Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z), 54317-54387 [2016-18426]

Download as PDF Vol. 81 Monday, No. 157 August 15, 2016 Part III Bureau of Consumer Financial Protection sradovich on DSK3GMQ082PROD with PROPOSALS3 12 CFR Part 1026 Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z); Proposed Rule VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\15AUP3.SGM 15AUP3 54318 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1026 [Docket No. CFPB–2016–0038] RIN 3170–AA61 Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z) Bureau of Consumer Financial Protection. ACTION: Proposed rule with request for public comment. AGENCY: The Bureau of Consumer Financial Protection (Bureau) is proposing various amendments to Federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act that are implemented in Regulation Z. The proposed amendments memorialize the Bureau’s informal guidance on various issues and include clarifications and technical amendments. The Bureau is also proposing tolerance provisions for the total of payments, an adjustment to a partial exemption mainly affecting housing finance agencies and nonprofits, extension of coverage of the integrated disclosure requirements to all cooperative units, and guidance on sharing the disclosures with various parties involved in the mortgage origination process. DATES: Comments must be received on or before October 18, 2016. ADDRESSES: You may submit comments, identified by Docket No. CFPB–2016– 0038 or RIN 3170–AA61, by any of the following methods: • Email: FederalRegisterComments@ cfpb.gov. Include Docket No. CFPB– 2016–0038 or RIN 3170–AA61 in the subject line of the email. • Electronic: http:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552. • Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002. 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 sradovich on DSK3GMQ082PROD with PROPOSALS3 SUMMARY: VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 general, all comments received will be posted without change to http:// www.regulations.gov. In addition, comments will be available for public inspection and copying at 1275 First Street NE., Washington, DC 20002, 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: Jeffrey Haywood, Paralegal Specialist, Dania Ayoubi, Pedro De Oliveira, David Friend, Jaclyn Maier, and Alexandra Reimelt, Counsels, and Nicholas Hluchyj, Senior Counsel, Office of Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552, at 202–435– 7700. SUPPLEMENTARY INFORMATION: I. Summary of the Proposed Rule For more than 30 years, Federal law required lenders to issue two overlapping sets of disclosures to consumers applying for a mortgage. In October 2015, integrated disclosures issued by the Consumer Financial Protection Bureau, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, took effect.1 The Bureau has worked actively to support implementation both before and after the effective date by providing compliance guides, webinars, and other implementation aids. To further these ongoing efforts, the Bureau is now proposing to memorialize certain past informal guidance, whether issued through webinar, compliance guide, or otherwise, and make additional clarifications and technical amendments. The Bureau is not proposing to reopen major policy decisions with this rulemaking but is proposing a few more substantive changes in a limited number of situations in which the Bureau has identified potential discrete solutions to specific implementation challenges. The 1 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376, 2007, 2103–04, 2107–09 (2010); Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 78 FR 79730 (Dec. 31, 2013). PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 Bureau expects that the proposal would generally benefit consumers and industry alike by providing greater clarity for implementation going forward. Among other changes, the proposal would: • Create tolerances for the total of payments. The Truth in Lending Act establishes certain tolerances for accuracy in calculating the finance charge and disclosures affected by the finance charge. In light of changes to certain underlying regulatory definitions, the Bureau believes it would be helpful to establish express tolerances for the total of payments to parallel the existing provisions regarding the finance charge. • Adjust a partial exemption that mainly affects housing finance agencies and nonprofits. The existing rule provides a partial exemption for certain non-interest bearing subordinate lien transactions that provide down payment and other homeowner assistance (housing assistance loans). The Bureau has learned that the exemption may not be operating as intended. The Bureau is proposing two amendments to expand the reach of the partial exemption. • Provide a uniform rule regarding application of the integrated mortgage disclosure requirements to cooperative units. Under the existing rule, coverage of cooperative units depends on whether cooperatives are classified as real property under State law. Because State law sometimes treats cooperatives differently for different purposes, there may be uncertainty and potential inconsistency among market actors. The Bureau is proposing to require provision of the integrated disclosures in transactions involving cooperative units, whether or not cooperatives are classified under State law as real property. • Provide guidance on sharing disclosures with various parties involved in the mortgage origination process. The Bureau has received a number of requests for guidance concerning the sharing of disclosures with sellers and various other parties, including real estate agents, involved in the origination process in light of privacy concerns. The Bureau is proposing to incorporate and expand upon previous webinar guidance in the Official Interpretations (commentary) to the regulation to provide greater clarity. The more minor changes and technical corrections address a variety of topics, including: Affiliate charges; the calculating cash to close table; construction loans; decimal places and rounding; escrow account disclosures; escrow cancellation notices; expiration E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules dates for the closing costs disclosed on the Loan Estimate; gift funds; the ‘‘In 5 Years’’ calculation; lender and seller credits; lenders’ and settlement agents’ respective responsibilities; the list of service providers; model forms; nonobligor consumers; partial payment policy disclosures; payment ranges on the projected payments table; the payoffs and payments table; payoffs with a purchase loan; postconsummation fees; principal reduction (principal curtailment); disclosure and good-faith determination of property taxes and property value; rate locks; recording fees; simultaneous second lien loans; the summaries of transactions table; the total interest percentage calculation; trusts; and informational updates to the disclosures required by § 1026.19(e)(1)(i) (Loan Estimate). II. Background sradovich on DSK3GMQ082PROD with PROPOSALS3 A. The TILA–RESPA Integrated Disclosures Rulemaking For more than 30 years, TILA required creditors to give consumers who applied for consumer credit, including mortgage loans, one set of disclosures, while RESPA required settlement agents to give borrowers who obtained federally related mortgage loans a different, overlapping, set of disclosures. This duplication was long recognized as inefficient and unduly complex for both consumers and industry and fueled more than one effort over the years to develop combined disclosure forms. In 1998, the Board of Governors of the Federal Reserve System (the Board) and the Department of Housing and Urban Development (HUD) prepared a joint report as to how the two sets of disclosures could be streamlined and simplified.2 In Dodd-Frank Act sections 1032(f), 1098, and 1100A, Congress directed the Bureau to integrate the mortgage loan disclosures under TILA and RESPA.3 The Bureau undertook significant stakeholder outreach and consumer testing as it developed the proposal.4 That work included researching how consumers interact with and understand information, testing of prototype disclosures, developing interactive 2 Bd. of Governors of the Fed. Reserve Sys. & U.S. Dep’t. of Housing 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. The report was prepared at Congress’s direction in the Economic Growth and Regulatory Paperwork Reduction Act of 1996. Public Law 104– 208, § 2101, 110 Stat. 3009. 3 Public Law 111–203, 124 Stat. 1376, 2007, 2103–04, 2107–09 (2010). 4 78 FR 79730, 79742–744 (Dec. 31, 2013). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 online tools to gather public feedback (which ultimately garnered more than 27,000 individual comments on the prototype disclosures), and hosting roundtable discussions, teleconferences, and meetings with consumer advocacy groups, industry representatives, and government agencies. In addition to more conventional outreach to industry stakeholders, the Bureau conducted testing with industry participants, as well as consumers.5 The Bureau also convened a Small Business Review Panel to solicit input from representatives of small entities. The Bureau’s 2012 proposal to integrate the TILA and RESPA disclosures (the 2012 TILA–RESPA Proposal) built from this extensive early outreach and research.6 That proposal was animated by three primary goals: First, to consolidate the overlapping forms to reduce burden on creditors and facilitate compliance; second, to develop clear disclosures that help consumers understand the credit transaction and closing costs; and, third, to facilitate comparison shopping so that consumers could more readily choose mortgages that are right for them. The Bureau received over 2,800 comments on its proposal from a wide range of interested parties.7 In addition to considering all of the comments provided, the Bureau conducted additional qualitative testing of the disclosures, qualitative testing of the Spanish language translations of the disclosures, and a large-scale quantitative study.8 In the quantitative study, respondents were able to answer questions about a hypothetical loan’s features with statistically significant greater accuracy when using the new 5 78 FR 79730, 79743 (Dec. 31, 2013). FR 51116 (Aug, 23, 2012). 7 The TILA–RESPA Final Rule notes that commenters included ‘‘consumer advocacy groups; national, State, and regional industry trade associations; banks; community banks; credit unions; financial companies; mortgage brokers; title insurance underwriters; title insurance agents and companies; settlement agents; escrow agents; law firms; document software companies; loan origination software companies; appraisal management companies; appraisers; State housing finance authorities; counseling associations and intermediaries; State attorneys general; associations of State financial services regulators; State bar associations; government sponsored enterprises (GSEs); a member of the U.S. Congress; the Committee on Small Business of the U.S. House of Representatives; Federal agencies, including the staff of the Bureau of Consumer Protection, the Bureau of Economics, and the Office of Policy Planning of the Federal Trade Commission (FTC staff), and the Office of Advocacy of the Small Business Administration (SBA); and individual consumers and academics.’’ 78 FR 79730, 79745 (Dec. 31, 2013). 8 78 FR 79730, 79746–750 (Dec. 31, 2013). 6 77 PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 54319 disclosures as compared to the existing disclosures.9 After consideration of the comments, the testing results, and the quantitative study, on November 20, 2013, the Bureau issued a final rule titled ‘‘Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)’’ (TILA– RESPA Final Rule).10 The rule included a number of model forms, 13 samples illustrating the use of those forms for different types of loans, and extensive Official Interpretations, which provided authoritative guidance explaining the new disclosures. The Bureau used its discretion to establish an initial effective date of August 1, 2015, slightly more than 20 months after the rule itself was issued.11 The Bureau ultimately extended that effective date another two months, to October 3, 2015, in a subsequent rulemaking.12 The Bureau has reaffirmed continuously its commitment to support a smooth transition for the mortgage market, including its commitment to be sensitive to the efforts made by institutions to come into compliance.13 The Bureau has made technical corrections to the TILA–RESPA Final Rule. On January 20, 2015, the Bureau issued the ‘‘Amendments to the 2013 9 Kleimann Comm. Group, Know Before You Owe: Quantitative Study of the Current and Integrated TILA–RESPA Disclosures (2013), available at http:// files.consumerfinance.gov/f/201311_cfpb_study_ tila-respa_disclosure-comparison.pdf. 10 77 FR 51116 (Aug. 23, 2012) (2012 TILA– RESPA Proposal); 78 FR 79730 (Dec. 31, 2013) (TILA–RESPA Final Rule); see also Consumer Fin. Prot. Bureau, CFPB Proposes ‘‘Know Before You Owe’’ Mortgage Forms (July 9, 2012), http:// www.consumerfinance.gov/pressreleases/consumerfinancial-protection-bureau-proposes-know-beforeyou-owe-mortgage-forms/; Consumer Fin. Prot. Bureau, Know Before You Owe: Introducing Our Proposed Mortgage Disclosure Forms, CFPB Blog (July 9, 2012), http://www.consumerfinance.gov/ blog/know-before-you-owe-introducing-ourproposed-mortgage-disclosure-forms/. 11 Most commenters supported an implementation period between 18 and 24 months. 78 FR 79730, 80071 (Dec. 31, 2013). 12 80 FR 43911 (July 24, 2015). An administrative error on the Bureau’s part required the Bureau to extend the effective date to August 15, 2015, at the earliest. The Bureau extended the effective date an additional six weeks to minimize costs from the delay to both consumers and industry. 13 See, e.g., Letter from Director Richard Cordray, CFPB, to Industry Trades (April 28, 2015); Letter from Director Richard Cordray, CFPB, to Representatives Andy Barr and Carolyn B. Maloney, U.S. House of Representatives (June 3, 2015). Both Fannie Mae and Freddie Mac have issued statements indicating that they are not conducting routine post-purchase reviews during the transitional period after the effective date. See, e.g., Fannie Mae, Lender Letter LL–2015–06 (Oct. 6, 2015), available at https://www.fanniemae.com/ content/announcement/ll1506.pdf; Freddie Mac, Industry Letter (Oct. 6, 2015), available at http:// www.freddiemac.com/singlefamily/guide/bulletins/ pdf/iltr100615.pdf. E:\FR\FM\15AUP3.SGM 15AUP3 54320 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) and the 2013 Loan Originator Rule Under the Truth in Lending Act (Regulation Z)’’ final rule (January 2015 Amendments).14 On July 21, 2015, the Bureau issued the ‘‘2013 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) and Amendments; Delay of Effective Date’’ final rule (July 2015 Amendments), which made certain technical amendments as well as extending the effective date.15 The TILA–RESPA Final Rule, January 2015 Amendments, and July 2015 Amendments are collectively referred to as the TILA–RESPA Rule in this proposal. While implementation has posed challenges to industry, industry reports indicate that implementation is now proceeding more smoothly.16 Data published by one leading provider of loan origination services and survey research conducted by a major trade association confirm these observations.17 Moreover, a recent homebuyer survey by another trade association suggests that the new disclosures are, indeed, helping consumers understand their loan terms.18 The Loan Estimate and the disclosures required by § 1026.19(f)(1)(i) (Closing Disclosure) have been praised by many as improvements to the existing forms.19 14 80 FR 8767 (Feb. 19, 2015). The January 2015 Amendments finalized a proposal the Bureau had issued on October 10, 2014, 79 FR 64336 (Oct. 29, 2014). 15 80 FR 43911 (July 24, 2015). The July 2015 Amendments finalized a proposal the Bureau had issued on June 24, 2015, 80 FR 36727 (June 26, 2015). 16 See, e.g., Brena Swanson,‘‘Ellie Mae CEO: Initial discomfort of TRID now over, Time to close finally tumbles,’’ Housingwire, March 21, 2016, available at http://www.housingwire.com/articles/ 36563-ellie-mae-ceo-initial-discomfort-of-trid-nowover; Ken Frears, ‘‘TRID: Back on Track in June,’’ National Association of Realtors, July 12, 2016 available at http:// economistsoutlook.blogs.realtor.org/2016/07/12/ trid-back-on-track-in-june/. 17 See Ellie Mae, Origination Insight Report (May, 2016), available at http://www.elliemae.com/ origination-insight-reports/Ellie_Mae_OIR_ MAY2016.pdf; National Association of Realtors®, Survey of Mortgage Originators, First Quarter 2016: TRID after 6 Months and Changes to FHA’s Cancellation Policy, available at http:// www.realtor.org/reports/survey-of-mortgageoriginators-first-quarter-2016. 18 Press Release, American Land Title Association, ‘‘American Land Title Association Survey Shows More Homebuyers Reviewing Mortgage Disclosures,’’ May 16, 2016, http:// www.alta.org/press/release.cfm?r=260. 19 Brian Honea, ‘‘How Satisfied are Borrowers with the Origination Process?,’’ The M Report (July VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 B. Implementation Support The Bureau has engaged in extensive efforts to support industry implementation of the TILA–RESPA Rule. Information regarding the Bureau’s implementation support initiative and available implementation resources can be found on the Bureau’s regulatory implementation Web site at www.consumerfinance.gov/regulatoryimplementation/tila-respa. The Bureau’s ongoing efforts in this area include: (1) The publication of a small entity compliance guide and a guide to forms to help industry understand the new rules, including updates to the guides, as needed; (2) the publication of a readiness guide for institutions to evaluate their readiness and facilitate compliance with the new rules; (3) the publication of a disclosure timeline that illustrates the process and timing requirements of the new disclosure rules; (4) the publication of the Bureau’s own examination procedures, incorporating the Federal Financial Institutions Examination Council’s exam procedures; (5) the publication of Loan Estimate and Closing Disclosure forms with fields annotated to show certain TILA disclosure citations; (6) a series of webinars to address common interpretive questions, including an index of questions answered during those webinars; (7) the issuance of the January 2015 and July 2015 Amendments, as well as a February 2016 Federal Register erratum notice; (8) the creation of a Web page targeted to real estate professionals and their questions; (9) roundtable meetings with industry, including creditors, settlement service providers, technology vendors, and secondary market participants, to discuss their challenges and support their implementation efforts; (10) participation in numerous conferences and forums throughout the entire implementation period; (11) close collaboration with State and Federal regulators on implementation of the TILA–RESPA Final Rule, including coordination on consistent examination procedures; and (12) extensive informal 13, 2016). available at http://www.themreport.com/ news/origination/07-13-2016/how-satisfied-areborrowers-with-the-origination-process; ‘‘STRATMOR:TRID Is Boosting Customer Satisfaction,’’ March 29, 2016, available at http:// www.mortgageorb.com/stratmor-trid-is-boostingcustomer-satisfaction; ‘‘New ClosingCorp Survey Gauges Early Consumer Reaction to New Real Estate/Mortgage Rules,’’ Businesswire (March 15, 2016), available at http://www.businesswire.com/ news/home/20160315005228/en/ClosingCorpSurvey-Gauges-Early-Consumer-Reaction-Real; Trey Garrison, ‘‘Here’s how TRID is changing the mortgage industry,’’ Housingwire (October 12, 2015), available at http://www.housingwire.com/ articles/print/35319-heres-how-trid-is-changing-themortgage-industry. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 guidance to support implementation of the TILA–RESPA Rule. C. Purpose and Scope of Proposal The intent of this proposal is to integrate some of the Bureau’s existing informal guidance, whether provided through webinar, compliance guide, or otherwise, into the regulation text and commentary of Regulation Z where appropriate. In addition, the Bureau is proposing to revise portions of the regulation text and commentary where revisions would be useful for greater certainty and clarity. The Bureau’s focus is thus providing additional clarity to facilitate compliance and doing so on an expedited schedule. While the Bureau has proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge, the Bureau does not intend to revisit major policy decisions in this rulemaking. The Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues. Accordingly, the proposal does not and cannot address every concern that has been raised to the Bureau. The Bureau believes that industry has made substantial implementation progress even in the last few months while drafting of the proposal was underway. The Bureau is prioritizing its resources to further facilitate industry’s implementation progress. Therefore, the Bureau is not proposing any revisions that implicate fundamental policy choices, such as the disclosure of simultaneous issuance title insurance premiums, made in the TILA–RESPA Final Rule. The Bureau is also not proposing additional cure provisions. The Bureau has spent substantial time considering industry requests to define further procedures for curing errors made in Loan Estimates or Closing Disclosures. The Bureau has worked steadily with industry to explain the cure provisions adopted in the TILA– RESPA Final Rule as well as TILA’s existing provisions for cure. The Bureau is concerned that further definition of cure provisions would not be practicable without substantially undermining incentives for compliance with the rule. The Bureau believes that further defining cure provisions would be extraordinarily complex. Accordingly, the Bureau is focusing this rulemaking process on facilitating compliance with the TILA–RESPA Rule E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules in an expeditious manner so that all consumers receive disclosures that conform to the requirements of the rule. III. Legal Authority The Bureau is issuing this proposal pursuant to its authority under TILA, RESPA, and the Dodd-Frank Act, including the authorities discussed below. In general, the provisions this proposal would amend were previously adopted by the Bureau in the TILA– RESPA Final Rule. In doing so, the Bureau relied on one or more of the authorities discussed below. Except as otherwise noted in the section-bysection analysis in part V below, the Bureau is issuing this proposal in reliance on the same authority and for the same reasons relied on in adopting the relevant provisions of the TILA– RESPA Rule, which are described in detail in the Legal Authority and Section-by-Section Analysis parts of the TILA–RESPA Final-Rule and January 2015 Amendments, respectively.20 A. The Integrated Disclosure Mandate Section 1032(f) of the Dodd-Frank Act required the Bureau to propose, for public comment, rules and model disclosures combining 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 determined that any proposal issued by the Board and HUD carried out the same purpose.21 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.22 The purpose of the integrated disclosure is to facilitate sradovich on DSK3GMQ082PROD with PROPOSALS3 20 78 FR 79730, 79753–56 (Dec. 31, 2013); 80 FR 8767, 8768–70 (Feb. 19, 2015). 21 Public Law 111–203, 124 Stat. 1376, 2007 (2010) (codified at 12 U.S.C. 5532(f)). 22 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.’’ Public Law 111–203, 124 Stat. 1376, 2108 (2010) (codified at 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.’’ Public Law 111–203, 124 Stat. 1376, 2103 (2010) (codified at 12 U.S.C. 2603(a)). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 compliance with the disclosure requirements of TILA and RESPA and to improve borrower understanding of the transaction. Although Congress imposed the requirement to integrate the disclosures, it did not harmonize the underlying statutes. 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 section 128(b)(2)(A) 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.23 If the annual percentage rate that was initially disclosed becomes inaccurate, TILA section 128(b)(2)(D) requires creditors to redisclose the information at least three business days before consummation.24 Pursuant to TILA section 128(b)(2)(B)(ii), the disclosures must be provided in final form at consummation.25 RESPA section 5(c) also requires that the lender or broker provide borrowers with a good faith estimate of settlement charges no later than three business days after receiving their applications.26 However, unlike TILA, RESPA section 4(b) requires that, at or before settlement, the person conducting the settlement (which may not be the creditor) provide the borrower with a statement that records all charges imposed upon the borrower in connection with the settlement.27 B. Other Rulemaking and Exception Authorities Truth in Lending Act TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 105(a),28 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 further 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 23 15 U.S.C. 1638(b)(2)(A). This requirement applies to extensions of credit that are both secured by a dwelling and subject to RESPA. Id. 24 15 U.S.C. 1638(b)(2)(D). 25 15 U.S.C. 1638(b)(2)(B)(ii). 26 12 U.S.C. 2604(c). 27 12 U.S.C. 2603(b). 28 15 U.S.C. 1604(a). PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 54321 therewith. 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 available credit terms and avoid the uninformed use of credit.29 In enacting TILA, Congress found 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.30 Strengthened competition among financial institutions is a goal of TILA, achieved through the meaningful disclosure of credit terms. 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. Dodd-Frank Act section 1100A amended TILA section 105(a) to provide the Bureau 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 Bureau’s authority under TILA section 105(a) to prescribe requirements beyond those specifically listed in the statute. 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, including the high-cost mortgages referred to in TILA section 103(bb), except with respect to the provisions of TILA section 129 that apply uniquely to such high-cost mortgages.31 TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA to add new section 129B(e).32 That section authorizes the Bureau to prohibit or condition terms, acts, or practices relating to residential mortgage loans that the Bureau finds to be abusive, unfair, deceptive, predatory, necessary, or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of sections 129B and 129C of TILA, to prevent 29 15 U.S.C. 1601(a). 30 Id. 31 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. 32 Public Law 111–203, 124 Stat. 1376, 2141 (2010) (codified at 15 U.S.C. 1639B(e)). E:\FR\FM\15AUP3.SGM 15AUP3 54322 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules circumvention or evasion thereof, or to facilitate compliance with such sections, or are not in the interest of the borrower. In developing rules under TILA section 129B(e), the Bureau has considered whether the rules are in the interest of the borrower, as required by the statute. The Bureau is proposing portions of this rule pursuant to its authority under TILA section 129B(e). sradovich on DSK3GMQ082PROD with PROPOSALS3 Real Estate Settlement Procedures Act Section 19(a) of RESPA 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.33 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.34 In addition, in enacting RESPA, Congress found that consumers are entitled to 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 in some areas of the country.35 In the past, RESPA 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 rules under RESPA section 19(a), the Bureau has considered the purposes of RESPA, including to effect certain changes in the settlement process that will result in more effective advance disclosure of settlement costs. The Bureau is proposing portions of this rule pursuant to its authority under RESPA section 19(a). Dodd-Frank Act Dodd-Frank Act section 1022(b). Under Dodd-Frank Act section 1022(b)(1), the Bureau has general authority 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.36 TILA and RESPA are Federal consumer financial laws.37 Accordingly, in proposing this rule, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b) to prescribe rules under TILA, RESPA, and title X of the Dodd-Frank Act that carry 33 12 U.S.C. 2617(a). 34 12 U.S.C. 2601(b). 35 12 U.S.C. 2601(a). 36 Public Law 111–203, 124 Stat. 1376, 1980 (2010) (codified at 15 U.S.C. 5512(b)(1)). 37 12 U.S.C. 5481(12) and (14). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 out the purposes and objectives and prevent evasion of those laws. 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).38 Dodd-Frank Act section 1032. 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.39 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.40 Accordingly, in developing the TILA–RESPA Rule under Dodd-Frank Act section 1032(a), the Bureau considered available studies, reports, and other evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services. 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 of the TILA– RESPA Final Rule for a discussion of the Bureau’s consumer testing.41 The Bureau is proposing portions of this rule pursuant to its authority under DoddFrank Act section 1032(a). Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank Act provides that, notwithstanding any 38 Public Law 111–203, 124 Stat. 1376, 1980 (2010) (codified at 12 U.S.C. 5512(b)(2)). 39 Public Law 111–203, 124 Stat. 1376, 2006–07 (2010) (codified at 12 U.S.C. 5532(a)). 40 Public Law 111–203, 124 Stat. 1376, 2007 (2010) (codified at 12 U.S.C. 5532(c)). 41 78 FR 79730, 79743–50 (Dec. 31, 2013). PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 other provision of title XIV 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 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.42 Section 1401 of the Dodd-Frank Act, which amends TILA section 103(cc)(5), generally defines a 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.43 Notably, the authority granted by section 1405(b) applies to disclosure requirements generally and is not limited to a specific statute or statutes. Accordingly, DoddFrank Act section 1405(b) is a broad source of authority to exempt from or modify the disclosure requirements of TILA and RESPA. In developing rules for residential mortgage loans under Dodd-Frank Act section 1405(b), 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. The Bureau is proposing portions of this rule pursuant to its authority under DoddFrank Act section 1405(b). IV. Proposed Implementation Period The Bureau seeks comment on when the changes proposed herein should be effective. The Bureau believes that these changes should enable industry to implement the TILA–RESPA Rule more cost-effectively and that industry should be able implement these changes relatively quickly. At the same time, the Bureau recognizes that some of the proposed changes might require changes to systems or procedures. The Bureau specifically requests that technology vendors, creditors, mortgage brokers, settlement agents, and other entities affected by the proposal provide details on any required updates to software and systems and other measures that would be necessary to implement the proposed changes. The Bureau also specifically requests details on the amount of time 42 Public Law 111–203, 124 Stat. 1376, 2142 (2010) (codified at 15 U.S.C. 1601 note). 43 Public Law 111–203, 124 Stat. 1376, 2138 (2010) (codified at 15 U.S.C. 1602(cc)(5)). E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules needed to make specific changes and the time to make all proposed changes in the aggregate. The Bureau proposes an effective date 120 days after publication in the Federal Register of any final rule based on this proposal and seeks comment on the same. The Bureau also welcomes comment on whether there is a better or worse time of year for any of the changes proposed herein to become effective. The Bureau seeks comment on whether specific changes, as detailed in the section-by-section analysis in part V below, should have a separate effective date and, if so, whether it should be earlier or later than the general effective date and why. Finally, as discussed more fully in the section-by-section analysis of § 1026.1(d)(5), the Bureau is proposing revisions to comment 1(d)(5)– 1 that would make mandatory, after a period of six months or more following promulgation of a final rule, certain post-consummation disclosures for transactions with an application date before October 3, 2015. V. Section-by-Section Analysis Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, and Liability 1(d) Organization sradovich on DSK3GMQ082PROD with PROPOSALS3 1(d)(5) As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to § 1026.1(d)(5) to reflect this proposed change to the coverage of § 1026.19(e) and (f). Comment 1(d)(5)–1 explains that the Bureau’s revisions to Regulation X and Regulation Z in the TILA–RESPA Final Rule apply to covered loans for which the creditor or mortgage broker receives an application on or after October 3, 2015 (the ‘‘effective date’’), except that § 1026.19(e)(2), § 1026.28(a)(1), and the commentary to § 1026.29 became effective on October 3, 2015, without respect to whether an application was received. The Bureau is proposing to modify comment 1(d)(5)–1 in three ways. First, the Bureau is proposing to restructure the comment and make other clarifying and technical revisions. Second, the Bureau is proposing revisions to conform with proposed revisions to § 1026.19(e) and (f) as VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 discussed in relation to the edits to § 1026.1(d)(5) above. Third, the Bureau is proposing language to require a creditor, servicer, or covered person, as applicable, to provide the disclosures required by § 1026.20(e) or § 1026.39(d)(5), for transactions in which the conditions in these provisions, as applicable, exist on or after October 1, 2017, regardless of when a corresponding application was received. The proposed amendments to the comment also would set forth an illustrative example. With regard to the third modification, the Bureau understands that there is uncertainty whether the disclosures in §§ 1026.20(e) and 1026.39(d)(5) (together, the post-consummation disclosures) apply to all covered transactions as of the effective date or only to covered transactions for which the creditor or mortgage broker received an application on or after October 3, 2015. The Bureau considers either approach compliant under existing comment 1(d)(5)–1. The Bureau is proposing to clarify that the postconsummation disclosure requirements apply to all covered transactions. To avoid unfair surprise to creditors that have observed the requirements only for transactions for which an application was received on or after October 3, 2015, however, the Bureau is proposing to provide in comment 1(d)(5)–1 that the post-consummation disclosures apply prospectively to transactions for which an application was received prior to October 3, 2015. Specifically, proposed comment 1(d)(5)–1 would state that the post-consummation disclosures take effect for such transactions on October 1, 2017. The October 1, 2017, effective date in proposed comment 1(d)(5)–1 reflects the Bureau’s working assumption expectation that the final rule under this proposal, at least to the extent of the proposed revisions to comment 1(d)(5)– 1, will be promulgated on or before April 1, 2017. The Bureau therefore is tentatively proposing this date in accordance with TILA section 105(d), which provides that any regulation of the Bureau that requires a disclosure that differs from the previously required disclosure generally shall take effect on that October 1 which follows by at least six months the date of promulgation. The Bureau’s expectation concerning the date of a final rule is a working assumption at this time. Accordingly, the effective date recited in proposed comment 1(d)(5)–1 for the postconsummation disclosures for transactions for which an application was received prior to October 3, 2015, PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 54323 may differ in the final rule, depending on when it is adopted. The Bureau believes that consumers with covered mortgage loans would benefit from the receipt of the postconsummation disclosures without regard to when a corresponding application was received. The information contained in the postconsummation disclosures, about escrow account closure and partial payment policies of a new owner of the mortgage loan, is beneficial regardless of when the consumer applied for the loan. Moreover, there is no necessary relationship between the disclosures made under § 1026.19(e) and (f) and the post-consummation disclosures; consumers should be able to understand the latter even if they have not received the former. The Bureau also believes that requiring the post-consummation disclosures for covered transactions without regard to the application date would simplify compliance. For example, § 1026.20(e) recognizes that servicers may provide the postconsummation escrow disclosure notice, in connection with servicing the mortgage loan account, but servicers may have no other reason to track the application date. Providing the required notice on all covered accounts regardless of application date may simplify servicers’ compliance. Similarly, the post-consummation partial payment disclosure required by § 1026.39(d)(5) is incorporated into the mortgage transfer disclosures that are provided upon transfer of ownership of any covered loan, without regard to application date. If § 1026.39(d)(5) is effective without regard to application date, covered persons under § 1026.39 can provide a standard disclosure to all mortgage loans rather than two distinct disclosures, depending on the loan’s application date. The Bureau is seeking comment on whether making the applicability of the post-consummation disclosures to all covered transactions regardless of when an application was received is appropriate and any information about current industry practice and whether these notices are provided on all transactions that met the conditions set forth in §§ 1026.20(e) and 1026.39(d), respectively, or only transactions for which the application was received on or after October 3, 2015. The Bureau also seeks comment on how often escrow accounts are canceled postconsummation, whether the rate of escrow cancelations is expected to remain static or change, and the burden of tracking the application date for these two post-consummation disclosures. E:\FR\FM\15AUP3.SGM 15AUP3 54324 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Section 1026.2 Definitions and Rules of Construction 2(a) Definitions 2(a)(11) Consumer Comments 2(a)(11)–3 and 3(a)–10 discuss when the extension of credit to trusts is covered by TILA. Comment 2(a)(11)–3 clarifies that credit extended to land trusts is considered to be extended to a consumer for purposes of the definition of consumer in § 1026.2(a)(11). Comment 3(a)–10 states that credit extended for consumer purposes to land trusts and trusts that a consumer has created for tax or estate planning purposes is considered to be credit extended to a natural person rather than credit extended to an organization. The Bureau proposes to amend comment 2(a)(11)–3 to clarify that, in addition to credit extended to land trusts, credit extended to trusts established for tax or estate planning purposes is also considered to be extended to a natural person for purposes of the definition of consumer in § 1026.2(a)(11), consistent with comment 3(a)–10. sradovich on DSK3GMQ082PROD with PROPOSALS3 Section 1026.3 Exempt Transactions 3(h) Partial Exemption for Certain Mortgage Loans Section 1026.3(h) provides that the TILA–RESPA integrated disclosure requirements do not apply to a transaction if: (1) the transaction is secured by a subordinate lien; (2) the transaction’s purpose is to finance down payment, closing costs, or similar homebuyer assistance, such as principal or interest subsidies; property rehabilitation assistance; energy efficiency assistance; or 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 forgiven either incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, or deferred for a minimum of 20 years after consummation of the transaction, until the sale of the property securing the transaction, or until the property securing the transaction is no longer the principal dwelling of the consumer; (5) the total of costs payable by the consumer at consummation is less than 1 percent of the amount of credit extended and includes no charges other than fees for recordation, application, and housing counseling; and (6) the creditor complies with all other applicable Regulation Z requirements in connection with the transaction, VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 including providing the disclosures required by § 1026.18. If the six criteria in § 1026.3(h) are satisfied, a creditor is not required to provide the Loan Estimate, Closing Disclosure, or special information booklet in connection with the mortgage loan. The creditor must, however, provide the disclosures required by § 1026.18, ensuring that the consumer receives TILA disclosures of the cost of credit. As discussed in more detail below, the Bureau is proposing to revise § 1026.3(h) to clarify that transfer taxes may be payable by the consumer at consummation without losing eligibility for the partial exemption and to exclude recording fees and transfer taxes from the 1-percent threshold of total costs payable by the consumer at consummation. Regulation X § 1024.5(d) provides a partial exemption from certain RESPA disclosure requirements for federally related mortgage loans 44 that meet the criteria set forth in § 1026.3(h). Specifically, Regulation X § 1024.5(d) provides that lenders 45 are exempt from the RESPA settlement cost booklet, RESPA Good Faith Estimate, RESPA settlement statement (HUD–1), and application servicing disclosure statement requirements of §§ 1024.6 through 1024.8, 1024.10, and 1024.33(a) (the RESPA disclosures) for 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, § 1026.19(e), (f), and (g); or (2) that satisfies the criteria in Regulation Z, § 1026.3(h). Thus, a lender on a federally related mortgage loan must provide the RESPA disclosures unless (1) the loan is a covered transaction for purposes of the TILA– RESPA integrated disclosures; or (2) the transaction meets the partial exemption in § 1026.3(h). Where a federally related mortgage loan is not a covered transaction subject to the special disclosures at § 1026.19(e), (f), and (g), for example, because it imposes no finance charge and is payable in four or fewer installments and thus does not meet one of Regulation Z’s coverage criteria in § 1026.1(c)(1)(iii), and also does not satisfy the criteria in § 1026.3(h), the lender must continue to 44 12 CFR 1024.2(b) (defining federally related mortgage loan for purposes of Regulation X). 45 Note that RESPA and TILA differ in their terminology. Whereas Regulation X generally refers to ‘‘lenders’’ and ‘‘borrowers,’’ Regulation Z generally refers to ‘‘creditors’’ and ‘‘consumers.’’ This Supplementary Information uses ‘‘lenders’’ and ‘‘borrowers’’ in its discussion of Regulation X and the RESPA disclosures and ‘‘creditors’’ and ‘‘consumers’’ in its discussion of Regulation Z, the TILA–RESPA integrated disclosures, and the partial exemptions generally. PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 provide the RESPA disclosures. Even if a lender chooses to provide the TILA– RESPA integrated disclosures voluntarily, because those disclosures are not required for the transaction, the loan is not eligible for the partial exemption from the RESPA disclosures in Regulation X § 1024.5(d)(2). As discussed in the 2012 TILA– RESPA Proposal, the partial exemption in § 1026.3(h) and the parallel partial exemption in Regulation X § 1024.5(d) are designed to codify a disclosure exemption previously granted by HUD.46 The purpose of these partial exemptions is to permit creditors to provide streamlined disclosures for certain low-cost, non-interest bearing subordinate lien transactions. The Bureau understands that the disclosures required under § 1026.18 are comparatively less burdensome to complete than either the TILA–RESPA integrated disclosures or the RESPA disclosures. Moreover, for the low-cost, non-interest bearing subordinate loans that satisfy the criteria at § 1026.3(h), the Bureau believes the disclosures required by § 1026.18 would be relatively straightforward to calculate, as loans that would qualify for the partial exemption would likely have minimal finance charges (by the terms of the partial exemption, only a certain limited set of fees may be charged and no interest may be charged). By reducing the procedural burden associated with the disclosures required for these transactions, the Bureau intended to enable creditors to make more housing assistance loans available for low- and moderate-income consumers. The Bureau believes that transactions that satisfy the criteria at § 1026.3(h) generally provide a benefit to consumers and pose very little risk of consumer harm. These loans often provide consumers funds that could be directly applied against the first lien, in the case of down payment assistance, or towards closing costs associated with the first lien (these loans may also be made for other purposes, such as energy efficiency improvements). They are not interest bearing, repayment is deferred or contingent, and only a certain limited set of fees may be charged the consumer. The Bureau understands additionally that the amount of these loans is relatively small, typically between $2,500 and $10,000. Moreover, the Bureau understands that loans that satisfy the criteria at § 1026.3(h) are predominantly made by housing finance agencies (HFAs) or by private creditors who partner with 46 77 E:\FR\FM\15AUP3.SGM FR 51115, 51138 (Aug. 23, 2012). 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 HFAs and extend credit pursuant to HFA guidelines. The Bureau has previously explained that HFAs are quasi-governmental entities, chartered by either a State or a municipality, that engage in diverse housing financing activities for the promotion of affordable housing and that HFAs promote affordable homeownership through activities such as subordinate-loan financing and down payment assistance programs (e.g., a loan to the consumer to assist with the consumer’s down payment, or to pay for some of the closing costs).47 The Bureau has further explained its understanding that HFA lending is characterized by low-cost financing, evaluation of a consumer’s repayment ability, and homeownership counseling.48 Many of the low-cost housing assistance loans made by HFAs or pursuant to HFA guidelines are not covered transactions subject to the special disclosures at § 1026.19(e), (f), and (g) because they are neither subject to a finance charge nor payable in more than four installments, as required by the coverage test in § 1026.1(c)(1).49 These loans generally are, however, federally related mortgage loans. Thus, unless they qualify for the partial exemption in § 1026.3(h), crossreferenced in Regulation X § 1024.5(d)(2), creditors making these housing assistance loans may be required to provide the RESPA disclosures. The Bureau has received information that many HFAs are having difficulty finding lenders to partner with in making these loans. Following the introduction of the TILA–RESPA integrated disclosures, some vendors and loan originator systems no longer support the RESPA disclosures. Although the RESPA disclosures are still required for other loan types, such as reverse mortgages, many lenders do not offer such products, and those lenders that do offer such products often 47 78 FR 6855, 6886 (January 10, 2014) (High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X)). 48 Id. 49 Section 1026.1(c)(1) provides that, in general, Regulation Z applies to each individual or business that offers or extends credit, other than a person excluded from coverage by section 1029 of the Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376, when four conditions are met: (i) The credit is offered or extended to consumers; (ii) The offering or extension of credit is done regularly; (iii) The credit is subject to a finance charge or is payable by a written agreement in more than four installments; and (iv) The credit is primarily for personal, family, or household purposes. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 do so through separate divisions that do not engage with, or operate on separate systems that do not support, housing assistance loan programs. As a result, many lenders, or at least the relevant divisions of many lenders, may no longer have the capacity to issue the RESPA disclosures. Several HFAs have reported to the Bureau that they have begun completing the RESPA disclosures manually, which is cumbersome and may increase errors. The Bureau is concerned that the limited support for the RESPA disclosures may make it difficult for HFAs, other nonprofits, and private lenders to make housing assistance loans available to low- and moderateincome borrowers if they are not able to take advantage of the partial exemption in § 1026.3(h). Since the publication of the TILA– RESPA Rule, the Bureau has received information from one trade association representing HFAs, numerous State and local HFAs, and other nonprofit organizations indicating that many creditors are having difficulty satisfying the criteria for the partial exemption set forth in § 1026.3(h) when making housing assistance loans. In particular, the Bureau has received information that housing assistance loans most often fail to meet the partial exemption because the total costs payable by the consumer at consummation exceed the 1-percent threshold in current § 1026.3(h)(5). The Bureau understands that, due in part to the relatively small size of these loans, the fees for recordation charged by State and local governments often exceed the 1-percent threshold on costs payable by the consumer at consummation. The Bureau is concerned that the current 1-percent limit on the total of costs payable by the consumer at consummation in § 1026.3(h)(5) may be overly restrictive, given the comparatively small size of these loans and information that transfer tax and recording fees have increased in recent years. For example, one HFA has reported that its average down payment assistance loan amount is $2,500. In the State in which this HFA operates, there is a base fee of $14 and a housing trust fund fee of $14 for recording the first two pages of the mortgage, with an additional $4 base fee and $4 housing trust fund fee charged for each subsequent page. This HFA has informed the Bureau that the mortgage is usually at least three pages. As a result, fees for recording the mortgage routinely come to at least $36, which is more than the 1-percent of costs payable at consummation for this HFA’s average housing assistance loan size of $2,500. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 54325 Another HFA has explained to the Bureau that it offers an interest-free deferred payment loan program with a maximum loan amount of $5,500. The State in which this HFA operates charges a tax for recording a mortgage in the amount of 0.23 percent of the debt that is secured by the mortgage loan, which amounts to a $12.65 tax on a $5,500 loan. This State also permits county recorders to charge a $46 fee for indexing and recording deeds or other instruments, including mortgages. Ten counties in this State impose an additional $5 fee per transaction on the recording or registration of a mortgage loan or deed. Thus, a $5,500 loan could be subject to $63.65 in government taxes and fees for recording the mortgage, which again is more than 1-percent of the total costs payable by the consumer at consummation. Accordingly, the Bureau believes that clarifying that transfer taxes may be payable in connection with such transactions without losing eligibility for the partial exemption and excluding recording fees and transfer taxes, which are costs inherent to the transaction and not imposed by the creditor, from the 1percent threshold would enable more loans to satisfy the criteria in § 1026.3(h). This would facilitate access to the partial exemption from the RESPA disclosures in Regulation X § 1024.5(d), and would support extensions of beneficial low-cost credit to borrowers. Current § 1026.3(h)(5)(i) lists fees for recordation of security instruments, deeds, and similar documents as among the permissible fees for loans qualifying for the § 1026.3(h) partial exemption. The Bureau proposes to clarify that, for the purposes of this partial exemption, fees for recordation of security instruments, deeds, and similar documents include transfer taxes. Comments 37(g)(1)–1 and 37(g)(1)–3 explain what recording fees and transfer taxes are, respectively. As comment 37(g)(1)–3 explains, transfer taxes are generally based on the loan amount or sales price, but 37(g)(1)–1 notes that recording fees are typically assessed based on the type of document to be recorded or its physical characteristics, such as number of pages. The Bureau believes that all government fees associated with recording the mortgage loan, deed, and similar documents should be permissible fees for purposes of the § 1026.3(h) partial exemption, whether assessed with regard to the loan amount or sales price or the document recorded. These fees and taxes are not determined or imposed by the creditor in the transaction. Additionally, the impact of E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 54326 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules these fees on the cost of the transaction may be further reduced as the Bureau understands that, in some instances, housing assistance loans may be exempted from transfer taxes. The Bureau proposes to revise § 1026.3(h)(5) to permit expressly both recording fees and transfer taxes, which are defined terms under Regulation Z. The Bureau believes this proposed revision may increase use of the § 1026.3(h) partial exemption, which could relieve concerns associated with the required provision of the RESPA disclosures for certain transactions that currently do not satisfy § 1026.3(h) and could benefit borrowers through expanded access to low-cost housing assistance loans. The Bureau seeks comment on any risks associated with expressly permitting recording fees and transfer taxes to be charged in connection with loans that satisfy § 1026.3(h) and whether any additional fees should be permitted for such loans. The Bureau proposes to redesignate and revise § 1026.3(h)(5) as § 1026.3(h)(5)(i) to provide that the costs payable by the consumer in connection with the transaction at consummation are limited to: (A) Recording fees; (B) transfer taxes; (C) a bona fide and reasonable application fee; and (D) a bona fide and reasonable fee for housing counseling services. The Bureau proposes to revise § 1026.3(h)(5)(ii) to require that the total of costs payable by the consumer under § 1026.3(h)(5)(i)(C) and (D) be less than 1 percent of the amount of credit extended. Under proposed § 1026.3(h)(5)(ii), the application and housing counseling fees would count towards the 1-percent threshold, but recording fees and transfer taxes would not. The Bureau solicits comment on these revisions to § 1026.3(h)(5) and seeks information related to the average amount of housing assistance loans, the fees generally charged in connection with these loans, and the average amounts of these fees. The Bureau recognizes that the proposal to exclude recording fees and transfer taxes from the 1-percent threshold may allow for an increase in the costs associated with loans that satisfy the criteria at § 1026.3(h). The Bureau believes that the risk of consumer abuse through overcharging of recording fees and transfer taxes is slight. These fees are required by State and local laws and not imposed by the creditor in the transaction. To the extent these fees vary by transaction and are not uniformly levied, they may be reduced for loans that provide down payment or other homeowner assistance. The Bureau believes it unlikely that State and local VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 jurisdictions would target the low-cost housing assistance loans that qualify for the § 1026.3(h) partial exemption for increases in recording fees and transfer taxes. Nonetheless, the Bureau seeks comment on whether broadening the scope of the partial exemption through the proposed exclusion of recording fees and transfer taxes from the 1-percent threshold would increase the potential for abuse or risk of other consumer harm. The Bureau also seeks comment on whether, in light of the proposed changes, 1-percent would continue to be the appropriate threshold on costs. The Bureau also recognizes that removing recording fees and transfer taxes from the 1-percent limit could reduce downward pressure on application and housing counseling fees and potentially result in these fees becoming an increased source of revenue for creditors making these loans. The Bureau seeks comment, therefore, on potential areas for abuse regarding housing assistance programs and additional restrictions to ensure that loans eligible for the § 1026.3(h) partial exemption pose minimal risks to consumers. The Bureau similarly seeks comment on whether requiring that the credit contract not require the payment of a finance charge as defined in § 1026.4, except as expressly permitted under § 1026.3(h)(5), would reduce the potential for abuse or evasion in housing assistance programs and improve clarity. The Bureau solicits comment generally on whether there are alternative approaches to address concerns over the ability of housing assistance loans to satisfy § 1026.3(h)(5) and the required provision of the RESPA disclosures for certain federally related mortgage loans that do not meet the criteria for the § 1026.3(h) partial exemption. Although the Bureau understands that loans eligible for the § 1026.3(h) partial exemption are primarily made by HFAs or by private creditors who partner with HFAs and extend credit pursuant to HFA guidelines, nothing in § 1026.3(h) limits the availability of the partial exemption to loans made by HFAs or creditors working with those entities. The Bureau seeks comment on whether it should make such a limitation explicit in § 1026.3(h). The Bureau notes that § 1026.32, which sets forth requirements for high-cost mortgages, exempts transactions from coverage where the HFA is a creditor for the transaction. The Bureau seeks comment on whether § 1026.3(h) should be similarly revised to exempt transactions originated by an HFA from the disclosure requirements in § 1026.19(e), (f), and (g), or to completely exempt such transactions PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 from Regulation Z requirements altogether, without regard to the criteria set forth in § 1026.3(h). If such an exemption for HFAs were appropriate, the Bureau solicits information on the defining characteristics of an HFA for purposes of these exemptions and whether such exemption should be in whole or in part. The Bureau seeks comment on how such an exemption from the requirements of Regulation Z for a loan originated by an HFA should intersect with the RESPA disclosures under Regulation X. In light of the proposed amendments to § 1026.3(h)(5), the Bureau proposes revisions to comment 3(h)–2. Current comment 3(h)–2 explains, in relevant part, that the creditor must have information reflecting that the total of closing costs imposed in connection with the transaction is less than 1 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). The Bureau proposes conforming changes to comment 3(h)–2 to reflect the proposed revisions to § 1026.3(h)(5). The Bureau also proposes to add new comments 3(h)–3 and –4 in light of the proposed references to recording fees in § 1026.3(h)(5)(i)(A) and transfer taxes in § 1026.3(h)(5)(i)(B). Proposed comment 3(h)–3 would include a cross reference to comment 37(g)(1)–1, which explains what constitutes recording fees for purposes of Regulation Z. Proposed comment 3(h)–4 would include a cross reference to comment 37(g)(1)–3, which explains what constitutes transfer taxes for purposes of Regulation Z. Adding these cross references in commentary would increase clarity as to whether certain fees are permissible charges under proposed § 1026.3(h)(5)(i)(A) and (B). Legal Authority The Bureau believes that the proposed modifications to the § 1026.3(h) partial exemption would further facilitate compliance with TILA and RESPA, consistent with the Bureau’s authority under TILA section 105(a) and RESPA section 19(a). TILA section 105(a) authorizes the Bureau to adjust or except from the disclosure requirements of TILA all or any class of transactions to facilitate compliance with TILA. As set forth above, revising the criteria for the § 1026.3(h) partial exemption would facilitate compliance by enabling more housing assistance loans to qualify for the partial exemption at § 1026.3(h) and reducing regulatory burden for a class of transactions that the Bureau believes generally benefit consumers and pose E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules little risk of consumer harm. RESPA section 19(a) authorizes the Bureau to grant reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA. This amendment would enable more federally related mortgage loans to qualify for the partial exemption at § 1024.5(d)(2) and permit lenders to provide the streamlined disclosures under § 1026.18 for these low-cost, noninterest bearing, subordinate-lien transactions. In addition, the Bureau believes that the special disclosure requirements that covered persons must meet to qualify for the § 1026.3(h) partial exemption would 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). Section 1026.17 Requirements General Disclosure 17(c) Basis of Disclosures and Use of Estimates 17(c)(6) sradovich on DSK3GMQ082PROD with PROPOSALS3 Allocation of Costs Comment 17(c)(6)–5 permits a creditor, when using the special rule under § 1026.17(c)(6), to disclose certain construction-permanent transactions as multiple transactions, to allocate buyer’s points or similar amounts imposed on the consumer between the construction and permanent phases of the transaction in any manner the creditor chooses. The Bureau is proposing to amend comment 17(c)(6)–5 to provide greater clarity by adding a ‘‘but for’’ test to allocate amounts to the construction phase. Creditors have expressed uncertainty as to the scope of the allocations currently permitted under comment 17(c)(6)–5. Statutory and regulatory changes since the comment was adopted further complicate reasonable interpretations of comment 17(c)(6)–5. For example, the construction phase of a construction-permanent loan is excluded from coverage of § 1026.32 for high-cost mortgages and § 1026.35 for higher-priced mortgage loans, but the permanent phase may be a covered loan under both §§ 1026.32 and 1026.35. Comment 17(c)(6)–5 does not provide guidance on how to allocate amounts so as to avoid violating TILA section 129(r), which prohibits structuring a loan transaction or dividing any loan transaction into separate parts for the purpose of evading the high-cost mortgage provisions. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 To help ensure consumer protections are not evaded and to assist creditors in properly disclosing constructionpermanent loans, the Bureau is proposing to amend comment 17(c)(6)– 5 to provide greater clarity on the allocation of amounts between the construction and permanent phases if a creditor chooses to disclose the credit extended as more than one transaction. The revised comment would explain that the creditor must allocate to the construction phase all amounts that would not be imposed but for the construction financing. All other amounts would be allocated to the permanent financing, including both all amounts that would not be imposed but for the permanent financing and all amounts that are not imposed exclusively because of the construction financing. The Bureau believes that this explanation provides a rational and workable method for allocating and disclosing amounts in constructionpermanent loans. The Bureau also believes that applying the comment to all amounts will alleviate creditors’ uncertainty as to the comment’s scope. The amended comment would illustrate how the allocation would be made, using inspection and handling fees for the staged disbursement of construction loan proceeds as an example. The revised comment would also provide examples of how to allocate origination and application fees between the construction phase and the permanent phase. The Bureau is making this proposal pursuant to its general rulemaking, exception, and exemption authorities under TILA section 105(a) and section 1032(a) of the Dodd-Frank Act. The Bureau proposes the aforementioned amendments pursuant to its authority under TILA section 105(a) to effectuate the purposes of TILA and Regulation Z, prevent circumvention or evasion, as discussed above, and facilitate compliance with the statute. The Bureau believes this amendment 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 amendment 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 requests comment on this proposed revision of comment 17(c)(6)– PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 54327 5. In particular, the Bureau requests comment on whether the proposal presents a clear and understandable method of allocating costs between the construction phase and the permanent phase, whether there are fees that may not be clearly allocated to one phase or the other, and whether the proposed revision would improve or obscure consumer understanding and promote or discourage comparison shopping. May Be Permanently Financed by the Same Creditor The Bureau proposes to add new comment 17(c)(6)–6 to clarify the meaning of the ‘‘may be permanently financed by the same creditor’’ condition specified in § 1026.17(c)(6)(ii) that, if satisfied, permits a creditor to treat a construction-permanent loan as one transaction or more than one transaction. Proposed comment 17(c)(6)–6 would explain that a loan to finance the construction of a dwelling may be permanently financed by the same creditor, within the meaning of § 1026.17(c)(6)(ii), if the creditor generally makes both construction and permanent financing available to qualifying consumers, unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor. Under this approach, the construction phase may be permanently financed by the same creditor, within the meaning of § 1026.17(c)(6)(ii), in all cases other than where permanent financing is not available at all from the creditor (i.e., the creditor does not offer permanent financing) or the consumer expressly informs the creditor that the consumer will not be obtaining permanent financing from the creditor. The Bureau expects that, especially at the early stages of an application when the Loan Estimate is delivered, creditors usually would not yet have made a determination as to whether they will provide permanent financing to any given consumer. Moreover, the Bureau recognizes that any such determination may be subject to change and defining when the creditor has made such a determination could be complex. Consequently, the Bureau does not believe it is appropriate to determine whether a creditor ‘‘may’’ provide permanent financing based on the creditor’s actual determination as to any individual consumer. The comment would look instead to whether the creditor generally makes permanent financing available to consumers to determine whether the creditor ‘‘may’’ make permanent financing available, subject only to the consumer’s express statement that the consumer will not E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 54328 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules obtain permanent financing from the creditor. The Bureau does not believe that a construction loan reasonably may be permanently financed by the same creditor, within the meaning of the regulation, if a consumer expressly states that the consumer will not obtain permanent financing from the creditor. In such cases, the Bureau believes that a Loan Estimate provided to the consumer that treats the construction and permanent phases as a single transaction would undermine the Loan Estimate’s purpose and impede the consumer’s ability to comparison shop. Therefore, the Bureau is proposing to specify that, when a consumer expressly states that the consumer will not obtain permanent financing from the creditor, the permanent financing does not meet the condition that it ‘‘may be permanently financed by the same creditor’’ for purposes of § 1026.17(c)(6). This proposed clarification of the meaning of ‘‘may be permanently financed by the same creditor’’ aligns with proposed comment 19(e)(1)(iii)–5, discussed below. That comment provides that a creditor determines the timing requirements for providing the Loan Estimate for both the construction and permanent financing based on when the application for the construction financing is received, so long as the creditor ‘‘may’’ provide the permanent financing. The creditor may still make the disclosures as a single transaction or as more than one transaction, as provided by § 1026.17(c)(6)(ii). The Bureau is making this proposal pursuant to its authority under TILA section 105(a). The Bureau believes the greater clarity provided by proposed comment 17(c)(6)–6 as to what loans are eligible for the special treatment under § 1026.17(c)(6)(ii) would facilitate compliance with TILA. The Bureau recognizes that determining whether a creditor may provide permanent financing based on a consumer’s express statement could complicate the determination of whether the creditor has the option of treating a construction-permanent loan as one transaction or more than one transaction. For example, a consumer may, after initially stating that permanent financing will not be obtained from the creditor and receiving a Loan Estimate on that basis, subsequently inquire with the creditor about permanent financing. At that point, a creditor, having already issued a Loan Estimate for the construction financing only, may be precluded from disclosing the construction phase and permanent phase as one transaction. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Therefore, the Bureau solicits comment on whether the condition that a construction loan may be permanently financed by the same creditor should be considered satisfied even if a consumer expressly states that the consumer will not seek permanent financing from the creditor, as long as the creditor generally makes permanent financing available to qualifying consumers. The Bureau also seeks comment on how the complexities described above might appropriately be addressed if the Bureau adopts the proposal as final, and on any additional complexities that may be presented by the proposal and how those might be addressed. 17(f) Early Disclosures As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to comments 17(f)–1 and –2, to reflect this proposed change to the coverage of § 1026.19(e) and (f). Section 1026.18 Content of Disclosures As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to comments 18–3, 18(g)–6, and 18(s)–1 and –4 to reflect this proposed change to the coverage of § 1026.19(e) and (f). Section 1026.19 Certain Mortgage and Variable-Rate Transactions Cooperatives The TILA–RESPA Rule, including § 1026.19(e) and (f), generally applies to closed-end consumer credit transactions secured by real property, other than reverse mortgages. Regulation Z does not define the term ‘‘real property,’’ but § 1026.2(b)(3) states that, unless defined in Regulation Z, the words used therein have the meanings given to them by State law or contract. Thus, whether the TILA–RESPA Rule applies to a given transaction turns, at least in part, on whether the collateral securing it is considered real property under applicable State or other applicable law, PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 which has given rise to questions about the coverage of transactions secured by cooperative units. The Bureau understands that there is uncertainty whether loans secured by cooperative units are considered, under a given State’s law and thus for purposes of the TILA–RESPA Rule’s coverage, to be secured by real property or personal property. In a typical housing cooperative, a cooperative association owns all of the real property. Each cooperative member owns a share of the cooperative association and has a proprietary lease for the member’s housing unit.50 Cooperatives differ from condominiums, as condominiums typically vest ownership of the real property directly in unit owners (rather than in an association).51 Cooperative ownership can be construed as ownership by the consumer of stock in the cooperative association (or some similar form of intangible personal property) or as ownership of real property. Whether ownership of a share in a cooperative association is treated as personal or real property can vary from State to State and even within a State. In at least some States, ownership of a share in a cooperative association is treated as personal property for some purposes and real property for other purposes.52 If State law is not definitive whether cooperative units are real property or personal property, creditors may be unsure whether loans secured by cooperative units are covered by the TILA–RESPA Rule. Consequently, creditors may be inconsistent in the disclosures they provide on loans secured by cooperative units, impeding the ability of consumers to comparison shop. The Bureau, therefore, is proposing to amend the TILA–RESPA Rule to cover closed-end consumer credit transactions, other than reverse mortgages, secured by cooperative units. RESPA and TILA each generally cover loans secured by cooperative units. For example, RESPA includes cooperatives within the definition of federally related mortgage loan.53 TILA’s Regulation Z 54 50 See generally National Conference of Commissioners on Uniform State Laws, Real Estate Cooperative Summary, http:// www.uniformlaws.org/ActSummary.aspx?title= Real%20Estate%20Cooperative. 51 Id. 52 For example, under New Jersey law, cooperative ownership constitutes a true ‘hybrid’ form of property that does not readily fall within traditional notions of either realty or personalty, although the cooperative owned interests are treated like real estate in most circumstances. Drew Associates of N.J., L.P. v. Travisano, 122 N.J. 249, 584 A.2d 807 (1991). 53 12 U.S.C. 2602(1). 54 See § 1026.19(e) and (f). E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 includes cooperatives within the § 1026.2(a)(19) definition of dwelling.55 However, unlike much of the rest of Regulation Z, the TILA–RESPA Rule does not use the term ‘‘dwelling’’ as a trigger for coverage. As stated in the TILA–RESPA Final Rule preamble, the Bureau believed that many parts of the integrated disclosures would be inapplicable to transactions secured by personal property.56 Thus, the TILA– RESPA Final Rule used the phrase ‘‘real estate’’ instead of the term ‘‘dwelling’’ as a trigger for coverage. The Bureau did not anticipate the ensuing level of uncertainty whether loans secured by cooperative units are considered to be secured by real property or personal property under a given State’s law. To resolve stakeholders’ uncertainty, and consistent with RESPA’s definition of federally related mortgage loan, the Bureau proposes to amend Regulation Z, including § 1026.19(e), (f), and (g) and comments 19(e)(1)(i)–1 and –2, 19(f)(1)(i)–1 and 19(f)(3)(ii)–3, to cover closed-end consumer credit transactions secured by cooperative units, regardless of whether State or other applicable law considers cooperative units to be real or personal property. The Bureau is proposing this amendment pursuant to its authority under Dodd-Frank Act section 1032(a) and (f), TILA section 105(a), and RESPA section 19(a). Section 1032(f) of the Dodd-Frank Act required that the Bureau propose for public comment rules and model disclosures combining 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,57 and, as discussed above, RESPA and TILA each generally cover loans secured by cooperative units. The Bureau believes that applying the TILA–RESPA Rule to cover closed-end consumer loans secured by cooperative units is consistent not only with both TILA and RESPA but also with general industry practice. Consequently, the Bureau believes that this extension of coverage would facilitate compliance by industry, which is one of the purposes of TILA. Furthermore, because this proposed amendment would ensure that more consumers receive the integrated disclosures, which the Bureau believes, 55 See also 15 U.S.C. 1602(w) (TILA definition of ‘‘dwelling’’). TILA applies generally to consumer credit transactions of all kinds, regardless of whether secured by residential real property. See 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). 56 78 FR 79730, 79796 (Dec. 31, 2013). 57 Public Law 111–203, 124 Stat. 1376, 2007 (2010) (codified at 12 U.S.C. 5532(f)). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 based on its extensive testing of the disclosures, to be superior to the preexisting TILA and RESPA disclosures and because the Bureau believes that the integrated disclosures are generally effective for transactions secured by cooperative units, whether or not the cooperative unit is treated as real property under State or other applicable law, the Bureau also believes this proposed amendment would carry out the purposes of TILA and RESPA to promote the informed use of credit and more effective advance disclosure of settlement costs, respectively. In addition, the Bureau believes the integrated disclosure requirements improve consumer understanding of the costs, benefits, and risks associated with the mortgage transaction, consistent with Dodd-Frank Act section 1032(a). 19(e) Mortgage Loans—Early Disclosures 19(e)(1) Provision of Disclosures 19(e)(1)(iii) Timing Section 1026.19(e)(1)(iii) sets forth the timing requirements for providing the Loan Estimate. Generally, the creditor must deliver the Loan Estimate or place it in the mail not later than the third business day after the creditor receives the consumer’s application and not later than the seventh business day before consummation. Section 1026.17(c)(6)(ii) provides that, when a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and permanent phase may be treated as either one transaction or more than one transaction. Comment 17(c)(6)–2 explains that, if the consumer is obligated on both phases of such construction-permanent financing and the creditor chooses to give two sets of disclosures, both sets must be given to the consumer initially because both transactions would be consummated at that time. Proposed comment 19(e)(1)(iii)–5 would explain how the timing requirements apply in the case of construction-permanent loans. Proposed new comment 19(e)(1)(iii)– 5 summarizes the relevant provisions for construction-permanent loans of §§ 1026.17(c)(6)(ii) and 1026.19(e)(1)(iii), and comment 17(c)(6)–2. Proposed comment 19(e)(1)(iii)–5 would also reference proposed comment 17(c)(6)–6, which would explain that a loan to finance the construction of a dwelling meets the condition that it ‘‘may be permanently financed by the same creditor’’ if the creditor generally makes both construction and permanent financing available to qualifying consumers, PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 54329 unless the consumer expressly states that the consumer will not obtain permanent financing from the creditor. Proposed comment 19(e)(1)(iii)–5 would then explain that, therefore, a creditor that generally makes both construction and permanent financing available, upon receiving a consumer’s application for either construction financing only, without the consumer expressly stating that the consumer will not obtain permanent financing from the creditor, or combined construction-permanent financing, complies with § 1026.19(e)(1)(iii) by delivering or placing in the mail the disclosures required by § 1026.19(e)(1)(i) for both the construction financing and the permanent financing, either disclosed as one or more than one transaction, not later than the third business day after the creditor receives the application and not later than the seventh business day before consummation. Proposed comment 19(e)(1)(iii)–5.i through –5.iv provides illustrative examples of how the Loan Estimate timing provisions apply to constructionpermanent loans. Proposed comment 19(e)(1)(iii)–5.v would explain that if a consumer expressly states that the consumer will not obtain permanent financing from the creditor after a combined construction-permanent financing disclosure already has been provided, the creditor complies with § 1026.17(c)(6)(ii) by issuing a revised disclosure for construction financing only in accordance with the timing requirements of § 1026.19(e)(4). The Bureau considered proposing that a creditor provide the Loan Estimate only for the financing for which a consumer applies. If a consumer applied for construction financing only, a creditor would be required to provide the Loan Estimate for only the construction financing. If the construction financing may be permanently financed by the same creditor, the creditor would be permitted to provide the Loan Estimate for the permanent financing at the same time as the Loan Estimate was provided for the construction financing but would not be required to do so. If the consumer applied for construction and permanent financing at the same time, the creditor would be required to provide the Loan Estimates for both phases within three days of receiving the application. If the consumer applied for construction and permanent financing separately, the creditor would be required to provide Loan Estimates within three days of receipt for each application. However, a Loan Estimate for the separatelyapplied-for permanent phase would not be required if the Loan Estimate for the E:\FR\FM\15AUP3.SGM 15AUP3 54330 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 permanent phase had already been provided because the transaction met the condition that the construction phase may be permanently financed by the same creditor. This alternative approach could create significantly more complexity in the Loan Estimate timing requirements. Nonetheless, the Bureau seeks comment on which of the alternatives described, or another alternative, would better promote consumer understanding and facilitate compliance. The Bureau is making this proposal pursuant to its general rulemaking, exception, and exemption authorities under TILA section 105(a) and section 1032(a) of the Dodd-Frank Act. The Bureau proposes the aforementioned amendments 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 amendment 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 by clarifying when particular disclosures must be provided. In addition, consistent with section 1032(a) of the Dodd-Frank Act, this adjustment would promote the full, accurate, and effective disclosure of the features of consumer credit transactions secured by real property 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. 19(e)(1)(vi) Shopping for Settlement Service Providers Section 1026.19(e)(1)(vi) defines how a creditor permits a consumer to shop for services and requires the creditor to identify the services the consumer may shop for and provide a written list identifying available providers of those services. The Bureau is proposing revisions to comments 19(e)(1)(vi)–2, –3, and –4. Comments 19(e)(1)(vi)–2 and –4 are discussed together, immediately following, because the revisions relate to how a creditor identifies available services and providers for purposes of compliance with § 1026.19(e)(1)(vi). The proposed revisions to comment 19(e)(1)(vi)–3 concern how the creditor provides the written list and are discussed after comments 19(e)(1)(vi)–2 and –4. Identifying Services and Available Providers Comment 19(e)(1)(vi)–2 notes that the content and format of disclosure of services for which the consumer may VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 shop can be found at § 1026.37(f)(3). Proposed revised comment 19(e)(1)(vi)– 2 would also clarify that, if the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service unless, based on the best information reasonably available, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Proposed revised comment 19(e)(1)(vi)–2 would also further clarify that specific identification of each service in such a package is not required provided that all such services are services for which the consumer is permitted to shop. Comment 19(e)(1)(vi)–4 provides clarification concerning the identification of settlement service providers available to the consumer, including providing sufficient information to contact the disclosed service providers. Proposed revised comment 19(e)(1)(vi)–4 would also clarify that, if the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service and an available provider of that service on the written list of providers unless, based on the best information reasonably available, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Proposed revised comment 19(e)(1)(vi)– 4 would also further clarify that specific identification of each service in such a package is not required provided they all are services for which the consumer is permitted to shop. Methods of Providing Settlement Service Providers List Comment 19(e)(vi)–3 references form H–27 for a model list of the written list of providers. The Bureau understands there is uncertainty whether compliance with § 1026.19(e)(1)(vi)(C) requires use of form H–27(A). Unlike the model forms for the Loan Estimate and the Closing Disclosure,58 which, under §§ 1026.37(o)(3) and 1026.38(t)(3), respectively, are mandatory forms for a transaction that is a federally related mortgage loan (as defined in Regulation X), form H–27(A) is not a mandatory form. Moreover, TILA section 105(b) permits creditors to delete non-required information or rearrange the format of a 58 Forms H–24(A) and (G), H–25(A) and (H) through (J), and H–28(A), (F), (I), and (J) are the model forms for the Loan Estimate and Closing Disclosure. PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 model form without losing the safe harbor protection afforded by use of the model form if, in making such deletion or rearranging the format, the creditor does not affect the substance, clarity, or meaningful sequence of the disclosure. Accordingly, the proposed revision to comment 19(e)(1)(vi)–3 would clarify that, although use of the model form H– 27(A) of appendix H to this part is not required, creditors using it properly will be deemed to be in compliance with § 1026.19(e)(1)(vi)(C). 19(e)(3) Good Faith Determination for Estimates of Closing Costs The Bureau is proposing to amend § 1026.19(e)(3) and its commentary regarding the good faith determination for closing cost estimates. Section 1026.19(e)(3)(i) states the general rule that an estimated closing cost is in good faith if the charge paid by or imposed on the consumer does not exceed the estimate for the cost as disclosed on the Loan Estimate. However, § 1026.19(e)(3)(ii) provides that estimates for certain third-party services and recording fees 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 on the Loan Estimate by more than 10 percent (the ‘‘10-percent tolerance’’ category). Moreover, § 1026.19(e)(3)(iii) provides that certain other estimates are in good faith so long as they are consistent with the best information reasonably available to the creditor at the time they are disclosed, regardless of whether the amount paid by the consumer exceeds the estimate disclosed on the Loan Estimate. As detailed below, the Bureau is proposing minor changes and technical corrections for clarification purposes to § 1026.19(e)(3). The proposed amendment to comment 19(e)(3)(i)–1 is a technical, non-substantive change to conform it with the regulation text of § 1026.19(e)(3)(iii). New proposed comment 19(e)(3)(i)–8 clarifies charges paid by or imposed on the consumer. Proposed amendments to comments 19(e)(3)(ii)–2 and 19(e)(3)(iii)–2 would clarify that, if the creditor permits the consumer to shop but fails to provide the list required by § 1026.19(e)(1)(vi)(C) or the list does not comply with the requirements of § 1026.19(e)(1)(vi)(B) and (C), good faith is determined under § 1026.19(e)(3)(i) and therefore subject to zero tolerance. Proposed amendments to § 1026.19(e)(3)(iii) and comment 19(e)(3)(iii)–4 would clarify that goodfaith for non-bona fide charges is determined under § 1026.19(e)(3)(i) and therefore such charges are subject to zero tolerance, even if they would E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules otherwise satisfy the conditions of § 1026.19(e)(3)(iii). Proposed amendments to § 1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)–3 clarify, for purposes of § 1026.19(e)(1)(i), how good faith is determined for estimates of property taxes. Proposed amendments to § 1026.19(e)(3)(iv) and its commentary address certain details regarding the circumstances under which revised Loan Estimates may be provided to reset tolerances or for other informational purposes. The Bureau is proposing these clarifications to § 1026.19(e)(3) and its commentary pursuant to its authority to prescribe standards for good faith estimates under TILA section 128 and RESPA section 5, as well as its authority under TILA sections 105(a), 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. Section 128(b)(2)(A) of TILA provides that, for an extension of credit secured by a consumer’s dwelling that also is subject to RESPA, good faith estimates of the disclosures in TILA section 128(a) shall be made in accordance with regulations of the Bureau.59 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.60 The Bureau believes these proposed clarifications are authorized under TILA section 105(a). They would effectuate TILA’s purposes by ensuring that the cost estimates are more meaningful and better inform consumers of the actual costs associated with obtaining credit. The proposal would further TILA’s goals by ensuring more reliable estimates, which could foster competition among financial institutions. The proposal could also prevent potential circumvention or evasion of TILA. In addition, the Bureau believes that these proposed clarifications are consistent with Dodd-Frank Act section 1032(a) because requiring more accurate initial estimates of the costs of the transaction could ensure that 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. The Bureau believes 59 15 U.S.C. 1638(b)(2)(A). 60 12 U.S.C. 2604(c). VerDate Sep<11>2014 21:21 Aug 12, 2016 these proposed clarifications are 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 could improve consumer understanding and awareness of the mortgage loan transaction through the use of disclosure. Section 19(a) of RESPA authorizes the Bureau to prescribe regulations and make interpretations to carry out the purposes of RESPA,61 which include the elimination of kickbacks, referral fees, and other practices that tend to increase unnecessarily the costs of certain settlement services.62 The Bureau believes that these proposed clarifications are appropriate under RESPA section 19(a) because they effectively require charges to be bona fide and would thus encourage settlement service provider competition. 19(e)(3)(i) General Rule Section 1026.19(e)(3)(i) provides that an estimated closing cost disclosed on the Loan Estimate is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed on the Loan Estimate. The Bureau is proposing to modify comment 19(e)(3)(i)–1 to conform with the regulation text of § 1026.19(e)(3)(iii). The Bureau is also proposing to add new comment 19(e)(3)(i)–8 to clarify that the phrases ‘‘paid by or imposed on the consumer’’ and ‘‘payable by the consumer’’ both reflect the same standard in Regulation Z. Comment 19(e)(3)(i)–1 states that fees paid to, among others, the creditor, an affiliate of the creditor, or a mortgage broker are subject to the general rule and thus are subject to zero tolerance under § 1026.19(e)(3)(i). However, § 1026.19(e)(3)(iii) states that certain such charges, e.g., prepaid interest, are in good faith if they are consistent with the best information reasonably available to the creditor at the time they are disclosed, regardless of whether the amounts paid by the consumer exceed the amounts disclosed under § 1026.19(e)(1)(i). The Bureau is proposing to make a technical, nonsubstantive change to comment 19(e)(3)(i)–1 to conform it with the regulation text of § 1026.19(e)(3)(iii). Consistent with § 1026.19(e)(3)(iii), the proposed amendment to comment 19(e)(3)(i)–1 would clarify that fees paid to, among others, the creditor, an U.S.C. 2617(a). 62 12 U.S.C. 2601(a). PO 00000 Frm 00015 Fmt 4701 affiliate of the creditor, or a mortgage broker are generally subject to § 1026.19(e)(3)(i), except as provided in § 1026.19(e)(3)(ii) or (iii). While § 1026.19(e)(3)(i) provides that good faith is determined by whether a closing cost paid by or imposed on the consumer does not exceed the amount originally disclosed on the Loan Estimate, other sections of Regulation Z, including the finance charge definition in § 1026.4(a), are framed in terms of whether the charge is payable by the consumer rather than whether it is paid by or imposed on the consumer. The Bureau regards these standards, ‘‘paid by or imposed on the consumer’’ and ‘‘payable by the consumer,’’ as interchangeable. For example, existing commentary emphasizes that the term ‘‘payable’’ includes charges imposed on the consumer, even if the consumer does not pay for such charges at consummation.63 Under § 1026.19(e)(3)(i), when a closing cost paid by or imposed on the consumer exceeds the amount disclosed on the Loan Estimate, the amount disclosed on the Loan Estimate was not made in good faith by the creditor. The use of the phrases ‘‘paid by or imposed on the consumer’’ and ‘‘payable by the consumer’’ both reflect the same standard. Accordingly, the Bureau also proposes to add comment 19(e)(3)(i)–8 to clarify that the terms ‘‘paid by or imposed on,’’ as used in § 1026.19(e)(3)(i), has the same meaning as the term ‘‘payable,’’ as used elsewhere in Regulation Z. 19(e)(3)(ii) Limited Increases Permitted for Certain Charges Comment 19(e)(3)(ii)–2, among other things, explains that § 1026.19(e)(3)(ii) provides flexibility in disclosing the individual amount of a fee by focusing on aggregate amounts and illustrates the concept with an example. The Bureau has learned that there is some uncertainty regarding the interplay of the requirements for shopping in § 1026.19(e)(1)(vi) and the tolerance category requirements in § 1026.19(e)(3)(ii) and (iii). The Bureau is proposing to revise comment 19(e)(3)(ii)–2 to clarify that creditors are in compliance with § 1026.19(e)(3)(ii) so long as the creditor permits the consumer to shop for the services listed consistent with § 1026.19(e)(1)(vi) and the aggregate increase in charges does not exceed 10 percent, even if the amount of an individual fee was omitted from the 63 See, e.g., comments 4(a)–2, 4(a)–4.ii.C, 4(a)–5, 4(a)(2)–2, 4(c)(2)–1.i, 4(c)(7)–1 and –2, and 32(b)1– 1.i and –2.i. 61 12 Jkt 238001 54331 Sfmt 4702 E:\FR\FM\15AUP3.SGM 15AUP3 54332 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Loan Estimate. The Bureau is proposing to revise comment 19(e)(3)(ii)–2 to clarify further 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) or the list does not comply with the requirements of § 1026.19(e)(1)(vi)(B) and (C), good faith is determined under § 1026.19(e)(3)(i) instead of § 1026.19(e)(3)(ii) or (iii) regardless of the provider selected by the consumer. 19(e)(3)(iii) Variations Permitted for Certain Charges sradovich on DSK3GMQ082PROD with PROPOSALS3 Charges Paid to Affiliates of the Creditor Section 1026.19(e)(3)(iii) states that certain charges, including certain charges paid to affiliates of the creditor, are in good faith for purposes of § 1026.19(e)(1)(i) if they are consistent with the best information reasonably available, regardless of whether the amounts paid by the consumer exceed the amounts disclosed under § 1026.19(e)(1)(i). The exception in § 1026.19(e)(3)(iii) applies to the following five categories of charges: (A) Prepaid interest; (B) property insurance premiums; (C) amounts placed into an escrow, impound, reserve, or similar account; (D) 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 under § 1026.19(e)(1)(vi)(C); and (E) charges paid for third-party services not required by the creditor. The Bureau understands that there is uncertainty whether all five of the § 1026.19(e)(3)(iii) categories include charges paid to affiliates of the creditor or if only the § 1026.19(e)(3)(iii)(E) category (i.e., charges paid for thirdparty services not required by the creditor) includes charges paid to affiliates of the creditor. The Bureau believes there are reasonable arguments to support either of those interpretations under the current rule but is proposing to change the rule prospectively so that all five categories expressly include charges paid to affiliates. The Bureau proposes to amend § 1026.19(e)(3)(iii) to clarify that, for purposes of § 1026.19(e)(1)(i), good faith is determined under § 1026.19(e)(3)(iii) for all five of the categories of charges listed therein, regardless of whether such charges are paid to affiliates of the creditor, so long as the charges are bona fide. This proposed amendment is consistent with the preamble to the TILA–RESPA Final Rule, which stated that property insurance premiums are included in the category of settlement VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 charges not subject to a tolerance, whether or not the insurance provider is a lender affiliate.64 The Bureau also proposes to add new comment 19(e)(3)(iii)–4 to clarify that, to be bona fide for purposes of § 1026.19(e)(3)(iii), charges must be lawful and for services that are actually performed. The Bureau believes that adding this explicit limitation to the determination of good faith under § 1026.19(e)(3)(iii) would limit any potential consumer harm associated with permitting variations for charges within the five categories, even if paid to an affiliate of the creditor. The proposed bona fide determination under § 1026.19(e)(3)(iii) would be specifically for determining good faith for purposes of § 1026.19(e)(1)(i). For example, such determination is distinct from the broader finance charge determination under § 1026.4(c)(7) (i.e., whether certain fees are bona fide and reasonable in amount) and the points and fees determination under § 1026.32(b) (e.g., the bona fide discount point definition requires, among other things, a calculation that is consistent with established industry practices). The Bureau requests comment on all aspects of the proposal permitting good faith to be determined under § 1026.19(e)(3)(iii) for charges within the five categories paid to affiliates of the creditor, including whether good faith for charges within the five categories should be determined under § 1026.19(e)(3)(i) instead, and whether different, additional, or fewer conditions should be imposed upon the use of § 1026.19(e)(3)(iii) for charges within the five categories paid to affiliates of the creditor. Good Faith Instead Determined Under § 1026.19(e)(3)(i) Comment 19(e)(3)(iii)–2 notes that differences between the amounts of charges disclosed under § 1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on 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. The comment also provides an illustrative example. The comment also states 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), then good faith is determined under § 1026.19(e)(3)(ii) 64 78 PO 00000 FR 79730, 79829 (Dec. 31, 2013). Frm 00016 Fmt 4701 Sfmt 4702 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 under § 1026.19(e)(3)(i). The Bureau is proposing to revise comment 19(e)(3)(iii)–2 to align with the requirements in §§ 1026.19(e)(1)(vi) and 1026.19(e)(3)(ii). Section 1026.19(e)(1)(vi) sets forth the requirements creditors must comply with if they permit a consumer to shop for settlement services. Among other things, the creditor must identify the settlement service for which the consumer is permitted to shop and identify an available provider of that service. Section 1026.19(e)(3)(ii) sets forth the requirements for the 10 percent tolerance category, which includes the requirement that the creditor permit the consumer to shop for the third-party service, consistent with § 1026.19(e)(1)(vi). The Bureau believes that a creditor did not permit a consumer to shop if the creditor failed to provide a written list of providers in compliance with § 1026.19(e)(1)(vi). Thus, the Bureau is proposing to revise comment 19(e)(3)(iii)–2 to state that good faith is determined under § 1026.19(e)(3)(i), regardless of the provider selected by the consumer, if a creditor fails to provide the list required by § 1026.19(e)(1)(vi)(C) or if the creditor provides a list that is not in compliance with § 1026.19(e)(1)(vi)(B) and (C). 19(e)(3)(iii)(E) Under § 1026.19(e)(3)(iii)(E), charges paid for third-party services not required by the creditor are in good faith if they are consistent with the best information reasonably available to the creditor at the time such charges are disclosed. The Bureau understands that there may be some uncertainty whether real property taxes are included in this category. The Supplementary Information to the TILA–RESPA Final Rule erroneously stated that property taxes and other fees were subject to tolerance under § 1026.19(e)(3)(i). In February 2016, the Bureau corrected this typographical error and clarified that property taxes (and property insurance premiums, homeowner’s association dues, condominium fees, and cooperative fees) are not subject to tolerances, whether or not placed into an escrow or impound account.65 The Bureau believes the explicit enumeration of property taxes in § 1026.19(e)(3)(iii)(E) would facilitate 65 81 E:\FR\FM\15AUP3.SGM FR 7032 (Feb. 10, 2016). 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 compliance. Therefore, the Bureau is proposing to revise § 1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)–3 to clarify that an estimate of property taxes 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 paid by the consumer exceeds the amount disclosed under § 1026.19(e)(1)(i). The proposed revisions to comment 19(e)(3)(iii)–3 also provide an illustrative example. 19(e)(3)(iv) Revised Estimates Section 1026.19(e)(3)(iv) provides that, for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed on the Loan Estimate (i.e., the creditor may reset the applicable tolerance) if the revision is due to any of the reasons stated in § 1026.19(e)(3)(iv)(A) through (F). Comment 19(e)(3)(iv)(A)–1.ii states that § 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures for informational purposes, even in situations where the creditor is not resetting tolerances for any of the reasons stated in § 1026.19(e)(3)(iv)(A) through (F). Regardless of whether a creditor issues a revised disclosure to reset tolerances or simply for informational purposes, § 1026.17(c)(2)(i) requires that any disclosures provided to the consumer must be based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. The Bureau understands that there is some uncertainty whether a creditor is prohibited from providing the consumer with a revised Loan Estimate for informational purposes if a revision is not based on any of the reasons stated in § 1026.19(e)(3)(iv)(A) through (F). Although comment 19(e)(3)(iv)(A)–1.ii speaks explicitly to informational revisions of particular fees that are subject to the 10 percent tolerance under § 1026.19(e)(3)(ii), the Bureau considers the comment’s principle equally applicable to all changes that may occasion an informational revision, regardless of the particular fee involved or which tolerance category applies to it. Accordingly, consistent with comment 19(e)(3)(iv)(A)–1.ii, the Bureau proposes to amend comment 19(e)(3)(iv)–2 and to add new comment 19(e)(3)(iv)–4 to clarify that § 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures for informational purposes, even in situations where the creditor is not VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 resetting tolerances for any of the reasons stated in § 1026.19(e)(3)(iv)(A) through (F). Consistent with § 1026.17(c)(2)(i), the Bureau also proposes to add new comment 19(e)(3)(iv)–5 to clarify that, regardless of whether a creditor issues a revised Loan Estimate to reset tolerances or simply for informational purposes, § 1026.17(c)(2)(i) requires that any disclosures on the revised Loan Estimate must be based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. For example, if the creditor issues revised disclosures reflecting a new rate lock extension fee for purposes of determining good faith under § 1026.19(e)(3)(i), other charges unrelated to the rate lock extension should be reflected on the revised disclosures based on the best information reasonably available to the creditor at the time the disclosures are provided. Nonetheless, any increases in those other charges unrelated to the lock extension may not be used for the purposes of determining good faith under § 1026.19(e)(3). 19(e)(3)(iv)(D) Interest Rate Dependent Charges Section 1026.19(e)(3)(iv)(D) requires the creditor to provide a revised Loan Estimate to the consumer no later than three business days after the date the interest rate is locked. Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure. The Bureau understands that there is uncertainty as to how a creditor complies with § 1026.19(e)(3)(iv)(D) and provides a revised Loan Estimate if the interest rate is locked after the Closing Disclosure has been provided. Consistent with § 1026.19(e)(4)(ii), the Bureau proposes to add new comment 19(e)(3)(iv)(D)–2 to clarify that the creditor may not provide a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure, even if the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure. If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide to the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms. If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 54333 ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph. For further discussion of corrected Closing Disclosures, see the section-by-section analysis of § 1026.19(e)(4)(ii), below. 19(e)(3)(iv)(E) Expiration Section 1026.19(e)(3)(iv)(E) provides that, for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed on the Loan Estimate (i.e., the creditor may reset the applicable tolerance) if the consumer indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate is provided under § 1026.19(e)(1)(iii). The Bureau understands that there is uncertainty whether a creditor, for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), may reset tolerances under § 1026.19(e)(3)(iv)(E) if the consumer indicates an intent to proceed after the 10-business-day period but within a longer period for which the creditor has stated that it will honor the estimated charges originally disclosed on the Loan Estimate . The Bureau proposes to revise § 1026.19(e)(3)(iv)(E) and to add new comment 19(e)(3)(iv)(E)–2 to clarify that, if a creditor voluntarily extends the period disclosed under § 1026.37(a)(13)(ii) to a period greater than 10 business days, that longer time period becomes the relevant time period for purposes of using revised estimates under § 1026.19(e)(3)(iv)(E). As amended, § 1026.19(e)(3)(iv)(E) would permit a creditor to use revised estimates under § 1026.19(e)(3)(iv) when the consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the disclosures required under § 1026.19(e)(1)(i) are provided. Proposed comment 19(e)(3)(iv)(E)–2 states that, if the creditor establishes a period greater than 10 business days after the disclosures were provided (or subsequently extends it to such a longer period), the longer time period becomes the relevant time period for purposes of § 1026.19(e)(3)(iv)(E). Proposed comment 19(e)(3)(iv)(E)–2 further states that a creditor establishes such a period greater than 10 business days by communicating the greater time period to the consumer, including through oral communication. E:\FR\FM\15AUP3.SGM 15AUP3 54334 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan The proposed amendment to § 1026.19(e)(3)(iv)(F) would correct a typographical error, replacing a reference to § 1026.19(f) with a reference to § 1026.19(e)(3)(iv). sradovich on DSK3GMQ082PROD with PROPOSALS3 19(e)(4) Provision and Receipt of Revised Disclosures 19(e)(4)(ii) Relationship to Disclosures Required Under § 1026.19(f) Section 1026.19(e)(4)(ii) imposes certain timing restrictions on the issuance of revised Loan Estimates relative to consummation and the issuance of a Closing Disclosure to ensure that the consumer does not receive disclosures containing estimates and disclosures containing actual costs at the same time. Existing comment 19(e)(4)(ii)–1 explains that, where the rule prohibits issuance of a revised Loan Disclosure, the creditor can instead use the Closing Disclosure to reflect changes in costs that would otherwise justify issuing a revised estimate under § 1026.19(e)(3)(iv) and that that Closing Disclosure may be used for the purpose of determining good faith under § 1026.19(e)(3). The Bureau proposes to add comment 19(e)(4)(ii)–2 to clarify that creditors may use corrected Closing Disclosures provided under § 1026.19(f)(2)(i) or (ii) to reflect further changes in costs that will be used for purposes of determining good faith under § 1026.19(e)(3). Section 1026.19(e)(4)(ii) requires that a creditor ensures receipt of any revised Loan Estimate no later than four business days before consummation and further prohibits the issuance of a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure. Even when the creditor may not provide a revised Loan Estimate under § 1026.19(e)(4)(ii), however, it can still use revised amounts for the purpose of determining good faith if the revised amounts are reflected in the Closing Disclosure, subject to the other requirements of § 1026.19(e)(4). Although existing comment 19(e)(4)(ii)–1 expressly references only the initial Closing Disclosure issued pursuant to § 1026.19(f)(1) in explaining this fact, the same logic applies to corrected Closing Disclosures issued pursuant to § 1026.19(f)(2). As explained in comment 19(f)(1)(i)–1, if a Closing Disclosure provided to comply with § 1026.19(f)(1)(i) later becomes inaccurate, a creditor can satisfy the requirements of § 1026.19(f)(1)(i) by providing corrected disclosures that contain the actual terms of the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 transaction, provided that the creditor meets the timing requirements of § 1026.19(f)(2). Thus, the provision of a corrected Closing Disclosure under § 1026.19(f)(2) is properly an extension of the ongoing requirements of § 1026.19(f)(1)(i). As a result, the creditor’s issuance of a corrected Closing Disclosure, as with the issuance of an original Closing Disclosure, falls within comment 19(e)(4)(ii)–1’s ambit. Accordingly, a creditor may use a corrected Closing Disclosure to reset applicable good faith tolerances when there are fewer than four business days remaining before consummation or when the Closing Disclosure has already been issued, provided that the creditor also complies with the other requirements of § 1026.19(e)(4). The Bureau is proposing comment 19(e)(4)(ii)–2 to clarify this point. 19(f) Mortgage Loans—Final Disclosures 19(f)(1) Provision of disclosures 19(f)(1)(i) Scope As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to comment 19(f)(1)(i)–1 to reflect this proposed change to the coverage of § 1026.19(e) and (f). 19(f)(2) Subsequent Changes 19(f)(2)(iii) Changes Due to Events Occurring After Consummation Section 1026.19(f)(1)(i) requires the creditor to provide the consumer with the disclosures in § 1026.38 reflecting the actual terms of the transaction. If, during the 30-day period following consummation, an event in connection with the settlement of the transaction occurs that causes the disclosures required under § 1026.19(f)(1)(i) to become inaccurate and such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed under § 1026.19(f)(1)(i), § 1026.19(f)(2)(iii) requires the creditor to deliver or place in the mail corrected disclosures not later than 30 days after receiving information sufficient to establish that such event has occurred.66 66 Section 1026.17(e) provides that if a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of part 1026, PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 Section 1026.17(c)(2)(ii), however, provides that, for a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction. Proposed comment 19(f)(2)(iii)–2 would clarify that a creditor is not required to provide to the consumer a corrected Closing Disclosure as required under § 1026.19(f)(2)(iii) for any disclosure that is accurate under § 1026.17(c)(2)(ii), even if the amount actually paid by the consumer differs from the amount disclosed under § 1026.38(g)(2) and (o). Section 121(c) of TILA provides that any disclosure with respect to per diem interest collected upon consummation is accurate if the disclosure is based on information actually known to the creditor at the time that the disclosure documents are being prepared for the consummation of the transaction. This 1995 amendment to section 121(c) of TILA is implemented in § 1026.17(c)(2)(ii). Additionally, a changed per diem interest amount does not result in a tolerance violation under § 1026.19(e)(3). Good faith is determined for per diem interest under § 1026.19(e)(3)(iii). Consequently, so long as the creditor makes the disclosure on the basis of the best information reasonably available, the creditor is not required to provide a refund for changed per diem interest under § 1026.19(f)(2)(v). Therefore, disclosures affected by the per diem interest amount are considered accurate under TILA if based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction and changes to per diem interest do not result in tolerance violations under § 1026.19(e)(3). As a result, the Bureau does not expect consumers to be harmed by not receiving post-consummation corrected disclosures reflecting the changed per diem interest amounts without a refund of any additional per diem charge to the consumer. The Bureau is proposing to add comment 19(f)(2)(iii)–2 to clarify the interaction of §§ 1026.19(f)(2)(iii) and 1026.17(c)(2)(ii), such that a creditor is not required to provide to the consumer a corrected Closing Disclosure for any disclosure that is accurate under § 1026.17(c)(2)(ii), even if the amount actually paid by the consumer differs although such inaccuracies may require new disclosures or a cure under § 1026.19(f). E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules from the amount disclosed under § 1026.38(g)(2) and (o). The Bureau seeks comment generally on the requirement in § 1026.19(f)(2)(iii) for creditors to provide corrected disclosures in certain circumstances as a result of post-consummation events. Specifically, the Bureau seeks comment on its proposed approach to the interaction between §§ 1026.17(c)(2)(ii) and 1026.19(f)(1)(i), including whether the Bureau should require disclosure of post-consummation changed per diem interest amounts despite the disclosure’s accuracy under § 1026.17(c)(2)(ii) and the lack of any requirement on the part of the creditor to provide a refund for any change in the amount of per diem interest charged. The Bureau seeks comment on the benefits to consumers of receiving a post-consummation disclosure of the changed per diem interest amounts reflecting the actual amounts paid by the consumer. The Bureau also seeks comment on whether additional clarity is needed in § 1026.17(e) or § 1026.19(e) regarding the effect of postconsummation events on the accuracy of disclosures or if additional clarity is needed on the interaction between §§ 1026.17(e) and 1026.19(e). sradovich on DSK3GMQ082PROD with PROPOSALS3 19(f)(2)(v) Refunds Related to the Good Faith Analysis Comment 19(f)(2)(v)–1 explains that under § 1026.19(f)(2)(v), if amounts paid at consummation 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 no later than 60 days after consummation, and the creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers or places in the mail disclosures corrected to reflect the refund of such excess no later than 60 days after consummation. Comment 19(f)(2)(v)–1 refers to comment 38(h)(3)–2 for additional guidance on disclosing refunds. The Bureau is proposing to revise comment 19(f)(2)(v)–1 to add a cross-reference to comment 38–4. As discussed in the section-by-section analysis of proposed comment 38–4, the Bureau is proposing to clarify that there are other options for disclosing refunds where a contractual or other legal obligation of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the borrower. The Bureau is also proposing to revise the example in comment 19(f)(2)(v)–1 for greater clarity. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 19(f)(3) Charges disclosed 19(f)(3)(ii) Average charge As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to comment 19(f)(3)(ii)–3 to reflect this proposed change to the coverage of § 1026.19(e) and (f). 19(f)(4) Transactions Involving a Seller 19(f)(4)(i) Provision to Seller Comment 19(f)(4)(i)–1 explains that the settlement agent complies with § 1026.19(f)(4)(i) either by providing to the seller a copy of the Closing Disclosure provided to the consumer, if it also contains the information under § 1026.38 relating to the seller’s transaction, or by providing the disclosures under § 1026.38(t)(5)(v) or (vi), as applicable. Section 1026.38(t)(5)(v) permits the creditor or settlement agent preparing the form to use form H–25 of appendix H for the disclosure provided to both the consumer and the seller, with certain modifications to separate the information of the consumer and seller, as necessary. Section 1026.38(t)(5)(vi) permits certain information to be deleted from the form provided to the seller or a third-party, as illustrated by form H–25(I) of appendix H. As discussed in more detail below, the Bureau is proposing to streamline § 1026.19(f)(4)(i) and comment 19(f)(4)(i)–1 by eliminating unnecessary text and to add comment 19(f)(4)(i)–2 to clarify that, in purchase transactions with a simultaneous loan for subordinate financing, the settlement agent complies with § 1026.19(f)(4)(i) by providing the seller with only the Closing Disclosure for the first-lien transaction if that Closing Disclosure records the entirety of the seller’s transaction. In purchase transactions with a simultaneous loan for subordinate financing, if the Closing Disclosure for the first-lien transaction records the entirety of the seller’s transaction, the seller receives no additional benefit from receiving a copy of the Closing Disclosure for the simultaneous loan for subordinate financing that is provided to the consumer. Accordingly, the Bureau is proposing to add comment 19(f)(4)(i)–2 to clarify that, in purchase transactions with a simultaneous loan PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 54335 for subordinate financing, the settlement agent complies with § 1026.19(f)(4)(i) by providing the seller with only the Closing Disclosure for the first-lien transaction if that Closing Disclosure records the entirety of the seller’s transaction. If the first-lien Closing Disclosure does not record the entirety of the seller’s transaction, which may occur when, for example, the seller contributes to the costs of the simultaneous loan for subordinate financing, the Closing Disclosure for the simultaneous loan for subordinate financing must reflect the seller’s transaction as applicable to the subordinate financing. The settlement agent in that case complies with § 1026.19(f)(4)(i) by providing the seller with a copy of the Closing Disclosure for both the first lien and the simultaneous loan for subordinate financing, if they also contain the information under § 1026.38 relating to the seller’s transaction, or by providing the disclosures under § 1026.38(t)(5)(v) or (vi), as applicable. The Bureau seeks comment on whether the appropriate determinate of whether a seller is provided a copy of the Closing Disclosure for the simultaneous loan for subordinate financing is if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. The Bureau also seeks comment on whether there are other circumstances where the seller would benefit from receiving a copy of the Closing Disclosure for the simultaneous loan for subordinate financing. 