Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z), 37656-37793 [2017-15764]
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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)
Bureau of Consumer Financial
Protection.
ACTION: Final rule; official
interpretation.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is
modifying the Federal mortgage
disclosure requirements under the Real
Estate Settlement Procedures Act and
the Truth in Lending Act that are
implemented in Regulation Z. This rule
memorializes the Bureau’s informal
guidance on various issues and makes
additional clarifications and technical
amendments. This rule also creates
tolerances for the total of payments,
adjusts a partial exemption mainly
affecting housing finance agencies and
nonprofits, extends coverage of the
TILA–RESPA integrated disclosure
(integrated disclosure) requirements to
all cooperative units, and provides
guidance on sharing the integrated
disclosures with various parties
involved in the mortgage origination
process.
SUMMARY:
The final rule is effective
October 10, 2017. However, the
mandatory compliance date is October
1, 2018. For additional discussion of
these dates, see part VI of the
SUPPLEMENTARY INFORMATION section
below.
DATES:
FOR FURTHER INFORMATION CONTACT:
Jeffrey Haywood, Paralegal Specialist,
Dania Ayoubi, Pedro De Oliveira,
Angela Fox, Jaclyn Maier, Alexandra
Reimelt, and Shelley Thompson,
Counsels, and Krista Ayoub, David
Friend, Nicholas Hluchyj, and Priscilla
Walton-Fein, Senior Counsels, Office of
Regulations, Consumer Financial
Protection Bureau, 1700 G Street NW.,
Washington, DC 20552, at 202–435–
7700.
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SUPPLEMENTARY INFORMATION:
I. Summary of the Final 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
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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, on July 28, 2016, the
Bureau proposed amendments to the
integrated disclosure requirements in
Regulation Z (the proposal).2
The Bureau is now issuing this final
rule to memorialize certain past
informal guidance, whether provided
through webinar, compliance guide, or
otherwise, and make additional
clarifications and technical
amendments. This final rule also makes
a limited number of additional
substantive changes where the Bureau
has identified discrete solutions to
specific implementation challenges.
Specifically, among other changes, the
final rule:
• Creates tolerances for the total of
payments. The Truth in Lending Act
(TILA) establishes certain tolerances for
accuracy in calculating the finance
charge and disclosures affected by the
finance charge. In light of prior changes
to certain underlying regulatory
definitions, the final rule establishes
express tolerances for the total of
payments to parallel the existing
provisions regarding the finance charge.
• Adjusts a partial exemption that
mainly affects housing finance agencies
and nonprofits. The existing rule
provides a partial exemption from the
integrated disclosure requirements 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 final rule includes two
amendments to expand the scope of the
partial exemption and provide
additional flexibility when loans satisfy
the partial exemption.
• Provides a uniform rule regarding
application of the integrated 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
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).
2 The proposal was published in the Federal
Register on August 15, 2016. See 81 FR 54317 (Aug.
15, 2016).
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differently for different purposes, there
may be uncertainty and potential
inconsistency among market actors
regarding coverage of the integrated
disclosure requirements. The final rule
requires provision of the integrated
disclosures in transactions involving
cooperative units, whether or not
cooperatives are classified under State
law as real property.
• Provides 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 the integrated
disclosures with sellers and various
other parties involved in the origination
process, including real estate agents, in
light of privacy concerns. The final rule
incorporates and expands upon
previous webinar guidance in the
Official Interpretations (commentary) to
the regulation to provide greater clarity.
The clarifications and technical
corrections in this final rule 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 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; 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 Loan
Estimate. This final rule will generally
benefit consumers and industry alike by
providing greater clarity for
implementation going forward. As
stated in the proposal, the Bureau did
not reopen any major policy decisions
with this rulemaking.
For the reasons discussed in the
section-by-section analysis of
§ 1026.19(e)(4)(ii) below, the Bureau is
not finalizing proposed comment
19(e)(4)(ii)–2, which related to
comparing charges paid by or imposed
on the consumer to charges disclosed on
a corrected Closing Disclosure to
determine if an estimated charge was
disclosed in good faith. The Bureau is
issuing a new proposal, concurrent with
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this final rule, that would address this
issue.
II. Background
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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 the
Real Estate Settlement Procedures Act
(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.3
In Dodd-Frank Act sections 1032(f),
1098, and 1100A, Congress directed the
Bureau to integrate the mortgage loan
disclosures under TILA and RESPA.4
The Bureau issued proposed integrated
disclosure forms and rules for comment
on July 9, 2012 (the 2012 TILA–RESPA
Proposal),5 and 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).6 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.7 The Bureau ultimately
extended that effective date another two
months, to October 3, 2015, in a
3 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.
4 Public Law 111–203, 124 Stat. 1376, 2007,
2103–04, 2107–09 (2010).
5 77 FR 51116 (Aug. 23, 2012).
6 78 FR 79730 (Dec. 31, 2013).
7 Most commenters supported an implementation
period between 18 and 24 months. 78 FR 79730,
80071 (Dec. 31, 2013).
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subsequent rulemaking.8 The Bureau
has reaffirmed continuously its
commitment to support a smooth
transition for the mortgage market,
including its commitment to be
sensitive to the good faith efforts made
by institutions to come into
compliance.9
The Bureau has made technical
corrections to the TILA–RESPA Final
Rule. On January 20, 2015, the Bureau
issued the ‘‘Amendments to the 2013
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).10 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.11 The
TILA–RESPA Final Rule, January 2015
Amendments, and July 2015
Amendments are collectively referred to
as the TILA–RESPA Rule in this final
rule.
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
8 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.
9 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 https://
www.freddiemac.com/singlefamily/guide/bulletins/
pdf/iltr100615.pdf.
10 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).
11 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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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 Web pages targeted to
real estate professionals and settlements
service providers 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 Final Rule
This final rule memorializes some of
the Bureau’s existing informal guidance,
whether provided through webinar,
compliance guide, or otherwise, and
makes additional clarifications and
technical amendments. This final rule
also makes a limited number of
additional substantive changes where
the Bureau has identified discrete
solutions to specific implementation
challenges.
The Bureau’s focus in this rulemaking
is providing additional clarity to
facilitate compliance. The Bureau did
not reopen any major policy decisions
with this rulemaking. As stated in the
proposal, the Bureau was reluctant to
entertain major changes that could
involve substantial reprogramming of
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systems so soon after the TILA–RESPA
Final Rule’s October 2015 effective date
or to otherwise distract from industry’s
efforts to resolve outstanding
implementation issues.
Accordingly, the final rule does not
and cannot address every concern that
has been raised to the Bureau. The
Bureau believes that industry has made
substantial implementation progress.
The Bureau is prioritizing its resources
to further facilitate industry’s
implementation progress. This final rule
does not contain any revisions that
implicate fundamental policy choices,
such as the disclosure of simultaneous
issuance title insurance premiums,
made in the TILA–RESPA Final Rule.
This final rule also does not include
additional cure provisions.
As stated in the proposal, 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 focused this rulemaking
process on facilitating compliance with
the TILA–RESPA Rule so that industry
is able to provide all consumers with
disclosures that conform to the
requirements of the rule.
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III. Comments
The Bureau issued the proposal on
July 28, 2016, and it was published in
the Federal Register on August 15,
2016.12 The comment period closed on
October 18, 2016. In response to the
proposal, the Bureau received more than
1,600 comments from trade associations,
creditors, technology vendors, and other
industry representatives, as well as
consumer groups, government
sponsored enterprises (GSEs), and
others. As discussed in more detail
below, the Bureau has considered
comments in adopting this final rule.
IV. Legal Authority
The Bureau is issuing this final rule
pursuant to its authority under TILA,
RESPA, and the Dodd-Frank Act,
including the authorities discussed
below. In general, the provisions this
final rule amends were previously
12 81
FR 54317 (Aug. 15, 2016).
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adopted by the Bureau in the TILA–
RESPA Rule. In doing so, the Bureau
relied on one or more of the authorities
discussed below, as well as other
authority. Except as otherwise noted in
the section-by-section analysis in part V
below, the Bureau is issuing this final
rule in reliance on the same authority
and for the same reasons relied on in
adopting the relevant provisions of the
TILA–RESPA Rule, as discussed in
detail in the Legal Authority and
Section-by-Section Analysis parts of the
TILA–RESPA Final Rule and January
2015 Amendments, respectively.13
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.14 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.15 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.
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
13 78 FR 79730, 79753–56 (Dec. 31, 2013); 80 FR
8767, 8768–70 (Feb. 19, 2015).
14 Public Law 111–203, 124 Stat. 1376, 2007
(2010) (codified at 12 U.S.C. 5532(f)).
15 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)).
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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.16 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.17
Pursuant to TILA section
128(b)(2)(B)(ii), the disclosures must be
provided in final form at
consummation.18 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.19 However, unlike
TILA, RESPA section 4(b) requires that,
at or before settlement, the person
conducting the settlement (which may
or may not be the creditor) provide the
borrower with a statement that records
all charges imposed upon the borrower
in connection with the settlement.20
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),21 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.22 In enacting
TILA, Congress found that economic
stabilization would be enhanced and the
competition among the various financial
institutions and other firms engaged in
16 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.
17 15 U.S.C. 1638(b)(2)(D).
18 15 U.S.C. 1638(b)(2)(B)(ii).
19 12 U.S.C. 2604(c).
20 12 U.S.C. 2603(b).
21 15 U.S.C. 1604(a).
22 15 U.S.C. 1601(a).
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the extension of consumer credit would
be strengthened by the informed use of
credit.23 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.24
TILA section 129B(e). Dodd-Frank Act
section 1405(a) amended TILA to add
new section 129B(e).25 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
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 issuing
portions of this final rule pursuant to its
authority under TILA section 129B(e).
RESPA section 19(a). 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.26 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.27 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.28 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 issuing portions of this
final 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.29 TILA and RESPA are
Federal consumer financial laws.30
Accordingly, in issuing 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).31
26 12
23 Id.
24 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.
25 Public Law 111–203, 124 Stat. 1376, 2141
(2010) (codified at 15 U.S.C. 1639B(e)).
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U.S.C. 2617(a).
U.S.C. 2601(b).
28 12 U.S.C. 2601(a).
29 Public Law 111–203, 124 Stat. 1376, 1980
(2010) (codified at 15 U.S.C. 5512(b)(1)).
30 12 U.S.C. 5481(12) and (14).
31 Public Law 111–203, 124 Stat. 1376, 1980
(2010) (codified at 12 U.S.C. 5512(b)(2)).
27 12
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37659
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.32
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.33 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.34 The
Bureau is issuing portions of this final
rule pursuant to its authority under
Dodd-Frank Act section 1032(a).
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 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
32 Public Law 111–203, 124 Stat. 1376, 2006–07
(2010) (codified at 12 U.S.C. 5532(a)).
33 Public Law 111–203, 124 Stat. 1376, 2007
(2010) (codified at 12 U.S.C. 5532(c)).
34 78 FR 79730, 79743–50 (Dec. 31, 2013).
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residential mortgage loans if the Bureau
determines that such exemption or
modification is in the interest of
consumers and in the public interest.35
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.36 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 issuing portions of this final rule
pursuant to its authority under DoddFrank Act section 1405(b).
V. Section-by-Section Analysis
Section 1026.1 Authority, Purpose,
Coverage, Organization, Enforcement,
and Liability
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1(d) Organization
1(d)(5)
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to
§ 1026.1(d)(5) and comment 1(d)(5)–1 to
reflect a change to the coverage of
§ 1026.19(e) and (f) to include closedend credit transactions that are secured
by a cooperative unit, regardless of
whether a cooperative unit is treated as
real property under State or other
applicable law.
Current comment 1(d)(5)–1 provides
in relevant part 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
35 Public Law 111–203, 124 Stat. 1376, 2142
(2010) (codified at 15 U.S.C. 1601 note).
36 Public Law 111–203, 124 Stat. 1376, 2138
(2010) (codified at 15 U.S.C. 1602(cc)(5)).
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effective on October 3, 2015, without
respect to whether an application was
received. In addition to the proposed
revision noted above, the Bureau
proposed to restructure comment
1(d)(5)–1 and make other technical
revisions to enhance clarity. The Bureau
also proposed revisions to require a
creditor, servicer, or covered person to
provide the applicable disclosures
required under § 1026.20(e) or
§ 1026.39(d)(5) as of October 1, 2017,
regardless of when the application for a
covered mortgage transaction was
received. The proposed amendments to
the comment also would set forth an
illustrative example.
Section 1026.20(e) requires the
creditor or servicer to issue an ‘‘Escrow
Closing Notice’’ when an escrow
account subject to § 1026.20(e) will be
canceled. Section 1026.39(d)(5) requires
a covered person 37 to disclose the
lender’s partial payment policy. The
obligation to provide these disclosures
may occur after consummation. In the
proposal, the Bureau acknowledged that
there is uncertainty within industry as
to whether the disclosures under
§§ 1026.20(e) and 1026.39(d)(5)
(together, the post-consummation
disclosures under §§ 1026.20(e) and
1026.39(d)(5)) apply to all covered
transactions as of the effective date of
October 3, 2015, or only to covered
transactions for which the creditor or
mortgage broker received an application
on or after October 3, 2015, and
explained that it considers either
approach compliant under existing
comment 1(d)(5)–1. The Bureau
proposed to clarify that the postconsummation disclosure requirements
under §§ 1026.20(e) and 1026.39(d)(5)
apply to all covered transactions
regardless of the date an application was
received. In light of current uncertainty
that may exist regarding compliance
under existing comment 1(d)(5)–1,
however, the Bureau proposed to
provide that the requirement to issue
the post-consummation disclosures
under §§ 1026.20(e) and 1026.39(d)(5)
applies to all covered transactions,
regardless of the date an application was
received, as of the proposed effective
date of October 1, 2017.
The October 1, 2017, effective date in
proposed comment 1(d)(5)–1 was based
on the Bureau’s working assumption
that a final rule would be promulgated
on or before April 1, 2017. The Bureau
37 ‘‘A ‘covered person’ means any person, as
defined in § 1026.2(a)(22), that becomes the owner
of an existing mortgage loan by acquiring legal title
to the debt obligation, whether through a purchase,
assignment or other transfer, and who acquires
more than one mortgage loan in any twelve-month
period.’’ § 1026.39(a)(1).
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proposed this tentative 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.
Accordingly, the Bureau noted that the
effective date recited for the postconsummation disclosures under
§§ 1026.20(e) and 1026.39(d)(5) in the
proposal may differ in the final rule,
depending on when the final rule is
promulgated. As noted in the effective
date discussion in part VI, below, the
effective date of this final rule is 60 days
from publication in the Federal Register
but the amendments will not yet be
mandatory. In general, compliance with
the amendments in the final rule will
only be mandatory with respect to
transactions for which a creditor or
mortgage broker received an application
on or after October 1, 2018. Nonetheless,
on and after October 1, 2018, the
requirement to provide the postconsummation disclosures §§ 1026.20(e)
and 1026.39(d)(5) will be mandatory for
all transactions regardless of the date a
corresponding loan application was
received.
As stated in the proposal, the Bureau
believes that consumers with covered
mortgage loans would benefit from the
receipt of the post-consummation
disclosures under §§ 1026.20(e) and
1026.39(d)(5) without regard to when a
corresponding application was received.
Information about an escrow account
closure or the partial payment policy
contained in the post-consummation
disclosures under §§ 1026.20(e) and
1026.39(d)(5) is beneficial to consumers
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 under §§ 1026.20(e) and
1026.39(d)(5); consumers should be able
to understand the latter even if they
have not received the former.
The Bureau also noted in its proposal
that requiring the post-consummation
disclosures under §§ 1026.20(e) and
1026.39(d)(5) for covered accounts
without regard to the application date
would simplify compliance. For
example, under the final rule, creditors
or servicers would not have to track the
application date for certain covered
transactions under §§ 1026.20(e) and
1026.39(d)(5) and, thus, requiring the
disclosures under these provisions for
all covered accounts regardless of
application date may simplify servicers’
compliance. Similarly, the postconsummation partial payment
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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 for all mortgage
loans rather than two distinct
disclosures, depending on the loan’s
application date.
The Bureau sought comment on
whether applying the postconsummation disclosures under
§§ 1026.20(e) and 1026.39(d)(5) to all
covered transactions regardless of when
an application was received is
appropriate. The Bureau also sought 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 on
transactions for which the application
was received on or after October 3,
2015. The Bureau further sought
comment on how often escrow accounts
are canceled post-consummation,
whether the rate of escrow cancelations
is expected to remain static or change,
and on the burden of tracking the
application date for the postconsummation disclosures under
§§ 1026.20(e) and 1026.39(d)(5).
The Bureau received three comments
regarding the proposed revision to
comment 1(d)(5)–1 to clarify that the
post-consummation disclosure
requirements under §§ 1026.20(e) and
1026.39(d)(5) apply to all covered
accounts regardless of the date an
application was received. All the
commenters supported this proposed
revision. The Bureau did not receive
comments regarding the restructuring of
comment 1(d)(5)–1 or the conforming
amendments to § 1026.1(d)(5) and
comment 1(d)(5)–1 to reflect a change to
the coverage of § 1026.19(e) and (f) to
include closed-end credit transactions
that are secured by a cooperative unit,
regardless of whether a cooperative unit
is treated as real property under State or
other applicable law. For the reasons
discussed above the Bureau is finalizing
comment 1(d)(5)–1 substantially as
proposed, but with revisions to reflect
the date of October 1, 2018, instead of
October 1, 2017, and to make other
clarifying edits.
In addition, as discussed above and in
more detail in the effective date
discussion in part VI, below, the Bureau
is establishing an effective date,
optional compliance period, and
mandatory compliance date for this
final rule. The Bureau is adding new
comment 1(d)(5)–2 in order to
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memorialize the effective date, the
optional compliance period, and the
mandatory compliance date.
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. The Bureau
proposed to amend comment 2(a)(11)–3
to clarify that, in addition to credit
extended to land trusts, credit extended
to trusts established for taxation or
estate planning purposes would also be
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.
Several industry commenters
supported the clarification in proposed
comment 2(a)(11)–3. Industry
commenters also requested clarification
as to who should receive disclosures
and how consumers’ names should be
disclosed, including on the optional
signature lines under §§ 1026.37(n) and
1026.38(s), where credit is extended to
trusts established for tax or estate
planning purposes. A title insurance
underwriter recommended that
proposed comment 2(a)(11)–3 become
effective as soon as possible or even
retroactively, while a vendor group
stated that reprogramming for some
vendors could take up to six months.
The Bureau is adopting comment
2(a)(11)–3 substantially as proposed but
with a minor change. Specifically,
comment 2(a)(11)–3, as finalized, uses
the phrase ‘‘tax or estate planning
purposes’’ (rather than the phrase
‘‘taxation or estate planning purposes’’)
for consistency with comment 3(a)–10.
Guidance as to who should receive
disclosures where credit is extended to
trusts established for tax or estate
planning purposes can be found in
current §§ 1026.2(a)(22) and 1026.17(d)
and their associated commentary.
Comment 2(a)(22)–3 provides that a
trust and its trustee are considered to be
the same person for purposes of
Regulation Z, and comment 17(d)–2
provides that disclosures must be given
to the principal debtor and, if two
consumers are joint obligors with
primary liability on an obligation, the
disclosures may be given to either one
of them. Thus, where credit is extended
to trusts established for tax or estate
planning purposes, the disclosures may
simply be provided to the trustee on
behalf of the trust. In rescindable
transactions, however, comment 17(d)–
2 provides that the disclosures required
by § 1026.19(f) must be given separately
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37661
to each consumer who has the right to
rescind under § 1026.23.
Current comment 37(a)(5)–1 provides
guidance on how consumers’ names
should be disclosed on the Loan
Estimate. If there is more than one
consumer applying for the credit,
§ 1026.37(a)(5) requires disclosure of the
name and the mailing address of each
consumer to whom the Loan Estimate
will be delivered. Pursuant to current
comment 17(d)–2, as noted above,
where credit is extended to trusts
established for tax or estate planning
purposes, the disclosures may simply be
provided to the trustee on behalf of the
trust. Therefore, to comply with
§ 1026.37(a)(5), a creditor may opt to
disclose the name and mailing address
of the trust only, although nothing
prohibits the creditor from additionally
disclosing, pursuant to § 1026.37(a)(5),
the names of the trustee or of other
consumers applying for the credit.
Regarding the Closing Disclosure,
current § 1026.38(a)(4) and its
associated commentary provide that
creditors must disclose the name and
address of each consumer and seller in
the transaction. The section-by-section
analysis of § 1026.38(a)(4) below
includes a discussion of the definition
of consumer for purposes of such
disclosure.
Current §§ 1026.37(n) and 1026.38(s)
and their associated commentary permit
a creditor to determine in its sole
discretion whether or not to include a
signature line or insert the consumer’s
name under the signature line rather
than the designation ‘‘Applicant’’ or
‘‘Co-Applicant.’’ When credit is
extended to trusts established for tax or
estate planning purposes and the
creditor opts to insert a signature line,
nothing in the TILA–RESPA Rule
prohibits the creditor from inserting the
trustee’s name under the signature line
along with a designation that the trustee
is serving in its capacity as trustee.
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
Section 1026.3
Exempt Transactions
3(h) Partial Exemption for Certain
Mortgage Loans
The Bureau’s Proposal
Section 1026.3(h) currently provides
that the TILA–RESPA integrated
disclosure requirements do not apply to
transactions that satisfy six criteria that
are associated with certain housing
assistance loans for low- and moderate-
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income consumers. 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. Thus, § 1026.3(h)
provides an exemption from certain
Regulation Z disclosure requirements,
though it does not provide a full
exemption from Regulation Z. In
addition, Regulation X § 1024.5(d)
provides a partial exemption from
certain RESPA disclosure requirements
for federally related mortgage loans.38
Regulation X § 1024.5(d)(2) crossreferences the exemption criteria set
forth in § 1026.3(h). The partial
exemption in § 1026.3(h) and the
parallel partial exemption in Regulation
X § 1024.5(d)(2) replaced a disclosure
exemption previously granted by HUD.
The purpose of these partial exemptions
is to facilitate access to certain low-cost,
non-interest bearing, subordinate-lien
transactions by streamlining the
disclosures required in connection with
these loans.
As discussed in the proposal, the
Bureau understands that loans that
satisfy the criteria in § 1026.3(h)
generally provide a benefit to consumers
and are predominantly made by housing
finance agencies (HFAs) or by private
creditors who partner with HFAs and
extend credit pursuant to HFA
guidelines (collectively, HFA program
loans). The Bureau explained in the
proposal that it understood that many of
the low-cost housing assistance loans
that satisfy the criteria in § 1026.3(h) are
not covered transactions subject to the
TILA–RESPA integrated disclosure
requirements 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).39 These loans generally
are, however, federally related mortgage
loans. Thus, unless they meet the
criteria in § 1026.3(h) and qualify for the
partial exemption in Regulation X
38 12 CFR 1024.2(b) (defining federally related
mortgage loan for purposes of Regulation X).
39 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.
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§ 1024.5(d)(2), lenders 40 making these
housing assistance loans must comply
with the RESPA disclosure
requirements. In the proposal, the
Bureau stated that it had received
information that many HFAs were
having difficulty finding lenders to
partner with in making these loans
because, following the introduction of
the TILA–RESPA integrated disclosures,
some vendors and loan originator
systems no longer support the RESPA
disclosures. The Bureau expressed
concern that the limited support for the
RESPA disclosures might 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.
Among the criteria for the partial
exemption is § 1026.3(h)(5), which
provides that the total of costs payable
by the consumer at consummation must
be less than 1 percent of the amount of
credit extended and include no charges
other than fees for recordation,
application, and housing counseling.
The Bureau proposed to revise
§ 1026.3(h)(5) to clarify the costs that
may be payable by the consumer at
consummation without loss of eligibility
for the partial exemption. Specifically, it
proposed to clarify that transfer taxes, in
addition to fees for recordation,
application, and housing counseling,
may be payable by the consumer at
consummation without losing eligibility
for the partial exemption. It also
proposed to exclude recording fees and
transfer taxes from the 1-percent
threshold on total costs payable by the
consumer at consummation. The Bureau
proposed these changes to enable more
loans to satisfy the criteria in
§ 1026.3(h), which the Bureau believed
would support the extension of
beneficial, low-cost credit to consumers.
In addition, the Bureau proposed to
amend comment 3(h)–2 and to add
comments 3(h)–3 and –4. For the
reasons discussed below, the Bureau is
adopting § 1026.3(h)(5) as proposed, and
is adopting comments 3(h)–3 and –4 as
proposed but renumbered as comments
3(h)–4 and –5.
Additional criteria for the partial
exemption are found in § 1026.3(h)(6),
which requires the creditor to comply
40 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.
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with all other applicable requirements
of Regulation Z in connection with the
transaction, including without
limitation the disclosures required by
§ 1026.18. For the reasons discussed
below, the Bureau is revising
§ 1026.3(h)(6) to permit the provision of
the Loan Estimate and Closing
Disclosure to satisfy this criteria for the
partial exemption. The Bureau is
revising the introductory text of
§ 1026.3(h) and comments 3(h)–1 and –2
to reflect the revisions to § 1026.3(h)(6).
The Bureau is adding new comment
3(h)–3 to clarify further the relationship
between the partial exemption in
§ 1026.3(h) and the parallel partial
exemption for certain federally related
mortgage loans in Regulation X
§ 1024.5(d)(2).
Comments Received
The Bureau received many comments
supporting the proposal to clarify that
transfer taxes may be charged in
connection with the transaction without
loss of eligibility for the partial
exemption and to exclude recording fees
and transfer taxes from the 1-percent
threshold. Several commenters stated
that the proposal would allow more
housing assistance loans to satisfy the
criteria for the partial exemption and
would thus increase the availability of
such loans. Some commenters specified
that recording fees and transfer taxes on
their own often preclude housing
assistance loans from qualifying for the
partial exemption and limit creditors’
ability to offer such loans. One HFA
commented that it offers a housing
assistance program with loans ranging
from $1,000 to $10,000, and that, in one
county in the State in which it operates,
it costs $222 to record four pages of a
mortgage. As a result, the HFA stated
that recording fees alone often prevent
even the maximum $10,000 loan from
being eligible for the partial exemption.
A consumer group commenter stated
that the proposal to exclude recording
fees and transfer taxes from the 1percent threshold was reasonable, if
such fees and taxes are the reason that
HFAs and nonprofits are having
difficulty making otherwise exempt
loans within the current 1-percent
threshold. Another HFA recommended
that the Bureau limit costs payable by
the consumer in connection with the
transaction to recording fees, transfer
taxes, a reasonable application fee, and
a reasonable housing counseling fee,
and, along with an industry commenter,
stated that 1 percent would be the
appropriate threshold on permissible
application and housing counseling
fees.
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Several commenters stated that the
proposal to exclude recording fees and
transfer taxes from the 1-percent
threshold would not create or increase
the risk of abuse or other consumer
harm. Some commenters stated that the
proposal would not increase such risks
because recording fees and transfer
taxes are determined by State and local
officials, rather than by HFAs or other
parties to the transaction. One industry
commenter also stated that the
provision of the disclosures required by
§ 1026.18 for transactions that satisfy
the partial exemption would limit any
potential abuse by creditors. A
consumer group commenter stated that
the risk that creditors would inflate the
application and housing counseling fees
that would remain subject to the 1percent threshold if the proposal were
finalized is mitigated by the
requirement that these fees be bona fide
and reasonable. The commenter
recommended that the Bureau require
creditors to maintain adequate
documentation of these fees so
borrowers and regulators can verify that
the fees are truly bona fide and
reasonable.
Many commenters that generally
supported the proposal encouraged the
Bureau to adopt further amendments to
the partial exemption. For example, two
industry commenters urged the Bureau
to treat settlement or closing fees as
allowable fees for purposes of the partial
exemption and to exclude them from
the 1-percent threshold. These
commenters stated that the settlement or
closing fees charged by a third-party
settlement provider, and not by the
creditor, can affect the creditor’s ability
to meet the 1-percent threshold.
Many commenters recommended
expanding access to the partial
exemption or providing broader
exemptions from Regulation X or Z for
HFA program loans or HFAs that
originate loans. One trade association
representing HFAs recommended that
the partial exemption be expanded to
include all HFA second-lien loan
programs to ensure that the RESPA
disclosures would never be required for
any HFA program subordinate lien. This
commenter stated that the RESPA
disclosures are required for many HFA
program loans that do not meet the
partial exemption. It stated further that,
because many HFA lending partners
have updated their systems to comply
with the TILA–RESPA integrated
disclosure requirements, such lending
partners have difficulty generating the
RESPA disclosures and have thus
decreased or suspended their
participation in HFA program lending.
This commenter expressed concern that
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other reasonable fees may still prevent
some loans from meeting the criteria in
proposed § 1026.3(h), and that certain
other beneficial HFA program loans,
such as those that help consumers avoid
foreclosure, obtain home repairs, or
make energy efficiency improvements,
would not qualify for the partial
exemption due to the inability to meet
criteria aside from the 1-percent
threshold.
One industry commenter stated that,
although it believes consumers should
still receive meaningful disclosures of
the cost of credit, the Bureau could
exempt HFA program loans from
Regulation Z disclosure requirements
when the creditor itself imposes no
charges in connection with the loan. A
trade association recommended a full
exemption from Regulation Z for HFA
down payment assistance loans that
have no finance charge and are payable
in four or fewer installments. A trade
association representing HFAs stated
that, if the Bureau chose not to adopt
further amendments to the partial
exemption itself, an exemption from the
disclosure requirements in Regulations
X and Z for HFA second-lien loans
would be an appropriate method to
ensure HFAs can continue to serve
constituents without being limited by
the disclosure rules. A few HFA
commenters requested full exemptions
from Regulations X and Z for HFA
program loans or for HFAs that originate
loans without regard to the criteria in
§ 1026.3(h) and stated that such
exemptions would better enable HFAs
to work with lenders.
A trade association representing HFAs
and a few HFA commenters stated that
exemptions from Regulations X and Z,
either in full or in part, for HFA
program loans or HFAs themselves
would not increase risk to consumers
because HFAs are mission-driven
entities that would continue to require
consumer disclosures. These
commenters also noted that the Bureau
has previously extended exemptions to
HFA program loans or HFAs themselves
in the Ability-to-Repay, HOEPA, and
Mortgage Servicing Final Rules. A few
of these commenters suggested that the
Bureau adopt the same definition of
HFA as set forth in § 1026.41(e)(4)(ii)(B),
which cross-references the definition in
24 CFR 266.5, while one commenter
stated that HFAs are defined as special
purpose credit programs under
Regulation B.
In response to the Bureau’s request for
comment, one nonprofit commenter
expressed strong opposition to
explicitly limiting the § 1026.3(h) partial
exemption to HFAs and private
creditors who partner with HFAs and
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extend credit pursuant to HFA
guidelines. It stated that many entities,
such as community banks and credit
unions, use the partial exemption and
do not partner with HFAs. An
individual commenter stated that the
partial exemption affects entities other
than HFAs, including hundreds of
county and municipal programs as well
as nonprofit organizations that
administer block grants and other
programs designed for low- and
moderate-income individuals.
Many commenters discussed the
disclosures required for loans that
satisfy the criteria for the partial
exemption, HFA program loans, or
housing assistance loans generally. A
few commenters expressed concern that
the unique characteristics of the loans
that satisfy the criteria for the partial
exemption may make it difficult to
comply with the § 1026.18 disclosure
requirements. For example, one trade
association stated that some loan
origination systems cannot create the
disclosures required by § 1026.18 where
the interest rate or finance charge is
zero, with the result that lenders must
complete these disclosures manually.
This commenter stated further that some
lenders and loan origination systems no
longer maintain the ability to create
RESPA disclosures as such disclosures
are no longer required for most of their
loans and expressed a belief that the
same was true for the disclosures
required by § 1026.18.
Many commenters advocated
permitting creditors to use TILA–RESPA
integrated disclosures more broadly,
either in connection with all loans that
satisfy the criteria for the partial
exemption, all HFA program loans, or
all housing assistance loans. Two trade
associations recommended that, for
loans subject to TILA and RESPA as
well as for loans only subject to RESPA,
creditors be permitted to provide TILA–
RESPA integrated disclosures for loans
that satisfy the partial exemption in
place of the § 1026.18 disclosures. One
trade association stated that TILA–
RESPA integrated disclosures are
generally understood by consumers and,
due to systems updates, easier to
produce than the disclosures required
by § 1026.18. One HFA recommended
that, to reduce burden and facilitate
lender partnerships with HFAs, the
Bureau should clarify that lenders are
allowed to provide TILA–RESPA
integrated disclosures for loans that
qualify for the partial exemption or any
broader exemption that the Bureau
might adopt.
One trade association representing
HFAs and one HFA commenter urged
the Bureau to allow HFAs to use TILA–
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RESPA integrated disclosures in
connection with all HFA program
second-lien loans, regardless of whether
such loans qualify for the partial
exemption. They stated that this option
would improve efficiency and reduce
the compliance burden because many
operating systems are set up to provide
TILA–RESPA integrated disclosures.
The trade association stated that many
HFAs and their lending partners
currently provide TILA–RESPA
integrated disclosures with limited
difficulty when loans subject to
Regulation Z do not meet the partial
exemption and that such disclosures
effectively convey critical loan
information to consumers. A different
HFA recommended that the Bureau
eliminate the partial exemption and
instead subject all HFA program secondlien loans to the TILA–RESPA
integrated disclosure requirements.
A few industry and vendor
commenters recommended that the
Bureau require or permit TILA–RESPA
integrated disclosures to be provided in
connection with all housing assistance
loans. These commenters expressed
concern with the process of determining
whether the partial exemption applies
to a transaction and stated that a
streamlined disclosure requirement for
these loans would reduce compliance
burden and costs to creditors while
improving consumer understanding.
Two commenters recommended that the
Bureau adopt an alternative disclosure
specific to HFAs.
One industry commenter
recommended an immediate effective
date or an effective date six months after
the issuance of the final rule for the
proposed amendments to the partial
exemption. The commenter
recommended that TILA–RESPA
integrated disclosures be required for all
housing assistance loans, and stated that
such a requirement would involve
minimal systems changes for creditors.
One trade association representing
HFAs requested that any amendments to
expand the partial exemption for HFA
second-lien loan programs be effective
immediately. It stated that most HFA
lending partners are already able to
produce TILA–RESPA integrated
disclosures and expressed concern that
an implementation period could prevent
some consumers from benefiting from
HFA program lending.
Finally, a few commenters raised
other issues regarding the partial
exemption. Some industry commenters
stated that there is uncertainty regarding
the disclosure requirements where a
loan satisfies the criteria for the partial
exemption at the time of application,
but, due to changed circumstances or an
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increase in closing costs charged by
third parties, no longer satisfies the
criteria after the initial disclosure is
provided. One industry commenter
stated that uncertainty also exists
regarding the disclosure requirements
when a loan initially does not satisfy the
criteria for the partial exemption but
subsequent borrower-requested changes
during loan origination result in the
loan qualifying for the partial
exemption. A few commenters
requested further clarification around
the partial exemption generally and the
preparation of the required disclosures.
One HFA requested that the Bureau
consider revisions to the sevenbusiness-day review period between the
initial disclosures and consummation in
§ 1026.19(e)(1)(iii) and 1026.19(a)(2) for
HFA down payment and closing cost
assistance loans, stating that
determinations regarding consumers’
income that occur during these review
periods could affect their eligibility for
such loans.
The Final Rule
The Bureau is adopting § 1026.3(h)(5)
as proposed to clarify the costs that may
be payable by the consumer at
consummation without loss of eligibility
for the partial exemption. Further, and
for the reasons discussed below, the
Bureau is revising the criteria in
§ 1026.3(h)(6) to permit the provision of
a Loan Estimate and Closing Disclosure
that comply with Regulation Z. The
Bureau is revising the introductory text
of § 1026.3(h) and comments 3(h)–1 and
–2 to reflect revised § 1026.3(h)(6). The
Bureau is adopting new comment 3(h)–
3 to clarify further the relationship
between the partial exemption in
§ 1026.3(h) and the parallel partial
exemption for certain federally related
mortgage loans in Regulation X
§ 1024.5(d)(2). The Bureau is adopting
comments 3(h)–3 and –4 as proposed,
but renumbered as comments 3(h)–4
and –5 to reflect the addition of new
comment 3(h)–3.
The Bureau is revising the
introductory text of § 1026.3(h) to reflect
revised § 1026.3(h)(6). Currently, the
introductory text explains that the
special disclosure requirements in
§ 1026.19(e), (f), and (g) do not apply to
a transaction that satisfies all of the
criteria in § 1026.3(h). Section
1026.19(g) sets forth requirements
regarding the special information
booklet, while § 1026.19(e) and (f) set
forth requirements regarding the Loan
Estimate and Closing Disclosure,
respectively. As discussed in more
detail below, the Bureau is revising
§ 1026.3(h)(6) to require the provision of
either disclosures described in § 1026.18
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that comply with Regulation Z or
disclosures described in § 1026.19(e)
and (f) that comply with Regulation Z as
a condition for satisfying the partial
exemption. Consequently, if a creditor
chooses to provide the TILA disclosures
described in § 1026.18 in connection
with a transaction that meets the criteria
in § 1026.3(h), that transaction is
exempt from the requirements in
§ 1026.19(e), (f), and (g). If a creditor
instead chooses to provide the Loan
Estimate and Closing Disclosure in
connection with a transaction that meets
the criteria in § 1026.3(h), that
transaction is exempt from the
requirements in § 1026.19(g), but not
from the requirements in § 1026.19(e)
and (f). Thus, § 1026.3(h) provides an
exemption from § 1026.19(g), and,
depending on which of the available
disclosure options a creditor chooses
under § 1026.3(h)(6), may also provide
an exemption from § 1026.19(e) and (f).
Accordingly, the Bureau is revising the
introductory text of § 1026.3(h) to
explain that the special disclosure
requirements in § 1026.19(g) and, unless
the creditor chooses to provide the
disclosures described in § 1026.19(e)
and (f), in § 1026.19(e) and (f) do not
apply to a transaction that satisfies all
of the criteria in § 1026.3(h).
As adopted, § 1026.3(h)(5)(i) provides
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.
Section 1026.3(h)(5)(ii) requires 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. By clarifying that transfer
taxes may be charged in connection
with the transaction and excluding
recording fees and transfer taxes from
the 1-percent threshold, the Bureau
believes that final § 1026.3(h)(5) will
enable more transactions to satisfy the
criteria for the partial exemption in
§ 1026.3(h). This will also facilitate
access to the partial exemption from the
RESPA disclosures in Regulation X
§ 1024.5(d)(2), which the Bureau
believes will further support the
extension of low-cost, non-interest
bearing, subordinate-lien loans to lowand moderate-income borrowers.
As discussed in the proposal, the
Bureau believes that, because recording
fees and transfer taxes are established by
State and local jurisdictions, there is
limited risk that excluding such fees
and taxes from the 1-percent threshold
in § 1026.3(h)(5)(ii) will result in
consumer harm. Additionally, in light of
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comments received, the Bureau has
determined that 1 percent is the
appropriate threshold for the bona fide
and reasonable application and housing
counseling fees that may be payable by
the consumer at consummation. As one
consumer group commenter noted, there
is limited risk that the application and
housing counseling fees that remain
subject to the 1-percent threshold will
be inflated because such fees must be
bona fide and reasonable.
The Bureau declines to revise
§ 1026.3(h)(5) to permit additional thirdparty settlement or closing fees to be
charged in connection with the
transaction and to exclude such fees
from the 1-percent threshold, as
requested by some commenters. The
Bureau intends that transactions eligible
for the partial exemption in § 1026.3(h)
remain low-cost, include only a certain
limited set of fees that may be charged
to the consumer, and pose little risk of
consumer harm. It does not believe it
would be appropriate to permit a
creditor to provide only the disclosures
required by § 1026.18, rather than the
more detailed TILA–RESPA integrated
disclosures or RESPA disclosures, as
applicable, in connection with
transactions that include additional
third-party fees not established by State
or local jurisdictions and not subject to
the 1-percent threshold.
Regarding one commenter’s
recommendation that the Bureau require
creditors to maintain adequate
documentation demonstrating that the
application and housing counseling fees
permitted under § 1026.3(h)(5)(i) are
bona fide and reasonable, the Bureau
notes that § 1026.25(a) sets forth the
general requirement that creditors retain
evidence of compliance with Regulation
Z for two years after the date disclosures
are required to be made or action is
required to be taken, and that
§ 1026.25(c)(1) sets forth the specific
record retention requirements for
evidence of compliance with the
requirements of § 1026.19(e) and (f).
Additionally, as discussed in more
detail below, revised comment 3(h)–2
clarifies that, although not all
requirements of § 1026.3(h) must be
reflected in the loan contract, the
creditor must retain evidence of
compliance with those provisions, as
required by § 1026.25(a) or (c), as
applicable.
Additionally, in order to address
concerns about access to the partial
exemption that were discussed in the
Bureau’s proposal and further discussed
by several commenters, the Bureau is
revising § 1026.3(h)(6) to provide
creditors with greater optionality in
satisfying the criteria for the partial
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exemption. Specifically, revised
§ 1026.3(h)(6) provides that the
following disclosures must be provided:
(i) Disclosures described in § 1026.18
that comply with Regulation Z; or (ii)
alternatively, disclosures described in
§ 1026.19(e) and (f) that comply with
Regulation Z. Thus, under revised
§ 1026.3(h)(6), the creditor must provide
either the TILA disclosures of the cost
of credit or the Loan Estimate and
Closing Disclosure and must comply
with all Regulation Z requirements
pertaining to the disclosures provided.
Revised § 1026.3(h)(6) omits language in
current § 1026.3(h)(6) that made
compliance with all other applicable
requirements of Regulation Z a
condition for satisfying the criteria for
the partial exemption. Because the
Bureau is revising the commentary to
§ 1026.3(h) to provide more precise
guidance regarding how transactions
must comply with Regulation Z in order
to satisfy the criteria for the partial
exemption, the Bureau does not believe
that the omitted language is necessary.
As discussed in more detail below, the
Bureau believes the flexibility provided
by revised § 1026.3(h)(6) will further
expand access to the partial exemption.
The Bureau finds persuasive
comments recommending permissible
use of TILA–RESPA integrated
disclosures for all loans with
characteristics that satisfy the nonprocedural criteria for the partial
exemption in § 1026.3(h)(1) through (5),
as a way to address the issues regarding
access to the partial exemption for
which the Bureau requested comment. It
is revising § 1026.3(h)(6) to further
facilitate compliance for lenders making
federally related mortgage loans that
qualify for the partial exemption from
the RESPA disclosures in Regulation X
§ 1024.5(d)(2). Regulation X § 1024.5(d)
provides a partial exemption from
certain RESPA disclosure requirements
for federally related mortgage loans that
meet the criteria set forth in § 1026.3(h).
Specifically, Regulation X § 1024.5(d)
provides that lenders 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
for a federally related mortgage loan
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37665
must provide the RESPA disclosures
unless: (1) The loan is a covered
transaction for purposes of the TILA–
RESPA integrated disclosure
requirements; 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 disclosure
requirements in § 1026.19(e), (f), and (g)
because, for example, it imposes no
finance charge and is payable in four or
fewer installments, and also does not
satisfy the criteria in § 1026.3(h), the
lender must provide the RESPA
disclosures. Under the current rule, to
meet the conditions of the partial
exemption in § 1026.3(h), lenders
making such loans must provide the
disclosures required by § 1026.18;
voluntary provision of TILA–RESPA
integrated disclosures does not satisfy
the criteria in § 1026.3(h), and thus does
not make the loan eligible for the partial
exemption from the RESPA disclosures
in Regulation X § 1024.5(d)(2).
Revised § 1026.3(h)(6) provides
lenders additional flexibility regarding
the required disclosures for those
federally related mortgage loans that are
not otherwise subject to the disclosure
requirements in § 1026.19(e), (f), and (g)
and that satisfy the criteria in
§ 1026.3(h). Under revised
§ 1026.3(h)(6), to satisfy the criteria in
§ 1026.3(h), lenders making such loans
may choose to provide either TILA
disclosures or Loan Estimates and
Closing Disclosures that comply with
Regulation Z. Such lenders may also
continue to instead provide the RESPA
disclosures in connection with a
transaction that would otherwise meet
the criteria in § 1026.3(h) and qualify for
the partial exemption in Regulation X
§ 1024.5(d)(2).
In addition, revised § 1026.3(h)(6)
further clarifies and reduces burden
regarding the disclosure requirements
for loans that are covered transactions
subject to the requirements in
§ 1026.19(e), (f), and (g) and that satisfy
the criteria in § 1026.3(h). Under the
current rule, creditors making a loan
subject to the disclosure requirements in
§ 1026.19(e), (f), and (g) may continue to
provide compliant TILA–RESPA
integrated disclosures even if the loan
satisfies the non-procedural criteria for
the partial exemption in § 1026.3(h)(1)
through (5). There is no requirement to
utilize the partial exemption. The final
rule clarifies further this optionality for
loans subject to the disclosure
requirements in § 1026.19(e), (f), and (g).
Under revised § 1026.3(h)(6), when such
loans satisfy the criteria in § 1026.3(h)
creditors may elect to take advantage of
the partial exemption and provide
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compliant TILA disclosures described
in § 1026.18, or they may, at their
option, continue to provide compliant
Loan Estimates and Closing Disclosures.
The Bureau does not believe it is
necessary that the special information
booklet described in § 1026.19(g) be
provided to a consumer in connection
with both a first lien and a subordinate
lien that meets the criteria in
§ 1026.3(h), and the Bureau believes that
not requiring the special information
booklet would help address the issues
regarding access to the partial
exemption that were raised in the
proposal and by commenters. The
Bureau is therefore clarifying in revised
§ 1026.3(h)(6) that, if a creditor elects to
provide TILA–RESPA integrated
disclosures in connection with a
transaction that satisfies the partial
exemption, it need only provide the
disclosures described in § 1026.19(e)
and (f).
The Bureau expects that, for federally
related mortgage loans that are not
covered transactions subject to the
disclosure requirements in § 1026.19(e),
(f), and (g), revised § 1026.3(h)(6) should
reduce further the procedural burden
associated with the required disclosures
when such loans meet the criteria for
the partial exemption. As discussed in
the proposal, the Bureau understands
that many loan origination systems have
been updated to produce TILA–RESPA
integrated disclosures and that some
vendors and loan origination systems no
longer support the RESPA disclosures.
The Bureau understands from
comments received that some loan
origination systems similarly have
limited capabilities with regard to the
disclosures required by § 1026.18 and
that it should, at least in some instances,
be operationally easier to provide
compliant Loan Estimates and Closing
Disclosures for loans that satisfy the
criteria for the partial exemption. The
Bureau continues to believe that, for the
low-cost, non-interest bearing,
subordinate loans with characteristics
that satisfy the criteria in § 1026.3(h),
compliant TILA disclosures under
§ 1026.18 would be relatively
straightforward to calculate. However,
the Bureau recognizes that, in light of
increased systems support for the Loan
Estimate and Closing Disclosure, it
would facilitate compliance if creditors
are permitted the option to provide
either disclosures described in § 1026.18
or § 1026.19(e) and (f) that comply with
Regulation Z for loans that satisfy the
criteria for the partial exemption.
At the same time, the Bureau believes
that the additional flexibility finalized
in § 1026.3(h)(6) will not result in
consumer harm when loans satisfy the
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criteria for the partial exemption.
Revised § 1026.3(h)(6) provides that the
disclosures described in § 1026.18 and
the disclosures described in § 1026.19(e)
and (f) must comply with Regulation Z.
This means that regardless of which
disclosures a creditor or lender chooses
to provide, the creditor or lender must
comply with all requirements of
Regulation Z pertaining to those
disclosures. Further, the Bureau again
notes that § 1026.3(h) exempts
transactions only from the requirements
of § 1026.19(g) and, unless the creditor
chooses to provide the Loan Estimate
and Closing Disclosure, § 1026.19(e) and
(f); it does not exempt transactions from
any other applicable requirements of
Regulation Z. In recommending broader
use of TILA–RESPA integrated
disclosures for certain housing
assistance loans, commenters noted that
such disclosures effectively present loan
information and are generally
understood by consumers. The Bureau
believes that under revised
§ 1026.3(h)(6) consumers will receive
disclosures that effectively convey the
cost of credit in connection with a
transaction that satisfies the criteria for
the partial exemption.
In the TILA–RESPA Final Rule, the
Bureau declined to provide creditors the
option of either complying with the
TILA–RESPA integrated disclosure
requirements or § 1026.18, based in part
on the Bureau’s belief that permitting
the disclosures required by § 1026.18
would decrease the disclosure burden
for creditors making the covered
transactions and thus render the option
of using TILA–RESPA integrated
disclosures unnecessary. However,
commenters have indicated that HFAs
that are currently required to provide
TILA–RESPA integrated disclosures do
so with limited difficulty and that it
may facilitate compliance for some
creditors to provide TILA–RESPA
integrated disclosures rather than the
disclosures required by § 1026.18 when
the partial exemption is satisfied.
Accordingly, the Bureau now believes
that the optionality provided in revised
§ 1026.3(h)(6) will more effectively carry
out the intent of the partial exemption
in facilitating access to certain
beneficial low-cost, non-interest
bearing, subordinate-lien transactions
for low- and moderate-income
consumers by reducing the disclosure
burden associated with such
transactions.
The Bureau declines to permit or
require broader use of TILA–RESPA
integrated disclosures for all HFA
program loans or all housing assistance
loans without regard to the criteria in
§ 1026.3(h), as requested by some
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commenters. Thus, lenders making
federally related mortgage loans not
subject to the disclosure requirements in
§ 1026.19(e), (f), and (g) must continue
to provide the RESPA disclosures where
the criteria in § 1026.3(h) is not
satisfied. The Bureau recognizes that, in
some instances, different disclosures
may be required in connection with a
borrower’s first lien and subordinate
financing. However, as discussed above,
the Bureau believes that final
§ 1026.3(h)(5) should enable more
transactions to satisfy the criteria in
§ 1026.3(h), which will facilitate access
to the partial exemption from the
RESPA disclosures in Regulation X
§ 1024.5(d)(2). The Bureau also notes
that, to the extent loans do not meet the
criteria in § 1026.3(h) because of
additional fees beyond those permitted
under § 1026.3(h)(5), such loans may be
subject to a finance charge and thus may
be covered transactions subject to the
disclosure requirements in § 1026.19(e),
(f), and (g). Further, the partial
exemption is intended to apply where
the specific characteristics of the
transaction generally ensure that the
consumer is obtaining beneficial, lowcost credit. Regulation Z does not
provide, nor did commenters suggest, a
definition of what constitutes a housing
assistance loan. In the absence of
supporting evidence indicating how
many federally related mortgage loans
are not covered transactions subject to
the disclosure requirements in
§ 1026.19(e), (f), and (g) and would also
not meet the criteria in final § 1026.3(h),
the Bureau does not believe it is
appropriate to permit or require broader
use of TILA–RESPA integrated
disclosures for such loans at this time.
The Bureau will continue to monitor the
market with regard to the required
provision of the RESPA disclosures.
The Bureau also declines to apply the
partial exemption to all HFA program
second-lien loans, as suggested by one
commenter. The Bureau believes that
the criteria finalized in § 1026.3(h)(5)
should increase the ability of HFAs and
lenders making such loans to take
advantage of the partial exemption from
the RESPA disclosures in Regulation X
§ 1024.5(d)(2). Such broader access to
the partial exemption will address
concerns regarding the required
provision of the RESPA disclosures for
many loans that do not currently meet
the criteria in § 1026.3(h). Additionally,
the Bureau notes that the purpose of the
partial exemption in § 1026.3(h), crossreferenced in Regulation X
§ 1024.5(d)(2), is to reduce the
procedural burden associated with the
disclosures for certain low-cost, non-
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interest bearing, subordinate-lien
transactions that represent a very
limited risk for consumer harm.
Although the Bureau understands that
HFA lending is characterized by lowcost financing, it believes that, to the
extent an HFA program loan does not
satisfy the criteria for the partial
exemption, it would not be appropriate
to permit the creditor to provide only
the streamlined disclosures described in
§ 1026.18 in connection with that loan.
Further, a few commenters indicated
that the partial exemption is utilized for
many non-HFA program loans, and the
Bureau has determined that it would not
be appropriate to require these loans to
meet all of the criteria in § 1026.3(h)
while applying automatically the partial
exemption to all HFA program secondlien loans without regard to their
specific characteristics. As to the
commenter’s concern that other
beneficial loans in addition to those that
provide down payment assistance may
not meet the criteria in § 1026.3(h), the
partial exemption also applies to
transactions that provide closing cost or
other similar home buyer assistance,
property rehabilitation and energy
efficiency assistance, and foreclosure
avoidance or prevention.
For similar reasons, the Bureau is not
adopting a broader exemption from
Regulation X or Z, either in full or in
part, for HFA program loans or HFAs
that originate mortgage loans. As to
suggestions by commenters that such
broader exemptions could reduce
burden and incentivize creditors to
make housing assistance loans available
to low- and-moderate income
consumers, the Bureau again notes that
the revised criteria in final § 1026.3(h)
should facilitate access to the partial
exemption and alleviate the disclosure
burden associated with such loans.
Additionally, a full exemption from
Regulation X or its disclosure
requirements could result in borrowers
not receiving advance disclosure of
settlement costs, which would
undermine one of the express purposes
of RESPA and would not be authorized
under RESPA’s section 19(a) exemption
authority. The Bureau has considered
the factors for the exemption authority
in TILA section 105(f) and has
determined that further exemptions
from Regulation Z could undermine the
goal of consumer protection and deny
important disclosure benefits to
consumers. Comments indicating that
HFAs would provide alternative
disclosures if broader regulatory
exemptions were granted did not
provide specific examples
demonstrating that such disclosures
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would adequately protect consumers
from risk of abuse. Moreover,
commenters did not provide a clear
consensus as to how an HFA should be
defined, whether an exemption from
Regulation X or Z should apply in full
or only to disclosure requirements, or
whether any such exemption should
apply to HFA program loans or HFAs
directly.
As to one commenter’s
recommendation that nothing in
Regulation Z should apply to an HFA
down payment assistance loan that is
not a covered transaction under
Regulation Z, the Bureau notes that such
a loan would only be subject to the
requirements of Regulation Z if it met
the criteria in § 1026.3(h) and the lender
elected to take advantage of the partial
exemption from the RESPA disclosures
in Regulation X § 1024.5(d)(2). A lender
is not required to utilize the partial
exemption from the RESPA disclosures
in Regulation X § 1024.5(d)(2). However,
where a lender chooses to utilize the
partial exemption from the RESPA
disclosures and provide either
disclosures described in § 1026.18 or
§ 1026.19(e) and (f), respectively, the
lender must comply with all Regulation
Z requirements that pertain to such
disclosures. For example, in this
situation the lender must comply with
the general disclosure requirements set
forth in § 1026.17, even if the lender
would not otherwise be subject to those
requirements.
The Bureau believes that § 1026.3(h),
and in particular, the requirement that
disclosures in compliance with
Regulation Z be provided when a loan
meets the partial exemption, is
distinguishable from other requirements
of Regulation Z from which the Bureau
has exempted HFA program loans or
HFAs themselves. The Bureau believes
that the requirement that creditors
provide compliant disclosures of the
cost of credit where a loan satisfies the
criteria for the partial exemption
provides consumers a benefit and,
especially in light of the flexibility
adopted in the final rule, is not
unnecessarily burdensome.
With respect to commenters’ requests
that the revisions to the criteria for the
partial exemption become effective
immediately, the Bureau refers to the
discussion in part VI, below, regarding
the final rule’s effective date and
optional compliance period. As a
consequence of the optional compliance
period, beginning on the effective date
of this final rule, creditors and lenders
have the option to take advantage of the
partial exemptions in § 1026.3(h) and
Regulation X § 1024.5(d)(2),
respectively, by satisfying the criteria in
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§ 1026.3(h) as revised by this final rule.
Furthermore, if such creditors or lenders
choose to satisfy revised § 1026.3(h)(6)
by providing compliant Loan Estimates
and Closing Disclosures, they may use
the optional compliance period to phase
in the changes to the TILA–RESPA
integrated disclosure requirements that
are made elsewhere in this final rule, in
the manner described in part VI.
As to commenters that expressed
uncertainty regarding situations where
changed circumstances effect the
applicability of the partial exemption,
the Bureau refers such commenters to
§ 1026.17(c), which sets forth
requirements pertaining to the basis of
the disclosures and the use of estimates,
and to § 1026.17(e), which addresses the
effect of subsequent events that cause a
disclosure to become inaccurate. As to
commenters that requested further
clarification around the partial
exemption generally and the
preparation of the required disclosures,
the Bureau believes final § 1026.3(h)
provides clear and objective criteria for
the partial exemption and that the
requirements pertaining to the
disclosures described in § 1026.18 or
§ 1026.19(e) and (f), as applicable, are
adequately set forth in Regulation Z.
The Bureau declines one commenter’s
request to revise the seven-business-day
review period between the provision of
the initial disclosures and
consummation for certain HFA loans.
Section 1026.19(a)(2)(i) implements the
timing requirements in TILA section
128(b)(2)(A), and, in adopting
§ 1026.19(e)(1)(iii)(B), the Bureau
explained that the seven-business-day
review period would best carry out the
purposes of TILA and RESPA by
facilitating the informed use of credit
and ensuring advance disclosure of
settlement charges.41
The Bureau is revising comment 3(h)–
1 for further clarity and to reflect the
revisions adopted in § 1026.3(h)(6)
regarding the disclosures required as a
condition for meeting the partial
exemption. The Bureau is revising the
first sentence of comment 3(h)–1 to
explain that § 1026.3(h) exempts certain
transactions from the disclosures
described in § 1026.19(g), and, under
certain circumstances, § 1026.19(e) and
(f). Revised comment 3(h)–1 includes an
explanation that § 1026.3(h) exempts
transactions from § 1026.19(e) and (f) if
the creditor chooses to provide
disclosures described in § 1026.18 that
comply with Regulation Z pursuant to
§ 1026.3(h)(6)(i), but does not exempt
transactions from § 1026.19(e) and (f) if
the creditor chooses to provide
41 78
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FR 79730, 79802 (Dec. 31, 2013).
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disclosures described in § 1026.19(e)
and (f) that comply with Regulation Z
pursuant to § 1026.3(h)(6)(ii). Revised
comment 3(h)–1 clarifies that creditors
may provide, at their option, either the
disclosures described in § 1026.18 or the
disclosures described in § 1026.19(e)
and (f). The revised comment explains
further that, in providing these
disclosures, creditors must comply with
all provisions of Regulation Z relating to
those disclosures. Finally, revised
comment 3(h)–1 explains that
§ 1026.3(h) does not exempt
transactions from any of the other
requirements of Regulation Z to the
extent they are applicable, and that, for
transactions that would otherwise be
subject to § 1026.19(e), (f), and (g),
creditors must comply with all other
applicable requirements of Regulation
Z, including the consumer’s right to
rescind the transaction under § 1026.23,
to the extent that provision is
applicable. Thus, final comment 3(h)–1
clarifies that, where a transaction
satisfies the criteria for the partial
exemption in § 1026.3(h), and therefore
satisfies the parallel partial exemption
in Regulation X § 1024.5(d)(2), the
creditor may provide either disclosures
described in § 1026.18 or TILA–RESPA
integrated disclosures in connection
with the transaction. The creditor must,
however, provide compliant disclosures
that satisfy all Regulation Z
requirements pertaining to those
disclosures, even where the loan would
not otherwise be subject to those
requirements.
The Bureau is also adopting comment
3(h)–2 with additional clarifications and
revisions to reflect revised
§ 1026.3(h)(6). Revised comment 3(h)–2
explains that the conditions that the
transaction not require the payment of
interest under § 1026.3(h)(3) and that
repayment of the amount of credit
extended be forgiven or deferred in
accordance with § 1026.3(h)(4) must be
reflected in the loan contract. It explains
that the other requirements of
§ 1026.3(h) need not be reflected in the
loan contract, but the creditor must
retain evidence of compliance with
those provisions, as required by
§ 1026.25(a) or (c), as applicable. As
revised, comment 3(h)–2 provides
further that, in particular, because the
exemption in § 1026.3(h) means the
creditor is not required to provide the
disclosures of closing costs under
§ 1026.37 or § 1026.38 (unless the
creditor chooses to provide disclosures
described in § 1026.19(e) and (f) that
comply with Regulation Z), the creditor
must retain evidence reflecting that the
costs payable by the consumer in
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connection with the transaction at
consummation are limited to recording
fees, transfer taxes, a bona fide and
reasonable application fee, and a bona
fide and reasonable housing counseling
fee, 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). Finally, the revised
comment provides that, 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) or (c), as applicable.
Because a creditor may provide the
Loan Estimate and Closing Disclosure to
meet the conditions of the partial
exemption under revised § 1026.3(h)(6),
the Bureau is finalizing comment 3(h)–
2 to include a reference to § 1026.25(c),
which, as discussed above, sets forth the
record retention requirements regarding
§ 1026.19(e) and (f). Additionally,
because creditors have the option of
providing the Loan Estimate and
Closing Disclosure under revised
§ 1026.3(h)(6), the Bureau is revising
comment 3(h)–2 to explain that the
exemption in § 1026.3(h) means the
creditor is not required to provide,
rather than the consumer will not
receive, the disclosures of closing costs
under § 1026.37 or § 1026.38. The
revised comment clarifies, however, that
creditors are required to provide the
disclosures of closing costs under
§ 1026.37 and § 1026.38 if they choose
to provide disclosures described in
§ 1026.19(e) and (f) that comply with
Regulation Z. For further clarity and
consistency with the requirements in
final § 1026.3(h)(5)(i), revised comment
3(h)–2 refers to a bona fide and
reasonable application fee and a bona
fide and reasonable housing counseling
fee, instead of application fees and
housing counseling fees.
The Bureau is adding new comment
3(h)–3 to clarify further the relationship
between the partial exemption in
§ 1026.3(h) and the parallel partial
exemption for certain federally related
mortgage loans in Regulation X
§ 1024.5(d)(2). New comment 3(h)–3
explains that Regulation X provides a
partial exemption from certain
Regulation X disclosure requirements in
Regulation X § 1024.5(d). It explains
further that the partial exemption in
Regulation X § 1024.5(d)(2) provides
that certain Regulation X disclosure
requirements do not apply to a federally
related mortgage loan, as defined in
Regulation X § 1024.2(b), that satisfies
the criteria in § 1026.3(h). Finally, new
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comment 3(h)–3 clarifies that for a
federally related mortgage loan that is
not otherwise covered by Regulation Z,
lenders may satisfy the criteria in
§ 1026.3(h)(6) by providing the
disclosures described in § 1026.18 that
comply with Regulation Z or the
disclosures described in § 1026.19(e)
and (f) that comply with Regulation Z.
Thus, under this final rule, to meet the
criteria in § 1026.3(h) and qualify for the
partial exemption in Regulation X
§ 1024.5(d)(2), lenders making such
loans may choose to provide either
compliant TILA disclosures or
compliant Loan Estimates and Closing
Disclosures, even though such loans are
not otherwise subject to Regulation Z.
The Bureau is adopting new
comments 3(h)–3 and –4 as proposed,
but renumbered as comments 3(h)–4
and –5 to reflect the addition of new
comment 3(h)–3. New comment 3(h)–4
refers to comment 37(g)(1)–1 for a
discussion of what constitutes a
recording fee for purposes of Regulation
Z, and new comment 3(h)–5 refers to
comment 37(g)(1)–3 for a discussion of
what constitutes a transfer tax for
purposes of Regulation Z.
For the reasons set forth above, the
Bureau is revising the introductory text
of § 1026.3(h), adopting § 1026.3(h)(5) as
proposed, and revising § 1026.3(h)(6).
The Bureau is revising comments 3(h)–
1 and –2, adopting new comment 3(h)–
3, and adopting comments 3(h)–3 and
–4 as proposed but renumbered as
comments 3(h)–4 and –5.
Legal Authority
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 will
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
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. By
broadening the § 1026.3(h) partial
exemption, this amendment will enable
more federally related mortgage loans to
qualify for the partial exemption at
Regulation X § 1024.5(d)(2) and permit
lenders to provide the streamlined
disclosures described in § 1026.18 that
comply with Regulation Z or the
disclosures described in § 1026.19(e)
and (f) that comply with Regulation Z
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for these low-cost, non-interest bearing,
subordinate-lien transactions.
In addition, the Bureau believes that
the disclosure requirements that
covered persons must meet to qualify
for the § 1026.3(h) partial exemption
will help ensure that the features of
these mortgage transactions are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to understand the costs,
benefits, and risks associated with these
mortgage transactions, consistent with
Dodd-Frank Act section 1032(a).
Section 1026.17
Requirements
General Disclosure
17(c) Basis of Disclosures and Use of
Estimates
17(c)(6)
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Allocation of Costs
The Bureau’s Proposal
Comment 17(c)(6)–5 explains that a
creditor, when using the special rule
under § 1026.17(c)(6), may disclose
certain construction-permanent
transactions as multiple transactions,
and may allocate buyers points or
similar amounts imposed on the
consumer between the construction and
permanent phases of the transaction in
any manner the creditor chooses.
However, 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 costs associated
with construction-permanent loans, the
Bureau proposed to amend comment
17(c)(6)–5 to provide greater clarity by
adding a ‘‘but for’’ test to allocate
amounts to the construction phase of a
construction-permanent transaction if a
creditor chooses to disclose the credit
extended as more than one transaction.
Specifically, the Bureau proposed to
amend comment 17(c)(6)–5 to explain
that in a construction-permanent
transaction disclosed as more than one
transaction, 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. The proposed
comment illustrated how the allocation
would be made, using inspection and
handling fees for the staged
disbursement of construction loan
proceeds as an example, and provided
examples of how to allocate origination
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and application fees between the
construction phase and the permanent
phase.
The Bureau solicited comment on the
proposed revision of comment 17(c)(6)–
5, including whether the proposal
presented 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.
Comments Received
Comments received on the proposed
amendment to comment 17(c)(6)–5 were
generally favorable. A trade association,
a group of vendors, and a compliance
specialist stated the proposed
clarification would help provide clarity
and be useful for allocating fees specific
to the construction phase when separate
disclosures are used. The compliance
specialist commenter additionally noted
the clarification would assist creditors
in avoiding potential regulatory
criticisms or other liability if challenged
for evading the high-cost mortgage
provisions. However, commenters also
expressed uncertainty as to what
amounts the proposed comment covered
and how to allocate fees for services that
might be used for both the construction
and permanent phases. One trade
association noted that there are services
that are required for both phases of the
financing that would not be charged ‘‘if
not but for’’ one phase alone. This
commenter provided the example of
updated abstracts and final title
opinions obtained in connection with
the construction loan and then reused
for the permanent loan. The commenter
also stated that fees should be lower on
the permanent financing loan if the
consumer stays with the same creditor
that financed the construction, as many
of the paid-for services can also be used
for the permanent financing. The
commenter requested that the final rule
continue to permit the creditor to
allocate points and similar charges in
any way the creditor chooses when the
construction and permanent phases are
disclosed separately.
A trade association noted that the
appraisal is used to establish the
combined maximum loan amount for
both the construction and permanent
phases. The commenter expressed
uncertainty as to how the fee for such
an appraisal would be allocated. A
vendor group and a compliance
specialist both commented that, ‘‘but
for’’ the construction financing, the land
would not have been purchased and,
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37669
consequently, under the proposed
comment, all the costs of the loan would
be reflected on the Loan Estimate and
Closing Disclosure provided in
connection with the construction
financing.
The Final Rule
The Bureau is adopting the proposed
amendments to comment 17(c)(6)–5, but
with modifications. In response to
comments that sought clarification of
the scope of costs covered by the ‘‘but
for’’ approach, the Bureau is revising
comment 17(c)(6)–5 to identify more
precisely the costs to which the ‘‘but
for’’ allocation applies. As revised,
comment 17(c)(6)–5 specifies that the
‘‘but for’’ test only applies to the finance
charges under § 1026.4 and the points
and fees under § 1026.32(b)(1), the
amounts that are most relevant in
determining whether the loan is a highcost mortgage under § 1026.32 or a
higher-priced mortgage loan under
§ 1026.35 or a qualified mortgage under
§ 1026.43(e). When a creditor uses the
special rule in § 1026.17(c)(6) to
disclose credit extensions as multiple
transactions, fees and charges must be
allocated for purposes of calculating
disclosures. In the case of a
construction-permanent loan that a
creditor chooses to disclose as multiple
transactions, the creditor must allocate
to the construction transaction finance
charges under § 1026.4 and points and
fees under § 1026.32(b)(1) that would
not be imposed but for the construction
financing. If a creditor charges separate
finance charges under § 1026.4 and
points and fees under § 1026.32(b)(1) for
the construction phase and the
permanent phase, such fees and charges
must be allocated to the phase for which
they are charged. All other finance
charges under § 1026.4 and points and
fees under § 1026.32(b)(1) must be
allocated to the permanent financing.
Using the ‘‘but for’’ allocation for these
amounts when separate disclosures are
provided for the phases of a
construction-permanent loan will allow
creditors to determine more accurately
whether the permanent phase is a highcost mortgage or higher-priced mortgage
loan or qualified mortgage.
The Bureau is revising the examples
in comment 17(c)(6)–5 to reflect these
changes. The examples as finalized do
not reference application fees because
application fees are not necessarily
finance charges under § 1026.4 or points
and fees under § 1026.32(b)(1).42 As
42 Under § 1026.4(c)(1), application fees charged
to all applicants for credit, whether or not credit is
actually extended, are excluded from the finance
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proposed, the comment stated that, if a
creditor charges an application or
origination fee for construction-only
financing but charges a greater
application or origination fee for
construction-permanent financing, the
difference between the two fees must be
allocated to the permanent transaction.
Under this example, if the origination
fee for construction-only financing is
$750, and the origination fee for
construction-permanent financing is
$1000, then $750 is allocated to the
construction-only financing and $250 is
allocated to the permanent financing.
This example is retained in the
comment as finalized, though the
reference to an application fee is not.
Creditors would conduct the same kind
of analysis to determine how other fees
and charges are allocated between the
construction and permanent phases
when separate disclosures are used.
As finalized, the revisions to
comment 17(c)(6)–5 also provide that
fees and charges that are not finance
charges under § 1026.4 or points and
fees under § 1026.32(b)(1) may be
allocated between the transactions in
any manner the creditor chooses. The
comment provides an example of the
fees and charges that may be allocated
in any manner the creditor chooses. The
example states that a reasonable
appraisal fee paid to an independent,
third-party appraiser may be allocated
in any manner the creditor chooses
because it would be excluded from the
finance charge pursuant to § 1026.4(c)(7)
and excluded from points and fees
pursuant to § 1026.32(b)(1)(iii). This
additional commentary addresses how
disclosures may be made when an
appraisal is used to establish the
combined maximum loan amount for
both the construction phase and the
permanent phase, a situation that
commenters on the proposed rule
specifically described. Creditors would
conduct the same kind of analysis to
determine other fees and charges that
may be allocated in any manner.
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May Be Permanently Financed by the
Same Creditor
The Bureau’s Proposal
The Bureau proposed to add new
comment 17(c)(6)–6 to clarify that the
may be permanently financed by the
same creditor condition specified in
§ 1026.17(c)(6)(ii), if satisfied, permits a
creditor to treat a constructionpermanent loan as one transaction or
more than one transaction. Proposed
charge. Conversely, if the application fee is only
charged to applicants for credit upon the extension
of credit, the application fee is included in the
finance charge.
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comment 17(c)(6)–6 explained that a
loan to finance the construction of a
dwelling may be considered
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 obtain permanent financing
from the creditor. This proposal aligned
with proposed comment 19(e)(1)(iii)–5,
which provided 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
would have still been permitted to make
the disclosures as a single transaction or
as more than one transaction, as
provided by § 1026.17(c)(6)(ii).
The Bureau solicited comment on the
proposed addition of comment 17(c)(6)–
6 to determine 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 solicited
comment on how the issues described
in the proposal might be addressed if
the Bureau adopted the proposal as
final, and on any additional issues or
complexities presented by the proposal,
as well as how those might be
addressed.
Comments Received
Generally, commenters opposed the
Bureau’s proposal to clarify the meaning
of ‘‘may be permanently financed’’ in
comment 17(c)(6)–6. Commenters
indicated that there was no need for
clarification as creditors already
understand the meaning of ‘‘may be
permanently financed’’ as used in
§ 1026.17(c)(6)(ii).
Commenters also believed the
proposal could result in consumer
harm. Two trade associations and one
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industry commenter stated that because
the proposal would require creditors to
provide a disclosure for the permanent
phase, even if the consumer had not
applied for permanent financing,
consumers could perceive unrequested
permanent financing disclosures as a
pressure tactic to enter into permanent
financing with the creditor. Commenters
stated that consumers would generally
be confused by receiving disclosures for
financing they did not apply for and for
which the creditor had not made a
commitment to provide. One
commenter expressed that consumers
would understand the receipt of
disclosures for permanent financing to
mean that construction-only loans
would not be available.
Commenters also discussed additional
compliance burdens that could result
from the proposed clarification. Three
trade associations and two industry
commenters indicated that creditors
would have difficulty accurately
disclosing the terms of the permanent
transaction at the time they receive an
application for construction-only
financing. Commenters stated that, at
the time of the construction disclosures,
creditors may not know the availability,
costs, and consumer application
information for the permanent
financing. Further, one trade association
and one industry commenter stated that,
because construction and permanent
financings are usually in different
departments, with different staff and
different underwriting requirements,
simultaneous disclosure would be
extremely difficult and burdensome for
such institutions. Additionally, one
trade association and two industry
commenters stated that creditors could
have difficulty documenting a
consumer’s express rejection of
permanent financing because there are
many ways a consumer could reject
permanent financing. One software
vendor indicated that creditors would
need a new form to document a
consumer’s rejection of permanent
financing.
Additionally, commenters asserted
that the proposal would be in conflict
with comment 17(c)(6)–2. Commenters
stated that proposed comment 17(c)(6)–
6 would force treatment of the
permanent and construction financing
as a single transaction despite comment
17(c)(6)–2’s express optionality for
separate transactions.
The Final Rule
The Bureau is persuaded by
commenters’ concerns over compliance
and consumer understanding. The
Bureau concludes that proposed
comment 17(c)(6)–6 would not provide
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enough benefit to outweigh the potential
consumer confusion and compliance
burdens that may result. For these
reasons the Bureau is not adopting
proposed comment 17(c)(6)–6.
17(f) Early Disclosures
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to comments
17(f)–1 and –2 to reflect a change to the
coverage of § 1026.19(e) and (f) to
include closed-end credit transactions,
other than reverse mortgages, that are
secured by a cooperative unit, regardless
of whether a cooperative unit is treated
as real property under State or other
applicable law.
Section 1026.18
Disclosures
Content of
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to comments
18–3, 18(g)–6, and 18(s)–1 and –4 to
reflect a change to the coverage of
§ 1026.19(e) and (f) to include closedend credit transactions, other than
reverse mortgages, that are secured by a
cooperative unit, regardless of whether
a cooperative unit is treated as real
property under State or other applicable
law.
Section 1026.19 Certain Mortgage and
Variable-Rate Transactions
Cooperatives
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The Bureau’s Proposal
The TILA–RESPA Rule 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.
The Bureau proposed to amend
§ 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 also proposed
conforming amendments to
§§ 1026.1(d)(5) and 1026.37(c)(5)(i), the
paragraph title for § 1026.25(c)(1), a
subheading for the commentary to
§ 1026.25(c)(1), and comments 17(f)–1
and –2, 18–3, 18(g)–6, 18(s)–1 and –4,
and 37(a)(7)–2.
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Comments Received
Commenters, including consumer
groups, creditors, vendors, trade
associations, GSEs, a secondary market
investor, and an individual commenter,
supported the amendments to
Regulation Z, including the
amendments to § 1026.19(e) and (f), 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.
A creditor commented that the
proposed amendments to § 1026.19(g),
whereby the scope of coverage for
§ 1026.19(g) would be delineated by
cross-referencing § 1026.19(e)(1)(i),
would have had the effect of eliminating
the current § 1026.19(g) coverage of
open-end transactions (except as
provided in § 1026.19(g)(1)(ii) and (iii)).
To the extent that the Bureau were to
finalize the amendments to § 1026.19(g)
as proposed, that creditor commented
that § 1026.19(g)(1)(ii) and its reference
to home equity lines of credit would be
unnecessary and potentially confusing.
An individual commenter requested
clarification as to whether transactions
secured by cooperative units are
covered by the TILA–RESPA Rule if
they are for business purposes.
Consumer group commenters noted that
there may be some uncertainty, beyond
the TILA–RESPA Rule, as to whether
Regulation X otherwise covers
transactions secured by cooperative
units.
A trade association supported the
amendments 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, while noting that these
changes would require reprogramming
and therefore impose implementation
costs. Another trade association
requested that these amendments
become effective retroactively to ease
compliance. Another trade association
and two creditors requested retroactive
protection from liability for creditors
who have been treating loans secured by
cooperative units as covered by the
TILA–RESPA Rule as well as retroactive
protection for creditors who have not
been doing so, regardless of whether
State or other applicable law considers
cooperative units to be real or personal
property.
The Final Rule
For the reasons discussed below, the
Bureau is adopting §§ 1026.19(g) and
1026.37(c)(5)(i) substantially as
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proposed and is adopting, as proposed,
the other amendments to Regulation Z,
including § 1026.19(e) and (f), 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. Specifically, in part
in response to commenters’ concerns,
§ 1026.19(g), as finalized, covers
consumer credit transactions secured by
real property or a cooperative unit,
regardless of whether they are open-end
or closed-end transactions (and except
as provided in § 1026.19(g)(1)(ii) and
(iii)). As finalized, § 1026.19(g)’s
coverage continues not to be limited to
closed-end transactions (except as
provided in § 1026.19(g)(1)(ii) and (iii)).
To conform § 1026.37(c)(5)(i) with the
other amendments to Regulation Z,
including § 1026.19(e) and (f),
§ 1026.37(c)(5)(i), as finalized,
specifically references the real property
or cooperative unit securing the
transaction.
Regarding a commenter’s request for
clarification as to whether transactions
secured by cooperative units are
covered by the TILA–RESPA Rule if
they are for business purposes, the
Bureau notes that an extension of credit
primarily for a business, commercial or
agricultural purpose is not subject to
Regulation Z, as provided in current
§ 1026.3(a) and the associated
commentary. With respect to
commenters asserting that there may be
some uncertainty, beyond the TILA–
RESPA Rule, as to whether other parts
of Regulation X cover transactions
secured by cooperative units, the
Bureau notes that both RESPA and
Regulation Z include cooperatives
within the definition of federally related
mortgage loan.43
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
Legal Authority
The Bureau is finalizing 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
43 12
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U.S.C. 2602(1); 12 CFR 1024.2(b).
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those laws,44 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 will facilitate compliance by
industry, which is one of the purposes
of TILA. Furthermore, because this
amendment will 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 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
amendment will 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
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19(e)(1)(iii) Timing
The Bureau’s Proposal
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. The Bureau proposed to
add comment 19(e)(1)(iii)–5 to explain
how the timing requirements apply in
the case of construction-permanent
loans.
Proposed comment 19(e)(1)(iii)–5
summarized the provisions of
§§ 1026.17(c)(6)(ii) and 1026.19(e)(1)(iii)
and comment 17(c)(6)–2 relevant to
construction-permanent loans,
referenced proposed comment 17(c)(6)–
6, and explained the ways a creditor
that generally makes both construction
and permanent financing available
44 Public Law 111–203, 124 Stat. 1376, 2007
(2010) (codified at 12 U.S.C. 5532(f)).
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complies with the timing requirements
in § 1026.19(e)(1)(iii). Proposed
comment 19(e)(1)(iii)–5 explained that,
when the creditor received 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 an application for combined
construction-permanent financing, the
creditor 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,
within the timing requirements of
§ 1026.19(e)(1)(iii). Proposed comment
19(e)(1)(iii)–5.i through –5.iv would
have provided illustrative examples of
how the Loan Estimate timing
provisions apply to constructionpermanent loans. Proposed comment
19(e)(1)(iii)–5.v would have explained
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 also solicited comment on
an alternative approach, under which a
creditor generally would provide a Loan
Estimate only for the financing for
which a consumer applies. For example,
under the alternative approach, if a
consumer applies for construction
financing only, a creditor would be
required to provide the Loan Estimate
for only the construction financing.
Similarly, under the alternative
approach if the consumer applies 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
construction financing may be
permanently financed by the same
creditor, the proposed alternative
approach stated the creditor would be
permitted to provide the Loan Estimate
for the permanent financing at the same
time as the Loan Estimate was provide
for the construction financing, but
would not be required to do so.
Comments Received
As explained in the section-by-section
analysis for comment 17(c)(6)–6,
commenters generally opposed the
proposed clarification of ‘‘may be
permanently financed.’’ Similarly,
commenters opposed the clarification
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under comment 19(e)(1)(iii)–5 that,
consistent with the proposed
clarification of ‘‘may be permanently
financed,’’ would have required
creditors to provide, upon receiving a
consumer’s application for construction
financing only, the disclosures required
by § 1026.19(e)(1)(i) for both the
construction financing and the
permanent financing not later than the
third business day after the creditor
receives the application and not later
than the seventh business day before
consummation.
Commenters indicated that the
proposed clarification of ‘‘may be
permanently financed’’ would cause
consumer confusion, and the related
requirements under comment
19(e)(1)(iii)–5, would create substantial
compliance burdens and confusion
about the meaning of comment 17(c)(6)–
2. As explained in the section-bysection analysis for comment 17(c)(6)–6,
for these reasons, the Bureau is not
finalizing proposed comment 17(c)(6)–6.
However, several commenters
indicated their support for the
alternative proposal under comment
19(e)(1)(iii)–5. Two trade associations
explicitly supported the Bureau’s
proposed alternative. Additionally, two
other commenters indicated they would
support an alternative that allowed the
creditor to provide disclosures only for
the products for which a consumer
applied, similar to the alternative
approach mentioned in the Bureau’s
proposal. One commenter requested
that, if the consumer applied for
separate construction and permanent
financing, the Bureau require the
creditor provide a separate Loan
Estimate for the construction and
permanent financing within three days
of that application.
