the general requirements and definitions applicable to
Sec. 1026.38(a)(5)(i) through (v).
38(b) Loan terms.
1. Guidance. See the commentary to Sec. 1026.37(b) for guidance on
the content of the disclosures required by Sec. 1026.38(b).
38(c) Projected payments.
1. In general. For guidance on the disclosure of the projected
payments table, see Sec. 1026.37(c) and its commentary.
38(c)(1) Projected payments or range of payments.
1. Escrow account analysis. The amount of estimated escrow payments
disclosed on the Closing Disclosure is accurate if it differs from the
estimated escrow payment disclosed on the Loan Estimate because of the
escrow account analysis described in Regulation X, 12 CFR 1024.17.
38(f) Closing cost details; loan costs.
38(f)(1) Origination charges.
1. Guidance in other comments. For a description of origination
charges and
[[Page 51447]]
discount points, see comments 37(f)(1)-1, 2 and 3 of this part.
2. Loan originator compensation. All compensation paid to a loan
originator, as defined by Sec. 1026.36(a)(1), associated with the
transaction, regardless of the party that pays the compensation, must
be disclosed pursuant to Sec. 1026.38(f)(1). Compensation from the
consumer to a loan originator will be designated as borrower-paid at or
before closing, as applicable, on the Closing Disclosure. Compensation
from the creditor to a loan originator will be designated as paid by
others on the Closing Disclosure. Compensation to a loan originator
from both the consumer and the creditor in the transaction is
prohibited under Sec. 1026.36(d)(2).
3. Calculating compensation to a loan originator from the creditor.
The amount disclosed as paid from the creditor to a loan originator
under Sec. 1026.38(f)(1) is the dollar value of salaries, commissions,
and any financial or similar compensation provided to a loan originator
by the creditor. For additional guidance and examples on the
calculation of compensation paid to the loan originator from the
creditor, see comments 36(d)(1)-1, -2, -3 and -6.
38(f)(2) Services borrower did not shop for.
1. Guidance in other comments. For examples of services, costs, and
their descriptions disclosed under Sec. 1026.38(f)(2), see comments
37(f)(2)-1, 2, 3 and 4 of this part.
38(f)(3) Services borrower did shop for.
1. Provider on written list. Items that were disclosed pursuant to
Sec. 1026.37(f)(3) cannot be disclosed under this Sec. 1026.38(f)(3)
when the consumer selected a provider contained on the written list
provided under Sec. 1026.19(e)(1)(vi)(C). Instead, such costs are
disclosed pursuant to Sec. 1026.38(f)(2).
38(f)(5) Subtotal of loan costs.
1. Charges subtotaled. The only charges that are loan costs that
are subtotaled pursuant to Sec. 1026.38(f)(5) are those costs
designated borrower-paid at or before closing. Charges which are loan
costs designated seller-paid at or before closing, or paid by others,
are not subtotaled pursuant to Sec. 1026.38(f)(5). The subtotal of
charges that are seller-paid at or before closing or paid by others is
disclosed under Sec. 1026.38(h)(2).
38(g) Closing costs details; other costs.
38(g)(1) Taxes and other government fees.
1. Guidance. For additional guidance on taxes and other government
fees, see comments 37(g)(1)-1, -2, -3 and -4.
38(g)(2) Prepaids.
1. Guidance. For additional guidance on prepaids, see comment
37(g)(2)-1.
2. Negative prepaid interest. The prepaid interest amount is
disclosed as a negative number if the calculation of prepaid interest
results in a negative number.
3. No prepaid interest. If interest is not collected for a portion
of a month or other period between closing and the date from which
interest will be collected with the first monthly payment, then $0 must
be disclosed under Sec. 1026.38(g)(2).
38(g)(3) Initial escrow payment at closing.
1. Initial escrow account itemization. The creditor must state the
amount that it will require the consumer to place into a reserve or
escrow account at consummation to be applied to recurring charges for
property taxes, homeowner's and similar insurance, mortgage insurance,
homeowner's association dues, condominium dues, and other periodic
charges. Each periodic charge to be included in the escrow or reserve
account must be itemized under the ``Initial Escrow Payment at
Closing'' subheading, with a relevant label, monthly payment amount,
and number of months collected at closing.
2. Aggregate accounting. The method used to determine the aggregate
adjustment for the purposes of establishing the escrow account is
described in 12 CFR 1024.17(d)(2). Examples of this calculation
methodology can be found in appendix E to 12 CFR part 1024.
38(g)(4) Other.
1. Costs disclosed. The costs disclosed under Sec. 1038(g)(4)
include all real estate brokerage fees, homeowner's or condominium
association charges paid at consummation, home warranties, inspection
fees, and other fees that are part of the real estate closing but not
required by the creditor or disclosed elsewhere under Sec. 1026.38.
2. Owner's title insurance premium. In a jurisdiction where
simultaneous issuance title insurance rates are permitted, any owner's
title insurance premium disclosed under Sec. 1026.38(g)(4) is
calculated by using the full owner's title insurance premium, adding
any simultaneous issuance premium for issuance of lender's coverage,
and then deducting the full premium for lender's coverage disclosed
under Sec. 1026.38(f)(2) or (f)(3). Section 1026.38(g)(4)(i) requires
that the disclosure of the cost of the premium for an owner's title
insurance policy must include ``Title--'' at the beginning of the
label. In addition, Sec. 1026.38(g)(4)(ii) requires that the
disclosure of the cost of the premium for an owner's title insurance
policy must include the parenthetical ``(optional)'' at the end of the
label when designated borrower-paid at or before closing.
3. Guidance. For additional guidance on the use of the term
``(optional)'' under Sec. 1038(g)(4)(ii), see comment 37(g)(4)-3.
38(g)(6) Subtotal of costs.
1. Costs subtotaled. The only costs that are subtotaled pursuant to
Sec. 1026.38(g)(6) are those costs that are designated borrower-paid
at or before closing. Costs that are other costs designated seller-paid
at or before closing, or paid by others, are not subtotaled pursuant to
Sec. 1026.38(g)(6). The subtotal of charges that are designated
seller-paid at or before closing or paid by others is disclosed under
Sec. 1026.38(h)(2).
38(h) Closing cost totals.
Paragraph 38(h)(2).
1. Charges paid by seller and by others subtotaled. All loan costs
and other costs that are designated seller-paid at or before closing,
or paid by others, are also totaled under Sec. 1026.38(h)(2).
Paragraph 38(h)(3).
1. General lender credits. When the consumer receives a generalized
credit from creditor for closing costs, the amount of the credit must
be disclosed. However, if such credit is attributable to a specific
loan cost or other cost listed in the Closing Cost Details tables,
pursuant to Sec. 1026.38(f) or (g), that amount should be reflected in
the paid by others column in the Closing Cost Details tables under
Sec. 1026.38(f) or (g). For a description of lender credits from the
creditor, see comment 17(c)(1)-19. For a discussion of determining
amounts of general lender credits, see comment 19(e)(3)(i)-5. For a
discussion of lender credits for specific charges, see comment
19(3)(i)-4.
2. Credits for excess charges. Credits from the creditor to offset
an amount charged in excess of the limitations described in Sec.
1026.19(e)(ii) are disclosed pursuant to Sec. 1026.38(h)(3), along
with a statement that such amount was paid to offset an excess charge,
with funds other than closing funds. If an excess charge is discovered
after the revised Closing Disclosure has been provided, the revised
form must be provided to the consumer and other appropriate parties, as
described under Sec. 1026.19(f)(2)(iii).
Paragraph 38(h)(4).
1. Consistent terminology and order of charges. On the Closing
Disclosure the creditor must use terminology that is consistent with
that used on the Loan Estimate to identify each corresponding
[[Page 51448]]
loan cost and other cost. In addition, Sec. 1026.38(h)(4) requires the
creditor to list the costs disclosed under each subcategory of charges
in a consistent order. If costs move between subheadings under Sec.
1026.38(f)(2) and (f)(3) of this part, listing the costs in
alphabetical order in each subheading category is considered to be in
compliance with Sec. 1026.38(h)(4).
38(i) Calculating cash to close.
1. More prominent disclosures. Sections 1026.38(i)(1)(iii),
1026.38(i)(2)(iii), 1026.38(i)(3)(iii), 1026.38(i)(4)(iii),
1026.38(i)(5)(iii), 1026.38(i)(6)(iii), 1026.38(i)(7)(iii), and
1026.38(i)(8)(iii) require that statements are given as to whether the
``Final'' amount disclosed under each subparagraph (ii) of Sec. Sec.
1026.38(i)(1) through (i)(8) is different or equal to, and in some
cases whether the amount is greater than or less than, the
corresponding ``Estimate'' amount disclosed under each subparagraph (i)
of Sec. Sec. 1026.38(i)(1) through (i)(8). These statements are more
prominent than the other disclosures under Sec. 1026.38(i). The
statement of whether the estimated and final amounts are different,
stated as a ``Yes'' or ``No'' in capital letters and boldface font,
under the subheading ``Did this change?,'' as shown on form H-25 in
appendix H to this part, complies with the requirement to state whether
the amounts are different more prominently. Such statement of ``No''
satisfies the requirement to state that the estimated and final amounts
are equal, and these sections do not provide for any narrative text to
be included with such statement. The prominence requirement also
requires that, in the event an increase or decrease in costs has
occurred, certain words within the narrative text to be included under
the subheading ``Did this change?'' for a ``Yes'' answer are displayed
more prominently than other disclosures. For example, under Sec.