19(g) Special Information Booklet at Time of Application As detailed in the section-by-section analysis of § 1026.19, the Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to § 1026.19(g) to reflect this proposed change to the coverage of § 1026.19(e) and (f). Section 1026.23 Right of Rescission 23(g) Tolerances for Accuracy TILA section 125 sets forth a consumer’s right to rescind certain transactions.67 For purposes of a consumer’s right of rescission, TILA 67 15 E:\FR\FM\15AUP3.SGM U.S.C. 1635. 15AUP3 54336 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules section 106(f)(2) 68 sets forth the applicable tolerances for accuracy of the finance charge 69 and other disclosures affected by any finance charge, which has been understood to include the total of payments.70 Section 1026.23(g) implements this statutory provision. As explained more fully in the section-by-section analysis of § 1026.38(o)(1), the finance charge tolerance historically applied to the total of payments because that calculation was affected by the finance charge. However, in the TILA–RESPA Final Rule, the Bureau modified the requirement under TILA section 128(a)(5) to disclose the total of payments as the sum of the amount financed and the finance charge by requiring instead that a creditor disclose the total of payments on the Closing Disclosure as the sum of principal, interest, mortgage insurance, and loan costs. The Bureau believed that modifying the calculation of the disclosure would improve consumer understanding.71 For the reasons discussed in the section-by-section analysis of § 1026.38(o)(1), the Bureau believes it is appropriate to continue to apply the tolerances for the finance charge and disclosures affected by the finance charge to the modified total of payments calculation. Accordingly, the Bureau proposes to revise § 1026.23(g) to apply the same tolerances for accuracy to the total of payments for purposes of the Closing Disclosure that already apply to the finance charge and other disclosures affected by the finance charge. Specifically, the Bureau proposes to redesignate existing § 1026.23(g)(1) and (2) as § 1026.23(g)(1)(i) and (2)(i) and to amend § 1026.23(g)(1)(ii) to provide that, in general, the total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of § 1026.23 if the disclosed total of payments: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) is greater than the amount required to be disclosed. The Bureau further proposes to amend § 1026.23(g)(2)(ii) to provide that, in a refinancing of a residential mortgage 68 15 U.S.C. 1605(f)(2). charge is defined in TILA section 106(a) (15 U.S.C. 1605(a)). Section 1026.4 implements this definition, provides examples, and excludes certain charges from the finance charge. 70 See Carmichael v. The Payment Ctr., Inc., 336 F.3d 636, 639 (7th Cir. 2003) (interpreting the total of payments as a disclosure affected by the finance charge and therefore subject to the finance charge tolerances as long as a misdisclosure of the total of payments resulted from a misdisclosure of the finance charge). 71 78 FR 79730, 80038 (Dec. 31, 2013). sradovich on DSK3GMQ082PROD with PROPOSALS3 69 Finance VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 transaction with a new creditor (other than a transaction covered by § 1026.32), if there is no new advance and no consolidation of existing loans, the total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of § 1026.23 if the disclosed total of payments: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) is greater than the amount required to be disclosed. The Bureau seeks comment on these proposed revisions to § 1026.23(g). The Bureau also proposes to add new comment 23(g)–1, which would reference the examples set forth in proposed comment 38(o)–1 that illustrate the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). Legal Authority The Bureau proposes to revise § 1026.23(g) to apply the same tolerances for accuracy of the finance charge and other disclosures affected by the finance charge to the total of payments for each transaction subject to § 1026.19(e) and (f) pursuant to its authority to set tolerances for numerical disclosures under TILA section 121(d).72 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. The Bureau has considered the purposes for which it may exercise its authority under TILA section 121(d). As noted below in the section-by-section analysis of § 1026.38(o)(1), the Bureau has concluded that the proposed tolerances for the total of payments would promote consistency with the tolerances in effect before the TILA– RESPA Final Rule. The Bureau therefore believes that the proposed tolerances facilitate compliance with the statute. Additionally, the Bureau believes that the tolerances in proposed § 1026.23(g)(1)(ii) and (2)(ii), which are identical to the finance charge tolerances provided by Congress in TILA section 106(f), are sufficiently narrow to prevent these tolerances from resulting in misleading disclosures or disclosures that circumvent the purposes of TILA. 72 15 PO 00000 U.S.C. 1631(d). Frm 00020 Fmt 4701 23(h) Special Rules for Foreclosures 23(h)(2) Tolerance for Disclosures For purposes of exercising rescission rights after the initiation of foreclosure, TILA section 125(i)(2) explains that the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $35 or is greater than the amount required to be disclosed.73 Section 1026.23(h)(2) implements this statutory provision. As explained more fully above in the section-by-section analysis related to § 1026.23(g) and below in the sectionby-section analysis of § 1026.38(o)(1), the finance charge tolerance historically applied to the total of payments because that calculation was affected by the finance charge. Accordingly, for the reasons discussed in the section-bysection analyses of §§ 1026.23(g) and 1026.38(o)(1), the Bureau proposes to revise § 1026.23(h)(2) to apply the same tolerances for accuracy to the total of payments for purposes of the Closing Disclosure that already apply to the finance charge and other disclosures affected by the finance charge. Specifically, the Bureau proposes to redesignate existing § 1026.23(h)(2) as § 1026.23(h)(2)(i) and to amend § 1026.23(h)(2)(ii) to provide that, after the initiation of foreclosure on the consumer’s principal dwelling that secures the credit obligation, the total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of § 1026.23 if the disclosed total of payments: (A) Is understated by no more than $35; or (B) is greater than the amount required to be disclosed. The Bureau seeks comment on this proposed amendment to § 1026.23(h)(2). The Bureau proposes to revise comment 23(h)(2)–1 to explain that, for each transaction subject to § 1026.19(e) and (f), § 1026.23(h)(2) is also based on the accuracy of the total of payments, taken as a whole, rather than its components. The Bureau also proposes to add new comment 23(h)(2)–2, which would reference the examples set forth in proposed comment 38(o)–1 that illustrate the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). Legal Authority The Bureau proposes to revise § 1026.23(h)(2) to apply the same tolerances for accuracy of the finance 73 15 Sfmt 4702 E:\FR\FM\15AUP3.SGM U.S.C. 1635(i)(2). 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules charge and other disclosures affected by the finance charge to the total of payments for each transaction subject to § 1026.19(e) and (f) pursuant to its authority to set tolerances for numerical disclosures under TILA section 121(d).74 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. The Bureau has considered the purposes for which it may exercise its authority under TILA section 121(d). As noted below in the section-by-section analysis of § 1026.38(o)(1), the Bureau has concluded that the proposed tolerances for the total of payments would promote consistency with the tolerances in effect before the TILA–RESPA Final Rule. The Bureau therefore believes that the proposed tolerances facilitate compliance with the statute. Additionally, the Bureau believes that the tolerances in proposed § 1026.23(h)(ii), which are identical to the finance charge tolerances provided by Congress in TILA section 125(i)(2), are sufficiently narrow to prevent these tolerances from resulting in misleading disclosures or disclosures that circumvent the purposes of TILA. Section 1026.25 Record Retention 25(c) Records Related to Certain Requirements for Mortgage Loans sradovich on DSK3GMQ082PROD with PROPOSALS3 25(c)(1) Records Related to Requirements for Loans Secured by Real Property As detailed in in the section-bysection analysis of § 1026.19 above, the Bureau is proposing amendments to conform the paragraph title for § 1026.25(c)(1), and a subheading for the commentary to § 1026.25(c)(1), with the Bureau’s proposal to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. Section 1026.37 Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) 37(a) General Information 37(a)(7) Sale Price Comment 37(a)(7)–1 explains the requirement in § 1026.37(a)(7)(ii) to provide the estimated value of the 74 15 U.S.C. 1631(d). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 property in transactions where there is no seller. The comment states that, where there is no seller, 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. The Bureau is proposing to revise comment 37(a)(7)–1 to clarify that, if a creditor has performed its own estimate of the property value by the time the disclosure is provided to the consumer, the creditor must disclose its own estimate under § 1026.37(a)(7)(ii). In addition, as discussed in relation to § 1026.19 above, the Bureau is proposing amendments to conform comment 37(a)(7)–2 with the Bureau’s proposal to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e), regardless of whether a cooperative unit is treated as real property under State or other applicable law. 37(a)(8) Loan Term Section 1026.37(a)(8) requires disclosure of the term to maturity of the credit transaction. The Bureau is proposing to add comment 37(a)(8)–3 to provide a cross-reference to proposed new comment app. D–7.i, which explains the disclosure of the loan term for a construction-permanent loan, taking into account the unique features of such a transaction. 37(a)(9) Purpose Section 1026.37(a)(9) requires a creditor to disclose on the Loan Estimate the consumer’s intended use for the credit, labeled ‘‘Purpose.’’ Comment 37(a)(9)–1.i explains that the creditor must disclose the loan purpose as ‘‘Purchase’’ when the consumer intends to use the proceeds from the transaction to purchase the property that will secure the extension of credit. Because the proceeds from a simultaneous loan for subordinate financing in a purchase transaction are used to purchase the property that will secure the extension of credit, the Bureau is proposing to amend comment 37(a)(9)–1.i to clarify that simultaneous subordinate financing in such cases is also disclosed with the purpose as ‘‘Purchase.’’ 37(a)(10) Product Section 1026.37(a)(10) requires a description of the loan product to be disclosed, including the features that may change the periodic payment. Comment 37(a)(10)–2.ii explains PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 54337 disclosure of the interest only feature. The Bureau is proposing to add a crossreference in comment 37(a)(10)–2.ii to proposed comment app. D–7.ii, which would explain the disclosure of the time period of the interest only feature for a construction loan or a constructionpermanent loan. 37(a)(13) Rate Lock Section 1026.37(a)(13) requires creditors to disclose the date and time at which estimated closing costs expire. Section 1026.19(e)(3)(iv)(E) provides that, for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed on the Loan Estimate (i.e., the creditor may reset the applicable tolerance) if the consumer indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate is provided under § 1026.19(e)(1)(iii). The Bureau proposes to amend comment 37(a)(13)–2 to clarify the relationship between the expiration date disclosure under § 1026.37(a)(13)(ii) and the ability to reset tolerances under § 1026.19(e)(3)(iv)(E). The Bureau also proposes to amend comment 37(a)(13)– 2 by adding a cross-reference to new proposed comment 19(e)(3)(iv)(E)–2, which would clarify when the creditor may use a revised estimate of a charge for the purposes of determining good faith under § 1026.19(e)(3)(i) and (ii) when the creditor voluntarily extends the period for which it will honor the estimated charges disclosed on the Loan Estimate for a period beyond 10 business days. The Bureau further proposes to add new comment 37(a)(13)–3 to clarify that, once the consumer has indicated an intent to proceed with the transaction, the date and time at which estimated closing costs expire would be left blank on revised Loan Estimates, if any. 37(b) Loan Terms 37(b)(1) Loan Amount Section 1026.37(b)(1) currently requires the disclosure on the Loan Estimate of the amount of credit to be extended under the terms of the legal obligation, labeled ‘‘Loan Amount.’’ For federally related mortgage loans under RESPA, § 1024.7(d) of Regulation X required the disclosure of the loan amount in the summary table on page 1 of the RESPA GFE. Other provisions in §§ 1026.37 and 1036.38 use this amount in the calculation of various disclosures throughout the Loan Estimate and Closing Disclosure, for instance, in the E:\FR\FM\15AUP3.SGM 15AUP3 54338 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 calculating cash to close tables under §§ 1026.37(h) and 1026.38(e) and (i). Section 1026.18(b) requires the disclosure of the amount financed for transactions not subject to the disclosure requirements of § 1026.19(e) and (f), along with a description of the amount financed such as ‘‘the amount of credit provided to you or on your behalf.’’ 75 The calculation of the amount financed under § 1026.18(b) is not the same as the dollar amount lent to the consumer by the creditor, despite the similar language used to define the two terms in § 1026.18(b) and § 1026.37(b)(1), respectively. To reduce inconsistent language in Regulation Z and facilitate compliance, the Bureau proposes to revise § 1026.37(b)(1) to provide that the loan amount disclosed on the Loan Estimate (and, accordingly, on the Closing Disclosure) is the total amount the consumer will borrow, as reflected by the face amount of the note. This language would parallel that of § 1026.32(c)(5), which, as the Bureau noted in section-by-section analysis of § 1026.37(b)(1) in the TILA–RESPA Final Rule,76 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. The Bureau believes that revising the definition of loan amount in § 1026.37(b)(1) to parallel the language in § 1026.32(c)(5) would make clearer that the same amount should be disclosed under both sections, as indicated in the 2012 TILA–RESPA Proposal. The Bureau also believes that most, if not all, creditors currently understand this intent and follow it in disclosing the loan amount. Accordingly, the Bureau believes creditors would not have to change current processes or systems under the proposal. The Bureau requests comment, however, on whether changing the language defining the loan amount under 1026.37(b)(1) would require any changes to creditors’ processes or systems or would change the loan amount that creditors currently disclose to the consumer. 37(b)(2) Interest Rate Section 1026.37(b)(2) requires disclosure of the interest rate that will be applicable to the transaction at consummation. The Bureau is proposing to add a cross-reference in comment 37(b)(2)–1 to proposed comment app. D–7.iii, which, as discussed further below, would explain the disclosure of 75 The amount financed is also disclosed on the Closing Disclosure pursuant to § 1026.38(o)(3). 76 78 FR 79730, 79921 (Dec. 31, 2013). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 the permanent financing interest rate for a construction-permanent loan. 37(b)(3) Principal and Interest Payment Section 1026.37(b)(3) requires disclosure of the initial periodic payment amount. The Bureau is proposing to add a cross-reference in comment 37(b)(3)–2 to proposed comment app. D–7.iv, which would explain the disclosure of an initial periodic payment for a construction or construction-permanent loan. 37(b)(6) Adjustments After Consummation 37(b)(6)(iii) Increase in Periodic Payment Section 1026.37(b)(6)(iii) requires disclosures of increases in the periodic payment. The Bureau is proposing to add a cross-reference in comment 37(b)(6)(iii)–1 to proposed comment app. D–7.v, which, as discussed further below, would explain the disclosure of an increase in the periodic payment for a construction or constructionpermanent loan. 37(c) Projected Payments Section 1026.37(c) requires itemization of each separate periodic payment or range of payments. As described below, the Bureau is proposing to amend the commentary accompanying § 1026.37(c), (c)(1)(iii)(B), and (c)(4)(iv). Proposed comment 37(c)– 2 would provide a cross-reference to comment app. D–7.vi, which explains the projected payments disclosure for a construction or construction-permanent loan. 37(c)(1) Periodic Payment or Range of Payments 37(c)(1)(iii) 37(c)(1)(iii)(B) Section 1026.37(c) requires creditors to disclose an itemization of the periodic payments. Section 1026.37(c)(1)(iii)(B) requires disclosing the minimum and maximum payment amount (the range) when the periodic principal and interest payment may change more than once during a single year. Section 1026.37(c)(1)(iii)(B) also requires disclosing the range when the periodic principal and interest payment may change during the same year as the initial periodic payment. Comment 37(c)(1)(iii)(B)–1 illustrates the disclosure of separate periodic payments or ranges when multiple events occur during a single year. The Bureau is proposing clarifying amendments to comment 37(c)(1)(iii)(B)–1. PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 The Bureau has identified inconsistencies in one of the examples in comment 37(c)(1)(iii)(B)–1 that should be harmonized to match the requirements of § 1026.37(c)(1). Specifically, one example in comment 37(c)(1)(iii)(B)–1 calls for disclosing as a single range in year two the payment that would apply on the first anniversary of the due date of the initial periodic payment as well as the periodic payment that would apply after the payment adjustment that occurs at 18 months. Section 1026.37(c)(1) does not require disclosing a range merely because the periodic principal and interest payment may change once during a single year (unless such change may occur during the same year as the initial periodic payment). Moreover, the same example in comment 37(c)(1)(iii)(B)–1 also calls for an additional separate payment disclosure specifically for ‘‘the anniversary that immediately follows the occurrence of the multiple payments or ranges of payments that occurred during the second year of the loan.’’ However, § 1026.37(c)(1) does not require an additional separate payment disclosure for an anniversary unless the anniversary ‘‘immediately follows’’ the occurrence of multiple events whereby the periodic principal and interest payment may change during a single year. To correct these inconsistencies, the Bureau is proposing amendments to conform comment 37(c)(1)(iii)(B)–1 to the requirements of § 1026.37(c)(1). The Bureua is also designating subparagraphs in comment 37(c)(1)(iii)(B)–1 for clarity, without substantive changes. The Bureau requests comment on the proposed amendments to comment 37(c)(1)(iii)(B)–1 and also solicits comment on whether additional or alternative approaches to correct the inconsistency should be adopted instead. Specifically, the Bureau requests comment on whether the text of § 1026.37(c)(1) should be amended to conform to the example in comment 37(c)(1)(iii)(B)–1 (instead of amending comment 37(c)(1)(iii)(B)–1 to conform to the text of § 1026.37(c)(1)). The Bureau also specifically requests comment on whether, rather than complying with a single, mandatory approach, creditors should have the discretion to disclose payments or ranges of payments in conformity with either the text of § 1026.37(c)(1) or the existing examples in comment 37(c)(1)(iii)(B)–1. E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 37(c)(4) Taxes, Insurance, and Assessments 37(c)(4)(iv) Section 1026.37(c)(4) requires the disclosures of taxes, insurance, and assessments on the Loan Estimate. Section 1026.37(c)(4)(iv) requires a statement that the amounts disclosed under § 1026.37(c)(4)(ii) include payments for property taxes and other amounts it requires to be disclosed and whether the amounts disclosed will be paid using escrow account funds. Comment 37(c)(4)(iv)–2 explains that creditors may indicate that only some of the amounts disclosed under § 1026.37(c)(4)(ii) will be paid using escrow account funds when that is the case. In February 2015, the Bureau removed ‘‘other than amounts for payments of property taxes or homeowner’s insurance’’ from comment 37(c)(4)(iv)–2.77 The Bureau did so to permit creditors to disclose that a portion of the property taxes or homeowner’s insurance payments were being paid from escrow, consistent with other situations where the creditor pays only a portion of the disclosed amounts from escrow. The Bureau understands that uncertainty remains over the disclosure that only a portion of the property taxes and homeowner’s insurance payments will be paid from escrow. The Bureau is proposing to revise comment 37(c)(4)(iv)–2 to clarify that creditors may indicate that a portion of the property taxes and homeowner’s insurance will be paid by the creditor using funds from the escrow account when that is the case. 37(c)(5) Calculation of Taxes and Insurance sradovich on DSK3GMQ082PROD with PROPOSALS3 37(c)(5)(i) As detailed in in the section-bysection analysis of § 1026.19, the Bureau is proposing amendments to conform § 1026.37(c)(5)(i) with the Bureau’s proposal to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e), regardless of whether a cooperative unit is treated as real property under State or other applicable law. 37(d) Costs at Closing 37(d)(2) Optional Alternative Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing Section 1026.37(d)(2) only permits creditors to use the optional alternative 77 80 FR 8767, 8777 (Feb. 19, 2015). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 cash to close disclosure in transactions without a seller. The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative disclosure may be used for the simultaneous subordinate financing Loan Estimate if the first-lien Closing Disclosure will record the entirety of the seller’s transaction and the seller did not contribute to the cost of the subordinate financing. The Bureau is proposing to amend § 1026.37(d)(2) and comment 37(d)(2)–1 to clarify that creditors may use the optional alternative cash to close disclosure for simultaneous loans for subordinate financing in purchase transactions if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. The Bureau specifically seeks comment on whether allowing a creditor to use the optional alternative cash to close table for disclosure of simultaneous loans for subordinate financing in purchase transactions only if the firstlien Closing Disclosure will record the entirety of the seller’s transaction is an appropriate limitation. 37(f) Closing Cost Details; Loan Costs Construction Loan Inspection and Handling Fees Section 1026.37(f) requires the disclosure of all loan costs associated with the transaction. Construction loan inspection and handling fees are loan costs associated with the construction transaction for purposes of § 1026.37(f). If such inspection and handling fees are collected at or before consummation, they are disclosed in the loan costs table in the same manner as any other loan cost. For example, if the creditor collects a handling fee at or before consummation to process the advances of a multiple-advance construction loan, the handling fee would be disclosed as an origination charge under § 1026.37(f)(1) as an amount the consumer will pay to the creditor for originating and extending the credit. If the creditor collects an inspection fee that will be used to pay a third-party inspector that is selected by the creditor, the fee would be disclosed as an amount the consumer will pay for settlement services for which the consumer cannot shop under § 1026.37(f)(2). Under proposed comment 37(f)–3, a creditor would disclose construction loan inspection and handling fees that are collected after consummation in a separate addendum to the Loan Estimate rather than in the loan costs table, as proposed comment 37(f)(6)–3, discussed below, would provide. The creditor PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 54339 would not count such fees for purposes of the calculating cash to close table. The Bureau believes that disclosing the construction loan inspection and handling fees that are collected after consummation in an addendum would promote the informed use of credit by giving consumers loan cost information necessary to exercise such informed use, while preserving the accuracy of the total amount determined in the closing costs details table that must be provided by the consumer at consummation. Proposed comment 37(f)–3 would include a cross-reference to proposed comment 37(f)(6)–3 for an explanation of the addendum that would be used to disclose post-consummation inspection and handling fees, as discussed below. Proposed comment 37(f)–3 also would include cross-references to comments 38(f)–2 and app. D–7.viii, for additional explanations of the disclosure of such fees. Because the number of postconsummation construction loan inspections and disbursements may not be known at the time the disclosures are required to be provided, comment 37(f)– 3 would include a cross-reference to comment 19(e)(1)(i)–1, which includes instruction on providing disclosures based on the best information reasonably available. Finally, comment 37(f)–3 would provide a cross-reference to § 1026.17(e) and its commentary for an explanation of the effect of subsequent events that cause inaccuracies in disclosures. The Bureau requests comment in particular on whether additional guidance on the effect of subsequent events in construction financing would provide additional clarity and what issues such additional guidance might address. 37(f)(6) Use of Addenda The Bureau is proposing to add comment 37(f)(6)–3 to provide instruction for the addendum that would be used to disclose postconsummation construction loan inspection and handling fees. If, pursuant to proposed comment 37(f)–3, a creditor is required to disclose construction loan inspection and handling fees that will be collected after consummation, proposed comment 37(f)(6)–3 would explain that the creditor discloses the total of such fees under the heading ‘‘Inspection and Handling Fees Collected After Closing’’ in an addendum. Proposed comment 37(f)(6)–3 would also cross-reference comment 19(e)(1)(i)–1and explain that, if the amount of post-consummation inspection and handling fees is not known at the time the disclosures are provided, the disclosures in the addendum would be based upon the E:\FR\FM\15AUP3.SGM 15AUP3 54340 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules best information reasonably available. To provide additional clarity, proposed comment 37(f)(6)–3 also includes an example of the best information reasonably available standard for purposes of disclosing postconsummation inspection and handling fees by providing such information could include amounts the creditor has previously charged in similar transactions. sradovich on DSK3GMQ082PROD with PROPOSALS3 37(g) Closing Cost Details; Other Costs 37(g)(4) Other Section 1026.37(g)(4) requires the disclosure of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted, with a person other than the creditor or loan originator, to pay at consummation and of which the creditor is aware at the time of issuing the Loan Estimate. Comment 37(g)(4)–4 provides examples of items that are disclosed under § 1026.37(g)(4), including but not limited to 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. Currently, amounts for construction costs, payoff of existing liens, or payoff of unsecured debt may be, but are not required to be, disclosed under § 1026.37(g)(4). If such amounts are not disclosed under § 1026.37(g)(4), they are factored into the cash to close calculations but are not otherwise disclosed on the Loan Estimate. The Bureau is proposing to revise comment 37(g)(4)–4 to require the disclosure of construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified under § 1026.37(a)(6), or payoff of unsecured debt under § 1026.37(g)(4), unless those items are disclosed under § 1026.37(h)(2)(iii) on the optional alternative calculating cash to close table. The Bureau expects consumer understanding will be enhanced by the clear and conspicuous disclosure of these amounts on the Loan Estimate, if known to the creditor at the time the Loan Estimate is provided to the consumer. The proposed revisions to comment 37(g)(4)–4, together with the proposed revisions to comment 38(g)(4)–1 discussed in the section-bysection analysis of § 1026.38(g)(4), will also create greater consistency between VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 disclosures on the Loan Estimate and Closing Disclosure, thus facilitating consumer understanding. The Bureau believes this is an appropriate place to list the three items because they are all other closing costs that must be paid when completing a mortgage transaction. The Bureau does not intend, by requiring disclosure under § 1026.37(g)(4) of amounts for construction costs, payoff of existing liens, and payoff of unsecured debt, to subject them to a different determination of good faith than currently provided for in § 1026.19(e)(3). Section 1026.19(e)(3)(iii)(E) provides that the amounts disclosed for third-party services not required by the creditor are disclosed in good faith regardless of whether the amounts actually paid by the consumer exceed the estimated amounts disclosed, provided such estimates are consistent with the best information reasonably available to the creditor at the time the disclosures are provided. To the extent construction costs, payoff of existing liens, or payoff of unsecured debt are bona fide, they would be subject to the determination of good faith under § 1026.19(e)(3)(iii)(E), as discussed in the section-by-section analysis of § 1026.19(e)(3)(iii)(E) above. The Bureau considered requiring the disclosure of construction costs, payoff of existing liens, and payoff of unsecured debt under the summaries of transactions table on the Closing Disclosure under § 1026.38(j)(1)(v), instead of as ‘‘closing costs’’ under §§ 1026.37(g)(4) and 1026.38(g)(4). However, the Loan Estimate does not have a comparable summaries of transactions table. Disclosing these optional third-party services on the summaries of transactions table on the Closing Disclosure would not result in these costs being enumerated consistently on both the Loan Estimate and the Closing Disclosure and would interfere with the comparability between the Loan Estimate and the Closing Disclosure. The Bureau also considered requiring the disclosure of construction costs on an addendum, instead of as other closing costs, under § 1026.37(g)(4) on the Loan Estimate and § 1026.38(g)(4) on the Closing Disclosure. The construction costs would then be factored into the calculating cash to close table calculations with the sale price to yield an accurate cash to close amount. However, this approach could add complexity to the calculations required on the Closing Disclosure because amounts disclosed under PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 § 1026.38(j)(1)(ii) and (k)(1)(ii) would no longer be the same. For the foregoing reasons, the Bureau is proposing to revise comment 37(g)(4)–4 to require the disclosure of construction costs, payoff of existing liens, and payoff of unsecured debt even if payable directly or indirectly to the creditor, as provided for in § 1026.37(g)(4), unless those items are disclosed under § 1026.37(h)(2)(iii) on the optional alternative calculating cash to close table. For example, if a builder is also the creditor, the bona fide cost of construction is disclosed under § 1026.37(g)(4) and not § 1026.37(f). Finally, the Bureau is proposing to revise comment 37(g)(4)–4 to crossreference proposed comment app. D– 7.vii for an explanation of the disclosure of construction costs for a construction or construction-permanent loan and proposed comment app. D–7.viii for an explanation of the disclosure of construction loan inspection and handling fees. 37(g)(6) Total Closing Costs 37(g)(6)(ii) Section 1026.37(g)(6)(ii) requires creditors to disclose the amount of any lender credits. Comment 37(g)(6)(ii)–1 cross references comment 19(e)(3)(i)–5 and describes lender credits as payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided under § 1026.37.78 However, as finalized in the TILA–RESPA Final Rule, comment 19(e)(3)(i)–5 states that lender credits, as identified in § 1026.37(g)(6)(ii), represent the sum of non-specific lender credits and specific lender credits. To correct this inconsistency, the Bureau is proposing to revise comment 37(g)(6)(ii)–1 to conform with the language in comment 19(e)(3)(i)–5. 37(h) Calculating Cash To Close Section 1026.37(h) requires the disclosure of the calculation of an estimate of cash due from or to the consumer at consummation, under the heading ‘‘Calculating Cash to Close,’’ and permits the use of an alternative calculating cash to close table for transactions without a seller. The calculating cash to close table is designed to provide the consumer, using readily understandable language and a standardized calculation methodology, with a reasonably reliable estimate of the cash due from or to the consumer at 78 The language used in comment 37(g)(6)(ii)–1 was based on proposed commentary in the 2012 TILA–RESPA Proposal. 77 FR 51116, 51422 (Aug. 23, 2012). E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules consummation. The calculating cash to close table disclosures include the total closing costs and the amount of closing costs being financed, implementing, in part, TILA section 128(a)(17). The Bureau recognized when it adopted this requirement that the creditor may not know the amount of the deposit, payments to others, and funds that the consumer either will pay or will receive at consummation. The Bureau required that the disclosure of those elements of the calculating cash to close table be based on the best information reasonably available.79 In doing so, the Bureau recognized that the actual amount of cash to close at consummation could differ significantly from the amount disclosed on the Loan Estimate. Notably, the amounts disclosed in the calculating cash to close table are not subject to the specific tolerances under § 1026.19(e)(3) or § 1026.22(a). The Bureau has received many questions from industry on the proper calculation of the various amounts disclosed on the calculating cash to close table. The Bureau also understands that there is some variation among creditors in how the calculating cash to close disclosures are determined. The Bureau recognizes that a lack of consistency in how the calculating cash to close disclosures are made could undermine consumer understanding. Consequently, the Bureau is addressing many of these questions, inconsistencies, and requested clarifications below, as they relate to the various amounts disclosed in the calculating cash to close table. The Bureau is proposing amendments to § 1026.37(h) and its commentary regarding the calculating cash to close table on the Loan Estimate pursuant to its authority under TILA section 105(a) and Dodd-Frank Act section 1032(a). The Bureau believes that the proposed amendments will effectuate the purposes of TILA by facilitating the informed use of credit. Providing consumers with information about the cash to close amount and its critical components helps ensure that the features of the transaction are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand better 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 recognizes that the fact that the amounts disclosed on the calculating cash to close table can change significantly between the 79 78 FR 79730, 79966–67 (Dec. 31, 2013). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 issuance of the Loan Estimate and the issuance of the Closing Disclosure could compromise the ability of consumers to understand the costs, benefits, and risks of the transaction. In addition, the calculating cash to close table includes both amounts that are and are not subject to tolerances. As a result, some consumers may have difficulty determining the proper level of reliance to place on the calculating cash to close disclosures. Some consumers may believe that the early estimate of the cash to close on the Loan Estimate is more precise than it necessarily can be. Accordingly, the Bureau seeks comment on the calculating cash to close table generally. This includes comments on possible alternative methods to determine the amounts disclosed on the calculating cash to close table, whether the proposed clarifications and revisions discussed below will result in more consistent calculation of the amounts on the calculating cash to close table, and other ways to simplify the calculating cash to close table while providing the consumer with a reasonably reliable estimate of the amount due from or to the consumer at consummation, consistent with the requirements of TILA section 128(a)(17) and the Bureau’s goal of providing understandable and consistent information to consumers. The Bureau recognizes that any redesign of the calculating cash to close table, including its components, could require extensive changes to existing processes and software investments by industry and seeks comment on the extent of such changes that would be required by the Bureau’s proposal, or by any other proposals suggested by commenters, for revisions to the calculating cash to close table. 37(h)(1) For All Transactions Section 1026.37(h)(1) requires the disclosure of a calculation, yielding an estimate of the cash needed from the consumer at consummation of the transaction, based on seven components. Each of the seven components, disclosed under § 1026.37(h)(1)(i) through (vii), respectively, is determined by a prescribed calculation. The Bureau is proposing to add comment 37(h)(1)–2 to clarify that, on the Loan Estimate for a simultaneous loan for subordinate financing, the sale price disclosed under § 1026.37(a) is not used in any of the § 1026.37(h)(1) calculations. Omitting the sale price from the cash to close calculations required under § 1026.37(h)(1) for simultaneous loans for subordinate financing will result in PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 54341 a cash to close amount reflecting the proceeds of the subordinate financing, itself disclosed on the first-lien Loan Estimate under § 1026.37(h)(1)(vii). 37(h)(1)(ii) Closing Costs Financed Comment 37(h)(1)(ii)–1 explains that the amount of closing costs financed disclosed under § 1026.37(h)(1)(ii) is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed under § 1026.37(f) and (g) from the loan amount disclosed under § 1026.37(b)(1). If the result of the calculation is a positive number, that amount is disclosed as a negative number under § 1026.37(h)(1)(ii), but only to the extent that it does not exceed the total amount of closing costs disclosed under § 1026.37(g)(6). If the result of the calculation is zero or negative, the amount of $0 is disclosed under § 1026.37(h)(1)(ii). The Bureau is proposing to revise comment 37(h)(1)(ii)–1 and add comment 37(h)(1)(ii)–2 to provide greater clarity regarding the sale price and loan amount. Revised comment 37(h)(1)(ii)–1 would clarify that the sale price may be included in the closing costs financed calculation as a payment to a third party not otherwise disclosed under § 1026.37(f) and (g). However, as explained in proposed comment 37(h)(1)–2, sale price is not used in any calculating cash to close calculations on the Loan Estimate for a simultaneous loan for subordinate financing in a purchase transaction. In addition, the Bureau is proposing to remove the word ‘‘total’’ from the phrase ‘‘total loan amount’’ because ‘‘total loan amount’’ is a defined term under § 1026.32(b)(4), and the Bureau intends only to reference the loan amount disclosed under proposed § 1026.37(b)(1). Proposed comment 37(h)(1)(ii)–2 would explain that the loan amount disclosed under § 1026.37(b)(1) is the total amount the consumer will borrow, as reflected by the face amount of the note, consistent with proposed revisions to § 1026.37(b)(1), discussed above. The comment would also explain that financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. The addition of this comment will clarify that, regardless of how the term ‘‘loan amount’’ is used by creditors or in relation to programmatic requirements of specific loan programs, for purposes of the Loan Estimate, the amount disclosed as the loan amount, and the basis for the calculating cash to close table calculations, is the total amount the consumer will borrow as E:\FR\FM\15AUP3.SGM 15AUP3 54342 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 reflected by the face amount of the note. This definition does not affect how other agencies may define or use similar terms for purposes of their own programmatic requirements. For example, the ‘‘Base Loan Amount’’ and ‘‘Total Loan Amount’’ for loans made under programs of the Federal Housing Administration may not be the same as the loan amount required to be disclosed under revised § 1026.37(b)(1). 37(h)(1)(iii) Down Payment and Other Funds From Borrower Section 1026.37(h)(1)(iii)(A) requires the down payment amount in a purchase transaction as defined in § 1026.37(a)(9)(i) to be disclosed as a positive number. In these transactions, the down payment is calculated as the difference between the purchase price of the property and the principal amount of the credit extended. Comment 37(h)(1)(iii)-1 explains that, in the case of a transaction, other than a construction loan, where the loan amount exceeds the purchase price of the property, the amount of the down payment disclosed must be $0. The calculation does not capture the amount of existing loans ‘‘assumed or taken subject to’’ that will be disclosed on the Closing Disclosure under § 1026.38(j)(2)(iv). Section 1026.37(h)(1)(iii)(B) provides that, in all transactions other than purchase transactions as defined in § 1026.37(a)(9)(i), the amount of estimated funds from the consumer is determined in accordance with § 1026.37(h)(1)(v). The Bureau is proposing to revise § 1026.37(h)(1)(iii)(A) to account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions, to make conforming amendments to § 1026.37(h)(1)(iii)(B), to replace comment 37(h)(1)(iii)–1 with a new comment that clarifies the down payment calculation, and to add comment 37(h)(1)(iii)–2 to explain when the ‘‘Funds for Borrower’’ calculation under § 1026.37(h)(1)(v) is used. Revised § 1026.37(h)(1)(iii)(A)(1) would specify that, in a purchase transaction as defined in § 1026.37(a)(9)(i), the creditor subtracts the sum of the loan amount and any amount for loans assumed or taken subject to that will be disclosed on the Closing Disclosure, based on the best information reasonably available at the time the creditor provides the Loan Estimate, from the sale price of the property, except as required by § 1026.37(h)(1)(iii)(A)(2). Revised § 1026.37(h)(1)(iii)(A)(2) would provide VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 that, in a purchase transaction as defined in § 1026.37(a)(9)(i), when the sum of the loan amount and any amount for loans assumed or taken subject to that will be disclosed on the Closing Disclosure exceeds the sale price of the property, the creditor calculates the estimated funds from the consumer in accordance with proposed § 1026.37(h)(1)(v), as revised. These provisions, as proposed, would apply to all purchase transactions as defined in § 1026.37(a)(9)(i), including purchase transactions that include a construction loan component. Section § 1026.37(h)(1)(iii)(B), as revised, would provide that, for all other transactions, the estimated funds from the consumer would also be calculated in accordance with the ‘‘Funds for Borrower’’ calculation in proposed § 1026.37(h)(1)(v). Comment 37(h)(1)(iii)–2 would explain the amount to be disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B) is determined in accordance with the ‘‘Funds for Borrower’’ calculation in proposed § 1026.37(h)(1)(v). See the section-by-section analysis of § 1026.37(h)(1)(v) for a discussion of the proposed revisions to that section and to comment 37(h)(1)(v)–1. As a result of the proposed revisions to § 1026.37(h)(1)(iii), existing comment 37(h)(1)(iii)–1 would not be accurate or necessary. Therefore, the Bureau is proposing to replace it with a new comment. The Bureau recognizes that some loan programs require borrowers to provide minimum cash investments, which, under the regulations or requirements of those loan programs, may be referred to as ‘‘down payments.’’ Revised comment 37(h)(1)(iii)–1 would explain the down payment calculation that must be followed for accurate disclosure of the down payment amount. The comment would also explain that the minimum cash investments required of consumers under some loan programs are not necessarily reflected in the down payment disclosure, and accurate disclosure of the down payment does not affect compliance or noncompliance with such loan programs’ requirements. 37(h)(1)(v) Funds for Borrower Section 1026.37(h)(1)(v) provides that the amount of funds from the consumer disclosed under § 1026.37(h)(1)(iii)(B) and of funds for the consumer disclosed under § 1026.37(h)(1)(v) are calculated by subtracting the principal amount of the credit extended, excluding any closing costs financed disclosed under § 1026.37(h)(1)(ii), from the total amount of all existing debt being PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 satisfied in the transaction, except to the extent the satisfaction of such existing debt is disclosed under § 1026.37(g). ‘‘Funds for Borrower’’ represents generally the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction, such as in cash-out refinance transactions, and ‘‘Funds from Borrower’’ the amount expected to be paid by the consumer at consummation. The determination of whether the transaction will result in ‘‘Funds for Borrower’’ is made under § 1026.37(h)(1)(v). When the result of the calculation is positive, that amount is disclosed under § 1026.37(h)(1)(iii) as ‘‘Funds from Borrower,’’ and $0 is disclosed under § 1026.37(h)(1)(v) as ‘‘Funds for Borrower.’’ When the result of the calculation is negative, that amount is disclosed under § 1026.37(h)(1)(v) as ‘‘Funds for Borrower,’’ and $0 is disclosed under § 1026.37(h)(1)(iii) as ‘‘Funds from Borrower.’’ When the result is $0, $0 is disclosed as ‘‘Funds from Borrower’’ and ‘‘Funds for Borrower.’’ As discussed in more detail below, the Bureau is proposing to revise § 1026.37(h)(1)(v) to account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions, to revise comment 37(h)(1)(v)–1 to explain when $0 is disclosed as ‘‘Funds for Borrower’’ in purchase transactions, and to add comment 37(h)(1)(v)–2 to clarify what amounts are included as existing debt being satisfied in the transaction. Existing comment 37(h)(1)(v)–1 clarifies that the ‘‘Funds for Borrower’’ calculation under § 1026.37(h)(1)(v) is used in a non-purchase transaction to determine the amount disclosed under § 1026.37(h)(1)(iii) as ‘‘Funds from Borrower,’’ and that, in a purchase transaction, other than a construction loan, the amount disclosed under § 1026.37(h)(1)(v) as ‘‘Funds for Borrower,’’ will be $0, in accordance with § 1026.37(h)(1)(v)(A). The Bureau nonetheless recognizes that there are circumstances when a purchase transaction will result in funds disbursed to the consumer such that the disclosure of ‘‘Funds for Borrower’’ under § 1026.37(h)(1)(v) should not be $0. As discussed in the section-by-section analysis of § 1026.37(h)(1)(iii) above, the Bureau proposes to amend the ‘‘Funds from Borrower’’ calculation under § 1026.37(h)(1)(iii) to specify that, in purchase transactions, when the sum of the loan amount and any amount for existing loans assumed or taken subject to that will later be disclosed under E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 § 1026.38(j)(2)(iv) exceeds the sale price, the ‘‘Funds for Borrower’’ calculation in proposed § 1026.37(h)(1)(v) will be used for the transaction. The Bureau is proposing conforming revisions to § 1026.37(h)(1)(v) to reflect that, in transactions where cash is expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction, the ‘‘Funds for Borrower’’ calculation under § 1026.37(h)(1)(v) would be used. The Bureau also is proposing to revise comment 37(h)(1)(v)–1 to conform with proposed revisions to § 1026.37(h)(1)(v). The comment would no longer provide that the ‘‘Funds for Borrower’’ calculation under § 1026.37(h)(1)(v) is only used in non-purchase transactions. Instead, the comment would provide that, when the down payment is determined in accordance with § 1026.37(h)(1)(iii)(A)(1), the amount disclosed under § 1026.37(h)(1)(v) as funds for the borrower is $0. Proposed comment 37(h)(1)(v)–2 would provide that the amounts disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B), as applicable, and (h)(1)(v) are determined by subtracting the sum of the loan amount disclosed under § 1026.37(b)(1) and any amount of existing loans ‘‘assumed or taken subject to’’ that will be disclosed on the Closing Disclosure under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.37(h)(1)(ii)) from the total amount of all existing debt being satisfied in the transaction. Proposed comment 37(h)(1)(v)–2 would further clarify that the phrase ‘‘total amount of all existing debt being satisfied by the transaction’’ refers to amounts that will be disclosed under § 1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment on whether defining the phrase ‘‘total amount of all existing debt being satisfied by the transaction’’ to mean specifically amounts that will be disclosed under § 1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the Bureau might provide greater clarity around amounts that must be included in this calculation as part of the ‘‘total amount of all existing debt being satisfied by the transaction.’’ 37(h)(1)(vi) Seller Credits Section 1026.37(h)(1)(vi) requires creditors to disclose the amount that the seller will pay for total loan costs and total other costs, labeled ‘‘Seller Credits,’’ under the heading ‘‘Calculating Cash to Close.’’ Section 1026.37(f) and (g) requires creditors to disclose loan costs and other transaction costs under the headings ‘‘Loan Costs’’ and ‘‘Other Costs,’’ respectively. The VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Bureau proposes to amend comment 37(h)(1)(vi)–2 to clarify that specific seller credits may be disclosed in the calculating cash to close table under § 1026.37(h)(1)(vi) or, at the creditor’s option, may be reflected within the amounts disclosed for those specific items in the loan costs and other costs tables, under § 1026.37(f) and (g), respectively. The Bureau believes that neither approach significantly affects overall consumer comprehension or risk of other consumer harm, but the Bureau solicits comment on this view and on whether one of the two approaches should be mandatory rather than leaving the treatment of specific seller credits in the creditor’s discretion and, if so, why. 37(h)(1)(vii) Adjustments and Other Credits Section 1026.37(h)(1)(vii) requires that the amount of all loan costs determined under § 1026.37(f) and other costs determined under § 1026.37(g) that are to be paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at consummation pursuant to a purchase and sale contract, be disclosed as a negative number. This assumes that the amount required to be paid by the consumer at consummation pursuant to a purchase and sale contract will be greater than the amount of credits, which, the Bureau understands, may not always be the case. Therefore, the Bureau is proposing to revise § 1026.37(h)(1)(vii) to eliminate the requirement that the amount disclosed be a negative number and to make corresponding revisions to comment 37(h)(1)(vii)–6. As discussed below, the Bureau is also proposing to revise comment 37(h)(1)(vii)–1 to clarify that amounts expected to be provided to consumers in advance of consummation are not required to be disclosed, comment 37(h)(1)(vii)–5 to clarify that subordinate financing must be disclosed on the first-lien transaction Loan Estimate, and comment 37(h)(1)(vii)–6 to clarify what amounts are included in the adjustments and other credits calculation under § 1026.37(h)(1)(vii). Comment 37(h)(1)(vii)–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)(1) are included in the amount disclosed under § 1026.37(h)(1)(vii), but the comment does not specify whether amounts received by the consumer prior to consummation must be included in the calculation. The Bureau is proposing to revise comment 37(h)(1)(vii)–1 to PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 54343 distinguish between amounts paid by third parties at consummation and amounts given to consumers in advance of consummation. As proposed, the revision to comment 37(h)(1)(vii)–1 would state that amounts expected to be paid at consummation by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed under § 1026.37(h)(1)(vii), although amounts expected to be provided to consumers in advance of consummation by third parties not otherwise involved in the transaction, including gifts from family members, are not required to be disclosed under § 1026.37(h)(1)(vii). Comment 37(h)(1)(vii)–5 clarifies that funds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed under § 1026.37(h)(1)(vii), but the comment does not specify whether this requirement pertains to the first- or subordinate-lien transaction. The Bureau is proposing to revise comment 37(h)(1)(vii)–5 to clarify that funds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed under § 1026.37(h)(1)(vii) on the first-lien Loan Estimate. The funds that are provided to the consumer from the proceeds of subordinate financing and that will be applied to the first-lien transaction are not included in the adjustments and other credits calculation on the simultaneous loan for subordinate financing Loan Estimate. The Bureau seeks comment on whether there are circumstances in which local or State housing assistance grants are applied towards subordinate financing and not to the first lien. Comment 37(h)(1)(vii)–6 clarifies that adjustments that require additional funds from the consumer pursuant to the real estate purchase and sale contract, such as for additional personal property, that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) may be included in the amount disclosed under § 1026.37(h)(1)(vii) and would reduce the total amount disclosed. However, such amounts may have already been factored into calculations for prior components of the calculating cash to close table, thereby being counted twice. The Bureau is proposing to revise comment 37(h)(1)(vii)–6 to E:\FR\FM\15AUP3.SGM 15AUP3 54344 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules clarify that amounts that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) may be included in the adjustments and other credits amount disclosed on the Loan Estimate under § 1026.37(h)(1)(vii), provided they are not also included in the calculation for proposed § 1026.37(h)(1)(iii) or (v) as debt being satisfied in the real estate transaction. Otherwise, such amounts will be factored into the cash to close calculations twice. See the section-bysection analysis of § 1026.37(h)(1)(iii) and (v) above for further details. sradovich on DSK3GMQ082PROD with PROPOSALS3 37(h)(2) Optional Alternative Calculating Cash To Close Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing Section 1026.37(h)(2) only permits the use of the optional alternative calculating cash to close table in transactions without sellers. The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative calculating cash to close table may be used for the simultaneous subordinate financing Loan Estimate if the first-lien Closing Disclosure will record the entirety of the seller’s transaction and the seller did not contribute to the subordinate financing. The Bureau is proposing to amend § 1026.37(h)(2) and comment 37(h)(2)–1 to permit creditors to use the optional alternative calculating cash to close table for the disclosure of simultaneous loans for subordinate financing in purchase transactions if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. The Bureau specifically seeks comment on whether allowing a creditor to use the optional alternative cash to close table for disclosure of simultaneous loans for subordinate financing in purchase transactions only if the first-lien Closing Disclosure will record the entirety of the seller’s transaction is an appropriate limitation. 37(h)(2)(iii) Payoffs and Payments Section 1026.37(h)(2)(iii) requires the disclosure of the total of all payments to third parties not otherwise disclosed under § 1026.37(f) and (g) as a negative number. The requirement to disclose a negative number, however, does not account for limited circumstances in which funds provided by third parties and the proceeds of subordinate financing exceed the total amount of payoffs and payments to third parties. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Comment 37(h)(2)(iii)–1 provides examples of payoffs and payments, including payoff of existing liens secured by the property identified under § 1026.37(a)(6). As discussed in the section-by-section analysis of § 1026.37(g)(4), the Bureau would require the disclosure, under revised § 1026.37(g)(4), of construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified in § 1026.37(a)(6), and payoff of unsecured debt, unless those amounts are disclosed under § 1026.37(h)(2)(iii) on the optional alternative calculating cash to close table. This provision is intended to give creditors the flexibility to disclose the payoff of existing liens secured by the property identified in § 1026.37(a)(6) on the payoffs and payments table or to standardize the disclosure of this and other amounts across the calculating cash to close table for transactions with and without sellers by disclosing such amounts under revised § 1026.37(g)(4). The Bureau is proposing to revise § 1026.37(h)(2)(iii) to permit disclosure of the total of all payments to third parties not otherwise disclosed under § 1026.37(f) or (g) as a negative or positive number, to revise comment 37(h)(2)(iii)–1 to make conforming amendments, and to add comment 37(h)(2)(iii)–2 to provide clarity on the disclosure of simultaneous loans for subordinate financing. The Bureau is proposing to revise § 1026.37(h)(2)(iii) to allow for the disclosure of the total of all payments to third parties not otherwise disclosed under § 1026.37(f) or (g) as a positive amount and to make conforming revisions to comment 37(h)(2)(iii)–1, consistent with the proposed revisions discussed in the section-by-section analysis of § 1026.37(g)(4). The Bureau also is proposing to add comment 37(h)(2)(iii)–2 to provide additional clarity on the disclosure of proceeds from a simultaneous loan for subordinate financing on the Loan Estimate for a first-lien transaction disclosed under § 1026.37(h)(2), such as a refinance. Proposed comment 37(h)(2)(iii)–2 would explain that, on the first-lien Loan Estimate, the proceeds of the simultaneous loan for subordinate financing are included, as a positive number, in the total amount disclosed under § 1026.37(h)(2)(iii). On the first-lien Loan Estimate, the total amount disclosed under revised § 1026.37(h)(2)(iii) will be a negative number unless the proceeds from subordinate financing and any amounts entered as credits under comment PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 37(h)(2)(iii)–1 exceed the total amount of other payoffs and payments that are included in the calculation for the amount disclosed under § 1026.37(h)(2)(iii). The funds from the subordinate financing that will be applied to the first-lien transaction are not included in the estimated total payoffs and payments amount on the simultaneous loan for subordinate financing Loan Estimate. 37(k) Contact Information The Bureau is proposing to make a technical, non-substantive, amendment to comment 37(k)–3 to correct a typographical error. The Bureau is proposing to replace the current reference to § 1026.38(k)(2) in comment 37(k)–3 with a reference to § 1026.37(k)(2), which describes the disclosure of license numbers or other unique identifiers. 37(l) Comparisons 37(l)(1) In Five Years 37(l)(1)(i) The Bureau is proposing to make a technical, non-substantive amendment to comment 37(l)(1)(i)–1 to correct a typographical error. The Bureau is proposing to replace the word ‘‘fractional’’ with ‘‘functional’’ in comment 37(l)(1)(i)–1 to conform to the language of comment 37(c)(1)(i)(C)–1. 37(l)(3) Total Interest Percentage Section 1026.37(l)(3) requires creditors to disclose the total interest percentage (TIP) and 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. The Bureau explained in the TILA–RESPA Final Rule that prepaid interest is included in the TIP calculation.80 The Bureau is proposing to amend comment 37(l)(3)– 1 to clarify further that prepaid interest is included when calculating the TIP. 37(o) Form of Disclosures 37(o)(4) Rounding The Bureau understands that there is continued uncertainty about rounding requirements on the Loan Estimate. Section 1026.37(o)(4)(i)(A) requires rounded numbers for the information disclosed pursuant to § 1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h), (i), and (l), except that the per diem amount required to be disclosed by § 1026.37(g)(2)(iii) and the monthly amounts required to be disclosed by § 1026.37(g)(3)(i) through 80 78 E:\FR\FM\15AUP3.SGM FR 79730, 79982 (Dec. 31, 2013). 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 (iii) and (g)(3)(v) shall not be rounded. Section 1026.37(o)(4)(ii) requires the percentage amounts disclosed pursuant to § 1026.37(b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and (l)(3) to be disclosed up to two or three decimal places and the percentage amount disclosed pursuant to § 1026.37(l)(2) to be disclosed up to three decimal places. The Bureau is proposing revisions to § 1026.37(o)(4)(i)(A) and (ii) and to comments 37(o)(4)(i)(A)–1 and 37(o)(4)(ii)–1 to simplify the rounding and disclosure requirements of § 1026.37(o)(4). The proposed revisions to § 1026.37(o)(4)(i)(A) would clarify that the per diem amount required to be disclosed by § 1026.37(g)(2)(iii) and the monthly amounts required to be disclosed by § 1026.37(g)(3)(i) through (iii) and (g)(3)(v) are rounded to the nearest cent and disclosed to two decimal places. The proposed revision to comment 37(o)(4)(i)(A)–1 adds clarifying language and adds an illustrative example of the disclosure of per diem interest. The Bureau is proposing revisions to § 1026.37(o)(4)(ii) to simplify the rounding requirements for amounts disclosed under § 1026.37(o)(4)(ii). Proposed § 1026.37(o)(4)(ii) states that the percentage amounts required to be disclosed under paragraphs (b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3) of this section must be disclosed by rounding the exact amounts to three decimal places and then dropping any trailing zeros to the right of the decimal point. Proposed comment 37(o)(4)(ii)–1 illustrates the requirements of § 1026.37(o)(4)(ii) with examples. Section 1026.38 Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) Section 1026.38 sets forth the content of the Closing Disclosure required by § 1026.19(f) to be provided to the consumer. Comments applicable generally to § 1026.38 are included as commentary to § 1026.38. The Bureau is proposing to add comment 38–4, which would provide options for the disclosure of reductions in principal balance, referred to as a principal curtailments, in various provisions of § 1026.38. Creditors may use lender credits disclosed under § 1026.38(h)(3) to provide a credit for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3). However, contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, may prevent the creditor from VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 refunding cash to the consumer as lender credits. Therefore, the Bureau is proposing to add comment 38–4, which would provide options for the disclosure of principal curtailments under § 1026.38(g)(4), (j)(4)(i), (t)(5)(vii)(B), and (t)(5)(ix) to provide refunds related to the good faith analysis under § 1026.19(f)(2)(v). The disclosure would contain a statement conveying that the disclosed amount includes a refund for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3) and the amount of such refund under § 1026.19(f)(2)(v). The Bureau seeks comment on whether there is sufficient space in the corresponding rows on the Closing Disclosure for such a statement and whether the Bureau should prescribe a specific statement or permit creditors discretion in developing such statement. 38(a) General Information 38(a)(3) Closing Information 38(a)(3)(iii) Disbursement Date Section 1026.38(a)(3)(iii) requires disclosure of the disbursement date. In a purchase transaction under § 1026.37(a)(9)(i), the disbursement date is the date the amounts disclosed under § 1026.38(j)(3)(iii) (cash to close from or to borrower) and (k)(3)(iii) (cash from or to seller) are expected to be paid to the consumer and seller. In a non-purchase transaction, the disbursement date is the date the amounts disclosed under § 1026.38(j)(2)(iii) (loan amount) or (t)(5)(vii)(B) (payoffs and payments) are expected to be paid to the consumer or a third party. As discussed below, the Bureau is proposing to revise § 1026.38(a)(3)(iii) to provide that the disbursement date in non-purchase transactions is the date some or all of the loan amount is expected to be paid to the consumer or a third party, and to add comment 38(a)(3)(iii)–1 to clarify to disbursement date for simultaneous loans for subordinate financing. Currently, if a non-purchase transaction is disclosed using the alternative disclosures, the disbursement date will be the date amounts disclosed under § 1026.38(t)(5)(vii)(B) are expected to be paid to the consumer or a third party. If a non-purchase transaction is not disclosed using the alternative disclosures, the disbursement date will be the date the loan amount disclosed under § 1026.38(j)(2)(iii) is expected to be paid to the consumer or a third party. Regardless of whether a non-purchase transaction is disclosed using the alternative disclosures, the Closing Disclosure for the non-purchase PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 54345 transaction will include the loan amount under § 1026.38(b). Therefore, to streamline the provision, the Bureau is proposing to revise § 1026.38(a)(3)(iii) regarding the disbursement date for non-purchase transactions by replacing the cross-references to § 1026.38(j)(2)(iii) and (t)(5)(vii)(B) with a cross-reference to § 1026.38(b). In addition, because the entire loan amount may not be disbursed at one time, such as in nonpurchase construction transactions, the Bureau proposes to clarify that the disbursement date is the date some or all of the loan amount is expected to be paid to the consumer or a third party. The Bureau is also proposing to add comment 38(a)(3)(iii)-1 to clarify that, although a simultaneous loan for subordinate financing is disclosed as a purchase transaction under § 1026.37(a)(9)(i), the disbursement date for this type of transaction will be the same as the disbursement date for nonpurchase transactions. The comment would clarify that the disbursement date on the Closing Disclosure for a simultaneous loan for subordinate financing is the date some or all of the loan amount disclosed under § 1026.38(b) is expected to be paid to the consumer or a third party. The Bureau seeks comment on all aspects of this proposal, including whether there are any unintended consequences from structuring the disclosure of the disbursement date in this manner, or if there is a better way to ensure clarity and consistency. 38(a)(3)(vii) Sale Price In a transaction where there is no seller, § 1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised value of the property. Comment 38(a)(3)(vii)–1 explains that, to comply with this requirement, the creditor discloses the value determined by the appraisal or valuation used to determine loan approval or, if none has been obtained, the estimated value of the property. In the latter case, 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, it may disclose that estimate. The Bureau is proposing to revise comment 38(a)(3)(vii)–1 to clarify that, if the creditor has performed its own estimate of the property value for purposes of approving the credit transaction by the time the disclosure is provided to the consumer, the creditor must disclose the estimate it used for purposes of approving the credit transaction. E:\FR\FM\15AUP3.SGM 15AUP3 54346 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 38(a)(4) Transaction Information Section 1026.38(a)(4) requires the disclosure of specific information about the transaction, including the name and address of the seller. Comment 38(a)(4)– 2 clarifies that, in transactions where there is no seller, such as in a refinancing or home equity loan, the disclosure of the seller’s name and address required by § 1026.38(a)(4)(ii) may be left blank. The Bureau is proposing to revise comment 38(a)(4)–2 to include simultaneous loans for subordinate financing in purchase transactions if the first-lien Closing Disclosure will record the entirety of the seller’s transaction in transactions for which a creditor may leave the § 1026.38(a)(4)(ii) disclosure blank and omit the seller’s name. The Bureau specifically seeks comment on whether the borrower or seller would benefit if the Closing Disclosure for the simultaneous loan for subordinate financing in purchase transactions contains the seller’s name and address even if the first-lien Closing Disclosure will record the entirety of the seller’s transaction, including the seller’s name and address. Section 1026.38(a)(4)(i) also requires the consumer’s name and mailing address, labeled ‘‘Borrower.’’ Section 1026.2(a)(11) defines ‘‘consumer’’ as a natural person to whom consumer credit is offered or extended. The definition further provides that, in rescindable transactions, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest. The Bureau proposes to add new comment 38(a)(4)–4 to clarify that, in rescindable transactions, § 1026.38(a)(4)(i) requires disclosure of the name and mailing address of each natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest and regardless of whether that person is an obligor. sradovich on DSK3GMQ082PROD with PROPOSALS3 38(d) Costs at Closing 38(d)(2) Alternative Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing Section 1026.38(d)(2) only permits creditors to use the optional alternative cash to close table on the Closing Disclosure in transactions without seller where the creditor disclosed the optional alternative calculating cash to close table under § 1026.37(d)(2) on the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Loan Estimate. The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative table may be used for the simultaneous subordinate financing Closing Disclosure if the first-lien Closing Disclosure records the entirety of the seller’s transaction and the seller did not contribute to the subordinate financing. The Bureau is proposing to amend § 1026.38(d)(2) and comment 38(d)(2)–1 to permit explicitly the use of the optional alternative cash to close table for simultaneous loans for subordinate financing in purchase transactions if the first-lien Closing Disclosure records the entirety of the seller’s transaction. The Bureau specifically seeks comment on whether allowing a creditor to use the optional, alternative cash to close table for disclosure of simultaneous loans for subordinate financing in purchase transactions only if the first-lien Closing Disclosure records the entirety of the seller’s transaction is an appropriate limitation. 38(e) Alternative Calculating Cash To Close Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing Section 1026.38(e) provides for the disclosure of an alternative calculation of an estimate of cash needed from the consumer at consummation for transactions without a seller, using the heading ‘‘Calculating Cash to Close.’’ As discussed in the section-by-section analysis of § 1026.37(h) above, the Bureau seeks comment on the calculating cash to close table generally. The Bureau is proposing to revise § 1026.38(e) and comment 38(e)–1 to clarify when a simultaneous loan for subordinate financing in a purchase transaction may use the optional alternative calculating cash to close table and to add comment 38(e)–6 to specify which amounts are disclosed under the subheading ‘‘Loan Estimate’’ on the Closing Disclosure’s calculating cash to close table. Specifically, § 1026.38(e) requires a creditor to disclose the optional alternative calculating cash to close table when the creditor disclosed the optional alternative table on the Loan Estimate under § 1026.37(h)(2). The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative calculating cash to close table may be used for the simultaneous subordinate financing Closing Disclosure if the firstlien Closing Disclosure records the entirety of the seller’s transaction and PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 the seller did not contribute to the subordinate financing. The Bureau is proposing to amend § 1026.38(e) and comment 38(e)–1 to permit explicitly the use of the optional alternative calculating cash to close table for simultaneous loans for subordinate financing in purchase transactions, if the first-lien Closing Disclosure records the entirety of the seller’s transaction. The use of the alternative calculating cash to close table is required if the alternative calculating cash to close table was provided on the Loan Estimate. The Bureau proposes comment 38(e)– 6 to clarify that the amounts disclosed under the subheading ‘‘Loan Estimate’’ under § 1026.38(e)(1)(i), (2)(i), (4)(i) and (5)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer. This is true whether the amounts on the most recent Loan Estimate provided to the consumer reflected updated amounts provided for informational purposes only or the amounts used for purposes of determining good faith under § 1026.19(e)(3). The Bureau believes that the consumer should always have the benefit of receiving the most accurate and current information available, even if the disclosures are outside the tolerances or not relevant for the tolerances. The Bureau further believes that, for purposes of comparison, the amounts disclosed under the subheading ‘‘Loan Estimate’’ on the Closing Disclosure’s alternative calculating cash to close table should reflect the most recent information given the consumer, again, regardless of whether that information was provided for purposes of resetting the tolerances or for information purposes only. The Bureau notes that the amounts disclosed on the Closing Disclosure’s alternative calculating cash to close table under the subheadings ‘‘Loan Estimate’’ and ‘‘Final’’ are not, in and of themselves, subject to the § 1026.19(e)(3) good faith standard. These amounts are disclosed based on the best information reasonably available to the creditor at the time the disclosure is provided. Any increases or changes to the amounts, based on the best information reasonably available to the creditor, do not result in any separate violation of any standard under Regulation Z. For purposes of determining good faith under § 1026.19(e)(3), the amounts used are the amounts disclosed under § 1026.37. The amounts used for determining good faith may be disclosed over multiple Loan Estimates, or even corrected Closing Disclosures, depending upon the facts and circumstances of the E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules transaction. Accordingly, good faith cannot be determined based on a comparison of the amounts disclosed under the subheadings ‘‘Loan Estimate’’ and ‘‘Final’’ on the Closing Disclosure’s alternative calculating cash to close table. The Bureau seeks comment on this approach. In particular, the Bureau seeks comment on whether the disclosure of the amounts on the most recent Loan Estimate on the alternative calculating cash to close table provides a helpful comparison to consumers with the final amounts disclosed on the Closing Disclosure. The Bureau seeks comment on other alternatives to provide consumers with a comparison of estimated and final amounts. 38(e)(2) Total Closing Costs 38(e)(2)(ii) For transactions using the alternative calculating cash to close table, § 1026.38(e)(2)(ii) requires the creditor to disclose the amount of total closing costs disclosed under § 1026.38(h)(1). The ‘‘Final’’ total closing costs disclosed under § 1026.38(e)(2)(ii) show an amount owed by the consumer; therefore, the Bureau specified that the total closing costs be disclosed as a negative number. However, lender credits under § 1026.38(h)(3) may sometimes exceed the subtotal of closing costs under § 1026.38(h)(2), resulting in a net credit to the consumer. In that case, the total closing costs disclosed under § 1026.38(e)(2)(ii) should be disclosed as a positive number, to reflect the expected credit to the consumer. Therefore, the Bureau is proposing to revise § 1026.38(e)(2)(ii) to explain that the amount disclosed under that section is disclosed as a negative number if the amount disclosed under § 1026.38(h)(1) is a positive number and is disclosed as a positive number if the amount disclosed under § 1026.38(h)(1) is a negative number. sradovich on DSK3GMQ082PROD with PROPOSALS3 38(e)(2)(iii) Section 1026.38(e)(2)(iii)(A)(3) provides that, if the amount of closing costs actually charged to the consumer exceeds the limitations on increases in closing costs under § 1026.19(e)(3), the creditor must provide a statement that such increase exceeds the legal limits by the dollar amount of the excess and, if any refund is provided under § 1026.19(f)(2)(v), a statement directing the consumer to the disclosure required under § 1026.38(h)(3). As discussed above in the section-by-section analysis of proposed comment 38–4, the Bureau would clarify that, when contractual or other legal obligations of the creditor, VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 54347 38(e)(3) Closing Costs Paid Before Closing allow for the disclosure of a negative or positive amount, based on the facts and circumstances of the transaction. As discussed in the section-by-section analysis of § 1026.38(t)(5)(vii) below, proposed comment 38(t)(5)(vii)(B)–1 would clarify that the amount of payoffs and payments disclosed under § 1026.38(t)(5)(vii)(B) may include amounts that offset payoffs and payments. As a result, if the aggregate offsets exceed the payoffs and payments amounts, then the amount disclosed under § 1026.38(t)(5)(vii)(B) will be negative. Therefore, the Bureau is proposing to revise § 1026.38(e)(4)(ii) such that the amount disclosed under revised § 1026.38(e)(4)(ii) is disclosed as a negative number if the amount disclosed under § 1026.38(t)(5)(vii)(B) is a positive number, signifying amounts owed by the consumer, and is disclosed as a positive number if the amount disclosed under § 1026.38(t)(5)(vii)(B) is a negative number, signifying amounts due to the consumer. 38(e)(3)(iii) 38(f) Closing Cost Details; Loan Costs 38(e)(3)(iii)(B) Comment 38(e)(3)(iii)(B)–1 discusses the circumstances under which the creditor gives a statement that the amount under the subheading ‘‘Final’’ under § 1026.38(e)(3)(ii) is equal to the amount disclosed under the subheading ‘‘Loan Estimate’’ under § 1026.38(e)(3)(i) and, in so doing, refers to an amount of ‘‘$0’’ under the subheading ‘‘Final.’’ The Bureau proposes two technical corrections in comment 38(e)(3)(iii)(B)– 1. First, the Bureau is proposing to change ‘‘$0’’ to ‘‘$0.00’’ to reflect the required disclosure of the amount disclosed under § 1026.38(e)(3)(ii) to two decimal places under § 1026.38(t)(4). Second, the reference to ‘‘settlement agent’’ would be removed from comment 38(e)(3)(iii)(B)–1. As the introductory paragraph to § 1026.38(e) makes clear, the responsibility to provide the § 1026.38(e) disclosures lies with the creditor, not the settlement agent. The Bureau is proposing to add comment 38(f)–2. Consistent with proposed comments 37(f)–3 and 37(f)(6)–3 above, proposed comment 38(f)–2 would provide that construction loan inspection and handling fees are loan costs associated with the transaction for purposes of the Closing Disclosure under § 1026.38(f). The proposed new comment would also add a cross-reference to proposed comments 37(f)–3, 37(f)(6)–3, and app. D–7.viii, making those comments’ discussions of inspection and handling fees for the staged disbursement of construction loan proceeds explicitly applicable to the disclosures required by § 1026.38(f). such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the borrower as lender credits, a reduction in principal balance (principal curtailment) may be used to provide a refund under § 1026.19(f)(2)(v). Such principal curtailment would be disclosed as a negative number under § 1026.38(g)(4) or (t)(5)(vii)(B) for transactions using the optional alternative calculating cash to close table under § 1026.38(e). Accordingly, the Bureau is proposing to revise § 1026.38(e)(2)(iii)(A)(3) and comment 38(e)(2)(iii)(A)–3 to allow a creditor to provide a statement directing the consumer to the disclosure of the principal curtailment under § 1026.38(g)(4) or (t)(5)(vii)(B), rather than directing the consumer to the disclosure of a refund under § 1026.38(h)(3). 38(e)(4) Payoffs and Payments 38(e)(4)(ii) Section 1026.38(e)(4)(ii) provides that the total amount of payoffs and payments made to third parties disclosed under § 1026.38(t)(5)(vii)(B), to the extent known, is disclosed as a negative number. The requirement to disclose a negative number under § 1026.38(e)(4)(ii) supposes that the amount disclosed under § 1026.38(t)(5)(vii)(B) will always be a positive number. The Bureau is proposing to revise § 1026.38(e)(4)(ii) to PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 38(g) Closing Cost Details; Other Costs 38(g)(1) Taxes and Other Government Fees Section 1026.38(g)(1) requires creditors to disclose an itemization of each amount that is expected to be paid to State and local governments for taxes and government fees, including recording fees. Closing Disclosure form H–25 of appendix H illustrates such disclosures on a line labeled ‘‘Recording Fees,’’ with the additional labels ‘‘Deed’’ and ‘‘Mortgage,’’ respectively. The Bureau understands that there is uncertainty as to how recording fees should be disclosed on the Closing Disclosure. Consistent with form H–25 of appendix H, the Bureau proposes to amend § 1026.38(g)(1) to clarify that the total amount of fees for recording deeds and the total amount of fees for recording security instruments must E:\FR\FM\15AUP3.SGM 15AUP3 54348 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules each be disclosed on the first line under the subheading ‘‘Taxes and Other Government Fees’’ before the columns described in § 1026.38(g). The Bureau also proposes to amend § 1026.38(g)(1) to clarify that the total amounts paid for recording fees (including but not limited to fees for recording deeds and security instruments) must be disclosed in the applicable column described in § 1026.38(g). Finally, the Bureau proposes to add new comment 38(g)(1)– 3 to clarify the labels for recording fees on form H–25 of appendix H. sradovich on DSK3GMQ082PROD with PROPOSALS3 38(g)(2) Prepaids Comment 38(g)(2)–3 provides that $0 must be disclosed 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. The Bureau is proposing to revise comment 38(g)(2)–3 to require $0.00 to be disclosed because the amount disclosed under § 1026.38(g)(2) is disclosed to two decimal places under § 1026.38(t)(4). 38(g)(4) Other Comment 38(g)(4)–1 clarifies that the charges for services disclosed under § 1026.38(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 transaction but not required by the creditor or disclosed elsewhere in § 1026.38. Currently, amounts for construction costs, payoff of existing liens, or payoff of unsecured debt may be, but are not required to be, disclosed under § 1026.38(g)(4). As discussed in more detail below, and consistent with the proposed revisions discussed in the section-by-section analysis of § 1026.37(g)(4), the Bureau is proposing to revise comment 38(g)(4)–1 to require that construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified under § 1026.38(a)(3)(vi), and payoff of unsecured debt be disclosed under § 1026.38(g)(4), unless those items are disclosed under § 1026.38(t)(5)(vii)(B) on the optional alternative calculating cash to close table. The Bureau expects consumer understanding will be enhanced by the clear and conspicuous disclosure of these amounts in corresponding tables on the Loan Estimate and Closing Disclosure. The proposed revisions to comment 37(g)(4)–4 discussed in the section-by-section analysis of § 1026.37(g)(4), together with the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 proposed revisions to comment 38(g)(4)–1, will also create greater consistency between the Loan Estimate and Closing Disclosure. The Bureau believes this is an appropriate and consistent place to list the three items, because they are all other closing costs of the mortgage transaction. The Bureau considered requiring the disclosure of construction costs, payoff of existing liens, and payoff of unsecured debt under the summaries of transactions table on the Closing Disclosure under § 1026.38(j)(1)(v) instead of as ‘‘closing costs’’ under §§ 1026.37(g)(4) and 1026.38(g)(4). Disclosing these costs on the summaries of transactions table would not provide for comparability between the Loan Estimate and Closing Disclosure, however, because the Loan Estimate does not have a summaries of transactions table. The Bureau also considered requiring the disclosure of construction costs only on an addendum, instead of under § 1026.37(g)(4) on the Loan Estimate and § 1026.38(g)(4) on the Closing Disclosure. (The Bureau did not consider the disclosure of the payoff of existing liens or unsecured debt on an addendum because those amounts are necessarily factored into the cash to close calculation and must be disclosed either explicitly or implicitly in the calculating cash to close table.) The construction costs would then be factored into the calculating cash to close table calculations in conjunction with the sale price to yield an accurate cash to close amount. However, this approach could add complexity to the calculations required on the Closing Disclosure because amounts disclosed under § 1026.38(j)(1)(ii) and (k)(1)(ii) would no longer be the same. For the foregoing reasons, the Bureau is proposing to revise comment 38(g)(4)–1 to reflect the disclosure of construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified in § 1026.38(a)(3)(vi), and payoff of unsecured debt, even if payable directly or indirectly to the creditor, under § 1026.38(g)(4) unless those items are disclosed under § 1026.38(t)(5)(vii)(B) on the optional alternative calculating cash to close table. See the section-bysection analysis of § 1026.38(t)(5)(vii)(B) below for a discussion of the proposed change to the requirement to include payoff of existing liens secured by the property identified in § 1026.38(a)(3)(vi) in the payoffs and payments calculation on the optional alternative calculating cash to close table. The Bureau is also proposing to revise comment 38(g)(4)–1 PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 to cross-reference proposed comment app. D–7.vii for an explanation of the disclosure of construction costs for a construction or construction-permanent loan and proposed comment app. D– 7.viii for an explanation of the disclosure of construction loan inspection and handling fees. The Bureau also is proposing to revise comment 38(g)(4)–1 to clarify that inspection fees disclosed under § 1026.38(g)(4) are for preconsummation inspection fees, not postconsummation inspection fees, such as those often associated with construction loans. As discussed in the section-bysection analysis of § 1026.38(f), postconsummation inspection fees would be disclosed in an addendum attached as an additional page after the last page of the Closing Disclosure. Revised comment 38(g)(4)–1 would also clarify that, if amounts for construction costs are contracted to be paid at closing, even though they will be disbursed after closing, they are disclosed in the paid ‘‘At Closing’’ column. 38(i) Calculating Cash To Close Section 1026.38(i) requires the disclosure of the calculation of an estimate of cash needed from the consumer at consummation of the transaction, using the heading ‘‘Calculating Cash to Close.’’ The Bureau is proposing amendments to § 1026.38(i) and its commentary regarding the calculating cash to close table on the Closing Disclosure pursuant to its authority under TILA section 105(a) and Dodd-Frank Act sections 1032(a). The Bureau believes that, with the proposed amendments, this disclosure will effectuate the purposes of TILA by facilitating the informed use of credit. 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). As discussed in the section-bysection analysis of § 1026.37(h) above, the Bureau seeks comment on the calculating cash to close table generally. The Bureau is proposing to revise comment 38(i)–2 to streamline the comment and clarify how amounts should be disclosed under the subheading ‘‘Loan Estimate’’ on the Closing Disclosure’s calculating cash to close table. The Bureau is proposing to E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules revise comment 38(i)–3 for consistency with proposed changes discussed in the section-by-section analysis of § 1026.38(i)(7) below. The Bureau is proposing to add comment 38(i)–5 to clarify that the amounts disclosed under the subheading ‘‘Loan Estimate’’ under § 1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and (9)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer. This is true whether the amounts on the most recent Loan Estimate provided to the consumer reflect updated amounts provided for informational purposes only or the amounts to be used for purposes of determining good faith under § 1026.19(e)(3). The Bureau believes that the consumer should always have the benefit of receiving the most accurate and current information available, even if the disclosures are outside the tolerances or not relevant for the tolerances. The Bureau further believes that, for purposes of comparison, the amounts disclosed under the subheading ‘‘Loan Estimate’’ on the Closing Disclosure’s calculating cash to close table should reflect the most recent information given the consumer, again, regardless of whether that information was provided for purposes of resetting the tolerances or for information purposes only. The Bureau notes that the disclosures on the Closing Disclosure’s calculating cash to close table under the subheadings ‘‘Loan Estimate’’ and ‘‘Final’’ are not, in and of themselves, subject to the § 1026.19(e)(3) good faith standard. These amounts are disclosed based on the best information reasonably available to the creditor at the time the disclosure is provided and any increases or changes to the amounts based on the best information reasonably available to the creditor do not result in any separate violation of any standard under Regulation Z. For purposes of determining good faith under § 1026.19(e)(3), the amounts used are the amounts disclosed under § 1026.37, and may be disclosed over multiple Loan Estimates, or even corrected Closing Disclosures, depending upon the facts and circumstances of the transaction. Accordingly, good faith cannot be determined based on a comparison of the amounts disclosed under the subheadings ‘‘Loan Estimate’’ and ‘‘Final’’ on the Closing Disclosure’s calculating cash to close table. The Bureau seeks comment on this approach. In particular, the Bureau seeks comment on whether the disclosure of the amounts on the most VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 recent Loan Estimate on the calculating cash to close table provides a helpful comparison to consumers with the final amounts disclosed on the Closing Disclosure. The Bureau seeks comment on other alternatives to provide consumers with a comparison of estimated and final amounts. 38(i)(1) Total Closing Costs 38(i)(1)(iii) Section 1026.38(i)(1)(iii)(A) specifies that, if the amount of closing costs disclosed under the subheading ‘‘Final’’ in the row labeled ‘‘Total Closing Costs (J)’’ is different than the estimated amount of such costs as shown on the Loan Estimate (unless the difference is due to rounding), the creditor 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 include a reference to such disclosures, as applicable. Section 1026.38(i)(1)(iii)(A)(3) also requires a statement that an increase in closing costs exceeds legal limits by the dollar amount of the excess and a statement directing the consumer to the disclosure of lender credits under § 1026.38(h)(3) if a credit is provided under § 1026.19(f)(2)(v). Comment 38(i)(1)(iii)(A)–3 provides guidance regarding these statements. The Bureau is proposing to revise § 1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)–3 to provide additional options for disclosing refunds to consumers. As discussed above in the section-bysection analysis of proposed comment 38–4, the Bureau is proposing to clarify that, when contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the consumer as lender credits, a reduction in principal balance (principal curtailment) may be disclosed, as a negative number, under § 1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) to provide a refund under § 1026.19(f)(2)(v). The Bureau is proposing to revise both § 1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)–3 to allow a creditor to provide a statement directing the consumer to the disclosure of a principal reduction (principal curtailment) under § 1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) if a principal curtailment is used to provide such refund. As a result of these proposed clarifications, the Bureau also is proposing to clarify that the examples PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 54349 provided by form H–25(F) of appendix H only relate to statements provided under § 1026.38(h)(3). 38(i)(2) Closing Costs Paid Before Closing 38(i)(2)(iii) 38(i)(2)(iii)(B) Comment 38(i)(2)(iii)(B)–1 discusses the circumstances under which the creditor gives a statement that the amount disclosed under the subheading ‘‘Final’’ under § 1026.38(i)(2)(ii) is equal to the amount disclosed under the subheading ‘‘Loan Estimate’’ under § 1026.38(i)(2)(i) and, in so doing, refers to an amount of ‘‘$0’’ under the subheading ‘‘Final.’’ The Bureau is proposing to change $0 to $0.00 because the amount disclosed under § 1026.38(i)(2)(ii) is disclosed to two decimal places under § 1026.38(t)(4) . 38(i)(3) Closing Costs Financed Section 1026.38(i)(3) requires the disclosure of the actual amount of the closing costs that are to be paid out of loan proceeds, as a negative number, and a comparison of the estimated and actual amounts of the closing costs that are to be paid out of loan proceeds. If the amount under the subheading ‘‘Final’’ in the row labeled ‘‘Closing Costs Financed (Paid from your Loan Amount)’’ 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 is proposing to add comment 38(i)(3)–1 to explain how to calculate closing costs financed and to add comment 38(i)(3)–2 to clarify the loan amount that is used in the closing costs financed calculation. Although the Loan Estimate has commentary explaining how to perform the closing costs financed calculation (see the section-by-section analysis of § 1026.37(h)(1)(ii)), the Closing Disclosure does not have such commentary. Therefore, the Bureau is proposing to add comment 38(i)(3)–1 to explain that the amount of closing costs financed disclosed under § 1026.38(i)(3) is determined by subtracting the total amount of payments to third parties not otherwise disclosed under § 1026.38(f) and (g), which may include, for example, the sale price of the property disclosed under § 1026.38(j)(1)(ii), from the loan amount disclosed under § 1026.38(b). If the result of the calculation is zero or negative, the amount of $0.00 would be disclosed under § 1026.38(i)(3). If the result of the E:\FR\FM\15AUP3.SGM 15AUP3 54350 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 calculation is positive, that amount would be disclosed as a negative number under § 1026.38(i)(3), but only to the extent that that the absolute value of the amount disclosed under § 1026.38(i)(3) does not exceed the total amount of closing costs disclosed under § 1026.38(h)(1). The total amount of closing costs disclosed under § 1026.38(h)(1) would never be less than zero because, if the total amount of closing costs disclosed under § 1026.38(h)(1) is a negative number, the amount of $0.00 would be disclosed under § 1026.38(i)(3). Consistent with proposed comment 37(h)(1)(ii)–2, the Bureau is proposing to add comment 38(i)(3)–2 to clarify that the loan amount disclosed under § 1026.38(b) is the total amount the consumer will borrow, as reflected by the face amount of the note, which is consistent with proposed revisions to § 1026.37(b)(1), discussed above. The comment would also explain that financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. The addition of this comment would clarify that regardless of how the term ‘‘loan amount’’ is used by creditors or in relation to programmatic requirements of specific loan programs, for purposes of the Closing Disclosure, the amount disclosed as the loan amount, and the basis for the calculating cash to close table calculations, is the total amount the consumer will borrow as reflected in the face amount of the note. This definition does not affect how other agencies may define or use similar terms for purposes of their own programmatic requirements. For example, the ‘‘Base Loan Amount’’ and ‘‘Total Loan Amount’’ for loans made under programs of the Federal Housing Administration may not be the same as the loan amount required to be disclosed under § 1026.38(b). 38(i)(4) Down Payment/Funds From Borrower Section 1026.38(i)(4)(ii)(A) requires the down payment amount in a purchase transaction as defined in § 1026.37(a)(9)(i) to be disclosed as a positive number. In these transactions, the down payment is calculated as the difference between the purchase price of the property and the principal amount of the credit extended. The calculation does not capture the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). Section 1026.38(i)(4)(ii)(B) requires that, in all other transactions, the ‘‘Funds from Borrower’’ is determined in accordance with § 1026.38(i)(6)(iv). As VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 discussed in more detail below, the Bureau is proposing to revise § 1026.38(i)(4)(ii)(A) to account for any amount disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions, to make conforming revisions to § 1026.38(i)(4)(ii)(B), to revise comment 38(i)(4)(ii)(A)–1 to explain the down payment calculation, to add comment 38(i)(4)(ii)(A)–2 to explain the amount disclosed as ‘‘Funds for Borrower,’’ and to revise comments 38(i)(4)(ii)(B)–1 and 38(i)(4)(iii)(A)–1 to make conforming revisions. For the reasons discussed in the section-by-section analysis of § 1026.37(h)(1)(iii) above, the Bureau is proposing to revise § 1026.38(i)(4)(ii)(A) to specify that, in a purchase transaction as defined in § 1026.37(a)(9)(i), the creditor subtracts the sum of the loan amount and any amount for loans assumed or taken subject to from the sale price of the property, except when the sum of the loan amount and any amount for loans assumed or taken subject to exceed the sale price of the property. When the sum of the loan amount and any amount for existing loans assumed or taken subject to exceeds the sale price of the property, the creditor instead calculates the funds from the consumer in accordance with § 1026.38(i)(6)(iv). New comment 38(i)(4)(ii)(A)–2 would explain the amount that the creditor discloses under § 1026.38(i)(4)(ii)(A)(2) under the funds for borrower calculation under § 1026.38(i)(6)(iv). See the section-bysection analysis of § 1026.38(i)(6)(iv) below for a discussion of the proposed revisions to that section. The Bureau is also proposing conforming amendments to § 1026.38(i)(4)(ii)(B) and comments 38(i)(4)(ii)(B)–1 and 38(i)(4)(iii)(A)–1. The Bureau recognizes that some loan programs require borrowers to provide minimum cash investments, which, under the regulations or requirements of those loan programs, may be referred to as ‘‘down payments.’’ Revised comment 38(i)(4)(ii)(A)–1 would explain the down payment calculation that must be followed for accurate disclosure of the down payment amount on the Closing Disclosure. The comment would also explain that the minimum cash investments required of borrowers under some loan programs are not necessarily reflected in the down payment disclosure, and accurate disclosure of the down payment does not affect compliance or noncompliance with such loan programs’ requirements. To conform with proposed clarifications discussed in the section- PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 by-section analysis of § 1026.37(h)(1)(iii) and (v) above, the Bureau is proposing to revise comment 38(i)(4)(ii)(B)–1 to clarify that the ‘‘total amount of all existing debt being satisfied in the real estate transaction’’ means the sum of amounts disclosed under § 1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment whether defining the phrase ‘‘total amount of all existing debt being satisfied by the transaction’’ to mean specifically amounts disclosed under § 1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the Bureau might provide greater clarity around amounts that must be included in this calculation as part of the ‘‘total amount of all existing debt being satisfied by the transaction.’’ Consistent with proposed revisions to § 1026.37(h)(1)(iii) and (v) above, the Bureau is further proposing to revise comment 38(i)(4)(ii)(B)–1 to account for the amount of existing loans ‘‘assumed or taken subject to’’ disclosed under § 1026.38(j)(2)(iv). The Bureau also is proposing a technical correction in comment 38(i)(4)(ii)(B)–1 to change $0 in reference to the final amount to $0.00 because the amount disclosed under § 1026.38(i)(4)(ii) is disclosed to two decimal places under § 1026.38(t)(4). 38(i)(5) Deposit The Bureau is proposing a technical correction in comment 38(i)(5)–1 to specify that, when no deposit is paid in connection with a purchase transaction, the amount disclosed on the Closing Disclosure under § 1026.38(i)(5)(ii) is $0.00 because the amount disclosed under § 1026.38(i)(5)(ii) is disclosed to two decimal places under § 1026.38(t)(4). 38(i)(6) Funds for Borrower 38(i)(6)(ii) Comment 38(i)(6)(ii)–1 provides clarification about how the actual ‘‘Funds for Borrower’’ amount is determined under § 1026.38(i)(6)(iv) and to whom such amount is disbursed. The Bureau is proposing to revise comment 38(i)(6)(ii)–1 to conform to proposed revisions and clarifications discussed in the section-by-section analysis of § 1026.38(i)(6)(iv) below. The Bureau is proposing to add comment 38(i)(6)(ii)– 2 to conform to proposed revisions to comment 37(h)(1)(v)–1 discussed in the section-by-section analysis of § 1026.37(h)(1)(v) above. 38(i)(6)(iv) Section 1026.38(i)(6)(iv) provides that the ‘‘Funds for Borrower’’ disclosed under § 1026.38(i)(4)(ii)(B) and ‘‘Funds from Borrower’’ disclosed under E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules § 1026.38(i)(6)(ii) are determined by subtracting the principal amount of the credit extended (excluding closing costs financed, disclosed under § 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real estate consummation and disclosed under § 1026.38(j)(1)(v) (except to the extent the satisfaction of such existing debt is disclosed under § 1026.38(g)). This calculation does not capture the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). As discussed in more detail below, the Bureau is proposing to revise § 1026.38(i)(6)(iv) to account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions and improve clarity, consistent with the proposed revisions discussed in the section-by-section analysis of § 1026.37(h)(1)(v). The Bureau is proposing to revise § 1026.38(i)(6)(iv) consistent with proposed revisions discussed in the section-by-section analysis of § 1026.37(h)(1)(v) above. The Bureau is proposing to revise § 1026.38(i)(6)(iv) to account for the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). The Bureau also is proposing to revise § 1026.38(i)(6)(iv) to clarify that the phrase ‘‘total amount of all existing debt being satisfied by the transaction’’ means amounts that are disclosed in the summaries of transactions table under § 1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment whether defining the phrase ‘‘total amount of all existing debt being satisfied by the transaction’’ to mean amounts disclosed under § 1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the Bureau might provide greater clarity around amounts that must be included in this calculation as part of the ‘‘total amount of all existing debt being satisfied by the transaction.’’ The Bureau is proposing technical corrections to § 1026.38(i)(6)(iv)(A), (B), and (C) to change $0 in reference to the amounts under § 1026.38(i)(4)(ii) and (6)(ii) to $0.00 because the final amounts disclosed under § 1026.38(i)(4)(ii) and (6)(ii) are disclosed to two decimal places under § 1026.38(t)(4) 38(i)(7) Seller Credits Section 1026.38(i)(7) requires creditors to compare the amount of seller credits disclosed on the Loan Estimate under § 1026.37(h)(1)(vi) to the amount disclosed on the Closing Disclosure under § 1026.38(j)(2)(v). If there is a difference (for reasons other VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 than rounding), § 1026.38(i)(7)(iii)(A) requires the creditor to disclose a statement that the consumer should see the seller credits disclosed under § 1026.38(j)(2)(v). However, § 1026.38(j)(2)(v) and comment 38(j)(2)(v)–1 state that only general (i.e., lump sum) seller credits are disclosed under § 1026.38(j)(2)(v), whereas seller credits attributable to a specific cost should be reflected in the seller-paid column in the Closing Cost Details tables under § 1026.38(f) or (g). Consistent with § 1026.38(j)(2)(v) and comment 38(j)(2)(v)–1, the proposed amendment to § 1026.38(i)(7)(iii)(A) would clarify that, if there is a difference between the amount of seller credits disclosed under § 1026.37(h)(1)(vi) and that disclosed under § 1026.38(j)(2)(v) that is not attributed to rounding of the disclosed under § 1026.37(h)(1)(vi), the creditor must disclose a statement that the consumer should see the details disclosed under § 1026.38(j)(2)(v) and, as applicable, in the seller-paid column under § 1026.38(f) or (g). The Bureau also proposes new comment 38(i)(7)(iii)(A)–1 with examples of the required statement. 38(i)(8) Adjustments and Other Credits 38(i)(8)(i) The Bureau is proposing a technical correction in § 1026.38(i)(8)(i) to remove the phrase ‘‘rounded to the nearest whole dollar.’’ The amount disclosed on the Loan Estimate under § 1026.37(h)(1)(vii) that is required to be disclosed under § 1026.38(i)(8)(i) is already rounded to the nearest whole dollar under § 1026.37(o)(4)(i)(A). 38(i)(8)(ii) Section 1026.38(i)(8)(ii) provides that the amount disclosed is the total of the amounts due from the borrower disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) and (v) through (x), reduced by the amounts already paid by or on behalf of the borrower disclosed on the Closing Disclosure under § 1026.38(j)(2)(vi) through (xi). However, amounts disclosed under § 1026.38(j)(1)(iii) and (v) may have already been factored into calculations for prior components of the calculating cash to close table, thereby being counted twice. The Bureau is proposing to revise § 1026.38(i)(8)(ii) to clarify that, when amounts disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) are accounted for in the calculations for § 1026.38(i)(4) or (6) as debt being satisfied in the real PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 54351 estate transaction, as provided by proposed revisions to those paragraphs, they are not also counted in the adjustments and other credits calculation under revised § 1026.38(i)(8)(ii). The Bureau also is proposing a technical correction to comment 38(i)(8)(ii)–1, which incorrectly references § 1026.37(h)(7) instead of § 1026.37(h)(1)(vii). 38(i)(8)(iii) As discussed in the section-by-section analysis of § 1026.38(i)(8)(ii) above, the Bureau is proposing to exclude the amounts disclosed under § 1026.38(j)(1)(iii) or (v) that are accounted for in the calculations for § 1026.38(i)(4) or (6) as debt being satisfied in the real estate transaction, from the calculation of adjustments and other credits under § 1026.38(i)(8)(ii). The Bureau is proposing to revise § 1026.38(i)(8)(iii)(A) to conform with revised § 1026.38(i)(8)(ii). 38(j) Summary of Borrower’s Transaction Comment 38(j)–3 clarifies that certain amounts disclosed under 38(j) are the same as the amounts disclosed under corresponding provisions identified in § 1026.38(k). The Bureau is proposing to revise comment 38(j)–3 to conform with the proposed revisions to § 1026.38(j)(2)(vi) discussed below. 38(j)(1) Itemization of Amounts Due From Borrower 38(j)(1)(ii) In purchase transactions where there is a seller, the contract sales price is disclosed under § 1026.38(j)(1)(ii), in addition to § 1026.38(a)(3)(vii)(A). To conform with proposed amendments to the commentary of § 1026.37(h)(1) regarding the use of the sale price in the calculating cash to close table calculations on the Loan Estimate for a simultaneous loan for subordinate financing as discussed above, the Bureau is proposing to revise comment 38(j)(1)(ii)–1. Revised comment 38(j)(1)(ii)–1 would clarify that the sale price is not disclosed under § 1026.38(j)(1)(ii) on the simultaneous loan for subordinate financing Closing Disclosure. 38(j)(1)(v) Section 1026.38(j)(1)(v) requires the creditor to provide a description and the amount of any additional seller-paid items that are reimbursed by the consumer at the real estate closing. It also requires a description and the amount of any other items owed by the consumer not otherwise disclosed under proposed § 1026.38(f), (g), or (j). E:\FR\FM\15AUP3.SGM 15AUP3 54352 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Comment 38(j)(1)(v)–1 provides examples of amounts disclosed under § 1026.38(j)(1)(v), which include contractual adjustments not disclosed elsewhere under § 1026.38(j). The Bureau is proposing to revise comment 38(j)(1)(v)–1 to clarify the amounts disclosed can include amounts owed to the seller but payable to the consumer after the real estate closing, providing as examples: Any balance in the seller’s reserve account held in connection with an existing loan, if assigned to the consumer in a loan assumption; any rent the consumer would collect after closing for a time period prior to closing; and any tenant security deposit. Comment 38(j)(1)(v)–1 would also provide that the amounts owed to the seller but payable to the consumer after the real estate closing would be listed under the heading ‘‘Adjustments.’’ In addition, as discussed in the section-by-section analysis of § 1026.38(g)(4) above, the Bureau proposes to require the disclosure of payoff of existing liens secured by the property identified in § 1026.38(a)(3)(vi) under § 1026.38(g)(4) on the Closing Disclosure. The Bureau therefore proposes to revise comment 38(j)(1)(v)– 2 to conform with revised § 1026.38(g)(4). sradovich on DSK3GMQ082PROD with PROPOSALS3 38(j)(2) Itemization of Amounts Already Paid by or on Behalf of Borrower 38(j)(2)(vi) Section 1026.38(j)(2)(vi) provides for the disclosure of ‘‘Other Credits’’ and ‘‘Adjustments’’ in the summary of the borrower’s transaction table. Comment 38(j)(2)(vi)–2 clarifies that any subordinate financing proceeds not otherwise disclosed under § 1026.38(j)(2)(iii) or (iv) must be disclosed under § 1026.38(j)(2)(vi). Comment 38(j)(2)(vi)–5 clarifies that 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). The Bureau is proposing to revise § 1026.38(j)(2)(vi) to explain what items should be disclosed under the heading ‘‘Adjustments.’’ Amounts due from the seller to the consumer, under the purchase and sale agreement, would be disclosed under the ‘‘Adjustments’’ heading. As discussed in more detail below, the Bureau is proposing to revise comment 38(j)(2)(vi)–2 to clarify that subordinate financing proceeds are disclosed on the first-lien transaction Closing Disclosure and to revise comment 38(j)(2)(vi)–5 to clarify that amounts provided to consumers in VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 advance of the real estate closing are not required to be disclosed. The Bureau also proposes to add new comment 38(j)(2)(vi)–6 to provide an example of type of amounts that would be disclosed under the heading ‘‘Adjustments.’’ Comment 38(j)(2)(vi)–2 does not specify whether the disclosure of subordinate financing proceeds not otherwise disclosed under § 1026.38(j)(2)(iii) or (iv) is made on the first-lien transaction Closing Disclosure or on the subordinate financing Closing Disclosure. The Bureau proposes to revise comment 38(j)(2)(vi)–2 to clarify that the disclosure of subordinate financing proceeds under § 1026.38(j)(2)(vi) is made on the firstlien transaction disclosure. Comment 38(j)(2)(vi)–2, as revised, would provide an example of how the disclosure works when a consumer uses a second mortgage to finance part of the purchase price. Comment 38(j)(2)(vi)–2 would also explain that the principal amount of the second loan must be disclosed on the summaries of transactions table for the consumer’s transaction either on line 04 under the subheading ‘‘L. Paid Already by or on Behalf of Borrower at Closing,’’ or under the subheading ‘‘Other Credits.’’ Comment 38(j)(2)(vi)–5 does not explain whether the requirement to disclose a credit for any money or other payments made by family members, not otherwise associated with the transaction, applies to amounts provided to consumers in advance of consummation. The Bureau proposes to revise comment 38(j)(2)(vi)–5 to clarify that the requirement to disclose any money or other payments made by family members or third parties, not otherwise associated with the transaction, only applies to money or payments provided at the real estate closing; amounts provided to consumers in advance of the real estate closing by third parties, including family members, not otherwise associated with the transaction, would not be required to be disclosed under revised § 1026.38(j)(2)(vi). 38(j)(2)(xi) Comment 38(j)(2)(xi)–1 clarifies that the 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. The Bureau proposing to remove the example of rent collected in advance by the seller from a tenant for a period extending beyond the closing date from comment 38(j)(2)(xi)–1. Proposed PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 comment 38(j)(2)(vi)–6 would add that example as an item to be disclosed under the ‘‘Adjustments.’’ 38(j)(4) Items Paid Outside of Closing Funds 38(j)(4)(i) Section 1026.38(j)(4)(i) requires that any charges not paid from closing funds but that otherwise are disclosed under § 1026.38(j) be marked as ‘‘paid outside of closing’’ or ‘‘P.O.C.’’ Comment 38(j)(4)(i)–1 explains that the disclosure must include a statement of the party making the payment, such as the consumer, seller, loan originator, real estate agent, or any other person and cites to an example on form H–25(D) of appendix H of part 1026. As discussed in the section-by-section analysis of proposed comment 38–4 above, the Bureau is proposing to clarify that, when contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the consumer as lender credits, a reduction in principal balance (principal curtailment) may be used to provide a refund under § 1026.19(f)(2)(v). Proposed comment 38–4 would provide options for the disclosure of principal curtailments, including under § 1026.38(j)(4)(i). The Bureau is proposing to revise comment 38(j)(4)(i)–1 to provide a cross reference to comment 38–4. The Bureau is also proposing to clarify that ‘‘a statement of the party making the payment’’ means the disclosure must identify the party making the payment. 38(k) Summary of Seller’s Transaction Comment 38(k)–1 explains that § 1026.38(k) does not apply in transactions where there is no seller, such as a refinance transaction. The Bureau is proposing to add additional examples of transactions for which § 1026.38(k) does not apply in revised comment 38(k)–1, such as loans with a construction purpose as defined in § 1026.37(a)(9)(iii) that also do not have a seller or simultaneous loans for subordinate financing if the first-lien Closing Disclosure records the entirety of the seller’s transaction. 38(l) Loan Disclosures 38(l)(7) Escrow Account 38(l)(7)(i) Section 1026.38(l)(7)(i)(A)(1), (2), and (4), as well as (B)(1), require certain disclosures based on the tax, insurance, and assessment amounts described in § 1026.37(c)(4)(ii). Section 1026.37(c)(4)(ii), in turn, includes the E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules mortgage-related obligations identified in § 1026.43(b)(8). However, § 1026.37(c)(4)(ii) specifically excludes amounts for mortgage insurance identified in § 1026.4(b)(5) (because amounts for mortgage insurance are already disclosed in the projected payments table under § 1026.37(c)(2)(ii)). The Bureau is aware that, in some instances, creditors may establish an escrow account for the payment of ongoing mortgage insurance premiums. The Bureau proposes amending § 1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)–1, 38(l)(7)(i)(A)(4)–1, and 38(l)(7)(i)(B)(1)–1 to permit disclosure of such escrow accounts by removing references to § 1026.37(c)(4)(ii) and adding references to mortgage-related obligations, including mortgage insurance, described in § 1026.37(c)(2) or 1026.43(b)(8), as appropriate. 