The Final Rule
For the reasons stated above, the
Bureau is adopting the alternative
approach proposed with clarifications.
The Bureau notes this approach should
ease any coordination challenges
occasioned by different departments,
staff, and systems handling the
construction and permanent phase
underwriting. Different departments of
the same creditor may continue to
provide the construction and permanent
disclosures separately, but within the
timing requirements of
§ 1026.19(e)(1)(iii). Additionally, the
Bureau believes that new
documentation procedures and systems
would not be required under the rule as
finalized. The Bureau also believes this
approach is consistent with comment
17(c)(6)–2.
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In response to comments, the Bureau
is clarifying that, for constructionpermanent financing transactions, the
creditor is required to disclose the Loan
Estimate only for the transaction for
which it received an application. As
finalized, comment 19(e)(1)(iii)–5.i
provides an example of receipt of an
application for construction financing
only and explains that the Loan
Estimate for the construction transaction
is the only disclosure that is required to
be provided at that time. Aligned with
comment 17(c)(6)–2, the Bureau clarifies
under comment 19(e)(1)(iii)–5.ii that, if
a consumer’s applications for separate
construction and permanent financing
transactions are received at the same
time, the creditor provides the
disclosures required under
§ 1026.19(e)(1)(i) as either a combined
disclosure or separately for each phase
of the transaction and within the timing
requirements provided by
§ 1026.19(e)(1)(iii). Comment
19(e)(1)(iii)–5.iii explains the timing
requirements under § 1026.19(e)(1)(iii)
when construction and permanent
phase applications are received
separately. Further, comment
19(e)(1)(iii)–5.iv clarifies that a creditor
need not provide a Loan Estimate for
permanent financing for which a
separate application is made if the
creditor has already provided a Loan
Estimate for the permanent phase under
§ 1026.17(c)(6)(ii), and may instead
proceed with the disclosures required
under § 1026.19(f)(1)(i).
19(e)(1)(vi) Shopping for Settlement
Service Providers
Section 1026.19(e)(1)(vi)(A) defines
how a creditor permits a consumer to
shop for settlement services. Section
1026.19(e)(1)(vi)(B) requires the creditor
to identify, on the Loan Estimate, the
settlement services for which a
consumer may shop. Section
1026.19(e)(1)(vi)(C), among other things,
sets forth the requirement to provide the
consumer with a written list identifying
available providers of the settlement
services for which a consumer is
permitted to shop.
Identifying Settlement Services and
Available Providers
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The Bureau’s Proposal
Comment 19(e)(1)(vi)–2 refers to the
requirement in § 1026.19(e)(i)(vi)(B) that
the creditor identify, on the Loan
Estimate, the settlement services for
which the consumer is permitted to
shop and provides that the content and
format for disclosure of such services
can be found at § 1026.37(f)(3). In
response to several informal guidance
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inquiries regarding the treatment of a
settlement service that was excluded
from the Loan Estimate, the Bureau
proposed to revise comment
19(e)(1)(vi)–2 to simplify the disclosure
requirements under
§ 1026.19(e)(1)(vi)(B) in an effort to
reduce uncertainty and to ease
compliance burden. The proposed
revisions to comment 19(e)(1)(vi)–2
would have clarified that the creditor
must specifically identify the settlement
services for which a consumer is
permitted to shop unless, based on the
best information reasonably available to
the creditor, the creditor knows that the
service is provided as part of a package
or combination of settlement services
(hereinafter referred to as a package)
offered by a single service provider.
Comment 19(e)(1)(vi)–4, among other
things, provides requirements for
disclosing settlement service providers
under § 1026.19(e)(1)(vi)(C). It explains
that the written list of providers must
identify settlement service providers
that provide services in the area in
which the consumer or property is
located, and must include sufficient
information about each provider to
allow the consumer to contact the
provider. In response to several informal
guidance inquiries, the Bureau proposed
to revise comment 19(e)(1)(vi)–4 to
simplify the disclosure requirements
under § 1026.19(e)(1)(vi)(C) in an effort
reduce uncertainty and ease compliance
burden. The proposed revision to
comment 19(e)(1)(vi)–4 was identical to
the proposed revision to comment
19(e)(1)(vi)–2.
Comments Received
Several commenters expressed
appreciation for the Bureau’s interest in
clarifying and simplifying these
provisions. A consumer group stated
that the Bureau should not allow the
disclosure of a package, as proposed,
and should require the disclosure of all
settlement services, on the written list,
for which a consumer may shop because
allowing creditors to disclose a package
of settlement services would obscure
costs, reduce competition, and hinder
the consumer’s ability to shop. Industry
commenters stated that the Bureau
should define and clarify, with
examples, what a package offered by a
single service provider means. Industry
comments included requests for
clarification about the interplay between
the itemization requirements under
§§ 1026.37(f)(3) and 1026.38(f)(3) and
the ability to package settlement
services; how the disclosure of a
package would work when title services
and settlement or closing services are
provided by different service providers;
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whether the phrase ‘‘provided by a
single service provider’’ would allow for
the use of third parties; and whether a
package could include settlement
services with different tolerance
thresholds.
The Final Rule
For the reasons set forth below, the
Bureau has decided not to finalize the
proposed revisions to comments
19(e)(1)(vi)–2 and –4. Instead the
Bureau is revising comment
19(e)(1)(vi)–2 to clarify that
§ 1026.19(e)(1)(vi)(B) provides that the
creditor who permits a consumer to
shop for settlement services must
identify the settlement services required
by the creditor for which the consumer
is permitted to shop in the disclosures
provided pursuant to § 1026.19(e)(1)(i).
The Bureau is also revising comment
19(e)(1)(vi)–4 to clarify that
§ 1026.19(e)(1)(vi)(C) provides that the
creditor must identify settlement service
providers, that are available to the
consumer, for the settlement services
required by the creditor for which a
consumer is permitted to shop. The
Bureau is also revising comment
19(e)(1)(vi)–1 to conform with final
comments 19(e)(3)(ii)–6 and
19(e)(3)(iii)–2.
The purpose of the proposed revisions
to comments 19(e)(1)(vi)–2 and –4 was
to clarify and simplify the disclosure
requirements for settlement services on
the Loan Estimate and written list of
providers. As discussed above,
commenters presented concerns about
the potential complexity and
uncertainty the proposed revisions
might introduce. In pursuit of the
original purpose to minimize confusion
and compliance burden the Bureau
believes it can achieve this purpose by
revising comments 19(e)(1)(vi)–2 and –4
to clarify the current itemization
requirements under § 1026.19(e)(1)(vi)
instead of introducing a new disclosure
scheme.
The Bureau understands from the
comments that there may be uncertainty
as to the extent a creditor must itemize
settlement services on the Loan Estimate
and the written list of providers. In
revising comment 19(e)(1)(vi)–2, the
Bureau is clarifying that the disclosure
of settlement services under
§ 1026.19(e)(1)(vi)(B) need not include
all settlement services that may be
charged to the consumer, but must
include at least those settlement
services required by the creditor for
which the consumer may shop. The
Bureau is also revising comment
19(e)(1)(vi)–4 to provide that the
creditor must identify settlement service
providers, that are available to the
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consumer, for the settlement services
that are required by the creditor for
which a consumer is permitted to shop.
Current comment 19(e)(1)(vi)–2 notes
that § 1026.19(e)(i)(vi)(B) requires the
creditor to identify, on the Loan
Estimate, the settlement services a
consumer is allowed to shop for and
cross-references § 1026.37(f)(3). Current
and final comment 19(e)(1)(vi)–3,
among other things, notes the
requirement in § 1026.19(e)(1)(vi)(C) to
identify at least one available provider
of a settlement service for which a
consumer may shop and also crossreferences § 1026.37(f)(3). In addition,
the settlement service providers
identified on the written list required by
§ 1026.19(e)(vi)(C) must correspond to
the settlement services for which the
consumer may shop. Comment 37(f)(3)–
1 provides that items included under
the subheading ‘‘Services You Can Shop
For’’ pursuant to § 1026.37(f)(3) are for
those services: That the creditor requires
in connection with its decision to make
the loan; that would be provided by
persons other than the creditor or
mortgage broker; and for which the
creditor allows the consumer to shop in
accordance with § 1026.19(e)(1)(vi).
Thus the provisions under
§ 1026.19(e)(1)(vi) require the creditor to
identify, on the Loan Estimate and the
written list of providers, the settlement
services required by the creditor for
which a consumer is permitted to shop.
For example, if a creditor requires a
consumer to purchase lender’s title
insurance and the creditor permits the
consumer to shop for lender’s title
insurance, the creditor is required by
the provisions under § 1026.19(e)(1)(vi)
to disclose the lender’s title insurance,
on the Loan Estimate, and at least one
provider of the required settlement
service, on the written list, capable of
coordinating or performing the services
necessary to provide the required
lender’s title insurance. However, the
creditor is not required by the
provisions under § 1026.19(e)(1)(vi) to
provide a detailed breakdown of all
related fees that are not themselves
required by the creditor but that may be
charged to the consumer such as a
notary fee, title search fee, or other
ancillary and administrative services
needed to perform or provide the
settlement service required by the
creditor.45 The same principle is true for
45 This is consistent with comment 19(e)(3)(ii)–2
which explains that § 1026.19(e)(3)(ii) provides
flexibility in disclosing individual fees by focusing
on aggregate amounts and illustrates this principle
with an example of a Loan Estimate not including
an estimated charge for a notary fee that is subject
to § 1026.19(e)(3)(ii) but the notary fee is later
charged to the consumer. In such example, the
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the disclosure of settlement services
under § 1026.37(f)(3). This is consistent
with the Bureau’s concern, noted in the
TILA–RESPA Final Rule, that a
complete breakdown of all settlement
services payable by the consumer could
lead to information overload for the
consumer and thereby hinder the
consumer’s ability to shop.46
As discussed in the respective
section-by-section analyses of
§ 1026.19(e)(3)(ii) and
§ 1026.19(e)(3)(iii), the Bureau is adding
new comment 19(e)(3)(ii)–6 and revising
comment 19(e)(3)(iii)–2, which provide
that, for fees paid to an unaffiliated
third party, if the creditor permits the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) but fails to
provide the list required by
§ 1026.19(e)(1)(vi)(C), good faith is
determined under § 1026.19(e)(3)(ii).
Final comments 19(e)(3)(ii)–6 and
19(e)(3)(iii)–2 further provide that
whether the creditor permits the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) is determined
based on all the relevant facts and
circumstances. As a result, the Bureau is
making a conforming amendment in
final comment 19(e)(1)(vi)–1 to clarify
that whether the creditor permits the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) is determined
based on all the relevant facts and
circumstances.
Methods of Providing Settlement
Service Providers List
Section 1026.19(e)(1)(vi) defines how
a creditor permits a consumer to shop
for services and requires the creditor to
identify the settlement services for
which the consumer may shop and
provide a written list identifying at least
one available provider for each of those
services. The Bureau proposed to amend
comment 19(e)(1)(vi)–3 to clarify that,
although use of the model form H–27 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).
A creditor requested that the Bureau
consider mandating the use of form H–
27 rather than allowing creditors to use
different variations. However, several
industry commenters urged the Bureau
to further clarify that creditors are not
required to use model form H–27 and
that creditors do not lose the model
form’s safe harbor protection if they opt
creditor does not violate § 1026.19(e)(3)(ii) as long
as the sum of all charges subject to
§ 1026.19(e)(3)(ii), including the notary fee, does
not exceed the 10 percent threshold.
46 See the Bureau’s discussion regarding
information overload in the TILA–RESPA Final
Rule. 78 FR 79730, 79742 (Dec. 31, 2013).
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not to include estimated fee amounts on
the written list of providers.
The Bureau is adopting comment
19(e)(1)(vi)–3 substantially as proposed
but with certain minor changes.
Regarding commenters’ requests to
consider mandating the use of form H–
27 or, alternatively, to further clarify
that creditors are not required to use it,
the Bureau notes that TILA section
105(b) permits creditors to delete nonrequired 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. As finalized, comment
19(e)(1)(vi)–3 explicitly notes that
flexibility. Regarding commenters’
request for clarification that creditors do
not lose the model form’s safe harbor
protection if they delete the column for
estimated fee amounts, the Bureau notes
that current § 1026.19(e)(1)(vi) does not
require creditors to list the estimated
fees of the service providers. As
finalized, comment 19(e)(1)(vi)–3 states
that deleting the column for estimated
fee amounts is an example of an
acceptable change to form H–27.
Consistent with final comment
19(e)(1)(vi)–4, final comment
19(e)(1)(vi)–3 also clarifies that the
settlement service providers identified
on the written list required by
§ 1026.19(e)(1)(vi)(C) must correspond
to the required settlement services for
which the consumer may shop,
disclosed under § 1026.37(f)(3).
19(e)(3) Good Faith Determination for
Estimates of Closing Costs
Section 1026.19(e)(3)(i) provides 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). Section
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. The
Bureau proposed minor changes and
technical corrections for clarification
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purposes to § 1026.19(e)(3) and its
accompanying commentary. Each of
these proposed changes is discussed in
more detail below.
The Bureau is issuing the
clarifications to § 1026.19(e)(3) in this
final rule 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 section 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.47 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.48
The Bureau believes the clarifications
to § 1026.19(e)(3) in this final rule are
authorized under TILA section 105(a).
They effectuate TILA’s purposes, and
help prevent potential circumvention or
evasion of TILA, by helping ensure that
the cost estimates are more meaningful
and better inform consumers of the
actual costs associated with obtaining
credit. The clarifications also further
TILA’s goals by helping ensure more
reliable estimates, which should foster
competition among financial
institutions.
In addition, the Bureau believes the
clarifications to § 1026.19(e)(3) in this
final rule are consistent with DoddFrank Act section 1032(a) because
requiring more accurate initial estimates
of the costs of the transaction helps
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 the clarifications to
§ 1026.19(e)(3) in this final rule 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 helps
improve consumer understanding and
47 15
48 12
U.S.C. 1638(b)(2)(A).
U.S.C. 2604(c).
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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 as may be
necessary to achieve the purposes of
RESPA,49 which include the
elimination of kickbacks, referral fees,
and other practices that tend to increase
unnecessarily the costs of certain
settlement services.50 The Bureau
believes that the clarifications to
§ 1026.19(e)(3) in this final rule are
necessary to achieve the purposes of
RESPA under RESPA section 19(a)
because they encourage settlement
service provider competition. Each of
the clarifications to § 1026.19(e)(3) is
discussed in more detail below.
19(e)(3)(i) General Rule
General Rule for Determining Good
Faith Under § 1026.19(e)(3)
Section 1026.19(e)(3)(i) provides 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.
Comment 19(e)(3)(i)–1 clarifies that fees
paid to, among others, the creditor, an
affiliate of the creditor, or a mortgage
broker are subject to that general rule,
but § 1026.19(e)(3)(iii) provides that
certain 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. The
Bureau proposed to modify comment
19(e)(3)(i)–1 to conform it with the
regulation text of § 1026.19(e)(3)(iii).
A creditor supported the clarification
in proposed comment 19(e)(3)(i)–1. A
vendor group noted that proposed
comment 19(e)(3)(i)–1 would be a nonsubstantive technical change. A
secondary market investor broadly
requested clarification as to which
charges are subject to the good faith
determination under § 1026.19(e)(3)(i).
The Bureau is adopting comment
19(e)(3)(i)–1 as proposed. Regarding a
commenter’s broad request for
clarification as to which charges are
subject to the good faith determination
under § 1026.19(e)(3)(i), guidance can be
found in § 1026.19(e)(3)(i) through (iii)
and the associated commentary.
Paid by or Imposed on the Consumer
Section 1026.19(e)(3)(i) provides that
good faith is determined by whether a
49 12
50 12
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closing cost paid by or imposed on the
consumer does not exceed the amount
originally disclosed on the Loan
Estimate, while 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. The Bureau
proposed for comment the view that
these standards, ‘‘paid by or imposed on
the consumer’’ and ‘‘payable by the
consumer,’’ are interchangeable. The
proposal would have added comment
19(e)(3)(i)–8 to clarify that the phrase
‘‘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.
A trade group and an industry
commenter supported adopting
proposed comment 19(e)(3)(i)–8. One
industry commenter supported the
proposed comment, but stated that the
standard should not be applied to
specific lender or seller credits. A
vendor commenter stated that creditors
may not understand the proposed
comment and not accurately disclose
costs or conduct the good faith analysis
under § 1026.19(e)(3) properly. The
vendor commenter stated that the term
‘‘payable’’ would be interpreted by
industry to cover any types of fees
which the consumer has the ability to
pay, rather than the ones the consumer
will pay or is legally obligated to pay.
One trade group commenter stated that
some confusion still exists in industry,
as the proposed comment was
substantially different from the standard
previously discussed in guidance
documents issued by the Department of
Housing and Urban Development
concerning the previous tolerance
standards under RESPA. A law firm
commenter representing industry stated
further clarification of the proposed
comment was needed. Lastly, a group of
mortgage vendor commenters stated that
a charge may be imposed on a consumer
but not paid or payable by the
consumer.
The comments received indicate that
the term ‘‘payable’’ as used in
Regulation Z is not clear to industry.
Since commenters have shown that the
term ‘‘payable’’ is not commonly
understood, the Bureau is concerned
that proposed comment 19(e)(3)(i)–8
would increase confusion concerning
the meaning of the phrase ‘‘paid by or
imposed on’’ in § 1026.19(e)(3)(i).
Additionally, the Bureau believes that
other comments in the Official
Interpretations relating to the
paragraphs of § 1026.19(e) provide
sufficient guidance as to the meaning of
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the phrase ‘‘paid by or imposed on.’’ 51
Accordingly, the Bureau is not adopting
proposed comment 19(e)(3)(i)–8.
19(e)(3)(ii) Limited Increases Permitted
for Certain Charges
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The Bureau’s Proposal
Comment 19(e)(3)(ii)–2, among other
things, explains that § 1026.19(e)(3)(ii)
provides flexibility when disclosing
individual fees by focusing on aggregate
amounts and illustrates this principle
with an example. The Bureau
understands that there is some
uncertainty regarding the interplay
between the requirements under
§ 1026.19(e)(1)(vi), shopping for
settlement service providers, and the
good faith determination under
§ 1026.19(e)(3)(ii) and (iii). The Bureau’s
proposed revisions to comment
19(e)(3)(ii)–2 provided that a creditor is
in compliance with § 1026.19(e)(3)(ii) if
the creditor permits the consumer to
shop for the settlement services
disclosed pursuant to § 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 Loan Estimate. As proposed,
comment 19(e)(3)(ii)–2 would have
clarified 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. The Bureau also
proposed technical revisions to
comment 19(e)(3)(ii)–2 and to make
other clarifying revisions.
Comments Received
The Bureau did not receive comments
regarding the proposed revisions to
restructure comment 19(e)(3)(ii)–2 and
to make other clarifying and technical
revisions. Three industry commenters
supported the Bureau’s proposed
clarification regarding compliance with
§ 1026.19(e)(1)(vi) and the proposal to
determine good faith under
§ 1026.19(e)(3)(i) for required settlement
services when the written list of
providers is not issued by a creditor.
Most comments focused on the
Bureau’s proposed clarification
regarding compliance with
§ 1026.19(e)(1)(vi)(B) and (C). A
commenter asserted that the good faith
determination under § 1026.19(e)(3)(ii)
and (iii) should not be tied to whether
the written list of providers was issued
51 See,
e.g., comment 19(e)(3)(i)–2.
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by the creditor. Several commenters
representing various financial services
businesses requested that the Bureau
clarify and narrow the scope of what
constitutes noncompliance with
§ 1026.19(e)(1)(vi)(B) and (C) under
proposed comment 19(e)(3)(ii)–2. In
general, these commenters were
concerned that inadvertent mistakes and
typographical errors could be
considered noncompliance under the
proposed revision and thereby
constitute a violation of
§ 1026.19(e)(3)(ii) and subject certain
settlement services to zero tolerance
under § 1026.19(e)(3)(i). Two
commenters asked the Bureau to clarify
whether a creditor’s use of inconsistent
terminology between the Loan Estimate,
the written list of providers, and the
Closing Disclosure would be deemed
noncompliance with § 1026.19(e)(3)(ii).
One commenter asserted that, if
finalized, a strict interpretation of the
proposed revision would impose
litigation and compliance risk on
creditors and affect secondary market
opportunities because secondary market
participants might not accept loans with
typographical errors on the written list
of providers or Loan Estimate.
Some commenters asked that the
Bureau provide a mechanism to allow
for a revised written list of providers if
the consumer still has time to shop, in
lieu of prescribing the scope of
noncompliance with
§ 1026.19(e)(1)(vi)(B) and (C) under
proposed revisions to comment
19(e)(3)(ii)–2. Some commenters stated
that neither Regulation Z nor the
Bureau’s informal guidance discuss the
circumstances under which a revised
written list of providers may be issued.
One commenter, arguing in support of
its request to allow for a revised written
list of providers, asserted that not
allowing for a revised written list of
providers to correct an error would
hinder the consumer’s ability to shop.
Relatedly, some commenters noted the
Bureau’s informal guidance allowing for
a revised written list of providers when
a settlement service is added as a result
of a change under § 1026.19(e)(3)(iv).52
These commenters asked the Bureau to
clarify whether a revised written list of
providers can be provided when a
Closing Disclosure is issued in lieu of
the Loan Estimate for revised estimates
pursuant to § 1026.19(e)(3)(iv).
A trade association representing
banks asked the Bureau to clarify
whether a service or a fee mistakenly
52 CFPB Webinar, TILA–RESPA Integrated
Disclosure, Part 5—Implementation Challenges and
Questions (May 26, 2015), available at https://
consumercomplianceoutlook.org/outlook-live/2015/
tila-respa-integrated-disclosures-rule-5/.
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omitted from the Loan Estimate or the
written list of providers can be added to
the Closing Disclosure and charged to
the consumer provided that the sum of
the charges is within the 10 percent
threshold prescribed in
§ 1026.19(e)(3)(ii).
The Final Rule
For the reasons discussed below, to
conform with final comment
19(e)(3)(iii)–2, the Bureau is not
finalizing proposed modifications to
comment 19(e)(3)(ii)–2 that would have
provided that good faith is determined
under § 1026.19(e)(3)(i) instead of under
§ 1026.19(e)(3)(ii) or (iii) if a creditor
permits a 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). As
discussed in the section-by-section
analysis of § 1026.19(e)(3)(iii), after
considering the comments, the Bureau
is revising comment 19(e)(3)(iii)–2.
Final comment 19(e)(3)(iii)–2 provides
that good faith is determined under
§ 1026.19(e)(3)(ii) even if the creditor
fails to issue the list required by
§ 1026.19(e)(1)(vi)(C), as long as the fee
for the settlement service required by
the creditor is paid to an unaffiliated
third party and the creditor permits the
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A). These revisions
do not extinguish the obligation to
comply with § 1026.19(e)(1)(vi)(B) and
(C) if the creditor permits the consumer
to shop. For example, although the good
faith determination under
§ 1026.19(e)(3)(ii) may apply to
settlement services even when a creditor
fails to issue the written list of
providers, the creditor is still in
violation of § 1026.19(e)(1)(vi)(C) for
failure to comply with the requirements
to issue a written list of providers.
The Bureau is adopting new comment
19(e)(3)(ii)-6 to conform to final
comment 19(e)(3)(iii)–2 and thereby
clarify the interplay between the
shopping requirements under
§ 1026.19(e)(1)(vi) and the good faith
determination under § 1026.19(e)(3)(ii)
and (iii). Comment 19(e)(3)(ii)–6
provides that when a creditor permits
the consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) but fails to
provide the list required by
§ 1026.19(e)(1)(vi)(C), good faith is
determined under § 1026.19(e)(3)(ii),
unless the settlement service provider is
the creditor or an affiliate of the
creditor, in which case good faith is
determined under § 1026.19(e)(3)(i). In
conformity with final comment
19(e)(1)(vi)–1, final comment
19(e)(3)(ii)–6 also provides that whether
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the creditor permits the consumer to
shop consistent with
§ 1026.19(e)(1)(vi)(A) is determined
based on all the relevant facts and
circumstances. In addition, the Bureau
is revising comment 19(e)(3)(ii)–1.i to
conform with new comment 19(e)(3)(ii)–
6. Final comment 19(e)(3)(ii)–1.i
explains that § 1026.19(e)(3)(ii) permits
limited increases for fees paid to an
unaffiliated third party if the creditor
permitted the consumer to shop for the
third-party service, consistent with
§ 1026.19(e)(1)(vi)(A).
The Bureau is finalizing as proposed,
with minor stylistic changes, the portion
of comment 19(e)(3)(ii)–2 that relates to
an individual charge omitted from the
Loan Estimate and then imposed at
consummation. As finalized, comment
19(e)(3)(ii)–2 provides that, 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 estimate provided
under § 1026.19(e)(1)(i) and then
imposed at consummation. Thus, final
comment 19(e)(3)(ii)–2 provides
flexibility when disclosing individual
fees by focusing on aggregate amounts.
The Bureau is also finalizing, as
proposed, the revisions to restructure
comment 19(e)(3)(ii)–2 by separating the
examples in the comment into
subparagraphs i. and ii. and other
revisions to enhance clarity.
As discussed above, some
commenters asked the Bureau to clarify
whether a creditor may issue a revised
written list of providers. As Bureau staff
noted in an informal webinar,53 a
revised written list of providers may be
issued when a settlement service is
added as a result of a reason provided
for under § 1026.19(e)(3)(iv). Whether or
not a creditor issues a revised written
list of providers, in accordance with
final comment 19(e)(3)(ii)–6, if the
creditor permits the consumer to shop
consistent with § 1026.19(e)(1)(vi)(A),
good faith is determined under
§ 1026.19(e)(3)(ii), unless the settlement
service provider is the creditor or an
affiliate of the creditor, in which case
good faith is determined under
§ 1026.19(e)(3)(i). Whether the creditor
permits the consumer to shop consistent
with § 1026.19(e)(1)(vi)(A) is
determined based on all the relevant
facts and circumstances.
53 Id.
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As for comments regarding the
§ 1026.19(e)(3) good faith determination
if a creditor has not complied with
§ 1026.19(e)(1)(vi) because of a
typographical error or has used
inconsistent terminology between
disclosures, the Bureau is not finalizing
its proposal to provide that
noncompliance with
§ 1026.19(e)(1)(vi)(B) and (C) would
subject a settlement service to zero
tolerance under § 1026.19(e)(3)(i). As
discussed above, many commenters
focused on noncompliance with
§ 1026.19(e)(1)(vi)(C) and remedies for
resolving inadvertent errors and
omissions on the written list of
providers. The Bureau believes new
comment 19(e)(3)(ii)–6 addresses the
concern regarding the omission of a
required settlement service from the
written list of providers. Relatedly,
commenters requested clarification
regarding the applicable good faith
determination when an untimely
written list of providers is issued.
Consistent with new comment
19(e)(3)(ii)–6, the creditor may still
comply with § 1026.19(e)(3)(ii),
depending (in part) on whether the
creditor—based on all relevant facts and
circumstances—permitted the consumer
to shop consistent with
§ 1026.19(e)(1)(vi)(A).
19(e)(3)(iii) Variations Permitted for
Certain Charges
Charges Paid to the Creditor or Affiliates
of the Creditor
The Bureau’s Proposal
Section 1026.19(e)(3)(iii) states that
certain charges 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). Section
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
proposed to amend § 1026.19(e)(3)(iii) to
provide 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, even if such charges are paid to
affiliates of the creditor, so long as the
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charges are bona fide. In addition,
proposed comment 19(e)(3)(iii)–4 would
have clarified that, to be bona fide for
purposes of § 1026.19(e)(3)(iii), charges
must be lawful and for services that are
actually performed.
Comments Received
Industry commenters, including
creditors, vendors, trade associations, a
title insurance underwriter, a secondary
market investor, and an individual
compliance professional, supported the
provision in proposed
§ 1026.19(e)(3)(iii) that good faith is
determined under § 1026.19(e)(3)(iii) for
all five of the categories of charges listed
therein, even if such charges are paid to
affiliates of the creditor. An individual
attorney requested that the Bureau
further revise § 1026.19(e)(3)(iii) to
explicitly include charges paid to
mortgage broker affiliates. A secondary
market investor requested that the
Bureau provide specific examples for
§ 1026.19(e)(3)(iii).
Some industry commenters expressed
concerns with the provision in proposed
§ 1026.19(e)(3)(iii) that excludes charges
if they are not bona fide. A creditor,
trade association, and title insurance
underwriter stated that the proposed
bona fide limitation adds confusion and
uncertainty. A creditor asserted that the
proposed bona fide limitation is
unnecessary. A title insurance
underwriter questioned whether
including a bona fide limitation for
proposed § 1026.19(e)(3)(iii) suggests
that charges are not required to be bona
fide for purposes of § 1026.19(e)(3)(i)
and (ii). The title insurance underwriter
and a trade association also stated that
the proposed bona fide limitation can
cause confusion as appearing to be in
conflict with the holding in Freeman v.
Quicken Loans, Inc.54 The trade
association further stated that ‘‘bona
fide’’ is a term of art for purposes of
analyzing claims under RESPA section
8; the Court in Freeman held that the
RESPA section 8(b) fee-splitting
prohibition does not, in the absence of
fee-splitting, prohibit charging fees for
which no services were provided; and,
given the holding in Freeman, some
industry members may be confused by
use of the term ‘‘bona fide’’ in proposed
§ 1026.19(e)(3)(iii) to exclude charges
for services that are not actually
performed. The trade association
suggested that the Bureau remove the
term ‘‘bona fide’’ in proposed
§ 1026.19(e)(3)(iii) and instead replace it
with the phrase ‘‘for services actually
performed.’’
54 132
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Consumer group commenters did not
object to the provision in proposed
§ 1026.19(e)(3)(iii) that good faith is
determined under § 1026.19(e)(3)(iii) for
all five of the categories of charges listed
therein, even if such charges are paid to
affiliates of the creditor. However,
consumer group commenters expressed
concerns with comment 19(e)(3)(iii)–4
defining ‘‘bona fide’’ charges as being
lawful charges for services that are
actually performed. Those commenters
stated that, if the Bureau intends for that
definition to be limited to determining
good faith for purposes of
§ 1026.19(e)(1)(i), then the Bureau
should expressly state such limitation in
the text of § 1026.19(e)(3)(iii) or its
associated commentary. However, if the
Bureau intends for comment
19(e)(3)(iii)–4 to also define the term
‘‘bona fide’’ for other purposes in
Regulation Z, then consumer group
commenters stated that the definition
should exclude any inflation or padding
of charges beyond the amount of the
charge actually incurred and
unreasonable charges (i.e., charges
exceeding the market rate for equivalent
services in the local community or any
limits set by law).
Regarding implementation costs, a
vendor group supported proposed
§ 1026.19(e)(3)(iii) and noted it would
require some moderate reprogramming.
Regarding an implementation period, a
creditor requested that proposed
§ 1026.19(e)(3)(iii) become effective
retroactively to address uncertainty and
legal risk.
The Final Rule
For the reasons discussed below, the
Bureau is adopting § 1026.19(e)(3)(iii)
and comment 19(e)(3)(iii)–4
substantially as proposed but with
certain modifications. Specifically, in
part in response to commenters’
concerns, the bona fide determination in
comment 19(e)(3)(iii)–4, as finalized, is
expressly limited to determining good
faith for purposes of § 1026.19(e)(1)(i).
That limitation is consistent with the
Bureau’s stated intent in the proposal.55
For example, the bona fide
determination in comment 19(e)(3)(iii)–
4 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). Final § 1026.19(e)(3)(iii) and
comment 19(e)(3)(iii)–4 also clarify that
55 81
FR 54317, 54332 (Aug. 15, 2016).
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for purposes of § 1026.19(e)(1)(i), good
faith is determined under
§ 1026.19(e)(3)(iii) for categories of
charges listed therein, even if such
charges are paid to the creditor, so long
as the charges are bona fide. The Bureau
believes that, as is the case for charges
covered under current
§ 1026.19(e)(3)(ii), charges paid to a
creditor generally should be treated the
same way for purposes of determining
good faith as is a charge paid to an
affiliate of a creditor.
The Bureau declines to make any
further changes requested by
commenters regarding
§ 1026.19(e)(3)(iii) or comment
19(e)(3)(iii)–4. The Bureau concludes
that it is not necessary to revise
§ 1026.19(e)(3)(iii) to explicitly include
charges paid to mortgage broker
affiliates because, unlike creditor
affiliates, mortgage broker affiliates are
not explicitly noted in current
§ 1026.19(e)(3)(iii). Good faith is
determined under § 1026.19(e)(3)(i)
unless a charge otherwise satisfies the
conditions of § 1026.19(e)(3)(ii) or (iii).
With respect to a commenter’s request
for specific examples regarding
§ 1026.19(e)(3)(iii), guidance can be
found in the commentary accompanying
§ 1026.19(e)(3)(iii).
Regarding commenters’ concern that
there is confusion and uncertainty
associated with the provision in
§ 1026.19(e)(3)(iii) that excludes charges
if they are not bona fide, the Bureau
believes that comment 19(e)(3)(iii)–4
provides sufficient clarity 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 the
bona fide provision in
§ 1026.19(e)(3)(iii) will limit any
potential consumer harm associated
with permitting variations for charges
within the five categories paid to the
creditor or to affiliates of the creditor. In
response to the commenter’s question,
such a bona fide limitation is not
necessary in § 1026.19(e)(3)(i) and (ii)
because those provisions present less
risk of consumer harm.
Regarding commenters’ citation to the
Supreme Court’s interpretation of
RESPA section 8(b) in Freeman v.
Quicken Loans, Inc., the Bureau is not
relying on RESPA section 8(b) to adopt
§ 1026.19(e)(3)(iii), as clarified by
comment 19(e)(3)(iii)–4. Rather, as
stated in the proposal, the Bureau is
adopting § 1026.19(e)(3)(iii), as clarified
by comment 19(e)(3)(iii)–4, 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),
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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.56
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
Certain Service Providers Selected by
the Consumer
The Bureau’s Proposal
Currently, comment 19(e)(3)(iii)–2
explains that § 1026.19(e)(3)(iii)(D)
applies when (1) a creditor permits the
consumer to shop, consistent with
§ 1026.19(e)(1)(vi)(A), for a settlement
service it requires; (2) the creditor
provides the list required under
§ 1026.19(e)(1)(vi)(C); and (3) the
consumer selects a service provider that
is not on that list to perform the service.
If these conditions are met, the actual
estimate of a settlement service need not
be compared to the original estimate for
purposes of determining good faith
under § 1026.19(e)(3). Comment
19(e)(3)(iii)–2 also provides that an
estimate or lack of an estimate must be
based on the best information
reasonably available at the time the
disclosures are provided. Although
amounts disclosed pursuant to
§ 1026.19(e)(3)(iii) may vary from the
original estimates, the original estimates
must not be unreasonably low. Lastly,
comment 19(e)(3)(iii)–2 provides 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)
instead of § 1026.19(e)(3)(iii). This is
true unless the provider selected by the
consumer is an affiliate of the creditor,
in which case good faith is determined
under § 1026.19(e)(3)(i).
Section 1026.19(e)(1)(vi) sets forth the
requirements creditors must comply
with if a creditor permits a consumer to
shop for a settlement service it requires.
Among other things, the creditor must
identify the required settlement services
for which the consumer is permitted to
shop and identify an available provider
of that service.57 Section
56 81
FR 54317, 54331 (Aug. 15, 2016).
1026.19(e)(1)(vi)(B) requires the
creditor to identify required settlement services for
which the consumer is permitted to shop on the
Loan Estimate in accordance with § 1026.37(f)(3).
Section 1026.19(e)(1)(vi)(C) requires the creditor to
identify settlement service providers for required
settlement services for which a consumer is
permitted to shop.
57 Section
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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, consistent with
§ 1026.19(e)(1)(vi), for required
settlement services. If a creditor permits
a consumer to shop for a required
settlement service, but fails to provide a
written list of providers, the creditor has
not complied with § 1026.19(e)(1)(vi)(C).
The Bureau proposed to revise comment
19(e)(3)(iii)–2 to provide that good faith
is determined under § 1026.19(e)(3)(i),
regardless of the provider selected by
the consumer, if a creditor fails to issue
the list required under
§ 1026.19(e)(1)(vi)(C) or if the creditor
does not otherwise comply with the
requirements under
§ 1026.19(e)(1)(vi)(B) and (C).
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Comments Received
Several industry commenters,
including banks, credit unions,
settlement agents, and document
management and compliance software
companies addressed the Bureau’s
proposed revisions to comment
19(e)(3)(ii)–2 in tandem with comment
19(e)(3)(iii)–2 to the extent that the
proposed revisions in these comments
mirrored each other. As stated above in
the discussion of comment 19(e)(3)(ii)–
2, these commenters requested that the
Bureau define noncompliance and
narrow the scope of noncompliance
with § 1026.19(e)(1)(vi)(B) and (C).
Commenters were generally concerned
that inadvertent mistakes and
typographical errors could be
considered noncompliance under a
strict interpretation of the proposed
amendment. One commenter asked the
Bureau to clarify whether a creditor’s
use of inconsistent terminology between
the Loan Estimate, the written list of
providers, and the Closing Disclosure
would be considered noncompliance.
Several commenters asked that the
Bureau provide a mechanism for issuing
a revised or corrected written list of
providers as long as the consumer
would still have time to shop. Most
industry commenters were opposed to
the proposed revision to comment
19(e)(3)(ii)–2 that would have changed
the tolerance threshold for settlement
services not provided on the written list
of providers. Three commenters agreed
with the Bureau’s proposed revision.
Commenters asked the Bureau to
consider the approach taken by the
Department of Housing and Urban
Development (HUD) in the 2008 RESPA
Final Rule, which commenters asserted,
used the 10 percent tolerance threshold
for settlement services when the written
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list of providers was not issued.58 In
general, commenters asserted that the
proposed revision to comment
19(e)(3)(ii)–2 would increase
compliance cost and require software
and system reprogramming and staff
retraining. Other commenters stated that
no industry or consumer benefit would
be achieved by the proposed revision.
Some commenters stated that creditors
would be required to provide greater
amounts of tolerance refunds to
consumers and the increased cost
imposed on creditors would ultimately
be paid by consumers. One commenter
stated that the proposed revision did not
take into account the potential that a
consumer actually shopped for
settlement services. A state trade
association commenter representing
credit unions stated the Bureau should
exempt credit unions from the
requirement to provide the written list
of providers because requiring credit
unions to provide the written list of
providers is an unnecessary burden that
exposes credit unions to compliance
risk even when credit unions do not
require the use of any particular
settlement service provider. In general,
comments regarding the implementation
date for the proposed revision ranged
from six to twelve months.
The Final Rule
For the reasons discussed below, the
Bureau is not finalizing comment
19(e)(3)(iii)–2 as proposed but is instead
revising it to clarify the applicable good
faith determination when the written
list of providers is not issued. Comment
19(e)(3)(iii)–2 continues to provide that,
if the creditor permits the consumer to
shop consistent with
§ 1026.19(e)(1)(vi)(A) but fails to
provide the list required by
§ 1026.19(e)(1)(vi)(C), good faith is
determined under § 1026.19(e)(3)(ii)
instead of § 1026.19(e)(3)(iii) unless the
settlement service provider is an
affiliate of the creditor in which case
good faith is determined pursuant to
§ 1026.19(e)(3)(i). As finalized, comment
19(e)(3)(iii)–2 clarifies that whether the
creditor permits the consumer to shop
consistent with § 1026.19(e)(1)(vi)(A) is
determined based on all the relevant
facts and circumstances.
As discussed above, several
commenters asserted that requiring the
good faith determination under
§ 1026.19(e)(3)(i) (rather than the good
58 The Bureau notes that the 2008 RESPA Final
Rule actually provides that settlement services are
subject to 10 percent tolerance unless the borrower
selects a provider other than one identified by the
loan originator in which case these fees are not
subject to any tolerance. 73 FR 14029, 14094 (Mar.
14, 2008).
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37679
faith analysis under § 1026.19(e)(3)(ii))
when a creditor does not provide the
written list of providers would, in
summary, introduce uncertainty and
significantly increase compliance cost
and burden. In addition, many
commenters presented concerns about
the proposed revision regarding
compliance with the provisions of
§ 1026.19(e)(1)(vi)(B) and (C). These
comments persuaded the Bureau that
the proposed revisions could provoke
confusion rather than provide greater
clarity about the requirements under
§ 1026.19(e)(3).
As explained in the TILA–RESPA
Final Rule, the Bureau believes that
information asymmetry between the
creditor and the consumer is pervasive
in the mortgage origination process and
that the disclosures on the Loan
Estimate and written list of providers
play an important role in partially
correcting that asymmetry. The
disclosures provided related to
settlement services are an important
factor in determining whether a
creditor’s estimates were disclosed in
good faith. The Bureau believes that the
disclosures, presented on the Loan
Estimate and the written list of
providers, inform consumers of their
ability to shop and promote a
meaningful opportunity to shop for the
required settlement services.
Currently, comment 19(e)(3)(iii)–2
provides that the good faith
determination under § 1026.19(e)(3)(ii)
applies when a creditor does not issue
a written list of providers but the
creditor permits the consumer to shop
consistent with § 1026.19(e)(1)(vi)(A),
unless the settlement service provider is
an affiliate of the creditor, in which case
good faith is determined under
§ 1026.19(e)(3)(i).
As part of the good faith
determination under § 1026.19(e)(3)(ii),
the creditor must permit the consumer
to shop for a third-party service.
Comment 19(e)(1)(vi)–1 as finalized,
and as cross-referenced by final
comments 19(e)(3)(ii)–6 and
19(e)(3)(iii)–2, clarifies that whether a
creditor permits a consumer to shop
consistent with § 1026.19(e)(1)(vi)(A) is
determined based on all the relevant
facts and circumstances.
The Bureau believes that, as finalized,
the clarification provided under revised
comment 19(e)(3)(iii)–2 is a balanced
approach to preclude the weakening of
the consumer protection interests
implicit in the written list of providers
while avoiding a significant increase in
compliance cost and administrative
burden. Although the Bureau is not
finalizing the proposed revision to
comment 19(e)(3)(iii)–2 regarding
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compliance with § 1026.19(e)(1)(vi)(B)
and (C), the Bureau emphasizes that the
good faith determination under
§ 1026.19(e)(3)(ii) or (iii) for third-party
service charges requires compliance
with § 1026.19(e)(1)(vi)(A), which is
determined based on all the relevant
facts and circumstances per final
comments 19(e)(1)(vi)–1, 19(e)(3)(ii)–6,
and 19(e)(3)(iii)–2.
Regarding the § 1026.19(e)(3) good
faith determination, as discussed above
some commenters were concerned that
typographical errors regarding
§ 1026.19(e)(1)(vi)(B) and (C) could be
considered a violation of
§ 1026.19(e)(3)(ii) and subject certain
settlement services to zero tolerance if
the error hinders the consumer’s ability
to shop. As noted in the section-bysection analysis of § 1026.19(e)(3)(ii)
above, typographical errors regarding a
settlement service under
§ 1026.19(e)(1)(vi)(B) and (C) do not
subject the charges for such service to
the zero percent tolerance category
when determining good faith, unless the
error interferes with the consumer’s
ability to shop.
In response to commenters that asked
the Bureau to exempt credit unions from
providing the written list of providers
because they do not require the
consumer to use a particular settlement
service provider, the Bureau declines to
do so. The written list of providers and
other requirements under
§ 1026.19(e)(1)(vi) only apply to
settlement services for which a creditor
permits a consumer to shop and provide
helpful information to consumers to
partially correct for the information
asymmetry between the creditor and the
consumer.
19(e)(3)(iii)(E)
Under § 1026.19(e)(3)(iii)(E) estimates
of 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 they are disclosed,
regardless of whether the amount paid
by the consumer exceeds the amount
disclosed under § 1026.19(e)(1)(i). The
Bureau noted, in the proposal, its
understanding that there may be some
uncertainty as to 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
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fees) are not subject to tolerances,
whether or not placed into an escrow or
impound account.59
The Bureau proposed to revise
§ 1026.19(e)(3)(iii)(E) and comment
19(e)(3)(iii)–3 to make explicit 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
Bureau also proposed revisions to
comment 19(e)(3)(iii)–3, which would
provide an illustrative example for
disclosing property taxes under
§ 1026.19(e)(3)(iii)(E).
In general, commenters representing
various industry stakeholders supported
the proposed revisions to
§ 1026.19(e)(3)(iii)(E) and comment
19(e)(3)(iii)–3. A commenter
representing a mortgage finance
company asked the Bureau to provide
specific guidance on the disclosure of
property taxes under
§ 1026.19(e)(3)(iii)(E) for new
construction, refinance, and purchase
transactions. A commenter representing
banks asked the Bureau to define the
good faith standard under
§ 1026.19(e)(3)(iii)(E) broadly to prevent
industry confusion. A commenter
representing a mortgage company
supported the revisions but asked that
the Bureau consider changing the good
faith determination of tolerance for
appraisal cost. The commenter asserted
that appraiser’s fees should not be
subject to zero tolerance because lenders
may not know what an appraiser will
charge.
The Bureau is finalizing, as proposed,
the revisions to § 1026.19(e)(3)(iii)(E)
and comment 19(e)(3)(iii)–3. In regard to
the commenter requesting specific
guidance on the disclosure of property
taxes for new construction and
refinance transactions, the Bureau notes
that the good faith determination under
§ 1026.19(e)(3)(iii)(E) applies to property
taxes whether the loan is for new
construction or to refinance a loan. The
original estimated charge, or lack of an
estimated charge for property taxes,
complies with § 1026.19(e)(3)(iii)(E) if
the estimate for property taxes is
consistent with the best information
reasonably available to the creditor at
the time it is disclosed.
As discussed above, a commenter
asked the Bureau to define or interpret
good faith under § 1026.19(e)(3)(iii)(E)
broadly to stave off industry confusion.
The Bureau believes that the
explanation of the good faith
59 81
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determination under
§ 1026.19(e)(3)(iii)(E) is sufficient. The
Bureau notes that the good faith
determination of an estimate under
§ 1026.19(e)(3)(iii)(E) is based on the
best information reasonably available to
the creditor at the time it is disclosed.
In addition, the Bureau illustrates this
principle with several examples under
the comments 19(e)(3)(iii)–1 through –3.
Revised comment 19(e)(3)(iii)–3 as
finalized under this rule will explain
that a creditor complies with the
requirements under
§ 1026.19(e)(3)(iii)(E) unless the
creditor, contrary to the best
information reasonably available at the
time the disclosures are made, does not
provide an estimate or an unreasonably
low estimate.
In regard to the comment requesting
the Bureau to reconsider the good faith
tolerance determination for appraisal
fees, the Bureau declines to address this
issue in the final rule. The Bureau notes
that the disclosure of the appraisal fee
must be based on the best information
reasonably available at the time the
disclosure is provided to the consumer.
19(e)(3)(iv) Revised Estimates
The Bureau’s Proposal
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).
Section 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. Proposed
comments 19(e)(3)(iv)–2 and –4 would
have clarified 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). Proposed comment
19(e)(3)(iv)–5 would have clarified 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.
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Comments Received
Industry commenters, including
vendors, a creditor, and an individual
compliance professional, supported the
clarification in proposed comments
19(e)(3)(iv)–2 and –4. However,
consumer group commenters opposed
permitting revised disclosures for
informational purposes in situations
where the creditor is not resetting
tolerances for any of the reasons stated
in § 1026.19(e)(3)(iv)(A) through (F).
Consumer group commenters asserted
that such revised disclosures may lead
consumers to experience information
overload; consumers already receive
similar information on the Closing
Disclosure no later than three business
days before consummation; and
consumers will not understand the
difference between revised Loan
Estimates for resetting tolerances and
those simply for informational
purposes. Consumer group commenters
also recommended that all disclosures
include a statement, at the top of the
page, directing the consumer to keep
any and all versions of the disclosures;
and a notation, on the first page,
indicating the quantity of any prior
Loan Estimates provided to the
consumer.
Several industry commenters,
including vendors and an individual
compliance professional, supported the
clarification in proposed comment
19(e)(3)(iv)–5. However, other industry
commenters opposed requiring that, if a
creditor opts to provide a revised Loan
Estimate, 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. A secondary
market investor expressed concern that
the requirement increases the likelihood
of disclosure errors. Trade associations
and a creditor stated that some vendors
are not currently in compliance with the
requirement and their systems will need
substantial reprogramming. Trade
associations also expressed their belief
that there would be no significant
consumer injury if creditors were
excused from updating disclosures on
revised Loan Estimates based on the
best information reasonably available. A
creditor requested that industry be given
an implementation period of at least 180
days if the Bureau finalizes proposed
comment 19(e)(3)(iv)–5, while a vendor
group stated that reprogramming for
some vendors could take up to 12
months.
Several industry commenters also
sought additional clarifications
regarding revising the Loan Estimate
based on the best information
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17:46 Aug 10, 2017
Jkt 241001
reasonably available. A trade association
requested further clarification as to how
the requirement noted in proposed
comment 19(e)(3)(iv)–5 comports with
the creditor discretion noted in
proposed comment 19(e)(3)(iv)–4. Two
creditors requested clarification as to
what the impact is on tolerance
baselines when a creditor decreases an
estimated charge on a revised Loan
Estimate or Closing Disclosure; an
individual attorney requested similar
clarification while suggesting that the
Bureau’s current small entity
compliance guide indicates that such
decreases do not impact tolerance
baselines.
The Final Rule
The Bureau is adopting as proposed
the amendments to comment
19(e)(3)(iv)–2 and new comment
19(e)(3)(iv)–4 and is adopting new
comment 19(e)(3)(iv)–5 substantially as
proposed. As finalized, comments
19(e)(3)(iv)–2 and –4 are consistent with
current comment 19(e)(3)(iv)(A)–1.ii,
which 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). The Bureau declines to
make revisions that would contradict
current comment 19(e)(3)(iv)(A)–1.ii.
The Bureau concludes that the concerns
expressed by consumer group
commenters do not warrant prohibiting
consumers from receiving the best
information reasonably available, even
if consumers will later receive a Closing
Disclosure. Regarding commenters’
assertion that consumers will not
understand the difference between
revised Loan Estimates for resetting
tolerances and those simply for
informational purposes, the Bureau
notes that the Loan Estimate form
intentionally has been designed, first
and foremost, as a means of providing
consumers with the best information
reasonably available. Therefore, in many
instances, tracking legal compliance
will require reviewing not just the most
recent Loan Estimate but also prior
versions. With respect to the comments
recommending that creditors be
required to add an additional statement
and notation on the Loan Estimate, the
Bureau notes that § 1026.37(a)(2)
already requires that all Loan Estimates
include the statement ‘‘Save this Loan
Estimate to compare with your Closing
Disclosure.’’ The Bureau declines to
mandate the additional disclosures
requested, which would impose
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37681
additional regulatory implementation
costs.
Comment 19(e)(3)(iv)–5, as finalized,
includes an example stating that, 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
must be reflected on the revised
disclosures based on the best
information reasonably available to the
creditor at the time the revised
disclosures are provided. As finalized,
comment 19(e)(3)(iv)–5, including that
example, is consistent with
longstanding § 1026.17(c)(2)(i), as well
as current comments 19(e)(1)(i)–1 and
37–1, which require that disclosures
provided to the consumer must be based
on the best information reasonably
available to the creditor. The Bureau
declines to make revisions that would
contradict current § 1026.17(c)(2)(i) and
current comments 19(e)(1)(i)–1 and 37–
1. The Bureau concludes that
commenters’ concerns do not warrant
consumers receiving Loan Estimates
that are not based on the best
information reasonably available.
Regarding a commenter’s request for
further clarification as to how the
requirement noted in proposed
comment 19(e)(3)(iv)–5 comports with
the creditor discretion noted in
proposed comment 19(e)(3)(iv)–4,
comment 19(e)(3)(iv)–4 notes that
creditors may, at their option, issue a
revised Loan Estimate for informational
purposes even when creditors are not
otherwise required to do so; but, if a
creditor opts to do so, comment
19(e)(3)(iv)–5, consistent with
§ 1026.17(c)(2)(i) and comments
19(e)(1)(i)–1 and 37–1, requires the Loan
Estimate to be based on the best
information reasonably available to the
creditor at the time it is provided to the
consumer.
Regarding commenters’ request for
clarification as to what the impact is on
tolerance baselines when a creditor
decreases an estimated charge on a
revised Loan Estimate or Closing
Disclosure, current § 1026.19(e)(3)(i)
states that, except as otherwise provided
in § 1026.19(e)(3)(ii) through (iv), an
estimated closing cost 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. Moreover, for purposes of
determining good faith,
§ 1026.19(e)(3)(iv) states that in certain
circumstances a creditor may use a
revised estimate of a charge instead of
the estimate of the charge originally
disclosed—but the rule does not require
the creditor to use a revised estimate for
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purposes of determining good faith.
Thus, if a creditor decreases an
estimated charge on a revised Loan
Estimate or Closing Disclosure, the
creditor is not required to use the
decreased estimate for purposes of
determining good faith; the creditor may
determine good faith by comparing the
charge paid by or imposed on the
consumer versus the amount originally
disclosed.
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
19(e)(3)(iv)(D) Interest Rate Dependent
Charges
The Bureau’s Proposal
In circumstances where a creditor
provides an initial Loan Estimate
disclosing an interest rate without a rate
lock agreement in place,
§ 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 subsequently 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. Consistent with
§ 1026.19(e)(4)(ii), the Bureau proposed
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. In addition, new comment
19(e)(3)(iv)(D)–2 would have also noted
that the creditor must provide a
corrected Closing Disclosure if the
disclosures on the previous Closing
Disclosure become inaccurate, in
accordance with the existing
requirements of § 1026.19(f)(2). The
Bureau also proposed technical
revisions to existing comment
19(e)(3)(iv)(D)–1.
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Comments Received
Some industry commenters stated that
new comment 19(e)(3)(iv)(D)–2 clarified
that a revised Loan Estimate must be
provided to the consumer when the
initial Loan Estimate disclosed an
interest rate without a rate lock
agreement, but the interest rate is
subsequently locked. Other industry
commenters sought additional clarity on
whether a revised Loan Estimate was
required in such a situation if the terms
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and charges associated with the loan
would not change on the revised Loan
Estimate, and therefore argued there is
no basis to require a revised Loan
Estimate where there are no changes in
the information disclosed.
Other commenters addressed the
statement in proposed new comment
19(e)(3)(iv)(D)–2 that the creditor must
provide a corrected Closing Disclosure if
the disclosures on the previous Closing
Disclosure become inaccurate, in
accordance with the requirements of
§ 1026.19(f)(2). Some industry
commenters sought more clarity on
what a creditor must do when the
interest rate is subsequently locked by a
rate lock agreement after the Closing
Disclosure is issued. A secondary
market participant commenter also
stated that a creditor should not be
required to issue a revised Closing
Disclosure when there are no changes
made to the interest rate or other terms.
The Final Rule
For the reasons discussed below, the
Bureau is adopting the technical
revisions to existing comment
19(e)(3)(iv)(D)–1 as proposed and is
adopting new comment 19(e)(3)(iv)(D)–
2 as proposed, with a modification for
clarity. Commenters that expressed a
need for clarification in relation to
proposed new comment 19(e)(3)(iv)(D)–
2 in effect argued that
§ 1026.19(e)(3)(iv)(D) should not require
the disclosure of a revised Loan
Estimate if the terms and charges
disclosed have not changed. As noted
above, § 1026.19(e)(3)(iv)(D) explicitly
requires the creditor to provide a
revised Loan Estimate when the initial
Loan Estimate did not disclose an
interest rate subject to a rate lock
agreement, even if the terms and charges
disclosed are the same. As noted in the
2012 TILA–RESPA Proposal, the
disclosures on the initial Loan Estimate
related to the interest rate should be
able to fluctuate on subsequent Loan
Estimates if the consumer’s rate was not
set on the initial Loan Estimate, but
revised disclosures should be provided
when the consumer’s interest rate is
later set.60 The Bureau’s concern was,
and continues to be, that, absent a rate
lock agreement, the terms and charges of
the loan as disclosed on the initial Loan
Estimate are more likely to change, as
the consumer would only be able to rely
on the interest rate related charges and
terms on the Loan Estimate when the
rate has been locked. When a revised
Loan Estimate is provided as required
by § 1026.19(e)(3)(iv)(D), the rate lock
60 2012 TILA–RESPA Proposal, 77 FR 51116,
51173 (Aug. 23, 2012).
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information disclosed pursuant to
§ 1026.37(a)(13)(i) must be updated to
reflect the expiration date of the interest
rate disclosed, regardless of any changes
to the disclosed interest rate or interest
rate-related charges. Once the interest
rate is subject to a rate lock agreement,
§ 1026.19(e)(3)(iv)(D) does not
subsequently require the disclosure of a
revised Loan Estimate. As discussed
above, proposed new comment
19(e)(3)(iv)(D)–2 included an explicit
cross-reference to the requirement in
§ 1026.19(f)(2) for a creditor to provide
a corrected Closing Disclosure if the
disclosures on the previous Closing
Disclosure become inaccurate. The
Bureau is adopting new comment
19(e)(3)(iv)(D)–2 with this additional
cross-reference to provide clarity. To
provide guidance to commenters that
sought clarity on whether a corrected
Closing Disclosure is required if the
interest rate becomes subject to a rate
lock agreement after the initial Closing
Disclosure has been provided to the
consumer, such a corrected Closing
Disclosure is required only when the
disclosures have become inaccurate,
pursuant to § 1026.19(f)(2). Notably,
information disclosed on the Loan
Estimate under § 1026.37(a)(13)
concerning the terms of the rate lock
agreement are not required on the
Closing Disclosure under § 1026.38,
therefore a subsequent rate lock
agreement by itself would not require a
corrected Closing Disclosure unless the
charges and terms become inaccurate.
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).
To reduce uncertainty, the Bureau
proposed 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). Proposed
revisions to § 1026.19(e)(3)(iv)(E)
permitted a creditor to use revised
estimates under § 1026.19(e)(3)(iv) when
the consumer indicates an intent to
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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
new comment 19(e)(3)(iv)(E)–2 stated
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 stated
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. While not discussed in
the section-by-section analysis of
§ 1026.19(e)(3)(iv)(E) in the proposal,
the Bureau also proposed minor stylistic
changes to existing comment
19(e)(3)(iv)(E)–1.
Commenters generally supported
revised § 1026.19(e)(3)(iv)(E) and new
comment 19(e)(3)(iv)(E)–2, with some
concerns related to the proper
disclosure of the expiration period on
the Loan Estimate. These concerns are
discussed in the section-by-section
analysis of § 1026.37(a)(13), below.
Accordingly, the Bureau is adopting, as
proposed, revised § 1026.19(e)(3)(iv)(E),
revised comment 19(e)(3)(iv)(E)–1, and
new comment 19(e)(3)(iv)(E)–2.
19(e)(3)(iv)(F) Delayed Settlement Date
on a Construction Loan
The Bureau proposed to amend
§ 1026.19(e)(3)(iv)(F) to correct a
typographical error, replacing a
reference to § 1026.19(f) with a reference
to § 1026.19(e)(3)(iv). Section
1026.19(e)(3)(iv)(F) addresses when
revised Loan Estimates can be provided
for transactions involving new
construction. Currently, it provides that,
if the disclaimer under
§ 1026.19(e)(3)(iv)(F) was not provided,
the creditor may not issue a revised
Loan Estimate except as otherwise
allowed under § 1026.19(f). However,
revised Loan Estimates are issued
pursuant to § 1026.19(e)(3)(iv), not
§ 1026.19(f), and the proposed
modification would have corrected this
reference in § 1026.19(e)(3)(iv)(F).
In general, commenters supported the
proposed revision. A compliance
professional asserted that there is
confusion in the industry regarding
when § 1026.19(e)(3)(iv)(F) is
applicable. Specifically, the commenter
requested that the Bureau clarify
whether § 1026.19(e)(3)(iv)(F) applies
during the permanent phase or
construction phase of a construction-
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permanent loan. The Bureau notes that
§ 1026.19(e)(3)(iv)(F) is applicable to
any new construction transaction where
the creditor reasonably expects that
settlement will occur more than 60 days
after the Loan Estimate is required to be
provided under § 1026.19(e)(1)(iii). If a
construction-permanent loan is
disclosed as separate transactions and
involves new construction,
§ 1026.19(e)(3)(iv)(F) would apply to the
construction phase Loan Estimate and
permanent phase Loan Estimate if the
creditor reasonably expects that
settlement will occur more than 60 days
after that respective Loan Estimate is
required to be provided under
§ 1026.19(e)(1)(iii). A commenter
representing a title company asked the
Bureau to apply a retroactive effective
date or otherwise implement technical
non-substantive changes such as this
one as soon as possible. See comment
1(d)(5)–2 and the Bureau’s discussion
regarding the effective date in part VI,
below. For the reasons discussed above
the Bureau is finalizing as proposed the
modification to § 1026.19(e)(3)(iv)(F).
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)(3)(iv) permits
creditors, in certain limited
circumstances, to use revised estimates,
instead of the estimate originally
disclosed to the consumer, to compare
to the charges actually paid by or
imposed on the consumer for purposes
of determining whether an estimated
closing cost was disclosed in good faith
(i.e., whether the actual charge exceeds
the allowed tolerance). This is referred
to as resetting tolerances.
Section 1026.19(e)(4) contains rules
for the provision and receipt of those
revised estimates, including a
requirement that any revised estimates
used to determine good faith must be
provided to the consumer within three
business days of the creditor receiving
information sufficient to establish that a
permissible reason for revision applies.
If the conditions for revising the original
estimates are met, creditors generally
may provide these revised estimates on
revised Loan Estimates or, in certain
circumstances, on Closing Disclosures.
The creditor cannot provide revised
estimates on a Loan Estimate on or after
the date the Closing Disclosure is
provided to the consumer and the
consumer must receive any revised
Loan Estimate used to reset tolerances
no later than four business days prior to
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37683
consummation.61 However, if there are
less than four business days between the
time the revised version of the
disclosures is required to be provided
(i.e., within three business days of the
time the creditor received information
sufficient to establish the reason for
revision) and consummation, the
creditor may provide the revised
estimate on a Closing Disclosure.62 This
is referred to herein as the ‘‘fourbusiness day limit.’’
The Bureau’s Proposal
The proposal would have added new
comment 19(e)(4)(ii)–2, which provided
that ‘‘[i]f 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).’’
The proposed comment was intended
to clarify that creditors may use
corrected Closing Disclosures provided
under § 1026.19(f)(2)(i) or (ii) (in
addition to the initial Closing
Disclosure) to reflect changes in costs
that will be used to reset tolerances.63
As noted above, existing comment
19(e)(4)(ii)–1 clarifies that creditors may
reflect revised estimates on the Closing
Disclosure to reset tolerances if there are
less than four business days between the
time the revised version of the
disclosures is required to be provided
pursuant to § 1026.19(e)(4)(i) and
consummation. Although comment
19(e)(4)(ii)–1 expressly references only
the Closing Disclosure required by
§ 1026.19(f)(1)(i), the Bureau has
provided informal guidance that the
provision also applies to corrected
Closing Disclosures provided pursuant
to § 1026.19(f)(2)(i) or (ii). The Bureau
proposed comment 19(e)(4)(ii)–2 to
clarify this point.
Comments Received
The Bureau received comments on
this aspect of the proposal from trade
associations, creditors, GSEs, mortgage
software providers, secondary market
61 12
CFR 1026.19(e)(4)(ii).
at comment 19(e)(4)(ii)–1.
63 See 81 FR 54317, 54334 (Aug. 15, 2016).
62 Id.
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purchasers, title companies, and
servicers. Commenters generally
supported the clarification that creditors
may use corrected Closing Disclosures
(in addition to initial Closing
Disclosures) to reflect revised amounts
and reset tolerances. However, some
commenters expressed continued
concern that the rule and commentary
would not fully clarify ambiguities on
this subject even if comment
19(e)(4)(ii)–2 were finalized as
proposed. For example, one trade
association commenter requested that
the Bureau clarify that corrected Closing
Disclosures can be provided at the
closing table, and can be used to reset
tolerances, if the closing occurs prior to
the end of the three-business-day period
after the creditor receives information
sufficient to establish that a reason for
revision applies.
Further, many commenters
interpreted proposed comment
19(e)(4)(ii)–2 as allowing creditors to
use corrected Closing Disclosures to
reset tolerances regardless of when
consummation is expected to occur, as
long as the creditor provides the
corrected Closing Disclosure within
three business days of receiving
information sufficient to establish a
reason for revision applies pursuant to
§ 1029.19(e)(4)(i). Specifically, under
this interpretation, creditors could
provide initial Closing Disclosures to
reset tolerances only if there are less
than four business days between the
time the revised version of the
disclosures is required to be provided
pursuant to § 1026.19(e)(4)(i) and
consummation. But this interpretation
would remove the four-business day
limit for corrected Closing Disclosures
provided pursuant to § 1026.19(f)(2) and
therefore allow creditors to provide
corrected Closing Disclosures to reset
tolerances regardless of when
consummation is expected to occur.
Commenters were not uniform in their
interpretation of the proposal.
Commenters who interpreted the
proposal as removing the four-business
day limit as it applies to corrected
Closing Disclosures were generally
supportive, citing uncertainty about the
proper interpretation of current rules
and stating that current timing rules
regarding resetting tolerances with a
Closing Disclosure are unworkable.
Some of these commenters described a
situation that could occur if the creditor
has already provided the Closing
Disclosure and an event occurs or a
consumer requests a change that causes
an increase in closing costs that would
be a reason for revision under
§ 1026.19(e)(3)(iv). In some
circumstances, the creditor may be
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unable to provide a corrected Closing
Disclosure to reset tolerances because
there are four or more days between the
time the revised disclosures would be
required to be provided pursuant to
§ 1026.19(e)(4)(i) and consummation.
Commenters seemed to identify this as
most likely to occur where there was
also a delay in the scheduled
consummation date after the initial
Closing Disclosure is provided to the
consumer.
The Bureau understands that this
situation can occur because of the
intersection of current timing rules
regarding the provision of revised
estimates to reset tolerances. Section
1026.19(e)(4)(ii) prohibits creditors from
providing Loan Estimates on or after the
date on which the creditor provides the
Closing Disclosure. In many cases, this
limitation would not create issues for
creditors because current comment
19(e)(4)(ii)–1 explains that creditors
may reflect revised estimates on a
Closing Disclosure to reset tolerances if
there are less than four business days
between the time the revised version of
the disclosures is required to be
provided pursuant to § 1026.19(e)(4)(i)
and consummation. But there is no
similar provision that explicitly
provides that creditors may use a
Closing Disclosure to reflect the revised
disclosures if there are four or more
days between the time the revised
version of the disclosures is required to
be provided pursuant to
§ 1026.19(e)(4)(i) and consummation.
Commenters stated that this can lead to
circumstances where creditors are
unable to provide either a revised Loan
Estimate (because the Closing
Disclosure has been provided) or a
corrected Closing Disclosure (because
there are four or more days prior to
consummation) to reset tolerances.
Commenters referred to this situation as
a ‘‘gap’’ or ‘‘black hole’’ in the rules.
Many commenters perceived proposed
new comment 19(e)(4)(ii)–2 as resolving
this issue because they interpreted it as
allowing creditors to use corrected
Closing Disclosures to reset tolerances
even if there are four or more business
days between the time the revised
version of the disclosures is required to
be provided pursuant to
§ 1026.19(e)(4)(i) and consummation.
Commenters noted various reasons for
supporting such a change. Some
commenters asserted that the inability
to pass unforeseen cost increases
directly to the affected consumers in
these instances causes the cost of credit
to increase for all consumers. Two trade
associations representing settlement
agents stated concerns about creditors
requesting that settlement agents reduce
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their fees to absorb the cost of the
unforeseen cost increases that could not
be passed directly to the affected
consumers. A national title insurance
company commenter noted its belief
that some creditors are currently
rejecting applications and starting new
ones when closing is delayed and costs
increase, such as for additional
appraisal or inspection fees or rate lock
extension fees, to avoid the compliance
and legal risks associated with the
current rules. This commenter argued
that these actions could cause further
delay to closings and expense to
consumers. Other commenters similarly
noted that the change could minimize
closing delays and disruptions.
Some commenters who interpreted
the proposal as removing the fourbusiness day limit for corrected Closing
Disclosures supported that perceived
change, but also cautioned about
unintended consequences. For example,
some commenters stated that the
proposal would remove a disincentive
that currently exists under the rule from
providing the initial Closing Disclosure
extremely early in the mortgage
origination process, which these
commenters stated would not be
consistent with the Bureau’s intent that
the Closing Disclosure be a statement of
actual costs. Some commenters,
including a national title insurance
company, a mortgage servicer, and a
mortgage software provider, requested
that the Bureau provide additional
guidance on the timing or circumstances
under which it is appropriate to provide
Closing Disclosures, generally (while
one large creditor commenter cautioned
against such an approach). Some
commenters suggested other revisions to
the rule the Bureau might consider in
lieu of finalizing proposed comment
19(e)(4)(ii)–2. For example, one large
national lender suggested that the
Bureau eliminate the four-business day
limit and instead develop a test to
determine if the reason for revision is
truly beyond the control of the creditor.
In addition to these comments, some
commenters also requested that the
Bureau amend § 1026.19(e)(4)(i) and
comment 19(e)(4)(ii)–1 to specifically
include interest rate dependent charges
referred to in § 1026.19(e)(3)(iv)(D) as a
reason for providing a revised estimate.
Further, one trade association
commenter stated that it is not clear that
proposed comment 19(e)(4)(ii)–2 would
apply to the initial Closing Disclosure,
such that a lender may not be able to
disclose a rate lock with an initial
Closing Disclosure. This commenter
stated that such an interpretation could
harm consumers that wish to lock their
interest rate three business days before
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closing and receive an initial Closing
Disclosure the same day to ensure a
timely closing.
The Final Rule
As noted above and described in the
proposal, proposed comment
19(e)(4)(ii)–2 was intended to clarify
that the reference to Closing Disclosures
required by § 1026.19(f)(1) in existing
comment 19(e)(4)(ii)–1 refers to both the
initial Closing Disclosure required by
§ 1026.19(f)(1) and to any corrected
Closing Disclosures provided pursuant
to § 1026.19(f)(2). Although the Bureau
recognizes that the text of proposed
comment 19(e)(4)(ii)–2 could plausibly
be interpreted as also removing the
existing four-business day limit for
providing corrected Closing Disclosures
to reset tolerances, the preamble to the
proposal does not describe that the
Bureau intended such a change.
At the same time, the Bureau has
considered the concerns expressed by
industry through comments about the
implementation challenges caused by
the current provisions regarding the use
of Closing Disclosures to reset
tolerances, and the potential negative
effects of those provisions on consumers
and creditors. In particular, the Bureau
recognizes that the current rules may
lead to circumstances under which
creditors might be unable to provide
revised estimates for purposes of
resetting tolerances where the Closing
Disclosure has already been provided
and there are four or more days between
consummation and the time the revised
version of the disclosures is required to
be provided pursuant to
§ 1026.19(e)(4)(i). The Bureau believes,
however, that before finalizing a rule
that addresses this issue it is advisable
to propose more explicit language and
to seek comment so that stakeholders
who understood the proposal in
accordance with the Bureau’s intent will
have the opportunity to provide their
perspectives on this issue. For this
reason, the Bureau is issuing a new
proposal, concurrent with this final
rule, that would address this issue.
Accordingly, the Bureau declines to
finalize proposed comment 19(e)(4)(ii)–
2.
19(f) Mortgage Loans—Final Disclosures
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19(f)(1) Provision of Disclosures
19(f)(1)(i) Scope
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to comment
19(f)(1)(i)–1 to reflect a change to the
coverage of § 1026.19(f) to include
closed-end credit transactions, other
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than reverse mortgages, that are secured
by a cooperative unit, regardless of
whether a cooperative unit is treated as
real property under State or other
applicable law.
19(f)(2) Subsequent Changes
19(f)(2)(iii) Changes Due to Events
Occurring After Consummation
The Bureau’s Proposal
The Bureau proposed 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 would not be
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
from the amount disclosed under
§ 1026.38(g)(2) and (o). 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.
The Bureau requested comment on
the benefits to consumers of receiving a
post-consummation disclosure under
§ 1026.19(f)(2)(iii) of the changed perdiem interest amounts reflecting the
actual amounts paid by the consumer.
The Bureau also requested comment on
whether additional clarity is needed in
§ 1026.17(e) or § 1026.19(e) regarding
the effect of post-consummation events
on the accuracy of disclosures or if
additional clarity is needed on the
interaction of §§ 1026.17(e) and
1026.19(e).
Comments Received
Several industry commenters
supported adding proposed comment
19(f)(2)(iii)–2. One industry commenter
opposed adding this proposed
comment. This commenter indicated
that consumers will not have accurate
disclosures of the per-diem interest that
is paid (and other disclosures affected
by the change in per-diem interest such
as the annual percentage rate, finance
charge, and other material disclosures
under TILA) if they do not receive a
post-consummation disclosure under
§ 1026.19(f)(2)(iii) when the per-diem
interest has changed after
consummation. The commenter also
indicated that, with no final document
showing the actual amount of prepaid
interest paid by the consumer, buyers
and sellers of loans will not be able to
accurately calculate the purchase
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37685
amount of the loan, and servicers will
not be able to accurately credit the
consumer’s account or accurately
provide the Internal Revenue Service
Form 1098.
Several industry commenters asked
for additional clarifications related to
per-diem interest. One industry
commenter requested additional
clarification on which disclosures are
affected by the per-diem interest and
thus would be covered by proposed
comment 19(f)(2)(iii)–2. Two industry
commenters indicated that
§ 1026.17(c)(2)(ii) should apply to all
disclosures of per-diem interest and any
affected disclosures that are provided
under § 1026.19(e) and (f), including
disclosures provided before or at
consummation. One industry
commenter suggested that the Bureau
modify the proposal to state that, even
if a creditor is issuing a Closing
Disclosure due to events occurring after
consummation for reasons other than
changes in the per-diem interest, the
creditor must not amend the per-diem
interest (and affected disclosures) on the
corrected disclosure if it has changed.
Several industry commenters
requested clarifications related to the
requirement to provide a corrected
Closing Disclosure under
§ 1026.19(f)(2)(iii). One industry
commenter indicated that creditors in
escrow states need additional guidance
on the requirements for populating the
post-consummation Closing Disclosure
under § 1026.19(f)(2)(iii) because it is
unclear what point in time the Closing
Disclosure is disclosing. The commenter
indicated that creditors in escrow states
may ‘‘net out’’ cash to close to equal
‘‘$0’’ because these creditors understand
the accuracy requirement to mean that
they must reflect changes that have
happened since the time of
consummation. The commenter
recommended that the Bureau amend
§ 1026.19(f)(2)(iii) to clarify that this
post-consummation Closing Disclosure
be revised to accurately reflect the
changes to any charges that are the
subject of the redisclosure, and that the
cash to close amount be amended only
to reflect the effect of the changed
amount. Another industry commenter
requested additional guidance on when
disclosure is required under
§ 1026.19(f)(2)(iii) in non-escrow states
where disbursement or recording occurs
days after consummation and the actual
recording fee is found to be less than
disclosed on the Closing Disclosure at
consummation. This commenter
requested guidance on whether a
corrected disclosure under
§ 1026.19(f)(2)(iii) is required to be
provided to the consumer after the
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settlement agent has disbursed funds
and refunded any excess funds
remaining. Another industry commenter
requested additional guidance on
whether the delivery of a corrected
disclosure under § 1026.19(f)(2)(iii)
would extend the right of rescission
period under § 1026.23.
The Final Rule
The Bureau is adopting proposed
comment 19(f)(2)(iii)–2 with revisions.
The Bureau is adopting comment
19(f)(2)(iii)–2 to provide that a creditor
is not required to provide corrected
disclosures under § 1026.19(f)(2)(iii) if
the only changes that would be required
to be disclosed in the corrected
disclosure are changes to per-diem
interest and any disclosures affected by
the change in per-diem interest, even if
the amount of per-diem interest actually
paid by the consumer differs from the
amount disclosed under § 1026.38(g)(2)
and (o). In finalizing new comment
19(f)(2)(iii)–2, the Bureau has revised
the comment to clarify that, if a creditor
is providing a corrected Closing
Disclosure under § 1026.19(f)(2)(iii) for
reasons other than changes in per-diem
interest and the per-diem interest has
changed as well, the creditor must
disclose in the corrected disclosures
under § 1026.19(f)(2)(iii) the correct
amount of the per-diem interest and
provide corrected disclosures for any
disclosures that are affected by the
change in per-diem interest.
As discussed above, one industry
commenter suggested that the Bureau
should modify the proposal to state that,
even if a creditor is issuing a Closing
Disclosure due to events occurring after
consummation for reasons other than
changes in the per-diem interest, the
creditor must not amend the per-diem
interest (and affected disclosures) on the
corrected disclosure if it has changed.
The Bureau is not implementing this
suggestion. The Bureau is concerned
that, if creditors were not required to
correct the per-diem interest (and
affected disclosures) in the postconsummation corrected Closing
Disclosure that is otherwise being
provided to consumers under
§ 1026.19(f)(2)(iii), consumers would
receive inaccurate information in the
corrected Closing Disclosure that the
creditor knows is incorrect at the time
the disclosure is provided.
As discussed above, several industry
commenters indicated that
§ 1026.17(c)(2)(ii) should apply to all
disclosures of per-diem interest and any
affected disclosures that are provided
under § 1026.19(e) and (f), including
disclosures provided before or at
consummation. The Bureau is not
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adopting this suggestion. The Bureau
notes that § 1026.17(c)(2)(ii) provides
that for a transaction in which a portion
of the interest is determined on a perdiem 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. Nonetheless, comment
17(c)(2)(ii)–1 provides that for purposes
of transactions subject to § 1026.19(e)
and (f), the creditor shall disclose the
actual amount of per-diem interest that
will be collected at consummation,
subject only to the disclosure rules in
those sections. The Bureau notes that for
disclosure of per-diem interest in the
Loan Estimate, § 1026.19(e)(3)(iii)
provides that the prepaid interest
disclosure must be consistent with the
best information reasonably available to
the creditor at the time it is disclosed.
For disclosures of per-diem interest in
the Closing Disclosure provided on or
before consummation, comment
19(f)(1)(i)–2 provides that creditors may
estimate disclosures provided under
§ 1026.19(f)(1)(ii)(A) and (f)(2)(ii) using
the best information reasonably
available when the actual term is
unknown to the creditor at the time
disclosures are made, consistent with
§ 1026.17(c)(2)(i). As discussed above,
new comment 19(f)(2)(iii)–2 sets forth
the circumstances in which changes in
per-diem interest must be disclosed in
post-consummation disclosures under
§ 1026.19(f)(2)(iii).
As discussed above, one industry
commenter requested additional
guidance on when disclosure is required
under § 1026.19(f)(2)(iii) in non-escrow
states where disbursement or recording
occurs days after consummation and the
actual recording fee is found to be less
than disclosed on the Closing Disclosure
at consummation. The Bureau is not
adopting additional clarification in the
final rule because this situation is
already addressed in the example in
current comment 19(f)(2)(iii)–1.i.
Also, with respect to the comment
requesting clarification as to how the
delivery of a corrected disclosure under
§ 1026.19(f)(2)(iii) relates to the right of
rescission period under § 1026.23, the
Bureau notes that guidance for
rescission rights related to closed-end
credit can be found in current § 1026.23
and its associated commentary. In
addition, one industry commenter
recommended that the Bureau amend
§ 1026.19(f)(2)(iii) to clarify that the
post-consummation Closing Disclosure
be revised to accurately reflect the
changes to any charges that are the
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subject of the redisclosure, and that the
cash to close amount be amended only
to reflect the effect of the changed
amount. The Bureau is not addressing
this issue as part of the final rule. The
Bureau did not propose changes in the
proposal to address this issue and has
not collected sufficient information to
address this issue as part of the final
rule.
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 proposed to revise
comment 19(f)(2)(v)–1 to add a crossreference to proposed comment 38–4.
The Bureau also proposed to revise the
dollar amounts in the example in
comment 19(f)(2)(v)–1 for greater clarity.
A financial holding company asserted
that the Bureau’s preamble states that
the Bureau proposed to amend comment
38(h)(3)–2, but the Bureau failed to
provide amended commentary. The
commenter requested that the Bureau
provide the text of the amended
commentary. A mortgage company
requested that the Bureau increase the
timing requirements for refunds related
to the good faith analysis in
§ 1026.19(f)(2)(v) from 60 days after
consummation to the timing under
§ 1026.43(e)(3)(iii)(B) for a creditor to
cure a violation of the qualified
mortgage limit on points and fees.
The Bureau is adopting as proposed
the revisions to comment 19(f)(2)(v)–1.
The Bureau believes the cross-reference
to final comment 38–4 is helpful for
compliance purposes and the revised
example is clearer. Comment
19(f)(2)(v)–1 currently cross-references
comment 38(h)(3)–2, and although the
Bureau did propose to amend comment
19(f)(2)(v)–1, the Bureau did not
propose to amend the cross-reference to
comment 38(h)(3)–2 or to amend
comment 38(h)(3)–2 itself. Therefore,
the Bureau is not amending comment
38(h)(3)–2 in this final rule. The Bureau
also is not altering the timing
requirements under § 1026.19(f)(2)(v) in
this final rule as requested by a
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commenter. The Bureau believes that
the current 60-day period after
consummation will give creditors
sufficient time to cure tolerance
violations. Further, the Bureau believes
that extending the cure period further
than 60 days after consummation would
undermine the incentive for creditors to
conduct quality control reviews as soon
as reasonably practicable after
consummation.
19(f)(3) Charges Disclosed
19(f)(3)(ii) Average Charge
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to comment
19(f)(3)(ii)–3 to reflect a change to the
coverage of § 1026.19(f) to include
closed-end credit transactions, other
than reverse mortgages, that are secured
by a cooperative unit, regardless of
whether a cooperative unit is treated as
real property under State or other
applicable law.