1026.38(i)(1)(iii)(A), this more prominent statement could take the
form of the phrases ``Total Loan Costs (D)'' and ``Total Other Costs
(I)'' being shown in boldface, as shown on form H-25 in appendix H to
this part. See comments 38(i)-3 and -4 for further guidance regarding
the prominence of such statements.
2. Statements of differences. The dollar amounts disclosed under
Sec. 1026.38 generally are shown to two decimal places unless
otherwise stated. See comment 38(t)(4)-1. As a result, any ``Final''
amount that is disclosed in the ``Calculating Cash to Close'' table
under Sec. 1026.38(i) is shown to two decimal places unless otherwise
stated. Pursuant to Sec. 1026.38(t)(4)(i)(C), however, any
``Estimate'' amount that is disclosed in the ``Calculating Cash to
Close'' table under Sec. 1026.38(i) is shown to the nearest dollar
amount, and thus matches the corresponding estimated amount disclosed
on the Loan Estimate's ``Calculating Cash to Close'' table under Sec.
1026.37(h), which is shown to the nearest whole dollar pursuant to
Sec. 1026.37(o)(4)(i)(A). For this reason, a ``Final'' amount shown to
two decimal places could be a larger number than its corresponding
``Estimate'' amount shown to the nearest whole dollar, when, in fact,
the apparent increase is due solely to rounding. Therefore, for
purposes of Sec. Sec. 1026.38(i)(1)(iii), 1026.38(i)(2)(iii),
1026.38(i)(3)(iii), 1026.38(i)(4)(iii), 1026.38(i)(5)(iii),
1026.38(i)(6)(iii), 1026.38(i)(7)(iii), and 1026.38(i)(8)(iii), each
statement of a change between the amounts disclosed on the Loan
Estimate and the Closing Disclosure is based on the actual, non-rounded
estimate that would have been disclosed on the Loan Estimate under
Sec. 1026.37(h) if it had been shown to two decimal places rather than
a whole dollar amount. For example, if the ``Estimate'' amount of
``Total Closing Costs'' disclosed under Sec. 1026.38(i)(1)(i) is
$12,500, and the ``Final'' amount of ``Total Closing Costs'' disclosed
under Sec. 1026.38(i)(1)(ii) is $12,500.35, then even though the table
would appear to show a $0.35 increase in ``Total Closing Costs,'' no
statement of such increase is given under Sec. 1026.38(i)(1)(iii) so
long as the actual, non-rounded estimate (i.e., the estimated amount of
``Total Closing Costs'' that would have been shown on the Loan Estimate
to two decimal places) is equal to $12,500.35.
3. Statements that the consumer should see details. The provisions
of Sec. 1026.38(i)(4)(iii)(A), (i)(5)(iii)(A), (i)(7)(iii)(A), and
(i)(8)(iii)(A) each require a statement that the consumer should see
certain details of the closing costs disclosed under Sec. 1026.38(j).
Form H-25 in appendix H to this part contains examples of these
statements. For example, Sec. 1026.38(i)(7)(iii)(A) requires a
statement that the consumer should see the details disclosed pursuant
to Sec. 1026.38(j)(2)(v), and, as shown on form H-25, the statement,
``See Seller Credits in Section L,'' in which the words ``Section L''
are boldface, complies with this provision. In addition, for example,
Sec. 1026.38(i)(5)(iii)(A) requires a statement that the consumer
should see the details disclosed pursuant to Sec. 1026.38(j)(2)(ii),
and the following similar statement to that shown on form H-25 for
Sec. 1026.38(i)(7)(iii)(A), ``See Deposit in Section L,'' complies
with this provision.
4. Statements of increases or decreases. The statements of whether
there is a difference between the final and estimated amounts under the
subheading ``Did this change?,'' as required by Sec. 1026.38(i). The
provisions of Sec. 1026.38(i)(4)(iii)(A), (i)(5)(iii)(A), and
(i)(6)(iii)(A) each require a statement of whether the amount increased
or decreased from the estimated amount. Form H-25 in appendix H to this
part contains an example of the statement required by Sec.
1026.38(i)(6)(iii)(A). For the provisions of Sec.
1026.38(i)(4)(iii)(A) and (i)(5)(iii)(A), the statement, ``You
increased this payment,'' in which the word ``increased'' is boldface
and is replaced with the word ``decreased'' as applicable, complies
with this provision.
38(i)(1) Total closing costs.
Paragraph 38(i)(1)(i).
1. Reference to disclosure of total closing costs. Under Sec.
1026.38(i)(1)(i), the amount disclosed is labeled ``Total Closing
Costs,'' and such label is accompanied by a reference to the disclosure
of ``Total Closing Costs'' under Sec. 1026.38(h)(1). This reference
may take the form, for example, of a cross-reference in parenthesis to
the row on the table disclosed under Sec. 1026.38(h) that includes the
itemized amount for ``Total Closing Costs,'' as shown on form H-25 in
appendix H to this part.
Paragraph 38(i)(1)(iii)(A).
1. Statements and references regarding the total loan costs and
total other costs. Under Sec. 1026.38(i)(1)(iii)(A), the statements
under the subheading ``Did this change?'' that the consumer should see
the total loan costs and total other costs subtotals disclosed on the
Closing Disclosure under Sec. 1026.38(f)(4) and (g)(5) is made only if
and to the extent the difference in the ``Total Closing Costs'' is
attributable to differences in itemized charges that are included in
either or both of such subtotals.
i. For example, if an increase in the ``Total Closing Costs'' is
attributable only to an increase in the appraisal fee (which is an
itemized charge on the Closing Disclosure under the subheading
``Services Borrower Did Not Shop For,'' itself under the heading ``Loan
Costs''), then a statement is given under the subheading ``Did this
change?'' that the consumer should see the total loan costs subtotal
disclosed on the Closing Disclosure under Sec. 1026.38(f)(4). If the
increase in ``Total Closing Costs'' is attributable only to an increase
in recording fees (which is an itemized charge on the Closing
Disclosure under the subheading ``Taxes
[[Page 51449]]
and Other Government Fees,'' itself under the heading ``Other Costs''),
then a statement is given under the subheading ``Did this change?''
that the consumer should see the total other costs subtotal disclosed
on the Closing Disclosure under Sec. 1026.38(g)(5). If, however, the
increase is attributable in part to an increase in the appraisal fee
and in part to an increase in the recording fee, then a statement is
given under the subheading ``Did this change?'' that the consumer
should see the total loan costs and total other costs subtotals
disclosed on the Closing Disclosure under Sec. 1026.38(f)(4) and
(g)(5).
ii. For guidance regarding the requirement that this statement be
accompanied by a reference to the disclosures of the total loan costs
and total other costs under Sec. Sec. 1026.38(f)(4) and (g)(5), see
comment 38(i)(1)(i)-1. For an example of such reference, see form H-25
in appendix H to this part.
2. Disclosure of excess amounts above limitations on increases in
closing costs.
i. Because certain closing costs, individually, are subject to the
limitations on increases in closing costs under Sec. 1026.19(e)(3)(i)
(e.g., fees paid to the creditor, transfer taxes, fees paid to an
affiliate of the creditor), while other closing costs are collectively
subject to the limitations on increases in closing costs under Sec.
1026.19(e)(3)(ii) (e.g., recordation fees, fees paid to an unaffiliated
third party identified by the creditor if the creditor permitted the
consumer to shop for the service provider), Sec. 1026.38(i)(1)(iii)(A)
requires the creditor or closing agent to calculate subtotals for each
type of excess amount, and then add such subtotals together to yield
the dollar amount to be disclosed in the table. See commentary to Sec.
1026.19(e)(3) for additional guidance on calculating excess amounts
above the limitations on increases in closing costs under Sec.
1026.19(e)(3).
ii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the excess
amounts above the limitations on increases in closing costs takes into
account that the itemized, estimated closing costs disclosed on the
Loan Estimate will not result in charges to the consumer if the service
is not actually provided at or before consummation. For example, if the
Loan Estimate included under ``Services You Cannot Shop For'' a $30
charge for a ``title courier fee,'' but the title company elects to
hand-deliver the title documents package to the creditor at no charge,
the $30 fee is not factored into the calculation of the ``Total Closing
Costs'' that are subject to the limitations on increases in closing
costs. However, if the title courier fee was assessed, but at only $15,
the charge is factored into the calculation because the third party
service was actually provided, albeit at a lower amount than estimated.
iii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the excess
amounts above the limitations on increases in closing costs takes into
account that certain itemized charges listed on the Loan Estimate under
the subheading ``Services You Can Shop For'' may be subject to
different limitations depending on the circumstances. Such a charge
would be subject to the limitations under Sec. 1026.19(e)(3)(i) if the
consumer decided to use a provider affiliated with the creditor.
However, the same charge would instead be subject to the limitations
under Sec. 1026.19(e)(3)(ii) if the consumer selected a third party
service provider unaffiliated with but identified by the creditor, and
the creditor permitted the consumer to shop for the service provider.
See commentary to Sec. 1026.19(e)(3) for additional guidance on
calculating excess amounts above the limitations on increases in
closing costs under Sec. 1026.19(e)(3).
38(i)(2) Closing costs subtotal paid before closing.
Paragraph 38(i)(2)(i).
1. Estimate of closing costs subtotal paid before closing. Under
Sec. 1026.38(i)(2)(i), the ``Estimate'' amount for ``Closing Costs
Subtotal Paid Before Closing'' is always shown as ``$0,'' because an
estimate of such amount is not disclosed on the Loan Estimate.
Paragraph 38(i)(2)(iii)(B).