38(l)(7)(i)(A) 38(l)(7)(i)(A)(2) As discussed below, § 1026.38(l)(7)(i)(A)(5) and related commentary explain the escrow account analysis prescribed under Regulation X, 12 CFR 1024.17. The escrow account analysis method can be used as an alternative method to calculate the amounts disclosed pursuant to § 1026.38(l)(7)(i)(A)(1) and (4). The Bureau is proposing to add new comment 38(l)(7)(i)(A)(2)–2 to allow the methods used to calculate escrowed property costs when calculating nonescrowed property cost. The Bureau is seeking comment on the use of the escrow account analysis prescribed in § 1026.38(l)(7)(i)(A)(5) to calculate nonescrowed property costs. sradovich on DSK3GMQ082PROD with PROPOSALS3 38(l)(7)(i)(A)(5) Section 1026.38(l)(7)(i)(A)(5) provides that a creditor complies with the requirements of § 1026.38(l)(7)(i)(A)(1) and (4) if the creditor bases the numerical disclosures on amounts derived from the escrow account analysis prescribed under Regulation X, 12 CFR 1024.17. Section 1026.38(l)(7)(i)(A)(4) requires disclosure of the amount the consumer will be required to pay into the escrow account with each periodic payment during the first year after consummation. Section 1026.38(l)(7)(i)(A)(1) requires a disclosure, labeled ‘‘Escrowed Property Costs over Year 1,’’ 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. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Creditors may base such disclosures on less than 12 payments if, based on the payment schedule dictated by the legal obligation, fewer than 12 periodic payments will be made to the escrow account during the first year after consummation. To reduce uncertainty about whether the amounts disclosed under § 1026.38(l)(7)(i)(A)(1) and (4) should be based on 12 payments or less than 12 payments, the Bureau is proposing to add new comment 38(l)(7)(i)(A)(5)–1 to clarify, for example, that creditors may base such disclosures on less than 12 payments if, based on the payment schedule dictated by the legal obligation, fewer than 12 periodic payments will be made to the escrow account during the first year after consummation. Alternatively, § 1026.38(l)(7)(i)(A)(5) permits the creditor to base the disclosures required by § 1026.38(l)(7)(i)(A)(1) and (4) on amounts derived from the escrow account analysis required under Regulation X, 12 CFR 1024.17, even if those disclosures differ from what would otherwise be disclosed under § 1026.38(l)(7)(i)(A)(1) and (4), as, for example, when there are fewer than 12 periodic payments scheduled to be made to the escrow account during the first year after consummation. 38(o) Loan Calculations 38(o)(1) Total of Payments Section 1026.38(o)(1) defines the total of payments, for purposes of the Closing Disclosure, as the total the consumer will have paid after making all payments of principal, interest, mortgage insurance, and loan costs, as scheduled. The Bureau is proposing to adopt tolerances for the total of payments that parallel the statutory tolerances for the finance charge and disclosures affected by the finance charge because, historically, the total of payments has been understood to be a disclosure affected by the finance charge and therefore subject to its tolerances. In the TILA–RESPA Final Rule, to promote consumer understanding, the Bureau adopted a definition of total of payments for purposes of the Closing Disclosure that differs from the statutory definition under TILA section 128(a)(5), which explicitly references finance charges. This in turn may have introduced ambiguity as to whether the total of payments for purposes of the Closing Disclosure is a disclosure affected by the finance charge and therefore subject to the same tolerances. TILA section 128(a)(5) and (8) requires a creditor to disclose the sum of the amount financed and the finance PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 54353 charge, using the term ‘‘Total of Payments,’’ and a descriptive explanation of that term.81 For transactions subject to § 1026.19(e) and (f), § 1026.38(o)(1) implements this disclosure requirement. TILA section 128(a)(3) and (8) requires a creditor to disclose the finance charge, using that term.82 As amended by Congress in 1995,83 TILA section 106(f)(1) sets forth the tolerances for accuracy of the finance charge and other disclosures affected by any finance charge and states that, in connection with credit transactions (not under an open end credit plan) that are secured by real property or a dwelling, the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate, except for purposes of rescission under TILA section 125, if the amount disclosed as the finance charge (A) does not vary from the actual finance charge by more than $100; or (B) is greater than the amount required to be disclosed.84 For transactions subject to § 1026.19(e) and (f), § 1026.38(o)(2) implements the finance charge disclosure requirement in TILA section 128(a)(3) and the statutory tolerance provision for the finance charge in TILA section 106(f)(1). In the TILA–RESPA Final Rule, the Bureau modified the requirement under TILA section 128(a)(5) to disclose the total of payments as the sum of the amount financed and the finance charge to require that a creditor instead disclose the total of payments on the Closing Disclosure as the sum of principal, interest, mortgage insurance, and loan costs. Accordingly, § 1026.38(o)(1) requires the disclosure of 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. This modification of the total of payments calculation for purposes of the Closing Disclosure results in loan costs that are not components of the finance charge being included in the total of payments. In addition, the modification of the total of payments calculation also results in components of the finance charge being excluded from the total of payments if 81 15 U.S.C. 1638(a)(5), (8). U.S.C. 1638(a)(3). 83 Truth in Lending Act Amendments of 1995, Public Law 104–29, § 3(a), 109 Stat 271 (1995). 84 15 U.S.C. 1605(f)(1). As discussed in the section-by-section analysis of 1026.23(g), 15 U.S.C. 1605(f)(2) sets forth specific treatment for the disclosure of the finance charge and other disclosures affected by any finance charge for purposes of rescission under TILA section 125. 82 15 E:\FR\FM\15AUP3.SGM 15AUP3 54354 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 such components are not interest, loan costs, or included in the principal amount of the loan. As a result, the total of payments is now arguably not a disclosure affected by any finance charge. To apply the tolerances for accuracy of the disclosed finance charge and other disclosures affected by the disclosed finance charge unambiguously to the total of payments on the Closing Disclosure, the Bureau proposes to revise § 1026.38(o)(1). The Bureau modified the total of payments in the TILA–RESPA Final Rule because it understood that this disclosure had been unclear to consumers historically. As the Bureau explained in the 2012 TILA–RESPA Proposal and TILA–RESPA Final Rule, a Board-HUD Joint Report analyzing the TILA and RESPA disclosures recommended changes to several disclosures, including the total of payments.85 The Board’s consumer testing found that many consumers did not understand the total of payments and that, even when consumers understood its meaning, most did not consider it important in their decisionmaking process.86 To enhance consumer understanding, in the TILA–RESPA Final Rule, the Bureau modified the requirement of TILA section 128(a)(5) that the total of payments disclose the sum of the amount financed and the finance charge in two ways.87 First, the Bureau adopted § 1026.37(l)(1)(i) to require that a creditor disclose on the Loan Estimate the total payments over five years, rather than the life of the loan, using the label ‘‘In 5 Years.’’ 88 Second, the Bureau adopted § 1026.38(o)(1) to require that a creditor disclose on the Closing Disclosure the total of payments to reflect the total the consumer will have paid after making all payments of principal, interest, mortgage insurance, and loan costs, as scheduled.89 Comment 38(o)(1)–1 explains that the total of payments is calculated in the same manner as the ‘‘In 5 Years’’ disclosure, except that the disclosed amount reflects the total payments through the end of the loan term. 85 77 FR 51116, 51124 (Aug. 23, 2012), 78 FR 79730, 79976 (Dec. 31, 2013). 86 77 FR 51116, 51222 (Aug. 23, 2012), 78 FR 79730, 79976 (Dec. 31, 2013). 87 The Bureau modified the requirement of TILA section 128(a)(5) pursuant to its authority under TILA section 105(a) (15 U.S.C. 1604(a)), Dodd-Frank Act 1032(a) (12 U.S.C. 5532(a)), and, for residential mortgage loans, Dodd-Frank Act section 1405(b) (15 U.S.C. 1601 note). 78 FR 79730, 80038 (Dec. 31, 2013). 88 77 FR 51116, 51223 (Aug. 23, 2012), 78 FR 79730, 79977 (Dec. 31, 2013). 89 78 FR 79730, 80038 (Dec. 31, 2013). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 The Bureau’s inclusion of loan costs in the definition of the total of payments in the TILA–RESPA Final Rule was a modification of TILA’s requirement under section 128(a)(5) to disclose the total of payments as the sum of the amount financed and the finance charge. Loan costs are those costs disclosed under § 1026.38(f) and include origination charges as well as the costs of services required by the creditor but provided by persons other than the creditor, including services that the borrower did and did not shop for.90 These services commonly include fees for appraisal, credit reporting, survey, title search, and lender’s title insurance. Under § 1026.4, these services may or may not be included in the finance charge, and whether they are included in the finance charge is a fact-specific determination.91 As the Bureau explained in the 2012 TILA–RESPA Proposal and TILA–RESPA Final Rule, including mortgage insurance and other loan costs rather than the finance charge in the ‘‘In 5 Years’’ and the total of payments disclosures was intended to enhance consumer understanding of mortgage transactions and allow consumers to compare loans more easily and usefully. Since the effective date of the rule, the Bureau has learned that there is uncertainty whether the total of payments, as modified by the Bureau, is subject to the tolerance for accuracy applicable to the disclosed finance charge and other disclosures affected by the disclosed finance charge under § 1026.38(o)(2). In modifying the total of payments calculation in the TILA– RESPA Final Rule, the Bureau did not intend to alter the tolerances for accuracy applicable to the total of payments. Therefore, the Bureau proposes to amend § 1026.38(o)(1) to explicitly establish that the same tolerances for accuracy of the disclosed finance charge and other disclosures affected by the disclosed finance charge apply to the total of payments for each transaction subject to § 1026.19(e) and (f). The Bureau understands that clarity regarding the applicable tolerances for accuracy of the total of payments is especially important because of the statutory consequences of misdisclosure of the total of payments. The total of payments is one of the disclosures that may give rise to civil liability as set forth in TILA section 130 for a creditor’s 90 See 78 FR 79730, 80010 (Dec. 31, 2013). charge is defined in TILA section 106(a) (15 U.S.C. 1605(a)). Section 1026.4 implements this definition, provides examples, and excludes certain charges from the finance charge. 91 Finance PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 failure to comply, including actual damages, statutory damages (individual and class action), costs, and attorney’s fees.92 The total of payments is also one of the even more limited set of material disclosures where a misdisclosure can give rise to TILA’s extended right of rescission for certain transactions as set forth in TILA section 125, which generally is available for three years after the date of consummation of the transaction, serves to void the creditor’s security interest in the property, and eliminates the consumer’s obligation to pay any finance charge (even if accrued) or any other costs incident to the loan.93 Nothing in the TILA–RESPA Final Rule altered this defined statutory liability for the total of payments or any other disclosure. The Bureau believes that its proposal to apply the same tolerances for accuracy of the disclosed finance charge and other disclosures affected by the disclosed finance charge to the total of payments for purposes of the Closing Disclosure is appropriate. The TILA– RESPA Final Rule adopted its own good faith analysis and requires a creditor to refund any excess paid by the consumer, when necessary, to promote accurate disclosure. Additionally, since Congress amended TILA in 1995, the tolerances for accuracy of the finance charge have been understood to apply to the total of payments. Congress was clear that, to the extent other disclosures with statutory liability were affected by a misdisclosure of the finance charge within the tolerance limits, the same protections should apply. At the time Congress adopted the finance charge tolerance rules, assuming that no errors or clerical mistakes were made in the total of payments calculation, the total of payments was by definition determined by the finance charge calculation. Congress did not alter the statutory tolerances in adopting the Dodd-Frank Act and in requiring the Bureau to integrate the TILA and RESPA disclosures. Therefore, to promote consistency with the tolerances in effect before the TILA–RESPA Final Rule, the Bureau proposes to apply the same tolerances for accuracy of the finance charge to the total of payments for purposes of the Closing Disclosure. Specifically, the Bureau proposes to revise § 1026.38(o)(1) to provide that the 92 15 U.S.C. 1640(a). U.S.C. 1635. Section 1026.23 implements TILA’s rescission provision and defines material disclosures to mean the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 1026.32(c) and (d) and 1026.43(g). See § 1026.23(a)(3)(ii). 93 15 E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules disclosed total of payments shall be treated as accurate if the amount disclosed as the total of payments: (i) Is understated by no more than $100; or (ii) is greater than the amount required to be disclosed. The Bureau requests comment on these proposed revisions. The Bureau also proposes conforming revisions to § 1026.23(g) and (h)(2) as discussed in the section-by-section analysis of each of those sections. The Bureau also proposes new comment 38(o)–1 to provide two examples illustrating the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). Further, the Bureau proposes to revise comment 38(o)(1)–1. Comment 38(o)(1)– 1 explains that the total of payments is calculated in the same manner as the ‘‘In 5 Years’’ disclosure under § 1026.37(l)(1)(i), except that the disclosed amount reflects the total payments through the end of the loan term. The Bureau has learned that market participants have taken differing views regarding whether to reflect lender or seller credits in the total of payments on the Closing Disclosure. Therefore, the Bureau proposes to revise comment 38(o)(1)–1 to clarify that the total of payments calculation on the Closing Disclosure excludes charges for loan costs disclosed under § 1026.38(f) that are designated on the Closing Disclosure as paid by seller or paid by others. A seller or other party, such as a lender, may agree to offset a particular loan cost, whether in whole or in part, through a specific credit, for example through a specific seller or lender credit. The proposed revision to the comment would clarify that, because these loan costs are not paid by the consumer, the amounts of such loan costs offset by specific credits are excluded from the total of payments calculation. The proposed revision to comment 38(o)(1)– 1 references only loan costs offset by specific credits as being excluded from the total of payments calculation. Nonspecific credits, however, are generalized payments to the consumer that do not pay for a particular fee and therefore, under the proposed revision to comment 38(o)(1)–1, would not offset loan costs for purposes of the total of payments calculation. The Bureau believes that the distinct treatment of specific credits from a seller or other party between the ‘‘In 5 Years’’ disclosure and the total of payments disclosure is appropriate given the difference between the information available to the creditor when it provides the Loan Estimate and when it provides the Closing Disclosure. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 At the Loan Estimate stage, a creditor may not know whether a specific credit will be applied to offset a loan cost, whether in whole or in part. Further, unlike the Closing Disclosure form, the Loan Estimate form does not allow for the itemized disclosure of costs paid by the seller or others. The Bureau seeks comment on the proposed revision to comment 38(o)(1)–1. Legal Authority The Bureau proposes to revise § 1026.38(o)(1) and its commentary to apply the same tolerances for accuracy of the disclosed finance charge and other disclosures affected by the disclosed finance charge to the total of payments for each transaction subject to § 1026.19(e) and (f) pursuant to its authority to set tolerances for numerical disclosures under TILA section 121(d).94 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. The Bureau has considered the purposes for which it may exercise its authority under TILA section 121(d). As noted above, the Bureau has concluded that the proposed tolerances for the total of payments would promote consistency with the tolerances in effect before the TILA– RESPA Final Rule. The Bureau therefore believes that the proposed tolerances facilitate compliance with the statute. Additionally, the Bureau believes that the tolerances in proposed § 1026.38(o)(1), which are identical to the finance charge tolerances provided by Congress in TILA section 106(f), are sufficiently narrow to prevent these tolerances from resulting in misleading disclosures or disclosures that circumvent the purposes of TILA. 38(t) Form of Disclosures 38(t)(3) Form The Bureau proposes to make technical amendments to comment 38(t)(3)–1 to insert two missing words and make a non-substantive stylistic edit. Specifically, in the first sentence of the comment, the Bureau proposes to add the words ‘‘is not’’ and delete the prefix ‘‘non’’ that precedes the word ‘‘federally.’’ This proposed technical amendment would not alter the substance of comment 38(t)(3)–1. 38(t)(4)(ii) Rounding Section 1026.38(t)(4)(ii) provides rounding rules for the percentage 94 15 PO 00000 U.S.C. 1631(d). Frm 00039 Fmt 4701 Sfmt 4702 54355 amounts disclosed under § 1026.38(b), (f)(1), (n), (o)(4), and (o)(5). The Bureau required rounding, based on testing results, for certain amounts 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. Section 1026.38(t)(4)(ii) requires the percentage amounts disclosed for loan terms, origination charges, the adjustable interest rate table, and the TIP shall not be rounded and shall be disclosed up to two or three decimal places and the percentage amount required to be disclosed for the annual percentage rate shall not be rounded and shall be disclosed up to three decimal places. If the amount is a whole number, then the amount disclosed shall be truncated at the decimal point. The Bureau understands that there is uncertainty about the rounding requirements under § 1026.38(t)(4)(ii). The Bureau is proposing to revise § 1026.38(t)(4)(ii) to simplify the rounding requirements required for the percentages disclosed pursuant to the requirements of § 1026.38(t)(4)(ii). As proposed, § 1026.38(t)(4)(ii) would require that the percentage amounts disclosed under § 1026.38(b), (f)(1), (n), (o)(4), and (o)(5) be disclosed by rounding the exact amounts to three decimal places and then dropping any trailing zeros to the right of the decimal point. 38(t)(5) Exceptions 38(t)(5)(v) Separation of Consumer and Seller Information Regulation Z requires the use of the Closing Disclosure by the creditor to provide the required disclosures concerning the transaction to the consumer and also requires the settlement agent to provide a copy of the Closing Disclosure to the seller under § 1026.19(f). Under § 1026.38(t)(5)(vi), the creditor or settlement agent is permitted to provide a separate Closing Disclosure to the seller that contains limited consumer information. The settlement agent must provide to the seller either a copy of the Closing Disclosure or a permissible separate Closing Disclosure, under § 1026.19(f)(4)(iv). Regulation Z does not contain any further explanation of parties to whom the Closing Disclosure may be provided, the extent to which the consumer’s information may be provided to the seller or the seller’s agent, or the extent to which the seller’s information may be provided to the E:\FR\FM\15AUP3.SGM 15AUP3 54356 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 consumer or consumer’s agent. The Bureau is proposing to add new commentary under § 1026.38(t)(5)(v) to clarify that, at its discretion, the creditor may make modifications to the Closing Disclosure form to accommodate the provision of separate Closing Disclosure forms to the consumer and seller. The Bureau recognizes that consumer credit transactions secured by real property where the consumer is purchasing the property from a seller pose particular considerations related to the sharing of information. Creditors must collect and share information related to the seller’s portion of the transaction to satisfy the requirements of government insurance programs, government-sponsored enterprises, and secondary market investors in the ordinary course of providing the financial service (the consumer credit transaction secured by real property).95 Additionally, many parties to the transaction rely on sharing information to complete the transaction, including real estate agents, loan officers, and settlement agents, among others. Prior to the effective date of the TILA– RESPA Rule, RESPA and Regulation X required the settlement agent to issue a HUD–1 form to borrowers, sellers, and their agents and provided that the borrower and seller can receive separate HUD–1 forms, with the terms of the buyer’s transaction omitted from the seller’s disclosure and vice versa. Revisions to RESPA in 1975 permitted separate disclosures to both borrowers and sellers.96 Regulation X explicitly required the settlement agent to provide to the lender a copy of the HUD–1 with the borrower’s and seller’s information, or a copy of each separate disclosure that is provided to the buyer and seller, as applicable. The Bureau has been asked repeatedly by creditors, settlement agents, and real estate agents about the sharing of the Closing Disclosure with third parties involved in the mortgage transaction. These inquiries have largely concerned which third parties may receive a copy of the Closing Disclosure but have also concerned whether a combined Closing 95 For example, see FannieMae Single Family Selling Guide, March 29, 2016, pages 32–5, 435–41, 562–63, and 570–71 (available at https:// www.fanniemae.com/content/guide/selling/ index.html); FHA Handbook 4000.1, revised 03/14/ 2016 pages 115–17, 143–45, and 224–25 (available at http://portal.hud.gov/hudportal/HUD?src=/ program_offices/housing/sfh/handbook_4000-1); VA Pamphlet 26–7, Revised, Chapter 8: Borrower Fees and Charges and the VA Funding Fee, pages 8–11 to 8–13 (available at http://benefits.va.gov/ warms/pam26_7.asp). 96 See Real Estate Settlement Procedures Act Amendments of 1975, Section 3(3), Public Law 94– 205, 89 Stat. 1157 (1975). VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Disclosure form must be provided to the consumer and seller or whether separate Closing Disclosure forms may be provided to the consumer and the seller. The Bureau provided guidance on this topic in its webinar on April 12, 2016.97 The Gramm-Leach-Bliley Act (GLBA) was passed by Congress after both RESPA and TILA were enacted. Financial institutions involved in the residential real estate settlement process, among others, must comply with the GLBA’s requirements relating to the sharing of consumer information as well as with similar State law requirements, where applicable. The GLBA’s privacy provisions are implemented by the Bureau’s Regulation P, 12 CFR part 1016, and by analogous regulations issued by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Trade Commission. Regulation P generally provides that a financial institution (such as a creditor or settlement agent) may not disclose its customer’s nonpublic personal information to a nonaffiliated third party without providing notice to the customer of such information sharing and an opportunity to opt-out of such sharing. There are several exceptions to these notice and opt-out requirements, however. For example, GLBA section 502(e)(8) provides an exception that applies if a financial institution shares its customer’s non-public personal information to comply with Federal, State, or local laws, rules and other applicable legal requirements. GLBA sections 502(e)(1) and 509(7)(A) provide another exception that applies if a financial institution’s sharing of its customers’ non-public personal information is required, or is a usual, appropriate, or acceptable method, to provide the customer or the customer’s agent or broker with a confirmation, statement, or other record of the transaction, or information on the status or value of the financial service or financial product. The Closing Disclosure, whether provided as a combined form containing consumer and seller information or separate forms reflecting each side of the real estate transaction conveying the real property from the seller to the consumer, is a record of the transaction (among other things), both for the consumer and creditor, of the transactions between the consumer, 97 A recording of the webinar posted on a Web site by the Federal Reserve System (registration required) can be found on the Bureau’s Web site at http://www.consumerfinance.gov/policycompliance/guidance/implementation-guidance/ tila-respa-disclosure-rule/. PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 seller, and creditor, as required by both TILA and RESPA. Such records may be informative to real estate agents and others representing both consumers and creditors as part of both the consumer credit and real estate portions of residential real estate sales transactions, as they provide the consumer or the consumer’s agent with a record of the transaction. Based on its understanding of the real estate settlement process, the Bureau understands that it is usual, appropriate, and accepted for creditors and settlement agents to provide the combined or separate Closing Disclosure as a confirmation, statement, or other record of the transaction, to consumers, sellers, and their agents, or information on the status or value of the financial service or financial product to their customers or their customers’ agents or brokers. The Bureau recognizes that incorporating the guidance provided in the April 12, 2016 webinar on how to separate Closing Disclosure forms for the consumer and the seller into Regulation Z commentary may provide additional certainty to creditors. Accordingly, the Bureau is proposing to add comment 38(t)(5)(v)–1 to clarify that, at its discretion, the creditor may make modifications to the Closing Disclosure form to accommodate the provision of separate Closing Disclosure forms to the consumer and the seller and the three methods by which a creditor can separate such information. The Bureau further proposes to add comments 38(t)(5)(v)–2 and –3 to provide examples where the creditor may choose to provide separate Closing Disclosure forms to the consumer and seller. 38(t)(5)(vi) Modified Version of the Form for a Seller or Third-Party The Bureau proposes to add comment 38(t)(5)(vi)–1 to cross-reference comment 38(t)(5)(v)–1 for additional clarity on permissible form modifications in relation to the modified version of the Closing Disclosure for sellers or third parties. 38(t)(5)(vii) Transactions Without a Seller and Simultaneous Loans for Subordinate Financing Section 1026.38(t)(5)(vii) permits modifications to form H–25 of appendix H for a transaction that does not involve a seller and for which the alternative tables are disclosed pursuant to § 1026.38(d)(2) and (e). Comment 38(t)(5)(vii)–2 explains that, as required by § 1026.38(a)(3)(vii)(B), a form used for a transaction that does not involve a seller must contain the label ‘‘Appraised Prop. Value’’ or ‘‘Estimated E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Prop. Value’’ where there is no appraisal. The Bureau is proposing to revise § 1026.38(t)(5)(vii), consistent with proposed revisions discussed in the section-by-section analysis of § 1026.38(d)(2) and (e), to include simultaneous loans for subordinate financing as transactions for which a modification of form H–25 of appendix H is permitted. The Bureau is also proposing a technical correction so that comment 38(t)(5)(vii)–2 correctly references § 1026.38(t)(5)(vii) instead of § 1026.38(t)(5)(viii) and additional minor clarifying edits. The Bureau is also proposing to add comment 38(t)(5)(vii)(B)–1 to clarify that amounts provided by third parties may be disclosed as credits in the payoffs and payments table, comment 38(t)(5)(vii)(B)–2 to clarify the disclosure of subordinate financing proceeds, and comment 38(t)(5)(vii)(B)– 3 to cross-reference comment 37(h)(2)(iii)–1 for additional examples and comment 38–4 for the disclosure of a reduction in principal balance (principal curtailment) to provide a refund. Proposed comment 38(t)(5)(vii)(B)–1 would clarify that amounts paid by third parties who provide funds on behalf of the consumer are considered funds provided by designees, and may be disclosed as credits in the payoffs and payments table using negative numbers. The proposed comment also would provide examples of such amounts. Proposed comment 38(t)(5)(vii)(B)–2 would clarify that, on the Closing Disclosure for a first-lien transaction that also has a simultaneous loan for subordinate financing, the proceeds of the subordinate financing are included in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) as a negative number. The disclosure of a negative amount for proceeds of the subordinate financing signifies additional cash being provided to the transaction on behalf of the borrower. Proposed comment 38(t)(5)(vii)(B)–3 would refer to other examples provided in comment 37(h)(2)(iii)–1. Proposed comment 38(t)(5)(vii)(B)–3 would also refer to proposed comment 38–4, which would provide options for the disclosure of a reduction in principal balance (principal curtailment) to provide a refund under § 1026.19(f)(2)(v), including disclosure under § 1026.38(t)(5)(vii)(B). 38(t)(5)(ix) Customary Recitals and Information Comment 38(t)(5)(ix)–1 provides examples of information permitted to be disclosed on an additional page for the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 disclosure of customary recitals and information used locally in real estate settlements. The Bureau is proposing to revise comment 38(t)(5)(ix)–1 to crossreference proposed comment 38–4, which would provide options for the disclosure of a reduction in principal balance (principal curtailment) to provide a refund under § 1026.19(f)(2)(v), including disclosure under § 1026.38(t)(5)(ix). Appendix D—Multiple-Advance Construction Loans Creditors have expressed difficulty with making disclosures under the TILA–RESPA Final Rule for construction financing because of certain inherent characteristics of construction financing that differ from most other transactions. Appendix D, which provides instructions concerning the disclosure of multiple-advance construction loans, has been part of Regulation Z since 1981.98 Appendix D provides special procedures that creditors may use, at their option, to estimate and disclose the terms of multiple-advance construction loans when the amounts or timing of advances is unknown at consummation of the transaction. The appendix reflects § 1026.17(c)(6)(ii), which permits creditors to treat multiple-advance construction loans that may be permanently financed by the same creditor as one transaction or more than one transaction. The Bureau is proposing to revise comment app. D–7 to provide additional explanations for the disclosure of construction and construction-permanent loans under §§ 1026.37 and 1026.38 that the Bureau has provided informally. These additional explanations for construction-permanent loans would address the disclosures of the loan term, product, interest rate, initial periodic payment, increase in periodic payment, projected payments table, construction costs, and construction loan inspection and handling fees. Comment app. D–7 was added by the TILA–RESPA Final Rule to clarify that some home construction loans that are secured by real property require disclosure of the projected payments tables pursuant to §§ 1026.37(c) and 1026.38(c) and not the general payment schedule required by § 1026.18(g). The comment provides two illustrations, in comments app. D–7.i and –7.ii, to clarify the application of appendix D to transactions subject to §§ 1026.37(c) and 1026.38(c) when the creditor elects to treat a multiple-advance construction loan that may be permanently financed 98 See PO 00000 46 FR 20847 (April 7, 1981). Frm 00041 Fmt 4701 Sfmt 4702 54357 by the same creditor as either one transaction or more than one transaction pursuant to § 1026.17(c)(6)(ii). The Bureau is proposing to amend comment app. D–7 to clarify how certain additional, specific disclosure requirements of §§ 1026.37 and 1026.38 apply in the unique context of construction and constructionpermanent loans and to provide additional methods that creditors may use, at their option, to estimate and disclose those terms. In so doing, the Bureau proposes to preserve and further clarify the content of existing comments app. D–7.i and –7.ii, regarding the disclosure of the projected payments tables, in new comment app. D–7.vi. The proposed amendments to comment app. D–7 are further discussed below. The Bureau proposes to exercise its authority under TILA section 105(a) and Dodd-Frank Act section 1032(a) to amend appendix D to Regulation Z by revising the guidance provided concerning appendix D. The Bureau believes the adjustments described below effectuate the purposes of TILA under TILA section 102(a), because they 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, these adjustments 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. Loan Term Proposed comment app. D–7.i would clarify how a creditor may disclose the loan term, pursuant to §§ 1026.37(a)(8) and 1026.38(a)(5)(i), for a constructionpermanent loan, taking into account the fact that such loans may be disclosed as one transaction or as more than one transaction. Under proposed comment app. D–7.i.A, if the creditor discloses the construction and permanent financing as a single transaction, the loan term disclosed would be the total combined term of the construction period and the permanent period. To illustrate this result, the proposed comment provides an example of how to disclose the loan term when a single set of disclosures is used for the combined construction-permanent loan. In the example, if the term of the construction period is 12 months and the term of the permanent period is 30 years, and both phases are disclosed as a single transaction, the loan term E:\FR\FM\15AUP3.SGM 15AUP3 54358 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 disclosed is 31 years. Proposed comment app. D–7.i.A also includes a cross-reference to comment 37(a)(8)–3, which explains that, in accordance with § 1026.17(c)(3) and its accompanying commentary, the effect of minor variations in the number of days counted for the months or years of a loan may be disregarded for purposes of the loan term disclosure. Proposed comment app. D–7.i.B clarifies how to disclose the term of the permanent phase of a constructionpermanent loan when the creditor elects to disclose the two phases as separate transactions. Because the permanent phase may be consummated and disclosed at the same time as the construction phase and may also be disclosed as a separate transaction with payments that do not begin until months after consummation, creditors have reported some uncertainty about when to begin counting the loan term of the permanent phase for disclosure purposes. Proposed comment app. D– 7.i.B explains that, consistent with proposed comment 37(a)(8)–3, the loan term of the permanent financing is counted from the date that interest for the first scheduled periodic payment of the permanent financing begins to accrue, regardless of when the permanent phase is disclosed. Product Proposed comment app. D–7.ii would explain how to disclose the duration of the ‘‘Interest Only’’ feature of a construction loan or the construction phase of a construction-permanent loan under §§ 1026.37(a)(10)(ii)(B) and 1026.38(a)(5)(iii). The duration of the interest only period depends on whether the construction phase is disclosed separately, which would be covered by proposed comment app. D– 7.ii.A, or as a combined transaction with the permanent phase, which would be covered by proposed comment app. D– 7.ii.B. Section 1026.37(a)(10) requires disclosure of the loan product, including the features that may change the periodic payment on the loan. Section 1026.37(a)(10)(iv) requires disclosure of the duration of the payment period of certain of the loan features, including the ‘‘Interest Only’’ feature under § 1026.37(a)(10)(ii)(B). Disclosure of an ‘‘Interest Only’’ feature is required if the loan does not have a negative amortization feature and one or more regular periodic payments may be applied only to interest accrued and not to the loan principal. The duration of the ‘‘Interest Only’’ payment period, therefore, counts the regular periodic payments that may be applied only to VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 interest accrued and not to the loan principal. In a construction loan disclosure or when a separate disclosure is provided for the construction phase of a construction-permanent loan, the final payment will typically be a balloon payment that is the sum of the final interest payment and the loan principal. As a payment that includes principal, the final balloon payment is not counted for purposes of determining the duration of the ‘‘Interest Only’’ payment period. This means, for example, that the product disclosure for a fixed rate construction loan with a term of one year is ‘‘11 mo. Interest Only, Fixed Rate.’’ Proposed comment app. D–7.ii.A would provide this explanation and example. Proposed comment app. D–7.ii.B would explain that, if a single, combined construction-permanent disclosure is provided, the time period of the interest only feature that is disclosed as part of the product disclosure under §§ 1026.37(a)(10) and 1026.38(a)(5)(iii) is the full term of the interest only construction financing. In such cases, the construction and permanent phases are considered together as a single loan or transaction, and there is no balloon payment of principal and interest at the end of the construction phase. Proposed comment app. D–7.ii.B would provide an example explaining that a creditor discloses the ‘‘Product’’ for a fixed rate, constructionpermanent loan with an interest only construction phase of 12 months as ‘‘1 Year Interest Only, Fixed Rate.’’ Interest Rate Proposed comment app. D–7.iii would explain the disclosure of the interest rate in a constructionpermanent loan pursuant to §§ 1026.37(b)(2) and 1026.38(b). The comment addresses a unique aspect of construction-permanent loans: If the permanent phase is disclosed at the same time as the construction phase, either in a combined disclosure with the construction phase or in a separate disclosure of only the permanent phase, the interest rate of the permanent financing may not be known because the conversion to permanent financing may not take place for several months. If the permanent financing has an adjustable rate and separate disclosures are provided, the proposed comment would state that the rate disclosed for the permanent financing is the fullyindexed rate pursuant to § 1026.37(b)(2) and its commentary. If the permanent financing has a fixed rate, proposed comment app. D–7.iii would clarify that the rate disclosed is based on the best PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 information reasonably available at the time the disclosures are made and would include a cross-reference to comments 19(e)(1)(i)–1 and 19(f)(1)(i)–2, which provide explanation of the best information reasonably available standard. The proposed comment would also provide instruction on postconsummation disclosures that may be required if the creditor may modify the rate disclosed for the permanent financing when the construction financing converts to permanent financing. If such a modification of the interest rate occurs at the time of conversion and results in a payment change, the creditor must provide the rate and adjustment disclosures required by § 1026.20(c) at least 60 days, and no more than 120 days, before the first payment at the adjusted level is due, without regard to whether the permanent financing has a fixed, adjustable, or step rate. The Bureau seeks comment on the appropriateness of the provision of the § 1026.20(c) disclosures in connection with the conversion to permanent financing and any operational changes for creditors in a construction-permanent loan context to provide the rate and adjustment disclosure required by § 1026.20(c) at least 60 days, and no more than 120 days, before the first payment at the adjusted level is due. Initial Periodic Payment Proposed comment appendix D–7.iv would clarify that the general rule of § 1026.17(c)(3), which allows creditors to disregard the effects of certain minor variations in making calculations and disclosures, applies to the appendix D calculation of the initial periodic payment amount disclosed under §§ 1026.37(b)(3) and 1026.38(b). For example, the effect of the fact that months have different numbers of days may be disregarded in making the disclosure. Increase in Periodic Payment Section 1026.37(b)(6) requires a creditor to provide an affirmative or negative answer to the question, ‘‘Can this amount increase after closing?’’ with respect to certain amounts, including the initial periodic payment amount disclosed under § 1026.37(b)(3). Creditors have asked the Bureau what answer may be provided to this question in the case of construction financing if the actual schedule of advances is not known. Proposed comment app. D–7.v explains that, in general, the answer a creditor provides will depend upon whether the construction financing has a fixed rate or an adjustable rate. Proposed comment app. D–7.v.A and B E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules discusses the disclosure of fixed-rate construction financing, and proposed comment app. D–7.v.C discusses the disclosure of adjustable-rate construction financing. The payments made during the construction phase are often interestonly payments. The amount of any particular interest-only payment on a construction loan is typically determined by applying the contract interest rate to the amounts advanced. The amounts advanced may be tied to construction milestones and the total of the amounts advanced will increase with each milestone, usually resulting in increases in the amounts of the interest-only payments that become due. If the construction financing has a fixed rate, the periodic interest-only payments will increase over the term of the loan, reflecting increases in the amounts advanced. If the construction financing has an adjustable rate, the periodic interest-only payments may also increase over time, but the increase may be due to both an increase in the adjustable interest rate and increases in the amounts advanced. A creditor may use the methods in appendix D to estimate interest and make disclosures for construction loans if the actual schedule of advances is not known. The calculation of the periodic payments in a fixed-rate construction loan using appendix D produces interest-only periodic payments that are equal in amount. Although the actual interest-only payments will increase over the term of the construction financing as the amounts advanced increase, because the methods provided by appendix D to estimate interest may be used to make disclosures, a technically correct and compliant answer to ‘‘Can this amount increase after closing?’’ is ‘‘NO.’’ The periodic payments for fixed rate construction financing, as calculated under appendix D, do not increase but are equal. Creditors nonetheless have expressed concern over providing an answer of ‘‘NO’’ to the question, ‘‘Can this amount increase after closing?’’ This technically correct disclosure may not reflect the actual increase in payments that will occur over the term of the construction financing, even though the amount of such increases is not known at or before consummation. The Bureau is therefore proposing comment app. D–7.v.A to explain that a creditor may disclose the initial periodic payment using appendix D and nevertheless may answer ‘‘YES’’ to the question, ‘‘Can this amount increase after closing?’’ Comment app. D–7.v.A would also explain that a technically correct answer to ‘‘Can this amount increase after closing’’ is ‘‘NO.’’ VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Proposed comment app. D–7.v.B would explain that, if separate disclosures are provided for fixed-rate construction financing and appendix D is used to compute the periodic payment, the disclosures under § 1026.37(b)(6)(iii) and the disclosure of a range of payments under § 1026.37(c)(2)(i) may be omitted. As discussed above, the periodic payments calculated under appendix D for a fixed rate loan are equal. Consequently, a creditor in that case does not provide the increase in periodic payments disclosures under § 1026.37(b)(6)(iii), such as the due date of the first adjusted principal and interest payment or a reference to the adjustable payments table required by § 1026.37(i). Such a creditor also does not disclose the principal and interest payment under § 1026.37(c)(2)(i) as a range of payments in the projected payments table, even though the interest-only payments would increase over the term of the construction financing, reflecting increases in the total amount advanced. As a practical matter, there is no method for calculating the § 1026.37(b)(6)(iii) and (c)(2)(i) disclosures as they relate to changes in the total amount advanced in construction financing when the amounts or timing of advances is unknown at or before consummation. Any method devised to take into account increases in the total amount advanced would introduce significant complexity and would have to differ from the method used for calculating the initial periodic payment under appendix D, which assumes a single amount outstanding for the entire construction period. The Bureau does not believe that increasing the complexity of compliance would serve the purpose of this proposal, which is to provide instructions and clarity for the existing disclosure requirements. Proposed comment app. D–7.v.C would clarify that, if separate disclosures are provided for adjustablerate construction financing and appendix D is used to calculate the periodic payment, the disclosures reflect the changes that are due to changes in the interest rate but not the changes that are due to changes in the amounts advanced and provides an illustrative example. While a creditor extending fixed-rate construction financing may answer either ‘‘YES’’ or ‘‘NO’’ as the answer to the question, ‘‘Can this amount increase after closing?,’’ because payments may increase based on increases in advances, proposed comment app. D–7.v.C. states that a creditor extending adjustable-rate construction financing would disclose PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 54359 ‘‘YES’’ as the answer to the question, ‘‘Can this amount increase after closing?’’ When a creditor extends adjustable rate construction financing, unlike when it extends fixed rate construction financing, payments may increase based on an increase in the adjustable interest rate as well as an increase in the amount advanced. Because the payments may increase in such cases, without regard to the amount of advances, a creditor would disclose ‘‘YES’’ as the answer to the question, ‘‘Can this amount increase after closing?’’ and ‘‘NO’’ would not be a technically correct answer. Proposed comment app. D–7.v.C. would also clarify that, for adjustablerate construction financing, a creditor must provide disclosures reflecting, changes that are due to changes in the interest rate, but may omit disclosures reflecting changes that are due to changes in the total amount advanced. Proposed comment app. D–7.v.C. would explain that the creditor may omit the adjustable payment table disclosure required by § 1026.37(i) because the disclosure would reflect a change due to a change in the total amount advanced. Consistent with these disclosures, the creditor also discloses a range of payments in the principal and interest row of the projected payments table under § 1026.37(c)(2)(i). Projected Payments Table Comment app. D–7 currently addresses only the disclosure of a projected payments table under §§ 1026.37(c) and 1026.38(c). Comment app. D–7.i provides an illustration of the construction phase projected payments table disclosure if the creditor elects to disclose the construction and permanent phases as separate transactions. Comment app. D–7.ii provides an illustration of the projected payments table disclosure if the creditor elects to disclose the construction and permanent phases as a single transaction. Current comment app. D– 7.i would be restated in proposed new comment app. D–7.vi.A. Clarifying language would be added to specify that 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 if interest is payable only on the amount actually advanced for the time it is outstanding. Language consistent with informal guidance provided by the Bureau would also be added to clarify that the existing language ‘‘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 E:\FR\FM\15AUP3.SGM 15AUP3 54360 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 1026.38(a)(5)(iii)’’ applies, unless the transaction has negative amortization, interest only, or step payment features, consistent with § 1026.37(a)(10)(iii). To provide more complete explanations concerning balloon payments, references to the balloon payment disclosures under §§ 1026.37(b)(5), 1026.37(b)(7)(ii), and 1026.38(b) would be added to the existing statement that the creditor must disclose the balloon payment in the projected payments table. Current comment app. D–7.ii would be restated in proposed new comment app. D–7.vi.B. Language consistent with informal guidance provided by the Bureau would be added to clarify existing language stating that ‘‘the projected payments table must reflect the interest-only payments during the construction phase in a first column.’’ As proposed, the comment would explain that the first column also reflects the amortizing payments for the permanent phase if the term of the construction phase is not a full year. This clarification would ensure consistency with § 1026.37(c)(1)(iii)(B), which requires disclosure of a range of payments if the periodic principal and interest payment or range of payments may change during the same year as the initial periodic payment or range of payments. A clarifying revision would also be added to proposed comment app. D–7.vi.B, noting that the creditor determines the amount of the interestonly payment to be made during the construction phase using the assumption in appendix D, part II.A.1, if interest is payable only on the amount actually advanced for the time it is outstanding. Construction Costs as ‘‘Other’’ Costs Proposed comment app. D–7.vii.A would explain the amount of construction costs is disclosed under the subheading ‘‘Other’’ under § 1026.37(g)(4), consistent with informal guidance provided by the Bureau and the proposed changes to § 1026.37(g)(4). Section 1026.37(g)(4) requires disclosure of any other amounts in connection with the transaction that 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. Construction costs are costs that the consumer contracts, at or before closing, to pay in whole or in part with loan proceeds under § 1026.37(g)(4). Because the creditor is making the loan, in whole or in part, to cover construction costs and is therefore aware of such costs at the time of VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 issuing the Loan Estimate, the requirements for disclosure under § 1026.37(g)(4) are met. This proposed comment is consistent with proposed amendments to comment 37(g)(4)–4, which would provide that, in situations where the cost of improvements on the property is financed by a builder that is also the creditor, such costs are disclosed under § 1026.37(g)(4). The amount of construction costs is therefore disclosed under the subheading ‘‘Other’’ pursuant to § 1026.37(g)(4). Proposed comment app. D–7.vii.B would clarify disclosure of a portion of a construction loan’s proceeds that is placed in a reserve or other account at consummation. Such amounts are sometimes referred to as a ‘‘construction holdback.’’ Consistent with informal guidance provided by the Bureau, the proposed comment would explain that the amount of such an account may be disclosed separately from other construction costs or may be included in the amount disclosed for construction costs for purposes of required disclosures and calculations under §§ 1026.37 and 1026.38, at the creditor’s option. If the creditor chooses to disclose the amount of loan proceeds placed in a reserve or other account at consummation separately, the creditor may disclose the amount as a separate itemized cost, along with a separate itemized cost for the balance of the construction costs, in accordance with § 1026.37(g)(4). The amount may be labeled with any accurate term, so long as any label the creditor uses is in accordance with the clear and conspicuous standard explained at comment 37(f)(5)–1. If the amount is disclosed separately, the balance of construction costs must exclude the designated amount to avoid double counting. Construction Loan Inspection and Handling Fees Proposed comment app. D–7.viii would provide instructions for the disclosure of construction loan inspection and handling fees consistent with informal guidance provided by the Bureau. The proposed comment explains that comment 4(a)–1.ii.A identifies inspection and handling fees for the staged disbursement of construction loan proceeds as finance charges. The proposed comment would also provide cross-references to proposed comments 37(f)–3, 37(f)(6)–3, and 38(f)–2, which are discussed in the section-by-section analysis above. The Bureau believes that, by directing readers of the appendix D commentary to these other comments, proposed PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 comment app. D–7.viii would facilitate compliance. Appendix H—Closed-End Forms and Clauses Appendix H to Regulation Z includes blank forms illustrating the master headings, headings, subheadings, etc., that are required by §§ 1026.37 and 1026.38, i.e., forms H–24(A) and (G), H– 25(A) and (H) through (J), and H–28(A), (F), (I), and (J) (together, the integrated disclosure model forms). The titles of those blank forms each include the designation ‘‘Model Form.’’ Appendix H to Regulation Z also includes non-blank forms providing samples of disclosures, i.e., forms H–24(B) through (F), H–25(B) through (G), and H–28(B) through (E), (G), and (H) (together, the integrated disclosure samples). The titles of those non-blank forms each include the designation ‘‘Sample’’. Pursuant to TILA section 105(b), a creditor is deemed to be in compliance with TILA’s disclosure provisions with respect to other than numerical disclosures if the creditor uses any appropriate model form or clause as published by the Bureau.99 Accordingly, use of an appropriate integrated disclosure model form, if properly completed with accurate content, constitutes compliance with the requirements of § 1026.37 or § 1026.38, as applicable. Moreover, under §§ 1026.37(o)(3) and 1026.38(t)(3), use of an appropriate integrated disclosure model form is mandatory for a transaction that is a federally related mortgage loan (as defined in Regulation X). That information is also noted in Regulation Z comment app. H–30. However, in comment app. H–30, the Bureau did not distinguish between the integrated disclosure model forms and the integrated disclosure samples and, instead, refers to all forms H–24(A) through (G), H–25(A) through (J), and H–28(A) through (J) as ‘‘model forms.’’ The Bureau understands that, because of the overbroad reference to ‘‘model forms’’ in comment app. H–30, uncertainty exists whether creditors may rely on the integrated disclosure samples to demonstrate compliance with the requirements of § 1026.37 or § 1026.38, as applicable. Unlike the integrated disclosure model forms, whose respective titles include the designation ‘‘Model Form,’’ the integrated disclosure samples are not model forms providing safe harbor 99 15 U.S.C. 1604(b). A creditor may delete any information which is not required by TILA or rearrange the format, if in making such deletion or rearranging the format, the creditor does not affect the substance, clarity, or meaningful sequence of the disclosure. Id. E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules protection. Rather, the integrated disclosure samples are illustrations of particular disclosures; these samples are not a substitute for the text of §§ 1026.37 and 1026.38 and the commentary to those sections. The Bureau is proposing to revise comment app. H–30 to distinguish between the integrated disclosure model forms and the integrated disclosure samples. Thus, proposed comment app. H–30 would state that the integrated disclosure model forms, specifically forms H–24(A) and (G), H–25(A) and (H) through (J), and H–28(A), (F), (I), and (J), are model forms for the disclosures required under §§ 1026.37 and 1026.38. Moreover, proposed comment app. H– 30 would state that, under §§ 1026.37(o)(3) and 1026.38(t)(3), for federally related mortgage loans forms H–24(A) (or, alternatively, H–24(G)) and H–25(A) (or, alternatively, H–25(H), (I) or (J)) are standard forms required to be used for the disclosures required under §§ 1026.37 and 1026.38, respectively. The Bureau also has received inquiries as to whether there are inaccurate calculations or other errors in the integrated disclosure samples as published and whether, if so, such inaccurate content has any legal consequence or effect. As noted above, even if such errors exist, the integrated disclosure samples, unlike the integrated disclosure model forms, are not controlling authority for any purpose. Accordingly, they should not be read as changing or overriding the requirements of §§ 1026.37 and 1026.38, which are the controlling authorities regarding the disclosures’ content. Sample forms are provided by the Bureau purely for illustration and as an aid to compliance. Because any errors in the integrated disclosure samples have such limited legal consequences, the Bureau has not conducted a systematic review of their accuracy; should the Bureau undertake such a review in the future and identify errors, it will adopt appropriate revisions. VI. Dodd-Frank Act Section 1022(b)(2) Analysis sradovich on DSK3GMQ082PROD with PROPOSALS3 A. Overview In developing the proposed rule, the Bureau has considered the potential benefits, costs, and impacts.100 The 100 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. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Bureau requests comment on the preliminary analysis presented below as well as submissions of additional data that could inform the Bureau’s analysis of the benefits, costs, and impacts. The Bureau has consulted, or offered to consult with, the prudential regulators, the Securities and Exchange Commission, the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Federal Trade Commission, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, and the Department of the Treasury, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies. This proposal would make four substantive changes to the TILA–RESPA Final Rule, along with other clarifications, minor changes, and technical corrections: tolerances for the total of payments, adjustment of the partial exemption under § 1026.3(h); coverage of loans secured by cooperative units, whether or not treated as real property under State law; rules concerning the information sharing between the parties involved in a mortgage transaction. This section discusses the first three of those substantive changes. The fourth change is discussed elsewhere in the preamble. The potential benefits and costs of the provisions contained in the proposed rule are evaluated relative to the baseline where the current provisions of the TILA–RESPA Rule remain in place. The first of these three substantive changes would provide tolerances for the total of payments that parallel the existing tolerances for the finance charge. Prior to the TILA–RESPA Final Rule, the calculation of the total of payments was based directly on the finance charge. As a result, the disclosure of the total of payments was generally subject to the statutory tolerance for the finance charges and disclosures affected by the finance charge. Because the calculation of the total of payments, as revised in the TILA–RESPA Final Rule, is now no longer based directly on the calculation of the finance charge, ambiguity exists as to the applicability of the statutory tolerance for the finance charge to the total of payments. The Bureau would resolve this ambiguity by expressly applying a parallel tolerance to the total of payments. The second change would adjust the partial exemption under § 1026.3(h) from the integrated disclosures, which, as cross-referenced at § 1024.5(d)(2), also provides an exemption from the RESPA disclosures. If a creditor is not required to provide the integrated PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 54361 disclosures and is not eligible for the partial exemption under § 1026.3(h), the creditor must provide the pre-existing RESPA disclosures. The partial exemption often applies to low-cost down payment or other types of housing assistance loans originated by housing finance agencies (HFAs) or by creditors that partner with HFAs and originate loans in accord with HFA guidelines. The partial exemption was designed to facilitate such low cost lending by HFA’s and their partners in the recognition that such loans provide consumers with significant benefits. The Bureau has heard from HFAs and others that, in some jurisdictions, the applicability of the partial exemption has been limited. In order to satisfy the partial exemption, the total costs on the loan, payable by the consumer at consummation, including transfer taxes and recording fees, cannot exceed 1 percent of the total amount of credit extended. Many HFAs have told the Bureau that, due to the increase in both transfer taxes and recording fees in recent years and the small size of many of these loans, often less than $5,000, these loans often have upfront costs exceeding the 1 percent threshold. Consequently, these loans do not meet criteria for the partial exemption in § 1026.3(h)(5), and creditors must provide consumers with the RESPA disclosures, unless the creditor is otherwise obligated to provide the integrated disclosures. The divisions of creditors who work most closely with HFAs may not have experience with the other loan products, such as reverse mortgages, that also still require the provision of the RESPA disclosures. Software systems used by HFAs also may no longer support the RESPA disclosures, making it necessary to complete the RESPA disclosures manually. Manual completion of the disclosures, while compliant, may be costly and error-prone. As a result of these operational complexities, some creditors may be less willing to work with HFAs and other organizations to continue providing these housing assistance loans. As adjusted, the exemption would make explicit that transfer taxes are among the permissible costs for these loans and provide that neither transfer taxes nor recording fees count towards the 1 percent threshold, thus expanding the scope of the partial exemption for the low-cost and deferred or contingent repayment lending described by § 1026.3(h). The third change is to include loans secured by cooperative units in the TILA–RESPA Rule’s coverage, whether or not cooperative units are treated as real property under applicable State E:\FR\FM\15AUP3.SGM 15AUP3 54362 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules law. As discussed in the section-bysection analysis of § 1026.19, State law varies, sometimes even within the same State, as to whether cooperative units are treated as real property. The proposed change would create uniform application, with the integrated disclosures issued for all covered transactions secured by cooperative units. The proposed rule also includes a variety of minor changes and technical corrections. Among these changes is a proposed requirement to provide the post-consummation escrow cancellation and partial payment disclosures regardless of application date. This proposed change is discussed further below. The Bureau seeks comment on data that would help to quantify costs and benefits and any associated burden with the proposed changes. Specifically, the Bureau is seeking information on the incidence of errors in the total of payments calculation on the Closing Disclosure and on the magnitude of such errors. Further, the Bureau is seeking input on the nationwide volume of loans that satisfy all conditions of § 1026.3(h) but whose upfront costs exceed 1 percent of the loan amount. The Bureau is also seeking information on current practices by servicers and other covered persons regarding the issuance of post-consummation disclosures (escrow cancellation disclosure, partial payment disclosure). The Bureau is further seeking data on the number of transactions secured by cooperative units where applicable State law does not unambiguously treat cooperative units as real property. The Bureau is requesting any other data that would assist in quantifying the costs and benefits of this proposal. B. Potential Benefits and Costs to Consumers and Covered Persons sradovich on DSK3GMQ082PROD with PROPOSALS3 Tolerance for Total of Payments Under the proposed rule, the same tolerances would apply to the total of payments as apply, by statute, to the finance charge. The Bureau is concerned that, absent the explicit application of the finance charge tolerances to the total of payments, even a minor error in the calculation of the total of payments could potentially result in claims under TILA. The Bureau believes that the proposed change, if adopted, would benefit creditors, in the limited circumstances where a small, within tolerance, error in total of payments calculation occurs. Creditors and their assignees would be less likely to face litigation, and its accompanying costs and risks, over VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 minor errors. The Bureau also believes that the provision of an explicit tolerance for the total of payments may ease liquidity constraints in the secondary market. There is evidence that, in the current marketplace, investors are concerned with litigation risks associated with loans that are affected by even minor disclosurerelated errors. The proposal could benefit creditors by alleviating investor concern regarding risks associated with small errors in the total of payments calculation. Two factors could reduce the magnitude of these benefits. First, the Bureau has no information to indicate that there have yet been any claims based on a misdisclosure of the total of payments that would be covered by the proposed tolerance, nor is the Bureau aware of evidence to date to suggest that, specifically, errors in the total of payments have created difficulties for creditors in selling these loans. Investors, consequently, may not have specific concerns about errors in the total of payments. If investor concerns are minimal now, alleviating them further many not provide much benefit to creditors. Second, the relative benefits of the proposed change to creditors also would be reduced to the extent that affected creditors would be able to pass some of these costs on to consumers, in the form of higher prices, in the event the proposed change is not adopted. The Bureau does not believe that creditors would bear any associated costs from the proposed change. To the extent creditors would increase the price of credit in the absence of the adoption of explicit tolerance for the total of payments, consumers could benefit from the adoption of the tolerances through a reduced cost of credit. To date, the Bureau has no evidence that creditors have increased the cost of credit; therefore, the benefits to consumers from the proposed provision are discounted by the possibility that such issues may not materialize in the future even absent the change the Bureau is proposing. The proposed rule may potentially create costs to consumers stemming from less precise disclosures of the total of payments. However, such costs would arise only in a narrow set of circumstances where: a) the error is small; b) the creditor would have avoided such error in the absence of tolerances, and, importantly, c) the error creates costs to the consumer. The Bureau is unable to quantify the incidence and the magnitude of such costs, and is seeking comment on the issue. PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 Excluding Recording Fees and Transfer Taxes From § 1026.3(h) Exemption Requirements Under the proposed rule, State and local recording fees and transfer taxes would be excluded from the calculation of the 1 percent threshold (as specified in § 1026.3(h)(5)). As a result, the § 1026.3(h) partial exemption would be available for some loans that currently do not satisfy § 1026.3(h)(5) but satisfy the other provisions of § 1026.3(h). Creditors issuing loans would be exempted from providing the RESPA disclosures and would only have to provide a TILA disclosure (as per § 1026.18). This provision, if adopted, would benefit creditors by allowing them to provide the more streamlined disclosures under § 1026.18 in connection with loans that satisfy the partial exemption at § 1026.3(h). The Bureau does not believe that creditors would bear any associated costs from the proposed provision. This provision could benefit consumers by making down payment assistance loans and other non-interest bearing housing assistance loans potentially more accessible. While the Bureau notes that the § 1026.18 disclosures do not require the provision of the full level of detailed disclosures required either by RESPA or under the TILA–RESPA integrated disclosures, the loans eligible for the partial exemption under § 1026.3(h) generally have a simpler cost structure that the Bureau believes is adequately communicated by the § 1026.18 TILA disclosures. Including Cooperatives in the Coverage of the TILA–RESPA Final Rule Under the proposed change, consumer credit transactions secured by a cooperative unit would be covered by the TILA–RESPA Rule, whether or not applicable State law treats cooperative units as real property. The proposed change would benefit creditors who originate mortgages on cooperative units by eliminating any uncertainty regarding the applicable disclosures. Creditors who currently issue RESPA disclosures for loans secured by cooperative units would have to switch to the integrated disclosure on such loans. The Bureau believes the cost of such change to be minimal: the systems that generate the integrated disclosures must already be in place for other types of property. The proposed change would benefit consumers who borrow against cooperative units in States where such units are treated as personal property under applicable State law. Such E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules consumers would receive an integrated disclosure which, the Bureau believes, is better designed to communicate cost information than is the legacy RESPA disclosure. sradovich on DSK3GMQ082PROD with PROPOSALS3 Minor Changes and Technical Corrections The Bureau believes that the proposed minor changes and technical corrections would generally benefit creditors by helping them to comply with the law in a more cost-effective way. One provision with a potential cost for creditors is the proposed change to the post-consummation disclosures. Under the proposed change, the escrow cancellation notice required by § 1026.20(e) and the partial payment disclosure required by § 1026.39(d)(5) would be provided for all loans, not only those with an application date on or after October 3, 2015. Servicers and other covered persons that currently do not provide such disclosures for loans with an application before October 3, 2015, may incur additional costs, if the provision is adopted. The Bureau does not believe these costs to be significant because the systems that generate such disclosures must already be in place, in order to provide disclosures for loans with application dates on or after October 3, 2015. The additional cost would only consist of printing and mailing such disclosures and of a programming change to software to remove any tracking by application date. Moreover, the Bureau believes that most servicers and other covered persons have already adopted a uniform approach to post-consummation disclosures, as it is both compliant with the existing regulations and is costsaving: Under the uniform approach, covered persons have no need to verify the application date when providing escrow cancellation notices under § 1026.20(e), nor do they need to maintain two separate mortgage transfer disclosures to comply with § 1026.39(d)(5). Consumers would benefit from the proposed change by receiving timely and accurate disclosures. C. Impact on Covered Persons With No More Than $10 Billion in Assets The Bureau believes that covered persons with no more than $10 billion in assets will not be differentially affected by the proposed provisions. A possible exception are creditors that provide loans that satisfy criteria in § 1026.3(h): To the extent that the majority of such creditors have $10 billion or less in assets, the proposed exemption of recording fees and transfer taxes from the § 1026.3(h) requirements VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 would create a disproportional benefit for covered persons in that asset category. D. Impact on Access to Credit As pointed out above, the proposed exemption of recording taxes and fees from the § 1026.3(h) requirements has a potential of improving access to housing assistance loans for consumers. In addition, a reduction in ambiguity regarding compliance with the law generally may improve access to credit for all consumers. The Bureau does not believe that any of the proposed changes are likely to have an adverse impact on access to credit. E. Impact on Rural Areas The Bureau believes that none of the proposed changes is likely to have an adverse impact on consumers in rural areas. To the extent that cooperative units are mostly located in urban areas, consumers in rural areas may receive little or no benefit from the proposed change regarding loans secured by cooperative units. VII. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act (the RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small nonprofit organizations. The RFA defines a ‘‘small business’’ as a business that meets the size standard developed by the Small Business Administration pursuant to the Small Business Act. 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. 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. As discussed above, the Bureau believes that none of the proposed changes would create a significant impact on covered persons, including small entities. Therefore, an IRFA is not required for this proposal. VIII. Paperwork Reduction Act Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.), Federal agencies are generally required PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 54363 to seek the Office of Management and Budget (OMB) approval for information collection requirements prior to implementation. Under the PRA, the Bureau may not conduct or sponsor and, notwithstanding any other provision of law, a person is not required to respond to an information collection unless the information collection displays a valid control number assigned by OMB. The collections of information related to Regulations Z and X have been previously reviewed and approved by OMB in accordance with the PRA and assigned OMB Control Number 3170– 0015 (Regulation Z) and 3170–0016 (Regulation X). As part of its continuing effort to reduce paperwork and respondent burden, the Bureau conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on new or revised information collection requirements in accordance with the PRA (See 44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public understands the Bureau’s requirements or instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, information collection requirements are clearly understood, and the Bureau can properly assess the impact of collection requirements on respondents. The Bureau has determined that this proposed rule will not impose any significant change in the paperwork burden on covered persons. There will be a modest increase in PRA burden on servicers in connection with the requirement to provide postconsummation disclosures for loans with application dates prior to October 3, 2015. The Bureau currently does not have data to quantify this cost and is seeking input on this issue. Furthermore, the proposed inclusion of cooperative units in the coverage of the TILA–RESPA Rule would mean that for some transactions some creditors would now produce the integrated disclosure in lieu of the RESPA disclosure. This change represents a replacement of one information collection with another and is unlikely to result in a substantial increase in PRA burden. A complete description of the information collection requirements, including the burden estimate methods, is provided in the information collection request (ICR) that the Bureau has submitted to OMB under the requirements of the PRA. Please send your comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for the E:\FR\FM\15AUP3.SGM 15AUP3 54364 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Bureau of Consumer Financial Protection. Send these comments by email to oira_submission@omb.eop.gov or by fax to (202) 395–6974. If you wish to share your comments with the Bureau, please send a copy of these comments to the docket for this proposed rule at www.regulations.gov. The ICR submitted to OMB requesting approval under the PRA for the information collection requirements contained herein is available at www.regulations.gov, as well as OMB’s public-facing docket at www.reginfo.gov. Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility; (b) The accuracy of the Bureau’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget (OMB) approval. All comments will become a matter of public record. If applicable, the final rule will inform the public of OMB’s approval of the revised information collection requirements proposed herein and adopted in the final rule. If OMB has not approved the revised information collection requirements prior to publication of the final rule in the Federal Register, the Bureau will publish a separate notice in the Federal Register announcing OMB’s approval prior to the effective date of the final rule. List of Subjects in 12 CFR Part 1026 sradovich on DSK3GMQ082PROD with PROPOSALS3 Advertising, Appraisal, Appraiser, Banking, Banks, Consumer protection, Credit, Credit unions, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending. Authority and Issuance For the reasons set forth above, the Bureau proposes to amend Regulation Z, 12 CFR part 1026, as set forth below: PART 1026—TRUTH IN LENDING (REGULATION Z) 1. The authority citation for part 1026 continues to read as follows: ■ VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 Authority: 12 U.S.C. 2601, 2603–2605, 2607, 2609, 2617, 3353, 5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq. Subpart A—General 2. Section 1026.1 is amended by revising paragraph (d)(5) to read as follows: ■ § 1026.1 Authority, purpose, coverage, organization, enforcement, and liability. * * * * * (d) * * * (5) Subpart E contains special rules for mortgage transactions. Section 1026.32 requires certain disclosures and provides limitations for closed-end credit transactions and open-end credit plans that have rates or fees above specified amounts or certain prepayment penalties. 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 high-cost mortgages, as defined in § 1026.32(a). Section 1026.35 prohibits specific acts and practices in connection with closedend 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 dwelling. Sections 1026.37 and 1026.38 set forth special disclosure requirements for certain closed-end transactions secured by real property or a cooperative unit, as required by § 1026.19(e) and (f). * * * * * ■ 3. Section 1026.3 is amended by revising paragraphs (h)(5) and (h)(6) to read as follows: § 1026.3 Exempt transactions. * * * * * (h) * * * (5)(i) The costs payable by the consumer in connection with the transaction at consummation are limited to: (A) Recording fees; (B) Transfer taxes; (C) A bona fide and reasonable application fee; and (D) A bona fide and reasonable fee for housing counseling services; and (ii) The total of costs payable by the consumer under paragraph (h)(5)(i)(C) and (D) of this section is less than 1 percent of the amount of credit extended; and (6) The creditor complies with all other applicable requirements of this part in connection with the transaction, including without limitation providing the disclosures required by § 1026.18. PO 00000 Frm 00048 Fmt 4701 Sfmt 4702 Subpart C—Closed-End Credit 4. Section 1026.19 is amended by revising paragraph (e) heading, paragraph (e)(1)(i), paragraphs (e)(3)(iii), (e)(3)(iv)(E) and (e)(3)(iv)(F), paragraph (f) heading, paragraphs (f)(1)(i), (f)(4)(i), and paragraph (g)(1) to read as follows: ■ § 1026.19 Certain mortgage and variablerate transactions. * * * * * (e) Mortgage loans—early disclosures—(1) Provision of disclosures—(i) Creditor. In a closedend consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage subject to § 1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in § 1026.37. * * * * * (3) * * * (iii) Variations permitted for certain charges. An estimate of any of the charges specified in this paragraph (e)(3)(iii) 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 paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section. For purposes of paragraph (e)(1)(i) of this section, good faith is determined under this paragraph (e)(3)(iii) even if such charges are paid to affiliates of the creditor, so long as the charges are bona fide: (A) Prepaid interest; (B) Property insurance premiums; (C) Amounts placed into an escrow, impound, reserve, or similar account; (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 under paragraph (e)(1)(vi)(C) of this section; and (E) Property taxes and other charges paid for third-party services not required by the creditor. (iv) * * * (E) Expiration. The consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the disclosures required under paragraph (e)(1)(i) of this section are provided pursuant to paragraph (e)(1)(iii) of this section. (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 E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules provided pursuant to paragraph (e)(1)(iii) of this section, the creditor may provide revised disclosures to the consumer if the original disclosures required under paragraph (e)(1)(i) of this section 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 (e)(3)(iv) of this section. * * * * * (f) Mortgage loans—final disclosures—(1) Provision of disclosures—(i) Scope. In a transaction subject to paragraph (e)(1)(i) of this section, the creditor shall provide the consumer with the disclosures required under § 1026.38 reflecting the actual terms of the transaction. * * * * * (4) Transactions involving a seller—(i) Provision to seller. In a transaction subject to paragraph (e)(1)(i) of this section, the settlement agent shall provide the seller with the disclosures in § 1026.38 that relate to the seller’s transaction reflecting the actual terms of the seller’s transaction. * * * * * (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 (required pursuant to section 5 of the Real Estate Settlement Procedures Act (12 U.S.C. 2604) to help consumers applying for federally related mortgage loans understand the nature and cost of real estate settlement services) to a consumer who applies for a transaction subject to paragraph (e)(1)(i) of this section. (i) The creditor shall deliver or place in the mail the special information booklet not later than three business days after the consumer’s application is received. However, if the creditor denies the consumer’s application before the end of the three-business-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 VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 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 a transaction, the purpose of which is not the purchase of a oneto-four family residential property, including, but not limited to, the following: (A) Refinancing transactions; (B) Closed-end loans secured by a subordinate lien; and (C) Reverse mortgages. * * * * * ■ 5. Section 1026.23 is amended by revising paragraphs (g)(1), (g)(2), and (h)(2) to read as follows: § 1026.23 Right of rescission. * * * * * (g) Tolerances for accuracy—(1) Onehalf of 1 percent tolerance. Except as provided in paragraphs (g)(2) and (h)(2) of this section: (i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than 1⁄2 of 1 percent of the face amount of the note or $100, whichever is greater; or (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than 1⁄2 of 1 percent of the face amount of the note or $100, whichever is greater; or (B) Is greater than the amount required to be disclosed. (2) One percent tolerance. In a refinancing of a residential mortgage transaction with a new creditor (other than a transaction covered by § 1026.32), if there is no new advance and no consolidation of existing loans: (i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 54365 (B) Is greater than the amount required to be disclosed. (h) * * * (2) Tolerance for disclosures. After the initiation of foreclosure on the consumer’s principal dwelling that secures the credit obligation: (i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than $35; or (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than $35; or (B) Is greater than the amount required to be disclosed. Subpart D—Miscellaneous 6. Section 1026.25 is amended by revising paragraph (c)(1) heading to read as follows: ■ § 1026.25 Record retention. * * * * * (c) * * *(1) Records related to requirements for loans secured by real property or a cooperative unit— * * * * * Subpart E—Special Rules for Certain Home Mortgage Transactions 7. Section 1026.37 is amended by revising paragraph (b) introductory text, paragraphs (b)(1), (c)(5)(i), (d)(2), (h)(1)(iii), (h)(1)(v), and (h)(1)(vii), paragraph (h)(2) heading and introductory text, and paragraphs (h)(2)(iii) and (o)(4) to read as follows: ■ § 1026.37 Content of disclosures for certain mortgage transactions (Loan Estimate). * * * * * (b) Loan terms. A separate table under the heading ‘‘Loan Terms’’ that contains the following information and that satisfies the following requirements: (1) Loan amount. The total amount the consumer will borrow, as reflected by the face amount of the note, labeled ‘‘Loan Amount.’’ * * * * * (c) * * * (5) * * * (i) The taxable assessed value of the property securing the transaction after consummation, including the value of any improvements on the property or to E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 54366 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 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 * * * * * (d) * * * (2) Optional alternative table for transactions without a seller and simultaneous loans for subordinate financing. For transactions that do not involve a seller, or for simultaneous loans for subordinate financing, instead of the amount and statements described in paragraph (d)(1)(ii) of this section, the creditor may alternatively disclose, using the label ‘‘Cash to Close’’: (i) The amount calculated in accordance with (h)(2)(iv) of this section; (ii) A statement of whether the disclosed estimated amount is due from or to the consumer; and (iii) A statement referring the consumer to the alternative table disclosed under paragraph (h)(2) of this section for details. * * * * * (h) * * * (1) * * * (iii) Down payment and other funds from borrower. Labeled ‘‘Down Payment/Funds from Borrower’’: (A)(1) In a purchase transaction as defined in paragraph (a)(9)(i) of this section, the amount determined by subtracting the sum of the loan amount disclosed under paragraph (b)(1) of this section and any amount of existing loans assumed or taken subject to that will be disclosed under § 1026.38(j)(2)(iv) from the sale price of the property disclosed under paragraph (a)(7) of this section, except as required by paragraph (h)(1)(iii)(A)(2) of this section; (2) In a purchase transaction as defined in paragraph (a)(9)(i) of this section, when the sum of the loan amount disclosed under paragraph (b)(1) of this section and any amount of existing loans assumed or taken subject to that will be disclosed under § 1026.38(j)(2)(iv) exceeds the sale price of the property disclosed under paragraph (a)(7) of this section, the amount of estimated funds from the consumer as determined in accordance with paragraph (h)(1)(v) of this section; or (B) In all transactions not subject to paragraph (h)(1)(iii)(A) of this section, the estimated funds from the consumer as determined in accordance with paragraph (h)(1)(v) of this section; * * * * * (v) Funds for borrower. The amount of funds for the consumer, labeled ‘‘Funds VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 for Borrower.’’ The amount of funds from the consumer disclosed under paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as applicable, and of funds for the consumer disclosed under this paragraph (h)(1)(v), are determined by subtracting the sum of the loan amount disclosed under paragraph (b)(1) of this section and any amount of existing loans assumed or taken subject to that will be disclosed under § 1026.38(j)(2)(iv) (less any amount disclosed under paragraph (h)(1)(ii) of this section) from the total amount of all existing debt being satisfied in the transaction; (A) If the calculation under this paragraph (h)(1)(v) yields an amount that is a positive number, such amount is disclosed under paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as applicable, and $0 is disclosed under this paragraph (h)(1)(v); (B) If the calculation under this paragraph (h)(1)(v) yields an amount that is a negative number, such amount is disclosed under this paragraph (h)(1)(v) as a negative number, and $0 is disclosed under paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as applicable; (C) If the calculation under this paragraph (h)(1)(v) yields $0, then $0 is disclosed under paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as applicable, and under this paragraph (h)(1)(v); * * * * * (vii) Adjustments and other credits. The amount of all loan costs determined under paragraph (f) and other costs determined under paragraph (g) that are paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at closing pursuant to a purchase and sale contract, labeled ‘‘Adjustments and Other Credits’’; and * * * * * (2) Optional alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing. For transactions that do not involve a seller, or for simultaneous loans for subordinate financing, instead of the table described in paragraph (h)(1) of this section, the creditor may alternatively provide, in a separate table, under the master heading ‘‘Closing Cost Details,’’ under the heading ‘‘Calculating Cash to Close,’’ the total amount of cash or other funds that must be provided by the consumer at consummation with an itemization of PO 00000 Frm 00050 Fmt 4701 Sfmt 4702 that amount into the following component amounts: * * * * * (iii) Payoffs and payments. The total amount of payoffs and payments to be made to third parties not otherwise disclosed under paragraphs (f) and (g) of this section, labeled ‘‘Total Payoffs and Payments’’; * * * * * (o) * * * (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, except that the per diem amount required to be disclosed by paragraph (g)(2)(iii) of this section and the monthly amounts required to be disclosed by paragraphs (g)(3)(i) through (iii) and (g)(3)(v) of this section shall be rounded to the nearest cent and disclosed to two decimal points. (B) The dollar amount required to be disclosed by paragraph (b)(1) of this section shall not be rounded, and if the amount is a whole number then the amount disclosed shall be truncated at the decimal point. (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), (l)(2), and (l)(3) of this section shall be disclosed by rounding the exact amounts to three decimal places and then dropping any trailing zeros that occur to the right of the decimal place. * * * * * ■ 8. Section 1026.38 is amended by revising paragraph (a)(3)(iii), paragraphs (d)(2) and (e) heading and introductory text, and paragraphs (e)(2)(ii), (e)(2)(iii)(A)(3), (e)(4)(ii), (g)(1), (i)(1)(iii)(A)(3), (i)(4)(ii), (i)(6)(iv), (i)(7)(iii), (i)(8), (j)(2)(i), (j)(2)(vi), (l)(7)(i), (o)(1), (t)(4)(ii), and (t)(5)(vii) to read as follows: § 1026.38 Content of disclosures for certain mortgage transactions (Closing Disclosure). * * * * * (a) * * * (3) * * * (iii) Disbursement date. The date the amounts disclosed under paragraphs (j)(3)(iii) (cash to close from or to borrower) and (k)(3)(iii) (cash from or to E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules seller) of this section are expected to be paid in a purchase transaction under § 1026.37(a)(9)(i) to the consumer and seller, respectively, as applicable, or the date some or all of the loan amount disclosed under § 1026.38(b) is expected to be paid to the consumer or a third party in a transaction that is not a purchase transaction under § 1026.37(a)(9)(i), labeled ‘‘Disbursement Date.’’ * * * * * (d) * * * (2) Alternative table for transactions without a seller and simultaneous loans for subordinate financing. For transactions that do not involve a seller and simultaneous loans for subordinate financing, if the creditor disclosed the optional alternative table under § 1026.37(d)(2), the creditor shall disclose, with the label ‘‘Cash to Close,’’ instead of the sum of the dollar amounts described in paragraph (d)(1)(ii) of this section: (i) The amount calculated in accordance with paragraph (e)(5)(ii) of this section; (ii) A statement of whether the disclosed amount is due from or to the consumer; and (iii) A statement referring the consumer to the table required under paragraph (e) of this section for details. (e) Alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing. For transactions that do not involve a seller and simultaneous loans for subordinate financing, if the creditor disclosed the optional alternative table under § 1026.37(h)(2), the creditor shall disclose, instead of the table described in paragraph (i) of this section, 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’’: * * * * * (2) * * * (ii) Under the subheading ‘‘Final,’’ the amount disclosed under paragraph (h)(1) of this section, disclosed as a negative number if the amount disclosed under paragraph (h)(1) of this section is a positive number and disclosed as a positive number if the amount disclosed under paragraph (h)(1) of this section is a negative number; and (iii) * * * (A) * * * (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 VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 the dollar amount of the excess and, if any refund is provided under § 1026.19(f)(2)(v), a statement directing the consumer to the disclosure required under paragraph (h)(3) of this section or, if applicable, a statement directing the consumer to the disclosure of the reduction in principal balance (principal curtailment) disclosed under paragraph (g)(4) or (t)(5)(vii)(B) of this section. Such dollar amount shall equal the sum total 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)(i) and (ii). * * * * * (4) * * * (ii) Under the subheading ‘‘Final,’’ the total amount of payoffs and payments made to third parties disclosed under paragraph (t)(5)(vii)(B) of this section, to the extent known, disclosed as a negative number if the amount disclosed under paragraph (t)(5)(vii)(B) of this section is a positive number and disclosed as a positive number if the amount disclosed under paragraph (t)(5)(vii)(B) of this section is a negative number; * * * * * (g) * * * (1) Taxes and other government fees. Under the subheading ‘‘Taxes and Other Government Fees,’’ an itemization of 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) On the first line: (A) Before the columns described in paragraph (g) of this section, the total amount of fees for recording deeds and, separately, the total amount of fees for recording security instruments; and (B) In the applicable column as described in paragraph (g) of this section, the total amounts paid for recording fees (including, but not limited to, the amounts in paragraph (g)(1)(i)(A) of this section); and (ii) On subsequent lines, in the applicable column as described in paragraph (g) of this section, an itemization of transfer taxes, with the name of the government entity assessing the transfer tax. * * * * * (i) * * * (1) * * * (iii) * * * (A) * * * (3) If the increase exceeds the limitations on increases in closing costs PO 00000 Frm 00051 Fmt 4701 Sfmt 4702 54367 under § 1026.19(e)(3), a statement that such increase exceeds the legal limits by the dollar amount of the excess and, if any refund is provided under § 1026.19(f)(2)(v), a statement directing the consumer to the disclosure required under paragraph (h)(3) of this section or, if a reduction in principal balance (principal curtailment) is used to provide the refund, a statement directing the consumer to the disclosure required under paragraph (g)(4), (j)(4)(i), or (t)(5)(ix) of this section. Such dollar amount shall equal the sum total 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)(i) and (ii). * * * * * (4) * * * (ii) Under the subheading ‘‘Final’’: (A)(1) In a purchase transaction as defined in § 1026.37(a)(9)(i), the amount determined by subtracting the sum of the loan amount disclosed under paragraph (b) of this section, and any amount of existing loans assumed or taken subject to disclosed under paragraph (j)(2)(iv) of this section from the sale price of the property disclosed under paragraph (j)(1)(ii) of this section, labeled ‘‘Down Payment/Funds from Borrower,’’ except as required by paragraph (i)(4)(ii)(A)(2) of this section; (2) In a purchase transaction as defined in § 1026.37(a)(9)(i), when the sum of the loan amount disclosed under paragraph (b) of this section, and any amount of existing loans assumed or taken subject to disclosed under paragraph (j)(2)(iv) of this section exceeds the sale price disclosed under paragraph (j)(1)(ii) of this section, the amount of funds from the consumer as determined in accordance with paragraph (i)(6)(iv) of this section labeled ‘‘Down Payment/Funds from Borrower;’’ or (B) In all transactions not subject to 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 ‘‘Down Payment/ Funds from Borrower.’’ * * * * * (6) * * * (iv) The ‘‘Funds from Borrower’’ to be disclosed under paragraph (i)(4)(ii)(A)(2) or (i)(4)(ii)(B) of this section, as applicable, and ‘‘Funds for Borrower’’ to be disclosed under paragraph (i)(6)(ii) of this section are determined by subtracting the sum of the loan amount disclosed under paragraph (b) of this section and any amount for existing loans assumed or E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 54368 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules taken subject to disclosed under paragraph (j)(2)(iv) of this section (less any closing costs financed disclosed under paragraph (i)(3)(ii) of this section) from the total amount of all existing debt being satisfied in the real estate closing disclosed under paragraphs (j)(1)(ii), (iii), and (v) of this section. (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)(A)(2) or (i)(4)(ii)(B) of this section, as applicable, 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)(A)(2) or (i)(4)(ii)(B) of this section, as applicable. (C) If the calculation under this paragraph (i)(6)(iv) yields $0, $0.00 shall be disclosed under paragraph (i)(4)(ii)(A)(2) or (i)(4)(ii)(B) of this section, as applicable, and under paragraph (i)(6)(ii) of this section. (7) * * * (iii) Under the subheading ‘‘Did this change?,’’ disclosed more prominently than the other disclosures under this paragraph (i)(7): (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 and, as applicable, in the seller-paid column under paragraphs (f) and (g) 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 ‘‘Loan Estimate,’’ the amount disclosed on the Loan Estimate under § 1026.37(h)(1)(vii), labeled ‘‘Adjustments and Other Credits.’’ (ii) Under the subheading ‘‘Final,’’ the amount equal to the total of the amounts disclosed under paragraphs (j)(1)(iii) and (v) of this section to the extent amounts in paragraphs (j)(1)(iii) and (v) were not included in the calculation required by paragraph (i)(4) or (6) of this section, and paragraphs (j)(1)(vi) through (x) of this section reduced by the total of the amounts disclosed under VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 paragraphs (j)(2)(vi) through (xi) of this section. (iii) Under the subheading ‘‘Did this change?,’’ disclosed more prominently than the other disclosures under this paragraph (i)(8): (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)(iii) and (v) through (x) and (j)(2)(vi) through (xi) of this section, as applicable; 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. * * * * * (j) * * * (2) Itemization of amounts already paid by or on behalf of borrower. (i) The sum of the amounts disclosed in 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’’; * * * * * (vi) Descriptions and amounts of other items paid by or on behalf of the consumer and not otherwise disclosed under paragraphs (f), (g), (h), and (j)(2) of this section, labeled ‘‘Other Credits,’’ and descriptions and the amounts of any additional amounts owed the consumer but payable to the seller before the real estate closing, under the heading ‘‘Adjustments’’; * * * * * (l) * * * (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, and the information required under paragraph (l)(7)(i)(A) and (B) of this section: (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 PO 00000 Frm 00052 Fmt 4701 Sfmt 4702 amounts listed in this paragraph (l)(7)(i)(A)(1) through (4); (1) The total amount the consumer will be required to pay into an escrow account over the first year after consummation, labeled ‘‘Escrowed Property Costs over Year 1,’’ together with a descriptive name of each charge to be paid (in whole or in part) from the escrow account, 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 the mortgage-related obligations described in § 1026.43(b)(8) that are known to the creditor and that will not be paid using escrow account funds, labeled ‘‘NonEscrowed 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 under paragraph (g)(3) of this section, a statement that the payment is a cushion for the escrow account, labeled ‘‘Initial Escrow Payment,’’ and a reference to the information disclosed under 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, labeled ‘‘Monthly Escrow 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 the mortgage-related obligations described in § 1026.43(b)(8) during the first year after consummation that are known to the creditor and a statement that, without an escrow account, the E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules consumer must pay the identified costs, possibly in one or two large payments, labeled ‘‘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.’’ * * * * * (o) * * * (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. The disclosed total of payments shall be treated as accurate if the amount disclosed as the total of payments: (i) Is understated by no more than $100; or (ii) Is greater than the amount required to be disclosed. * * * * * (t) * * * (4) * * * (ii) Percentages. The percentage amounts required to be disclosed under paragraphs (b), (f)(1), (n), (o)(4), and (o)(5) of this section shall be disclosed by rounding to three decimal places and then dropping any trailing zeros to the right of the decimal point. * * * * * (5) * * * (vii) Transaction without a seller and simultaneous loans for subordinate financing. The following modifications to form H–25 of appendix H to this part may be made for a transaction that does not involve a seller, or for simultaneous loans for subordinate financing, and for which the alternative tables are disclosed under paragraphs (d)(2) and (e) of this section, as illustrated by form H–25(J) of appendix H to this part: (A) The information required by paragraph (a)(4)(ii), and paragraphs (f), (g), and (h) of this section with respect to costs paid by the seller, 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 ‘‘Payoffs and Payments’’ 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 and a description of the purpose of such disbursements under the subheading ‘‘To’’; and the total amount of such payments labeled ‘‘Total Payoffs and Payments.’’ VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 (C) The tables required to be disclosed by paragraphs (j) and (k) of this section may be deleted. * * * * * Subpart G—Special Rules Applicable to Credit Card Accounts and Open End Credit Offered to College Students 9. In Supplement I to Part 1026— Official Interpretations: ■ a. Under Section 1026.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability, under 1(d)— Organization, under Paragraph 1(d)(5), paragraph 1 is revised. ■ b. Under Section 1026.2—Definitions and Rules of Construction, under 2(a)(11)—Consumer, paragraph 3 is revised. ■ c. Under Section 1026.3—Exempt Transactions, under 3(h)—Partial exemption for certain mortgage loans, paragraph 2 is revised and paragraphs 3 and 4 are added. ■ d. Under Section 1026.17—General Disclosure Requirements: ■ i. Under 17(c)—Basics of Disclosures and Use of Estimates, under Paragraph 17(c)(6), paragraph 5 is revised and paragraph 6 is added. ■ ii. Under 17(f)—Early Disclosures, paragraphs 1 and 2 are revised. ■ e. Under Section 1026.18—Content of Disclosures: ■ i. Paragraph 3 is revised. ■ ii. Under 18(g)—Payment Schedule, paragraph 6 is revised. ■ iii. Under 18(s)—Interest Rate and Payment Summary for Mortgage Transactions, paragraphs 1 and 4 are revised. ■ f. Under Section 1026.19—Certain Mortgage and Variable-Rate Transactions: ■ i. Under 19(e)—Mortgage loans secured by real property—Early disclosures: ■ A. The heading is revised. ■ B. Under 19(e)(1)(i)—Creditor, paragraph 1 is revised and paragraph 2 is added. ■ C. Under 19(e)(1)(iii)—Timing, paragraph 5 is added. ■ D. Under 19(e)(1)(vi)—Shopping for settlement service providers, paragraphs 2 through 4 are revised. ■ E. Under 19(e)(3)(i)—General rule, paragraph 1 is revised and paragraph 8 is added. ■ F. Under 19(e)(3)(ii)—Limited increases permitted for certain charges, paragraph 2 is revised. ■ G. Under 19(e)(3)(iii)—Variations permitted for certain charges, paragraphs 2 and 3 are revised and paragraph 4 is added. ■ H. Under 19(e)(3)(iv)—Revised estimates, paragraph 2 is revised and paragraphs 4 and 5 are added. ■ PO 00000 Frm 00053 Fmt 4701 Sfmt 4702 54369 I. Under 19(e)(3)(iv)(D)—Interest rate dependent charges, paragraph 1 is revised and paragraph 2 is added. ■ J. Under 19(e)(3)(iv)(E)—Expiration, paragraph 1 is revised and paragraph 2 is added. ■ K. Under 19(e)(4)(ii)—Relationship to disclosures required under § 1026.19(f)(1)(i), the heading is revised and paragraph 2 is added. ■ ii. Under 19(f)—Mortgage loans secured by real property—Final disclosures: ■ A. The heading is revised. ■ B. Under 19(f)(1)(i)—Scope, paragraph 1 is revised. ■ C. Under 19(f)(2)(iii)—Changes due to events occurring after consummation, paragraph 2 is added. ■ D. Under 19(f)(2)(v)—Refunds related to the good faith analysis, paragraph 1 is revised. ■ E. Under 19(f)(3)(ii)—Average charge, paragraph 3 is revised. ■ F. Under 19(f)(4)(i)—Provision to seller, paragraph 1 is revised and paragraph 2 is added. ■ g. Under Section 1026.23—Right of Rescission: ■ i. Under 23(g)—Tolerances for Accuracy, paragraph 1 is added. ■ ii. Under 23(h)—Special Rules for Foreclosure, under 23(h)(2)—Tolerance for Disclosures, paragraph 1 is revised and paragraph 2 is added. ■ h. Under Section 1026.25—Record Retention, under 25(c)—Records Related to Certain Requirements for Mortgage Loans, under 25(c)(1)—Records related to requirements for loans secured by real property, the heading is revised. ■ i. Under Section 1026.37—Content of Disclosures for Certain Mortgage Transactions (Loan Estimate): ■ i. Under 37(a)—General information: ■ A. Under 37(a)(7)—Sale price, paragraphs 1 and 2 are revised. ■ B. Under 37(a)(8)—Loan term, paragraph 3 is added. ■ C. Under 37(a)(9)—Purpose, paragraph 1 is revised. ■ D. Under 37(a)(10)—Product, paragraph 2 is revised. ■ E. Under 37(a)(13)—Rate lock, paragraph 2 is revised and paragraph 4 is added. ■ ii. Under 37(b)—Loan terms: ■ A. Under 37(b)(2)—Interest rate, paragraph 1 is revised. ■ B. Under 37(b)(3)—Principal and interest payment, paragraph 2 is revised. ■ C. Under 37(b)(6)(iii)—Increase in periodic payment, paragraph 1 is revised. ■ iii. Under 37(c)—Projected payments: ■ A. Paragraph 2 is added. ■ B. Under Paragraph 37(c)(1)(iii)(B), paragraph 1 is revised. ■ C. Under Paragraph 37(c)(4)(iv), paragraph 2 is revised. ■ E:\FR\FM\15AUP3.SGM 15AUP3 54370 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules iv. Under 37(d)—Costs at closing, under 37(d)(2)—Optional alternative table for transactions without a seller, the heading is revised and paragraph 1 is revised. ■ v. Under 37(f)—Closing cost details; loan costs: ■ A. Paragraph 3 is added. ■ B. Under 37(f)(6)—Use of addenda, paragraph 3 is added. ■ vi. Under 37(g)—Closing cost details; other costs: ■ A. Under 37(g)(4)—Other, paragraph 4 is revised. ■ B. Under Paragraph 37(g)(6)(ii), paragraph 1 is revised. ■ vii. Under 37(h)—Calculating cash to close: ■ A. Under 37(h)(1)—For all transactions, paragraph 2 is added. ■ B. Under 37(h)(1)(ii)—Closing costs financed, paragraph 1 is revised and paragraph 2 is added. ■ C. Under 37(h)(1)(iii)—Downpayment and other funds from borrower, the heading is revised, paragraph 1 is revised and paragraph 2 is added. ■ D. Under 37(h)(1)(v)—Funds for borrower, paragraph 1 is revised and paragraph 2 is added. ■ E. Under 37(h)(1)(vi)—Seller credits, paragraphs 1 and 2 are revised. ■ F. Under 37(h)(1)(vii)—Adjustments and other credits, paragraphs 1, 5, and 6 are revised. ■ G. Under 37(h)(2)—Optional alternative calculating cash to close table for transactions without a seller, the heading is revised and paragraph 1 is revised. ■ H. Under 37(h)(2)(iii)—Payoffs and payments, paragraph 1 is revised and paragraph 2 is added. ■ viii. Under 37(k)—Contact information, paragraph 3 is revised. ■ ix. Under 37(l)—Comparisons: ■ A. Under Paragraph 37(l)(1)(i), paragraph 1 is revised. ■ B. Under 37(l)(3)—Total interest percentage, paragraph 1 is revised. ■ x. Under 37(o)—Form of disclosures: ■ A. Under Paragraph 37(o)(4)(i)(A), paragraph 1 is revised. ■ B. Under 37(o)(4)(ii)—Percentages, paragraph 1 is revised. ■ j. Under Section 1026.38—Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure): ■ i. Paragraph 4 is added. ■ ii. Under 38(a)—General information: ■ A. Following 38(a)(3)(i)—Date issued and paragraph 1 thereunder, heading 38(a)(3)(iii)—Disbursement date and paragraph 1 thereunder are added. ■ B. Under 38(a)(3)(vii)—Sale price, paragraph 1 is revised. ■ C. Under 38(a)(4)—Transaction information, paragraph 2 is revised and paragraph 4 is added. sradovich on DSK3GMQ082PROD with PROPOSALS3 ■ VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 iii. Under 38(d)—Costs at closing, under 38(d)(2)—Alternative table for transactions without a seller, the heading is revised and paragraph 1 is revised. ■ iv. Under 38(e)—Alternative calculating cash to close table for transactions without a seller: ■ A. The heading is revised, paragraph 1 is revised and paragraph 6 is added. ■ B. Under Paragraph 38(e)(2)(iii)(A), paragraph 3 is revised. ■ C. Under Paragraph 38(e)(3)(iii)(B), paragraph 1 is revised. ■ v. Under 38(f)—Closing cost details; loan costs, paragraph 2 is added. ■ vi. Under 38(g)—Closing costs details; other costs: ■ A. Under 38(g)(1)—Taxes and other government fees, paragraph 3 is added. ■ B. Under 38(g)(2)—Prepaids, paragraph 3 is revised. ■ C. Under 38(g)(4)—Other, paragraph 1 is revised. ■ vii. Under 38(i)—Calculating cash to close: ■ A. Paragraphs 2 and 3 are revised and paragraph 5 is added. ■ B. Under Paragraph 38(i)(1)(iii)(A), paragraph 3 is revised. ■ C. Under Paragraph 38(i)(2)(iii)(B), paragraph 1 is revised. ■ D. Following Paragraph 38(i)(2)(iii)(B) and paragraph 1 thereunder, heading 38(i)(3)—Closing costs financed and paragraphs 1 and 2 thereunder are added. ■ E. Under Paragraph 38(i)(4)(ii)(A), paragraph 1 is revised and paragraph 2 is added. ■ F. Under Paragraph 38(i)(4)(ii)(B), paragraph 1 is revised. ■ G. Under Paragraph 38(i)(4)(iii)(A), paragraph 1 is revised. ■ H. Under 38(i)(5)—Deposit, paragraph 1 is revised. ■ I. Under Paragraph 38(i)(6)(ii), paragraph 1 is revised and paragraph 2 is added. ■ J. Following Paragraph 38(i)(7)(ii) and paragraph 1 thereunder, Paragraph 38(i)(7)(iii)(A) heading and paragraph 1 thereunder are added. ■ K. Under Paragraph 38(i)(8)(ii), paragraph 1 is revised. ■ viii. Under 38(j)—Summary of borrower’s transaction: ■ A. Paragraph 3 is revised. ■ B. Under Paragraph 38(j)(1)(ii), paragraph 1 is revised. ■ C. Under Paragraph 38(j)(1)(v), paragraphs 1 and 2 are revised. ■ D. Under Paragraph 38(j)(2)(vi), paragraphs 2 and 5 are revised and paragraph 6 is added. ■ E. Under Paragraph 38(j)(2)(xi), paragraph 1 is revised. ■ F. Under Paragraph 38(j)(4)(i), paragraph 1 is revised. ■ PO 00000 Frm 00054 Fmt 4701 Sfmt 4702 ix. Under 38(k)—Summary of seller’s transaction, paragraph 1 is revised. ■ x. Under 38(l)—Loan disclosures: ■ A. Under 38(l)(7)—Escrow account, paragraph 1 is added. ■ B. Under Paragraph 38(l)(7)(i)(A)(2), paragraph 1 is revised and paragraph 2 is added. ■ C. Under Paragraph 38(l)(7)(i)(A)(4), paragraph 1 is revised. ■ D. Following heading Paragraph 38(l)(7)(i)(A)(4) and paragraph 1 thereunder, Paragraph 38(l)(7)(i)(A)(5) heading and paragraph 1 thereunder are added. ■ E. Under Paragraph 38(l)(7)(i)(B)(1), paragraph 1 is revised. ■ xi. Under 38(o)—Loan calculations: ■ A. Paragraph 1 is added. ■ B. Under 38(o)(1)—Total of payments, paragraph 1 is revised. ■ xii. Under 38(t)—Form of disclosures: ■ A. Under 38(t)(3)—Form, paragraph 1 is revised. ■ B. Following heading Paragraph 38(t)(5)(iv) and paragraph 3 thereunder, Paragraph 38(t)(5)(v) heading and paragraphs 1 through 3 thereunder are added. ■ C. Following heading Paragraph 38(t)(5)(v) and paragraph 3 thereunder, Paragraph 38(t)(5)(vi) heading and paragraph 1 thereunder are added. ■ D. Under 38(t)(5)(vii)—Transactions without a seller, the heading is revised, and paragraph 2 is revised. ■ E. Following heading 38(t)(5)(vii)— Transactions without a seller and simultaneous loans for subordinate financing, as revised, and paragraph 2 thereunder, Paragraph 38(t)(5)(vii)(B) heading and paragraphs 1 through 3 are added. ■ F. Under 38(t)(5)(ix)—Customary recitals and information, paragraph 1 is revised. ■ k. Under Appendix D—MultipleAdvance Construction Loans, paragraph 7 is revised. ■ l. Under Appendix H—Closed-End Forms and Clauses, paragraph 30 is revised. ■ Supplement I to Part 1026—Official Interpretations * * * * * Section 1026.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability * * * * * 1(d) Organization. Paragraph 1(d)(5). 