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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. The Bureau
proposed to streamline § 1026.19(f)(4)(i)
by replacing unnecessary text with a
cross-reference to § 1026.19(e)(1)(i), to
streamline comment 19(f)(4)(i)–1, and to
add comment 19(f)(4)(i)–2 to clarify that
in purchase transactions with
simultaneous 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.
A trade association commenter
supported the clarifying language in the
proposed revisions to § 1026.19(f)(4)(i)
and its commentary. Other commenters
specifically supported the Bureau’s
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proposal in comment 19(f)(4)(i)–2 to
clarify that, in a purchase transaction
with simultaneous 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.
For the reasons discussed below, the
Bureau is adopting the proposed
amendments to § 1026.19(f)(4)(i) and
comment 19(f)(4)(i)–1 as final, and is
revising new comment 19(f)(4)(i)–2 for
better alignment with comment
19(f)(4)(i)–1. The Bureau believes
streamlining § 1026.19(f)(4)(i) and
comment 19(f)(4)(i)–1 will aid in
industry compliance. Although not
raised as a concern by commenters, the
Bureau recognizes that as proposed,
new comment 19(f)(4)(i)–2 could have
appeared to impose additional
disclosure requirements for
simultaneous subordinate financing.
Therefore, the Bureau is revising
comment 19(f)(4)(i)–2 to more closely
mirror the language of comment
19(f)(4)(i)–1. Final comment 19(f)(4)(i)–
2 provides that in a purchase
transaction with simultaneous
subordinate financing, the settlement
agent complies with § 1026.19(f)(4)(i) by
providing the seller with only the firstlien transaction disclosures required
under § 1026.38 that relate to the seller’s
transaction reflecting the actual terms of
the seller’s transaction in accordance
with comment 19(f)(4)(i)–1 if the firstlien 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, comment 19(f)(4)(i)–2
provides that the settlement agent
complies with § 1026.19(f)(4)(i) by
providing the seller with both the firstlien and simultaneous subordinate
financing transaction disclosures
required under § 1026.38 that relate to
the seller’s transaction reflecting the
actual terms of the seller’s transaction in
accordance with comment 19(f)(4)(i)–1.
The Bureau concludes that in a
purchase transaction with simultaneous
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 § 1026.38 disclosures for the
simultaneous subordinate financing.
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19(g) Special Information Booklet at
Time of Application
19(g)(1) Creditor To Provide Special
Information Booklet
As detailed in the section-by-section
analysis of § 1026.19, the Bureau is
adopting amendments to § 1026.19(g)(1)
substantially as proposed. Specifically,
§ 1026.19(g)(1), as finalized, covers
consumer credit transactions secured by
real property or a cooperative unit,
regardless of whether they are open-end
or closed-end transactions (and except
as provided in § 1026.19(g)(1)(ii) and
(iii)). As finalized, § 1026.19(g)’s
coverage continues not to be limited to
closed-end transactions (except as
provided in § 1026.19(g)(1)(ii) and (iii)).
Section 1026.23
Right of Rescission
23(g) Tolerances for Accuracy
The Bureau’s Proposal
TILA section 125 sets forth a
consumer’s right to rescind certain
transactions.64 For purposes of a
consumer’s right of rescission, TILA
section 106(f)(2) 65 sets forth the
applicable tolerances for accuracy of the
finance charge 66 and other disclosures
affected by any finance charge, which
has been understood to include the total
of payments.67 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 total of
payments would improve consumer
understanding.68 As explained in the
proposal, the Bureau believed it would
64 15
U.S.C. 1635.
U.S.C. 1605(f)(2).
66 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.
67 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).
68 78 FR 79730, 80038 (Dec. 31, 2013).
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be 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
proposed 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. The
Bureau sought comment on these
proposed revisions to § 1026.23(g).
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Comments Received
Comments received on the proposed
tolerances for the total of payments
apply generally to both §§ 1026.23(g)
and 1026.38(o)(1). See the discussion
below in the section-by-section analysis
of § 1026.38(o)(1) for a summary of and
responses to those comments.
The Final Rule
For the reasons discussed below in
the section-by-section analysis of
§ 1026.38(o)(1), the Bureau adopts the
revisions to § 1026.23(g) as proposed.
Specifically, the Bureau redesignates
current § 1026.23(g)(1) and (2) as
§ 1026.23(g)(1)(i) and (2)(i) and amends
§ 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 1⁄2 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. The
Bureau further amends
§ 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
§ 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 also adopts new comment 23(g)–
1 as proposed, which references the
examples set forth in new 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 revises § 1026.23(g) to
apply the same tolerances for accuracy
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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).69 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 tolerances for the
total of payments promote consistency
with the tolerances in effect before the
TILA–RESPA Final Rule. The Bureau
therefore believes that the tolerances
facilitate compliance with the statute.
Additionally, the Bureau believes that
the tolerances in revised
§ 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
The Bureau’s Proposal
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.70 Section 1026.23(h)(2)
implements this statutory provision.
As explained more fully above in the
section-by-section analysis of
§ 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. For the reasons
discussed in the section-by-section
analyses of §§ 1026.23(g) and
1026.38(o)(1), the Bureau proposed to
revise § 1026.23(h)(2) to apply the same
tolerances for accuracy to the total of
payments for purposes of the Closing
69 15
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Fmt 4701
Disclosure that already apply to the
finance charge and other disclosures
affected by the finance charge. The
Bureau sought comment on the
proposed amendment to § 1026.23(h)(2)
and its commentary.
Comments Received
Comments received on the proposed
tolerances for the total of payments
generally apply to both §§ 1026.23(h)(2)
and 1026.38(o)(1). See the discussion
below in the section-by-section analysis
of § 1026.38(o)(1) for a summary of and
responses to those comments.
The Final Rule
For the reasons discussed below in
the section-by-section analysis of
§ 1026.38(o)(1), the Bureau adopts the
revisions to § 1026.23(h)(2) as proposed.
Specifically, the Bureau redesignates
current § 1026.23(h)(2) as
§ 1026.23(h)(2)(i) and amends
§ 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 revises comment
23(h)(2)–1 to also explain that, for each
transaction subject to § 1026.19(e) and
(f), § 1026.23(h)(2) is based on the
accuracy of the total of payments, taken
as a whole, rather than its component
charges. The Bureau also adopts new
comment 23(h)(2)–2 as proposed, which
references the examples set forth in new
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 revises § 1026.23(h)(2) 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).71 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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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 tolerances for the
total of payments promote consistency
with the tolerances in effect before the
TILA–RESPA Final Rule. The Bureau
therefore believes that the tolerances
facilitate compliance with the statute.
Additionally, the Bureau believes that
the tolerances in revised
§ 1026.23(h)(2)(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
25(c)(1) Records Related to
Requirements for Loans Secured by Real
Property
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to the
paragraph title for § 1026.25(c)(1), and a
subheading for the commentary to
§ 1026.25(c)(1), to reflect a change to the
coverage of § 1026.19(e) and (f) to
include closed-end credit transactions,
other than reverse mortgages, that are
secured by a cooperative unit, 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)
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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
property in transactions where there is
no seller. The comment explains 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 proposed
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).
One industry commenter requested
that, with respect to a transaction
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involving construction where there is no
seller, the Bureau clarify that the
creditor must disclose under
§ 1026.37(a)(7)(ii) the value of the
underlying lot at the time of issuing the
Loan Estimate, irrespective of what the
projected value of the property may be
after construction is finished because
the value of the land would be the value
of the property at the time the Loan
Estimate is given. This commenter also
asked the Bureau to clarify the
disclosure requirement on the Closing
Disclosure under § 1026.38(a)(3)(vii) for
the appraised value for a transaction
involving construction where there is no
seller. The commenter asked for
clarification on whether the creditor
must disclose only the value of the
underlying lot, or instead must disclose
the projected value of the completed
project after construction is finished
that was used to determine approval of
the credit transaction.
The Bureau is adopting the proposed
modifications to comment 37(a)(7)–1,
with revisions. As discussed in more
detail below, the Bureau is adopting the
proposed change to final comment
37(a)(7)–1. Also, in response to the
comment discussed above, the Bureau is
revising comment 37(a)(7)–1 to provide
additional guidance on how creditors
may make the disclosures under
§ 1026.37(a)(7)(ii) with respect to
transactions involving construction
where there is no seller.
Current comment 37(a)(7)–1, in part,
provides that 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
commenter appears to read the language
‘‘at the time the disclosure is issued to
the consumer’’ to mean that for
transactions involving construction
where there is no seller, the creditor
must disclose the value of the land
under § 1026.37(a)(7)(ii), irrespective of
what the projected value of the property
may be after construction is finished,
because the value of the land would be
the value of the property at the time the
Loan Estimate is given. At the time the
Loan Estimate is given, the
improvements to be made to the land
have not been completed. Nonetheless,
the Bureau notes that the language ‘‘at
the time of the disclosure’’ instead is
intended to indicate that the disclosure
of the estimated value of the property
must be based on the best information
reasonably available to the creditor at
the time the disclosure is provided,
consistent with the general standard set
forth for accuracy of the Loan Estimate
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disclosures in comment 19(e)(1)(i)–1. To
make this clearer, the Bureau is revising
comment 37(a)(7)–1 to indicate that
where there is no seller,
§ 1026.37(a)(7)(ii) requires the creditor
to disclose the estimated value of the
property identified in § 1026.37(a)(6)
based on the best information
reasonably available to the creditor at
the time the disclosure is provided to
the consumer. To facilitate compliance,
the Bureau also is revising comment
37(a)(7)–1 to clarify that for transactions
involving construction where there is no
seller, the estimated value of the
property may include, at the creditor’s
option, the estimated value of the
improvements to be made on the
property. Alternatively, the creditor in
transactions involving construction
where there is no seller may disclose
under § 1026.37(a)(7)(ii) the estimated
value of the property that does not
include the estimated value of the
improvements to be made on the
property.
The Bureau believes that this
flexibility will give a creditor the option
of maintaining consistency between the
disclosure of the estimated value of the
property in the Loan Estimate under
§ 1026.37(a)(7) and the disclosure of the
value of the property in the Closing
Disclosure under § 1026.38(a)(3)(vii) in
transactions involving construction
where there is no seller. As discussed in
the section-by-section analysis of
§ 1026.38(a)(3)(vii), current comment
38(a)(3)(vii)–1 provides that, for
transactions without a seller, the
creditor must disclose on the Closing
Disclosure under § 1026.38(a)(3)(vii) the
value of the property that is used to
determine the approval of the credit
transaction. The Bureau is revising
comment 38(a)(3)(vii)–1 to make clear
that, for transactions involving
construction where there is no seller,
the creditor must disclose the value of
the property that is used to determine
the approval of the credit transaction,
including improvements to be made on
the property if those improvements are
used in determining the approval of the
credit transaction. Thus, if a creditor
includes improvements to be made on a
property in determining the approval of
a credit transaction involving
construction where there is no seller,
the creditor must include the
improvements in the disclosure of the
value of the property on the Closing
Disclosure under § 1026.38(a)(3)(vii).
Final comment 37(a)(7)–1 allows a
creditor the flexibility to include the
improvements into the estimated value
of the property disclosed on the Loan
Estimate under § 1026.37(a)(7), which
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gives the creditor the option of
maintaining consistency between the
disclosure that is given on the Loan
Estimate under § 1026.37(a)(7) and the
disclosure that will be given on the
Closing Disclosure under
§ 1026.38(a)(3)(vii) by including
improvements to be made in both
disclosures. On the other hand, if a
creditor does not include improvements
to be made on the property in
determining the approval of a credit
transaction involving construction
where there is no seller, the creditor
must not include the improvements in
the disclosure of the value of the
property on the Closing Disclosure
under § 1026.38(a)(3)(vii). Final
comment 37(a)(7)–1 allows a creditor
the flexibility not to include the
improvements into the estimated value
of the property disclosed under
§ 1026.37(a)(7), which gives the creditor
the option of maintaining consistency
between the disclosure that is given on
the Loan Estimate under § 1026.37(a)(7)
and the disclosure that will be given on
the Closing Disclosure under
§ 1026.38(a)(3)(vii) by not including
improvements to be made in both
disclosures.
Current comment 37(a)(7)–1 also
provides, in part, that the creditor may
use the estimate provided by the
consumer at application, or if it has
performed its own estimate of the
property value by the time the
disclosure is provided to the consumer,
use that estimate. If the creditor has
obtained any appraisals or valuations of
the property for the application at the
time the disclosure is 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.
Consistent with the proposal, the
Bureau is revising 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 rather than disclose an estimate
provided by the consumer at
application.
Cooperatives
As detailed in the section-by-section
analysis of § 1026.19, the Bureau
proposed and is now adopting
conforming amendments to comment
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37(a)(7)–2 to reflect a change to the
coverage of § 1026.19(e) and (f) to
include closed-end credit transactions,
other than reverse mortgages, that are
secured by a cooperative unit, 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 proposed
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.
Commenters generally appreciated the
additional clarification provided by
comment 37(a)(8)–3 and comment app.
D–7.i. However, two commenters
indicated the cross-references to
comment 37(a)(8)–3 in proposed
comment app. D–7.i were not clear.
Although both comments app. D–7.i.A
and B referred to comment 37(a)(8)–3 as
providing relevant explanations,
comment 37(a)(8)–3, as proposed,
provided a cross-reference but did not
include any explanations. Two
commenters also requested the Bureau
clarify that the loan term for
construction loans is determined using
the approach applicable to nonconstruction loans in addition to the
construction-specific clarifications
provided in comment 37(a)(8)–3 and
comment app. D–7.i.
For the reasons explained in the
discussion of comment app. D–7.i,
below, the Bureau is finalizing comment
37(a)(8)–3 as proposed. The Bureau is
not including more than a crossreference to comment app. D–7.i in
comment 37(a)(8)–3. As explained in
the section-by-section analysis of
comment app. D–7.i, sections, such as
§ 1026.17(c)(3) and (c)(4), are applicable
in determining the impact of minor
variations in the number of days
counted for the loan term, as well as
other disclosures, as applicable. In order
to avoid creating an impression that
only § 1026.17(c)(3) applies for purposes
of construction and constructionpermanent disclosures to the exclusion
of other potentially applicable sections,
the Bureau declines to add further
clarification in comment 37(a)(8)–3
about the applicability of other sections
to determining the loan term for loans.
37(a)(9) Purpose
Section 1026.37(a)(9) requires a
creditor to disclose on the Loan
Estimate the consumer’s intended use
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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
simultaneous subordinate financing in a
purchase transaction are used to
purchase the property that will secure
the extension of credit, the Bureau
proposed to amend comment 37(a)(9)–
1.i to clarify that simultaneous
subordinate financing used to purchase
the property is disclosed with the
purpose ‘‘Purchase’’ under
§ 1026.37(a)(9). The Bureau also
proposed to make a minor technical
revision to comment 37(a)(9)–1.iii to
change the phrase ‘‘construction-topermanent’’ to ‘‘constructionpermanent’’ for consistency with
terminology used elsewhere in the
proposed rule.
The Bureau received one comment
responsive to the proposals to amend
comments 37(a)(9)–1.i and 37(a)(9)–1.iii.
A title insurance company stated that
the Bureau should provide a
corresponding amendment that pertains
to the Closing Disclosure.
For the reasons discussed below, the
Bureau is adopting the amendment to
comment 37(a)(9)–1.i as proposed with
a technical revision and the technical
revision to comment 37(a)(9)–1.iii as
proposed with an additional revision.
As discussed above, a commenter
requested that the Bureau provide an
amendment for the Closing Disclosure
comparable to that in comment 37(a)(9)–
1.i. The Bureau concludes that a
corresponding amendment for the
Closing Disclosure is not necessary
because the Closing Disclosure’s
requirement to disclose the loan
purpose, in § 1026.38(a)(5)(ii),
specifically cross-references the
disclosure required by § 1026.37(a)(9),
which also includes the commentary to
§ 1026.37(a)(9). An additional
conforming amendment is being made
to comment 37(a)(9)–1.iii to include a
cross-reference to comment 17(c)(6)–5,
which is being amended as discussed
above in the section-by-section analysis
of § 1026.17(c)(6) and provides
additional guidance on disclosing
construction-permanent loans.
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 proposed to add a cross-
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reference in comment 37(a)(10)–2.ii to
proposed comment app. D–7.ii, which
explained the disclosure of the time
period of the interest-only feature for a
construction loan or a constructionpermanent loan.
The Bureau did not receive comments
on adding a cross-reference to comment
app. D–7.ii into comment 37(a)(10)–2.ii.
The Bureau is adopting as proposed the
revision to comment 37(a)(10)–2.ii.
37(a)(13) Rate Lock
The Bureau’s Proposal
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
proposed 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
proposed 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) in
circumstances where 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 proposed to add new
comment 37(a)(13)–4,72 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.
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Comments Received
Some industry commenters supported
the revisions to comment 37(a)(13)–2
72 Although the proposed amendatory
instructions in the proposal correctly labeled this
new comment as 37(a)(13)–4, the accompanying
section-by-section analysis of § 1026.37(a)(13)
inadvertently described the proposed comment as
‘‘new comment 37(a)(13)–3.’’ There is an existing
comment 37(a)(13)–3 concerning time zones in the
Official Interpretations of Regulation Z, and no
modification of existing comment 37(a)(13)–3 was
proposed.
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and proposed new comment 37(a)(13)–
4. A vendor and two State trade
association commenters stated that the
last sentence of the § 1026.37(a)(13)
disclosure on form H–24 of appendix H,
which begins with the phrase ‘‘All other
estimated closing costs expire on’’ and
includes the date and time when the
charges unrelated to the interest rate
expire, should be either deleted on
revised Loan Estimates after the
consumer has expressed an intention to
proceed or completed with the term
‘‘N/A.’’ One industry commenter stated
a concern about the applicability of an
extended expiration period to loans that
would be in process when revised
comment 37(a)(13)–2 and new comment
37(a)(13)–4 are effective, and indicated
that changing the expiration period for
loans in process could be difficult for
creditors. One vendor and an industry
commenter stated that there should be
no change to the expiration dates
because no consumer testing was
conducted on the change, and that the
change could prompt consumer
confusion and mistrust of creditors. A
vendor group stated that the proposed
revisions could be read to require the
disclosure of a 10-day expiration date,
with any potential extension
documented outside the disclosures.
The Final Rule
For the reasons discussed below, the
Bureau is adopting revised comment
37(a)(13)–2 as proposed and new
comment 37(a)(13)–4 as proposed. In
response to commenters’ suggestions to
require the deletion of the sentence,
‘‘All other estimated closing costs expire
on,’’ on the first page of the Loan
Estimate or to complete the sentence
with the term ‘‘N/A,’’ the Bureau notes
that new comment 37(a)(13)–4 was
intended to provide guidance with
respect to expiration-date disclosures on
any revised Loan Estimates provided
once a consumer has indicated an intent
to proceed. However, the Bureau did not
propose modifications to the Loan
Estimate form itself.73 In addition, the
terms ‘‘N/A’’ or ‘‘not applicable’’ are not
permitted to be used on the Loan
Estimate.74 Regarding commenters’
concerns relating to the effect of the
proposed revised comment 37(a)(13)–2
and proposed new comment 37(a)(13)–
4 on loans that are already in process
when the provisions are effective, the
date disclosed on the initial Loan
Estimate provided by the creditor
controls the length of the expiration
period. For loans where the initial Loan
Estimate discloses a 10-day expiration
73 81
FR 54317, 54320 (Aug. 15, 2016).
comment 37–1.
74 See
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37691
date, nothing in current Regulation Z
requires a creditor to subsequently
permit a longer time period. Once the
consumer has expressed an intention to
proceed, the expiration date is moot for
the purposes of the Loan Estimate, as
the amounts disclosed provide the
applicable baseline for the good faith
tolerance requirements under
§ 1026.19(e)(3). Accordingly, the
disclosure of the expiration date on
revised Loan Estimates provided after
the consumer indicates an intention to
proceed does not change the validity of
the charges disclosed on the Loan
Estimate. Regarding suggestions that
consumer testing is necessary for
various permutations of the disclosure
on revised Loan Estimates provided
after the consumer indicates an
intention to proceed, the Bureau does
not consider additional consumer
testing to be necessary in this instance.
The general rule of leaving inapplicable
disclosures blank on the Loan Estimate
furthers the goals of reducing
information overload.75 As to the
commenter that stated that the proposed
revisions could be read to require the
disclosure of a 10-day expiration date,
the Bureau believes that revised
comment 37(a)(13)–2 is clear that the
creditor may choose a longer expiration
period, and that the cross-reference to
comment 19(e)(3)(iv)(E)–2, which also
explicitly references the permission of
the creditor to set a longer time period
under § 1026.19(e)(3)(iv)(E), provides
sufficient clarity to creditors.
Accordingly, the Bureau is adopting
revised comment 37(a)(13)–2 as
proposed and new comment 37(a)(13)–
4 as proposed.
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.’’ To
reduce inconsistent language in
Regulation Z and facilitate compliance,
the Bureau proposed to revise
§ 1026.37(b)(1) to indicate that the loan
amount disclosed on the Loan Estimate
(and, accordingly, on the Closing
Disclosure) would be the total amount
the consumer will borrow, as reflected
by the face amount of the note. This
language parallels that of
§ 1026.32(c)(5), which requires the
disclosure of the total amount the
consumer will borrow, as reflected by
the face amount of the note for loans
subject to the Home Ownership and
75 78
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Equity Protection Act (HOEPA).
Commenters stated that they agreed that
the proposed revision would clarify the
amount to be disclosed and supported
the proposed revision. Accordingly, the
Bureau is adopting the proposed
revision to § 1026.37(b)(1).
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 proposed to
add a cross-reference in comment
37(b)(2)–1 to proposed comment app.
D–7.iii, which, as discussed further
below, explained the disclosure of the
permanent financing interest rate for a
construction-permanent loan.
The Bureau did not receive comments
on the addition of the cross-reference in
comment 37(b)(2)–1 to proposed
comment app. D–7.iii. The Bureau is
adopting as proposed the revision to
comment 37(b)(2)–1.
37(b)(3) Principal and Interest Payment
Section 1026.37(b)(3) requires
disclosure of the initial periodic
payment amount. The Bureau proposed
to add a cross-reference in comment
37(b)(3)–2 to proposed comment app.
D–7.iv, which explained the disclosure
of an initial periodic payment for a
construction or construction-permanent
loan.
The Bureau did not receive comments
on the addition of the cross-reference in
comment 37(b)(3)–2 to proposed
comment app. D–7.iv. However,
because, as discussed below, the Bureau
is not adopting proposed comment app.
D–7.iv, the Bureau is not adopting the
proposed revision to comment 37(b)(3)–
2.
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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 if the periodic payment may
increase after consummation. The
Bureau proposed to add a crossreference in comment 37(b)(6)(iii)–1 to
proposed comment app. D–7.v, which,
as discussed further below, explained
the disclosure of an increase in the
periodic payment for a construction or
construction-permanent loan.
The Bureau did not receive comments
on the addition of the cross-reference in
comment 37(b)(6)(iii)–1 to proposed
comment app. D–7.v. The Bureau is
adopting as proposed the revision to
comment 37(b)(6)(iii)–1, but, because
proposed comment app. D–7.iv is not
being adopted, the reference to
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comment app. D–7.v is renumbered as
comment app. D–7.iv.
37(c) Projected Payments
Section 1026.37(c) requires
itemization of each separate periodic
payment or range of payments. As
described below, the Bureau proposed
to amend the commentary
accompanying § 1026.37(c), (c)(1)(iii)(B),
and (c)(4)(iv). The Bureau proposed to
add new comment 37(c)–2 to provide a
cross-reference to comment app. D–7.vi,
which explains the projected payments
disclosure for a construction or
construction-permanent loan.
The Bureau did not receive comments
on the addition of the cross-reference in
comment 37(c)–2 to proposed comment
app. D–7.vi. The Bureau is adopting as
proposed the revision to comment
37(c)–2, but, because proposed
comment app. D–7.iv is not being
adopted, the reference to comment app.
D–7.vi is renumbered as comment app.
D–7.v.
37(c)(1) Periodic Payment or Range of
Payments
37(c)(1)(iii)
37(c)(1)(iii)(B)
The Bureau’s Proposal
Section 1026.37(c) requires creditors
to disclose an itemization of the
periodic payments. Under certain
circumstances, described in
§ 1026.37(c)(1)(iii), creditors must
disclose the minimum and maximum
periodic payment amounts (the range).
Section 1026.37(c)(1)(iii)(B) requires
disclosing 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. Generally,
pursuant to § 1026.37(c)(3)(ii), periodic
payments or ranges of payments must be
disclosed under a subheading that states
the years of the loan during which the
payment or range of payments will
apply.
Comment 37(c)(1)(iii)(B)–1 illustrates
the disclosure of ranges of payments
when multiple changes to periodic
principal and interest payments occur
during a single year. One of the
examples in that comment involves a
loan payment that adjusts upward at
three months and at six months, adjusts
once more at 18 months, and becomes
fixed thereafter. The Bureau identified
inconsistencies between that
commentary example and the
requirements of § 1026.37(c)(1).
Specifically, that commentary example
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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; and
the periodic payment that would apply
after the payment adjustment that
occurs at 18 months. However,
§ 1026.37(c)(1)(iii)(B) 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). Nor does any other provision
of § 1026.37(c)(1) require disclosing a
range in that circumstance. 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, nothing in § 1026.37(c)(1)
requires disclosing an additional
separate payment disclosure for an
anniversary in that circumstance. For
example, § 1026.37(c)(1)(i)(D) 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.
The Bureau proposed revisions to that
example in comment 37(c)(1)(iii)(B)–1
to harmonize it with the requirements of
§ 1026.37(c)(1). As proposed, rather than
disclosing as a single payment range,
the example calls for separately
disclosing, under a year two
subheading, the payment that would
apply on the first anniversary of the due
date of the initial periodic payment and,
under a year three subheading, the
payment that would apply after the
payment adjustment that occurs at 18
months. However, the Bureau requested
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
the comment to conform to the text of
§ 1026.37(c)(1)). The Bureau also
requested 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 current examples in comment
37(c)(1)(iii)(B)–1.
Comments Received
A vendor supported the proposed
amendments to comment
37(c)(1)(iii)(B)–1 to harmonize it with
the requirements of § 1026.37(c)(1). The
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vendor stated that the proposed
amendments are consistent with current
comment 37(c)(3)(ii)–1, which provides
that: If an event requiring an additional
separate payment disclosure occurs on a
date (e.g., at 18 months) other than the
anniversary of the due date of the initial
periodic payment, and if no other events
occur during that single year (e.g.,
during year two) that otherwise require
disclosure of multiple events under
§ 1026.37(c)(1)(iii)(B), then such
payment event is disclosed beginning in
the next year in the sequence (e.g., in
year three); in other words, under both
current comment 37(c)(3)(ii)–1 and
proposed comment 37(c)(1)(iii)(B)–1,
the payment event that occurs at 18
months is not disclosed as part of a
range of payments in year two. The
vendor further stated that, in the
section-by-section analysis of
§ 1026.37(c)(3) in the TILA–RESPA
Final Rule, the Bureau expressly
concluded that such approach in
current comment 37(c)(3)(ii)–1 ensures
that consumers receive a disclosure that
clearly and accurately discloses future
changes to periodic payments.76 The
vendor asserted that that conclusion in
the TILA–RESPA Final Rule similarly
supports proposed comment
37(c)(1)(iii)(B)–1.
Regarding alternatives, the vendor
stated that system reprogramming
would be more complicated if the
Bureau were to amend the text of
§ 1026.37(c)(1) to conform to the
example in comment 37(c)(1)(iii)(B)–1
(instead of finalizing proposed comment
37(c)(1)(iii)(B)–1 to conform it to the
text of § 1026.37(c)(1)). The vendor
stated that conforming to comment
37(c)(1)(iii)(B)–1 would then require
determining not only whether a change
of payments occurred within a single
year, but also require looking to
previous years to determine whether
multiple changes occurred in those
years, in order to determine whether a
year with a singular triggering event
under § 1026.37(c)(1)(i)(A) should be
treated as having multiple changes
under § 1026.37(c)(1)(iii)(B), because the
year before it had multiple changes (and
whether such year had to be treated as
having multiple triggering events as
well, even though there is only a
singular triggering event under
§ 1026.37(c)(1)(i)(A), because the year
prior to the previous year had multiple
triggering events).
The vendor objected to the possibility
that, rather than requiring compliance
with a single, mandatory approach, the
Bureau might provide creditors with the
discretion to disclose in conformity
76 See
78 FR 79730, 79945 (Dec. 31, 2013).
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with either the current text of
§ 1026.37(c)(1) or the current examples
in comment 37(c)(1)(iii)(B)–1. The
vendor stated that such creditor
discretion and lack of uniformity would
inhibit consumers’ ability to comparison
shop.
A trade association objected to
proposed comment 37(c)(1)(iii)(B)–1 as
overly prescriptive and requested that
creditors be afforded greater flexibility
in deciding how to provide disclosures
to consumers. A vendor requested that,
instead of finalizing proposed comment
37(c)(1)(iii)(B)–1 to conform it to the
text of § 1026.37(c)(1), the Bureau
amend the text of § 1026.37(c)(1) to
conform to the example in comment
37(c)(1)(iii)(B)–1. The vendor asserted
that doing so would be more useful to
consumers because, for example, a
payment event that occurs at 18 months
would be disclosed as part of a range of
payments in year two, even if no other
events occur during year two that
require disclosure of multiple events
under § 1026.37(c)(1)(iii)(B). The vendor
stated that, where proposed comment
37(c)(1)(iii)(B)–1 would have such
payment event disclosed in year three,
but not in year two, the projected
payments table would cause the
consumer to believe mistakenly that the
payment does not change in year two.
The vendor further stated that, for those
creditors whose current systems were
programmed in reliance on current
comment 37(c)(1)(iii)(B)–1, it would be
extremely burdensome if the Bureau
were to finalize proposed comment
37(c)(1)(iii)(B)–1 to conform it to the
text of § 1026.37(c)(1). An individual
compliance professional also requested
that the Bureau amend the text of
§ 1026.37(c)(1) to conform to the
example in comment 37(c)(1)(iii)(B)–1
and further requested that that approach
be mandatory for all creditors.
A vendor group discussed how either
alternative (i.e., finalizing proposed
comment 37(c)(1)(iii)(B)–1 to conform it
to the current text of § 1026.37(c)(1) or,
instead, amending the text of
§ 1026.37(c)(1)) could address
uncertainty. The vendor group
requested that, either way, the Bureau
require compliance with a single,
mandatory approach.
The vendor group noted that current
§ 1026.37(c)(1) does not provide for
consistent disclosure of payment
changes. During the same year as the
initial periodic payment (i.e., in year
one), § 1026.37(c)(1)(iii)(B) calls for
disclosing any payment change, even a
single payment change, as part of a
range in year one. But in years other
than year one (e.g., in year two),
§ 1026.37(c)(1)(iii)(B) calls for disclosing
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a range only if there are multiple
payment changes in a single year.
Otherwise, consistent with current
comment 37(c)(3)(ii)–1, a single
payment change is disclosed beginning
in the next year in the sequence, e.g., in
year three (and not as part of a range in
year two).
The vendor group requested that, if
the Bureau finalizes proposed
amendments to comment
37(c)(1)(iii)(B)–1 to conform it to the
current text of § 1026.37(c)(1), the
Bureau also amend
§ 1026.37(c)(1)(iii)(B) to further clarify
that a range is disclosed when an event
described in § 1026.37(c)(1)(i)(A) occurs
prior to the first anniversary date of the
date the initial periodic payment is due.
The vendor group also requested that
the Bureau make certain additional
clarifying amendments to the
introductory sentence of comment
37(c)(1)(iii)(B)–1 and to the example of
a payment adjustment that occurs at 18
months in comment 37(c)(1)(ii)(B)–1.iii.
The vendor group requested an
implementation period of up to one year
for reprogramming.
The Final Rule
For the reasons discussed below, the
Bureau is adopting the revisions to
comment 37(c)(1)(iii)(B)–1 substantially
as proposed but with certain minor
changes. The Bureau concludes that
comment 37(c)(1)(iii)(B)–1 as finalized
is consistent with the requirements of
§ 1026.37(c)(1) as well as comment
37(c)(3)(ii)–1. As stated in the sectionby-section analysis of § 1026.37(c)(3) in
the TILA–RESPA Final Rule, the
approach in current comment
37(c)(3)(ii)–1 ensures that consumers
receive a disclosure that clearly and
accurately discloses future changes to
periodic payments.77 The Bureau
declines to adopt the alternative of
amending the text of § 1026.37(c)(1) and
comment 37(c)(3)(ii)–1 to conform to the
example in current comment
37(c)(1)(iii)(B)–1 because, as noted
above, that would unnecessarily require
disclosing ranges and additional
separate payments in more
circumstances without providing overall
benefit to consumers. The Bureau also
concludes that a single, mandatory
approach with respect to complying
with § 1026.37(c)(1)(iii)(B) and comment
37(c)(1)(ii)(B)–1 will facilitate
consumers’ ability to comparison shop.
As to the commenter’s concern that
current § 1026.37(c)(1) does not provide
for consistent disclosure of payment
changes because § 1026.37(c)(1)(iii)(B)
distinguishes between changes
77 78
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occurring in year one versus those
occurring in other years, and also
distinguishes between a year with
multiple changes versus a year with a
single change, the Bureau again declines
to revisit major policy decisions in this
rulemaking. Unlike the example in
current comment 37(c)(1)(iii)(B)–1,
which is being amended here because
its contradiction of § 1026.37(c)(1) and
comment 37(c)(3)(ii)–1 generated
uncertainty, the Bureau believes that the
distinctions in § 1026.37(c)(1)(iii)(B) are
clear and, for a given type of loan,
provide that all creditors will disclose
the loan’s payment provisions in the
same manner. As to commenters’
request to amend § 1026.37(c)(1)(iii)(B)
to further clarify that a range is
disclosed when an event described in
§ 1026.37(c)(1)(i)(A) occurs prior to the
first anniversary date of the date the
initial periodic payment is due, the
Bureau concludes that such amendment
is not warranted as
§ 1026.37(c)(1)(iii)(B) already provides
for disclosing a range when an event
described in § 1026.37(c)(1)(i)(A) occurs
during the same year as the initial
periodic payment or range of payments.
In part in response to commenters’
concerns, the Bureau is finalizing the
introductory sentence of comment
37(c)(1)(iii)(B)–1 with the phrase
‘‘multiple changes,’’ instead of
‘‘changes,’’ to further emphasize that
§ 1026.37(c)(1)(iii)(B) does not require
disclosing a range merely because the
periodic principal and interest payment
may change once during a single year.
The Bureau concludes that doing so will
further alleviate uncertainty regarding
this comment. Moreover, to provide
clarification, the example in comment
37(c)(1)(iii)(B)–1.iii includes a crossreference to § 1026.37(c)(3)(ii) and,
consistent with current comment
37(c)(3)(ii)–1, expressly states that,
beginning in the next year in the
sequence (i.e., in year three), the
creditor separately discloses the
periodic payment that would apply after
the payment adjustment that occurs at
18 months.
In response to the commenter’s
request for an implementation period of
up to one year with respect to this
aspect of the proposal, as discussed in
part VI below, the rule will be effective
60 days from publication in the Federal
Register, but there will be an optional
compliance period in effect until
October 1, 2018. During the optional
compliance period, a creditor has the
option of complying based on the
example in current comment
37(c)(1)(iii)(B)–1.
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37(c)(4) Taxes, Insurance, and
Assessments
37(c)(5) Calculation of Taxes and
Insurance
37(c)(4)(iv)
37(c)(5)(i)
As detailed in the section-by-section
analysis of § 1026.19, the Bureau is
adopting amendments to
§ 1026.37(c)(5)(i) substantially as
proposed. Section 1026.37(c)(5)(i), as
finalized, specifically references the real
property or cooperative unit securing
the transaction. This conforming
amendment to § 1026.37(c)(5)(i) reflects
the change to the coverage of
§ 1026.19(e) and (f) to include closedend credit transactions, other than
reverse mortgages, that are secured by a
cooperative unit, regardless of whether
a cooperative unit is treated as real
property under State or other applicable
law.
Section 1026.37(c)(4) requires the
disclosure on the Loan Estimate of the
amount of periodic payments for taxes,
insurance, and assessments. Section
1026.37(c)(4)(iv) requires a statement of
whether the amounts disclosed under
§ 1026.37(c)(4)(ii) include payments for
property taxes, amounts identified in
§ 1026.4(b)(8), and other amounts
described under § 1026.37(c)(4)(ii) along
with a description of any such other
amounts, and an indication of whether
such amounts will be paid by the
creditor using escrow account funds.
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 the January 2015 Amendments,
the Bureau removed ‘‘other than
amounts for payments of property taxes
or homeowner’s insurance’’ from
comment 37(c)(4)(iv)–2 to permit
creditors to disclose that only 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.
In the preamble to the proposal the
Bureau noted that it 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
proposed 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.
The Bureau is finalizing as proposed
the revisions to comment 37(c)(4)(iv)–2.
The Bureau received two comments in
support of the proposed revision to
comment 37(c)(4)(iv)–2. However, one
commenter asked the Bureau to define
and address whether builder’s risk
insurance is considered homeowner’s
insurance for purposes of the
disclosures under § 1026.37(c)(4). The
Bureau notes that it did not propose to
address this matter in the proposal, and
that treatment of builder’s risk
insurance premiums for purposes of
these disclosures on the Loan Estimate
may depend on the facts and context.
Accordingly, the finalized revisions to
comment 37(c)(4)(iv)–2 do not address
the issue raised by the commenter.
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37(d) Costs at Closing
37(d)(2) Optional Alternative Table for
Transactions Without a Seller or for
Simultaneous Subordinate Financing
The Bureau’s Proposal
Section 1026.37(d)(2) only permits
creditors to use the optional alternative
table in transactions without a seller.
The Bureau has provided informal
guidance that, in purchase transactions
with simultaneous subordinate
financing, the optional alternative 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 cost of the subordinate
financing. The Bureau proposed to
amend § 1026.37(d)(2) and comment
37(d)(2)–1 to clarify that creditors may
use the optional alternative table for
simultaneous subordinate financing in
purchase transactions if the first-lien
Closing Disclosure will record the
entirety of the seller’s transaction. The
Bureau specifically sought comment on
whether it is appropriate to limit use of
the optional alternative table for the
disclosure of simultaneous subordinate
financing purchase transactions to
situations in which the first-lien Closing
Disclosure will record the entirety of the
seller’s transaction.
Comments Received
Commenters included a title
insurance company, software vendors, a
bank, a loan originator, and a
compliance professional. Most
commenters supported the Bureau’s
proposal to allow the use of the optional
alternative table if the first-lien Closing
Disclosure will record the entirety of the
seller’s transaction. One commenter
questioned what disclosures should be
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used when the optional alternative
tables were used on the Loan Estimate
because the creditor correctly
concludes, based on the best
information reasonably available to the
creditor at the time the disclosure is
provided to the consumer, that the
Closing Disclosure for the first-lien loan
will record the entirety of the seller’s
transaction, but a seller later agrees to
contribute to the costs of the
subordinate financing. The commenter
suggested that the Bureau permit the use
of the standard disclosures in situations
where there is a valid change of
circumstance following the provision of
the optional alternative disclosures to
the consumer. One commenter stated
that the proposal could lead to variation
among creditors and another commenter
stated that the Uniform Closing Dataset
(UCD) may not allow the use of the
alternative disclosures for any
transactions with sellers. Commenters
asked the Bureau to clarify how to
disclose the loan proceeds from the
simultaneous subordinate financing
being applied to the first lien, noting
that most creditors prefer that the
subordinate lien is balanced to zero. A
commenter explained that permitting
the use of the alternative disclosures for
simultaneous subordinate financing is
extremely desirable for industry and
consumers and should be effective
immediately, but that revisions which
clarify how simultaneous subordinate
financing is disclosed on the standard
forms require systems changes which
will take between four and nine months
to implement.
The Final Rule
For the reasons discussed below, the
Bureau is finalizing the proposed
amendments to § 1026.37(d)(2) and
comment 37(d)(2)–1 with minor
technical revisions. The Bureau
appreciates the commenter’s question
regarding how to proceed under the
proposal when the alternative table was
properly used on the Loan Estimate, or
even the Closing Disclosure, but a
subsequent event causes the continued
use of the alternative table to be
impermissible. However, the Bureau
declines to implement the commenter’s
suggestion to permit the use of standard
disclosures in situations where there is
a valid change of circumstance
following the provision of the
alternative disclosures to the consumer.
On the Closing Disclosure, the
calculating cash to close table requires
a comparison of cash to close amounts
disclosed on the Loan Estimate and the
Closing Disclosure. Because the
standard and alternative calculating
cash to close tables do not contain the
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same components, amounts disclosed
on a Loan Estimate’s optional
alternative calculating cash to close
table could not be properly compared to
amounts disclosed on a Closing
Disclosure’s standard calculating cash to
close table. The Bureau is, however,
directly addressing this concern by
adding new comment 38(k)(2)(vii)–1,
amending comments 38(d)(2)–1 and
38(j)–3, and amending proposed new
comments 38(t)(5)(vii)(B)–1 and –2 to
require the disclosure of the seller’s
contributions to the subordinate
financing, if any, in the payoffs and
payments table on the simultaneous
subordinate financing Closing
Disclosure and the summaries of
transactions table on the first-lien
Closing Disclosure, when the alternative
disclosures are used for the
simultaneous subordinate financing.
The result of these amendments is that
the first-lien Closing Disclosure will be
able to record the entirety of the seller’s
transaction. For a more detailed
discussion of these new and revised
comments, see the section-by-section
analyses of § 1026.38(d)(2), (j), (k)(2),
and (t)(5)(vii).
The Bureau recognizes that allowing
the use of the optional alternative tables
for simultaneous subordinate financing
purchase transactions may cause
variability in disclosure among creditors
but concludes that consumers will not
be harmed by such optionality. In
addition, the Bureau understands that
investor requirements may be more
restrictive than the optionality provided
by the Bureau. However, the Bureau
believes flexibility is beneficial to some
creditors, and the Bureau will continue
to provide the option for creditors to use
the optional alternative tables for
simultaneous subordinate financing
transactions with sellers.
The Bureau is addressing the
commenter’s question regarding the
disclosure of simultaneous subordinate
loan proceeds in the section-by-section
analysis of § 1026.37(h)(2)(iii). The
Bureau is clarifying how to disclose the
proceeds of subordinate financing on
the Loan Estimate for a first-lien
transaction disclosed under
§ 1026.37(h)(2), such as a refinance
transaction. The Bureau is also
clarifying how a creditor may disclose,
on the simultaneous subordinate
financing Loan Estimate itself, the
amount of subordinate loan proceeds
that will be applied to the first-lien loan.
The Bureau is making related revisions
in the commentary to § 1026.38(j)(1)(v)
and (t)(5)(vii)(B).
As related to a commenter’s
discussion of the time needed to
implement these provisions, as
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37695
discussed in part VI below, the final
rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
37(f) Closing Cost Details; Loan Costs
Construction Loan Inspection and
Handling Fees
The Bureau’s Proposal
Section 1026.37(f) requires the
disclosure of all loan costs associated
with the transaction. Bureau staff
previously has provided informal
guidance that construction loan
inspection and handling fees are loan
costs associated with the transaction for
purposes of § 1026.37(f), and the Bureau
proposed new comment 37(f)–3 to
memorialize this guidance.
Under comment 37(f)–3 as proposed,
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
under § 1026.37(f)(1) as an origination
charge the consumer will pay to the
creditor for originating and extending
the credit. If the creditor collects an
inspection fee at or before
consummation that will be used to pay
a third-party inspector that is selected
by the creditor, the fee would be
disclosed under § 1026.37(f)(2) as an
amount the consumer will pay for
settlement services for which the
consumer cannot shop.
Under proposed comment 37(f)–3, a
creditor would disclose construction
loan inspection and handling fees
collected at or before consummation in
the loan costs table. Such fees collected
after consummation would be disclosed
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 inspection and
handling fees to be collected after
consummation for purposes of the
calculating cash to close table. In
proposing comment 37(f)–3, the Bureau
noted its belief 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
calculating cash to close table that must
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be provided to the consumer in the Loan
Estimate.
Proposed comment 37(f)–3 included 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
included 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, proposed
comment 37(f)–3 included a crossreference to comment 19(e)(1)(i)–1,
which includes instruction on providing
disclosures based on the best
information reasonably available.
Finally, proposed comment 37(f)–3
provided 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 requested
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.
Comments Received
Comments on the disclosure of
construction loan inspection and
handling fees generally were favorable,
although commenters also noted the
difficulties in accurately disclosing fees
to be collected after consummation and
the additional software development
that the proposal would require.
Commenters also requested additional
clarifications related to making this
disclosure, as described below.
A trade association agreed that
construction loan inspection and
handling fees should be disclosed to
consumers seeking construction loans as
these costs are often significant.
However, this association stated its
members were split on the use of an
addendum for this purpose, as further
noted in the discussion of proposed
comment 37(f)(6)–3, below. A
compliance specialist commented that
proposed comment 37(f)–3 is a positive
change that better facilitates the bank’s
processes. Several vendors commented
on the software changes the disclosure
of post-consummation inspection and
handling fees would require, as further
explained in the discussion of proposed
comment 37(f)(6)–3, below.
Comments received from another
compliance specialist did not favor the
proposal. This commenter did not
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believe that disclosing the construction
loan inspection and handling fees that
are collected after consummation in an
addendum would significantly promote
the informed use of credit by giving
consumers loan cost information
necessary to exercise such informed use.
This commenter pointed out a loan
agreement contract may call for any
number of fees to be assessed on the
consumer for a variety of reasons after
consummation, and construction loan
inspection and handling fees should not
be singled out for separate handling. A
national trade association commented
that it will be extremely difficult for
creditors to provide accurate Loan
Estimate disclosures for inspection fees
because such fees are not known at the
time the Loan Estimate is required to be
provided to the consumer.
A consumer organization commented
that permitting post-consummation fees
of this type to be disclosed in an
addendum raises the question of
whether they should be included in the
Total of Payments, and urged the
Bureau to clarify that those charges
must be added to the Total of Payments
disclosures on the Loan Estimate and
Closing Disclosure. A professional
association asked whether anticipated
inspection fees in connection with
multiple advance construction loan
draws are subject to a tolerance from the
Loan Estimate to the Closing
Disclosures.
The Final Rule
The Bureau is adopting comment
37(f)–3 as proposed with minor
modifications to provide additional
consistency and clarity. Specifically,
comment 37(f)–3 as finalized provides
that the total of inspection and handling
fees is disclosed in the loan costs table
or in a separate addendum. Proposed
comment 37(f)(6)–3, discussed below,
provided that the total of inspection and
handling fees to be collected after
consummation is disclosed on an
addendum, but proposed comment
37(f)–3 did not specify that the total of
fees collected at or before
consummation is disclosed in the loan
costs table. While creditors may have
assumed that proposed comment 37(f)–
3 also required a single disclosure of the
total amount of construction and
handling fees, rather than an individual
listing of each separate fee, the change
made in finalizing comment 37(f)–3
confirms that the total fee is disclosed.
Otherwise, comment 37(f)–3 is
adopted as proposed. Construction loan
inspection and handling fees are loan
costs uniquely associated with
construction transactions and, as a
commenter agreed, they are often
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significant amounts. Because of the
amounts involved, the Bureau considers
that disclosure of these amounts is
particularly helpful in promoting
informed use of credit, and therefore
merit separate handling. The Bureau
recognizes the difficulty of providing
accurate disclosures at or before
consummation of amounts that will be
collected after consummation. For that
reason, comment 37(f)–3 includes a
cross-reference to comment 19(e)(1)(i)–
1, which includes instruction on
providing disclosures based on the best
information reasonably available.
Comment 37(f)(6)–3, which is discussed
below and explains the use of an
addendum to disclose inspection and
handling fees collected after
consummation, provides examples of
what the best information reasonably
available could be for such disclosures.
Disclosures made consistent with these
comments would be considered
accurate, even though the inspection
and handling fees actually collected
after consummation in a particular
transaction may differ from the amount
of fees in previous similar transactions
upon which the disclosures were based.
To underscore this outcome, comment
37(f)–3 also includes a cross-reference to
§ 1026.17(e) and its commentary.
Section 1026.17(e) generally 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. Pursuant to that section, the
disclosure of inspection and handling
fees that is based on the best
information reasonably available but
that becomes inaccurate because of an
event occurring after consummation, for
example, topographical features are
discovered or weather-related events
occur that affect the complexity and
timing of the inspections and therefore
affect the amount or timing of the fees,
would not be considered a violation.
The impact of basing the disclosure of
inspection and handling fees on the best
information reasonably available and
taking into account the effect of
subsequent events is relevant for
responding to the commenter that asked
whether anticipated inspection fees in
connection with multiple advance
construction loan draws are subject to a
tolerance if the amount disclosed
changes between the Loan Estimate and
the Closing Disclosures. These fees are
subject to the same tolerance as any
other fees disclosed as loan costs
depending on the category into which
they fall under § 1026.19(e)(3), such as
origination charges or fees for a service
the consumer can or cannot shop for,
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regardless of whether they are paid at or
before closing and disclosed on the
disclosures, or paid after consummation
and disclosed on the addendum. Thus,
if the fees are collected at or before
consummation and are disclosed as
‘‘Services Borrower Did Not Shop For,’’
they would be subject to the same
tolerance as other amounts under that
heading. However, when such fees are
to be collected after consummation and
disclosed on an addendum based on the
best information reasonably available, if
a disclosure becomes inaccurate because
of an event that occurs after the creditor
delivers the required disclosures, the
inaccuracy is not a violation, as
provided by § 1026.17(e).
To provide an example of how the
tolerance requirements would apply, in
a case where a creditor does not permit
the consumer to shop for the
construction inspection service
provider, the inspection and handling
fees would be in the ‘‘zero tolerance’’
category under section § 1026.19(e)(3)(i).
If, at the time a Loan Estimate must be
provided, the creditor has only a general
sense of the scope and site of the
construction (as is often the case), the
creditor may disclose a total amount of
inspection and handling fees based on
the total amount of fees the creditor has
previously charged in construction
transactions the creditor believes to be
similar to the present transaction. The
creditor may also disclose a total
amount of fees based on the estimate the
creditor uses in setting the construction
transaction’s commitment amount. In
either case, the creditor will likely
consider the estimated number of
inspections that will be required and the
estimated cost of each inspection to
arrive at a total, thus using the best
information reasonably available. If after
the Loan Estimate is provided the
creditor discovers, for example, that the
construction site has features that will
require additional work and therefore
additional and more complex
inspections, the best information
reasonably available to the creditor at
that time is that the total inspection and
handling fees will be greater than
initially estimated. In such a case the
creditor may issue a revised Loan
Estimate pursuant to § 1026.19(e)(3)(iv)
to reset the tolerance for the inspection
and handling fees.
Further, if after consummation
additional topographical features are
discovered or weather-related events
occur that result in additional or more
costly inspections, consistent with
§ 1026.17(e) there is not a violation
when a disclosure becomes inaccurate
because of an event that occurs after the
creditor delivers the required
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disclosures. The example described here
would apply both when the inspection
and handling fees are disclosed in the
loan costs table because they are
collected at or before consummation
and when such fees are disclosed in a
separate addendum because they are
collected after consummation.
Therefore, if the inspection and
handling fees are in a category of fees
that is subject to tolerances and these
fees change between the Loan Estimate
and the Closing Disclosure without the
disclosure of revised estimates that can
reset tolerances, the applicable tolerance
violation could be present. However, if
the fees change after consummation
because of subsequent events, as
described in § 1026.17(e), there would
not be a tolerance violation.
The Bureau agrees with the
commenter that noted construction loan
inspection and handling fees are Loan
Cost charges that must be added to the
Total of Payments disclosures on the
Loan Estimate and Closing Disclosure.
This clarification will be provided in
comment app. D–7.viii, which is also
being finalized in this final rule as
discussed below as comment app D–
7.vii. Although commenters assumed,
correctly, that draw fees are included as
inspection and handling fees, the
Bureau is specifically including draw
fees in comment 37(f)–3 for greater
clarity.
37(f)(6) Use of Addenda
The Bureau’s Proposal
The Bureau proposed 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 explained 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 also cross-referenced comment
19(e)(1)(i)–1 and explained 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
best information reasonably available.
To provide additional clarity, proposed
comment 37(f)(6)–3 also included an
example of the best information
reasonably available standard for
purposes of disclosing postconsummation inspection and handling
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37697
fees by providing such information
could include amounts the creditor has
previously charged in similar
transactions.
Comments Received
The comments on the use of an
addendum to disclose postconsummation inspection and handling
fees collected after consummation
focused on the technical aspects of the
addendum and related software
implementation issues. Comments from
a trade association stated its members
were split on the use of an addendum
for disclosing construction loan
inspection and handling fees. The
commenter noted concerns that the use
of addenda may result in some
borrowers overlooking these fees,
although use of an addendum and
omitting the fees from the cash to close
table seemed appropriate if the creditor
permits the consumer to take advances
on the construction loan to cover these
fees. The commenter proposed that, if
the creditor does not permit advances
on the construction loan to cover these
costs, creditors should disclose the fees
and factor them into the cash to close
table on the Loan Estimate, but for the
Closing Disclosure the fees should be
disclosed on a separate addendum
because the Closing Disclosure only
permits the disclosure of borrower-paid
costs in columns labeled ‘‘At Closing’’
or ‘‘Before Closing.’’
Comments from a vendor’s group
asked for clarification of whether the
heading ‘‘Inspection and Handling Fees
Collected After Closing’’ should be
formatted pursuant to comment
37(o)(5)–5, which requires that
information disclosed on a separate
page ‘‘should be formatted similarly to
form H–24 of appendix H to this part,
so as not to affect the substance, clarity,
or meaningful sequence of the
disclosure’’ or in any style of the
creditor’s choosing, so long as the
heading meets the ‘‘clear and
conspicuous’’ standards set forth in
§ 1026.37(o)(1) and associated
commentary. The commenter noted
proposed comment 37(f)(6)–3 makes
reference to disclosing postconsummation inspection and handling
fees on ‘‘an addendum’’ and asked the
Bureau to clarify that this information
may be included in any addendum
provided in connection with the Loan
Estimate, which contains other
additional information, for example,
pursuant to § 1026.37(f)(6), or whether
this information should be disclosed in
a separate addendum. The commenter
also estimated that software
development for disclosure of postconsummation inspection and handling
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fees on a separate section of the
addendum would require significant
time to implement.
A vendor commented that disclosure
of post-consummation inspection and
handling fees on a separate section of an
addendum would require significant
software development. Another vendor
commented that it generally supports
the effort to provide clarification
regarding inspection and handling fees,
but believed that the programming
required to differentiate fees paid at,
before, and after consummation for the
disclosures would be extremely
complicated. Technology companies
would be required to reprogram their
software to provide for a new category
of closing costs, with new data points
that would need to be integrated
between the different software
companies to ensure their proper
disclosure. The commenter believed a
better alternative would be to allow
creditors to disclose fees collected after
consummation using their own methods
in documentation that is separate from
the Loan Estimate and Closing
Disclosure, such as in their cover letter
to consumers or in a separate page.
The Final Rule
The Bureau is adopting comment
37(f)(6)–3 generally as proposed, but
with some modifications in response to
comments received on proposed
comments 37(f)–3 and 37(f)(6)–3.
Instead of referring to ‘‘postconsummation charges’’ as the proposed
comment did, comment 37(f)(6)–3 as
adopted is modified to emphasize that
an addendum is used only if the fees are
to be collected after consummation.
This modification is made for
consistency with comment 37(f)–3,
which refers to inspection and handling
fees collected at or before
consummation and after consummation.
This modification should also provide
greater clarity because the use of ‘‘postconsummation fees’’ may create an
impression that an addendum may be
used for inspection and handling fees
collected both at or before
consummation and after consummation
if the service that the fee covers is
provided after consummation. If
construction loan inspection and
handling fees are collected at or before
consummation, they are disclosed in the
loan costs table and are counted for
purposes of the calculating cash to close
table. Only if the fees are expected to be
collected after consummation are they
disclosed in an addendum to the Loan
Estimate and in an addendum to the
Closing Disclosure and not counted for
purposes of the calculating cash to close
table. The Bureau considers when fees
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are collected to be a clearer determinant
of when to use an addendum than if a
creditor permits the consumer to take
advances on the construction loan to
cover these fees, as suggested by a
commenter. An advance to cover these
fees may be taken at or after
consummation. If the advance is taken
at consummation, the fee is collected at
consummation and an addendum would
not be used.
Thus, if a consumer pays inspection
and handling fees in cash that is not
from loan proceeds at consummation, or
if the fees are financed at
consummation, they are considered
collected at consummation and are
disclosed in the Loan Costs table. In a
construction transaction, a fee is
financed at consummation if an advance
to cover the fee is taken at
consummation. However, if the creditor
permits the consumer to take advances
after consummation to cover
construction loan inspection and
handling fees, the fees are collected after
consummation and would be disclosed
on a Loan Estimate addendum and a
Closing Disclosure addendum. Further,
because the creditor would have
estimated the amount of inspection and
handling fees for purposes of setting the
commitment amount to allow for
sufficient funds to be available for
advances to cover inspection and
handling fees, comment 37(f)(6)–3 is
also amended to include such estimates
as an additional example of the best
information reasonably available for
inspection and handling fee disclosures.
In response to commenters that
requested additional clarification on the
form of the addendum, comment
37(f)(6)–3 is further modified to specify
that the total of construction loan
inspection and handling fees is
disclosed in an addendum, which may
be the addendum pursuant to
§ 1026.37(f)(6) or any other addendum
or additional page under § 1026.37. A
cross-reference to comment 37(o)(1)–1,
which explains the clear and
conspicuous standard, is also added.
Because comment 38(f)–2, discussed
below, includes a reference to comment
37(f)(6)–3 for information on disclosing
inspection and handling fees on the
closing disclosure, a clarifying
statement is added for consistency that
for purposes of comment 38(f)–2, the
addendum may be any addendum or
additional page under § 1026.38.
To preserve a greater degree of
consistency and clarity that such fees
are included in the transaction, the
Bureau is not adopting the suggestion
from a commenter to allow creditors to
disclose fees collected after
consummation using their own methods
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in documentation that is separate from
the Loan Estimate and Closing
Disclosure. With respect to comments
concerning the software development
and implementation times estimated for
these amendments, the Bureau refers to
the discussion in part VI, below,
regarding the final rule’s effective date
and optional compliance period.
37(g) Closing Cost Details; Other Costs
37(g)(4) Other
The Bureau’s Proposal
Section 1026.37(g)(4) requires the
disclosure of any other amounts (other
than amounts disclosed under
§ 1026.37(g)(1) through (3)) 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 proposed 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.
It was expected that 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
§ 1026.38(g)(4), would create greater
consistency between disclosures on the
Loan Estimate and Closing Disclosure
for the clear and conspicuous disclosure
of these amounts, thus facilitating
consumer understanding. The preamble
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of the proposed rule also stated the
Bureau did 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).
In proposing the revisions to
comment 37(g)(4)–4, the Bureau noted
that it had 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), but
did not because the Loan Estimate does
not have a comparable summaries of
transactions table. The Bureau noted
that disclosing these costs 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 noted that it had
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, the Bureau noted this
approach could add complexity to the
calculations required on the Closing
Disclosure.
The proposed revision of comment
37(g)(4)–4 also cross-referenced
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.
Comments Received
Comments on the proposed revision
of comment 37(g)(4)–4, while generally
supportive of the attempt to clarify the
disclosure of payoffs and construction
costs, did not generally favor the
proposed method of disclosure. Some
commenters did support the proposal or
requested that alternative methods of
disclosure be allowed to continue. A
multi-bank financial holding company
commenter stated it supported the
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proposed change, but did not explain
the basis of its support. A consumer
organization supported the proposal,
stating consumer understanding is
enhanced when these amounts appear
in corresponding tables on the Loan
Estimate and Closing Disclosure. A
compliance specialist commenter also
supported the proposed required
disclosure of the three items under
§ 1026.37(g)(4) or (h)(2)(iii) as
applicable, stating the proposal would
create a standardized disclosure
framework for all creditors, but strongly
opposed the disclosure of construction
costs on an addendum.
A nonprofit housing organization
commenter supported the proposed
disclosures but noted that the Bureau
did not directly address financed funds
placed into escrow for repairs to be
completed after closing. This
commenter recommended adoption of a
new line in the calculating cash to close
table called ‘‘Rehabilitation Escrow’’
where funds financed for home
rehabilitation can be disclosed, stating
that such disclosure will allow
consumers to see all of the funds for the
transaction in the calculating cash to
close table without inaccurately labeling
the rehabilitation funds as loan costs or
closing costs. Two state bank
association commenters and two
national industry association
commenters requested that the Bureau
permit alternative methods of disclosing
construction costs including disclosure
on the alternative form in the payoffs
and payments table, so long as the
method used discloses the costs and the
cash to close table and summaries of
transactions table balance. These
commenters stated parties should not be
required to change programming that is
reasonable and for which significant
time and expense were spent for an
alternative means of disclosure that the
commenters believed did not provide a
positive gain for consumers.
However, a majority of the comments,
including comments from financial
institutions, title insurers, state and
national industry associations, and
software vendors all opposed the
proposed required disclosure of
construction costs, payoff of existing
liens, and payoff of unsecured debt
under §§ 1026.37(g)(4) and
1026.38(g)(4).
Several commenters believed that
significant confusion would result from
the proposed revision of comment
37(g)(4)–4. A financial institution
commenter stated the proposed changes
would confuse consumers, creditors,
settlement agents, and real estate agents
who for decades have not considered
the costs covered by the proposed
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37699
comment as closing costs. The
commenter believed that disclosing
funds available to draw through
construction under ‘‘Other Costs’’
would significantly overstate a
borrower’s ‘‘Total Closing Costs,’’ which
the commenter believed to be contrary
to the overall purpose of providing clear
and conspicuous disclosure related to
costs and terms associated with a loan
transaction. A vendor commenter also
believed that the proposed method of
disclosing payoffs and holdbacks would
likely be confusing to consumers. The
commenter stated consumers expect
that the disclosures will categorize fees
and charges to obtain and close the loan
separately from the costs that are
directly or indirectly related to the
purpose of their transaction, such as
payoffs of a prior lien or unsecured
debt, or construction costs in a
construction loan.
Two trade association commenters
stated the proposal will result in making
the closing costs in many loans,
including construction loans, appear to
be enormous, causing concern and
confusion on the part of consumers. A
title insurer commenter and a vendor
commenter were concerned that many
consumers who see a large amount of
closing costs on page one of the
disclosures may be discouraged from
continuing to the more detailed and
technical information later in the
disclosures. The commenters believed
consumers may even decide not to move
forward with a refinance or debt
consolidation transaction that may be in
their best interest, because they may
believe the closing costs of the
transaction to be prohibitively
expensive.
A vendor commenter and a title
insurer commenter stated that under the
proposal the actual closing costs that a
consumer could negotiate or shop for
would be ‘‘framed’’ within a much
larger amount of total closing costs. The
commenters believed such a framing
effect may cause the actual closing costs
in the transaction to be more difficult to
discern by consumers and would likely
hinder consumers’ ability to compare
the actual closing costs between lenders
when shopping for mortgage loans.
These commenters also believed
consumers may view the actual closing
costs for which they can negotiate or
shop as less significant, because they
could represent a small percentage of
the total closing costs. A mortgage
creditor commenter pointed out that
§ 1026.37(g)(4)(iii) limits the number of
items disclosed in section H of the Loan
Estimate to five. If more than four items
need to be disclosed, their charges are
aggregated on the fifth line of section H
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of the Loan Estimate. The commenter
stated that as a result of such
aggregation, the disclosure of
construction costs, payoff of existing
liens, and payoff of unsecured debt
would often disappear into the aggregate
amount along with other charges.
A title insurer and a vendor
commented that a consumer obtaining a
mortgage loan for the purpose of
consolidating credit card debt would
likely be confused to see such credit
card debt included in the amount of
closing costs, because they would
instead consider the payoffs of credit
card debt to be a reason they are paying
closing costs. A mortgage lender
commenter stated that credit card debt
paid at closing on a purchase
transaction is distinctly different than a
‘‘charge’’ in connection with the
transaction. A group of vendors
commented that the proposed revision
can lead to confusion and
misapplication of the concept of ‘‘thirdparty services’’ by creditors. These
commenters asked if a payoff is a ‘‘thirdparty service not required by the
creditor,’’ what other types of costs
could also be considered a ‘‘third-party
service not required by the creditor’’
and subject to good faith tolerance
rather than a more restrictive tolerance?
A possible unintended outcome could
be that consumers may end up paying
more at consummation than what is
permitted. While such overpayments
may ultimately be refunded, consumers
would still be inconvenienced because
of such confusion.
Two trade association commenters, a
financial institution commenter, a title
insurer commenter, and a vendor
commenter stated that varying the
disclosure methodology between the
standard and the alternative forms
would be confusing to consumers,
especially consumers comparing loans
between creditors using the different
versions of the disclosures. These
commenters noted a creditor choosing
to use the alternative form will show
significantly lower closing costs than a
creditor that uses the standard form.
Several commenters stated that the
proposed required disclosure is not an
approach that has been tested
extensively with regard to consumers. A
title insurer commenter and a trade
association commenter noted that
consumer testing prior to issuance of the
TILA–RESPA Final Rule did not include
the payoff of the prior mortgage loan as
a closing cost. A vendor commenter
believed that consumer testing of this
proposed method of disclosure of
payoffs and holdbacks as closing costs
should be conducted before its
finalization, in light of the change it
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represents from the original design and
testing of the disclosures.
A group of vendors and an individual
vendor commented that currently, all of
their systems can support construction
costs in ‘‘Section H. Other.’’ However,
these commenters noted the payment of
construction costs is the purpose for
obtaining the loan, just as the purchase
of the real estate is the purpose of
obtaining a general purchase loan. The
commenters also noted the Bureau is
not proposing that the sale price must
be disclosed in ‘‘Section H. Other’’ even
though it is also a purpose for which
loan proceeds must be used. The
commenters asked whether consumers
would understand why the construction
costs are a closing cost but the sales
price is not. The commenters agreed if
the proposed disclosure is mandated for
all lenders, results will be consistent
when shopping, although that does not
mean that it is clear to consumers why
these disclosures are described as
closing costs.
Two trade association commenters
and a financial institution commenter
stated the proposed revision of
comment 37(g)(4)–4 can create both
software and training issues, as loans
with a seller would require entirely
different instruction than those
transactions where use of the alternate
form is allowable. These commenters
noted that creditors would be required
to input the covered costs into their
systems differently, depending on
which version of the disclosures they
were using, which will create software
and staff training difficulties.
Three trade association commenters
stated the proposed addition of a
specific required method of disclosing
construction costs would require
significant re-programming to the cash
to close, loan costs, and summary of
transactions calculations. Two of these
commenters noted that many different
software systems may be involved in the
origination of a loan and the production
of the disclosures, including loan
origination software, lender’s document
production software, title production
software, and collaborative closing
portals. The commenters pointed out
that these software systems may
program the disparate set of payoffs and
construction costs between the standard
and alternative disclosures differently.
Some systems may require coding of
such costs only as payoffs and then
automatically place the data differently
between the versions of the disclosure,
while some may require the user to code
such costs differently as payoffs or
closing costs between the different
forms. The commenters concluded the
difference in data formats may increase
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costs and frustrate the industry’s efforts
to use uniform data standards.
A financial institution commenter
disagreed with the comparability goal of
the proposed revision, which would not
have permitted 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) because the Loan
Estimate does not have a comparable
summaries of transactions table. This
commenter believed the comparability
goal should not be met at the expense
of the goal of developing clear
disclosures that help consumers
understand the credit transaction and
closing costs. A trade association
commenter also took issue with the
comparability goal of the proposal. This
commenter stated disclosure on the
summaries of transactions table is a
method that is commonly used now by
many creditors and closing agents to
disclose construction costs or payoffs
when the standard Closing Disclosure is
used and is understood by consumers
and settlements agents.
A title insurer, an asset manager, and
a group of vendors noted that the
proposal did not account for disclosure
of payoffs of other types of secured debt,
such as a loan secured by an
automobile, which should be treated
consistently with other payoffs. These
commenters recommended that the
disclosure for payoff of any existing
debt be treated consistently.
Two trade association commenters
urged excluding temporary construction
financing transactions from coverage of
the TILA–RESPA Rule, leaving only the
permanent phase of a constructionpermanent loan subject to the TILA–
RESPA integrated disclosure
requirements. These commenters noted
the exclusion of such construction
financing transactions from other
Regulation Z requirements, such as
those for high-cost mortgages and for
making ability-to-repay determinations.
Several commenters stated that
payoffs and holdbacks should not be
disclosed as closing costs under
§§ 1026.37(g)(4) and 1026.38(g)(4) and
instead suggested alternative
disclosures. A title insurer commenter,
a vendor commenter, two trade
association commenters, and three
creditor commenters recommended
these costs should be disclosed in the
‘‘Adjustments and Other Credits’’ row of
the calculating cash to close table under
§ 1026.37(h)(1)(vii) on the Loan Estimate
and under § 1026.38(i)(8) on the Closing
Disclosure, and in the summaries of
transactions table on the Closing
Disclosure under § 1026.38 (j)(1)(v). The
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commenters noted current comment
38(j)(1)(v)–1 clarifies that, ‘‘amounts
paid to any existing holders of liens on
the property in a refinance transaction’’
are disclosed in the summaries of
transactions table pursuant to
§ 1026.38(j)(1)(v). These commenters
generally stated such disclosures would
ensure that closing costs appear together
on the forms, but separate from payoffs
and construction costs, which
consumers do not think of as closing
costs. A mortgage lender commenter
stated it would seem to be more
appropriate to provide for the
availability of a version of the payoffs
and payments table for purchase
transactions in a consistent manner with
transactions that do not involve a seller.
Commenters also noted concerns with
the reference to the ‘‘bona fide cost of
construction’’ in proposed comment
37(g)(4)–4. A vendor group commenter
requested that the language be modified
to avoid any unintended consequences
of stating that construction costs and
payoffs are subject to good faith
tolerance, subject to only whether the
costs are bona fide or not. As an
alternative, the commenter requested an
explanation of how these costs are still
subject to good faith tolerance as long as
they are bona fide. An asset manager
commenter stated the purpose behind
the introduction of the ‘‘bona fide’’
requirement was not clear, and urged
the Bureau to omit it from the final rule
as it introduces confusion and
uncertainty into the process.
The Final Rule
In response to the comments received,
the Bureau is not adopting the revision
of comment 37(g)(4)–4 as proposed.
Instead of requiring disclosure under
§ 1026.37(g)(4) of construction costs in
connection with the transaction, payoff
of existing liens secured by the property
identified under § 1026.37(a)(6), and
payoff of other secured or unsecured
debt, the final rule provides for the
disclosure of such amounts under
§ 1026.38(j)(1)(v). Specifically, as
discussed below in the section-bysection analysis of § 1026.38(j)(1)(v),
comment 38(j)(1)(v)–2 as finalized
identifies these amounts as examples of
amounts that are disclosed under
§ 1026.38(j)(1)(v). The Bureau agrees
with the commenters that noted payoffs
of other types of secured debt, such as
a loan secured by an automobile or
another property, should be treated
consistently with other payoffs.
In the preamble to the proposal, the
Bureau noted that it had considered
proposing disclosure of these amounts
under § 1026.38(j)(1)(v) in the
summaries of transactions table, but had
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been concerned that disclosure of the
amounts under § 1026.38(j)(1)(v) would
interfere with the comparability
between the Loan Estimate and the
Closing Disclosure.78 However, the
Bureau has been persuaded by the
comments raising concerns about the
potential confusion that may result were
these amounts to be disclosed on the
Loan Estimate as ‘‘Other Costs’’, and has
concluded that the comparability goal
should not override considerations of
clarity. The Bureau is, therefore,
providing for the disclosure of these
amounts under § 1026.38(j)(1)(v).
In transactions subject to
§ 1026.37(h)(1)(iii)(A)(2) and (B), a
creditor factors 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 other
secured or unsecured debt into the
funds for borrower calculations under
§ 1026.37(h)(1)(v). When these amounts
are disclosed under § 1026.38(j)(1)(v) on
the Closing Disclosure, they are
included in existing debt that is factored
into the funds for borrower calculation
under § 1026.37(h)(1)(v). Comment
37(h)(1)(v)–2 explains that the total
amount of all existing debt that is used
in the funds for borrower calculation is
the sum of the 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.
This rule does not factor the
disclosure of construction costs, payoff
of existing liens, and payoff of
unsecured debt into the adjustments
and other credits calculation under
§ 1026.37(h)(1)(vii) for all transactions
as requested by some of the
commenters. The Bureau is concerned
that including these amounts in the
adjustments and other credits
calculation would result in a very high
estimated cash to close disclosure under
§ 1026.37(h)(1)(viii) because the loan
amount is not factored into the
calculation for the § 1026.37(h)(1)(vii)
disclosure. As an example, including
construction costs of $100,000 in
adjustments and other credits on a Loan
Estimate where the total closing costs
under § 1026.37(h)(1)(i) are entirely
offset by closing costs financed under
§ 1026.37(h)(1)(ii) and the disclosures
under § 1026.37(h)(1)(iii) through (vi)
are each calculated to be $0 would
result in an estimated cash to close
amount of $100,000.
However, there are circumstances
when the payoff of other secured and
78 81
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37701
unsecured debt would be included in
the adjustments and other credits
calculation under § 1026.37(h)(1)(vii)
rather than in the funds for borrower
calculation under § 1026.37(h)(1)(v).
Because transactions using the down
payment and funds for borrower
calculation under
§ 1026.37(h)(1)(iii)(A)(1) do not also use
the funds for borrower calculation
under § 1026.37(h)(1)(v), these
transactions account for payoffs of
secured or unsecured debt by including
such amounts in the adjustments and
other credits calculation under
§ 1026.37(h)(1)(vii). Comment
37(h)(1)(vii)–6 includes payoffs of
secured or unsecured debt in a purchase
transaction disclosed using the formula
under § 1026.37(h)(1)(iii)(A)(1) as an
example of amounts disclosed under
§ 1026.37(h)(1)(vii). This example is
consistent with the revision made by
this rule to § 1026.37(h)(1)(vii). Under
the revision, amounts that are required
to be paid by the consumer at closing in
a transaction subject to
§ 1026.37(h)(1)(iii)(A)(1) are included in
the § 1026.37(h)(1)(vii) calculation. A
payoff of other secured or unsecured
debt may be required to be paid in a
purchase transaction subject to
§ 1026.37(h)(1)(iii)(A)(1), which is a
transaction in which the loan amount
does not exceed sale price. In such
circumstances, the payoff amounts, such
as for a car loan, are included in the
§ 1026.37(h)(1)(vii) calculation, rather
than the § 1026.37(h)(1)(v) calculation.
The Bureau declines to exclude
construction financing transactions from
coverage as suggested by a set of
commenters. Although such
transactions are excluded from certain
Regulation Z requirements, they have
long been subject to Regulation Z
disclosure requirements as evidenced by
the history of Appendix D, which
provides special procedures that
creditors may use, at their option, to
estimate and disclose the terms of
multiple-advance construction loans. As
stated in the TILA–RESPA Final Rule
preamble, the Bureau believes that
including construction-only loans
within the scope of the integrated
disclosure requirements effectuates the
purposes of TILA under TILA section
105(a), because it would ensure
meaningful disclosure of credit terms to
consumers and facilitate compliance
with the statute.79 The ‘‘bona fide’’
language in proposed comment
37(g)(4)–4 is omitted in this final rule in
response to the commenters that noted
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it may lead to misunderstanding and
confusion.
37(g)(6) Total Closing Costs
37(g)(6)(ii)
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The Bureau’s Proposal
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,
which states that lender credits, as
identified in § 1026.37(g)(6)(ii),
represent the sum of non-specific lender
credits and specific lender credits.
However, comment 37(g)(6)(ii)–1
describes lender credits as payments
from the creditor to the consumer that
do not pay for a particular fee on the
disclosures. To correct this
inconsistency, the Bureau proposed to
revise comment 37(g)(6)(ii)–1 to
conform with the language in comment
19(e)(3)(i)–5. For the reasons discussed
below, the Bureau is adopting the
modifications to comment 37(g)(6)(ii)–1
as proposed.
Comments Received
The Bureau received comments on
this proposal from industry individuals,
a loan origination software vendor, a
financial services advocacy
organization, a large bank, a state bank
trade association, a law firm, and a
national credit union trade association.
Generally commenters supported the
proposal, and one industry commenter
recommended implementing the
proposal immediately. Some
commenters stated that the proposal
provides clearer guidance in regard to
completion of § 1026.37(g)(6)(ii) on the
Loan Estimate.
Several commenters did not oppose
the proposal but posited other options
for the Bureau to consider. An industry
commenter requested the Bureau
provide a concrete definition for
‘‘specific lender credit’’ and ‘‘general
lender credit.’’ They further suggested
that the Bureau provide an alternate
method of disclosing lender credits.
Other commenters noted that there is
consumer confusion regarding
disclosure of lender credits between the
Loan Estimate and Closing Disclosure,
due to the ‘‘Paid by Others’’ column,
which only appears on the Closing
Disclosure. An industry commenter
recommended that § 1026.37(g)(6)(ii) be
revised to allow the disclosure of lender
credits for the interest rate chosen,
separate from other lender credits.
Several commenters requested
additional guidance from the Bureau on
the tolerance implications of disclosing
lender credits, including a request for
additional guidance as to when it would
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be appropriate for a lender credit to
decrease based on a changed
circumstance or a borrower-requested
change. Many commenters requested
additional guidance for situations where
the actual cost of a service increases
from the estimate, and a creditor has
provided a lender credit covering the
entire estimated cost of a service.
Commenters requested that comments
19(e)(3)(i)–5 and –6 be amended to state
that where an actual cost decreases from
the estimated cost provided to the
consumer, a specific lender credit
attached to that cost should be
permitted to decrease with it.
The Final Rule
The Bureau is adopting the
modifications to comment 37(g)(6)(ii)–1
as proposed. In response to the
commenter question on the definition of
‘‘specific’’ lender credits and ‘‘general’’
lender credits, the Bureau references the
definition in comment 19(e)(3)(i)–5,
which states that specific lender credits
are specific payments, such as a credit,
rebate, or reimbursement, from a
creditor to the consumer to pay for a
specific fee. Non-specific lender credits
are generalized payments from the
creditor to the consumer that do not pay
for a particular fee on the disclosures
provided pursuant to § 1026.19(e)(1).
With respect to commenters who sought
alternate methods for disclosing lender
credits or who expressed concern about
the ‘‘Paid by Others’’ column, the
Bureau declines to make changes that
were not proposed and that would
require significant changes to the
disclosure forms themselves. Wholesale
changes to the manner in which costs
are displayed on the forms would
require substantial reprogramming and
the Bureau believes that, for changes of
this nature, it would be prudent to first
test them for consumer understanding.
The Bureau also declines to make
commenter-requested changes to
comments 19(e)(3)(i)–5 and –6 to state
that where an actual cost decreases from
the estimated cost provided to the
consumer, a specific lender credit
attached to that cost should be
permitted to decrease with it. In
response to such request and other
commenter requests for clarity on the
tolerance implications of lender credits
on the Loan Estimate, § 1026.19(e)(3)(iv)
already provides when a creditor may
use a revised estimate for purposes of
the § 1026.19(e)(3) good faith
determination. The section-by-section
analysis of § 1026.19(e)(3)(i) in the
TILA–RESPA Final Rule stated that,
with respect to whether a changed
circumstance or borrower-requested
change can apply to the revision of
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lender credits, the Bureau believes that
a changed circumstance or borrowerrequested change can decrease such
credits, provided that all of the
requirements of § 1026.19(e)(3)(iv) are
satisfied.80 Generally, lender credits are
determined by the terms of the legal
obligation between the creditor and
consumer. Comment 17(c)(1)–1 requires
that the disclosures reflect the terms to
which the consumer and creditor are
legally bound at the outset of the
transaction and comment 19(e)(1)(i)–1
requires disclosures based on the best
information reasonably available at the
time the disclosure is provided to the
consumer. Comment 17(c)(1)–1 also
specifies that the legal obligation
between the creditor and consumer is
determined by applicable State law or
other law. Sales contracts, government
program guidelines, or other
requirements may be the basis for the
legal obligation between the creditor
and consumer. A creditor must retain
evidence of compliance with the
requirements of § 1026.19(e), including
§ 1026.19(e)(3)(iv), consistent with the
record retention requirements in
§ 1026.25(c)(1)(i).
37(h) Calculating Cash to Close
The Bureau’s Proposal
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 optional
alternative calculating cash to close
table for transactions without a seller.
The calculating cash to close table is
designed to provide the consumer, using
a standardized calculation methodology,
with an estimate of the cash due from
or to the consumer at consummation.
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 and required that the
disclosures be based on the best
information reasonably available.81 In
doing so, the Bureau acknowledged that
the actual amount of cash to close at
consummation could differ significantly
from the amount disclosed on the Loan
Estimate, but determined, nonetheless,
that consumers would benefit from
receiving an estimate of cash due from
or to the consumer at consummation on
the Loan Estimate. Notably, the amounts
disclosed in the calculating cash to
close table are not subject to the specific
80 78
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tolerances under § 1026.19(e)(3) or
§ 1026.22(a).
The Bureau proposed amendments to
§ 1026.37(h) and its commentary to
address many questions the Bureau has
received from industry on the proper
calculation of the various amounts
disclosed on the calculating cash to
close table and the variation among
creditors in how the calculating cash to
close disclosures are determined. The
Bureau did not propose any
amendments that would require
modification of the Loan Estimate itself
but did propose amendments that
would clarify or amend calculations that
impact the amounts disclosed on the
calculating cash to close table. The
Bureau also proposed similar
amendments to § 1026.38(e) and (i),
which contain the Closing Disclosure’s
alternative and standard calculating
cash to close tables, respectively.
The Bureau sought comment on the
calculating cash to close table for the
Loan Estimate and the Closing
Disclosure generally. The Bureau
requested comments on possible
alternative methods to determine the
amounts disclosed on the calculating
cash to close table, whether the
proposed clarifications and revisions
would 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 still providing the
consumer with an estimate of the
amount due from 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
acknowledged 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
sought 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.