1. Equal amount. Under Sec. 1026.38(i)(2)(iii)(B), the creditor or
closing agent will give a statement that the ``Final'' amount disclosed
under Sec. 1026.38(i)(2)(ii) is equal to the ``Estimate'' amount
disclosed under Sec. 1026.38(i)(2)(i), only if the ``Final'' amount is
$0, because the ``Estimate'' amount is always disclosed as $0 pursuant
to Sec. 1026.38(i)(2)(i). See comment 38(i)(2)(i)-1.
38(i)(4) Downpayment/funds from borrower.
Paragraph 38(i)(4)(ii)(A).
1. Downpayment. Under Sec. 1026.38(i)(4)(ii)(A), in a transaction
that is a purchase as defined in Sec. 1026.37(a)(9)(i), the ``Final''
amount disclosed for ``Downpayment/Funds from Borrower'' reflects any
change, following delivery of the Loan Estimate, in the amount of down
payment required of the consumer. This change might result, for
example, from an increase in the purchase price of the property.
Paragraph 38(i)(4)(ii)(B).
1. Funds from borrower. Section 1026.38(i)(4)(ii)(B) provides that,
in a transaction other than a purchase as defined in Sec.
1026.37(a)(9)(i), the ``Final'' amount disclosed for ``Downpayment/
Funds from Borrower'' is the amount of ``Funds from Borrower''
determined in accordance with Sec. 1026.38(i)(6)(iv). Under Sec.
1026.38(i)(6)(iv), the ``Final'' amount of ``Funds from Borrower'' to
be disclosed under Sec. 1026.38(i)(4)(ii)(B) is determined by
subtracting from the total amount of all existing debt being satisfied
in the real estate closing and disclosed under Sec. 1026.38(j)(1)(v)
(except to the extent the satisfaction of such existing debt is
disclosed under Sec. 1026.38(g)) the principal amount of the credit
extended, and is disclosed either as a positive number or $0 depending
on the result of the calculation. An increase in the ``Final'' amount
of ``Funds from Borrower'' compared to the corresponding ``Estimate''
amount might result, for example, from a decrease in the amount of the
credit extended or an increase in the payoff amount for the consumer's
existing debt that is secured by the property. For additional guidance
regarding the determination of the ``Funds from Borrower'' amount, see
comment 38(i)(6)(ii)-1.
Paragraph 38(i)(4)(iii)(A).
1. Statement of differences. Section 1026.38(i)(4)(iii)(A)
requires, as applicable, a statement that the consumer has increased or
decreased this payment, along with a statement that the consumer should
see the details disclosed under Sec. 1026.38(j)(1) or (j)(2), as
applicable. The applicable disclosure to be referenced corresponds to
the label on the Closing Disclosure under which the information
accounting for the increase in the ``Downpayment/Funds from Borrower''
amount is disclosed. For example, in a transaction that is a purchase
as defined in Sec. 1026.37(a)(9)(i), if the purchase price of the
property has increased and therefore caused the ``Downpayment'' amount
to increase, the statement, ``You increased this payment. See details
in Section K,'' with the words ``increased'' and ``Section K'' in
boldface text, complies with this requirement. In a purchase or
refinancing transaction, in the event the amount of the credit extended
by the creditor has decreased and therefore caused the ``Funds from
Borrower'' amount to increase, the statement can read, for example,
``You increased this payment. See details in Section L,'' with the same
boldface text.
38(i)(6) Funds for borrower.
Paragraph 38(i)(6)(ii).
1. Final funds for borrower. Section 1026.38(i)(6)(ii) provides
that the
[[Page 51450]]
``Final'' amount for ``Funds for Borrower'' is determined in accordance
with Sec. 1026.38(i)(6)(iv). Under Sec. 1026.38(i)(6)(iv), the
``Final'' amount of ``Funds for Borrower'' to be disclosed under Sec.
1026.38(i)(6)(ii) is determined by subtracting from the total amount of
all existing debt being satisfied in the transaction and disclosed
under Sec. 1026.38(j)(1)(v) (except to the extent the satisfaction of
such existing debt is disclosed under Sec. 1026.38(g)) the principal
amount of the credit extended (excluding any amount disclosed under
Sec. 1026.38(i)(3)(ii), and is disclosed under Sec. 1026.38(i)(6)(ii)
either as a negative number or $0.00 depending on the result of the
calculation. The ``Final'' amount of ``Funds for Borrower'' disclosed
under Sec. 1026.38(i)(6)(ii) is the amount to be disbursed to the
consumer or a designee of the consumer at consummation, if any.
38(i)(7) Seller credits.
Paragraph 38(i)(7)(ii).
1. Final seller credits. Under Sec. 1026.38(i)(7)(ii), the
``Final'' amount of ``Seller Credits'' reflects any change, following
the delivery of the Loan Estimate, in the amount of funds given by the
seller to the consumer for generalized (i.e., lump sum) credits for
closing costs or for allowances for items purchased separately (e.g.,
if the seller is a builder). Seller credits are distinguished from
payments by the seller for items attributable to periods of time prior
to consummation, which are among the ``Adjustments and Other Credits''
separately disclosed pursuant to Sec. 1026.38(i)(8). For additional
guidance regarding seller credits, see comments 38(j)(2)(v)-1 and -2.
38(i)(8) Adjustments and other credits.
Paragraph 38(i)(8)(ii).
1. Adjustments and other credits. Under Sec. 1026.38(i)(8)(ii),
the ``Final'' amount for ``Adjustments and Other Credits'' would
include, for example, prorations of taxes or homeowners' association
fees, utilities used but not paid for by the seller, rent collected in
advance by the seller from a tenant for a period extending beyond the
consummation, and interest on loan assumptions. This category also
includes generalized credits toward closing costs given by parties
other than the seller. For additional guidance regarding adjustments
and other credits, see commentary to Sec. Sec. 1026.37(h)(7),
1026.38(j)(2)(vi), and 1026.38(j)(2)(xi). If the calculation required
by Sec. 1026.38(i)(8)(ii) yields a negative number, the creditor or
closing agent discloses the amount as a negative number.
38(i)(9) Cash to close.
Paragraph 38(i)(9)(ii).
1. Final cash to close amount. The ``Final'' amount of ``Cash to
Close'' disclosed under Sec. 1026.38(i)(9)(ii) is the same as the
amount disclosed on the Closing Disclosure as ``Cash to Close'' under
Sec. 1026.38(j)(3)(iii). If the calculation required by Sec.
1026.38(i)(9)(ii) yields a negative number, the creditor or closing
agent discloses the amount as a negative number.
2. More prominent disclosure. Section 1026.38(i)(9)(ii) requires
that the disclosure of the ``Final'' amount of ``Cash to Close'' be
more prominent than the other disclosures under Sec. 1026.38(i). Such
more prominent disclosure can take the form, for example, of boldface
font, as shown on form H-25 in appendix H to this part.
38(j) Summary of borrower's transaction.
1. In general. It is permissible to have two separate Closing
Disclosures in a transaction: One that reflects the consumer's costs
and credits only, which is provided to the consumer, and one with the
seller's costs and credits only, which is provided to the seller. See
Sec. 1026.38(t)(5)(vii) and (viii). Some State laws may prohibit
provision of information about the consumer to the seller and about the
seller to the consumer.
2. Addendums. Additional pages may be attached to the Closing
Disclosure to add lines, as necessary, to accommodate the complete
listing of all items required to be shown on the Closing Disclosure,
and for the purpose of including customary recitals and information
used locally in real estate closings (for example, breakdown of payoff
figures, a breakdown of the consumer`s total monthly mortgage payments,
an accounting of debits received and check disbursements, a statement
stating receipt of funds, applicable special stipulations between
consumer and seller, and the date funds are transferred). See Sec.
1026.38(t)(5)(vi).
3. Identical amounts. The amounts disclosed under the following
provisions of Sec. 1026.38(j) are the same as the amounts disclosed
under the corresponding provisions of Sec. 1026.38(k): Sec.
1026.38(j)(1)(ii) and Sec. 1026.38(k)(1)(ii); Sec. 1026.38(j)(1)(iii)
and Sec. 1026.38(k)(1)(iii); if the amount disclosed under Sec.
1026.38(j)(1)(v) is attributable to contractual adjustments between the
consumer and seller, Sec. 1026.38(j)(1)(v) and Sec.
1026.38(k)(1)(iv); Sec. 1026.38(j)(1)(vii) and Sec.
1026.38(k)(1)(vi); Sec. 1026.38(j)(1)(viii) and Sec.
1026.38(k)(1)(vii); Sec. 1026.38(j)(1)(ix) and Sec.
1026.38(k)(1)(viii); Sec. 1026.38(j)(1)(x) and Sec.
1026.38(k)(1)(ix); Sec. 1026.38(j)(2)(iv) and Sec. 1026.38(k)(2)(iv);
Sec. 1026.38(j)(2)(v) and Sec. 1026.38(k)(2)(vii); Sec.
1026.38(j)(2)(viii) and Sec. 1026.38(k)(2)(x); Sec. 1026.38(j)(2)(ix)
and Sec. 1026.38(k)(2)(xi); Sec. 1026.38(j)(2)(x) and Sec.
1026.38(k)(2)(xii); and Sec. 1026.38(j)(2)(xi) and Sec.
1026.38(k)(2)(xiii).
38(j)(1) Itemization of amounts due from borrower.
Paragraph 38(j)(1)(ii).
1. Contract sales price and personal property. Section
1026.38(j)(1)(ii) requires disclosure of the contract sales price of
the property being sold, excluding the price of any tangible personal
property if the consumer and seller have agreed to a separate price for
such items. Personal property is defined by state law, but could
include such items as carpets, drapes, and appliances. Manufactured
homes are not considered personal property under Sec.