1. Effective date. i. General. The Bureau’s revisions to Regulation X and Regulation Z published on December 31, 2013, (the TILA– RESPA Final Rule) apply to covered loans (closed-end credit transactions, other than reverse mortgages, that are secured by real property or a cooperative unit, whether or E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules not treated as real property under State or other applicable law) for which the creditor or mortgage broker receives an application on or after October 3, 2015 (the effective date), except that § 1026.19(e)(2), the amendments to § 1026.28(a)(1), and the amendments to the commentary to § 1026.29 became effective on October 3, 2015, without respect to whether an application was received as of that date. Additionally, §§ 1026.20(e) and 1026.39(d)(5), as amended or adopted by the TILA–RESPA Final Rule, took effect on October 3, 2015, for transactions for which the creditor or mortgage broker received an application on or after October 3, 2015, and take effect October 1, 2017, with respect to transactions for which a creditor or mortgage broker received an application prior to October 3, 2015. ii. Pre-application activities. The provisions of § 1026.19(e)(2) apply prior to a consumer’s receipt of the disclosures required by § 1026.19(e)(1)(i) and therefore restrict activity that may occur prior to receipt of an application by a creditor or mortgage broker. These provisions include § 1026.19(e)(2)(i), which restricts the fees that may be imposed on a consumer, § 1026.19(e)(2)(ii), which requires a statement to be included on written estimates of terms or costs specific to a consumer, and § 1026.19(e)(2)(iii), which prohibits creditors from requiring the submission of documents verifying information related to the consumer’s application. Accordingly, the provisions of § 1026.19(e)(2) are effective on October 3, 2015, without respect to whether an application has been received on that date. iii. Determination of preemption. The amendments to § 1026.28 and the commentary to § 1026.29 govern the preemption of State laws, and thus the amendments to those provisions and associated commentary made by the TILA– RESPA Final Rule are effective on October 3, 2015, without respect to whether an application has been received on that date. iv. Post-consummation escrow cancellation disclosure and partial payment disclosure. A creditor, servicer, or covered person, as applicable, must provide the disclosures required by §§ 1026.20(e) and 1026.39(d)(5) for transactions for which the conditions in § 1026.20(e) or § 1026.39(d)(5), as applicable, exist on or after October 1, 2017, regardless of when the corresponding applications were received. For transactions in which such conditions exist on or after October 3, 2015, through September 30, 2017, a creditor, servicer, or covered person, as applicable, complies with §§ 1026.20(e) and 1026.39(d)(5) if it provides the mandated disclosures in all cases or if it provides them only in cases where the corresponding applications were received on or after October 3, 2015. v. Examples. For purposes of the following examples, an application received before or after the effective date is any submission for the purpose of obtaining an extension of credit that satisfies the definition in § 1026.2(a)(3), as adopted by the TILA– RESPA Final Rule, even if that definition was not yet in effect on the date in question. Cross-references in the following examples to VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 provisions of Regulation Z refer to those provisions as adopted or amended by the TILA–RESPA Final Rule, together with any subsequent amendments, unless noted otherwise. A. Application received on or after effective date of the TILA–RESPA Final Rule. Assume a creditor receives an application on October 3, 2015, and that consummation of the transaction occurs on October 31, 2015. The amendments of the TILA–RESPA Final Rule, including the requirement to provide the Loan Estimate and Closing Disclosure under § 1026.19(e) and (f), apply to the transaction. The creditor is also required to provide the special information booklet under § 1026.19(g). B. Application received before effective date. Assume a creditor receives an application on September 30, 2015, and that consummation of the transaction occurs on October 30, 2015. The requirement to provide the Loan Estimate and Closing Disclosure under § 1026.19(e) and (f) does not apply to the transaction. Instead, the creditor and the settlement agent must provide the disclosures required by § 1026.19, as it existed prior to the effective date, and by Regulation X, 12 CFR 1024.8. Similarly, the creditor must provide the special information booklet required by Regulation X, 12 CFR 1024.6. However, the provisions of § 1026.19(e)(2) apply to the transaction beginning on October 3, 2015, because they became effective on October 3, 2015, without respect to whether an application was received by the creditor or mortgage broker on that date. C. Predisclosure written estimates. Assume a creditor receives a request from a consumer for a written estimate of terms or costs specific to the consumer on October 3, 2015, before the consumer submits an application to the creditor and thus before the consumer has received the disclosures required by § 1026.19(e)(1)(i). The creditor, if it provides such a written estimate to the consumer, must comply with § 1026.19(e)(2)(ii) and provide the required statement on the written estimate, even though the creditor has not received an application on that date. D. Request for preemption determination. Assume a creditor submits a request to the Bureau under § 1026.28(a)(1) for a determination of whether a State law is inconsistent with the disclosure requirements in Regulation Z on October 3, 2015. Because the amendments to § 1026.28(a)(1) are effective on that date and do not depend on whether the creditor has received an application, § 1026.28(a)(1) is applicable to the request on that date, and the Bureau would make a determination based on the provisions of Regulation Z in effect on that date, including the requirements of § 1026.19(e) and (f). E. Application of the effective dates for the post-consummation escrow cancelation disclosure and partial payment disclosure. Assume a creditor receives an application for a mortgage loan on October 10, 2010, and the loan was consummated. Assume further that, on December 18, 2016, the escrow account established in connection with the mortgage loan is canceled or the loan is sold to another covered person. A creditor, servicer, or PO 00000 Frm 00055 Fmt 4701 Sfmt 4702 54371 covered person, as applicable, complies with §§ 1026.20(e) and 1026.39(d)(5) if it provides the disclosures required by those provisions to the consumer, but the creditor, servicer, or covered person, as applicable, is not required to provide the disclosures in this case. Assume the same circumstances, except that the escrow account established in connection with the loan is canceled or the mortgage loan is sold to another covered person on April 14, 2018. A creditor, servicer, or covered person, as applicable, must provide the disclosures in § 1026.20(e) or 1026.39(d)(5), as applicable, because a condition requiring these disclosures occurred after October 1, 2017 (thus the date the application was received is irrelevant). Section 1026.2—Definitions and Rules of Construction * * * * * 2(a)(11) Consumer. * * * * * 3. Trusts. Credit extended to trusts established for taxation or estate planning purposes or to land trusts, as described in comment 3(a)–10, is considered to be extended to a natural person for purposes of the definition of consumer. * * * * * Section 1026.3—Exempt Transactions * * * * * 3(h) Partial exemption for certain mortgage loans. * * * * * 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) are 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 retain evidence reflecting that the costs payable by the consumer in connection with the transaction at consummation are limited to recording fees, transfer taxes, application fees, and housing counseling fees, and that the total of application and housing counseling fees is less than 1 percent of the amount of credit extended, in accordance with § 1026.3(h)(5). Unless the itemization of the amount financed provided to the consumer 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). 3. Recording fees. See comment 37(g)(1)–1 for a discussion of what constitutes a recording fee. 4. Transfer taxes. See comment 37(g)(1)–3 for a discussion of what constitutes a transfer tax. * E:\FR\FM\15AUP3.SGM * * 15AUP3 * * 54372 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules Section 1026.17—General Disclosure Requirements * * * * * 17(c) Basis of Disclosures and Use of Estimates. * * * * * Paragraph 17(c)(6). * * * * * 5. Allocation of costs. When a creditor utilizes the special rule in § 1026.17(c)(6) to disclose credit extensions as multiple transactions, all costs of the transactions must be allocated for purposes of calculating disclosures. If a creditor chooses to disclose the credit as multiple transactions, the creditor must allocate to the construction phase all amounts that would not be imposed but for the construction financing. All other amounts must be allocated to the permanent financing. For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase. If a creditor charges separate application or origination fees for the construction phase and the permanent phase, such fees must be allocated to the phase for which they are charged. If a creditor charges an application or origination fee for construction financing only but charges a greater application or origination fee for construction-permanent financing, the difference between the two fees must be allocated to the permanent phase. 6. May be permanently financed by the same creditor. For purposes of determining whether a creditor may treat a constructionpermanent loan as one transaction or more than one transaction under § 1026.17(c)(6)(ii), a loan to finance the construction of a dwelling may be permanently financed by the same creditor, within the meaning of § 1026.17(c)(6)(ii), if the creditor generally makes both construction financing and permanent financing available to qualifying consumers, unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 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 § 1026.17(f) even if the prior disclosures would be considered accurate under the tolerances in § 1026.18(d) or 1026.22(a). To illustrate: i. Transactions not secured by real property or a cooperative unit. A. For transactions not secured by real property or a cooperative unit, if 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 not secured by real property or a cooperative unit, if early VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 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). C. If disclosures for transactions not secured by real property or a cooperative unit 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). ii. Reverse mortgages. In a transaction subject to § 1026.19(a) and not § 1026.19(e) and (f), assume that, at the time the disclosures required by § 1026.19(a) 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. Assume further that consummation actually occurs on August 5, and per-diem interest for the remainder of August is collected as a prepaid finance charge. The 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. iii. Transactions secured by real property or a cooperative unit other than reverse mortgages. For transactions secured by real property or a cooperative unit other than reverse mortgages, assume that, 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. Assume further that consummation actually occurs on August 5, and per-diem interest for the remainder of August is collected as a 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. 2. Variable rate. The addition of a variable rate feature to the credit terms, after early disclosures are given, requires new disclosures. See § 1026.19(e) and (f) to determine when new disclosures are required for transactions secured by real property or a cooperative unit, other than reverse mortgages. A. Unsecured; B. Secured by personal property that is not a dwelling; C. Secured by personal property (other than a cooperative unit) that is a dwelling and are 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 under § 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 under § 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 or a cooperative unit, 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. * * * * * 18(g) Payment Schedule. * * * * * Section 1026.18—Content of Disclosures 6. Mortgage transactions. Section 1026.18(g) applies to closed-end transactions, other than transactions that are subject to § 1026.18(s) or § 1026.19(e) and (f). Section 1026.18(s) applies to closed-end transactions secured by real property or a dwelling, unless they are subject to § 1026.19(e) and (f). Section 1026.19(e) and (f) applies to closedend transactions secured by real property or a cooperative unit, other than reverse mortgages. Thus, if a closed-end consumer credit transaction is secured by real property, a cooperative unit, or a dwelling and the transaction is a reverse mortgage or the dwelling is personal property but not a cooperative unit, then the creditor discloses an interest rate and payment summary table in accordance with § 1026.18(s). See comment 18(s)–4. If a closed-end consumer credit transaction is secured by real property or a cooperative unit 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 to the requirements of § 1026.18(g). On the other hand, if a closedend consumer credit transaction is not secured by real property or a dwelling (for example, if it is unsecured or secured by an automobile), the creditor discloses a payment schedule in accordance with § 1026.18(g) and is not subject to the requirements of § 1026.18(s) or §§ 1026.37(c) and 1026.38(c). * * * * * * * * * * * 3. Scope of coverage. i. Section 1026.18 applies to closed-end consumer credit transactions, other than transactions that are subject to § 1026.19(e) and (f). Section 1026.19(e) and (f) applies to closed-end consumer credit transactions that are secured by real property or a cooperative unit, 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: PO 00000 Frm 00056 Fmt 4701 Sfmt 4702 * * * * 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 reverse mortgages and certain transactions secured by dwellings that are personal property but not cooperative units. 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 E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules and format substantially similar to model clause H–4(E), H–4(F), H–4(G), or H–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 ‘‘biweekly’’ 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). * * * * * 4. Scope of coverage in relation to § 1026.19(e) and (f). Section 1026.18(s) applies to transactions secured by 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 or a cooperative unit, other than reverse mortgages. Accordingly, § 1026.18(s) governs only closed-end reverse mortgages and closed-end transactions secured by a dwelling, other than a cooperative, that is personal property (such as a mobile home that is not deemed real property under State or other applicable law). * * * * * Section 1026.19—Certain Mortgage and Variable-Rate Transactions * * * * * 19(e) Mortgage loans—Early disclosures. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 19(e)(1) Provision of 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 or a cooperative unit, 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 § 1026.17(c)(2)(i). Section 1026.17(c)(2)(i) provides that if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. The ‘‘reasonably available’’ standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. See comment 17(c)(2)(i)–1 for an explanation of the standard set forth in § 1026.17(c)(2)(i). See comment 17(c)(2)(i)–2 for labeling disclosures required under § 1026.19(e) that are estimates. 2. Cooperative Units. Section 1026.19(e)(1)(i) requires early disclosure of credit terms in closed-end credit transactions, other than reverse mortgages, that are secured by real property or a VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 cooperative unit, regardless of whether a cooperative unit is treated as real property under State or other applicable law. * * * * * 19(e)(1)(iii) Timing. * * * * * 5. Multiple-advance construction loans. Section 1026.19(e)(1)(iii) generally requires a creditor to deliver the Loan Estimate or place it in the mail not later than the third business day after the creditor receives the consumer’s application and not later than the seventh business day before consummation. When a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, § 1026.17(c)(6)(ii) and comment 17(c)(6)–2 permit creditors to treat the construction phase and the permanent phase as either one transaction, with one combined disclosure, or more than one transaction, with a separate disclosure for each transaction. Comment 17(c)(6)–6 explains that a loan to finance the construction of a dwelling meets the condition that it ‘‘may be permanently financed by the same creditor’’ if the creditor generally makes both construction and permanent financing available to qualifying consumers, unless the consumer expressly states that the consumer will not obtain permanent financing from the creditor. Therefore, a creditor that generally makes both construction and permanent financing available, upon receiving a consumer’s application for either construction financing only without the consumer expressly stating that the consumer will not obtain permanent financing from the creditor or combined construction-permanent financing, complies with § 1026.19(e)(1)(iii) by delivering or placing in the mail the disclosures required by § 1026.19(e)(1)(i) for both the construction financing and the permanent financing, disclosed as either one or more than one transaction, not later than the third business day after the creditor receives the application and not later than the seventh business day before consummation. To illustrate: i. Assume a creditor receives a consumer’s application for construction financing only on Monday, June 1. Assume further that the creditor generally makes both construction and permanent financing available to qualifying consumers and that the consumer does not expressly state that the consumer will not obtain permanent financing from the creditor. In these circumstances, the construction loan that the consumer applied for is a loan to finance construction of a dwelling that may be permanently financed by the same creditor under comment 17(c)(6)–6. The creditor therefore must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for both the construction financing and the permanent financing, either disclosed as one or more than one transaction, not later than Thursday, June 4, the third business day after the creditor received the consumer’s application, and not later than the seventh business day before consummation of the transaction, even though the application is for construction financing only. ii. Assume a creditor receives a consumer’s application for construction financing only on Monday, June 1. Assume further that the PO 00000 Frm 00057 Fmt 4701 Sfmt 4702 54373 creditor generally makes only construction financing available to qualifying consumers. In these circumstances, the construction loan for which the consumer applied is not a loan to finance construction of a dwelling that may be permanently financed by the same creditor under comment 17(c)(6)–6. The creditor therefore must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for the construction financing only not later than Thursday, June 4, the third business day after the creditor received the consumer’s application, and not later than the seventh business day before consummation of the transaction. iii. Assume a creditor receives a consumer’s application for construction financing only on Monday, June 1. Assume further that the creditor generally makes both construction and permanent financing available to qualifying consumers and that the consumer expressly states that the consumer will not obtain permanent financing from the creditor. In these circumstances, the construction loan for which the consumer applied is not a loan to finance construction of a dwelling that may be permanently financed by the same creditor under comment 17(c)(6)–6. The creditor therefore must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for the construction financing only not later than Thursday, June 4, the third business day after the creditor received the consumer’s application, and not later than the seventh business day before consummation of the transaction. iv. Assume the same facts as in comment 19(e)(1)(iii)–5.i, under which the creditor provides the disclosures required by § 1026.19(e)(1)(i) for both construction financing and permanent financing. If the creditor generally conducts separate closings for the construction financing and the permanent financing or expects that the construction financing and the permanent financing may have separate closings, providing separate Loan Estimates for the construction financing and for the permanent financing allows the creditor to deliver separate Closing Disclosures for the separate phases. For example, assume further that the consumer has requested permanent financing after receiving separate Loan Estimates for the construction financing and for the permanent financing, that consummation of the construction financing is scheduled for July 1, and that consummation of the permanent financing is scheduled on or about June 1 of the following year. The creditor may provide the construction financing Closing Disclosure at least three business days before consummation of that transaction on July 1 and delay providing the permanent financing Closing Disclosure until three business days before consummation of that transaction on or about June 1 of the following year, in accordance with § 1026.19(f)(1)(ii). The creditor may also issue a revised Loan Estimate for the permanent financing at any time prior to 60 days before consummation, following the procedures under § 1026.19(e)(3)(iv)(F). v. If a consumer expressly states that the consumer will not obtain permanent financing from the creditor after a combined E:\FR\FM\15AUP3.SGM 15AUP3 54374 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules construction-permanent financing disclosure already has been provided, the creditor complies with § 1026.17(c)(6)(ii) by issuing a revised disclosure for construction financing only in accordance with the timing requirements of § 1026.19(e)(4). * * * * * 19(e)(1)(vi) Shopping for settlement service providers. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 2. Disclosure of services for which the consumer may shop. Section 1026.19(e)(1)(vi)(B) requires the creditor to identify the services for which the consumer is permitted to shop in the disclosures provided under § 1026.19(e)(1)(i). If the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service unless, based on the best information reasonably available to the creditor when the disclosure is provided, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Specific identification of each service in such a package is not required provided all such services are services for which the consumer is permitted to shop. See § 1026.37(f)(3) regarding the content and format for disclosure of services for which the consumer may shop. 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 at least one available provider of that service and stating that the consumer may choose a different provider for that service. The settlement service providers identified on the written list required by § 1026.19(e)(1)(vi)(C) must correspond to the settlement services for which the consumer may shop, disclosed under § 1026.37(f)(3). See form H–27 in appendix H to this part for a model list. Although use of the model form H–27 in appendix H to this part is not required, creditors using it properly will be deemed to be in compliance with § 1026.19(e)(1)(vi)(C). 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 charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service and an available provider of that service on the written list of providers unless, based on the best information reasonably available to the creditor at the time the disclosure is VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 provided, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Specific identification of each service in such a package is not required provided they all are services for which the consumer is permitted to shop. * * * * * 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 closing cost disclosed under § 1026.19(e) is not in good faith if the charge paid by or imposed on the consumer exceeds the amount originally disclosed under § 1026.19(e)(1)(i). Although § 1026.19(e)(3)(ii) and (iii) provide exceptions to the general rule, the charges that are generally 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 shop for a third party service provider for a settlement service. v. Transfer taxes. * * * * * 8. ‘‘Paid by or imposed on’’ and ‘‘payable.’’ The term ‘‘paid by or imposed on,’’ as used in §§ 1026.19(e)(3)(i) and 1026.19(e)(3)(ii)(A), has the same meaning as the term ‘‘payable,’’ as used elsewhere in this part. 19(e)(3)(ii) Limited increases permitted for certain charges. * * * * * 2. Aggregate increase limited to ten percent. Under § 1026.19(e)(3)(ii)(A), 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) increases by more than 10 percent, regardless of whether a particular charge increases by more than 10 percent. This is true even if an individual charge was omitted from the estimates entirely and then imposed at consummation. In all cases, however, the creditor must also comply with the requirements in § 1026.19(e)(3)(ii)(B) and (C) to satisfy the good faith standard under § 1026.19(e)(3)(ii). 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) or the list does not comply with the requirements of § 1026.19(e)(1)(vi)(B) and (C), good faith is determined under § 1026.19(e)(3)(i) instead of § 1026.19(e)(3)(ii) or (iii) regardless of the provider selected by the consumer. The following examples illustrate this principle (and also assume the requirements in § 1026.19(e)(3)(ii)(B) and (C) are satisfied): i. Assume that, in the disclosures provided under § 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 settlement agent fee) equals $1,000. In this PO 00000 Frm 00058 Fmt 4701 Sfmt 4702 case, the creditor does not violate § 1026.19(e)(3)(ii) if the actual settlement agent fee exceeds the estimated settlement agent fee by more than 10 percent (i.e., the fee exceeds $330), provided that the sum of all such actual charges does not exceed the sum of all such estimated charges by more than 10 percent (i.e., the sum of all such charges does not exceed $1,100). ii. Assume that, in the disclosures provided under § 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 under § 1026.19(e)(1)(i). * * * * * 19(e)(3)(iii) Variations permitted for certain charges. * * * * * 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 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 under § 1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on 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 consumer informs the creditor that the consumer will choose a settlement agent not identified by the creditor on the written list provided under § 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) and good faith is determined under § 1026.19(e)(3)(i). 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) or the list does not comply with the requirements of § 1026.19(e)(1)(vi)(B) and (C), good faith is determined under § 1026.19(e)(3)(i) instead of § 1026.19(e)(3)(iii) regardless of the provider selected by the consumer. 3. Good faith requirement for property taxes or non-required services chosen by the consumer. Differences between the amounts of estimated charges for property taxes or services not required by the creditor disclosed under § 1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on the consumer do not constitute a lack of good faith, so long as the original estimated E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 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 consumer informs the creditor that the consumer will obtain a type of inspection not required by the creditor, the creditor must include the charge for that item in the disclosures provided under § 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). The original estimated charge, or lack of an estimated charge for a particular service, complies with § 1026.19(e)(3)(iii) if it is made based on the best information reasonably available to the creditor at the time that the estimate was provided. But, for example, if the subject property is located in a jurisdiction where consumers are customarily represented at closing by their own attorney, even though it is not a requirement, and 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 under § 1026.19(e)(1)(i), then the creditor’s failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii). Similarly, the amount disclosed for property taxes must be based on the best information reasonably available to the creditor at the time the disclosure was provided. For example, if the creditor fails to include a charge for property taxes, or includes an unreasonably low estimate for that charge, on the original estimates provided under § 1026.19(e)(1)(i), then the creditor’s failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii). 4. Bona fide charges. In covered transactions, § 1026.19(e)(1)(i) requires the creditor to provide the consumer with good faith estimates of the disclosures in § 1026.37. Section 1026.19(e)(3)(iii) provides that an estimate of the charges listed in § 1026.19(e)(3)(iii) is in good faith if it is consistent with the best information reasonably available to the creditor at the time the disclosure is provided and that good faith is determined under § 1026.19(e)(3)(iii) even if such charges are paid to affiliates of the creditor, so long as the charges are bona fide. To be bona fide, charges must be lawful and for services that are actually performed. 19(e)(3)(iv) Revised estimates. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 2. Actual increase. A creditor may determine good faith under § 1026.19(e)(3)(i) and (ii) based on the increased charges reflected on revised disclosures 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 on which a creditor relies for purposes of determining good faith under § 1026.19(e)(3)(i) 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 the creditor may not rely on changes to other charges unrelated to the rate lock VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 extension for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii). * * * * * 4. Revised disclosures for general informational purposes. Section 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures for informational purposes, e.g., to keep the consumer apprised of updated information, even if the revised disclosures may not be used for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii). See comment 19(e)(3)(iv)(A)–1.ii for an example in which the creditor issues revised disclosures even though the sum of all costs subject to the 10 percent tolerance category has not increased by more than 10 percent. 5. Best information reasonably available. Regardless of whether a creditor may use particular disclosures for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii), except as otherwise provided in § 1026.19(e), any disclosures must be based on the best information reasonably available to the creditor at the time they are provided to the consumer. See § 1026.17(c)(2)(i) and comment 17(c)(2)(i)–1. For example, if the creditor issues revised disclosures reflecting a new rate lock extension fee for purposes of determining good faith under § 1026.19(e)(3)(i), other charges unrelated to the rate lock extension should be reflected on the revised disclosures based on the best information reasonably available to the creditor at the time the revised disclosures are provided. Nonetheless, any increases in those other charges unrelated to the lock extension may not be used for the purposes of determining good faith under § 1026.19(e)(3). * * * * * 19(e)(3)(iv)(D) Interest rate dependent charges. 1. Requirements. If the interest rate is not locked when the disclosures required by § 1026.19(e)(1)(i) are provided, then, no later than three business days after the date the interest rate is subsequently locked, § 1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version of the disclosures required under § 1026.19(e)(1)(i) reflecting the revised interest rate, the points disclosed under § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms. The following example illustrates 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 original disclosures required under § 1026.19(e)(1)(i) are provided, then the actual points and lender credits are compared to the estimated points disclosed under § 1026.37(f)(1) and lender credits included in the original disclosures provided under § 1026.19(e)(1)(i) for the purpose of determining good faith under § 1026.19(e)(3)(i). If the consumer enters into a rate lock agreement with the creditor after the disclosures required under § 1026.19(e)(1)(i) were provided, then § 1026.19(e)(3)(iv)(D) requires the creditor to provide, no later than three business days after the date that the consumer and the creditor enter into a rate lock agreement, a revised version of the disclosures required PO 00000 Frm 00059 Fmt 4701 Sfmt 4702 54375 under § 1026.19(e)(1)(i) reflecting the revised interest rate, the points disclosed under § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms. Provided that the revised version of the disclosures required under § 1026.19(e)(1)(i) reflect any revised points disclosed under § 1026.37(f)(1) and lender credits, the actual points and lender credits are compared to the revised points and lender credits for the purpose of determining good faith under § 1026.19(e)(3)(i). 2. After the Closing Disclosure is provided. Under § 1026.19(e)(3)(iv)(D), no later than three business days after the date the interest rate is locked, the creditor must provide a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) to the consumer. Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) on or after the date on which the creditor provides the Closing Disclosure as required by § 1026.19(f)(1)(i). If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms. If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three days before consummation, as provided in that paragraph. 19(e)(3)(iv)(E) Expiration. 1. Requirements. If the consumer indicates an intent to proceed with the transaction more than 10 business days after the disclosures were originally provided under § 1026.19(e)(1)(iii), for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of a charge instead of the amount originally disclosed under § 1026.19(e)(1)(i). Section 1026.19(e)(3)(iv)(E) requires no justification for the change to the original estimate other than the lapse of 10 business days. For example, assume a creditor includes a $500 underwriting fee on the disclosures provided under § 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 under § 1026.19(e)(3)(iv)(E) but do not require the creditor to document a reason for the increase in the underwriting fee. 2. Longer time period. For transactions in which the interest rate is locked for a specific period of time, § 1026.37(a)(13)(ii) requires the creditor to provide the date and time (including the applicable time zone) when that period ends. If the creditor establishes a period greater than 10 business days after the disclosures were originally provided (or subsequently extends it to such a longer period) before the estimated closing costs expire, notwithstanding the 10-business-day E:\FR\FM\15AUP3.SGM 15AUP3 54376 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules period discussed in comment 19(e)(3)(iv)(E)– 1, that longer time period becomes the relevant time period for purposes of § 1026.19(e)(3)(iv)(E). Accordingly, in such a case, the creditor may not issue revised disclosures for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii) under § 1026.19(e)(3)(iv)(E) until after the longer time period has expired. A creditor establishes such a period greater than 10 business days by communicating the greater time period to the consumer, including through oral communication. * * * * * 19(e)(4) Provision and receipt of revised disclosures. * * * * * 19(e)(4)(ii) Relationship to disclosures required under § 1026.19(f). sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 2. Corrected disclosures provided under § 1026.19(f)(2)(i) or (2)(ii). If there are fewer than four business days between the time the revised version of the disclosures is required to be provided under § 1026.19(e)(4)(i) and consummation or the Closing Disclosure required by § 1026.19(f)(1) has already been provided to the consumer, creditors comply with the requirements of § 1026.19(e)(4) (to provide a revised estimate under § 1026.19(e)(3)(iv) for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii)) if the revised disclosures are reflected in the corrected disclosures provided under § 1026.19(f)(2)(i) or (2)(ii), subject to the other requirements of § 1026.19(e)(4)(i). 19(f) Mortgage loans—Final disclosures. 19(f)(1) Provision of disclosures. 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 or a cooperative unit, 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 under § 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 corrected 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) and (f)(2). For example, if the creditor provides the disclosures required by § 1026.19(f)(1)(i) on Monday, June 1, but the consumer adds a mobile notary service 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 corrected disclosures are also provided at or before consummation, under § 1026.19(f)(2)(i). * * * VerDate Sep<11>2014 * * 21:21 Aug 12, 2016 Jkt 238001 19(f)(2)(iii) Changes due to events occurring after consummation. consummation. See comments 38–4 and 38(h)(3)–2 for additional guidance on disclosing refunds. 19(f)(3) Charges disclosed. * * 19(f)(2) Subsequent changes. * * * * * * * * * 2. Per-diem interest. Under § 1026.19(f)(2)(iii), if during, the 30-day period following consummation, an event in connection with the settlement of the transaction occurs that causes the disclosures to become inaccurate, and such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed under § 1026.19(f)(1)(i), the creditor must provide the consumer corrected disclosures. Under § 1026.17(c)(2)(ii), for a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest is considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction. A creditor is not required to provide to the consumer corrected disclosures under § 1026.19(f)(2)(iii) for any disclosure affected by the per-diem interest that is considered accurate under § 1026.17(c)(2)(ii), even if the amount actually paid by the consumer differs from the amount disclosed under § 1026.38(g)(2) and (o). See also comment 17(c)(2)(ii)–1. * * * * * 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 consummation 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 no later than 60 days after consummation, and the creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers or places in the mail disclosures corrected to reflect the refund of such excess no later than 60 days after consummation. For example, assume that at consummation 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) exceed their respective estimates on the disclosures required under § 1026.19(e)(1)(i) by $30, $25, $25, and $15, then the total would exceed the limitations prescribed by § 1026.19(e)(3)(i) by $95. 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 the total would exceed the limitations prescribed by § 1026.19(e)(3)(ii) by $90. The creditor does not violate § 1026.19(e)(1)(i) if the creditor refunds $185 to the consumer no later than 60 days after consummation. The creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers or places in the mail corrected disclosures reflecting the $185 refund of the excess amount collected no later than 60 days after PO 00000 Frm 00060 Fmt 4701 Sfmt 4702 * * * * 19(f)(3)(ii) Average charge. * * * * * 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 or a cooperative unit 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 or a cooperative unit 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, 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. * * * * * 19(f)(4) Transactions involving a seller. 19(f)(4)(i) Provision to seller. 1. Requirement. Section 1026.19(f)(4)(i) requires the settlement agent to provide the seller with the disclosures required under § 1026.38 that relate to the seller’s transaction reflecting the actual terms of the seller’s transaction. The settlement agent complies with this provision by providing a copy of the Closing Disclosure provided to the consumer, if the Closing Disclosure also contains the information under § 1026.38 relating to the seller’s transaction or, alternatively, by providing the disclosures under § 1026.38(t)(5)(v) or (vi), as applicable. 2. Simultaneous loans for subordinate financing. In a purchase transaction with a simultaneous loan for subordinate financing, the settlement agent complies with § 1026.19(f)(4)(i) by providing the seller with only the Closing Disclosure on the first-lien transaction if that Closing Disclosure records the entirety of the seller’s transaction. If the first-lien Closing Disclosure does not record the entirety of the seller’s transaction, the Closing Disclosure for the simultaneous loan for subordinate financing must be provided to the seller and reflect the seller’s transaction as applicable to the subordinate E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules financing. In this case, the settlement agent complies with § 1026.19(f)(4)(i) by providing the seller with a copy of the Closing Disclosure for both the first lien and the simultaneous loan for subordinate financing, if they also contain the information under § 1026.38 relating to the seller’s transaction, or by providing the disclosures under § 1026.38(t)(5)(v) or (vi), as applicable. * * * * * Section 1026.23—Right of Rescission * * * * * 23(g) Tolerances for Accuracy. 1. Example. See comment 38(o)–1 for examples illustrating the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). * * * * * 23(h) Special Rules for Foreclosures. * * * * * 23(h)(2) Tolerance for Disclosures. 1. General. This section is based on the accuracy of the total finance charge rather than its component charges. For each transaction subject to § 1026.19(e) and (f), this section is also based on the accuracy of the total of payments, taken as a whole, rather than its components. 2. Example. See comment 38(o)–1 for examples illustrating the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). * * * * * Section 1026.25—Record Retention * * * * * 25(c) Records Related to Certain Requirements for Mortgage Loans. 25(c)(1) Records related to requirements for loans secured by real property or a cooperative unit. * * * * * Section 1026.37—Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) * * * * * 37(a) General information. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 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 unless it has performed its own estimate of the property value by the time the disclosure is provided to the consumer, in which case it must use its own estimate. If the creditor has obtained any appraisals or valuations of the property for the application at the time the disclosure is 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. If the creditor has obtained multiple appraisals or valuations and has not yet determined which one will be used during underwriting, it may disclose the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 54377 value from any appraisal or valuation it reasonably believes it may use in underwriting the transaction. In a transaction that involves a seller, if the sale price is not yet known, the creditor complies with § 1026.37(a)(7) if it discloses the estimated value of the property that it used as the basis for the disclosures in the Loan Estimate. 2. Personal property. In transactions involving personal property that is separately valued from real property, only the value of the real property or cooperative unit is disclosed under § 1026.37(a)(7). Where personal property is included in the sale price of the real property or cooperative unit (for example, if the consumer is purchasing the furniture inside the dwelling), however, § 1026.37(a)(7) permits disclosure of the aggregate price without any reduction for the appraised or estimated value of the personal property. 37(a)(8) Loan term. loan), not renovations to existing dwellings, and in transactions where a multiple advance loan may be permanently financed by the same creditor (construction-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-permanent loans, see § 1026.17(c)(6)(ii), comments 17(c)(6)–2 and –3, and appendix D to this part. iv. Home equity loan. The creditor is required to disclose that the credit is for a ‘‘home equity loan’’ if the creditor intends to extend credit for any purpose other than a purchase, refinancing, or construction. This disclosure applies whether the loan is secured by a first or subordinate lien. * 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 first adjustment period, 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 borrower is permitted to make payments that result in negative amortization (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 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, as required by § 1026.37(a)(10)(iii), the disclosure must reference the negative amortization feature and not the interest only feature (e.g., ‘‘5 Year Negative Amortization, Fixed Rate’’). See comment app. D–7.ii for an explanation of the disclosure of the time period of an interest only feature for a construction loan or a construction-permanent loan. iii. Step payment. When disclosing a step payment feature (which is sometimes referred to instead as a graduated payment), the period of time at the end of which the scheduled payments will change must precede the label ‘‘Step Payment’’ (e.g., ‘‘5 Year Step Payment’’) followed by the name * * * * 3. Loan term start date. See comment app. D–7.i for an explanation of how a creditor discloses the loan term of a multiple-advance loan to finance the construction of a dwelling that may be permanently financed by the same creditor. 37(a)(9) Purpose. 1. General. Section 1026.37(a)(9) requires disclosure of the consumer’s intended use of the credit. 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. If 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 proceeds from the transaction to purchase the property that will secure the extension of credit. In a purchase transaction with a simultaneous loan for subordinate financing, the simultaneous loan is also disclosed with the purpose ‘‘Purchase.’’ 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 newlyextended 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 initial construction (construction-only PO 00000 Frm 00061 Fmt 4701 Sfmt 4702 * * * * * 37(a)(10) Product. * E:\FR\FM\15AUP3.SGM * * 15AUP3 * * 54378 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 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 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 a step 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.’’ If the loan product includes more than one balloon payment, only the earliest year that a balloon payment is due shall be disclosed. 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)(13) Rate lock. * * * * * 2. Expiration date. The disclosure required by § 1026.37(a)(13)(ii) related to estimated closing costs is required regardless of whether the interest rate is locked for a specific period of time or whether the terms and costs are otherwise accepted or extended. If the consumer fails to indicate an intent to proceed with the transaction within 10 business days after the disclosures were originally provided under § 1026.19(e)(1)(iii) (or within any longer time period established by the creditor), then for determining good faith under § 1026.19(e)(3)(i) and (ii) a creditor may use a revised estimate of a charge instead of the amount originally disclosed under § 1026.19(e)(1)(i). See comment 19(e)(3)(iv)(E)–2. * * * * * sradovich on DSK3GMQ082PROD with PROPOSALS3 4. Revised Disclosures. Once the consumer indicates an intent to proceed within the time specified by the creditor under § 1026.37(a)(13)(ii), the date and time at which estimated closing costs expire are left blank on subsequent revised disclosures, if any. The creditor may extend the period of availability to expire beyond the time disclosed under § 1026.37(a)(13)(ii). If the consumer indicates an intent to proceed within that longer time period, the date and time at which estimated closing costs expire are left blank on subsequent revised disclosures, if any. See comment 19(e)(3)(iv)– 5. 37(b) Loan terms. * * * * * 37(b)(2) Interest rate. 1. Interest rate at consummation not known. Where the interest rate that will apply at consummation is not known at the time the creditor must deliver the disclosures required by § 1026.19(e), § 1026.37(b)(2) requires disclosure of the fully-indexed rate, defined as the index plus the margin at consummation. Although § 1026.37(b)(2) VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 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 disclosures are provided under § 1026.19(e)(1)(iii), i.e., 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 delivered. The index in effect at consummation (or the time the disclosure is delivered under § 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. See comment app. D– 7.iii for an explanation of the disclosure of the permanent financing interest rate for a construction-permanent loan. 37(b)(3) Principal and interest payment. * * * * * 2. Initial periodic payment if not known. Under § 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 is not known because it will be based on an interest rate at consummation that is not known at the time the disclosures required by § 1026.19(e) must be provided, for example, if it is based on an external index that may fluctuate before consummation, § 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 fullyindexed rate. See comment app. D–7.iv for an explanation of the disclosure of the initial periodic payment for a construction or construction-permanent loan. * * * * * 37(b)(6) Adjustments after consummation. * * * * * 37(b)(6)(iii) Increase in periodic payment. 1. Additional information regarding increase in periodic payment. A creditor complies with the requirement under § 1026.37(b)(6)(iii) to disclose additional information indicating the scheduled frequency of adjustments to the periodic principal and interest payment by using the phrases ‘‘Adjusts every’’ and ‘‘starting in.’’ A creditor complies with the requirement under § 1026.37(b)(6)(iii) to disclose additional information indicating 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 by using the phrase ‘‘Can go as high as’’ and then indicating the date at the end of that phrase or, for a scheduled maximum amount, such as under a step payment loan, ‘‘Goes as high as.’’ A creditor complies with the requirement under § 1026.37(b)(6)(iii) to indicate that there is a period during which only interest is required to be paid and the due date of the last periodic payment of such period using the PO 00000 Frm 00062 Fmt 4701 Sfmt 4702 phrase ‘‘Includes only interest and no principal until.’’ See form H–24 of appendix H to this part for the required format of such phrases, which is required for federally related mortgage loans under § 1026.37(o)(3). See comment app. D–7.v for an explanation of the disclosure of an increase in the periodic payment for a construction or construction-permanent loan. * * * * * 37(c) Projected payments. * * * * * 2. Construction loans. See comment app. D–7.vi for an explanation of the projected payments disclosure for a construction or construction-permanent loan. 37(c)(1) Periodic payment or range of payments. * * * * * Paragraph 37(c)(1)(iii). * * * * * Paragraph 37(c)(1)(iii)(B). 1. Multiple events occurring in a single year. If changes to periodic principal and interest payments would result in more than one separate periodic payment or range of payments in a single year, § 1026.37(c)(1)(iii)(B) requires the creditor to disclose the range of payments that would apply during the year in which the events occur. For example: i. Assume a loan with a 30-year term with a payment that adjusts every month for the first 12 months and is fixed thereafter, where mortgage insurance is not required, and where no escrow account would be established for the payment of charges described in § 1026.37(c)(4)(ii). The creditor discloses as a single range of payments the initial periodic payment and the periodic payment that would apply after each payment adjustment during the first 12 months, which single range represents the minimum payment and maximum payment, respectively. Under § 1026.37(c)(1)(i)(D), the creditor also discloses, as an additional separate periodic payment or range of payments, the periodic principal and interest payment or range of payments that would apply after the payment becomes fixed. ii. Assume instead a loan with a 30-year term with a payment that adjusts upward at three months and at six months and is fixed thereafter, where mortgage insurance is not required, and where no escrow account would be established for the payment of charges described in § 1026.37(c)(4)(ii). The creditor discloses as a single range of payments the initial periodic payment, the periodic payment that would apply after the payment adjustment that occurs at three months, and the periodic payment that would apply after the payment adjustment that occurs at six months, which single range represents the minimum payment and maximum payment, respectively, which would apply during the first year of the loan. Under § 1026.37(c)(1)(i)(D), the creditor also discloses as an additional separate periodic payment or range of payments, the principal and interest payment that would apply on the first anniversary of the due date of the initial periodic payment or range of payments, because that is the anniversary that immediately follows the occurrence of E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules the multiple payments or ranges of payments that occurred during the first year of the loan. iii. Assume that the same loan has a payment that, instead of becoming fixed after the adjustment at six months, adjusts once more at 18 months and becomes fixed thereafter. The creditor discloses the same single range of payments for year one. Under § 1026.37(c)(1)(i)(D), the creditor separately discloses the principal and interest payment that would apply on the first anniversary of the due date of the initial periodic payment in year two. Under § 1026.37(c)(1)(i)(A), the creditor also separately discloses the periodic payment that would apply after the payment adjustment that occurs at 18 months. See comment 37(c)(3)(ii)–1 regarding subheadings that state the years. * * * * * 37(c)(4) Taxes, insurance, and assessments. * * * * * Paragraph 37(c)(4)(iv). * * * * * 2. Amounts paid by the creditor using escrow account funds. Section 1026.37(c)(4)(iv) requires the creditor to disclose an indication of whether the amounts disclosed under § 1026.37(c)(4)(ii) will be paid by the creditor using escrow account funds. If only a portion of the amounts disclosed under § 1026.37(c)(4)(ii), including, without limitation, property taxes, homeowner’s insurance, and assessments, will be paid by the creditor using escrow account funds, the creditor may indicate that only a portion of the amounts disclosed will be paid using escrow account funds, such as by using the word ‘‘some.’’ 37(d) Costs at closing. 37(d)(2) Optional alternative table for transactions without a seller and simultaneous loans for subordinate financing. 1. Optional use. The optional alternative disclosure of the estimated cash to close provided for in § 1026.37(d)(2) may be used by a creditor only in a transaction without a seller or for simultaneous loans for subordinate financing. In a purchase transaction the optional alternative disclosure may be used for the simultaneous subordinate financing Loan Estimate only if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. Creditors may only use this alternative estimated cash to close disclosure in conjunction with the alternative disclosure under § 1026.37(h)(2). * * * * * 37(f) Closing cost details; loan costs. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 3. Construction loan inspection and handling fees. Inspection and handling fees for the staged disbursement of construction loan proceeds are loan costs associated with the transaction for purposes of § 1026.37(f). If such fees are collected at or before consummation, they are disclosed in the loan costs table. If such fees will be collected after consummation, they are disclosed in a separate addendum and are not counted for purposes of the calculating cash to close table. See comment 37(f)(6)–3 for an explanation of an addendum used to disclose VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 inspection and handling fees that will be collected after consummation. See also comments 38(f)–2 and app. D–7.viii. If the number of inspections and disbursements is not known at the time the disclosures are provided, the creditor discloses the fees that will be collected based on the best information reasonably available to the creditor at the time the disclosure is provided. See comment 19(e)(1)(i)–1. See § 1026.17(e) and its commentary for an explanation of the effect of subsequent events that cause inaccuracies in disclosures. * * * * construction or construction-permanent loan and comment app. D–7.viii for an explanation of the disclosure of construction loan inspection and handling fees. 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). Such lender credits include non-specific lender credits as well as specific lender credits. See comment 19(e)(3)(i)–5. * * * * * * * 3. Addendum for post-consummation inspection and handling fees. A creditor makes the disclosures required by § 1026.37(f) and comment 37(f)–3 of postconsummation charges for construction loan inspection and handling fees by disclosing the total of such fees under the heading ‘‘Inspection and Handling Fees Collected After Closing’’ in an addendum. If the amount of such fees is not known at the time the disclosures are provided, the disclosures in the addendum are based upon the best information reasonably available to the creditor at the time the disclosure is provided. See comment 19(e)(1)(i)–1. For example, such information could include amounts the creditor has previously charged in similar transactions. 37(g) Closing cost details; other costs. * * * * * * * 37(g)(4) Other. * * * 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 under the real estate purchase and sale 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 under the real estate purchase and sale contract. The creditor must also disclose the following amounts under § 1026.37(g)(4) unless the optional alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing is used and such amounts are disclosed under § 1026.37(h)(2)(iii) on that table: construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified under § 1026.37(a)(6), and payoff of unsecured debt. These costs are disclosed under § 1026.37(g) rather than § 1026.37(f) even when they are payable directly or indirectly to the creditor. For example, if a builder is also the creditor, the bona fide cost of construction is disclosed under § 1026.37(g)(4) and not § 1026.37(f). See comment 19(e)(3)(iii)–3 for a discussion of the good faith requirement for these services chosen by the consumer that are not required by the creditor. See also comment app. D–7.vii for an explanation of the disclosure of construction costs for a PO 00000 Frm 00063 Fmt 4701 Sfmt 4702 * * * * 37(h) Calculating cash to close. 37(h)(1) For all transactions. 37(f)(6) Use of addenda. * 54379 * * * * 2. Simultaneous loans for subordinate financing. The sale price disclosed § 1026.37(a)(7) is not used under § 1026.37(h)(1) in the calculating cash to close table calculations on the Loan Estimate for a simultaneous loan for subordinate financing disclosed. 37(h)(1)(ii) Closing costs financed. 1. Calculation of amount. The amount of closing costs financed disclosed under § 1026.37(h)(1)(ii) is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed under § 1026.37(f) and (g) from the loan amount disclosed under § 1026.37(b)(1). The estimated total amount of payments to third parties may include the sale price disclosed under § 1026.37(a)(7), if applicable. If the result of the calculation is a positive number, that amount is disclosed as a negative number under § 1026.37(h)(1)(ii), but only to the extent that the absolute value of the amount disclosed under § 1026.37(h)(1)(ii) does not exceed the total amount of closing costs disclosed under § 1026.37(g)(6). If the result of the calculation is zero or negative, the amount of $0 is disclosed under § 1026.37(h)(1)(ii). 2. Loan amount. The loan amount disclosed under § 1026.37(b)(1), which is a component of the closing costs financed calculation, is the total amount the consumer will borrow, as reflected by the face amount of the note. Financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. 37(h)(1)(iii) Down payment and other funds from borrower. 1. Down payment calculation. For purposes of § 1026.37(h)(1)(iii)(A)(1), the down payment is calculated as the difference between the sale price of the property and the sum of the loan amount and any amount of existing loans assumed or taken subject to that will be disclosed on the Closing Disclosure under § 1026.38(j)(2)(iv). Minimum cash investments required of consumers under some loan programs are not necessarily reflected, and accurate disclosure of the down payment under § 1026.37(h)(1)(iii)(A)(1) does not affect compliance or non-compliance with such loan programs’ requirements. 2. Funds for borrower. Section 1026.37(h)(1)(iii)(A)(2) requires that, when the sum of the loan amount disclosed under § 1026.37(b)(1) and any amount of existing loans assumed or taken subject to that will be disclosed under § 1026.38(j)(2)(iv) exceeds E:\FR\FM\15AUP3.SGM 15AUP3 54380 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules reflecting the specific seller credit in the amount disclosed for the pest inspection fee. 37(h)(1)(vii) Adjustments and other credits. 1. Other credits known at the time the Loan Estimate is issued. Amounts expected to be paid at closing by third parties not involved in the transaction, such as gifts from family members and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed under § 1026.37(h)(1)(vii). Amounts expected to be provided to consumers in advance of consummation by third parties not otherwise involved in the transaction, including amounts paid to consumers before consummation from family members, are not required to be disclosed under § 1026.37(h)(1)(vii). * sradovich on DSK3GMQ082PROD with PROPOSALS3 the sale price disclosed under § 1026.37(a)(7), the amount of funds from the consumer is determined in accordance with § 1026.37(h)(1)(v). Section 1026.37(h)(1)(iii)(B) requires that, for all nonpurchase transactions, the amount of funds from the consumer is determined in accordance with § 1026.37(h)(1)(v). Under § 1026.37(h)(1)(v), the amount to be disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B) is determined by subtracting the sum of the loan amount and any amount of existing loans assumed or taken subject to that will be disclosed under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.37(h)(1)(ii)) from the total amount of all existing debt being satisfied in the real estate closing. 5. Proceeds from subordinate financing or other source. Funds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed under § 1026.37(h)(1)(vii) on the first-lien transaction Loan Estimate. 6. Reduction in amounts for adjustments. Adjustments that require additional funds from the consumer pursuant to the real estate purchase and sale contract, such as for additional personal property that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v), may be included in the amount disclosed under § 1026.37(h)(1)(vii), provided such amounts are not included in the calculation under § 1026.37(h)(1)(iii) or (v) as debt being satisfied in the real estate transaction. Additional examples of such adjustments for additional funds from the consumer include prorations for property taxes and homeowner’s association dues. The total amount disclosed under § 1026.37(h)(1)(vii) is a sum of adjustments requiring additional funds from the consumer, calculated as positive amounts, and other credits, such as those provided for in comment 37(h)(1)(vii)–1, calculated as negative amounts. * * * * 37(h)(1)(v) Funds for borrower. 1. No funds for borrower. When the down payment is determined in accordance with § 1026.37(h)(1)(iii)(A)(1), the amount disclosed under § 1026.37(h)(1)(v) as funds for the borrower is $0. 2. Total amount of existing debt satisfied in the transaction. The amounts disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B), as applicable, and (h)(1)(v) are determined by subtracting the sum of the loan amount disclosed under § 1026.37(b)(1) and any amount of existing loans assumed or taken subject to that will be disclosed on the Closing Disclosure under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.37(h)(1)(ii)) from the total amount of all existing debt being satisfied in the transaction. The total amount of all existing debt being satisfied in the transaction includes amounts that will be disclosed on the Closing Disclosure in the summaries of transactions table under § 1026.38(j)(1)(ii), (iii), and (v), as applicable. 37(h)(1)(vi) Seller credits. 1. Non-specific seller credits to be disclosed. Non-specific seller credits, i.e., general payments from the seller to the consumer that do not pay for a particular fee on the disclosures provided under § 1026.19(e)(1), known to the creditor at the time of delivery of the Loan Estimate, are disclosed under § 1026.37(h)(1)(vi). For example, a creditor may learn the amount of seller credits that will be paid in the transaction from information obtained from the consumer, from a review of the purchase and sale contract, or from information obtained from a real estate agent in the transaction. 2. Seller credits for specific charges. To the extent known by the creditor at the time of delivery of the Loan Estimate, specific seller credits, i.e., seller credits for specific items disclosed under § 1026.37(f) and (g), may be either disclosed under § 1026.37(h)(1)(vi) or reflected in the amounts disclosed for those specific items under § 1026.37(f) and (g). For example, if the creditor knows at the time of the delivery of the Loan Estimate that the seller has agreed to pay half of a $100 required pest inspection fee, the creditor may either disclose the required pest inspection fee as $100 under § 1026.37(f) with a $50 seller credit disclosed under § 1026.37(h)(1)(vi) or disclose the required pest inspection fee as $50 under § 1026.37(f), VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 * * * * * * * * * * 37(h)(2) Optional alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing. 1. Optional use. The optional alternative disclosure of the calculating cash to close table in § 1026.37(h)(2) may only be provided by a creditor in a transaction without a seller, or for simultaneous loans for subordinate financing. In a purchase transaction the optional alternative disclosure may be used for the simultaneous subordinate financing Loan Estimate only if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. The use of this alternative table for transactions without a seller and simultaneous loans for subordinate financing is optional, but creditors may only use this alternative estimated cash to close disclosure in conjunction with the alternative disclosure under § 1026.37(d)(2). 37(h)(2)(iii) Payoffs and payments. 1. Examples. The amounts incorporated in the total amount disclosed under § 1026.37(h)(2)(iii), unless disclosed under PO 00000 Frm 00064 Fmt 4701 Sfmt 4702 § 1026.37(g)(4), include, but are not limited to: payoffs of existing liens secured by the property identified under § 1026.37(a)(6) such as existing mortgages, deeds of trust, judgments that have attached to the real property, mechanics’ and materialmen’s liens, and local, State and Federal tax liens; payments of unsecured outstanding debts of the consumer; if the loan purpose is construction in accordance with § 1026.37(a)(9)(iii), construction costs the consumer will be obligated to pay; and payments to other third parties for outstanding debts of the consumer, excluding settlement services. Amounts that will be paid with funds provided by the consumer, including partial payments, such as a portion of construction costs, or by third parties and disclosed on the Closing Disclosure under § 1026.38(t)(5)(vii)(B) are calculated as credits, using positive numbers, in the total amount disclosed under § 1026.37(h)(2)(iii). 2. Disclosure of subordinate financing. On the Loan Estimate for a first-lien transaction disclosed under § 1026.37(h)(2) that also has a simultaneous loan for subordinate financing, the proceeds of the subordinate financing are included, as a positive number, in the total amount disclosed under § 1026.37(h)(2)(iii). The total amount disclosed under § 1026.37(h)(2)(iii) will be a negative number unless the proceeds from subordinate financing and any amounts entered as credits as discussed in comment 37(h)(2)(iii)–1 equal or exceed the total amount of other payoffs and payments that are included in the calculation for the amount disclosed under § 1026.37(h)(2)(iii), in which case the total amount disclosed under § 1026.37(h)(2)(iii) is disclosed as $0 or a positive number. * * * * * 37(k) Contact information. * * * * * 3. Contact. Section 1026.37(k)(2) requires the disclosure of the name and NMLSR ID of the person who is the primary contact for the consumer, labeled ‘‘Loan Officer.’’ The loan officer is generally the natural person employed by the creditor or mortgage broker disclosed under § 1026.37(k)(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 § 1026.37(k)(2), as applicable. * * * * * 37(l) Comparisons. 37(l)(1) In five years. * * * * * Paragraph 37(l)(1)(i). 1. Calculation of total payments in five years. The amount disclosed under § 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 guidance on how to calculate interest for mortgage loans that are Adjustable Rate products under § 1026.37(a)(10)(i)(A) for purposes of § 1026.37(l)(1)(i), see comment 17(c)(1)–10. In addition, for purposes of § 1026.37(l)(1)(i), the creditor should assume that the consumer makes payments as scheduled and on time. E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules For purposes of § 1026.37(l)(1)(i), mortgage insurance means ‘‘mortgage insurance or any functional equivalent’’ as defined under comment 37(c)(1)(i)(C)–1 and includes prepaid or escrowed mortgage insurance. Loan costs are those costs disclosed under § 1026.37(f). * * * * * 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. The creditor includes prepaid interest when calculating the total interest percentage. * * * * * 37(o) Form of disclosures. * * * * * 37(o)(4) Rounding. * * * * * 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, under § 1026.37(o)(4)(i)(A), periodic mortgage insurance payments are rounded and disclosed to the nearest dollar, such that a periodic mortgage insurance payment of $164.50 is disclosed under § 1026.37(c)(2)(ii) as $165, but payments of $164.49 are disclosed as $164. The prepaid per diem amounts disclosed under § 1026.37(g)(2)(iii) and the monthly amounts for the initial escrow payment at closing disclosed pursuant to § 1026.37(g)(3)(i) through (iii) and (v) are rounded to the nearest cent and are disclosed to two decimal places. For example, under § 1026.37(g)(2)(iii), per diem interest of $68 is disclosed as $68.00, with the two zeros disclosed. See form H–24(B) in appendix H to this part for an illustration of per diem amounts for homeowner’s insurance disclosed pursuant to § 1026.37(g)(3)(i). * * * * * 37(o)(4)(ii) Percentages. 1. Decimal places. Section 1026.37(o)(4)(ii) requires the percentage amounts disclosed to be exact amounts rounded to three decimal places, but the creditor does not disclose trailing zeros to the right of the decimal point. For example, a 2.4999 percent annual percentage rate, when rounded as an exact amount to three decimal places, becomes 2.500% but is disclosed as ‘‘2.5%’’ under § 1026.37(o)(4)(ii). Similarly, a 7.005 percent annual percentage rate is disclosed as ‘‘7.005%,’’ and a 7.000 percent annual percentage rate is disclosed as ‘‘7%.’’ sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * Section 1026.38—Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) * * * * * 4. Tolerance cures necessitating principal curtailments. Where a contractual or other legal obligation of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 the consumer, the creditor may provide a reduction in principal balance (principal curtailment) to satisfy the requirements of § 1026.19(f)(2)(v). i. A principal curtailment to provide a tolerance refund under § 1026.19(f)(2)(v) may be disclosed under § 1026.38(g)(4), (j)(4)(i), or (t)(5)(vii)(B) marked with the phrase ‘‘Paid Outside of Closing,’’ or the abbreviation ‘‘P.O.C.,’’ a statement that this amount includes a refund for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3), and the amount of such refund under § 1026.19(f)(2)(v). ii. A principal curtailment to provide a tolerance refund under § 1026.19(f)(2)(v) may also be disclosed under § 1026.38(t)(5)(ix) with a statement that this amount includes a refund for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3), and the amount of such refund under § 1026.19(f)(2)(v). 38(a) General information. 38(a)(3) Closing information. * * * * * 38(a)(3)(iii) Disbursement date. 1. Simultaneous loans for subordinate financing disbursement date. The disbursement date on the Closing Disclosure for a simultaneous loan for subordinate financing is the date some or all of the loan amount disclosed under § 1026.38(b) is expected to be paid to the consumer or a third party. * * * * * 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. If the creditor has not obtained an appraisal, the creditor may disclose the estimated value of the property. Where an estimate is disclosed, rather than an appraisal, the label for the disclosure is changed to ‘‘Estimated Prop. Value.’’ The creditor may use the estimate provided by the consumer at application but, if it has performed its own estimate of the property value for purposes of approving the credit transaction by the time the disclosure is provided to the consumer, the creditor must disclose the estimate it used for purposes of approving the credit transaction. * * * * * 38(a)(4) Transaction information. * * * * * 2. No seller transactions or simultaneous loans for subordinate financing. In transactions where there is no seller, such as in a refinancing or home equity loan, or for simultaneous loans for subordinate financing in purchase transactions if the first-lien Closing Disclosure will record the entirety of the seller’s transaction, the disclosure under § 1026.38(a)(4)(ii) may be left blank. See also § 1026.38(t)(5)(vii)(A). * * * * * 4. Consumers for purposes of rescission. Section 1026.38(a)(4)(i) requires disclosure of the consumer’s name and mailing address, labeled ‘‘Borrower.’’ In rescindable PO 00000 Frm 00065 Fmt 4701 Sfmt 4702 54381 transactions, § 1026.38(a)(4)(i) requires disclosing the name and mailing address of each natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest and regardless of whether that person is an obligor. For guidance on how to disclose multiple consumers, see comment 38(a)(4)–1. * * * * * 38(d) Costs at closing. 38(d)(2) Alternative table for transactions without a seller and simultaneous loans for subordinate financing. 1. Required use. The disclosure of the alternative cash to close table in § 1026.38(d)(2) may only be provided by a creditor in a transaction without a seller or for a simultaneous loan for subordinate financing. In a purchase transaction, the optional alternative disclosure may be used for the simultaneous subordinate financing Closing Disclosure only if the first-lien Closing Disclosure records the entirety of the seller’s transaction. The use of this alternative table for transactions without a seller and simultaneous loans for subordinate financing is required if the Loan Estimate provided to the consumer disclosed the optional alternative table under § 1026.37(d)(2) and must be used in conjunction with the use of the alternative calculating cash to close disclosure under § 1026.38(e). * * * * * 38(e) Alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing. 1. Required use. The disclosure of the table in § 1026.38(e) may only be provided by a creditor in a transaction without a seller or for a simultaneous loan for subordinate financing. In a purchase transaction, the optional alternative disclosure may be used for the simultaneous subordinate financing Closing Disclosure only if the first-lien Closing Disclosure records the entirety of the seller’s transaction. The use of this alternative calculating cash to close table for transactions without a seller and simultaneous loans for subordinate financing is required for transactions in which the Loan Estimate provided to the consumer disclosed the optional alternative table pursuant to § 1026.37(h)(2), and must be used in conjunction with the alternative disclosure under § 1026.38(d)(2). * * * * * 6. Estimated amounts. The amounts disclosed on the alternative calculating cash to close table under the subheading ‘‘Loan Estimate’’ under § 1026.38(e)(1)(i), (2)(i), (4)(i) and (5)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer under § 1026.19(e). * * * * * 38(e)(2) Total closing costs. * * * * * Paragraph 38(e)(2)(iii)(A). * * * * * 3. Statements regarding excess amount and any credit to the consumer. Section E:\FR\FM\15AUP3.SGM 15AUP3 54382 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 1026.38(e)(2)(iii)(A) requires a statement that an increase in closing costs exceeds legal limits by the dollar amount of the excess and a statement directing the consumer to the disclosure of lender credits under § 1026.38(h)(3) or a reduction in principal balance (principal curtailment) under § 1026.38(g)(4) or (t)(5)(vii)(B), if provided under § 1026.19(f)(2)(v). See form H–25(F) in appendix H to this part for examples of such statements under § 1026.38(h)(3). See also comments 38–4 and 38(h)(3)–2. 38(e)(3) Closing costs paid before closing. * * * * * Paragraph 38(e)(3)(iii)(B). 1. Equal amount. Under § 1026.38(e)(3)(iii)(B), the creditor gives a statement that the ‘‘Final’’ amount disclosed under § 1026.38(e)(3)(ii) is equal to the ‘‘Loan Estimate’’ amount disclosed under § 1026.38(e)(3)(i), only if the ‘‘Final’’ amount is $0.00, because the ‘‘Loan Estimate’’ amount is always disclosed as $0 under § 1026.38(e)(3)(i). See comment 38(e)(3)(i)–1. 38(f) Closing cost details; loan costs. * * * * * 2. Construction loan inspection and handling fees. Construction loan inspection and handling fees are loan costs associated with the transaction for purposes of § 1026.38(f). For information on how to disclose inspection and handling fees for the staged disbursement of construction loan proceeds if the amount or number of such fees or when they will be collected is not known at or before consummation, see comments 37(f)–3, 37(f)(6)–3, and app. D– 7.viii. See § 1026.17(e) and its commentary concerning the effect of subsequent events that cause inaccuracies in disclosures. * * * * * 38(g) Closing costs details; other costs. 38(g)(1) Taxes and other government fees. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 3. Recording fees. i. Fees for recording deeds and security instruments. Section 1026.38(g)(1)(i)(A) requires, on the first line under the subheading ‘‘Taxes and Other Government Fees’’ and before the columns described in § 1026.38(g), disclosure of the total fees expected to be paid to State and local governments for recording deeds and, separately, the total fees expected to be paid to State and local governments for recording security instruments. On a line labeled ‘‘Recording Fees,’’ form H–25 of appendix H to this part illustrates such disclosures with the additional labels ‘‘Deed’’ and ‘‘Mortgage,’’ respectively. ii. Total of all recording fees. Section 1026.38(g)(1)(i)(B) requires, on the first line under the subheading ‘‘Taxes and Other Government Fees’’ and in the applicable column described in § 1026.38(g), disclosure of the total amounts paid for recording fees, including but not limited to the amounts subject to § 1026.38(g)(1)(i)(A). The total amount disclosed under § 1026.38(g)(1)(i)(B) also includes recording fees expected to be paid to State and local governments for recording any other instrument or document to preserve marketable title or to perfect the creditor’s security interest in the property. See comments 37(g)(1)–1, –2, and –3 for discussions of the difference between transfer taxes and recording fees. VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 38(g)(2) Prepaids. * * * * * 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 $0.00 must be disclosed under § 1026.38(g)(2). * * * * * 38(g)(4) Other. 1. Costs disclosed. The costs disclosed under § 1026.38(g)(4) include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, preconsummation inspection fees, and other fees that are part of the real estate transaction but not required by the creditor or not disclosed elsewhere under § 1026.38. The creditor also must disclose the following amounts under § 1026.38(g)(4) unless the optional alternative tables for transactions without a seller and simultaneous loans for subordinate financing are used and such amounts are disclosed under § 1026.38(t)(5)(vii)(B): construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified under § 1026.38(a)(3)(vi), and payoff of unsecured debt. i. General. The amounts disclosed under § 1026.38(g)(4) must be placed in either the paid ‘‘Before Closing’’ or paid ‘‘At Closing’’ column under the subheading ‘‘H. Other’’ of the heading ‘‘Other Costs.’’ ii. Construction Costs. If amounts for construction costs are contracted to be paid at closing, they are disclosed in the paid ‘‘At Closing’’ column. See comment app. D–7.vii for an explanation of the disclosure of construction costs for a construction or construction-permanent loan and comment app. D–7.viii for an explanation of the disclosure of construction loan inspection and handling fees. iii. Disclosing refunds. See also comment 38–4 for an explanation of how to disclose a reduction in principal balance (principal curtailment) under § 1026.38(g)(4) to provide a refund under § 1026.19(f)(2)(v). * * * * * 38(i) Calculating cash to close. * * * * * 2. Statements of differences. The dollar amounts disclosed under § 1026.38 generally are shown to two decimal places unless otherwise required. See comment 38(t)(4)–1. Any amount in the Final column of the calculating cash to close table under § 1026.38(i) is shown to two decimal places. Under § 1026.38(t)(4)(i)(C), however, any amount in the Loan Estimate column of the calculating cash to close table under § 1026.38(i) is rounded to the nearest dollar amount to match the corresponding estimated amount disclosed on the Loan Estimate’s calculating cash to close table under § 1026.37(h). For purposes of § 1026.38(i)(1)(iii), (3)(iii), (4)(iii), (5)(iii), (6)(iii), (7)(iii), and (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 § 1026.37(h) if it had been PO 00000 Frm 00066 Fmt 4701 Sfmt 4702 shown to two decimal places rather than a whole dollar amount. For example, if the amount in the Loan Estimate column of the Total Closing Costs row disclosed under § 1026.38(i)(1)(i) is $12,500, but the nonrounded estimate of Total Closing Costs is $12,500.35, and the amount in the Final column of the Total Closing Costs row 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). 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 of 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 under § 1026.38(j)(2)(v) and, as applicable, in the seller-paid column under § 1026.38(f) and (g). For example, form H– 25(B) of appendix H to this part’s statement ‘‘See Seller Credits in Section L,’’ in which the words ‘‘Section L’’ are in boldface font, 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 under § 1026.38(j)(2)(ii). For example, the following statement, which is similar to that shown on form H–25(B) of appendix H to this part for § 1026.38(i)(7)(iii)(A), ‘‘See Deposit in Section L,’’ in which the words ‘‘Section L’’ are in boldface font, complies with this provision. In addition, for example, the statement ‘‘See details in Sections K and L,’’ in which the words ‘‘Sections K and L’’ are in boldface font, complies with the requirement under § 1026.38(i)(8)(iii)(A). See form H–25(B) of appendix H to this part for an example of the statement required by § 1026.38(i)(8)(iii)(A). * * * * * 5. Estimated amounts. The amounts disclosed in the ‘‘Loan Estimate’’ column of the calculating cash to close table under § 1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and (9)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer. 38(i)(1) Total closing costs. Paragraph 38(i)(1)(iii)(A). * * * * * 3. Statements regarding excess amount and any credit to the consumer. Section 1026.38(i)(1)(iii)(A)(3) requires statements that an increase in closing costs exceeds legal limits by the dollar amount of the excess and a statement directing the consumer to the disclosure of lender credits under § 1026.38(h)(3), or a reduction in principal balance (principal curtailment) under § 1026.38(g)(4), (j)(4)(i), or (t)(5)(ix), if provided under § 1026.19(f)(2)(v). See form H–25(F) of appendix H to this part for examples of such statements under § 1026.38(h)(3). See also comments 38–4 and 38(h)(3)–2. 38(i)(2) Closing costs paid before closing. * E:\FR\FM\15AUP3.SGM * * 15AUP3 * * sradovich on DSK3GMQ082PROD with PROPOSALS3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules 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 ‘‘Loan Estimate’’ amount disclosed under § 1026.38(i)(2)(i), only if the ‘‘Final’’ amount is $0.00, because the ‘‘Loan Estimate’’ amount is always disclosed as $0 under § 1026.38(i)(2)(i). See comment 38(i)(2)(i)–1. 38(i)(3) Closing costs financed. 1. Calculation of amount. The amount of closing costs financed disclosed under § 1026.38(i)(3) is determined by subtracting the total amount of payments to third parties not otherwise disclosed under § 1026.38(f) and (g) from the loan amount disclosed under § 1026.38(b). The total amount of payments to third parties includes the sale price of the property disclosed under § 1026.38(j)(1)(ii). If the result of the calculation is zero or negative, the amount of $0.00 is disclosed under § 1026.38(i)(3). If the result of the calculation is positive, that amount is disclosed as a negative number under § 1026.38(i)(3), but only to the extent that the absolute value of the amount disclosed under § 1026.38(i)(3) does not exceed the total amount of closing costs disclosed under § 1026.38(h)(1). (The total amount of closing costs disclosed under § 1026.38(h)(1) will never be less than zero because, if the total amount of closing costs disclosed under § 1026.38(h)(1) is a negative number, the amount of $0.00 is disclosed under § 1026.38(i)(3).) 2. Loan amount. The loan amount disclosed under § 1026.38(b), which is used in the closing costs financed calculation, is the total amount the consumer will borrow, as reflected by the face amount of the note. Financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. 38(i)(4) Down payment/funds from borrower. Paragraph 38(i)(4)(ii)(A). 1. Down payment. Under § 1026.38(i)(4)(ii)(A)(1), the down payment is calculated as the difference between the sale price of the property and the sum of the loan amount disclosed under § 1026.38(b) and any amount of existing loans assumed or taken subject to disclosed under § 1026.38(j)(2)(iv). Minimum cash investments required of borrowers under some loan programs are not necessarily reflected, and accurate disclosure of the down payment under § 1026.38(i)(4)(ii)(A)(1) does not affect compliance or non-compliance with such loan programs’ requirements. The ‘‘Final’’ amount disclosed for ‘‘Down Payment/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. 2. Funds for borrower. Section 1026.38(i)(4)(ii)(A)(2) requires that, when the sum of the loan amount disclosed under § 1026.38(b), and any amount of existing loans assumed or taken subject to disclosed under § 1026.38(j)(2)(iv) exceeds the sale VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 price disclosed under § 1026.38(j)(1)(ii), the amount of funds from the consumer is 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)(A)(2) is determined by subtracting the sum of the loan amount and any amount of existing loans assumed or taken subject to disclosed under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real estate closing disclosed under § 1026.38(j)(1)(ii), (iii), and (v). The amount of ‘‘Funds from Borrower’’ under the subheading ‘‘Final’’ is disclosed either as a positive number or $0.00, depending on the result of the calculation. An increase in the amount of ‘‘Funds from Borrower’’ under the subheading ‘‘Final’’ relative to the corresponding amount under the subheading ‘‘Loan Estimate’’ might result, for example, from a decrease in the loan amount or an increase in the amount of existing debt being satisfied in the real estate closing. For additional discussion of the determination of the ‘‘Down Payment/Funds from Borrower’’ amount, see comment 38(i)(6)(ii)–1. Paragraph 38(i)(4)(ii)(B). 1. Funds from borrower. Section 1026.38(i)(4)(ii)(B) requires that, in all transactions not subject to § 1026.38(i)(4)(ii)(A), the ‘‘Final’’ amount disclosed for ‘‘Down Payment/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 the sum of the loan amount disclosed under § 1026.38(b) and any amount of existing loans assumed or taken subject to disclosed under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real estate closing disclosed under § 1026.38(j)(1)(ii), (iii), and (v). The ‘‘Final’’ amount of ‘‘Funds from Borrower’’ is disclosed either as a positive number or $0.00, depending on the result of the calculation. An increase in the ‘‘Final’’ amount of ‘‘Funds from Borrower’’ relative to the corresponding ‘‘Loan Estimate’’ amount might result, for example, from a decrease in the loan amount or an increase in the amount of existing debt being satisfied in the real estate closing. For additional discussion of the determination of the ‘‘Down Payment/ 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 a statement 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 (2), as applicable. The creditor makes this disclosure by referencing the corresponding label on the Closing Disclosure under which the information accounting for the increase in the ‘‘Down Payment/Funds from PO 00000 Frm 00067 Fmt 4701 Sfmt 4702 54383 Borrower’’ amount is disclosed. For example, when the calculation is determined in accordance with § 1026.38(i)(4)(ii)(A)(1), if the purchase price of the property has increased and therefore caused the ‘‘Down Payment’’ amount to increase, the statement, ‘‘You increased this payment. See details in Section K,’’ with the words ‘‘increased’’ and ‘‘Section K’’ in boldface, complies with this requirement. In addition, 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, ‘‘You increased this payment. See details in Section L,’’ with the words ‘‘increased’’ and ‘‘Section L’’ in boldface complies with this requirement. 38(i)(5) Deposit. 1. When no deposit. Section 1026.38(i)(5) requires the disclosure in the calculating cash to close table of the deposit required to be disclosed under § 1026.37(h)(1)(iv) and under § 1026.38(j)(2)(ii), under the subheadings ‘‘Loan Estimate’’ and ‘‘Final,’’ respectively. Under § 1026.37(h)(1)(iv), for all transactions other than a purchase transaction as defined in § 1026.37(a)(9)(i), the amount required to be disclosed is $0. In a purchase transaction in which no deposit is paid in connection with the transaction, under §§ 1026.37(h)(1)(iv) and 1026.38(i)(5)(i) the amount required to be disclosed is $0, and under § 1026.38(i)(5)(ii) the amount required to be disclosed is $0.00. 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 ‘‘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 the sum of the loan amount disclosed under § 1026.38(b) and any amount of existing loans assumed or taken subject to disclosed under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the transaction disclosed under § 1026.38(j)(1)(ii), (iii), and (v). The amount is disclosed under § 1026.38(i)(6)(ii) either as a negative number or as $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. 2. No funds for borrower. When the down payment is determined in accordance with § 1026.38(i)(4)(ii)(A)(1), the transaction is a purchase transaction in which the sale price is greater than the sum of the loan amount and any amount of existing loans assumed or taken subject to. Because there is no remaining amount to be disbursed to the consumer or third party at consummation, the amount disclosed under § 1026.38(i)(6)(iv) as ‘‘Funds for Borrower’’ will be $0.00. 38(i)(7) Seller credits. * * * * * Paragraph 38(i)(7)(iii)(A). 1. Statement that the consumer should see details. Under § 1026.38(i)(7)(iii)(A), if the E:\FR\FM\15AUP3.SGM 15AUP3 sradovich on DSK3GMQ082PROD with PROPOSALS3 54384 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules amount disclosed under § 1026.38(i)(7)(ii) in the Final column is not equal to the amount disclosed under § 1026.38(i)(7)(i) in the Loan Estimate column (unless the difference is due to rounding), the creditor must disclose a statement that the consumer should see the details disclosed under § 1026.38(j)(2)(v) in the summaries of transactions table, regardless of whether the difference in the ‘‘Seller Credits’’ in the calculating cash to close table is attributable to general or specific seller credits. However, the creditor may not disclose a statement that the consumer should see the seller-paid column disclosed in the closing cost details table under § 1026.38(f) and (g), unless the difference in the ‘‘Seller Credits’’ in the calculating cash to close table is attributable at least in part to specific seller credits. If, for example, a decrease in the ‘‘Seller Credits’’ is attributable only to a decrease in general (i.e., lump sum) seller credits, then a statement is given under the subheading ‘‘Did this change?’’ in the calculating cash to lose table that the consumer should see the details disclosed under § 1026.38(j)(2)(v) in the summaries of transactions table. Form H– 25(B) in appendix H to this part demonstrates this disclosure where the decrease in seller credits is attributable only to a decrease in general seller credits; form H–25(B)’s statement ‘‘See Seller Credits in Section L,’’ in which the words ‘‘Section L’’ are in boldface font, complies with this requirement. Where the decrease in the ‘‘Seller Credits’’ is attributable in whole or in part to specific seller credits, then a statement is given under the subheading ‘‘Did this change?’’ that the consumer should see both the details disclosed under § 1026.38(j)(2)(v) in the summaries of transactions table and the seller-paid column disclosed in the closing cost details table under § 1026.38(f) or (g). For example, the statement ‘‘See Seller-Paid column on page 2 and Seller Credits in Section L,’’ in which the words ‘‘Seller-Paid’’ and ‘‘Section L’’ are in boldface font, complies with this requirement. 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 homeowner’s 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)(1)(vii) and 1026.38(j)(2)(vi) and (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. disclosed under the corresponding provisions of § 1026.38(k): § 1026.38(j)(1)(ii) and (k)(1)(ii); § 1026.38(j)(1)(iii) and (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 (k)(1)(iv); § 1026.38(j)(1)(vii) and (k)(1)(vi); § 1026.38(j)(1)(viii) and (k)(1)(vii); § 1026.38(j)(1)(ix) and (k)(1)(viii); § 1026.38(j)(1)(x) and (k)(1)(ix); § 1026.38(j)(2)(iv) and (k)(2)(iv); § 1026.38(j)(2)(v) and (k)(2)(vii); if the amount disclosed under § 1026.38(j)(2)(vi) is attributable to contractual adjustments between the consumer and the seller, § 1026.38(j)(2)(vi) and (k)(2)(viii); § 1026.38(j)(2)(viii) and (k)(2)(x); § 1026.38(j)(2)(ix) and (k)(2)(xi); § 1026.38(j)(2)(x) and (k)(2)(xii); and § 1026.38(j)(2)(xi) and (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. On the Closing Disclosure for a simultaneous loan for subordinate financing, no contract sales price is disclosed under § 1026.38(j)(1)(ii). 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 not otherwise disclosed under § 1026.38(j) that are owed to the seller but payable to the consumer after the real estate closing. For example, the following items must be disclosed and listed under the heading ‘‘Adjustments’’ 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; and 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 under § 1026.38(f), (g), and (j) will not have a corresponding credit in the summary of the seller’s transaction under § 1026.38(k)(1)(iv). For example, any outstanding real estate property taxes are disclosed under § 1026.38(j)(1)(v) without a corresponding credit in the summary of the seller’s transaction under § 1026.38(k)(1)(iv). * * * * * * 38(j) Summary of borrower’s transaction. * * * * * 3. Identical amounts. The amounts disclosed under the following provisions of § 1026.38(j) are the same as the amounts VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 * * * * 38(j)(2) Itemization of amounts already paid by or on behalf of borrower. * * * * * Paragraph 38(j)(2)(vi). * PO 00000 * * Frm 00068 * Fmt 4701 * Sfmt 4702 2. Subordinate financing proceeds on firstlien Closing Disclosure. Any financing arrangements or other new loans not otherwise disclosed under § 1026.38(j)(2)(iii) or (iv) must be disclosed under § 1026.38(j)(2)(vi) on the first-lien Closing Disclosure. For example, if the consumer is using a second mortgage loan to finance part of the purchase price, whether from the same creditor, another creditor, or the seller, the principal amount of the second loan must be disclosed with a brief explanation on the first-lien Closing Disclosure. In this example, the principal amount of the second loan is disclosed on the summaries of transactions table for the borrower’s transaction either on line 04 under the subheading ‘‘L. Paid Already by or on Behalf of Borrower at Closing,’’ or under the subheading ‘‘Other Credits.’’ If the net proceeds of the subordinate financing are less than the principal amount of the subordinate financing, the net proceeds may be listed on the same line as the principal amount of the subordinate financing on the first-lien Closing Disclosure. For an example, see form H–25(C) of appendix H to this part. * * * * * 5. Gift funds. A credit must be disclosed only for any money or other payments made at closing by third parties, including family members, not otherwise associated with the transaction, along with a description of the nature of the funds provided under § 1026.38(j)(2)(vi). Amounts provided in advance of the real estate closing to consumers by third parties, including family members, not otherwise associated with the transaction, are not required to be disclosed under § 1026.38(j)(2)(vi). 6. Adjustments. Section 1026.38(j)(2)(vi) requires the disclosure of a description and the amount of any additional amounts, not already disclosed under § 1026.38(f), (g), (h), and (j)(2), that are owed to the consumer but payable to the seller before the real estate closing. For example, rent paid to the seller from a tenant before the real estate closing for a period extending beyond the real estate closing is disclosed under § 1026.38(j)(2)(vi) and under the heading ‘‘Adjustments.’’ Paragraph 38(j)(2)(xi). 1. Examples. Section 1026.38(j)(2)(xi) requires the disclosure of any amounts the consumer is expected to pay after the real estate closing that are attributable in part to a period of time prior to the real estate closing. Examples of items that would be disclosed under § 1026.38(j)(2)(xi) include: i. Utilities used but not paid for by the seller; and ii. Interest on loan assumptions. * * * * * 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 under § 1026.38(j) be marked as ‘‘paid outside of closing’’ or ‘‘P.O.C.’’ The disclosure must identify the party making the payment, such as the consumer, seller, loan originator, 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(D) of appendix E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules H to this part. For an explanation of what constitutes closing funds, see § 1026.38(j)(4)(ii). See also comment 38–4 for an explanation of how to disclose a reduction in principal balance (principal curtailment) to provide a refund under § 1026.19(f)(2)(v). * * * * * 38(k) Summary of seller’s transaction. 1. Transactions with no seller and simultaneous loans for subordinate financing. Section 1026.38(k) does not apply in a transaction where there is no seller, such as a refinance transaction, a transaction with a construction purpose as defined in § 1026.37(a)(9)(iii), or a simultaneous loan for subordinate financing transaction if the firstlien Closing Disclosure records the entirety of the seller’s transaction. * * * * * 38(l) Loan disclosures. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 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 the mortgagerelated obligations described in § 1026.43(b)(8) that are known to the creditor and that will not be paid using escrow account funds. The creditor discloses this amount only if an escrow account will be established. 2. During the first year. Section 1026.38(l)(7)(i)(A)(2) requires disclosure based on payments during the first year after consummation. Alternatively, if the creditor elects to make the disclosures required by § 1026.38(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) based on amounts derived from the escrow account analysis required under Regulation X, 12 CFR 1024.17, then the creditor may make the disclosures required by § 1026.38(l)(7)(i)(A)(2) based on a 12-month period beginning with the borrower’s initial payment date (rather than beginning with consummation). See comment 38(l)(7)(i)(A)(5)–1. 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 disclosed under § 1026.38(l)(7)(i)(A)(4) is equal to the sum of the amount of estimated escrow payments disclosed under § 1026.38(c)(1) (as described in § 1026.37(c)(2)(iii)) and the amount the consumer will be required to pay into an escrow account to pay some or all of the mortgage insurance premiums disclosed under § 1026.38(c)(1) (as described in § 1026.37(c)(2)(ii)). Paragraph 38(l)(7)(i)(A)(5). 1. During the first year. Section 1026.38(l)(7)(i)(A)(4) requires disclosure of the amount the consumer will be required to pay into the escrow account with each periodic payment during the first year after consummation. Section 1026.38(l)(7)(i)(A)(1) requires a disclosure, labeled ‘‘Escrowed Property Costs over Year 1,’’ calculated as the amount disclosed under § 1026.38(l)(7)(i)(A)(4) multiplied by the VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 number of periodic payments scheduled to be made to the escrow account during the first year after consummation. For example, creditors may base such disclosures on less than 12 payments if, based on the payment schedule dictated by the legal obligation, fewer than 12 periodic payments will be made to the escrow account during the first year after consummation. Alternatively, § 1026.38(l)(7)(i)(A)(5) permits the creditor to base the disclosures required by § 1026.38(l)(7)(i)(A)(1) and (4) on amounts derived from the escrow account analysis required under Regulation X, 12 CFR 1024.17, even if those disclosures differ from what would otherwise be disclosed under § 1026.38(l)(7)(i)(A)(1) and (4)—as, for example, when there are fewer than 12 periodic payments scheduled to be made to the escrow account during the first year after consummation. Paragraph 38(l)(7)(i)(B)(1). 1. Estimated costs paid directly by the consumer. The creditor discloses an amount under § 1026.38(l)(7)(i)(B)(1) only if no escrow account will be established. * * * * * 38(o) Loan calculations. 1. Examples. Section 1026.38(o)(1) and (2) sets forth the accuracy requirements for the total of payments and the finance charge, respectively. The following examples illustrate the interaction of these provisions: i. Assume that loan costs that are designated borrower-paid at or before closing and that are part of the finance charge (see § 1026.4 for calculation of the finance charge) are understated by more than $100. For example, assume that borrower-paid loan origination fees (see § 1026.4(a)) are cumulatively understated by $150, resulting in the amounts disclosed as the total of payments and the finance charge both being understated by more than $100. Both the disclosed total of payments and the disclosed finance charge would not be accurate for purposes of § 1026.38(o)(1) and (2), respectively. ii. Assume that loan costs that are designated borrower-paid at or before closing and that are not part of the finance charge are understated by more than $100. For example, assume that borrower-paid property appraisal and inspection fees that are excluded from the finance charge under § 1026.4(c)(7)(iv) are cumulatively understated by $150, resulting in the amount disclosed as the total of payments being understated by more than $100. The disclosed total of payments would not be accurate for purposes of § 1026.38(o)(1), but the disclosed finance charge would be accurate for purposes of § 1026.38(o)(2). 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 under § 1026.37(l)(1)(i), except that the disclosed amount reflects the total payments through the end of the loan term and excludes charges for loan costs disclosed under § 1026.38(f) that are designated on the Closing Disclosure as paid by seller or paid by others. A seller or other party, such as a lender, may agree to offset a loan cost, whether in whole or in part, through a PO 00000 Frm 00069 Fmt 4701 Sfmt 4702 54385 specific credit, for example through a specific seller or lender credit. Because these loan costs are not paid by the consumer, the amounts of such loan costs offset by specific credits are excluded from the total of payments calculation. Non-specific credits, however, are generalized payments to the consumer that do not pay for a particular fee and therefore do not offset loan costs for purposes of the total of payments calculation. For guidance on the amounts included in the total of payments calculation, see comment 37(l)(1)(i)–1. For a discussion of lender credits, see comment 19(e)(3)(i)–5. For a discussion of seller credits, see comment 38(j)(2)(v)–1. * * * * * 38(t) Form of disclosures. * * * * * 38(t)(3) Form. 1. Non-federally related mortgage loans. For a transaction that is not a federally related mortgage loan, the creditor is not required to use form H–25 of 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 form 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 § 1026.38 must be provided on letter size (8.5″ × 11″) paper. * * * * * 38(t)(5) Exceptions. * * * * * Paragraph 38(t)(5)(v). 1. Permissible form modifications to separate consumer and seller information. The modifications to the form permitted by § 1026.38(t)(5)(v) may be made by the creditor in any one of the following ways: i. Leave the applicable disclosure blank concerning the seller or consumer on the form provided to the other party; ii. Omit the table or label, as applicable, for the disclosure concerning the seller or consumer on the form provided to the other party; or iii. Provide to the seller, or assist the settlement agent in providing to the seller, a modified version of the form under § 1026.38(t)(5)(vi), as illustrated by form H– 25(I) of appendix H to this part. 2. Provision of separate disclosure to consumer. If applicable State law prohibits sharing with the consumer the information disclosed under § 1026.38(k), a creditor may provide a separate form to the consumer. A creditor may also provide a separate form to the consumer in any other situation where the creditor in its discretion chooses to do so, E:\FR\FM\15AUP3.SGM 15AUP3 54386 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules such as based on the seller’s request. For the permissible form modifications to separate consumer and seller information, see comment 38(t)(5)(v)–1. 3. Provision of separate disclosure to seller. To separate the information of the consumer and seller under § 1026.38(t)(5)(v), a creditor may provide (or assist the settlement agent in providing) a separate form to the seller where applicable State law prohibits sharing with the seller the information disclosed under § 1026.38(a)(2), (a)(4)(iii), (a)(5), (b) through (d), (f), or (g), with respect to closing costs paid by the consumer, or § 1026.38(i), (j), (l) through (p), or (r), with respect to closing costs paid by the creditor and mortgage broker. A creditor may also provide (or assist the settlement agent in providing) a separate form to the seller in any other situation where the creditor in its discretion chooses to do so, such as based on the consumer’s request. For the permissible form modifications to separate consumer and seller information, see comment 38(t)(5)(v)– 1. Paragraph 38(t)(5)(vi). 1. For permissible form modifications to separate consumer and seller information, see comment 38(t)(5)(v)–1. 38(t)(5)(vii) Transaction without a seller and simultaneous loans for subordinate financing. sradovich on DSK3GMQ082PROD with PROPOSALS3 * * * * * 2. Appraised property value. The modifications permitted by § 1026.38(t)(5)(vii) 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 therefore is not 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 under § 1026.38(t)(5)(vii) must contain the label ‘‘Appraised Prop. Value’’ or ‘‘Estimated Prop. Value’’ where there is no appraisal. Paragraph 38(t)(5)(vii)(B). 1. Amounts paid by third parties. Under § 1026.38(t)(5)(vii)(B), the payoffs and payments table itemizes the amounts of payments made at closing to other parties from the credit extended to the consumer or funds provided by the consumer, including designees of the consumer. Designees of the consumer for purposes of § 1026.38(t)(5)(vii)(B) include third parties who provide funds on behalf of the consumer. Such amounts may be disclosed as credits in the payoffs and payments table using negative numbers. Some examples of amounts paid by third parties that may be disclosed as credits on the payoffs and payments table under § 1026.38(t)(5)(vii)(B) include gift funds, grants, and proceeds from loans exempt from the disclosure requirements in § 1026.19(e), (f), and (g) under § 1026.3(h). 2. Disclosure of subordinate financing. On the Closing Disclosure for a first-lien transaction that also has a simultaneous loan for subordinate financing, the proceeds of the subordinate financing are included in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) as a negative number. 3. Other examples. For additional examples of items disclosed under VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 § 1026.38(t)(5)(vii)(B), see comment 37(h)(2)(iii)–1. See also comment 38–4 for an explanation of how to disclose a reduction in principal balance (principal curtailment) under § 1026.38(t)(5)(vii)(B) to provide a refund under § 1026.19(f)(2)(v). 38(t)(5)(ix) Customary recitals and information. 1. Customary recitals and information. Section 1026.38(t)(5)(ix) 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 a 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. See also comment 38–4 for an explanation of how to disclose a reduction in principal balance (principal curtailment) under § 1026.38(t)(5)(ix) to provide a refund under § 1026.19(f)(2)(v). * * * * * Appendix D—Multiple-Advance Construction Loans * * * * * 7. Relation to §§ 1026.37 and 1026.38. Creditors may use, at their option, the following methods to estimate and disclose the terms of multiple-advance construction loans pursuant to §§ 1026.37 and 1026.38. As stated in comment app. D–1, appendix D may also be used in multiple-advance transactions other than construction loans, when the amounts or timing of advances is unknown at consummation. i. Loan term. A. Disclosure as single transaction. If the construction and permanent financing are disclosed as a single transaction, the loan term disclosed is the total combined term of the construction period and the permanent period. For example, if the term of the construction financing is 12 months and the term of the permanent financing is 30 years, and both phases are disclosed as a single transaction, the loan term disclosed is 31 years. See comment 37(a)(8)–3 for an explanation of the effect on disclosure of the loan term of minor variations in the number of days counted for the final month or year of a loan. B. Term of permanent financing. Consistent with comment 37(a)(8)–3, the loan term of the permanent financing is counted from the date that interest for the first scheduled periodic payment of the permanent financing begins to accrue, regardless of when the permanent phase is disclosed. ii. Product. A. Separate construction loan disclosure. If the construction financing is disclosed separately and has payments of interest only, the time period of the ‘‘Interest Only’’ feature that is disclosed as part of the product disclosure under §§ 1026.37(a)(10) and 1026.38(a)(5)(iii) is the period during which interest-only payments are actually made and excludes any final balloon payment of principal and interest. For example, the product disclosure for a fixed rate, interest-only construction loan with a term of 12 months in which there will be 11 PO 00000 Frm 00070 Fmt 4701 Sfmt 4702 monthly interest payments and a final balloon payment of principal and interest is ‘‘11 mo. Interest Only, Fixed Rate.’’ B. Combined construction-permanent disclosure. If a single, combined construction-permanent disclosure is provided, the time period of the ‘‘Interest Only’’ feature that is disclosed as part of the product disclosure under §§ 1026.37(a)(10) and 1026.38(a)(5)(iii) is the full term of the interest-only construction financing. For example, the product disclosure for a fixed rate, construction-permanent loan with an interest-only construction phase of 12 months is ‘‘1 Year Interest Only, Fixed Rate.’’ iii. Interest rate. If the permanent financing has an adjustable rate and separate disclosures are provided, the rate disclosed for the permanent financing is the fullyindexed rate pursuant to § 1026.37(b)(2) and its commentary. If the permanent financing has a fixed rate, the rate disclosed is based on the best information reasonably available at the time the disclosures are made. See comments 19(e)(1)(i)–1 and 19(f)(1)(i)–2. If the creditor may modify the rate for permanent financing when the construction financing converts to permanent financing, and such adjustment to the interest rate results in a corresponding adjustment to the payment, the creditor provides the disclosures pursuant to § 1026.20(c) regardless of whether the permanent financing has a fixed, adjustable, or step rate. iv. Initial periodic payment. In calculating the initial payment amount disclosed pursuant to § 1026.37(b)(3) and using appendix D, the creditor may disregard the effect of certain minor variations, such as that months have different numbers of days, in making the calculation. See § 1026.17(c)(3). v. Increase in periodic payment. A. Calculation of the construction financing periodic payments using the assumptions in appendix D produces interest-only periodic payments that are equal in amount. If a creditor provides a separate disclosure for fixed-rate construction financing, although a technically correct answer to ‘‘Can this amount increase after closing?’’ pursuant to § 1026.37(b)(6) is ‘‘NO’’ because appendix D produces interest-only periodic payments that are equal in amount, a creditor may disclose the answer as ‘‘YES’’ to reflect the fact that actual payments may be more than the amount calculated using appendix D. B. If separate disclosures are provided for fixed-rate construction financing and appendix D is used to calculate the periodic payment, a creditor may omit the disclosures pursuant to § 1026.37(b)(6)(iii) and the disclosure of a range of payments under § 1026.37(c)(2)(i) in the construction financing disclosure. C. If separate disclosures are provided for adjustable-rate construction financing and a creditor uses appendix D to calculate the periodic payment, a creditor provides disclosures reflecting changes that are due to changes in the interest rate but may omit disclosures reflecting changes that are due to changes in the total amount advanced. For example, a creditor would disclose ‘‘YES’’ as the answer to ‘‘Can this amount increase after closing?’’ pursuant to § 1026.37(b)(6), because the initial periodic payment may E:\FR\FM\15AUP3.SGM 15AUP3 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS3 increase based upon an increase in the interest rate. A creditor may omit a reference to the Adjustable Payment table required by § 1026.37(i) because that disclosure would reflect a change due to a change in the total amount advanced. vi. Projected payments table. A creditor must disclose a projected payments table for certain transactions secured by real property or a cooperative unit, pursuant to §§ 1026.37(c) and 1026.38(c), instead of the general payment schedule required by § 1026.18(g) or the interest rate and payments summary table required by § 1026.18(s). Accordingly, some home construction loans that are secured by real property or a cooperative unit 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). Following are illustrations of the application of appendix D to transactions subject to §§ 1026.37(c) and 1026.38(c), under each of these two alternatives: A. 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). If interest is payable only on the amount actually advanced for the time it is outstanding, 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), unless the transaction has negative amortization, interest only, or step payment features, consistent with the requirement at VerDate Sep<11>2014 21:21 Aug 12, 2016 Jkt 238001 § 1026.37(a)(10)(iii). In addition, the creditor must provide the balloon payment disclosures pursuant to §§ 1026.37(b)(5), 1026.37(b)(7)(ii), and 1026.38(b) and disclose the balloon payment in the projected payments table. B. 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, which also reflects the amortizing payments for the permanent phase if the term of the construction phase is not a full year, followed by the appropriate column(s) reflecting the amortizing payments for the permanent phase. If interest is payable only on the amount actually advanced for the time it is outstanding, 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. vii. Construction costs as ‘‘Other’’ costs. A. Construction costs are costs that the consumer contracts, at or before the real estate closing, to pay in whole or in part with loan proceeds. The amount of construction costs is disclosed under the subheading ‘‘Other’’ pursuant to § 1026.37(g)(4). B. A creditor in some cases places a portion of a construction loan’s proceeds in a reserve or other account at consummation. The amount of such an account, at the creditor’s option, may be disclosed separately from other construction costs or may be included in the amount disclosed for construction costs for purposes of the disclosures and calculations under §§ 1026.37 and 1026.38. If the creditor chooses to disclose separately the amount of loan proceeds placed in a reserve or other account at consummation, the creditor may disclose the amount as a separate itemized cost, along with a separate itemized cost for the balance of the construction costs, in accordance with § 1026.37(g)(4). The amount may be labeled with any accurate term, so long as any label the creditor uses is in accordance with the ‘‘clear and conspicuous’’ standard explained at comment 37(f)(5)–1. If the amount is disclosed separately, the balance of construction costs must exclude the amount to avoid double counting. PO 00000 Frm 00071 Fmt 4701 Sfmt 9990 54387 viii. Construction loan inspection and handling fees. Comment 4(a)–1.ii.A provides that inspection and handling fees for the staged disbursement of construction loan proceeds are part of the finance charge. Comment 37(f)–3 states that such inspection and handling fees are loan costs associated with the transaction for purposes of § 1026.37(f) and, as such, must be disclosed accurately as part of the Loan Estimate. These fees must also be disclosed accurately as part of the Closing Disclosure, and comment 38(f)–2 refers to explanations under comments 37(f)–3 and 37(f)(6)–3 for making these disclosures. Comment 37(f)–3 provides that, if such fees are collected at or before consummation, they are disclosed in the loan costs table. If such fees will be collected after consummation, they are disclosed in a separate addendum and are not counted for purposes of the calculating cash to close table. Comment 37(f)(6)–3 provides an explanation of how to disclose inspection and handling fees that will be collected after consummation in an addendum attached as an additional page after the last page of the Loan Estimate. Under comment 38(f)–2, the same explanation applies to an addendum used for disclosing such fees in the Closing Disclosure. * * * * * Appendix H—Closed-End Forms and Clauses * * * * * 30. Standard Loan Estimate and Closing Disclosure forms. Forms H–24(A) and (G), H– 25(A) and (H) through (J), and H–28(A), (F), (I), and (J) are model forms for the disclosures required under §§ 1026.37 and 1026.38. Under §§ 1026.37(o)(3) and 1026.38(t)(3), for federally related mortgage loans, forms H– 24(A) (or, alternatively, H–24(G)) and H– 25(A) (or, alternatively, H–25(H), (I) or (J)) are standard forms required to be used for the disclosures required under §§ 1026.37 and 1026.38, respectively. Dated: July 28, 2016. Richard Cordray, Director, Bureau of Consumer Financial Protection. [FR Doc. 2016–18426 Filed 8–12–16; 8:45 am] BILLING CODE 4810–AM–P E:\FR\FM\15AUP3.SGM 15AUP3