Comments Received
General comments on the calculating
cash to close table for the Loan Estimate
in § 1026.37(h) and for the Closing
Disclosure in § 1026.38(e) and (i) are
discussed below. Specific comments on
the proposed amendments to
§ 1026.37(h) and § 1026.38(e) and (i) are
discussed in more detail in the sectionby-section analyses related to those
specific amendments.
A variety of commenters, including
trade associations, GSEs, a software
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vendor, a software vendor group, a
mortgage company, a bank, and a
financial holding company,
acknowledged that the calculating cash
to close tables provide important
benefits to consumers and that the
proposed revisions would improve the
ability of creditors to comply with the
calculating cash to close requirements
and provide to consumers an accurate
cash to close amount. Commenters
argued that the calculating cash to close
tables enable consumers to understand
components of their cash to close
amount without the need to wade
through the detailed line items in the
summaries of transactions or the payoffs
and payments tables, and described the
calculating cash to close tables as
conducting many of the difficult
calculations behind-the-scenes so that
consumers can review the high-level
components of the calculations, which
generally mirror how they think about
the transaction. Commenters
acknowledged the cost of
reprogramming, but nonetheless
supported the proposals, stating that the
revised disclosure requirements would
facilitate creditors’ interactions with
consumers and result in more accurate
calculating cash to close disclosures.
One mortgage company, which
generally opposed the Bureau’s
proposals to make changes to the
standard calculating cash to close tables,
specifically noted that the alternative
calculating cash to close tables function
better, are less complicated, and present
less information than the standard
tables. Further, the commenter provided
that the alternative calculating cash to
close tables do not rely on mathematical
formulas that bear no relationship to
reality.
A trade association commenter stated
that secondary market investors who
purchase loans are requiring use of the
alternative tables for refinance
transactions and asked the Bureau to
clarify that the standard disclosures may
be used for refinance transactions. The
commenter explained that it would be
helpful if a single disclosure form could
be utilized for all types of transactions.
A number of commenters, including
other trade associations, mortgage
companies, and a consumer group,
stated that the standard calculating cash
to close tables are confusing and
complicated. Many commenters
specifically identified the ‘‘Closing
Costs Financed (Paid from your Loan
Amount)’’ and ‘‘Down Payment/Funds
from Borrower’’ labels and calculations
as the main areas of concern, asserting
that the mathematical formulas used to
calculate these disclosures do not reflect
how consumers understand those
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37703
amounts in the context of a residential
real estate transaction. One commenter
also identified the ‘‘Funds for
Borrower’’ disclosure as fundamentally
flawed for the same reasons.
Commenters that opposed the
proposed amendments suggested a
variety of solutions, including that the
Bureau remove the standard calculating
cash to close tables, ‘‘fix’’ the tables
completely, or leave the tables alone.
Some commenters recommended that
the Bureau remove the calculating cash
to close tables on the Loan Estimate and
Closing Disclosure, while others
recommended that the table only be
removed from the Closing Disclosure.
Commenters that recommended that the
calculating cash to close table be
removed only from the Closing
Disclosure asserted that the summaries
of transactions table plays a duplicative
role and results in a more accurate cash
to close amount, rendering the Closing
Disclosure’s calculating cash to close
table useless and a source of added
confusion for consumers.
According to some commenters,
‘‘fixing’’ the calculating cash to close
tables completely would involve a
complete overhaul of the tables. A
consumer group argued that none of the
proposed changes and clarifications will
make the table more understandable to
consumers. The commenter provided
examples of its proposed new format,
which itemizes what the borrower must
pay and what is paid by or for the
borrower, and does not include the
closing costs financed disclosure. The
closing costs financed disclosure would
instead be moved to the last page.
Another commenter recommended that
the calculating cash to close tables be
expanded to identify each formula used
and the values that are included in each
calculation.
Other commenters suggested different
solutions to ‘‘fix’’ the calculating cash to
close tables. These commenters asserted
that ‘‘fixing’’ the calculating cash to
close tables completely would involve
replacing the current formulas for the
closing costs financed, down payment/
funds from borrower, and, as requested
by one commenter, the funds for
borrower calculations, with instructions
that will allow creditors to disclose
amounts that consumers will better
understand. Creditors stated that they
are unable to explain the formulas, as
they currently exist, in a manner that is
understandable to consumers.
Some of these commenters also
suggested revisions to the label for the
closing costs financed and the down
payment/funds from borrower
disclosures to help alleviate consumer
confusion. For example, one commenter
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suggested renaming the closing costs
financed disclosure with what it viewed
as a more appropriate label, such as
‘‘Amount Resulting from § 1026.38(i)(3)
Calculation.’’ In addition, some
commenters recommended that the
Bureau relabel the down payment/funds
from borrower disclosure to eliminate
consumer confusion. One
recommendation was for the Bureau to
remove the label ‘‘Down Payment’’ on
the Loan Estimate and Closing
Disclosure so that the disclosure is
simply labeled ‘‘Funds from Borrower.’’
Alternatively, commenters suggested the
Bureau relabel the disclosure as ‘‘Funds
from Borrower’’ for a transaction that
does not involve a seller and ‘‘Funds
from Borrower (including Down
Payment)’’ or ‘‘Down Payment & Funds
from Borrower’’ for a transaction
involving a seller. The suggested labels
for transactions with sellers would
convey to the consumer that the amount
disclosed includes the down payment,
as the term is commonly understood,
but may also include other amounts.
Commenters that recommended that
the Bureau not amend the calculating
cash to close tables contended that the
proposed amendments will provide
only marginal improvements to the
tables without addressing the more
significant concerns with the closing
costs financed and down payment/
funds from borrower calculations. These
commenters argued that implementing
the proposed amendments will result in
significant costs related to
programming, operational procedures,
testing, training, developing policies,
and internal auditing.
The Final Rule
After considering the comments, the
Bureau is not in this final rule deviating
significantly from the proposed
amendments, which address many
questions the Bureau has received from
industry on the proper calculation of the
various amounts disclosed on the
calculating cash to close tables and the
variation among creditors in how the
calculating cash to close disclosures are
determined. Removing the calculating
cash to close table from the Loan
Estimate or Closing Disclosure, as
requested by some commenters, would
be a significant change from the current
disclosure requirements. The Bureau
did not propose such a departure, nor
did the Bureau receive comments on the
effect on consumers of removing the
calculating cash to close tables. The
Bureau believes, as do a number of
commenters, that the calculating cash to
close tables provide important benefits
to consumers. In addition to promoting
the informed use of credit (which is a
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purpose of TILA), the calculating cash
to close tables ensure that the features
of the transaction are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the loan product,
consistent with section 1032(a) of the
Dodd-Frank Act. The tables conduct
many of the difficult calculations
behind-the-scenes so that consumers
can review the high-level components of
the calculation. The calculating cash to
close tables contain disclosures required
by TILA section 128(a)(17), including
the amount of settlement charges
included in the loan (closing costs
financed disclosure) and the amount of
charges the borrower must pay at
closing (cash to close amount). The
Bureau believes that the amendments,
as finalized, will improve the ability of
creditors to comply with the calculating
cash to close requirements and provide
to consumers a more accurate cash to
close amount.
Similarly, making the revisions
requested by some commenters would
also be a significant change from the
current disclosure requirements. As
discussed above, some commenters
requested that the Bureau amend the
closing costs financed and down
payment/funds from borrower formulas
to more closely reflect consumers’
understanding of these disclosure items.
In response, the Bureau notes that each
of the calculating cash to close
disclosure components is designed to
work in conjunction with the other
calculating cash to close disclosures to
yield the estimated amount of cash due
from or to the borrower at closing for a
wide variety of transaction types.
Because money is fungible, in order to
create standardized disclosures that can
be utilized in a wide variety of
transaction types, the Bureau had to
create formulas that earmarked loan
funds for specific disclosures, including
the closing costs financed and down
payment/funds from borrower
disclosures. In addition, the Bureau
designed the closing costs financed
disclosure, which is a necessary
component of the standard calculating
cash to close tables, to satisfy the TILA
section 128(a)(17) statutory requirement
to disclose the amount of settlement
charges included in the loan. Removing
that disclosure from the standard
calculating cash to close tables would
result in an inaccurate disclosure of the
amount due from the consumer at
consummation, which would be
inconsistent with another statutory
requirement in TILA section 128(a)(17).
One commenter even admitted that it
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tried to develop an alternative closing
costs financed formula that would work
for all transaction types but was unable
to do so.
The Bureau recognizes that creating
revised labels for the closing costs
financed and down payment/funds from
borrower disclosures, as suggested by
some commenters, could alleviate
confusion associated with the
disclosures. Consumers would no longer
associate the amount disclosed on the
currently labeled ‘‘Closing Costs
Financed (Paid from your Loan
Amount)’’ line of the calculating cash to
close table with the amount of closing
costs they understand to be financed in
their transactions, or the amount
disclosed on the currently labeled
‘‘Down Payment/Funds from Borrower’’
line of the calculating cash to close table
with the amount of the down payment
they understand to be making in their
transactions. However, as discussed in
the proposal, the Bureau’s focus in this
rulemaking is to provide additional
clarity to facilitate compliance on an
expedited schedule. The labels on the
Loan Estimate and Closing Disclosure
forms were developed through
consumer testing processes, and it is not
feasible, on an expedited schedule, to
reengage in consumer testing to validate
revised labels. Although consumer
testing of disclosures is not necessary in
all instances, the Bureau considers that
such testing is important in this context.
The Bureau also notes that the down
payment/funds from borrower
disclosure required under
§ 1026.37(h)(1)(iii) equally emphasizes
‘‘Down Payment’’ and ‘‘Funds from
Borrower’’ in its current display of
‘‘Down Payment/Funds from Borrower.’’
Its calculation is designed to encompass
the down payment and other funds due
from the borrower using a formula that
can be applied to a variety of transaction
types, including transactions with and
without sellers.
The Bureau is not amending the
calculating cash to close tables to
include the formulas used to calculate
the individual components, as suggested
by one commenter. The tables
intentionally conduct the calculations
behind-the-scenes so that consumers
can review the high-level components of
the calculation. Consumers wishing to
see the final details of their transaction
can review the summaries of
transactions table or the payoffs and
payments table on the Closing
Disclosure, as applicable.
The Bureau is also not completely
overhauling the calculating cash to close
tables, as suggested by a consumer
group. The commenter’s proposed new
format would itemize what the borrower
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must pay and what is paid by or for the
borrower, and would not include the
closing costs financed disclosure, which
would instead be moved to the last
page. The examples ranged in length
from 11 lines (for a refinance
transaction) to 16 lines (for a purchase
transaction), and were substantially
longer than the current calculating cash
to close tables, which are four lines on
the alternative calculating cash to close
tables, seven lines on the Loan
Estimate’s standard calculating cash to
close table, and nine lines on the
Closing Disclosure’s standard
calculating cash to close table. The
Bureau believes the degree of
itemization in the calculating cash to
close tables proposed by the commenter
is unnecessary and frustrates the
benefits of the calculating cash to close
tables identified by other commenters,
including providing consumers with the
high-level components of the cash to
close calculation and enabling
consumers to understand components of
their cash to close amount without the
need to wade through the detailed line
items in the summaries of transactions
or the payoffs and payments tables.
As discussed above, a trade
association commenter asked the
Bureau to clarify that the standard
disclosures may be used for refinance
transactions. The commenter is correct
that, under the Bureau’s regulations, the
standard calculating cash to close tables
may be used for refinance transactions.
A refinance transaction may be
disclosed using the optional alternative
calculating cash to close table under
§ 1026.37(h)(2), but use of that table is
not required. However, if the creditor
previously disclosed the optional
alternative calculating cash to close
table under § 1026.37(h)(2), the
alternative calculating cash to close
table must also be disclosed under
§ 1026.38(e). At the same time,
secondary market investors may decide,
as a business practice, to impose
additional requirements, such as
requiring the use of the alternative
disclosures for refinance transactions.
The Bureau believes that finalizing
the proposed amendments, with some
revisions as discussed in the applicable
section-by-section analyses, is necessary
in order to resolve issues that have
arisen during the initial implementation
of the TILA–RESPA Rule and on which
industry has asked the Bureau for
guidance. The Bureau has been, and
remains, engaged in extensive efforts to
support industry implementation, and
finalizing proposed clarifications and
amendments related to the calculating
cash to close tables is one such effort.
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The Bureau is finalizing the proposed
amendments and additional revisions
pursuant to the Bureau’s authority
under TILA section 105(a) and DoddFrank Act section 1032(a). The Bureau
believes that finalizing the proposed
amendments and additional revisions
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).
37(h)(1) for All Transactions
The Bureau’s Proposal
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
proposed to add comment 37(h)(1)–2 to
clarify that, on the Loan Estimate for
simultaneous subordinate financing, the
sale price disclosed under
§ 1026.37(a)(7) would not be used in any
of the § 1026.37(h)(1) calculations. The
Bureau explained that omitting the sale
price from the calculating cash to close
table calculations required under
§ 1026.37(h)(1) for simultaneous
subordinate financing transactions
would result in a cash to close amount
reflecting the proceeds of the
simultaneous subordinate financing,
itself included on the first-lien Loan
Estimate in the disclosure under
§ 1026.37(h)(1)(vii).
In the proposal, with respect to the
Closing Disclosure, the Bureau would
have structured the calculating cash to
close table calculations in § 1026.38(i) to
use the sale price disclosed under
§ 1026.38(j)(1)(ii), and further would
have provided in proposed comment
38(j)(1)(ii)–1 that for simultaneous
subordinate financing transactions, the
sale price would not be disclosed under
§ 1026.38(j)(1)(ii). Thus, these proposed
amendments would have meant that for
simultaneous subordinate financing, the
sale price disclosed under
§ 1026.38(j)(1)(ii) would not be used in
any of the § 1026.38(i) calculations.
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Comments Received
A compliance professional supported
the proposal to clarify that, on the Loan
Estimate for simultaneous subordinate
financing, the sale price disclosed under
§ 1026.37(a)(7) would not be used in any
of the § 1026.37(h)(1) calculations. A
financial holding company stated that if
the sale price is removed from the
calculating cash to close table
calculations for simultaneous
subordinate financing, the calculations
do not work on the Loan Estimate or
Closing Disclosure. A title insurance
company noted that the Bureau did not
make a corresponding change to the
commentary to § 1026.38(i), so the
change appears only to affect the Loan
Estimate. A commenter explained that
revisions which clarify how
simultaneous subordinate financing is
disclosed, including treatment of the
sale price, require systems changes
which will take a full software cycle to
implement.
The Final Rule
For the reasons discussed below, the
Bureau is finalizing comment 37(h)(1)–
2 as proposed with technical and
conforming revisions. The Bureau
believes that excluding the sale price
from the calculating cash to close
calculations for simultaneous
subordinate financing purchase
transactions will result in a more
accurate disclosure of the actual
subordinate financing transaction and
reduce consumer confusion. As
discussed above, the Bureau explained
in the section-by-section analysis of
§ 1026.37(h)(1) of the proposal that
omitting the sale price from the cash to
close calculations required under
§ 1026.37(h)(1) for simultaneous
subordinate financing transactions
would result in a cash to close amount
reflecting the proceeds of the
subordinate financing, itself included
on the first-lien Loan Estimate in the
disclosure under § 1026.37(h)(1)(vii).
The Bureau notes that this statement is
no longer accurate with respect to the
final rule. As discussed in the sectionby-section analysis of § 1026.38(j)(1)(v),
the Bureau is making amendments in
the final rule to permit creditors to
reflect the proceeds of the subordinate
financing that will be applied to the
first-lien transaction in the summaries
of transactions table on the subordinate
financing Closing Disclosure. Amounts
that will be disclosed under
§ 1026.38(j)(1)(v) on the Closing
Disclosure will be factored into the Loan
Estimate in one of two ways. In
transactions subject to
§ 1026.37(h)(1)(iii)(A)(2) and (B), a
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creditor factors amounts that will be
disclosed under § 1026.38(j)(1)(v) into
the funds for borrower calculation
under § 1026.37(h)(1)(v). However, in
transactions subject to
§ 1026.37(h)(1)(iii)(A)(1), a creditor
factors amounts that will be disclosed
under § 1026.38(j)(1)(v) into the
adjustments and other credits
calculation under § 1026.37(h)(1)(vii).
The Bureau is also amending
proposed comment 37(h)(1)–2 to refer to
the sale price disclosure in
§ 1026.37(a)(7)(i) when referring to the
sale price, for greater specificity. Section
1026.37(a)(7)(ii) provides for the
disclosure of the estimated property
value, and the Bureau does not intend
to reference the estimated property
value disclosure in final comment
37(h)(1)–2.
The Bureau does not agree with an
assertion raised by one commenter that
the calculating cash to close table
calculations will not work if the sale
price is omitted from the calculations
for the simultaneous subordinate
financing Loan Estimate and Closing
Disclosure. Unless information specific
to the first-lien transaction, including
the loan amount, is accounted for in the
simultaneous subordinate financing
calculating cash to close table
calculations, inclusion of the sale price
in the subordinate financing cash to
close calculations will result in a large
cash to close amount owed by the
consumer, instead of a cash to close
amount specifically for the subordinate
financing transaction. The Bureau
believes it is less burdensome to
subordinate-lien creditors to omit the
sale price from the simultaneous
subordinate financing cash to close
calculations than to import various
elements of the first-lien transaction
into the simultaneous subordinate
financing calculating cash to close table
calculations. For greater clarity and ease
of implementation, the Bureau is
amending §§ 1026.37(h)(1)(iii) and
1026.38(i)(4)(ii) to provide that for
simultaneous subordinate financing, the
down payment/funds from borrower
amount is determined in accordance
with §§ 1026.37(h)(1)(v) and
1026.38(i)(6)(iv), respectively.
As discussed above, a title insurance
company noted that the Bureau did not
propose an amendment to the
commentary to § 1026.38(i) similar to
the amendment set forth in proposed
comment 37(h)(1)–2, which caused the
commenter to believe that the guidance
regarding sale price and simultaneous
subordinate financing only affects the
Loan Estimate. The Bureau notes,
however, that consistent with the
proposal, the Bureau is structuring the
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calculating cash to close table
calculations in § 1026.38(i) to use the
sale price disclosed under
§ 1026.38(j)(1)(ii), and further is
providing in final comment 38(j)(1)(ii)–
1 that for simultaneous subordinate
financing purchase transactions, the sale
price is not disclosed under
§ 1026.38(j)(1)(ii). These final
amendments mean that for
simultaneous subordinate financing
purchase transactions, because no sale
price is disclosed under
§ 1026.38(j)(1)(ii), no sale price would
be used in any of the § 1026.38(i)
calculations. As a result, the Bureau
does not believe that a provision
corresponding to the one in final
comment 37(h)(1)–2 is needed in the
commentary to § 1026.38(i).
Nonetheless, the Bureau is making
additional revisions to the commentary
to § 1026.38(i) to clarify that no sale
price is used in any of the § 1026.38(i)
calculations for simultaneous
subordinate financing purchase
transactions. As discussed in the
section-by-section analysis of
§ 1026.38(i)(3), the Bureau is amending
comment 38(i)(3)–1 to explain that for
some loans, such as simultaneous
subordinate financing purchase
transactions, no sale price will be
disclosed under § 1026.38(j)(1)(ii) in
accordance with final comment
38(j)(1)(ii)–1. In addition, as discussed
above and in the section-by-section
analysis of § 1026.38(i)(4), the Bureau is
revising § 1026.38(i)(4)(ii) and its
commentary to make clear that on the
simultaneous subordinate financing
Closing Disclosure, the down payment/
funds from borrower amount is
determined in accordance with the
formula in § 1026.38(i)(6)(iv).
The Bureau is providing industry
sufficient time to implement all of the
amendments related to simultaneous
subordinate financing. As discussed in
part VI below, the rule will be effective
60 days from publication in the Federal
Register, but there will be an optional
compliance period in effect until
October 1, 2018.
37(h)(1)(i) Total Closing Costs
Section 1026.37(h)(1)(i) requires a
creditor to disclose the amount of total
closing costs disclosed under
§ 1026.37(g)(6) as a positive number,
labeled ‘‘Total Closing Costs.’’ The
Bureau did not propose any
amendments to § 1026.37(h)(1)(i), but
the Bureau did propose to address
concerns regarding the required
disclosure of negative and positive
numbers elsewhere, including in
§ 1026.37(h)(1)(vii) and (2)(iii), and
§ 1026.38(e)(2)(ii) and (4)(ii). In
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addition, the Bureau received a
comment from a software vendor
requesting that the Bureau amend
§ 1026.37(h)(2)(ii), the alternative
calculating cash to close table’s
companion provision to
§ 1026.37(h)(1)(i), to account for
situations where the amount of total
closing costs disclosed under
§ 1026.37(g)(6) is a negative number,
and the Bureau is amending
§ 1026.37(h)(2)(ii) accordingly.
Therefore, the Bureau believes it is also
important to amend § 1026.37(h)(1)(i) to
account for situations where the amount
of total closing costs disclosed under
§ 1026.37(g)(6) is a negative number. As
amended, § 1026.37(h)(1)(i) requires
creditors to disclose under
§ 1026.37(h)(1)(i) the amount disclosed
under § 1026.37(g)(6), labeled ‘‘Total
Closing Costs.’’ While the Bureau notes
that it is not common for the total
closing costs disclosed under
§ 1026.37(g)(6) to be a negative number,
the Bureau concludes that it is
nonetheless necessary to amend
§ 1026.37(h)(1)(i) to address the limited
circumstances in which a negative
number is disclosed under
§ 1026.37(g)(6).
37(h)(1)(ii) Closing Costs Financed
The Bureau’s Proposal
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 proposed
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 in relation to the
closing costs financed calculation.
The Bureau proposed to revise
comment 37(h)(1)(ii)–1 to clarify that
the sale price disclosed under
§ 1026.37(a)(7) 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 would
not have been used in any calculating
cash to close table calculations on the
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Loan Estimate for a simultaneous
subordinate financing purchase
transaction. Consistent with proposed
revisions to comment 37(h)(1)(ii)–1, the
Bureau also proposed to add comment
38(i)(3)–1 to provide similar guidance
for the Closing Disclosure regarding the
sale price in relation to the closing costs
financed calculation.
In addition, the Bureau proposed to
remove the word ‘‘total’’ from the
phrase ‘‘total loan amount’’ in comment
37(h)(1)(ii)–1 because ‘‘total loan
amount’’ is a defined term under
§ 1026.32(b)(4), and the Bureau
intended only to reference the loan
amount disclosed under § 1026.37(b)(1).
The Bureau also proposed a technical
revision in comment 37(h)(1)(ii)–1 to
reference the absolute value of the
amount disclosed under
§ 1026.37(h)(1)(ii) when that amount is
negative in order for the calculation to
work properly.
Proposed comment 37(h)(1)(ii)–2
explained 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). The comment further
explained that financed closing costs,
such as mortgage insurance premiums
payable at or before consummation, do
not reduce the loan amount. The intent
of this proposed comment was to 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 under
§ 1026.37(b)(1), and the basis for the
calculating cash to close table
calculations, is the total amount the
consumer will borrow as reflected by
the face amount of the note. This
definition of loan amount under
§ 1026.37(b)(1) would not have affected
how other agencies define or use similar
terms for purposes of their own
programmatic requirements. Consistent
with proposed comment 37(h)(1)(ii)–2,
the Bureau also proposed to add
comment 38(i)(3)–2 to provide similar
guidance for the Closing Disclosure
regarding the loan amount in relation to
the closing costs financed calculation.
Comments Received
A software vendor supported the
proposed change to comment
37(h)(1)(ii)–1, while also noting that the
problem it addresses was not a
significant concern to the industry. A
software vendor and software vendor
group noted a slight inconsistency
between the language describing the
closing costs financed calculation for
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the Loan Estimate in the proposed
revisions to comment 37(h)(1)(ii)–1 and
the Closing Disclosure in proposed
comment 38(i)(3)–1, which could permit
creditors to use two different
calculations for the closing costs
financed disclosures. Specifically,
commenters identified the inclusion of
the word ‘‘may’’ in reference to the Loan
Estimate’s closing costs financed
formula in the proposed revisions to
comment 37(h)(1)(ii)–1, which would
give creditors a discretionary option to
include or exclude the sale price in the
closing costs financed disclosure on the
Loan Estimate’s calculating cash to close
table, whereas on the Closing
Disclosure, proposed comment 38(i)(3)–
1 would have required that the sale
price disclosed under § 1026.38(j)(1)(ii)
be included in the closing costs
financed calculation.
A software vendor expressed support
for the Bureau’s proposed comment
37(h)(1)(ii)–2 to clarify that financed
mortgage insurance premiums do not
reduce the loan amount used in the
calculation. A trade association
commenter did not support requiring
the loan amount disclosed in
§ 1026.37(b)(1) to be used in the closing
costs financed calculation; instead, the
commenter indicated that creditors
should be permitted to use the ‘‘base
loan amount.’’
The Final Rule
For the reasons discussed below, the
Bureau is finalizing the proposed
amendments to comments 37(h)(1)(ii)–1
and –2 with revisions. The Bureau’s use
of the phrase ‘‘may include the sale
price disclosed under § 1026.37(a)(7), if
applicable’’ in the proposed revisions to
comment 37(h)(1)(ii)–1 was intended to
address situations in which the standard
calculating cash to close table is used
for simultaneous subordinate financing,
in which no sale price would be
included, as described in proposed
comment 37(h)(1)–2. However, the
Bureau recognizes the need in final
comment 37(h)(1)(ii)–1 for greater
clarity and alignment with final
comment 38(i)(3)–1 and is revising
comment 37(h)(1)(ii)–1 accordingly. For
the reasons discussed in the section-bysection analysis of § 1026.37(h)(1), the
Bureau is also amending comment
37(h)(1)(ii)–1 to refer to the sale price
disclosure in § 1026.37(a)(7)(i) when
referring to the sale price. As revised,
final comment 37(h)(1)(ii)–1 provides,
in part, that the estimated total amount
of payments to third parties includes the
sale price disclosed under
§ 1026.37(a)(7)(i), if applicable, unless
otherwise excluded under comment
37(h)(1)–2.
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The Bureau is also amending
comment 37(h)(1)(ii)–1 to include
additional examples for consistency
with existing comment 37(g)(4)–4,
which is not being revised as proposed.
As discussed in the section-by-section
analysis of § 1026.37(g)(4), the Bureau is
not finalizing the proposal that would
have required construction costs, payoff
of existing liens, and payoff of
unsecured debt to be disclosed under
§ 1026.37(g)(4). The closing costs
financed disclosure under
§ 1026.37(h)(1)(ii) excludes payments to
third parties disclosed under
§ 1026.37(f) and (g) from the calculation.
Because amounts for construction costs,
payoff of existing liens, and payoff of
unsecured debt would be factored into
either the funds for borrower calculation
under § 1026.37(h)(1)(v) or the
adjustments and other credits
calculation under § 1026.37(h)(1)(vii),
rather than disclosed under § 1026.37(f)
or under § 1026.37(g), they will be
included in the closing costs financed
calculation as payments to third parties
not otherwise disclosed under
§ 1026.37(f) and (g).
The Bureau believes its statement in
proposed new comment 37(h)(1)(ii)–2
that the loan amount is the total amount
the consumer will borrow as reflected
by the face amount of the note is
sufficiently clear and is therefore
streamlining the comment by removing
the example. The Bureau is also making
a technical correction, but is not
otherwise amending proposed comment
37(h)(1)(ii)–2 as requested by a
commenter. The loan amount disclosed
under § 1026.37(b)(1) is an integral part
of the closing costs financed calculation,
and the calculating cash to close table
generally. Each of the calculating cash
to close disclosures is designed to work
in conjunction with the other
calculating cash to close disclosures to
yield the estimated amount of cash due
from or to the consumer at closing for
a wide variety of transaction types. The
Bureau designed the calculations so that
financed closing costs, such as mortgage
insurance premiums payable at or
before consummation, do not reduce the
loan amount. For purposes of the Loan
Estimate, the amount disclosed as the
loan amount under § 1026.37(b)(1), and
the basis for the calculating cash to
close table calculations, is the total
amount the consumer will borrow as
reflected by the face amount of the note.
The Bureau emphasizes that this
definition of loan amount under
§ 1026.37(b)(1) does not affect how other
agencies may define or use similar terms
for purposes of their own programmatic
requirements. For example, the ‘‘base
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loan amount’’ and ‘‘total loan amount,’’
as those terms are used for loans made
under programs of the Federal Housing
Administration (FHA), may not be the
same as the loan amount required to be
disclosed under § 1026.37(b)(1).
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37(h)(1)(iii) Down Payment and Other
Funds From Borrower
The Bureau’s Proposal
Section 1026.37(h)(1)(iii)(A) requires
the down payment and funds from
borrower amount in a purchase
transaction as defined in
§ 1026.37(a)(9)(i) to be disclosed as a
positive number. In these transactions,
the amount 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 any
existing loans that the consumer is
assuming or any loans subject to which
the consumer is taking title to the
property (assumed or taken subject to)
that will be disclosed on the Closing
Disclosure under § 1026.38(j)(2)(iv).
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 disclosed must
be $0. 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 proposed 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.
Proposed § 1026.37(h)(1)(iii)(A)(1)
would have specified 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 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 that
will be disclosed on the Closing
Disclosure exceed the sale price of the
property. Proposed
§ 1026.37(h)(1)(iii)(A)(2) would have
provided that 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 revised § 1026.37(h)(1)(v).
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The Bureau also proposed to make
conforming amendments to
§ 1026.37(h)(1)(iii)(B). As proposed,
§ 1026.37(h)(1)(iii)(B) would have
provided that, for all other transactions,
the estimated funds from the consumer
is also calculated in accordance with the
funds for borrower calculation in
revised § 1026.37(h)(1)(v). The Bureau
proposed to add new comment
37(h)(1)(iii)–2 to explain that the
amount disclosed under
§ 1026.37(h)(1)(iii)(A)(2) or (B) is
determined in accordance with the
funds for borrower calculation in
revised § 1026.37(h)(1)(v).
In addition, the Bureau proposed to
replace current comment 37(h)(1)(iii)–1
with a new comment. As a result of the
proposed revisions to
§ 1026.37(h)(1)(iii), current comment
37(h)(1)(iii)–1 would not have been
accurate or necessary. The Bureau
proposed to remove current comment
37(h)(1)(iii)–1 and to replace it with
guidance on the calculation set forth in
the proposed revisions to
§ 1026.37(h)(1)(iii). Proposed new
comment 37(h)(1)(iii)–1 explained the
calculation that must be followed for
accurate disclosure under
§ 1026.37(h)(1)(iii). The proposed
comment also provided guidance
regarding minimum cash investments.
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.’’
The proposed comment explained that
the minimum cash investments required
of consumers and referred to as ‘‘down
payments’’ under some loan programs
would not necessarily be reflected in the
disclosure, and disclosure of the
calculated amount would not affect
compliance or non-compliance with
such loan programs’ requirements.
Comments Received
In response to the Bureau’s general
solicitation of comment on the
calculating cash to close table, many
commenters raised concerns with the
down payment and funds from borrower
disclosure requirements. The Bureau
discusses commenters’ general concerns
in the section-by-section analysis of
§ 1026.37(h). The comments
summarized below are related to the
Bureau’s specific proposals under
§ 1026.37(h)(1)(iii) and its commentary.
A bank commenter and a compliance
professional supported the Bureau’s
proposal 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.
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The commenters stated that this change
will allow the accurate reflection of
proceeds due to the borrower at closing
and urged the Bureau to adopt the
proposal.
A secondary market participant, a
trade association, software vendors, and
a software vendor group objected to the
Bureau’s distinction between the
Bureau’s down payment disclosure
calculation and minimum cash
investments required of consumers
under some loan programs, which may
also be called ‘‘down payments’’ under
those loan programs. Two commenters
argued that creditors would be setting
up a particular definition of down
payment for §§ 1026.37 and 1026.38 that
is different from the definition of down
payment used by consumers, other
Federal agencies, and GSEs. The
commenters asserted that it is
misleading to disclose to the consumer
a down payment amount that does not
coincide with the consumer’s
understanding of what the down
payment amount should be, and
recommended that the Bureau relabel
the disclosure as ‘‘Funds from
Borrower’’ instead of ‘‘Down Payment/
Funds from Borrower.’’ Commenters
also suggested variations of dynamic
text such as ‘‘Funds from Borrower
(including Down Payment)’’ and ‘‘Down
Payment & Funds from Borrower’’ for
transactions involving a seller. One
commenter stated that the distinction
drawn by the Bureau in proposed new
comment 37(h)(1)(iii)–1 would be
extremely confusing to a consumer. The
commenter asserted that it will be
difficult for first time home buyers to
understand that the federally insured
home loan for which they are applying
requires a certain down payment, but
the federally required disclosure does
not reflect that down payment amount.
The commenter asserted that it would
also be difficult to compare a Loan
Estimate for a federally insured home
loan program with a Loan Estimate for
a conventional home loan program.
The Final Rule
For the reasons discussed below, the
Bureau is adopting, with revisions, the
proposed amendments to
§ 1026.37(h)(1)(iii) and proposed
comments 37(h)(1)(iii)–1 and –2. The
Bureau is adopting the amendment to
§ 1026.37(h)(1)(iii) as proposed with
revisions to clarify how
§ 1026.37(h)(1)(iii) applies to
simultaneous subordinate financing
purchase transactions and transactions
with improvements to be made on the
property. The Bureau is also amending
§ 1026.37(h)(1)(iii)(A)(1) and (2) to refer
to the sale price disclosure in
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§ 1026.37(a)(7)(i), specifically. The
Bureau is making similar amendments
to § 1026.38(i)(4)(ii)(A). The Bureau is
making minor technical revisions to
§ 1026.37(h)(1)(iii)(B).
As discussed in more detail in the
section-by-section analysis of
§ 1026.37(h)(1), under the proposal, in a
simultaneous subordinate financing
transaction, the sale price would have
been omitted from the calculating cash
to close table calculations, including
under § 1026.37(h)(1)(iii). As a result,
under the proposal, for simultaneous
subordinate financing, proposed
§ 1026.37(h)(1)(iii)(A)(2) would have
applied because 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) would have
exceeded the sale price of the property
disclosed under § 1026.37(a)(7). At least
one commenter on the proposal to omit
the sale price from the cash to close
calculations of simultaneous
subordinate financing transactions
suggested that it was not clear that
proposed § 1026.37(h)(1)(iii)(A)(2)
would have applied to simultaneous
subordinate financing. Therefore, the
Bureau is amending proposed
§ 1026.37(h)(1)(iii)(A)(2) to explicitly
provide that the down payment and
funds from borrower amount for
simultaneous subordinate financing is
determined in accordance with
§ 1026.37(h)(1)(iii)(A)(2). The Bureau is
making similar amendments to
§ 1026.38(i)(4)(ii)(A)(2).
The Bureau anticipates that there may
be similar uncertainty regarding which
subparagraph of § 1026.37(h)(1)(iii)(A)
applies to purchase transactions that
involve improvements to be made on
the property. Therefore, the Bureau is
also amending proposed
§ 1026.37(h)(1)(iii)(A)(2) to explicitly
provide that the down payment and
funds from borrower amount for
purchase transactions that involve
improvements to be made on the
property is determined in accordance
with § 1026.37(h)(1)(iii)(A)(2). The
Bureau is making similar amendments
to § 1026.38(i)(4)(ii)(A)(2).
The Bureau is adopting proposed
comment 37(h)(1)(iii)–1 with revisions.
As discussed above, commenters raised
concerns with the Bureau’s distinction
between the down payment disclosure
calculation and minimum cash
investments required of consumers
under some loan programs, which may
also be called ‘‘down payments’’ under
those loan programs. The commenters
recommended that the Bureau revise the
‘‘Down Payment/Funds from Borrower’’
label to remove or deemphasize the
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‘‘Down Payment’’ aspect of the label.
The Bureau is not amending
§ 1026.37(h)(1)(iii) in response to these
comments. The Bureau notes that the
disclosure required under
§ 1026.37(h)(1)(iii) equally emphasizes
‘‘Down Payment’’ and ‘‘Funds from
Borrower’’ with its current label, ‘‘Down
Payment/Funds from Borrower.’’ Its
calculation is designed to encompass
the down payment and other funds from
the borrower using a formula that can be
applied to a variety of transaction types,
including transactions with and without
sellers. The Bureau is, however,
amending proposed new comment
37(h)(1)(iii)–1 to make clear that the
disclosure required under
§ 1026.37(h)(1)(iii)(A)(1) represents both
the down payment and other funds from
the borrower and to explain that the
down payment and funds from borrower
calculation is independent of any loan
program or investor requirements.
Because the Bureau is revising
§ 1026.37(h)(1)(iii)(A)(1) and (2) to refer
to the sale price disclosure in
§ 1026.37(a)(7)(i), specifically, as
discussed above, the Bureau is also
making a conforming revision in
comment 37(h)(1)(iii)–1.
The Bureau is adopting comment
37(h)(1)(iii)–2 as proposed with several
revisions. The Bureau is revising
proposed comment 37(h)(1)(iii)–2 for
conformity with revisions made to
§ 1026.37(h)(1)(iii) discussed above and
for clarity. The Bureau also is
incorporating portions of the regulatory
text and commentary from final
§ 1026.37(h)(1)(v) into comment
37(h)(1)(iii)–2 for additional clarity
regarding the disclosure requirements
when the funds for borrower formula
under § 1026.37(h)(1)(v) is used in
accordance with
§ 1026.37(h)(1)(iii)(A)(2) and (B).
37(h)(1)(v) Funds for Borrower
The Bureau’s Proposal
Section 1026.37(h)(1)(v) provides that
the amount of down payment and funds
from the borrower disclosed under
§ 1026.37(h)(1)(iii)(B) and of funds for
the borrower 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
satisfied in the transaction, except to the
extent the satisfaction of such existing
debt is disclosed under § 1026.37(g). For
purposes of the funds for borrower
disclosure in § 1026.37(h)(1)(v) and the
down payment/funds from borrower
disclosure in § 1026.37(h)(1)(iii)(B), the
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calculation 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)(B)
as ‘‘Down Payment/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)(B) as
‘‘Down Payment/Funds from Borrower.’’
When the result is $0, $0 is disclosed as
‘‘Down Payment/Funds from Borrower’’
and ‘‘Funds for Borrower’’ under
§ 1026.37(h)(1)(iii)(B) and (v),
respectively. Current comment
37(h)(1)(v)–1 clarifies that the funds for
borrower calculation under
§ 1026.37(h)(1)(v) is used in a nonpurchase transaction to determine the
amount disclosed under
§ 1026.37(h)(1)(iii) and labeled ‘‘Down
Payment/Funds from Borrower,’’ and
that, in a purchase transaction, other
than a construction loan, the amount
disclosed under § 1026.37(h)(1)(v) and
labeled ‘‘Funds for Borrower,’’ will be
$0, in accordance with
§ 1026.37(h)(1)(v)(A).
The Bureau proposed 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 in purchase
transactions. As discussed in the
section-by-section analysis of
§ 1026.37(h)(1)(iii) above, the Bureau
proposed to amend the down payment/
funds from borrower calculation under
§ 1026.37(h)(1)(iii) to specify in
proposed § 1026.37(h)(1)(iii)(A)(2) 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
§ 1026.38(j)(2)(iv) exceeds the sale price,
the funds for borrower calculation in
§ 1026.37(h)(1)(v), as proposed to be
revised, will be used for the transaction.
The Bureau proposed conforming
revisions to § 1026.37(h)(1)(v) to reflect
the proposed changes to
§ 1026.37(h)(1)(iii)(A)(2). The Bureau
also proposed to revise comment
37(h)(1)(v)–1 to conform with proposed
revisions to § 1026.37(h)(1)(iii)(A) and
(v). The comment would have provided
that, when the down payment is
determined in accordance with
§ 1026.37(h)(1)(iii)(A)(1), $0 is disclosed
under § 1026.37(h)(1)(v) as funds for
borrower.
The Bureau also proposed to add
comment 37(h)(1)(v)–2 to provide that
the amounts disclosed under
§ 1026.37(h)(1)(iii)(A)(2) or (B), as
applicable, and § 1026.37(h)(1)(v), are
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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 further would
have clarified that the phrase ‘‘total
amount of all existing debt being
satisfied in the transaction’’ includes
amounts that will be disclosed on the
Closing Disclosure under
§ 1026.38(j)(1)(ii), (iii), and (v). The
Bureau sought comment on whether
defining the phrase ‘‘total amount of all
existing debt being satisfied in 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.’’ Consistent with proposed
revisions to § 1026.37(h)(1)(v) and
comment 37(h)(1)(v)–1, and proposed
comment 37(h)(1)(v)–2, the Bureau
proposed similar provisions for the
Closing Disclosure in § 1026.38(i)(6)(iv)
and comment 38(i)(6)(ii)–1, and
proposed comment 38(i)(6)(ii)–2.
Comments Received
A bank, a compliance professional,
and a settlement agent supported the
Bureau’s proposed amendments to
§ 1026.37(h)(1)(v). Two commenters
stated that the amendments will allow
the accurate reflection of proceeds due
to the borrower at closing and urged the
Bureau to adopt the proposal. One
commenter expressed support for the
prescriptive nature of proposed
comment 37(h)(1)(v)–2 to clarify that the
amounts included as existing debt being
satisfied in the transaction are the
amounts that will be disclosed on the
Closing Disclosure under
§ 1026.38(j)(1)(ii), (iii), and (v), but
cautioned that the proposed
amendments to the commentary of
§ 1026.37(g)(4) regarding the payoff of
amounts secured by the real property
would have unintended consequences
because under the proposal, the debt
would not be disclosed under those
paragraphs. A software vendor noted a
slight wording difference between
proposed comment 37(h)(1)(v)–2
pertaining to the Loan Estimate and
proposed amendments to comment
38(i)(6)(ii)–1 pertaining to the Closing
Disclosure. Specifically, proposed
comment 37(h)(1)(v)–2 provided that
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the total amount of all existing debt
being satisfied in the transaction
includes the 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. This commenter interpreted
the word ‘‘includes’’ to mean ‘‘includes,
but is not limited to,’’ whereas the
proposed revisions to comment
38(i)(6)(ii)–1 make clear that for the
Closing Disclosure, the total amount of
all existing debt being satisfied in the
transaction is the sum of the amounts
disclosed on the Closing Disclosure in
the summaries of transactions table
under § 1026.38(j)(1)(ii), (iii), and (v), as
applicable. The commenter requested
that the Bureau revise the comments for
better consistency and alignment.
The Final Rule
For the reasons discussed below, the
Bureau is adopting, with minor
revisions and clarifications, the
proposed amendments to
§ 1026.37(h)(1)(v) and comment
37(h)(1)(v)–1, and proposed comment
37(h)(1)(v)–2. The Bureau is adopting
the amendments to § 1026.37(h)(1)(v)
and comment 37(h)(1)(v)–1 as proposed
with minor revisions to conform to the
additional clarifications contained in
final comment 37(h)(1)(iii)–1. As
discussed in the section-by-section
analysis of § 1026.37(h)(1)(iii), the
Bureau is amending comment
37(h)(1)(iii)–1 to make clear that the
disclosure required under
§ 1026.37(h)(1)(iii) represents both the
down payment and other funds from the
borrower. The Bureau is making similar
amendments to § 1026.37(h)(1)(v) and
comment 37(h)(1)(v)–1.
As discussed above, a commenter
noted a slight wording difference
between proposed comment 37(h)(1)(v)–
2 pertaining to the Loan Estimate and
the proposed revisions to comment
38(i)(6)(ii)–1 pertaining to the Closing
Disclosure. The Bureau is revising
comment 37(h)(1)(v)–2 to replace the
word ‘‘includes’’ with the phrase ‘‘is the
sum of’’ for consistency and alignment
with final comment 38(i)(6)(ii)–1. The
Bureau is also making minor technical
revisions to comment 37(h)(1)(v)–2.
As discussed above, a commenter
cautioned that the proposed
amendments to the commentary of
§ 1026.37(g)(4) regarding the payoff of
amounts secured by the real property
would have unintended consequences
for the proposal to define existing debt
being satisfied in the transaction as the
amounts that will be disclosed on the
Closing Disclosure under
§ 1026.38(j)(1)(ii), (iii), and (v). As
discussed in the section-by-section
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analysis of § 1026.37(g)(4), the Bureau is
not finalizing the proposal that would
have required construction costs, payoff
of existing liens, and payoff of
unsecured debt to be disclosed under
§ 1026.37(g)(4).
37(h)(1)(vi) Seller Credits
The Bureau’s Proposal
Section 1026.37(h)(1)(vi) requires
creditors to disclose the amount that the
seller will pay for total loan costs as
determined by § 1026.37(f)(4) and total
other costs as determined by
§ 1026.37(g)(5), 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. Current comments
37(h)(1)(vi)–1 and –2 contain guidance
on disclosure of seller credits. The
Bureau believes that under existing
§ 1026.37, creditors have the option to
disclose specific seller credits either
under § 1026.37(f) and (g) or under
§ 1026.37(h)(1)(vi). Nonetheless, the
Bureau has received questions on this
issue. Thus, the Bureau proposed to
amend comments 37(h)(1)(vi)–1 and –2
to provide 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. For
the reasons discussed below, the Bureau
is finalizing comments 37(h)(1)(vi)–1
and –2 substantially as proposed but
with certain minor changes.
Comments Received
The Bureau received comments on
these proposed changes from industry
individuals, title companies, settlement
agents, large banks, consumer groups, a
large industry trade group, and nonbanks. Generally commenters supported
the proposal.
Some industry commenters stated that
seller credits should only be disclosed
as ‘‘lump sum’’ credits under
§ 1026.37(h)(1)(vi). Some of these
commenters expressed the view that
disclosing specific seller credits in the
same location on each Loan Estimate
creates consistency for consumers in
comparing Loan Estimates. They further
stated that requiring seller credits to be
disclosed in the same location on each
Loan Estimate under § 1026.37(h)(1)(vi)
would create less confusion for other
parties involved in the transaction,
including due diligence companies and
secondary market investors. Several
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commenters stated that the
‘‘itemization’’ of seller credits, the
disclosure of specific seller credits
within § 1026.37(f) and (g), is a
significant pain point for the secondary
market, as due diligence companies are
flagging errors in the disclosure of seller
credits, because, often a creditor may
not have received a breakdown of any
specific credits at the time the creditor
provided the disclosure. One industry
commenter stated that the disclosure of
specific seller credits within § 1026.37(f)
and (g) presents a burden on the creditor
to adjust the disclosed amounts of
affected closing costs, and masks the
true amount of these settlement costs to
the consumer. This commenter noted
that the disclosure of seller credits
within § 1026.37(f) and (g) could impact
the calculation of good faith tolerance
cures by lowering the disclosed costs of
an individual service by the amount of
the seller credit.
Some industry and consumer group
commenters, stated that the Bureau
should require creditors to disclose
specific seller credits only in the Loan
Costs and Other Costs tables under
§ 1026.37(f) and (g), respectively. They
noted that requiring a single standard
for disclosure of specific seller credits
would allow consumers to more easily
compare the Loan Estimate to the
Closing Disclosure, as specific seller
credits must be listed on the Closing
Disclosures in the Loan Costs and Other
Costs tables, under § 1026.38(i)(7), in
the seller-paid column. The consumer
group commenters further stated that
consistent placement of seller credits on
Loan Estimates would enhance
consumer understanding during the
shopping process by creating
consistency in the disclosure of these
credits.
Many industry commenters stated
that the Bureau should retain the
optionality for disclosing specific seller
credits under § 1026.37(f) and (g),
respectively, or under
§ 1026.37(h)(1)(vi). Some of these
commenters noted that the optionality
should be maintained because the
application of seller credits is governed
by contracts between buyers and sellers
and government programs, such as the
Veterans Affairs home loan program,
which may dictate whether specific
seller credits must be disclosed under
§ 1026.37(f) and (g), or under
§ 1026.37(h)(1)(vi). Commenters noted
that requiring specific seller credits to
be disclosed under § 1026.37(f) and (g)
or § 1026.37(h)(1)(vi) would necessitate
mortgage origination systems changes.
An industry commenter noted that the
Bureau should retain the optionality
because the Bureau has not done any
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consumer testing to support taking away
the optionality and that it is not clear
that consumers are currently confused
by the different approaches. Another
industry commenter stated that it
believes that mandating the manner in
which specific seller credits are
disclosed would remove the benefit of
clarity the integrated disclosures were
intended to provide. Another industry
commenter noted that optionality
should be retained to facilitate creditors’
compliance with the good faith
determination under § 1026.19(e)(3) and
relevant tolerances.
A number of industry commenters
requested additional clarification on
disclosing specific seller credits on the
Loan Estimate. One industry commenter
specifically asked for clarification on
situations where the actual cost for that
service is less than the estimate. Other
industry commenters requested
clarification about whether a loan cost
that is fully paid by a specific seller
credit may be excluded from the Loan
Costs and Other Costs tables entirely. A
group of vendor commenters requested
clarification on how flexibility in the
disclosure of specific seller credits on
the Loan Estimate affects the good faith
determination under § 1026.19(e)(3) and
the relevant tolerance for those costs.
Beyond the proposed clarification
regarding the Loan Estimate, one
industry bank commenter encouraged
the Bureau to provide flexibility in
displaying seller credits on the Closing
Disclosure.
The Final Rule
The Bureau has considered these
comments and is finalizing amendments
to comment 37(h)(1)(vi)–1 and finalizing
amendments to comment 37(h)(1)(vi)–2
substantially as proposed with certain
minor changes. The Bureau believes that
final comments 37(h)(1)(vi)–1 and –2
are consistent with existing
§ 1026.37(h)(1)(vi), under which
creditors already have the option to
disclose seller credits in the calculating
cash to close table under
§ 1026.37(h)(1)(vi) or within the
amounts disclosed for specific items in
the Loan Costs and Other Costs tables
under § 1026.37(f) and (g). In response
to commenter requests, the Bureau has
added an additional example in
comment 37(h)(1)(vi)–2 to provide
clarification on circumstances where a
seller credit covers the entire cost of a
service. Final comment 37(h)(1)(vi)–2
provides the example that, 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
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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), reflecting the
specific seller credit in the amount
disclosed for the pest inspection fee. If
the creditor knows at the time of the
delivery of the Loan Estimate that the
seller has agreed to pay the entire $100
pest inspection fee, the creditor may
either disclose the required pest
inspection fee as $100 under
§ 1026.37(f) with a $100 seller credit
disclosed under § 1026.37(h)(1)(vi) or
disclose nothing under § 1026.37(f),
reflecting that the specific seller credit
will cover the entire pest inspection fee.
The Bureau declines to implement
requests that specific seller credits be
disclosed exclusively in the calculating
cash to close table under
§ 1026.37(h)(1)(vi) or exclusively within
the specific services in the Loan Costs
and Other Costs tables under
§ 1026.37(f) and (g). Commenters
provided arguments in support of both
approaches, and many commenters
supported preserving the optionality
consistent with existing
§ 1026.37(h)(1)(vi). Since the Bureau
believes that comments 37(h)(1)(vi)–1
and –2 are consistent with existing
§ 1026.37(h)(1)(vi), additional consumer
testing is not necessary. In response to
commenter requests for clarity on the
disclosure of seller credits on the Loan
Estimate, the Bureau provides the
following discussion.
Generally, seller credits are
determined by the terms of the legal
obligation between the seller and
consumer. Since the creditor is not
setting the terms of the legal obligation
between a seller and a consumer, the
basis for the optionality in disclosure of
seller credits is defined in comment
37(h)(1)(vi)–2. Comment 19(e)(1)(i)–1
requires disclosures based on the best
information reasonably available at the
time the disclosure is provided to the
consumer.
Similar to the example provided in
final comment 37(h)(1)(vi)–2, if
consistent with the terms of the legal
obligation between the seller and
consumer, creditors may disclose the
cost, in full, on the Loan Estimate in the
Loan Costs or Other Cost tables,
pursuant to § 1026.37(f) and (g), and
disclose a seller credit pursuant to
§ 1026.37(h)(1)(vi), or creditors may just
disclose the cost less the seller credit in
the Loan Costs or Other Cost tables,
pursuant to § 1026.37(f) and (g). For
example, assume the terms of the legal
obligation between the seller and
consumer obligate the seller to provide
a credit of $200 to the consumer to go
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towards the cost of the appraisal. The
creditor may disclose the full cost of the
appraisal, $500, on the Loan Estimate,
under § 1026.37(f)(2), Services You
Cannot Shop For, and include the
specific seller credit for $200 under
§ 1026.37(h)(1)(vi). Alternatively, if
consistent with the terms of the legal
obligation, the creditor can show $300,
i.e., the amount of the appraisal fee less
the specific seller credit, on the Loan
Estimate, under § 1026.37(f)(2), Services
You Cannot Shop For, and not include
the specific seller credit pursuant to
§ 1026.37(h)(1)(vi).
In response to commenter requests for
clarification on how disclosing seller
credits on the Loan Estimate impacts the
good faith determination under
§ 1026.19(e)(3) and relevant tolerances,
the Bureau provides the following
example. Assume a seller offers to
provide a $500 credit to the consumer
to cover the anticipated cost of the
appraisal. The creditor discloses an
appraisal fee of $500, under
§ 1026.37(f)(2), Services You Cannot
Shop For, on the Loan Estimate and
includes a seller credit of $500 under
§ 1026.37(h)(1)(vi). The actual cost of
the appraisal is $750. Assume that a
review of the terms of the legal
obligation between the creditor and
consumer indicates that the consumer
has agreed to be charged for any amount
above the estimated $500 for the
appraisal. Given this set of facts, if the
creditor wants to reset the appraisal
tolerance for purposes of the good faith
determination, the creditor must issue
revised disclosures with the corrected
appraisal fee of $750, subject to the
requirements of § 1026.19(e)(3)(iv) and
(e)(4).
Assume the same example above,
except that the creditor chooses not to
disclose an appraisal fee under
§ 1026.37(f)(2), Services You Cannot
Shop For, on the Loan Estimate because
the creditor assumed it would be
covered by the $500 seller credit for the
appraisal. Under these facts, and
because the cost is in the zero tolerance
category under § 1026.19(e)(3)(i), if the
actual appraisal cost turns out to be
$750, the creditor will not be able to
reset the appraisal tolerance for
purposes of the good faith
determination under § 1026.19(e)(3),
unless the creditor can otherwise
establish a valid justification under
§ 1026.19(e)(3)(iv).
The Bureau declines to add further
commentary in response to commenters
requesting flexibility in disclosing seller
credits on the Closing Disclosure,
because, unlike the Loan Estimate, the
Closing Disclosure has a seller-paid
column.
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37(h)(1)(vii)
Credits
Adjustments and Other
The Bureau’s Proposal
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 less than the amount of credits,
which, the Bureau understands, may not
always be the case. Therefore, the
Bureau proposed to revise
§ 1026.37(h)(1)(vii) to eliminate the
requirement that the amount disclosed
be a negative number. Also, as
discussed below, the Bureau proposed
to revise comments 37(h)(1)(vii)–1, –5,
and –6.
Current 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 proposed 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 have provided 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), would be
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, would not be required to be
included in the amount disclosed under
§ 1026.37(h)(1)(vii).
Current 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
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does not specify whether this
requirement pertains to the first- or
subordinate-lien transaction. The
Bureau proposed 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. In the proposal, the Bureau
explained that the funds that are
provided to the consumer from the
proceeds of subordinate financing and
that will be applied to the first-lien
transaction would not be included in
the adjustments and other credits
calculation on the simultaneous
subordinate financing Loan Estimate.
The Bureau sought comment on
whether there are circumstances in
which local or State housing assistance
grants are applied to subordinate
financing and not to the first lien.
Current 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 proposed to
revise comment 37(h)(1)(vii)–6 to 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
revised § 1026.37(h)(1)(iii) or (v) as debt
being satisfied in the transaction.
Otherwise, such amounts would be
factored into the cash to close
calculations twice.
Comments Received
Industry commenters, including a
trade association, a mortgage company,
a compliance professional, and a
financial holding company generally
expressed support for the proposed
amendments to § 1026.37(h)(1)(vii) and
its commentary. One commenter
specifically expressed support for the
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proposal to amend § 1026.37(h)(1)(vii)
to remove the requirement that the
adjustments and other credits amount
be disclosed as a negative number, and
another stated that eliminating the
requirement to disclose amounts as
positive or negative numbers throughout
will go a long way in providing
creditors with greater flexibility to
complete the calculating cash to close
table in a manner that can be explained
to consumers and reflects the actual
anticipated amount of cash needed to
close. A credit union commenter stated
generally that there is confusion
surrounding the use of negative values
on the form, but did not provide specific
concerns. Two commenters expressed
support for the clarification in comment
37(h)(1)(vii)–1 that amounts expected to
be paid to consumers in advance of
consummation are not required to be
disclosed under § 1026.37(h)(1)(vii),
although one commenter was concerned
with the proposed clarification, noting
that at the time of disclosure, it is
typically not evident whether the
borrower will receive gift funds before
or at consummation. Two commenters
supported the proposed amendments to
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. Finally, one
commenter supported the proposed
revisions to comment 37(h)(1)(vii)–6 to
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)
only if they are not also included in the
calculation for § 1026.37(h)(1)(iii) or (v)
as existing debt being satisfied in the
transaction.
A trade association commenter stated
that in the absence of guidance on how
to disclose certain amounts, such as
loans assumed or taken subject to and
the sale price of personal property, some
creditors have been including these
amounts in the adjustments and other
credits disclosures under
§§ 1026.37(h)(1)(vii) and 1026.38(i)(8)
on the Loan Estimate and Closing
Disclosure, respectively. The
commenter stated that updating
software systems to accommodate such
proposals would require substantial
reprogramming, which has both time
and cost implications.
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The Final Rule
For the reasons discussed below, the
Bureau is finalizing proposed
amendments to § 1026.37(h)(1)(vii) and
comment 37(h)(1)(vii)–1 with revisions.
The Bureau is amending comment
37(h)(1)(vii)–4 to conform to final
comment 37(h)(1)(vi)–1. The Bureau is
finalizing amendments to comment
37(h)(1)(vii)–5 as proposed and is
finalizing amendments to comment
37(h)(1)(vii)–6 with revisions.
The Bureau is adopting the proposed
amendments to § 1026.37(h)(1)(vii) that
allow the adjustments and other credits
amount to be disclosed as a positive
number. The Bureau is further revising
§ 1026.37(h)(1)(vii) for consistency with
comment 37(g)(4)–4, for which the
proposed amendments are not being
adopted. As discussed in the section-bysection analysis of § 1026.37(g)(4), the
Bureau is not finalizing the proposal
that would have required construction
costs, payoff of existing liens, and
payoff of unsecured debt to be disclosed
under § 1026.37(g)(4). For transactions
disclosed using the calculations under
§ 1026.37(h)(1)(iii)(A)(2) and (B) and
§ 1026.37(h)(1)(v), which include
certain purchase transactions (e.g.,
‘‘cash back’’ purchase transactions,
simultaneous subordinate financing
purchase transactions, and purchase
transactions that involve improvements
to be made on the property) and nonpurchase transactions (e.g., refinance
transactions and construction-only
transactions), any construction costs
and payoffs of secured and unsecured
debt will be factored into the down
payment/funds from borrower and
funds for borrower calculations in
§ 1026.37(h)(1)(iii)(A)(2) and (B) and
§ 1026.37(h)(1)(v). For purchase
transactions disclosed using the down
payment/funds from borrower
calculation under
§ 1026.37(h)(1)(iii)(A)(1), however,
payoffs of secured and unsecured debt
will not be factored into the
§ 1026.37(h)(1)(iii)(A)(1) calculation,
which only factors in the sale price,
loan amount, and loans assumed or
taken subject to. These purchase
transactions do not use the
§ 1026.37(h)(1)(iii)(A)(2) and (B) and
§ 1026.37(h)(1)(v) calculations where
such payoffs would be factored in.
Therefore, for purchase transactions
disclosed using the calculation under
§ 1026.37(h)(1)(iii)(A)(1), payoffs of
secured and unsecured debt will be
factored into the adjustments and other
credits disclosure under
§ 1026.37(h)(1)(vii). To enable these
payoffs to be factored into the
adjustments and other credits disclosure
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37713
under § 1026.37(h)(1)(vii) for
transactions disclosed under
§ 1026.37(h)(1)(iii)(A)(1), the Bureau is
also revising § 1026.37(h)(1)(vii) for this
subset of transactions to remove the
condition that amounts that are required
to be paid by the consumer at closing
and disclosed in the adjustments and
other credits row of the calculating cash
to close table must be amounts pursuant
to a purchase and sale contract. For
additional clarity, § 1026.37(h)(1)(vii) is
also revised to specify that other
amounts that are required to be paid by
the consumer at closing in a transaction
disclosed under
§ 1026.37(h)(1)(iii)(A)(1) or pursuant to
a purchase and sale contract do not
include amounts that are disclosed
under § 1026.37(f) and (g). Final
comment 37(h)(1)(vii)–6, discussed in
more detail below, explains that
amounts included in the calculation for
§ 1026.37(h)(1)(iii)(A)(2) or (B) or
§ 1026.37(h)(1)(v) as existing debt being
satisfied in the transaction are not also
included in the adjustments and other
credits calculation under
§ 1026.37(h)(1)(vii).
Final comment 37(h)(1)(vii)–1
clarifies that amounts expected to be
paid at consummation by third parties
not otherwise associated with 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 in advance of
consummation by third parties,
including family members, not
otherwise associated with the
transaction are not required to be
disclosed under § 1026.37(h)(1)(vii). The
Bureau does not believe that additional
clarification is needed with respect to a
creditor not knowing at the time
disclosures are provided whether a
consumer will receive gift funds before
or at consummation. The Bureau notes
that current comment 19(e)(1)(i)–1
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, consistent
with § 1026.17(c)(2)(i).
The Bureau is removing the word
‘‘verbally’’ in comment 37(h)(1)(vii)–4.
In comment 37(h)(1)(vi)–1, the Bureau
proposed and finalized the removal of
the word ‘‘verbally’’ in the phrase
‘‘verbally from the consumer’’ that was
provided as an example of a way in
which the creditor may obtain
information regarding the amount of
seller credits that will be paid in the
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transaction, finding the word to be
unnecessary. For consistency, the
Bureau is removing from comment
37(h)(1)(vii)–4 the word ‘‘verbally’’ in
the example of ways in which the
creditor may obtain information
regarding items to be disclosed under
§ 1026.37(h)(1)(vii).
As discussed above, the Bureau is
finalizing the amendments to comment
37(h)(1)(vii)–6 as proposed with
revisions for clarity and conformity with
final § 1026.37(h)(1)(vii). Final comment
37(h)(1)(vii)–6 provides that
adjustments that require additional
funds from the consumer in a
transaction disclosed using the formula
under § 1026.37(h)(1)(iii)(A)(1) or
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), are
only included in the amount disclosed
under § 1026.37(h)(1)(vii) if such
amounts are not included in the
calculation under
§ 1026.37(h)(1)(iii)(A)(2) or (B) or
§ 1026.37(h)(1)(v) as debt being satisfied
in the transaction. The comment
provides additional examples of such
adjustments, including payoffs of
secured or unsecured debt in a purchase
transaction disclosed using the formula
under § 1026.37(h)(1)(iii)(A)(1) or
prorations for property taxes and
homeowner’s association dues.
The Bureau understands that creditors
have been disclosing loans assumed or
taken subject to that will be disclosed
on the Closing Disclosure under
§ 1026.38(j)(2)(iv) differently absent
definitive commentary from the Bureau.
The amendments discussed in the
section-by-section analyses of
§ 1026.37(h)(1)(iii) and (v), and
§ 1026.38(i)(4) and (6), which include
loans assumed or taken subject to that
will be disclosed on the Closing
Disclosure under § 1026.38(j)(2)(iv) in
those calculating cash to close
calculations, are intended to address the
variation among creditors in how this
amount is disclosed. As to the
commenter’s assertion that the
disclosure requirements for the sale
price of personal property were unclear,
current comment 37(g)(4)–4 provides
the sale price of personal property as an
example of an amount that would be
disclosed under § 1026.37(g)(4). The
Bureau recognizes that the industry has
taken varying approaches to disclosing
the amount of loans assumed or taken
subject to that will be disclosed on the
Closing Disclosure under
§ 1026.38(j)(2)(iv) absent definitive
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commentary from the Bureau and is
providing sufficient time for
reprogramming. As discussed in part VI
below, the rule will be effective 60 days
from publication in the Federal
Register, but there will be an optional
compliance period in effect until
October 1, 2018.
37(h)(2) Optional Alternative
Calculating Cash To Close Table for
Transactions Without a Seller or for
Simultaneous Subordinate Financing
Section 1026.37(h)(2) only permits the
use of the optional alternative
calculating cash to close table in
transactions without a seller. The
Bureau has provided informal guidance
that, in purchase transactions with
simultaneous 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 proposed 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 subordinate financing
purchase transactions if the first-lien
Closing Disclosure will record the
entirety of the seller’s transaction. The
Bureau specifically sought comment on
whether it is appropriate to limit use of
the optional alternative calculating cash
to close table for disclosure of
simultaneous subordinate financing
purchase transactions to situations in
which the first-lien Closing Disclosure
will record the entirety of the seller’s
transaction.
Commenters include a title insurance
company, software vendors, a bank, and
a state housing finance agency. Most
commenters supported the Bureau’s
proposal to allow the use of the optional
alternative calculating cash to close
table if the first-lien Closing Disclosure
will record the entirety of the seller’s
transaction. As discussed more fully in
the section-by-section analysis of
§ 1026.37(d)(2), one commenter
questioned what disclosures should be
used when the optional alternative
tables were initially used for the
simultaneous subordinate financing, but
a seller later agrees to contribute to the
costs of the subordinate financing,
making continued use of the alternative
tables impermissible under the
proposal. Another commenter noted
that the proposal could lead to variation
among creditors and a commenter stated
that the UCD may not allow the use of
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the alternative tables for any
transactions with sellers.
For the reasons discussed below, the
Bureau is finalizing the proposed
amendments to § 1026.37(h)(2) and
comment 37(h)(2)–1 with minor
technical revisions. As discussed in the
section-by-section analysis of
§ 1026.37(d)(2), the Bureau appreciates
the commenter’s question regarding
how to proceed under the proposal
when the alternative table was properly
used on the Loan Estimate, or even the
Closing Disclosure, but a subsequent
event causes the continued use of the
alternative table to be impermissible.
The Bureau is directly addressing this
concern by adding new comment
38(k)(2)(vii)–1, amending comments
38(d)(2)–1 and 38(j)–3, and amending
proposed new comments
38(t)(5)(vii)(B)–1 and –2 as discussed in
the section-by-section analysis of
§ 1026.37(d)(2).
The Bureau recognizes that allowing
the use of the optional alternative tables
for simultaneous subordinate financing
purchase transactions may cause
variability in disclosure among creditors
but concludes that consumers will not
be harmed by such optionality. In
addition, the Bureau understands that
investor requirements may be more
restrictive than the optionality provided
by the Bureau. However, the Bureau
believes flexibility is beneficial to some
creditors, and the Bureau will continue
to provide the option for creditors to use
the alternative tables for simultaneous
subordinate financing transactions with
sellers.
37(h)(2)(ii) Total Closing Costs
Section 1026.37(h)(2)(ii) requires a
creditor to disclose the amount of total
closing costs disclosed under
§ 1026.37(g)(6) as a negative number,
labeled ‘‘Total Closing Costs.’’ The
Bureau did not propose any
amendments to § 1026.37(h)(2)(ii), but
the Bureau did propose to address
concerns regarding the required
disclosure of negative and positive
numbers elsewhere, including in
§§ 1026.37(h)(1)(vii) and (2)(iii), and
1026.38(e)(2)(ii) and (4)(ii). In addition,
the Bureau received a comment from a
software vendor requesting that the
Bureau amend § 1026.37(h)(2)(ii) to
account for situations where the amount
of total closing costs disclosed under
§ 1026.37(g)(6) is a negative number.
While the Bureau notes that it is not
common for the total closing costs
disclosed under § 1026.37(g)(6) to be a
negative number, the Bureau agrees
with the commenter that an amendment
is necessary to address the limited
circumstances in which a negative
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number is disclosed under
§ 1026.37(g)(6) as total closing costs.
Therefore, the Bureau is amending
§ 1026.37(h)(2)(ii) to provide that, under
§ 1026.37(h)(2)(ii), the creditor discloses
the amount disclosed under
§ 1026.37(g)(6) as a negative number if
the amount disclosed under
§ 1026.37(g)(6) is a positive number and
as a positive number if the amount
disclosed under § 1026.37(g)(6) is a
negative number, labeled ‘‘Total Closing
Costs.’’
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37(h)(2)(iii) Payoffs and Payments
The Bureau’s Proposal
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 the 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
§ 1026.37(a)(6). The Bureau proposed to
revise § 1026.37(h)(2)(iii) to remove the
requirement to disclose as a negative
number the total of all payments to third
parties not otherwise disclosed under
§ 1026.37(f) or (g). The Bureau also
proposed to revise comment
37(h)(2)(iii)–1 for conformity with
proposed revisions to comment
37(g)(4)–4, which would have permitted
disclosure of certain payoffs under
§ 1026.37(g)(4) instead of requiring them
to be included in the payoffs and
payments disclosure under
§ 1026.37(h)(2)(iii). The proposed
revisions to comment 37(h)(2)(iii)–1
would have also added construction
costs as an example of an amount
included in the payoffs and payments
disclosure under § 1026.37(h)(2)(iii) and
explained that credits could be included
in the payoffs and payments disclosure.
Finally, the Bureau proposed to add
comment 37(h)(2)(iii)–2 to clarify that
on a first-lien Loan Estimate that uses
the optional alternative tables, the
proceeds of simultaneous subordinate
financing, if any, would be included, as
a positive number, in the total amount
disclosed under § 1026.37(h)(2)(iii). The
Bureau explained that the funds from
the subordinate financing that will be
applied to the first-lien transaction
would not have been included in the
estimated total payoffs and payments
amount on the simultaneous
subordinate financing Loan Estimate.
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Comments Received
A trade association commenter
commended the Bureau for permitting
credits to be included in the payoffs and
payments disclosure under revised
§ 1026.37(h)(2)(iii) and comment
37(h)(2)(iii)–1, but requested that the
Bureau allow industry sufficient time to
reprogram the forms accordingly.
Another trade association commenter
stated that eliminating the requirement
to disclose amounts as positive or
negative numbers throughout will go a
long way in providing creditors with
greater flexibility to complete the
calculating cash to close table in a
manner that can be explained to
consumers and reflects the actual
anticipated amount of cash needed to
close. A credit union stated generally
that there is confusion surrounding the
use of negative values on the forms, but
did not provide specific concerns. In
response to the proposed revisions to
comment 37(h)(2)(iii)–1, a title
insurance company requested that the
Bureau only permit creditors to disclose
construction costs and the payoff of
existing liens secured by the property in
the payoffs and payments table under
§ 1026.37(h)(2)(iii), instead of providing
creditors with the option of disclosing
these costs under § 1026.37(g)(4), as
proposed. A law firm expressed concern
with the inclusion of construction costs
for construction purpose loans in the
example of permissible payoffs and
payments, noting that the example
seemed to be limited to transactions
where the loan purpose is construction
in accordance with § 1026.37(a)(9)(iii)
and would not cover a refinance
transaction that has a construction loan
component. The commenter requested
that the Bureau clarify that the example
regarding construction costs in
comment 37(h)(2)(iii)–1 will apply to
any transaction with a construction loan
component in which the creditor is
otherwise permitted to use the
alternative calculating cash to close
table.
Commenters supported the Bureau’s
proposed comment 37(h)(2)(iii)–2 which
would have clarified that the proceeds
of simultaneous subordinate financing
would be required to be included, as a
positive number, in the total amount
disclosed under § 1026.37(h)(2)(iii) on
the first-lien Loan Estimate that is
disclosed using the alternative tables.
The commenters stated that the
revisions will improve the ability of
creditors to comply with the calculating
cash to close table requirements and
provide an accurate cash to close
amount to consumers, and stated that
the table provides important benefits to
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consumers. As discussed in the sectionby-section analysis of § 1026.37(d)(2),
commenters asserted that most creditors
prefer that the Loan Estimate for the
simultaneous subordinate financing
include a disclosure of the amount of
proceeds that will be applied to the
first-lien loan, and asked the Bureau to
permit this practice and clarify the
provision under which the disclosure
should be made.
The Final Rule
For the reasons discussed below, the
Bureau is adopting the amendments to
§ 1026.37(h)(2)(iii) as proposed,
adopting the proposed amendments to
comment 37(h)(2)(iii)–1 in part and with
revisions, adopting proposed comment
37(h)(2)(iii)–2 with clarifying revisions
and renumbering it as comment
37(h)(2)(iii)–2.i, and adding a new
comment 37(h)(2)(iii)–2.ii. The Bureau
appreciates commenters’ support of the
proposal to permit disclosure of a
positive number under
§ 1026.37(h)(2)(iii). This amendment to
eliminate the requirement that the total
payoffs and payments amount be
disclosed as a negative number permits
the inclusion of credits and proceeds
from simultaneous subordinate
financing in the payoffs and payments
table. Creditors are required to disclose
under final § 1026.37(h)(2)(iii) the total
amount of payoffs and payments to be
made to third parties not otherwise
disclosed under § 1026.37(f) and (g),
labeled ‘‘Total Payoffs and Payments.’’
The Bureau is adopting the proposed
amendments to comment 37(h)(2)(iii)–1
in part with revisions to the
construction lending example. As
discussed in the section-by-section
analysis of § 1026.37(g)(4), the Bureau is
not finalizing the proposal that would
have required certain costs and payoffs
to be disclosed under § 1026.37(g)(4)
unless included in the payoffs and
payments disclosure under
§ 1026.37(h)(2)(iii). Therefore, the
Bureau is not finalizing the proposed
conforming revision in comment
37(h)(2)(iii)–1, which would have
permitted creditors to disclose these
amounts under § 1026.37(g)(4) instead
of requiring creditors to include them in
the § 1026.37(h)(2)(iii) payoffs and
payments disclosure. The Bureau is
revising the construction lending
example in the proposed revisions to
comment 37(h)(2)(iii)–1 as requested by
a commenter. While the examples of
amounts incorporated into the total
payoffs and payments disclosed under
§ 1026.37(h)(2)(iii) are intended to be
informative, they are not intended to
cover the entire range of possibilities.
Nonetheless, the Bureau is taking the
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opportunity to broaden the example
regarding construction loans in the
proposed revisions to comment
37(h)(2)(iii)–1 to all loans with a
construction component in which the
creditor is otherwise permitted to use
the optional alternative calculating cash
to close table, regardless of whether the
loans have a construction purpose
under § 1026.37(a)(9)(iii). Final
comment 37(h)(2)(iii)–1 explains that
examples of the amounts incorporated
in the total amount disclosed under
§ 1026.37(h)(2)(iii) 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; construction
costs associated with the transaction
that the consumer will be obligated to
pay in any transaction in which the
creditor is otherwise permitted to use
the alternative calculating cash to close
table; and payments to other third
parties for outstanding debts of the
consumer (but not for settlement
services) as required to be paid as a
condition for the extension of credit.
The Bureau is renumbering proposed
comment 37(h)(2)(iii)–2 as comment
37(h)(2)(iii)–2.i and revising the
comment for greater clarity. Proposed
comment 37(h)(2)(iii)–2 explained that
on the Loan Estimate for a first-lien
transaction disclosed under
§ 1026.37(h)(2) that also has
simultaneous subordinate financing, the
proceeds of the subordinate financing
are included in the payoffs and payment
disclosure. In final comment
37(h)(2)(iii)–2.i, the Bureau adds the
heading ‘‘First-lien Loan Estimate,’’
provides a refinance transaction as an
example of a first-lien transaction that
could be disclosed under § 1026.37(h)(2)
and that also has simultaneous
subordinate financing, and makes
technical revisions for greater clarity.
The Bureau is adding comment
37(h)(2)(iii)–2.ii to permit creditors to
include, in the payoffs and payments
disclosure on the simultaneous
subordinate financing Loan Estimate,
the proceeds of the subordinate
financing that will be applied to the
first-lien transaction. Final comment
37(h)(2)(iii)–2.ii responds to
commenters’ questions about how to
disclose the simultaneous subordinate
financing proceeds that will be applied
to the first lien on the simultaneous
subordinate financing Loan Estimate.
The commenters asserted that most
creditors prefer that the simultaneous
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subordinate financing Loan Estimate
include a disclosure of the amount of
loan proceeds that will be applied to the
first-lien loan, and asked the Bureau to
permit this common practice. In the
proposal, the Bureau noted that the
funds that are provided to the consumer
from the proceeds of simultaneous
subordinate financing and that will be
applied to the first-lien transaction
would not be included in the total
payoffs and payments amount on the
simultaneous subordinate financing
Loan Estimate. As a result, the cash to
close amount disclosed under
§ 1026.37(h)(2)(iv) would have
represented the loan proceeds as ‘‘cash
out’’ to the borrower. The Bureau
understands from the comments that a
common industry practice may be to
include the loan proceeds from the
simultaneous subordinate financing as a
payoff on the Loan Estimate and Closing
Disclosure for the simultaneous
subordinate financing transaction,
which is inconsistent with the Bureau’s
proposal.
The Bureau believes that consumers
may benefit from allowing creditors to
continue this apparently common
practice. This practice may help
consumers better understand the
simultaneous subordinate financing
transaction and its relation to the firstlien loan. It provides a way for the
simultaneous subordinate financing
Loan Estimate to include a disclosure of
the amount of proceeds that will be
applied to the first-lien loan. Because,
under this practice, the cash to close
amount disclosed under
§ 1026.37(h)(2)(iv) would not include
the loan proceeds, the cash to close
amount may better represent to
consumers the cash, if any, they will
owe or receive from the subordinate-lien
loan that will not be applied directly to
the first-lien loan. The Bureau is making
similar amendments in commentary to
§ 1026.38(j)(1)(v) and (t)(5)(vii)(B).
As discussed in part VI below, the
Bureau is providing sufficient time for
industry to reprogram the forms to
permit credits to be disclosed. The rule
will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
37(k) Contact Information
The Bureau proposed a technical,
non-substantive, amendment to
comment 37(k)–3 to replace the current
reference to § 1026.38(k)(2) with a
reference to § 1026.37(k)(2) to correct a
typographical error. Commenters did
not provide any statements concerning
this typographical correction, other than
to request that the correction of
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typographical errors be effective as
quickly as possible and be applied
retroactively.
The Bureau is adopting the revision to
comment 37(k)–3 as proposed. Although
this revision is not retroactive, the
Bureau considers the current reference
to § 1026.38(k)(2) to be a scrivener’s
error that should be interpreted as a
reference to § 1026.37(k)(2).
37(l) Comparisons
37(l)(1) In Five Years
37(l)(1)(i)
The Bureau proposed to make a
technical, non-substantive amendment,
to comment 37(l)(1)(i)–1 to correct a
typographical error. The Bureau
proposed 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.
The Bureau received no comments on
the proposed change and is adopting as
proposed the modification to the
comment.
37(l)(3) Total Interest Percentage
The Bureau’s Proposal
Section 1026.37(l)(3) requires
creditors to disclose the total interest
percentage (TIP) and provides that the
TIP 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.82 The Bureau
proposed to amend comment 37(l)(3)–1
to clarify further that prepaid interest is
included when calculating the TIP.
Comments Received
Several industry commenters
supported the clarifications in the
proposed comment. Two industry
commenters requested that the Bureau
delete disclosure of the TIP from the
disclosures required under §§ 1026.37
and 1026.38.
Several industry commenters
requested additional clarifications
related to the TIP. Several industry
commenters requested that the Bureau
modify the proposed comment to clarify
whether the prepaid interest included in
the TIP should only include the
borrower-paid prepaid interest, or
whether all prepaid interest should be
included, regardless of which party is
paying. Two industry commenters
requested clarification on the impact of
a negative prepaid interest amount on
the calculation, namely whether the
negative balance should be used or
82 78
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whether a $0 value should be assigned
to the prepaid interest component of the
calculation. One industry commenter
indicated that the Bureau should clarify
that the TIP is considered accurate if the
finance charge is considered accurate
because the TIP is comprised solely of
a finance charge (consumer-paid
interest).
One industry commenter indicated
that there appears to be a discrepancy
between the TILA statute and
Regulation Z as to when the amount of
prepaid interest disclosed under
§ 1026.37 is accurate. The commenter
indicated that that discrepancy can
impact the accuracy of the TIP. This
commenter requested additional
clarification on this issue.
The Final Rule
The Bureau is adopting comment
37(l)(3)–1 as proposed with several
revisions. As proposed, the Bureau is
adopting final comment 37(l)(3)–1 to
provide that prepaid interest is included
when calculating the TIP. In response to
comments received, the Bureau also is
amending comment 37(l)(3)–1 to clarify
that it is the prepaid interest that the
consumer will pay which is included
when calculating the TIP. This
clarification is consistent with
§ 1026.37(l)(3), which defines the TIP as
the total amount of interest that the
consumer will pay over the life of the
loan, expressed as a percentage of the
amount of credit extended. In addition,
in response to comments received, the
Bureau also is revising comment
37(l)(3)–1 to clarify that prepaid interest
that is disclosed as a negative number
under §§ 1026.37(g)(2) or 1026.38(g)(2)
must be included as a negative value
when calculating the TIP.
As discussed above, one industry
commenter indicated that the Bureau
should clarify that the TIP is considered
accurate if the finance charge is
considered accurate because the TIP is
comprised solely of a finance charge
(consumer-paid interest). The Bureau is
not addressing this issue in the final
rule. The Bureau notes that total interest
is a component of the finance charge but
is not the same as the finance charge.