1026.38(j)(1)(ii).
Paragraph 38(j)(1)(v).
1. Contractual adjustments. Section 1026.38(j)(1)(v) requires
disclosure of amounts owed by the consumer that are not otherwise
disclosed pursuant to Sec. 1026.38(j). For example, the following
items must be disclosed under Sec. 1026.38(j), to the extent
applicable:
i. The balance in the seller's reserve account held in connection
with an existing loan, if assigned to the consumer in a loan assumption
transaction;
ii. Any rent that the consumer will collect after the real estate
closing for a period of time prior to the real estate closing; or
iii. The treatment of any tenant security deposit.
2. Other consumer charges. The amounts disclosed under Sec.
1026.38(j)(1)(v) which are for charges owed by the consumer at the real
estate closing not otherwise disclosed pursuant to Sec. 1026.38(f),
(g), and (j) will not have a corresponding credit in the summary of
seller's transaction under Sec. 1026.38(k)(1)(iv). For example, the
amounts paid to any existing holders of liens on the property in a
refinance transaction, and any outstanding real estate property taxes
are disclosed under Sec. 1026.38(j)(1)(v) without a corresponding
credit in the summary of seller's transaction under Sec.
1026.38(k)(1)(iv).
Paragraph 38(j)(1)(x).
1. Additional adjustments. Examples of items for which adjustments
may be made include taxes, other than those disclosed pursuant to Sec.
1026.38(j)(1)(vii) and (viii), paid in advance for an entire year or
other period, when the real
[[Page 51451]]
estate closing occurs prior to the expiration of the year or other
period for which they were paid. Additional examples of items for which
adjustments may be made include:
i. Flood and hazard insurance premiums, if the consumer is being
substituted as an insured under the same policy;
ii. Mortgage insurance in loan assumptions;
iii. Planned unit development or condominium association
assessments paid in advance;
iv. Fuel or other supplies on hand, purchased by the seller, which
the consumer will use when consumer takes possession of the property;
and
v. Ground rent paid in advance.
38(j)(2) Itemization of amounts already paid by or on behalf of
borrower.
Paragraph 38(j)(2)(ii).
1. Deposit. All amounts paid into a trust account by the consumer
pursuant to the contract of sale for real estate, any addenda thereto,
or any other agreement between the consumer and seller must be
disclosed under Sec. 1026.38(j)(2)(ii).
2. Reduction of deposit when deposit used to pay for closing
charges prior to closing. If the consumer's deposit has been applied
toward a charge for a closing cost, the amount applied should not be
included in the amount disclosed pursuant to Sec. 1026.38(j)(2)(ii),
but instead should be shown on the appropriate line for the closing
cost in the Closing Cost Detail tables pursuant to Sec. 1026.38(f) or
(g), designated borrower-paid before closing.
Paragraph 38(j)(2)(iii).
1. First user loan. For purposes of Sec. 1026.38(j), a first user
loan is a loan to finance construction of a new structure or purchase
of manufactured home that is known at the time of consummation to be
real property under state law, where the structure was constructed for
sale or the manufactured home was purchased for purposes of resale and
the loan is used as or converted to a loan to finance purchase by the
first user. For other loans subject to Sec. 1026.19(f) that finance
construction of a new structure or purchase of a manufactured home that
is known at the time of consummation to be real property under State
law, the sales price of the land and the construction cost or purchase
price of the manufactured home should be disclosed separately and the
amount of the loan in the current transaction must be disclosed. The
remainder of the Closing Disclosure should be completed taking into
account adjustments and charges related to the temporary financing and
permanent financing that are known at the time of consummation.
Paragraph 38(j)(2)(iv).
1. Assumption of existing loan obligation of seller by consumer.
The outstanding amount of any loan that the consumer is assuming, or
subject to which the consumer is taking title to the property must be
disclosed under Sec. 1026.38(j)(2)(iv).
Paragraph 38(j)(2)(v).
1. General seller credits. When the consumer receives a generalized
credit from the seller for closing costs or where the seller (typically
a builder) is making an allowance to the consumer for items to purchase
separately, the amount of the credit must be disclosed. However, if the
seller credit is attributable to a specific loan cost or other cost
listed in the Closing Cost Details tables, pursuant to Sec. 1026.38(f)
or (g), that amount should be reflected in the seller-paid column in
the Closing Cost Details tables under Sec. 1026.38(f) or (g).
2. Other seller credits. Any other obligations of the seller to be
paid directly to the consumer, such as for issues identified at a walk-
through of the property prior to closing, are disclosed under Sec.
1026.38(j)(2)(v).
Paragraph 38(j)(2)(vi).
1. Credits from any party other than the seller or creditor.
Section 1026.38(j)(2)(vi) requires disclosure of a description and the
amount of items paid by or on behalf of the consumer and not disclosed
elsewhere under Sec. 1026.38(j)(2). For example, credits a consumer
receives from a real estate agent or other third party, other than a
seller or creditor, are disclosed pursuant to Sec. 1026.38(j)(2)(vi).
However, if the credit is attributable to a specific closing cost
listed in the Closing Cost Details tables under Sec. 1026.38(f) or
(g), that amount should be reflected in the paid by others column on
the Closing Cost Details tables and not in the disclosure required
under Sec. 1026.38(j)(2)(vi). Similarly, if a real estate agent
rebates a portion of the agent's commission to the consumer, the rebate
should be listed as a credit along with a description of the rebate,
which must include the name of the party giving the credit.
2. Subordinate financing proceeds. Any financing arrangements or
other new loans not otherwise disclosed pursuant to Sec.
1026.38(j)(2)(iii) or (iv) must also be disclosed pursuant to Sec.
1026.38(j)(2)(vi). For example, if the consumer is using a second
mortgage or note to finance part of the purchase price, whether from
the same creditor, another creditor, or the seller, the principal
amount of the loan disclosed with a brief explanation. If the net
proceeds of a second loan are less than the principal amount of the
second loan, the net proceeds may be listed on the same line as the
principal amount of the second loan. For an example, see form H-25 in
appendix H to this part.
3. Satisfaction of existing subordinate liens by consumer. For
payments to subordinate lien holders by or on behalf of the consumer,
disclosure of any amounts paid with funds other than closing funds, as
defined under Sec. 1026.38(j)(4)(ii), in connection with the second
mortgage payoff are required to be disclosed under Sec.
1026.38(j)(2)(vi), with a statement that such amounts were paid outside
of closing funds.
4. Transferred escrow balances. In a refinance transaction, any
transferred escrow balance is listed as a credit pursuant to Sec.
1026.38(j)(2)(vi), along with a description of the transferred escrow
balance.
5. Gift funds. A credit must be disclosed for any money or other
payments made by family members or third parties not otherwise
associated with the transaction, along with a description of the nature
of the funds provided under Sec. 1026.38(j)(2)(vi).
Paragraph 38(j)(2)(xi).
1. Examples. Examples of items that would be disclosed under Sec.
1026.38(j)(2)(xi) include:
i. Utilities used but not paid for by the seller;
ii. Rent collected in advance by the seller from a tenant for a
period extending beyond the closing date; and
iii. Interest on loan assumptions.
38(j)(3) Calculation of borrower's transaction.
Paragraph 38(j)(3)(iii).
1. Stating if a mount is due to or from consumer. To comply with
Sec. 1026.38(j)(3)(iii), the creditor must state either the cash
required from the consumer at consummation, or cash payable to the
consumer at consummation, as described under Sec. 1026.38(j)(2)(iii).
2. Methodology. To calculate the cash to close, total the amounts
disclosed under Sec. 1026.38(j)(3)(i) and (ii). If that calculation
results in a positive amount, the amount is due from the consumer. If
the calculation results in a negative amount, the amount is due to the
consumer.
38(j)(4) Items paid outside of closing funds.
Paragraph 38(j)(4)(i).
1. Charges not paid with closing funds. Section 1026.38(j)(4)(i)
requires that any charges not paid from closing funds but that
otherwise are disclosed pursuant to Sec. 1026.38(j) be marked as
``paid outside of closing'' or ``P.O.C.'' The disclosure must include a
statement of the party making the payment, such as the consumer,
seller, loan originator,
[[Page 51452]]
real estate agent, or any other person. For an example of a disclosure
of a charge not made from closing funds, see form H-25 in appendix H to
this part. For an explanation of what constitutes closing funds, see
Sec. 1026.38(j)(4)(ii).
2. Items paid without closing funds not included in totals. Charges
that are paid outside of closing funds under Sec. 1026.38(j)(4)(i)
should not be included in computing totals under Sec. 1026.38(j)(1)
and (j)(2).
38(k) Summary of seller's transaction.
1. Transactions with no seller. Section 1026.38(k) does not apply
in transactions where there is no seller, such as a refinance
transaction.
2. Extra line items. For guidance regarding the use of an addendum,
see comment 38(j)-2.
3. Identical amounts. For guidance regarding the amounts disclosed
under certain provisions of Sec. 1026.38(k) are the same as amounts
disclosed under certain provisions of Sec. 1026.38(j), see comment
38(j)-3.
38(k)(2) Itemization of amounts due from seller.
Paragraph 38(k)(2)(ii).
1. Excess deposit disbursed to seller by party other than closing
agent. If the seller's real estate broker or other party who is not the
closing agent has received and holds a deposit against the sales price
(earnest money) which exceeds the fee or commission owed to that party,
the excess deposit must be disclosed pursuant to Sec.
1026.38(k)(2)(ii), if that party will provide the excess deposit
directly to the seller, rather than through the closing agent.