Agencies

[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Proposed Rules]
[Pages 54317-54387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18426]



[[Page 54317]]

Vol. 81

Monday,

No. 157

August 15, 2016

Part III





Bureau of Consumer Financial Protection





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12 CFR Part 1026





Amendments to Federal Mortgage Disclosure Requirements Under the Truth 
in Lending Act (Regulation Z); Proposed Rule

Federal Register / Vol. 81 , No. 157 / Monday, August 15, 2016 / 
Proposed Rules

[[Page 54318]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2016-0038]
RIN 3170-AA61


Amendments to Federal Mortgage Disclosure Requirements Under the 
Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing various amendments to Federal mortgage disclosure 
requirements under the Real Estate Settlement Procedures Act and the 
Truth in Lending Act that are implemented in Regulation Z. The proposed 
amendments memorialize the Bureau's informal guidance on various issues 
and include clarifications and technical amendments. The Bureau is also 
proposing tolerance provisions for the total of payments, an adjustment 
to a partial exemption mainly affecting housing finance agencies and 
nonprofits, extension of coverage of the integrated disclosure 
requirements to all cooperative units, and guidance on sharing the 
disclosures with various parties involved in the mortgage origination 
process.

DATES: Comments must be received on or before October 18, 2016.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2016-
0038 or RIN 3170-AA61, by any of the following methods:
     Email: FederalRegisterComments@cfpb.gov. Include Docket 
No. CFPB-2016-0038 or RIN 3170-AA61 in the subject line of the email.
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    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 http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1275 
First Street NE., Washington, DC 20002, 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: Jeffrey Haywood, Paralegal Specialist, 
Dania Ayoubi, Pedro De Oliveira, David Friend, Jaclyn Maier, and 
Alexandra Reimelt, Counsels, and Nicholas Hluchyj, Senior Counsel, 
Office of Regulations, Consumer Financial Protection Bureau, 1700 G 
Street NW., Washington, DC 20552, at 202-435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed Rule

    For more than 30 years, Federal law required lenders to issue two 
overlapping sets of disclosures to consumers applying for a mortgage. 
In October 2015, integrated disclosures issued by the Consumer 
Financial Protection Bureau, pursuant to the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, took effect.\1\ The Bureau has 
worked actively to support implementation both before and after the 
effective date by providing compliance guides, webinars, and other 
implementation aids.
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376, 2007, 2103-04, 2107-09 (2010); 
Integrated Mortgage Disclosures Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z), 78 FR 79730 (Dec. 31, 2013).
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    To further these ongoing efforts, the Bureau is now proposing to 
memorialize certain past informal guidance, whether issued through 
webinar, compliance guide, or otherwise, and make additional 
clarifications and technical amendments. The Bureau is not proposing to 
reopen major policy decisions with this rulemaking but is proposing a 
few more substantive changes in a limited number of situations in which 
the Bureau has identified potential discrete solutions to specific 
implementation challenges. The Bureau expects that the proposal would 
generally benefit consumers and industry alike by providing greater 
clarity for implementation going forward.
    Among other changes, the proposal would:
     Create tolerances for the total of payments. The Truth in 
Lending Act establishes certain tolerances for accuracy in calculating 
the finance charge and disclosures affected by the finance charge. In 
light of changes to certain underlying regulatory definitions, the 
Bureau believes it would be helpful to establish express tolerances for 
the total of payments to parallel the existing provisions regarding the 
finance charge.
     Adjust a partial exemption that mainly affects housing 
finance agencies and nonprofits. The existing rule provides a partial 
exemption for certain non-interest bearing subordinate lien 
transactions that provide down payment and other homeowner assistance 
(housing assistance loans). The Bureau has learned that the exemption 
may not be operating as intended. The Bureau is proposing two 
amendments to expand the reach of the partial exemption.
     Provide a uniform rule regarding application of the 
integrated mortgage disclosure requirements to cooperative units. Under 
the existing rule, coverage of cooperative units depends on whether 
cooperatives are classified as real property under State law. Because 
State law sometimes treats cooperatives differently for different 
purposes, there may be uncertainty and potential inconsistency among 
market actors. The Bureau is proposing to require provision of the 
integrated disclosures in transactions involving cooperative units, 
whether or not cooperatives are classified under State law as real 
property.
     Provide guidance on sharing disclosures with various 
parties involved in the mortgage origination process. The Bureau has 
received a number of requests for guidance concerning the sharing of 
disclosures with sellers and various other parties, including real 
estate agents, involved in the origination process in light of privacy 
concerns. The Bureau is proposing to incorporate and expand upon 
previous webinar guidance in the Official Interpretations (commentary) 
to the regulation to provide greater clarity.
    The more minor changes and technical corrections address a variety 
of topics, including: Affiliate charges; the calculating cash to close 
table; construction loans; decimal places and rounding; escrow account 
disclosures; escrow cancellation notices; expiration

[[Page 54319]]

dates for the closing costs disclosed on the Loan Estimate; gift funds; 
the ``In 5 Years'' calculation; lender and seller credits; lenders' and 
settlement agents' respective responsibilities; the list of service 
providers; model forms; non-obligor consumers; partial payment policy 
disclosures; payment ranges on the projected payments table; the 
payoffs and payments table; payoffs with a purchase loan; post-
consummation fees; principal reduction (principal curtailment); 
disclosure and good-faith determination of property taxes and property 
value; rate locks; recording fees; simultaneous second lien loans; the 
summaries of transactions table; the total interest percentage 
calculation; trusts; and informational updates to the disclosures 
required by Sec.  1026.19(e)(1)(i) (Loan Estimate).

II. Background

A. The TILA-RESPA Integrated Disclosures Rulemaking

    For more than 30 years, TILA required creditors to give consumers 
who applied for consumer credit, including mortgage loans, one set of 
disclosures, while RESPA required settlement agents to give borrowers 
who obtained federally related mortgage loans a different, overlapping, 
set of disclosures. This duplication was long recognized as inefficient 
and unduly complex for both consumers and industry and fueled more than 
one effort over the years to develop combined disclosure forms. In 
1998, the Board of Governors of the Federal Reserve System (the Board) 
and the Department of Housing and Urban Development (HUD) prepared a 
joint report as to how the two sets of disclosures could be streamlined 
and simplified.\2\
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    \2\ Bd. of Governors of the Fed. Reserve Sys. & U.S. Dep't. of 
Housing 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. The report was prepared at 
Congress's direction in the Economic Growth and Regulatory Paperwork 
Reduction Act of 1996. Public Law 104-208, Sec.  2101, 110 Stat. 
3009.
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    In Dodd-Frank Act sections 1032(f), 1098, and 1100A, Congress 
directed the Bureau to integrate the mortgage loan disclosures under 
TILA and RESPA.\3\ The Bureau undertook significant stakeholder 
outreach and consumer testing as it developed the proposal.\4\ That 
work included researching how consumers interact with and understand 
information, testing of prototype disclosures, developing interactive 
online tools to gather public feedback (which ultimately garnered more 
than 27,000 individual comments on the prototype disclosures), and 
hosting roundtable discussions, teleconferences, and meetings with 
consumer advocacy groups, industry representatives, and government 
agencies. In addition to more conventional outreach to industry 
stakeholders, the Bureau conducted testing with industry participants, 
as well as consumers.\5\ The Bureau also convened a Small Business 
Review Panel to solicit input from representatives of small entities.
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    \3\ Public Law 111-203, 124 Stat. 1376, 2007, 2103-04, 2107-09 
(2010).
    \4\ 78 FR 79730, 79742-744 (Dec. 31, 2013).
    \5\ 78 FR 79730, 79743 (Dec. 31, 2013).
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    The Bureau's 2012 proposal to integrate the TILA and RESPA 
disclosures (the 2012 TILA-RESPA Proposal) built from this extensive 
early outreach and research.\6\ That proposal was animated by three 
primary goals: First, to consolidate the overlapping forms to reduce 
burden on creditors and facilitate compliance; second, to develop clear 
disclosures that help consumers understand the credit transaction and 
closing costs; and, third, to facilitate comparison shopping so that 
consumers could more readily choose mortgages that are right for them.
---------------------------------------------------------------------------

    \6\ 77 FR 51116 (Aug, 23, 2012).
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    The Bureau received over 2,800 comments on its proposal from a wide 
range of interested parties.\7\ In addition to considering all of the 
comments provided, the Bureau conducted additional qualitative testing 
of the disclosures, qualitative testing of the Spanish language 
translations of the disclosures, and a large-scale quantitative 
study.\8\ In the quantitative study, respondents were able to answer 
questions about a hypothetical loan's features with statistically 
significant greater accuracy when using the new disclosures as compared 
to the existing disclosures.\9\
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    \7\ The TILA-RESPA Final Rule notes that commenters included 
``consumer advocacy groups; national, State, and regional industry 
trade associations; banks; community banks; credit unions; financial 
companies; mortgage brokers; title insurance underwriters; title 
insurance agents and companies; settlement agents; escrow agents; 
law firms; document software companies; loan origination software 
companies; appraisal management companies; appraisers; State housing 
finance authorities; counseling associations and intermediaries; 
State attorneys general; associations of State financial services 
regulators; State bar associations; government sponsored enterprises 
(GSEs); a member of the U.S. Congress; the Committee on Small 
Business of the U.S. House of Representatives; Federal agencies, 
including the staff of the Bureau of Consumer Protection, the Bureau 
of Economics, and the Office of Policy Planning of the Federal Trade 
Commission (FTC staff), and the Office of Advocacy of the Small 
Business Administration (SBA); and individual consumers and 
academics.'' 78 FR 79730, 79745 (Dec. 31, 2013).
    \8\ 78 FR 79730, 79746-750 (Dec. 31, 2013).
    \9\ Kleimann Comm. Group, Know Before You Owe: Quantitative 
Study of the Current and Integrated TILA-RESPA Disclosures (2013), 
available at http://files.consumerfinance.gov/f/201311_cfpb_study_tila-respa_disclosure-comparison.pdf.
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    After consideration of the comments, the testing results, and the 
quantitative study, on November 20, 2013, the Bureau issued a final 
rule titled ``Integrated Mortgage Disclosures Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z)'' (TILA-RESPA Final Rule).\10\ The rule included a 
number of model forms, 13 samples illustrating the use of those forms 
for different types of loans, and extensive Official Interpretations, 
which provided authoritative guidance explaining the new disclosures. 
The Bureau used its discretion to establish an initial effective date 
of August 1, 2015, slightly more than 20 months after the rule itself 
was issued.\11\ The Bureau ultimately extended that effective date 
another two months, to October 3, 2015, in a subsequent rulemaking.\12\ 
The Bureau has reaffirmed continuously its commitment to support a 
smooth transition for the mortgage market, including its commitment to 
be sensitive to the efforts made by institutions to come into 
compliance.\13\
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    \10\ 77 FR 51116 (Aug. 23, 2012) (2012 TILA-RESPA Proposal); 78 
FR 79730 (Dec. 31, 2013) (TILA-RESPA Final Rule); see also Consumer 
Fin. Prot. Bureau, CFPB Proposes ``Know Before You Owe'' Mortgage 
Forms (July 9, 2012), http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-know-before-you-owe-mortgage-forms/; Consumer Fin. Prot. Bureau, Know Before You Owe: 
Introducing Our Proposed Mortgage Disclosure Forms, CFPB Blog (July 
9, 2012), http://www.consumerfinance.gov/blog/know-before-you-owe-introducing-our-proposed-mortgage-disclosure-forms/.
    \11\ Most commenters supported an implementation period between 
18 and 24 months. 78 FR 79730, 80071 (Dec. 31, 2013).
    \12\ 80 FR 43911 (July 24, 2015). An administrative error on the 
Bureau's part required the Bureau to extend the effective date to 
August 15, 2015, at the earliest. The Bureau extended the effective 
date an additional six weeks to minimize costs from the delay to 
both consumers and industry.
    \13\ See, e.g., Letter from Director Richard Cordray, CFPB, to 
Industry Trades (April 28, 2015); Letter from Director Richard 
Cordray, CFPB, to Representatives Andy Barr and Carolyn B. Maloney, 
U.S. House of Representatives (June 3, 2015). Both Fannie Mae and 
Freddie Mac have issued statements indicating that they are not 
conducting routine post-purchase reviews during the transitional 
period after the effective date. See, e.g., Fannie Mae, Lender 
Letter LL-2015-06 (Oct. 6, 2015), available at https://www.fanniemae.com/content/announcement/ll1506.pdf; Freddie Mac, 
Industry Letter (Oct. 6, 2015), available at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/iltr100615.pdf.
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    The Bureau has made technical corrections to the TILA-RESPA Final 
Rule. On January 20, 2015, the Bureau issued the ``Amendments to the 
2013

[[Page 54320]]

Integrated Mortgage Disclosures Rule Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 
Z) and the 2013 Loan Originator Rule Under the Truth in Lending Act 
(Regulation Z)'' final rule (January 2015 Amendments).\14\ On July 21, 
2015, the Bureau issued the ``2013 Integrated Mortgage Disclosures Rule 
Under the Real Estate Settlement Procedures Act (Regulation X) and the 
Truth in Lending Act (Regulation Z) and Amendments; Delay of Effective 
Date'' final rule (July 2015 Amendments), which made certain technical 
amendments as well as extending the effective date.\15\ The TILA-RESPA 
Final Rule, January 2015 Amendments, and July 2015 Amendments are 
collectively referred to as the TILA-RESPA Rule in this proposal.
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    \14\ 80 FR 8767 (Feb. 19, 2015). The January 2015 Amendments 
finalized a proposal the Bureau had issued on October 10, 2014, 79 
FR 64336 (Oct. 29, 2014).
    \15\ 80 FR 43911 (July 24, 2015). The July 2015 Amendments 
finalized a proposal the Bureau had issued on June 24, 2015, 80 FR 
36727 (June 26, 2015).
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    While implementation has posed challenges to industry, industry 
reports indicate that implementation is now proceeding more 
smoothly.\16\ Data published by one leading provider of loan 
origination services and survey research conducted by a major trade 
association confirm these observations.\17\ Moreover, a recent 
homebuyer survey by another trade association suggests that the new 
disclosures are, indeed, helping consumers understand their loan 
terms.\18\ The Loan Estimate and the disclosures required by Sec.  
1026.19(f)(1)(i) (Closing Disclosure) have been praised by many as 
improvements to the existing forms.\19\
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    \16\ See, e.g., Brena Swanson,``Ellie Mae CEO: Initial 
discomfort of TRID now over, Time to close finally tumbles,'' 
Housingwire, March 21, 2016, available at http://www.housingwire.com/articles/36563-ellie-mae-ceo-initial-discomfort-of-trid-now-over; Ken Frears, ``TRID: Back on Track in June,'' 
National Association of Realtors, July 12, 2016 available at http://economistsoutlook.blogs.realtor.org/2016/07/12/trid-back-on-track-in-june/.
    \17\ See Ellie Mae, Origination Insight Report (May, 2016), 
available at http://www.elliemae.com/origination-insight-reports/Ellie_Mae_OIR_MAY2016.pdf; National Association of Realtors[supreg], 
Survey of Mortgage Originators, First Quarter 2016: TRID after 6 
Months and Changes to FHA's Cancellation Policy, available at http://www.realtor.org/reports/survey-of-mortgage-originators-first-quarter-2016.
    \18\ Press Release, American Land Title Association, ``American 
Land Title Association Survey Shows More Homebuyers Reviewing 
Mortgage Disclosures,'' May 16, 2016, http://www.alta.org/press/release.cfm?r=260.
    \19\ Brian Honea, ``How Satisfied are Borrowers with the 
Origination Process?,'' The M Report (July 13, 2016). available at 
http://www.themreport.com/news/origination/07-13-2016/how-satisfied-are-borrowers-with-the-origination-process; ``STRATMOR:TRID Is 
Boosting Customer Satisfaction,'' March 29, 2016, available at 
http://www.mortgageorb.com/stratmor-trid-is-boosting-customer-satisfaction; ``New ClosingCorp Survey Gauges Early Consumer 
Reaction to New Real Estate/Mortgage Rules,'' Businesswire (March 
15, 2016), available at http://www.businesswire.com/news/home/20160315005228/en/ClosingCorp-Survey-Gauges-Early-Consumer-Reaction-Real; Trey Garrison, ``Here's how TRID is changing the mortgage 
industry,'' Housingwire (October 12, 2015), available at http://www.housingwire.com/articles/print/35319-heres-how-trid-is-changing-the-mortgage-industry.
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B. Implementation Support

    The Bureau has engaged in extensive efforts to support industry 
implementation of the TILA-RESPA Rule. Information regarding the 
Bureau's implementation support initiative and available implementation 
resources can be found on the Bureau's regulatory implementation Web 
site at www.consumerfinance.gov/regulatory-implementation/tila-respa. 
The Bureau's ongoing efforts in this area include: (1) The publication 
of a small entity compliance guide and a guide to forms to help 
industry understand the new rules, including updates to the guides, as 
needed; (2) the publication of a readiness guide for institutions to 
evaluate their readiness and facilitate compliance with the new rules; 
(3) the publication of a disclosure timeline that illustrates the 
process and timing requirements of the new disclosure rules; (4) the 
publication of the Bureau's own examination procedures, incorporating 
the Federal Financial Institutions Examination Council's exam 
procedures; (5) the publication of Loan Estimate and Closing Disclosure 
forms with fields annotated to show certain TILA disclosure citations; 
(6) a series of webinars to address common interpretive questions, 
including an index of questions answered during those webinars; (7) the 
issuance of the January 2015 and July 2015 Amendments, as well as a 
February 2016 Federal Register erratum notice; (8) the creation of a 
Web page targeted to real estate professionals and their questions; (9) 
roundtable meetings with industry, including creditors, settlement 
service providers, technology vendors, and secondary market 
participants, to discuss their challenges and support their 
implementation efforts; (10) participation in numerous conferences and 
forums throughout the entire implementation period; (11) close 
collaboration with State and Federal regulators on implementation of 
the TILA-RESPA Final Rule, including coordination on consistent 
examination procedures; and (12) extensive informal guidance to support 
implementation of the TILA-RESPA Rule.

C. Purpose and Scope of Proposal

    The intent of this proposal is to integrate some of the Bureau's 
existing informal guidance, whether provided through webinar, 
compliance guide, or otherwise, into the regulation text and commentary 
of Regulation Z where appropriate. In addition, the Bureau is proposing 
to revise portions of the regulation text and commentary where 
revisions would be useful for greater certainty and clarity.
    The Bureau's focus is thus providing additional clarity to 
facilitate compliance and doing so on an expedited schedule. While the 
Bureau has proposed a handful of substantive changes where it has 
identified a potential discrete solution to a specific implementation 
challenge, the Bureau does not intend to revisit major policy decisions 
in this rulemaking. The Bureau is reluctant to entertain major changes 
that could involve substantial reprogramming of systems so soon after 
the October 2015 effective date or to otherwise distract from 
industry's intense and very productive efforts to resolve outstanding 
implementation issues.
    Accordingly, the proposal does not and cannot address every concern 
that has been raised to the Bureau. The Bureau believes that industry 
has made substantial implementation progress even in the last few 
months while drafting of the proposal was underway. The Bureau is 
prioritizing its resources to further facilitate industry's 
implementation progress. Therefore, the Bureau is not proposing any 
revisions that implicate fundamental policy choices, such as the 
disclosure of simultaneous issuance title insurance premiums, made in 
the TILA-RESPA Final Rule. The Bureau is also not proposing additional 
cure provisions.
    The Bureau has spent substantial time considering industry requests 
to define further procedures for curing errors made in Loan Estimates 
or Closing Disclosures. The Bureau has worked steadily with industry to 
explain the cure provisions adopted in the TILA-RESPA Final Rule as 
well as TILA's existing provisions for cure. The Bureau is concerned 
that further definition of cure provisions would not be practicable 
without substantially undermining incentives for compliance with the 
rule. The Bureau believes that further defining cure provisions would 
be extraordinarily complex. Accordingly, the Bureau is focusing this 
rulemaking process on facilitating compliance with the TILA-RESPA Rule

[[Page 54321]]

in an expeditious manner so that all consumers receive disclosures that 
conform to the requirements of the rule.

III. Legal Authority

    The Bureau is issuing this proposal pursuant to its authority under 
TILA, RESPA, and the Dodd-Frank Act, including the authorities 
discussed below. In general, the provisions this proposal would amend 
were previously adopted by the Bureau in the TILA-RESPA Final Rule. In 
doing so, the Bureau relied on one or more of the authorities discussed 
below. Except as otherwise noted in the section-by-section analysis in 
part V below, the Bureau is issuing this proposal in reliance on the 
same authority and for the same reasons relied on in adopting the 
relevant provisions of the TILA-RESPA Rule, which are described in 
detail in the Legal Authority and Section-by-Section Analysis parts of 
the TILA-RESPA Final-Rule and January 2015 Amendments, 
respectively.\20\
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    \20\ 78 FR 79730, 79753-56 (Dec. 31, 2013); 80 FR 8767, 8768-70 
(Feb. 19, 2015).
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A. The Integrated Disclosure Mandate

    Section 1032(f) of the Dodd-Frank Act required the Bureau to 
propose, for public comment, rules and model disclosures combining 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 determined that any proposal issued by 
the Board and HUD carried out the same purpose.\21\ 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.\22\ The purpose of the 
integrated disclosure is to facilitate compliance with the disclosure 
requirements of TILA and RESPA and to improve borrower understanding of 
the transaction.
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    \21\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(f)).
    \22\ 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.'' Public Law 111-203, 124 Stat. 
1376, 2108 (2010) (codified at 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.'' 
Public Law 111-203, 124 Stat. 1376, 2103 (2010) (codified at 12 
U.S.C. 2603(a)).
---------------------------------------------------------------------------

    Although Congress imposed the requirement to integrate the 
disclosures, it did not harmonize the underlying statutes. 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 section 128(b)(2)(A) 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.\23\ If the annual percentage 
rate that was initially disclosed becomes inaccurate, TILA section 
128(b)(2)(D) requires creditors to redisclose the information at least 
three business days before consummation.\24\ Pursuant to TILA section 
128(b)(2)(B)(ii), the disclosures must be provided in final form at 
consummation.\25\ RESPA section 5(c) also requires that the lender or 
broker provide borrowers with a good faith estimate of settlement 
charges no later than three business days after receiving their 
applications.\26\ However, unlike TILA, RESPA section 4(b) requires 
that, at or before settlement, the person conducting the settlement 
(which may not be the creditor) provide the borrower with a statement 
that records all charges imposed upon the borrower in connection with 
the settlement.\27\
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    \23\ 15 U.S.C. 1638(b)(2)(A). This requirement applies to 
extensions of credit that are both secured by a dwelling and subject 
to RESPA. Id.
    \24\ 15 U.S.C. 1638(b)(2)(D).
    \25\ 15 U.S.C. 1638(b)(2)(B)(ii).
    \26\ 12 U.S.C. 2604(c).
    \27\ 12 U.S.C. 2603(b).
---------------------------------------------------------------------------

B. Other Rulemaking and Exception Authorities

Truth in Lending Act
    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a),\28\ 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 further 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 
therewith. 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 available credit terms and avoid the uninformed use of 
credit.\29\ In enacting TILA, Congress found 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.\30\ Strengthened competition among financial institutions is a 
goal of TILA, achieved through the meaningful disclosure of credit 
terms.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 1604(a).
    \29\ 15 U.S.C. 1601(a).
    \30\ Id.
---------------------------------------------------------------------------

    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. 
Dodd-Frank Act section 1100A amended TILA section 105(a) to provide the 
Bureau 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 
Bureau's authority under TILA section 105(a) to prescribe requirements 
beyond those specifically listed in the statute. 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, 
including the high-cost mortgages referred to in TILA section 103(bb), 
except with respect to the provisions of TILA section 129 that apply 
uniquely to such high-cost mortgages.\31\
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    \31\ 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.
---------------------------------------------------------------------------

    TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA 
to add new section 129B(e).\32\ That section authorizes the Bureau to 
prohibit or condition terms, acts, or practices relating to residential 
mortgage loans that the Bureau finds to be abusive, unfair, deceptive, 
predatory, necessary, or proper to ensure that responsible, affordable 
mortgage credit remains available to consumers in a manner consistent 
with the purposes of sections 129B and 129C of TILA, to prevent

[[Page 54322]]

circumvention or evasion thereof, or to facilitate compliance with such 
sections, or are not in the interest of the borrower. In developing 
rules under TILA section 129B(e), the Bureau has considered whether the 
rules are in the interest of the borrower, as required by the statute. 
The Bureau is proposing portions of this rule pursuant to its authority 
under TILA section 129B(e).
---------------------------------------------------------------------------

    \32\ Public Law 111-203, 124 Stat. 1376, 2141 (2010) (codified 
at 15 U.S.C. 1639B(e)).
---------------------------------------------------------------------------

Real Estate Settlement Procedures Act
    Section 19(a) of RESPA 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.\33\ 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.\34\ In addition, in enacting RESPA, 
Congress found that consumers are entitled to 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 in some areas of the country.\35\ In the past, RESPA 
section 19(a) has served as a broad source of authority to prescribe 
disclosures and substantive requirements to carry out the purposes of 
RESPA.
---------------------------------------------------------------------------

    \33\ 12 U.S.C. 2617(a).
    \34\ 12 U.S.C. 2601(b).
    \35\ 12 U.S.C. 2601(a).
---------------------------------------------------------------------------

    In developing rules under RESPA section 19(a), the Bureau has 
considered the purposes of RESPA, including to effect certain changes 
in the settlement process that will result in more effective advance 
disclosure of settlement costs. The Bureau is proposing portions of 
this rule pursuant to its authority under RESPA section 19(a).
Dodd-Frank Act
    Dodd-Frank Act section 1022(b). Under Dodd-Frank Act section 
1022(b)(1), the Bureau has general authority 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.\36\ TILA and RESPA are Federal 
consumer financial laws.\37\ Accordingly, in proposing this rule, the 
Bureau is exercising its authority under Dodd-Frank Act section 1022(b) 
to prescribe rules under TILA, RESPA, and title X of the Dodd-Frank Act 
that carry out the purposes and objectives and prevent evasion of those 
laws. 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).\38\
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    \36\ Public Law 111-203, 124 Stat. 1376, 1980 (2010) (codified 
at 15 U.S.C. 5512(b)(1)).
    \37\ 12 U.S.C. 5481(12) and (14).
    \38\ Public Law 111-203, 124 Stat. 1376, 1980 (2010) (codified 
at 12 U.S.C. 5512(b)(2)).
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    Dodd-Frank Act section 1032. 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.\39\ 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.
---------------------------------------------------------------------------

    \39\ Public Law 111-203, 124 Stat. 1376, 2006-07 (2010) 
(codified at 12 U.S.C. 5532(a)).
---------------------------------------------------------------------------

    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.\40\ Accordingly, in developing 
the TILA-RESPA Rule under Dodd-Frank Act section 1032(a), the Bureau 
considered available studies, reports, and other evidence about 
consumer awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services. 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 of the TILA-RESPA 
Final Rule for a discussion of the Bureau's consumer testing.\41\ The 
Bureau is proposing portions of this rule pursuant to its authority 
under Dodd-Frank Act section 1032(a).
---------------------------------------------------------------------------

    \40\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(c)).
    \41\ 78 FR 79730, 79743-50 (Dec. 31, 2013).
---------------------------------------------------------------------------

    Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank 
Act provides that, notwithstanding any other provision of title XIV 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 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.\42\ Section 1401 of the Dodd-Frank Act, which amends TILA 
section 103(cc)(5), generally defines a 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.\43\ 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 exempt 
from or modify the disclosure requirements of TILA and RESPA.
---------------------------------------------------------------------------

    \42\ Public Law 111-203, 124 Stat. 1376, 2142 (2010) (codified 
at 15 U.S.C. 1601 note).
    \43\ Public Law 111-203, 124 Stat. 1376, 2138 (2010) (codified 
at 15 U.S.C. 1602(cc)(5)).
---------------------------------------------------------------------------

    In developing rules for residential mortgage loans under Dodd-Frank 
Act section 1405(b), 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. The Bureau is proposing 
portions of this rule pursuant to its authority under Dodd-Frank Act 
section 1405(b).

IV. Proposed Implementation Period

    The Bureau seeks comment on when the changes proposed herein should 
be effective. The Bureau believes that these changes should enable 
industry to implement the TILA-RESPA Rule more cost-effectively and 
that industry should be able implement these changes relatively 
quickly. At the same time, the Bureau recognizes that some of the 
proposed changes might require changes to systems or procedures. The 
Bureau specifically requests that technology vendors, creditors, 
mortgage brokers, settlement agents, and other entities affected by the 
proposal provide details on any required updates to software and 
systems and other measures that would be necessary to implement the 
proposed changes. The Bureau also specifically requests details on the 
amount of time

[[Page 54323]]

needed to make specific changes and the time to make all proposed 
changes in the aggregate.
    The Bureau proposes an effective date 120 days after publication in 
the Federal Register of any final rule based on this proposal and seeks 
comment on the same. The Bureau also welcomes comment on whether there 
is a better or worse time of year for any of the changes proposed 
herein to become effective. The Bureau seeks comment on whether 
specific changes, as detailed in the section-by-section analysis in 
part V below, should have a separate effective date and, if so, whether 
it should be earlier or later than the general effective date and why. 
Finally, as discussed more fully in the section-by-section analysis of 
Sec.  1026.1(d)(5), the Bureau is proposing revisions to comment 
1(d)(5)-1 that would make mandatory, after a period of six months or 
more following promulgation of a final rule, certain post-consummation 
disclosures for transactions with an application date before October 3, 
2015.

V. Section-by-Section Analysis

Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, 
and Liability

1(d) Organization
1(d)(5)
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to Sec.  1026.1(d)(5) to reflect this proposed change to the 
coverage of Sec.  1026.19(e) and (f).
    Comment 1(d)(5)-1 explains that the Bureau's revisions to 
Regulation X and Regulation Z in the TILA-RESPA Final Rule apply to 
covered loans for which the creditor or mortgage broker receives an 
application on or after October 3, 2015 (the ``effective date''), 
except that Sec.  1026.19(e)(2), Sec.  1026.28(a)(1), and the 
commentary to Sec.  1026.29 became effective on October 3, 2015, 
without respect to whether an application was received. The Bureau is 
proposing to modify comment 1(d)(5)-1 in three ways. First, the Bureau 
is proposing to restructure the comment and make other clarifying and 
technical revisions. Second, the Bureau is proposing revisions to 
conform with proposed revisions to Sec.  1026.19(e) and (f) as 
discussed in relation to the edits to Sec.  1026.1(d)(5) above. Third, 
the Bureau is proposing language to require a creditor, servicer, or 
covered person, as applicable, to provide the disclosures required by 
Sec.  1026.20(e) or Sec.  1026.39(d)(5), for transactions in which the 
conditions in these provisions, as applicable, exist on or after 
October 1, 2017, regardless of when a corresponding application was 
received. The proposed amendments to the comment also would set forth 
an illustrative example.
    With regard to the third modification, the Bureau understands that 
there is uncertainty whether the disclosures in Sec. Sec.  1026.20(e) 
and 1026.39(d)(5) (together, the post-consummation disclosures) apply 
to all covered transactions as of the effective date or only to covered 
transactions for which the creditor or mortgage broker received an 
application on or after October 3, 2015. The Bureau considers either 
approach compliant under existing comment 1(d)(5)-1. The Bureau is 
proposing to clarify that the post-consummation disclosure requirements 
apply to all covered transactions. To avoid unfair surprise to 
creditors that have observed the requirements only for transactions for 
which an application was received on or after October 3, 2015, however, 
the Bureau is proposing to provide in comment 1(d)(5)-1 that the post-
consummation disclosures apply prospectively to transactions for which 
an application was received prior to October 3, 2015. Specifically, 
proposed comment 1(d)(5)-1 would state that the post-consummation 
disclosures take effect for such transactions on October 1, 2017.
    The October 1, 2017, effective date in proposed comment 1(d)(5)-1 
reflects the Bureau's working assumption expectation that the final 
rule under this proposal, at least to the extent of the proposed 
revisions to comment 1(d)(5)-1, will be promulgated on or before April 
1, 2017. The Bureau therefore is tentatively proposing this date in 
accordance with TILA section 105(d), which provides that any regulation 
of the Bureau that requires a disclosure that differs from the 
previously required disclosure generally shall take effect on that 
October 1 which follows by at least six months the date of 
promulgation. The Bureau's expectation concerning the date of a final 
rule is a working assumption at this time. Accordingly, the effective 
date recited in proposed comment 1(d)(5)-1 for the post-consummation 
disclosures for transactions for which an application was received 
prior to October 3, 2015, may differ in the final rule, depending on 
when it is adopted.
    The Bureau believes that consumers with covered mortgage loans 
would benefit from the receipt of the post-consummation disclosures 
without regard to when a corresponding application was received. The 
information contained in the post-consummation disclosures, about 
escrow account closure and partial payment policies of a new owner of 
the mortgage loan, is beneficial regardless of when the consumer 
applied for the loan. Moreover, there is no necessary relationship 
between the disclosures made under Sec.  1026.19(e) and (f) and the 
post-consummation disclosures; consumers should be able to understand 
the latter even if they have not received the former.
    The Bureau also believes that requiring the post-consummation 
disclosures for covered transactions without regard to the application 
date would simplify compliance. For example, Sec.  1026.20(e) 
recognizes that servicers may provide the post-consummation escrow 
disclosure notice, in connection with servicing the mortgage loan 
account, but servicers may have no other reason to track the 
application date. Providing the required notice on all covered accounts 
regardless of application date may simplify servicers' compliance. 
Similarly, the post-consummation partial payment disclosure required by 
Sec.  1026.39(d)(5) is incorporated into the mortgage transfer 
disclosures that are provided upon transfer of ownership of any covered 
loan, without regard to application date. If Sec.  1026.39(d)(5) is 
effective without regard to application date, covered persons under 
Sec.  1026.39 can provide a standard disclosure to all mortgage loans 
rather than two distinct disclosures, depending on the loan's 
application date.
    The Bureau is seeking comment on whether making the applicability 
of the post-consummation disclosures to all covered transactions 
regardless of when an application was received is appropriate and any 
information about current industry practice and whether these notices 
are provided on all transactions that met the conditions set forth in 
Sec. Sec.  1026.20(e) and 1026.39(d), respectively, or only 
transactions for which the application was received on or after October 
3, 2015. The Bureau also seeks comment on how often escrow accounts are 
canceled post-consummation, whether the rate of escrow cancelations is 
expected to remain static or change, and the burden of tracking the 
application date for these two post-consummation disclosures.

[[Page 54324]]

Section 1026.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(11) Consumer
    Comments 2(a)(11)-3 and 3(a)-10 discuss when the extension of 
credit to trusts is covered by TILA. Comment 2(a)(11)-3 clarifies that 
credit extended to land trusts is considered to be extended to a 
consumer for purposes of the definition of consumer in Sec.  
1026.2(a)(11). Comment 3(a)-10 states that credit extended for consumer 
purposes to land trusts and trusts that a consumer has created for tax 
or estate planning purposes is considered to be credit extended to a 
natural person rather than credit extended to an organization.
    The Bureau proposes to amend comment 2(a)(11)-3 to clarify that, in 
addition to credit extended to land trusts, credit extended to trusts 
established for tax or estate planning purposes is also considered to 
be extended to a natural person for purposes of the definition of 
consumer in Sec.  1026.2(a)(11), consistent with comment 3(a)-10.

Section 1026.3 Exempt Transactions

3(h) Partial Exemption for Certain Mortgage Loans
    Section 1026.3(h) provides that the TILA-RESPA integrated 
disclosure requirements do not apply to a transaction if: (1) the 
transaction is secured by a subordinate lien; (2) the transaction's 
purpose is to finance down payment, closing costs, or similar homebuyer 
assistance, such as principal or interest subsidies; property 
rehabilitation assistance; energy efficiency assistance; or 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 forgiven either incrementally or in 
whole, at a date certain, and subject only to specified ownership and 
occupancy conditions, or deferred for a minimum of 20 years after 
consummation of the transaction, until the sale of the property 
securing the transaction, or until the property securing the 
transaction is no longer the principal dwelling of the consumer; (5) 
the total of costs payable by the consumer at consummation is less than 
1 percent of the amount of credit extended and includes no charges 
other than fees for recordation, application, and housing counseling; 
and (6) the creditor complies with all other applicable Regulation Z 
requirements in connection with the transaction, including providing 
the disclosures required by Sec.  1026.18. If the six criteria in Sec.  
1026.3(h) are satisfied, a creditor is not required to provide the Loan 
Estimate, Closing Disclosure, or special information booklet in 
connection with the mortgage loan. The creditor must, however, provide 
the disclosures required by Sec.  1026.18, ensuring that the consumer 
receives TILA disclosures of the cost of credit. As discussed in more 
detail below, the Bureau is proposing to revise Sec.  1026.3(h) to 
clarify that transfer taxes may be payable by the consumer at 
consummation without losing eligibility for the partial exemption and 
to exclude recording fees and transfer taxes from the 1-percent 
threshold of total costs payable by the consumer at consummation.
    Regulation X Sec.  1024.5(d) provides a partial exemption from 
certain RESPA disclosure requirements for federally related mortgage 
loans \44\ that meet the criteria set forth in Sec.  1026.3(h). 
Specifically, Regulation X Sec.  1024.5(d) provides that lenders \45\ 
are exempt from the RESPA settlement cost booklet, RESPA Good Faith 
Estimate, RESPA settlement statement (HUD-1), and application servicing 
disclosure statement requirements of Sec. Sec.  1024.6 through 1024.8, 
1024.10, and 1024.33(a) (the RESPA disclosures) for 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, Sec.  1026.19(e), (f), and (g); or 
(2) that satisfies the criteria in Regulation Z, Sec.  1026.3(h). Thus, 
a lender on a federally related mortgage loan must provide the RESPA 
disclosures unless (1) the loan is a covered transaction for purposes 
of the TILA-RESPA integrated disclosures; or (2) the transaction meets 
the partial exemption in Sec.  1026.3(h). Where a federally related 
mortgage loan is not a covered transaction subject to the special 
disclosures at Sec.  1026.19(e), (f), and (g), for example, because it 
imposes no finance charge and is payable in four or fewer installments 
and thus does not meet one of Regulation Z's coverage criteria in Sec.  
1026.1(c)(1)(iii), and also does not satisfy the criteria in Sec.  
1026.3(h), the lender must continue to provide the RESPA disclosures. 
Even if a lender chooses to provide the TILA-RESPA integrated 
disclosures voluntarily, because those disclosures are not required for 
the transaction, the loan is not eligible for the partial exemption 
from the RESPA disclosures in Regulation X Sec.  1024.5(d)(2).
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    \44\ 12 CFR 1024.2(b) (defining federally related mortgage loan 
for purposes of Regulation X).
    \45\ Note that RESPA and TILA differ in their terminology. 
Whereas Regulation X generally refers to ``lenders'' and 
``borrowers,'' Regulation Z generally refers to ``creditors'' and 
``consumers.'' This Supplementary Information uses ``lenders'' and 
``borrowers'' in its discussion of Regulation X and the RESPA 
disclosures and ``creditors'' and ``consumers'' in its discussion of 
Regulation Z, the TILA-RESPA integrated disclosures, and the partial 
exemptions generally.
---------------------------------------------------------------------------

    As discussed in the 2012 TILA-RESPA Proposal, the partial exemption 
in Sec.  1026.3(h) and the parallel partial exemption in Regulation X 
Sec.  1024.5(d) are designed to codify a disclosure exemption 
previously granted by HUD.\46\ The purpose of these partial exemptions 
is to permit creditors to provide streamlined disclosures for certain 
low-cost, non-interest bearing subordinate lien transactions. The 
Bureau understands that the disclosures required under Sec.  1026.18 
are comparatively less burdensome to complete than either the TILA-
RESPA integrated disclosures or the RESPA disclosures. Moreover, for 
the low-cost, non-interest bearing subordinate loans that satisfy the 
criteria at Sec.  1026.3(h), the Bureau believes the disclosures 
required by Sec.  1026.18 would be relatively straightforward to 
calculate, as loans that would qualify for the partial exemption would 
likely have minimal finance charges (by the terms of the partial 
exemption, only a certain limited set of fees may be charged and no 
interest may be charged). By reducing the procedural burden associated 
with the disclosures required for these transactions, the Bureau 
intended to enable creditors to make more housing assistance loans 
available for low- and moderate-income consumers.
---------------------------------------------------------------------------

    \46\ 77 FR 51115, 51138 (Aug. 23, 2012).
---------------------------------------------------------------------------

    The Bureau believes that transactions that satisfy the criteria at 
Sec.  1026.3(h) generally provide a benefit to consumers and pose very 
little risk of consumer harm. These loans often provide consumers funds 
that could be directly applied against the first lien, in the case of 
down payment assistance, or towards closing costs associated with the 
first lien (these loans may also be made for other purposes, such as 
energy efficiency improvements). They are not interest bearing, 
repayment is deferred or contingent, and only a certain limited set of 
fees may be charged the consumer. The Bureau understands additionally 
that the amount of these loans is relatively small, typically between 
$2,500 and $10,000.
    Moreover, the Bureau understands that loans that satisfy the 
criteria at Sec.  1026.3(h) are predominantly made by housing finance 
agencies (HFAs) or by private creditors who partner with

[[Page 54325]]

HFAs and extend credit pursuant to HFA guidelines. The Bureau has 
previously explained that HFAs are quasi-governmental entities, 
chartered by either a State or a municipality, that engage in diverse 
housing financing activities for the promotion of affordable housing 
and that HFAs promote affordable homeownership through activities such 
as subordinate-loan financing and down payment assistance programs 
(e.g., a loan to the consumer to assist with the consumer's down 
payment, or to pay for some of the closing costs).\47\ The Bureau has 
further explained its understanding that HFA lending is characterized 
by low-cost financing, evaluation of a consumer's repayment ability, 
and homeownership counseling.\48\
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    \47\ 78 FR 6855, 6886 (January 10, 2014) (High-Cost Mortgage and 
Homeownership Counseling Amendments to the Truth in Lending Act 
(Regulation Z) and Homeownership Counseling Amendments to the Real 
Estate Settlement Procedures Act (Regulation X)).
    \48\ Id.
---------------------------------------------------------------------------

    Many of the low-cost housing assistance loans made by HFAs or 
pursuant to HFA guidelines are not covered transactions subject to the 
special disclosures at Sec.  1026.19(e), (f), and (g) because they are 
neither subject to a finance charge nor payable in more than four 
installments, as required by the coverage test in Sec.  
1026.1(c)(1).\49\ These loans generally are, however, federally related 
mortgage loans. Thus, unless they qualify for the partial exemption in 
Sec.  1026.3(h), cross-referenced in Regulation X Sec.  1024.5(d)(2), 
creditors making these housing assistance loans may be required to 
provide the RESPA disclosures.
---------------------------------------------------------------------------

    \49\ Section 1026.1(c)(1) provides that, in general, Regulation 
Z applies to each individual or business that offers or extends 
credit, other than a person excluded from coverage by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public 
Law 111-203, 124 Stat. 1376, when four conditions are met: (i) The 
credit is offered or extended to consumers; (ii) The offering or 
extension of credit is done regularly; (iii) The credit is subject 
to a finance charge or is payable by a written agreement in more 
than four installments; and (iv) The credit is primarily for 
personal, family, or household purposes.
---------------------------------------------------------------------------

    The Bureau has received information that many HFAs are having 
difficulty finding lenders to partner with in making these loans. 
Following the introduction of the TILA-RESPA integrated disclosures, 
some vendors and loan originator systems no longer support the RESPA 
disclosures. Although the RESPA disclosures are still required for 
other loan types, such as reverse mortgages, many lenders do not offer 
such products, and those lenders that do offer such products often do 
so through separate divisions that do not engage with, or operate on 
separate systems that do not support, housing assistance loan programs. 
As a result, many lenders, or at least the relevant divisions of many 
lenders, may no longer have the capacity to issue the RESPA 
disclosures. Several HFAs have reported to the Bureau that they have 
begun completing the RESPA disclosures manually, which is cumbersome 
and may increase errors. The Bureau is concerned that the limited 
support for the RESPA disclosures may make it difficult for HFAs, other 
nonprofits, and private lenders to make housing assistance loans 
available to low- and moderate-income borrowers if they are not able to 
take advantage of the partial exemption in Sec.  1026.3(h).
    Since the publication of the TILA-RESPA Rule, the Bureau has 
received information from one trade association representing HFAs, 
numerous State and local HFAs, and other nonprofit organizations 
indicating that many creditors are having difficulty satisfying the 
criteria for the partial exemption set forth in Sec.  1026.3(h) when 
making housing assistance loans. In particular, the Bureau has received 
information that housing assistance loans most often fail to meet the 
partial exemption because the total costs payable by the consumer at 
consummation exceed the 1-percent threshold in current Sec.  
1026.3(h)(5). The Bureau understands that, due in part to the 
relatively small size of these loans, the fees for recordation charged 
by State and local governments often exceed the 1-percent threshold on 
costs payable by the consumer at consummation.
    The Bureau is concerned that the current 1-percent limit on the 
total of costs payable by the consumer at consummation in Sec.  
1026.3(h)(5) may be overly restrictive, given the comparatively small 
size of these loans and information that transfer tax and recording 
fees have increased in recent years. For example, one HFA has reported 
that its average down payment assistance loan amount is $2,500. In the 
State in which this HFA operates, there is a base fee of $14 and a 
housing trust fund fee of $14 for recording the first two pages of the 
mortgage, with an additional $4 base fee and $4 housing trust fund fee 
charged for each subsequent page. This HFA has informed the Bureau that 
the mortgage is usually at least three pages. As a result, fees for 
recording the mortgage routinely come to at least $36, which is more 
than the 1-percent of costs payable at consummation for this HFA's 
average housing assistance loan size of $2,500. Another HFA has 
explained to the Bureau that it offers an interest-free deferred 
payment loan program with a maximum loan amount of $5,500. The State in 
which this HFA operates charges a tax for recording a mortgage in the 
amount of 0.23 percent of the debt that is secured by the mortgage 
loan, which amounts to a $12.65 tax on a $5,500 loan. This State also 
permits county recorders to charge a $46 fee for indexing and recording 
deeds or other instruments, including mortgages. Ten counties in this 
State impose an additional $5 fee per transaction on the recording or 
registration of a mortgage loan or deed. Thus, a $5,500 loan could be 
subject to $63.65 in government taxes and fees for recording the 
mortgage, which again is more than 1-percent of the total costs payable 
by the consumer at consummation.
    Accordingly, the Bureau believes that clarifying that transfer 
taxes may be payable in connection with such transactions without 
losing eligibility for the partial exemption and excluding recording 
fees and transfer taxes, which are costs inherent to the transaction 
and not imposed by the creditor, from the 1-percent threshold would 
enable more loans to satisfy the criteria in Sec.  1026.3(h). This 
would facilitate access to the partial exemption from the RESPA 
disclosures in Regulation X Sec.  1024.5(d), and would support 
extensions of beneficial low-cost credit to borrowers.
    Current Sec.  1026.3(h)(5)(i) lists fees for recordation of 
security instruments, deeds, and similar documents as among the 
permissible fees for loans qualifying for the Sec.  1026.3(h) partial 
exemption. The Bureau proposes to clarify that, for the purposes of 
this partial exemption, fees for recordation of security instruments, 
deeds, and similar documents include transfer taxes. Comments 37(g)(1)-
1 and 37(g)(1)-3 explain what recording fees and transfer taxes are, 
respectively. As comment 37(g)(1)-3 explains, transfer taxes are 
generally based on the loan amount or sales price, but 37(g)(1)-1 notes 
that recording fees are typically assessed based on the type of 
document to be recorded or its physical characteristics, such as number 
of pages.
    The Bureau believes that all government fees associated with 
recording the mortgage loan, deed, and similar documents should be 
permissible fees for purposes of the Sec.  1026.3(h) partial exemption, 
whether assessed with regard to the loan amount or sales price or the 
document recorded. These fees and taxes are not determined or imposed 
by the creditor in the transaction. Additionally, the impact of

[[Page 54326]]

these fees on the cost of the transaction may be further reduced as the 
Bureau understands that, in some instances, housing assistance loans 
may be exempted from transfer taxes. The Bureau proposes to revise 
Sec.  1026.3(h)(5) to permit expressly both recording fees and transfer 
taxes, which are defined terms under Regulation Z. The Bureau believes 
this proposed revision may increase use of the Sec.  1026.3(h) partial 
exemption, which could relieve concerns associated with the required 
provision of the RESPA disclosures for certain transactions that 
currently do not satisfy Sec.  1026.3(h) and could benefit borrowers 
through expanded access to low-cost housing assistance loans. The 
Bureau seeks comment on any risks associated with expressly permitting 
recording fees and transfer taxes to be charged in connection with 
loans that satisfy Sec.  1026.3(h) and whether any additional fees 
should be permitted for such loans.
    The Bureau proposes to redesignate and revise Sec.  1026.3(h)(5) as 
Sec.  1026.3(h)(5)(i) to provide that the costs payable by the consumer 
in connection with the transaction at consummation are limited to: (A) 
Recording fees; (B) transfer taxes; (C) a bona fide and reasonable 
application fee; and (D) a bona fide and reasonable fee for housing 
counseling services. The Bureau proposes to revise Sec.  
1026.3(h)(5)(ii) to require that the total of costs payable by the 
consumer under Sec.  1026.3(h)(5)(i)(C) and (D) be less than 1 percent 
of the amount of credit extended. Under proposed Sec.  
1026.3(h)(5)(ii), the application and housing counseling fees would 
count towards the 1-percent threshold, but recording fees and transfer 
taxes would not. The Bureau solicits comment on these revisions to 
Sec.  1026.3(h)(5) and seeks information related to the average amount 
of housing assistance loans, the fees generally charged in connection 
with these loans, and the average amounts of these fees.
    The Bureau recognizes that the proposal to exclude recording fees 
and transfer taxes from the 1-percent threshold may allow for an 
increase in the costs associated with loans that satisfy the criteria 
at Sec.  1026.3(h). The Bureau believes that the risk of consumer abuse 
through overcharging of recording fees and transfer taxes is slight. 
These fees are required by State and local laws and not imposed by the 
creditor in the transaction. To the extent these fees vary by 
transaction and are not uniformly levied, they may be reduced for loans 
that provide down payment or other homeowner assistance. The Bureau 
believes it unlikely that State and local jurisdictions would target 
the low-cost housing assistance loans that qualify for the Sec.  
1026.3(h) partial exemption for increases in recording fees and 
transfer taxes. Nonetheless, the Bureau seeks comment on whether 
broadening the scope of the partial exemption through the proposed 
exclusion of recording fees and transfer taxes from the 1-percent 
threshold would increase the potential for abuse or risk of other 
consumer harm. The Bureau also seeks comment on whether, in light of 
the proposed changes, 1-percent would continue to be the appropriate 
threshold on costs.
    The Bureau also recognizes that removing recording fees and 
transfer taxes from the 1-percent limit could reduce downward pressure 
on application and housing counseling fees and potentially result in 
these fees becoming an increased source of revenue for creditors making 
these loans. The Bureau seeks comment, therefore, on potential areas 
for abuse regarding housing assistance programs and additional 
restrictions to ensure that loans eligible for the Sec.  1026.3(h) 
partial exemption pose minimal risks to consumers. The Bureau similarly 
seeks comment on whether requiring that the credit contract not require 
the payment of a finance charge as defined in Sec.  1026.4, except as 
expressly permitted under Sec.  1026.3(h)(5), would reduce the 
potential for abuse or evasion in housing assistance programs and 
improve clarity. The Bureau solicits comment generally on whether there 
are alternative approaches to address concerns over the ability of 
housing assistance loans to satisfy Sec.  1026.3(h)(5) and the required 
provision of the RESPA disclosures for certain federally related 
mortgage loans that do not meet the criteria for the Sec.  1026.3(h) 
partial exemption.
    Although the Bureau understands that loans eligible for the Sec.  
1026.3(h) partial exemption are primarily made by HFAs or by private 
creditors who partner with HFAs and extend credit pursuant to HFA 
guidelines, nothing in Sec.  1026.3(h) limits the availability of the 
partial exemption to loans made by HFAs or creditors working with those 
entities. The Bureau seeks comment on whether it should make such a 
limitation explicit in Sec.  1026.3(h). The Bureau notes that Sec.  
1026.32, which sets forth requirements for high-cost mortgages, exempts 
transactions from coverage where the HFA is a creditor for the 
transaction. The Bureau seeks comment on whether Sec.  1026.3(h) should 
be similarly revised to exempt transactions originated by an HFA from 
the disclosure requirements in Sec.  1026.19(e), (f), and (g), or to 
completely exempt such transactions from Regulation Z requirements 
altogether, without regard to the criteria set forth in Sec.  
1026.3(h). If such an exemption for HFAs were appropriate, the Bureau 
solicits information on the defining characteristics of an HFA for 
purposes of these exemptions and whether such exemption should be in 
whole or in part. The Bureau seeks comment on how such an exemption 
from the requirements of Regulation Z for a loan originated by an HFA 
should intersect with the RESPA disclosures under Regulation X.
    In light of the proposed amendments to Sec.  1026.3(h)(5), the 
Bureau proposes revisions to comment 3(h)-2. Current comment 3(h)-2 
explains, in relevant part, that the creditor must have information 
reflecting that the total of closing costs imposed in connection with 
the transaction is less than 1 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). The Bureau 
proposes conforming changes to comment 3(h)-2 to reflect the proposed 
revisions to Sec.  1026.3(h)(5).
    The Bureau also proposes to add new comments 3(h)-3 and -4 in light 
of the proposed references to recording fees in Sec.  
1026.3(h)(5)(i)(A) and transfer taxes in Sec.  1026.3(h)(5)(i)(B). 
Proposed comment 3(h)-3 would include a cross reference to comment 
37(g)(1)-1, which explains what constitutes recording fees for purposes 
of Regulation Z. Proposed comment 3(h)-4 would include a cross 
reference to comment 37(g)(1)-3, which explains what constitutes 
transfer taxes for purposes of Regulation Z. Adding these cross 
references in commentary would increase clarity as to whether certain 
fees are permissible charges under proposed Sec.  1026.3(h)(5)(i)(A) 
and (B).
Legal Authority
    The Bureau believes that the proposed modifications to the Sec.  
1026.3(h) partial exemption would further facilitate compliance with 
TILA and RESPA, consistent with the Bureau's authority under TILA 
section 105(a) and RESPA section 19(a). TILA section 105(a) authorizes 
the Bureau to adjust or except from the disclosure requirements of TILA 
all or any class of transactions to facilitate compliance with TILA. As 
set forth above, revising the criteria for the Sec.  1026.3(h) partial 
exemption would facilitate compliance by enabling more housing 
assistance loans to qualify for the partial exemption at Sec.  
1026.3(h) and reducing regulatory burden for a class of transactions 
that the Bureau believes generally benefit consumers and pose

[[Page 54327]]

little risk of consumer harm. RESPA section 19(a) authorizes the Bureau 
to grant reasonable exemptions for classes of transactions, as may be 
necessary to achieve the purposes of RESPA. This amendment would enable 
more federally related mortgage loans to qualify for the partial 
exemption at Sec.  1024.5(d)(2) and permit lenders to provide the 
streamlined disclosures under Sec.  1026.18 for these low-cost, non-
interest bearing, subordinate-lien transactions.
    In addition, the Bureau believes that the special disclosure 
requirements that covered persons must meet to qualify for the Sec.  
1026.3(h) partial exemption would 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).

Section 1026.17 General Disclosure Requirements

17(c) Basis of Disclosures and Use of Estimates
17(c)(6)
Allocation of Costs
    Comment 17(c)(6)-5 permits a creditor, when using the special rule 
under Sec.  1026.17(c)(6), to disclose certain construction-permanent 
transactions as multiple transactions, to allocate buyer's points or 
similar amounts imposed on the consumer between the construction and 
permanent phases of the transaction in any manner the creditor chooses. 
The Bureau is proposing to amend comment 17(c)(6)-5 to provide greater 
clarity by adding a ``but for'' test to allocate amounts to the 
construction phase.
    Creditors have expressed uncertainty as to the scope of the 
allocations currently permitted under comment 17(c)(6)-5. Statutory and 
regulatory changes since the comment was adopted further complicate 
reasonable interpretations of comment 17(c)(6)-5. For example, the 
construction phase of a construction-permanent loan is excluded from 
coverage of Sec.  1026.32 for high-cost mortgages and Sec.  1026.35 for 
higher-priced mortgage loans, but the permanent phase may be a covered 
loan under both Sec. Sec.  1026.32 and 1026.35. Comment 17(c)(6)-5 does 
not provide guidance on how to allocate amounts so as to avoid 
violating TILA section 129(r), which prohibits structuring a loan 
transaction or dividing any loan transaction into separate parts for 
the purpose of evading the high-cost mortgage provisions.
    To help ensure consumer protections are not evaded and to assist 
creditors in properly disclosing construction-permanent loans, the 
Bureau is proposing to amend comment 17(c)(6)-5 to provide greater 
clarity on the allocation of amounts between the construction and 
permanent phases if a creditor chooses to disclose the credit extended 
as more than one transaction. The revised comment would explain that 
the creditor must allocate to the construction phase all amounts that 
would not be imposed but for the construction financing. All other 
amounts would be allocated to the permanent financing, including both 
all amounts that would not be imposed but for the permanent financing 
and all amounts that are not imposed exclusively because of the 
construction financing. The Bureau believes that this explanation 
provides a rational and workable method for allocating and disclosing 
amounts in construction-permanent loans. The Bureau also believes that 
applying the comment to all amounts will alleviate creditors' 
uncertainty as to the comment's scope. The amended comment would 
illustrate how the allocation would be made, using inspection and 
handling fees for the staged disbursement of construction loan proceeds 
as an example. The revised comment would also provide examples of how 
to allocate origination and application fees between the construction 
phase and the permanent phase.
    The Bureau is making this proposal pursuant to its general 
rulemaking, exception, and exemption authorities under TILA section 
105(a) and section 1032(a) of the Dodd-Frank Act. The Bureau proposes 
the aforementioned amendments pursuant to its authority under TILA 
section 105(a) to effectuate the purposes of TILA and Regulation Z, 
prevent circumvention or evasion, as discussed above, and facilitate 
compliance with the statute. The Bureau believes this amendment 
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 amendment 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 requests comment on this proposed revision of comment 
17(c)(6)-5. In particular, the Bureau requests comment on whether the 
proposal presents a clear and understandable method of allocating costs 
between the construction phase and the permanent phase, whether there 
are fees that may not be clearly allocated to one phase or the other, 
and whether the proposed revision would improve or obscure consumer 
understanding and promote or discourage comparison shopping.
May Be Permanently Financed by the Same Creditor
    The Bureau proposes to add new comment 17(c)(6)-6 to clarify the 
meaning of the ``may be permanently financed by the same creditor'' 
condition specified in Sec.  1026.17(c)(6)(ii) that, if satisfied, 
permits a creditor to treat a construction-permanent loan as one 
transaction or more than one transaction. Proposed comment 17(c)(6)-6 
would explain that a loan to finance the construction of a dwelling may 
be permanently financed by the same creditor, within the meaning of 
Sec.  1026.17(c)(6)(ii), if the creditor generally makes both 
construction and permanent financing available to qualifying consumers, 
unless a consumer expressly states that the consumer will not obtain 
permanent financing from the creditor. Under this approach, the 
construction phase may be permanently financed by the same creditor, 
within the meaning of Sec.  1026.17(c)(6)(ii), in all cases other than 
where permanent financing is not available at all from the creditor 
(i.e., the creditor does not offer permanent financing) or the consumer 
expressly informs the creditor that the consumer will not be obtaining 
permanent financing from the creditor. The Bureau expects that, 
especially at the early stages of an application when the Loan Estimate 
is delivered, creditors usually would not yet have made a determination 
as to whether they will provide permanent financing to any given 
consumer. Moreover, the Bureau recognizes that any such determination 
may be subject to change and defining when the creditor has made such a 
determination could be complex. Consequently, the Bureau does not 
believe it is appropriate to determine whether a creditor ``may'' 
provide permanent financing based on the creditor's actual 
determination as to any individual consumer. The comment would look 
instead to whether the creditor generally makes permanent financing 
available to consumers to determine whether the creditor ``may'' make 
permanent financing available, subject only to the consumer's express 
statement that the consumer will not

[[Page 54328]]

obtain permanent financing from the creditor.
    The Bureau does not believe that a construction loan reasonably may 
be permanently financed by the same creditor, within the meaning of the 
regulation, if a consumer expressly states that the consumer will not 
obtain permanent financing from the creditor. In such cases, the Bureau 
believes that a Loan Estimate provided to the consumer that treats the 
construction and permanent phases as a single transaction would 
undermine the Loan Estimate's purpose and impede the consumer's ability 
to comparison shop. Therefore, the Bureau is proposing to specify that, 
when a consumer expressly states that the consumer will not obtain 
permanent financing from the creditor, the permanent financing does not 
meet the condition that it ``may be permanently financed by the same 
creditor'' for purposes of Sec.  1026.17(c)(6).
    This proposed clarification of the meaning of ``may be permanently 
financed by the same creditor'' aligns with proposed comment 
19(e)(1)(iii)-5, discussed below. That comment provides that a creditor 
determines the timing requirements for providing the Loan Estimate for 
both the construction and permanent financing based on when the 
application for the construction financing is received, so long as the 
creditor ``may'' provide the permanent financing. The creditor may 
still make the disclosures as a single transaction or as more than one 
transaction, as provided by Sec.  1026.17(c)(6)(ii).
    The Bureau is making this proposal pursuant to its authority under 
TILA section 105(a). The Bureau believes the greater clarity provided 
by proposed comment 17(c)(6)-6 as to what loans are eligible for the 
special treatment under Sec.  1026.17(c)(6)(ii) would facilitate 
compliance with TILA.
    The Bureau recognizes that determining whether a creditor may 
provide permanent financing based on a consumer's express statement 
could complicate the determination of whether the creditor has the 
option of treating a construction-permanent loan as one transaction or 
more than one transaction. For example, a consumer may, after initially 
stating that permanent financing will not be obtained from the creditor 
and receiving a Loan Estimate on that basis, subsequently inquire with 
the creditor about permanent financing. At that point, a creditor, 
having already issued a Loan Estimate for the construction financing 
only, may be precluded from disclosing the construction phase and 
permanent phase as one transaction. Therefore, the Bureau solicits 
comment on whether the condition that a construction loan may be 
permanently financed by the same creditor should be considered 
satisfied even if a consumer expressly states that the consumer will 
not seek permanent financing from the creditor, as long as the creditor 
generally makes permanent financing available to qualifying consumers. 
The Bureau also seeks comment on how the complexities described above 
might appropriately be addressed if the Bureau adopts the proposal as 
final, and on any additional complexities that may be presented by the 
proposal and how those might be addressed.
17(f) Early Disclosures
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to comments 17(f)-1 and -2, to reflect this proposed change 
to the coverage of Sec.  1026.19(e) and (f).

Section 1026.18 Content of Disclosures

    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to comments 18-3, 18(g)-6, and 18(s)-1 and -4 to reflect 
this proposed change to the coverage of Sec.  1026.19(e) and (f).

Section 1026.19 Certain Mortgage and Variable-Rate Transactions

Cooperatives
    The TILA-RESPA Rule, including Sec.  1026.19(e) and (f), generally 
applies to closed-end consumer credit transactions secured by real 
property, other than reverse mortgages. Regulation Z does not define 
the term ``real property,'' but Sec.  1026.2(b)(3) states that, unless 
defined in Regulation Z, the words used therein have the meanings given 
to them by State law or contract. Thus, whether the TILA-RESPA Rule 
applies to a given transaction turns, at least in part, on whether the 
collateral securing it is considered real property under applicable 
State or other applicable law, which has given rise to questions about 
the coverage of transactions secured by cooperative units.
    The Bureau understands that there is uncertainty whether loans 
secured by cooperative units are considered, under a given State's law 
and thus for purposes of the TILA-RESPA Rule's coverage, to be secured 
by real property or personal property. In a typical housing 
cooperative, a cooperative association owns all of the real property. 
Each cooperative member owns a share of the cooperative association and 
has a proprietary lease for the member's housing unit.\50\ Cooperatives 
differ from condominiums, as condominiums typically vest ownership of 
the real property directly in unit owners (rather than in an 
association).\51\ Cooperative ownership can be construed as ownership 
by the consumer of stock in the cooperative association (or some 
similar form of intangible personal property) or as ownership of real 
property. Whether ownership of a share in a cooperative association is 
treated as personal or real property can vary from State to State and 
even within a State. In at least some States, ownership of a share in a 
cooperative association is treated as personal property for some 
purposes and real property for other purposes.\52\ If State law is not 
definitive whether cooperative units are real property or personal 
property, creditors may be unsure whether loans secured by cooperative 
units are covered by the TILA-RESPA Rule. Consequently, creditors may 
be inconsistent in the disclosures they provide on loans secured by 
cooperative units, impeding the ability of consumers to comparison 
shop. The Bureau, therefore, is proposing to amend the TILA-RESPA Rule 
to cover closed-end consumer credit transactions, other than reverse 
mortgages, secured by cooperative units.
---------------------------------------------------------------------------

    \50\ See generally National Conference of Commissioners on 
Uniform State Laws, Real Estate Cooperative Summary, http://www.uniformlaws.org/ActSummary.aspx?title=Real%20Estate%20Cooperative.
    \51\ Id.
    \52\ For example, under New Jersey law, cooperative ownership 
constitutes a true `hybrid' form of property that does not readily 
fall within traditional notions of either realty or personalty, 
although the cooperative owned interests are treated like real 
estate in most circumstances. Drew Associates of N.J., L.P. v. 
Travisano, 122 N.J. 249, 584 A.2d 807 (1991).
---------------------------------------------------------------------------

    RESPA and TILA each generally cover loans secured by cooperative 
units. For example, RESPA includes cooperatives within the definition 
of federally related mortgage loan.\53\ TILA's Regulation Z \54\

[[Page 54329]]

includes cooperatives within the Sec.  1026.2(a)(19) definition of 
dwelling.\55\
---------------------------------------------------------------------------

    \53\ 12 U.S.C. 2602(1).
    \54\ See Sec.  1026.19(e) and (f).
    \55\ See also 15 U.S.C. 1602(w) (TILA definition of 
``dwelling''). TILA applies generally to consumer credit 
transactions of all kinds, regardless of whether secured by 
residential real property. See 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).
---------------------------------------------------------------------------

    However, unlike much of the rest of Regulation Z, the TILA-RESPA 
Rule does not use the term ``dwelling'' as a trigger for coverage. As 
stated in the TILA-RESPA Final Rule preamble, the Bureau believed that 
many parts of the integrated disclosures would be inapplicable to 
transactions secured by personal property.\56\ Thus, the TILA-RESPA 
Final Rule used the phrase ``real estate'' instead of the term 
``dwelling'' as a trigger for coverage. The Bureau did not anticipate 
the ensuing level of uncertainty whether loans secured by cooperative 
units are considered to be secured by real property or personal 
property under a given State's law.
---------------------------------------------------------------------------

    \56\ 78 FR 79730, 79796 (Dec. 31, 2013).
---------------------------------------------------------------------------

    To resolve stakeholders' uncertainty, and consistent with RESPA's 
definition of federally related mortgage loan, the Bureau proposes to 
amend Regulation Z, including Sec.  1026.19(e), (f), and (g) and 
comments 19(e)(1)(i)-1 and -2, 19(f)(1)(i)-1 and 19(f)(3)(ii)-3, to 
cover closed-end consumer credit transactions secured by cooperative 
units, regardless of whether State or other applicable law considers 
cooperative units to be real or personal property. The Bureau is 
proposing this amendment pursuant to its authority under Dodd-Frank Act 
section 1032(a) and (f), TILA section 105(a), and RESPA section 19(a). 
Section 1032(f) of the Dodd-Frank Act required that the Bureau propose 
for public comment rules and model disclosures combining 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,\57\ and, as discussed above, RESPA and TILA each generally 
cover loans secured by cooperative units.
---------------------------------------------------------------------------

    \57\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(f)).
---------------------------------------------------------------------------

    The Bureau believes that applying the TILA-RESPA Rule to cover 
closed-end consumer loans secured by cooperative units is consistent 
not only with both TILA and RESPA but also with general industry 
practice. Consequently, the Bureau believes that this extension of 
coverage would facilitate compliance by industry, which is one of the 
purposes of TILA. Furthermore, because this proposed amendment would 
ensure that more consumers receive the integrated disclosures, which 
the Bureau believes, based on its extensive testing of the disclosures, 
to be superior to the pre-existing TILA and RESPA disclosures and 
because the Bureau believes that the integrated disclosures are 
generally effective for transactions secured by cooperative units, 
whether or not the cooperative unit is treated as real property under 
State or other applicable law, the Bureau also believes this proposed 
amendment would carry out the purposes of TILA and RESPA to promote the 
informed use of credit and more effective advance disclosure of 
settlement costs, respectively. In addition, the Bureau believes the 
integrated disclosure requirements improve consumer understanding of 
the costs, benefits, and risks associated with the mortgage 
transaction, consistent with Dodd-Frank Act section 1032(a).
19(e) Mortgage Loans--Early Disclosures
19(e)(1) Provision of Disclosures
19(e)(1)(iii) Timing
    Section 1026.19(e)(1)(iii) sets forth the timing requirements for 
providing the Loan Estimate. Generally, the creditor must deliver the 
Loan Estimate or place it in the mail not later than the third business 
day after the creditor receives the consumer's application and not 
later than the seventh business day before consummation. Section 
1026.17(c)(6)(ii) provides that, when a multiple-advance loan to 
finance the construction of a dwelling may be permanently financed by 
the same creditor, the construction phase and permanent phase may be 
treated as either one transaction or more than one transaction. Comment 
17(c)(6)-2 explains that, if the consumer is obligated on both phases 
of such construction-permanent financing and the creditor chooses to 
give two sets of disclosures, both sets must be given to the consumer 
initially because both transactions would be consummated at that time. 
Proposed comment 19(e)(1)(iii)-5 would explain how the timing 
requirements apply in the case of construction-permanent loans.
    Proposed new comment 19(e)(1)(iii)-5 summarizes the relevant 
provisions for construction-permanent loans of Sec. Sec.  
1026.17(c)(6)(ii) and 1026.19(e)(1)(iii), and comment 17(c)(6)-2. 
Proposed comment 19(e)(1)(iii)-5 would also reference proposed comment 
17(c)(6)-6, which would explain that a loan to finance the construction 
of a dwelling meets the condition that it ``may be permanently financed 
by the same creditor'' if the creditor generally makes both 
construction and permanent financing available to qualifying consumers, 
unless the consumer expressly states that the consumer will not obtain 
permanent financing from the creditor. Proposed comment 19(e)(1)(iii)-5 
would then explain that, therefore, a creditor that generally makes 
both construction and permanent financing available, upon receiving a 
consumer's application for either construction financing only, without 
the consumer expressly stating that the consumer will not obtain 
permanent financing from the creditor, or combined construction-
permanent financing, complies with Sec.  1026.19(e)(1)(iii) by 
delivering or placing in the mail the disclosures required by Sec.  
1026.19(e)(1)(i) for both the construction financing and the permanent 
financing, either disclosed as one or more than one transaction, not 
later than the third business day after the creditor receives the 
application and not later than the seventh business day before 
consummation.
    Proposed comment 19(e)(1)(iii)-5.i through -5.iv provides 
illustrative examples of how the Loan Estimate timing provisions apply 
to construction-permanent loans. Proposed comment 19(e)(1)(iii)-5.v 
would explain that if a consumer expressly states that the consumer 
will not obtain permanent financing from the creditor after a combined 
construction-permanent financing disclosure already has been provided, 
the creditor complies with Sec.  1026.17(c)(6)(ii) by issuing a revised 
disclosure for construction financing only in accordance with the 
timing requirements of Sec.  1026.19(e)(4).
    The Bureau considered proposing that a creditor provide the Loan 
Estimate only for the financing for which a consumer applies. If a 
consumer applied for construction financing only, a creditor would be 
required to provide the Loan Estimate for only the construction 
financing. If the construction financing may be permanently financed by 
the same creditor, the creditor would be permitted to provide the Loan 
Estimate for the permanent financing at the same time as the Loan 
Estimate was provided for the construction financing but would not be 
required to do so. If the consumer applied for construction and 
permanent financing at the same time, the creditor would be required to 
provide the Loan Estimates for both phases within three days of 
receiving the application. If the consumer applied for construction and 
permanent financing separately, the creditor would be required to 
provide Loan Estimates within three days of receipt for each 
application. However, a Loan Estimate for the separately-applied-for 
permanent phase would not be required if the Loan Estimate for the

[[Page 54330]]

permanent phase had already been provided because the transaction met 
the condition that the construction phase may be permanently financed 
by the same creditor. This alternative approach could create 
significantly more complexity in the Loan Estimate timing requirements. 
Nonetheless, the Bureau seeks comment on which of the alternatives 
described, or another alternative, would better promote consumer 
understanding and facilitate compliance.
    The Bureau is making this proposal pursuant to its general 
rulemaking, exception, and exemption authorities under TILA section 
105(a) and section 1032(a) of the Dodd-Frank Act. The Bureau proposes 
the aforementioned amendments 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 
amendment 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 by clarifying when 
particular disclosures must be provided. In addition, consistent with 
section 1032(a) of the Dodd-Frank Act, this adjustment would promote 
the full, accurate, and effective disclosure of the features of 
consumer credit transactions secured by real property 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.
19(e)(1)(vi) Shopping for Settlement Service Providers
    Section 1026.19(e)(1)(vi) defines how a creditor permits a consumer 
to shop for services and requires the creditor to identify the services 
the consumer may shop for and provide a written list identifying 
available providers of those services. The Bureau is proposing 
revisions to comments 19(e)(1)(vi)-2, -3, and -4. Comments 
19(e)(1)(vi)-2 and -4 are discussed together, immediately following, 
because the revisions relate to how a creditor identifies available 
services and providers for purposes of compliance with Sec.  
1026.19(e)(1)(vi). The proposed revisions to comment 19(e)(1)(vi)-3 
concern how the creditor provides the written list and are discussed 
after comments 19(e)(1)(vi)-2 and -4.
Identifying Services and Available Providers
    Comment 19(e)(1)(vi)-2 notes that the content and format of 
disclosure of services for which the consumer may shop can be found at 
Sec.  1026.37(f)(3). Proposed revised comment 19(e)(1)(vi)-2 would also 
clarify that, if the charge for a particular service for which the 
consumer is permitted to shop is payable by the consumer, the creditor 
must specifically identify that service unless, based on the best 
information reasonably available, the creditor knows that the service 
is provided as part of a package (or combination of settlement 
services) offered by a single service provider. Proposed revised 
comment 19(e)(1)(vi)-2 would also further clarify that specific 
identification of each service in such a package is not required 
provided that all such services are services for which the consumer is 
permitted to shop.
    Comment 19(e)(1)(vi)-4 provides clarification concerning the 
identification of settlement service providers available to the 
consumer, including providing sufficient information to contact the 
disclosed service providers. Proposed revised comment 19(e)(1)(vi)-4 
would also clarify that, if the charge for a particular service for 
which the consumer is permitted to shop is payable by the consumer, the 
creditor must specifically identify that service and an available 
provider of that service on the written list of providers unless, based 
on the best information reasonably available, the creditor knows that 
the service is provided as part of a package (or combination of 
settlement services) offered by a single service provider. Proposed 
revised comment 19(e)(1)(vi)-4 would also further clarify that specific 
identification of each service in such a package is not required 
provided they all are services for which the consumer is permitted to 
shop.
Methods of Providing Settlement Service Providers List
    Comment 19(e)(vi)-3 references form H-27 for a model list of the 
written list of providers. The Bureau understands there is uncertainty 
whether compliance with Sec.  1026.19(e)(1)(vi)(C) requires use of form 
H-27(A). Unlike the model forms for the Loan Estimate and the Closing 
Disclosure,\58\ which, under Sec. Sec.  1026.37(o)(3) and 
1026.38(t)(3), respectively, are mandatory forms for a transaction that 
is a federally related mortgage loan (as defined in Regulation X), form 
H-27(A) is not a mandatory form. Moreover, TILA section 105(b) permits 
creditors to delete non-required information or rearrange the format of 
a model form without losing the safe harbor protection afforded by use 
of the model form if, in making such deletion or rearranging the 
format, the creditor does not affect the substance, clarity, or 
meaningful sequence of the disclosure. Accordingly, the proposed 
revision to comment 19(e)(1)(vi)-3 would clarify that, although use of 
the model form H-27(A) of appendix H to this part is not required, 
creditors using it properly will be deemed to be in compliance with 
Sec.  1026.19(e)(1)(vi)(C).
---------------------------------------------------------------------------

    \58\ Forms H-24(A) and (G), H-25(A) and (H) through (J), and H-
28(A), (F), (I), and (J) are the model forms for the Loan Estimate 
and Closing Disclosure.
---------------------------------------------------------------------------

19(e)(3) Good Faith Determination for Estimates of Closing Costs
    The Bureau is proposing to amend Sec.  1026.19(e)(3) and its 
commentary regarding the good faith determination for closing cost 
estimates. Section 1026.19(e)(3)(i) states the general rule that an 
estimated closing cost is in good faith if the charge paid by or 
imposed on the consumer does not exceed the estimate for the cost as 
disclosed on the Loan Estimate. However, Sec.  1026.19(e)(3)(ii) 
provides that estimates for certain third-party services and recording 
fees 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 on the Loan Estimate by more than 10 percent (the ``10-
percent tolerance'' category). Moreover, Sec.  1026.19(e)(3)(iii) 
provides that certain other estimates are in good faith so long as they 
are consistent with the best information reasonably available to the 
creditor at the time they are disclosed, regardless of whether the 
amount paid by the consumer exceeds the estimate disclosed on the Loan 
Estimate.
    As detailed below, the Bureau is proposing minor changes and 
technical corrections for clarification purposes to Sec.  
1026.19(e)(3). The proposed amendment to comment 19(e)(3)(i)-1 is a 
technical, non-substantive change to conform it with the regulation 
text of Sec.  1026.19(e)(3)(iii). New proposed comment 19(e)(3)(i)-8 
clarifies charges paid by or imposed on the consumer. Proposed 
amendments to comments 19(e)(3)(ii)-2 and 19(e)(3)(iii)-2 would clarify 
that, if the creditor permits the consumer to shop but fails to provide 
the list required by Sec.  1026.19(e)(1)(vi)(C) or the list does not 
comply with the requirements of Sec.  1026.19(e)(1)(vi)(B) and (C), 
good faith is determined under Sec.  1026.19(e)(3)(i) and therefore 
subject to zero tolerance. Proposed amendments to Sec.  
1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 would clarify that good-
faith for non-bona fide charges is determined under Sec.  
1026.19(e)(3)(i) and therefore such charges are subject to zero 
tolerance, even if they would

[[Page 54331]]

otherwise satisfy the conditions of Sec.  1026.19(e)(3)(iii). Proposed 
amendments to Sec.  1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3 
clarify, for purposes of Sec.  1026.19(e)(1)(i), how good faith is 
determined for estimates of property taxes. Proposed amendments to 
Sec.  1026.19(e)(3)(iv) and its commentary address certain details 
regarding the circumstances under which revised Loan Estimates may be 
provided to reset tolerances or for other informational purposes.
    The Bureau is proposing these clarifications to Sec.  1026.19(e)(3) 
and its commentary pursuant to its authority to prescribe standards for 
good faith estimates under TILA section 128 and RESPA section 5, as 
well as its authority under TILA sections 105(a), 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. Section 128(b)(2)(A) of 
TILA provides that, for an extension of credit secured by a consumer's 
dwelling that also is subject to RESPA, good faith estimates of the 
disclosures in TILA section 128(a) shall be made in accordance with 
regulations of the Bureau.\59\ 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.\60\
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 1638(b)(2)(A).
    \60\ 12 U.S.C. 2604(c).
---------------------------------------------------------------------------

    The Bureau believes these proposed clarifications are authorized 
under TILA section 105(a). They would effectuate TILA's purposes by 
ensuring that the cost estimates are more meaningful and better inform 
consumers of the actual costs associated with obtaining credit. The 
proposal would further TILA's goals by ensuring more reliable 
estimates, which could foster competition among financial institutions. 
The proposal could also prevent potential circumvention or evasion of 
TILA.
    In addition, the Bureau believes that these proposed clarifications 
are consistent with Dodd-Frank Act section 1032(a) because requiring 
more accurate initial estimates of the costs of the transaction could 
ensure that 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. The Bureau 
believes these proposed clarifications are 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 could improve 
consumer understanding and awareness of the mortgage loan transaction 
through the use of disclosure.
    Section 19(a) of RESPA authorizes the Bureau to prescribe 
regulations and make interpretations to carry out the purposes of 
RESPA,\61\ which include the elimination of kickbacks, referral fees, 
and other practices that tend to increase unnecessarily the costs of 
certain settlement services.\62\ The Bureau believes that these 
proposed clarifications are appropriate under RESPA section 19(a) 
because they effectively require charges to be bona fide and would thus 
encourage settlement service provider competition.
---------------------------------------------------------------------------

    \61\ 12 U.S.C. 2617(a).
    \62\ 12 U.S.C. 2601(a).
---------------------------------------------------------------------------