As discussed above, one industry
commenter indicated that there appears
to be a discrepancy between the TILA
statute and Regulation Z as to when the
amount of prepaid interest disclosed
under § 1026.37 is accurate. The
commenter notes TILA section 121(c),
which provides that in the case of any
consumer credit transaction a portion of
the interest on which is determined on
a per-diem basis and is to be collected
upon the consummation of such
transaction, any disclosure with respect
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to such portion of interest shall be
deemed to be accurate for purposes of
TILA 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
TILA section is implemented in
§ 1026.17(c)(2)(ii). The commenter also
notes that § 1026.19(e)(3)(iii) provides
that the prepaid interest disclosure must
be consistent with the best information
reasonably available to the creditor at
the time it is disclosed. Thus,
§ 1026.17(c)(2)(ii) provides that the
prepaid interest disclosure is accurate if
it is based on information known to the
creditor at the time the disclosure is
‘‘prepared,’’ while § 1026.19(e)(3)(iii)
provides that the prepaid interest
disclosure is accurate if it is based on
the best information reasonably
available to the creditor at the time it is
‘‘disclosed.’’ The commenter indicated
that that discrepancy can impact the
accuracy of the TIP and asked for
additional clarity on this issue.
The Bureau does not believe that
additional clarification is needed. In the
TILA–RESPA Final Rule, the Bureau
made clear that the standard for
accuracy for prepaid interest disclosures
set forth in TILA section 121(c), as
implemented by § 1026.17(c)(2)(ii), does
not apply to transactions subject to
§ 1026.19(e) and (f). Specifically,
comment 17(c)(2)(ii)–1 provides that for
purposes of transactions subject to
§ 1026.19(e) and (f), the creditor shall
disclose the actual amount of per-diem
interest that will be collected at
consummation, subject only to the
disclosure rules in § 1026.19(e) and (f).
The Bureau notes that for disclosures of
per-diem interest in the Loan Estimate,
§ 1026.19(e)(3)(iii) provides that the
prepaid interest disclosure must be
consistent with the best information
reasonably available to the creditor at
the time it is disclosed. For disclosure
of per-diem interest in the Closing
Disclosure provided at or before
consummation, comment 19(f)(1)(i)–2
provides that creditors may estimate
disclosures provided under
§ 1026.19(f)(1)(ii)(A) and (f)(2)(ii) using
the best information reasonably
available when the actual term is
unknown to the creditor at the time
disclosures are made, consistent with
§ 1026.17(c)(2)(i). See the section-bysection analysis of § 1026.19(f)(2)(iii) for
a discussion of the disclosure of perdiem interest in post-consummation
disclosures required under
§ 1026.19(f)(2)(iii).
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37(o) Form of Disclosures
37(o)(4) Rounding
The Bureau’s Proposal
Section 1026.37(o)(4)(i)(A) requires
the disclosure of rounded amounts for
the amounts 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 (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, through informal guidance,
received many inquiries regarding
rounding requirements. Based on these
inquiries the Bureau understands that
there is confusion and uncertainty
regarding the rounding requirements
under § 1026.37(o)(4). In response, the
Bureau proposed 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 under
§ 1026.37(o)(4).
The proposed revisions to
§ 1026.37(o)(4)(i)(A) would have
provided that the disclosure of the perdiem amount under § 1026.37(g)(2)(iii)
and the monthly amounts under
§ 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 would have added
clarifying language and an illustrative
example of the disclosure of per-diem
interest.
Proposed revisions to
§ 1026.37(o)(4)(ii) would have
simplified the rounding requirements
for amounts described in
§ 1026.37(o)(4)(ii). Proposed
§ 1026.37(o)(4)(ii) provides that the
percentage amounts required to be
disclosed under § 1026.37(b)(2) and (6),
(f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3)
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 proposed
§ 1026.37(o)(4)(ii) with examples.
Comments Received
A mortgage company commenter and
a software vendor commenter agreed
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with the proposed revisions that would
simplify rounding requirements. A trade
association commenter stated that the
Bureau should not revise
§ 1026.37(o)(4)(i)(A). This commenter
believes that § 1026.37(o)(4)(i)(A) and
related commentary clearly provide that
the per diem and monthly amounts are
not rounded, but the creditor must
disclose the amounts to two decimal
places and truncate partial cents. This
commenter indicated that its software is
programmed to disclose these amounts
to two decimal places, because it
believes partial cents are not disclosed.
A bank holding company commenter
stated that rounding on the Loan
Estimate in contrast to providing exact
amounts on the Closing Disclosure is
confusing to the consumer. The
commenter suggested that the Bureau
require the disclosure of exact
unrounded amounts on the Loan
Estimate and the Closing Disclosure. A
mortgage company commenter
supported the proposed revision, but
asked that the Bureau reconsider the
requirement to round certain amounts
under § 1026.37(f), (g), and (h). The
commenter noted that the disclosures
under these sections are subject to the
good faith tolerance provisions under
§ 1026.19(e)(3) and that creditors are
required to keep a separate record of the
unrounded amounts for the estimates
disclosed pursuant to § 1026.37(f), (g),
and (h). The commenter further stated
that providing unrounded numbers for
these sections would help consumers,
auditors and investors easily determine
cost increases and reduce paperwork.
Two software vendors believed that
the proposed revisions to
§ 1026.37(o)(4)(i) would require the use
of rounded numbers when calculating
certain aggregated amounts. One of
these commenters provided an example
showing the range between calculations
for per-diem interest using rounded
amounts and unrounded amounts.
A commenter representing a bank
stated that the proposed revisions to
§ 1026.37(o)(4)(ii) and comment
37(o)(4)(ii)–1 would impose significant
burden. This commenter asserted that
many in the industry would have to
invest significant resources into
reprogramming their systems for a
change that would not benefit the
consumer. The commenter asserts that
disclosing ‘‘8%’’ instead of ‘‘8.00%’’
would not increase the consumers
understanding of the disclosure, but it
would require significant effort from the
creditor to reprogram its systems.
The Final Rule
The Bureau is adopting the proposed
amendments to § 1026.37(o)(4)(i)(A) and
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(ii) and to comments 37(o)(4)(i)(A)–1
and 37(o)(4)(ii)–1 with several revisions
to § 1026.37(o)(4)(i)(A) and comment
37(o)(4)(i)(A)–1 to clarify the
requirements under these provisions.
Section 1026.37(o)(4)(i)(A) is being
revised to include the word ‘‘dollar
amounts’’ instead of ‘‘amounts’’ and to
require that the per-diem and monthly
dollar amounts not be rounded.
Comment 37(o)(4)(i)(A)–1, as proposed,
is being revised to explain that partial
cents are not disclosed for dollar
amounts and that partial cents shall be
rounded or truncated to the nearest
whole cent.
Although one commenter asserted
that § 1026.37(o)(4)(i)(A) clearly
provides that the per-diem and monthly
amounts are disclosed to two decimal
places, the Bureau notes that it received
several inquiries from industry, namely
software vendors, expressing
uncertainty regarding whether it is
permissible to disclose partial cents for
certain dollar amounts under
§ 1026.37(o)(4)(i)(A). As discussed
above, the Bureau is adding the option
to round or truncate partial cents which
would not affect the commenter’s
current method for disclosing certain
dollar amounts pursuant to
§ 1026.37(o)(4)(i)(A).
As discussed above, two commenters
asserted that the proposed revisions to
§ 1026.37(o)(4)(i) would require the use
of rounded numbers when calculating
certain aggregate amounts. The Bureau
notes that these final revisions
discussed above would not change the
method for calculating the total dollar
amounts that are required to be rounded
under § 1026.37(o)(4)(i). The
amendments in this final rule do not
change what is provided under
comment 37(o)(4)–2, which explains
that if a dollar amount that is required
to be rounded by § 1026.37(o)(4)(i) on
the Loan Estimate is a total of one or
more dollar amounts that are not
required or permitted to be rounded, the
total amount must be rounded
consistent with § 1026.37(o)(4)(i), but
such component amounts used in the
calculation must use such unrounded
numbers. As discussed above, a
commenter asserted that the proposed
revision to § 1026.37(o)(4)(ii) and
comment 37(o)(4)(ii)–1 would be
burdensome because it would require
the reprogramming and testing of
systems and that requiring the
disclosure of ‘‘8%’’ instead of ‘‘8.00%’’
would be a change that would not
provide any benefit to consumers.
Section 1026.37(o)(4)(ii) and comment
37(o)(4)(ii)–1 currently provide that
whole numbers are truncated at the
decimal point, and this particular
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provision should, therefore, not require
reprogramming. In addition, as noted
above, the Bureau believes too many
numbers on the Loan Estimate may lead
to information overload for the
consumer. Dropping trailing zeros
reduces information overload and
thereby increases a consumer’s
comprehension of the disclosures.
As explained above, two commenters
stated that rounding should not be
permitted on the Loan Estimate for
various reasons. As the Bureau
explained in the TILA–RESPA Final
Rule, consumer testing showed that it
was easier for consumers to quickly
identify and evaluate the rounded
amounts as opposed to unrounded
amounts described under
§ 1026.37(b)(6) and (7), (c)(1)(iii),
(c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h),
(i), and (l).83 Based on consumer testing,
the Bureau determined that providing a
large number of exact amounts for every
disclosure could lead to information
overload and thereby reduce the
effectiveness of the disclosures.84 The
Bureau continues to believe that
rounding certain amounts described
under § 1026.37(o)(4) is more beneficial
than the disclosure of exact amounts.85
Section 1026.38 Content of Disclosures
for Certain Mortgage Transactions
(Closing Disclosure)
The Bureau’s Proposal
Section 1026.38 sets forth the content
of the Closing Disclosure required by
§ 1026.19(f) to be provided to the
consumer. Comments 38–1 to 38–3 are
applicable generally to § 1026.38. The
Bureau proposed to add comment 38–4,
which would have provided options for
the disclosure of reductions in principal
balance (principal curtailments) to
satisfy the refund requirements of
§ 1026.19(f)(2)(v), 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. The proposal would have
provided creditors the option to disclose
principal curtailments in the other costs
table under § 1026.38(g)(4), in the
summaries of transactions table under
§ 1026.38(j)(4)(i), in the payoffs and
payments table under
§ 1026.38(t)(5)(vii)(B), or on an
additional page (addendum) under
§ 1026.38(t)(5)(ix). The principal
curtailment disclosure would have
contained a statement that the principal
83 See
78 FR 79730, 79995 (Dec. 31, 2013).
id.
85 See id.
84 See
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curtailment 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. The Bureau sought
comment on whether there would be
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. For the
reasons discussed below, the Bureau is
revising and broadening proposed
comment 38–4 to address principal
reductions (curtailments) that are and
are not paid for from closing funds, to
clarify that the disclosure of a principal
reduction is permissible regardless of
whether contractual or other legal
obligations of the creditor prevent the
creditor from refunding cash to the
consumer, and to limit where principal
reductions may be disclosed on the
Closing Disclosure.
Comments Received
The Bureau received comments on
this proposal from a variety of
commenters, including a law firm, a
mortgage company, a title insurance
company, a software vendor, a software
vendor group, a bank, a financial
holding company, a housing finance
agency, GSEs, and other industry
commenters. Commenters generally
appreciated that the Bureau proposed to
provide guidance on the disclosure of
principal curtailments, but provided
significant feedback and sought
clarification on many aspects of the
proposal.
An industry group recommended that
the Bureau use the phrase ‘‘principal
reduction’’ instead of ‘‘principal
curtailment,’’ noting that consumers
would be more familiar with the
recommended phrase. The Bureau
appreciates the suggestion to use the
phrase ‘‘principal reduction’’ instead of
‘‘principal curtailment,’’ and is revising
the commentary accordingly. As
explained in final comment 38–4, when
referring to principal reductions on the
Closing Disclosure, creditors are
permitted to use other similar phrases.
Many industry commenters requested
that the Bureau permit the use of
principal curtailments for situations
other than when a creditor is providing
a credit for a tolerance refund or to meet
loan program or investor requirements.
An industry commenter and a law firm
commenter expressed concern that
proposed comment 38–4 could be
interpreted to limit the use of principal
curtailments to only those
circumstances where contractual or
other legal obligations of the creditor
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prevent the creditor from refunding cash
to the consumer. Commenters stated
that consumers benefit more from a
principal curtailment than from a
refund in the form of cash because it
reduces the principal balance of the
loan on which a consumer is charged
interest, and pointed to the TILA–
RESPA Final Rule in which the Bureau
explicitly declined to prescribe how
refunds are made to consumers.86
In the proposal, the Bureau sought to
address the particular issue of how to
disclose a principal reduction that is
used to provide a tolerance refund, but
did not intend to propose to limit the
use of principal reductions to situations
where a creditor is providing a tolerance
refund under § 1026.19(f)(2)(v). As
noted above, the Bureau is revising and
restructuring comment 38–4 to provide
greater clarity regarding the disclosure
of principal reductions, including the
disclosure of principal reductions that
are not used to provide tolerance
refunds. Final comment 38–4 does not
contain the language identified by
commenters as potentially restricting
the use of principal reductions to only
those circumstances where contractual
or other legal obligations of the creditor
prevent the creditor from refunding cash
to the consumer.
Many commenters, including an
industry group, mortgage company, title
insurance company, and software
vendor, noted a discrepancy between
the commentary, which stated that the
principal curtailment would be
disclosed as a negative number, and the
preamble, which stated that the
principal curtailment would be marked
as ‘‘Paid Outside of Closing’’ or ‘‘P.O.C.’’
The commenters asked the Bureau to
clarify the disclosure requirements.
Because whether a principal reduction
is disclosed as a negative or positive
number and with or without the label
‘‘Paid Outside of Closing’’ or ‘‘P.O.C.’’ is
dependent upon the purpose of the
principal reduction, the Bureau is
revising comment 38–4 and
restructuring the comment according to
the purpose for which the principal
reduction is used. Final comment 38–4.i
covers situations in which a principal
reduction is not paid for with closing
funds, whereas final comment 38–4.ii
covers situations in which a principal
reduction is paid for with closing funds.
In addition, the Bureau is not
prescribing whether the principal
reduction is disclosed as a negative
number or as a positive number. The
Bureau is taking a similar approach in
86 Commenters appear to be referencing the
TILA–RESPA Final Rule at 78 FR 79730, 79883
(Dec. 31, 2013).
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other sections of this final rule to
provide for flexibility as to the
disclosure of negative and positive
numbers because the Bureau recognizes
that mandating a negative number or
mandating a positive number for a
particular disclosure may not be
suitable for all transaction types. See,
for example, the section-by-section
analyses of § 1026.37(h)(1)(i), (1)(vii),
and (2)(iii), and § 1026.38(e)(2)(ii) and
(4)(ii).
The proposal would have provided
that a principal curtailment may be
disclosed under § 1026.38(j)(4)(i), which
provides requirements for the disclosure
of costs that are not paid from closing
funds. A software vendor, industry
group, and title insurance company
requested additional clarity regarding
the disclosure of a principal curtailment
pursuant to § 1026.38(j)(4)(i).
Specifically, the commenters asked
where in the summaries of transactions
table to disclose the principal
curtailment, since § 1026.38(j)(4)(i)
contains the requirement to disclose
costs that are not paid from closing
funds but would otherwise be disclosed
pursuant to § 1026.38(j) marked with the
phrase ‘‘Paid Outside of Closing’’ or
‘‘P.O.C.,’’ but does not itself provide a
specific location for the principal
curtailment disclosure. The commenters
suggested that the appropriate location
within the summaries of transactions
table is under § 1026.38(j)(1)(v), as an
amount due from the consumer. For
principal reductions disclosed in the
summaries of transactions table, the
Bureau intended the disclosure to be
made under § 1026.38(j)(1)(v) and is
revising comment 38–4 to, among other
things, specifically reference
§ 1026.38(j)(1)(v) instead of
§ 1026.38(j)(4)(i). The Bureau will
continue to reference § 1026.38(j)(4)(i)
only for the requirement to mark costs
that are not paid from closing funds but
would otherwise be disclosed pursuant
to § 1026.38(j) with the phrase ‘‘Paid
Outside of Closing’’ or ‘‘P.O.C.’’
A title insurance company, a bank, a
financial holding company, a software
vendor, and GSEs raised concerns with
the various options for disclosing a
principal curtailment proposed by the
Bureau. One commenter supported the
flexibility that the Bureau proposed to
provide for the disclosure of principal
curtailments under § 1026.38(g)(4),
(j)(4)(i), (t)(5)(vii)(B) and (t)(5)(ix), but
cautioned that some lending programs
may not permit the disclosure of
principal curtailments on an addendum
pursuant to § 1026.38(t)(5)(ix). Some
commenters asserted that a principal
curtailment should not be disclosed as
a closing cost under § 1026.38(g)(4)
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because closing costs should only
include fees and charges that the
consumer must pay to obtain and close
the loan. Commenters also stated that
disclosing a principal curtailment as a
closing cost would limit the ability of
consumers to compare the closing costs
on the Loan Estimate to the closing costs
on the Closing Disclosure and would
cause consumer confusion. Commenters
asserted that systems are not
programmed to provide under
§ 1026.38(g)(4) the label ‘‘Paid Outside
of Closing’’ or ‘‘P.O.C.,’’ or lengthy text
statements. Another commenter
requested that the Bureau limit the
disclosure of principal curtailments to
§ 1026.38(g)(4) or (t)(5)(vii)(B), unless
there is insufficient space, at which time
disclosure under § 1026.38(t)(5)(ix)
would be permissible. One commenter
requested that the Bureau limit
disclosure of principal curtailments to
§ 1026.38(j)(4)(i) or an addendum
pursuant to § 1026.38(t)(5)(ix), while
another commenter asked the Bureau to
limit the disclosure of principal
curtailments to § 1026.38(j)(1)(v) on the
standard disclosure and to
§ 1026.38(t)(5)(vii)(B) on the alternative
disclosure. Finally, one commenter
requested that the Bureau prescribe only
one location for the disclosure of
principal curtailments on the standard
and alternative disclosures. Commenters
who requested that the Bureau limit the
disclosure options stated that a uniform
disclosure method for principal
curtailments would reduce compliance
burden for the industry, aid consumer
understanding of the transaction, and
aid the utilization of a uniform data
standard for the industry.
While the Bureau intended for the
proposal to provide the flexibility for
the disclosure of principal reductions
discussed in the Bureau staff’s informal
April 2016 webinar, the Bureau
appreciates commenters’ assertions that
a uniform disclosure method for
principal reductions would reduce
compliance burden, aid consumer
understanding, and aid the utilization of
a uniform data standard. The Bureau is
therefore revising proposed comment
38–4 to limit the disclosure of principal
reductions to § 1026.38(j)(1)(v) on the
standard Closing Disclosure and
§ 1026.38(t)(5)(vii)(B) on the alternative
Closing Disclosure. The Bureau notes,
however, that creditors are permitted to
disclose principal reductions under any
currently permissible provision prior to
the mandatory compliance date of this
provision, October 1, 2018, as discussed
in part VI, below. For an informal
summary of the permissible disclosure
options that are currently in effect and
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will remain in effect until the
mandatory compliance date of this rule,
please consult the Bureau staff’s April
2016 webinar.
Many commenters responded to the
Bureau’s request for comment on
whether there is sufficient space in the
corresponding rows on the Closing
Disclosure for creditors to provide a
statement explaining that the principal
curtailment includes a tolerance refund
for exceeding the limitations on
increases in closing costs and whether
the Bureau should prescribe a specific
statement or permit creditors discretion
in developing such statement. A title
insurance company, housing finance
agency, and financial holding company
requested that the Bureau prescribe a
specific statement for uniformity, and
two of the commenters suggested
statements that they asserted would
have fit in all proposed disclosure
locations. Other commenters requested
that the Bureau permit creditors
discretion in developing the statement
but provide an example of a permissible
statement or a model statement that
would be deemed to be in compliance
with the disclosure requirements. A
creditor opposed the requirement to
make a statement that the amount
imposed exceeds the limitations on
increases in closing costs, identifying
concerns with space limitations. The
creditor requested that if the
requirement to disclose such a
statement is finalized, the Bureau allow
creditors discretion in developing the
statement. One commenter stated that
there is a moderate amount of space for
such a statement under § 1026.38(g)(4),
limited space under § 1026.38(j)(1)(v),
and sufficient space under
§ 1026.38(t)(5)(vii)(B) and (ix). The same
commenter also requested that the
Bureau permit the disclosure of the
principal curtailment to refer the
consumer to an addendum, which
would provide the required statement
concerning the tolerance refund for
exceeding the limitations on increases
in closing costs.
While some commenters requested
that the Bureau prescribe specific
disclosure language, others appreciated
the flexibility provided in the proposal
to develop their own disclosure
language. The commenters also were not
consistent as to whether there is
sufficient space in the corresponding
rows on the Closing Disclosure for the
required disclosure, particularly when
the disclosure must convey that the
principal reduction is being provided to
offset charges that exceed the legal
limits. Because of potential space
constraints anticipated by the Bureau
and raised by some commenters, the
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Bureau is permitting creditors to
develop their own disclosure language
that contains the required elements
using any language that meets the clear
and conspicuous standard under
§ 1026.38(t)(1)(i). The revised
commentary contains examples of
disclosure statements that would meet
the requirements of comment 38–4.
A financial holding company stated
that under Texas law, the principal
curtailment disclosure requirements
could trigger cash-out stipulations
which would force creditors to provide
principal reductions instead of
providing cash refunds to borrowers.
Absent additional information, the
Bureau is unable to respond to this
comment. However, the Bureau notes
that creditors have always had the
option of using a principal reduction to
provide a tolerance refund or for other
purposes. Comment 38–4 is being added
merely to provide clarity on how to
disclose a principal reduction.
A software vendor group explained
that implementing proposed comment
38–4 will require significant
reprogramming and software changes
that will take up to nine months to
complete. As discussed in part VI,
below, the final rule will be effective 60
days from publication in the Federal
Register, but compliance will be
optional until October 1, 2018, giving
industry sufficient time to reprogram
systems.
The Final Rule
For the reasons discussed above, the
Bureau is revising and broadening
proposed comment 38–4 to address
principal reductions that are and are not
paid for from closing funds, to clarify
that the disclosure of a principal
reduction is permissible regardless of
whether contractual or other legal
obligations of the creditor prevent the
creditor from refunding cash to the
consumer, and to limit where principal
reductions may be disclosed on the
Closing Disclosure. The introductory
paragraph to final comment 38–4
provides only for the disclosure of a
principal reduction on the standard
disclosure under § 1026.38(j)(1)(v) or on
the alternative disclosure under
§ 1026.38(t)(5)(vii)(B) and contains a list
of the elements that must be provided
in the principal reduction disclosure.
Final comment 38–4.i covers situations
in which a principal reduction is not
paid from closing funds. Final comment
38–4.ii covers situations in which a
principal reduction is paid from closing
funds.
Final comment 38–4 provides that the
disclosure of a principal reduction must
include the following elements: (1) The
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amount of the principal reduction; (2)
the phrase ‘‘principal reduction’’ or a
similar phrase; (3) for a principal
reduction disclosure under
§ 1026.38(t)(5)(vii)(B) only, the name of
the payee; (4) if applicable to the
transaction, the phrase ‘‘Paid Outside of
Closing’’ or ‘‘P.O.C.’’ and the name of
the party making the payment; and (5)
if the principal reduction is used to
satisfy the requirements of
§ 1026.19(f)(2)(v), a statement that the
principal reduction is being provided to
offset charges that exceed the legal
limits.
Final comment 38–4 also provides
that if there is insufficient space under
§ 1026.38(j)(1)(v) or (t)(5)(vii)(B) for the
creditor to disclose certain elements of
the principal reduction disclosure, the
creditor may omit these elements from
the § 1026.38(j)(1)(v) or (t)(5)(vii)(B)
disclosure and provide a complete
disclosure, including these elements,
under an appropriate heading on an
addendum, in accordance with
§ 1026.38(j) and (t)(5)(ix), as applicable,
with a reference to the abbreviated
principal reduction disclosure under
§ 1026.38(j)(1)(v) or (t)(5)(vii)(B). In this
case, the elements that must be included
in the abbreviated principal reduction
disclosure under § 1026.38(j)(1)(v) or
(t)(5)(vii)(B) are the amount of the
principal reduction, the phrase
‘‘principal reduction’’ or a similar
phrase, the phrase ‘‘Paid Outside of
Closing’’ or ‘‘P.O.C.’’ if applicable, and
for the abbreviated principal reduction
disclosure under § 1026.38(t)(5)(vii)(B)
only, the name of the payee. The
elements that may be omitted from the
abbreviated principal reduction
disclosure under § 1026.38(j)(1)(v) or
(t)(5)(vii)(B) and included in the
complete principal reduction disclosure
on an addendum are, if applicable to the
transaction, the name of the party
making the payment and a statement
that the principal reduction is being
provided to offset charges that exceed
the legal limits. The revised
commentary contains examples of
principal reduction disclosures that
would meet the requirements of
comment 38–4.
38(a) General Information
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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 § 1026.38(k)(3)(iii)
(cash from or to seller) are expected to
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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
§ 1026.38(t)(5)(vii)(B) (payoffs and
payments) are expected to be paid to the
consumer or a third party. The Bureau
proposed 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 disclosed
under § 1026.38(b) is expected to be
paid to the consumer or a third party,
and to add comment 38(a)(3)(iii)–1 to
clarify that the disbursement date for
simultaneous 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. For the reasons discussed below,
the Bureau is adopting the amendments
to § 1026.38(a)(3)(iii) and new comment
38(a)(3)(iii)–1 substantially as proposed,
but is revising § 1026.38(a)(3)(iii) to
accommodate purchase transactions
where funds are disbursed to the
borrower and seller on different dates,
and revising § 1026.38(a)(3)(iii) and
comment 38(a)(3)(iii)–1 to provide
additional clarity regarding
disbursement to third parties in certain
transactions.
Commenters stated that the proposed
amendments would provide needed
clarity, but some requested additional
revisions. A trade association, software
vendor, and title insurance company
requested that the Bureau clarify that
the disbursement date in purchase
transactions is the date funds are
expected to be paid to either the
consumer or the seller, because in some
states disbursement to the consumer
and seller may occur on different dates.
A title insurance company and trade
association requested that the Bureau
clarify that in non-purchase transactions
and for simultaneous subordinate
financing transactions, the disbursement
date is the date funds are disbursed
from the settlement agent to the
consumer or third party, and not the
date funds are disbursed from the
creditor to the settlement agent.
Commenters were concerned that
settlement agents are considered to be
third parties. A software vendor noted
that in construction transactions, the
initial disbursement date may not be
known at closing and asked the Bureau
to provide additional clarity regarding
how to disclose the disbursement date
in these transactions.
After considering the comments, the
Bureau is adopting the amendments to
§ 1026.38(a)(3)(iii) and new comment
38(a)(3)(iii)–1 as proposed with
revisions. The Bureau recognizes that in
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37721
some states, funds may be disbursed to
the borrower and seller on different
dates. The Bureau is revising
§ 1026.38(a)(3)(iii) to provide that in a
purchase transaction where funds are
disbursed to the borrower and seller on
different dates, it is acceptable to
disclose either date under
§ 1026.38(a)(3)(iii). The Bureau is also
adding a cross-reference to comment
38(a)(3)(iii)–1 which contains a different
standard for simultaneous subordinate
financing transactions. Further, as it
pertains to non-purchase transactions
and simultaneous subordinate
financing, the Bureau intended in the
proposal for the disbursement date to
reflect the date that some or all of the
loan amount is paid to the consumer or
a third party, but not the date some or
all of the loan amount is paid to the
settlement agent. Because a settlement
agent is actually a third party to the
credit transaction, the Bureau is revising
§ 1026.38(a)(3)(iii) and comment
38(a)(3)(iii)–1 to clarify that in a nonpurchase or a simultaneous subordinate
financing transaction, the disbursement
date disclosure reflects the date funds
are expected to be paid to the consumer
or a third party other than a settlement
agent.
The Bureau declines to add
commentary to explain how to disclose
the disbursement date in construction
transactions where the date of the initial
disbursement is unknown to the
creditor. Under final § 1026.38(a)(3)(iii),
the disbursement date in a transaction
with a construction purpose under
§ 1026.37(a)(9)(iii) is the date that some
or all of the loan amount is paid to the
consumer or a third party other than the
settlement agent. Depending on the facts
and circumstances of the transaction,
the disbursement date may be, for
example, the date closing costs are paid
with loan proceeds or the date of the
first scheduled draw. If these dates are
not known at the time the creditor
provides the Closing Disclosure, the
Bureau concludes that comment
19(f)(1)(i)–2 provides sufficient
guidance to creditors regarding the
disclosure of unknown information.
Comment 19(f)(1)(i)–2 provides that
creditors may estimate disclosures using
the best information reasonably
available when the actual term is
unknown to the creditor at the time
disclosures are provided, consistent
with § 1026.17(c)(2)(i).
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
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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 proposed 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.
One industry commenter requested
that with respect to a transaction
involving construction where there is no
seller, the Bureau clarify that the
creditor must disclose under
§ 1026.37(a)(7)(ii) the value of the
underlying lot at the time of issuing the
Loan Estimate, irrespective of what the
projected value of the property may be
after construction is finished, because
the value of the land would be the value
of the property at the time the Loan
Estimate is given. This commenter also
asked the Bureau to clarify the
disclosure requirement on the Closing
Disclosure under § 1026.38(a)(3)(vii) for
the appraised value for a transaction
involving construction where there is no
seller. The commenter asked for
clarification on whether the creditor
must disclose only the value of the
underlying lot, or instead must disclose
the projected value of the completed
project after construction is finished
that was used to determine approval of
the credit transaction.
The Bureau is adopting proposed
comment 38(a)(3)(vii)–1 with revisions.
As discussed in more detail below, the
Bureau is adopting the proposed change
to final comment 38(a)(3)(vii)–1. Also,
in response to the comment discussed
above, the Bureau is revising comment
38(a)(3)(vii)–1 to provide an example of
how the guidance in comment
38(a)(3)(vii)–1 applies to transactions
involving construction where there is no
seller.
Current comment 38(a)(3)(vii)–1
provides that 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
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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, or if it has
performed its own estimate of the
property value by the time the
disclosure is provided to the consumer,
disclose that estimate provided that it
was the estimate the creditor used to
determine approval of the credit
transaction. Consistent with the
proposal, the Bureau is revising
comment 38(a)(3)(vii)–1 to clarify that
in circumstances where a creditor may
use an estimate of the value of the
property as discussed above, 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 its
own estimate it used for purposes of
approving the credit transaction, rather
than disclose the estimate provided by
the consumer at application.
In response to a commenter’s request
for additional clarification on how the
guidance in comment 38(a)(3)(vii)–1
applies to transactions involving
construction where there is no seller,
the Bureau is revising comment
38(a)(3)(vii)–1 to clarify that for those
transactions, the creditor must disclose
the value of the property that is used to
determine the approval of the credit
transaction, including improvements to
be made on the property if those
improvements are used to determine the
approval of the credit transaction. As
discussed above, current comment
38(a)(3)(vii)–1 provides that for
transactions where there is no seller, a
creditor must disclose under
§ 1026.38(a)(3)(vii)(B) the value of the
property the creditor used to determine
approval of the credit transaction.
Consistent with the standard that is
currently set forth in comment
38(a)(3)(vii)–1, for transactions
involving construction where there is no
seller, the value of the property
disclosed under § 1026.38(a)(3)(vii)(B)
must include the improvements to be
made on the property if those
improvements are used in determining
the approval of the credit transaction.
Thus, if a creditor includes
improvements to be made on a property
in determining the approval of a credit
transaction involving construction
where there is no seller, the creditor
must include the improvements in the
disclosure of the value of the property
on the Closing Disclosure under
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§ 1026.38(a)(3)(vii). As discussed in the
section-by-section analysis of
§ 1026.37(a)(7), final comment 37(a)(7)–
1 allows a creditor the flexibility to
include the improvements into the
estimated value of the property
disclosed on the Loan Estimate under
§ 1026.37(a)(7), which allows the
creditor the option of maintaining
consistency between the disclosure that
is given on the Loan Estimate under
§ 1026.37(a)(7) and the disclosure that
will be given on the Closing Disclosure
under § 1026.38(a)(3)(vii) by including
improvements to be made in both
disclosures. On the other hand, if a
creditor does not include improvements
to be made on the property in
determining the approval of a credit
transaction involving construction
where there is no seller, the creditor
must not include the improvements in
the disclosure of the value of the
property on the Closing Disclosure
under § 1026.38(a)(3)(vii). Final
comment 37(a)(7)–1 allows a creditor
the flexibility not to include the
improvements into the estimated value
of the property disclosed on the Loan
Estimate under § 1026.37(a)(7), which
allows the creditor the option of
maintaining consistency between the
disclosure that is given on the Loan
Estimate under § 1026.37(a)(7) and the
disclosure that will be given on the
Closing Disclosure under
§ 1026.38(a)(3)(vii) by not including
improvements to be made in both
disclosures.
38(a)(4) Transaction Information
The Bureau’s Proposal
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 proposed
to revise comment 38(a)(4)–2 to include
a simultaneous subordinate financing
purchase transaction as a transaction for
which a creditor may leave the
§ 1026.38(a)(4)(ii) disclosure blank, but
only if the first-lien Closing Disclosure
will record the entirety of the seller’s
transaction. The Bureau specifically
sought comment on whether the
consumer or seller would benefit if the
Closing Disclosure for the simultaneous
subordinate financing purchase
transaction contains the seller’s name
and address even if the first-lien Closing
Disclosure will record the entirety of the
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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, for
purposes of rescission under §§ 1026.15
and 1026.23, 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.
Proposed comment 38(a)(4)–4 would
have required that, in rescindable
transactions, pursuant to
§ 1026.38(a)(4)(i), creditors disclose the
name and mailing address of each
natural person in whose principal
dwelling a security interest is or will be
retained or acquired, labeled
‘‘Borrower,’’ 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.
Simultaneous Subordinate Financing
Comments Received
A title insurance company and a
compliance professional expressed
support for the proposal. Commenters
argued that there is no benefit to the
borrower or seller in requiring the
disclosure of the seller’s name and
address in the simultaneous subordinate
financing purchase transaction Closing
Disclosure because the first-lien Closing
Disclosure will already have the seller’s
name and address. The first-lien Closing
Disclosure will be the document to
which consumers and sellers will refer
to find this information. One commenter
also stated that because most
simultaneous subordinate financing
transactions are handled in files
separate from the first-lien transaction,
data entry on the part of creditors and
settlement agents will be reduced.
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The Final Rule
The Bureau is finalizing the proposed
amendments to comment 38(a)(4)–2.
The Bureau concludes that there is no
substantial benefit to the borrower or
seller in requiring the disclosure of the
seller’s name and address on the
simultaneous subordinate financing
purchase transaction Closing Disclosure
if the first-lien Closing Disclosure will
record the entirety of the seller’s
transaction. The Bureau also believes
that the amendments to comment
38(a)(4)–2 will reduce industry burden.
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Consumers Disclosed With the Label
‘‘Borrower’’
Comments Received
Several industry commenters
supported proposed comment 38(a)(4)–
4, which would have required that
creditors disclose, using the label
‘‘Borrower,’’ the name and mailing
address of each natural person in whose
principal dwelling a security interest is
or will be retained or acquired,
regardless of whether that person is an
obligor. Vendors and an individual
compliance professional commented
that the proposal provided helpful
guidance for determining which names
and addresses should be disclosed
under current § 1026.38(a)(4)(i). A
vendor group stated that proposed
comment 38(a)(4)–4 is consistent with
informal guidance previously provided
by the Bureau.
However, other industry commenters
opposed proposed comment 38(a)(4)–4.
Several creditors and trade associations
asserted that it is contradictory to
disclose non-obligors with the label
‘‘Borrower’’ and that doing so may
result in consumer confusion. A creditor
commented that the requirement would
probably lead to a significant decline in
the volume of rescindable transactions
involving non-obligor property owners;
current Federal regulations, including
Regulation Z, do not require disclosing
non-obligors as ‘‘Borrowers’’; and
current § 1026.37(a)(5) limits disclosure
of ‘‘Applicants’’ on the Loan Estimate to
only include the name and mailing
address of consumers applying for the
credit. A trade association and a
secondary market investor stated that
proposed comment 38(a)(4)–4 would
require substantial reprogramming of
many loan origination systems; the
investor also expressed concern that the
proposal may increase the likelihood of
disclosure errors. Industry commenters
suggested various alternatives to
disclosing non-obligors with the label
‘‘Borrower,’’ including replacing the
label ‘‘Borrower’’ on the Closing
Disclosure form with another label such
as ‘‘consumer’’; limiting the term
‘‘consumer’’ in § 1026.38(a)(4)(i) to
exclude persons who are not
contractually liable for repayment of the
debt; or using an addendum,
acknowledgement statement, or noncategorized signature line for disclosing
non-obligors who have recession rights.
An individual commenter requested
clarification regarding how to document
non-obligors’ receipt of the Closing
Disclosure. A secondary market investor
requested clarification as to which
disclosures must be provided to
consumers who have recession rights.
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The Final Rule
For the reasons discussed below, the
Bureau is not adopting comment
38(a)(4)–4 as proposed and, instead, is
revising comment 38(a)(4)–4 so that
only the name and mailing address of
persons to whom the credit is offered or
extended are disclosed pursuant to
§ 1026.38(a)(4)(i) and labeled
‘‘Borrower.’’ After considering
commenters’ concerns, the Bureau
concludes that, for purposes of
§ 1026.38(a)(4)(i), limiting the term
‘‘consumer’’ to persons to whom the
credit is offered or extended will
promote meaningful disclosure of credit
terms and informed use of credit and
will facilitate compliance. By disclosing
the name and mailing address only of
persons to whom the credit is offered or
extended pursuant to § 1026.38(a)(4)(i),
the Bureau concludes that, as finalized,
comment 38(a)(4)–4 yields a disclosure
that is more consistent with the label
‘‘Borrower’’ and presents less potential
for consumer confusion. As finalized,
comment 38(a)(4)–4 is also consistent
with current § 1026.37(a)(5), which
limits disclosure of ‘‘Applicants’’ on the
Loan Estimate to only include the name
and mailing address of consumers
applying for the credit. With respect to
a vendor group’s statement that informal
guidance previously provided by the
Bureau was consistent with proposed
comment 38(a)(4)–4, the Bureau
understands that there has been
uncertainty regarding rescindable
transactions as to whether current
§ 1026.38(a)(4)(i) requires disclosing,
with the label ‘‘Borrower,’’ 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. As
finalized in this rule, comment 38(a)(4)–
4 will provide helpful guidance for
determining which names and
addresses should be disclosed under
§ 1026.38(a)(4)(i). Comment 38(a)(4)–4
does not change the definition of
‘‘consumer’’ in § 1026.2(a)(11) nor does
it change the requirements of § 1026.23,
including disclosure delivery
requirements.
Regarding a commenter’s request for
clarification regarding how to document
non-obligors’ receipt of the Closing
Disclosure, current § 1026.38(s) permits
a creditor, at its option, to include a line
for the signatures of the consumers in
the transaction—and current
§ 1026.2(a)(11) provides that, for
purposes of rescission under §§ 1026.15
and 1026.23, the term ‘‘consumer’’ also
includes a natural person in whose
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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. If the creditor opts to
provide a line for consumers’ signatures,
current § 1026.38(s) requires that the
creditor disclose, above the signature
line, that consumers do not have to
accept the loan because they signed or
received the form. With respect to the
comment requesting clarification as to
which disclosures must be provided to
consumers who have recession rights,
guidance for closed-end credit can be
found in current § 1026.23 and its
associated commentary.
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
38(d) Costs at Closing
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38(d)(2) Alternative Table for
Transactions Without a Seller or for
Simultaneous Subordinate Financing
The Bureau’s Proposal
Section 1026.38(d)(2) permits
creditors to use the alternative table on
the Closing Disclosure in a transaction
without a seller only where the creditor
disclosed the optional alternative table
under § 1026.37(d)(2) on the Loan
Estimate. The Bureau has provided
informal guidance that, in purchase
transactions with simultaneous
subordinate financing, the 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 proposed to
amend § 1026.38(d)(2) and comment
38(d)(2)–1 to explicitly permit the use of
the alternative table for simultaneous
subordinate financing purchase
transactions if the first-lien Closing
Disclosure records the entirety of the
seller’s transaction. The Bureau
specifically sought comment on whether
it is appropriate to limit use of the
alternative table for disclosure of
simultaneous subordinate financing
purchase transactions to situations in
which the first-lien Closing Disclosure
records the entirety of the seller’s
transaction.
Comments Received
Commenters included a title
insurance company, software vendors,
and a bank. Generally commenters
supported the Bureau’s proposal to
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allow the use of the alternative table if
the first-lien Closing Disclosure records
the entirety of the seller’s transaction.
As discussed more fully in the sectionby-section analysis of § 1026.37(d)(2),
one commenter questioned what
disclosures should be used when the
alternative tables were initially used for
the simultaneous subordinate financing,
but a seller later agrees to contribute to
the costs of the subordinate financing,
making continued use of the alternative
tables impermissible under the
proposal. One commenter noted that the
proposal could lead to variation among
creditors and another commenter stated
that the UCD may not allow the use of
the alternative disclosures for any
transactions with sellers.
The Final Rule
For the reasons discussed below, the
Bureau is finalizing the proposed
amendments to § 1026.38(d)(2) with
minor technical revisions, and finalizing
proposed amendments to comment
38(d)(2)–1 with a minor technical
revision and revisions to cross-reference
related requirements, including those
that pertain to first-lien disclosures. The
Bureau appreciates the commenter’s
question regarding how to proceed
under the proposal when the alternative
table was properly used on the Loan
Estimate, or even the Closing
Disclosure, but a subsequent event
causes the continued use of the
alternative table to be impermissible.
For the reasons discussed in the sectionby-section analysis of § 1026.37(d)(2),
the Bureau is directly addressing this
concern by adding new comment
38(k)(2)(vii)–1, amending comments
38(d)(2)–1 and 38(j)–3, and amending
proposed new comments
38(t)(5)(vii)(B)–1 and –2 to require the
disclosure of the seller’s contributions
to the subordinate financing, if any, in
the payoffs and payments table on the
simultaneous subordinate financing
Closing Disclosure and the summaries
of transactions table on the first-lien
Closing Disclosure, when the alternative
tables are used for the simultaneous
subordinate financing. As discussed in
more detail in the section-by-section
analysis of § 1026.38(k)(2), the first-lien
Closing Disclosure must include, in the
summaries of transactions table for the
seller’s transaction under
§ 1026.38(k)(2)(vii), any contributions
toward the simultaneous subordinate
financing from the seller that are
disclosed in the payoffs and payments
table under § 1026.38(t)(5)(vii)(B),
thereby recording the entirety of the
seller’s transaction on the first-lien
Closing Disclosure. Final comment
38(d)(2)–1 includes a cross-reference to
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comments 38(j)–3 and 38(k)(2)(vii)–1 for
related disclosure requirements
applicable to the first-lien transaction
when the alternative disclosures are
used for a simultaneous subordinate
financing purchase transaction and a
seller contributes to the costs of the
subordinate financing. Final comment
38(d)(2)–1 also includes a crossreference to comments 38(t)(5)(vii)(B)–1
and –2 for the requirement to disclose
the seller’s contributions toward the
subordinate financing in the payoffs and
payments table on the simultaneous
subordinate financing Closing
Disclosure.
The Bureau recognizes that allowing
the use of the alternative disclosures for
simultaneous subordinate financing
purchase transactions may cause
variability in disclosure among
creditors, but concludes that consumers
are unlikely to be harmed by such
optionality. In addition, the Bureau
understands that investor requirements
may be more restrictive than the
optionality provided by the Bureau.
However, the Bureau believes flexibility
is beneficial to some creditors, and the
Bureau will continue to provide the
option for creditors to use the
alternative disclosures for simultaneous
subordinate financing transactions with
sellers.
38(e) Alternative Calculating Cash to
Close Table for Transactions Without a
Seller or for Simultaneous Subordinate
Financing
The Bureau’s Proposal
Section 1026.38(e) provides for the
disclosure of an alternative calculation
of cash or other funds due from or due
to the consumer at consummation for
transactions without a seller, using the
heading ‘‘Calculating Cash to Close.’’
Specifically, § 1026.38(e) only permits
the use of the alternative calculating
cash to close table for a transaction
without a seller and requires a creditor
to disclose the alternative calculating
cash to close table when the creditor
disclosed the optional alternative
calculating cash to close table on the
Loan Estimate under § 1026.37(h)(2). As
discussed in the section-by-section
analysis of § 1026.37(h) above, the
Bureau sought comment on the
calculating cash to close table generally.
The Bureau has provided informal
guidance that, in simultaneous
subordinate financing purchase
transactions, the 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
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did not contribute to the subordinate
financing.
The Bureau proposed to amend
§ 1026.38(e) and comment 38(e)–1 to
explicitly permit the use of the
alternative calculating cash to close
table for simultaneous subordinate
financing purchase transactions if the
first-lien Closing Disclosure records the
entirety of the seller’s transaction. The
Bureau also proposed to add comment
38(e)–6 to specify which amounts are
disclosed under the subheading ‘‘Loan
Estimate’’ on the Closing Disclosure’s
alternative calculating cash to close
table. Proposed comment 38(e)–6
clarified that the amounts disclosed
under the subheading ‘‘Loan Estimate’’
pursuant to § 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,
regardless of whether those amounts
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 sought
comment on whether that approach
provides a helpful comparison to
consumers with the final amounts
disclosed on the Closing Disclosure and
sought comment on other alternatives to
provide consumers a comparison of
estimated and final amounts.
Comments Received
As noted above and discussed more
fully in the section-by-section analysis
of § 1026.37(h), the Bureau sought
comment on the calculating cash to
close tables generally. A commenter
asserted that the alternative calculating
cash to close tables function better, are
less complicated, and present less
information than the standard tables.
Commenters also stated that the
calculating cash to close tables provide
important benefits to consumers and
assist consumers in understanding their
transactions by providing them with a
high-level view of how their cash to
close amounts are determined. See the
section-by-section analysis of
§ 1026.37(h) for a more detailed
discussion of those comments that relate
to §§ 1026.37(h)(2) and 1026.38(e)
generally.
A mortgage banker and software
vendor supported proposed revisions to
§ 1026.38(e) and related commentary.
The commenters stated that these
proposed revisions, if implemented,
will improve the ability of creditors to
comply with the calculating cash to
close table and provide a more accurate
cash to close amount to consumers.
Software vendors, a bank, and a state
housing finance agency also commented
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on the Bureau’s proposed amendments
to § 1026.38(e) and comment 38(e)–1.
Most commenters supported the
Bureau’s proposal to allow the use of
the alternative calculating cash to close
table if the first-lien Closing Disclosure
records the entirety of the seller’s
transaction. As discussed more fully in
the section-by-section analysis of
§ 1026.37(d)(2), one commenter
questioned what disclosures should be
used when the optional alternative
tables were initially used for the
simultaneous subordinate financing, but
a seller later agrees to contribute to the
costs of the subordinate financing,
making continued use of the alternative
tables impermissible under the
proposal. One commenter noted that the
proposal could lead to variation among
creditors and another commenter stated
that the UCD may not allow the use of
the alternative disclosures for any
transactions with sellers. Finally, a
commenter suggested a technical
revision to proposed § 1026.38(e).
A compliance professional and a
financial holding company supported
the proposal 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,
regardless of whether those amounts
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). One of the commenters
stated that the comparison of amounts
from the most recent Loan Estimate to
the current Closing Disclosure is helpful
to consumers and that there do not
appear to be other viable alternatives. A
software vendor and software vendor
group noted that the proposal will help
to settle industry differences of opinion,
but raised concerns with the proposal,
discussed below.
A software vendor, a software vendor
group, a credit union, and trade
associations questioned the usefulness
of the comparison. Commenters cited
concerns that the table does not identify
tolerance violations for consumers’
awareness and does not record amounts
on any Closing Disclosures provided to
the consumer between the last provided
Loan Estimate and the current corrected
Closing Disclosure. One commenter
asked the Bureau to clarify whether
comparison between the ‘‘Loan
Estimate’’ and ‘‘Final’’ columns affects
the tolerance provisions under
§ 1026.19(e)(3). Another commenter
stated that good faith was difficult to
determine based on a comparison of the
amounts disclosed on the last provided
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37725
Loan Estimate and current Closing
Disclosure. In the context of the
Bureau’s companion proposal in
comment 38(i)–5, industry commenters
offered alternative approaches to help
consumers evaluate changes between
disclosures. For a more detailed
discussion of these related comments,
please see the section-by-section
analysis of § 1026.38(i).
A trade association commenter stated
that secondary market investors who
purchase loans are requiring use of the
alternative table for refinances and
asked the Bureau to clarify that the
standard disclosures may be used for
refinance transactions. The commenter
argued that it would be helpful if a
single disclosure form could be utilized
for all types of transactions.
The Final Rule
For the reasons discussed below, the
Bureau is finalizing with minor
technical revisions the proposed
amendments to § 1026.38(e) and
comment 38(e)–1 and proposed
comment 38(e)–6. The Bureau is also
amending comment 38(e)–3 for
conformity with final comment 38(i)–2.
Final § 1026.38(e) provides that for
transactions that do not involve a seller
or for simultaneous subordinate
financing, if the creditor disclosed the
optional alternative calculating cash to
close table under § 1026.37(h)(2), the
creditor is required also to disclose the
alternative calculating cash to close
table under § 1026.38(e). Final comment
38(e)–1 explains that the alternative
calculating cash to close table may be
provided by a creditor in a transaction
without a seller, or for a simultaneous
subordinate financing purchase
transaction only if the first-lien Closing
Disclosure records the entirety of the
seller’s transaction, and must be used in
conjunction with the alternative
disclosure under § 1026.38(d)(2).
As discussed in the section-by-section
analysis of § 1026.37(d)(2), the Bureau
appreciates the commenter’s question
regarding how to proceed under the
proposal when the optional alternative
calculating cash to close table was
initially used, but a subsequent event
causes the continued use of the
alternative calculating cash to close
table to be impermissible. The Bureau is
directly addressing this concern by
adding new comment 38(k)(2)(vii)–1,
amending comments 38(d)(2)–1 and
38(j)–3, and amending proposed new
comments 38(t)(5)(vii)(B)–1 and –2 as
discussed in the section-by-section
analysis of § 1026.37(d)(2).
The Bureau did not propose
amendments to comment 38(e)–3, but is
making non-substantive amendments
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for conformity with final comment
38(i)–2. As discussed in the section-bysection analysis of § 1026.38(i) below,
the Bureau proposed to revise comment
38(i)–2 to streamline the comment.
Although comment 38(i)–2 pertains to
§ 1026.38(i) and comment 38(e)–3
pertains to § 1026.38(e), the comments
are otherwise identical. Therefore, for
consistency, the Bureau is making the
same revisions to comment 38(e)–3 as it
is making to comment 38(i)–2.
The Bureau is finalizing comment
38(e)–6 as proposed with a minor
technical revision. Final comment
38(e)–6 provides 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. The
Bureau believes that the comparison of
amounts from the last provided Loan
Estimate to the current Closing
Disclosure, as required by final
comment 38(e)–6, is helpful to
consumers, and there are not viable
alternatives absent completely
restructuring the alternative calculating
cash to close tables; at this time,
restructuring the calculating cash to
close tables would be inconsistent with
the Bureau’s focus in this rulemaking on
providing additional clarity in an
expeditious manner. The comparison, as
part of the Closing Disclosure’s
alternative calculating cash to close
table, illustrates how such amounts
changed from the estimated amounts
disclosed on the Loan Estimate, which
helps to ensure that the features of the
transaction are fully, accurately, and
effectively disclosed to consumers in a
manner that permits consumers to better
understand the costs, benefits, and risks
associated with the transaction, in light
of the facts and circumstances,
consistent with Dodd-Frank Act section
1032(a). The table is not intended to
identify every single change over the
course of the real estate transaction; it
is intended to compare the most recent
estimated amounts represented to the
consumer with the amounts reflecting
the actual terms of the transaction. As
discussed in the proposal, 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
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the creditor at the time the disclosure is
provided, do not result in any separate
violation of any standard under
Regulation Z. 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 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.
In disclosing amounts under
§ 1026.38(e)(1)(i), (2)(i), (4)(i), and (5)(i),
when there are multiple Loan Estimates
provided to a consumer, the current
regulatory provisions do not specify a
particular Loan Estimate to use.
Therefore, it is currently permissible to
disclose amounts from any Loan
Estimate provided to the consumer in
the ‘‘Loan Estimate’’ column of the
Closing Disclosure’s alternative
calculating cash to close table, and will
remain permissible until the mandatory
compliance date of this final rule,
October 1, 2018. For a discussion of the
effective and mandatory compliance
dates, see part VI, below.
The trade association commenter is
correct that, under the Bureau’s
regulations, the standard disclosures
may be used for refinance transactions.
A refinance transaction must be
disclosed pursuant to § 1026.38(e) if the
creditor previously disclosed the
optional alternative table under
§ 1026.37(h)(2), but use of the optional
alternative table under § 1026.37(h)(2) is
not required. At the same time,
secondary market investors may decide,
as a business practice, to impose
additional requirements, such as
requiring the use of the alternative
disclosures for refinance transactions.
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 total amount of closing costs
disclosed under § 1026.38(e)(2)(ii)
generally represents an amount owed by
the consumer; therefore, the Bureau
specified that the total closing costs be
disclosed as a negative number.
However, lender credits disclosed 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
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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 proposed to
revise § 1026.38(e)(2)(ii) to explain that
the amount disclosed under that
paragraph 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.
A software vendor, compliance
professional, and trade association
commenter praised the proposal. One
commenter stated that eliminating the
requirement to disclose amounts as
positive or negative numbers throughout
will go a long way in providing
creditors with greater flexibility to
complete the calculating cash to close
table in a manner that can be explained
to consumers and reflects the actual
transaction. Another commenter stated
that there are a minority of loans which
are generated in the industry where total
closing costs are actually negative (the
consumer will not be paying any closing
costs, but will also be receiving some
cash back) and this change will enable
accurate closing costs to be reflected in
the calculating cash to close table. The
commenter also requested that the
Bureau make a similar change to
§ 1026.37(h)(2)(ii). A credit union stated
generally that there is confusion
surrounding the use of negative values
on the form, but did not provide specific
concerns.
The Bureau is finalizing as proposed
the amendments to § 1026.38(e)(2)(ii).
The Bureau concludes that this
amendment is necessary for closing
costs to be accurately reflected in the
calculating cash to close table. In
response to the comment about
§ 1026.37(h)(2)(ii), the Bureau notes that
it is amending that provision, as
discussed in the section-by-section
analysis of § 1026.37(h)(2)(ii) above.
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). The Bureau
proposed to add comment 38–4, which
explained how to disclose a principal
curtailment to provide a refund under
§ 1026.19(f)(2)(v). The comment would
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have provided that a principal
curtailment would be disclosed under
§ 1026.38(g)(4) or (t)(5)(vii)(B) for
transactions using the alternative
calculating cash to close table under
§ 1026.38(e). Accordingly, the Bureau
proposed 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).
As discussed in more detail in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4 above,
some industry commenters raised
concerns with the various options for
disclosing principal curtailments
proposed by the Bureau, including
disclosure as a closing cost under
§ 1026.38(g)(4). In addition, an industry
group recommended that the Bureau use
the phrase ‘‘principal reduction’’
instead of ‘‘principal curtailment,’’
noting that consumers would be more
familiar with the recommended phrase.
For the reasons discussed below, the
Bureau is revising the proposed
amendments to § 1026.38(e)(2)(iii)(A)(3)
and comment 38(e)(2)(iii)(A)–3, and is
making conforming amendments to
comments 38(e)(2)(iii)(A)–2.i and –2.iii.
As discussed in the section-by-section
analysis of § 1026.38 pertaining to
comment 38–4 above, the Bureau
appreciates the suggestion to use the
phrase ‘‘principal reduction.’’ The
Bureau also explained that it is revising
proposed comment 38–4 to limit the
disclosure of principal reductions on
the alternative disclosure to
§ 1026.38(t)(5)(vii)(B). Therefore the
Bureau is revising the proposed
amendments to § 1026.38(e)(2)(iii)(A)(3)
and comment 38(e)(2)(iii)(A)–3 to reflect
the phrase ‘‘principal reduction’’ and to
remove the cross-reference to
§ 1026.38(g)(4).
As discussed in the section-by-section
analysis of § 1026.19(e)(3)(i), the Bureau
is amending comment 19(e)(3)(i)–1 to
conform with final § 1026.19(e)(3)(iii),
which provides exceptions to 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. As a
result, the Bureau is making conforming
amendments in final comments
38(e)(2)(iii)(A)–2.i and –2.iii.
Specifically, final comment
38(e)(2)(iii)(A)–2.i clarifies that certain
closing costs (e.g., fees paid to the
creditor, transfer taxes, fees paid to an
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affiliate of the creditor) are generally
subject to the limitations on increases in
closing costs under § 1026.19(e)(3)(i);
however, § 1026.19(e)(3)(iii) provides
exceptions to the general rule for certain
charges. Final comment 38(e)(2)(iii)(A)–
2.iii clarifies that, for a charge listed on
the Loan Estimate under the subheading
‘‘Services You Can Shop For,’’ such
charge would generally be subject to the
limitations under § 1026.19(e)(3)(i) if the
consumer decided to use a provider
affiliated with the creditor; however,
§ 1026.19(e)(3)(iii) provides exceptions
to the general rule for certain charges.
38(e)(3) Closing Costs Paid Before
Closing
38(e)(3)(iii)
38(e)(3)(iii)(B)
Comment 38(e)(3)(iii)(B)–1 explains
the circumstances under which the
creditor gives a statement that the
amount under the subheading ‘‘Final’’
pursuant to § 1026.38(e)(3)(ii) is equal to
the amount disclosed under the
subheading ‘‘Loan Estimate’’ pursuant
to § 1026.38(e)(3)(i) and, in so doing,
refers to an amount of ‘‘$0’’ under the
subheading ‘‘Final.’’ The Bureau
proposed two technical revisions in
comment 38(e)(3)(iii)(B)–1. First, the
Bureau proposed to change ‘‘$0’’ to
‘‘$0.00’’ to reflect the disclosure of a
dollar amount of zero to two decimal
places. Second, the reference to
‘‘settlement agent’’ would be removed
from comment 38(e)(3)(iii)(B)–1
because, 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 did not receive any
specific comments on this proposal and
is finalizing the amendment to remove
the reference to ‘‘settlement agent’’ from
comment 38(e)(3)(iii)(B)–1, but is not
finalizing the amendment to change
‘‘$0’’ to ‘‘$0.00.’’ The Bureau’s proposal
would have changed ‘‘$0’’ to ‘‘$0.00’’ in
many places in § 1026.38(e) and (i), and
the associated commentary, so that
dollar amounts of zero would be
disclosed consistently in the ‘‘Final’’
column of the Closing Disclosure’s
calculating cash to close table.
Generally, unless amounts are required
to be rounded by § 1026.38(t)(4),
amounts are disclosed on the Closing
Disclosure as exact numerical amounts,
using decimal places. Section
1026.38(t)(4) provides for exceptions to
this general rule. Upon further
consideration, the Bureau is not
finalizing the proposed approach, and is
instead changing the few instances of
‘‘$0.00’’ to ‘‘$0.’’ The Bureau believes
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this approach will achieve the
consistency intended by the proposal,
but will be less burdensome to creditors
because § 1026.38(e) and (i), and the
associated commentary, currently refer
to dollar amounts of zero in the ‘‘Final’’
column of the calculating cash to close
table as ‘‘$0’’ most of the time.
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 total
amount disclosed under
§ 1026.38(t)(5)(vii)(B) will always be a
positive number. The Bureau proposed
to revise § 1026.38(e)(4)(ii) such that the
amount disclosed under
§ 1026.38(e)(4)(ii) is disclosed as a
negative number if the total 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 total amount
disclosed under § 1026.38(t)(5)(vii)(B) is
a negative number, signifying amounts
due to the consumer.
A trade association commented that
permitting the disclosure of negative or
positive amounts will go a long way in
providing creditors with greater
flexibility to complete the calculating
cash to close table in a manner that
reflects the actual transaction. A credit
union stated generally that there is
confusion surrounding the use of
negative values on the form, but did not
provide specific concerns.
For the reasons discussed below, the
Bureau is finalizing the proposed
amendments to § 1026.38(e)(4)(ii) with
minor technical revisions. In response
to the proposed revision of
§ 1026.38(e)(4)(ii) and other provisions
of the proposal, the Bureau received
positive feedback that being less
prescriptive about whether amounts
must be disclosed as negative or
positive numbers will enable more
accurate disclosure for different types of
transactions. The Bureau believes this
amendment will facilitate compliance
with the Bureau’s disclosure
requirements.
38(f) Closing Cost Details; Loan Costs
The Bureau proposed to add comment
38(f)–2. Consistent with proposed
comments 37(f)–3 and 37(f)(6)–3,
proposed comment 38(f)–2 provided
that construction loan inspection and
handling fees are loan costs associated
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with the transaction for purposes of the
Closing Disclosure under § 1026.38(f).
The proposed new comment also added
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).
The Bureau did not receive any
comments on proposed comment 38(f)–
2. Having received no comments
regarding this proposed revision, the
Bureau is finalizing comment 38(f)–2 as
proposed, except to make a conforming
change to renumber comment app. D–
7.viii as comment app. D–7.vii.
38(g) Closing Cost Details; Other Costs
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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(A) of appendix H illustrates such
disclosures on a line labeled ‘‘Recording
Fees,’’ with the additional labels ‘‘Deed’’
and ‘‘Mortgage,’’ respectively. The
Bureau proposed to revise
§ 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 each be
disclosed on the first line under the
subheading ‘‘Taxes and Other
Government Fees’’ before the columns
described in § 1026.38(g) and 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). In addition, the Bureau
proposed to add new comment 38(g)(1)–
3 to clarify the labels for recording fees
on form H–25(A) of appendix H.
Commenters generally indicated
support for the revision and new
comment. Several industry commenters
sought additional clarification on the
use of the term ‘‘itemization’’ in the first
paragraph of proposed revisions to
§ 1026.38(g)(1). Other industry
commenters submitted that
§ 1026.38(g)(1) should be revised to
allow for a full itemization of the
recording fees charged to consumers in
the transaction to obviate the need for
a separate settlement statement that may
be provided by settlement agents.
For the reasons stated below, the
Bureau is adopting as proposed the
revisions to § 1026.38(g)(1) and new
comment 38(g)(1)–3. In response to
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commenters seeking clarification of the
use of the term ‘‘itemization’’ the first
time it appears in § 1026.38(g)(1), the
Bureau notes that § 1026.38(g)(1)
requires disclosing recording fees
separately from transfer taxes. Also, the
Bureau notes that transfer taxes are
required to be itemized separately
pursuant to § 1026.38(g)(1)(ii). In
contrast, § 1026.38(g)(1)(i), relating to
recording fees, does not include the
term ‘‘itemization.’’
As to some industry commenters’
request to permit the full itemization of
each document recorded in the
transaction, the Bureau notes that
permitting such a break out for the
recording cost of each recordable
document would, in some instances,
require many more lines, potentially
more than could be accommodated on a
maximum of two pages, as limited by
§ 1026.38(t)(5)(iv)(B) and is unlikely to
improve consumer understanding of the
Closing Disclosure.87 While not present
in all residential mortgage transactions,
the list of separate documents that could
be required to be recorded depending on
State law requirements can include, but
is not limited to, certificates of
satisfaction or partial satisfaction,
contracts, deeds transferring ownership
of various types, leases, modification
agreements, mortgages or deeds of trust,
easements, assumption agreements,
covenants, declarations, liens,
judgments, and powers of attorney.
However, the Bureau notes that the
creditor is permitted to provide a further
listing of recording fees, at its
discretion, as information used locally
in real estate settlements pursuant to
§ 1026.38(t)(5)(ix) in order to
comprehensively describe the cost of
each document included in the
recording fees disclosed under
§ 1026.38(g)(1)(i). Since commenters
otherwise generally supported the this
proposal, the Bureau is adopting the
proposed revisions to § 1026.38(g)(1)
and new comment 38(g)(1)–3 as
proposed.
explained that the amount required to
be disclosed under § 1026.38(g)(2) is
disclosed to two decimal places in
accordance with § 1026.2(b)(4) and
comment 38(t)(4)–1.
The Bureau received two comments
regarding the proposed revision to
comment 38(g)(2)–3. A commenter
representing a large bank asserted that
the revision would impose significant
burden to reprogram and test its
systems. The commenter also asserted
that the revision would realize little or
no benefit to the consumer. A
compliance professional asserted that
prepaid interest should be left blank,
like other amounts, when the value for
prepaid interest is zero.
The Bureau is finalizing comment
38(g)(2)–3 as proposed. To remain
consistent with the other disclosed
dollar amounts under the closing cost
details column the Bureau is requiring
the disclosure of $0.00 under
§ 1026.38(g)(2) when prepaid interest is
not collected. This requirement is also
consistent with § 1026.2(b)(4) and
comment 38(t)(4)–1 which requires the
disclosure of dollar amounts to include
cents even when the value for cents is
zero, unless otherwise provided.
The Bureau believes that the
reprogramming cost for this revision
will not be significant given that
creditors have until October 1, 2018, to
come into compliance with this
provision and in light of other
programming changes that creditors will
be making in response to other
provisions in this final rule. In response
to the commenter that suggested that
prepaid interest should be left blank, the
label for prepaid interest on the Closing
Disclosure form shows components of
the prepaid interest equation, including
the amount of prepaid interest to be
paid per day, and thus the Bureau
declines to offer an option to leave
blank the amount required to be
disclosed by § 1026.38(g)(2).
38(g)(2) Prepaids
Current 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 proposed to revise
comment 38(g)(2)–3 to require $0.00 to
be disclosed if interest is not collected
for a portion of a month or other period
between closing and the date from
which the interest will be collected with
the first monthly payment. The Bureau
The Bureau’s Proposal
87 78
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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 in
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the section-by-section analysis of
§ 1026.37(g)(4), above, the Bureau
proposed 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. Proposed comment
38(g)(4)–1.iii would also have included
a reference to comment 38–4 for an
explanation of how to disclose a
reduction in principal balance
(principal curtailment) under
§ 1026.38(g)(4).
In proposing to revise comment 38–4,
the Bureau noted that it expected
consumer understanding to be enhanced
by the clear and conspicuous disclosure
of these amounts in corresponding
tables on the Loan Estimate and Closing
Disclosure, which would have also
created greater consistency between the
Loan Estimate and Closing Disclosure.
In the preamble to the proposal, the
Bureau noted that it also had considered
requiring the disclosure of construction
costs, payoff of existing liens, and
payoff of unsecured debt on 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). The Bureau noted that
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 noted in the
preamble to the proposal that it had
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 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, the Bureau
believed this approach could add more
complexity to the calculations required
on the Closing Disclosure than
disclosure under § 1026.38(g)(4).
The Bureau also proposed 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
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proposed comment app. D–7.viii for an
explanation of the disclosure of
construction loan inspection and
handling fees. The Bureau proposed 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 are to 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 have also
clarified 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.
Comments Received
Comments on the proposed revision
of comment 38(g)(4)–1 were generally
made together with comments
submitted on the proposed revision of
comment 37(g)(4)–4 and, similarly, were
generally unfavorable. Commenters
believed that significant confusion
would result from the proposed revision
of comment 38(g)(4)–1, which the
commenters said would make the
closing costs in many loans, including
construction loans, appear to be
enormous. Commenters stated that
consumers would be concerned that
loans were prohibitively expensive
upon seeing such high ‘‘closing costs.’’
Commenters also noted that consumer
testing had not been conducted for the
proposed required disclosures, and
disagreed with what they perceived as
giving a greater priority to comparability
between the Loan Estimate and the
Closing Disclosure than to consumer
understanding. Significant staff training
and systems reprogramming were also
cited as concerns by commenters. A
fuller presentation of these comments is
in the discussion of comment 37(g)(4)–
4 above in the section-by-section
analysis of § 1026.37(g)(4).
However, some commenters also
pointed out an issue that was specific to
proposed comment 38(g)(4)–1.
Comments from individual vendors, a
group of vendors and a trade association
focused on proposed comment 38(g)(4)–
1.i, which would have provided that the
amounts disclosed under § 1026.38(g)(4)
must be placed in either the paid
‘‘Before Closing’’ or in the paid ‘‘At
Closing’’ column under the subheading
‘‘H. Other.’’ These commenters noted
that because proposed comment
38(g)(4)–1.i would have applied to all
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37729
amounts disclosed under
§ 1026.38(g)(4), all ‘‘Section H’’ fees
would need to appear in these four
columns and cannot appear in the ‘‘Paid
by Others’’ column. The commenters
asked if the result was that fees
disclosed under § 1026.38(g)(4) cannot
be paid for by anyone other than the
borrower or the seller or that fees
disclosed under § 1026.38(g)(4) can be
paid for by others, but the fee would
have to be disclosed in an inappropriate
column. One of the commenters
contrasted proposed comment 38(g)(4)–
1.i with proposed comment 38(g)(4)–
1.ii, which explicitly states that
‘‘construction costs’’ should be
disclosed under the paid ‘‘At Closing’’
column if such costs are contracted to
be paid at closing.
As noted in the discussion of
comment 38–4, above, in the section-bysection analysis of § 1026.38 pertaining
to comment 38–4, commenters raised
concerns regarding the disclosure of
principal reductions under
§ 1026.38(g)(4).
The Final Rule
Consistent with the amendments
described in connection with the
discussion of proposed comment
37(g)(4)–4, above, the Bureau is not
adopting the revision of comment
38(g)(4)–1 as proposed but is instead
providing for the disclosure of
construction costs in connection with
the transaction, payoff of existing liens
secured by the property identified under
§ 1026.37(a)(6), and payoff of other
secured or unsecured debt under
§ 1026.38(j)(1)(v). As noted below, the
Bureau is amending comment
38(j)(1)(v)–2 to include 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 other
secured and unsecured debt as amounts
disclosed under § 1026.38(j)(1)(v). Such
amounts are disclosed in the summaries
of transactions table on the Closing
Disclosure under § 1026.38 (j)(1)(v) and
factored into the calculating cash to
close table calculations.
The Bureau agrees with the
commenters who noted that payoffs of
other types of secured debt, such as a
loan secured by an automobile or
another property, should be treated
consistently with other payoffs, and
comment 38(j)(1)(v)–2 is further
amended to cover such other secured
debt.
Proposed comment 38(g)(4)–1.iii,
which referred to comment 38–4 for an
explanation of how to disclose a
reduction in principal balance
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(principal curtailment) under
§ 1026.38(g)(4), is also not included in
this rule. As explained above in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4, the Bureau
is revising comment 38–4 to limit the
disclosure of principal reductions to
§ 1026.38(j)(1)(v) and (t)(5)(vii)(B),
making the reference to comment 38–4
in comment 38(g)(4)–1 unnecessary.
38(h) Closing Cost Totals
38(h)(3)
Current § 1026.38(h)(3) uses a crossreference to require disclosure of the
amount described in § 1026.37(g)(6)(ii)
as a negative number, labeled ‘‘Lender
Credits.’’ Current § 1026.37(g)(6)(ii)
requires disclosure of the amount of any
lender credits. As detailed in the
section-by-section analysis of
§ 1026.37(g)(6)(ii), while current
comment 37(g)(6)(ii)–1 describes lender
credits as payments from the creditor to
the consumer that do not pay for a
particular fee on the disclosures, final
comment 37(g)(6)(ii)–1 provides that
lender credits under § 1026.37(g)(6)(ii)
include non-specific lender credits as
well as specific lender credits. In
contrast with final comment 37(g)(6)(ii)–
1, current comment 38(h)(3)–1 provides
that a credit from the creditor that is
attributable to a specific loan cost or
other cost is not disclosed under
§ 1026.38(h)(3) (but rather is reflected in
the Paid by Others column in the
Closing Cost Details tables under
§ 1026.38(f) or (g)). To conform with the
amendment to comment 37(g)(6)(ii)–1,
the Bureau is amending § 1026.38(h)(3)
to remove the cross-reference to
§ 1026.37(g)(6)(ii).
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38(i) Calculating Cash To Close
The Bureau’s Proposal
Section 1026.38(i) requires the
disclosure of the calculation of cash
needed from the consumer at
consummation of the transaction, using
the heading ‘‘Calculating Cash to
Close.’’ The Bureau proposed
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 DoddFrank Act section 1032(a). The Bureau
stated that it believed that the
amendments would 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
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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 more fully in the
section-by-section analysis of
§ 1026.37(h) above, the Bureau sought
comment on the calculating cash to
close table generally.
As discussed in more detail below,
the Bureau proposed to revise
comments 38(i)–2 and 38(i)–3, and to
add comment 38(i)–5. Under
§ 1026.38(i), the calculating cash to
close table sets forth three subheadings:
‘‘Loan Estimate,’’ ‘‘Final,’’ and ‘‘Did this
change?.’’ Current comment 38(i)–2
provides guidance on comparing the
amounts that are disclosed under the
subheadings ‘‘Loan Estimate’’ and
‘‘Final’’ on the Closing Disclosure’s
calculating cash to close table. The
Bureau proposed to revise comment
38(i)–2 to streamline the comment.
Current comment 38(i)–3 provides that
§ 1026.38(i)(4)(iii)(A), (5)(iii)(A),
(7)(iii)(A), and (8)(iii)(A) each require a
statement that the consumer should see
certain details of the closing costs
disclosed under § 1026.38(j) and
provides examples of those statements
in appendix H, including an example
related to the seller credits disclosure on
the calculating cash to close table. The
Bureau proposed to revise comment
38(i)–3 for consistency with proposed
changes to § 1026.38(i)(7), the seller
credits disclosure in the calculating
cash to close table.
The Bureau proposed to add comment
38(i)–5 to clarify that the amounts
disclosed under the subheading ‘‘Loan
Estimate’’ pursuant to § 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, regardless of 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 explained
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
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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 sought comment on this
approach. In particular, the Bureau
sought 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 also sought
comment on other alternatives to
provide consumers with a comparison
of estimated and final amounts.
Comments Received
As noted above and discussed more
fully in the section-by-section analysis
of § 1026.37(h), the Bureau sought
comment on the calculating cash to
close tables generally. A variety of
commenters acknowledged that the
calculating cash to close tables provide
important benefits to consumers and
that the proposed revisions would
improve the ability of creditors to
comply with the calculating cash to
close requirements and provide to
consumers a more accurate cash to close
amount. Commenters stated that the
calculating cash to close tables enable
consumers to understand components of
their cash to close amount without the
need to wade through the detailed line
items in the summaries of transactions
table, and described the calculating cash
to close tables as conducting many of
the difficult calculations behind-thescenes so that consumers can review the
high-level components of the
calculations, which generally mirror
how they think about the transaction.
However, a number of other
commenters stated that the standard
calculating cash to close tables are
confusing and complicated. Many
commenters specifically identified the
‘‘Closing Costs Financed (Paid from
your Loan Amount)’’ and ‘‘Down
Payment/Funds from Borrower’’ labels
and calculations as the main areas of
concern, asserting that the mathematical
formulas used to calculate the
disclosures do not reflect how
consumers understand those amounts in
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the context of a residential real estate
transaction. Commenters opposing the
proposed amendments suggested a
variety of solutions, including that the
Bureau remove the standard calculating
cash to close tables, ‘‘fix’’ the tables
completely, or leave the tables alone.
See the section-by-section analysis of
§ 1026.37(h) for a more detailed
discussion of those comments that relate
to §§ 1026.37(h) and 1026.38(i)
generally.
The Bureau did not receive comments
on its proposal related to comments
38(i)–2 and 38(i)–3, but received several
comments on proposed comment 38(i)–
5. In particular, a mortgage company
supported the Bureau’s proposal 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, regardless of 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 commenter stated
that it is beneficial for the consumer to
be able to compare the amounts
disclosed on the most recent Loan
Estimate to the amounts disclosed on
the Closing Disclosure, and that most
creditors are likely following this
practice already. However, the
commenter also noted this clarification
might require reprogramming for some
creditors, and recommended that the
Bureau provide creditors with six
months to implement final comment
38(i)–5. A software vendor and software
vendor group noted that the proposal
will help to settle industry differences
of opinion, but raised concerns with the
proposal, discussed below.
A software vendor, a software vendor
group, a credit union, mortgage
companies, and trade associations
questioned the usefulness of the
comparison. Commenters cited concerns
that the table does not identify tolerance
violations for consumers’ awareness and
does not record amounts on any Closing
Disclosures provided to the consumer
between the last provided Loan Estimate
and the current corrected Closing
Disclosure. One commenter asked the
Bureau to clarify whether comparison
between the ‘‘Loan Estimate’’ and
‘‘Final’’ columns affects the tolerance
provisions under § 1026.19(e)(3).
Another commenter stated that good
faith was difficult to determine based on
a comparison of the amounts disclosed
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on the last provided Loan Estimate and
current Closing Disclosure.
Industry commenters offered
alternative approaches to help
consumers evaluate changes between
disclosures. A mortgage company
commented that the best alternative, for
purposes of consumer comparisons
between the Loan Estimate and the
current Closing Disclosure, is for
consumers to simply lay the most recent
Loan Estimate next to the Closing
Disclosure, and then compare the
closing costs that are disclosed on each
disclosure. The commenter asserted that
the calculating cash to close tables were
not necessary for this purpose, and that
consumer testing and the Bureau’s
similar design for closing costs on the
Loan Estimate and Closing Disclosure
already supports this alternative. A
trade association recommended that the
Bureau remove the comparison aspect of
the table and instead require a
comparison of loan costs and lender
credits that can be used to identify
tolerance violations. A trade association,
software vendor, and software vendor
group suggested the comparison instead
be between amounts disclosed on the
last disclosure, whether it be a Loan
Estimate or Closing Disclosure, and the
current Closing Disclosure, which
would provide the consumer with
timely updates and information as to
why costs increased or decreased
between the two disclosures and a
history of why things changed from one
disclosure to the next.
The Final Rule
After considering the comments, the
Bureau is not in this final rule deviating
significantly from the proposed
amendments, which address many
questions the Bureau has received from
industry on the proper calculation of the
various amounts disclosed on the
calculating cash to close tables and the
variation among creditors in how the
calculating cash to close disclosures are
determined. The Bureau believes that
finalizing the proposed amendments to
the calculating cash to close table, with
some revisions as discussed in the
applicable section-by-section analyses,
is necessary in order to resolve issues
that have arisen during the initial
implementation of the TILA–RESPA
Rule and on which industry has asked
the Bureau for guidance. The Bureau
has been, and remains, engaged in
extensive efforts to support industry
implementation, and finalizing
proposed clarifications and
amendments related to the calculating
cash to close tables is one such effort.
See the section-by-section analysis of
§ 1026.37(h) for a discussion of the
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37731
Bureau’s rationale for not following
some commenters’ recommendations to
remove the calculating cash to close
tables, significantly revise the tables, or
not finalize the proposed amendments
to the tables.
For the reasons discussed in this
section, the Bureau is adopting
comment 38(i)–2 as proposed to clarify
how amounts are disclosed under the
subheading ‘‘Loan Estimate’’ on the
Closing Disclosure’s calculating cash to
close table, with minor technical
revisions. The Bureau also is adopting
comment 38(i)–3 as proposed with
revisions to conform to final
§ 1026.38(i)(7) and other minor
technical revisions. The Bureau
concludes these amendments to
comments 38(i)–2 and –3 are necessary
and will aid in compliance.
The Bureau is finalizing comment
38(i)–5 as proposed. Final comment
38(i)–5 provides that 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. The Bureau believes that the
comparison of amounts from the last
provided Loan Estimate to the current
Closing Disclosure, as required by final
comment 38(i)–5, is helpful to
consumers, and there are not viable
alternatives absent completely
restructuring the calculating cash to
close tables; at this time, restructuring
the calculating cash to close tables
would be inconsistent with the Bureau’s
focus in this rulemaking on providing
additional clarity in an expeditious
manner. The comparison, as part of the
Closing Disclosure’s calculating cash to
close table, illustrates how such
amounts changed from the estimated
amounts disclosed on the Loan
Estimate, which helps to ensure that the
features of the transaction are fully,
accurately, and effectively disclosed to
consumers in a manner that permits
consumers to better understand the
costs, benefits, and risks associated with
the transaction, in light of the facts and
circumstances, consistent with DoddFrank Act section 1032(a). The table is
not intended to identify every single
change over the course of the real estate
transaction; it is intended to compare
the most recent estimated amounts
represented to the consumer with the
amounts reflecting the actual terms of
the transaction. As discussed in the
proposal, the amounts disclosed 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
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§ 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 at the time the disclosure is
provided, do not result in any separate
violation of any standard under
Regulation Z. 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 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.
In disclosing amounts under
§ 1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i),
(6)(i), (7)(i), (8)(i), and (9)(i), when there
are multiple Loan Estimates provided to
a consumer, the current regulatory
provisions do not specify a particular
Loan Estimate to use. Therefore, it is
currently permissible to disclose
amounts from any Loan Estimate
provided to the consumer in the ‘‘Loan
Estimate’’ column of the Closing
Disclosure’s calculating cash to close
table, and will remain permissible until
the mandatory compliance date of this
final rule, October 1, 2018. For a
discussion of the effective date and
optional compliance period, see part VI,
below.
38(i)(1) Total Closing Costs
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38(i)(1)(iii)
The Bureau’s Proposal
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 (i.e., under
§ 1026.19(e)(3)) 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).
Comments 38(i)(1)(iii)(A)–2.i, –2.iii, and
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–3 provide guidance regarding these
statements. The Bureau proposed 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. Specifically, the
Bureau proposed to clarify that a
reduction in principal balance
(principal curtailment) may be disclosed
under § 1026.38(g)(4), (j)(4)(i), or
(t)(5)(ix) to provide a tolerance refund
under § 1026.19(f)(2)(v). Proposed
revisions to § 1026.38(i)(1)(iii)(A)(3) and
comment 38(i)(1)(iii)(A)–3 would have
allowed a creditor to provide a
statement directing the consumer to the
disclosure of a principal curtailment
under § 1026.38(g)(4), (j)(4)(i), or
(t)(5)(ix) if a principal curtailment,
instead of a lender credit, was used to
provide such refund. As a result of these
proposed amendments, the Bureau also
proposed to revise comment
38(i)(1)(iii)(A)–3 to clarify that the
examples of statements provided by
form H–25(F) of appendix H only relate
to statements provided under
§ 1026.38(h)(3).