2. Distributions of deposit to seller prior to consummation. If the
deposit or any portion thereof has been disbursed to the seller prior
to closing, only the amount of the deposit that has not been
distributed to the seller must be disclosed under Sec.
1026.38(k)(2)(ii).
Paragraph 38(k)(2)(iv).
1. Assumption of existing loan obligation of seller by consumer. If
the consumer is assuming or taking title subject to existing liens and
the amounts of the outstanding balance of the lien are to be deducted
from sales price, the amounts of the outstanding balance of the lien
must be disclosed under Sec. 1026.38(k)(2)(iv).
2. Other seller credits. Any other obligations of the seller to be
paid directly to the consumer, such as credits for issues identified at
a walk-through of the property prior to the real estate closing, are
disclosed under Sec. 1026.38(k)(2)(vii).
Paragraph 38(k)(2)(viii).
1. Satisfaction of other seller obligations. Seller obligations,
other than second liens, that must be paid off to clear title to the
property must be disclosed pursuant to Sec. 1026.38(k)(2)(viii).
Examples of disclosures pursuant to Sec. 1026.38(k)(2)(viii) include
the satisfaction of outstanding liens imposed due to Federal, State, or
local income taxes, real estate property tax liens, judgments against
the seller reduced to lien upon the property, or any other obligations
the seller wishes the closing agent to pay from their proceeds at the
real estate closing.
2. Consumer satisfaction of outstanding subordinate loans. If the
consumer is satisfying existing liens which will not be deducted from
the sales price, the amount of the outstanding balance of the loan must
be disclosed under Sec. 1026.38(k)(2)(viii). For example, the amount
of any second lien which will be paid as part of the real estate
closing that is not deducted from the seller's proceeds under Sec.
1026.38(k)(2)(iv), is disclosed under Sec. 1026.38(k)(2)(viii). For
payments to the subordinate lien holder, any amounts paid must be
disclosed, and other amounts paid by or on behalf of the seller must be
disclosed as paid outside of closing funds under Sec.
1026.38(j)(2)(vi). For additional discussion, see comment 38(j)(2)(vi)-
2.
3. Escrows held by closing agent for payment of invoices received
after consummation. Funds to be held by the closing agent for the
payment of either repairs, or water, fuel, or other utility bills that
cannot be prorated between the parties at closing because the amounts
used by the seller prior to closing are not yet known must be disclosed
under Sec. 1026.38(k)(2)(viii). Subsequent disclosure of the actual
amount of these post-closing items to be paid from closing funds is
optional.
38(k)(3) Calculation of seller's transaction.
1. Stating if amount is due to or from seller. To comply with Sec.
1026.38(k)(3)(iii), the creditor must state either the cash required
from the seller at closing, or cash payable to the seller at closing,
as described under Sec. 1026.38(k)(2)(iii).
2. Methodology. To calculate the cash due to or from the consumer,
total the amounts disclosed under Sec. 1026.38(k)(3)(i) and (ii). If
that calculation results in a positive amount, the amount is due to the
seller. If the calculation results in a negative amount, the amount is
due from the seller.
38(k)(4) Items paid outside of closing funds.
1. Guidance. For guidance regarding the disclosure of items paid
with funds other than closing funds, see comments 38(j)(4)-1 and -2.
38(l) Loan disclosures.
38(l)(2) Demand feature.
1. Covered features. See comment 18(i)-2 for a description of
demand features triggering the disclosure requirements of Sec.
1026.38(l)(2).
38(l)(3) Late payment.
1. Guidance. See the commentary to Sec. 1026.37(m)(4) for guidance
on disclosing late payment requirements under Sec. 1026.38(l)(3).
38(l)(7) Escrow account.
Paragraph 38(l)(7)(i)(A)(2).
1. Estimated costs not paid by escrow account funds. Section
1026.38(l)(7)(i)(A)(2) requires the creditor to estimate the amount the
consumer is likely to pay during the first year after consummation for
charges described in Sec. 1026.37(c)(4)(ii) that are known to the
creditor that will not be paid using escrow account funds. The creditor
discloses this amount only if an escrow account will be established for
the payment of any amounts described in Sec. 1026.37(c)(4)(ii). The
creditor complies with this provision by disclosing the amount of such
charges used to calculate the estimated taxes, insurance, and
assessments disclosed pursuant to Sec. 1026.38(c)(1) as the total
amount scheduled to be paid during the first year after consummation.
Paragraph 38(l)(7)(i)(A)(4).
1. Estimated costs paid using escrow account funds. The amount the
consumer will be required to pay into an escrow account with each
periodic payment during the first year after consummation pursuant to
Sec. 1026.38(l)(7)(i)(A)(4) is the amount of estimated escrow payments
disclosed pursuant to Sec. 1026.38(c)(1).
Paragraph 38(l)(7)(i)(B)(1).
1. Estimated costs paid directly by the consumer. The estimated
total amount the consumer will pay directly for charges described in
Sec. 1026.37(c)(4)(ii) that are known to the creditor in the absence
of an escrow account during the first year after consummation pursuant
to Sec. 1026.38(l)(7)(i)(B)(1) is the amount of estimated taxes,
insurance, and assessments disclosed pursuant to Sec. 1026.38(c)(1) as
the estimated total amount scheduled to be paid during the first year
after consummation. The creditor discloses this amount only if no
escrow account will be established for the payment of amounts described
in Sec. 1026.37(c)(4)(ii).
38(m) Adjustable payment table.
1. Guidance. See the commentary to Sec. 1026.37(i) for guidance
regarding the disclosure required by Sec. 1026.38(m).
2. Master heading. The disclosure required by Sec. 1026.38(m) is
required to be provided under a different master heading than the
disclosure required by
[[Page 51453]]
Sec. 1026.37(i), but all other requirements applicable to the
disclosure required by Sec. 1026.37(i) apply to the disclosure
required by Sec. 1026.38(m).
3. When table is not permitted to be disclosed. Like the disclosure
required by Sec. 1026.37(i), the disclosure required by Sec.
1026.38(m) is permitted only if the periodic principal and interest
payment may change after consummation based on a loan term other than
on an adjustment to the interest rate or if the transaction is a
seasonal payment product as described under Sec.
1026.37(a)(10)(ii)(E). If the transaction does not contain these terms,
this table is not permitted on the Closing Disclosure. See comments 37-
1 and 37(i)-1.
4. Final loan terms. The disclosures required by Sec. 1026.38(m)
must include the information required by Sec. 1026.37(i), as
applicable, but the creditor must make the disclosure using the
information that is known at the time the disclosure is required to be
provided by Sec. 1026.19(f).
38(n) Adjustable interest rate table.
1. Guidance. See the commentary to Sec. 1026.37(j) for guidance
regarding the disclosures required by Sec. 1026.38(n).
2. Master heading. The disclosure required by Sec. 1026.38(n) is
required to be provided under a different master heading than the
disclosure required by Sec. 1026.37(j), but all other requirements
applicable to the disclosure required by Sec. 1026.37(j) apply to the
disclosure required by Sec. 1026.38(n).
3. When table is not permitted to be disclosed. Like the disclosure
required by Sec. 1026.37(j), the disclosure required by Sec.
1026.38(n) is permitted only if the interest rate may change after
consummation based on the terms of the legal obligation. If the
interest rate will not change after consummation, this table is not
permitted on the Closing Disclosure. See comments 37-1 and 37(j)-1.
4. Final loan terms. The disclosures required by Sec. 1026.38(n)
must include the information required by Sec. 1026.37(j), as
applicable, but the creditor must make the disclosure using the
information that is known at the time the disclosure is required to be
provided by Sec. 1026.19(f).
38(o) Loan Calculations.
38(o)(1) Total of payments.
1. Calculation of total of payments. The total of payments is
calculated in the same manner as the ``In 5 Years'' disclosure pursuant
to Sec. 1026.37(l)(1)(i), except that the disclosed amount reflects
the total payments through the end of the loan term. For guidance on
the amounts included in the total of payments calculation, see comment
37(1)(1)(i)-1.
38(o)(2) Finance charge.
1. Calculation of finance charge. The finance charge is calculated
in accordance with the requirements of Sec. 1026.4 and its commentary
and is expressed as a dollar amount.
2. Disclosure. The finance charge is disclosed as a total amount;
the components of the finance charge are not itemized.
38(o)(3) Amount financed.
1. Calculation of amount financed. The amount financed is
calculated in accordance with the requirements of Sec. 1026.18(b) and
its commentary.
38(o)(5) Total interest percentage.
1. In general. For guidance on calculation and disclosure of the
total interest percentage, see Sec. 1026.37(l)(3) and its commentary.
38(p) Other disclosures.
38(p)(1) Appraisal.
1. Applicability. Section 1026.38 provides that the disclosures
must be made as applicable. The disclosure required by Sec.
1026.38(p)(1) is only applicable to closed-end transactions subject to
Sec. 1026.19(f) that are also subject either to 15 U.S.C. 1639h or
1691(e), as implemented by this part or Regulation B, 12 CFR part 1002,
respectively. Accordingly, if a transaction is not subject to either of
those provisions, the disclosure required by Sec. 1026.38(p)(1) may be
omitted from the Closing Disclosure.
38(p)(3) Liability after foreclosure.
1. State law requirements. If the creditor forecloses on the
property and the proceeds of the foreclosure sale are less than the
unpaid balance on the loan, whether the consumer has continued or
additional responsibility for the loan balance after foreclosure, and
the conditions under which liability occurs, will vary by state.
Section 1026.38(p)(3) requires the creditor to provide a brief
description of the applicable State's requirements. Any type of
protection afforded by State law, other than a statute of limitations
that only limits the timeframe in which a creditor may seek redress,
requires a statement that State law may protect the consumer from
liability for the unpaid balance.