19(e)(3)(i) General Rule
    Section 1026.19(e)(3)(i) provides that an estimated closing cost 
disclosed on the Loan Estimate is in good faith if the charge paid by 
or imposed on the consumer does not exceed the amount originally 
disclosed on the Loan Estimate. The Bureau is proposing to modify 
comment 19(e)(3)(i)-1 to conform with the regulation text of Sec.  
1026.19(e)(3)(iii). The Bureau is also proposing to add new comment 
19(e)(3)(i)-8 to clarify that the phrases ``paid by or imposed on the 
consumer'' and ``payable by the consumer'' both reflect the same 
standard in Regulation Z.
    Comment 19(e)(3)(i)-1 states that fees paid to, among others, the 
creditor, an affiliate of the creditor, or a mortgage broker are 
subject to the general rule and thus are subject to zero tolerance 
under Sec.  1026.19(e)(3)(i). However, Sec.  1026.19(e)(3)(iii) states 
that certain such charges, e.g., prepaid interest, are in good faith if 
they are consistent with the best information reasonably available to 
the creditor at the time they are disclosed, regardless of whether the 
amounts paid by the consumer exceed the amounts disclosed under Sec.  
1026.19(e)(1)(i). The Bureau is proposing to make a technical, non-
substantive change to comment 19(e)(3)(i)-1 to conform it with the 
regulation text of Sec.  1026.19(e)(3)(iii). Consistent with Sec.  
1026.19(e)(3)(iii), the proposed amendment to comment 19(e)(3)(i)-1 
would clarify that fees paid to, among others, the creditor, an 
affiliate of the creditor, or a mortgage broker are generally subject 
to Sec.  1026.19(e)(3)(i), except as provided in Sec.  
1026.19(e)(3)(ii) or (iii).
    While Sec.  1026.19(e)(3)(i) provides that good faith is determined 
by whether a closing cost paid by or imposed on the consumer does not 
exceed the amount originally disclosed on the Loan Estimate, other 
sections of Regulation Z, including the finance charge definition in 
Sec.  1026.4(a), are framed in terms of whether the charge is payable 
by the consumer rather than whether it is paid by or imposed on the 
consumer. The Bureau regards these standards, ``paid by or imposed on 
the consumer'' and ``payable by the consumer,'' as interchangeable. For 
example, existing commentary emphasizes that the term ``payable'' 
includes charges imposed on the consumer, even if the consumer does not 
pay for such charges at consummation.\63\ Under Sec.  1026.19(e)(3)(i), 
when a closing cost paid by or imposed on the consumer exceeds the 
amount disclosed on the Loan Estimate, the amount disclosed on the Loan 
Estimate was not made in good faith by the creditor. The use of the 
phrases ``paid by or imposed on the consumer'' and ``payable by the 
consumer'' both reflect the same standard. Accordingly, the Bureau also 
proposes to add comment 19(e)(3)(i)-8 to clarify that the terms ``paid 
by or imposed on,'' as used in Sec.  1026.19(e)(3)(i), has the same 
meaning as the term ``payable,'' as used elsewhere in Regulation Z.
---------------------------------------------------------------------------

    \63\ See, e.g., comments 4(a)-2, 4(a)-4.ii.C, 4(a)-5, 4(a)(2)-2, 
4(c)(2)-1.i, 4(c)(7)-1 and -2, and 32(b)1-1.i and -2.i.
---------------------------------------------------------------------------

19(e)(3)(ii) Limited Increases Permitted for Certain Charges
    Comment 19(e)(3)(ii)-2, among other things, explains that Sec.  
1026.19(e)(3)(ii) provides flexibility in disclosing the individual 
amount of a fee by focusing on aggregate amounts and illustrates the 
concept with an example. The Bureau has learned that there is some 
uncertainty regarding the interplay of the requirements for shopping in 
Sec.  1026.19(e)(1)(vi) and the tolerance category requirements in 
Sec.  1026.19(e)(3)(ii) and (iii).
    The Bureau is proposing to revise comment 19(e)(3)(ii)-2 to clarify 
that creditors are in compliance with Sec.  1026.19(e)(3)(ii) so long 
as the creditor permits the consumer to shop for the services listed 
consistent with Sec.  1026.19(e)(1)(vi) and the aggregate increase in 
charges does not exceed 10 percent, even if the amount of an individual 
fee was omitted from the

[[Page 54332]]

Loan Estimate. The Bureau is proposing to revise comment 19(e)(3)(ii)-2 
to clarify further 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) or the list does not comply 
with the requirements of Sec.  1026.19(e)(1)(vi)(B) and (C), good faith 
is determined under Sec.  1026.19(e)(3)(i) instead of Sec.  
1026.19(e)(3)(ii) or (iii) regardless of the provider selected by the 
consumer.
19(e)(3)(iii) Variations Permitted for Certain Charges
Charges Paid to Affiliates of the Creditor
    Section 1026.19(e)(3)(iii) states that certain charges, including 
certain charges paid to affiliates of the creditor, are in good faith 
for purposes of Sec.  1026.19(e)(1)(i) if they are consistent with the 
best information reasonably available, regardless of whether the 
amounts paid by the consumer exceed the amounts disclosed under Sec.  
1026.19(e)(1)(i). The exception in Sec.  1026.19(e)(3)(iii) applies to 
the following five categories of charges: (A) Prepaid interest; (B) 
property insurance premiums; (C) amounts placed into an escrow, 
impound, reserve, or similar account; (D) 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 under Sec.  
1026.19(e)(1)(vi)(C); and (E) charges paid for third-party services not 
required by the creditor.
    The Bureau understands that there is uncertainty whether all five 
of the Sec.  1026.19(e)(3)(iii) categories include charges paid to 
affiliates of the creditor or if only the Sec.  1026.19(e)(3)(iii)(E) 
category (i.e., charges paid for third-party services not required by 
the creditor) includes charges paid to affiliates of the creditor. The 
Bureau believes there are reasonable arguments to support either of 
those interpretations under the current rule but is proposing to change 
the rule prospectively so that all five categories expressly include 
charges paid to affiliates.
    The Bureau proposes to amend Sec.  1026.19(e)(3)(iii) to clarify 
that, for purposes of Sec.  1026.19(e)(1)(i), good faith is determined 
under Sec.  1026.19(e)(3)(iii) for all five of the categories of 
charges listed therein, regardless of whether such charges are paid to 
affiliates of the creditor, so long as the charges are bona fide. This 
proposed amendment is consistent with the preamble to the TILA-RESPA 
Final Rule, which stated that property insurance premiums are included 
in the category of settlement charges not subject to a tolerance, 
whether or not the insurance provider is a lender affiliate.\64\
---------------------------------------------------------------------------

    \64\ 78 FR 79730, 79829 (Dec. 31, 2013).
---------------------------------------------------------------------------

    The Bureau also proposes to add new comment 19(e)(3)(iii)-4 to 
clarify that, to be bona fide for purposes of Sec.  1026.19(e)(3)(iii), 
charges must be lawful and for services that are actually performed. 
The Bureau believes that adding this explicit limitation to the 
determination of good faith under Sec.  1026.19(e)(3)(iii) would limit 
any potential consumer harm associated with permitting variations for 
charges within the five categories, even if paid to an affiliate of the 
creditor.
    The proposed bona fide determination under Sec.  1026.19(e)(3)(iii) 
would be specifically for determining good faith for purposes of Sec.  
1026.19(e)(1)(i). For example, such determination is distinct from the 
broader finance charge determination under Sec.  1026.4(c)(7) (i.e., 
whether certain fees are bona fide and reasonable in amount) and the 
points and fees determination under Sec.  1026.32(b) (e.g., the bona 
fide discount point definition requires, among other things, a 
calculation that is consistent with established industry practices).
    The Bureau requests comment on all aspects of the proposal 
permitting good faith to be determined under Sec.  1026.19(e)(3)(iii) 
for charges within the five categories paid to affiliates of the 
creditor, including whether good faith for charges within the five 
categories should be determined under Sec.  1026.19(e)(3)(i) instead, 
and whether different, additional, or fewer conditions should be 
imposed upon the use of Sec.  1026.19(e)(3)(iii) for charges within the 
five categories paid to affiliates of the creditor.
Good Faith Instead Determined Under Sec.  1026.19(e)(3)(i)
    Comment 19(e)(3)(iii)-2 notes that differences between the amounts 
of charges disclosed under Sec.  1026.19(e)(1)(i) and the amounts of 
such charges paid by or imposed on 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. The comment also provides an illustrative 
example. The comment also states 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), then good 
faith is determined under 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 under Sec.  1026.19(e)(3)(i).
    The Bureau is proposing to revise comment 19(e)(3)(iii)-2 to align 
with the requirements in Sec. Sec.  1026.19(e)(1)(vi) and 
1026.19(e)(3)(ii). Section 1026.19(e)(1)(vi) sets forth the 
requirements creditors must comply with if they permit a consumer to 
shop for settlement services. Among other things, the creditor must 
identify the settlement service for which the consumer is permitted to 
shop and identify an available provider of that service. Section 
1026.19(e)(3)(ii) sets forth the requirements for the 10 percent 
tolerance category, which includes the requirement that the creditor 
permit the consumer to shop for the third-party service, consistent 
with Sec.  1026.19(e)(1)(vi). The Bureau believes that a creditor did 
not permit a consumer to shop if the creditor failed to provide a 
written list of providers in compliance with Sec.  1026.19(e)(1)(vi). 
Thus, the Bureau is proposing to revise comment 19(e)(3)(iii)-2 to 
state that good faith is determined under Sec.  1026.19(e)(3)(i), 
regardless of the provider selected by the consumer, if a creditor 
fails to provide the list required by Sec.  1026.19(e)(1)(vi)(C) or if 
the creditor provides a list that is not in compliance with Sec.  
1026.19(e)(1)(vi)(B) and (C).
19(e)(3)(iii)(E)
    Under Sec.  1026.19(e)(3)(iii)(E), charges paid for third-party 
services not required by the creditor are in good faith if they are 
consistent with the best information reasonably available to the 
creditor at the time such charges are disclosed. The Bureau understands 
that there may be some uncertainty whether real property taxes are 
included in this category.
    The Supplementary Information to the TILA-RESPA Final Rule 
erroneously stated that property taxes and other fees were subject to 
tolerance under Sec.  1026.19(e)(3)(i). In February 2016, the Bureau 
corrected this typographical error and clarified that property taxes 
(and property insurance premiums, homeowner's association dues, 
condominium fees, and cooperative fees) are not subject to tolerances, 
whether or not placed into an escrow or impound account.\65\
---------------------------------------------------------------------------

    \65\ 81 FR 7032 (Feb. 10, 2016).
---------------------------------------------------------------------------

    The Bureau believes the explicit enumeration of property taxes in 
Sec.  1026.19(e)(3)(iii)(E) would facilitate

[[Page 54333]]

compliance. Therefore, the Bureau is proposing to revise Sec.  
1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3 to clarify that an 
estimate of property taxes 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 paid by the consumer 
exceeds the amount disclosed under Sec.  1026.19(e)(1)(i). The proposed 
revisions to comment 19(e)(3)(iii)-3 also provide an illustrative 
example.
19(e)(3)(iv) Revised Estimates
    Section 1026.19(e)(3)(iv) provides that, for the purpose of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), a 
creditor may use a revised estimate of a charge instead of the estimate 
of the charge originally disclosed on the Loan Estimate (i.e., the 
creditor may reset the applicable tolerance) if the revision is due to 
any of the reasons stated in Sec.  1026.19(e)(3)(iv)(A) through (F). 
Comment 19(e)(3)(iv)(A)-1.ii states that Sec.  1026.19(e)(3)(iv) does 
not prohibit the creditor from issuing revised disclosures for 
informational purposes, even in situations where the creditor is not 
resetting tolerances for any of the reasons stated in Sec.  
1026.19(e)(3)(iv)(A) through (F). Regardless of whether a creditor 
issues a revised disclosure to reset tolerances or simply for 
informational purposes, Sec.  1026.17(c)(2)(i) requires that any 
disclosures provided to the consumer must be based on the best 
information reasonably available to the creditor at the time the 
disclosure is provided to the consumer.
    The Bureau understands that there is some uncertainty whether a 
creditor is prohibited from providing the consumer with a revised Loan 
Estimate for informational purposes if a revision is not based on any 
of the reasons stated in Sec.  1026.19(e)(3)(iv)(A) through (F). 
Although comment 19(e)(3)(iv)(A)-1.ii speaks explicitly to 
informational revisions of particular fees that are subject to the 10 
percent tolerance under Sec.  1026.19(e)(3)(ii), the Bureau considers 
the comment's principle equally applicable to all changes that may 
occasion an informational revision, regardless of the particular fee 
involved or which tolerance category applies to it. Accordingly, 
consistent with comment 19(e)(3)(iv)(A)-1.ii, the Bureau proposes to 
amend comment 19(e)(3)(iv)-2 and to add new comment 19(e)(3)(iv)-4 to 
clarify that Sec.  1026.19(e)(3)(iv) does not prohibit the creditor 
from issuing revised disclosures for informational purposes, even in 
situations where the creditor is not resetting tolerances for any of 
the reasons stated in Sec.  1026.19(e)(3)(iv)(A) through (F). 
Consistent with Sec.  1026.17(c)(2)(i), the Bureau also proposes to add 
new comment 19(e)(3)(iv)-5 to clarify that, regardless of whether a 
creditor issues a revised Loan Estimate to reset tolerances or simply 
for informational purposes, Sec.  1026.17(c)(2)(i) requires that any 
disclosures on the revised Loan Estimate must be based on the best 
information reasonably available to the creditor at the time the 
disclosure is provided to the consumer. For example, if the creditor 
issues revised disclosures reflecting a new rate lock extension fee for 
purposes of determining good faith under Sec.  1026.19(e)(3)(i), other 
charges unrelated to the rate lock extension should be reflected on the 
revised disclosures based on the best information reasonably available 
to the creditor at the time the disclosures are provided. Nonetheless, 
any increases in those other charges unrelated to the lock extension 
may not be used for the purposes of determining good faith under Sec.  
1026.19(e)(3).
19(e)(3)(iv)(D) Interest Rate Dependent Charges
    Section 1026.19(e)(3)(iv)(D) requires the creditor to provide a 
revised Loan Estimate to the consumer no later than three business days 
after the date the interest rate is locked. Section 1026.19(e)(4)(ii) 
prohibits a creditor from providing a revised Loan Estimate on or after 
the date on which the creditor provides the Closing Disclosure. The 
Bureau understands that there is uncertainty as to how a creditor 
complies with Sec.  1026.19(e)(3)(iv)(D) and provides a revised Loan 
Estimate if the interest rate is locked after the Closing Disclosure 
has been provided.
    Consistent with Sec.  1026.19(e)(4)(ii), the Bureau proposes to add 
new comment 19(e)(3)(iv)(D)-2 to clarify that the creditor may not 
provide a revised Loan Estimate on or after the date on which the 
creditor provides the Closing Disclosure, even if the interest rate is 
locked on or after the date on which the creditor provides the Closing 
Disclosure. If the interest rate is locked on or after the date on 
which the creditor provides the Closing Disclosure and the Closing 
Disclosure is inaccurate as a result, then the creditor must provide to 
the consumer a corrected Closing Disclosure, at or before consummation, 
reflecting any changed terms. If the rate lock causes the Closing 
Disclosure to become inaccurate before consummation in a manner listed 
in Sec.  1026.19(f)(2)(ii), the creditor must ensure that the consumer 
receives a corrected Closing Disclosure no later than three business 
days before consummation, as provided in that paragraph. For further 
discussion of corrected Closing Disclosures, see the section-by-section 
analysis of Sec.  1026.19(e)(4)(ii), below.
19(e)(3)(iv)(E) Expiration
    Section 1026.19(e)(3)(iv)(E) provides that, for the purpose of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), a 
creditor may use a revised estimate of a charge instead of the estimate 
of the charge originally disclosed on the Loan Estimate (i.e., the 
creditor may reset the applicable tolerance) if the consumer indicates 
an intent to proceed with the transaction more than 10 business days 
after the Loan Estimate is provided under Sec.  1026.19(e)(1)(iii).
    The Bureau understands that there is uncertainty whether a 
creditor, for the purpose of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii), may reset tolerances under Sec.  
1026.19(e)(3)(iv)(E) if the consumer indicates an intent to proceed 
after the 10-business-day period but within a longer period for which 
the creditor has stated that it will honor the estimated charges 
originally disclosed on the Loan Estimate . The Bureau proposes to 
revise Sec.  1026.19(e)(3)(iv)(E) and to add new comment 
19(e)(3)(iv)(E)-2 to clarify that, if a creditor voluntarily extends 
the period disclosed under Sec.  1026.37(a)(13)(ii) to a period greater 
than 10 business days, that longer time period becomes the relevant 
time period for purposes of using revised estimates under Sec.  
1026.19(e)(3)(iv)(E).
    As amended, Sec.  1026.19(e)(3)(iv)(E) would permit a creditor to 
use revised estimates under Sec.  1026.19(e)(3)(iv) when the consumer 
indicates an intent to proceed with the transaction more than 10 
business days, or more than any additional number of days specified by 
the creditor before the offer expires, after the disclosures required 
under Sec.  1026.19(e)(1)(i) are provided. Proposed comment 
19(e)(3)(iv)(E)-2 states that, if the creditor establishes a period 
greater than 10 business days after the disclosures were provided (or 
subsequently extends it to such a longer period), the longer time 
period becomes the relevant time period for purposes of Sec.  
1026.19(e)(3)(iv)(E). Proposed comment 19(e)(3)(iv)(E)-2 further states 
that a creditor establishes such a period greater than 10 business days 
by communicating the greater time period to the consumer, including 
through oral communication.

[[Page 54334]]

19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
    The proposed amendment to Sec.  1026.19(e)(3)(iv)(F) would correct 
a typographical error, replacing a reference to Sec.  1026.19(f) with a 
reference to Sec.  1026.19(e)(3)(iv).
19(e)(4) Provision and Receipt of Revised Disclosures
19(e)(4)(ii) Relationship to Disclosures Required Under Sec.  
1026.19(f)
    Section 1026.19(e)(4)(ii) imposes certain timing restrictions on 
the issuance of revised Loan Estimates relative to consummation and the 
issuance of a Closing Disclosure to ensure that the consumer does not 
receive disclosures containing estimates and disclosures containing 
actual costs at the same time. Existing comment 19(e)(4)(ii)-1 explains 
that, where the rule prohibits issuance of a revised Loan Disclosure, 
the creditor can instead use the Closing Disclosure to reflect changes 
in costs that would otherwise justify issuing a revised estimate under 
Sec.  1026.19(e)(3)(iv) and that that Closing Disclosure may be used 
for the purpose of determining good faith under Sec.  1026.19(e)(3). 
The Bureau proposes to add comment 19(e)(4)(ii)-2 to clarify that 
creditors may use corrected Closing Disclosures provided under Sec.  
1026.19(f)(2)(i) or (ii) to reflect further changes in costs that will 
be used for purposes of determining good faith under Sec.  
1026.19(e)(3).
    Section 1026.19(e)(4)(ii) requires that a creditor ensures receipt 
of any revised Loan Estimate no later than four business days before 
consummation and further prohibits the issuance of a revised Loan 
Estimate on or after the date on which the creditor provides the 
Closing Disclosure. Even when the creditor may not provide a revised 
Loan Estimate under Sec.  1026.19(e)(4)(ii), however, it can still use 
revised amounts for the purpose of determining good faith if the 
revised amounts are reflected in the Closing Disclosure, subject to the 
other requirements of Sec.  1026.19(e)(4).
    Although existing comment 19(e)(4)(ii)-1 expressly references only 
the initial Closing Disclosure issued pursuant to Sec.  1026.19(f)(1) 
in explaining this fact, the same logic applies to corrected Closing 
Disclosures issued pursuant to Sec.  1026.19(f)(2). As explained in 
comment 19(f)(1)(i)-1, if a Closing Disclosure provided to comply with 
Sec.  1026.19(f)(1)(i) later becomes inaccurate, a creditor can satisfy 
the requirements of Sec.  1026.19(f)(1)(i) by providing corrected 
disclosures that contain the actual terms of the transaction, provided 
that the creditor meets the timing requirements of Sec.  1026.19(f)(2). 
Thus, the provision of a corrected Closing Disclosure under Sec.  
1026.19(f)(2) is properly an extension of the ongoing requirements of 
Sec.  1026.19(f)(1)(i). As a result, the creditor's issuance of a 
corrected Closing Disclosure, as with the issuance of an original 
Closing Disclosure, falls within comment 19(e)(4)(ii)-1's ambit.
    Accordingly, a creditor may use a corrected Closing Disclosure to 
reset applicable good faith tolerances when there are fewer than four 
business days remaining before consummation or when the Closing 
Disclosure has already been issued, provided that the creditor also 
complies with the other requirements of Sec.  1026.19(e)(4). The Bureau 
is proposing comment 19(e)(4)(ii)-2 to clarify this point.
19(f) Mortgage Loans--Final Disclosures
19(f)(1) Provision of disclosures
19(f)(1)(i) Scope
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to comment 19(f)(1)(i)-1 to reflect this proposed change to 
the coverage of Sec.  1026.19(e) and (f).
19(f)(2) Subsequent Changes
19(f)(2)(iii) Changes Due to Events Occurring After Consummation
    Section 1026.19(f)(1)(i) requires the creditor to provide the 
consumer with the disclosures in Sec.  1026.38 reflecting the actual 
terms of the transaction. If, during the 30-day period following 
consummation, an event in connection with the settlement of the 
transaction occurs that causes the disclosures required under Sec.  
1026.19(f)(1)(i) to become inaccurate and such inaccuracy results in a 
change to an amount actually paid by the consumer from that amount 
disclosed under Sec.  1026.19(f)(1)(i), Sec.  1026.19(f)(2)(iii) 
requires the creditor to deliver or place in the mail corrected 
disclosures not later than 30 days after receiving information 
sufficient to establish that such event has occurred.\66\
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    \66\ Section 1026.17(e) provides that if a disclosure becomes 
inaccurate because of an event that occurs after the creditor 
delivers the required disclosures, the inaccuracy is not a violation 
of part 1026, although such inaccuracies may require new disclosures 
or a cure under Sec.  1026.19(f).
---------------------------------------------------------------------------

    Section 1026.17(c)(2)(ii), however, provides that, for a 
transaction in which a portion of the interest is determined on a per-
diem basis and collected at consummation, any disclosure affected by 
the per-diem interest shall be considered accurate if the disclosure is 
based on the information known to the creditor at the time that the 
disclosure documents are prepared for consummation of the transaction. 
Proposed comment 19(f)(2)(iii)-2 would clarify that a creditor is not 
required to provide to the consumer a corrected Closing Disclosure as 
required under Sec.  1026.19(f)(2)(iii) for any disclosure that is 
accurate under Sec.  1026.17(c)(2)(ii), even if the amount actually 
paid by the consumer differs from the amount disclosed under Sec.  
1026.38(g)(2) and (o).
    Section 121(c) of TILA provides that any disclosure with respect to 
per diem interest collected upon consummation is accurate if the 
disclosure is based on information actually known to the creditor at 
the time that the disclosure documents are being prepared for the 
consummation of the transaction. This 1995 amendment to section 121(c) 
of TILA is implemented in Sec.  1026.17(c)(2)(ii). Additionally, a 
changed per diem interest amount does not result in a tolerance 
violation under Sec.  1026.19(e)(3). Good faith is determined for per 
diem interest under Sec.  1026.19(e)(3)(iii). Consequently, so long as 
the creditor makes the disclosure on the basis of the best information 
reasonably available, the creditor is not required to provide a refund 
for changed per diem interest under Sec.  1026.19(f)(2)(v). Therefore, 
disclosures affected by the per diem interest amount are considered 
accurate under TILA if based on the information known to the creditor 
at the time that the disclosure documents are prepared for consummation 
of the transaction and changes to per diem interest do not result in 
tolerance violations under Sec.  1026.19(e)(3). As a result, the Bureau 
does not expect consumers to be harmed by not receiving post-
consummation corrected disclosures reflecting the changed per diem 
interest amounts without a refund of any additional per diem charge to 
the consumer.
    The Bureau is proposing to add comment 19(f)(2)(iii)-2 to clarify 
the interaction of Sec. Sec.  1026.19(f)(2)(iii) and 1026.17(c)(2)(ii), 
such that a creditor is not required to provide to the consumer a 
corrected Closing Disclosure for any disclosure that is accurate under 
Sec.  1026.17(c)(2)(ii), even if the amount actually paid by the 
consumer differs

[[Page 54335]]

from the amount disclosed under Sec.  1026.38(g)(2) and (o). The Bureau 
seeks comment generally on the requirement in Sec.  1026.19(f)(2)(iii) 
for creditors to provide corrected disclosures in certain circumstances 
as a result of post-consummation events. Specifically, the Bureau seeks 
comment on its proposed approach to the interaction between Sec. Sec.  
1026.17(c)(2)(ii) and 1026.19(f)(1)(i), including whether the Bureau 
should require disclosure of post-consummation changed per diem 
interest amounts despite the disclosure's accuracy under Sec.  
1026.17(c)(2)(ii) and the lack of any requirement on the part of the 
creditor to provide a refund for any change in the amount of per diem 
interest charged. The Bureau seeks comment on the benefits to consumers 
of receiving a post-consummation disclosure of the changed per diem 
interest amounts reflecting the actual amounts paid by the consumer. 
The Bureau also seeks comment on whether additional clarity is needed 
in Sec.  1026.17(e) or Sec.  1026.19(e) regarding the effect of post-
consummation events on the accuracy of disclosures or if additional 
clarity is needed on the interaction between Sec. Sec.  1026.17(e) and 
1026.19(e).
19(f)(2)(v) Refunds Related to the Good Faith Analysis
    Comment 19(f)(2)(v)-1 explains that under Sec.  1026.19(f)(2)(v), 
if amounts paid at consummation 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 no 
later than 60 days after consummation, and the creditor does not 
violate Sec.  1026.19(f)(1)(i) if the creditor delivers or places in 
the mail disclosures corrected to reflect the refund of such excess no 
later than 60 days after consummation. Comment 19(f)(2)(v)-1 refers to 
comment 38(h)(3)-2 for additional guidance on disclosing refunds. The 
Bureau is proposing to revise comment 19(f)(2)(v)-1 to add a cross-
reference to comment 38-4. As discussed in the section-by-section 
analysis of proposed comment 38-4, the Bureau is proposing to clarify 
that there are other options for disclosing refunds where a contractual 
or other legal obligation of the creditor, such as the requirements of 
a government loan program or the purchase criteria of an investor, 
prevent the creditor from refunding cash to the borrower. The Bureau is 
also proposing to revise the example in comment 19(f)(2)(v)-1 for 
greater clarity.
19(f)(3) Charges disclosed
19(f)(3)(ii) Average charge
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to comment 19(f)(3)(ii)-3 to reflect this proposed change to 
the coverage of Sec.  1026.19(e) and (f).
19(f)(4) Transactions Involving a Seller
19(f)(4)(i) Provision to Seller
    Comment 19(f)(4)(i)-1 explains that the settlement agent complies 
with Sec.  1026.19(f)(4)(i) either by providing to the seller a copy of 
the Closing Disclosure provided to the consumer, if it also contains 
the information under Sec.  1026.38 relating to the seller's 
transaction, or by providing the disclosures under Sec.  
1026.38(t)(5)(v) or (vi), as applicable. Section 1026.38(t)(5)(v) 
permits the creditor or settlement agent preparing the form to use form 
H-25 of appendix H for the disclosure provided to both the consumer and 
the seller, with certain modifications to separate the information of 
the consumer and seller, as necessary. Section 1026.38(t)(5)(vi) 
permits certain information to be deleted from the form provided to the 
seller or a third-party, as illustrated by form H-25(I) of appendix H. 
As discussed in more detail below, the Bureau is proposing to 
streamline Sec.  1026.19(f)(4)(i) and comment 19(f)(4)(i)-1 by 
eliminating unnecessary text and to add comment 19(f)(4)(i)-2 to 
clarify that, in purchase transactions with a simultaneous loan for 
subordinate financing, the settlement agent complies with Sec.  
1026.19(f)(4)(i) by providing the seller with only the Closing 
Disclosure for the first-lien transaction if that Closing Disclosure 
records the entirety of the seller's transaction.
    In purchase transactions with a simultaneous loan for subordinate 
financing, if the Closing Disclosure for the first-lien transaction 
records the entirety of the seller's transaction, the seller receives 
no additional benefit from receiving a copy of the Closing Disclosure 
for the simultaneous loan for subordinate financing that is provided to 
the consumer. Accordingly, the Bureau is proposing to add comment 
19(f)(4)(i)-2 to clarify that, in purchase transactions with a 
simultaneous loan for subordinate financing, the settlement agent 
complies with Sec.  1026.19(f)(4)(i) by providing the seller with only 
the Closing Disclosure for the first-lien transaction if that Closing 
Disclosure records the entirety of the seller's transaction. If the 
first-lien Closing Disclosure does not record the entirety of the 
seller's transaction, which may occur when, for example, the seller 
contributes to the costs of the simultaneous loan for subordinate 
financing, the Closing Disclosure for the simultaneous loan for 
subordinate financing must reflect the seller's transaction as 
applicable to the subordinate financing. The settlement agent in that 
case complies with Sec.  1026.19(f)(4)(i) by providing the seller with 
a copy of the Closing Disclosure for both the first lien and the 
simultaneous loan for subordinate financing, if they also contain the 
information under Sec.  1026.38 relating to the seller's transaction, 
or by providing the disclosures under Sec.  1026.38(t)(5)(v) or (vi), 
as applicable.
    The Bureau seeks comment on whether the appropriate determinate of 
whether a seller is provided a copy of the Closing Disclosure for the 
simultaneous loan for subordinate financing is if the first-lien 
Closing Disclosure will record the entirety of the seller's 
transaction. The Bureau also seeks comment on whether there are other 
circumstances where the seller would benefit from receiving a copy of 
the Closing Disclosure for the simultaneous loan for subordinate 
financing.
19(g) Special Information Booklet at Time of Application
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e) and (f), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law. The Bureau is proposing conforming 
amendments to Sec.  1026.19(g) to reflect this proposed change to the 
coverage of Sec.  1026.19(e) and (f).

Section 1026.23 Right of Rescission

23(g) Tolerances for Accuracy
    TILA section 125 sets forth a consumer's right to rescind certain 
transactions.\67\ For purposes of a consumer's right of rescission, 
TILA

[[Page 54336]]

section 106(f)(2) \68\ sets forth the applicable tolerances for 
accuracy of the finance charge \69\ and other disclosures affected by 
any finance charge, which has been understood to include the total of 
payments.\70\ Section 1026.23(g) implements this statutory provision.
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    \67\ 15 U.S.C. 1635.
    \68\ 15 U.S.C. 1605(f)(2).
    \69\ Finance charge is defined in TILA section 106(a) (15 U.S.C. 
1605(a)). Section 1026.4 implements this definition, provides 
examples, and excludes certain charges from the finance charge.
    \70\ See Carmichael v. The Payment Ctr., Inc., 336 F.3d 636, 639 
(7th Cir. 2003) (interpreting the total of payments as a disclosure 
affected by the finance charge and therefore subject to the finance 
charge tolerances as long as a misdisclosure of the total of 
payments resulted from a misdisclosure of the finance charge).
---------------------------------------------------------------------------

    As explained more fully in the section-by-section analysis of Sec.  
1026.38(o)(1), the finance charge tolerance historically applied to the 
total of payments because that calculation was affected by the finance 
charge. However, in the TILA-RESPA Final Rule, the Bureau modified the 
requirement under TILA section 128(a)(5) to disclose the total of 
payments as the sum of the amount financed and the finance charge by 
requiring instead that a creditor disclose the total of payments on the 
Closing Disclosure as the sum of principal, interest, mortgage 
insurance, and loan costs. The Bureau believed that modifying the 
calculation of the disclosure would improve consumer understanding.\71\ 
For the reasons discussed in the section-by-section analysis of Sec.  
1026.38(o)(1), the Bureau believes it is appropriate to continue to 
apply the tolerances for the finance charge and disclosures affected by 
the finance charge to the modified total of payments calculation. 
Accordingly, the Bureau proposes to revise Sec.  1026.23(g) to apply 
the same tolerances for accuracy to the total of payments for purposes 
of the Closing Disclosure that already apply to the finance charge and 
other disclosures affected by the finance charge.
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    \71\ 78 FR 79730, 80038 (Dec. 31, 2013).
---------------------------------------------------------------------------

    Specifically, the Bureau proposes to redesignate existing Sec.  
1026.23(g)(1) and (2) as Sec.  1026.23(g)(1)(i) and (2)(i) and to amend 
Sec.  1026.23(g)(1)(ii) to provide that, in general, the total of 
payments for each transaction subject to Sec.  1026.19(e) and (f) shall 
be considered accurate for purposes of Sec.  1026.23 if the disclosed 
total of payments: (A) Is understated by no more than 1 percent of the 
face amount of the note or $100, whichever is greater; or (B) is 
greater than the amount required to be disclosed. The Bureau further 
proposes to amend Sec.  1026.23(g)(2)(ii) to provide that, in a 
refinancing of a residential mortgage transaction with a new creditor 
(other than a transaction covered by Sec.  1026.32), if there is no new 
advance and no consolidation of existing loans, the total of payments 
for each transaction subject to Sec.  1026.19(e) and (f) shall be 
considered accurate for purposes of Sec.  1026.23 if the disclosed 
total of payments: (A) Is understated by no more than 1 percent of the 
face amount of the note or $100, whichever is greater; or (B) is 
greater than the amount required to be disclosed. The Bureau seeks 
comment on these proposed revisions to Sec.  1026.23(g). The Bureau 
also proposes to add new comment 23(g)-1, which would reference the 
examples set forth in proposed comment 38(o)-1 that illustrate the 
interaction of the finance charge and total of payments accuracy 
requirements for each transaction subject to Sec.  1026.19(e) and (f).
Legal Authority
    The Bureau proposes to revise Sec.  1026.23(g) to apply the same 
tolerances for accuracy of the finance charge and other disclosures 
affected by the finance charge to the total of payments for each 
transaction subject to Sec.  1026.19(e) and (f) pursuant to its 
authority to set tolerances for numerical disclosures under TILA 
section 121(d).\72\ 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.
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    \72\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

    The Bureau has considered the purposes for which it may exercise 
its authority under TILA section 121(d). As noted below in the section-
by-section analysis of Sec.  1026.38(o)(1), the Bureau has concluded 
that the proposed tolerances for the total of payments would promote 
consistency with the tolerances in effect before the TILA-RESPA Final 
Rule. The Bureau therefore believes that the proposed tolerances 
facilitate compliance with the statute. Additionally, the Bureau 
believes that the tolerances in proposed Sec.  1026.23(g)(1)(ii) and 
(2)(ii), which are identical to the finance charge tolerances provided 
by Congress in TILA section 106(f), are sufficiently narrow to prevent 
these tolerances from resulting in misleading disclosures or 
disclosures that circumvent the purposes of TILA.
23(h) Special Rules for Foreclosures
23(h)(2) Tolerance for Disclosures
    For purposes of exercising rescission rights after the initiation 
of foreclosure, TILA section 125(i)(2) explains that the disclosure of 
the finance charge and other disclosures affected by any finance charge 
shall be treated as being accurate if the amount disclosed as the 
finance charge does not vary from the actual finance charge by more 
than $35 or is greater than the amount required to be disclosed.\73\ 
Section 1026.23(h)(2) implements this statutory provision.
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 1635(i)(2).
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    As explained more fully above in the section-by-section analysis 
related to Sec.  1026.23(g) and below in the section-by-section 
analysis of Sec.  1026.38(o)(1), the finance charge tolerance 
historically applied to the total of payments because that calculation 
was affected by the finance charge. Accordingly, for the reasons 
discussed in the section-by-section analyses of Sec. Sec.  1026.23(g) 
and 1026.38(o)(1), the Bureau proposes to revise Sec.  1026.23(h)(2) to 
apply the same tolerances for accuracy to the total of payments for 
purposes of the Closing Disclosure that already apply to the finance 
charge and other disclosures affected by the finance charge.
    Specifically, the Bureau proposes to redesignate existing Sec.  
1026.23(h)(2) as Sec.  1026.23(h)(2)(i) and to amend Sec.  
1026.23(h)(2)(ii) to provide that, after the initiation of foreclosure 
on the consumer's principal dwelling that secures the credit 
obligation, the total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of Sec.  
1026.23 if the disclosed total of payments: (A) Is understated by no 
more than $35; or (B) is greater than the amount required to be 
disclosed. The Bureau seeks comment on this proposed amendment to Sec.  
1026.23(h)(2).
    The Bureau proposes to revise comment 23(h)(2)-1 to explain that, 
for each transaction subject to Sec.  1026.19(e) and (f), Sec.  
1026.23(h)(2) is also based on the accuracy of the total of payments, 
taken as a whole, rather than its components. The Bureau also proposes 
to add new comment 23(h)(2)-2, which would reference the examples set 
forth in proposed comment 38(o)-1 that illustrate the interaction of 
the finance charge and total of payments accuracy requirements for each 
transaction subject to Sec.  1026.19(e) and (f).
Legal Authority
    The Bureau proposes to revise Sec.  1026.23(h)(2) to apply the same 
tolerances for accuracy of the finance

[[Page 54337]]

charge and other disclosures affected by the finance charge to the 
total of payments for each transaction subject to Sec.  1026.19(e) and 
(f) pursuant to its authority to set tolerances for numerical 
disclosures under TILA section 121(d).\74\ 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. The Bureau has considered the 
purposes for which it may exercise its authority under TILA section 
121(d). As noted below in the section-by-section analysis of Sec.  
1026.38(o)(1), the Bureau has concluded that the proposed tolerances 
for the total of payments would promote consistency with the tolerances 
in effect before the TILA-RESPA Final Rule. The Bureau therefore 
believes that the proposed tolerances facilitate compliance with the 
statute. Additionally, the Bureau believes that the tolerances in 
proposed Sec.  1026.23(h)(ii), which are identical to the finance 
charge tolerances provided by Congress in TILA section 125(i)(2), are 
sufficiently narrow to prevent these tolerances from resulting in 
misleading disclosures or disclosures that circumvent the purposes of 
TILA.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

Section 1026.25 Record Retention

25(c) Records Related to Certain Requirements for Mortgage Loans
25(c)(1) Records Related to Requirements for Loans Secured by Real 
Property
    As detailed in in the section-by-section analysis of Sec.  1026.19 
above, the Bureau is proposing amendments to conform the paragraph 
title for Sec.  1026.25(c)(1), and a subheading for the commentary to 
Sec.  1026.25(c)(1), with the Bureau's proposal to include closed-end 
credit transactions, other than reverse mortgages, that are secured by 
a cooperative unit within the scope of loans covered by Sec.  
1026.19(e) and (f), regardless of whether a cooperative unit is treated 
as real property under State or other applicable law.

Section 1026.37 Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

37(a) General Information
37(a)(7) Sale Price
    Comment 37(a)(7)-1 explains the requirement in Sec.  
1026.37(a)(7)(ii) to provide the estimated value of the property in 
transactions where there is no seller. The comment states that, where 
there is no seller, 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. The Bureau is proposing to revise comment 37(a)(7)-1 
to clarify that, if a creditor has performed its own estimate of the 
property value by the time the disclosure is provided to the consumer, 
the creditor must disclose its own estimate under Sec.  
1026.37(a)(7)(ii). In addition, as discussed in relation to Sec.  
1026.19 above, the Bureau is proposing amendments to conform comment 
37(a)(7)-2 with the Bureau's proposal to include closed-end credit 
transactions, other than reverse mortgages, that are secured by a 
cooperative unit within the scope of loans covered by Sec.  1026.19(e), 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law.
37(a)(8) Loan Term
    Section 1026.37(a)(8) requires disclosure of the term to maturity 
of the credit transaction. The Bureau is proposing to add comment 
37(a)(8)-3 to provide a cross-reference to proposed new comment app. D-
7.i, which explains the disclosure of the loan term for a construction-
permanent loan, taking into account the unique features of such a 
transaction.
37(a)(9) Purpose
    Section 1026.37(a)(9) requires a creditor to disclose on the Loan 
Estimate the consumer's intended use for the credit, labeled 
``Purpose.'' Comment 37(a)(9)-1.i explains that the creditor must 
disclose the loan purpose as ``Purchase'' when the consumer intends to 
use the proceeds from the transaction to purchase the property that 
will secure the extension of credit. Because the proceeds from a 
simultaneous loan for subordinate financing in a purchase transaction 
are used to purchase the property that will secure the extension of 
credit, the Bureau is proposing to amend comment 37(a)(9)-1.i to 
clarify that simultaneous subordinate financing in such cases is also 
disclosed with the purpose as ``Purchase.''
37(a)(10) Product
    Section 1026.37(a)(10) requires a description of the loan product 
to be disclosed, including the features that may change the periodic 
payment. Comment 37(a)(10)-2.ii explains disclosure of the interest 
only feature. The Bureau is proposing to add a cross-reference in 
comment 37(a)(10)-2.ii to proposed comment app. D-7.ii, which would 
explain the disclosure of the time period of the interest only feature 
for a construction loan or a construction-permanent loan.
37(a)(13) Rate Lock
    Section 1026.37(a)(13) requires creditors to disclose the date and 
time at which estimated closing costs expire. Section 
1026.19(e)(3)(iv)(E) provides that, for the purpose of determining good 
faith under Sec.  1026.19(e)(3)(i) and (ii), a creditor may use a 
revised estimate of a charge instead of the estimate of the charge 
originally disclosed on the Loan Estimate (i.e., the creditor may reset 
the applicable tolerance) if the consumer indicates an intent to 
proceed with the transaction more than 10 business days after the Loan 
Estimate is provided under Sec.  1026.19(e)(1)(iii). The Bureau 
proposes to amend comment 37(a)(13)-2 to clarify the relationship 
between the expiration date disclosure under Sec.  1026.37(a)(13)(ii) 
and the ability to reset tolerances under Sec.  1026.19(e)(3)(iv)(E). 
The Bureau also proposes to amend comment 37(a)(13)-2 by adding a 
cross-reference to new proposed comment 19(e)(3)(iv)(E)-2, which would 
clarify when the creditor may use a revised estimate of a charge for 
the purposes of determining good faith under Sec.  1026.19(e)(3)(i) and 
(ii) when the creditor voluntarily extends the period for which it will 
honor the estimated charges disclosed on the Loan Estimate for a period 
beyond 10 business days. The Bureau further proposes to add new comment 
37(a)(13)-3 to clarify that, once the consumer has indicated an intent 
to proceed with the transaction, the date and time at which estimated 
closing costs expire would be left blank on revised Loan Estimates, if 
any.
37(b) Loan Terms
37(b)(1) Loan Amount
    Section 1026.37(b)(1) currently requires the disclosure on the Loan 
Estimate of the amount of credit to be extended under the terms of the 
legal obligation, labeled ``Loan Amount.'' For federally related 
mortgage loans under RESPA, Sec.  1024.7(d) of Regulation X required 
the disclosure of the loan amount in the summary table on page 1 of the 
RESPA GFE. Other provisions in Sec. Sec.  1026.37 and 1036.38 use this 
amount in the calculation of various disclosures throughout the Loan 
Estimate and Closing Disclosure, for instance, in the

[[Page 54338]]

calculating cash to close tables under Sec. Sec.  1026.37(h) and 
1026.38(e) and (i). Section 1026.18(b) requires the disclosure of the 
amount financed for transactions not subject to the disclosure 
requirements of Sec.  1026.19(e) and (f), along with a description of 
the amount financed such as ``the amount of credit provided to you or 
on your behalf.'' \75\ The calculation of the amount financed under 
Sec.  1026.18(b) is not the same as the dollar amount lent to the 
consumer by the creditor, despite the similar language used to define 
the two terms in Sec.  1026.18(b) and Sec.  1026.37(b)(1), 
respectively.
---------------------------------------------------------------------------

    \75\ The amount financed is also disclosed on the Closing 
Disclosure pursuant to Sec.  1026.38(o)(3).
---------------------------------------------------------------------------

    To reduce inconsistent language in Regulation Z and facilitate 
compliance, the Bureau proposes to revise Sec.  1026.37(b)(1) to 
provide that the loan amount disclosed on the Loan Estimate (and, 
accordingly, on the Closing Disclosure) is the total amount the 
consumer will borrow, as reflected by the face amount of the note. This 
language would parallel that of Sec.  1026.32(c)(5), which, as the 
Bureau noted in section-by-section analysis of Sec.  1026.37(b)(1) in 
the TILA-RESPA Final Rule,\76\ 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. The Bureau believes that revising the 
definition of loan amount in Sec.  1026.37(b)(1) to parallel the 
language in Sec.  1026.32(c)(5) would make clearer that the same amount 
should be disclosed under both sections, as indicated in the 2012 TILA-
RESPA Proposal. The Bureau also believes that most, if not all, 
creditors currently understand this intent and follow it in disclosing 
the loan amount. Accordingly, the Bureau believes creditors would not 
have to change current processes or systems under the proposal. The 
Bureau requests comment, however, on whether changing the language 
defining the loan amount under 1026.37(b)(1) would require any changes 
to creditors' processes or systems or would change the loan amount that 
creditors currently disclose to the consumer.
---------------------------------------------------------------------------

    \76\ 78 FR 79730, 79921 (Dec. 31, 2013).
---------------------------------------------------------------------------

37(b)(2) Interest Rate
    Section 1026.37(b)(2) requires disclosure of the interest rate that 
will be applicable to the transaction at consummation. The Bureau is 
proposing to add a cross-reference in comment 37(b)(2)-1 to proposed 
comment app. D-7.iii, which, as discussed further below, would explain 
the disclosure of the permanent financing interest rate for a 
construction-permanent loan.
37(b)(3) Principal and Interest Payment
    Section 1026.37(b)(3) requires disclosure of the initial periodic 
payment amount. The Bureau is proposing to add a cross-reference in 
comment 37(b)(3)-2 to proposed comment app. D-7.iv, which would explain 
the disclosure of an initial periodic payment for a construction or 
construction-permanent loan.
37(b)(6) Adjustments After Consummation
37(b)(6)(iii) Increase in Periodic Payment
    Section 1026.37(b)(6)(iii) requires disclosures of increases in the 
periodic payment. The Bureau is proposing to add a cross-reference in 
comment 37(b)(6)(iii)-1 to proposed comment app. D-7.v, which, as 
discussed further below, would explain the disclosure of an increase in 
the periodic payment for a construction or construction-permanent loan.
37(c) Projected Payments
    Section 1026.37(c) requires itemization of each separate periodic 
payment or range of payments. As described below, the Bureau is 
proposing to amend the commentary accompanying Sec.  1026.37(c), 
(c)(1)(iii)(B), and (c)(4)(iv). Proposed comment 37(c)-2 would provide 
a cross-reference to comment app. D-7.vi, which explains the projected 
payments disclosure for a construction or construction-permanent loan.
37(c)(1) Periodic Payment or Range of Payments
37(c)(1)(iii)
37(c)(1)(iii)(B)
    Section 1026.37(c) requires creditors to disclose an itemization of 
the periodic payments. Section 1026.37(c)(1)(iii)(B) requires 
disclosing the minimum and maximum payment amount (the range) when the 
periodic principal and interest payment may change more than once 
during a single year. Section 1026.37(c)(1)(iii)(B) also requires 
disclosing the range when the periodic principal and interest payment 
may change during the same year as the initial periodic payment. 
Comment 37(c)(1)(iii)(B)-1 illustrates the disclosure of separate 
periodic payments or ranges when multiple events occur during a single 
year. The Bureau is proposing clarifying amendments to comment 
37(c)(1)(iii)(B)-1.
    The Bureau has identified inconsistencies in one of the examples in 
comment 37(c)(1)(iii)(B)-1 that should be harmonized to match the 
requirements of Sec.  1026.37(c)(1). Specifically, one example in 
comment 37(c)(1)(iii)(B)-1 calls for disclosing as a single range in 
year two the payment that would apply on the first anniversary of the 
due date of the initial periodic payment as well as the periodic 
payment that would apply after the payment adjustment that occurs at 18 
months. Section 1026.37(c)(1) does not require disclosing a range 
merely because the periodic principal and interest payment may change 
once during a single year (unless such change may occur during the same 
year as the initial periodic payment). Moreover, the same example in 
comment 37(c)(1)(iii)(B)-1 also calls for an additional separate 
payment disclosure specifically for ``the anniversary that immediately 
follows the occurrence of the multiple payments or ranges of payments 
that occurred during the second year of the loan.'' However, Sec.  
1026.37(c)(1) does not require an additional separate payment 
disclosure for an anniversary unless the anniversary ``immediately 
follows'' the occurrence of multiple events whereby the periodic 
principal and interest payment may change during a single year. To 
correct these inconsistencies, the Bureau is proposing amendments to 
conform comment 37(c)(1)(iii)(B)-1 to the requirements of Sec.  
1026.37(c)(1). The Bureua is also designating subparagraphs in comment 
37(c)(1)(iii)(B)-1 for clarity, without substantive changes.
    The Bureau requests comment on the proposed amendments to comment 
37(c)(1)(iii)(B)-1 and also solicits comment on whether additional or 
alternative approaches to correct the inconsistency should be adopted 
instead. Specifically, the Bureau requests comment on whether the text 
of Sec.  1026.37(c)(1) should be amended to conform to the example in 
comment 37(c)(1)(iii)(B)-1 (instead of amending comment 
37(c)(1)(iii)(B)-1 to conform to the text of Sec.  1026.37(c)(1)). The 
Bureau also specifically requests comment on whether, rather than 
complying with a single, mandatory approach, creditors should have the 
discretion to disclose payments or ranges of payments in conformity 
with either the text of Sec.  1026.37(c)(1) or the existing examples in 
comment 37(c)(1)(iii)(B)-1.

[[Page 54339]]

37(c)(4) Taxes, Insurance, and Assessments
37(c)(4)(iv)
    Section 1026.37(c)(4) requires the disclosures of taxes, insurance, 
and assessments on the Loan Estimate. Section 1026.37(c)(4)(iv) 
requires a statement that the amounts disclosed under Sec.  
1026.37(c)(4)(ii) include payments for property taxes and other amounts 
it requires to be disclosed and whether the amounts disclosed will be 
paid using escrow account funds. Comment 37(c)(4)(iv)-2 explains that 
creditors may indicate that only some of the amounts disclosed under 
Sec.  1026.37(c)(4)(ii) will be paid using escrow account funds when 
that is the case. In February 2015, the Bureau removed ``other than 
amounts for payments of property taxes or homeowner's insurance'' from 
comment 37(c)(4)(iv)-2.\77\ The Bureau did so to permit creditors to 
disclose that a portion of the property taxes or homeowner's insurance 
payments were being paid from escrow, consistent with other situations 
where the creditor pays only a portion of the disclosed amounts from 
escrow. The Bureau understands that uncertainty remains over the 
disclosure that only a portion of the property taxes and homeowner's 
insurance payments will be paid from escrow. The Bureau is proposing to 
revise comment 37(c)(4)(iv)-2 to clarify that creditors may indicate 
that a portion of the property taxes and homeowner's insurance will be 
paid by the creditor using funds from the escrow account when that is 
the case.
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    \77\ 80 FR 8767, 8777 (Feb. 19, 2015).
---------------------------------------------------------------------------

37(c)(5) Calculation of Taxes and Insurance
37(c)(5)(i)
    As detailed in in the section-by-section analysis of Sec.  1026.19, 
the Bureau is proposing amendments to conform Sec.  1026.37(c)(5)(i) 
with the Bureau's proposal to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit 
within the scope of loans covered by Sec.  1026.19(e), regardless of 
whether a cooperative unit is treated as real property under State or 
other applicable law.
37(d) Costs at Closing
37(d)(2) Optional Alternative Table for Transactions Without a Seller 
and Simultaneous Loans for Subordinate Financing
    Section 1026.37(d)(2) only permits creditors to use the optional 
alternative cash to close disclosure in transactions without a seller. 
The Bureau has provided informal guidance that, in purchase 
transactions with a simultaneous loan for subordinate financing, the 
optional alternative disclosure may be used for the simultaneous 
subordinate financing Loan Estimate if the first-lien Closing 
Disclosure will record the entirety of the seller's transaction and the 
seller did not contribute to the cost of the subordinate financing. The 
Bureau is proposing to amend Sec.  1026.37(d)(2) and comment 37(d)(2)-1 
to clarify that creditors may use the optional alternative cash to 
close disclosure for simultaneous loans for subordinate financing in 
purchase transactions if the first-lien Closing Disclosure will record 
the entirety of the seller's transaction. The Bureau specifically seeks 
comment on whether allowing a creditor to use the optional alternative 
cash to close table for disclosure of simultaneous loans for 
subordinate financing in purchase transactions only if the first-lien 
Closing Disclosure will record the entirety of the seller's transaction 
is an appropriate limitation.
37(f) Closing Cost Details; Loan Costs
Construction Loan Inspection and Handling Fees
    Section 1026.37(f) requires the disclosure of all loan costs 
associated with the transaction. Construction loan inspection and 
handling fees are loan costs associated with the construction 
transaction for purposes of Sec.  1026.37(f).
    If such inspection and handling fees are collected at or before 
consummation, they are disclosed in the loan costs table in the same 
manner as any other loan cost. For example, if the creditor collects a 
handling fee at or before consummation to process the advances of a 
multiple-advance construction loan, the handling fee would be disclosed 
as an origination charge under Sec.  1026.37(f)(1) as an amount the 
consumer will pay to the creditor for originating and extending the 
credit. If the creditor collects an inspection fee that will be used to 
pay a third-party inspector that is selected by the creditor, the fee 
would be disclosed as an amount the consumer will pay for settlement 
services for which the consumer cannot shop under Sec.  1026.37(f)(2).
    Under proposed comment 37(f)-3, a creditor would disclose 
construction loan inspection and handling fees that are collected after 
consummation in a separate addendum to the Loan Estimate rather than in 
the loan costs table, as proposed comment 37(f)(6)-3, discussed below, 
would provide. The creditor would not count such fees for purposes of 
the calculating cash to close table. The Bureau believes that 
disclosing the construction loan inspection and handling fees that are 
collected after consummation in an addendum would promote the informed 
use of credit by giving consumers loan cost information necessary to 
exercise such informed use, while preserving the accuracy of the total 
amount determined in the closing costs details table that must be 
provided by the consumer at consummation.
    Proposed comment 37(f)-3 would include a cross-reference to 
proposed comment 37(f)(6)-3 for an explanation of the addendum that 
would be used to disclose post-consummation inspection and handling 
fees, as discussed below. Proposed comment 37(f)-3 also would include 
cross-references to comments 38(f)-2 and app. D-7.viii, for additional 
explanations of the disclosure of such fees. Because the number of 
post-consummation construction loan inspections and disbursements may 
not be known at the time the disclosures are required to be provided, 
comment 37(f)-3 would include a cross-reference to comment 19(e)(1)(i)-
1, which includes instruction on providing disclosures based on the 
best information reasonably available. Finally, comment 37(f)-3 would 
provide a cross-reference to Sec.  1026.17(e) and its commentary for an 
explanation of the effect of subsequent events that cause inaccuracies 
in disclosures. The Bureau requests comment in particular on whether 
additional guidance on the effect of subsequent events in construction 
financing would provide additional clarity and what issues such 
additional guidance might address.
37(f)(6) Use of Addenda
    The Bureau is proposing to add comment 37(f)(6)-3 to provide 
instruction for the addendum that would be used to disclose post-
consummation construction loan inspection and handling fees. If, 
pursuant to proposed comment 37(f)-3, a creditor is required to 
disclose construction loan inspection and handling fees that will be 
collected after consummation, proposed comment 37(f)(6)-3 would explain 
that the creditor discloses the total of such fees under the heading 
``Inspection and Handling Fees Collected After Closing'' in an 
addendum. Proposed comment 37(f)(6)-3 would also cross-reference 
comment 19(e)(1)(i)-1and explain that, if the amount of post-
consummation inspection and handling fees is not known at the time the 
disclosures are provided, the disclosures in the addendum would be 
based upon the

[[Page 54340]]

best information reasonably available. To provide additional clarity, 
proposed comment 37(f)(6)-3 also includes an example of the best 
information reasonably available standard for purposes of disclosing 
post-consummation inspection and handling fees by providing such 
information could include amounts the creditor has previously charged 
in similar transactions.
37(g) Closing Cost Details; Other Costs
37(g)(4) Other
    Section 1026.37(g)(4) requires the disclosure of any other amounts 
in connection with the transaction that the consumer is likely to pay 
or has contracted, with a person other than the creditor or loan 
originator, to pay at consummation and of which the creditor is aware 
at the time of issuing the Loan Estimate. Comment 37(g)(4)-4 provides 
examples of items that are disclosed under Sec.  1026.37(g)(4), 
including but not limited to 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. Currently, amounts for construction 
costs, payoff of existing liens, or payoff of unsecured debt may be, 
but are not required to be, disclosed under Sec.  1026.37(g)(4). If 
such amounts are not disclosed under Sec.  1026.37(g)(4), they are 
factored into the cash to close calculations but are not otherwise 
disclosed on the Loan Estimate. The Bureau is proposing to revise 
comment 37(g)(4)-4 to require the disclosure of construction costs in 
connection with the transaction that the consumer will be obligated to 
pay, payoff of existing liens secured by the property identified under 
Sec.  1026.37(a)(6), or payoff of unsecured debt under Sec.  
1026.37(g)(4), unless those items are disclosed under Sec.  
1026.37(h)(2)(iii) on the optional alternative calculating cash to 
close table.
    The Bureau expects consumer understanding will be enhanced by the 
clear and conspicuous disclosure of these amounts on the Loan Estimate, 
if known to the creditor at the time the Loan Estimate is provided to 
the consumer. The proposed revisions to comment 37(g)(4)-4, together 
with the proposed revisions to comment 38(g)(4)-1 discussed in the 
section-by-section analysis of Sec.  1026.38(g)(4), will also create 
greater consistency between disclosures on the Loan Estimate and 
Closing Disclosure, thus facilitating consumer understanding. The 
Bureau believes this is an appropriate place to list the three items 
because they are all other closing costs that must be paid when 
completing a mortgage transaction.
    The Bureau does not intend, by requiring disclosure under Sec.  
1026.37(g)(4) of amounts for construction costs, payoff of existing 
liens, and payoff of unsecured debt, to subject them to a different 
determination of good faith than currently provided for in Sec.  
1026.19(e)(3). Section 1026.19(e)(3)(iii)(E) provides that the amounts 
disclosed for third-party services not required by the creditor are 
disclosed in good faith regardless of whether the amounts actually paid 
by the consumer exceed the estimated amounts disclosed, provided such 
estimates are consistent with the best information reasonably available 
to the creditor at the time the disclosures are provided. To the extent 
construction costs, payoff of existing liens, or payoff of unsecured 
debt are bona fide, they would be subject to the determination of good 
faith under Sec.  1026.19(e)(3)(iii)(E), as discussed in the section-
by-section analysis of Sec.  1026.19(e)(3)(iii)(E) above.
    The Bureau considered requiring the disclosure of construction 
costs, payoff of existing liens, and payoff of unsecured debt under the 
summaries of transactions table on the Closing Disclosure under Sec.  
1026.38(j)(1)(v), instead of as ``closing costs'' under Sec. Sec.  
1026.37(g)(4) and 1026.38(g)(4). However, the Loan Estimate does not 
have a comparable summaries of transactions table. Disclosing these 
optional third-party services on the summaries of transactions table on 
the Closing Disclosure would not result in these costs being enumerated 
consistently on both the Loan Estimate and the Closing Disclosure and 
would interfere with the comparability between the Loan Estimate and 
the Closing Disclosure.
    The Bureau also considered requiring the disclosure of construction 
costs on an addendum, instead of as other closing costs, under Sec.  
1026.37(g)(4) on the Loan Estimate and Sec.  1026.38(g)(4) on the 
Closing Disclosure. The construction costs would then be factored into 
the calculating cash to close table calculations with the sale price to 
yield an accurate cash to close amount. However, this approach could 
add complexity to the calculations required on the Closing Disclosure 
because amounts disclosed under Sec.  1026.38(j)(1)(ii) and (k)(1)(ii) 
would no longer be the same.
    For the foregoing reasons, the Bureau is proposing to revise 
comment 37(g)(4)-4 to require the disclosure of construction costs, 
payoff of existing liens, and payoff of unsecured debt even if payable 
directly or indirectly to the creditor, as provided for in Sec.  
1026.37(g)(4), unless those items are disclosed under Sec.  
1026.37(h)(2)(iii) on the optional alternative calculating cash to 
close table. For example, if a builder is also the creditor, the bona 
fide cost of construction is disclosed under Sec.  1026.37(g)(4) and 
not Sec.  1026.37(f). Finally, the Bureau is proposing to revise 
comment 37(g)(4)-4 to cross-reference proposed comment app. D-7.vii for 
an explanation of the disclosure of construction costs for a 
construction or construction-permanent loan and proposed comment app. 
D-7.viii for an explanation of the disclosure of construction loan 
inspection and handling fees.
37(g)(6) Total Closing Costs
37(g)(6)(ii)
    Section 1026.37(g)(6)(ii) requires creditors to disclose the amount 
of any lender credits. Comment 37(g)(6)(ii)-1 cross references comment 
19(e)(3)(i)-5 and describes 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.\78\ However, as finalized in 
the TILA-RESPA Final Rule, comment 19(e)(3)(i)-5 states that lender 
credits, as identified in Sec.  1026.37(g)(6)(ii), represent the sum of 
non-specific lender credits and specific lender credits. To correct 
this inconsistency, the Bureau is proposing to revise comment 
37(g)(6)(ii)-1 to conform with the language in comment 19(e)(3)(i)-5.
---------------------------------------------------------------------------

    \78\ The language used in comment 37(g)(6)(ii)-1 was based on 
proposed commentary in the 2012 TILA-RESPA Proposal. 77 FR 51116, 
51422 (Aug. 23, 2012).
---------------------------------------------------------------------------

37(h) Calculating Cash To Close
    Section 1026.37(h) requires the disclosure of the calculation of an 
estimate of cash due from or to the consumer at consummation, under the 
heading ``Calculating Cash to Close,'' and permits the use of an 
alternative calculating cash to close table for transactions without a 
seller. The calculating cash to close table is designed to provide the 
consumer, using readily understandable language and a standardized 
calculation methodology, with a reasonably reliable estimate of the 
cash due from or to the consumer at

[[Page 54341]]

consummation. The calculating cash to close table disclosures include 
the total closing costs and the amount of closing costs being financed, 
implementing, in part, TILA section 128(a)(17).
    The Bureau recognized when it adopted this requirement that the 
creditor may not know the amount of the deposit, payments to others, 
and funds that the consumer either will pay or will receive at 
consummation. The Bureau required that the disclosure of those elements 
of the calculating cash to close table be based on the best information 
reasonably available.\79\ In doing so, the Bureau recognized that the 
actual amount of cash to close at consummation could differ 
significantly from the amount disclosed on the Loan Estimate. Notably, 
the amounts disclosed in the calculating cash to close table are not 
subject to the specific tolerances under Sec.  1026.19(e)(3) or Sec.  
1026.22(a).
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    \79\ 78 FR 79730, 79966-67 (Dec. 31, 2013).
---------------------------------------------------------------------------

    The Bureau has received many questions from industry on the proper 
calculation of the various amounts disclosed on the calculating cash to 
close table. The Bureau also understands that there is some variation 
among creditors in how the calculating cash to close disclosures are 
determined. The Bureau recognizes that a lack of consistency in how the 
calculating cash to close disclosures are made could undermine consumer 
understanding. Consequently, the Bureau is addressing many of these 
questions, inconsistencies, and requested clarifications below, as they 
relate to the various amounts disclosed in the calculating cash to 
close table.
    The Bureau is proposing amendments to Sec.  1026.37(h) and its 
commentary regarding the calculating cash to close table on the Loan 
Estimate pursuant to its authority under TILA section 105(a) and Dodd-
Frank Act section 1032(a). The Bureau believes that the proposed 
amendments will effectuate the purposes of TILA by facilitating the 
informed use of credit. Providing consumers with information about the 
cash to close amount and its critical components helps ensure that the 
features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
better 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 recognizes that the fact that the amounts disclosed on 
the calculating cash to close table can change significantly between 
the issuance of the Loan Estimate and the issuance of the Closing 
Disclosure could compromise the ability of consumers to understand the 
costs, benefits, and risks of the transaction. In addition, the 
calculating cash to close table includes both amounts that are and are 
not subject to tolerances. As a result, some consumers may have 
difficulty determining the proper level of reliance to place on the 
calculating cash to close disclosures. Some consumers may believe that 
the early estimate of the cash to close on the Loan Estimate is more 
precise than it necessarily can be.
    Accordingly, the Bureau seeks comment on the calculating cash to 
close table generally. This includes comments on possible alternative 
methods to determine the amounts disclosed on the calculating cash to 
close table, whether the proposed clarifications and revisions 
discussed below will result in more consistent calculation of the 
amounts on the calculating cash to close table, and other ways to 
simplify the calculating cash to close table while providing the 
consumer with a reasonably reliable estimate of the amount due from or 
to the consumer at consummation, consistent with the requirements of 
TILA section 128(a)(17) and the Bureau's goal of providing 
understandable and consistent information to consumers. The Bureau 
recognizes that any redesign of the calculating cash to close table, 
including its components, could require extensive changes to existing 
processes and software investments by industry and seeks comment on the 
extent of such changes that would be required by the Bureau's proposal, 
or by any other proposals suggested by commenters, for revisions to the 
calculating cash to close table.
37(h)(1) For All Transactions
    Section 1026.37(h)(1) requires the disclosure of a calculation, 
yielding an estimate of the cash needed from the consumer at 
consummation of the transaction, based on seven components. Each of the 
seven components, disclosed under Sec.  1026.37(h)(1)(i) through (vii), 
respectively, is determined by a prescribed calculation. The Bureau is 
proposing to add comment 37(h)(1)-2 to clarify that, on the Loan 
Estimate for a simultaneous loan for subordinate financing, the sale 
price disclosed under Sec.  1026.37(a) is not used in any of the Sec.  
1026.37(h)(1) calculations. Omitting the sale price from the cash to 
close calculations required under Sec.  1026.37(h)(1) for simultaneous 
loans for subordinate financing will result in a cash to close amount 
reflecting the proceeds of the subordinate financing, itself disclosed 
on the first-lien Loan Estimate under Sec.  1026.37(h)(1)(vii).
37(h)(1)(ii) Closing Costs Financed
    Comment 37(h)(1)(ii)-1 explains that the amount of closing costs 
financed disclosed under Sec.  1026.37(h)(1)(ii) is determined by 
subtracting the estimated total amount of payments to third parties not 
otherwise disclosed under Sec.  1026.37(f) and (g) from the loan amount 
disclosed under Sec.  1026.37(b)(1). If the result of the calculation 
is a positive number, that amount is disclosed as a negative number 
under Sec.  1026.37(h)(1)(ii), but only to the extent that it does not 
exceed the total amount of closing costs disclosed under Sec.  
1026.37(g)(6). If the result of the calculation is zero or negative, 
the amount of $0 is disclosed under Sec.  1026.37(h)(1)(ii). The Bureau 
is proposing to revise comment 37(h)(1)(ii)-1 and add comment 
37(h)(1)(ii)-2 to provide greater clarity regarding the sale price and 
loan amount.
    Revised comment 37(h)(1)(ii)-1 would clarify that the sale price 
may be included in the closing costs financed calculation as a payment 
to a third party not otherwise disclosed under Sec.  1026.37(f) and 
(g). However, as explained in proposed comment 37(h)(1)-2, sale price 
is not used in any calculating cash to close calculations on the Loan 
Estimate for a simultaneous loan for subordinate financing in a 
purchase transaction. In addition, the Bureau is proposing to remove 
the word ``total'' from the phrase ``total loan amount'' because 
``total loan amount'' is a defined term under Sec.  1026.32(b)(4), and 
the Bureau intends only to reference the loan amount disclosed under 
proposed Sec.  1026.37(b)(1).
    Proposed comment 37(h)(1)(ii)-2 would explain that the loan amount 
disclosed under Sec.  1026.37(b)(1) is the total amount the consumer 
will borrow, as reflected by the face amount of the note, consistent 
with proposed revisions to Sec.  1026.37(b)(1), discussed above. The 
comment would also explain that financed closing costs, such as 
mortgage insurance premiums payable at or before consummation, do not 
reduce the loan amount. The addition of this comment will clarify that, 
regardless of how the term ``loan amount'' is used by creditors or in 
relation to programmatic requirements of specific loan programs, for 
purposes of the Loan Estimate, the amount disclosed as the loan amount, 
and the basis for the calculating cash to close table calculations, is 
the total amount the consumer will borrow as

[[Page 54342]]

reflected by the face amount of the note. This definition does not 
affect how other agencies may define or use similar terms for purposes 
of their own programmatic requirements. For example, the ``Base Loan 
Amount'' and ``Total Loan Amount'' for loans made under programs of the 
Federal Housing Administration may not be the same as the loan amount 
required to be disclosed under revised Sec.  1026.37(b)(1).
37(h)(1)(iii) Down Payment and Other Funds From Borrower
    Section 1026.37(h)(1)(iii)(A) requires the down payment amount in a 
purchase transaction as defined in Sec.  1026.37(a)(9)(i) to be 
disclosed as a positive number. In these transactions, the down payment 
is calculated as the difference between the purchase price of the 
property and the principal amount of the credit extended. Comment 
37(h)(1)(iii)-1 explains that, in the case of a transaction, other than 
a construction loan, where the loan amount exceeds the purchase price 
of the property, the amount of the down payment disclosed must be $0. 
The calculation does not capture the amount of existing loans ``assumed 
or taken subject to'' that will be disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(2)(iv). Section 1026.37(h)(1)(iii)(B) provides 
that, in all transactions other than purchase transactions as defined 
in Sec.  1026.37(a)(9)(i), the amount of estimated funds from the 
consumer is determined in accordance with Sec.  1026.37(h)(1)(v). The 
Bureau is proposing to revise Sec.  1026.37(h)(1)(iii)(A) to account 
for the amount expected to be disbursed to the consumer or used at the 
consumer's discretion at consummation of the transaction in purchase 
transactions, to make conforming amendments to Sec.  
1026.37(h)(1)(iii)(B), to replace comment 37(h)(1)(iii)-1 with a new 
comment that clarifies the down payment calculation, and to add comment 
37(h)(1)(iii)-2 to explain when the ``Funds for Borrower'' calculation 
under Sec.  1026.37(h)(1)(v) is used.
    Revised Sec.  1026.37(h)(1)(iii)(A)(1) would specify that, in a 
purchase transaction as defined in Sec.  1026.37(a)(9)(i), the creditor 
subtracts the sum of the loan amount and any amount for loans assumed 
or taken subject to that will be disclosed on the Closing Disclosure, 
based on the best information reasonably available at the time the 
creditor provides the Loan Estimate, from the sale price of the 
property, except as required by Sec.  1026.37(h)(1)(iii)(A)(2). Revised 
Sec.  1026.37(h)(1)(iii)(A)(2) would provide that, in a purchase 
transaction as defined in Sec.  1026.37(a)(9)(i), when the sum of the 
loan amount and any amount for loans assumed or taken subject to that 
will be disclosed on the Closing Disclosure exceeds the sale price of 
the property, the creditor calculates the estimated funds from the 
consumer in accordance with proposed Sec.  1026.37(h)(1)(v), as 
revised. These provisions, as proposed, would apply to all purchase 
transactions as defined in Sec.  1026.37(a)(9)(i), including purchase 
transactions that include a construction loan component.
    Section Sec.  1026.37(h)(1)(iii)(B), as revised, would provide 
that, for all other transactions, the estimated funds from the consumer 
would also be calculated in accordance with the ``Funds for Borrower'' 
calculation in proposed Sec.  1026.37(h)(1)(v). Comment 37(h)(1)(iii)-2 
would explain the amount to be disclosed under Sec.  
1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B) is determined in accordance 
with the ``Funds for Borrower'' calculation in proposed Sec.  
1026.37(h)(1)(v). See the section-by-section analysis of Sec.  
1026.37(h)(1)(v) for a discussion of the proposed revisions to that 
section and to comment 37(h)(1)(v)-1.
    As a result of the proposed revisions to Sec.  1026.37(h)(1)(iii), 
existing comment 37(h)(1)(iii)-1 would not be accurate or necessary. 
Therefore, the Bureau is proposing to replace it with a new comment. 
The Bureau recognizes that some loan programs require borrowers to 
provide minimum cash investments, which, under the regulations or 
requirements of those loan programs, may be referred to as ``down 
payments.'' Revised comment 37(h)(1)(iii)-1 would explain the down 
payment calculation that must be followed for accurate disclosure of 
the down payment amount. The comment would also explain that the 
minimum cash investments required of consumers under some loan programs 
are not necessarily reflected in the down payment disclosure, and 
accurate disclosure of the down payment does not affect compliance or 
non-compliance with such loan programs' requirements.
37(h)(1)(v) Funds for Borrower
    Section 1026.37(h)(1)(v) provides that the amount of funds from the 
consumer disclosed under Sec.  1026.37(h)(1)(iii)(B) and of funds for 
the consumer disclosed under Sec.  1026.37(h)(1)(v) are calculated by 
subtracting the principal amount of the credit extended, excluding any 
closing costs financed disclosed under Sec.  1026.37(h)(1)(ii), 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 Sec.  1026.37(g). ``Funds for Borrower'' 
represents generally the amount expected to be disbursed to the 
consumer or used at the consumer's discretion at consummation of the 
transaction, such as in cash-out refinance transactions, and ``Funds 
from Borrower'' the amount expected to be paid by the consumer at 
consummation. The determination of whether the transaction will result 
in ``Funds for Borrower'' is made under Sec.  1026.37(h)(1)(v). When 
the result of the calculation is positive, that amount is disclosed 
under Sec.  1026.37(h)(1)(iii) as ``Funds from Borrower,'' and $0 is 
disclosed under Sec.  1026.37(h)(1)(v) as ``Funds for Borrower.'' When 
the result of the calculation is negative, that amount is disclosed 
under Sec.  1026.37(h)(1)(v) as ``Funds for Borrower,'' and $0 is 
disclosed under Sec.  1026.37(h)(1)(iii) as ``Funds from Borrower.'' 
When the result is $0, $0 is disclosed as ``Funds from Borrower'' and 
``Funds for Borrower.'' As discussed in more detail below, the Bureau 
is proposing to revise Sec.  1026.37(h)(1)(v) to account for the amount 
expected to be disbursed to the consumer or used at the consumer's 
discretion at consummation of the transaction in purchase transactions, 
to revise comment 37(h)(1)(v)-1 to explain when $0 is disclosed as 
``Funds for Borrower'' in purchase transactions, and to add comment 
37(h)(1)(v)-2 to clarify what amounts are included as existing debt 
being satisfied in the transaction.
    Existing comment 37(h)(1)(v)-1 clarifies that the ``Funds for 
Borrower'' calculation under Sec.  1026.37(h)(1)(v) is used in a non-
purchase transaction to determine the amount disclosed under Sec.  
1026.37(h)(1)(iii) as ``Funds from Borrower,'' and that, in a purchase 
transaction, other than a construction loan, the amount disclosed under 
Sec.  1026.37(h)(1)(v) as ``Funds for Borrower,'' will be $0, in 
accordance with Sec.  1026.37(h)(1)(v)(A). The Bureau nonetheless 
recognizes that there are circumstances when a purchase transaction 
will result in funds disbursed to the consumer such that the disclosure 
of ``Funds for Borrower'' under Sec.  1026.37(h)(1)(v) should not be 
$0.
    As discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(iii) above, the Bureau proposes to amend the ``Funds from 
Borrower'' calculation under Sec.  1026.37(h)(1)(iii) to specify that, 
in purchase transactions, when the sum of the loan amount and any 
amount for existing loans assumed or taken subject to that will later 
be disclosed under

[[Page 54343]]

Sec.  1026.38(j)(2)(iv) exceeds the sale price, the ``Funds for 
Borrower'' calculation in proposed Sec.  1026.37(h)(1)(v) will be used 
for the transaction. The Bureau is proposing conforming revisions to 
Sec.  1026.37(h)(1)(v) to reflect that, in transactions where cash is 
expected to be disbursed to the consumer or used at the consumer's 
discretion at consummation of the transaction, the ``Funds for 
Borrower'' calculation under Sec.  1026.37(h)(1)(v) would be used.
    The Bureau also is proposing to revise comment 37(h)(1)(v)-1 to 
conform with proposed revisions to Sec.  1026.37(h)(1)(v). The comment 
would no longer provide that the ``Funds for Borrower'' calculation 
under Sec.  1026.37(h)(1)(v) is only used in non-purchase transactions. 
Instead, the comment would provide that, when the down payment is 
determined in accordance with Sec.  1026.37(h)(1)(iii)(A)(1), the 
amount disclosed under Sec.  1026.37(h)(1)(v) as funds for the borrower 
is $0.
    Proposed comment 37(h)(1)(v)-2 would provide that the amounts 
disclosed under Sec.  1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B), as 
applicable, and (h)(1)(v) are determined by subtracting the sum of the 
loan amount disclosed under Sec.  1026.37(b)(1) and any amount of 
existing loans ``assumed or taken subject to'' that will be disclosed 
on the Closing Disclosure under Sec.  1026.38(j)(2)(iv) (less any 
closing costs financed disclosed under Sec.  1026.37(h)(1)(ii)) from 
the total amount of all existing debt being satisfied in the 
transaction. Proposed comment 37(h)(1)(v)-2 would further clarify that 
the phrase ``total amount of all existing debt being satisfied by the 
transaction'' refers to amounts that will be disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment on whether 
defining the phrase ``total amount of all existing debt being satisfied 
by the transaction'' to mean specifically amounts that will be 
disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v) is too 
prescriptive and how else the Bureau might provide greater clarity 
around amounts that must be included in this calculation as part of the 
``total amount of all existing debt being satisfied by the 
transaction.''
37(h)(1)(vi) Seller Credits
    Section 1026.37(h)(1)(vi) requires creditors to disclose the amount 
that the seller will pay for total loan costs and total other costs, 
labeled ``Seller Credits,'' under the heading ``Calculating Cash to 
Close.'' Section 1026.37(f) and (g) requires creditors to disclose loan 
costs and other transaction costs under the headings ``Loan Costs'' and 
``Other Costs,'' respectively. The Bureau proposes to amend comment 
37(h)(1)(vi)-2 to clarify that specific seller credits may be disclosed 
in the calculating cash to close table under Sec.  1026.37(h)(1)(vi) 
or, at the creditor's option, may be reflected within the amounts 
disclosed for those specific items in the loan costs and other costs 
tables, under Sec.  1026.37(f) and (g), respectively. The Bureau 
believes that neither approach significantly affects overall consumer 
comprehension or risk of other consumer harm, but the Bureau solicits 
comment on this view and on whether one of the two approaches should be 
mandatory rather than leaving the treatment of specific seller credits 
in the creditor's discretion and, if so, why.
37(h)(1)(vii) Adjustments and Other Credits
    Section 1026.37(h)(1)(vii) requires that the amount of all loan 
costs determined under Sec.  1026.37(f) and other costs determined 
under Sec.  1026.37(g) that are to be paid by persons other than the 
loan originator, creditor, consumer, or seller, together with any other 
amounts that are required to be paid by the consumer at consummation 
pursuant to a purchase and sale contract, be disclosed as a negative 
number. This assumes that the amount required to be paid by the 
consumer at consummation pursuant to a purchase and sale contract will 
be greater than the amount of credits, which, the Bureau understands, 
may not always be the case. Therefore, the Bureau is proposing to 
revise Sec.  1026.37(h)(1)(vii) to eliminate the requirement that the 
amount disclosed be a negative number and to make corresponding 
revisions to comment 37(h)(1)(vii)-6. As discussed below, the Bureau is 
also proposing to revise comment 37(h)(1)(vii)-1 to clarify that 
amounts expected to be provided to consumers in advance of consummation 
are not required to be disclosed, comment 37(h)(1)(vii)-5 to clarify 
that subordinate financing must be disclosed on the first-lien 
transaction Loan Estimate, and comment 37(h)(1)(vii)-6 to clarify what 
amounts are included in the adjustments and other credits calculation 
under Sec.  1026.37(h)(1)(vii).
    Comment 37(h)(1)(vii)-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)(1) 
are included in the amount disclosed under Sec.  1026.37(h)(1)(vii), 
but the comment does not specify whether amounts received by the 
consumer prior to consummation must be included in the calculation. The 
Bureau is proposing to revise comment 37(h)(1)(vii)-1 to distinguish 
between amounts paid by third parties at consummation and amounts given 
to consumers in advance of consummation. As proposed, the revision to 
comment 37(h)(1)(vii)-1 would state that amounts expected to be paid at 
consummation by third parties not involved in the transaction, such as 
gifts from family members, and not otherwise identified under Sec.  
1026.37(h)(1), are included in the amount disclosed under Sec.  
1026.37(h)(1)(vii), although amounts expected to be provided to 
consumers in advance of consummation by third parties not otherwise 
involved in the transaction, including gifts from family members, are 
not required to be disclosed under Sec.  1026.37(h)(1)(vii).
    Comment 37(h)(1)(vii)-5 clarifies that funds that are provided to 
the consumer from the proceeds of subordinate financing, local or State 
housing assistance grants, or other similar sources are included in the 
amount disclosed under Sec.  1026.37(h)(1)(vii), but the comment does 
not specify whether this requirement pertains to the first- or 
subordinate-lien transaction. The Bureau is proposing to revise comment 
37(h)(1)(vii)-5 to clarify that funds that are provided to the consumer 
from the proceeds of subordinate financing, local or State housing 
assistance grants, or other similar sources are included in the amount 
disclosed under Sec.  1026.37(h)(1)(vii) on the first-lien Loan 
Estimate. The funds that are provided to the consumer from the proceeds 
of subordinate financing and that will be applied to the first-lien 
transaction are not included in the adjustments and other credits 
calculation on the simultaneous loan for subordinate financing Loan 
Estimate. The Bureau seeks comment on whether there are circumstances 
in which local or State housing assistance grants are applied towards 
subordinate financing and not to the first lien.
    Comment 37(h)(1)(vii)-6 clarifies that adjustments that require 
additional funds from the consumer pursuant to the real estate purchase 
and sale contract, such as for additional personal property, that will 
be disclosed on the Closing Disclosure under Sec.  1026.38(j)(1)(iii) 
or adjustments that will be disclosed on the Closing Disclosure under 
Sec.  1026.38(j)(1)(v) may be included in the amount disclosed under 
Sec.  1026.37(h)(1)(vii) and would reduce the total amount disclosed. 
However, such amounts may have already been factored into calculations 
for prior components of the calculating cash to close table, thereby 
being counted twice. The Bureau is proposing to revise comment 
37(h)(1)(vii)-6 to

[[Page 54344]]

clarify that amounts that will be disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(1)(iii) or adjustments that will be disclosed on 
the Closing Disclosure under Sec.  1026.38(j)(1)(v) may be included in 
the adjustments and other credits amount disclosed on the Loan Estimate 
under Sec.  1026.37(h)(1)(vii), provided they are not also included in 
the calculation for proposed Sec.  1026.37(h)(1)(iii) or (v) as debt 
being satisfied in the real estate transaction. Otherwise, such amounts 
will be factored into the cash to close calculations twice. See the 
section-by-section analysis of Sec.  1026.37(h)(1)(iii) and (v) above 
for further details.
37(h)(2) Optional Alternative Calculating Cash To Close Table for 
Transactions Without a Seller and Simultaneous Loans for Subordinate 
Financing
    Section 1026.37(h)(2) only permits the use of the optional 
alternative calculating cash to close table in transactions without 
sellers. The Bureau has provided informal guidance that, in purchase 
transactions with a simultaneous loan for subordinate financing, the 
optional alternative calculating cash to close table may be used for 
the simultaneous subordinate financing Loan Estimate if the first-lien 
Closing Disclosure will record the entirety of the seller's transaction 
and the seller did not contribute to the subordinate financing. The 
Bureau is proposing to amend Sec.  1026.37(h)(2) and comment 37(h)(2)-1 
to permit creditors to use the optional alternative calculating cash to 
close table for the disclosure of simultaneous loans for subordinate 
financing in purchase transactions if the first-lien Closing Disclosure 
will record the entirety of the seller's transaction. The Bureau 
specifically seeks comment on whether allowing a creditor to use the 
optional alternative cash to close table for disclosure of simultaneous 
loans for subordinate financing in purchase transactions only if the 
first-lien Closing Disclosure will record the entirety of the seller's 
transaction is an appropriate limitation.
37(h)(2)(iii) Payoffs and Payments
    Section 1026.37(h)(2)(iii) requires the disclosure of the total of 
all payments to third parties not otherwise disclosed under Sec.  
1026.37(f) and (g) as a negative number. The requirement to disclose a 
negative number, however, does not account for limited circumstances in 
which funds provided by third parties and the proceeds of subordinate 
financing exceed the total amount of payoffs and payments to third 
parties. Comment 37(h)(2)(iii)-1 provides examples of payoffs and 
payments, including payoff of existing liens secured by the property 
identified under Sec.  1026.37(a)(6). As discussed in the section-by-
section analysis of Sec.  1026.37(g)(4), the Bureau would require the 
disclosure, under revised Sec.  1026.37(g)(4), of construction costs in 
connection with the transaction that the consumer will be obligated to 
pay, payoff of existing liens secured by the property identified in 
Sec.  1026.37(a)(6), and payoff of unsecured debt, unless those amounts 
are disclosed under Sec.  1026.37(h)(2)(iii) on the optional 
alternative calculating cash to close table. This provision is intended 
to give creditors the flexibility to disclose the payoff of existing 
liens secured by the property identified in Sec.  1026.37(a)(6) on the 
payoffs and payments table or to standardize the disclosure of this and 
other amounts across the calculating cash to close table for 
transactions with and without sellers by disclosing such amounts under 
revised Sec.  1026.37(g)(4). The Bureau is proposing to revise Sec.  
1026.37(h)(2)(iii) to permit disclosure of the total of all payments to 
third parties not otherwise disclosed under Sec.  1026.37(f) or (g) as 
a negative or positive number, to revise comment 37(h)(2)(iii)-1 to 
make conforming amendments, and to add comment 37(h)(2)(iii)-2 to 
provide clarity on the disclosure of simultaneous loans for subordinate 
financing.
    The Bureau is proposing to revise Sec.  1026.37(h)(2)(iii) to allow 
for the disclosure of the total of all payments to third parties not 
otherwise disclosed under Sec.  1026.37(f) or (g) as a positive amount 
and to make conforming revisions to comment 37(h)(2)(iii)-1, consistent 
with the proposed revisions discussed in the section-by-section 
analysis of Sec.  1026.37(g)(4). The Bureau also is proposing to add 
comment 37(h)(2)(iii)-2 to provide additional clarity on the disclosure 
of proceeds from a simultaneous loan for subordinate financing on the 
Loan Estimate for a first-lien transaction disclosed under Sec.  
1026.37(h)(2), such as a refinance. Proposed comment 37(h)(2)(iii)-2 
would explain that, on the first-lien Loan Estimate, the proceeds of 
the simultaneous loan for subordinate financing are included, as a 
positive number, in the total amount disclosed under Sec.  
1026.37(h)(2)(iii). On the first-lien Loan Estimate, the total amount 
disclosed under revised Sec.  1026.37(h)(2)(iii) will be a negative 
number unless the proceeds from subordinate financing and any amounts 
entered as credits under comment 37(h)(2)(iii)-1 exceed the total 
amount of other payoffs and payments that are included in the 
calculation for the amount disclosed under Sec.  1026.37(h)(2)(iii). 
The funds from the subordinate financing that will be applied to the 
first-lien transaction are not included in the estimated total payoffs 
and payments amount on the simultaneous loan for subordinate financing 
Loan Estimate.
37(k) Contact Information
    The Bureau is proposing to make a technical, non-substantive, 
amendment to comment 37(k)-3 to correct a typographical error. The 
Bureau is proposing to replace the current reference to Sec.  
1026.38(k)(2) in comment 37(k)-3 with a reference to Sec.  
1026.37(k)(2), which describes the disclosure of license numbers or 
other unique identifiers.
37(l) Comparisons
37(l)(1) In Five Years
37(l)(1)(i)
    The Bureau is proposing to make a technical, non-substantive 
amendment to comment 37(l)(1)(i)-1 to correct a typographical error. 
The Bureau is proposing to replace the word ``fractional'' with 
``functional'' in comment 37(l)(1)(i)-1 to conform to the language of 
comment 37(c)(1)(i)(C)-1.
37(l)(3) Total Interest Percentage
    Section 1026.37(l)(3) requires creditors to disclose the total 
interest percentage (TIP) and 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. The Bureau explained in the TILA-RESPA Final Rule that 
prepaid interest is included in the TIP calculation.\80\ The Bureau is 
proposing to amend comment 37(l)(3)-1 to clarify further that prepaid 
interest is included when calculating the TIP.
---------------------------------------------------------------------------

    \80\ 78 FR 79730, 79982 (Dec. 31, 2013).
---------------------------------------------------------------------------

37(o) Form of Disclosures
37(o)(4) Rounding
    The Bureau understands that there is continued uncertainty about 
rounding requirements on the Loan Estimate. Section 1026.37(o)(4)(i)(A) 
requires rounded numbers for the information disclosed pursuant to 
Sec.  1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), 
(c)(4)(ii), (f), (g), (h), (i), and (l), except that the per diem 
amount required to be disclosed by Sec.  1026.37(g)(2)(iii) and the 
monthly amounts required to be disclosed by Sec.  1026.37(g)(3)(i) 
through

[[Page 54345]]

(iii) and (g)(3)(v) shall not be rounded. Section 1026.37(o)(4)(ii) 
requires the percentage amounts disclosed pursuant to Sec.  
1026.37(b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and (l)(3) to be 
disclosed up to two or three decimal places and the percentage amount 
disclosed pursuant to Sec.  1026.37(l)(2) to be disclosed up to three 
decimal places. The Bureau is proposing revisions to Sec.  
1026.37(o)(4)(i)(A) and (ii) and to comments 37(o)(4)(i)(A)-1 and 
37(o)(4)(ii)-1 to simplify the rounding and disclosure requirements of 
Sec.  1026.37(o)(4).
    The proposed revisions to Sec.  1026.37(o)(4)(i)(A) would clarify 
that the per diem amount required to be disclosed by Sec.  
1026.37(g)(2)(iii) and the monthly amounts required to be disclosed by 
Sec.  1026.37(g)(3)(i) through (iii) and (g)(3)(v) are rounded to the 
nearest cent and disclosed to two decimal places. The proposed revision 
to comment 37(o)(4)(i)(A)-1 adds clarifying language and adds an 
illustrative example of the disclosure of per diem interest.
    The Bureau is proposing revisions to Sec.  1026.37(o)(4)(ii) to 
simplify the rounding requirements for amounts disclosed under Sec.  
1026.37(o)(4)(ii). Proposed Sec.  1026.37(o)(4)(ii) states that the 
percentage amounts required to be disclosed under paragraphs (b)(2) and 
(6), (f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3) of this section 
must be disclosed by rounding the exact amounts to three decimal places 
and then dropping any trailing zeros to the right of the decimal point. 
Proposed comment 37(o)(4)(ii)-1 illustrates the requirements of Sec.  
1026.37(o)(4)(ii) with examples.

Section 1026.38 Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure)

    Section 1026.38 sets forth the content of the Closing Disclosure 
required by Sec.  1026.19(f) to be provided to the consumer. Comments 
applicable generally to Sec.  1026.38 are included as commentary to 
Sec.  1026.38. The Bureau is proposing to add comment 38-4, which would 
provide options for the disclosure of reductions in principal balance, 
referred to as a principal curtailments, in various provisions of Sec.  
1026.38.
    Creditors may use lender credits disclosed under Sec.  
1026.38(h)(3) to provide a credit for an amount that exceeds the 
limitations on increases in closing costs under Sec.  1026.19(e)(3). 
However, contractual or other legal obligations of the creditor, such 
as the requirements of a government loan program or the purchase 
criteria of an investor, may prevent the creditor from refunding cash 
to the consumer as lender credits. Therefore, the Bureau is proposing 
to add comment 38-4, which would provide options for the disclosure of 
principal curtailments under Sec.  1026.38(g)(4), (j)(4)(i), 
(t)(5)(vii)(B), and (t)(5)(ix) to provide refunds related to the good 
faith analysis under Sec.  1026.19(f)(2)(v). The disclosure would 
contain a statement conveying that the disclosed amount includes a 
refund for an amount that exceeds the limitations on increases in 
closing costs under Sec.  1026.19(e)(3) and the amount of such refund 
under Sec.  1026.19(f)(2)(v). The Bureau seeks comment on whether there 
is sufficient space in the corresponding rows on the Closing Disclosure 
for such a statement and whether the Bureau should prescribe a specific 
statement or permit creditors discretion in developing such statement.
38(a) General Information
38(a)(3) Closing Information
38(a)(3)(iii) Disbursement Date
    Section 1026.38(a)(3)(iii) requires disclosure of the disbursement 
date. In a purchase transaction under Sec.  1026.37(a)(9)(i), the 
disbursement date is the date the amounts disclosed under Sec.  
1026.38(j)(3)(iii) (cash to close from or to borrower) and (k)(3)(iii) 
(cash from or to seller) are expected to be paid to the consumer and 
seller. In a non-purchase transaction, the disbursement date is the 
date the amounts disclosed under Sec.  1026.38(j)(2)(iii) (loan amount) 
or (t)(5)(vii)(B) (payoffs and payments) are expected to be paid to the 
consumer or a third party. As discussed below, the Bureau is proposing 
to revise Sec.  1026.38(a)(3)(iii) to provide that the disbursement 
date in non-purchase transactions is the date some or all of the loan 
amount is expected to be paid to the consumer or a third party, and to 
add comment 38(a)(3)(iii)-1 to clarify to disbursement date for 
simultaneous loans for subordinate financing.
    Currently, if a non-purchase transaction is disclosed using the 
alternative disclosures, the disbursement date will be the date amounts 
disclosed under Sec.  1026.38(t)(5)(vii)(B) are expected to be paid to 
the consumer or a third party. If a non-purchase transaction is not 
disclosed using the alternative disclosures, the disbursement date will 
be the date the loan amount disclosed under Sec.  1026.38(j)(2)(iii) is 
expected to be paid to the consumer or a third party. Regardless of 
whether a non-purchase transaction is disclosed using the alternative 
disclosures, the Closing Disclosure for the non-purchase transaction 
will include the loan amount under Sec.  1026.38(b). Therefore, to 
streamline the provision, the Bureau is proposing to revise Sec.  
1026.38(a)(3)(iii) regarding the disbursement date for non-purchase 
transactions by replacing the cross-references to Sec.  
1026.38(j)(2)(iii) and (t)(5)(vii)(B) with a cross-reference to Sec.  
1026.38(b). In addition, because the entire loan amount may not be 
disbursed at one time, such as in non-purchase construction 
transactions, the Bureau proposes to clarify that the disbursement date 
is the date some or all of the loan amount is expected to be paid to 
the consumer or a third party.
    The Bureau is also proposing to add comment 38(a)(3)(iii)-1 to 
clarify that, although a simultaneous loan for subordinate financing is 
disclosed as a purchase transaction under Sec.  1026.37(a)(9)(i), the 
disbursement date for this type of transaction will be the same as the 
disbursement date for non-purchase transactions. The comment would 
clarify that the disbursement date on the Closing Disclosure for a 
simultaneous loan for subordinate financing is the date some or all of 
the loan amount disclosed under Sec.  1026.38(b) is expected to be paid 
to the consumer or a third party. The Bureau seeks comment on all 
aspects of this proposal, including whether there are any unintended 
consequences from structuring the disclosure of the disbursement date 
in this manner, or if there is a better way to ensure clarity and 
consistency.
38(a)(3)(vii) Sale Price
    In a transaction where there is no seller, Sec.  
1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised 
value of the property. Comment 38(a)(3)(vii)-1 explains that, to comply 
with this requirement, the creditor discloses the value determined by 
the appraisal or valuation used to determine loan approval or, if none 
has been obtained, the estimated value of the property. In the latter 
case, 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, it may 
disclose that estimate. The Bureau is proposing to revise comment 
38(a)(3)(vii)-1 to clarify that, if the creditor has performed its own 
estimate of the property value for purposes of approving the credit 
transaction by the time the disclosure is provided to the consumer, the 
creditor must disclose the estimate it used for purposes of approving 
the credit transaction.