Comments Received
As discussed in more detail in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4 above,
some industry commenters raised
concerns with the various options for
disclosing principal curtailments
proposed by the Bureau. Commenters
also requested additional clarity
regarding the disclosure of a principal
curtailment pursuant to
§ 1026.38(j)(4)(i). Specifically, the
commenters questioned where in the
summaries of transactions table the
disclosure is to be made, since
§ 1026.38(j)(4)(i) contains the
requirement to disclose costs that are
not paid from closing funds but would
otherwise be disclosed pursuant to
§ 1026.38(j) marked with the phrase
‘‘Paid Outside of Closing’’ or ‘‘P.O.C.,’’
but does not provide a specific location
for the principal curtailment disclosure.
In addition, an industry group
recommended that the Bureau use the
phrase ‘‘principal reduction’’ instead of
‘‘principal curtailment,’’ noting that
consumers would be more familiar with
the recommended phrase. A title
insurance company requested that the
Bureau update the sample forms to
reflect the disclosure of principal
curtailments, similar to how form H–
25(F) of appendix H contains examples
of the required statements under
§ 1026.38(h)(3), which is referenced in
comment 38(i)(1)(iii)(A)–3.
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The Final Rule
For the reasons discussed below, the
Bureau is adopting amendments to
§ 1026.38(i)(1)(iii)(A)(3) and comment
38(i)(1)(iii)(A)–3 as proposed with
technical and conforming revisions, and
amending comments 38(i)(1)(iii)(A)–2.i
and –2.iii. The Bureau is revising
§ 1026.38(i)(1)(iii)(A)(3) and comment
38(i)(1)(iii)(A)–3 to use the phrase
‘‘principal reduction’’ for clarity. As
discussed in the section-by-section
analysis of § 1026.38 pertaining to
comment 38–4 above, the Bureau is
revising comment 38–4 to clarify that
principal reductions disclosed in the
summaries of transactions table are
disclosed under § 1026.38(j)(1)(v), not
§ 1026.38(j)(4)(i), and to limit the
disclosure of principal reductions to
§ 1026.38(j)(1)(v) on the standard
Closing Disclosure. As a result, the
Bureau is making conforming
amendments in final
§ 1026.38(i)(1)(iii)(A)(3) and final
comment 38(i)(1)(iii)(A)–3 to remove the
proposed references to § 1026.38(g)(4),
(j)(4)(i), and (t)(5)(ix) and to instead only
refer to § 1026.38(j)(1)(v). The Bureau
declines to update the sample forms at
this time as requested by a commenter.
Doing so would be inconsistent with the
Bureau’s focus in this rulemaking on
providing additional clarity in an
expeditious manner.
As discussed in the section-by-section
analysis of § 1026.19(e)(3)(i), the Bureau
is modifying comment 19(e)(3)(i)–1 to
conform to final § 1026.19(e)(3)(iii),
which provides exceptions to the
general rule that an estimated closing
cost is in good faith (i.e., does not
exceed legal limits) if the charge paid by
or imposed on the consumer does not
exceed the estimate for the cost as
disclosed on the Loan Estimate. As a
result, the Bureau is making conforming
amendments in final comments
38(i)(1)(iii)(A)–2.i and –2.iii.
Specifically, final comment
38(i)(1)(iii)(A)–2.i clarifies that certain
closing costs (e.g., fees paid to the
creditor, transfer taxes, fees paid to an
affiliate of the creditor) are generally
subject to the limitations on increases in
closing costs under § 1026.19(e)(3)(i);
however, § 1026.19(e)(3)(iii) provides
exceptions to the general rule for certain
charges. Final comment 38(i)(1)(iii)(A)–
2.iii clarifies that, for a charge listed on
the Loan Estimate under the subheading
‘‘Services You Can Shop For,’’ such
charge would generally be subject to the
limitations under § 1026.19(e)(3)(i) if the
consumer decided to use a provider
affiliated with the creditor; however,
§ 1026.19(e)(3)(iii) provides exceptions
to the general rule for certain charges.
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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
proposed to change $0 to $0.00 to reflect
the disclosure of a dollar amount of zero
to two decimal places. The Bureau did
not receive comments specific to this
proposal. However, for the reasons
discussed in the section-by-section
analysis of § 1026.38(e)(3)(iii)(B), the
Bureau is not finalizing the proposed
amendment to comment 38(i)(2)(iii)(B)–
1.
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38(i)(3) Closing Costs Financed
The Bureau’s Proposal
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 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 proposed 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)
from the loan amount disclosed under
§ 1026.38(b). The proposed comment
explained that the total amount of
payments to third parties includes the
sale price of the property disclosed
under § 1026.38(j)(1)(ii). Proposed
comment 38(i)(3)–1 also explained that
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 calculation is positive, that
amount would be 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
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amount of closing costs disclosed under
§ 1026.38(h)(1).
Consistent with proposed comment
37(h)(1)(ii)–2, the Bureau proposed 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. The
proposed comment explained that
financed closing costs, such as mortgage
insurance premiums payable at or
before consummation, do not reduce the
loan amount. The intent of this
proposed comment was to 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 under
§ 1026.38(b), and the basis for the
calculating cash to close table
calculations, is the total amount the
consumer will borrow as reflected by
the face amount of the note. This
definition of loan amount under
§ 1026.38(b) would not have affected
how other agencies define or use similar
terms for purposes of their own
programmatic requirements. For
example, the ‘‘base loan amount’’ and
‘‘total loan amount,’’ as those terms are
used for loans made under FHA
programs, may not be the same as the
loan amount required to be disclosed
under § 1026.38(b).
Comments Received
The Bureau received several
comments on proposed comment
38(i)(3)–1. As discussed in the sectionby-section analysis of § 1026.37(h)(1)(ii),
two industry commenters noted a slight
inconsistency between the language
describing the closing costs financed
calculations for the Loan Estimate in
comment 37(h)(1)(ii)–1 and the Closing
Disclosure in comment 38(i)(3)–1. Such
inconsistency could permit creditors to
use two different calculations for the
closing costs financed disclosures.
A title insurance company requested
that the Bureau update the sample forms
to reflect $0.00 instead of $0 because the
proposed new commentary would
require disclosure of $0.00 if the result
of the closing costs financed calculation
was zero or negative.
A software vendor group stated that,
in the absence of a method for
calculating the closing costs financed on
the Closing Disclosure, some lending
platforms have been completing the
closing costs financed disclosure on the
Closing Disclosure by entering the
amount of closing costs that have been
added to the amount requested or
subtracted from the loan proceeds under
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§ 1026.38(i)(3)(ii). The commenter stated
that the approach yields a cash to close
amount in the calculating cash to close
table consistent with the cash to close
amount in the summaries of
transactions table. The commenter
indicated that amending its current
practice to be consistent with proposed
comment 38(i)(3)–1 would require a
substantial reprogramming effort. A
software vendor and software vendor
group stated that using the calculation
method in proposed comment 38(i)(3)–
1 to determine the amount of closing
costs financed potentially could be
confusing to consumers. Another
software vendor stated that the
calculation method in proposed
comment 38(i)(3)–1 does not align with
the language in § 1026.38(i)(3). Finally,
as discussed in the section-by-section
analysis of § 1026.37(h)(1), regarding the
proposal to clarify that, on the
simultaneous subordinate financing
Loan Estimate, the sale price disclosed
under § 1026.37(a)(7) would not be used
in any of the § 1026.37(h)(1)
calculations, a title insurance company
noted that the Bureau did not make a
corresponding change for the Closing
Disclosure.
The Bureau received several
comments on proposed comment
38(i)(3)–2. As discussed in the sectionby-section analysis of § 1026.37(h)(1)(ii),
consistent with comments received on
proposed comment 37(h)(1)(ii)–2, a
software vendor expressed support for
the Bureau’s proposed comment
38(i)(3)–2 to clarify that financed
mortgage insurance premiums do not
reduce the loan amount used in the
calculation. One trade association
commenter did not support requiring
the loan amount disclosed in
§ 1026.38(b) to be used in the closing
costs financed calculation; instead, the
commenter indicated that creditors
should be permitted to use the ‘‘base
loan amount.’’
The Final Rule
For the reasons discussed below, the
Bureau is adopting proposed comment
38(i)(3)–1 in part with revisions and
adopting proposed comment 38(i)(3)–2
with revisions. To address the slight
inconsistency between the language
describing the closing costs financed
calculation for the Loan Estimate and
Closing Disclosure in the proposed
amendments to comment 37(h)(1)(ii)–1
and proposed new comment 38(i)(3)–1,
respectively, the Bureau is amending
comment 37(h)(1)(ii)–1, as discussed in
the section-by-section analysis of
§ 1026.37(h)(1)(ii), for consistency with
comment 38(i)(3)–1. Therefore, the
Bureau is adopting the relevant
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proposed revisions to comment 38(i)(3)–
1.
For the reasons discussed in the
section-by-section analysis of
§ 1026.38(e)(3)(iii)(B), the Bureau is not
finalizing the proposed amendment to
comment 38(i)(3)–1 which would have
changed ‘‘$0’’ to ‘‘$0.00.’’ The Bureau is
also not conducting a systematic review
of sample forms at this time. As
discussed in the section-by-section
analysis of Appendix H—Closed-End
Forms and Clauses below, doing so
would be inconsistent with the Bureau’s
focus in this rulemaking on providing
additional clarity in an expeditious
manner.
As discussed above, some
commenters raised concerns with the
Closing Disclosure’s closing costs
financed calculation set forth in
proposed comment 38(i)(3)–1. In the
TILA–RESPA Final Rule, the Bureau
added comment 37(h)(1)(ii)–1 to specify
a method to calculate the amount of
closing costs to be paid from mortgage
loan proceeds on the Loan Estimate, in
response to comments asking how to
conduct the calculation.88 However, the
Bureau did not add a similar comment
regarding the Closing Disclosure’s
closing costs financed disclosure. The
Bureau recognizes that this omission
has caused confusion in the industry
and the industry has taken varying
approaches to disclosing the amount of
closing costs financed on the Closing
Disclosure absent a formula. As
discussed in part VI below, the Bureau
is committed to giving industry
sufficient time to reprogram its software
to accommodate the formula. This final
rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
As discussed in more detail in the
section-by-section analysis of
§ 1026.37(h), several commenters
expressed concern that the closing costs
financed disclosure may result in a
disclosure that does not necessarily
align with consumers’ understanding of
their transactions, and that consumers
may not recognize that there is a
calculation that determines this
disclosure component. One solution
raised by commenters is to include the
formula in the calculating cash to close
table. The Bureau does not adopt this
recommendation because it does not
believe that including the formula
would be helpful to consumers. The
table intentionally conducts the
calculations behind-the-scenes so that
consumers can review the high-level
components of the calculation. Another
88 78
FR 79730, 79967 (Dec. 31, 2013).
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solution raised by commenters is to
create a new label for the closing costs
financed disclosure so that consumers
would not associate the amount
disclosed on the currently labeled
‘‘Closing Costs Financed (Paid from
your Loan Amount)’’ line of the
calculating cash to close table with the
amount of closing costs they understand
to be financed in their transactions. The
Bureau does not adopt this
recommendation because the labels
were developed through consumer
testing processes, and it is not feasible,
on the expedited schedule of this
rulemaking, to reengage in consumer
testing to validate revised labels.
Although consumer testing of
disclosures is not necessary in all
instances, the Bureau considers that
such testing is important in this context.
As discussed above, one software
vendor stated that the calculation
method in proposed comment 38(i)(3)–
1 does not align with the language in the
regulatory text. The Bureau does not
agree with this assertion. Section
1026.38(i)(3) requires disclosure of the
actual amount of the closing costs that
are to be paid out of loan proceeds.
Because money is fungible, in order to
create standardized disclosures that can
be utilized in a wide variety of
transaction types, the Bureau had to
create formulas that earmarked loan
funds for specific disclosures, including
the closing costs financed disclosure;
the closing costs financed disclosure
formula in final comment 38(i)(3)–1
explains to creditors how to determine
the amount of closing costs that are to
be paid out of loan proceeds for all
transaction types in a standardized
manner. The Bureau concludes that it is
important to specify a method to
calculate the amount of closing costs to
be paid from loan proceeds on the
Closing Disclosure to create consistency
and uniformity for this disclosure
component, and to ensure that all of the
calculating cash to close disclosure
components work together to yield an
accurate amount of cash due from or to
the borrower at closing.
The Bureau is revising comment
38(i)(3)–1 to explain that for some loans,
such as simultaneous subordinate
financing transactions, no sale price will
be disclosed under § 1026.38(j)(1)(ii) in
accordance with comment 38(j)(1)(ii)–1.
While this revision is not necessary, the
Bureau believes the reference to
comment 38(j)(1)(ii)–1 in comment
38(i)(3)–1 may be helpful to creditors
conducting the closing costs financed
calculation for simultaneous
subordinate financing.
The Bureau is also amending
comment 38(i)(3)–1 to include
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additional examples for consistency
with comments 37(h)(1)(ii)–1 and
38(g)(4)–1. As discussed in the sectionby-section analysis of § 1026.38(g)(4),
the Bureau is not finalizing the proposal
that would have required construction
costs, payoff of existing liens, and
payoff of unsecured debt to be disclosed
under § 1026.38(g)(4). Because amounts
for construction costs, payoff of existing
liens, and payoff of unsecured debt are
disclosed under § 1026.38(j)(1)(v), they
will be included in the closing costs
financed calculation as payments to
third parties not otherwise disclosed
under § 1026.38(f) and (g).
The Bureau is finalizing comment
38(i)(3)–2 with revisions. The Bureau
believes its statement in proposed new
comment 38(i)(3)–2 that the loan
amount is the total amount the
consumer will borrow as reflected by
the face amount of the note is
sufficiently clear and is therefore
streamlining the comment by removing
the example. The Bureau is making
minor technical revisions for greater
consistency with comment 37(h)(1)(ii)–
2, but is not otherwise amending
proposed comment 38(i)(3)–2 as
requested by a commenter. The loan
amount as disclosed under § 1026.38(b)
is an integral part of the closing costs
financed calculation, and the
calculating cash to close table generally.
The Bureau emphasizes that this
definition of loan amount in
§ 1026.38(b) 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,’’
as those terms are used for loans made
under FHA programs, 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
The Bureau’s Proposal
Section 1026.38(i)(4)(ii)(A) requires
the down payment and funds from
borrower amount in a purchase
transaction as defined in
§ 1026.37(a)(9)(i) to be disclosed as a
positive number. In these transactions,
the amount 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 that
is disclosed under § 1026.38(j)(2)(iv).
Section 1026.38(i)(4)(ii)(B) requires that,
in all other transactions, the amount is
determined in accordance with
§ 1026.38(i)(6)(iv). As discussed below,
the Bureau proposed to revise
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§ 1026.38(i)(4)(ii)(A) and comment
38(i)(4)(ii)(A)–1. The Bureau also
proposed to add comment
38(i)(4)(ii)(A)–2.
Specifically, the Bureau proposed 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.
Proposed § 1026.38(i)(4)(ii)(A)(1) would
have provided 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 is disclosed under
§ 1026.38(j)(2)(iv) 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.
Proposed § 1026.38(i)(4)(ii)(A)(2) would
have provided that when the sum of the
loan amount and any amount for
existing loans assumed or taken subject
to that is disclosed under
§ 1026.38(j)(2)(iv) exceeds the sale price
of the property, the creditor instead
would have calculated the funds from
the consumer in accordance with
§ 1026.38(i)(6)(iv). Proposed comment
38(i)(4)(ii)(A)–2 would have explained
that the amount the creditor discloses
under § 1026.38(i)(4)(ii)(A)(2) is
determined in accordance with the
funds for borrower calculation under
§ 1026.38(i)(6)(iv).
Proposed comment 38(i)(4)(ii)(A)–1
would have explained the calculation
that must be followed for accurate
disclosure of the down payment/funds
from borrower amount on the Closing
Disclosure. The proposed comment also
would have explained that the
minimum cash investments required of
consumers and referred to as ‘‘down
payments’’ under some loan programs
would not necessarily be reflected in the
disclosure, and disclosure of the
calculated amount would not affect
compliance or non-compliance with
such loan programs’ requirements.
Section 1026.38(i)(4)(ii)(B) provides
that in a transaction other than the type
described in § 1026.38(i)(4)(ii)(A), the
creditor discloses the funds from the
consumer in accordance with the
formula in § 1026.38(i)(6)(iv), labeled
‘‘Down Payment/Funds from Borrower.’’
Current comment 38(i)(4)(ii)(B)–1
provides that under § 1026.38(i)(6)(iv),
the final amount of funds from the
borrower disclosed under
§ 1026.38(i)(4)(ii)(B) is determined by
subtracting from the total amount of all
existing debt being satisfied in the real
estate closing and disclosed under
§ 1026.38(j)(1)(v) (except to the extent
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the satisfaction of such existing debt is
disclosed under § 1026.38(g)) the
principal amount of the credit extended.
The Bureau proposed to revise
§ 1026.38(i)(4)(ii)(B) for conformity with
proposed amendments to
§ 1026.38(i)(4)(ii)(A). The Bureau
proposed to revise comment
38(i)(4)(ii)(B)–1 to clarify that the ‘‘total
amount of all existing debt being
satisfied’’ means the sum of amounts
disclosed under § 1026.38(j)(1)(ii), (iii),
and (v). The Bureau sought comment on
whether defining the phrase ‘‘total
amount of all existing debt being
satisfied’’ 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.’’ The Bureau also proposed to
revise comment 38(i)(4)(ii)(B)–1 for
conformity with proposed amendments
to § 1026.38(i)(4)(ii)(B). In addition, the
Bureau proposed a technical revision in
comment 38(i)(4)(ii)(B)–1 to change $0
in reference to the final amount to $0.00
to reflect the disclosure of a dollar
amount of zero to two decimal places.
Comments Received
In response to the Bureau’s general
solicitation of comment on the
calculating cash to close table, many
commenters raised concerns with the
down payment/funds from borrower
disclosure requirements. The Bureau
discusses commenters’ general concerns
in the section-by-section analysis of
§ 1026.37(h). The comments
summarized below are related to the
Bureau’s specific proposals under
§ 1026.38(i)(4) and its commentary.
As discussed more fully in the
section-by-section analysis of
§ 1026.37(h)(1)(iii), commenters
supported the Bureau’s proposal to
account for the amount expected to be
disbursed to the consumer or used at the
consumer’s discretion at consummation
for purchase transactions. Some
commenters raised concerns about the
distinction between the Bureau’s
proposed down payment disclosure
calculation and minimum cash
investments required of consumers
under some loan programs, which may
also be called ‘‘down payments’’ under
those loan programs.
In response to the Bureau’s request for
comments on whether defining the
phrase ‘‘total amount of all existing debt
being satisfied’’ to mean specifically
amounts disclosed under
§ 1026.38(j)(1)(ii), (iii), and (v) is too
prescriptive, a title insurance company
responded that it did not believe such
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37735
a definition was too prescriptive.
However, the commenter cautioned that
the proposed amendments to the
commentary of § 1026.38(g)(4) regarding
payoffs of amounts secured by real
property would have unintended
consequences because under the
proposal, that debt would not have been
disclosed under any of those paragraphs
of § 1026.38(j).
A commenter raised a concern that
the Bureau’s requirement to label the
amount of funds from the consumer
disclosed under § 1026.38(i)(4)(ii) as
‘‘Down Payment/Funds from Borrower’’
when using the ‘‘Funds for Borrower’’
calculation under § 1026.38(i)(6)(iv)
conflicts with the ‘‘Funds for Borrower’’
disclosure requirements of
§ 1026.38(i)(6)(ii). The commenter cited
to § 1026.38(i)(4)(ii)(B)(2), which does
not exist. The commenter may have
been referring to comment
38(i)(4)(ii)(A)–2 or comment
38(i)(4)(ii)(B)–1.
The Final Rule
For the reasons discussed below and
in the section-by-section analysis of
§ 1026.37(h)(1)(iii), the Bureau is
adopting the amendments to
§ 1026.38(i)(4)(ii)(A) as proposed with
several revisions. The Bureau also is
adopting conforming revisions to
§ 1026.38(i)(4)(ii)(B). In addition, the
Bureau generally is adopting, with
revisions, the proposed amendments to
comments 38(i)(4)(ii)(A)–1 and
38(i)(4)(ii)(B)–1, and proposed comment
38(i)(4)(ii)(A)–2, and is making a
conforming amendment to comment
38(i)(4)(iii)(A)–1. For the reasons
discussed in the section-by-section
analysis of § 1026.38(e)(3)(iii)(B), the
Bureau is not finalizing the proposed
amendment to comment 38(i)(4)(ii)(B)–1
which would have changed ‘‘$0’’ to
‘‘$0.00,’’ and is amending proposed
comment 38(i)(4)(ii)(A)–2 to reflect ‘‘$0’’
instead of ‘‘$0.00.’’
Consistent with final
§ 1026.37(h)(1)(iii) and for the reasons
discussed in the section-by-section
analysis of § 1026.37(h)(1)(iii), the
Bureau is adopting the amendments to
§ 1026.38(i)(4)(ii)(A) and (B), and
adopting comment 38(i)(4)(ii)(A)–2, as
proposed with revisions discussed
above and revisions to clarify how
§ 1026.38(i)(4)(ii) applies to
simultaneous subordinate financing
purchase transactions and purchase
transactions with improvements to be
made on the property. Specifically, final
§ 1026.38(i)(4)(ii)(A)(2) provides that for
a purchase transaction that is a
simultaneous subordinate financing
transaction or that involves
improvements to be made on the
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property, the amount of funds from the
consumer is determined in accordance
with § 1026.38(i)(6)(iv). Because
simultaneous subordinate financing is
specifically covered by final
§ 1026.38(i)(4)(ii)(A)(2), it is no longer
necessary to reference in
§ 1026.38(i)(4)(ii)(A)(1) the sale price
disclosed under § 1026.38(j)(1)(ii)
instead of the sale price disclosed under
§ 1026.38(a)(3)(vii)(A). The Bureau notes
that for transactions that use the down
payment/funds from borrower
calculation under
§ 1026.38(i)(4)(ii)(A)(1), the sale price
disclosed on page 1 of the Closing
Disclosure under § 1026.38(a)(3)(vii)(A)
will be the same as the sale price
disclosed in the summaries of
transactions table on page 3 of the
Closing Disclosure pursuant to
§ 1026.38(j)(1)(ii). Therefore, in final
§ 1026.38(i)(4)(ii)(A)(1) the Bureau is
referencing the sale price disclosed
under § 1026.38(a)(3)(vii)(A), consistent
with the corresponding provision for the
Loan Estimate, and is making
conforming amendments to final
§ 1026.38(i)(4)(ii)(A)(2).
The Bureau is also making several
technical revisions to comments
38(i)(4)(ii)(A)–1 and –2, and
38(i)(4)(ii)(B)–1. Specifically, the Bureau
is revising comments 38(i)(4)(ii)(A)–2
and 38(i)(4)(ii)(B)–1 to make technical
revisions to reflect the phrase ‘‘total
amount of all existing debt being
satisfied in the transaction’’ instead of
‘‘total amount of all existing debt being
satisfied in the real estate closing’’ for
consistency with the terminology used
in § 1026.37. Similar amendments are
discussed in the section-by-section
analysis of § 1026.38(i)(6)(iv).
As discussed above, a commenter
cautioned that the proposed
amendments to the commentary of
§ 1026.38(g)(4) regarding the payoffs of
amounts secured by real property would
have unintended consequences to the
proposal to define existing debt being
satisfied in the transaction as the
amounts that are disclosed on the
Closing Disclosure under
§ 1026.38(j)(1)(ii), (iii), and (v). As
discussed in the section-by-section
analysis of § 1026.38(g)(4), the Bureau is
not finalizing the proposal that would
have required construction costs, payoff
of existing liens, and payoff of
unsecured debt to be disclosed under
§ 1026.38(g)(4).
The Bureau also is amending
comments 38(i)(4)(ii)(A)–1 and –2,
38(i)(4)(ii)(B)–1, and 38(i)(4)(iii)(A)–1 to
make clear that the disclosure required
under § 1026.38(i)(4)(ii)(A) or (B),
respectively, represents both the down
payment and the funds from the
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borrower. For the reasons discussed in
the section-by-section analysis of
§ 1026.37(h)(1)(iii), the Bureau is not
making other amendments to comment
38(i)(4)(ii)(A)–1 in response to the
comments that raised concerns with the
Bureau’s distinction between the down
payment disclosure calculation and
minimum cash investments required of
consumers under some loan programs,
except to explain that the down
payment and funds from borrower
calculation is independent of any loan
program or investor requirements.
Although the Bureau is not able to
determine the commenter’s precise
concern regarding the potentially
conflicting labeling requirements in
§ 1026.38(i)(4)(ii) and (6)(ii), the Bureau
is revising § 1026.38(i)(4)(ii)(B) and
comments 38(i)(4)(ii)(A)–2 and
38(i)(4)(ii)(B)–1 to provide greater
clarity regarding the calculations and
labeling requirements in
§ 1026.38(i)(4)(ii) and (6)(ii).
38(i)(5) Deposit
The Bureau proposed a technical
revision 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 to reflect the disclosure of a dollar
amount of zero to two decimal places.
The Bureau did not receive comments
on this proposal. For the reasons
discussed in the section-by-section
analysis of § 1026.38(e)(3)(iii)(B), the
Bureau is not finalizing the proposed
amendment to comment 38(i)(5)–1
which would have changed ‘‘$0’’ to
‘‘$0.00.’’ The Bureau is, however,
finalizing other proposed minor
technical revisions to comment 38(i)(5)–
1.
38(i)(6) Funds for Borrower
38(i)(6)(ii)
Comment 38(i)(6)(ii)–1 provides
clarification about how the funds for
borrower amount is determined under
§ 1026.38(i)(6)(iv) and to whom such
amount is disbursed. The Bureau
proposed to revise comment 38(i)(6)(ii)–
1 to conform to proposed revisions and
clarifications to § 1026.38(i)(6)(iv). The
Bureau proposed to add comment
38(i)(6)(ii)–2 to conform to proposed
revisions to comment 37(h)(1)(v)–1.
As discussed more fully in the
section-by-section analysis of
§ 1026.37(h)(1)(v), commenters
supported the Bureau’s proposed
amendments and clarifications to the
funds for borrower disclosure in
§§ 1026.37(h)(1)(v) and 1026.38(i)(6)
and the associated commentary.
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Commenters stated that the
amendments will allow the accurate
reflection of proceeds due to the
borrower at closing and urged the
Bureau to adopt the proposed
amendments. One commenter
supported the clarification in the
proposed revisions to comment
38(i)(6)(ii)–1 that the ‘‘total amount of
all existing debt being satisfied’’ is the
total of the amounts disclosed under
§ 1026.38(j)(1)(ii), (iii), and (v). A
commenter noted a slight wording
difference between proposed comment
37(h)(1)(v)–2 and proposed amendments
to comment 38(i)(6)(ii)–1 regarding the
Loan Estimate and Closing Disclosure,
respectively. Specifically, proposed
comment 37(h)(1)(v)–2 provided that
the total amount of all existing debt
being satisfied in the transaction
includes the amounts that will be
disclosed on the Closing Disclosure in
the summaries of transactions table
under § 1026.38(j)(1)(ii), (iii), and (v).
This commenter interpreted the word
‘‘includes’’ to mean ‘‘includes, but is not
limited to,’’ whereas the proposed
amendments to comment 38(i)(6)(ii)–1
make clear that for the Closing
Disclosure the total amount of all
existing debt being satisfied is the sum
of the amounts that are disclosed on the
Closing Disclosure in the summaries of
transactions table under
§ 1026.38(j)(1)(ii), (iii), and (v). The
commenter requested that the Bureau
revise the comments for better
consistency and alignment.
For the reasons discussed below, the
Bureau is finalizing with revisions the
proposed amendments to comments
38(i)(6)(ii)–1 and proposed comment
38(i)(6)(ii)–2. The Bureau’s amendments
to comment 38(i)(6)(ii)–1 and proposed
comment 38(i)(6)(ii)–2 are necessary to
conform to the amendments made to
§ 1026.38(i)(6)(iv) and for clarity. As
discussed above and in the section-bysection analysis of § 1026.37(h)(1)(v), a
commenter noted a slight wording
difference between proposed comment
37(h)(1)(v)–2 pertaining to the Loan
Estimate and the proposed amendments
to comment 38(i)(6)(ii)–1 pertaining to
the Closing Disclosure. The Bureau is
revising comment 37(h)(1)(v)–2 to
replace the word ‘‘includes’’ with the
phrase ‘‘is the sum of’’ for consistency
and alignment with final comment
38(i)(6)(ii)–1.
As discussed in the section-by-section
analyses of § 1026.37(h)(1)(iii) and (v),
the Bureau is amending comments
37(h)(1)(iii)–1 and 37(h)(1)(v)–1 to make
clear that the disclosure required under
§ 1026.37(h)(1)(iii) represents both the
down payment and other funds from the
borrower. The Bureau is similarly
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amending proposed comment
38(i)(6)(ii)–2 to make clear that the
disclosure required under
§ 1026.38(i)(4)(ii)(A)(1) represents both
the down payment and funds from the
borrower. In addition, the Bureau is
streamlining the comment for greater
clarity.
As discussed in the section-by-section
analysis of § 1026.38(e)(3)(iii)(B), the
Bureau’s proposal would have changed
‘‘$0’’ to ‘‘$0.00’’ in many places in
§ 1026.38(e) and (i), and the associated
commentary, so that dollar amounts of
zero would be disclosed consistently in
the ‘‘Final’’ column of the Closing
Disclosure’s calculating cash to close
table. Generally, unless amounts are
required to be rounded by
§ 1026.38(t)(4), amounts are disclosed
on the Closing Disclosure as exact
numerical amounts, using decimal
places. Section 1026.38(t)(4) provides
for exceptions to this general rule. Upon
further consideration, the Bureau is not
finalizing the proposed approach, and is
instead changing the few instances of
‘‘$0.00’’ to ‘‘$0.’’ The Bureau believes
this approach will achieve the
consistency intended by the proposal,
but will be less burdensome to creditors
because § 1026.38(e) and (i), and the
associated commentary, currently refer
to dollar amounts of zero in the ‘‘Final’’
column of the calculating cash to close
table as ‘‘$0’’ most of the time.
Therefore, the Bureau is making
conforming amendments to comment
38(i)(6)(ii)–1 and proposed comment
38(i)(6)(ii)–2 to change ‘‘$0.00’’ to ‘‘$0.’’
38(i)(6)(iv)
Section 1026.38(i)(6)(iv) provides that
the funds from borrower disclosed
under § 1026.38(i)(4)(ii)(B) and funds for
borrower disclosed under
§ 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 closing and disclosed under
§ 1026.38(j)(1)(v) (except to the extent
the satisfaction of such existing debt is
disclosed under § 1026.38(g)). This
calculation does not capture the amount
of existing loans assumed or taken
subject to that is disclosed under
§ 1026.38(j)(2)(iv). The Bureau proposed
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 loans assumed or taken
subject to, and to clarify that the phrase
‘‘total amount of all existing debt being
satisfied’’ means amounts that are
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disclosed in the summaries of
transactions table under
§ 1026.38(j)(1)(ii), (iii), and (v). The
Bureau sought comment on whether
defining the phrase ‘‘total amount of all
existing debt being satisfied’’ 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.’’ The
Bureau also proposed technical
revisions to § 1026.38(i)(6)(iv)(A), (B),
and (C) which explain the amounts to
disclose under § 1026.38(i)(4)(ii) and
(6)(ii). Specifically, in paragraphs (A),
(B), and (C), the Bureau proposed to
change ‘‘$0’’ to ‘‘$0.00’’ to reflect the
disclosure of a dollar amount of zero to
two decimal places.
As discussed in the section-by-section
analysis of § 1026.37(h)(1)(v), a number
of commenters supported the Bureau’s
proposed amendments to account for
the amount expected to be disbursed to
the consumer or used at the consumer’s
discretion at consummation in purchase
transactions. Two commenters stated
that the proposed amendments would
allow the accurate reflection of proceeds
due to the borrower and urged the
Bureau to adopt the proposed
amendments.
In response to the Bureau’s request for
comments on whether defining the
phrase ‘‘total amount of all existing debt
being satisfied’’ to mean specifically
amounts disclosed under
§ 1026.38(j)(1)(ii), (iii), and (v) is too
prescriptive, a title insurance company
responded that it did not believe such
a definition was too prescriptive.
However, the commenter cautioned that
the proposed amendments to the
commentary of § 1026.38(g)(4) regarding
payoffs of amounts secured by real
property would have unintended
consequences because that debt would
not be disclosed under
§ 1026.38(j)(1)(ii), (iii), or (v).
A title insurance company also noted
that the integrated disclosure sample
form H–25(B) displays $0, not $0.00.
The commenter requested that the
Bureau revise sample form H–25(B) to
illustrate $0.00 instead of $0.
For the reasons discussed below, the
Bureau is generally adopting
§ 1026.38(i)(6)(iv) as proposed with
technical revisions, but, for the reasons
discussed in the section-by-section
analysis of § 1026.38(e)(3)(iii)(B), the
Bureau is not finalizing the proposed
amendment to § 1026.38(i)(6)(iv) which
would have changed ‘‘$0’’ to ‘‘$0.00.’’
The amendments the Bureau proposed
to make to § 1026.38(i)(6)(iv) and which
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the Bureau is finalizing are necessary to
conform to final § 1026.38(i)(4). The
Bureau is making technical revisions to
§ 1026.38(i)(6)(iv) to reflect the full label
‘‘Down Payment/Funds from Borrower’’
instead of only ‘‘Funds from Borrower’’
for greater clarity. The Bureau is also
revising § 1026.38(i)(6)(iv) to use the
phrase ‘‘total amount of all existing debt
being satisfied in the transaction’’
instead of ‘‘total amount of all existing
debt being satisfied in the real estate
closing’’ for consistency with the
terminology used in § 1026.37.
As discussed above, a commenter
cautioned that the proposed
amendments to the commentary of
§ 1026.38(g)(4) regarding the payoffs of
amounts secured by real property would
have unintended consequences to the
proposal to define existing debt being
satisfied in the transaction as the
amounts that are disclosed on the
Closing Disclosure under
§ 1026.38(j)(1)(ii), (iii), and (v). As
discussed in the section-by-section
analysis of § 1026.38(g)(4), the Bureau is
not finalizing the proposal that would
have required construction costs, payoff
of existing liens, and payoff of
unsecured debt to be disclosed under
§ 1026.38(g)(4).
The Bureau is not conducting a
systematic review of sample forms at
this time. As discussed in the sectionby-section analysis of Appendix H—
Closed-End Forms and Clauses below,
doing so would be inconsistent with the
Bureau’s focus in this rulemaking on
providing additional clarity in an
expeditious manner.
38(i)(7) Seller Credits
The Bureau’s Proposal
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
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). The amount of seller
credits disclosed on the Loan Estimate
under § 1026.37(h)(1)(vi) may include
only general (i.e., lump sum) seller
credits or general credits and specific
seller credits. However,
§ 1026.38(j)(2)(v) and comment
38(j)(2)(v)–1 state that only general
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
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the closing cost details table under
§ 1026.38(f) or (g).
Consistent with § 1026.38(j)(2)(v) and
comment 38(j)(2)(v)–1, the Bureau
proposed to amend to
§ 1026.38(i)(7)(iii)(A) to provide that, if
there is a difference between the amount
of seller credits disclosed under
§§ 1026.37(h)(1)(vi) and 1026.38(j)(2)(v)
that is not attributed to rounding of the
amount 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
proposed new comment 38(i)(7)(iii)(A)–
1 with examples of the required
statement.
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Comments Received
The Bureau received comments on
these proposed changes from various
industry commenters, including a title
insurance company, a group of software
vendors, and a non-bank. Some
commenters supported the change,
other commenters requested different
requirements from what the Bureau
proposed, and some requested
additional clarity.
An industry commenter noted that if
creditors are given discretion to disclose
a statement that the consumer should
see the details disclosed in both the
seller-paid column on page 2 and
Section L under form H–25(B) in
appendix H, when the seller credit only
appears in one of those locations (i.e., is
only general or only specific), this
creates consumer confusion. Instead, the
commenter stated that the Bureau
should require a statement that
consumer should only see the details
disclosed under § 1026.38(j)(2)(v) in the
summaries of transactions table if the
credit is general, or only be directed to
the seller-paid column of § 1026.38(f)
and (g) if the credit is specific.
Conversely, industry software vendor
commenters stated that the Bureau
should require a statement that the
consumer should see the details in the
seller-paid column under § 1026.38(f) or
(g) and in § 1026.38(j)(2)(v) for every
transaction, as the proposed
amendments to § 1026.38(i)(7)(iii)(A)
would be burdensome and challenging
for software vendors to implement. An
industry individual commenter
requested that the Bureau change the
‘‘Seller Credits’’ line in the calculating
cash to close table to distinguish
between general seller credits and
specific seller credits, to ease consumer
confusion.
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The Final Rule
Based on comments received, the
Bureau is finalizing
§ 1026.38(i)(7)(iii)(A) and comment
38(i)(7)(iii)(A)–1 with revisions. In
response to the commenter who
requested that the Bureau require a
statement that consumer should only
see the details disclosed under
§ 1026.38(j)(2)(v) in the summaries of
transactions table if the credit is general,
or only be directed to the seller-paid
column of § 1026.38(f) and (g) if the
credit is specific, the Bureau is
providing this option in the final rule.
However, the Bureau does not believe
that requiring all creditors to provide a
statement that consumers should only
see the details disclosed under
§ 1026.38(j)(2)(v) in the summaries of
transactions table if the credit is general,
or only be directed to the seller-paid
column of § 1026.38(f) and (g) if the
credit is specific, would substantially
aid in consumer understanding and is
concerned that doing so may be
burdensome. In response to the
commenters who requested that the
Bureau require a statement that the
consumer should see the details in the
seller-paid column under § 1026.38(f) or
(g) and § 1026.38(j)(2)(v) for every
transaction in order to reduce
implementation burden, the Bureau is
providing this option in the final rule.
However, the Bureau declines to require
creditors to provide a statement that the
consumer should see the details in the
seller-paid column under § 1026.38(f) or
(g) and § 1026.38(j)(2)(v) for every
transaction because doing so would
eliminate the option for a creditor to
provide more clarity for consumers by
specifying which section the change in
seller credits is located, if it is only
located in the closing cost details table
under § 1026.38(f) or (g) or the
summaries of transactions table under
§ 1026.38(j)(2)(v). As finalized,
§ 1026.38(i)(7) will provide more
accurate information to consumers,
while providing optionality to ease
compliance for industry. The Bureau
declines to revisit major policy
decisions in this rulemaking, such as
the commenter request to change the
‘‘Seller Credits’’ line in the calculating
cash to close table to distinguish
between general seller credits and
specific seller credits.
Pursuant to commenter requests for
additional clarity, the Bureau provides
the following discussion. Creditors will
now have options for the text under the
subheading ‘‘Did this change,’’ when
disclosing a difference in the amount of
seller credits from the Loan Estimate to
the Closing Disclosure, depending on
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whether the seller credits are either
entirely general, entirely specific, or
both. A creditor may, under the
subheading ‘‘Did this change?,’’ either
disclose a statement that the consumer
should see the details disclosed under
§ 1026.38(j)(2)(v) in the summaries of
transactions table and the seller-paid
column of § 1026.38(f) and (g), or
disclose a statement that the consumer
should see the details disclosed under
§ 1026.38(j)(2)(v) in the summaries of
transactions table if the credit is general,
or the seller-paid column of § 1026.38(f)
and (g) if the credit is specific. If the
difference in ‘‘Seller Credits’’ in the
calculating cash to close table is
attributable to general and specific seller
credits, 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 and the seller-paid
column of § 1026.38(f) and (g).
38(i)(8) Adjustments and Other Credits
38(i)(8)(i)
Section 1026.38(i)(8)(i) requires
disclosure under the subheading ‘‘Loan
Estimate’’ of the amount disclosed on
the Loan Estimate under
§ 1026.37(h)(1)(vii) rounded to the
nearest whole dollar, labeled
‘‘Adjustments and Other Credits.’’ The
Bureau proposed a technical revision 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 in accordance
with § 1026.37(o)(4)(i)(A).
The Bureau did not receive any
comments on this proposal. However, a
trade association commenter stated that
sample form H–25(B) contains a final
value of ¥$1,035.04, which the
commenter asserted was in violation of
§ 1026.38(i)(8)(i) because the amount is
not rounded to the nearest whole dollar,
and requested that the Bureau amend
the sample form to correctly reflect the
disclosure requirements.
For the reasons discussed below, the
Bureau is finalizing the technical
revision to § 1026.38(i)(8)(i) as
proposed. The Bureau concludes that
this technical revision is necessary. In
response to the commenter’s assertion
that the disclosure of ¥$1,035.04 in
sample form H–25(B) is in violation of
§ 1026.38(i)(8)(i), the Bureau disagrees.
On sample form H–25(B), ¥$1,035.04 is
disclosed under the subheading ‘‘Final’’
pursuant to § 1026.38(i)(8)(ii), not
§ 1026.38(i)(8)(i). The amount disclosed
under § 1026.38(i)(8)(i) is the amount
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proposed amendment to
§ 1026.38(i)(8)(iii)(A) is necessary to
conform to final § 1026.38(i)(8)(ii), the
Bureau is adopting the amendment to
§ 1026.38(i)(8)(iii)(A) as proposed.
38(i)(8)(ii)
Section 1026.38(i)(8)(ii) provides that
the amount disclosed under the
subheading ‘‘Final’’ 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, because 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
proposed 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 existing debt being satisfied in
the transaction, as provided by
proposed revisions to those paragraphs,
they are not also counted in the
adjustments and other credits
calculation. The Bureau also proposed a
technical revision to comment
38(i)(8)(ii)–1, which incorrectly
references § 1026.37(h)(7) instead of
§ 1026.37(h)(1)(vii). The Bureau did not
receive comments on these proposals.
The Bureau is finalizing the
amendments to § 1026.38(i)(8)(ii) with a
minor technical revision and finalizing
comment 38(i)(8)(ii)–1 as proposed. The
Bureau continues to believe that, in
order to arrive at a more accurate cash
to close amount, it is necessary to
prevent amounts disclosed under
§ 1026.38(j)(1)(iii) and (v) from being
counted twice in the calculating cash to
close table calculations.
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disclosed on the Loan Estimate under
§ 1026.37(h)(1)(vii), and that amount is
the amount required to be rounded to
the nearest whole dollar in accordance
with § 1026.37(o)(4)(i)(A).
38(j) Summary of Borrower’s
Transaction
Comment 38(j)–3 clarifies that certain
amounts disclosed under § 1026.38(j)
are the same as the amounts disclosed
under corresponding provisions
identified in § 1026.38(k). The Bureau
proposed to revise comment 38(j)–3 to
conform to the proposed revisions to
§ 1026.38(j)(2)(vi).
The Bureau did not receive any
comments on its proposed amendments
to comment 38(j)–3. However, the
Bureau has decided not to finalize the
proposed revision to comment 38(j)–3
that certain amounts disclosed under
§ 1026.38(j)(2)(vi) and (k)(2)(viii) are
identical if the amount disclosed under
§ 1026.38(j)(2)(vi) is attributable to
contractual adjustments between the
consumer and the seller. Instead the
Bureau finalizing comment 38(j)(2)(vi)–
6 to cross-reference § 1026.38(k)(2)(viii),
which requires disclosure of a
description and amount of any and all
other obligations required to be paid by
the seller at the real estate closing.
For the reasons discussed in this
section, the Bureau is revising comment
38(j)–3 for consistency with new
comment 38(k)(2)(vii)–1. As discussed
in the section-by-section analysis of
§ 1026.38(k)(2), the Bureau is adding
comment 38(k)(2)(vii)–1 to explain that
if the simultaneous subordinate
financing purchase transaction is
disclosed using the alternative tables
pursuant to § 1026.38(d)(2) and (e), the
first-lien Closing Disclosure must
include, in the summaries of
transactions table for the seller’s
transaction under § 1026.38(k)(2)(vii),
any contributions toward the
simultaneous subordinate financing
from the seller that are disclosed in the
payoffs and payments table under
§ 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing
Closing Disclosure. As a result, amounts
disclosed under § 1026.38(j)(2)(v) and
(k)(2)(vii) will not be identical. The
amount disclosed under
§ 1026.38(j)(2)(v) will reflect the lump
sum seller credit on the first-lien
Closing Disclosure, whereas the amount
disclosed under § 1026.38(k)(2)(vii) will
reflect the lump sum seller credits on
the first-lien Closing Disclosure and the
simultaneous subordinate financing
Closing Disclosure, when the alternative
tables are used for the simultaneous
subordinate financing. Therefore, the
Bureau is amending comment 38(j)–3 to
38(i)(8)(iii)
The Bureau proposed to revise
§ 1026.38(i)(8)(iii)(A) to conform to
proposed revisions to § 1026.38(i)(8)(ii).
As discussed in the section-by-section
analysis of § 1026.38(i)(8)(ii) above, the
Bureau is finalizing the exclusion of 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 existing debt
being satisfied in the transaction from
the calculation of adjustments and other
credits under § 1026.38(i)(8)(ii). The
Bureau did not receive comments on
this proposed amendment. Because the
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37739
provide that the amounts disclosed
under § 1026.38(j)(2)(v) and (k)(2)(vii)
will be identical unless seller
contributions toward a simultaneous
subordinate financing transaction are
disclosed under § 1026.38(t)(5)(vii)(B)
on the simultaneous subordinate
financing Closing Disclosure and
§ 1026.38(k)(2)(vii) on the first-lien
Closing Disclosure.
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 simultaneous
subordinate financing Loan Estimate as
discussed above, the Bureau proposed
to revise comment 38(j)(1)(ii)–1. As
revised, comment 38(j)(1)(ii)–1 would
have clarified that the sale price would
not be disclosed under § 1026.38(j)(1)(ii)
on the simultaneous subordinate
financing Closing Disclosure.
The Bureau did not receive comments
specific to the proposed conforming
amendments to comment 38(j)(1)(ii)–1.
As discussed in the section-by-section
analysis of § 1026.37(h)(1), the Bureau is
finalizing the proposal regarding the use
of the sale price in the calculating cash
to close table calculations on the
simultaneous subordinate financing
Loan Estimate. For these reasons, the
Bureau is finalizing the corresponding
amendments to comment 38(j)(1)(ii)–1
as proposed.
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
§ 1026.38(f), (g), or (j). 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 proposed to revise comment
38(j)(1)(v)–1 to clarify that the amounts
disclosed under this provision can
include amounts owed to the seller but
payable to the consumer after the real
estate closing, providing the following
as examples: Any balance in the seller’s
reserve account held in connection with
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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.
Proposed comment 38(j)(1)(v)–1 also
provides 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, the Bureau proposed to revise
comment 38(j)(1)(v)–2 to conform to the
proposed revisions to comment
38(g)(4)–1. As discussed in the sectionby-section analysis of § 1026.38(g)(4)
above, the Bureau proposed to require
the disclosure of the payoff of existing
liens secured by the property identified
in § 1026.38(a)(3)(vi) under the heading
‘‘H. Other’’ of the other costs table on
the Closing Disclosure. The Bureau
therefore proposed to revise comment
38(j)(1)(v)–2 to conform to the proposed
amendments to comment 38(g)(4)–1.
For the reasons discussed in this
section, the Bureau is adopting
comment 38(j)(1)(v)–1 as proposed, is
not adopting the proposed amendments
to comment 38(j)(1)(v)–2 but is
otherwise revising the comment, and is
adding comment 38(j)(1)(v)–3. The
Bureau did not receive comments
regarding proposed amendments to
comment 38(j)(1)(v)–1 or –2.
The Bureau is not adopting the
proposed amendments to comment
38(j)(1)(v)–2. As discussed in the
section-by-section analyses of
§§ 1026.37(g)(4) and 1026.38(g)(4), the
Bureau is not finalizing the proposal
that would have required certain costs
and payoffs, including construction
costs, the payoff of existing liens
secured by the property and other
secured or unsecured debt, to be
disclosed on the Loan Estimate and
Closing Disclosure as closing costs. That
proposal, if finalized, would have made
the disclosure of these costs and payoffs
under § 1026.38(j)(1)(v) impermissible.
Because the Bureau is not finalizing the
proposed amendments to comment
38(g)(4)–1, the Bureau is also not
finalizing the proposed conforming
revision in comment 38(j)(1)(v)–2.
Because the Loan Estimate does not
have a disclosure comparable to that in
the summaries of transactions table
under § 1026.38(j)(1)(v), amounts that
will be disclosed on the Closing
Disclosure under § 1026.38(j)(1)(v) will
be disclosed on the Loan Estimate in
one of two ways. In transactions subject
to § 1026.37(h)(1)(iii)(A)(2) and (B), a
creditor factors amounts that will be
disclosed under § 1026.38(j)(1)(v), such
as those paid to any holders of existing
liens on the property in a refinance
transaction, construction costs in
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connection with the transaction that the
consumer will be obligated to pay, and
payoffs of other secured or unsecured
debt, into the funds for borrower
calculations under § 1026.37(h)(1)(v) on
the Loan Estimate. Because these
amounts will be disclosed under
§ 1026.38(j)(1)(v) on the Closing
Disclosure, they are included in existing
debt that is factored into the funds for
borrower calculation under
§ °1026.37(h)(1)(v). Comment
37(h)(1)(v)–2 explains that the total
amount of all existing debt being
satisfied in the transaction that is used
in the funds for borrower calculation is
the sum of the 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. However, in transactions
subject to § 1026.37(h)(1)(iii)(A)(1),
payoffs of other secured or unsecured
debt that will be disclosed under
§ 1026.38(j)(1)(v) are factored into the
adjustments and other credits
calculation under § °1026.37(h)(1)(vii)
on the Loan Estimate.
The Bureau is, however, revising
current comment 38(j)(1)(v)–2 to add
construction costs in connection with
the transaction that the consumer will
be obligated to pay, payoff of other
secured or unsecured debt, and
principal reductions as examples of
amounts that will not have a
corresponding credit in the summary of
the seller’s transaction under
§ 1026.38(k)(1)(iv) and to cross-reference
to comment 38–4 for an explanation of
how to disclose a principal reduction
under § 1026.38(j)(1)(v). As discussed in
the section-by-section analysis of
§ 1026.38 pertaining to comment 38–4
above, industry commenters requested
additional clarity regarding where in the
summaries of transactions table the
principal reduction disclosure is to be
made, since § 1026.38(j)(4)(i) contains
the requirement to disclose costs that
are not paid from closing funds but
would otherwise be disclosed pursuant
to § 1026.38(j) marked with the phrase
‘‘Paid Outside of Closing’’ or ‘‘P.O.C.,’’
but does not provide a specific location
for the principal reduction disclosure.
The commenters suggested that the
appropriate location within the
summaries of transactions table is under
§ 1026.38(j)(1)(v). The Bureau intended
for a principal reduction to be disclosed
under § 1026.38(j)(1)(v) in the
summaries of transactions table and is
revising comment 38–4 to, among other
things, specifically reference
§ 1026.38(j)(1)(v). As a result, the
Bureau is including a corresponding
amendment to comment 38(j)(1)(v)–2.
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Final comment 38(j)(1)(v)–2 crossreferences comment 38–4 for an
explanation of how to disclose a
principal reduction under
§ 1026.38(j)(1)(v).
The Bureau is adding comment
38(j)(1)(v)–3 to permit creditors to
include the proceeds of the subordinate
financing applied to the first-lien
transaction in the summaries of
transactions table on the simultaneous
subordinate financing Closing
Disclosure. Commenters asked, in the
context of the alternative disclosures,
how creditors would show the proceeds
being applied to the first-lien on the
alternative disclosures. The commenters
asserted that most creditors prefer that
the simultaneous subordinate financing
Loan Estimate and Closing Disclosure
include a disclosure of the amount of
loan proceeds that will be applied to the
first-lien loan, and asked the Bureau to
permit this common practice. In the
proposal, the Bureau noted that the
funds that are provided to the consumer
from the proceeds of subordinate
financing and that will be applied to the
first-lien transaction would not be
included on the simultaneous
subordinate financing Loan Estimate or
Closing Disclosure. As a result, the cash
to close amount disclosed under
§§ 1026.37(h)(1)(viii) and 1026.38(i)(9)
would have represented the loan
proceeds as ‘‘cash out’’ to the borrower.
The Bureau understands from the
comments that a common industry
practice may be instead to include the
loan proceeds from the simultaneous
subordinate financing as an adjustment
on the Loan Estimate and Closing
Disclosure for the simultaneous
subordinate financing transaction,
which is inconsistent with the Bureau’s
proposal. The Bureau is addressing
these comments related to the
alternative disclosures in the section-bysection analyses of §§ 1026.37(h)(2)(iii)
and 1026.38(t)(5)(v), but also finds it
appropriate to address these comments
in the context of the standard
disclosures because simultaneous
subordinate financing may be disclosed
using the standard disclosures.
The Bureau believes that consumers
may benefit from allowing creditors to
continue this apparently common
practice. This practice may help
consumers better understand the
simultaneous subordinate financing
transaction and its relation to the firstlien loan. It provides a way for the
simultaneous subordinate financing
Loan Estimate and Closing Disclosure to
include a disclosure of the amount of
proceeds that will be applied to the
first-lien loan. Because, under this
practice, the cash to close amount
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disclosed under §§ 1026.37(h)(1)(viii)
and 1026.38(i)(9) would not include the
subordinate loan proceeds, the cash to
close amount may better represent to
consumers the cash, if any, they will
owe or receive from the subordinate-lien
loan that will not be applied directly to
the first-lien loan.
Therefore, the Bureau is adding new
comment 38(j)(1)(v)–3 to permit
creditors to include the proceeds of the
subordinate financing applied to the
first-lien transaction in the summaries
of transactions table on the
simultaneous subordinate financing
Closing Disclosure. As explained in the
discussion of comment 38(j)(1)(v)–2
above, amounts that will be disclosed
under § 1026.38(j)(1)(v) on the Closing
Disclosure are factored into the Loan
Estimate in one of two ways. In
transactions subject to
§ 1026.37(h)(1)(iii)(A)(2) and (B), a
creditor factors amounts that will be
disclosed under § 1026.38(j)(1)(v) into
the funds for borrower calculations
under § 1026.37(h)(1)(v). Comment
37(h)(1)(v)–2 explains that the total
amount of all existing debt being
satisfied in the transaction that is used
in the funds for borrower calculation is
the sum of the 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. However, in transactions
subject to § 1026.37(h)(1)(iii)(A)(1), a
creditor factors amounts that will be
disclosed under § 1026.38(j)(1)(v) into
the adjustments and other credits
calculation under § 1026.37(h)(1)(vii).
The Bureau is making related
amendments in commentary to
§§ 1026.37(h)(2)(iii) and
1026.38(t)(5)(vii)(B).
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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
under § 1026.38(j)(2)(vi), 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.
The Bureau proposed to revise
§ 1026.38(j)(2)(vi) to explain what items
should be disclosed under the heading
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‘‘Adjustments.’’ Amounts due from the
seller to the consumer, under the
purchase and sale agreement, would be
disclosed under the ‘‘Adjustments’’
heading. The Bureau proposed to revise
comment 38(j)(2)(vi)–2 to clarify that
subordinate financing proceeds are
disclosed pursuant to § 1026.38(j)(2)(vi)
on the first-lien transaction Closing
Disclosure and to revise comment
38(j)(2)(vi)–5 to clarify that 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). The
Bureau also proposed to add new
comment 38(j)(2)(vi)–6 to provide an
example of an amount that would be
disclosed under the heading
‘‘Adjustments.’’ Having received no
comments on the proposed revision to
§ 1026.38(j)(2)(vi) or the proposal to add
new comment 38(j)(2)(vi)–6, the Bureau
is finalizing § 1026.38(j)(2)(vi) as
proposed and finalizing new comment
38(j)(2)(vi)–6 as proposed with a
revision that adds a cross-reference to
§ 1026.38(k)(2)(viii), which requires
disclosure of a description and amount
of any and all other obligations required
to be paid by the seller at the real estate
closing. For the reasons discussed
below, the Bureau is adopting as
proposed the amendments to comments
38(j)(2)(vi)–2 and –5.
A mortgage company supported the
proposed amendments to comment
38(j)(2)(vi)–2 to clarify that the proceeds
of simultaneous subordinate financing
are disclosed on the first-lien Closing
Disclosure. The commenter asserted that
this, accompanied by other proposed
revisions, will enable creditors to
provide a more accurate cash to close
amount to consumers. The Bureau
concludes that this clarification is
necessary for accurate disclosure on the
first-lien Closing Disclosure, and is
therefore adopting the revisions to
comment 38(j)(2)(vi)–2 as proposed.
One compliance professional
supported the proposed amendments to
comment 38(j)(2)(vi)–5 to clarify that
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). One
industry commenter raised concerns
about the proposed change because at
the time of disclosure, it is typically not
evident if the borrower will receive gift
funds before or at consummation.
The Bureau is adopting the
amendments to comment 38(j)(2)(vi)–5
as proposed. The Bureau does not
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believe that additional clarification is
needed for a scenario in which the
creditor does not know at the time
disclosures are given whether a
borrower will receive gift funds before
or at consummation. The Bureau notes
that current comment 19(f)(1)(i)–2
provides that creditors may estimate
disclosures provided under
§ 1026.19(f)(1)(ii)(A) and (2)(ii) using the
best information reasonably available
when the actual term is unknown to the
creditor at the time disclosures are
made, consistent with § 1026.17(c)(2)(i).
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 is 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 adds that
example as an item to be disclosed
under the heading ‘‘Adjustments.’’ The
Bureau did not receive comments
regarding the proposed change to
comment 38(j)(2)(xi)–1. For the reasons
stated above the Bureau is finalizing as
proposed comment 38(j)(2)(xi)–1.
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. The Bureau
proposed to add comment 38–4 which
would have provided 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 principal
curtailment may be used to provide a
refund under § 1026.19(f)(2)(v). The
Bureau proposed to revise comment
38(j)(4)(i)–1 to provide a cross-reference
to comment 38–4 for an explanation of
how to disclose a principal curtailment
to provide a refund under
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§ 1026.19(f)(2)(v). The Bureau also
proposed to clarify that ‘‘a statement of
the party making the payment’’ means
the disclosure must identify the party
making the payment.
As discussed in more detail in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4 above,
industry commenters requested that the
Bureau permit the use of principal
curtailments for situations other than
when a creditor is providing a credit for
a tolerance refund and requested
additional clarity regarding where in the
summaries of transactions table the
principal curtailment disclosure is to be
made, since § 1026.38(j)(4)(i) contains
the requirement to disclose costs that
are not paid from closing funds but
would otherwise be disclosed pursuant
to § 1026.38(j) marked with the phrase
‘‘Paid Outside of Closing’’ or ‘‘P.O.C.,’’
but does not provide a specific location
for the principal curtailment disclosure.
In addition, an industry group
recommended that the Bureau use the
phrase ‘‘principal reduction’’ instead of
‘‘principal curtailment,’’ noting that
consumers would be more familiar with
the recommended phrase.
For the reasons discussed below, the
Bureau is adopting as proposed the
modifications to comment 38(j)(4)(i)–1,
with additional revisions for conformity
with final comment 38–4. The Bureau
appreciates the suggestion to use the
phrase ‘‘principal reduction’’ and is
revising final comment 38(j)(4)(i)–1
accordingly. As discussed in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4 above, the
Bureau sought to address the particular
issue of how to disclose a principal
reduction that is used to provide a
tolerance refund, but did not intend to
propose to limit the use of principal
reductions to situations where creditors
were required to provide a tolerance
refund under § 1026.19(f)(2)(v). The
Bureau is revising and restructuring
proposed comment 38–4 to provide
clarity on the disclosure of principal
reductions that are and are not used to
provide tolerance refunds. Final
comment 38–4 discusses the
requirement to mark a principal
reduction with the phrase ‘‘Paid Outside
of Closing,’’ or the abbreviation ‘‘P.O.C.’’
pursuant to § 1026.38(j)(4)(i) if it is not
paid with closing funds. Therefore, the
Bureau is amending comment
38(j)(4)(i)–1 to cross-reference to final
comment 38–4 for an explanation of
how to disclose a principal reduction
that is not paid from closing funds. The
Bureau also explains, in the section-bysection analysis of § 1026.38 pertaining
to comment 38–4 above, that the Bureau
intended for a principal reduction to be
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disclosed in the summaries of
transactions table under
§ 1026.38(j)(1)(v). Final comment 38–4,
among other things, specifically
references § 1026.38(j)(1)(v) instead of
§ 1026.38(j)(4)(i) for this requirement.
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 proposed 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) which also do not
have a seller, or for simultaneous
subordinate financing transactions if the
first-lien Closing Disclosure records the
entirety of the seller’s transaction. The
Bureau did not receive any comments
on this specific proposal. The Bureau
concludes that the additional examples
will aid in compliance with the
disclosure requirements and is therefore
finalizing the proposed amendments to
comment 38(k)–1 with additional
revisions to specify that the example of
simultaneous subordinate financing
applies to simultaneous subordinate
financing transactions with a purchase
purpose as defined in § 1026.37(a)(9)(i).
38(k)(1) Itemization of Amounts Due to
Seller
Section 1026.38(k)(1) requires a
disclosure in the summaries of
transactions table of the amounts due to
the seller at consummation. Section
1026.38(k)(1)(ii) requires a disclosure of
the amount of the contract sales price of
the property being sold, excluding the
price of any tangible personal property
if the consumer and seller have agreed
to a separate price for such items,
labeled ‘‘Sale Price of Property.’’ The
Bureau did not propose to amend
§ 1026.38(k)(1)(ii) or its commentary.
For the reasons discussed below, the
Bureau is adding final comment
38(k)(1)–1 to explain what amounts are
disclosed under § 1026.38(k)(1)(ii) for a
simultaneous subordinate financing
transaction if the first-lien Closing
Disclosure does not record the entirety
of the seller’s transaction. As discussed
in the section-by-section analysis of
§ 1026.38(k) above, § 1026.38(k) does
not apply in a simultaneous subordinate
financing purchase transaction as
defined in § 1026.37(a)(9)(i) if the firstlien Closing Disclosure records the
entirety of the seller’s transaction. In
addition, when the alternative tables are
used, the table required to be disclosed
by § 1026.38(k) may be deleted pursuant
to § 1026.38(t)(5)(vii)(C); the alternative
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tables may only be used for the
disclosure of simultaneous subordinate
financing if the first-lien Closing
Disclosure records the entirety of the
seller’s transaction.
The Bureau expects that in most
transactions with simultaneous
subordinate financing for which the
alternative tables are not used, the firstlien Closing Disclosure will also record
the entirety of the seller’s transaction,
and therefore § 1026.38(k) will not
apply to the simultaneous subordinate
financing transaction. However, there
may be circumstances in which the firstlien Closing Disclosure will not record
the entirety of the seller’s transaction,
and therefore § 1026.38(k) will apply to
the simultaneous subordinate financing
transaction. Therefore, the Bureau is
adding comment 38(k)(1)–1 to explain
that if § 1026.38(k) applies to a
simultaneous subordinate financing
transaction because the first-lien Closing
Disclosure does not record the entirety
of the seller’s transaction, § 1026.38(k)
must be completed based only on the
terms and conditions of the
simultaneous subordinate financing
transaction. Comment 38(k)(1)–1
explains that no contract sales price is
disclosed under § 1026.38(k)(1)(ii) on
the Closing Disclosure for the
simultaneous subordinate financing.
This is consistent with the amendment
to comment 38(j)(1)(ii)–1 which
explains that on the simultaneous
subordinate financing Closing
Disclosure, no contract sales price is
disclosed in the summaries of
transactions table for the borrower’s
transaction under § 1026.38(j)(1)(ii), and
comment 38(j)–3 which provides that
amounts disclosed under
§ 1026.38(j)(1)(ii) and (k)(1)(ii) are the
same.
38(k)(2) Itemization of Amounts Due
From Seller
Section 1026.38(k)(2)(vii) requires a
disclosure in the summaries of
transactions table, under the seller’s
transaction, of the total amount of
money that the seller will provide at the
real estate closing as a lump sum not
otherwise itemized to pay for loan costs
as determined by § 1026.38(f) and other
costs as determined by § 1026.38(g), and
any other obligations of the seller to be
paid directly to the consumer, labeled
‘‘Seller Credit.’’ The Bureau did not
propose to amend § 1026.38(k)(2)(vii) or
its commentary.
For the reasons discussed below, the
Bureau is adding final comment
38(k)(2)(vii)–1. Final comment
38(k)(2)(vii)–1 explains that if a
simultaneous subordinate financing
transaction is disclosed using the
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alternative tables pursuant to
§ 1026.38(d)(2) and (e), the first-lien
Closing Disclosure must include any
contributions from the seller toward the
simultaneous subordinate financing that
are disclosed in the payoffs and
payments table under
§ 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing
Closing Disclosure. This amendment
enables the first-lien Closing Disclosure
to record the entirety of the seller’s
transaction, which is a requirement of
providing the alternative disclosures for
simultaneous subordinate financing
purchase transactions. Specifically, final
comments 37(d)(2)–1, 37(h)(2)–1,
38(d)(2)–1, and 38(e)–1, taken together,
permit creditors of simultaneous
subordinate financing purchase
transactions to use the alternative
disclosures only if the first-lien Closing
Disclosure will record the entirety of the
seller’s transaction.
As discussed more fully in the
section-by-section analysis of
§ 1026.37(d)(2), in response to the
proposals to permit the disclosure of
simultaneous subordinate financing
purchase transactions using the
alternative tables, one commenter
questioned which disclosures should be
used when the optional alternative
tables were initially used for the
simultaneous subordinate financing, but
a seller later agrees to contribute to the
costs of the subordinate financing,
making continued use of the alternative
tables impermissible under the
proposal. For the reasons discussed in
the section-by-section analysis of
§ 1026.37(d)(2), the Bureau is directly
addressing the commenter’s concern by
adding new comment 38(k)(2)(vii)–1,
amending comments 38(d)(2)–1 and
38(j)–3, and amending proposed new
comments 38(t)(5)(vii)(B)–1 and –2, to
require the disclosure of the seller’s
contributions to the subordinate
financing, if any, in the payoffs and
payments table on the simultaneous
subordinate financing Closing
Disclosure and the summaries of
transactions table on the first-lien
Closing Disclosure, when the alternative
disclosures are used for the
simultaneous subordinate financing. As
discussed in the section-by-section
analysis of § 1026.38(t)(5)(vii), final
comments 38(t)(5)(vii)(B)–1 and –2.iii
explain that if a simultaneous
subordinate financing transaction is
disclosed using the alternative tables
pursuant to § 1026.38(d)(2) and (e), any
contributions from the seller toward the
simultaneous subordinate financing
must be disclosed in the payoffs and
payments table on the simultaneous
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subordinate financing Closing
Disclosure. Final comment 38(k)(2)(vii)–
1 explains that if a simultaneous
subordinate financing transaction is
disclosed with the alternative tables
pursuant to § 1026.38(d)(2) and (e), the
first-lien Closing Disclosure must
include, in the summaries of
transactions table for the seller’s
transaction under § 1026.38(k)(2)(vii),
any contributions from the seller toward
the simultaneous subordinate financing
that are disclosed in the payoffs and
payments table under
§ 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing
Closing Disclosure. The result of these
amendments, coupled with the
amendments to comment 38(j)–3, is that
the first-lien Closing Disclosure will be
able to record the entirety of the seller’s
transaction.
For example, assume the alternative
tables are provided for the simultaneous
subordinate financing transaction
pursuant to § 1026.38(d)(2) and (e) and
the seller contributes $200.00 toward
the closing costs of the simultaneous
subordinate financing. The
simultaneous subordinate financing
Closing Disclosure must include the
$200.00 contribution in the payoffs and
payments table in accordance with
§ 1026.38(t)(5)(vii)(B). The first-lien
Closing Disclosure must include the
$200.00 contribution in the summaries
of transactions table for the seller’s
transaction under § 1026.38(k)(2)(vii),
thereby recording the entirety of the
seller’s transaction on the first-lien
Closing Disclosure. For a more detailed
discussion of these new and revised
comments, see the section-by-section
analyses of § 1026.38(d)(2), (j), and
(t)(5)(vii).
38(l) Loan Disclosures
38(l)(7) Escrow Account
Mortgage Insurance Premiums
The Bureau’s Proposal
If an escrow account is or will be
established, § 1026.38(l)(7)(i)(A)(1), (2),
and (4) 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 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
proposed to amend § 1026.38(l)(7)(i) and
comments 38(l)(7)(i)(A)(2)–1 and
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38(l)(7)(i)(A)(4)–1 to permit disclosure
of amounts for ongoing mortgage
insurance premiums.
Comments Received
Several commenters, including
creditors and vendors, supported the
proposed amendments to
§ 1026.38(l)(7)(i) and associated
commentary to permit disclosure of
amounts for ongoing mortgage insurance
premiums. Vendors stated that such
amendments are necessary both for
consumer understanding and for
facilitating industry compliance. A
creditor noted that, by permitting
disclosure of amounts for ongoing
mortgage insurance premiums, the
proposed amendments to
§ 1026.38(l)(7)(i) and associated
commentary are consistent with current
§ 1026.38(g)(3), which cross-references
§ 1026.37(g)(3) and requires disclosure
of the amount to be paid into the escrow
account for mortgage insurance
premiums at consummation.
However, some industry commenters
opposed the proposed amendments to
§ 1026.38(l)(7)(i) and associated
commentary to permit disclosure of
amounts for ongoing mortgage insurance
premiums. Trade association
commenters stated that such
amendments regarding the disclosures
on page 4 of the Closing Disclosure are
inconsistent with the estimated escrow
payment disclosed on page 1 of the
Closing Disclosure, which excludes
amounts for mortgage insurance. A trade
association and a vendor asserted that,
while various labels on page 4 of the
Closing Disclosure use the phrase
‘‘property costs,’’ mortgage insurance
premiums are not a property cost and
the Bureau should not finalize the
proposed amendments without testing
for potential consumer confusion.
A trade association requested that, if
the Bureau finalizes the proposed
amendments to permit disclosure of
amounts for ongoing mortgage insurance
premiums, such disclosure should
include only mortgage insurance
premiums that are included in the
escrow account analysis prescribed
under Regulation X, 12 CFR 1024.17. A
vendor group requested clarification
regarding escrow account disclosures
and space limitations on page 4 of the
Closing Disclosure form. Vendors also
requested that the Bureau amend
§ 1026.38(l)(7)(i) to require disclosure of
all amounts paid into an escrow
account, regardless of whether the
consumer is required to make such
payment or, rather, opts to do so.
Regarding implementation costs, a
vendor commented that the proposed
amendments to permit disclosure of
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amounts for ongoing mortgage insurance
premiums would require significant
reprogramming. A vendor group noted
that the amendments are consistent with
informal guidance previously provided
by the Bureau to some vendors but the
amendments would require substantial
changes for others. The vendor group
stated that the proposed amendments
would eliminate industry uncertainty.
Regarding an implementation period for
the various amendments to
§ 1026.38(l)(7) and associated
commentary, including new comments
38(l)(7)(i)(A)(2)–2 and 38(l)(7)(i)(A)(5)–1
discussed below, the vendor group
stated that reprogramming could take up
to nine months for some vendors and a
creditor recommended a six-month
implementation period.
The Final Rule
For the reasons discussed below, the
Bureau is adopting § 1026.38(l)(7)(i) and
comments 38(l)(7)(i)(A)(2)–1 and
38(l)(7)(i)(A)(4)–1 as proposed and, in
part in response to commenters’
concerns, is also adding new comments
38(l)(7)–1 and –2. After considering the
commenter’s concern that the
amendments should align with
Regulation X, 12 CFR 1024.17, and
consistent with current comment
38(g)(3)–5, new comment 38(l)(7)–1
cross-references the definition of
‘‘escrow account’’ in 12 CFR 1024.17(b)
to provide a description of an escrow
account for purposes of the escrow
account disclosure under
§ 1026.38(l)(7). After considering the
commenter’s concern regarding space
limitations on page 4 of the Closing
Disclosure form, and consistent with
current comment 38(j)–2, new comment
38(l)(7)–2 cross-references
§ 1026.38(t)(5)(ix) and provides that
additional pages may be attached to the
Closing Disclosure to add lines, as
necessary, to accommodate the
complete listing of all items required to
be shown on the Closing Disclosure
under § 1026.38(l)(7), with a reference
such as ‘‘See attached page for
additional information’’ placed in the
applicable section of the Closing
Disclosure.
As to commenters’ concerns regarding
potential consumer confusion as a result
of the amendments permitting
disclosure of amounts for ongoing
mortgage insurance premiums, the
Bureau notes that such disclosure is
consistent with current
§ 1026.38(l)(7)(i)(A)(3), which crossreferences current § 1026.38(g)(3) and
requires disclosure of the amount to be
paid into the escrow account for
mortgage insurance premiums at
consummation. Regarding commenters’
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concern that permitting disclosure of
amounts for ongoing mortgage insurance
premiums on page 4 of the Closing
Disclosure is inconsistent with the
estimated escrow payment disclosed on
page 1 of the Closing Disclosure, the
Bureau concludes that such disclosures
are not inconsistent because the
estimated escrow payment on page 1 is
disclosed adjacent to the mortgage
insurance premium. Regarding
commenters’ assertion that mortgage
insurance premiums should not be
labeled ‘‘property costs’’ without testing
for potential consumer confusion, the
Bureau notes that current
§ 1026.38(l)(7)(i) already requires certain
disclosures, labeled ‘‘property costs,’’
based on the amounts described in
§ 1026.37(c)(4)(ii). Section
1026.37(c)(4)(ii), in turn, crossreferences the mortgage-related
obligations identified in § 1026.43(b)(8)
and includes, among other costs,
premiums for credit life, accident,
health, or loss-of-income insurance that
are written in connection with a credit
transaction if such premiums are
required by the creditor. Similarly, the
Bureau concludes it is appropriate to
include mortgage insurance premiums
as part of such ‘‘property costs’’
disclosures and additional consumer
testing is not necessary in this instance.
With respect to the comments
requesting that the Bureau amend
§ 1026.38(l)(7)(i) to disclose amounts
that a consumer optionally pays into an
escrow account, the Bureau notes that,
consistent with the model language on
page 4 of the Closing Disclosure form
and TILA section 129D(h)(2), (3), and
(4), creditors may disclose amounts a
consumer pays into an escrow account
if consistent with the terms of the legal
obligation between the creditor and
consumer.
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
The First Year
The Bureau’s Proposal
Section 1026.38(l)(7) provides for
various disclosures based on payments
during the first year after
consummation. Specifically,
§ 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
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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.
Depending on the payment schedule
dictated by the legal obligation,
sometimes fewer than 12 periodic
payments will be made to the escrow
account during the first year after
consummation—in which case creditors
may comply with § 1026.38(l)(7)(i)(A)(1)
and (4) by basing such disclosures on
less than 12 periodic payments.
Alternatively, § 1026.38(l)(7)(i)(A)(5)
provides that a creditor may comply
with § 1026.38(l)(7)(i)(A)(1) and (4) by
basing the disclosures on amounts
derived from the escrow account
analysis required under Regulation X,
12 CFR 1024.17. To clarify the
alternative means by which creditors
may comply with § 1026.38(l)(7)(i)(A)(1)
and (4), the Bureau proposed to add
new comment 38(l)(7)(i)(A)(5)–1.
Current § 1026.38(l)(7)(i)(A)(2)
requires a disclosure of certain charges,
labeled ‘‘Non-Escrowed Property Costs
over Year 1,’’ that the consumer is likely
to pay during the first year after
consummation but without using
escrow account funds. The Bureau
proposed to add new comment
38(l)(7)(i)(A)(2)–2 so that, 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, the creditor may make the
disclosures required by
§ 1026.38(l)(7)(i)(A)(2) based on a 12month period beginning with the
borrower’s initial payment date (rather
than beginning with consummation).
Comments Received
Several commenters, including
vendors, a creditor, a trade association,
and an individual compliance
consultant, generally supported
proposed comments 38(l)(7)(i)(A)(2)–2
and 38(l)(7)(i)(A)(5)–1 to provide
creditors with flexibility as to the means
by which they may comply with
§ 1026.38(l)(7)(i)(A)(1), (2), and (4).
However, several commenters,
including creditors, trade associations,
and a vendor, requested that the Bureau
require such disclosures to be based on
a 12-month period beginning with the
borrower’s initial payment date (and not
permit creditors the alternative option
of a 12-month period beginning with
consummation). Another vendor did not
specify a preference between either
disclosure timeframe, but nonetheless
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requested that the Bureau adopt a
single, mandatory timeframe, rather
than allowing creditors flexibility to
choose among the alternatives. A
vendor, a creditor, and a trade
association asserted that disclosing on a
12-month period beginning with the
borrower’s initial payment date is better
for consumer understanding. The
vendor also stated that allowing
creditors to choose among alternative
options could conflict with secondary
market investors’ preferences.
The Final Rule
For the reasons discussed below, the
Bureau is adopting comments
38(l)(7)(i)(A)(2)–2 and 38(l)(7)(i)(A)(5)–1
as proposed. The Bureau concludes that
allowing creditors the flexibility of
choosing among alternative disclosure
options will facilitate compliance. As to
commenters’ assertion that disclosing
on a 12-month period beginning with
the borrower’s initial payment date is
better for consumer understanding than
a 12-month period beginning with
consummation, the Bureau notes that
the model language on page 4 of the
Closing Disclosure form simply uses the
phrase ‘‘over Year 1’’ and the Bureau
believes either option supports
consumer understanding. The Bureau
does not believe any benefits to
disclosing on a 12-month period
beginning with the borrower’s initial
payment date would warrant limiting
flexibility for facilitating compliance
here. Regarding commenters’ concern
that allowing creditors to choose among
alternative options could conflict with
secondary market investors’ preferences,
among the alternative options provided
by comments 38(l)(7)(i)(A)(2)–2 and
38(l)(7)(i)(A)(5)–1, nothing in the rule
prohibits a creditor from choosing the
option that an investor prefers or
requires.
In response to comments regarding
the effective date and implementation
period, as discussed in part VI below,
the rule will be effective 60 days from
publication in the Federal Register, but
there will be an optional compliance
period in effect until October 1, 2018.
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38(l)(7)(i)(B)
38(l)(7)(i)(B)(1)
If an escrow account will not be
established, § 1026.38(l)(7)(i)(B)(1)
requires disclosure of the estimated total
amount, labeled ‘‘Property Costs over
Year 1,’’ that the consumer will pay
directly for charges described in
§ 1026.37(c)(4)(ii) during the first year
after consummation. As discussed
above, § 1026.37(c)(4)(ii) specifically
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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
proposed to amend
§ 1026.38(l)(7)(i)(B)(1) and comment
38(l)(7)(i)(B)(1)–1 to permit disclosure of
amounts for ongoing mortgage insurance
premiums.
In addition to the comments received
regarding § 1026.38(l)(7) and associated
commentary discussed above, a vendor
requested an additional revision to
proposed § 1026.38(l)(7)(i)(B)(1) or its
associated commentary that, similar to
proposed 38(l)(7)(i)(A)(2)–2, would
permit creditors to disclose based on a
12-month period beginning with the
borrower’s initial payment date (rather
than beginning with consummation).
For the reasons discussed below, the
Bureau is adopting
§ 1026.38(l)(7)(i)(B)(1) and comment
38(l)(7)(i)(B)(1)–1 as proposed and, in
part in response to commenters’
feedback, is also adding new comment
38(l)(7)(i)(B)(1)–2. Specifically, new
comment 38(l)(7)(i)(B)(1)–2 provides
creditors with an option to make the
disclosures required by
§ 1026.38(l)(7)(i)(B)(1) based on a 12month period beginning with the
borrower’s initial payment date or
beginning with consummation. The
Bureau concludes that allowing
creditors the flexibility of choosing
among alternative disclosure options is
consistent with comment
38(l)(7)(i)(A)(2)–2, as finalized, and will
facilitate compliance. Moreover, for the
reasons discussed above, both as
proposed and as finalized,
§ 1026.38(l)(7)(i)(B)(1) and comment
38(l)(7)(i)(B)(1)–1 permit disclosure of
amounts for ongoing mortgage insurance
premiums, which is consistent with
current § 1026.38(l)(7)(i)(A)(3).
38(o) Loan Calculations
38(o)(1) Total of Payments
The Bureau’s Proposal
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.89 In the TILA–
RESPA Final Rule, to promote consumer
understanding, the Bureau adopted a
modified definition of total of payments
that differs from the statutory definition
under TILA section 128(a)(5). Section
89 15 U.S.C. 1638(a)(5), (8). For transactions
subject to § 1026.19(e) and (f), § 1026.38(o)(1)
implements this disclosure requirement.
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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 proposed 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.
The Bureau also proposed conforming
revisions to § 1026.23(g) and (h)(2) as
discussed in the section-by-section
analyses of those provisions above. For
the reasons discussed below, the Bureau
adopts the revisions to § 1026.38(o)(1) as
proposed.
Comments Received
The Bureau received several
comments from industry that were
generally supportive of the proposal to
adopt tolerances for the total of
payments that parallel the statutory
tolerances for the finance charge and
disclosures affected by the finance
charge. A number of creditors stated
that they support the proposed change
and believe that it would provide clarity
to both consumers and creditors.
Several trade groups similarly
supported the addition of tolerances for
the total of payments, with one stating
that it believes the approach proposed
will positively impact secondary market
execution by affording investors comfort
that minor inaccuracies do not raise
liability concerns. One commenter
stated that this proposed change by the
Bureau represented a good example of a
flexible approach that balances
consumer protection and accurate
disclosure of loan terms and costs with
the practical challenges faced by
creditors and investors. A group of
vendor commenters agreed that the
addition of tolerances for the total of
payments is a necessary and desirable
change. One specific vendor commented
that these clarifications would assist
industry in complying with the rule,
provide for more uniform data for
transactions subject to the rule, and
reduce legal risk for creditors and
investors.
Among commenters that generally
supported the proposal to adopt
tolerances for the total of payments,
some encouraged the Bureau to go
further. Two trade groups requested that
the Bureau increase the tolerance
beyond $100. With respect to
implementation, a number of industry
commenters requested that the
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tolerances for the total of payments be
effective immediately and, in some
cases, commenters requested that the
tolerances apply retroactively to the
effective date of the TILA–RESPA Final
Rule (October 3, 2015).