38(q) Questions notice.
Paragraph 38(q)(3).
1. Prominent question mark. The notice required under Sec.
1026.38(q) includes a prominent question mark. This prominent question
mark is an aspect of form H-25 in appendix H to this part, the standard
form or model form, as applicable, pursuant to Sec. 1026.38(t). If the
creditor or closing agent deviates from the depiction of the question
mark as shown on form H-25, the creditor or closing agent complies with
Sec. 1026.38(q) if (1) the size and location of the question mark on
the Closing Disclosure are substantially similar in size and location
to the question mark shown on form H-25, and (2) the creditor or
closing agent otherwise complies with Sec. 1026.38(t)(5) regarding
permissible changes to the form of the Closing Disclosure.
38(r) Contact information.
1. Each person to be identified. Form H-25 in appendix H to this
part includes the contact information required to be disclosed under
Sec. 1026.38(r) generally in a five-column tabular format (i.e., there
are columns from left to right that disclose the contact information
for the creditor, mortgage broker, consumer's real estate broker,
seller's real estate broker, and closing agent). Because Sec. 1026.38
requires disclosures only to the extent applicable, columns are either
left blank or filled in with ``N/A'' where no such person is
participating in the transaction. For example, if there is no mortgage
broker involved in the transaction, the column for the mortgage broker
is either left blank or filled in with ``N/A.'' Conversely, in the
event the transaction involves more than one of each such person (e.g.,
two seller's real estate brokers splitting a commission), the contact
information table may be altered to accommodate the information for
such persons, provided that the other information is disclosed on the
same page. If the format of the page does not accommodate the addition
of such information, an additional table to accommodate the information
may be provided on a separate page, with an appropriate reference to
the additional table. See Sec. 1026.38(t)(2)(x). A creditor or closing
agent may also omit a column on the table that is inapplicable or, if
necessary, replace an inapplicable column with the contact information
for the additional person.
2. Name of person. Where Sec. 1026.38(r)(1) calls for disclosure
of the name of the person participating in the transaction, the
person's legal name (e.g., the name used for registration,
incorporation, or chartering purposes), the person's trade name, if
any, or an abbreviation of the person's legal name or the trade name is
disclosed, so long as the disclosure is clear and conspicuous as
required by Sec. 1026.38(t)(1)(i). For example, if the creditor's
legal name is ``Alpha Beta Chi Bank and Trust Company, N.A.'' and its
trade name is ``ABC Bank,'' then under Sec. 1026.38(r)(1) the full
legal name, the trade name, or an abbreviation such as
[[Page 51454]]
``ABC Bank & Trust Co.'' may be disclosed. However, the abbreviation
``Bank & Trust Co.'' is not distinct as to enable a consumer to
identify the person, and therefore would not be clear and conspicuous.
If the creditor, mortgage broker, seller's real estate broker,
consumer's real estate broker, or closing agent participating in the
transaction is a natural person, the natural person's name is listed in
the Sec. 1026.38(r)(1) and (r)(4) disclosures (assuming that such
natural person is the primary contact for the consumer or seller, as
applicable).
3. Address. The address disclosed under Sec. 1026.38(r)(2) is the
identified person's place of business where the primary contact for the
transaction is located (usually the local office), rather than a
general corporate headquarters address. If a natural person's name is
to be disclosed under Sec. 1026.38(r)(1), see comment 38(r)-2, the
business address of such natural person is listed (assuming that such
natural person is the primary contact for the consumer or seller, as
applicable).
4. NMLSR ID. Section 1026.38(r)(3) and (5) requires the disclosure
of an NMLSR identification (ID) number for each person identified in
the table. The NMLSR ID is a unique number or other identifier that is
generally assigned by the Nationwide Mortgage Licensing System &
Registry (NMLSR) to individuals registered or licensed through NMLSR to
provide loan originating services (for more information, see the Secure
and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)
sections 1503(3) and (12) and 1504, 12 U.S.C. 5102(3) and (12) and
5103, and its implementing regulations (i.e., 12 CFR 1007.103(a) and
1008.103(a)(2)). An entity may also have an NMLSR ID. Thus, any NMLSR
ID that is obtained by a creditor or mortgage broker entity disclosed
under Sec. 1026.38(r)(1), as applicable, or a natural person disclosed
under Sec. 1026.38(r)(4), either as required under the SAFE Act or
otherwise, is disclosed. If the creditor, mortgage broker, or natural
person has an NMLSR ID and a separate license number or unique
identifier issued by the applicable State, locality, or other
regulatory body with responsibility for licensing and/or registering
such entity or person's business activities, only the NMLSR ID is
disclosed. Because Sec. 1026.38 requires disclosures only to the
extent applicable, the table is left blank, or ``N/A'' is entered, for
these disclosures in the columns corresponding to persons that have no
NMLSR ID and no license number or unique identifier to be disclosed
under Sec. 1026.38(r)(3) and (5), see comment 38(r)-5; provided that,
the creditor or closing agent may omit the column from the table or, if
necessary, replace the column with the contact information for an
additional person. See Sec. 1026.38(t)(2)(xii) and comment 38(r)-1.
5. License number or unique identifier. Section 1026.38(r)(3) and
(5) requires the disclosure of a license number or unique identifier
for each person (including natural persons) identified in the table if
the applicable State, locality, or other regulatory body with
responsibility for licensing and/or registering such person's business
activities has issued a license number or other unique identifier to
such person, and that person's NMLSR ID number has not already been
disclosed under Sec. 1026.38(r)(3) and (5). See comment 38(r)-4.
Because Sec. 1026.38 requires disclosures only to the extent
applicable, the table is either left blank or ``N/A'' is entered for
these disclosures in the columns corresponding to persons who are not
subject to the issuance of such a license number or unique identifier
and who have not obtained an NMLSR ID to be disclosed under Sec.
1026.38(r)(3) and (5) (see comment 38(r)-4); provided that, the
creditor or closing agent may omit the column from the table or, if
necessary, replace the column with the contact information for an
additional person. See Sec. 1026.38(t)(2)(xii) and comment 38(r)-1.
6. Contact. Section 1026.38(r)(4) requires the disclosure of the
primary contact for the consumer. The primary contact is the natural
person employed by the person disclosed under Sec. 1026.38(r)(1) who
interacts most frequently with the consumer and who has an NMLSR ID or,
if none, a license number or other unique identifier to be disclosed
under Sec. 1026.38(r)(5), as applicable. See comments 38(r)-4 and -5.
For example, if the senior loan officer employed by the creditor or
mortgage broker disclosed under Sec. 1026.38(r)(1) has an NMLSR ID,
but the consumer meets with a different loan officer to complete the
application and answer questions, the senior loan officer's name is
disclosed under Sec. 1026.38(r)(4) unless the other loan officer also
has an NMLSR ID, in which case the other loan officer's name is
disclosed. Further, if the sales agent employed by the consumer's real
estate broker disclosed under Sec. 1026.38(r)(1) has a State-issued
brokers' license number, but the consumer meets with an associate sales
agent to tour the property being purchased and complete the sales
contract, the sale's agent's name is disclosed under Sec.
1026.38(r)(4) unless the associate sales agent also has a State-issued
license number, in which case the associate sales agent's name is
disclosed. Moreover, if the closing attorney employed by the closing
agent disclosed under Sec. 1026.38(r)(1) has a State-issued closing
agent license number, but the consumer meets with a secretary to fill
out any necessary documentation prior to the closing and to answer
questions, the closing attorney's name is disclosed under Sec.
1026.38(r)(4) since a secretary is only performing clerical functions.
38(s) Signature statement.
1. General requirements. See the commentary to Sec. 1026.37(n) for
guidance regarding optional signature requirements and signature lines
for multiple consumers.
38(t) Form of disclosures.
38(t)(1) General requirements.
1. Clear and conspicuous; segregation. The clear and conspicuous
standard requires that the disclosures required by Sec. 1026.38 be
legible and in a readily understandable form. The disclosures also must
be grouped together, segregated from everything else, and provided on
separate pages that are not commingled with any other documents or
disclosures, including any other disclosures required by State or other
laws. As required by Sec. 1026.38(t)(2), the disclosures for any
transaction that is a federally related mortgage loan under Regulation
X, 12 CFR 1024.2, must be made using the standard form H-25 in appendix
H to this part. Accordingly, use of that form constitutes compliance
with the clear and conspicuous and segregation requirements of Sec.
1026.38(t).
2. Balloon payment financing with leasing characteristics. In
certain credit sale or loan transactions, a consumer may reduce the
dollar amount of the payments to be made during the course of the
transaction by agreeing to make, at the end of the loan term, a large
final payment based on the expected residual value of the property. The
consumer may have a number of options with respect to the final
payment, including, among other things, retaining the property and
making the final payment, refinancing the final payment, or
transferring the property to the creditor in lieu of the final payment.
Such transactions may have some of the characteristics of lease
transactions subject to Regulation M (12 CFR part 1013), but are
considered credit transactions where the consumer assumes the indicia
of ownership, including the risks, burdens and benefits of ownership,
upon consummation. These transactions are governed by the disclosure
requirements of this part instead of Regulation M.
[[Page 51455]]
Under Sec. 1026.38(t)(2), creditors may not include any additional
information in the disclosures required by Sec. 1026.38. Thus, the
disclosures must show the large final payment as a balloon payment in
the projected payments table required by Sec. 1026.38(c) and should
not, for example, reflect the other options available to the consumer
at maturity.