[[Page 54346]]

38(a)(4) Transaction Information
    Section 1026.38(a)(4) requires the disclosure of specific 
information about the transaction, including the name and address of 
the seller. Comment 38(a)(4)-2 clarifies that, in transactions where 
there is no seller, such as in a refinancing or home equity loan, the 
disclosure of the seller's name and address required by Sec.  
1026.38(a)(4)(ii) may be left blank. The Bureau is proposing to revise 
comment 38(a)(4)-2 to include simultaneous loans for subordinate 
financing in purchase transactions if the first-lien Closing Disclosure 
will record the entirety of the seller's transaction in transactions 
for which a creditor may leave the Sec.  1026.38(a)(4)(ii) disclosure 
blank and omit the seller's name. The Bureau specifically seeks comment 
on whether the borrower or seller would benefit if the Closing 
Disclosure for the simultaneous loan for subordinate financing in 
purchase transactions contains the seller's name and address even if 
the first-lien Closing Disclosure will record the entirety of the 
seller's transaction, including the seller's name and address.
    Section 1026.38(a)(4)(i) also requires the consumer's name and 
mailing address, labeled ``Borrower.'' Section 1026.2(a)(11) defines 
``consumer'' as a natural person to whom consumer credit is offered or 
extended. The definition further provides that, in rescindable 
transactions, the term also includes a natural person in whose 
principal dwelling a security interest is or will be retained or 
acquired, if that person's ownership interest in the dwelling is or 
will be subject to the security interest. The Bureau proposes to add 
new comment 38(a)(4)-4 to clarify that, in rescindable transactions, 
Sec.  1026.38(a)(4)(i) requires disclosure of the name and mailing 
address of each natural person in whose principal dwelling a security 
interest is or will be retained or acquired, if that person's ownership 
interest in the dwelling is or will be subject to the security interest 
and regardless of whether that person is an obligor.
38(d) Costs at Closing
38(d)(2) Alternative Table for Transactions Without a Seller and 
Simultaneous Loans for Subordinate Financing
    Section 1026.38(d)(2) only permits creditors to use the optional 
alternative cash to close table on the Closing Disclosure in 
transactions without seller where the creditor disclosed the optional 
alternative calculating cash to close table under Sec.  1026.37(d)(2) 
on the Loan Estimate. The Bureau has provided informal guidance that, 
in purchase transactions with a simultaneous loan for subordinate 
financing, the optional alternative table may be used for the 
simultaneous subordinate financing Closing Disclosure if the first-lien 
Closing Disclosure records the entirety of the seller's transaction and 
the seller did not contribute to the subordinate financing. The Bureau 
is proposing to amend Sec.  1026.38(d)(2) and comment 38(d)(2)-1 to 
permit explicitly the use of the optional alternative cash to close 
table for simultaneous loans for subordinate financing in purchase 
transactions if the first-lien Closing Disclosure records the entirety 
of the seller's transaction. The Bureau specifically seeks comment on 
whether allowing a creditor to use the optional, alternative cash to 
close table for disclosure of simultaneous loans for subordinate 
financing in purchase transactions only if the first-lien Closing 
Disclosure records the entirety of the seller's transaction is an 
appropriate limitation.
38(e) Alternative Calculating Cash To Close Table for Transactions 
Without a Seller and Simultaneous Loans for Subordinate Financing
    Section 1026.38(e) provides for the disclosure of an alternative 
calculation of an estimate of cash needed from the consumer at 
consummation for transactions without a seller, using the heading 
``Calculating Cash to Close.'' As discussed in the section-by-section 
analysis of Sec.  1026.37(h) above, the Bureau seeks comment on the 
calculating cash to close table generally. The Bureau is proposing to 
revise Sec.  1026.38(e) and comment 38(e)-1 to clarify when a 
simultaneous loan for subordinate financing in a purchase transaction 
may use the optional alternative calculating cash to close table and to 
add comment 38(e)-6 to specify which amounts are disclosed under the 
subheading ``Loan Estimate'' on the Closing Disclosure's calculating 
cash to close table.
    Specifically, Sec.  1026.38(e) requires a creditor to disclose the 
optional alternative calculating cash to close table when the creditor 
disclosed the optional alternative table on the Loan Estimate under 
Sec.  1026.37(h)(2). The Bureau has provided informal guidance that, in 
purchase transactions with a simultaneous loan for subordinate 
financing, the optional alternative calculating cash to close table may 
be used for the simultaneous subordinate financing Closing Disclosure 
if the first-lien Closing Disclosure records the entirety of the 
seller's transaction and the seller did not contribute to the 
subordinate financing. The Bureau is proposing to amend Sec.  
1026.38(e) and comment 38(e)-1 to permit explicitly the use of the 
optional alternative calculating cash to close table for simultaneous 
loans for subordinate financing in purchase transactions, if the first-
lien Closing Disclosure records the entirety of the seller's 
transaction. The use of the alternative calculating cash to close table 
is required if the alternative calculating cash to close table was 
provided on the Loan Estimate.
    The Bureau proposes comment 38(e)-6 to clarify that the amounts 
disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(e)(1)(i), (2)(i), (4)(i) and (5)(i) are the amounts disclosed 
on the most recent Loan Estimate provided to the consumer. This is true 
whether the amounts on the most recent Loan Estimate provided to the 
consumer reflected updated amounts provided for informational purposes 
only or the amounts used for purposes of determining good faith under 
Sec.  1026.19(e)(3). The Bureau believes that the consumer should 
always have the benefit of receiving the most accurate and current 
information available, even if the disclosures are outside the 
tolerances or not relevant for the tolerances. The Bureau further 
believes that, for purposes of comparison, the amounts disclosed under 
the subheading ``Loan Estimate'' on the Closing Disclosure's 
alternative calculating cash to close table should reflect the most 
recent information given the consumer, again, regardless of whether 
that information was provided for purposes of resetting the tolerances 
or for information purposes only.
    The Bureau notes that the amounts disclosed on the Closing 
Disclosure's alternative calculating cash to close table under the 
subheadings ``Loan Estimate'' and ``Final'' are not, in and of 
themselves, subject to the Sec.  1026.19(e)(3) good faith standard. 
These amounts are disclosed based on the best information reasonably 
available to the creditor at the time the disclosure is provided. Any 
increases or changes to the amounts, based on the best information 
reasonably available to the creditor, do not result in any separate 
violation of any standard under Regulation Z. For purposes of 
determining good faith under Sec.  1026.19(e)(3), the amounts used are 
the amounts disclosed under Sec.  1026.37. The amounts used for 
determining good faith may be disclosed over multiple Loan Estimates, 
or even corrected Closing Disclosures, depending upon the facts and 
circumstances of the

[[Page 54347]]

transaction. Accordingly, good faith cannot be determined based on a 
comparison of the amounts disclosed under the subheadings ``Loan 
Estimate'' and ``Final'' on the Closing Disclosure's alternative 
calculating cash to close table.
    The Bureau seeks comment on this approach. In particular, the 
Bureau seeks comment on whether the disclosure of the amounts on the 
most recent Loan Estimate on the alternative calculating cash to close 
table provides a helpful comparison to consumers with the final amounts 
disclosed on the Closing Disclosure. The Bureau seeks comment on other 
alternatives to provide consumers with a comparison of estimated and 
final amounts.
38(e)(2) Total Closing Costs
38(e)(2)(ii)
    For transactions using the alternative calculating cash to close 
table, Sec.  1026.38(e)(2)(ii) requires the creditor to disclose the 
amount of total closing costs disclosed under Sec.  1026.38(h)(1). The 
``Final'' total closing costs disclosed under Sec.  1026.38(e)(2)(ii) 
show an amount owed by the consumer; therefore, the Bureau specified 
that the total closing costs be disclosed as a negative number. 
However, lender credits under Sec.  1026.38(h)(3) may sometimes exceed 
the subtotal of closing costs under Sec.  1026.38(h)(2), resulting in a 
net credit to the consumer. In that case, the total closing costs 
disclosed under Sec.  1026.38(e)(2)(ii) should be disclosed as a 
positive number, to reflect the expected credit to the consumer. 
Therefore, the Bureau is proposing to revise Sec.  1026.38(e)(2)(ii) to 
explain that the amount disclosed under that section is disclosed as a 
negative number if the amount disclosed under Sec.  1026.38(h)(1) is a 
positive number and is disclosed as a positive number if the amount 
disclosed under Sec.  1026.38(h)(1) is a negative number.
38(e)(2)(iii)
    Section 1026.38(e)(2)(iii)(A)(3) provides that, if the amount of 
closing costs actually charged to the consumer exceeds the limitations 
on increases in closing costs under Sec.  1026.19(e)(3), the creditor 
must provide a statement that such increase exceeds the legal limits by 
the dollar amount of the excess and, if any refund is provided under 
Sec.  1026.19(f)(2)(v), a statement directing the consumer to the 
disclosure required under Sec.  1026.38(h)(3). As discussed above in 
the section-by-section analysis of proposed comment 38-4, the Bureau 
would clarify that, when contractual or other legal obligations of the 
creditor, such as the requirements of a government loan program or the 
purchase criteria of an investor, prevent the creditor from refunding 
cash to the borrower as lender credits, a reduction in principal 
balance (principal curtailment) may be used to provide a refund under 
Sec.  1026.19(f)(2)(v). Such principal curtailment would be disclosed 
as a negative number under Sec.  1026.38(g)(4) or (t)(5)(vii)(B) for 
transactions using the optional alternative calculating cash to close 
table under Sec.  1026.38(e). Accordingly, the Bureau is proposing to 
revise Sec.  1026.38(e)(2)(iii)(A)(3) and comment 38(e)(2)(iii)(A)-3 to 
allow a creditor to provide a statement directing the consumer to the 
disclosure of the principal curtailment under Sec.  1026.38(g)(4) or 
(t)(5)(vii)(B), rather than directing the consumer to the disclosure of 
a refund under Sec.  1026.38(h)(3).
38(e)(3) Closing Costs Paid Before Closing
38(e)(3)(iii)
38(e)(3)(iii)(B)
    Comment 38(e)(3)(iii)(B)-1 discusses the circumstances under which 
the creditor gives a statement that the amount under the subheading 
``Final'' under Sec.  1026.38(e)(3)(ii) is equal to the amount 
disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(e)(3)(i) and, in so doing, refers to an amount of ``$0'' under 
the subheading ``Final.'' The Bureau proposes two technical corrections 
in comment 38(e)(3)(iii)(B)-1. First, the Bureau is proposing to change 
``$0'' to ``$0.00'' to reflect the required disclosure of the amount 
disclosed under Sec.  1026.38(e)(3)(ii) to two decimal places under 
Sec.  1026.38(t)(4). Second, the reference to ``settlement agent'' 
would be removed from comment 38(e)(3)(iii)(B)-1. As the introductory 
paragraph to Sec.  1026.38(e) makes clear, the responsibility to 
provide the Sec.  1026.38(e) disclosures lies with the creditor, not 
the settlement agent.
38(e)(4) Payoffs and Payments
38(e)(4)(ii)
    Section 1026.38(e)(4)(ii) provides that the total amount of payoffs 
and payments made to third parties disclosed under Sec.  
1026.38(t)(5)(vii)(B), to the extent known, is disclosed as a negative 
number. The requirement to disclose a negative number under Sec.  
1026.38(e)(4)(ii) supposes that the amount disclosed under Sec.  
1026.38(t)(5)(vii)(B) will always be a positive number. The Bureau is 
proposing to revise Sec.  1026.38(e)(4)(ii) to allow for the disclosure 
of a negative or positive amount, based on the facts and circumstances 
of the transaction.
    As discussed in the section-by-section analysis of Sec.  
1026.38(t)(5)(vii) below, proposed comment 38(t)(5)(vii)(B)-1 would 
clarify that the amount of payoffs and payments disclosed under Sec.  
1026.38(t)(5)(vii)(B) may include amounts that offset payoffs and 
payments. As a result, if the aggregate offsets exceed the payoffs and 
payments amounts, then the amount disclosed under Sec.  
1026.38(t)(5)(vii)(B) will be negative. Therefore, the Bureau is 
proposing to revise Sec.  1026.38(e)(4)(ii) such that the amount 
disclosed under revised Sec.  1026.38(e)(4)(ii) is disclosed as a 
negative number if the amount disclosed under Sec.  
1026.38(t)(5)(vii)(B) is a positive number, signifying amounts owed by 
the consumer, and is disclosed as a positive number if the amount 
disclosed under Sec.  1026.38(t)(5)(vii)(B) is a negative number, 
signifying amounts due to the consumer.
38(f) Closing Cost Details; Loan Costs
    The Bureau is proposing to add comment 38(f)-2. Consistent with 
proposed comments 37(f)-3 and 37(f)(6)-3 above, proposed comment 38(f)-
2 would provide that construction loan inspection and handling fees are 
loan costs associated with the transaction for purposes of the Closing 
Disclosure under Sec.  1026.38(f). The proposed new comment would also 
add a cross-reference to proposed comments 37(f)-3, 37(f)(6)-3, and 
app. D-7.viii, making those comments' discussions of inspection and 
handling fees for the staged disbursement of construction loan proceeds 
explicitly applicable to the disclosures required by Sec.  1026.38(f).
38(g) Closing Cost Details; Other Costs
38(g)(1) Taxes and Other Government Fees
    Section 1026.38(g)(1) requires creditors to disclose an itemization 
of each amount that is expected to be paid to State and local 
governments for taxes and government fees, including recording fees. 
Closing Disclosure form H-25 of appendix H illustrates such disclosures 
on a line labeled ``Recording Fees,'' with the additional labels 
``Deed'' and ``Mortgage,'' respectively.
    The Bureau understands that there is uncertainty as to how 
recording fees should be disclosed on the Closing Disclosure. 
Consistent with form H-25 of appendix H, the Bureau proposes to amend 
Sec.  1026.38(g)(1) to clarify that the total amount of fees for 
recording deeds and the total amount of fees for recording security 
instruments must

[[Page 54348]]

each be disclosed on the first line under the subheading ``Taxes and 
Other Government Fees'' before the columns described in Sec.  
1026.38(g). The Bureau also proposes to amend Sec.  1026.38(g)(1) to 
clarify that the total amounts paid for recording fees (including but 
not limited to fees for recording deeds and security instruments) must 
be disclosed in the applicable column described in Sec.  1026.38(g). 
Finally, the Bureau proposes to add new comment 38(g)(1)-3 to clarify 
the labels for recording fees on form H-25 of appendix H.
38(g)(2) Prepaids
    Comment 38(g)(2)-3 provides that $0 must be disclosed 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. The Bureau is proposing to revise comment 
38(g)(2)-3 to require $0.00 to be disclosed because the amount 
disclosed under Sec.  1026.38(g)(2) is disclosed to two decimal places 
under Sec.  1026.38(t)(4).
38(g)(4) Other
    Comment 38(g)(4)-1 clarifies that the charges for services 
disclosed under Sec.  1026.38(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 transaction but not required by the creditor or 
disclosed elsewhere in Sec.  1026.38. Currently, amounts for 
construction costs, payoff of existing liens, or payoff of unsecured 
debt may be, but are not required to be, disclosed under Sec.  
1026.38(g)(4). As discussed in more detail below, and consistent with 
the proposed revisions discussed in the section-by-section analysis of 
Sec.  1026.37(g)(4), the Bureau is proposing to revise comment 
38(g)(4)-1 to require that construction costs in connection with the 
transaction that the consumer will be obligated to pay, payoff of 
existing liens secured by the property identified under Sec.  
1026.38(a)(3)(vi), and payoff of unsecured debt be disclosed under 
Sec.  1026.38(g)(4), unless those items are disclosed under Sec.  
1026.38(t)(5)(vii)(B) on the optional alternative calculating cash to 
close table.
    The Bureau expects consumer understanding will be enhanced by the 
clear and conspicuous disclosure of these amounts in corresponding 
tables on the Loan Estimate and Closing Disclosure. The proposed 
revisions to comment 37(g)(4)-4 discussed in the section-by-section 
analysis of Sec.  1026.37(g)(4), together with the proposed revisions 
to comment 38(g)(4)-1, will also create greater consistency between the 
Loan Estimate and Closing Disclosure. The Bureau believes this is an 
appropriate and consistent place to list the three items, because they 
are all other closing costs of the mortgage transaction.
    The Bureau considered requiring the disclosure of construction 
costs, payoff of existing liens, and payoff of unsecured debt under the 
summaries of transactions table on the Closing Disclosure under Sec.  
1026.38(j)(1)(v) instead of as ``closing costs'' under Sec. Sec.  
1026.37(g)(4) and 1026.38(g)(4). Disclosing these costs on the 
summaries of transactions table would not provide for comparability 
between the Loan Estimate and Closing Disclosure, however, because the 
Loan Estimate does not have a summaries of transactions table.
    The Bureau also considered requiring the disclosure of construction 
costs only on an addendum, instead of under Sec.  1026.37(g)(4) on the 
Loan Estimate and Sec.  1026.38(g)(4) on the Closing Disclosure. (The 
Bureau did not consider the disclosure of the payoff of existing liens 
or unsecured debt on an addendum because those amounts are necessarily 
factored into the cash to close calculation and must be disclosed 
either explicitly or implicitly in the calculating cash to close 
table.) The construction costs would then be factored into the 
calculating cash to close table calculations in conjunction with the 
sale price to yield an accurate cash to close amount. However, this 
approach could add complexity to the calculations required on the 
Closing Disclosure because amounts disclosed under Sec.  
1026.38(j)(1)(ii) and (k)(1)(ii) would no longer be the same.
    For the foregoing reasons, the Bureau is proposing to revise 
comment 38(g)(4)-1 to reflect the disclosure of construction costs in 
connection with the transaction that the consumer will be obligated to 
pay, payoff of existing liens secured by the property identified in 
Sec.  1026.38(a)(3)(vi), and payoff of unsecured debt, even if payable 
directly or indirectly to the creditor, under Sec.  1026.38(g)(4) 
unless those items are disclosed under Sec.  1026.38(t)(5)(vii)(B) on 
the optional alternative calculating cash to close table. See the 
section-by-section analysis of Sec.  1026.38(t)(5)(vii)(B) below for a 
discussion of the proposed change to the requirement to include payoff 
of existing liens secured by the property identified in Sec.  
1026.38(a)(3)(vi) in the payoffs and payments calculation on the 
optional alternative calculating cash to close table. The Bureau is 
also proposing to revise comment 38(g)(4)-1 to cross-reference proposed 
comment app. D-7.vii for an explanation of the disclosure of 
construction costs for a construction or construction-permanent loan 
and proposed comment app. D-7.viii for an explanation of the disclosure 
of construction loan inspection and handling fees.
    The Bureau also is proposing to revise comment 38(g)(4)-1 to 
clarify that inspection fees disclosed under Sec.  1026.38(g)(4) are 
for pre-consummation inspection fees, not post-consummation inspection 
fees, such as those often associated with construction loans. As 
discussed in the section-by-section analysis of Sec.  1026.38(f), post-
consummation inspection fees would be disclosed in an addendum attached 
as an additional page after the last page of the Closing Disclosure. 
Revised comment 38(g)(4)-1 would also clarify that, if amounts for 
construction costs are contracted to be paid at closing, even though 
they will be disbursed after closing, they are disclosed in the paid 
``At Closing'' column.
38(i) Calculating Cash To Close
    Section 1026.38(i) requires the disclosure of the calculation of an 
estimate of cash needed from the consumer at consummation of the 
transaction, using the heading ``Calculating Cash to Close.'' The 
Bureau is proposing amendments to Sec.  1026.38(i) and its commentary 
regarding the calculating cash to close table on the Closing Disclosure 
pursuant to its authority under TILA section 105(a) and Dodd-Frank Act 
sections 1032(a). The Bureau believes that, with the proposed 
amendments, this disclosure will effectuate the purposes of TILA by 
facilitating the informed use of credit. 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). As 
discussed in the section-by-section analysis of Sec.  1026.37(h) above, 
the Bureau seeks comment on the calculating cash to close table 
generally.
    The Bureau is proposing to revise comment 38(i)-2 to streamline the 
comment and clarify how amounts should be disclosed under the 
subheading ``Loan Estimate'' on the Closing Disclosure's calculating 
cash to close table. The Bureau is proposing to

[[Page 54349]]

revise comment 38(i)-3 for consistency with proposed changes discussed 
in the section-by-section analysis of Sec.  1026.38(i)(7) below.
    The Bureau is proposing to add comment 38(i)-5 to clarify that the 
amounts disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and 
(9)(i) are the amounts disclosed on the most recent Loan Estimate 
provided to the consumer. This is true whether the amounts on the most 
recent Loan Estimate provided to the consumer reflect updated amounts 
provided for informational purposes only or the amounts to be used for 
purposes of determining good faith under Sec.  1026.19(e)(3). The 
Bureau believes that the consumer should always have the benefit of 
receiving the most accurate and current information available, even if 
the disclosures are outside the tolerances or not relevant for the 
tolerances. The Bureau further believes that, for purposes of 
comparison, the amounts disclosed under the subheading ``Loan 
Estimate'' on the Closing Disclosure's calculating cash to close table 
should reflect the most recent information given the consumer, again, 
regardless of whether that information was provided for purposes of 
resetting the tolerances or for information purposes only.
    The Bureau notes that the disclosures on the Closing Disclosure's 
calculating cash to close table under the subheadings ``Loan Estimate'' 
and ``Final'' are not, in and of themselves, subject to the Sec.  
1026.19(e)(3) good faith standard. These amounts are disclosed based on 
the best information reasonably available to the creditor at the time 
the disclosure is provided and any increases or changes to the amounts 
based on the best information reasonably available to the creditor do 
not result in any separate violation of any standard under Regulation 
Z. For purposes of determining good faith under Sec.  1026.19(e)(3), 
the amounts used are the amounts disclosed under Sec.  1026.37, and may 
be disclosed over multiple Loan Estimates, or even corrected Closing 
Disclosures, depending upon the facts and circumstances of the 
transaction. Accordingly, good faith cannot be determined based on a 
comparison of the amounts disclosed under the subheadings ``Loan 
Estimate'' and ``Final'' on the Closing Disclosure's calculating cash 
to close table.
    The Bureau seeks comment on this approach. In particular, the 
Bureau seeks comment on whether the disclosure of the amounts on the 
most recent Loan Estimate on the calculating cash to close table 
provides a helpful comparison to consumers with the final amounts 
disclosed on the Closing Disclosure. The Bureau seeks comment on other 
alternatives to provide consumers with a comparison of estimated and 
final amounts.
38(i)(1) Total Closing Costs
38(i)(1)(iii)
    Section 1026.38(i)(1)(iii)(A) specifies that, if the amount of 
closing costs disclosed under the subheading ``Final'' in the row 
labeled ``Total Closing Costs (J)'' is different than the estimated 
amount of such costs as shown on the Loan Estimate (unless the 
difference is due to rounding), the creditor 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 include a reference 
to such disclosures, as applicable. Section 1026.38(i)(1)(iii)(A)(3) 
also requires a statement that an increase in closing costs exceeds 
legal limits by the dollar amount of the excess and a statement 
directing the consumer to the disclosure of lender credits under Sec.  
1026.38(h)(3) if a credit is provided under Sec.  1026.19(f)(2)(v). 
Comment 38(i)(1)(iii)(A)-3 provides guidance regarding these 
statements. The Bureau is proposing to revise Sec.  
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to provide 
additional options for disclosing refunds to consumers.
    As discussed above in the section-by-section analysis of proposed 
comment 38-4, the Bureau is proposing to clarify that, when contractual 
or other legal obligations of the creditor, such as the requirements of 
a government loan program or the purchase criteria of an investor, 
prevent the creditor from refunding cash to the consumer as lender 
credits, a reduction in principal balance (principal curtailment) may 
be disclosed, as a negative number, under Sec.  1026.38(g)(4), 
(j)(4)(i), or (t)(5)(ix) to provide a refund under Sec.  
1026.19(f)(2)(v). The Bureau is proposing to revise both Sec.  
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to allow a 
creditor to provide a statement directing the consumer to the 
disclosure of a principal reduction (principal curtailment) under Sec.  
1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) if a principal curtailment is 
used to provide such refund. As a result of these proposed 
clarifications, the Bureau also is proposing to clarify that the 
examples provided by form H-25(F) of appendix H only relate to 
statements provided under Sec.  1026.38(h)(3).
38(i)(2) Closing Costs Paid Before Closing
38(i)(2)(iii)
38(i)(2)(iii)(B)
    Comment 38(i)(2)(iii)(B)-1 discusses the circumstances under which 
the creditor gives a statement that the amount disclosed under the 
subheading ``Final'' under Sec.  1026.38(i)(2)(ii) is equal to the 
amount disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(i)(2)(i) and, in so doing, refers to an amount of ``$0'' under 
the subheading ``Final.'' The Bureau is proposing to change $0 to $0.00 
because the amount disclosed under Sec.  1026.38(i)(2)(ii) is disclosed 
to two decimal places under Sec.  1026.38(t)(4) .
38(i)(3) Closing Costs Financed
    Section 1026.38(i)(3) requires the disclosure of the actual amount 
of the closing costs that are to be paid out of loan proceeds, as a 
negative number, and a comparison of the estimated and actual amounts 
of the closing costs that are to be paid out of loan proceeds. If the 
amount under the subheading ``Final'' in the row labeled ``Closing 
Costs Financed (Paid from your Loan Amount)'' 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 is proposing to add comment 
38(i)(3)-1 to explain how to calculate closing costs financed and to 
add comment 38(i)(3)-2 to clarify the loan amount that is used in the 
closing costs financed calculation.
    Although the Loan Estimate has commentary explaining how to perform 
the closing costs financed calculation (see the section-by-section 
analysis of Sec.  1026.37(h)(1)(ii)), the Closing Disclosure does not 
have such commentary. Therefore, the Bureau is proposing to add comment 
38(i)(3)-1 to explain that the amount of closing costs financed 
disclosed under Sec.  1026.38(i)(3) is determined by subtracting the 
total amount of payments to third parties not otherwise disclosed under 
Sec.  1026.38(f) and (g), which may include, for example, the sale 
price of the property disclosed under Sec.  1026.38(j)(1)(ii), from the 
loan amount disclosed under Sec.  1026.38(b). If the result of the 
calculation is zero or negative, the amount of $0.00 would be disclosed 
under Sec.  1026.38(i)(3). If the result of the

[[Page 54350]]

calculation is positive, that amount would be disclosed as a negative 
number under Sec.  1026.38(i)(3), but only to the extent that that the 
absolute value of the amount disclosed under Sec.  1026.38(i)(3) does 
not exceed the total amount of closing costs disclosed under Sec.  
1026.38(h)(1). The total amount of closing costs disclosed under Sec.  
1026.38(h)(1) would never be less than zero because, if the total 
amount of closing costs disclosed under Sec.  1026.38(h)(1) is a 
negative number, the amount of $0.00 would be disclosed under Sec.  
1026.38(i)(3).
    Consistent with proposed comment 37(h)(1)(ii)-2, the Bureau is 
proposing to add comment 38(i)(3)-2 to clarify that the loan amount 
disclosed under Sec.  1026.38(b) is the total amount the consumer will 
borrow, as reflected by the face amount of the note, which is 
consistent with proposed revisions to Sec.  1026.37(b)(1), discussed 
above. The comment would also explain that financed closing costs, such 
as mortgage insurance premiums payable at or before consummation, do 
not reduce the loan amount. The addition of this comment would clarify 
that regardless of how the term ``loan amount'' is used by creditors or 
in relation to programmatic requirements of specific loan programs, for 
purposes of the Closing Disclosure, the amount disclosed as the loan 
amount, and the basis for the calculating cash to close table 
calculations, is the total amount the consumer will borrow as reflected 
in the face amount of the note. This definition does not affect how 
other agencies may define or use similar terms for purposes of their 
own programmatic requirements. For example, the ``Base Loan Amount'' 
and ``Total Loan Amount'' for loans made under programs of the Federal 
Housing Administration may not be the same as the loan amount required 
to be disclosed under Sec.  1026.38(b).
38(i)(4) Down Payment/Funds From Borrower
    Section 1026.38(i)(4)(ii)(A) requires the down payment amount in a 
purchase transaction as defined in Sec.  1026.37(a)(9)(i) to be 
disclosed as a positive number. In these transactions, the down payment 
is calculated as the difference between the purchase price of the 
property and the principal amount of the credit extended. The 
calculation does not capture the amount of existing loans, assumed or 
taken subject to, disclosed under Sec.  1026.38(j)(2)(iv). Section 
1026.38(i)(4)(ii)(B) requires that, in all other transactions, the 
``Funds from Borrower'' is determined in accordance with Sec.  
1026.38(i)(6)(iv). As discussed in more detail below, the Bureau is 
proposing to revise Sec.  1026.38(i)(4)(ii)(A) to account for any 
amount disbursed to the consumer or used at the consumer's discretion 
at consummation of the transaction in purchase transactions, to make 
conforming revisions to Sec.  1026.38(i)(4)(ii)(B), to revise comment 
38(i)(4)(ii)(A)-1 to explain the down payment calculation, to add 
comment 38(i)(4)(ii)(A)-2 to explain the amount disclosed as ``Funds 
for Borrower,'' and to revise comments 38(i)(4)(ii)(B)-1 and 
38(i)(4)(iii)(A)-1 to make conforming revisions.
    For the reasons discussed in the section-by-section analysis of 
Sec.  1026.37(h)(1)(iii) above, the Bureau is proposing to revise Sec.  
1026.38(i)(4)(ii)(A) to specify that, in a purchase transaction as 
defined in Sec.  1026.37(a)(9)(i), the creditor subtracts the sum of 
the loan amount and any amount for loans assumed or taken subject to 
from the sale price of the property, except when the sum of the loan 
amount and any amount for loans assumed or taken subject to exceed the 
sale price of the property. When the sum of the loan amount and any 
amount for existing loans assumed or taken subject to exceeds the sale 
price of the property, the creditor instead calculates the funds from 
the consumer in accordance with Sec.  1026.38(i)(6)(iv). New comment 
38(i)(4)(ii)(A)-2 would explain the amount that the creditor discloses 
under Sec.  1026.38(i)(4)(ii)(A)(2) under the funds for borrower 
calculation under Sec.  1026.38(i)(6)(iv). See the section-by-section 
analysis of Sec.  1026.38(i)(6)(iv) below for a discussion of the 
proposed revisions to that section. The Bureau is also proposing 
conforming amendments to Sec.  1026.38(i)(4)(ii)(B) and comments 
38(i)(4)(ii)(B)-1 and 38(i)(4)(iii)(A)-1.
    The Bureau recognizes that some loan programs require borrowers to 
provide minimum cash investments, which, under the regulations or 
requirements of those loan programs, may be referred to as ``down 
payments.'' Revised comment 38(i)(4)(ii)(A)-1 would explain the down 
payment calculation that must be followed for accurate disclosure of 
the down payment amount on the Closing Disclosure. The comment would 
also explain that the minimum cash investments required of borrowers 
under some loan programs are not necessarily reflected in the down 
payment disclosure, and accurate disclosure of the down payment does 
not affect compliance or non-compliance with such loan programs' 
requirements.
    To conform with proposed clarifications discussed in the section-
by-section analysis of Sec.  1026.37(h)(1)(iii) and (v) above, the 
Bureau is proposing to revise comment 38(i)(4)(ii)(B)-1 to clarify that 
the ``total amount of all existing debt being satisfied in the real 
estate transaction'' means the sum of amounts disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment whether 
defining the phrase ``total amount of all existing debt being satisfied 
by the transaction'' to mean specifically amounts disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the 
Bureau might provide greater clarity around amounts that must be 
included in this calculation as part of the ``total amount of all 
existing debt being satisfied by the transaction.''
    Consistent with proposed revisions to Sec.  1026.37(h)(1)(iii) and 
(v) above, the Bureau is further proposing to revise comment 
38(i)(4)(ii)(B)-1 to account for the amount of existing loans ``assumed 
or taken subject to'' disclosed under Sec.  1026.38(j)(2)(iv). The 
Bureau also is proposing a technical correction in comment 
38(i)(4)(ii)(B)-1 to change $0 in reference to the final amount to 
$0.00 because the amount disclosed under Sec.  1026.38(i)(4)(ii) is 
disclosed to two decimal places under Sec.  1026.38(t)(4).
38(i)(5) Deposit
    The Bureau is proposing a technical correction in comment 38(i)(5)-
1 to specify that, when no deposit is paid in connection with a 
purchase transaction, the amount disclosed on the Closing Disclosure 
under Sec.  1026.38(i)(5)(ii) is $0.00 because the amount disclosed 
under Sec.  1026.38(i)(5)(ii) is disclosed to two decimal places under 
Sec.  1026.38(t)(4).
38(i)(6) Funds for Borrower
38(i)(6)(ii)
    Comment 38(i)(6)(ii)-1 provides 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. The Bureau is 
proposing to revise comment 38(i)(6)(ii)-1 to conform to proposed 
revisions and clarifications discussed in the section-by-section 
analysis of Sec.  1026.38(i)(6)(iv) below. The Bureau is proposing to 
add comment 38(i)(6)(ii)-2 to conform to proposed revisions to comment 
37(h)(1)(v)-1 discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(v) above.
38(i)(6)(iv)
    Section 1026.38(i)(6)(iv) provides that the ``Funds for Borrower'' 
disclosed under Sec.  1026.38(i)(4)(ii)(B) and ``Funds from Borrower'' 
disclosed under

[[Page 54351]]

Sec.  1026.38(i)(6)(ii) are determined by subtracting the principal 
amount of the credit extended (excluding closing costs financed, 
disclosed under Sec.  1026.38(i)(3)(ii)) from the total amount of all 
existing debt being satisfied in the real estate consummation 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)). This calculation does not capture the amount of existing 
loans, assumed or taken subject to, disclosed under Sec.  
1026.38(j)(2)(iv). As discussed in more detail below, the Bureau is 
proposing to revise Sec.  1026.38(i)(6)(iv) to account for the amount 
expected to be disbursed to the consumer or used at the consumer's 
discretion at consummation of the transaction in purchase transactions 
and improve clarity, consistent with the proposed revisions discussed 
in the section-by-section analysis of Sec.  1026.37(h)(1)(v).
    The Bureau is proposing to revise Sec.  1026.38(i)(6)(iv) 
consistent with proposed revisions discussed in the section-by-section 
analysis of Sec.  1026.37(h)(1)(v) above. The Bureau is proposing to 
revise Sec.  1026.38(i)(6)(iv) to account for the amount of existing 
loans, assumed or taken subject to, disclosed under Sec.  
1026.38(j)(2)(iv). The Bureau also is proposing to revise Sec.  
1026.38(i)(6)(iv) to clarify that the phrase ``total amount of all 
existing debt being satisfied by the transaction'' means amounts that 
are disclosed in the summaries of transactions table under Sec.  
1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment whether 
defining the phrase ``total amount of all existing debt being satisfied 
by the transaction'' to mean amounts disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the 
Bureau might provide greater clarity around amounts that must be 
included in this calculation as part of the ``total amount of all 
existing debt being satisfied by the transaction.'' The Bureau is 
proposing technical corrections to Sec.  1026.38(i)(6)(iv)(A), (B), and 
(C) to change $0 in reference to the amounts under Sec.  
1026.38(i)(4)(ii) and (6)(ii) to $0.00 because the final amounts 
disclosed under Sec.  1026.38(i)(4)(ii) and (6)(ii) are disclosed to 
two decimal places under Sec.  1026.38(t)(4)
38(i)(7) Seller Credits
    Section 1026.38(i)(7) requires creditors to compare the amount of 
seller credits disclosed on the Loan Estimate under Sec.  
1026.37(h)(1)(vi) to the amount disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(2)(v). If there is a difference (for reasons 
other than rounding), Sec.  1026.38(i)(7)(iii)(A) requires the creditor 
to disclose a statement that the consumer should see the seller credits 
disclosed under Sec.  1026.38(j)(2)(v). However, Sec.  1026.38(j)(2)(v) 
and comment 38(j)(2)(v)-1 state that only general (i.e., lump sum) 
seller credits are disclosed under Sec.  1026.38(j)(2)(v), whereas 
seller credits attributable to a specific cost should be reflected in 
the seller-paid column in the Closing Cost Details tables under Sec.  
1026.38(f) or (g).
    Consistent with Sec.  1026.38(j)(2)(v) and comment 38(j)(2)(v)-1, 
the proposed amendment to Sec.  1026.38(i)(7)(iii)(A) would clarify 
that, if there is a difference between the amount of seller credits 
disclosed under Sec.  1026.37(h)(1)(vi) and that disclosed under Sec.  
1026.38(j)(2)(v) that is not attributed to rounding of the disclosed 
under Sec.  1026.37(h)(1)(vi), the creditor must disclose a statement 
that the consumer should see the details disclosed under Sec.  
1026.38(j)(2)(v) and, as applicable, in the seller-paid column under 
Sec.  1026.38(f) or (g). The Bureau also proposes new comment 
38(i)(7)(iii)(A)-1 with examples of the required statement.
38(i)(8) Adjustments and Other Credits
38(i)(8)(i)
    The Bureau is proposing a technical correction in Sec.  
1026.38(i)(8)(i) to remove the phrase ``rounded to the nearest whole 
dollar.'' The amount disclosed on the Loan Estimate under Sec.  
1026.37(h)(1)(vii) that is required to be disclosed under Sec.  
1026.38(i)(8)(i) is already rounded to the nearest whole dollar under 
Sec.  1026.37(o)(4)(i)(A).
38(i)(8)(ii)
    Section 1026.38(i)(8)(ii) provides that the amount disclosed is the 
total of the amounts due from the borrower disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(iii) and (v) through (x), reduced 
by the amounts already paid by or on behalf of the borrower disclosed 
on the Closing Disclosure under Sec.  1026.38(j)(2)(vi) through (xi). 
However, amounts disclosed under Sec.  1026.38(j)(1)(iii) and (v) may 
have already been factored into calculations for prior components of 
the calculating cash to close table, thereby being counted twice. The 
Bureau is proposing to revise Sec.  1026.38(i)(8)(ii) to clarify that, 
when amounts disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(iii) or adjustments disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(1)(v) are accounted for in the calculations for 
Sec.  1026.38(i)(4) or (6) as debt being satisfied in the real estate 
transaction, as provided by proposed revisions to those paragraphs, 
they are not also counted in the adjustments and other credits 
calculation under revised Sec.  1026.38(i)(8)(ii). The Bureau also is 
proposing a technical correction to comment 38(i)(8)(ii)-1, which 
incorrectly references Sec.  1026.37(h)(7) instead of Sec.  
1026.37(h)(1)(vii).
38(i)(8)(iii)
    As discussed in the section-by-section analysis of Sec.  
1026.38(i)(8)(ii) above, the Bureau is proposing to exclude the amounts 
disclosed under Sec.  1026.38(j)(1)(iii) or (v) that are accounted for 
in the calculations for Sec.  1026.38(i)(4) or (6) as debt being 
satisfied in the real estate transaction, from the calculation of 
adjustments and other credits under Sec.  1026.38(i)(8)(ii). The Bureau 
is proposing to revise Sec.  1026.38(i)(8)(iii)(A) to conform with 
revised Sec.  1026.38(i)(8)(ii).
38(j) Summary of Borrower's Transaction
    Comment 38(j)-3 clarifies that certain amounts disclosed under 
38(j) are the same as the amounts disclosed under corresponding 
provisions identified in Sec.  1026.38(k). The Bureau is proposing to 
revise comment 38(j)-3 to conform with the proposed revisions to Sec.  
1026.38(j)(2)(vi) discussed below.
38(j)(1) Itemization of Amounts Due From Borrower
38(j)(1)(ii)
    In purchase transactions where there is a seller, the contract 
sales price is disclosed under Sec.  1026.38(j)(1)(ii), in addition to 
Sec.  1026.38(a)(3)(vii)(A). To conform with proposed amendments to the 
commentary of Sec.  1026.37(h)(1) regarding the use of the sale price 
in the calculating cash to close table calculations on the Loan 
Estimate for a simultaneous loan for subordinate financing as discussed 
above, the Bureau is proposing to revise comment 38(j)(1)(ii)-1. 
Revised comment 38(j)(1)(ii)-1 would clarify that the sale price is not 
disclosed under Sec.  1026.38(j)(1)(ii) on the simultaneous loan for 
subordinate financing Closing Disclosure.
38(j)(1)(v)
    Section 1026.38(j)(1)(v) requires the creditor to provide a 
description and the amount of any additional seller-paid items that are 
reimbursed by the consumer at the real estate closing. It also requires 
a description and the amount of any other items owed by the consumer 
not otherwise disclosed under proposed Sec.  1026.38(f), (g), or (j).

[[Page 54352]]

Comment 38(j)(1)(v)-1 provides examples of amounts disclosed under 
Sec.  1026.38(j)(1)(v), which include contractual adjustments not 
disclosed elsewhere under Sec.  1026.38(j). The Bureau is proposing to 
revise comment 38(j)(1)(v)-1 to clarify the amounts disclosed can 
include amounts owed to the seller but payable to the consumer after 
the real estate closing, providing as examples: Any balance in the 
seller's reserve account held in connection with an existing loan, if 
assigned to the consumer in a loan assumption; any rent the consumer 
would collect after closing for a time period prior to closing; and any 
tenant security deposit. Comment 38(j)(1)(v)-1 would also provide that 
the amounts owed to the seller but payable to the consumer after the 
real estate closing would be listed under the heading ``Adjustments.''
    In addition, as discussed in the section-by-section analysis of 
Sec.  1026.38(g)(4) above, the Bureau proposes to require the 
disclosure of payoff of existing liens secured by the property 
identified in Sec.  1026.38(a)(3)(vi) under Sec.  1026.38(g)(4) on the 
Closing Disclosure. The Bureau therefore proposes to revise comment 
38(j)(1)(v)-2 to conform with revised Sec.  1026.38(g)(4).
38(j)(2) Itemization of Amounts Already Paid by or on Behalf of 
Borrower
38(j)(2)(vi)
    Section 1026.38(j)(2)(vi) provides for the disclosure of ``Other 
Credits'' and ``Adjustments'' in the summary of the borrower's 
transaction table. Comment 38(j)(2)(vi)-2 clarifies that any 
subordinate financing proceeds not otherwise disclosed under Sec.  
1026.38(j)(2)(iii) or (iv) must be disclosed under Sec.  
1026.38(j)(2)(vi). Comment 38(j)(2)(vi)-5 clarifies that 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). The Bureau is proposing to revise Sec.  
1026.38(j)(2)(vi) to explain what items should be disclosed under the 
heading ``Adjustments.'' Amounts due from the seller to the consumer, 
under the purchase and sale agreement, would be disclosed under the 
``Adjustments'' heading. As discussed in more detail below, the Bureau 
is proposing to revise comment 38(j)(2)(vi)-2 to clarify that 
subordinate financing proceeds are disclosed on the first-lien 
transaction Closing Disclosure and to revise comment 38(j)(2)(vi)-5 to 
clarify that amounts provided to consumers in advance of the real 
estate closing are not required to be disclosed. The Bureau also 
proposes to add new comment 38(j)(2)(vi)-6 to provide an example of 
type of amounts that would be disclosed under the heading 
``Adjustments.''
    Comment 38(j)(2)(vi)-2 does not specify whether the disclosure of 
subordinate financing proceeds not otherwise disclosed under Sec.  
1026.38(j)(2)(iii) or (iv) is made on the first-lien transaction 
Closing Disclosure or on the subordinate financing Closing Disclosure. 
The Bureau proposes to revise comment 38(j)(2)(vi)-2 to clarify that 
the disclosure of subordinate financing proceeds under Sec.  
1026.38(j)(2)(vi) is made on the first-lien transaction disclosure. 
Comment 38(j)(2)(vi)-2, as revised, would provide an example of how the 
disclosure works when a consumer uses a second mortgage to finance part 
of the purchase price. Comment 38(j)(2)(vi)-2 would also explain that 
the principal amount of the second loan must be disclosed on the 
summaries of transactions table for the consumer's transaction either 
on line 04 under the subheading ``L. Paid Already by or on Behalf of 
Borrower at Closing,'' or under the subheading ``Other Credits.''
    Comment 38(j)(2)(vi)-5 does not explain whether the requirement to 
disclose a credit for any money or other payments made by family 
members, not otherwise associated with the transaction, applies to 
amounts provided to consumers in advance of consummation. The Bureau 
proposes to revise comment 38(j)(2)(vi)-5 to clarify that the 
requirement to disclose any money or other payments made by family 
members or third parties, not otherwise associated with the 
transaction, only applies to money or payments provided at the real 
estate closing; amounts provided to consumers in advance of the real 
estate closing by third parties, including family members, not 
otherwise associated with the transaction, would not be required to be 
disclosed under revised Sec.  1026.38(j)(2)(vi).
38(j)(2)(xi)
    Comment 38(j)(2)(xi)-1 clarifies that the 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. The Bureau proposing to remove the 
example of rent collected in advance by the seller from a tenant for a 
period extending beyond the closing date from comment 38(j)(2)(xi)-1. 
Proposed comment 38(j)(2)(vi)-6 would add that example as an item to be 
disclosed under the ``Adjustments.''
38(j)(4) Items Paid Outside of Closing Funds
38(j)(4)(i)
    Section 1026.38(j)(4)(i) requires that any charges not paid from 
closing funds but that otherwise are disclosed under Sec.  1026.38(j) 
be marked as ``paid outside of closing'' or ``P.O.C.'' Comment 
38(j)(4)(i)-1 explains that the disclosure must include a statement of 
the party making the payment, such as the consumer, seller, loan 
originator, real estate agent, or any other person and cites to an 
example on form H-25(D) of appendix H of part 1026. As discussed in the 
section-by-section analysis of proposed comment 38-4 above, the Bureau 
is proposing to clarify that, when contractual or other legal 
obligations of the creditor, such as the requirements of a government 
loan program or the purchase criteria of an investor, prevent the 
creditor from refunding cash to the consumer as lender credits, a 
reduction in principal balance (principal curtailment) may be used to 
provide a refund under Sec.  1026.19(f)(2)(v). Proposed comment 38-4 
would provide options for the disclosure of principal curtailments, 
including under Sec.  1026.38(j)(4)(i). The Bureau is proposing to 
revise comment 38(j)(4)(i)-1 to provide a cross reference to comment 
38-4. The Bureau is also proposing to clarify that ``a statement of the 
party making the payment'' means the disclosure must identify the party 
making the payment.
38(k) Summary of Seller's Transaction
    Comment 38(k)-1 explains that Sec.  1026.38(k) does not apply in 
transactions where there is no seller, such as a refinance transaction. 
The Bureau is proposing to add additional examples of transactions for 
which Sec.  1026.38(k) does not apply in revised comment 38(k)-1, such 
as loans with a construction purpose as defined in Sec.  
1026.37(a)(9)(iii) that also do not have a seller or simultaneous loans 
for subordinate financing if the first-lien Closing Disclosure records 
the entirety of the seller's transaction.
38(l) Loan Disclosures
38(l)(7) Escrow Account
38(l)(7)(i)
    Section 1026.38(l)(7)(i)(A)(1), (2), and (4), as well as (B)(1), 
require certain disclosures based on the tax, insurance, and assessment 
amounts described in Sec.  1026.37(c)(4)(ii). Section 
1026.37(c)(4)(ii), in turn, includes the

[[Page 54353]]

mortgage-related obligations identified in Sec.  1026.43(b)(8). 
However, Sec.  1026.37(c)(4)(ii) specifically excludes amounts for 
mortgage insurance identified in Sec.  1026.4(b)(5) (because amounts 
for mortgage insurance are already disclosed in the projected payments 
table under Sec.  1026.37(c)(2)(ii)).
    The Bureau is aware that, in some instances, creditors may 
establish an escrow account for the payment of ongoing mortgage 
insurance premiums. The Bureau proposes amending Sec.  1026.38(l)(7)(i) 
and comments 38(l)(7)(i)(A)(2)-1, 38(l)(7)(i)(A)(4)-1, and 
38(l)(7)(i)(B)(1)-1 to permit disclosure of such escrow accounts by 
removing references to Sec.  1026.37(c)(4)(ii) and adding references to 
mortgage-related obligations, including mortgage insurance, described 
in Sec.  1026.37(c)(2) or 1026.43(b)(8), as appropriate.
38(l)(7)(i)(A)
38(l)(7)(i)(A)(2)
    As discussed below, Sec.  1026.38(l)(7)(i)(A)(5) and related 
commentary explain the escrow account analysis prescribed under 
Regulation X, 12 CFR 1024.17. The escrow account analysis method can be 
used as an alternative method to calculate the amounts disclosed 
pursuant to Sec.  1026.38(l)(7)(i)(A)(1) and (4). The Bureau is 
proposing to add new comment 38(l)(7)(i)(A)(2)-2 to allow the methods 
used to calculate escrowed property costs when calculating non-escrowed 
property cost. The Bureau is seeking comment on the use of the escrow 
account analysis prescribed in Sec.  1026.38(l)(7)(i)(A)(5) to 
calculate non-escrowed property costs.
38(l)(7)(i)(A)(5)
    Section 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 (4) if the 
creditor bases the numerical disclosures on amounts derived from the 
escrow account analysis prescribed under Regulation X, 12 CFR 1024.17. 
Section 1026.38(l)(7)(i)(A)(4) requires disclosure of the amount the 
consumer will be required to pay into the escrow account with each 
periodic payment during the first year after consummation. Section 
1026.38(l)(7)(i)(A)(1) requires a disclosure, labeled ``Escrowed 
Property Costs over Year 1,'' 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. Creditors may base such disclosures on less 
than 12 payments if, based on the payment schedule dictated by the 
legal obligation, fewer than 12 periodic payments will be made to the 
escrow account during the first year after consummation.
    To reduce uncertainty about whether the amounts disclosed under 
Sec.  1026.38(l)(7)(i)(A)(1) and (4) should be based on 12 payments or 
less than 12 payments, the Bureau is proposing to add new comment 
38(l)(7)(i)(A)(5)-1 to clarify, for example, that creditors may base 
such disclosures on less than 12 payments if, based on the payment 
schedule dictated by the legal obligation, fewer than 12 periodic 
payments will be made to the escrow account during the first year after 
consummation. Alternatively, Sec.  1026.38(l)(7)(i)(A)(5) permits the 
creditor to base the disclosures required by Sec.  
1026.38(l)(7)(i)(A)(1) and (4) on amounts derived from the escrow 
account analysis required under Regulation X, 12 CFR 1024.17, even if 
those disclosures differ from what would otherwise be disclosed under 
Sec.  1026.38(l)(7)(i)(A)(1) and (4), as, for example, when there are 
fewer than 12 periodic payments scheduled to be made to the escrow 
account during the first year after consummation.
38(o) Loan Calculations
38(o)(1) Total of Payments
    Section 1026.38(o)(1) defines the total of payments, for purposes 
of the Closing Disclosure, as the total the consumer will have paid 
after making all payments of principal, interest, mortgage insurance, 
and loan costs, as scheduled. The Bureau is proposing to adopt 
tolerances for the total of payments that parallel the statutory 
tolerances for the finance charge and disclosures affected by the 
finance charge because, historically, the total of payments has been 
understood to be a disclosure affected by the finance charge and 
therefore subject to its tolerances. In the TILA-RESPA Final Rule, to 
promote consumer understanding, the Bureau adopted a definition of 
total of payments for purposes of the Closing Disclosure that differs 
from the statutory definition under TILA section 128(a)(5), which 
explicitly references finance charges. This in turn may have introduced 
ambiguity as to whether the total of payments for purposes of the 
Closing Disclosure is a disclosure affected by the finance charge and 
therefore subject to the same tolerances.
    TILA section 128(a)(5) and (8) requires a creditor 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.\81\ 
For transactions subject to Sec.  1026.19(e) and (f), Sec.  
1026.38(o)(1) implements this disclosure requirement. TILA section 
128(a)(3) and (8) requires a creditor to disclose the finance charge, 
using that term.\82\ As amended by Congress in 1995,\83\ TILA section 
106(f)(1) sets forth the tolerances for accuracy of the finance charge 
and other disclosures affected by any finance charge and states that, 
in connection with credit transactions (not under an open end credit 
plan) that are secured by real property or a dwelling, the disclosure 
of the finance charge and other disclosures affected by any finance 
charge shall be treated as being accurate, except for purposes of 
rescission under TILA section 125, if the amount disclosed as the 
finance charge (A) does not vary from the actual finance charge by more 
than $100; or (B) is greater than the amount required to be 
disclosed.\84\ For transactions subject to Sec.  1026.19(e) and (f), 
Sec.  1026.38(o)(2) implements the finance charge disclosure 
requirement in TILA section 128(a)(3) and the statutory tolerance 
provision for the finance charge in TILA section 106(f)(1).
---------------------------------------------------------------------------

    \81\ 15 U.S.C. 1638(a)(5), (8).
    \82\ 15 U.S.C. 1638(a)(3).
    \83\ Truth in Lending Act Amendments of 1995, Public Law 104-29, 
Sec.  3(a), 109 Stat 271 (1995).
    \84\ 15 U.S.C. 1605(f)(1). As discussed in the section-by-
section analysis of 1026.23(g), 15 U.S.C. 1605(f)(2) sets forth 
specific treatment for the disclosure of the finance charge and 
other disclosures affected by any finance charge for purposes of 
rescission under TILA section 125.
---------------------------------------------------------------------------

    In the TILA-RESPA Final Rule, the Bureau modified the requirement 
under TILA section 128(a)(5) to disclose the total of payments as the 
sum of the amount financed and the finance charge to require that a 
creditor instead disclose the total of payments on the Closing 
Disclosure as the sum of principal, interest, mortgage insurance, and 
loan costs. Accordingly, Sec.  1026.38(o)(1) requires the disclosure of 
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. This modification of 
the total of payments calculation for purposes of the Closing 
Disclosure results in loan costs that are not components of the finance 
charge being included in the total of payments. In addition, the 
modification of the total of payments calculation also results in 
components of the finance charge being excluded from the total of 
payments if

[[Page 54354]]

such components are not interest, loan costs, or included in the 
principal amount of the loan. As a result, the total of payments is now 
arguably not a disclosure affected by any finance charge. To apply the 
tolerances for accuracy of the disclosed finance charge and other 
disclosures affected by the disclosed finance charge unambiguously to 
the total of payments on the Closing Disclosure, the Bureau proposes to 
revise Sec.  1026.38(o)(1).
    The Bureau modified the total of payments in the TILA-RESPA Final 
Rule because it understood that this disclosure had been unclear to 
consumers historically. As the Bureau explained in the 2012 TILA-RESPA 
Proposal and TILA-RESPA Final Rule, a Board-HUD Joint Report analyzing 
the TILA and RESPA disclosures recommended changes to several 
disclosures, including the total of payments.\85\ The Board's consumer 
testing found that many consumers did not understand the total of 
payments and that, even when consumers understood its meaning, most did 
not consider it important in their decision-making process.\86\
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    \85\ 77 FR 51116, 51124 (Aug. 23, 2012), 78 FR 79730, 79976 
(Dec. 31, 2013).
    \86\ 77 FR 51116, 51222 (Aug. 23, 2012), 78 FR 79730, 79976 
(Dec. 31, 2013).
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    To enhance consumer understanding, in the TILA-RESPA Final Rule, 
the Bureau modified the requirement of TILA section 128(a)(5) that the 
total of payments disclose the sum of the amount financed and the 
finance charge in two ways.\87\ First, the Bureau adopted Sec.  
1026.37(l)(1)(i) to require that a creditor disclose on the Loan 
Estimate the total payments over five years, rather than the life of 
the loan, using the label ``In 5 Years.'' \88\ Second, the Bureau 
adopted Sec.  1026.38(o)(1) to require that a creditor disclose on the 
Closing Disclosure the total of payments to reflect the total the 
consumer will have paid after making all payments of principal, 
interest, mortgage insurance, and loan costs, as scheduled.\89\ Comment 
38(o)(1)-1 explains that the total of payments is calculated in the 
same manner as the ``In 5 Years'' disclosure, except that the disclosed 
amount reflects the total payments through the end of the loan term.
---------------------------------------------------------------------------

    \87\ The Bureau modified the requirement of TILA section 
128(a)(5) pursuant to its authority under TILA section 105(a) (15 
U.S.C. 1604(a)), Dodd-Frank Act 1032(a) (12 U.S.C. 5532(a)), and, 
for residential mortgage loans, Dodd-Frank Act section 1405(b) (15 
U.S.C. 1601 note). 78 FR 79730, 80038 (Dec. 31, 2013).
    \88\ 77 FR 51116, 51223 (Aug. 23, 2012), 78 FR 79730, 79977 
(Dec. 31, 2013).
    \89\ 78 FR 79730, 80038 (Dec. 31, 2013).
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    The Bureau's inclusion of loan costs in the definition of the total 
of payments in the TILA-RESPA Final Rule was a modification of TILA's 
requirement under section 128(a)(5) to disclose the total of payments 
as the sum of the amount financed and the finance charge. Loan costs 
are those costs disclosed under Sec.  1026.38(f) and include 
origination charges as well as the costs of services required by the 
creditor but provided by persons other than the creditor, including 
services that the borrower did and did not shop for.\90\ These services 
commonly include fees for appraisal, credit reporting, survey, title 
search, and lender's title insurance. Under Sec.  1026.4, these 
services may or may not be included in the finance charge, and whether 
they are included in the finance charge is a fact-specific 
determination.\91\ As the Bureau explained in the 2012 TILA-RESPA 
Proposal and TILA-RESPA Final Rule, including mortgage insurance and 
other loan costs rather than the finance charge in the ``In 5 Years'' 
and the total of payments disclosures was intended to enhance consumer 
understanding of mortgage transactions and allow consumers to compare 
loans more easily and usefully.
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    \90\ See 78 FR 79730, 80010 (Dec. 31, 2013).
    \91\ Finance charge is defined in TILA section 106(a) (15 U.S.C. 
1605(a)). Section 1026.4 implements this definition, provides 
examples, and excludes certain charges from the finance charge.
---------------------------------------------------------------------------

    Since the effective date of the rule, the Bureau has learned that 
there is uncertainty whether the total of payments, as modified by the 
Bureau, is subject to the tolerance for accuracy applicable to the 
disclosed finance charge and other disclosures affected by the 
disclosed finance charge under Sec.  1026.38(o)(2). In modifying the 
total of payments calculation in the TILA-RESPA Final Rule, the Bureau 
did not intend to alter the tolerances for accuracy applicable to the 
total of payments. Therefore, the Bureau proposes to amend Sec.  
1026.38(o)(1) to explicitly establish that the same tolerances for 
accuracy of the disclosed finance charge and other disclosures affected 
by the disclosed finance charge apply to the total of payments for each 
transaction subject to Sec.  1026.19(e) and (f).
    The Bureau understands that clarity regarding the applicable 
tolerances for accuracy of the total of payments is especially 
important because of the statutory consequences of misdisclosure of the 
total of payments. The total of payments is one of the disclosures that 
may give rise to civil liability as set forth in TILA section 130 for a 
creditor's failure to comply, including actual damages, statutory 
damages (individual and class action), costs, and attorney's fees.\92\ 
The total of payments is also one of the even more limited set of 
material disclosures where a misdisclosure can give rise to TILA's 
extended right of rescission for certain transactions as set forth in 
TILA section 125, which generally is available for three years after 
the date of consummation of the transaction, serves to void the 
creditor's security interest in the property, and eliminates the 
consumer's obligation to pay any finance charge (even if accrued) or 
any other costs incident to the loan.\93\ Nothing in the TILA-RESPA 
Final Rule altered this defined statutory liability for the total of 
payments or any other disclosure.
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    \92\ 15 U.S.C. 1640(a).
    \93\ 15 U.S.C. 1635. Section 1026.23 implements TILA's 
rescission provision and defines material disclosures to mean the 
required disclosures of the annual percentage rate, the finance 
charge, the amount financed, the total of payments, the payment 
schedule, and the disclosures and limitations referred to in 
Sec. Sec.  1026.32(c) and (d) and 1026.43(g). See Sec.  
1026.23(a)(3)(ii).
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    The Bureau believes that its proposal to apply the same tolerances 
for accuracy of the disclosed finance charge and other disclosures 
affected by the disclosed finance charge to the total of payments for 
purposes of the Closing Disclosure is appropriate. The TILA-RESPA Final 
Rule adopted its own good faith analysis and requires a creditor to 
refund any excess paid by the consumer, when necessary, to promote 
accurate disclosure. Additionally, since Congress amended TILA in 1995, 
the tolerances for accuracy of the finance charge have been understood 
to apply to the total of payments. Congress was clear that, to the 
extent other disclosures with statutory liability were affected by a 
misdisclosure of the finance charge within the tolerance limits, the 
same protections should apply. At the time Congress adopted the finance 
charge tolerance rules, assuming that no errors or clerical mistakes 
were made in the total of payments calculation, the total of payments 
was by definition determined by the finance charge calculation. 
Congress did not alter the statutory tolerances in adopting the Dodd-
Frank Act and in requiring the Bureau to integrate the TILA and RESPA 
disclosures. Therefore, to promote consistency with the tolerances in 
effect before the TILA-RESPA Final Rule, the Bureau proposes to apply 
the same tolerances for accuracy of the finance charge to the total of 
payments for purposes of the Closing Disclosure.
    Specifically, the Bureau proposes to revise Sec.  1026.38(o)(1) to 
provide that the

[[Page 54355]]

disclosed total of payments shall be treated as accurate if the amount 
disclosed as the total of payments: (i) Is understated by no more than 
$100; or (ii) is greater than the amount required to be disclosed. The 
Bureau requests comment on these proposed revisions. The Bureau also 
proposes conforming revisions to Sec.  1026.23(g) and (h)(2) as 
discussed in the section-by-section analysis of each of those sections. 
The Bureau also proposes new comment 38(o)-1 to provide two examples 
illustrating the interaction of the finance charge and total of 
payments accuracy requirements for each transaction subject to Sec.  
1026.19(e) and (f).
    Further, the Bureau proposes to revise comment 38(o)(1)-1. Comment 
38(o)(1)-1 explains that the total of payments is calculated in the 
same manner as the ``In 5 Years'' disclosure under Sec.  
1026.37(l)(1)(i), except that the disclosed amount reflects the total 
payments through the end of the loan term. The Bureau has learned that 
market participants have taken differing views regarding whether to 
reflect lender or seller credits in the total of payments on the 
Closing Disclosure. Therefore, the Bureau proposes to revise comment 
38(o)(1)-1 to clarify that the total of payments calculation on the 
Closing Disclosure excludes charges for loan costs disclosed under 
Sec.  1026.38(f) that are designated on the Closing Disclosure as paid 
by seller or paid by others.
    A seller or other party, such as a lender, may agree to offset a 
particular loan cost, whether in whole or in part, through a specific 
credit, for example through a specific seller or lender credit. The 
proposed revision to the comment would clarify that, because these loan 
costs are not paid by the consumer, the amounts of such loan costs 
offset by specific credits are excluded from the total of payments 
calculation. The proposed revision to comment 38(o)(1)-1 references 
only loan costs offset by specific credits as being excluded from the 
total of payments calculation. Non-specific credits, however, are 
generalized payments to the consumer that do not pay for a particular 
fee and therefore, under the proposed revision to comment 38(o)(1)-1, 
would not offset loan costs for purposes of the total of payments 
calculation.
    The Bureau believes that the distinct treatment of specific credits 
from a seller or other party between the ``In 5 Years'' disclosure and 
the total of payments disclosure is appropriate given the difference 
between the information available to the creditor when it provides the 
Loan Estimate and when it provides the Closing Disclosure. At the Loan 
Estimate stage, a creditor may not know whether a specific credit will 
be applied to offset a loan cost, whether in whole or in part. Further, 
unlike the Closing Disclosure form, the Loan Estimate form does not 
allow for the itemized disclosure of costs paid by the seller or 
others. The Bureau seeks comment on the proposed revision to comment 
38(o)(1)-1.
Legal Authority
    The Bureau proposes to revise Sec.  1026.38(o)(1) and its 
commentary to apply the same tolerances for accuracy of the disclosed 
finance charge and other disclosures affected by the disclosed finance 
charge to the total of payments for each transaction subject to Sec.  
1026.19(e) and (f) pursuant to its authority to set tolerances for 
numerical disclosures under TILA section 121(d).\94\ 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. The Bureau has considered the 
purposes for which it may exercise its authority under TILA section 
121(d). As noted above, the Bureau has concluded that the proposed 
tolerances for the total of payments would promote consistency with the 
tolerances in effect before the TILA-RESPA Final Rule. The Bureau 
therefore believes that the proposed tolerances facilitate compliance 
with the statute. Additionally, the Bureau believes that the tolerances 
in proposed Sec.  1026.38(o)(1), which are identical to the finance 
charge tolerances provided by Congress in TILA section 106(f), are 
sufficiently narrow to prevent these tolerances from resulting in 
misleading disclosures or disclosures that circumvent the purposes of 
TILA.
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

38(t) Form of Disclosures
38(t)(3) Form
    The Bureau proposes to make technical amendments to comment 
38(t)(3)-1 to insert two missing words and make a non-substantive 
stylistic edit. Specifically, in the first sentence of the comment, the 
Bureau proposes to add the words ``is not'' and delete the prefix 
``non'' that precedes the word ``federally.'' This proposed technical 
amendment would not alter the substance of comment 38(t)(3)-1.
38(t)(4)(ii) Rounding
    Section 1026.38(t)(4)(ii) provides rounding rules for the 
percentage amounts disclosed under Sec.  1026.38(b), (f)(1), (n), 
(o)(4), and (o)(5). The Bureau required rounding, based on testing 
results, for certain amounts 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. Section 1026.38(t)(4)(ii) requires the 
percentage amounts disclosed for loan terms, origination charges, the 
adjustable interest rate table, and the TIP shall not be rounded and 
shall be disclosed up to two or three decimal places and the percentage 
amount required to be disclosed for the annual percentage rate shall 
not be rounded and shall be disclosed up to three decimal places. If 
the amount is a whole number, then the amount disclosed shall be 
truncated at the decimal point.
    The Bureau understands that there is uncertainty about the rounding 
requirements under Sec.  1026.38(t)(4)(ii). The Bureau is proposing to 
revise Sec.  1026.38(t)(4)(ii) to simplify the rounding requirements 
required for the percentages disclosed pursuant to the requirements of 
Sec.  1026.38(t)(4)(ii). As proposed, Sec.  1026.38(t)(4)(ii) would 
require that the percentage amounts disclosed under Sec.  1026.38(b), 
(f)(1), (n), (o)(4), and (o)(5) be disclosed by rounding the exact 
amounts to three decimal places and then dropping any trailing zeros to 
the right of the decimal point.
38(t)(5) Exceptions
38(t)(5)(v) Separation of Consumer and Seller Information
    Regulation Z requires the use of the Closing Disclosure by the 
creditor to provide the required disclosures concerning the transaction 
to the consumer and also requires the settlement agent to provide a 
copy of the Closing Disclosure to the seller under Sec.  1026.19(f). 
Under Sec.  1026.38(t)(5)(vi), the creditor or settlement agent is 
permitted to provide a separate Closing Disclosure to the seller that 
contains limited consumer information. The settlement agent must 
provide to the seller either a copy of the Closing Disclosure or a 
permissible separate Closing Disclosure, under Sec.  1026.19(f)(4)(iv). 
Regulation Z does not contain any further explanation of parties to 
whom the Closing Disclosure may be provided, the extent to which the 
consumer's information may be provided to the seller or the seller's 
agent, or the extent to which the seller's information may be provided 
to the

[[Page 54356]]

consumer or consumer's agent. The Bureau is proposing to add new 
commentary under Sec.  1026.38(t)(5)(v) to clarify that, at its 
discretion, the creditor may make modifications to the Closing 
Disclosure form to accommodate the provision of separate Closing 
Disclosure forms to the consumer and seller.
    The Bureau recognizes that consumer credit transactions secured by 
real property where the consumer is purchasing the property from a 
seller pose particular considerations related to the sharing of 
information. Creditors must collect and share information related to 
the seller's portion of the transaction to satisfy the requirements of 
government insurance programs, government-sponsored enterprises, and 
secondary market investors in the ordinary course of providing the 
financial service (the consumer credit transaction secured by real 
property).\95\ Additionally, many parties to the transaction rely on 
sharing information to complete the transaction, including real estate 
agents, loan officers, and settlement agents, among others.
---------------------------------------------------------------------------

    \95\ For example, see FannieMae Single Family Selling Guide, 
March 29, 2016, pages 32-5, 435-41, 562-63, and 570-71 (available at 
https://www.fanniemae.com/content/guide/selling/index.html); FHA 
Handbook 4000.1, revised 03/14/2016 pages 115-17, 143-45, and 224-25 
(available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1); VA Pamphlet 26-7, 
Revised, Chapter 8: Borrower Fees and Charges and the VA Funding 
Fee, pages 8-11 to 8-13 (available at http://benefits.va.gov/warms/pam26_7.asp).
---------------------------------------------------------------------------

    Prior to the effective date of the TILA-RESPA Rule, RESPA and 
Regulation X required the settlement agent to issue a HUD-1 form to 
borrowers, sellers, and their agents and provided that the borrower and 
seller can receive separate HUD-1 forms, with the terms of the buyer's 
transaction omitted from the seller's disclosure and vice versa. 
Revisions to RESPA in 1975 permitted separate disclosures to both 
borrowers and sellers.\96\ Regulation X explicitly required the 
settlement agent to provide to the lender a copy of the HUD-1 with the 
borrower's and seller's information, or a copy of each separate 
disclosure that is provided to the buyer and seller, as applicable.
---------------------------------------------------------------------------

    \96\ See Real Estate Settlement Procedures Act Amendments of 
1975, Section 3(3), Public Law 94-205, 89 Stat. 1157 (1975).
---------------------------------------------------------------------------

    The Bureau has been asked repeatedly by creditors, settlement 
agents, and real estate agents about the sharing of the Closing 
Disclosure with third parties involved in the mortgage transaction. 
These inquiries have largely concerned which third parties may receive 
a copy of the Closing Disclosure but have also concerned whether a 
combined Closing Disclosure form must be provided to the consumer and 
seller or whether separate Closing Disclosure forms may be provided to 
the consumer and the seller. The Bureau provided guidance on this topic 
in its webinar on April 12, 2016.\97\
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    \97\ A recording of the webinar posted on a Web site by the 
Federal Reserve System (registration required) can be found on the 
Bureau's Web site at http://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/.
---------------------------------------------------------------------------

    The Gramm-Leach-Bliley Act (GLBA) was passed by Congress after both 
RESPA and TILA were enacted. Financial institutions involved in the 
residential real estate settlement process, among others, must comply 
with the GLBA's requirements relating to the sharing of consumer 
information as well as with similar State law requirements, where 
applicable. The GLBA's privacy provisions are implemented by the 
Bureau's Regulation P, 12 CFR part 1016, and by analogous regulations 
issued by the Securities and Exchange Commission, the Commodity Futures 
Trading Commission, and the Federal Trade Commission. Regulation P 
generally provides that a financial institution (such as a creditor or 
settlement agent) may not disclose its customer's nonpublic personal 
information to a nonaffiliated third party without providing notice to 
the customer of such information sharing and an opportunity to opt-out 
of such sharing.
    There are several exceptions to these notice and opt-out 
requirements, however. For example, GLBA section 502(e)(8) provides an 
exception that applies if a financial institution shares its customer's 
non-public personal information to comply with Federal, State, or local 
laws, rules and other applicable legal requirements. GLBA sections 
502(e)(1) and 509(7)(A) provide another exception that applies if a 
financial institution's sharing of its customers' non-public personal 
information is required, or is a usual, appropriate, or acceptable 
method, to provide the customer or the customer's agent or broker with 
a confirmation, statement, or other record of the transaction, or 
information on the status or value of the financial service or 
financial product.
    The Closing Disclosure, whether provided as a combined form 
containing consumer and seller information or separate forms reflecting 
each side of the real estate transaction conveying the real property 
from the seller to the consumer, is a record of the transaction (among 
other things), both for the consumer and creditor, of the transactions 
between the consumer, seller, and creditor, as required by both TILA 
and RESPA. Such records may be informative to real estate agents and 
others representing both consumers and creditors as part of both the 
consumer credit and real estate portions of residential real estate 
sales transactions, as they provide the consumer or the consumer's 
agent with a record of the transaction. Based on its understanding of 
the real estate settlement process, the Bureau understands that it is 
usual, appropriate, and accepted for creditors and settlement agents to 
provide the combined or separate Closing Disclosure as a confirmation, 
statement, or other record of the transaction, to consumers, sellers, 
and their agents, or information on the status or value of the 
financial service or financial product to their customers or their 
customers' agents or brokers.
    The Bureau recognizes that incorporating the guidance provided in 
the April 12, 2016 webinar on how to separate Closing Disclosure forms 
for the consumer and the seller into Regulation Z commentary may 
provide additional certainty to creditors. Accordingly, the Bureau is 
proposing to add comment 38(t)(5)(v)-1 to clarify that, at its 
discretion, the creditor may make modifications to the Closing 
Disclosure form to accommodate the provision of separate Closing 
Disclosure forms to the consumer and the seller and the three methods 
by which a creditor can separate such information. The Bureau further 
proposes to add comments 38(t)(5)(v)-2 and -3 to provide examples where 
the creditor may choose to provide separate Closing Disclosure forms to 
the consumer and seller.
38(t)(5)(vi) Modified Version of the Form for a Seller or Third-Party
    The Bureau proposes to add comment 38(t)(5)(vi)-1 to cross-
reference comment 38(t)(5)(v)-1 for additional clarity on permissible 
form modifications in relation to the modified version of the Closing 
Disclosure for sellers or third parties.
38(t)(5)(vii) Transactions Without a Seller and Simultaneous Loans for 
Subordinate Financing
    Section 1026.38(t)(5)(vii) permits modifications to form H-25 of 
appendix H for a transaction that does not involve a seller and for 
which the alternative tables are disclosed pursuant to Sec.  
1026.38(d)(2) and (e). Comment 38(t)(5)(vii)-2 explains that, as 
required by Sec.  1026.38(a)(3)(vii)(B), a form used for a transaction 
that does not involve a seller must contain the label ``Appraised Prop. 
Value'' or ``Estimated

[[Page 54357]]

Prop. Value'' where there is no appraisal. The Bureau is proposing to 
revise Sec.  1026.38(t)(5)(vii), consistent with proposed revisions 
discussed in the section-by-section analysis of Sec.  1026.38(d)(2) and 
(e), to include simultaneous loans for subordinate financing as 
transactions for which a modification of form H-25 of appendix H is 
permitted. The Bureau is also proposing a technical correction so that 
comment 38(t)(5)(vii)-2 correctly references Sec.  1026.38(t)(5)(vii) 
instead of Sec.  1026.38(t)(5)(viii) and additional minor clarifying 
edits. The Bureau is also proposing to add comment 38(t)(5)(vii)(B)-1 
to clarify that amounts provided by third parties may be disclosed as 
credits in the payoffs and payments table, comment 38(t)(5)(vii)(B)-2 
to clarify the disclosure of subordinate financing proceeds, and 
comment 38(t)(5)(vii)(B)-3 to cross-reference comment 37(h)(2)(iii)-1 
for additional examples and comment 38-4 for the disclosure of a 
reduction in principal balance (principal curtailment) to provide a 
refund.
    Proposed comment 38(t)(5)(vii)(B)-1 would clarify that amounts paid 
by third parties who provide funds on behalf of the consumer are 
considered funds provided by designees, and may be disclosed as credits 
in the payoffs and payments table using negative numbers. The proposed 
comment also would provide examples of such amounts. Proposed comment 
38(t)(5)(vii)(B)-2 would clarify that, on the Closing Disclosure for a 
first-lien transaction that also has a simultaneous loan for 
subordinate financing, the proceeds of the subordinate financing are 
included in the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B) as a negative number. The disclosure of a 
negative amount for proceeds of the subordinate financing signifies 
additional cash being provided to the transaction on behalf of the 
borrower. Proposed comment 38(t)(5)(vii)(B)-3 would refer to other 
examples provided in comment 37(h)(2)(iii)-1. Proposed comment 
38(t)(5)(vii)(B)-3 would also refer to proposed comment 38-4, which 
would provide options for the disclosure of a reduction in principal 
balance (principal curtailment) to provide a refund under Sec.  
1026.19(f)(2)(v), including disclosure under Sec.  
1026.38(t)(5)(vii)(B).
38(t)(5)(ix) Customary Recitals and Information
    Comment 38(t)(5)(ix)-1 provides examples of information permitted 
to be disclosed on an additional page for the disclosure of customary 
recitals and information used locally in real estate settlements. The 
Bureau is proposing to revise comment 38(t)(5)(ix)-1 to cross-reference 
proposed comment 38-4, which would provide options for the disclosure 
of a reduction in principal balance (principal curtailment) to provide 
a refund under Sec.  1026.19(f)(2)(v), including disclosure under Sec.  
1026.38(t)(5)(ix).
Appendix D--Multiple-Advance Construction Loans
    Creditors have expressed difficulty with making disclosures under 
the TILA-RESPA Final Rule for construction financing because of certain 
inherent characteristics of construction financing that differ from 
most other transactions. Appendix D, which provides instructions 
concerning the disclosure of multiple-advance construction loans, has 
been part of Regulation Z since 1981.\98\ Appendix D provides special 
procedures that creditors may use, at their option, to estimate and 
disclose the terms of multiple-advance construction loans when the 
amounts or timing of advances is unknown at consummation of the 
transaction. The appendix reflects Sec.  1026.17(c)(6)(ii), which 
permits creditors to treat multiple-advance construction loans that may 
be permanently financed by the same creditor as one transaction or more 
than one transaction. The Bureau is proposing to revise comment app. D-
7 to provide additional explanations for the disclosure of construction 
and construction-permanent loans under Sec. Sec.  1026.37 and 1026.38 
that the Bureau has provided informally. These additional explanations 
for construction-permanent loans would address the disclosures of the 
loan term, product, interest rate, initial periodic payment, increase 
in periodic payment, projected payments table, construction costs, and 
construction loan inspection and handling fees.
---------------------------------------------------------------------------

    \98\ See 46 FR 20847 (April 7, 1981).
---------------------------------------------------------------------------

    Comment app. D-7 was added by the TILA-RESPA Final Rule to clarify 
that some home construction loans that are secured by real property 
require disclosure of the projected payments tables pursuant to 
Sec. Sec.  1026.37(c) and 1026.38(c) and not the general payment 
schedule required by Sec.  1026.18(g). The comment provides two 
illustrations, in comments app. D-7.i and -7.ii, to clarify the 
application of appendix D to transactions subject to Sec. Sec.  
1026.37(c) and 1026.38(c) when the creditor elects to treat a multiple-
advance construction loan that may be permanently financed by the same 
creditor as either one transaction or more than one transaction 
pursuant to Sec.  1026.17(c)(6)(ii). The Bureau is proposing to amend 
comment app. D-7 to clarify how certain additional, specific disclosure 
requirements of Sec. Sec.  1026.37 and 1026.38 apply in the unique 
context of construction and construction-permanent loans and to provide 
additional methods that creditors may use, at their option, to estimate 
and disclose those terms. In so doing, the Bureau proposes to preserve 
and further clarify the content of existing comments app. D-7.i and -
7.ii, regarding the disclosure of the projected payments tables, in new 
comment app. D-7.vi. The proposed amendments to comment app. D-7 are 
further discussed below.
    The Bureau proposes to exercise its authority under TILA section 
105(a) and Dodd-Frank Act section 1032(a) to amend appendix D to 
Regulation Z by revising the guidance provided concerning appendix D. 
The Bureau believes the adjustments described below effectuate the 
purposes of TILA under TILA section 102(a), because they 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, these adjustments 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.
Loan Term
    Proposed comment app. D-7.i would clarify how a creditor may 
disclose the loan term, pursuant to Sec. Sec.  1026.37(a)(8) and 
1026.38(a)(5)(i), for a construction-permanent loan, taking into 
account the fact that such loans may be disclosed as one transaction or 
as more than one transaction. Under proposed comment app. D-7.i.A, if 
the creditor discloses the construction and permanent financing as a 
single transaction, the loan term disclosed would be the total combined 
term of the construction period and the permanent period. To illustrate 
this result, the proposed comment provides an example of how to 
disclose the loan term when a single set of disclosures is used for the 
combined construction-permanent loan. In the example, if the term of 
the construction period is 12 months and the term of the permanent 
period is 30 years, and both phases are disclosed as a single 
transaction, the loan term

[[Page 54358]]

disclosed is 31 years. Proposed comment app. D-7.i.A also includes a 
cross-reference to comment 37(a)(8)-3, which explains that, in 
accordance with Sec.  1026.17(c)(3) and its accompanying commentary, 
the effect of minor variations in the number of days counted for the 
months or years of a loan may be disregarded for purposes of the loan 
term disclosure.
    Proposed comment app. D-7.i.B clarifies how to disclose the term of 
the permanent phase of a construction-permanent loan when the creditor 
elects to disclose the two phases as separate transactions. Because the 
permanent phase may be consummated and disclosed at the same time as 
the construction phase and may also be disclosed as a separate 
transaction with payments that do not begin until months after 
consummation, creditors have reported some uncertainty about when to 
begin counting the loan term of the permanent phase for disclosure 
purposes. Proposed comment app. D-7.i.B explains that, consistent with 
proposed comment 37(a)(8)-3, the loan term of the permanent financing 
is counted from the date that interest for the first scheduled periodic 
payment of the permanent financing begins to accrue, regardless of when 
the permanent phase is disclosed.
Product
    Proposed comment app. D-7.ii would explain how to disclose the 
duration of the ``Interest Only'' feature of a construction loan or the 
construction phase of a construction-permanent loan under Sec. Sec.  
1026.37(a)(10)(ii)(B) and 1026.38(a)(5)(iii). The duration of the 
interest only period depends on whether the construction phase is 
disclosed separately, which would be covered by proposed comment app. 
D-7.ii.A, or as a combined transaction with the permanent phase, which 
would be covered by proposed comment app. D-7.ii.B.
    Section 1026.37(a)(10) requires disclosure of the loan product, 
including the features that may change the periodic payment on the 
loan. Section 1026.37(a)(10)(iv) requires disclosure of the duration of 
the payment period of certain of the loan features, including the 
``Interest Only'' feature under Sec.  1026.37(a)(10)(ii)(B). Disclosure 
of an ``Interest Only'' feature is required if the loan does not have a 
negative amortization feature and one or more regular periodic payments 
may be applied only to interest accrued and not to the loan principal. 
The duration of the ``Interest Only'' payment period, therefore, counts 
the regular periodic payments that may be applied only to interest 
accrued and not to the loan principal.
    In a construction loan disclosure or when a separate disclosure is 
provided for the construction phase of a construction-permanent loan, 
the final payment will typically be a balloon payment that is the sum 
of the final interest payment and the loan principal. As a payment that 
includes principal, the final balloon payment is not counted for 
purposes of determining the duration of the ``Interest Only'' payment 
period. This means, for example, that the product disclosure for a 
fixed rate construction loan with a term of one year is ``11 mo. 
Interest Only, Fixed Rate.'' Proposed comment app. D-7.ii.A would 
provide this explanation and example.
    Proposed comment app. D-7.ii.B would explain that, if a single, 
combined construction-permanent disclosure is provided, the time period 
of the interest only feature that is disclosed as part of the product 
disclosure under Sec. Sec.  1026.37(a)(10) and 1026.38(a)(5)(iii) is 
the full term of the interest only construction financing. In such 
cases, the construction and permanent phases are considered together as 
a single loan or transaction, and there is no balloon payment of 
principal and interest at the end of the construction phase. Proposed 
comment app. D-7.ii.B would provide an example explaining that a 
creditor discloses the ``Product'' for a fixed rate, construction-
permanent loan with an interest only construction phase of 12 months as 
``1 Year Interest Only, Fixed Rate.''
Interest Rate
    Proposed comment app. D-7.iii would explain the disclosure of the 
interest rate in a construction-permanent loan pursuant to Sec. Sec.  
1026.37(b)(2) and 1026.38(b). The comment addresses a unique aspect of 
construction-permanent loans: If the permanent phase is disclosed at 
the same time as the construction phase, either in a combined 
disclosure with the construction phase or in a separate disclosure of 
only the permanent phase, the interest rate of the permanent financing 
may not be known because the conversion to permanent financing may not 
take place for several months. If the permanent financing has an 
adjustable rate and separate disclosures are provided, the proposed 
comment would state that the rate disclosed for the permanent financing 
is the fully-indexed rate pursuant to Sec.  1026.37(b)(2) and its 
commentary. If the permanent financing has a fixed rate, proposed 
comment app. D-7.iii would clarify that the rate disclosed is based on 
the best information reasonably available at the time the disclosures 
are made and would include a cross-reference to comments 19(e)(1)(i)-1 
and 19(f)(1)(i)-2, which provide explanation of the best information 
reasonably available standard. The proposed comment would also provide 
instruction on post-consummation disclosures that may be required if 
the creditor may modify the rate disclosed for the permanent financing 
when the construction financing converts to permanent financing. If 
such a modification of the interest rate occurs at the time of 
conversion and results in a payment change, the creditor must provide 
the rate and adjustment disclosures required by Sec.  1026.20(c) at 
least 60 days, and no more than 120 days, before the first payment at 
the adjusted level is due, without regard to whether the permanent 
financing has a fixed, adjustable, or step rate. The Bureau seeks 
comment on the appropriateness of the provision of the Sec.  1026.20(c) 
disclosures in connection with the conversion to permanent financing 
and any operational changes for creditors in a construction-permanent 
loan context to provide the rate and adjustment disclosure required by 
Sec.  1026.20(c) at least 60 days, and no more than 120 days, before 
the first payment at the adjusted level is due.
Initial Periodic Payment
    Proposed comment appendix D-7.iv would clarify that the general 
rule of Sec.  1026.17(c)(3), which allows creditors to disregard the 
effects of certain minor variations in making calculations and 
disclosures, applies to the appendix D calculation of the initial 
periodic payment amount disclosed under Sec. Sec.  1026.37(b)(3) and 
1026.38(b). For example, the effect of the fact that months have 
different numbers of days may be disregarded in making the disclosure.
Increase in Periodic Payment
    Section 1026.37(b)(6) requires a creditor to provide an affirmative 
or negative answer to the question, ``Can this amount increase after 
closing?'' with respect to certain amounts, including the initial 
periodic payment amount disclosed under Sec.  1026.37(b)(3). Creditors 
have asked the Bureau what answer may be provided to this question in 
the case of construction financing if the actual schedule of advances 
is not known. Proposed comment app. D-7.v explains that, in general, 
the answer a creditor provides will depend upon whether the 
construction financing has a fixed rate or an adjustable rate. Proposed 
comment app. D-7.v.A and B

[[Page 54359]]

discusses the disclosure of fixed-rate construction financing, and 
proposed comment app. D-7.v.C discusses the disclosure of adjustable-
rate construction financing.
    The payments made during the construction phase are often interest-
only payments. The amount of any particular interest-only payment on a 
construction loan is typically determined by applying the contract 
interest rate to the amounts advanced. The amounts advanced may be tied 
to construction milestones and the total of the amounts advanced will 
increase with each milestone, usually resulting in increases in the 
amounts of the interest-only payments that become due. If the 
construction financing has a fixed rate, the periodic interest-only 
payments will increase over the term of the loan, reflecting increases 
in the amounts advanced. If the construction financing has an 
adjustable rate, the periodic interest-only payments may also increase 
over time, but the increase may be due to both an increase in the 
adjustable interest rate and increases in the amounts advanced.
    A creditor may use the methods in appendix D to estimate interest 
and make disclosures for construction loans if the actual schedule of 
advances is not known. The calculation of the periodic payments in a 
fixed-rate construction loan using appendix D produces interest-only 
periodic payments that are equal in amount. Although the actual 
interest-only payments will increase over the term of the construction 
financing as the amounts advanced increase, because the methods 
provided by appendix D to estimate interest may be used to make 
disclosures, a technically correct and compliant answer to ``Can this 
amount increase after closing?'' is ``NO.'' The periodic payments for 
fixed rate construction financing, as calculated under appendix D, do 
not increase but are equal.
    Creditors nonetheless have expressed concern over providing an 
answer of ``NO'' to the question, ``Can this amount increase after 
closing?'' This technically correct disclosure may not reflect the 
actual increase in payments that will occur over the term of the 
construction financing, even though the amount of such increases is not 
known at or before consummation. The Bureau is therefore proposing 
comment app. D-7.v.A to explain that a creditor may disclose the 
initial periodic payment using appendix D and nevertheless may answer 
``YES'' to the question, ``Can this amount increase after closing?'' 
Comment app. D-7.v.A would also explain that a technically correct 
answer to ``Can this amount increase after closing'' is ``NO.''
    Proposed comment app. D-7.v.B would explain that, if separate 
disclosures are provided for fixed-rate construction financing and 
appendix D is used to compute the periodic payment, the disclosures 
under Sec.  1026.37(b)(6)(iii) and the disclosure of a range of 
payments under Sec.  1026.37(c)(2)(i) may be omitted. As discussed 
above, the periodic payments calculated under appendix D for a fixed 
rate loan are equal. Consequently, a creditor in that case does not 
provide the increase in periodic payments disclosures under Sec.  
1026.37(b)(6)(iii), such as the due date of the first adjusted 
principal and interest payment or a reference to the adjustable 
payments table required by Sec.  1026.37(i). Such a creditor also does 
not disclose the principal and interest payment under Sec.  
1026.37(c)(2)(i) as a range of payments in the projected payments 
table, even though the interest-only payments would increase over the 
term of the construction financing, reflecting increases in the total 
amount advanced.
    As a practical matter, there is no method for calculating the Sec.  
1026.37(b)(6)(iii) and (c)(2)(i) disclosures as they relate to changes 
in the total amount advanced in construction financing when the amounts 
or timing of advances is unknown at or before consummation. Any method 
devised to take into account increases in the total amount advanced 
would introduce significant complexity and would have to differ from 
the method used for calculating the initial periodic payment under 
appendix D, which assumes a single amount outstanding for the entire 
construction period. The Bureau does not believe that increasing the 
complexity of compliance would serve the purpose of this proposal, 
which is to provide instructions and clarity for the existing 
disclosure requirements.
    Proposed comment app. D-7.v.C would clarify that, if separate 
disclosures are provided for adjustable-rate construction financing and 
appendix D is used to calculate the periodic payment, the disclosures 
reflect the changes that are due to changes in the interest rate but 
not the changes that are due to changes in the amounts advanced and 
provides an illustrative example. While a creditor extending fixed-rate 
construction financing may answer either ``YES'' or ``NO'' as the 
answer to the question, ``Can this amount increase after closing?,'' 
because payments may increase based on increases in advances, proposed 
comment app. D-7.v.C. states that a creditor extending adjustable-rate 
construction financing would disclose ``YES'' as the answer to the 
question, ``Can this amount increase after closing?'' When a creditor 
extends adjustable rate construction financing, unlike when it extends 
fixed rate construction financing, payments may increase based on an 
increase in the adjustable interest rate as well as an increase in the 
amount advanced. Because the payments may increase in such cases, 
without regard to the amount of advances, a creditor would disclose 
``YES'' as the answer to the question, ``Can this amount increase after 
closing?'' and ``NO'' would not be a technically correct answer.
    Proposed comment app. D-7.v.C. would also clarify that, for 
adjustable-rate construction financing, a creditor must provide 
disclosures reflecting, changes that are due to changes in the interest 
rate, but may omit disclosures reflecting changes that are due to 
changes in the total amount advanced. Proposed comment app. D-7.v.C. 
would explain that the creditor may omit the adjustable payment table 
disclosure required by Sec.  1026.37(i) because the disclosure would 
reflect a change due to a change in the total amount advanced. 
Consistent with these disclosures, the creditor also discloses a range 
of payments in the principal and interest row of the projected payments 
table under Sec.  1026.37(c)(2)(i).
Projected Payments Table
    Comment app. D-7 currently addresses only the disclosure of a 
projected payments table under Sec. Sec.  1026.37(c) and 1026.38(c). 
Comment app. D-7.i provides an illustration of the construction phase 
projected payments table disclosure if the creditor elects to disclose 
the construction and permanent phases as separate transactions. Comment 
app. D-7.ii provides an illustration of the projected payments table 
disclosure if the creditor elects to disclose the construction and 
permanent phases as a single transaction. Current comment app. D-7.i 
would be restated in proposed new comment app. D-7.vi.A. Clarifying 
language would be added to specify that 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 if interest is 
payable only on the amount actually advanced for the time it is 
outstanding. Language consistent with informal guidance provided by the 
Bureau would also be added to clarify that the existing language ``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

[[Page 54360]]

1026.38(a)(5)(iii)'' applies, unless the transaction has negative 
amortization, interest only, or step payment features, consistent with 
Sec.  1026.37(a)(10)(iii). To provide more complete explanations 
concerning balloon payments, references to the balloon payment 
disclosures under Sec. Sec.  1026.37(b)(5), 1026.37(b)(7)(ii), and 
1026.38(b) would be added to the existing statement that the creditor 
must disclose the balloon payment in the projected payments table.
    Current comment app. D-7.ii would be restated in proposed new 
comment app. D-7.vi.B. Language consistent with informal guidance 
provided by the Bureau would be added to clarify existing language 
stating that ``the projected payments table must reflect the interest-
only payments during the construction phase in a first column.'' As 
proposed, the comment would explain that the first column also reflects 
the amortizing payments for the permanent phase if the term of the 
construction phase is not a full year. This clarification would ensure 
consistency with Sec.  1026.37(c)(1)(iii)(B), which requires disclosure 
of a range of payments if the periodic principal and interest payment 
or range of payments may change during the same year as the initial 
periodic payment or range of payments. A clarifying revision would also 
be added to proposed comment app. D-7.vi.B, noting that 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, 
if interest is payable only on the amount actually advanced for the 
time it is outstanding.
Construction Costs as ``Other'' Costs
    Proposed comment app. D-7.vii.A would explain the amount of 
construction costs is disclosed under the subheading ``Other'' under 
Sec.  1026.37(g)(4), consistent with informal guidance provided by the 
Bureau and the proposed changes to Sec.  1026.37(g)(4). Section 
1026.37(g)(4) requires disclosure of any other amounts in connection 
with the transaction that 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. Construction costs are costs that the 
consumer contracts, at or before closing, to pay in whole or in part 
with loan proceeds under Sec.  1026.37(g)(4). Because the creditor is 
making the loan, in whole or in part, to cover construction costs and 
is therefore aware of such costs at the time of issuing the Loan 
Estimate, the requirements for disclosure under Sec.  1026.37(g)(4) are 
met.
    This proposed comment is consistent with proposed amendments to 
comment 37(g)(4)-4, which would provide that, in situations where the 
cost of improvements on the property is financed by a builder that is 
also the creditor, such costs are disclosed under Sec.  1026.37(g)(4). 
The amount of construction costs is therefore disclosed under the 
subheading ``Other'' pursuant to Sec.  1026.37(g)(4).
    Proposed comment app. D-7.vii.B would clarify disclosure of a 
portion of a construction loan's proceeds that is placed in a reserve 
or other account at consummation. Such amounts are sometimes referred 
to as a ``construction holdback.'' Consistent with informal guidance 
provided by the Bureau, the proposed comment would explain that the 
amount of such an account may be disclosed separately from other 
construction costs or may be included in the amount disclosed for 
construction costs for purposes of required disclosures and 
calculations under Sec. Sec.  1026.37 and 1026.38, at the creditor's 
option. If the creditor chooses to disclose the amount of loan proceeds 
placed in a reserve or other account at consummation separately, the 
creditor may disclose the amount as a separate itemized cost, along 
with a separate itemized cost for the balance of the construction 
costs, in accordance with Sec.  1026.37(g)(4). The amount may be 
labeled with any accurate term, so long as any label the creditor uses 
is in accordance with the clear and conspicuous standard explained at 
comment 37(f)(5)-1. If the amount is disclosed separately, the balance 
of construction costs must exclude the designated amount to avoid 
double counting.
Construction Loan Inspection and Handling Fees
    Proposed comment app. D-7.viii would provide instructions for the 
disclosure of construction loan inspection and handling fees consistent 
with informal guidance provided by the Bureau. The proposed comment 
explains that comment 4(a)-1.ii.A identifies inspection and handling 
fees for the staged disbursement of construction loan proceeds as 
finance charges. The proposed comment would also provide cross-
references to proposed comments 37(f)-3, 37(f)(6)-3, and 38(f)-2, which 
are discussed in the section-by-section analysis above. The Bureau 
believes that, by directing readers of the appendix D commentary to 
these other comments, proposed comment app. D-7.viii would facilitate 
compliance.
Appendix H--Closed-End Forms and Clauses
    Appendix H to Regulation Z includes blank forms illustrating the 
master headings, headings, subheadings, etc., that are required by 
Sec. Sec.  1026.37 and 1026.38, i.e., forms H-24(A) and (G), H-25(A) 
and (H) through (J), and H-28(A), (F), (I), and (J) (together, the 
integrated disclosure model forms). The titles of those blank forms 
each include the designation ``Model Form.'' Appendix H to Regulation Z 
also includes non-blank forms providing samples of disclosures, i.e., 
forms H-24(B) through (F), H-25(B) through (G), and H-28(B) through 
(E), (G), and (H) (together, the integrated disclosure samples). The 
titles of those non-blank forms each include the designation 
``Sample''.
    Pursuant to TILA section 105(b), a creditor is deemed to be in 
compliance with TILA's disclosure provisions with respect to other than 
numerical disclosures if the creditor uses any appropriate model form 
or clause as published by the Bureau.\99\ Accordingly, use of an 
appropriate integrated disclosure model form, if properly completed 
with accurate content, constitutes compliance with the requirements of 
Sec.  1026.37 or Sec.  1026.38, as applicable. Moreover, under 
Sec. Sec.  1026.37(o)(3) and 1026.38(t)(3), use of an appropriate 
integrated disclosure model form is mandatory for a transaction that is 
a federally related mortgage loan (as defined in Regulation X). That 
information is also noted in Regulation Z comment app. H-30. However, 
in comment app. H-30, the Bureau did not distinguish between the 
integrated disclosure model forms and the integrated disclosure samples 
and, instead, refers to all forms H-24(A) through (G), H-25(A) through 
(J), and H-28(A) through (J) as ``model forms.''
---------------------------------------------------------------------------

    \99\ 15 U.S.C. 1604(b). A creditor may delete any information 
which is not required by TILA or rearrange the format, if in making 
such deletion or rearranging the format, the creditor does not 
affect the substance, clarity, or meaningful sequence of the 
disclosure. Id.
---------------------------------------------------------------------------

    The Bureau understands that, because of the overbroad reference to 
``model forms'' in comment app. H-30, uncertainty exists whether 
creditors may rely on the integrated disclosure samples to demonstrate 
compliance with the requirements of Sec.  1026.37 or Sec.  1026.38, as 
applicable. Unlike the integrated disclosure model forms, whose 
respective titles include the designation ``Model Form,'' the 
integrated disclosure samples are not model forms providing safe harbor

[[Page 54361]]

protection. Rather, the integrated disclosure samples are illustrations 
of particular disclosures; these samples are not a substitute for the 
text of Sec. Sec.  1026.37 and 1026.38 and the commentary to those 
sections.
    The Bureau is proposing to revise comment app. H-30 to distinguish 
between the integrated disclosure model forms and the integrated 
disclosure samples. Thus, proposed comment app. H-30 would state that 
the integrated disclosure model forms, specifically forms H-24(A) and 
(G), H-25(A) and (H) through (J), and H-28(A), (F), (I), and (J), are 
model forms for the disclosures required under Sec. Sec.  1026.37 and 
1026.38. Moreover, proposed comment app. H-30 would state that, under 
Sec. Sec.  1026.37(o)(3) and 1026.38(t)(3), for federally related 
mortgage loans forms H-24(A) (or, alternatively, H-24(G)) and H-25(A) 
(or, alternatively, H-25(H), (I) or (J)) are standard forms required to 
be used for the disclosures required under Sec. Sec.  1026.37 and 
1026.38, respectively.
    The Bureau also has received inquiries as to whether there are 
inaccurate calculations or other errors in the integrated disclosure 
samples as published and whether, if so, such inaccurate content has 
any legal consequence or effect. As noted above, even if such errors 
exist, the integrated disclosure samples, unlike the integrated 
disclosure model forms, are not controlling authority for any purpose. 
Accordingly, they should not be read as changing or overriding the 
requirements of Sec. Sec.  1026.37 and 1026.38, which are the 
controlling authorities regarding the disclosures' content. Sample 
forms are provided by the Bureau purely for illustration and as an aid 
to compliance. Because any errors in the integrated disclosure samples 
have such limited legal consequences, the Bureau has not conducted a 
systematic review of their accuracy; should the Bureau undertake such a 
review in the future and identify errors, it will adopt appropriate 
revisions.