Commenters generally supported the
proposal to adopt tolerances for the total
of payments that parallel the statutory
tolerances for the finance charge and
disclosures affected by the finance
charge. In response to those industry
commenters who requested that the
Bureau go further by adopting a
tolerance greater than $100, the Bureau
declines to do so. The Bureau believes
that applying 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 promotes consistency with
the tolerances in effect before the TILA–
RESPA Final Rule. The Bureau has
determined that the tolerances are
narrow enough to prevent misleading
disclosures or disclosures that
circumvent the purposes of TILA and
are thus appropriate pursuant to the
Bureau’s authority under TILA section
121(d) to adopt tolerances necessary to
facilitate compliance with the statute.
And with respect to commenters’
request that the new tolerance for the
total of payments be effective
immediately or retroactively, the Bureau
similarly declines this request for the
reasons discussed in part VI, below,
regarding the rule’s effective date.
The Bureau also received comments
from industry that questioned the
proposal to adopt tolerances for the total
of payments. One trade group stated that
there would be significant cost and a
lengthy reprogramming process for
compliance. Another trade group stated
that the Bureau’s proposal to extend a
tolerance for the total of payments
applies only to the extent that the
finance charge is accurate and that,
therefore, the Bureau should extend an
additional tolerance to the total of
payments for errors in loan costs when
the finance charge is not correct. One
industry commenter stated that the
proposed amendment would be
confusing and overly burdensome
because it would expand the current
finance charge tolerance to all
components of the total of payments.
One creditor stated that it considers the
proposed tolerance limitations for the
total of payments redundant and
overlapping with the APR tolerance
limitations and encouraged the Bureau
to abandon the APR tolerance
limitations if the proposed tolerances
for the total of payments were adopted.
An individual commenter opposed the
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proposal on the basis that finance
charges are already subject to tolerance
and adding non-finance charge loan
costs to the tolerance test would
increase creditor liability.
The existing finance charge tolerance
extends to any disclosure affected by the
finance charge, including the total of
payments as long as a misdisclosure of
the total of payments resulted from a
misdisclosure of the finance charge.
Conversely, under the current rule, a
misdisclosure of the total of payments
that does not result from a
misdisclosure of the finance charge is
not subject to the finance charge
tolerances. Because the current rule
does not provide for a tolerance for the
total of payments, other than to the
extent a total of payments misdisclosure
results from a misdisclosure of the
finance charge, under the current rule,
any misdisclosure of the total of
payments that does not result from a
misdisclosure of the finance charge
could potentially subject a creditor to
liability.
Those industry comments that did not
support the proposal to adopt tolerances
for the total of payments seemed to
imply that the total of payments
currently may vary by any amount and
that therefore the proposal to adopt a
tolerance for the total of payments
would impose a new and undue
restriction. To the contrary, however,
the adoption of tolerances for the total
of payments offers a new tolerance that
applies to the components of the total of
payments that were previously not
permitted to vary by any amount, even
if those components are not finance
charges and therefore would not benefit
from the existing finance charge
tolerance. The adopted tolerances for
the total of payments apply
independently, whether the disclosed
finance charge is accurate or not. And
in neither the TILA–RESPA Final Rule
nor the proposal did the Bureau make
changes or propose to make changes
that impact the APR tolerance.
Some industry commenters offered
alternatives to the proposal to adopt
tolerances for the total of payments. One
creditor suggested that the Bureau either
make clear that the new total of
payments calculation is no longer tied
to the finance charge and therefore not
subject to tolerance; or revert to TILA’s
definition of the total of payments.
Another creditor suggested that the
Bureau clarify that the amount by which
the total of payments is understated may
be corrected when the finance charge
understatement is made whole. One
trade group suggested that when good
faith tolerances under § 1026.19(e)(3)(i)
and (ii) are met for components,
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including loan costs, of the total of
payments that the new total of payments
tolerance should also be satisfied.
None of those suggested alternatives
would achieve the Bureau’s goal of
adopting tolerances for the total of
payments necessary to facilitate
compliance with TILA. In response to
the first creditor’s set of alternatives,
although in the TILA–RESPA Final Rule
the Bureau modified the total of
payments calculation, it is still a
disclosure affected by any finance
charge in that certain loan costs may
also be finance charges. Additionally,
the Bureau did not propose to revise the
definition of the total of payments in the
proposal and continues to believe, as
stated in the TILA–RESPA Final Rule,
that the revised definition of the total of
payments enhances consumer
understanding.90 The second creditor’s
suggestion does not recognize that the
total of payments may be understated
for reasons unrelated to the finance
charge. And the final alternative offered
does not distinguish between the
§ 1026.19(e)(3) good faith analysis
adopted in the TILA–RESPA Final Rule
and the separate and independent
statutory tolerances afforded under
TILA.
A few industry commenters sought
clarification of issues related to the
proposal to adopt tolerances for the total
of payments. One trade group requested
clarification as to whether the proposed
tolerances for the total of payments
change the existing finance charge
tolerances. Two industry commenters
expressed uncertainty about the remedy
or cure required if the tolerance for the
total of payments were exceeded and
the interaction between the proposed
tolerances for the total of payments and
the existing tolerances for the finance
charge and APR. One trade group
specifically expressed concern that the
proposed rule does not clearly state that
when a violation occurs it can be cured
with a reimbursement to the consumer.
Other industry commenters requested
information specifically about how to
account for financed loan costs, stating
that including financed loan costs in the
total of payments calculation would be
redundant to the extent such loan costs
are accounted for in the principal and
interest payments.
To clarify, the new tolerances for the
total of payments do not change the
existing finance charge tolerances or
those tolerances that apply to the APR.
The tolerances for each of these
disclosures operates independently as
explained in new comment 38(o)–1. As
to the question of the rule addressing
90 See
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how a violation may be cured, nothing
in the TILA–RESPA Final Rule altered
the remedies available to creditors for
the correction of errors under TILA
section 130(b). Creditors may employ
the statutory provisions for correction of
errors with respect to the total of
payments to the same extent today as
they could prior to the adoption of the
TILA–RESPA Final Rule and to the
same extent as they will be able to after
the effective date of this final rule.
Section 1026.38(o)(1) likewise remains
that same as to the calculation of the
total of payments: The total the
consumer will have paid after making
all payments of principal, interest,
mortgage insurance, and loan costs as
scheduled through the end of the loan
term. The rule does not offer an
alternative calculation if the consumer
elects to finance loan costs. The Bureau
declines to adopt commenters’ request
that the Bureau amend the total of
payments calculation in the event that
loan costs are financed because the
Bureau did not propose to change and
did not request comment on amending
the underlying calculation for the total
of payments.
The Bureau received comments from
consumer groups opposing the proposal
to adopt tolerances for the total of
payments that parallel the statutory
tolerances for the finance charge and
disclosures affected by the finance
charge. The consumer groups stated that
the proposal would not promote
consistency or avoid misleading
disclosures and that it would
dramatically change the tolerance rules
by applying them to errors in the total
of payments that are not caused by an
understatement of the finance charge.
The consumer groups stated that the
total of payments calculation is
straightforward for creditors and that
errors should be rare in light of
computer programming. The
commenters stated that creditors
wishing to make the total of payments
appear smaller could intentionally and
improperly disclose loan costs under
the other costs table on the Closing
Disclosure or incorrectly amortize the
principal. Additionally, the commenters
urged the Bureau to require creditors to
use an addendum for variable rate loans
to disclose the projected actual monthly
payment at each change listed under the
projected payments table, not just the
maximum and minimum, and to require
creditors to disclose the total of each
component of the total of payments in
an addendum.
The Bureau considered the comments
submitted by the consumer groups. The
commenters expressed concern that a
creditor could intentionally make the
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total of payments appear smaller by
improperly disclosing loan costs under
the other costs table on the Closing
Disclosure or by incorrectly amortizing
the principal. However, the adoption of
tolerances for the total of payments does
not give creditors license to violate the
rule by, for example, improperly
disclosing costs or incorrectly
calculating required disclosures, nor
does it permit creditors to overstate
intentionally the total of payments by
‘‘padding’’ fees. Additionally, the
Bureau declines to require an
addendum for variable rate loans to
disclose the projected actual monthly
payment at each change listed under the
projected payments table or to disclose
the total of each component of the total
of payments, as requiring such an
addendum would impose additional
regulatory implementation costs and the
Bureau believes that the disclosures
required by the TILA–RESPA Rule
already promote the meaningful
disclosure of credit terms and informed
use of credit.
The Final Rule
For the reasons discussed in this
section-by-section analysis, the Bureau
adopts the revisions to § 1026.38(o)(1) as
proposed. Specifically, the Bureau
revises § 1026.38(o)(1) to provide that
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. The Bureau also
finalizes conforming revisions to
§ 1026.23(g) and (h)(2) as discussed in
the section-by-section analyses of each
of those provisions above.
As the Bureau explained in the
proposal, TILA section 128(a)(3) and (8)
requires a creditor to disclose the
finance charge, using that term.91 As
amended by Congress in 1995,92 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
91 15
U.S.C. 1638(a)(3).
in Lending Act Amendments of 1995,
Public Law 104–29, 3(a), 109 Stat 271 (1995).
92 Truth
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disclosed.93 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
such components are not interest,
mortgage insurance, loan costs, or
included in the principal amount of the
loan. This in turn may have introduced
ambiguity as to whether the total of
payments as modified by the Bureau for
purposes of the Closing Disclosure is a
disclosure affected by the disclosed
finance charge and therefore subject to
the same tolerances. 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. To apply the same 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
proposed 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
93 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.
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TILA and RESPA disclosures
recommended changes to several
disclosures, including the total of
payments.94 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.95
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.96 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.’’ 97 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.98
Including mortgage insurance and 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. 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.99
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.100
94 77 FR 51116, 51124 (Aug. 23, 2012), 78 FR
79730, 79976 (Dec. 31, 2013).
95 77 FR 51116, 51222 (Aug. 23, 2012), 78 FR
79730, 79976 (Dec. 31, 2013).
96 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).
97 77 FR 51116, 51223 (Aug. 23, 2012), 78 FR
79730, 79977 (Dec. 31, 2013).
98 78 FR 79730, 80038 (Dec. 31, 2013).
99 See 78 FR 79730, 80010 (Dec. 31, 2013).
100 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.
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The Bureau believes that applying 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 now applies the same tolerances
for accuracy of the finance charge to the
total of payments for purposes of the
Closing Disclosure.
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.101 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.102
101 15
U.S.C. 1640(a).
102 15 U.S.C. 1635. Section 1026.23 implements
TILA’s rescission provision and defines material
disclosures to mean the required disclosures of the
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Nothing in the TILA–RESPA Final Rule
altered this defined statutory liability
for the total of payments or any other
disclosure.
The Bureau also adopts as proposed
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). A number of industry commenters
stated that they support the application
of tolerances for the total of payments
that operate independently from the
finance charge tolerances.
Further, the Bureau adopts the
revisions to comment 38(o)(1)–1
substantially as proposed, but with
changes to clarify that the total of
payments calculation excludes any
amount of principal, interest, mortgage
insurance, or loan costs that is not paid
by the consumer and offset by another
party through a specific credit. As
proposed, the revisions to comment
38(o)(1)–1 would have explained 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 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. However, some industry
commenters stated that an agreement
between the consumer and the seller or
other party to offset a cost through a
specific credit does not only apply to
loan costs, but may also be used to offset
other components of the total of
payments including, for example,
prepaid interest. Therefore, the Bureau
revises comment 38(o)(1)–1 to clarify
that the total of payments calculation on
the Closing Disclosure excludes any
component of the total of payments that
is not paid by the consumer and offset
by the seller or other party through a
specific credit.
A seller or other party, such as the
creditor, may agree to offset payments of
principal, interest, mortgage insurance,
or loan costs, whether in whole or in
part, through a specific credit, for
example through a specific seller or
lender credit. The revision to the
comment clarifies that, because these
amounts are not paid by the consumer,
they are excluded from the total of
payments calculation. The revision to
comment 38(o)(1)–1 references only
amounts offset by specific credits as
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).
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being excluded from the total of
payments calculation. A few industry
commenters stated that the Bureau
should permit creditors to exclude from
the total of payments any credit offered
by the seller or other party, including
general credits. Non-specific credits,
however, are generalized payments to
the consumer that do not represent an
agreement to pay for a particular fee or
amount and therefore do not serve to
offset payments of principal, interest,
mortgage insurance, or loans costs for
purposes of the total of payments
calculation.
One industry commenter stated that
the Bureau should also permit creditors
to calculate the ‘‘In 5 Years’’ disclosure
to reflect any amount of principal,
interest, mortgage insurance, or loan
costs that is offset by the seller or other
party. However, as the Bureau explained
in the proposal, 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 component of
the total of payments, whether in whole
or in part. Further, unlike the Closing
Disclosure, the Loan Estimate does not
allow for the itemized disclosure of
amounts paid by the seller or others.
Legal Authority
The Bureau revises § 1026.38(o)(1)
and its commentary, and makes
conforming revisions to § 1026.23(g) and
(h)(2), 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).103 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
tolerances for the total of payments
promote consistency with the tolerances
in effect before the TILA–RESPA Final
103 15
U.S.C. 1631(d).
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Rule. The Bureau therefore believes that
the tolerances facilitate compliance with
the statute. Additionally, the Bureau
believes that the tolerances in revised
§ 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 proposed 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 proposed to
add the words ‘‘is not’’ and delete the
prefix ‘‘non’’ that precedes the word
‘‘federally.’’ The Bureau noted that the
proposed technical amendment would
not alter the substance of comment
38(t)(3)–1. The Bureau did not receive
comments on the proposed changes and
is finalizing comment 38(t)(3)–1 as
proposed.
38(t)(4) Rounding
38(t)(4)(ii) Percentages
Section 1026.38(t)(4)(ii) provides
rounding rules for the percentage
amounts disclosed under § 1026.38(b),
(f)(1), (n), (o)(4), and (o)(5). As explained
in the TILA–RESPA Final Rule the
Bureau required rounding 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) provides that
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.
In its proposal the Bureau noted that
it understands that there is uncertainty
about the rounding requirements under
§ 1026.38(t)(4)(ii). In an effort to eschew
uncertainty about rounding
requirements under § 1026.38(t)(4)(ii)
the Bureau proposed to revise
§ 1026.38(t)(4)(ii) to simplify the
rounding requirements for the
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37749
percentages disclosed pursuant to the
requirements of § 1026.38(t)(4)(ii).
Proposed § 1026.38(t)(4)(ii) provided
that the percentage amounts disclosed
under § 1026.38(b), (f)(1), (n), (o)(4), and
(o)(5) 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. The
Bureau did not receive comment
regarding the proposed revision to
§ 1026.38(t)(4)(ii). The Bureau is
finalizing the revisions to
§ 1026.38(t)(4)(ii) as proposed.
38(t)(5) Exceptions
38(t)(5)(v) Separation of Consumer and
Seller Information
The Bureau’s Proposal
Regulation Z requires the use of the
Closing Disclosure by the creditor to
provide the required disclosures
concerning the transaction to the
consumer under § 1026.19(f)(1)(i) and
requires the settlement agent to provide
a copy of the Closing Disclosure to the
seller under § 1026.19(f)(4)(i). 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). The Bureau proposed
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 also proposed 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.
The preamble to the proposal also
discussed the existing requirements of
the Gramm-Leach-Bliley Act (GLBA)
and Regulation P, which generally
provide 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. The Bureau noted that
there are several exceptions to these
notice and opt-out requirements.104
104 81
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FR 54317, 54356 (Aug. 15, 2016).
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Comments Received
The Bureau received comments from
settlement agents, real estate agents,
GSEs, title insurers and title trade
associations, credit unions, a mortgage
industry consultant, settlement services
provider trade associations, a credit
union trade association, a state bankers
association, a group of mortgage
software vendors, creditors, and other
industry associations. Commenters
generally supported the proposed
comments 38(t)(5)(v)–1, –2, and –3;
however, several commenters requested
various clarifications.
One commenter requested that the
Bureau cross-reference the exact
regulatory provisions expressly
permitted to be left blank under
§ 1026.38(t)(5)(v)(A), (B), and (C). The
commenter stated that as proposed, the
comment refers to the ‘‘applicable
disclosure,’’ which may be confusing or
interpreted in unintended ways. The
commenter further stated that the
Bureau should restate the exact
regulatory provisions or state the names
of the part of form H–25 that may be left
blank. Another commenter stated that
the Bureau lacked the authority to
permit revisions to a consumer-only
form since no model of such form has
been published in appendix H of
Regulation Z.
One commenter noted that the Bureau
had a misstatement in its proposal. The
Bureau stated that 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). The
commenter noted that the correct cite
for this statement should have been
§ 1026.19(f)(4)(i).
One commenter requested
clarification of the Bureau’s use of the
term ‘‘omit’’ in the proposal. Section
1026.38(t)(5)(v) permits creditors to
modify the Closing Disclosure by
omitting certain information concerning
the seller or consumer on the form
provided to the other party. The
commenter stated that the proposed use
of the word ‘‘omit’’ could be interpreted
to mean that the inapplicable tables and
labels can be deleted from form H–25.
The commenter further stated that this
interpretation would conflict with the
regulatory text of § 1026.38(t)(5)(v),
which authorizes information to be left
‘‘blank’’ on the separate Closing
Disclosures but does not expressly
permit creditors or settlement agents to
‘‘omit’’ or ‘‘delete’’ information from
form H–25. The commenter further
noted that § 1026.38(t)(5)(vi) expressly
allows information to be ‘‘deleted’’ on a
modified version of the Closing
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Disclosure provided to the seller or a
third party. The commenter requested
clarification as to whether the Bureau
intended to propose that the regulatory
text in § 1026.38(t)(5)(v) would
authorize the deletion of inapplicable
tables and labels on separate Closing
Disclosures. The commenter stated that
the authority to delete inapplicable
tables and labels on a separate Closing
Disclosure provided to the consumer
would complicate compliance and
constitute a new version of the Closing
Disclosure that currently is not included
in appendix H of Regulation Z.
Another commenter noted that
manually omitting or modifying
sections of the Closing Disclosure from
a systems programming perspective is
challenging and will likely lead to an
increase in errors. A different
commenter stated that the Bureau
should clarify that the seller’s closing
costs under § 1026.38(f) and (g) cannot
be left blank on the Closing Disclosure
provided to the consumer because
§ 1026.38(t)(5)(v)(B) does not provide
such authority. Some commenters
sought more clarity on the interplay
between State privacy laws and
contractual provisions and proposed
comments 38(t)(5)(v)–1, –2, and –3.
The Bureau also received many
comments related to the proposal’s
preamble discussion of the existing
requirements of the GLBA and
Regulation P. The Bureau received a
number of observations on the changes
in consumer information included on
the Closing Disclosure compared to
what was previously on the HUD–1
settlement statement. Many commenters
noted that the real estate contract sets
forth the terms of the purchase-sale
agreement and may also address sharing
of the Closing Disclosure, either
specifically or generally via contract
terms related to the delivery of
information.
Commenters generally requested
additional clarity on sharing a combined
or separate Closing Disclosure with
third parties, including requests for the
Bureau to provide clearer guidance, or
frequently asked questions, concerning
what customer information a creditor
may share with a settlement agent, a real
estate agent, or other parties to a
transaction. Some also requested
changes to Regulation P and Regulation
Z to require or expressly permit
creditors and settlement agents to
provide Closing Disclosures to real
estate agents without providing notice
to the customer of such information
sharing and an opportunity to opt-out of
such sharing. Other commenters
suggested that the Bureau create a list of
third parties with whom creditors are
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‘‘affirmatively permitted’’ to share
consumer and seller information, such
as the Closing Disclosure.
One commenter suggested that the
Bureau’s preamble discussion applies
only to the provision of the consumer’s
Closing Disclosure to the borrower’s
agent or broker and to the provision of
the seller’s Closing Disclosure to the
seller’s agent or broker. This commenter
also noted that, unless a different
arrangement is established, all real
estate agents in a transaction typically
represent the seller and not the buyer.
Real estate agent commenters stated that
they should receive a copy of both the
seller’s and consumer’s Closing
Disclosures when separate Closing
Disclosures are provided, regardless of
whether the real estate agent is an agent
of the other party. These commenters
stated that such sharing should be
required for several reasons: To inform
their clients, imposed by a fiduciary
relationship or a contractual obligation;
to be used as an accounting tool for the
real estate brokerage for which the real
estate agent is associated; to find
mistakes in the financial terms of the
real estate transaction or on the Closing
Disclosure; to assist non-English
speakers; or to provide accurate
transaction data to be included in
multiple listing services or shared with
appraisers. GSEs commented that it is
important for creditors, and their
successors and assigns, to see the
seller’s Closing Disclosure to ensure
compliance with investor guidelines
and the identification of potential
fraudulent transactions.
Many commenters mentioned that the
easiest, simplest, and safest way to
handle issues concerning the sharing of
the Closing Disclosure with third parties
would be for creditors, settlement
agents, real estate agents and others to
obtain written consent to the sharing
from consumers and sellers. Some
commenters stated that, to help alleviate
secondary market concerns, it would be
helpful for the Bureau to affirmatively
state that the sharing of the Closing
Disclosure is permissible under GLBA
with the consent of the consumer or
seller. One commenter noted that for
creditors that currently utilize the
consent method for the sharing of forms,
and who have a proprietary loan
origination system rather than a system
from a third party vendor, the associated
reprogramming expense could be
avoided if the Bureau indicated that the
written consent method was acceptable.
Further, several commenters requested
that the Bureau provide guidance on the
type of authorizations it would view as
sufficient, or a model form, to be able
to provide the disclosures. One
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commenter noted that because of the
legal risk in sharing Loan Estimates and
Closing Disclosures, creditors and
settlement agents are asking consumers
to sign separate written authorization
forms to obtain the consent of the
consumer to share these disclosures
with third parties, including real estate
agents, through the closing or settlement
of the transaction, pursuant to GLBA.
They stated that greater clarity regarding
the ability to share Loan Estimates and
Closing Disclosures pursuant to GLBA
sections 502(e)(1) and 502(e)(8) may
reduce the utilization of such separate
authorization forms, and better avoid
information overload for consumers and
enable them to focus on the important
information in their disclosures
regarding their loan terms and costs.
Some commenters stated that it would
be beneficial to the industry if the
Bureau provided further clarification in
the rule or commentary that the
exception under GLBA section 502(e)(8)
applies to the sharing of the seller’s
closing cost information under
§ 1026.38(f) and (g) by the settlement
agent with the creditor, and to the
settlement agent’s provision to the
creditor of a copy of the separate seller’s
Closing Disclosure pursuant to
§ 1026.19(f)(4).
Though not addressed in the proposal
or preamble discussion, some
commenters discussed issues of lender
and settlement agent liability, and
requested Bureau guidance. One
commenter stated that it would be
beneficial if the Bureau provided
clarification regarding the
administrative liability of settlement
agents that provide the Closing
Disclosure to the consumer pursuant to
§ 1026.19(f)(1)(v), including whether
settlement agents would be liable for
noncompliant actions that were
required by creditors. Some commenters
noted that many creditors are
attempting to shift liability to settlement
agents in contracts and in loan closing
instructions. One commenter stated that
liability for the Closing Disclosure is
unclear because under § 1026.19(f)(4)
the settlement agent appears to be
responsible for the Closing Disclosure
provided to the seller, including
liability for its accuracy; however,
proposed comments 38(t)(5)(v)–1 and –3
appear to place this responsibility on
the creditor.
The Final Rule
Since commenters generally
supported the proposed additional
provisions, the Bureau is adopting
comments 38(t)(5)(v)–1 and –2 and
comment 38(t)(5)(vi)–1 as proposed. The
Bureau is adopting comment 38(t)(5)(v)–
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3 with minor modifications clarifying
the circumstances in which a creditor
may be providing a Closing Disclosure
to a seller. In response to the commenter
requesting that the Bureau crossreference the exact regulatory provisions
expressly permitted to be left blank
under § 1026.38(t)(5)(v)(A), (B), and (C),
the Bureau believes that the additions to
comments 38(t)(5)(v)–1, –2, and –3, and
comment 38(t)(5)(vi)–1 are adequately
specific and should allow creditors
sufficient flexibility to modify the
Closing Disclosure form for the
consumer and the seller in a way that
facilitates the transaction.
In response to commenters’ questions
regarding the omission of inapplicable
tables and labels when creating separate
forms for consumers and sellers, the
Bureau notes that the omission of a table
or label from the consumer-only Closing
Disclosure does not materially differ
from reproducing the applicable table
and labels without disclosing any
numerical values. In either case, the
disclosures required under § 1026.38 are
still made, just to the seller, not to the
consumer. Accordingly, comment
38(t)(5)(v)–1 permits the creditor to
leave blank or omit the applicable tables
and labels on the consumer-only
Closing Disclosure.
In response to the commenter who
stated that the Bureau should clarify
that the seller’s closing costs under
§ 1026.38(f) and (g) cannot be left blank
on the Closing Disclosure provided to
the consumer because
§ 1026.38(t)(5)(v)(B) does not provide
such authority, the Bureau notes that
certain information about the seller’s
transaction is required by § 1026.38
because such information is necessary
to comply with TILA section
128(a)(17).105 The Bureau believes TILA
section 128(a)(17) requires disclosure of
information about the seller’s
transaction. In addition RESPA section
4(a) requires that the RESPA settlement
statement itemize all charges imposed
upon the seller in connection with the
settlement.106
In response to commenters who raised
questions about the interplay between
State privacy laws and contractual
provisions, and proposed comments
38(t)(5)(v)–1, –2, and –3, the Bureau
notes that the comments as proposed
105 In the case of a residential mortgage loan, the
aggregate amount of settlement charges for all
settlement services provided in connection with the
loan, the amount of charges that are included in the
loan and the amount of such charges the borrower
must pay at closing, the approximate amount of the
wholesale rate of funds in connection with the loan,
and the aggregate amount of other fees or required
payments in connection with the loan. TILA
Section 128(a)(17), 15 U.S.C. 1638.
106 78 FR 79730, 80038 (Dec. 31, 2013).
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37751
described three different methods by
which creditors may separate a
consumer’s information from a seller’s
information. In some instances, State
law or contractual provisions may bar a
creditor from disclosing a consumer’s
information to parties other than the
consumer or bar a creditor from
disclosing a seller’s information to
parties other than the seller. The
comments as proposed provided options
creditors could use to separate
information to comply with these
requirements or to comport with a
creditor’s decision to separate such
information, while remaining in
compliance with § 1026.38(t)
requirements as to the form of
disclosures. The Bureau notes that one
commenter read the language of
§ 1026.38(t)(5)(v)–1 as proposed as
potentially granting a creditor a Federal
protection to make modifications to the
form and provide the modified form to
other parties, notwithstanding State law
saying no other party has a right to those
forms. However, the commenter
provided no explanation for the
proposition that a provision permitting
separation of information is properly
viewed as in conflict with a State law
limiting or barring disclosure of such
information, nor did the commenter cite
to a specific State law. The Bureau
believes that comments 38(t)(5)(v)–1, –2,
and –3 as finalized could facilitate
creditors’ compliance with State privacy
laws by ensuring that creditors can
separate consumer and seller
information while remaining in
compliance with Regulation Z
requirements as to the form of
disclosures.
One commenter highlighted as
incorrect the following sentence in the
Bureau’s proposal, ‘‘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),’’ (emphasis
added). The sentence in the proposal
was a misstatement and should have
stated that the settlement agent must
provide to the creditor either a copy of
the Closing Disclosure or a permissible
separate Closing Disclosure, under
§ 1026.19(f)(4)(iv), if the creditor is not
the settlement agent.107
As discussed in the preamble to the
proposal, there are several exceptions to
the GLBA’s general prohibition on a
financial institution’s disclosure of 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
107 81
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sharing. 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.
Regulation Z requires the use of the
Closing Disclosure by the creditor to
provide the required disclosures under
§ 1026.38 concerning the transaction to
the consumer under § 1026.19(f)(1)(i),
requires the settlement agent to provide
to the creditor a copy of the disclosures
provided to the seller under
§ 1026.19(f)(4)(iv) when the consumer
and seller’s disclosures are provided in
separate documents, and requires the
settlement agent to 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 under § 1026.19(f)(4)(i).
GLBA section 502(e)(8) and Regulation
P § 1016.15(a)(7)(i) permit this required
sharing of information without
providing notice of such information
sharing and an opportunity to opt-out of
such sharing.108
GLBA sections 502(e)(1) and
509(7)(A) provide an 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 the 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 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. The Bureau in the preamble
to the proposal stated that, based on its
understanding of the real estate
settlement process, it understands that it
is usual, appropriate, and accepted for
creditors and settlement agents to
provide the combined or separate
Closing Disclosure to consumers,
108 GLBA
502(e)(8); 12 CFR 1016.15(a)(7)(i).
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sellers, and their agents as a
confirmation, statement, or other record
of the transaction, or to provide
information on the status or value of the
financial service or financial product to
their customers or their customers’
agents or brokers.
The Bureau included discussion of
GLBA and Regulation P in the preamble
in response to inquiries from creditors,
settlement agents, and real estate agents
about the sharing of the Closing
Disclosure with third parties. One
commenter correctly noted that GLBA
sections 502(e)(1) and 509(7)(A) would
apply only to the provision of the
consumer’s Closing Disclosure to the
consumer’s agent or broker and to the
provision of the seller’s Closing
Disclosure to the seller’s agent or broker.
As noted by several commenters,
creditors and settlement agents may
disclose customer information with the
consent or at the direction of the
customer provided that the customer
has not revoked the consent or
direction.109 Some commenters
requested that the Bureau provide a
model form or guidance on the type of
authorizations it would view as
sufficient to satisfy GLBA section
502(e)(2). The Bureau did not propose
such guidance or a model form in the
proposal, however, nor did the Bureau
in the proposal propose any
amendments to Regulation P or its
accompanying model forms.
Furthermore, the Bureau does not
believe that providing a model form or
guidance as recommended by
commenters would further the purposes
of Regulation Z, which is to assure a
meaningful disclosure of credit terms so
that the consumer will be able to
compare more readily the various credit
terms available to him and avoid the
uninformed use of credit, and to protect
the consumer against inaccurate and
unfair credit billing and credit card
practices. For these reasons, the Bureau
declines in this rulemaking to provide
such guidance or amend Regulation P to
provide a model form.110
109 GLBA
502(e)(2); 12 CFR 1016.15(a)(1).
section 102(a), 15 U.S.C 1601. The
Bureau also notes that, when the regulations
implementing the GLBA’s privacy provisions were
first adopted, the Office of the Comptroller of the
Currency, Board of Governors of the Federal
Reserve System, Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision
(collectively, the Agencies) declined to elaborate on
the requirements for obtaining consent or the
consumer safeguards that should be in place when
a consumer consents, stating that ‘‘the resolution of
this issue is appropriately left to the particular
circumstances of a given transaction.’’ The Agencies
noted that ‘‘any financial institution that obtains the
consent of a consumer to disclose nonpublic
personal information should take steps to ensure
that the limits of the consent are well understood
110 TILA
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With respect to comments requesting
that the Bureau require or permit
sharing of the Closing Disclosure with
third parties, such as counterparties’
real estate agents or other enumerated
third parties, the Bureau notes that such
sharing of the Closing Disclosure may be
permissible currently to the extent that
it is consistent with GLBA and
Regulation P and is not barred by
applicable State law. However, the
Bureau does not believe that expansion
of the scope of such permissible sharing
would, in this rulemaking, be germane
to the purposes of Regulation Z. The
Bureau also notes that some of the
rationales posed by commenters for
including a requirement to share the
Closing Disclosure with real estate
agents, including as an accounting tool
for the real estate brokerage for which
the real estate agent is associated, or to
provide accurate transaction data to be
included in multiple listing services or
shared with appraisers, are arguments
concerning the sharing of information
after consummation and also do not
further the stated purposes of
Regulation Z.
Since the Bureau did not propose any
amendments or clarifications to creditor
and settlement agent liability,
commenter requests related to changes
or clarifications on these issues are
largely outside the scope of this
rulemaking. The Bureau refers
commenters to the section-by-section
analysis to the TILA–RESPA Final Rule,
where the Bureau stated that creditors
under § 1026.19(f)(1)(v) are responsible
for ensuring compliance with
§ 1026.19(f), even where a settlement
agent provides the disclosure.111 In the
section by section analysis to the TILA–
RESPA Final Rule the Bureau also
stated, in response to commenter
questions regarding creditor and
settlement agent liability in providing
the required disclosures under
§ 1026.19(f)(4) to the seller, that the
Bureau proposed a separate requirement
under § 1026.19(f)(4)(i) for the person
conducting the settlement to provide the
disclosures in § 1026.38 that relate to
the seller’s transaction to the seller
because the Bureau recognizes that a
creditor does not owe a duty to the
seller and to account for variations in
local law that may require that the seller
by both the financial institution and the consumer.
If misunderstandings arise, consumers may have
means of redress, such as in situations when a
financial institution obtains consent through a
deceptive or fraudulent practice. Moreover, a
consumer may always revoke his or her consent. In
light of the safeguards already in place, the
Agencies have decided not to add safeguards to the
consent exception.’’ Privacy of Consumer Financial
Information, 65 FR 35182, 35184 (Jun. 1, 2000).
111 78 FR 79730, 79869 (Dec. 31, 2013).
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receive a separate disclosure (e.g., for
privacy reasons) or variations in local
practice in which a seller and a
consumer may not attend settlements
in-person or at the same time.112 The
Bureau does not believe it is necessary
to mandate how a settlement agent and
creditor must coordinate to ensure
settlement agent compliance as
discussed in § 1026.19(f)(4)(iv) and
comments 19(f)(1)(v)–2 through –4. In
general, the Bureau believes final
§ 1026.19(f)(1)(v) sets forth a clear
standard for settlement agents to comply
with § 1026.19(f) to the extent they
provide disclosures under that
section.113 In response to the
commenter statement that proposed
comments 38(t)(5)(v)–1 and –3 appear to
place the liability for providing the
Closing Disclosure on the creditor,
whereas under § 1026.19(f)(4) the
settlement agent appears to be
responsible for the Closing Disclosure
provided to the seller, under the
proposed commentary, the decision to
provide separate Closing Disclosures to
the consumer and the seller is to be
made by the creditor. Even though
§ 1026.19(f)(4) indicates that the
settlement agent is to provide the seller
with a Closing Disclosure, the creditor
is not prohibited from providing the
Closing Disclosure to the seller if the
creditor decides to provide it in some
instances (such as if the creditor is
performing the functions of a settlement
agent, or the settlement agent refuses to
provide a single, integrated disclosure
or a seller-specific separate disclosure).
38(t)(5)(vi) Modified Version of the
Form for a Seller or Third-Party
As detailed in the section-by-section
analysis of § 1026.38(t)(5)(v), the Bureau
proposed and is now adopting new
comment 38(t)(5)(vi)–1 to crossreference 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.
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38(t)(5)(vii) Transaction Without a
Seller or for Simultaneous Subordinate
Financing
The Bureau’s Proposal
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
112 78
113 78
FR 79730, 79890 (Dec. 31, 2013).
FR 79730, 79869 (Dec. 31, 2013).
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a seller must contain the label
‘‘Appraised Prop. Value,’’ or ‘‘Estimated
Prop. Value’’ where there is no
appraisal. The Bureau proposed to
revise § 1026.38(t)(5)(vii), consistent
with proposed revisions to
§ 1026.38(d)(2) and (e), to include
simultaneous subordinate financing as
transactions for which a modification of
form H–25 of appendix H is permitted.
The Bureau also proposed a technical
revision 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. In
addition, the Bureau proposed 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 principal reduction to provide a
refund).
Comments Received
Many of the comments that were
submitted and that related to
§ 1026.38(d)(2) and (e) would be
applicable to the proposal set forth
under § 1026.38(t)(5)(vii) to permit
simultaneous subordinate financing
purchase transactions to be disclosed
using the alternative disclosures. Please
see the section-by-section analyses of
§ 1026.38(d)(2) and (e) for a general
discussion of such comments.
As discussed more fully in the
section-by-section analysis of
§ 1026.37(d)(2), and relevant to
comments 38(t)(5)(vii)(B)–1 and –2, one
commenter questioned what disclosures
should be used when the optional
alternative tables were initially used for
the simultaneous subordinate financing
transaction, but a seller later agrees to
contribute to the costs of the
subordinate financing, making
continued use of the alternative tables
impermissible under the proposal.
An industry commenter supported the
Bureau’s proposed amendments to
comment 38(t)(5)(vii)(B)–2, which
provided that simultaneous subordinate
financing proceeds are required to be
disclosed in the payoffs and payments
table under § 1026.38(t)(5)(vii)(B) on a
first-lien transaction. However, other
commenters noted that the Bureau did
not propose any amendments to the
provisions of the alternative Loan
Estimate and Closing Disclosure to
explain how simultaneous subordinate
financing itself would be disclosed on
the alternative disclosures, including
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37753
how to disclose the amount of proceeds
from the subordinate financing being
applied to the first-lien transaction.
Commenters also asserted that most
creditors prefer that the Closing
Disclosure for the simultaneous
subordinate financing include a
disclosure of the amount of proceeds
being applied to the first-lien loan, and
asked the Bureau to permit this common
practice and clarify the provision under
which the disclosure should be made.
The Final Rule
For the reasons discussed below, the
Bureau is adopting § 1026.38(t)(5)(vii) as
proposed with a minor technical
revision, comment 38(t)(5)(vii)–2 as
proposed, and comments
38(t)(5)(vii)(B)–1 and –2 as proposed
with revisions; renumbering proposed
comment 38(t)(5)(vii)(B)–2 as comment
38(t)(5)(vii)(B)–2.i; adding new
comments 38(t)(5)(vii)(B)–2.ii and –2.iii;
and adopting proposed comment
38(t)(5)(vii)(B)–3 with revisions. For the
reasons discussed in the section-bysection analyses of § 1026.38(d)(2) and
(e), the Bureau is finalizing the
proposed amendment to
§ 1026.38(t)(5)(vii), which permits
simultaneous subordinate financing
purchase transactions to be disclosed
using the alternative disclosures. Final
§ 1026.38(t)(5)(vii) permits
modifications to form H–25 of appendix
H for a transaction that does not involve
a seller or for simultaneous subordinate
financing transactions, and for which
the alternative tables are disclosed
under § 1026.38(d)(2) and (e). The
Bureau did not receive any comments in
response to the proposed technical
revision to comment 38(t)(5)(vii)–2 and
the Bureau is adopting the proposed
revision as final.
The Bureau is revising the reference
to the partial exemption criteria of
§ 1026.3(h) in proposed comment
38(t)(5)(vii)(B)–1 to more closely align
with final § 1026.3(h). Final comment
38(t)(5)(vii)(B)–1 provides, in part, that
the proceeds from a loan that satisfies
the partial exemption criteria in
§ 1026.3(h) is an example of an amount
paid by a third party that may be
disclosed as a credit on the payoffs and
payments table under
§ 1026.38(t)(5)(vii)(B). As discussed in
more detail below, the Bureau is also
amending proposed comment
38(t)(5)(vii)(B)–1 to address the
commenter’s question regarding how to
proceed under the proposal when the
optional alternative table was properly
used on the Loan Estimate, or even the
Closing Disclosure, but a subsequent
event would cause the continued use of
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the alternative table to be
impermissible.
The Bureau is not finalizing the
requirement to disclose certain amounts
as negative numbers in proposed
comments 38(t)(5)(vii)(B)–1 and –2 for
the same reasons the Bureau is
removing certain references to positive
or negative numbers elsewhere in this
final rule. While the Bureau did not
propose these revisions and does not
anticipate any circumstances in which
funds provided on behalf of consumers
and the proceeds from simultaneous
subordinate financing disclosed on the
first-lien Closing Disclosure would not
be disclosed as negative numbers, the
Bureau is not finalizing the technical
requirement to disclose these amounts
as negative numbers to allow flexibility
for any unforeseen situations.
The Bureau is renumbering proposed
comment 38(t)(5)(vii)(B)–2 as comment
38(t)(5)(vii)(B)–2.i and revising the
comment for greater clarity. Proposed
comment 38(t)(5)(vii)(B)–2 explained
that on the Closing Disclosure for a firstlien transaction that also has
simultaneous subordinate financing, the
proceeds of the subordinate financing
are disclosed in the payoffs and
payment table under
§ 1026.38(t)(5)(vii)(B). As discussed in
the section-by-section analysis of
§ 1026.37(d)(2), a commenter asked the
Bureau to clarify how to disclose the
simultaneous subordinate financing
loan proceeds that are applied to the
first-lien transaction. In final comment
38(t)(5)(vii)(B)–2.i, the Bureau adds the
heading ‘‘First-lien Closing Disclosure,’’
explains that the comment pertains to
first-lien Closing Disclosures disclosed
using the alternative tables under
§ 1026.38(d)(2) and (e), and provides a
refinance transaction as an example of
a first-lien transaction that could be
disclosed under § 1026.38(d)(2) and (e)
that also has simultaneous subordinate
financing. In response to the comments
received on the proposal, the Bureau is
also providing additional guidance on
how to disclose the amount of
subordinate financing, consistent with
the requirements in comment
38(j)(2)(vi)–2 for disclosing the proceeds
of subordinate financing on the standard
Closing Disclosure.
The Bureau is adding comment
38(t)(5)(vii)(B)–2.ii to permit creditors to
include, in the payoffs and payments
table on the simultaneous subordinate
financing Closing Disclosure, the
proceeds of the subordinate financing
applied to the first-lien transaction.
Final comment 38(t)(5)(vii)(B)–2.ii
responds to commenters’ questions
about how to disclose the simultaneous
subordinate loan proceeds that will be
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applied to the first lien on the
disclosure for the simultaneous
subordinate financing. The commenters
asserted that most creditors prefer that
the simultaneous subordinate financing
Closing Disclosure include a disclosure
of the amount of loan proceeds that are
applied to the first-lien loan, and asked
the Bureau to permit this practice. In the
proposal, the Bureau noted that the
funds that are provided to the consumer
from the proceeds of subordinate
financing being applied to the first-lien
transaction would not be included in
the payoffs and payments table on the
simultaneous subordinate financing
disclosure. As a result, the cash to close
amount disclosed under
§ 1026.38(e)(5)(ii) would have
represented the loan proceeds as ‘‘cash
out’’ to the borrower. For the same
reasons discussed in the section-bysection analysis of § 1026.37(h)(2)(iii),
the Bureau is not finalizing the
proposed approach and instead is
adding new comment 38(t)(5)(vii)(B)–
2.ii to permit creditors to include the
proceeds of the subordinate financing
applied to the first-lien transaction in
the payoffs and payments table on the
simultaneous subordinate financing
Closing Disclosure. The Bureau is
making similar amendments in
commentary to §§ 1026.37(h)(2)(iii) and
1026.38(j)(1)(v).
The Bureau is adding comment
38(t)(5)(vii)(B)–2.iii and amending
proposed comment 38(t)(5)(vii)(B)–1 to
address the commenter’s question
regarding how to proceed under the
proposal when the optional alternative
table was properly used on the Loan
Estimate, or even the Closing
Disclosure, but a subsequent event
would cause the continued use of the
alternative table to be impermissible.
For the reasons discussed in the sectionby-section analysis of § 1026.37(d)(2),
the Bureau is directly addressing the
commenter’s concern by adding new
comment 38(k)(2)(vii)–1, amending
comments 38(d)(2)–1 and 38(j)–3, and
amending proposed comments
38(t)(5)(vii)(B)–1 and –2 (including
adding comment 38(t)(5)(vii)(B)–2.iii),
to require the disclosure of the seller’s
contributions to the subordinate
financing, if any, in the payoffs and
payments table on the simultaneous
subordinate financing Closing
Disclosure and the summaries of
transactions table on the first-lien
Closing Disclosure, when the alternative
disclosures are used for the
simultaneous subordinate financing
transaction. Final comment
38(t)(5)(vii)(B)–2.iii explains that if a
creditor discloses the alternative tables
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pursuant to § 1026.38(d)(2) and (e) on
the simultaneous subordinate financing
Closing Disclosure, the creditor must
also disclose in the payoffs and
payments table on the simultaneous
subordinate financing Closing
Disclosure, any seller contributions
toward the simultaneous subordinate
financing. Final comment
38(t)(5)(vii)(B)–1 includes, as an
example of amounts paid by third
parties that may be disclosed as credits
on the simultaneous subordinate
financing’s payoffs and payments table
under § 1026.38(t)(5)(vii)(B),
contributions from a seller for costs
associated with a simultaneous
subordinate financing transaction. As
discussed in the section-by-section
analysis of § 1026.38(k)(2), final
comment 38(k)(2)(vii)–1 explains that if
the simultaneous subordinate financing
transaction is disclosed using the
alternative tables pursuant to
§ 1026.38(d)(2) and (e), the first-lien
Closing Disclosure must include, in the
summaries of transactions table for the
seller’s transaction under
§ 1026.38(k)(2)(vii), any contributions
toward the simultaneous subordinate
financing from the seller that are
disclosed in the payoffs and payments
table under § 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing
Closing Disclosure. The result of these
amendments, coupled with the
amendments to comment 38(j)–3, is that
the first-lien Closing Disclosure will be
able to record the entirety of the seller’s
transaction.
For example, assume the
simultaneous subordinate financing
transaction is disclosed using the
alternative tables pursuant to
§ 1026.38(d)(2) and (e) and the seller
contributes $200.00 toward the closing
costs of the simultaneous subordinate
financing. The simultaneous
subordinate financing transaction
Closing Disclosure must disclose the
$200.00 contribution in the payoffs and
payments table in accordance with
§ 1026.38(t)(5)(vii)(B) and comment
38(t)(5)(vii)(B)–1. The first-lien Closing
Disclosure must disclose the $200.00
contribution in the summaries of
transactions table for the seller’s
transaction under § 1026.38(k)(2)(vii) on
the first-lien Closing Disclosure, thereby
recording the entirety of the seller’s
transaction on the first-lien Closing
Disclosure. For a more detailed
discussion of these new and revised
comments, see the section-by-section
analyses of § 1026.38(d)(2), (j), and
(k)(2).
The Bureau is adopting proposed
comment 38(t)(5)(vii)(B)–3 with
technical conforming revisions. As
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discussed in more detail in the sectionby-section analysis of § 1026.38
pertaining to comment 38–4 above, an
industry group recommended that the
Bureau use the phrase ‘‘principal
reduction’’ instead of ‘‘principal
curtailment,’’ noting that consumers
would be more familiar with the
recommended phrase. The Bureau is
revising proposed comment
38(t)(5)(vii)(B)–3 to reflect the phrase
‘‘principal reduction.’’ Industry
commenters also requested that the
Bureau permit the use of principal
curtailments for situations other than
when a creditor is providing a credit for
a tolerance refund. In the proposal, the
Bureau sought to address the particular
issue of how to disclose a principal
curtailment that is used to provide a
tolerance refund, but did not intend to
propose to limit the use of principal
curtailments to providing tolerance
refunds. The Bureau is revising and
restructuring comment 38–4 to provide
clarity on the disclosure of principal
reductions that are and are not used to
provide tolerance refunds. As a result,
the Bureau is amending comment
38(t)(5)(vii)(B)–3 to remove the
reference to a tolerance refund under
§ 1026.19(f)(2)(v), making the comment
applicable to all principal reductions,
regardless of whether the principal
reduction is for the purpose of
providing a tolerance refund.
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 proposed to
revise comment 38(t)(5)(ix)–1 to crossreference proposed comment 38–4,
which would have provided options for
the disclosure of a principal curtailment
to provide a refund under
§ 1026.19(f)(2)(v), including disclosure
under § 1026.38(t)(5)(ix).
For the reasons discussed below, the
Bureau is not finalizing the proposed
amendments to comment 38(t)(5)(ix)–1.
As discussed in more detail in the
section-by-section analysis of § 1026.38
pertaining to comment 38–4 above,
some industry commenters raised
concerns with the various options for
disclosure of principal curtailments
proposed by the Bureau. While the
Bureau intended for the proposal to
provide the flexibility for the disclosure
of principal curtailments discussed in
the Bureau staff’s informal April 2016
webinar, the Bureau appreciates
commenters’ assertions that a uniform
disclosure method for principal
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curtailments would reduce compliance
burden, aid consumer understanding,
and aid the utilization of a uniform data
standard. The Bureau is therefore
revising proposed comment 38–4 to,
among other things, limit the locations
in which a creditor may disclose
principal reductions to only
§ 1026.38(j)(1)(v) and (t)(5)(vii)(B). As a
result, the Bureau is not finalizing the
proposed revisions to comment
38(t)(5)(ix)–1, which would have crossreferenced comment 38–4 for an
explanation of how to disclose a
principal curtailment under
§ 1026.38(t)(5)(ix). If there is insufficient
space under § 1026.38(j)(1)(v) or
(t)(5)(vii)(B) for certain required
elements of the principal reduction
disclosure, final comment 38–4 permits
a creditor to provide an abbreviated
disclosure under § 1026.38(j)(1)(v) or
(t)(5)(vii)(B) and a complete disclosure
with a reference to the abbreviated
disclosure under an appropriate heading
on an addendum, in accordance with
§ 1026.38(j) and (t)(5)(ix), as applicable.
No amendments to comment
38(t)(5)(ix)–1 are necessary to effectuate
this change. See the section-by-section
analysis of § 1026.38 pertaining to
comment 38–4 for an explanation of
when and how an addendum may be
used in the context of a principal
reduction disclosure.
Appendix D—Multiple-Advance
Construction Loans
Loan Term
The Bureau’s Proposal
Proposed comment app. D–7.i clarified
how a creditor may disclose the loan term,
pursuant to §§ 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 disclosed 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 provided 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 disclosed is 31
years. Proposed comment app. D–7.i.A also
included a cross-reference to comment
37(a)(8)–3 intending to explain 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.
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Proposed comment app. D–7.i.B clarified
how to disclose the term of the permanent
phase of a construction-permanent loan
when the creditor elected 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 explained 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.
Comments Received
As explained in the above section-bysection analysis of comment 37(a)(8)–3,
commenters were concerned that comment
37(a)(8)–3 did not include the explanations
referred to in comment app. D–7.i.
The Final Rule
For the reasons discussed below, the
Bureau is finalizing comment app. D–7.i
substantially as proposed, but the Bureau is
removing the cross-references to comment
37(a)(8)–3 in comment app. D–7.i.
The intent of the cross-reference to
comment 37(a)(8)–3 in comment app. D–7.i.A
was to explain 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.
However, citing only to § 1026.17(c)(3) might
raise questions as to the applicability of other
sections that are not cited, which was not the
intent of the Bureau. Sections such as
§ 1026.17(c)(4) are also applicable in
determining the impact of minor variations
in the number of days counted for the loan
term, as well as other disclosures, as
applicable. In order to avoid creating an
impression that only § 1026.17(c)(3) applies
for purposes of construction and
construction-permanent disclosures to the
exclusion of other potentially applicable
sections, the Bureau is not finalizing the
cross-references to comment 37(a)(8)–3 in
comment app.D–7.i.
A similar approach to generally applicable
provisions was taken in the TILA–RESPA
Final Rule with respect to providing specific
guidance in § 1026.37(c) regarding whether
the periodic principal and interest disclosure
should be based on an average 30-day month
or some other measure. There, the Bureau
noted that creditors may base their
disclosures on calculation tools that assume
that all months have an equal number of
days, even if their practice is to take account
of the variations in months for purposes of
collecting interest. The Bureau further noted
that because this § 1026.17(c)(3) guidance
applies generally to the disclosures required
by § 1026.37, the Bureau did not believe it
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was necessary or appropriate to provide such
guidance in § 1026.37(c).114
Comment app. D–7.i.B, which explains
how the loan term of the permanent phase is
counted, also included a statement that it
was consistent with comment 37(a)(8)–3. As
explained above, comment 37(a)(8)–3 only
contains a cross-reference to comment app.
D–7.i. and no additional explanations.
Accordingly, the reference to comment
37(a)(8)–3 is deleted, because there is no
explanation there for comment app. D–7.i. to
be ‘‘consistent with.’’
Product
The Bureau’s Proposal
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 constructionpermanent 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 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 constructionpermanent 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 provided this
explanation and example.
Proposed comment app. D–7.ii.B explained
that, if a single, combined constructionpermanent 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
114 See
78 FR 79730, 79937 (Dec. 31, 2013).
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of principal and interest at the end of the
construction phase. Proposed comment app.
D–7.ii.B provided 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.’’
Comments Received
While the Bureau did not receive any
comments that directly addressed proposed
comment app. D–7.ii, a comment on
proposed comment app.
D–7.iii, which is further discussed in the
section-by-section analysis for comment app.
D–7.iii below, raised issues that directly
concern the disclosure of the loan product
under § 1026.37(a)(10). Proposed comment
app. D–7.iii provided, in part, that if the
creditor may modify the rate for permanent
financing when the construction financing
converts to permanent financing, certain
variable-rate disclosures are provided
regardless of whether the permanent
financing has a fixed, adjustable, or step rate.
The commenter indicated that there could be
confusion over the applicable product
disclosures for construction-permanent loans
disclosed as either one transaction or two
transactions but consummated
simultaneously where the interest rate for the
permanent phase is set upon completion of
the construction phase. The commenter
indicated the loan product for such a loan
would seem to be adjustable rate, rather than
fixed rate, which could generate confusion
over how to disclose the loan product for this
scenario.
The Final Rule
The Bureau agrees with the commenter
and, for this reason, is finalizing comment
app. D–7.ii substantially as proposed, but
adding comment app. D–7.ii.C and making a
conforming change to comment app.
D–7.ii.B for consistency. Comment app.
D–7.ii.C clarifies that for constructionpermanent loans with a single
consummation, in the case of either a
separate disclosure for the permanent phase
or a single combined disclosure for both
phases, if the creditor reserves the right to
modify the disclosed interest rate for the
permanent phase at a post-consummation
date and the modified interest rate for the
permanent phase is not known at the time of
consummation, the loan product disclosed
under §§ 1026.37(a)(10) and 1026.38(a)(5)(iii)
is ‘‘Adjustable Rate.’’ This is true even if,
once set at the later date, the interest rate for
the permanent phase would not change
again.
Comment app. D–7.ii.C reflects the
applicability of § 1026.37(a)(10)(i) when
disclosing the loan product for constructionpermanent loans with a single
consummation, just as it would apply to any
other covered loan. Under § 1026.37(a)(10)(i),
if the creditor reserves the right to modify the
interest rate for the permanent phase of a
construction-permanent loan with a single
consummation, and that interest rate may
increase but the rate that will apply is not
known at consummation, the loan product
disclosed under §§ 1026.37(a)(10) and
1026.38(a)(5)(iii) is ‘‘Adjustable Rate,’’ if the
permanent phase is disclosed separately or a
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single disclosure is used for the combined
construction-permanent financing. Further,
any other disclosures required for the loan
product specified would also apply. For
example, the introductory rate or payment
period disclosure as required by
§§ 1026.37(a)(10)(iv) and 1026.38(a)(5)(iii) is
disclosed even if the construction and
permanent phases individually are fixed rate.
In the loan described above, if the loan is
disclosed using a single disclosure for a
combined construction-permanent financing,
the introductory period disclosure would be
the term of the construction phase and then
the term of the permanent phase, e.g. ‘‘1/30
Adjustable Rate.’’ If, however, the permanent
phase is disclosed separately, assuming the
permanent phase is a fixed rate upon
conversion from the construction phase, the
introductory rate disclosure would be zero
followed by the term of the permanent phase,
e.g., ‘‘0/30 Adjustable Rate.’’
Additionally, should the creditor reserve
the right to modify the interest rate for the
permanent phase of a constructionpermanent loan with a single consummation,
and that interest rate may increase but the
rate that will apply is not known at
consummation, the other adjustable-rate loan
disclosures would be required, if not
otherwise already required. For example,
comment app. D–7.iii as finalized discusses
the requirements for the disclosure under
§ 1026.20(c).
Similarly, the Adjustable Interest Rate
table, as required by §§ 1026.37(j) and
1026.38(n), is disclosed where the creditor
reserves the right to modify the interest rate
for the permanent phase of a constructionpermanent loan with a single consummation,
and that interest rate may increase but the
rate that will apply is not known at
consummation. If the permanent phase is
disclosed separately or a single disclosure is
used for the combined constructionpermanent financing, the creditor discloses
the index and margin, as required
§ 1026.37(j)(1), using the index and/or margin
identified in the legal obligation that will be
used to determine the interest rate for the
permanent phase at conversion. The creditor
also discloses the initial interest rate at
consummation under § 1026.37(j)(3), which
may be the interest rate for the construction
phase. Finally, the creditor discloses the
minimum and maximum interest rates for the
permanent phase, as required by
§ 1026.37(j)(4). If the legal obligation does not
provide a minimum and/or maximum
interest rate cap for the permanent phase
interest rate upon conversion, as stated in
current comment 37(j)(4)–1 and –2, the
disclosure is based on the applicable law.
Comment app. D–7.ii.C is consistent with
the applicability of the other
§ 1026.37(a)(10)(i) provisions to constructionpermanent loans. For example, using the
definition in § 1026.37(a)(10)(i)(B), if, for a
construction-permanent loan using a single
disclosure for both phases, the interest rates
for both phases are fixed at consummation
and the creditor does not reserve the right to
modify the rate after consummation, but the
interest rates are not the same, the creditor
would disclose the loan product under
§§ 1026.37(a)(10) and 1026.38(a)(5)(iii) as a
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‘‘Step Rate’’ product because the interest rate
will change after consummation and the rates
and periods they will apply are known.
Further, the introductory rate and payment
period disclosures required by
§§ 1026.37(a)(10)(iv) and 1026.38(a)(5)(iii)
would also be required.
But it should be noted that comment app.
D–7.ii.C is read in the context of the rest of
the rule. For example, while a constructionpermanent loan using a single disclosure for
both phases where the creditor reserves the
right to modify the permanent phase interest
rate after consummation would not by itself
require disclosure of the Adjustable
Payments table, an aspect of the construction
phase or permanent phase might otherwise
require it, such as an interest-only period in
the construction phase. As explained in the
discussion of proposed comment app. D–7.v,
finalized as comment app. D–7.iv, the
adjustable payment table is included for
separate disclosures of the construction
phase or combined construction-permanent
disclosures if the interest during the
construction phase is payable only on the
amount actually advanced—in such cases the
periodic payment may change after
consummation but not based on an
adjustment to the interest rate.
Interest Rate
The Bureau’s Proposal
Proposed comment app. D–7.iii explained
the disclosure of the interest rate in a
construction-permanent loan pursuant to
§§ 1026.37(b)(2) and 1026.38(b). The
comment addressed a unique aspect of some
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 stated that
the rate disclosed for the permanent
financing is the fully-indexed 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 have
explained that the rate disclosed is based on
the best information reasonably available at
the time the disclosures are made and
included 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 also provided instruction on
disclosures that may be required after
consummation if the creditor may modify the
rate disclosed for the permanent financing
when the construction financing converts to
permanent financing. If such an adjustment
of the interest rate occurs at the time of
conversion and results in a payment change,
the creditor must provide the rate and
payment adjustment disclosures required by
§ 1026.20(c) (commonly referred to as ARM
notices) at least 60 days, and no more than
120 days, before the first payment at the
adjusted level is due, without regard to
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whether the permanent financing has a fixed,
adjustable, or step rate. The Bureau sought
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 disclosure required by
§ 1026.20(c), generally required at least 60
days, and no more than 120 days, before the
first payment at the adjusted level is due.
Comments Received
The Bureau received one comment on the
proposal regarding comment app. D–7.iii.
The commenter noted that, if the loan in
question is a two-phase constructionpermanent loan in which the permanent
phase will be consummated at the close of
the construction phase of the loan, the
creditor can issue a revised Loan Estimate for
the permanent phase of the loan any time
prior to 60 days before consummation of the
permanent phase. The Bureau agrees that
such a revision of the Loan Estimate may be
permissible under § 1026.19(e)(3)(iv). The
commenter stated that if the transaction is a
single consummation constructionpermanent loan and the creditor may modify
the rate for permanent financing when the
construction financing converts to permanent
financing, the loan product would not be
fixed-rate, and if that rate upon conversion is
unknown would not be step-rate either, as
stated in proposed comment app. D–7.iii.
The commenter further noted that the
permanent phase of the transaction would be
an adjustable-rate loan product if the creditor
reserves the right to modify the rate when the
construction loan ends.
The Final Rule
The Bureau is finalizing comment app. D–
7.iii substantially as proposed, but with
clarifications. The interest rate disclosed
under §§ 1026.37(b)(2) and 1026.38(b) is the
interest rate applicable to the transaction at
consummation. If the construction phase and
permanent phase of a constructionpermanent transaction are consummated at
the same time, the payments for the
permanent phase will often not be due for a
year or more. In such situations, the legal
obligation may provide that the interest rate
of the permanent phase may change when
the construction phase converts to the
permanent phase, and further, may not
specify what the interest rate will change to
at the permanent phase. As discussed in final
comment app. D–7.ii, the fact that the
permanent phase interest rate may change
and increase after consummation requires the
permanent phase, if considered separately, to
be disclosed as an adjustable-rate product, as
defined in § 1026.37(a)(10)(i)(A) and not a
fixed-rate or step-rate product, even if the
loan will become a fixed-rate or a step-rate
at the time of conversion. Similarly, as
discussed in final comment app. D–7.ii, the
combined construction-permanent
transaction in such a situation would also be
disclosed on the combined Loan Estimate
and Closing Disclosure as an adjustable-rate
product. However, the construction phase, if
disclosed separately and if it has no interest
rate changes of its own, would not. The
disclosure of the permanent phase as an
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adjustable-rate product in these
circumstances applies even if, upon
conversion, the permanent phase will have a
fixed interest rate. The statement ‘‘regardless
of whether the permanent financing has a
fixed, adjustable, or step rate’’ at the end of
the comment as proposed is not adopted
given the clarification of the product in final
comment app. D–7.ii.
The Bureau is providing clarification in
comment app. D–7.iii that in a transaction
secured by the consumer’s principal
dwelling, if the legal obligation provides that
the interest rate of the permanent financing
may change, and therefore may increase,
when the construction financing converts to
permanent financing, and such conversion
results in a fixed-rate transaction and
payment change, the creditor must provide
the disclosures pursuant to § 1026.20(c)
generally at least 60 days, and no more than
120 days, before the first payment on the
permanent phase at the adjusted level is due.
Pursuant to § 1026.20(c), an adjustable-rate
mortgage (ARM) payment change disclosure
must be provided to the consumer when an
interest rate adjustment resulting from the
conversion of an adjustable-rate mortgage to
a fixed-rate transaction, if that interest rate
adjustment results in a corresponding
payment change, as is the case in the
conversion of the construction to a
permanent loan described above.
If the permanent phase interest rate
disclosed at consummation may increase
when the construction phase converts to the
permanent phase, the permanent phase is
both an adjustable-rate product under
§ 1026.37(a)(10)(i)(A) and an ARM, as
identified in § 1026.20(c)(1). If the interest
rate set at conversion for the permanent
financing will not change post-conversion,
the permanent financing then becomes a
fixed-rate loan, and the conversion from
construction to permanent financing is a
conversion of the permanent financing from
an adjustable-rate mortgage to a fixed-rate
transaction. Thus, the ARM payment change
disclosure must be provided to consumers in
this situation because, pursuant to
§ 1026.20(c), the disclosure is required when
an ARM converts to a fixed-rate transaction,
if the interest rate adjustment results in a
payment change. Note that this requirement
only applies if the loan is secured by the
consumer’s principal dwelling. Because the
§ 1026.20(d) ARM initial interest rate
adjustment disclosure is not required when
an ARM converts to a fixed-rate transaction,
that requirement would not be triggered by
the construction to permanent phase
conversion. However, should the
construction or permanent phase
individually otherwise meet the coverage
requirements of § 1026.20(c) or (d), for
example, if the permanent phase has an
adjustable rate after conversion or if the
initial term of the construction phase exceeds
one year, nothing in comment app. D–7.iii
should be read to exclude or modify those
requirements.
Finally, in response to the commenter’s
assertion regarding resetting tolerances for
the permanent phase, the Bureau notes that
if the loan in question is a two-phase
construction-permanent loan in which the
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permanent phase will be consummated at the
close of the construction phase, and if
consistent with § 1026.19(e)(3)(iv), the
creditor can issue revised disclosures and
reset tolerances by issuing a revised Loan
Estimate for the permanent phase, which
may disclose a different interest rate than
originally disclosed.
Initial Periodic Payment
Proposed comment appendix D–7.iv would
have clarified 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.
The Bureau did not receive comments on
the proposed clarification to comment app.
D–7.iv. However, for the reasons explained in
the above section-by-section analysis of
comment app. D–7.i, the Bureau is removing
this cross-reference for consistency. While
the creditor may consider § 1026.17(c)(3) to
determine the effects of certain minor
variations in making calculations and
disclosures, this should not be to the
exclusion of other applicable sections, such
as § 1026.17(c)(4). Accordingly, proposed
comment app. D–7.iv is not being adopted.
Increase in Periodic Payment
The Bureau’s Proposal
Sections 1026.37(b)(6) and 1026.38(b), by
cross-reference, require 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 explained 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
discussed the disclosure of fixed-rate
construction financing, and proposed
comment app. D–7.v.C discussed 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
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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. The preamble of the
proposed rule explained that 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. Thus, the Bureau
proposed 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 also
explained that a technically correct answer to
‘‘Can this amount increase after closing’’ is
‘‘NO.’’ The proposed comment is consistent
with informal guidance provided by the
Bureau.
Proposed comment app. D–7.v.B explained
that, if separate disclosures are provided for
fixed-rate construction and permanent
financing and appendix D is used to compute
the periodic payment for the construction
phase, 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, the proposal stated 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). The
proposal also stated 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.
Proposed comment app. D–7.v.C stated
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 provided an
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illustrative example. Proposed comment app.
D–7.v.C. also stated that 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,
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. also
stated 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. explained
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 would also disclose
a range of payments in the principal and
interest row of the projected payments table
under § 1026.37(c)(2)(i).
Comments Received
Commenters raised concerns regarding the
options provided by the proposed
commentary and the time that would be
required to implement it. An individual
commenter objected to the option to provide
either an affirmative or negative answer to
the question, ‘‘Can this amount increase after
closing?’’ The commenter stated that
disclosing ‘‘NO’’ would be inaccurate as the
payment can range as high as interest on the
total amount of the approved loan or as little
as $0.00, if no funds have been drawn. A
vendor commented that the optionality in
proposed comment app. D–7.v.A would
complicate compliance because creditors and
investors would need to conduct additional
staff training regarding these options,
including that they are only applicable for
fixed-rate transactions. The option provided
under proposed comment app. D–7.v.B to
omit the disclosures under § 1026.37(b)(6)(iii)
and (c)(2)(i) would similarly complicate
compliance and require training. The
commenter further noted that implementing
these options would require significant
reprogramming for technology providers
across the industry, including loan
origination, document production, and
compliance software companies. The
commenter also stated that useful
information under § 1026.37(b)(6)(iii) and (c)
that is based on the principal balance would
be able to be disclosed and noted consumers
would benefit from a disclosure of the
maximum principal and interest payment
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based on the maximum principal balance
that could be outstanding during the
construction phase.
Several vendors expressed implementation
concerns with proposed comments app. D–
7.v.A and B. They indicated their systems
cannot support a ‘‘YES’’ for fixed-rate
construction-only disclosures without the
§ 1026.37(b)(6)(iii) bullet points as the
proposed comments would permit. The
vendors’ comments noted that, currently,
most software automatically produces the
bullets under § 1026.37(b)(6)(iii) when a
‘‘YES’’ answer is provided under
§ 1026.37(b)(6). Thus, while the proposal
indicated the bullets under
§ 1026.37(b)(6)(iii) are optional, the vendors
indicated the optionality did not exist under
their programs. The proposed changes would
require reprogramming and would also
complicate software integrations. Vendors
estimated the proposed comments would
require 9 to 12 months to implement. These
implementation concerns were echoed by a
trade organization, which commented that
the construction loan management (CLM)
systems that creditors use to manage draws
and inspections during the construction
phase do not communicate with servicing
and loan origination software. Because of
such software issues, creditors manually
interface their CLM systems with their other
systems. The comment noted sufficient time
will be needed to adjust systems and
processes to the new rules.
The Final Rule
Based on the concerns initially raised by
creditors and noted in the proposed rule, and
the additional concerns expressed in the
comments, the Bureau is adopting comment
app. D–7.v with modification. The option to
disclose an answer of either ‘‘YES’’ or ‘‘NO’’
to the question ‘‘Can this amount increase
after closing?’’ under comment app. D–7.v.A
is not adopted under this final rule. Only a
disclosure of ‘‘YES’’ would be provided as
the § 1026.37(b)(6) response to whether there
will be an increase in the periodic payment
when the amounts or timing of advances is
unknown at or before consummation and the
appendix D assumption that applies if
interest is payable only on the amount
advanced for the time it is outstanding is
used to calculate the periodic payment. This
change will address the concerns of creditors
and others that the disclosure should reflect
the fact that the payments actually increase
over the term of the construction financing,
even though the amount of such increases is
not known at or before consummation.
However, during the optional compliance
period before October 1, 2018, and after the
optional compliance period with respect to
transactions for which a creditor or mortgage
broker received an application during the
optional compliance period, disclosures may
continue to be made in the manner explained
by the informal guidance provided by the
Bureau and restated in proposed comment
app. D–7.v.A. This takes into account the
concerns of vendors, creditors, and others for
sufficient time to reprogram systems and
train staff to integrate the disclosures
finalized here into their systems and
processes.
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To further simplify the disclosures and
their implementation, the scope of comments
app. D–7.v.A. and B is not limited to
circumstances when separate disclosures are
provided for fixed-rate construction
financing as they were in the proposed rule
and comment app. D–7.v.C is not limited to
separate disclosures for adjustable-rate
construction financing. As a practical matter,
if ‘‘YES’’ is the answer to ‘‘Can this amount
increase after closing?’’ when separate
disclosures are provided for either fixed-rate
or adjustable-rate construction financing,
‘‘YES’’ will necessarily be the answer when
a combined disclosure for that financing is
provided. This is generally the result
whenever a combined disclosure is used
because the interest-only payment of the
construction financing increases to the
principle and interest payment of the
permanent financing. Comment app. D–7.v
therefore applies to both separate
construction disclosures and combined
construction-permanent disclosures because,
in either case, the § 1026.37(b)(6) disclosures
would reflect the construction phase during
which there may be an increase in the
periodic payment. In addition, the statement,
‘‘If the amounts or timing of advances is
unknown at or before consummation and the
appendix D assumption that applies if
interest is payable only on the amount
advanced for the time it is outstanding is
used to calculate the periodic payment’’ is
provided as the introductory paragraph that
applies to all of comment app. D–7.v.A
through C. This condition in the introductory
paragraph is the perquisite for the
applicability of the explanations that follow
in the subsequent paragraphs of the
comment. The Bureau considers that the
greater consistency provided for the
§ 1026.37(b)(6) disclosures by the final rule
will provide greater clarity and help creditors
facilitate the implementation of these
provisions. However, the option to answer
‘‘NO’’ during the optional compliance period
before October 1, 2018, will continue to be
limited to circumstances when separate
disclosures are provided for fixed-rate
construction financing. As noted above,
when a single, combined disclosure is used
for both the construction and permanent
phases, or when the construction phase has
an adjustable rate and either separate or
combined disclosures are provided, the
initial interest-only periodic payment may
increase, even when the initial payment is
calculated in accordance with appendix D.
The option in proposed comment app. D–
7.v.B to omit the disclosures under
§ 1026.37(b)(6)(iii) and the disclosure of a
range of payments under § 1026.37(c)(2)(i) is
adopted with modifications. In adopting
these modifications, the Bureau agrees with
the comments noting that useful information
could be provided to consumers based on the
maximum principal balance that could be
outstanding during the construction phase.
The Bureau is also taking into account the
practical consequences of the comments
noting that many systems automatically
populate the § 1026.37(b)(6)(iii) ‘‘bullets’’
when a response of ‘‘YES’’ is disclosed.
Comment app. D–7.v.B, as modified,
provides an explanation of how to make the
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§ 1026.37(b)(6)(iii) disclosures when a ‘‘YES’’
response to ‘‘Can this amount increase after
closing?’’ is disclosed. The comment explains
that years or months may be used for the
§ 1026.37(b)(6)(iii) disclosures, consistent
with comment 37(b)(6)–1. Using months for
the disclosures provides more useful
information for construction loans in
particular, as such loans often do not exceed
12, rather than 24, months. The comment
provides examples that, for a 10-month
construction loan, the first bullet may
disclose, ‘‘Adjusts every mo. starting in mo.
1’’ and the second bullet may disclose, ‘‘Can
go as high as $ [ insert maximum possible
payment] in year 1.’’ The comment clarifies
the maximum possible payment disclosed
would be based on the maximum principal
balance that could be outstanding during the
construction phase. The adjustment may start
in the first month (‘‘mo. 1’’) because the first
payment is not likely to equal the amount
computed using the appendix D assumptions
when the amounts or timing of advances is
unknown at or before consummation and
interest is payable only on the amount
advanced for the time it is outstanding.
Comment app. D–7.v.B further explains
that as part of the ‘‘First Change/Amount’’
disclosure in the ‘‘Adjustable Payment (AP)
Table’’ pursuant to § 1026.37(i)(5)(i), the
creditor may omit and leave blank the
amount or range corresponding to the first
periodic principal and interest payment that
may change. The timing of the first change,
which is the earliest possible payment that
may change under the terms of the legal
obligation under comment 37(i)(5)–2, is still
disclosed. This disclosure, in particular,
reflects a change due to a change in the total
amount advanced, but when the amounts or
timing of advances is unknown at or before
consummation and interest is payable only
on the amount advanced for the time it is
outstanding, there is not a method for
computing the amount at the first change in
payment. However, the other disclosures in
the ‘‘Adjustable Payment (AP) Table’’ may be
made without having to take an unknown
quantity into account. For example, the first
change may take place at the first payment,
the earliest possible payment that may
change, because the first payment likely may
not equal the amount computed using the
appendix D assumption, and the maximum
payment would be based on the maximum
draw that could be outstanding during the
construction phase.
The reference to § 1026.37(c)(2)(i) in
proposed comment app. D–7.v.B is also
removed in this rule. Because the payment
can range as high as the interest on the total
amount of the approved loan or as little as
$0.00, as noted in the comments, the
proposed option to omit the § 1026.37(c)(2)(i)
disclosures is not adopted. As discussed
below, proposed comment app. D–7.vi
adopted in this rule as comment app. D–7.v,
which directly addresses the projected
payments disclosures for multiple-advance
construction loans, more appropriately
addresses such issues.
Comment app. D–7.v.C, which addresses
the increase in periodic payment disclosures
for adjustable-rate construction financing, is
modified for consistency with the app. D–7.v
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changes described above. It applies to both
the separate construction disclosures and the
combined construction-permanent
disclosures, rather than only to separate
construction disclosures as proposed.
Because the § 1026.37(b)(6)(iii) bullets may
be disclosed as provided in comment app. D–
7.v.B, comment app. D–7.v.C explains that
both the adjustable payment table and the
adjustable interest rate table are included in
the § 1026.37(b)(6) disclosures for adjustablerate construction financing.
Finally, because proposed comment app.
D–7.iv is not being adopted, a conforming
change is being made and proposed comment
app. D–7.v is renumbered as comment app.
D–7.iv in this rule.
Projected Payments Table
The Bureau’s Proposal
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.
The proposed rule would have restated
comment app. D–7.i as comment app. D–
7.vi.A and added clarifying language to
specify that, if interest is payable only on the
amount actually advanced for the time it is
outstanding, the creditor uses the assumption
in appendix D, part I.A.1, to determine the
amount of the interest-only payment to be
made during the construction phase. The
proposed comment would have also clarified
that comment app. D–7.i’s statement that 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),
applies unless the transaction has negative
amortization, interest-only, or step payment
features, consistent with § 1026.37(a)(10)(iii).
References to the balloon payment
disclosures under §§ 1026.37(b)(5),
1026.37(b)(7)(ii), and 1026.38(b) would have
been added to the existing statement that the
creditor must disclose the balloon payment
in the projected payments table.
The proposed rule would have also
restated comment app. D–7.ii as comment
app. D–7.vi.B. Language consistent with
informal guidance provided by the Bureau
would have been added to clarify comment
app. D–7.ii’s statement that the projected
payments table must reflect the interest-only
payments during the construction phase in a
first column. As proposed, the comment
would have explained 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 have ensured 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
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would have also been added to proposed
comment app. D–7.vi.B to explain that, if
interest is payable only on the amount
actually advanced for the time it is
outstanding, the creditor uses the assumption
in appendix D, part II.A.1 to determine the
amount of the interest-only payment to be
made during the construction phase.
Comments Received
A law firm commenter recommended that
the Bureau incorporate the guidance from
Section 14.7 of the Bureau’s TILA–RESPA
Integrated Disclosure Rule Small Entity
Compliance Guide regarding the mortgage
insurance and estimated escrow disclosures
in the projected payments table for
transactions where the terms of the legal
obligation for the permanent phase, but not
the construction phase, require mortgage
insurance or escrow. This commenter also
recommended that the Bureau clarify the
impact of the mortgage insurance and
estimated escrow disclosures on the
estimated total monthly payment disclosure
where the construction phase is not a full
year and, therefore, the first column in the
projected payments table discloses a range of
payments reflecting the interest-only
payments during the construction phase and
the amortizing payments for the permanent
phase. A vendor group commenter similarly
recommended that the rule address the
treatment of estimated escrow payments as
they relate to single-close construction-topermanent transactions.
Another law firm commenter stated that
the regulation does not explain how to
calculate the amount of the periodic payment
of ‘‘only interest’’ other than directing
creditors to assume that interest is
‘‘outstanding at the contract interest rate for
the entire construction period.’’ This
commenter provided an example of the
interest-only monthly payment computed
using a daily interest accrual method. The
commenter requested that the Bureau
validate the formula used to compute the
monthly payment.
The Final Rule
As an initial matter, because proposed
comment app. D–7.iv is not being adopted,
proposed comment app. D–7.vi is
renumbered as comment app. D–7.v in this
rule. In addition, the description of the
§ 1026.17(c)(6)(ii) provision that is currently
in the introductory paragraph of comment
app. D–7, but did not appear in proposed
comment app. D–7.vi, is reinstated in the
introductory paragraph of comment app. D–
7.v in this rule. This revision is necessary to
provide the context of the ‘‘two alternatives’’
cited in the following sentence of the
comment.
As discussed above concerning proposed
comment app. D–7.v, comments noted the
actual payment during the construction
phase can range as high as the interest on the
total amount of the approved loan or as little
as $0.00. Nonetheless, current comment app.
D–7.i and proposed comment app. D–7.vi
provided 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. To
promote consistency and continuity for
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construction disclosures in the projected
payments table, comment app. D–7.v.A as
adopted in this final rule continues to require
the creditor to determine the amount of the
interest-only payment to be made during the
construction phase using the assumption in
appendix D, part I.A.1. This means that the
interest-only construction payments are not
disclosed as a range of payments in the
projected payments table. If a separate
disclosure is used for the construction phase
or if the term of the construction phase is a
full year and a combined disclosure for both
phases is used, only the payment determined
using the appendix D assumption is
disclosed in the projected payments table
rather than a range of payments between $0
and the interest on the total amount of the
approved loan. If a single disclosure is used
for both the construction and permanent
phases and the term of the construction
phase is less than a full year, a range of
payments reflecting the payment determined
using the appendix D assumption and the
amortizing payments that will begin in the
first year is disclosed.
The Bureau agrees with the commenters
that recommended incorporating additional
discussion on disclosing escrow and
mortgage insurance that was previously
provided in an informal webinar by Bureau
staff and incorporated into the Bureau’s
TILA–RESPA Integrated Disclosure Rule
Small Entity Compliance Guide. That
discussion is added as comment app. D–
7.v.C. Comment app. D–7.v.B is also revised
to include a reference to mortgage insurance
and escrow payments, which are reflected in
the first column of the projected payments
table along with the amortizing payments of
the permanent phase if the creditor elects to
disclose the construction and permanent
phases as a single transaction and the
construction phase is not a full year.
With respect to the commenter that
requested the Bureau validate the method
used to compute the monthly interest
payment for disclosure purposes, appendix D
does not specify the method used to calculate
the interest or monthly payment of the
construction transaction. Appendix D only
provides assumptions that creditors may use
to estimate and disclose the terms of multiple
advance construction loans. For example, if
interest is payable only on amounts
advanced, the estimated interest is computed
based on the assumption that one-half the
commitment amount is outstanding for the
entire construction. The example that follows
section I.B.4 of appendix D demonstrates
how the interest-only monthly payment may
be calculated using the assumptions
provided, including the assumed use of
monthly periods for calculation purposes.
The example in the (B) column states the
amount of the calculated monthly payment.
The amount of the monthly payment in
column (A) may be calculated by dividing
the estimated interest by the number of
months of the construction transaction in the
example. However, these are only examples.
Neither the regulation nor appendix D
requires the use of monthly periods, or any
other particular unit-periods. A creditor may
use daily, or other, unit-periods for
calculation purposes, as long as the period
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used is not inconsistent with the terms of the
legal obligation between the creditor and the
consumer.
Construction Costs as ‘‘Other’’ Costs
The Bureau’s Proposal
Proposed comment app. D–7.vii.A would
have explained 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). This proposed comment was
consistent with proposed amendments to
comment 37(g)(4)–4, which would have
provided that the amount of construction
costs must be disclosed under the
subheading ‘‘Other’’ pursuant to
§ 1026.37(g)(4).
Proposed comment app. D–7.vii.B would
have also addressed disclosure of a portion
of a construction loan’s proceeds that is
placed in a reserve or other account at
consummation, sometimes referred to as a
‘‘construction holdback.’’ Consistent with
informal guidance provided by the Bureau,
the proposed comment would have
explained 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. The comment would
also have explained that 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 in
accordance with the clear and conspicuous
standard explained at comment 37(f)(5)–1,
and the balance of construction costs must
exclude the designated amount to avoid
double counting.