38(t)(2) Estimated disclosures.
1. Estimated amounts. Although certain amounts are estimated when
provided on the disclosure required by Sec. 1026.37, many of these
amounts, must be actual amounts rather than estimates in accordance
with the requirements of Sec. 1026.19(f), even though the
corresponding provision of Sec. 1026.38 cross-references a counterpart
in Sec. 1026.37. Section 1026.38(t)(2) provides that, if a master
heading, heading, subheading, label, or similar designation contains
the word ``estimated'' in form H-25 in appendix H to this part, that
heading, label, or similar designation shall contain the word
``estimated.'' Thus, Sec. 1026.38(t)(2) incorporates the ``estimated''
designations reflected on form H-25 into the requirements of Sec.
1026.38. See comment 37(o)(2)-1.
38(t)(3) Form.
1. Non-federally related mortgage loans. For a transaction that a
non-federally related mortgage loan, the creditor is not required to
use form H-25 in appendix H to this part, although its use as a model
form for such transactions, if properly completed with accurate
content, constitutes compliance with the clear and conspicuous and
segregation requirements of Sec. 1026.38(t)(1)(i). Even when the
creditor elects not to use the model form, Sec. 1026.38(t)(1)(ii)
requires that the disclosures contain only the information required by
Sec. 1026.38(a) through (s), and that the creditor make the
disclosures in the same order as they occur in H-25, use the same
headings, labels, and similar designations as used in the form (many of
which also are expressly required by Sec. 1026.38(a) through (s)), and
position the disclosures relative to those designations in the same
manner as shown in the form. In order to be in a format substantially
similar to form H-25, the disclosures required by this section must be
provided on letter size (8.5 x 11) paper.
38(t)(4) Rounding.
1. Generally. Consistent with Sec. 1026.2(b)(4), any amount
required to be disclosed by Sec. 1026.38 must be disclosed as an exact
numerical amount using decimal places where applicable, unless
otherwise provided. For example, Sec. 1026.38(t)(4) requires that the
loan amount be disclosed using decimal places even if the amount of
cents is zero. Accordingly, in contrast to the amounts disclosed under
Sec. 1026.37(b)(1), loan amounts disclosed pursuant to Sec.
1026.38(b) are disclosed with decimal places even if they denote zero
cents.
2. Guidance. For guidance regarding the requirements of Sec.
1026.38(t)(4), see the commentary to Sec. 1026.37(o)(4).
38(t)(5) Exceptions.
1. Permissible changes. The changes required and permitted by Sec.
1026.38(t)(5) do not affect the substance, clarity, or meaningful
sequence of the disclosure and therefore, are permissible. Any changes
to the disclosure not specified in Sec. 1026.38(t)(5) or not permitted
by other provisions of Sec. 1026.38, may affect the substance,
clarity, or meaningful sequence of the disclosure. Creditors making any
changes that do not conform to these requirements will lose their
protection from civil liability under TILA.
2. Manual completion. The creditor or settlement agent preparing
the form is not required to use a computer, typewriter, or other word
processor to complete the disclosure required by this section. The
creditor or settlement may fill in information and amounts required to
be disclosed by this section on form H-25 in appendix H to this part by
hand printing or using any other method, provided the person produces
clear and legible text and uses the formatting required by this
section, including replicating bold font where required. Completion by
hand or typewriter does not provide an exemption from the requirement
to keep records in an electronic, machine readable format under Sec.
1026.25.
3. Contact information. If a transaction involves more than one
creditor or mortgage broker, the space provided on form H-25 in
appendix H to this part for the contact information required by Sec.
1026.38(r) may be altered to accommodate the information for such
parties, provided that the information required by Sec. 1026.38(o),
(p), (q), (r), and (s) are disclosed on the same page as illustrated by
form H-25. If the space provided on form H-25 does not allow for the
disclosure of such contact and other information on the same page, an
additional page may be added to provide the required contact
information with an appropriate reference to the additional page.
4. Signature lines. Section 1026.38(t) does not restrict the
addition of signature lines to the disclosure required by Sec.
1026.38, provided any signature lines for confirmations of receipt of
the disclosure appear only under the ``Confirm Receipt'' heading
required by Sec. 1026.38(s) as illustrated by form H-25 in appendix H
to this part. If the number of signatures requested by the creditor for
confirming receipt of the disclosure requires space for signature lines
in excess of that provided on form H-25, an additional page may be
added to accommodate the additional signature lines with an appropriate
reference to the additional page. Such additional page should also
contain the heading and statement required by Sec. 1026.38(s) in the
format provided on form H-25. Signatures for a purpose other than
confirming receipt of the form may be obtained on a separate page, and
consistent with Sec. 1026.38(t)(1)(i), not on the same page as the
information required by Sec. 1026.38.
5. Additional page. Information required or permitted to be
disclosed by Sec. 1026.38(t)(5) on a separate page should be formatted
similarly to form H-25 in appendix H to this part, so as not affect the
substance, clarity, or meaningful sequence of the disclosure. In
addition, information provided on additional pages should be
consolidated on as few pages as necessary to not affect the substance,
clarity, or meaningful sequence of the disclosure.
6. Page numbers. References required by provisions of Sec. 1026.38
to information disclosed pursuant to other provisions of the section,
as illustrated on form H-25 in appendix H, may be altered to refer to
the appropriate page number of the form containing such information.
38(t)(5)(iv) Line numbers (Closing Cost Details).
1. Line numbers; Closing Cost Details. Section 1026.38(t)(5)(iv)
permits the deletion of unused lines from the disclosures required by
Sec. 1026.38(f)(1), (2) and (3) and (g)(1), (2), (3), and (4), if
necessary to allow the addition of lines to other sections that require
them for the required disclosures. This provision permits creditors and
settlement agents to use the space gained from deleting unused lines
for additional lines to accommodate all of the costs that are required
to be itemized. For example, if the only origination charge required by
Sec. 1026.38(f)(1) is points, the remaining seven lines illustrated on
form H-25 in appendix H to this part may be deleted and added to the
disclosure required by Sec. 1026.38(g)(4), if seven lines in addition
to those provided on form H-25 are necessary to accommodate such
disclosure.
[[Page 51456]]
38(t)(5)(v) Additional page (Closing Cost Details).
1. Additional page; Closing Cost Details. Section 1026.38(t)(5)(v)
permits the disclosure of the information required by Sec. 1026.38(f),
(g), and (h) over two pages, but only if form H-25 in appendix H to
this part, as modified pursuant to Sec. 1026.38(t)(5)(iv), does not
accommodate all of the costs required to be disclosed on one page. If
the deletion of unused lines and the addition of such lines to other
sections permits the disclosures required by Sec. 1026.38(f), (g), and
(h) to fit on one page, modification pursuant to Sec. 1026.
38(t)(5)(v) is not permissible.
2. Separate pages for Loan Costs and Other Costs. The modification
permitted by Sec. 1026.38(t)(5)(v) allows the information required by
Sec. 1026.38(f), (g), and (h) to be disclosed over two pages. Under
this modification, the information required by Sec. 1026.38(h) must
remain on the same page as the information required by Sec.
1026.38(g). Accordingly, the Loan Costs and Other Costs sections of
form H-25 in appendix H to this part may each appear on their own page,
but the Other Costs section must appear on the same page as the Total
Closing Costs section. The modifications permitted by Sec.
1026.38(t)(5)(iv) and (v) may be used in conjunction to ensure
disclosure of Sec. 1026.38(f) on one page and Sec. 1026.38(g) and (h)
on one separate page.
38(t)(5)(viii) Transaction without a seller.
1. Calculating Cash to Close. The modifications permitted by Sec.
1026.38(t)(5)(viii)(C) to the table required to be disclosed by Sec.
1026.38(i) should be factored into the calculation of the total amount
required by Sec. 1026.38(i)(9)(ii). In addition, the modifications
should be factored into the disclosures required by Sec. 1026.38(i) to
be disclosed under the subheading ``Estimate,'' using the estimated
amounts disclosed or used in calculating the disclosures under Sec.
1026.37.
2. Appraised Property Value. The modifications permitted by Sec.
1026.38(t)(5)(viii) do not specifically refer to the label required by
Sec. 1026.38(a)(3)(vii)(B) for transactions that do not involve a
seller, because the label is required by that section and is a
requirement and not considered a modification. As required by Sec.
1026.38(a)(3)(vii)(B), a form used for a transaction that does not
involve a seller and is modified pursuant to Sec. 1026.38(t)(5)(viii)
must contain the label ``Appraised Prop. Value'' and the information
required by Sec. 1026.38(a)(3)(vii)(B).
38(t)(5)(x) Customary recitals and information.
1. Customary recitals and information. Section 1026.38(t)(5)(x)
permits an additional page to be added to the disclosure for customary
recitals and information used locally in real estate settlements.
Examples of such information include breakdown of payoff figures, a
breakdown of the consumer's total monthly mortgage payments, check
disbursements, a statement indicating receipt of funds, applicable
special stipulations between buyer and seller, and the date funds are
transferred.[ltrif]
Section 1026.39--Mortgage transfer disclosures.
* * * * *
39(d) Content of required disclosures.
* * * * *
[rtrif]2. Partial Payment Policy. The disclosures required by Sec.
1026.39(d)(5) must identify whether the covered person accepts payments
from the consumer that are less than the full amount due and, if so,
provide a description of such policy. The disclosures required by Sec.