VI. Dodd-Frank Act Section 1022(b)(2) Analysis

A. Overview

    In developing the proposed rule, the Bureau has considered the 
potential benefits, costs, and impacts.\100\ The Bureau requests 
comment on the preliminary analysis presented below as well as 
submissions of additional data that could inform the Bureau's analysis 
of the benefits, costs, and impacts. The Bureau has consulted, or 
offered to consult with, the prudential regulators, the Securities and 
Exchange Commission, the Department of Housing and Urban Development, 
the Federal Housing Finance Agency, the Federal Trade Commission, the 
U.S. Department of Veterans Affairs, the U.S. Department of 
Agriculture, and the Department of the Treasury, including regarding 
consistency with any prudential, market, or systemic objectives 
administered by such agencies.
---------------------------------------------------------------------------

    \100\ 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.
---------------------------------------------------------------------------

    This proposal would make four substantive changes to the TILA-RESPA 
Final Rule, along with other clarifications, minor changes, and 
technical corrections: tolerances for the total of payments, adjustment 
of the partial exemption under Sec.  1026.3(h); coverage of loans 
secured by cooperative units, whether or not treated as real property 
under State law; rules concerning the information sharing between the 
parties involved in a mortgage transaction. This section discusses the 
first three of those substantive changes. The fourth change is 
discussed elsewhere in the preamble. The potential benefits and costs 
of the provisions contained in the proposed rule are evaluated relative 
to the baseline where the current provisions of the TILA-RESPA Rule 
remain in place.
    The first of these three substantive changes would provide 
tolerances for the total of payments that parallel the existing 
tolerances for the finance charge. Prior to the TILA-RESPA Final Rule, 
the calculation of the total of payments was based directly on the 
finance charge. As a result, the disclosure of the total of payments 
was generally subject to the statutory tolerance for the finance 
charges and disclosures affected by the finance charge. Because the 
calculation of the total of payments, as revised in the TILA-RESPA 
Final Rule, is now no longer based directly on the calculation of the 
finance charge, ambiguity exists as to the applicability of the 
statutory tolerance for the finance charge to the total of payments. 
The Bureau would resolve this ambiguity by expressly applying a 
parallel tolerance to the total of payments.
    The second change would adjust the partial exemption under Sec.  
1026.3(h) from the integrated disclosures, which, as cross-referenced 
at Sec.  1024.5(d)(2), also provides an exemption from the RESPA 
disclosures. If a creditor is not required to provide the integrated 
disclosures and is not eligible for the partial exemption under Sec.  
1026.3(h), the creditor must provide the pre-existing RESPA 
disclosures. The partial exemption often applies to low-cost down 
payment or other types of housing assistance loans originated by 
housing finance agencies (HFAs) or by creditors that partner with HFAs 
and originate loans in accord with HFA guidelines. The partial 
exemption was designed to facilitate such low cost lending by HFA's and 
their partners in the recognition that such loans provide consumers 
with significant benefits.
    The Bureau has heard from HFAs and others that, in some 
jurisdictions, the applicability of the partial exemption has been 
limited. In order to satisfy the partial exemption, the total costs on 
the loan, payable by the consumer at consummation, including transfer 
taxes and recording fees, cannot exceed 1 percent of the total amount 
of credit extended. Many HFAs have told the Bureau that, due to the 
increase in both transfer taxes and recording fees in recent years and 
the small size of many of these loans, often less than $5,000, these 
loans often have upfront costs exceeding the 1 percent threshold. 
Consequently, these loans do not meet criteria for the partial 
exemption in Sec.  1026.3(h)(5), and creditors must provide consumers 
with the RESPA disclosures, unless the creditor is otherwise obligated 
to provide the integrated disclosures.
    The divisions of creditors who work most closely with HFAs may not 
have experience with the other loan products, such as reverse 
mortgages, that also still require the provision of the RESPA 
disclosures. Software systems used by HFAs also may no longer support 
the RESPA disclosures, making it necessary to complete the RESPA 
disclosures manually. Manual completion of the disclosures, while 
compliant, may be costly and error-prone. As a result of these 
operational complexities, some creditors may be less willing to work 
with HFAs and other organizations to continue providing these housing 
assistance loans. As adjusted, the exemption would make explicit that 
transfer taxes are among the permissible costs for these loans and 
provide that neither transfer taxes nor recording fees count towards 
the 1 percent threshold, thus expanding the scope of the partial 
exemption for the low-cost and deferred or contingent repayment lending 
described by Sec.  1026.3(h).
    The third change is to include loans secured by cooperative units 
in the TILA-RESPA Rule's coverage, whether or not cooperative units are 
treated as real property under applicable State

[[Page 54362]]

law. As discussed in the section-by-section analysis of Sec.  1026.19, 
State law varies, sometimes even within the same State, as to whether 
cooperative units are treated as real property. The proposed change 
would create uniform application, with the integrated disclosures 
issued for all covered transactions secured by cooperative units.
    The proposed rule also includes a variety of minor changes and 
technical corrections. Among these changes is a proposed requirement to 
provide the post-consummation escrow cancellation and partial payment 
disclosures regardless of application date. This proposed change is 
discussed further below.
    The Bureau seeks comment on data that would help to quantify costs 
and benefits and any associated burden with the proposed changes. 
Specifically, the Bureau is seeking information on the incidence of 
errors in the total of payments calculation on the Closing Disclosure 
and on the magnitude of such errors. Further, the Bureau is seeking 
input on the nationwide volume of loans that satisfy all conditions of 
Sec.  1026.3(h) but whose upfront costs exceed 1 percent of the loan 
amount. The Bureau is also seeking information on current practices by 
servicers and other covered persons regarding the issuance of post-
consummation disclosures (escrow cancellation disclosure, partial 
payment disclosure). The Bureau is further seeking data on the number 
of transactions secured by cooperative units where applicable State law 
does not unambiguously treat cooperative units as real property.
    The Bureau is requesting any other data that would assist in 
quantifying the costs and benefits of this proposal.

B. Potential Benefits and Costs to Consumers and Covered Persons

Tolerance for Total of Payments
    Under the proposed rule, the same tolerances would apply to the 
total of payments as apply, by statute, to the finance charge. The 
Bureau is concerned that, absent the explicit application of the 
finance charge tolerances to the total of payments, even a minor error 
in the calculation of the total of payments could potentially result in 
claims under TILA.
    The Bureau believes that the proposed change, if adopted, would 
benefit creditors, in the limited circumstances where a small, within 
tolerance, error in total of payments calculation occurs. Creditors and 
their assignees would be less likely to face litigation, and its 
accompanying costs and risks, over minor errors. The Bureau also 
believes that the provision of an explicit tolerance for the total of 
payments may ease liquidity constraints in the secondary market. There 
is evidence that, in the current marketplace, investors are concerned 
with litigation risks associated with loans that are affected by even 
minor disclosure-related errors. The proposal could benefit creditors 
by alleviating investor concern regarding risks associated with small 
errors in the total of payments calculation.
    Two factors could reduce the magnitude of these benefits. First, 
the Bureau has no information to indicate that there have yet been any 
claims based on a misdisclosure of the total of payments that would be 
covered by the proposed tolerance, nor is the Bureau aware of evidence 
to date to suggest that, specifically, errors in the total of payments 
have created difficulties for creditors in selling these loans. 
Investors, consequently, may not have specific concerns about errors in 
the total of payments. If investor concerns are minimal now, 
alleviating them further many not provide much benefit to creditors. 
Second, the relative benefits of the proposed change to creditors also 
would be reduced to the extent that affected creditors would be able to 
pass some of these costs on to consumers, in the form of higher prices, 
in the event the proposed change is not adopted.
    The Bureau does not believe that creditors would bear any 
associated costs from the proposed change.
    To the extent creditors would increase the price of credit in the 
absence of the adoption of explicit tolerance for the total of 
payments, consumers could benefit from the adoption of the tolerances 
through a reduced cost of credit. To date, the Bureau has no evidence 
that creditors have increased the cost of credit; therefore, the 
benefits to consumers from the proposed provision are discounted by the 
possibility that such issues may not materialize in the future even 
absent the change the Bureau is proposing.
    The proposed rule may potentially create costs to consumers 
stemming from less precise disclosures of the total of payments. 
However, such costs would arise only in a narrow set of circumstances 
where: a) the error is small; b) the creditor would have avoided such 
error in the absence of tolerances, and, importantly, c) the error 
creates costs to the consumer. The Bureau is unable to quantify the 
incidence and the magnitude of such costs, and is seeking comment on 
the issue.
Excluding Recording Fees and Transfer Taxes From Sec.  1026.3(h) 
Exemption Requirements
    Under the proposed rule, State and local recording fees and 
transfer taxes would be excluded from the calculation of the 1 percent 
threshold (as specified in Sec.  1026.3(h)(5)). As a result, the Sec.  
1026.3(h) partial exemption would be available for some loans that 
currently do not satisfy Sec.  1026.3(h)(5) but satisfy the other 
provisions of Sec.  1026.3(h). Creditors issuing loans would be 
exempted from providing the RESPA disclosures and would only have to 
provide a TILA disclosure (as per Sec.  1026.18).
    This provision, if adopted, would benefit creditors by allowing 
them to provide the more streamlined disclosures under Sec.  1026.18 in 
connection with loans that satisfy the partial exemption at Sec.  
1026.3(h). The Bureau does not believe that creditors would bear any 
associated costs from the proposed provision.
    This provision could benefit consumers by making down payment 
assistance loans and other non-interest bearing housing assistance 
loans potentially more accessible. While the Bureau notes that the 
Sec.  1026.18 disclosures do not require the provision of the full 
level of detailed disclosures required either by RESPA or under the 
TILA-RESPA integrated disclosures, the loans eligible for the partial 
exemption under Sec.  1026.3(h) generally have a simpler cost structure 
that the Bureau believes is adequately communicated by the Sec.  
1026.18 TILA disclosures.
Including Cooperatives in the Coverage of the TILA-RESPA Final Rule
    Under the proposed change, consumer credit transactions secured by 
a cooperative unit would be covered by the TILA-RESPA Rule, whether or 
not applicable State law treats cooperative units as real property. The 
proposed change would benefit creditors who originate mortgages on 
cooperative units by eliminating any uncertainty regarding the 
applicable disclosures. Creditors who currently issue RESPA disclosures 
for loans secured by cooperative units would have to switch to the 
integrated disclosure on such loans. The Bureau believes the cost of 
such change to be minimal: the systems that generate the integrated 
disclosures must already be in place for other types of property.
    The proposed change would benefit consumers who borrow against 
cooperative units in States where such units are treated as personal 
property under applicable State law. Such

[[Page 54363]]

consumers would receive an integrated disclosure which, the Bureau 
believes, is better designed to communicate cost information than is 
the legacy RESPA disclosure.
Minor Changes and Technical Corrections
    The Bureau believes that the proposed minor changes and technical 
corrections would generally benefit creditors by helping them to comply 
with the law in a more cost-effective way. One provision with a 
potential cost for creditors is the proposed change to the post-
consummation disclosures.
    Under the proposed change, the escrow cancellation notice required 
by Sec.  1026.20(e) and the partial payment disclosure required by 
Sec.  1026.39(d)(5) would be provided for all loans, not only those 
with an application date on or after October 3, 2015. Servicers and 
other covered persons that currently do not provide such disclosures 
for loans with an application before October 3, 2015, may incur 
additional costs, if the provision is adopted. The Bureau does not 
believe these costs to be significant because the systems that generate 
such disclosures must already be in place, in order to provide 
disclosures for loans with application dates on or after October 3, 
2015. The additional cost would only consist of printing and mailing 
such disclosures and of a programming change to software to remove any 
tracking by application date. Moreover, the Bureau believes that most 
servicers and other covered persons have already adopted a uniform 
approach to post-consummation disclosures, as it is both compliant with 
the existing regulations and is cost-saving: Under the uniform 
approach, covered persons have no need to verify the application date 
when providing escrow cancellation notices under Sec.  1026.20(e), nor 
do they need to maintain two separate mortgage transfer disclosures to 
comply with Sec.  1026.39(d)(5).
    Consumers would benefit from the proposed change by receiving 
timely and accurate disclosures.

C. Impact on Covered Persons With No More Than $10 Billion in Assets

    The Bureau believes that covered persons with no more than $10 
billion in assets will not be differentially affected by the proposed 
provisions. A possible exception are creditors that provide loans that 
satisfy criteria in Sec.  1026.3(h): To the extent that the majority of 
such creditors have $10 billion or less in assets, the proposed 
exemption of recording fees and transfer taxes from the Sec.  1026.3(h) 
requirements would create a disproportional benefit for covered persons 
in that asset category.

D. Impact on Access to Credit

    As pointed out above, the proposed exemption of recording taxes and 
fees from the Sec.  1026.3(h) requirements has a potential of improving 
access to housing assistance loans for consumers. In addition, a 
reduction in ambiguity regarding compliance with the law generally may 
improve access to credit for all consumers. The Bureau does not believe 
that any of the proposed changes are likely to have an adverse impact 
on access to credit.

E. Impact on Rural Areas

    The Bureau believes that none of the proposed changes is likely to 
have an adverse impact on consumers in rural areas. To the extent that 
cooperative units are mostly located in urban areas, consumers in rural 
areas may receive little or no benefit from the proposed change 
regarding loans secured by cooperative units.

VII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (the RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small nonprofit organizations. The RFA defines a ``small business'' as 
a business that meets the size standard developed by the Small Business 
Administration pursuant to the Small Business Act.
    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. 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.
    As discussed above, the Bureau believes that none of the proposed 
changes would create a significant impact on covered persons, including 
small entities. Therefore, an IRFA is not required for this proposal.

VIII. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), Federal agencies are generally required to seek the Office of 
Management and Budget (OMB) approval for information collection 
requirements prior to implementation. Under the PRA, the Bureau may not 
conduct or sponsor and, notwithstanding any other provision of law, a 
person is not required to respond to an information collection unless 
the information collection displays a valid control number assigned by 
OMB. The collections of information related to Regulations Z and X have 
been previously reviewed and approved by OMB in accordance with the PRA 
and assigned OMB Control Number 3170-0015 (Regulation Z) and 3170-0016 
(Regulation X).
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Bureau conducts a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on new or revised information collection requirements in 
accordance with the PRA (See 44 U.S.C. 3506(c)(2)(A)). This helps 
ensure that the public understands the Bureau's requirements or 
instructions, respondents can provide the requested data in the desired 
format, reporting burden (time and financial resources) is minimized, 
information collection requirements are clearly understood, and the 
Bureau can properly assess the impact of collection requirements on 
respondents.
    The Bureau has determined that this proposed rule will not impose 
any significant change in the paperwork burden on covered persons. 
There will be a modest increase in PRA burden on servicers in 
connection with the requirement to provide post-consummation 
disclosures for loans with application dates prior to October 3, 2015. 
The Bureau currently does not have data to quantify this cost and is 
seeking input on this issue. Furthermore, the proposed inclusion of 
cooperative units in the coverage of the TILA-RESPA Rule would mean 
that for some transactions some creditors would now produce the 
integrated disclosure in lieu of the RESPA disclosure. This change 
represents a replacement of one information collection with another and 
is unlikely to result in a substantial increase in PRA burden.
    A complete description of the information collection requirements, 
including the burden estimate methods, is provided in the information 
collection request (ICR) that the Bureau has submitted to OMB under the 
requirements of the PRA. Please send your comments to the Office of 
Information and Regulatory Affairs, OMB, Attention: Desk Officer for 
the

[[Page 54364]]

Bureau of Consumer Financial Protection. Send these comments by email 
to oira_submission@omb.eop.gov or by fax to (202) 395-6974. If you wish 
to share your comments with the Bureau, please send a copy of these 
comments to the docket for this proposed rule at www.regulations.gov. 
The ICR submitted to OMB requesting approval under the PRA for the 
information collection requirements contained herein is available at 
www.regulations.gov, as well as OMB's public-facing docket at 
www.reginfo.gov.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the Bureau, 
including whether the information will have practical utility; (b) The 
accuracy of the Bureau's estimate of the burden of the collection of 
information, including the validity of the methods and the assumptions 
used; (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) Ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments submitted in response to this notice will be 
summarized and/or included in the request for Office of Management and 
Budget (OMB) approval. All comments will become a matter of public 
record.
    If applicable, the final rule will inform the public of OMB's 
approval of the revised information collection requirements proposed 
herein and adopted in the final rule. If OMB has not approved the 
revised information collection requirements prior to publication of the 
final rule in the Federal Register, the Bureau will publish a separate 
notice in the Federal Register announcing OMB's approval prior to the 
effective date of the final rule.

List of Subjects in 12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth above, the Bureau proposes to amend 
Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart A--General

0
2. Section 1026.1 is amended by revising paragraph (d)(5) to read as 
follows:


Sec.  1026.1  Authority, purpose, coverage, organization, enforcement, 
and liability.

* * * * *
    (d) * * *
    (5) Subpart E contains special rules for mortgage transactions. 
Section 1026.32 requires certain disclosures and provides limitations 
for closed-end credit transactions and open-end credit plans that have 
rates or fees above specified amounts or certain prepayment penalties. 
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 high-
cost mortgages, as defined in Sec.  1026.32(a). 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. Sections 1026.37 and 1026.38 
set forth special disclosure requirements for certain closed-end 
transactions secured by real property or a cooperative unit, as 
required by Sec.  1026.19(e) and (f).
* * * * *
0
3. Section 1026.3 is amended by revising paragraphs (h)(5) and (h)(6) 
to read as follows:


Sec.  1026.3  Exempt transactions.

* * * * *
    (h) * * *
    (5)(i) The costs payable by the consumer in connection with the 
transaction at consummation are limited to:
    (A) Recording fees;
    (B) Transfer taxes;
    (C) A bona fide and reasonable application fee; and
    (D) A bona fide and reasonable fee for housing counseling services; 
and
    (ii) The total of costs payable by the consumer under paragraph 
(h)(5)(i)(C) and (D) of this section is less than 1 percent of the 
amount of credit extended; and
    (6) The creditor complies with all other applicable requirements of 
this part in connection with the transaction, including without 
limitation providing the disclosures required by Sec.  1026.18.

Subpart C--Closed-End Credit

0
4. Section 1026.19 is amended by revising paragraph (e) heading, 
paragraph (e)(1)(i), paragraphs (e)(3)(iii), (e)(3)(iv)(E) and 
(e)(3)(iv)(F), paragraph (f) heading, paragraphs (f)(1)(i), (f)(4)(i), 
and paragraph (g)(1) to read as follows:


Sec.  1026.19  Certain mortgage and variable-rate transactions.

* * * * *
    (e) Mortgage loans--early disclosures--(1) Provision of 
disclosures--(i) Creditor. In a closed-end consumer credit transaction 
secured by real property or a cooperative unit, other than a reverse 
mortgage subject to Sec.  1026.33, the creditor shall provide the 
consumer with good faith estimates of the disclosures in Sec.  1026.37.
* * * * *
    (3) * * *
    (iii) Variations permitted for certain charges. An estimate of any 
of the charges specified in this paragraph (e)(3)(iii) 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 paid by the consumer exceeds the amount disclosed under 
paragraph (e)(1)(i) of this section. For purposes of paragraph 
(e)(1)(i) of this section, good faith is determined under this 
paragraph (e)(3)(iii) even if such charges are paid to affiliates of 
the creditor, so long as the charges are bona fide:
    (A) Prepaid interest;
    (B) Property insurance premiums;
    (C) Amounts placed into an escrow, impound, reserve, or similar 
account;
    (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 under paragraph (e)(1)(vi)(C) of this 
section; and
    (E) Property taxes and other charges paid for third-party services 
not required by the creditor.
    (iv) * * *
    (E) Expiration. The consumer indicates an intent to proceed with 
the transaction more than 10 business days, or more than any additional 
number of days specified by the creditor before the offer expires, 
after the disclosures required under paragraph (e)(1)(i) of this 
section are provided pursuant to paragraph (e)(1)(iii) of this section.
    (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

[[Page 54365]]

provided pursuant to paragraph (e)(1)(iii) of this section, the 
creditor may provide revised disclosures to the consumer if the 
original disclosures required under paragraph (e)(1)(i) of this section 
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 (e)(3)(iv) of 
this section.
* * * * *
    (f) Mortgage loans--final disclosures--(1) Provision of 
disclosures--(i) Scope. In a transaction subject to paragraph (e)(1)(i) 
of this section, the creditor shall provide the consumer with the 
disclosures required under Sec.  1026.38 reflecting the actual terms of 
the transaction.
* * * * *
    (4) Transactions involving a seller--(i) Provision to seller. In a 
transaction subject to paragraph (e)(1)(i) of this section, the 
settlement agent shall provide the seller with the disclosures in Sec.  
1026.38 that relate to the seller's transaction reflecting the actual 
terms of the seller's transaction.
* * * * *
    (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 (required pursuant to 
section 5 of the Real Estate Settlement Procedures Act (12 U.S.C. 2604) 
to help consumers applying for federally related mortgage loans 
understand the nature and cost of real estate settlement services) to a 
consumer who applies for a transaction subject to paragraph (e)(1)(i) 
of this section.
    (i) The creditor shall deliver or place in the mail the special 
information booklet not later than three business days after the 
consumer's application is received. However, if the creditor denies the 
consumer's application before the end of the three-business-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 a transaction, the purpose of which is not the 
purchase of a one-to-four family residential property, including, but 
not limited to, the following:
    (A) Refinancing transactions;
    (B) Closed-end loans secured by a subordinate lien; and
    (C) Reverse mortgages.
* * * * *
0
5. Section 1026.23 is amended by revising paragraphs (g)(1), (g)(2), 
and (h)(2) to read as follows:


Sec.  1026.23  Right of rescission.

* * * * *
    (g) Tolerances for accuracy--(1) One-half of 1 percent tolerance. 
Except as provided in paragraphs (g)(2) and (h)(2) of this section:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than \1/2\ of 1 percent of the face 
amount of the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than \1/2\ of 1 percent of the face 
amount of the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (2) One percent tolerance. In a refinancing of a residential 
mortgage transaction with a new creditor (other than a transaction 
covered by Sec.  1026.32), if there is no new advance and no 
consolidation of existing loans:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than 1 percent of the face amount of 
the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than 1 percent of the face amount of 
the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (h) * * *
    (2) Tolerance for disclosures. After the initiation of foreclosure 
on the consumer's principal dwelling that secures the credit 
obligation:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than $35; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than $35; or
    (B) Is greater than the amount required to be disclosed.

Subpart D--Miscellaneous

0
6. Section 1026.25 is amended by revising paragraph (c)(1) heading to 
read as follows:


Sec.  1026.25  Record retention.

* * * * *
    (c) * * *(1) Records related to requirements for loans secured by 
real property or a cooperative unit--
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
7. Section 1026.37 is amended by revising paragraph (b) introductory 
text, paragraphs (b)(1), (c)(5)(i), (d)(2), (h)(1)(iii), (h)(1)(v), and 
(h)(1)(vii), paragraph (h)(2) heading and introductory text, and 
paragraphs (h)(2)(iii) and (o)(4) to read as follows:


Sec.  1026.37  Content of disclosures for certain mortgage transactions 
(Loan Estimate).

* * * * *
    (b) Loan terms. A separate table under the heading ``Loan Terms'' 
that contains the following information and that satisfies the 
following requirements:
    (1) Loan amount. The total amount the consumer will borrow, as 
reflected by the face amount of the note, labeled ``Loan Amount.''
* * * * *
    (c) * * *
    (5) * * *
    (i) The taxable assessed value of the property securing the 
transaction after consummation, including the value of any improvements 
on the property or to

[[Page 54366]]

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
* * * * *
    (d) * * *
    (2) Optional alternative table for transactions without a seller 
and simultaneous loans for subordinate financing. For transactions that 
do not involve a seller, or for simultaneous loans for subordinate 
financing, instead of the amount and statements described in paragraph 
(d)(1)(ii) of this section, the creditor may alternatively disclose, 
using the label ``Cash to Close'':
    (i) The amount calculated in accordance with (h)(2)(iv) of this 
section;
    (ii) A statement of whether the disclosed estimated amount is due 
from or to the consumer; and
    (iii) A statement referring the consumer to the alternative table 
disclosed under paragraph (h)(2) of this section for details.
* * * * *
    (h) * * *
    (1) * * *
    (iii) Down payment and other funds from borrower. Labeled ``Down 
Payment/Funds from Borrower'':
    (A)(1) In a purchase transaction as defined in paragraph (a)(9)(i) 
of this section, the amount determined by subtracting the sum of the 
loan amount disclosed under paragraph (b)(1) of this section and any 
amount of existing loans assumed or taken subject to that will be 
disclosed under Sec.  1026.38(j)(2)(iv) from the sale price of the 
property disclosed under paragraph (a)(7) of this section, except as 
required by paragraph (h)(1)(iii)(A)(2) of this section;
    (2) In a purchase transaction as defined in paragraph (a)(9)(i) of 
this section, when the sum of the loan amount disclosed under paragraph 
(b)(1) of this section and any amount of existing loans assumed or 
taken subject to that will be disclosed under Sec.  1026.38(j)(2)(iv) 
exceeds the sale price of the property disclosed under paragraph (a)(7) 
of this section, the amount of estimated funds from the consumer as 
determined in accordance with paragraph (h)(1)(v) of this section; or
    (B) In all transactions not subject to paragraph (h)(1)(iii)(A) of 
this section, the estimated funds from the consumer as determined in 
accordance with paragraph (h)(1)(v) of this section;
* * * * *
    (v) Funds for borrower. The amount of funds for the consumer, 
labeled ``Funds for Borrower.'' The amount of funds from the consumer 
disclosed under paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this 
section, as applicable, and of funds for the consumer disclosed under 
this paragraph (h)(1)(v), are determined by subtracting the sum of the 
loan amount disclosed under paragraph (b)(1) of this section and any 
amount of existing loans assumed or taken subject to that will be 
disclosed under Sec.  1026.38(j)(2)(iv) (less any amount disclosed 
under paragraph (h)(1)(ii) of this section) from the total amount of 
all existing debt being satisfied in the transaction;
    (A) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a positive number, such amount is disclosed under 
paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as 
applicable, and $0 is disclosed under this paragraph (h)(1)(v);
    (B) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a negative number, such amount is disclosed under this 
paragraph (h)(1)(v) as a negative number, and $0 is disclosed under 
paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as 
applicable;
    (C) If the calculation under this paragraph (h)(1)(v) yields $0, 
then $0 is disclosed under paragraph (h)(1)(iii)(A)(2) or 
(h)(1)(iii)(B) of this section, as applicable, and under this paragraph 
(h)(1)(v);
* * * * *
    (vii) Adjustments and other credits. The amount of all loan costs 
determined under paragraph (f) and other costs determined under 
paragraph (g) that are paid by persons other than the loan originator, 
creditor, consumer, or seller, together with any other amounts that are 
required to be paid by the consumer at closing pursuant to a purchase 
and sale contract, labeled ``Adjustments and Other Credits''; and
* * * * *
    (2) Optional alternative calculating cash to close table for 
transactions without a seller and simultaneous loans for subordinate 
financing. For transactions that do not involve a seller, or for 
simultaneous loans for subordinate financing, instead of the table 
described in paragraph (h)(1) of this section, the creditor may 
alternatively provide, in a separate table, under the master heading 
``Closing Cost Details,'' under the heading ``Calculating Cash to 
Close,'' the total amount of cash or other funds that must be provided 
by the consumer at consummation with an itemization of that amount into 
the following component amounts:
* * * * *
    (iii) Payoffs and payments. The total amount of payoffs and 
payments to be made to third parties not otherwise disclosed under 
paragraphs (f) and (g) of this section, labeled ``Total Payoffs and 
Payments'';
* * * * *
    (o) * * *
    (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, except that the per diem 
amount required to be disclosed by paragraph (g)(2)(iii) of this 
section and the monthly amounts required to be disclosed by paragraphs 
(g)(3)(i) through (iii) and (g)(3)(v) of this section shall be rounded 
to the nearest cent and disclosed to two decimal points.
    (B) The dollar amount required to be disclosed by paragraph (b)(1) 
of this section shall not be rounded, and if the amount is a whole 
number then the amount disclosed shall be truncated at the decimal 
point.
    (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), (l)(2), 
and (l)(3) of this section shall be disclosed by rounding the exact 
amounts to three decimal places and then dropping any trailing zeros 
that occur to the right of the decimal place.
* * * * *
0
8. Section 1026.38 is amended by revising paragraph (a)(3)(iii), 
paragraphs (d)(2) and (e) heading and introductory text, and paragraphs 
(e)(2)(ii), (e)(2)(iii)(A)(3), (e)(4)(ii), (g)(1), (i)(1)(iii)(A)(3), 
(i)(4)(ii), (i)(6)(iv), (i)(7)(iii), (i)(8), (j)(2)(i), (j)(2)(vi), 
(l)(7)(i), (o)(1), (t)(4)(ii), and (t)(5)(vii) to read as follows:


Sec.  1026.38  Content of disclosures for certain mortgage transactions 
(Closing Disclosure).

* * * * *
    (a) * * *
    (3) * * *
    (iii) Disbursement date. The date the amounts disclosed under 
paragraphs (j)(3)(iii) (cash to close from or to borrower) and 
(k)(3)(iii) (cash from or to

[[Page 54367]]

seller) of this section are expected to be paid in a purchase 
transaction under Sec.  1026.37(a)(9)(i) to the consumer and seller, 
respectively, as applicable, or the date some or all of the loan amount 
disclosed under Sec.  1026.38(b) is expected to be paid to the consumer 
or a third party in a transaction that is not a purchase transaction 
under Sec.  1026.37(a)(9)(i), labeled ``Disbursement Date.''
* * * * *
    (d) * * *
    (2) Alternative table for transactions without a seller and 
simultaneous loans for subordinate financing. For transactions that do 
not involve a seller and simultaneous loans for subordinate financing, 
if the creditor disclosed the optional alternative table under Sec.  
1026.37(d)(2), the creditor shall disclose, with the label ``Cash to 
Close,'' instead of the sum of the dollar amounts described in 
paragraph (d)(1)(ii) of this section:
    (i) The amount calculated in accordance with paragraph (e)(5)(ii) 
of this section;
    (ii) A statement of whether the disclosed amount is due from or to 
the consumer; and
    (iii) A statement referring the consumer to the table required 
under paragraph (e) of this section for details.
    (e) Alternative calculating cash to close table for transactions 
without a seller and simultaneous loans for subordinate financing. For 
transactions that do not involve a seller and simultaneous loans for 
subordinate financing, if the creditor disclosed the optional 
alternative table under Sec.  1026.37(h)(2), the creditor shall 
disclose, instead of the table described in paragraph (i) of this 
section, 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'':
* * * * *
    (2) * * *
    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (h)(1) of this section, disclosed as a negative number if the 
amount disclosed under paragraph (h)(1) of this section is a positive 
number and disclosed as a positive number if the amount disclosed under 
paragraph (h)(1) of this section is a negative number; and
    (iii) * * *
    (A) * * *
    (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 and, if any refund 
is provided under Sec.  1026.19(f)(2)(v), a statement directing the 
consumer to the disclosure required under paragraph (h)(3) of this 
section or, if applicable, a statement directing the consumer to the 
disclosure of the reduction in principal balance (principal 
curtailment) disclosed under paragraph (g)(4) or (t)(5)(vii)(B) of this 
section. 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)(i) and (ii).
* * * * *
    (4) * * *
    (ii) Under the subheading ``Final,'' the total amount of payoffs 
and payments made to third parties disclosed under paragraph 
(t)(5)(vii)(B) of this section, to the extent known, disclosed as a 
negative number if the amount disclosed under paragraph (t)(5)(vii)(B) 
of this section is a positive number and disclosed as a positive number 
if the amount disclosed under paragraph (t)(5)(vii)(B) of this section 
is a negative number;
* * * * *
    (g) * * *
    (1) Taxes and other government fees. Under the subheading ``Taxes 
and Other Government Fees,'' an itemization of 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) On the first line:
    (A) Before the columns described in paragraph (g) of this section, 
the total amount of fees for recording deeds and, separately, the total 
amount of fees for recording security instruments; and
    (B) In the applicable column as described in paragraph (g) of this 
section, the total amounts paid for recording fees (including, but not 
limited to, the amounts in paragraph (g)(1)(i)(A) of this section); and
    (ii) On subsequent lines, in the applicable column as described in 
paragraph (g) of this section, an itemization of transfer taxes, with 
the name of the government entity assessing the transfer tax.
* * * * *
    (i) * * *
    (1) * * *
    (iii) * * *
    (A) * * *
    (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 and, if any refund 
is provided under Sec.  1026.19(f)(2)(v), a statement directing the 
consumer to the disclosure required under paragraph (h)(3) of this 
section or, if a reduction in principal balance (principal curtailment) 
is used to provide the refund, a statement directing the consumer to 
the disclosure required under paragraph (g)(4), (j)(4)(i), or 
(t)(5)(ix) of this section. 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)(i) and (ii).
* * * * *
    (4) * * *
    (ii) Under the subheading ``Final'':
    (A)(1) In a purchase transaction as defined in Sec.  
1026.37(a)(9)(i), the amount determined by subtracting the sum of the 
loan amount disclosed under paragraph (b) of this section, and any 
amount of existing loans assumed or taken subject to disclosed under 
paragraph (j)(2)(iv) of this section from the sale price of the 
property disclosed under paragraph (j)(1)(ii) of this section, labeled 
``Down Payment/Funds from Borrower,'' except as required by paragraph 
(i)(4)(ii)(A)(2) of this section;
    (2) In a purchase transaction as defined in Sec.  1026.37(a)(9)(i), 
when the sum of the loan amount disclosed under paragraph (b) of this 
section, and any amount of existing loans assumed or taken subject to 
disclosed under paragraph (j)(2)(iv) of this section exceeds the sale 
price disclosed under paragraph (j)(1)(ii) of this section, the amount 
of funds from the consumer as determined in accordance with paragraph 
(i)(6)(iv) of this section labeled ``Down Payment/Funds from 
Borrower;'' or
    (B) In all transactions not subject to 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 ``Down Payment/Funds 
from Borrower.''
* * * * *
    (6) * * *
    (iv) The ``Funds from Borrower'' to be disclosed under paragraph 
(i)(4)(ii)(A)(2) or (i)(4)(ii)(B) of this section, as applicable, and 
``Funds for Borrower'' to be disclosed under paragraph (i)(6)(ii) of 
this section are determined by subtracting the sum of the loan amount 
disclosed under paragraph (b) of this section and any amount for 
existing loans assumed or

[[Page 54368]]

taken subject to disclosed under paragraph (j)(2)(iv) of this section 
(less any closing costs financed disclosed under paragraph (i)(3)(ii) 
of this section) from the total amount of all existing debt being 
satisfied in the real estate closing disclosed under paragraphs 
(j)(1)(ii), (iii), and (v) of this section.
    (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)(A)(2) or (i)(4)(ii)(B) of this section, as 
applicable, 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)(A)(2) or 
(i)(4)(ii)(B) of this section, as applicable.
    (C) If the calculation under this paragraph (i)(6)(iv) yields $0, 
$0.00 shall be disclosed under paragraph (i)(4)(ii)(A)(2) or 
(i)(4)(ii)(B) of this section, as applicable, and under paragraph 
(i)(6)(ii) of this section.
    (7) * * *
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(7):
    (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 
and, as applicable, in the seller-paid column under paragraphs (f) and 
(g) 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 ``Loan 
Estimate,'' the amount disclosed on the Loan Estimate under Sec.  
1026.37(h)(1)(vii), labeled ``Adjustments and Other Credits.''
    (ii) Under the subheading ``Final,'' the amount equal to the total 
of the amounts disclosed under paragraphs (j)(1)(iii) and (v) of this 
section to the extent amounts in paragraphs (j)(1)(iii) and (v) were 
not included in the calculation required by paragraph (i)(4) or (6) of 
this section, and paragraphs (j)(1)(vi) through (x) of this section 
reduced by the total of the amounts disclosed under paragraphs 
(j)(2)(vi) through (xi) of this section.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(8):
    (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)(iii) and (v) through 
(x) and (j)(2)(vi) through (xi) of this section, as applicable; 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.
* * * * *
    (j) * * *
    (2) Itemization of amounts already paid by or on behalf of 
borrower. (i) The sum of the amounts disclosed in 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'';
* * * * *
    (vi) Descriptions and amounts of other items paid by or on behalf 
of the consumer and not otherwise disclosed under paragraphs (f), (g), 
(h), and (j)(2) of this section, labeled ``Other Credits,'' and 
descriptions and the amounts of any additional amounts owed the 
consumer but payable to the seller before the real estate closing, 
under the heading ``Adjustments'';
* * * * *
    (l) * * *
    (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, and 
the information required under paragraph (l)(7)(i)(A) and (B) of this 
section:
    (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 amounts listed in this 
paragraph (l)(7)(i)(A)(1) through (4);
    (1) The total amount the consumer will be required to pay into an 
escrow account over the first year after consummation, labeled 
``Escrowed Property Costs over Year 1,'' together with a descriptive 
name of each charge to be paid (in whole or in part) from the escrow 
account, 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 the mortgage-related obligations 
described in Sec.  1026.43(b)(8) 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 under paragraph (g)(3) of this 
section, a statement that the payment is a cushion for the escrow 
account, labeled ``Initial Escrow Payment,'' and a reference to the 
information disclosed under 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, labeled ``Monthly Escrow 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 
the mortgage-related obligations described in Sec.  1026.43(b)(8) 
during the first year after consummation that are known to the creditor 
and a statement that, without an escrow account, the

[[Page 54369]]

consumer must pay the identified costs, possibly in one or two large 
payments, labeled ``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.''
* * * * *
    (o) * * *
    (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. 
The disclosed total of payments shall be treated as accurate if the 
amount disclosed as the total of payments:
    (i) Is understated by no more than $100; or
    (ii) Is greater than the amount required to be disclosed.
* * * * *
    (t) * * *
    (4) * * *
    (ii) Percentages. The percentage amounts required to be disclosed 
under paragraphs (b), (f)(1), (n), (o)(4), and (o)(5) of this section 
shall be disclosed by rounding to three decimal places and then 
dropping any trailing zeros to the right of the decimal point.
* * * * *
    (5) * * *
    (vii) Transaction without a seller and simultaneous loans for 
subordinate financing. The following modifications to form H-25 of 
appendix H to this part may be made for a transaction that does not 
involve a seller, or for simultaneous loans for subordinate financing, 
and for which the alternative tables are disclosed under paragraphs 
(d)(2) and (e) of this section, as illustrated by form H-25(J) of 
appendix H to this part:
    (A) The information required by paragraph (a)(4)(ii), and 
paragraphs (f), (g), and (h) of this section with respect to costs paid 
by the seller, 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 
``Payoffs and Payments'' 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 and a description of 
the purpose of such disbursements under the subheading ``To''; and the 
total amount of such payments labeled ``Total Payoffs and Payments.''
    (C) The tables required to be disclosed by paragraphs (j) and (k) 
of this section may be deleted.
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open End Credit Offered to College Students

0
9. In Supplement I to Part 1026--Official Interpretations:
0
a. Under Section 1026.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability, under 1(d)--Organization, under Paragraph 
1(d)(5), paragraph 1 is revised.
0
b. Under Section 1026.2--Definitions and Rules of Construction, under 
2(a)(11)--Consumer, paragraph 3 is revised.
0
c. Under Section 1026.3--Exempt Transactions, under 3(h)--Partial 
exemption for certain mortgage loans, paragraph 2 is revised and 
paragraphs 3 and 4 are added.
0
d. Under Section 1026.17--General Disclosure Requirements:
0
i. Under 17(c)--Basics of Disclosures and Use of Estimates, under 
Paragraph 17(c)(6), paragraph 5 is revised and paragraph 6 is added.
0
ii. Under 17(f)--Early Disclosures, paragraphs 1 and 2 are revised.
0
e. Under Section 1026.18--Content of Disclosures:
0
i. Paragraph 3 is revised.
0
ii. Under 18(g)--Payment Schedule, paragraph 6 is revised.
0
iii. Under 18(s)--Interest Rate and Payment Summary for Mortgage 
Transactions, paragraphs 1 and 4 are revised.
0
f. Under Section 1026.19--Certain Mortgage and Variable-Rate 
Transactions:
0
i. Under 19(e)--Mortgage loans secured by real property--Early 
disclosures:
0
A. The heading is revised.
0
B. Under 19(e)(1)(i)--Creditor, paragraph 1 is revised and paragraph 2 
is added.
0
C. Under 19(e)(1)(iii)--Timing, paragraph 5 is added.
0
D. Under 19(e)(1)(vi)--Shopping for settlement service providers, 
paragraphs 2 through 4 are revised.
0
E. Under 19(e)(3)(i)--General rule, paragraph 1 is revised and 
paragraph 8 is added.
0
F. Under 19(e)(3)(ii)--Limited increases permitted for certain charges, 
paragraph 2 is revised.
0
G. Under 19(e)(3)(iii)--Variations permitted for certain charges, 
paragraphs 2 and 3 are revised and paragraph 4 is added.
0
H. Under 19(e)(3)(iv)--Revised estimates, paragraph 2 is revised and 
paragraphs 4 and 5 are added.
0
I. Under 19(e)(3)(iv)(D)--Interest rate dependent charges, paragraph 1 
is revised and paragraph 2 is added.
0
J. Under 19(e)(3)(iv)(E)--Expiration, paragraph 1 is revised and 
paragraph 2 is added.
0
K. Under 19(e)(4)(ii)--Relationship to disclosures required under Sec.  
1026.19(f)(1)(i), the heading is revised and paragraph 2 is added.
0
ii. Under 19(f)--Mortgage loans secured by real property--Final 
disclosures:
0
A. The heading is revised.
0
B. Under 19(f)(1)(i)--Scope, paragraph 1 is revised.
0
C. Under 19(f)(2)(iii)--Changes due to events occurring after 
consummation, paragraph 2 is added.
0
D. Under 19(f)(2)(v)--Refunds related to the good faith analysis, 
paragraph 1 is revised.
0
E. Under 19(f)(3)(ii)--Average charge, paragraph 3 is revised.
0
F. Under 19(f)(4)(i)--Provision to seller, paragraph 1 is revised and 
paragraph 2 is added.
0
g. Under Section 1026.23--Right of Rescission:
0
i. Under 23(g)--Tolerances for Accuracy, paragraph 1 is added.
0
ii. Under 23(h)--Special Rules for Foreclosure, under 23(h)(2)--
Tolerance for Disclosures, paragraph 1 is revised and paragraph 2 is 
added.
0
h. Under Section 1026.25--Record Retention, under 25(c)--Records 
Related to Certain Requirements for Mortgage Loans, under 25(c)(1)--
Records related to requirements for loans secured by real property, the 
heading is revised.
0
i. Under Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate):
0
i. Under 37(a)--General information:
0
A. Under 37(a)(7)--Sale price, paragraphs 1 and 2 are revised.
0
B. Under 37(a)(8)--Loan term, paragraph 3 is added.
0
C. Under 37(a)(9)--Purpose, paragraph 1 is revised.
0
D. Under 37(a)(10)--Product, paragraph 2 is revised.
0
E. Under 37(a)(13)--Rate lock, paragraph 2 is revised and paragraph 4 
is added.
0
ii. Under 37(b)--Loan terms:
0
A. Under 37(b)(2)--Interest rate, paragraph 1 is revised.
0
B. Under 37(b)(3)--Principal and interest payment, paragraph 2 is 
revised.
0
C. Under 37(b)(6)(iii)--Increase in periodic payment, paragraph 1 is 
revised.
0
iii. Under 37(c)--Projected payments:
0
A. Paragraph 2 is added.
0
B. Under Paragraph 37(c)(1)(iii)(B), paragraph 1 is revised.
0
C. Under Paragraph 37(c)(4)(iv), paragraph 2 is revised.

[[Page 54370]]

0
iv. Under 37(d)--Costs at closing, under 37(d)(2)--Optional alternative 
table for transactions without a seller, the heading is revised and 
paragraph 1 is revised.
0
v. Under 37(f)--Closing cost details; loan costs:
0
A. Paragraph 3 is added.
0
B. Under 37(f)(6)--Use of addenda, paragraph 3 is added.
0
vi. Under 37(g)--Closing cost details; other costs:
0
A. Under 37(g)(4)--Other, paragraph 4 is revised.
0
B. Under Paragraph 37(g)(6)(ii), paragraph 1 is revised.
0
vii. Under 37(h)--Calculating cash to close:
0
A. Under 37(h)(1)--For all transactions, paragraph 2 is added.
0
B. Under 37(h)(1)(ii)--Closing costs financed, paragraph 1 is revised 
and paragraph 2 is added.
0
C. Under 37(h)(1)(iii)--Downpayment and other funds from borrower, the 
heading is revised, paragraph 1 is revised and paragraph 2 is added.
0
D. Under 37(h)(1)(v)--Funds for borrower, paragraph 1 is revised and 
paragraph 2 is added.
0
E. Under 37(h)(1)(vi)--Seller credits, paragraphs 1 and 2 are revised.
0
F. Under 37(h)(1)(vii)--Adjustments and other credits, paragraphs 1, 5, 
and 6 are revised.
0
G. Under 37(h)(2)--Optional alternative calculating cash to close table 
for transactions without a seller, the heading is revised and paragraph 
1 is revised.
0
H. Under 37(h)(2)(iii)--Payoffs and payments, paragraph 1 is revised 
and paragraph 2 is added.
0
viii. Under 37(k)--Contact information, paragraph 3 is revised.
0
ix. Under 37(l)--Comparisons:
0
A. Under Paragraph 37(l)(1)(i), paragraph 1 is revised.
0
B. Under 37(l)(3)--Total interest percentage, paragraph 1 is revised.
0
x. Under 37(o)--Form of disclosures:
0
A. Under Paragraph 37(o)(4)(i)(A), paragraph 1 is revised.
0
B. Under 37(o)(4)(ii)--Percentages, paragraph 1 is revised.
0
j. Under Section 1026.38--Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure):
0
i. Paragraph 4 is added.
0
ii. Under 38(a)--General information:
0
A. Following 38(a)(3)(i)--Date issued and paragraph 1 thereunder, 
heading 38(a)(3)(iii)--Disbursement date and paragraph 1 thereunder are 
added.
0
B. Under 38(a)(3)(vii)--Sale price, paragraph 1 is revised.
0
C. Under 38(a)(4)--Transaction information, paragraph 2 is revised and 
paragraph 4 is added.
0
iii. Under 38(d)--Costs at closing, under 38(d)(2)--Alternative table 
for transactions without a seller, the heading is revised and paragraph 
1 is revised.
0
iv. Under 38(e)--Alternative calculating cash to close table for 
transactions without a seller:
0
A. The heading is revised, paragraph 1 is revised and paragraph 6 is 
added.
0
B. Under Paragraph 38(e)(2)(iii)(A), paragraph 3 is revised.
0
C. Under Paragraph 38(e)(3)(iii)(B), paragraph 1 is revised.
0
v. Under 38(f)--Closing cost details; loan costs, paragraph 2 is added.
0
vi. Under 38(g)--Closing costs details; other costs:
0
A. Under 38(g)(1)--Taxes and other government fees, paragraph 3 is 
added.
0
B. Under 38(g)(2)--Prepaids, paragraph 3 is revised.
0
C. Under 38(g)(4)--Other, paragraph 1 is revised.
0
vii. Under 38(i)--Calculating cash to close:
0
A. Paragraphs 2 and 3 are revised and paragraph 5 is added.
0
B. Under Paragraph 38(i)(1)(iii)(A), paragraph 3 is revised.
0
C. Under Paragraph 38(i)(2)(iii)(B), paragraph 1 is revised.
0
D. Following Paragraph 38(i)(2)(iii)(B) and paragraph 1 thereunder, 
heading 38(i)(3)--Closing costs financed and paragraphs 1 and 2 
thereunder are added.
0
E. Under Paragraph 38(i)(4)(ii)(A), paragraph 1 is revised and 
paragraph 2 is added.
0
F. Under Paragraph 38(i)(4)(ii)(B), paragraph 1 is revised.
0
G. Under Paragraph 38(i)(4)(iii)(A), paragraph 1 is revised.
0
H. Under 38(i)(5)--Deposit, paragraph 1 is revised.
0
I. Under Paragraph 38(i)(6)(ii), paragraph 1 is revised and paragraph 2 
is added.
0
J. Following Paragraph 38(i)(7)(ii) and paragraph 1 thereunder, 
Paragraph 38(i)(7)(iii)(A) heading and paragraph 1 thereunder are 
added.
0
K. Under Paragraph 38(i)(8)(ii), paragraph 1 is revised.
0
viii. Under 38(j)--Summary of borrower's transaction:
0
A. Paragraph 3 is revised.
0
B. Under Paragraph 38(j)(1)(ii), paragraph 1 is revised.
0
C. Under Paragraph 38(j)(1)(v), paragraphs 1 and 2 are revised.
0
D. Under Paragraph 38(j)(2)(vi), paragraphs 2 and 5 are revised and 
paragraph 6 is added.
0
E. Under Paragraph 38(j)(2)(xi), paragraph 1 is revised.
0
F. Under Paragraph 38(j)(4)(i), paragraph 1 is revised.
0
ix. Under 38(k)--Summary of seller's transaction, paragraph 1 is 
revised.
0
x. Under 38(l)--Loan disclosures:
0
A. Under 38(l)(7)--Escrow account, paragraph 1 is added.
0
B. Under Paragraph 38(l)(7)(i)(A)(2), paragraph 1 is revised and 
paragraph 2 is added.
0
C. Under Paragraph 38(l)(7)(i)(A)(4), paragraph 1 is revised.
0
D. Following heading Paragraph 38(l)(7)(i)(A)(4) and paragraph 1 
thereunder, Paragraph 38(l)(7)(i)(A)(5) heading and paragraph 1 
thereunder are added.
0
E. Under Paragraph 38(l)(7)(i)(B)(1), paragraph 1 is revised.
0
xi. Under 38(o)--Loan calculations:
0
A. Paragraph 1 is added.
0
B. Under 38(o)(1)--Total of payments, paragraph 1 is revised.
0
xii. Under 38(t)--Form of disclosures:
0
A. Under 38(t)(3)--Form, paragraph 1 is revised.
0
B. Following heading Paragraph 38(t)(5)(iv) and paragraph 3 thereunder, 
Paragraph 38(t)(5)(v) heading and paragraphs 1 through 3 thereunder are 
added.
0
C. Following heading Paragraph 38(t)(5)(v) and paragraph 3 thereunder, 
Paragraph 38(t)(5)(vi) heading and paragraph 1 thereunder are added.
0
D. Under 38(t)(5)(vii)--Transactions without a seller, the heading is 
revised, and paragraph 2 is revised.
0
E. Following heading 38(t)(5)(vii)--Transactions without a seller and 
simultaneous loans for subordinate financing, as revised, and paragraph 
2 thereunder, Paragraph 38(t)(5)(vii)(B) heading and paragraphs 1 
through 3 are added.
0
F. Under 38(t)(5)(ix)--Customary recitals and information, paragraph 1 
is revised.
0
k. Under Appendix D--Multiple-Advance Construction Loans, paragraph 7 
is revised.
0
l. Under Appendix H--Closed-End Forms and Clauses, paragraph 30 is 
revised.

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability

* * * * *
    1(d) Organization.
    Paragraph 1(d)(5).
    1. Effective date. i. General. The Bureau's revisions to 
Regulation X and Regulation Z published on December 31, 2013, (the 
TILA-RESPA Final Rule) apply to covered loans (closed-end credit 
transactions, other than reverse mortgages, that are secured by real 
property or a cooperative unit, whether or

[[Page 54371]]

not treated as real property under State or other applicable law) 
for which the creditor or mortgage broker receives an application on 
or after October 3, 2015 (the effective date), except that Sec.  
1026.19(e)(2), the amendments to Sec.  1026.28(a)(1), and the 
amendments to the commentary to Sec.  1026.29 became effective on 
October 3, 2015, without respect to whether an application was 
received as of that date. Additionally, Sec. Sec.  1026.20(e) and 
1026.39(d)(5), as amended or adopted by the TILA-RESPA Final Rule, 
took effect on October 3, 2015, for transactions for which the 
creditor or mortgage broker received an application on or after 
October 3, 2015, and take effect October 1, 2017, with respect to 
transactions for which a creditor or mortgage broker received an 
application prior to October 3, 2015.
    ii. Pre-application activities. The provisions of Sec.  
1026.19(e)(2) apply prior to a consumer's receipt of the disclosures 
required by Sec.  1026.19(e)(1)(i) and therefore restrict activity 
that may occur prior to receipt of an application by a creditor or 
mortgage broker. These provisions include Sec.  1026.19(e)(2)(i), 
which restricts the fees that may be imposed on a consumer, Sec.  
1026.19(e)(2)(ii), which requires a statement to be included on 
written estimates of terms or costs specific to a consumer, and 
Sec.  1026.19(e)(2)(iii), which prohibits creditors from requiring 
the submission of documents verifying information related to the 
consumer's application. Accordingly, the provisions of Sec.  
1026.19(e)(2) are effective on October 3, 2015, without respect to 
whether an application has been received on that date.
    iii. Determination of preemption. The amendments to Sec.  
1026.28 and the commentary to Sec.  1026.29 govern the preemption of 
State laws, and thus the amendments to those provisions and 
associated commentary made by the TILA-RESPA Final Rule are 
effective on October 3, 2015, without respect to whether an 
application has been received on that date.
    iv. Post-consummation escrow cancellation disclosure and partial 
payment disclosure. A creditor, servicer, or covered person, as 
applicable, must provide the disclosures required by Sec. Sec.  
1026.20(e) and 1026.39(d)(5) for transactions for which the 
conditions in Sec.  1026.20(e) or Sec.  1026.39(d)(5), as 
applicable, exist on or after October 1, 2017, regardless of when 
the corresponding applications were received. For transactions in 
which such conditions exist on or after October 3, 2015, through 
September 30, 2017, a creditor, servicer, or covered person, as 
applicable, complies with Sec. Sec.  1026.20(e) and 1026.39(d)(5) if 
it provides the mandated disclosures in all cases or if it provides 
them only in cases where the corresponding applications were 
received on or after October 3, 2015.
    v. Examples. For purposes of the following examples, an 
application received before or after the effective date is any 
submission for the purpose of obtaining an extension of credit that 
satisfies the definition in Sec.  1026.2(a)(3), as adopted by the 
TILA-RESPA Final Rule, even if that definition was not yet in effect 
on the date in question. Cross-references in the following examples 
to provisions of Regulation Z refer to those provisions as adopted 
or amended by the TILA-RESPA Final Rule, together with any 
subsequent amendments, unless noted otherwise.
    A. Application received on or after effective date of the TILA-
RESPA Final Rule. Assume a creditor receives an application on 
October 3, 2015, and that consummation of the transaction occurs on 
October 31, 2015. The amendments of the TILA-RESPA Final Rule, 
including the requirement to provide the Loan Estimate and Closing 
Disclosure under Sec.  1026.19(e) and (f), apply to the transaction. 
The creditor is also required to provide the special information 
booklet under Sec.  1026.19(g).
    B. Application received before effective date. Assume a creditor 
receives an application on September 30, 2015, and that consummation 
of the transaction occurs on October 30, 2015. The requirement to 
provide the Loan Estimate and Closing Disclosure under Sec.  
1026.19(e) and (f) does not apply to the transaction. Instead, the 
creditor and the settlement agent must provide the disclosures 
required by Sec.  1026.19, as it existed prior to the effective 
date, and by Regulation X, 12 CFR 1024.8. Similarly, the creditor 
must provide the special information booklet required by Regulation 
X, 12 CFR 1024.6. However, the provisions of Sec.  1026.19(e)(2) 
apply to the transaction beginning on October 3, 2015, because they 
became effective on October 3, 2015, without respect to whether an 
application was received by the creditor or mortgage broker on that 
date.
    C. Predisclosure written estimates. Assume a creditor receives a 
request from a consumer for a written estimate of terms or costs 
specific to the consumer on October 3, 2015, before the consumer 
submits an application to the creditor and thus before the consumer 
has received the disclosures required by Sec.  1026.19(e)(1)(i). The 
creditor, if it provides such a written estimate to the consumer, 
must comply with Sec.  1026.19(e)(2)(ii) and provide the required 
statement on the written estimate, even though the creditor has not 
received an application on that date.
    D. Request for preemption determination. Assume a creditor 
submits a request to the Bureau under Sec.  1026.28(a)(1) for a 
determination of whether a State law is inconsistent with the 
disclosure requirements in Regulation Z on October 3, 2015. Because 
the amendments to Sec.  1026.28(a)(1) are effective on that date and 
do not depend on whether the creditor has received an application, 
Sec.  1026.28(a)(1) is applicable to the request on that date, and 
the Bureau would make a determination based on the provisions of 
Regulation Z in effect on that date, including the requirements of 
Sec.  1026.19(e) and (f).
    E. Application of the effective dates for the post-consummation 
escrow cancelation disclosure and partial payment disclosure. Assume 
a creditor receives an application for a mortgage loan on October 
10, 2010, and the loan was consummated. Assume further that, on 
December 18, 2016, the escrow account established in connection with 
the mortgage loan is canceled or the loan is sold to another covered 
person. A creditor, servicer, or covered person, as applicable, 
complies with Sec. Sec.  1026.20(e) and 1026.39(d)(5) if it provides 
the disclosures required by those provisions to the consumer, but 
the creditor, servicer, or covered person, as applicable, is not 
required to provide the disclosures in this case. Assume the same 
circumstances, except that the escrow account established in 
connection with the loan is canceled or the mortgage loan is sold to 
another covered person on April 14, 2018. A creditor, servicer, or 
covered person, as applicable, must provide the disclosures in Sec.  
1026.20(e) or 1026.39(d)(5), as applicable, because a condition 
requiring these disclosures occurred after October 1, 2017 (thus the 
date the application was received is irrelevant).

Section 1026.2--Definitions and Rules of Construction

* * * * *
    2(a)(11) Consumer.
* * * * *
    3. Trusts. Credit extended to trusts established for taxation or 
estate planning purposes or to land trusts, as described in comment 
3(a)-10, is considered to be extended to a natural person for 
purposes of the definition of consumer.
* * * * *

Section 1026.3--Exempt Transactions

* * * * *
    3(h) Partial exemption for certain mortgage loans.
* * * * *
    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) are 
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 retain evidence 
reflecting that the costs payable by the consumer in connection with 
the transaction at consummation are limited to recording fees, 
transfer taxes, application fees, and housing counseling fees, and 
that the total of application and housing counseling fees is less 
than 1 percent of the amount of credit extended, in accordance with 
Sec.  1026.3(h)(5). Unless the itemization of the amount financed 
provided to the consumer 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).
    3. Recording fees. See comment 37(g)(1)-1 for a discussion of 
what constitutes a recording fee.
    4. Transfer taxes. See comment 37(g)(1)-3 for a discussion of 
what constitutes a transfer tax.
* * * * *

[[Page 54372]]

Section 1026.17--General Disclosure Requirements

* * * * *
    17(c) Basis of Disclosures and Use of Estimates.
* * * * *
    Paragraph 17(c)(6).
* * * * *
    5. Allocation of costs. When a creditor utilizes the special 
rule in Sec.  1026.17(c)(6) to disclose credit extensions as 
multiple transactions, all costs of the transactions must be 
allocated for purposes of calculating disclosures. If a creditor 
chooses to disclose the credit as multiple transactions, the 
creditor must allocate to the construction phase all amounts that 
would not be imposed but for the construction financing. All other 
amounts must be allocated to the permanent financing. For example, 
inspection and handling fees for the staged disbursement of 
construction loan proceeds must be included in the disclosures for 
the construction phase and may not be included in the disclosures 
for the permanent phase. If a creditor charges separate application 
or origination fees for the construction phase and the permanent 
phase, such fees must be allocated to the phase for which they are 
charged. If a creditor charges an application or origination fee for 
construction financing only but charges a greater application or 
origination fee for construction-permanent financing, the difference 
between the two fees must be allocated to the permanent phase.
    6. May be permanently financed by the same creditor. For 
purposes of determining whether a creditor may treat a construction-
permanent loan as one transaction or more than one transaction under 
Sec.  1026.17(c)(6)(ii), a loan to finance the construction of a 
dwelling may be permanently financed by the same creditor, within 
the meaning of Sec.  1026.17(c)(6)(ii), if the creditor generally 
makes both construction financing and permanent financing available 
to qualifying consumers, unless a consumer expressly states that the 
consumer will not obtain permanent financing from the creditor.
* * * * *
    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 Sec.  1026.17(f) even 
if the prior disclosures would be considered accurate under the 
tolerances in Sec.  1026.18(d) or 1026.22(a). To illustrate:
    i. Transactions not secured by real property or a cooperative 
unit. A. For transactions not secured by real property or a 
cooperative unit, if 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 not secured by real property or a 
cooperative unit, 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).
    C. If disclosures for transactions not secured by real property 
or a cooperative unit 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).
    ii. Reverse mortgages. In a transaction subject to Sec.  
1026.19(a) and not Sec.  1026.19(e) and (f), assume that, at the 
time the disclosures required by Sec.  1026.19(a) 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. Assume 
further that consummation actually occurs on August 5, and per-diem 
interest for the remainder of August is collected as a prepaid 
finance charge. The 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.
    iii. Transactions secured by real property or a cooperative unit 
other than reverse mortgages. For transactions secured by real 
property or a cooperative unit other than reverse mortgages, assume 
that, 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. 
Assume further that consummation actually occurs on August 5, and 
per-diem interest for the remainder of August is collected as a 
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.
    2. Variable rate. The addition of a variable rate feature to the 
credit terms, after early disclosures are given, requires new 
disclosures. See Sec.  1026.19(e) and (f) to determine when new 
disclosures are required for transactions secured by real property 
or a cooperative unit, other than reverse mortgages.
* * * * *

Section 1026.18--Content of Disclosures

* * * * *
    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 or a cooperative unit, 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 (other than a cooperative unit) 
that is a dwelling and are 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 under 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 under 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 or a cooperative unit, 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.
* * * * *
    18(g) Payment Schedule.
* * * * *
    6. Mortgage transactions. Section 1026.18(g) applies to closed-
end transactions, other than transactions that are subject to Sec.  
1026.18(s) or Sec.  1026.19(e) and (f). Section 1026.18(s) applies 
to closed-end transactions secured by real property or a dwelling, 
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 or a cooperative unit, other than reverse mortgages. 
Thus, if a closed-end consumer credit transaction is secured by real 
property, a cooperative unit, or a dwelling and the transaction is a 
reverse mortgage or the dwelling is personal property but not a 
cooperative unit, then the creditor discloses an interest rate and 
payment summary table in accordance with Sec.  1026.18(s). See 
comment 18(s)-4. If a closed-end consumer credit transaction is 
secured by real property or a cooperative unit 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 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 (for example, if it is unsecured or secured 
by an automobile), the creditor discloses a payment schedule in 
accordance with Sec.  1026.18(g) and is not subject to the 
requirements of Sec.  1026.18(s) or Sec. Sec.  1026.37(c) and 
1026.38(c).
* * * * *
    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 reverse mortgages and certain transactions secured by 
dwellings that are personal property but not cooperative units. 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

[[Page 54373]]

and format substantially similar to model clause H-4(E), H-4(F), H-
4(G), or H-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).
* * * * *
    4. Scope of coverage in relation to Sec.  1026.19(e) and (f). 
Section 1026.18(s) applies to transactions secured by 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 or a cooperative unit, other 
than reverse mortgages. Accordingly, Sec.  1026.18(s) governs only 
closed-end reverse mortgages and closed-end transactions secured by 
a dwelling, other than a cooperative, that is personal property 
(such as a mobile home that is not deemed real property under State 
or other applicable law).
* * * * *

Section 1026.19--Certain Mortgage and Variable-Rate Transactions

* * * * *
    19(e) Mortgage loans--Early disclosures.
* * * * *
    19(e)(1) Provision of 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 or a cooperative unit, 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 Sec.  1026.17(c)(2)(i). Section 
1026.17(c)(2)(i) provides that if any information necessary for an 
accurate disclosure is unknown to the creditor, the creditor shall 
make the disclosure based on the best information reasonably 
available to the creditor at the time the disclosure is provided to 
the consumer. The ``reasonably available'' standard requires that 
the creditor, acting in good faith, exercise due diligence in 
obtaining information. See comment 17(c)(2)(i)-1 for an explanation 
of the standard set forth in Sec.  1026.17(c)(2)(i). See comment 
17(c)(2)(i)-2 for labeling disclosures required under Sec.  
1026.19(e) that are estimates.
    2. Cooperative Units. Section 1026.19(e)(1)(i) requires early 
disclosure of credit terms in closed-end credit transactions, other 
than reverse mortgages, that are secured by real property or a 
cooperative unit, regardless of whether a cooperative unit is 
treated as real property under State or other applicable law.
* * * * *
    19(e)(1)(iii) Timing.
* * * * *
    5. Multiple-advance construction loans. Section 
1026.19(e)(1)(iii) generally requires a creditor to deliver the Loan 
Estimate or place it in the mail not later than the third business 
day after the creditor receives the consumer's application and not 
later than the seventh business day before consummation. When a 
multiple-advance loan to finance the construction of a dwelling may 
be permanently financed by the same creditor, Sec.  
1026.17(c)(6)(ii) and comment 17(c)(6)-2 permit creditors to treat 
the construction phase and the permanent phase as either one 
transaction, with one combined disclosure, or more than one 
transaction, with a separate disclosure for each transaction. 
Comment 17(c)(6)-6 explains that a loan to finance the construction 
of a dwelling meets the condition that it ``may be permanently 
financed by the same creditor'' if the creditor generally makes both 
construction and permanent financing available to qualifying 
consumers, unless the consumer expressly states that the consumer 
will not obtain permanent financing from the creditor. Therefore, a 
creditor that generally makes both construction and permanent 
financing available, upon receiving a consumer's application for 
either construction financing only without the consumer expressly 
stating that the consumer will not obtain permanent financing from 
the creditor or combined construction-permanent financing, complies 
with Sec.  1026.19(e)(1)(iii) by delivering or placing in the mail 
the disclosures required by Sec.  1026.19(e)(1)(i) for both the 
construction financing and the permanent financing, disclosed as 
either one or more than one transaction, not later than the third 
business day after the creditor receives the application and not 
later than the seventh business day before consummation. To 
illustrate:
    i. Assume a creditor receives a consumer's application for 
construction financing only on Monday, June 1. Assume further that 
the creditor generally makes both construction and permanent 
financing available to qualifying consumers and that the consumer 
does not expressly state that the consumer will not obtain permanent 
financing from the creditor. In these circumstances, the 
construction loan that the consumer applied for is a loan to finance 
construction of a dwelling that may be permanently financed by the 
same creditor under comment 17(c)(6)-6. The creditor therefore must 
deliver or place in the mail the disclosures required by Sec.  
1026.19(e)(1)(i) for both the construction financing and the 
permanent financing, either disclosed as one or more than one 
transaction, not later than Thursday, June 4, the third business day 
after the creditor received the consumer's application, and not 
later than the seventh business day before consummation of the 
transaction, even though the application is for construction 
financing only.
    ii. Assume a creditor receives a consumer's application for 
construction financing only on Monday, June 1. Assume further that 
the creditor generally makes only construction financing available 
to qualifying consumers. In these circumstances, the construction 
loan for which the consumer applied is not a loan to finance 
construction of a dwelling that may be permanently financed by the 
same creditor under comment 17(c)(6)-6. The creditor therefore must 
deliver or place in the mail the disclosures required by Sec.  
1026.19(e)(1)(i) for the construction financing only not later than 
Thursday, June 4, the third business day after the creditor received 
the consumer's application, and not later than the seventh business 
day before consummation of the transaction.
    iii. Assume a creditor receives a consumer's application for 
construction financing only on Monday, June 1. Assume further that 
the creditor generally makes both construction and permanent 
financing available to qualifying consumers and that the consumer 
expressly states that the consumer will not obtain permanent 
financing from the creditor. In these circumstances, the 
construction loan for which the consumer applied is not a loan to 
finance construction of a dwelling that may be permanently financed 
by the same creditor under comment 17(c)(6)-6. The creditor 
therefore must deliver or place in the mail the disclosures required 
by Sec.  1026.19(e)(1)(i) for the construction financing only not 
later than Thursday, June 4, the third business day after the 
creditor received the consumer's application, and not later than the 
seventh business day before consummation of the transaction.
    iv. Assume the same facts as in comment 19(e)(1)(iii)-5.i, under 
which the creditor provides the disclosures required by Sec.  
1026.19(e)(1)(i) for both construction financing and permanent 
financing. If the creditor generally conducts separate closings for 
the construction financing and the permanent financing or expects 
that the construction financing and the permanent financing may have 
separate closings, providing separate Loan Estimates for the 
construction financing and for the permanent financing allows the 
creditor to deliver separate Closing Disclosures for the separate 
phases. For example, assume further that the consumer has requested 
permanent financing after receiving separate Loan Estimates for the 
construction financing and for the permanent financing, that 
consummation of the construction financing is scheduled for July 1, 
and that consummation of the permanent financing is scheduled on or 
about June 1 of the following year. The creditor may provide the 
construction financing Closing Disclosure at least three business 
days before consummation of that transaction on July 1 and delay 
providing the permanent financing Closing Disclosure until three 
business days before consummation of that transaction on or about 
June 1 of the following year, in accordance with Sec.  
1026.19(f)(1)(ii). The creditor may also issue a revised Loan 
Estimate for the permanent financing at any time prior to 60 days 
before consummation, following the procedures under Sec.  
1026.19(e)(3)(iv)(F).
    v. If a consumer expressly states that the consumer will not 
obtain permanent financing from the creditor after a combined

[[Page 54374]]

construction-permanent financing disclosure already has been 
provided, the creditor complies with Sec.  1026.17(c)(6)(ii) by 
issuing a revised disclosure for construction financing only in 
accordance with the timing requirements of Sec.  1026.19(e)(4).
* * * * *
    19(e)(1)(vi) Shopping for settlement service providers.
* * * * *
    2. Disclosure of services for which the consumer may shop. 
Section 1026.19(e)(1)(vi)(B) requires the creditor to identify the 
services for which the consumer is permitted to shop in the 
disclosures provided under Sec.  1026.19(e)(1)(i). If the charge for 
a particular service for which the consumer is permitted to shop is 
payable by the consumer, the creditor must specifically identify 
that service unless, based on the best information reasonably 
available to the creditor when the disclosure is provided, the 
creditor knows that the service is provided as part of a package (or 
combination of settlement services) offered by a single service 
provider. Specific identification of each service in such a package 
is not required provided all such services are services for which 
the consumer is permitted to shop. See Sec.  1026.37(f)(3) regarding 
the content and format for disclosure of services for which the 
consumer may shop.
    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 at least one available provider of 
that service and stating that the consumer may choose a different 
provider for that service. The settlement service providers 
identified on the written list required by Sec.  
1026.19(e)(1)(vi)(C) must correspond to the settlement services for 
which the consumer may shop, disclosed under Sec.  1026.37(f)(3). 
See form H-27 in appendix H to this part for a model list. Although 
use of the model form H-27 in appendix H to this part is not 
required, creditors using it properly will be deemed to be in 
compliance with Sec.  1026.19(e)(1)(vi)(C).
    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 charge 
for a particular service for which the consumer is permitted to shop 
is payable by the consumer, the creditor must specifically identify 
that service and an available provider of that service on the 
written list of providers unless, based on the best information 
reasonably available to the creditor at the time the disclosure is 
provided, the creditor knows that the service is provided as part of 
a package (or combination of settlement services) offered by a 
single service provider. Specific identification of each service in 
such a package is not required provided they all are services for 
which the consumer is permitted to shop.
* * * * *
    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 closing cost disclosed under Sec.  1026.19(e) 
is not in good faith if the charge paid by or imposed on the 
consumer exceeds the amount originally disclosed under Sec.  
1026.19(e)(1)(i). Although Sec.  1026.19(e)(3)(ii) and (iii) provide 
exceptions to the general rule, the charges that are generally 
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 shop for a third party service provider 
for a settlement service.
    v. Transfer taxes.
* * * * *
    8. ``Paid by or imposed on'' and ``payable.'' The term ``paid by 
or imposed on,'' as used in Sec. Sec.  1026.19(e)(3)(i) and 
1026.19(e)(3)(ii)(A), has the same meaning as the term ``payable,'' 
as used elsewhere in this part.
    19(e)(3)(ii) Limited increases permitted for certain charges.
* * * * *
    2. Aggregate increase limited to ten percent. Under Sec.  
1026.19(e)(3)(ii)(A), 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) increases by 
more than 10 percent, regardless of whether a particular charge 
increases by more than 10 percent. This is true even if an 
individual charge was omitted from the estimates entirely and then 
imposed at consummation. In all cases, however, the creditor must 
also comply with the requirements in Sec.  1026.19(e)(3)(ii)(B) and 
(C) to satisfy the good faith standard under Sec.  
1026.19(e)(3)(ii). 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) or the list does not 
comply with the requirements of Sec.  1026.19(e)(1)(vi)(B) and (C), 
good faith is determined under Sec.  1026.19(e)(3)(i) instead of 
Sec.  1026.19(e)(3)(ii) or (iii) regardless of the provider selected 
by the consumer. The following examples illustrate this principle 
(and also assume the requirements in Sec.  1026.19(e)(3)(ii)(B) and 
(C) are satisfied):
    i. Assume that, in the disclosures provided under 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 
settlement agent fee) equals $1,000. In this case, the creditor does 
not violate Sec.  1026.19(e)(3)(ii) if the actual settlement agent 
fee exceeds the estimated settlement agent fee by more than 10 
percent (i.e., the fee exceeds $330), provided that the sum of all 
such actual charges does not exceed the sum of all such estimated 
charges by more than 10 percent (i.e., the sum of all such charges 
does not exceed $1,100).
    ii. Assume that, in the disclosures provided under 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 under Sec.  1026.19(e)(1)(i).
* * * * *
    19(e)(3)(iii) Variations permitted for certain charges.
* * * * *
    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 under Sec.  1026.19(e)(1)(i) and the 
amounts of such charges paid by or imposed on 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 
consumer informs the creditor that the consumer will choose a 
settlement agent not identified by the creditor on the written list 
provided under 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) and good faith is determined under Sec.  
1026.19(e)(3)(i). 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) or the list does not 
comply with the requirements of Sec.  1026.19(e)(1)(vi)(B) and (C), 
good faith is determined under Sec.  1026.19(e)(3)(i) instead of 
Sec.  1026.19(e)(3)(iii) regardless of the provider selected by the 
consumer.
    3. Good faith requirement for property taxes or non-required 
services chosen by the consumer. Differences between the amounts of 
estimated charges for property taxes or services not required by the 
creditor disclosed under Sec.  1026.19(e)(1)(i) and the amounts of 
such charges paid by or imposed on the consumer do not constitute a 
lack of good faith, so long as the original estimated

[[Page 54375]]

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 
consumer informs the creditor that the consumer will obtain a type 
of inspection not required by the creditor, the creditor must 
include the charge for that item in the disclosures provided under 
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). The original estimated charge, or lack of an 
estimated charge for a particular service, complies with Sec.  
1026.19(e)(3)(iii) if it is made based on the best information 
reasonably available to the creditor at the time that the estimate 
was provided. But, for example, if the subject property is located 
in a jurisdiction where consumers are customarily represented at 
closing by their own attorney, even though it is not a requirement, 
and 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 under Sec.  1026.19(e)(1)(i), then the 
creditor's failure to disclose, or unreasonably low estimation, does 
not comply with Sec.  1026.19(e)(3)(iii). Similarly, the amount 
disclosed for property taxes must be based on the best information 
reasonably available to the creditor at the time the disclosure was 
provided. For example, if the creditor fails to include a charge for 
property taxes, or includes an unreasonably low estimate for that 
charge, on the original estimates provided under Sec.  
1026.19(e)(1)(i), then the creditor's failure to disclose, or 
unreasonably low estimation, does not comply with Sec.  
1026.19(e)(3)(iii).
    4. Bona fide charges. In covered transactions, Sec.  
1026.19(e)(1)(i) requires the creditor to provide the consumer with 
good faith estimates of the disclosures in Sec.  1026.37. Section 
1026.19(e)(3)(iii) provides that an estimate of the charges listed 
in Sec.  1026.19(e)(3)(iii) is in good faith if it is consistent 
with the best information reasonably available to the creditor at 
the time the disclosure is provided and that good faith is 
determined under Sec.  1026.19(e)(3)(iii) even if such charges are 
paid to affiliates of the creditor, so long as the charges are bona 
fide. To be bona fide, charges must be lawful and for services that 
are actually performed.
    19(e)(3)(iv) Revised estimates.
* * * * *
    2. Actual increase. A creditor may determine good faith under 
Sec.  1026.19(e)(3)(i) and (ii) based on the increased charges 
reflected on revised disclosures 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 on which a creditor relies for purposes of determining 
good faith under Sec.  1026.19(e)(3)(i) 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 the creditor may not rely on changes to other charges 
unrelated to the rate lock extension for purposes of determining 
good faith under Sec.  1026.19(e)(3)(i) and (ii).
* * * * *
    4. Revised disclosures for general informational purposes. 
Section 1026.19(e)(3)(iv) does not prohibit the creditor from 
issuing revised disclosures for informational purposes, e.g., to 
keep the consumer apprised of updated information, even if the 
revised disclosures may not be used for purposes of determining good 
faith under Sec.  1026.19(e)(3)(i) and (ii). See comment 
19(e)(3)(iv)(A)-1.ii for an example in which the creditor issues 
revised disclosures even though the sum of all costs subject to the 
10 percent tolerance category has not increased by more than 10 
percent.
    5. Best information reasonably available. Regardless of whether 
a creditor may use particular disclosures for purposes of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), except 
as otherwise provided in Sec.  1026.19(e), any disclosures must be 
based on the best information reasonably available to the creditor 
at the time they are provided to the consumer. See Sec.  
1026.17(c)(2)(i) and comment 17(c)(2)(i)-1. For example, if the 
creditor issues revised disclosures reflecting a new rate lock 
extension fee for purposes of determining good faith under Sec.  
1026.19(e)(3)(i), other charges unrelated to the rate lock extension 
should be reflected on the revised disclosures based on the best 
information reasonably available to the creditor at the time the 
revised disclosures are provided. Nonetheless, any increases in 
those other charges unrelated to the lock extension may not be used 
for the purposes of determining good faith under Sec.  
1026.19(e)(3).
* * * * *
    19(e)(3)(iv)(D) Interest rate dependent charges.
    1. Requirements. If the interest rate is not locked when the 
disclosures required by Sec.  1026.19(e)(1)(i) are provided, then, 
no later than three business days after the date the interest rate 
is subsequently locked, Sec.  1026.19(e)(3)(iv)(D) requires the 
creditor to provide a revised version of the disclosures required 
under Sec.  1026.19(e)(1)(i) reflecting the revised interest rate, 
the points disclosed under Sec.  1026.37(f)(1), lender credits, and 
any other interest rate dependent charges and terms. The following 
example illustrates 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 original disclosures required under Sec.  1026.19(e)(1)(i) are 
provided, then the actual points and lender credits are compared to 
the estimated points disclosed under Sec.  1026.37(f)(1) and lender 
credits included in the original disclosures provided under Sec.  
1026.19(e)(1)(i) for the purpose of determining good faith under 
Sec.  1026.19(e)(3)(i). If the consumer enters into a rate lock 
agreement with the creditor after the disclosures required under 
Sec.  1026.19(e)(1)(i) were provided, then Sec.  
1026.19(e)(3)(iv)(D) requires the creditor to provide, no later than 
three business days after the date that the consumer and the 
creditor enter into a rate lock agreement, a revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) reflecting the 
revised interest rate, the points disclosed under Sec.  
1026.37(f)(1), lender credits, and any other interest rate dependent 
charges and terms. Provided that the revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) reflect any 
revised points disclosed under Sec.  1026.37(f)(1) and lender 
credits, the actual points and lender credits are compared to the 
revised points and lender credits for the purpose of determining 
good faith under Sec.  1026.19(e)(3)(i).
    2. After the Closing Disclosure is provided. Under Sec.  
1026.19(e)(3)(iv)(D), no later than three business days after the 
date the interest rate is locked, the creditor must provide a 
revised version of the Loan Estimate as required by Sec.  
1026.19(e)(1)(i) to the consumer. Section 1026.19(e)(4)(ii) 
prohibits a creditor from providing a revised version of the Loan 
Estimate as required by Sec.  1026.19(e)(1)(i) on or after the date 
on which the creditor provides the Closing Disclosure as required by 
Sec.  1026.19(f)(1)(i). If the interest rate is locked on or after 
the date on which the creditor provides the Closing Disclosure and 
the Closing Disclosure is inaccurate as a result, then the creditor 
must provide the consumer a corrected Closing Disclosure, at or 
before consummation, reflecting any changed terms. If the rate lock 
causes the Closing Disclosure to become inaccurate before 
consummation in a manner listed in Sec.  1026.19(f)(2)(ii), the 
creditor must ensure that the consumer receives a corrected Closing 
Disclosure no later than three days before consummation, as provided 
in that paragraph.
    19(e)(3)(iv)(E) Expiration.
    1. Requirements. If the consumer indicates an intent to proceed 
with the transaction more than 10 business days after the 
disclosures were originally provided under Sec.  1026.19(e)(1)(iii), 
for the purpose of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of 
a charge instead of the amount originally disclosed under Sec.  
1026.19(e)(1)(i). Section 1026.19(e)(3)(iv)(E) requires no 
justification for the change to the original estimate other than the 
lapse of 10 business days. For example, assume a creditor includes a 
$500 underwriting fee on the disclosures provided under 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 under Sec.  1026.19(e)(3)(iv)(E) but do not require the 
creditor to document a reason for the increase in the underwriting 
fee.
    2. Longer time period. For transactions in which the interest 
rate is locked for a specific period of time, Sec.  
1026.37(a)(13)(ii) requires the creditor to provide the date and 
time (including the applicable time zone) when that period ends. If 
the creditor establishes a period greater than 10 business days 
after the disclosures were originally provided (or subsequently 
extends it to such a longer period) before the estimated closing 
costs expire, notwithstanding the 10-business-day

[[Page 54376]]

period discussed in comment 19(e)(3)(iv)(E)-1, that longer time 
period becomes the relevant time period for purposes of Sec.  
1026.19(e)(3)(iv)(E). Accordingly, in such a case, the creditor may 
not issue revised disclosures for purposes of determining good faith 
under Sec.  1026.19(e)(3)(i) and (ii) under Sec.  
1026.19(e)(3)(iv)(E) until after the longer time period has expired. 
A creditor establishes such a period greater than 10 business days 
by communicating the greater time period to the consumer, including 
through oral communication.
* * * * *
    19(e)(4) Provision and receipt of revised disclosures.
* * * * *
    19(e)(4)(ii) Relationship to disclosures required under Sec.  
1026.19(f).
* * * * *
    2. Corrected disclosures provided under Sec.  1026.19(f)(2)(i) 
or (2)(ii). If there are fewer than four business days between the 
time the revised version of the disclosures is required to be 
provided under Sec.  1026.19(e)(4)(i) and consummation or the 
Closing Disclosure required by Sec.  1026.19(f)(1) has already been 
provided to the consumer, creditors comply with the requirements of 
Sec.  1026.19(e)(4) (to provide a revised estimate under Sec.  
1026.19(e)(3)(iv) for the purpose of determining good faith under 
Sec.  1026.19(e)(3)(i) and (ii)) if the revised disclosures are 
reflected in the corrected disclosures provided under Sec.  
1026.19(f)(2)(i) or (2)(ii), subject to the other requirements of 
Sec.  1026.19(e)(4)(i).
    19(f) Mortgage loans--Final disclosures.
    19(f)(1) Provision of disclosures.
    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 or a 
cooperative unit, 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 under 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 corrected 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) and (f)(2). For example, if 
the creditor provides the disclosures required by Sec.  
1026.19(f)(1)(i) on Monday, June 1, but the consumer adds a mobile 
notary service 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 corrected disclosures are 
also provided at or before consummation, under Sec.  
1026.19(f)(2)(i).
* * * * *
    19(f)(2) Subsequent changes.
* * * * *
    19(f)(2)(iii) Changes due to events occurring after 
consummation.
* * * * *
    2. Per-diem interest. Under Sec.  1026.19(f)(2)(iii), if during, 
the 30-day period following consummation, an event in connection 
with the settlement of the transaction occurs that causes the 
disclosures to become inaccurate, and such inaccuracy results in a 
change to an amount actually paid by the consumer from that amount 
disclosed under Sec.  1026.19(f)(1)(i), the creditor must provide 
the consumer corrected disclosures. Under Sec.  1026.17(c)(2)(ii), 
for a transaction in which a portion of the interest is determined 
on a per-diem basis and collected at consummation, any disclosure 
affected by the per-diem interest is considered accurate if the 
disclosure is based on the information known to the creditor at the 
time that the disclosure documents are prepared for consummation of 
the transaction. A creditor is not required to provide to the 
consumer corrected disclosures under Sec.  1026.19(f)(2)(iii) for 
any disclosure affected by the per-diem interest that is considered 
accurate under Sec.  1026.17(c)(2)(ii), even if the amount actually 
paid by the consumer differs from the amount disclosed under Sec.  
1026.38(g)(2) and (o). See also comment 17(c)(2)(ii)-1.
* * * * *
    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 consummation 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 
no later than 60 days after consummation, and the creditor does not 
violate Sec.  1026.19(f)(1)(i) if the creditor delivers or places in 
the mail disclosures corrected to reflect the refund of such excess 
no later than 60 days after consummation. For example, assume that 
at consummation 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) exceed their 
respective estimates on the disclosures required under Sec.  
1026.19(e)(1)(i) by $30, $25, $25, and $15, then the total would 
exceed the limitations prescribed by Sec.  1026.19(e)(3)(i) by $95. 
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 the total would exceed the limitations prescribed by 
Sec.  1026.19(e)(3)(ii) by $90. The creditor does not violate Sec.  
1026.19(e)(1)(i) if the creditor refunds $185 to the consumer no 
later than 60 days after consummation. The creditor does not violate 
Sec.  1026.19(f)(1)(i) if the creditor delivers or places in the 
mail corrected disclosures reflecting the $185 refund of the excess 
amount collected no later than 60 days after consummation. See 
comments 38-4 and 38(h)(3)-2 for additional guidance on disclosing 
refunds.
    19(f)(3) Charges disclosed.
* * * * *
    19(f)(3)(ii) Average charge.
* * * * *
    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 or a cooperative unit 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 or a 
cooperative unit 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, 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.
* * * * *
    19(f)(4) Transactions involving a seller.
    19(f)(4)(i) Provision to seller.
    1. Requirement. Section 1026.19(f)(4)(i) requires the settlement 
agent to provide the seller with the disclosures required under 
Sec.  1026.38 that relate to the seller's transaction reflecting the 
actual terms of the seller's transaction. The settlement agent 
complies with this provision by providing a copy of the Closing 
Disclosure provided to the consumer, if the Closing Disclosure also 
contains the information under Sec.  1026.38 relating to the 
seller's transaction or, alternatively, by providing the disclosures 
under Sec.  1026.38(t)(5)(v) or (vi), as applicable.
    2. Simultaneous loans for subordinate financing. In a purchase 
transaction with a simultaneous loan for subordinate financing, the 
settlement agent complies with Sec.  1026.19(f)(4)(i) by providing 
the seller with only the Closing Disclosure on the first-lien 
transaction if that Closing Disclosure records the entirety of the 
seller's transaction. If the first-lien Closing Disclosure does not 
record the entirety of the seller's transaction, the Closing 
Disclosure for the simultaneous loan for subordinate financing must 
be provided to the seller and reflect the seller's transaction as 
applicable to the subordinate

[[Page 54377]]

financing. In this case, the settlement agent complies with Sec.  
1026.19(f)(4)(i) by providing the seller with a copy of the Closing 
Disclosure for both the first lien and the simultaneous loan for 
subordinate financing, if they also contain the information under 
Sec.  1026.38 relating to the seller's transaction, or by providing 
the disclosures under Sec.  1026.38(t)(5)(v) or (vi), as applicable.
* * * * *

Section 1026.23--Right of Rescission

* * * * *
    23(g) Tolerances for Accuracy.
    1. Example. See comment 38(o)-1 for examples illustrating the 
interaction of the finance charge and total of payments accuracy 
requirements for each transaction subject to Sec.  1026.19(e) and 
(f).
* * * * *
    23(h) Special Rules for Foreclosures.
* * * * *
    23(h)(2) Tolerance for Disclosures.
    1. General. This section is based on the accuracy of the total 
finance charge rather than its component charges. For each 
transaction subject to Sec.  1026.19(e) and (f), this section is 
also based on the accuracy of the total of payments, taken as a 
whole, rather than its components.
    2. Example. See comment 38(o)-1 for examples illustrating the 
interaction of the finance charge and total of payments accuracy 
requirements for each transaction subject to Sec.  1026.19(e) and 
(f).
* * * * *

Section 1026.25--Record Retention

* * * * *
    25(c) Records Related to Certain Requirements for Mortgage 
Loans.
    25(c)(1) Records related to requirements for loans secured by 
real property or a cooperative unit.
* * * * *

Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

* * * * *
    37(a) General information.
* * * * *
    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 unless it has performed its own 
estimate of the property value by the time the disclosure is 
provided to the consumer, in which case it must use its own 
estimate. If the creditor has obtained any appraisals or valuations 
of the property for the application at the time the disclosure is 
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. If the creditor has 
obtained multiple appraisals or valuations and has not yet 
determined which one will be used during underwriting, it may 
disclose the value from any appraisal or valuation it reasonably 
believes it may use in underwriting the transaction. In a 
transaction that involves a seller, if the sale price is not yet 
known, the creditor complies with Sec.  1026.37(a)(7) if it 
discloses the estimated value of the property that it used as the 
basis for the disclosures in the Loan Estimate.
    2. Personal property. In transactions involving personal 
property that is separately valued from real property, only the 
value of the real property or cooperative unit is disclosed under 
Sec.  1026.37(a)(7). Where personal property is included in the sale 
price of the real property or cooperative unit (for example, if the 
consumer is purchasing the furniture inside the dwelling), however, 
Sec.  1026.37(a)(7) permits disclosure of the aggregate price 
without any reduction for the appraised or estimated value of the 
personal property.