1026.39(d)(5) apply only to a closed-end consumer credit transaction
secured by a dwelling or real property, other than a reverse mortgage
transaction subject to Sec. 1026.33. For example, an open or closed-
end consumer credit transaction secured by a principal dwelling is a
mortgage loan under Sec. 1026.39(a) and a covered person must provide
the disclosures required by Sec. 1026.39(d)(1) through (4). However,
the covered person is only required to include the partial payment
policy disclosure required by Sec. 1026.39(d)(5) if the transaction is
a closed-end non-reverse mortgage transaction. If the dwelling in the
same transaction is not a principal dwelling (e.g., it is used solely
for vacation purposes), the disclosure required by Sec. 1026.39 is not
required for an open-end credit transaction, because the transaction is
not secured by a principal dwelling. If the transaction that is
transferred is a non-reverse mortgage closed-end consumer credit
transaction secured by nonresidential real property, the transaction is
a mortgage loan requiring a covered person to provide the disclosures
under Sec. 1026.39(d)(1) through (5).[ltrif]
* * * * *
[rtrif]Paragraph 39(d)(5).
1. Format of Disclosure. Section 1026.39(d)(5) requires disclosure
of the partial payment policy of covered persons for closed-end
mortgage loans. A covered person may utilize the format of the
disclosure illustrated by form H-25 in appendix H to this part for the
information required to be disclosed by Sec. 1026.38(l)(5). For
example, the statement required Sec. 1026.39(d)(5)(iii) that a new
covered person may have a different partial payments policy may be
disclosed using the language illustrated by form H-25, which states
``If this loan is sold, your new lender may have a different policy.''
The text illustrated by form H-25 may be modified to suit the format of
the covered person's disclosure under Sec. 1026.39. For example, the
format illustrated by form H-25 begins with the text, ``Your lender
will,'' which may not be suitable to the format of the covered person's
other disclosures under Sec. 1026.39. This text may be modified to
suit the format of the covered person's integrated disclosure, using a
phrase such as ``We will'' or ``We are your new lender and have a
different Partial Payment Policy than your previous lender. Under our
policy we will.'' Any modifications must be appropriate and not affect
the substance, clarity, or meaningful sequence of the
disclosure.[ltrif]
* * * * *
Appendix D--Multiple-Advance Construction Loans
* * * * *
6. Relation to Sec. 1026.18(s). A creditor must disclose an
interest rate and payment summary table for [rtrif]certain[ltrif]
transactions secured by [lsqbb]real property or[rsqbb] a dwelling,
pursuant to Sec. 1026.18(s), instead of the general payment
schedule required by Sec. 1026.18(g). Accordingly,
[rtrif]some[ltrif] home construction loans that are secured by
[lsqbb]real property or[rsqbb] a dwelling are subject to Sec.
1026.18(s) and not Sec. 1026.18(g). [rtrif]See comment app. D-7 for
a discussion of transactions that are subject to Sec. Sec. 1026.37
and 1026.38.[ltrif] Under Sec. 1026.17(c)(6)(ii), when a multiple-
advance construction loan may be permanently financed by the same
creditor, the construction phase and the permanent phase may be
treated as either one transaction or more than one transaction.
[rtrif]Following are illustrations of the application of appendix D
to transactions subject to Sec. 1026.18(s), under each of these two
alternatives:[ltrif]
i. If a creditor uses appendix D and elects pursuant to Sec.
1026.17(c)(6)(ii) to disclose the construction and permanent phases
as separate transactions, the construction phase must be disclosed
according to the rules in Sec. 1026.18(s). Under Sec. 1026.18(s),
the creditor must disclose the applicable interest rates and
corresponding periodic payments during the construction phase in an
interest rate and payment summary table. The provision in appendix
D, part I.A.3, which allows the creditor to omit the number and
amounts of any interest payments ``in disclosing the payment
schedule under Sec. 1026.18(g)'' does not apply because the
transaction is governed
[[Page 51457]]
by Sec. 1026.18(s) rather than Sec. 1026.18(g). Also, because the
construction phase is being disclosed as a separate transaction and
its terms do not repay all principal, the creditor must disclose a
balloon payment, pursuant to Sec. 1026.18(s)(5).
ii. On the other hand, if the creditor elects to disclose the
construction and permanent phases as a single transaction,
[rtrif]where interest is payable on the amount actually advanced for
the time it is outstanding,[ltrif] the construction phase must be
disclosed pursuant to appendix D, part II.C[rtrif].1[ltrif], which
provides that the creditor shall disclose the repayment schedule
without reflecting the number or amounts of payments of interest
only that are made during the construction phase. Appendix D also
provides, however, that creditors must disclose (outside of the
table) the fact that interest payments must be made and the timing
of such payments. The interest rate and payment summary table
disclosed under Sec. 1026.18(s) [rtrif]in such cases[ltrif] must
reflect only the permanent phase of the transaction. Therefore, in
determining the rates and payments that must be disclosed in the
columns of the table, creditors should apply the requirements of
Sec. 1026.18(s) to the permanent phase only. For example, under
Sec. 1026.18(s)(2)(i)(A) or Sec. 1026.18(s)(2)(i)(B)(1), as
applicable, the creditor should disclose the interest rate
corresponding to the first installment due under the permanent phase
and not any rate applicable during the construction phase.
[rtrif]7. Relation to Sec. Sec. 1026.37 and 1026.38. A creditor
must disclose a projected payments table for certain transactions
secured by real property, pursuant to Sec. Sec. 1026.37(c) and
1026.38(c), instead of the general payment schedule required by
Sec. 1026.18(g). Accordingly, some home construction loans that are
secured by real property are subject to Sec. Sec. 1026.37(c) and
1026.38(c) and not Sec. 1026.18(g). See comment app. D-6 for a
discussion of transactions that are subject to Sec. 1026.18(s).
Under Sec. 1026.17(c)(6)(ii), when a multiple-advance construction
loan may be permanently financed by the same creditor, the
construction phase and the permanent phase may be treated as either
one transaction or more than one transaction. Following are
illustrations of the application of appendix D to transactions
subject to Sec. Sec. 1026.37(c) and 1026.38(c), under each of these
two alternatives:
i. If a creditor uses appendix D and elects pursuant to Sec.
1026.17(c)(6)(ii) to disclose the construction and permanent phases
as separate transactions, the construction phase must be disclosed
according to the rules in Sec. Sec. 1026.37(c) and 1026.38(c).
Under Sec. Sec. 1026.37(c) and 1026.38(c), the creditor must
disclose the periodic payments during the construction phase in a
projected payments table. The provision in appendix D, part I.A.3,
which allows the creditor to omit the number and amounts of any
interest payments ``in disclosing the payment schedule under Sec.
1026.18(g)'' does not apply because the transaction is governed by
Sec. Sec. 1026.37(c) and 1026.38(c) rather than Sec. 1026.18(g).
The creditor determines the amount of the interest-only payment to
be made during the construction phase using the assumption in
appendix D, part I.A.1. Also, because the construction phase is
being disclosed as a separate transaction and its terms do not repay
all principal, the creditor must disclose the construction phase
transaction as a product with a balloon payment feature, pursuant to
Sec. Sec. 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), in addition
to reflecting the balloon payment in the projected payments table.
ii. If the creditor elects to disclose the construction and
permanent phases as a single transaction, the repayment schedule
must be disclosed pursuant to appendix D, part II.C.2. Under
appendix D, part II.C.2, the projected payments table must reflect
the interest-only payments during the construction phase in a first
column, followed by the appropriate column(s) reflecting the
amortizing payments for the permanent phase. The creditor determines
the amount of the interest-only payment to be made during the
construction phase using the assumption in appendix D, part
II.A.1.[ltrif]
* * * * *
Appendix H--Closed-End [lsqbb]Model[rsqbb] Forms and Clauses
* * * * *
16. Samples H-13 through H-15. These samples illustrate various
[lsqbb]mortgage[rsqbb] [rtrif]closed-end[ltrif] transactions.
[rtrif]Samples H-13 and H-15 are for transactions subject to Sec.
1026.17(a).[ltrif] [lsqbb]They assume that the mortgages are subject
to the Real Estate Settlement Procedures Act (RESPA). As a result,
no option regarding the itemization of the amount financed has been
included in the samples, because providing the good faith estimates
of settlement costs required by RESPA satisfies Truth in Lending's
amount financed itemization requirement. (See Sec.
1026.18(c).)[rsqbb] [rtrif]Samples H-13 and H-15 do not illustrate
the requirements of Sec. 1026.18(c) or (p) regarding the
itemization of the amount financed and a reference to contract
documents. See form H-2 for a model for these requirements.[ltrif]
* * * * *
19. Sample H-15. This sample illustrates a graduated payment
[lsqbb]mortgage[rsqbb] [rtrif]transaction subject to Sec.
1026.17(a)[ltrif] with a 5-year graduation period and a 7\1/2\
percent yearly increase in payments. The loan amount is $44,900,
payable in 360 monthly installments at a simple interest rate of
14.75%. Two points ($898), as well as an initial
[lsqbb]mortgage[rsqbb] guarantee insurance premium of $225.00, are
included in the prepaid finance charge. The [lsqbb]mortgage[rsqbb]
guarantee insurance premiums are calculated on the basis of \1/4\ of
1% of the outstanding principal balance under an annual reduction
plan. The abbreviated disclosure permitted under Sec. 1026.18(g)(2)
is used for the payment schedule for years 6 through 30. The
prepayment disclosure refers to both penalties and rebates because
information about penalties is required for the simple interest
portion of the obligation and information about rebates is required
for the [lsqbb]mortgage[rsqbb] [rtrif]guarantee[ltrif] insurance
portion of the obligation.
* * * * *
Dated: July 9, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-17663 Filed 8-6-12; 4:15 pm]
BILLING CODE 4810-25-P