Comments Received
Comments on proposed comment app. D–
7.vii were generally made together with
comments submitted on the proposed
revision of comments 37(g)(4)–4 and
38(g)(4)–1 and, similarly, were generally
unfavorable. Commenters stated that
disclosure of construction costs under
§§ 1026.37(g)(4) and 1026.38 (g)(4) would
make the closing costs in many loans,
including construction loans, appear to be
enormous, causing confusion. Commenters
stated that consumers would be concerned
that loans were prohibitively expensive upon
seeing such high ‘‘closing costs.’’
Commenters also noted that consumer testing
had not been conducted for the proposed
required disclosures, and disagreed with
what they perceived as giving a greater
priority to comparability between the Loan
Estimate and the Closing Disclosure than to
consumer understanding. Significant staff
training and systems reprogramming were
also cited as concerns by commenters. A
fuller presentation of these comments is in
the discussion of comment 37(g)(4)–4 above
in this preamble.
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However, some commenters also pointed
out an issue that was specific to proposed
comment app. D–7.vii. Two trade association
commenters noted that proposed comment
app. D–7.vii.A did not expressly refer to the
alternative disclosure for transactions
without a seller, which was referenced in the
proposed commentary to §§ 1026.37(g)(4) and
1026.38 (g)(4). The commenters believed that
not including this reference would create
legal complexity and may introduce different
interpretations between creditors and
investors, causing confusion for the industry.
The Final Rule
The Bureau is not adopting comment app.
D–7.vii as proposed but is adopting the
comment with modifications in response to
comments. The changes adopted are
consistent with the changes made to other
provisions in this rule that address
construction costs. Because the disclosure of
construction costs under §§ 1026.37(g)(4) and
1026.38 (g)(4) is not being required as
proposed, comment app. D–7.vii as adopted
is revised to describe the options available
for a creditor to disclose and calculate
construction costs rather than focus only on
the disclosure of construction costs as ‘‘Other
costs.’’ In addition, because proposed
comment app. D–7.iv is not being adopted in
this rule, proposed comment app. D–7.vii is
renumbered as comment app. D–7.vi in this
rule.
Comment app. D–7.vi, as redesignated, is
renamed ‘‘Disclosure of construction costs.’’
The reference to construction costs as ‘‘other
costs’’ is removed, because construction costs
will no longer be disclosed as ‘‘other costs’’
under §§ 1026.37(g)(4) and 1026.38(g)(4).
Proposed comment app. D–7.vii.A is
redesignated as comment app. D–7.vi.A and
revised to provide a description of
‘‘construction costs,’’ as costs related to the
improvements to be made to the property
that the consumer contracts for in connection
with the financing transaction and that will
be paid in whole or in part with loan
proceeds. Proposed comment app. D–7.vii.A
is revised to refer to costs for which the
consumer contracts in connection with the
financing transaction rather than costs the
consumer contracts at or before the real estate
closing to pay, as proposed, because it may
not be clear if there is a ‘‘real estate closing’’
when the financial transaction only involves
construction. Even when a ‘‘real estate
closing’’ is clearly present, improvements in
connection with the financing transaction
may not be contracted for until shortly after
the closing takes place. In such cases, as long
as the creditor knows that financing the
improvement is a purpose of the loan
proceeds, the construction costs are in
connection with the financing transaction.
Further, proposed comment app. D–7.vii.B
is redesignated as comment app. D–7.vi.D.
Comments app. D–7.vi.B and C as adopted in
this rule describe the options available for a
creditor to disclose and calculate
construction costs under the Loan Estimate
and Closing Disclosure, respectively.
Comment app. D–7.vi.B as adopted
provides that on the Loan Estimate the
creditor factors construction costs into the
funds for borrower calculation under
§ 1026.37(h)(1)(v), or discloses these costs
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under § 1026.37(h)(2)(iii) in the optional
alternative calculating cash to close table for
transactions without a seller or for
simultaneous subordinate financing.
Comment app. D–7.vi.C as adopted in this
rule describes the options a creditor has with
respect to construction costs on the Closing
Disclosure: to disclose these costs under
§ 1026.38(j)(1)(v) in the summaries of
transactions table and factor them into the
funds for borrower calculation under
§ 1026.38(i)(4) and (6) or disclose these costs
under § 1026.38(t)(5)(vii)(B) in the optional
alternative calculating cash to close table for
transactions without a seller or for
simultaneous subordinate financing.
A conforming change is made to comment
app. D–7.vi.D, which was proposed comment
app. D–7.vii.B, by removing the reference to
§ 1026.37(g)(4) and replacing it with a
reference to ‘‘the disclosure and calculation
options described in comments app. D–7.vi.B
and C.’’
Construction Loan Inspection and Handling
Fees
Proposed comment app. D–7.viii provided
instructions for the disclosure of construction
loan inspection and handling fees consistent
with informal guidance provided by the
Bureau. The proposed comment explained
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
also provided 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.
The Bureau did not receive any comments
on proposed comment app. D–7.viii.
Although the Bureau received no comments
regarding this proposed comment, as stated
in the discussion of comment 37(f)–3, above,
the Bureau is finalizing comment app. D–
7.viii as proposed with an additional
clarification in response to comments
received that construction loan inspection
and handling fees are loan cost charges that
must be added to the ‘‘In 5 Years’’ disclosure
under § 1026.37(l)(1) and the total of
payments disclosure under § 1026.38(o)(1)
because they are disclosed under
§ 1026.37(f), even when they are disclosed on
an addendum. Consistent with a clarification
being adopted in comment 37(f)–3, a
statement is added that inspection and
handling fees include draw fees. In addition,
because proposed comment app. D–7.iv is
not being adopted in this rule, proposed
comment app. D–7.viii is renumbered as
comment app. D–7.vii in this rule.
Appendix H—Closed-End Forms and
Clauses
The Bureau’s Proposal
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
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published by the Bureau.115 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 blank
forms). 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 sample
forms).
Current comment app. H–30 provides that
forms H–24(A) through (G), H–25(A) through
(J), and H–28(A) through (J), i.e., both the
blank forms and the sample forms, are model
forms for the disclosures required under
§§ 1026.37 and 1026.38 and that use of an
appropriate model form is mandatory for a
transaction that is a federally related
mortgage loan (as defined in Regulation X).
The Bureau proposed to revise comment app.
H–30 to distinguish between the blank forms
and the sample forms and to establish that
only the blank forms are model forms.
Comments Received
Commenters, including creditors, vendors,
trade associations, government sponsored
enterprises (GSEs), a title insurance
underwriter, and an individual attorney,
opposed the proposed revisions to comment
app. H–30 that would remove the sample
forms’ status as model forms, and thus
remove the existing safe harbor protection
afforded by use of the sample forms. A title
insurance underwriter, a trade association,
and GSE commenters noted the Bureau’s
statement in the TILA–RESPA Final Rule that
the sample forms ‘‘illustrate the disclosures
required under §§ 1026.37 and 1026.38, for
particular types of transactions.’’ 116 Trade
association commenters challenged the
Bureau’s legal authority to revise comment
app. H–30 as proposed and stated that
reversing the decision made in the TILA–
RESPA Final Rule at this point would appear
to be arbitrary and capricious.
GSE commenters stated that the sample
forms were critical to the GSEs’ development
of the Uniform Closing Dataset (UCD) and
that it is important to preserve the safe harbor
protection afforded by use of the sample
forms. As an example of the importance of
safe harbor protection, a title insurance
underwriter cited § 1026.37(b)(6), which, for
each amount required to be disclosed by
§ 1026.37(b)(1) through (3), requires creditors
to provide a statement of whether the amount
may increase after consummation as an
affirmative or negative answer to the
question, and under such question disclosed
as a subheading, ‘‘Can this amount increase
after closing?’’ Moreover, in the case of an
affirmative answer, § 1026.37(b)(6) requires
creditors to provide additional information
specified in § 1026.37(b)(6)(i) through (iii), as
applicable. The title insurance underwriter
115 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.
116 78 FR 79730, 80064 (Dec. 31, 2013).
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commented that, without the status of the
sample forms as model forms, there would be
no safe harbor regarding the formatting or
organization of the disclosures required
under § 1026.37(b)(6). The title insurance
underwriter stated that the proposed
revisions to comment app. H–30 would
increase legal risk for creditors, which could
potentially increase costs for consumers.
Some commenters, including a creditor, a
title insurance underwriter, a trade
association, and a vendor group, requested
that the Bureau conduct a systematic review
of the sample forms to address errors and for
consistency with the final rule. A trade
association commenter requested that the
Bureau publish more details regarding the
hypothetical transactions and assumptions
that underlie the various existing sample
forms. That commenter further requested that
the Bureau develop additional sample forms
to demonstrate alternative approaches for
disclosing the same hypothetical transactions
that underlie the existing sample forms.
The Final Rule
For the reasons discussed below, the
Bureau is not adopting the proposed
revisions to current comment app. H–30.
Accordingly, use of an appropriate sample
form, if properly completed with accurate
content, constitutes compliance with the
requirements of §§ 1026.37 or 1026.38 and
associated commentary, as applicable. In part
in response to commenters’ concerns, the
Bureau concludes that maintaining the
current text of comment app. H–30 and the
sample forms’ status as model forms will
facilitate compliance and promote greater
consistency in formatting the disclosures
required under §§ 1026.37 and 1026.38. Such
consistency, in turn, can facilitate
comparison shopping for consumers.
In finalizing the current proposal, the
Bureau has not pursued commenters’
suggestions to develop additional sample
forms, publish more details regarding the
forms’ underlying assumptions, and conduct
a systematic review of the forms, because
such actions would be very time consuming
and resource-intensive, whereas the Bureau’s
focus in this rulemaking is providing
additional clarity in an expeditious manner.
VI. Effective Date
A. The Bureau’s Proposal
The Bureau proposed an effective date
120 days after publication in the
Federal Register of any final rule based
on the proposal. The Bureau also
requested comment on when the
changes proposed should be effective. In
addition, the Bureau requested
comment on whether there is a better or
worse time of year for any of the
proposed changes to become effective.
The Bureau also requested comment on
whether specific changes, as detailed in
the section-by-section analysis of the
proposal, should have a separate
effective date and, if so, whether it
should be earlier or later than the
general effective date and why. In the
proposal, the Bureau stated that it
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believed that the proposed changes
should enable industry to implement
the provisions set forth in the TILA–
RESPA Rule more cost-effectively and
that industry should be able to
implement these changes relatively
quickly. At the same time, the Bureau
stated that it recognized that some of the
proposed changes might require changes
to systems or procedures.
In addition, the Bureau proposed
revisions to comment 1(d)(5)–1 related
to the implementation timeframe for the
escrow cancellation notice required by
§ 1026.20(e) and the partial payment
disclosure required by § 1026.39(d)(5).
Those revisions are discussed further in
the section-by-section analysis of
§ 1026.1(d)(5).
B. Comments Received
In response to the proposed rule, the
Bureau received many comments
concerning the effective date and
implementation period. One consumer
group commenter indicated that the
changes in the final rule should be
applied prospectively only. Thus, the
changes should only be effective to
applications received on or after a date
certain. The commenter stated that such
prospective application of the changes
would create clarity for enforcement
agencies and consumers.
A large number of industry
commenters addressed the effective date
and implementation period issues.
Some industry commenters suggested a
single implementation period applicable
to all changes made in the final rule.
These industry commenters indicated
that 120 days was not adequate to
implement the changes. They indicated
they needed additional time to complete
software updates, to conduct testing and
self-audits, to update training policies,
and to complete staff training. These
commenters’ suggestions for the
implementation period ranged from 6
months to 24 months. One commenter
suggested 6 months, one commenter
suggested 6 to 9 months, one commenter
suggested 18 months, one commenter
suggested 24 months, and the
predominance of commenters suggested
12 months. One commenter suggested
that the implementation period should
extend to the later of (1) 12 months or
(2) 180 days after the effective date for
all other regulations related to
mortgages that have recently been
finalized by the Bureau.
Several industry commenters
suggested that the implementation
timeframe should vary based on the
particular change. One commenter
suggested a 30-day implementation
period for changes requiring little or no
reprogramming and a 180-day
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implementation period for other
changes, such as changes to the
calculating cash to close table, and the
total of payments disclosure. One
commenter recommended an earlier
implementation period for changes
related to the official interpretations, but
recommended a voluntary compliance
period coupled with a mandatory
compliance deadline of 12 months for
provisions that it perceived as requiring
changes to the forms, including the
calculating cash to close table. One
commenter indicated that changes that
require little reprogramming should be
effective immediately upon publication.
This commenter indicated that, for other
changes, the effective date should be
180 days from publication of the final
rule. One commenter suggested that
certain changes that do not require
software upgrades should be effective
upon finalization and asked the Bureau
to work with vendors to determine an
appropriate effective date for other
provisions.
Several industry commenters
suggested that the Bureau allow
optional compliance. One commenter
indicated that an optional compliance
period would allow changes to loan
origination systems to be ‘‘rolled out’’
prior to the final compliance date, so
that all of the changes do not have to
occur on one day. This commenter
stated that an optional compliance
period would ease the transition process
for both providers of loan origination
systems and for the users of the systems
who must learn about and understand
the changes being implemented. One
commenter stated that because some of
the proposed changes are based on
unofficial guidance previously provided
by the Bureau’s staff, many creditors are
already complying with those proposed
changes. This commenter indicated that
the Bureau should permit optional
compliance with the final changes so
that creditors already complying with
the final changes are not penalized.
Several industry commenters asked
that certain changes be made
retroactive. For example, one industry
commenter indicated that technical,
non-substantive changes (i.e.,
typographical errors, incorrect rule
references, and other minor
modifications) should be effective as
quickly as possible and should apply
retroactively. Another industry
commenter recommended that certain
amendments, such as the proposed
changes related to cooperative units and
the proposed changes related to the
sharing of Closing Disclosures, should
be effective for all loan applications
received on or after October 3, 2015.
One industry commenter recommended
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retroactivity for proposed changes
related to tolerances for the total of
payments for transactions for which
creditors received applications before
the effective date of the tolerance. One
industry commenter indicated that,
where the Bureau is memorializing
unofficial guidance, the provisions
should be effective upon rule
finalization for all transactions
originated on or after October 3, 2015.
One industry commenter indicated that
the Bureau should provide retroactive
protection for clarifications of
ambiguous provisions and formal
adoption of informal guidance
previously provided by the Bureau. This
commenter also indicated that any cure
or correction provisions that are
adopted should be retroactive. The
commenter also asked the Bureau to
confirm that the Bureau’s ‘‘good faith’’
approach to oversight of the TILA–
RESPA integrated disclosures is still in
effect and will remain in effect during
the implementation period after the
proposal is finalized.
C. The Final Rule
Overview of the Final Rule
Based on the requests that creditors be
allowed to implement some aspects of
the final rule soon after issuance, the
amendments in the final rule (2017
TILA–RESPA Amendments) will
become effective on October 10, 2017.
The Bureau is further allowing optional
compliance until compliance with the
2017 TILA–RESPA Amendments
becomes mandatory. As discussed in
more detail below, the Bureau believes
that an optional compliance period is
the best framework for addressing the
specific implementation challenges that
are present in this rulemaking as
identified in the proposal and in
comments. Therefore, compliance with
the 2017 TILA–RESPA Amendments is
mandatory only with respect to
transactions for which a creditor or
mortgage broker received an application
on or after October 1, 2018 (except for
compliance with the escrow
cancellation notice required by
§ 1026.20(e) and the partial payment
policy disclosure required by
§ 1026.39(d)(5) discussed in the sectionby-section analysis of § 1026.1(d)(5)).
Except with respect to the escrow
cancellation notice and the partial
payment disclosure requirements, for
transactions for which a creditor or
mortgage broker received an application
prior to October 1, 2018, from the
effective date of the 2017 TILA–RESPA
Amendments, a person may comply
either with Regulation Z (as interpreted
by the commentary) as it is in effect
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37763
(including the amendments set forth in
the 2017 TILA–RESPA Amendments) or
as it was in effect on October 9, 2017,
together with any amendments that
become effective other than the 2017
TILA–RESPA Amendments.
After considering the comments, the
Bureau believes that it is appropriate for
several reasons to require compliance
with the 2017 TILA–RESPA
Amendments only with respect to
transactions for which a creditor or
mortgage broker received an application
on or after October 1, 2018 (except for
compliance with the escrow
cancellation notice and partial payment
policy disclosure requirements
discussed above with which compliance
will become mandatory on October 1,
2018, regardless of when an application
was received). The final rule will
require several changes to systems used
to produce the TILA–RESPA integrated
disclosure forms. The Bureau believes
that mandating compliance with the
2017 TILA–RESPA Amendments only
with respect to transactions for which a
creditor or mortgage broker received an
application on or after October 1, 2018,
will provide creditors sufficient time to
complete software updates, to conduct
testing and self-audits, to update
training policies, and to complete staff
training that may be needed to
implement the changes in the final rule.
The Bureau does not believe that a
longer timeframe, as requested by a
small number of commenters, is
necessary given the nature of the
changes in this final rule.
The Bureau believes that it is
appropriate to allow optional
compliance with the 2017 TILA–RESPA
Amendments for several reasons. As the
Bureau noted in its proposal, this final
rule does not reopen major policy
decisions made in the TILA–RESPA
Final Rule. This final rule generally
clarifies ambiguous provisions,
including by memorializing past
informal guidance, and makes technical
amendments. The Bureau believes many
creditors, either in reliance on informal
guidance or otherwise, currently may be
complying with some of the final rule’s
clarifications. At the same time, given
that the Bureau is clarifying existing
ambiguity, the Bureau recognizes that
not all creditors have already adopted
processes in compliance with the final
rule and that creditors are likely at
various points along a continuum of
adopting practices in compliance with
the final rule. Therefore, the Bureau
believes it reasonable to grant creditors
an interim period in which to phase in
their compliance with the final rule, in
accordance with their individual
circumstances. As to the purely
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technical and clarifying amendments,
the Bureau does not believe that this
phased-in optional compliance period
poses any risks of consumer harm.
The final rule also contains a few
substantive changes to the TILA–RESPA
Rule in a limited number of situations
in which the Bureau has identified
potential discrete solutions to specific
implementation challenges. While the
Bureau believes that these limited
substantive changes will generally
benefit consumers and industry alike by
providing greater clarity for
implementation, the Bureau also does
not believe that permitting a phased-in
optional compliance period for these
limited substantive changes is likely to
cause consumer harm. These
substantive changes are limited and do
not affect the content of the disclosures
giving rise to statutory damages.
Moreover, the changes to the disclosures
do not alter the bottom-line dollar
disclosures consumers are most likely to
rely on in shopping for and closing on
a mortgage, thereby minimizing the risk
of consumer harm during the optional
compliance period. For example, a
creditor phasing in changes relating to
the calculating cash to close table would
nonetheless be required to disclose a
final cash to close amount that is
consistent with the summaries of
transactions table. In general, the
Bureau believes, therefore, that the
minor variations in disclosure possible
during the limited duration of the
optional compliance period will not
cause significant consumer confusion,
whether such minor variations occur as
between a Loan Estimate and Closing
Disclosure issued by the same creditor
or between Loan Estimates issued by
two different creditors, although
creditors may not phase in compliance
in a way that violates provisions of
Regulation Z (as interpreted by the
commentary) unchanged by this final
rule, as discussed further below in the
Details of the Final Rule section.
The Bureau also believes that
industry’s overall compliance with the
TILA–RESPA Rule will be facilitated by
the implementation of these limited
substantive changes and that therefore
there is both a consumer and industry
benefit to allowing creditors to
implement these changes as quickly as
possible after the effective date. At the
same time, the commenters clearly
indicated that not all creditors will be
able to implement these changes on the
same schedule. The flexibility afforded
under the optional compliance period
may help creditors implement the
provisions of the final rule more quickly
and easily.
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For these reasons, the Bureau agrees
with several commenters that it is
appropriate to allow creditors flexibility
to comply with the 2017 TILA–RESPA
Amendments all at one time, or to phase
in the changes prior to the mandatory
compliance date. After considering the
comments, the Bureau does not believe
that it would be optimal in these
circumstances for the Bureau to impose
a detailed schedule for creditors to
phase in the changes required by this
final rule, for example by establishing
multiple effective dates that are
staggered over time. Thus, after the
effective date of the 2017 TILA–RESPA
Amendments, creditors generally may
phase in the 2017 TILA–RESPA
Amendments as best comports with
their business models, whether based on
application dates for specific provisions
or even during the course of a
transaction, although such phased-in
compliance may not place the creditor
in violation of provisions of Regulation
Z (as interpreted by the commentary)
unchanged by this final rule, as
discussed further below in the Details of
the Final Rule section. The Bureau bases
this decision on the general clarifying
purpose of the final rule coupled with
the limited, technical nature of the few
substantive changes. Such expansive
flexibility during the optional
compliance period may not be
appropriate in the context of other final
rules with more significant substantive
changes, more novel (as opposed to
clarifying) amendments, or provisions
whose staggered implementation posed
a greater risk of consumer harm.
Additionally, this approach may not be
appropriate in circumstances where the
provisions of the final rule were
sufficiently related that implementing
them piecemeal would cause significant
conflict with either the existing rule or
the final rule.
With respect to some commenters’
requests that the Bureau make
provisions of the final rule retroactive,
the Bureau declines to do so.
Retroactive rulemaking is disfavored by
the courts, and commenters have not
established why it would be appropriate
here.
As discussed above, one commenter
asked the Bureau to confirm that the
Bureau’s ‘‘good faith’’ approach to
oversight of the TILA–RESPA integrated
disclosures is still in effect and will
remain in effect during the
implementation period after the
proposal is finalized. The Director of the
Bureau publicly stated, in the early days
after the TILA–RESPA Final Rule
became effective in 2015, that the
Bureau’s oversight would be sensitive to
the progress made by those entities that
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have squarely focused on making goodfaith efforts to come into compliance
with the TILA–RESPA Final Rule on
time.117 The Bureau will take this
approach in its oversight of efforts by
creditors to come into compliance by
the mandatory compliance date with the
changes in this final rule.
Details of the Final Rule
After considering the comments
received and for the reasons discussed
above, the Bureau is establishing an
effective date, optional compliance
provision, and mandatory compliance
date for this final rule. Comment
1(d)(5)–2 sets forth the effective date,
the optional compliance provision, and
the mandatory compliance date.
The effective date is 60 days after
publication in the Federal Register.
Consistent with the practice of other
agencies in similar contexts, the 2017
TILA–RESPA Amendments will be
incorporated into the Code of Federal
Regulations on the effective date, but
the amendments will not yet be
mandatory. Instead, compliance with
the July 2017 TILA–RESPA
Amendments is only mandatory with
respect to transactions for which a
creditor or mortgage broker received an
application on or after October 1, 2018
(except for compliance with the escrow
cancellation notice required by
§ 1026.20(e) and the partial payment
policy disclosure required by
§ 1026.39(d)(5) discussed in comment
1(d)(5)–1.iv, which, starting October 1,
2018, apply without regard to when the
application for the covered loan was
received).
Except as discussed in comment
1(d)(5)–1.iv with respect to the escrow
cancellation notice and the partial
payment disclosure, for transactions for
which a creditor or mortgage broker
received an application prior to October
1, 2018, from the effective date of the
2017 TILA–RESPA Amendments, a
person has the option of complying with
Regulation Z (as interpreted by the
commentary) either as it is in effect or
as it was in effect on October 9, 2017,
together with any amendments that
become effective other than the 2017
TILA–RESPA Amendments. With
respect to transactions subject to the
optional compliance provision, this
means that an act or omission violates
Regulation Z (as interpreted by the
commentary) only if the act or omission
violates both: (1) Regulation Z (as
interpreted by the commentary), as it is
117 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).
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in effect; and (2) Regulation Z (as
interpreted by the commentary), as it
was in effect on October 9, 2017,
together with any amendments that
become effective other than the 2017
TILA–RESPA Amendments. Consistent
with § 1026.25, a creditor must keep
records of such compliance and permit
the agency responsible for enforcing
Regulation Z with respect to that
creditor to inspect those records.
Under the optional compliance
provision, as discussed above, a creditor
is permitted to comply with the 2017
TILA–RESPA Amendments all at one
time, or to phase in the changes prior to
the mandatory compliance date whether
based on application dates or during the
course of a transaction, although such
phased-in compliance may not place the
creditor in violation of provisions of
Regulation Z (as interpreted by the
commentary) unchanged by this final
rule, as discussed further below. For
example, current § 1026.37(l)(3) requires
creditors to disclose the total interest
percentage (TIP) and provides that the
TIP 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. Among other
things, the final rule revises comment
37(l)(3)–1 to state that prepaid interest
that is disclosed as a negative number
under §§ 1026.37(g)(2) or 1026.38(g)(2)
must be included as a negative value
when calculating the TIP. With respect
to transactions subject to the optional
compliance provision, a creditor may
either (1) include negative prepaid
interest into the TIP calculation as a
negative value as discussed in final
comment 37(l)(3)–1; or (2) not include
negative prepaid interest into the TIP
calculation because the current
regulation and commentary do not
restrict how a creditor factors negative
prepaid interest into the TIP calculation.
As another example, current
§ 1026.38(e) and 1026.38(i) provide that,
in the Closing Disclosure’s calculating
cash to close table, the amounts that are
required to be disclosed under the
subheading ‘‘Loan Estimate’’ are the
amounts disclosed on the Loan
Estimate. Sections 1026.38(e) and
1026.38(i) do not specify which Loan
Estimate’s amounts should be used if
multiple Loan Estimates have been
provided. The final rule adds comments
38(e)–6 and 38(i)–5 to specify that the
amounts required to be disclosed under
the subheading ‘‘Loan Estimate’’ on the
Closing Disclosure’s calculating cash to
close table are the amounts disclosed on
the most recent Loan Estimate provided
to the consumer. With respect to
transactions subject to the optional
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compliance provision, a creditor may
disclose, under the subheading ‘‘Loan
Estimate’’ on the Closing Disclosure’s
calculating cash to close table, the
amounts from any Loan Estimate
provided to the consumer, including the
most recent Loan Estimate provided to
the consumer.
Notwithstanding the flexibility
discussed above to phase in the 2017
TILA–RESPA Amendments prior to the
mandatory compliance date, creditors
cannot phase in the amendments in a
way that violates provisions of
Regulation Z (as interpreted by the
commentary) unchanged by this final
rule, because doing so would not
comply with either of the permissible
versions of Regulation Z (as interpreted
by the commentary). For example, a
creditor could not, during the optional
compliance period, provide a RESPA
good faith estimate followed by a
Closing Disclosure to a consumer in a
transaction secured by a cooperative
unit, even though the creditor is
permitted to provide either the RESPA
disclosures (the good faith estimate and
settlement statement) or the Integrated
Disclosures (the Loan Estimate and
Closing Disclosure) for transactions
secured by cooperative units where
State law does not treat the cooperative
unit as real property during the optional
compliance period. The creditor could
not provide a RESPA good faith estimate
and then provide a Closing Disclosure
(instead of a RESPA settlement
statement) because, in doing so, the
creditor would violate § 1026.38(i) in
both permissible versions of Regulation
Z, which requires that information that
was disclosed on the Loan Estimate be
included on the Closing Disclosure.
Thus, during the optional compliance
period, if State law provides that a
transaction secured by a cooperative
unit is not a transaction secured by real
property, for a particular cooperative
transaction, if the creditor provides a
RESPA good faith estimate, the creditor
would be required to provide a RESPA
settlement statement rather than a
Closing Disclosure. Conversely, if the
creditor provides a Loan Estimate for a
particular cooperative transaction
described above, the creditor would be
required to provide a Closing
Disclosure. At the same time, creditors
could still choose to phase in
compliance for other 2017 TILA–RESPA
Amendments in cooperative unit
transactions that are disclosed using the
Loan Estimate and the Closing
Disclosure, even within the course of a
transaction, for example, with respect to
the provisions relating to the calculating
cash to close table, so long as doing so
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37765
complies with either of the two
permissible versions of Regulation Z (as
interpreted by the commentary).
VII. Dodd-Frank Act Section 1022(b)(2)
Analysis
A. Overview
In developing the final rule, the
Bureau has considered the potential
benefits, costs, and impacts.118 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 final rule makes three
substantive changes to the TILA–RESPA
Final Rule, along with a number of
technical corrections and clarifications:
Tolerances for the total of payments,
adjustment of the partial exemption
under § 1026.3(h), and coverage of loans
secured by cooperative units, whether
or not treated as real property under
State law. The potential benefits and
costs of the provisions contained in this
final 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 provides 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 tolerances for the finance
charge and disclosures affected by the
finance charge. The Bureau modified
the calculation of the total of payments
in the TILA–RESPA Final Rule, which
may have introduced ambiguity as to
whether the total of payments is a
disclosure affected by the disclosed
finance charge and therefore subject to
the same tolerances. To apply the same
tolerances for accuracy of the disclosed
finance charge and other disclosures
affected by the disclosed finance charge
118 Specifically, section 1022(b)(2)(A) of the
Dodd-Frank Act calls for the Bureau to consider the
potential benefits and costs of a regulation to
consumers and covered persons, including the
potential reduction of access by consumers to
consumer financial products or services; the impact
on depository institutions and credit unions with
$10 billion or less in total assets as described in
section 1026 of the Dodd-Frank Act; and the impact
on consumers in rural areas.
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unambiguously to the total of payments
on the Closing Disclosure, the Bureau
revises § 1026.38(o)(1).
The second change revises the partial
exemption from the TILA–RESPA
integrated disclosure requirements at
§ 1026.3(h), which, as cross-referenced
at Regulation X § 1024.5(d)(2), also
provides an exemption from the RESPA
disclosures. If a creditor is not subject
to the TILA–RESPA integrated
disclosure requirements 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 lowcost 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 HFAs 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. Under the current
rule, in order to satisfy the criteria for
the partial exemption, the total costs of
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 housing assistance 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 current § 1026.3(h)(5) and
are not eligible for the partial exemption
from the RESPA disclosures in
Regulation X § 1024.5(d)(2). This means
that for loans that are not subject to the
TILA–RESPA integrated disclosure
requirements, creditors must continue
to provide the RESPA disclosures.
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. In addition, software
systems used by HFAs may no longer
support the RESPA disclosures, making
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it necessary to complete RESPA
disclosures manually. Manual
completion of the disclosures, while
compliant, may be costly and errorprone. As a result of these additional
difficulties, some creditors may be less
willing to work with HFAs and other
organizations to continue providing
these housing assistance loans. As
revised, § 1026.3(h)(5) makes explicit
that transfer taxes are among the
permissible costs for these loans and
provides that neither transfer taxes nor
recording fees count towards the 1percent threshold, thus expanding the
scope of the partial exemption for the
low-cost and deferred or contingent
repayment lending envisioned by
§ 1026.3(h). Additionally, the final rule
revises § 1026.3(h)(6) to permit creditors
to provide either the TILA disclosures
described in § 1026.18 or the Loan
Estimate and Closing Disclosure
described in § 1026.19(e) and (f),
respectively, to meet the criteria for the
partial exemption. The Bureau believes
the flexibility provided by final
§ 1026.3(h)(6) will further expand access
to the partial exemption.
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
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. This change
creates uniform application where
integrated disclosures are issued for all
covered transactions secured by
cooperative units.
The final rule also includes a variety
of technical corrections and
clarifications, some of which may
require one-time reprogramming costs,
but otherwise the Bureau generally
believes those changes to be burden
reducing or burden neutral.
B. Potential Benefits and Costs to
Consumers and Covered Persons
Tolerance for Total of Payments
Under this final rule, the same
tolerances apply to the total of payments
as apply, by statute, to the finance
charge and disclosures affected by the
finance charge. Because the existing rule
does not provide for a tolerance for the
total of payments, other than to the
extent a total of payments misdisclosure
results from a misdisclosure of the
finance charge, under the existing rule,
any misdisclosure of the total of
payments that does not result from a
misdisclosure of the finance charge
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could potentially subject a creditor to
liability under TILA.
The Bureau believes that the adopted
change will benefit creditors, in the
limited circumstances where a small,
within tolerance, misdisclosure in the
total of payments occurs. Creditors and
their assignees would be less likely to
face litigation, and its accompanying
costs and risks, over such errors.
The Bureau does not believe that
creditors would bear any associated
costs from the adopted provision, aside
from one-time reprogramming costs, for
those creditors that use proprietary
software systems.
To the extent that creditors restrict
credit in response to additional
litigation or secondary market risks
given the absence of explicit tolerances
for the total of payments, the adopted
provision would benefit consumers in
the form of expanded credit or a
reduced cost of credit.
Excluding Recording Fees and Transfer
Taxes From § 1026.3(h) Exemption
Requirements
Under this final rule, recording fees
and transfer taxes will 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 will be
available for some loans that currently
do not satisfy § 1026.3(h)(5) but satisfy
the other provisions of § 1026.3(h).
Additionally, under this final rule,
creditors issuing loans that satisfy the
criteria in § 1026.3(h), and thus qualify
for the partial exemption in Regulation
X § 1024.5(d)(2), will be exempted from
providing the RESPA disclosures and
will have the choice to provide either a
TILA disclosure (described in § 1026.18)
or a Loan Estimate and Closing
Disclosure (described in § 1026.19(e)
and (f), respectively).
These revisions benefit creditors by
allowing them to provide the more
streamlined disclosures described in
§ 1026.18 or the Loan Estimate and
Closing Disclosure described in
§ 1026.19(e) and (f), respectively
(without also having to provide the
special information booklet described in
§ 1026.19(g)), in connection with loans
that satisfy the criteria for the partial
exemption at § 1026.3(h). In particular,
more housing assistance loans
originated by HFAs and others will
qualify for the partial exemption,
thereby reducing costs incurred under
the baseline (described above), and
increasing the wiliness of creditors to
work with HFAs and other
organizations in providing housing
assistance loans. The Bureau does not
believe that creditors would bear any
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associated costs from the adopted
amendments to § 1026.3(h).
This provision may 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 disclosure requirements, the
loans eligible for the partial exemption
at § 1026.3(h) generally have a simpler
cost structure that is adequately
communicated by the § 1026.18 TILA
disclosures.
Including Cooperatives in the Coverage
of the TILA–RESPA Final Rule
Under this final rule, consumer credit
transactions secured by a cooperative
unit will be covered by the TILA–
RESPA Rule, whether or not applicable
State law treats cooperative units as real
property. The adopted provision
benefits 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 adopted provision may benefit
consumers who borrow against
cooperative units in States where such
units are treated as personal property
under applicable State law. Such
consumers will receive an integrated
disclosure which, the Bureau believes,
is better designed to communicate cost
information than is the legacy RESPA
disclosure.
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Other Technical Corrections and
Clarifications
This final rule contains numerous
technical corrections and clarifications.
Although some of them may require a
one-time reprogramming cost, the
Bureau does not believe these changes
will increase ongoing origination costs.
The Bureau believes creditors will
generally benefit from the adopted
changes through greater clarity, and in
some cases, additional optionality,
regarding compliance with existing law.
Consumers would benefit from these
changes by receiving more timely and
more accurate disclosures.
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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 any of the adopted
provisions. One possible exception is
creditors that provide loans that satisfy
criteria in § 1026.3(h): If the majority of
such creditors have $10 billion or less
in assets, the exemption of recording
fees and transfer taxes from the
§ 1026.3(h)(5) 1-percent threshold and
the permissible provision of the Loan
Estimate and Closing Disclosure under
§ 1026.3(h)(6) would create a
disproportional benefit for covered
persons in that asset category.
D. Impact on Access to Credit
As pointed out above, the exemption
of recording fees and transfer taxes from
the § 1026.3(h)(5) 1-percent threshold
and the increased flexibility in the
permitted disclosures for loans that
satisfy the criteria in § 1026.3(h) has the
potential to improve access to housing
assistance loans for consumers.
Generally, a reduction in ambiguity
regarding compliance with the law may
potentially improve access to credit for
all consumers. None of the changes is
likely to have an adverse impact on
access to credit.
E. Impact on Rural Areas
The Bureau believes that none of the
changes is likely to have an adverse
impact on consumers in rural areas.
VIII. 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
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37767
representatives prior to proposing a rule
for which an IRFA is required.
The undersigned certified that the
proposal would not have a significant
economic impact on a substantial
number of small entities and that an
IRFA was therefore not required. The
Bureau’s conclusion that the rule will
not have a significant economic impact
on a substantial number of small entities
is unchanged. Therefore, a FRFA is not
required.119
Accordingly, the undersigned hereby
certifies that this final rule will not have
a significant economic impact on a
substantial number of small entities.
IX. 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. 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). 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 Bureau has determined that this
proposed rule will not impose any
significant change in ongoing the
paperwork burden on covered persons.
Some of the changes would require a
one-time reprogramming cost.
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 amends 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:
■
Authority: 12 U.S.C. 2601, 2603–2605,
2607, 2609, 2617, 3353, 5511, 5512, 5532,
5581; 15 U.S.C. 1601 et seq.
119 5
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(6) The following disclosures are
provided:
(i) Disclosures described in § 1026.18
that comply with this part; or
(ii) Alternatively, disclosures
described in § 1026.19(e) and (f) that
comply with this part.
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 paragraph (h) introductory text
and paragraphs (h)(5) and (6) to read as
follows:
§ 1026.3
Exempt transactions.
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*
*
*
*
*
(h) Partial exemption for certain
mortgage loans. The special disclosure
requirements in § 1026.19(g) and, unless
the creditor chooses to provide the
disclosures described in § 1026.19(e)
and (f), in § 1026.19(e) and (f) do not
apply to a transaction that satisfies all
of the following criteria:
*
*
*
*
*
(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
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Subpart C—Closed-End Credit
4. Section 1026.19 is amended by
revising the paragraph (e) heading,
paragraphs (e)(1)(i), (e)(3)(iii),
(e)(3)(iv)(E) and (F), the paragraph (f)
heading, and paragraphs (f)(1)(i),
(f)(4)(i), and (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 the creditor or
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.
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(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
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 that involves a seller, 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 consumer credit
transaction secured by real property or
a cooperative unit.
(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.
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(ii) In the case of a home equity line
of credit subject to § 1026.40, a creditor
or mortgage broker that provides the
consumer with a copy of the brochure
entitled ‘‘When Your Home is On the
Line: What You Should Know About
Home Equity Lines of Credit,’’ or any
successor brochure issued by the
Bureau, is deemed to be in compliance
with this section.
(iii) The creditor or mortgage broker
need not provide the booklet to the
consumer for 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) and (2) and
(h)(2) to read as follows:
§ 1026.23
Right of rescission.
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*
*
*
*
*
(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
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(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
(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 the 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 paragraphs (b) introductory
text, (b)(1), (c)(5)(i), (d)(2) introductory
text, (d)(2)(i), (h)(1)(i), (h)(1)(iii),
(h)(1)(v), (h)(1)(vii), (h)(2) introductory
text, (h)(2)(ii) and (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:
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(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
real property or cooperative unit
securing the transaction after
consummation, including the value of
any improvements on the property or to
be constructed on the property, if
known, whether or not such
construction will be financed from the
proceeds of the transaction, for property
taxes; and
*
*
*
*
*
(d) * * *
(2) Optional alternative table for
transactions without a seller or for
simultaneous subordinate financing.
For transactions that do not involve a
seller or for simultaneous 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 paragraph (h)(2)(iv) of
this section;
*
*
*
*
*
(h) * * *
(1) * * *
(i) Total closing costs. The amount
disclosed under paragraph (g)(6) of this
section, labeled ‘‘Total Closing Costs’’;
*
*
*
*
*
(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)(i) 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 that is a simultaneous
subordinate financing transaction or
that involves improvements to be made
on the property, or 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)(i) of this section, the
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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 amount of 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 the down
payment and other 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) (excluding any
closing costs financed 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) of this section and
other costs determined under paragraph
(g) of this section that are paid by
persons other than the loan originator,
creditor, consumer, or seller, together
with any other amounts not otherwise
disclosed under paragraph (f) or (g) of
this section that are required to be paid
by the consumer at closing in a
transaction disclosed under paragraph
(h)(1)(iii)(A)(1) of this section or
pursuant to a purchase and sale
contract, labeled ‘‘Adjustments and
Other Credits’’; and
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*
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(2) Optional alternative calculating
cash to close table for transactions
without a seller or for simultaneous
subordinate financing. For transactions
that do not involve a seller or for
simultaneous subordinate financing,
instead of the table described in
paragraph (h)(1) above, 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:
*
*
*
*
*
(ii) Total closing costs. The amount
disclosed under paragraph (g)(6) of this
section, disclosed as a negative number
if the amount disclosed under paragraph
(g)(6) of this section is a positive
number and disclosed as a positive
number if the amount disclosed under
paragraph (g)(6) of this section is a
negative number, labeled ‘‘Total Closing
Costs’’;
(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 dollar amount
required to be disclosed by paragraph
(g)(2)(iii) of this section and the monthly
dollar amounts required to be disclosed
by paragraphs (g)(3)(i) through (iii) and
(g)(3)(v) of this section shall not be
rounded.
(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), and (l)(2) and (3) of this
section shall be disclosed by rounding
the exact amounts to three decimal
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places and then dropping any trailing
zeros that occur to the right of the
decimal place.
*
*
*
*
*
■ 8. Section 1026.38 is amended by
revising paragraphs (a)(3)(iii), (d)(2)
introductory text, (e) introductory text,
(e)(2)(ii), (e)(2)(iii)(A)(3), (e)(4)(ii), (g)(1),
(h)(3), (i)(1)(iii)(A)(3), (i)(4)(ii), (i)(6)(iv),
(i)(7)(iii), (i)(8), (j)(2)(vi), (l)(7)(i), (o)(1),
(t)(4)(ii), and (t)(5)(vii) introductory text
to read as follows:
§ 1026.38 Content of disclosures for
certain mortgage transactions (Closing
Disclosure).
*
*
*
*
*
(a) * * *
(3) * * *
(iii) Disbursement date. The date the
amount disclosed under paragraph
(j)(3)(iii) (cash to close from or to
borrower) or (k)(3)(iii) (cash from or to
seller) of this section is expected to be
paid in a purchase transaction under
§ 1026.37(a)(9)(i) to the consumer or
seller, respectively, as applicable,
except as provided in comment
38(a)(3)(iii)–1, or the date some or all of
the loan amount disclosed under
paragraph (b) of this section is expected
to be paid to the consumer or a third
party other than a settlement agent 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 or for simultaneous
subordinate financing. For transactions
that do not involve a seller or for
simultaneous 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:
*
*
*
*
*
(e) Alternative calculating cash to
close table for transactions without a
seller or for simultaneous subordinate
financing. For transactions that do not
involve a seller or for simultaneous
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) * * *
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(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
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 principal reduction
disclosure under paragraph (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 total amount
disclosed under paragraph (t)(5)(vii)(B)
of this section is a positive number and
disclosed as a positive number if the
total 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
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(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.
*
*
*
*
*
(h) * * *
(3) The amount of lender credits as a
negative number, labeled ‘‘Lender
Credits’’ and designated borrower-paid
at closing, and if a refund is provided
pursuant to § 1026.19(f)(2)(v), a
statement that this amount includes a
credit for an amount that exceeds the
limitations on increases in closing costs
under § 1026.19(e)(3), and the amount of
such credit under § 1026.19(f)(2)(v).
*
*
*
*
*
(i) * * *
(1) * * *
(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
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 principal reduction is used to
provide the refund, a statement
directing the consumer to the principal
reduction disclosure under paragraph
(j)(1)(v) 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 that is disclosed under
paragraph (j)(2)(iv) of this section from
the sale price of the property disclosed
under paragraph (a)(3)(vii)(A) 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) that is a
simultaneous subordinate financing
transaction or that involves
improvements to be made on the
property, or when the sum of the loan
amount disclosed under paragraph (b) of
this section and any amount of existing
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loans assumed or taken subject to that
is disclosed under paragraph (j)(2)(iv) of
this section exceeds the sale price
disclosed under paragraph (a)(3)(vii)(A)
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
amount of funds from the consumer as
determined in accordance with
paragraph (i)(6)(iv) of this section,
labeled ‘‘Down Payment/Funds from
Borrower.’’
*
*
*
*
*
(6) * * *
(iv) The ‘‘Down Payment/Funds from
Borrower’’ to be disclosed under
paragraph (i)(4)(ii)(A)(2) or (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
taken subject to that is disclosed under
paragraph (j)(2)(iv) of this section
(excluding 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
transaction 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 (B) of this section, as
applicable, and $0 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 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 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
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rounding), a statement of that fact, along
with a statement that the consumer
should see the details disclosed:
(1) Under paragraph (j)(2)(v) of this
section and in the seller-paid column
under paragraphs (f) and (g) of this
section; or
(2) Under either paragraph (j)(2)(v) of
this section or in the seller-paid column
under paragraphs (f) or (g) of this
section, if the details are only disclosed
under paragraph (j)(2)(v) or paragraph (f)
or (g); 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
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) * * *
(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
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before the real estate closing, under the
heading ‘‘Adjustments’’;
*
*
*
*
*
(l) * * *
(7) * * *
(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 paragraphs (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 paragraphs
(l)(7)(i)(A)(1) through (4) of this section;
(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 (4) of this section if
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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
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), and (o)(4) and
(5) of this section shall be disclosed by
rounding the exact amounts to three
decimal places and then dropping any
trailing zeros to the right of the decimal
point.
*
*
*
*
*
(5) * * *
(vii) Transaction without a seller or
simultaneous subordinate financing
transaction. The following
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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 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:
*
*
*
*
*
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, Paragraph 1(d)(5) 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, 3(h) Partial exemption for
certain mortgage loans is revised.
■ d. Under Section 1026.17—General
Disclosure Requirements:
■ i. Under 17(c) Basis of Disclosures and
Use of Estimates, under Paragraph
17(c)(6), paragraph 5 is revised.
■ 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. 19(e)(1)(i) Creditor is revised.
■ C. Under 19(e)(1)(iii) Timing,
paragraph 5 is added.
■ D. Under 19(e)(1)(vi) Shopping for
settlement service providers, paragraphs
1 through 4 are revised.
■ E. Under 19(e)(3)(i) General rule,
paragraph 1 is revised.
■ F. Under 19(e)(3)(ii) Limited increases
permitted for certain charges,
paragraphs 1 and 2 are revised and
paragraph 6 is added.
■ 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.
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I. 19(e)(3)(iv)(D) Interest rate
dependent charges is revised.
■ J. 19(e)(3)(iv)(E) Expiration is revised.
■ 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. 19(f)(2)(v) Refunds related to the
good faith analysis is revised.
■ E. Under 19(f)(3)(ii) Average charge,
paragraph 3 is revised.
■ F. 19(f)(4)(i) Provision to seller is
revised.
■ 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
Foreclosures, 23(h)(2) Tolerance for
Disclosures is revised.
■ h. Under Section 1026.25—Record
Retention, under 25(c) Records Related
to Certain Requirements for Mortgage
Loans, the heading for 25(c)(1) is
revised.
■ i. Under Section 1026.37—Content of
Disclosures for Certain Mortgage
Transactions (Loan Estimate):
■ i. Under 37(a) General information:
■ A. 37(a)(7) Sale price is 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. 37(b)(2) Interest rate 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. Paragraph 37(c)(1)(iii)(B) is revised.
■ C. Under Paragraph 37(c)(4)(iv),
paragraph 2 is revised.
■ iv. Under 37(d) Costs at closing, the
heading for 37(d)(2) and paragraph 1 are
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, 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.
■
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B. 37(h)(1)(ii), 37(h)(1)(iii), 37(h)(1)(v),
and 37(h)(1)(vi) are revised.
■ C. Under 37(h)(1)(vii) Adjustments
and other credits, paragraphs 1, 4, 5,
and 6 are revised.
■ D. 37(h)(2) and 37(h)(2)(iii) are
revised.
■ 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,
37(o)(4)(i)(A) and 37(o)(4)(ii) are 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. 38(a)(3)(iii) Disbursement date is
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.
■ iii. Under 38(d) Costs at closing, the
heading for 38(d)(2) and paragraph 1 are
revised.
■ iv. Under 38(e) Alternative calculating
cash to close table for transactions
without a seller:
■ A. The heading is revised, paragraphs
1 and 3 are revised, and paragraph 6 is
added.
■ B. Under Paragraph 38(e)(2)(iii)(A),
paragraphs 2 and 3 are revised.
■ C. Paragraph 38(e)(3)(iii)(B) 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.
■ 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),
paragraphs 2 and 3 are revised.
■ C. 38(i)(3) Closing costs financed is
added.
■ D. Paragraph 38(i)(4)(ii)(A) is revised.
■ E. Paragraph 38(i)(4)(ii)(B) is revised.
■ F. Paragraph 38(i)(4)(iii)(A) is revised.
■ G. 38(i)(5) Deposit is revised.
■ H. Paragraph 38(i)(6)(ii) is revised.
■ I. Paragraph 38(i)(7)(iii)(A) is added.
■ J. Paragraph 38(i)(8)(ii) is revised.
■ viii. Under 38(j) Summary of
borrower’s transaction:
■ A. Paragraph 3 is revised.
■ B. Paragraph 38(j)(1)(ii) is revised.
■ C. Paragraph 38(j)(1)(v) is revised.
■ D. Under Paragraph 38(j)(2)(vi),
paragraphs 2 and 5 are revised and
paragraph 6 is added.
■
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E. Paragraph 38(j)(2)(xi) is revised.
F. Under Paragraph 38(j)(4)(i),
paragraph 1 is revised.
■ ix. Under 38(k) Summary of seller’s
transaction:
■ A. Paragraph 1 is revised.
■ B. 38(k)(1) Itemization of amounts due
to seller is added.
■ C. Paragraph 38(k)(2)(vii) is added.
■ x. Under 38(l) Loan disclosures:
■ A. Under 38(l)(7) Escrow account,
paragraphs 1 and 2 are added.
■ B. Paragraph 38(l)(7)(i)(A)(2) is
revised.
■ C. Paragraph 38(l)(7)(i)(A)(4) is
revised.
■ D. Paragraph 38(l)(7)(i)(A)(5) is added.
■ E. Paragraph 38(l)(7)(i)(B)(1) is
revised.
■ xi. Under 38(o) Loan calculations:
■ A. Paragraph 1 is added.
■ B. 38(o)(1) Total of payments is
revised.
■ xii. Under 38(t) Form of disclosures:
■ A. 38(t)(3) Form is revised.
■ B. 38(t)(5)(v) and 38(t)(5)(vi) are
added.
■ C. The heading for 38(t)(5)(vii) and
paragraph 2 are revised.
■ D. Paragraph 38(t)(5)(vii)(B) is added.
■ k. Under Appendix D—MultipleAdvance Construction Loans, paragraph
7 is revised.
The revisions and additions read as
follows:
■
■
Supplement I to Part 1026—Official
Interpretations
Section 1026.1—Authority, Purpose,
Coverage, Organization, Enforcement and
Liability
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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 that are
secured by real property or a cooperative
unit, whether or 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, 2018, 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
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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, 2018, regardless
of when the corresponding applications were
received. For transactions in which such
conditions exist on or after October 3, 2015,
through September 30, 2018, 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
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 of the TILA–RESPA Final Rule. Assume
a creditor receives an application on
September 30, 2015, and that consummation
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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 of the
TILA–RESPA Final Rule, 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. Effective dates for the postconsummation escrow cancelation disclosure
and partial payment disclosure. Assume a
creditor receives an application on October
10, 2010, and that the loan was consummated
on November 19, 2010. Assume further that,
on December 19, 2016, the escrow account
established in connection with the mortgage
loan was canceled or the loan is sold to
another covered person. A creditor, servicer,
or covered person, as applicable, may
provide the disclosures required under
§§ 1026.20(e) and 1026.39(d)(5) to the
consumer, but the creditor, servicer, or
covered person, as applicable, is not required
to provide those 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, 2020. A creditor, servicer, or
covered person, as applicable, must provide
the disclosures in §§ 1026.20(e) and
1026.39(d)(5), as applicable, because a
condition requiring these disclosures
occurred after October 1, 2018 (thus the date
the application was received is irrelevant).
2. 2017 TILA–RESPA Amendments. i.
Generally. Except as provided in comment
1(d)(5)–2.ii, compliance with the
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amendments to this part effective on October
10, 2017 (the 2017 TILA–RESPA
Amendments) is mandatory with respect to
transactions for which a creditor or mortgage
broker received an application on or after
October 1, 2018. Except as provided in
comment 1(d)(5)–2.ii, for transactions for
which a creditor or mortgage broker received
an application prior to October 1, 2018, from
the effective date of the 2017 TILA–RESPA
Amendments:
A. A person has the option of complying
either: with 12 CFR part 1026 as it is in
effect; or with 12 CFR part 1026 as it was in
effect on October 9, 2017, together with any
amendments to 12 CFR part 1026 that
become effective after October 9, 2017, other
than the 2017 TILA–RESPA Amendments;
and
B. An act or omission violates 12 CFR part
1026 only if it violates both: 12 CFR part
1026 as it is in effect; and 12 CFR part 1026
as it was in effect on October 9, 2017,
together with any amendments to 12 CFR
part 1026 that become effective after October
9, 2017, other than the 2017 TILA–RESPA
Amendments.
ii. Post-consummation escrow cancellation
disclosure and partial payment disclosure.
Comment 1(d)(5)–1.iv sets forth the
transactions to which the disclosures
required by §§ 1026.20(e) and 1026.39(d)(5)
are applicable.
Section 1026.2—Definitions and Rules of
Construction
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2(a)(11) Consumer
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3. Trusts. Credit extended to trusts
established for tax 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.
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Section 1026.3—Exempt Transactions
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3(h) Partial exemption for certain mortgage
loans.
1. Partial exemption. Section 1026.3(h)
exempts certain transactions from the
disclosures described in § 1026.19(g), and,
under certain circumstances, § 1026.19(e)
and (f). Section 1026.3(h) exempts
transactions from § 1026.19(e) and (f) if the
creditor chooses to provide disclosures
described in § 1026.18 that comply with this
part pursuant to § 1026.3(h)(6)(i), but does
not exempt transactions from § 1026.19(e)
and (f) if the creditor chooses to provide
disclosures described in § 1026.19(e) and (f)
that comply with this part pursuant to
§ 1026.3(h)(6)(ii). Creditors may provide, at
their option, either the disclosures described
in § 1026.18 or the disclosures described in
§ 1026.19(e) and (f). In providing these
disclosures, creditors must comply with all
provisions of this part relating to those
disclosures. Section 1026.3(h) does not
exempt transactions from any of the other
requirements of this part, to the extent they
are applicable. For transactions that would
otherwise be subject to § 1026.19(e), (f), and
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(g), creditors must comply with all other
applicable requirements of this part,
including the consumer’s right to rescind the
transaction under § 1026.23, to the extent
that provision is applicable.
2. Establishing compliance. The conditions
that the transaction not require the payment
of interest under § 1026.3(h)(3) and that
repayment of the amount of credit extended
be forgiven or deferred in accordance with
§ 1026.3(h)(4) must be reflected in the loan
contract. The other requirements of
§ 1026.3(h) need not be reflected in the loan
contract, but the creditor must retain
evidence of compliance with those
provisions, as required by § 1026.25(a) or (c),
as applicable. In particular, because the
exemption in § 1026.3(h) means the creditor
is not required to provide the disclosures of
closing costs under § 1026.37 or § 1026.38
(unless the creditor chooses to provide
disclosures described in § 1026.19(e) and (f)
that comply with this part), 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, a bona fide
and reasonable application fee, and a bona
fide and reasonable housing counseling fee,
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) or (c), as applicable.
3. Relationship to partial exemption for
certain federally related mortgage loans.
Regulation X provides a partial exemption
from certain Regulation X disclosure
requirements in 12 CFR 1024.5(d). The
partial exemption in Regulation X, 12 CFR
1024.5(d)(2) provides that certain Regulation
X disclosure requirements do not apply to a
federally related mortgage loan, as defined in
Regulation X, 12 CFR 1024.2(b), that satisfies
the criteria in § 1026.3(h) of this part. For a
federally related mortgage loan that is not
otherwise covered by Regulation Z, lenders
may satisfy the criteria in § 1026.3(h)(6) by
providing the disclosures described in
§ 1026.18 that comply with this part or the
disclosures described in § 1026.19(e) and (f)
that comply with this part.
4. Recording fees. See comment 37(g)(1)–1
for a discussion of what constitutes a
recording fee.
5. Transfer taxes. See comment 37(g)(1)–3
for a discussion of what constitutes a transfer
tax.
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Section 1026.17—General Disclosure
Requirements
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17(c) Basis of Disclosures and Use of
Estimates
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Paragraph 17(c)(6)
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5. Allocation of costs. When a creditor uses
the special rule in § 1026.17(c)(6) to disclose
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credit extensions as multiple transactions,
fees and charges must be allocated for
purposes of calculating disclosures. In the
case of a construction-permanent loan that a
creditor chooses to disclose as multiple
transactions, the creditor must allocate to the
construction transaction finance charges
under § 1026.4 and points and fees under
§ 1026.32(b)(1) that would not be imposed
but for the construction 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 amounts
for finance charges under § 1026.4 and points
and fees under § 1026.32(b)(1) for the
construction phase and the permanent phase,
such amounts must be allocated to the phase
for which they are charged. If a creditor
charges an origination fee for construction
financing only but charges a greater
origination fee for construction-permanent
financing, the difference between the two
fees must be allocated to the permanent
phase. All other finance charges under
§ 1026.4 and points and fees under
§ 1026.32(b)(1) must be allocated to the
permanent financing. Fees and charges that
are not used to compute the finance charge
under § 1026.4 or points and fees under
§ 1026.32(b)(1) may be allocated between the
transactions in any manner the creditor
chooses. For example, a reasonable appraisal
fee paid to an independent, third-party
appraiser may be allocated in any manner the
creditor chooses because it would be
excluded from the finance charge pursuant to
§ 1026.4(c)(7) and excluded from points and
fees pursuant to § 1026.32(b)(1)(iii).
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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
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
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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.
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.
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18(g) Payment Schedule
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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).
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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:
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.
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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
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
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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).
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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).
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Section 1026.19—Certain Mortgage and
Variable-Rate Transactions
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19(e) Mortgage loans—Early disclosures.
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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
cooperative unit, regardless of whether a
cooperative unit is treated as real property
under State or other applicable law.
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19(e)(1)(iii) Timing.
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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. For
construction—permanent transactions
disclosed as one transaction, the creditor
complies with § 1026.19(e)(1)(iii) by
delivering or placing in the mail one
combined disclosure required by
§ 1026.19(e)(1)(i) not later than the third
business day after the creditor receives an
application and not later than the seventh
business day before consummation. For
construction—permanent transactions
disclosed as a separate construction phase
and a separate permanent phase for which an
application for both the construction and
permanent financing has been received, the
creditor complies with § 1026.19(e)(1)(iii) by
delivering or placing in the mail the separate
disclosures required by § 1026.19(e)(1)(i) for
both the construction financing and the
permanent financing not later than the third
business day after the creditor receives the
application and not later than the seventh
business day before consummation. A
creditor may also provide a separate
disclosure required by § 1026.19(e)(1)(i) for
the permanent phase before receiving an
application for permanent financing at any
time 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. The creditor must deliver
or place in the mail the disclosures required
by § 1026.19(e)(1)(i) for only the construction
financing no 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.
ii. Assume the creditor receives a
consumer’s application for both construction
and permanent financing on Monday, June 1.
The creditor must deliver or place in the mail
the disclosures required by § 1026.19(e)(1)(i)
for both the construction and permanent
financing, disclosed as either one transaction
or separate transactions, no 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 the creditor receives a
consumer’s application for construction
financing only on Monday, June 1. Assume
further that the creditor receives the
consumer’s application for permanent
financing on Monday, June 8. The creditor
must deliver or place in the mail the
disclosures required by § 1026.19(e)(1)(i) for
the construction financing no later than
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Thursday, June 4, the third business day after
the creditor received the consumer’s
application for the construction financing
only, and not later than the seventh business
day before consummation of the construction
transaction. The creditor must deliver or
place in the mail the disclosures required by
§ 1026.19(e)(1)(i) for the permanent financing
no later than Thursday, June 11, the third
business day after the creditor received the
consumer’s application for the permanent
financing, and not later than the seventh
business day before consummation of the
permanent financing transaction.
iv. Assume the same facts as in comment
19(e)(1)(iii)–5.ii, 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).
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19(e)(1)(vi) Shopping for settlement service
providers.
1. Permission to shop. Section
1026.19(e)(1)(vi)(A) permits creditors to
impose reasonable requirements regarding
the qualifications of the provider. For
example, the creditor may require that a
settlement agent chosen by the consumer
must be appropriately licensed in the
relevant jurisdiction. In contrast, a creditor
does not permit a consumer to shop for
purposes of § 1026.19(e)(1)(vi) if the creditor
requires the consumer to choose a provider
from a list provided by the creditor. Whether
the creditor permits the consumer to shop
consistent with § 1026.19(e)(1)(vi)(A) is
determined based on all the relevant facts
and circumstances. The requirements of
§ 1026.19(e)(1)(vi)(B) and (C) do not apply if
the creditor does not permit the consumer to
shop consistent with § 1026.19(e)(1)(vi)(A).
2. Disclosure of services for which the
consumer may shop. If a creditor permits a
consumer to shop for a settlement service,
§ 1026.19(e)(1)(vi)(B) requires the creditor to
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identify settlement services required by the
creditor for which the consumer is permitted
to shop in the disclosures provided pursuant
to § 1026.19(e)(1)(i). See § 1026.37(f)(3)
regarding the content and format for
disclosure of services required by the creditor
for which the consumer is permitted to shop.
3. Written list of providers. If the creditor
permits the consumer to shop for a
settlement service it requires,
§ 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
required 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. Creditors using
form H–27 in appendix H properly are
deemed to be in compliance with
§ 1026.19(e)(1)(vi)(C). Creditors may make
changes in the format or content of form H–
27 in appendix H and be deemed to be in
compliance with § 1026.19(e)(1)(vi)(C), so
long as the changes do not affect the
substance, clarity, or meaningful sequence of
the form. An acceptable change to form H–
27 in appendix H includes, for example,
deleting the column for estimated fee
amounts.
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,
for the settlement services that are required
by the creditor for which a consumer is
permitted to shop. 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.
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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.
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19(e)(3)(ii) Limited increases permitted for
certain charges.
1. Requirements. Section 1026.19(e)(3)(ii)
provides that certain estimated charges are in
good faith if the sum of all such charges paid
by or imposed on the consumer does not
exceed the sum of all such charges disclosed
pursuant to § 1026.19(e) by more than 10
percent. Section 1026.19(e)(3)(ii) permits this
limited increase for only the following items:
i. Fees paid to an unaffiliated third party
if the creditor permitted the consumer to
shop for the third-party service, consistent
with § 1026.19(e)(1)(vi)(A).
ii. Recording fees.
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 estimate provided under
§ 1026.19(e)(1)(i) and then imposed at
consummation. The following examples
illustrate the determination of good faith for
charges subject to § 1026.19(e)(3)(ii):
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
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).
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6. Shopping for a third-party service. For
good faith to be determined under
§ 1026.19(e)(3)(ii) a creditor must permit a
consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A). Section
1026.19(e)(1)(vi)(A) provides that a creditor
permits a consumer to shop for a settlement
service if the creditor permits the consumer
to select the provider of that service, subject
to reasonable requirements. If the creditor
permits the consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) good faith is
determined under § 1026.19(e)(3)(ii), unless
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the settlement service provider is the creditor
or an affiliate of the creditor, in which case
good faith is determined under
§ 1026.19(e)(3)(i). As noted in comment
19(e)(1)(vi)–1, whether the creditor permits
the consumer to shop consistent with
§ 1026.19(e)(1)(vi)(A) is determined based on
all the relevant facts and circumstances.
19(e)(3)(iii) Variations permitted for certain
charges.
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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 under
§ 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
under § 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
discloses an unreasonably low estimated
settlement agent fee of $20 when the average
prices for settlement agent fees in that area
are $150, 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 written list required
under § 1026.19(e)(1)(vi)(C), good faith is
determined under § 1026.19(e)(3)(ii) instead
of § 1026.19(e)(3)(iii) unless the settlement
service provider is the creditor or an affiliate
of the creditor in which case good faith is
determined under § 1026.19(e)(3)(i). As noted
in comment 19(e)(1)(vi)–1 whether the
creditor permits the consumer to shop
consistent with § 1026.19(e)(1)(vi)(A) is
determined based on all the relevant facts
and circumstances.
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
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
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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) and
the charge for property tax would be subject
to the good faith determination under
§ 1026.19(e)(3)(i).
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 the creditor
or affiliates of the creditor, so long as the
charges are bona fide. For determining good
faith under § 1026.19(e)(1)(i), to be bona fide,
charges must be lawful and for services that
are actually performed.
19(e)(3)(iv) Revised estimates.
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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
extension for purposes of determining good
faith under § 1026.19(e)(3)(i) and (ii).
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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
must 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 rate lock extension
may not be used for the purposes of
determining good faith under § 1026.19(e)(3).
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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
under § 1026.19(e)(1)(i) reflecting the revised
interest rate, the points disclosed under
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§ 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 to
the consumer a revised version of the Loan
Estimate as required by § 1026.19(e)(1)(i).
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, pursuant to § 1026.19(f)(2). 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 business 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
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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.
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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).
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19(f)(2) Subsequent changes.
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19(f)(2)(iii) Changes due to events
occurring after consummation.
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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, except as described in
this comment. A creditor is not required to
provide corrected disclosures under
§ 1026.19(f)(2)(iii) if the only changes that
would be required to be disclosed in the
corrected disclosure are changes to per-diem
interest and any disclosures affected by the
change in per-diem interest, even if the
amount of per-diem interest actually paid by
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the consumer differs from the amount
disclosed under § 1026.38(g)(2) and (o).
Nonetheless, if a creditor is providing a
corrected disclosure under § 1026.19(f)(2)(iii)
for reasons other than changes in per-diem
interest and the per-diem interest has
changed as well, the creditor must disclose
in the corrected disclosures under
§ 1026.19(f)(2)(iii) the correct amount of the
per-diem interest and provide corrected
disclosures for any disclosures that are
affected by the change in per-diem interest.
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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
consummation. See comments 38–4 and
38(h)(3)–2 for additional guidance on
disclosing refunds.
19(f)(3) Charges disclosed.
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19(f)(3)(ii) Average charge.
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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
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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.
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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 subordinate financing. In
a purchase transaction with simultaneous
subordinate financing, the settlement agent
complies with § 1026.19(f)(4)(i) by providing
the seller with only the first-lien transaction
disclosures required under § 1026.38 that
relate to the seller’s transaction reflecting the
actual terms of the seller’s transaction in
accordance with comment 19(f)(4)(i)–1 if the
first-lien Closing Disclosure records the
entirety of the seller’s transaction. If the firstlien Closing Disclosure does not record the
entirety of the seller’s transaction, the
settlement agent complies with
§ 1026.19(f)(4)(i) by providing the seller with
both the first-lien and simultaneous
subordinate financing transaction disclosures
required under § 1026.38 that relate to the
seller’s transaction reflecting the actual terms
of the seller’s transaction in accordance with
comment 19(f)(4)(i)–1.
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Section 1026.23—Right of Rescission
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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).
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23(h) Special Rules for Foreclosures
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23(h)(2) Tolerance for Disclosures
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1. General. The tolerance for disclosure of
the finance charge is based on the accuracy
of the total finance charge rather than its
component charges. For transactions subject
to § 1026.19(e) and (f), the tolerance for
disclosure of the total of payments is based
on the accuracy of the total of payments,
taken as a whole, rather than its component
charges.
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).
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Section 1026.25—Record Retention
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25(c) Records Related to Certain
Requirements for Mortgage Loans.
25(c)(1) Records related to requirements for
loans secured by real property or a
cooperative unit.
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Section 1026.37—Content of Disclosures for
Certain Mortgage Transactions (Loan
Estimate)
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37(a) General information.
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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) based
on the best information reasonably available
to the creditor at the time the disclosure is
provided to the consumer, which may
include, at the creditor’s option, the
estimated value of the improvements to be
made on the property in transactions
involving construction. 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 the creditor 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 § 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
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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.
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(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.
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) require 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
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
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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
simultaneous subordinate financing, the
simultaneous subordinate 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
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,
–3, and –5, 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
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37(a)(10) Product.
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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.
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37(a)(13) Rate lock.
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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.
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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 any subsequent revised disclosures.
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.
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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)
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
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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.
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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.
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37(b)(6) Adjustments after consummation.
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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
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.iv for an explanation
of the disclosure of an increase in the
periodic payment for a construction or
construction-permanent loan.
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37(c) Projected payments.
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2. Construction loans. See comment app.
D–7.v for an explanation of the projected
payments disclosure for a construction or
construction-permanent loan.
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37(c)(1) Periodic payment or range of
payments.
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Paragraph 37(c)(1)(iii).
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Paragraph 37(c)(1)(iii)(B).
1. Multiple events occurring in a single
year. If multiple 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
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) and
(c)(3)(ii), beginning in the next year in the
sequence (i.e., in year three), the creditor
separately discloses the periodic payment
that would apply after the payment
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adjustment that occurs at 18 months. See
comment 37(c)(3)(ii)–1 regarding
subheadings that state the years.
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37(c)(4) Taxes, insurance, and
assessments.
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Paragraph 37(c)(4)(iv).
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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 or for
simultaneous 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 a simultaneous subordinate
financing transaction. 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).
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37(f) Closing cost details; loan costs.
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3. Construction loan inspection and
handling fees. Inspection and handling fees
for the staged disbursement of construction
loan proceeds, including draw fees, are loan
costs associated with the transaction for
purposes of § 1026.37(f). If inspection and
handling fees are collected at or before
consummation, the total of such fees is
disclosed in the loan costs table. If inspection
and handling fees will be collected after
consummation, the total of such fees is
disclosed in a separate addendum and the
fees are not counted for purposes of the
calculating cash to close table. See comment
37(f)(6)–3 for a description of an addendum
used to disclose inspection and handling fees
that will be collected after consummation.
See also comments 38(f)–2 and app. D–7.vii.
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.
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37(f)(6) Use of addenda.
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3. Addendum for post-consummation
inspection and handling fees. A creditor
makes the disclosures required by
§ 1026.37(f) and comment 37(f)–3 for
construction loan inspection and handling
fees collected after consummation by
disclosing the total of such fees under the
heading ‘‘Inspection and Handling Fees
Collected After Closing’’ in an addendum,
which may be the addendum pursuant to
§ 1026.37(f)(6) or any other addendum or
additional page under § 1026.37. See
comment 37(o)(1)–1. For purposes of
comment 38(f)–2, the addendum may be any
addendum or additional page under
§ 1026.38. If the actual 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 construction
transactions or the amount of estimated
inspection and handling fees used by the
creditor for purposes of setting the
construction loan’s commitment amount.
37(g) Closing cost details; other costs.
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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.
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37(h) Calculating cash to close.
37(h)(1) For all transactions.
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2. Simultaneous subordinate financing. On
the Loan Estimate for simultaneous
subordinate financing purchase transactions,
the sale price disclosed under
§ 1026.37(a)(7)(i) is not used under
§ 1026.37(h)(1) for the calculating cash to
close table calculations that include the sale
price as a component of the calculation. For
example, sale price is generally included in
the closing costs financed calculation under
§ 1026.37(h)(1)(ii) as a component of the
estimated total amount of payments to third
parties. However, for simultaneous
subordinate financing transactions, the
estimated total amount of payments to third
parties would not include the sale price. The
estimated total amount of payments to third
parties only includes payments occurring in
the simultaneous subordinate financing
transaction other than payments toward the
sale price.
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 includes the sale price disclosed
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under § 1026.37(a)(7)(i), if applicable, unless
otherwise excluded under comment 37(h)(1)–
2. Other examples of payments to third
parties not otherwise disclosed under
§ 1026.37(f) and (g) include the amount of
construction costs for transactions that
involve improvements to be made on the
property and payoffs of secured or unsecured
debt. If the result of the calculation is zero
or negative, the amount of $0 is disclosed
under § 1026.37(h)(1)(ii). 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).
2. Loan amount. The loan amount
disclosed under § 1026.37(b)(1), 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.
37(h)(1)(iii) Down payment and other
funds from borrower.
1. Down payment and funds from borrower
calculation. For purposes of
§ 1026.37(h)(1)(iii)(A)(1), the down payment
and funds from borrower amount is
calculated as the difference between the sale
price of the property disclosed under
§ 1026.37(a)(7)(i) 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). The calculation is
independent of any loan program or investor
requirements.
2. Funds for borrower. Section
1026.37(h)(1)(iii)(A)(2) requires that, in a
purchase transaction as defined in paragraph
(a)(9)(i) of this section that is a simultaneous
subordinate financing transaction or that
involves improvements to be made on the
property, or 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 the sale price
disclosed under § 1026.37(a)(7)(i), 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
estimated funds from the consumer is
determined in accordance with
§ 1026.37(h)(1)(v). Pursuant to
§ 1026.37(h)(1)(v), the amount to be disclosed
under § 1026.37(h)(1)(iii)(A)(2) or (B) is
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 under
§ 1026.38(j)(2)(iv) (excluding 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 is the
sum of the 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. When the result
of the calculation is positive, that amount is
disclosed under § 1026.37(h)(1)(iii) as ‘‘Down
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Payment/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 as a negative number under
§ 1026.37(h)(1)(v) as ‘‘Funds for Borrower,’’
and $0 is disclosed under § 1026.37(h)(1)(iii)
as ‘‘Down Payment/Funds from Borrower.’’
When the result is $0, $0 is disclosed as
‘‘Down Payment/Funds from Borrower’’ and
‘‘Funds for Borrower’’ under
§ 1026.37(h)(1)(iii) and (v), respectively.
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37(h)(1)(v) Funds for borrower.
1. No funds for borrower. When the down
payment and other funds from the borrower
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 (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)
(excluding 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 is the sum of the 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),
reflecting the specific seller credit in the
amount disclosed for the pest inspection fee.
If the creditor knows at the time of the
delivery of the Loan Estimate that the seller
has agreed to pay the entire $100 pest
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inspection fee, the creditor may either
disclose the required pest inspection fee as
$100 under § 1026.37(f) with a $100 seller
credit disclosed under § 1026.37(h)(1)(vi) or
disclose nothing under § 1026.37(f),
reflecting that the specific seller credit will
cover the entire 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 otherwise
associated with 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 in advance of closing by third
parties, including family members, not
otherwise associated with the transaction are
not required to be disclosed under
§ 1026.37(h)(1)(vii).
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4. Other credits to be disclosed. Credits
other than those from the creditor or seller
are disclosed under § 1026.37(h)(1)(vii).
Disclosure of other credits is, like other
disclosures under § 1026.37, subject to the
good faith requirement under
§ 1026.19(e)(1)(i). See § 1026.19(e)(1)(i) and
comments 17(c)(2)(i)–1 and 19(e)(1)(i)–1. The
creditor may obtain information regarding
items to be disclosed under
§ 1026.37(h)(1)(vii), for example, from the
consumer, from a review of the purchase and
sale contract, or from information obtained
from a real estate agent in the transaction.
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 in a transaction disclosed
using the formula under
§ 1026.37(h)(1)(iii)(A)(1) or 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), are only included in the
amount disclosed under § 1026.37(h)(1)(vii)
if such amounts are not included in the
calculation under § 1026.37(h)(1)(iii)(A)(2) or
(B) or § 1026.37(h)(1)(v) as debt being
satisfied in the transaction. Other examples
of adjustments for additional funds from the
consumer include payoffs of secured or
unsecured debt in a purchase transaction
disclosed using the formula under
§ 1026.37(h)(1)(iii)(A)(1) or 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.
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37(h)(2) Optional alternative calculating
cash to close table for transactions without a
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seller or for simultaneous 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 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 or for simultaneous 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. Examples of the amounts
incorporated in the total amount disclosed
under § 1026.37(h)(2)(iii) 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;
construction costs associated with the
transaction that the consumer will be
obligated to pay in any transaction in which
the creditor is otherwise permitted to use the
alternative calculating cash to close table;
and payments to other third parties for
outstanding debts of the consumer, excluding
settlement services, as required to be paid as
a condition for the extension of credit.
Amounts that will be paid with funds
provided by the consumer, including partial
payments, such as a portion of construction
costs, or amounts that will be paid by third
parties and will be 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. i.
First-lien Loan Estimate. On the Loan
Estimate for a first-lien transaction disclosed
with the optional alternative table pursuant
to § 1026.37(h)(2), such as a refinance
transaction that also has simultaneous
subordinate financing, the proceeds of the
simultaneous 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) is a negative number
unless the proceeds from the 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 under § 1026.37(h)(2)(iii). If the
proceeds from the 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
under § 1026.37(h)(2)(iii), the total amount
disclosed under § 1026.37(h)(2)(iii) is
disclosed as $0 or a positive number.
ii. Simultaneous subordinate financing
Loan Estimate. On the simultaneous
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subordinate financing Loan Estimate
disclosed with the optional alternative table
pursuant to § 1026.37(h)(2), the proceeds of
the subordinate financing that will be
applied to the first-lien transaction may be
included in the payoffs and payments
disclosure under § 1026.37(h)(2)(iii).
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37(k) Contact information.
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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.
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37(l) Comparisons.
37(l)(1) In five years.
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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.
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).
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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 that the consumer will pay
when calculating the total interest
percentage. Prepaid interest that is disclosed
as a negative number under §§ 1026.37(g)(2)
or 1026.38(g)(2) is included as a negative
value when calculating the total interest
percentage.
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37(o) Form of disclosures.
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37(o)(4) Rounding.
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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
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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 a periodic mortgage insurance
payment of $164.49 is disclosed as $164. The
per-diem amount 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) do not include partial
cents. Dollar amounts are rounded or
truncated to the nearest whole cent. For
example, under § 1026.37(g)(2)(iii), the
creditor discloses per-diem interest of
$68.1254 as $68.13 or $68.12. 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).
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37(o)(4)(ii) Percentages.
1. Decimal places. Section 1026.37(o)(4)(ii)
requires the percentage amounts disclosed
rounding exact amounts 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 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%.’’
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Section 1026.38—Content of Disclosures for
Certain Mortgage Transactions (Closing
Disclosure)
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4. Reductions in principal balance. A
principal reduction that occurs immediately
or very soon after closing must be disclosed
in the summaries of transactions table on the
standard Closing Disclosure pursuant to
§ 1026.38(j)(1)(v) or in the payoffs and
payments table on the alternative Closing
Disclosure pursuant to § 1026.38(t)(5)(vii)(B).
The disclosure of a principal reduction under
§ 1026.38(j)(1)(v) or (t)(5)(vii)(B) includes the
following elements: (1) The amount of the
principal reduction; (2) the phrase ‘‘principal
reduction’’ or a similar phrase; (3) for a
principal reduction disclosure under
§ 1026.38(t)(5)(vii)(B) only, the name of the
payee; (4) if applicable to the transaction, the
phrase ‘‘Paid Outside of Closing’’ or ‘‘P.O.C.’’
and the name of the party making the
payment; and (5) if the principal reduction is
used to satisfy the requirements of
§ 1026.19(f)(2)(v), a statement that the
principal reduction is being provided to
offset charges that exceed the legal limits,
using any language that meets the clear and
conspicuous standard under
§ 1026.38(t)(1)(i). If a creditor is required to
disclose the name of the party making the
payment or that the principal reduction is
being provided to offset charges that exceed
the legal limits, and there is insufficient
space under the § 1026.38(j)(1)(v) or
(t)(5)(vii)(B) disclosure for these elements of
the principal reduction disclosure, the
creditor may omit these elements from the
§ 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure. If
the creditor omits these elements from the
§ 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure,
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the creditor must provide a complete
principal reduction disclosure under an
appropriate heading on an additional page, in
accordance with § 1026.38(j) and (t)(5)(ix), as
applicable, with a reference to the
abbreviated principal reduction disclosure
under § 1026.38(j)(1)(v) or (t)(5)(vii)(B).
i. Principal reduction not paid with closing
funds. A principal reduction is disclosed in
the summaries of transactions table under
§ 1026.38(j)(1)(v) and marked with the phrase
‘‘Paid Outside of Closing’’ or the abbreviation
‘‘P.O.C.’’ pursuant to § 1026.38(j)(4)(i), or in
the payoffs and payments table under
§ 1026.38(t)(5)(vii)(B) marked with the phrase
‘‘Paid Outside of Closing’’ or the abbreviation
‘‘P.O.C.,’’ if it is not paid from closing funds.
For a principal reduction disclosed under
§ 1026.38(j)(1)(v) that is not paid from closing
funds, the amount of the principal reduction
is not included in computing the summaries
of transactions totals under § 1026.38(j) or the
cash to close disclosures under § 1026.38(i).
For a principal reduction disclosed under
§ 1026.38(t)(5)(vii)(B) that is not paid from
closing funds, the amount of the principal
reduction is not included in computing the
total payoffs and payments amount disclosed
under § 1026.38(t)(5)(vii)(B) or the cash to
close amount disclosed under
§ 1026.38(e)(5)(ii). For example, a creditor
providing a $500 principal reduction to
satisfy the refund requirements of
§ 1026.19(f)(2)(v) discloses the principal
reduction under § 1026.38(j)(1)(v) by
providing in Section K of the summaries of
transactions table a statement such as
‘‘$500.00 Principal Reduction for exceeding
legal limits P.O.C. Lender,’’ and not
including the amount of the principal
reduction in the summaries of transactions
totals under § 1026.38(j) or the calculating
cash to close disclosures under § 1026.38(i).
Alternatively, if there is insufficient space
under § 1026.38(j)(1)(v) for a creditor to
disclose the name of the party making the
payment or a statement that the principal
reduction is being provided to offset charges
that exceed the legal limits, a creditor may
disclose a statement such as ‘‘$500.00
Principal Reduction P.O.C.’’ under
§ 1026.38(j)(1)(v) and a statement on an
additional page such as ‘‘$500.00 Principal
Reduction for exceeding legal limits P.O.C.
Lender. See Section K on page 3.’’
ii. Principal reduction paid with closing
funds. A principal reduction is disclosed in
the summaries of transactions table under
§ 1026.38(j)(1)(v) or in the payoffs and
payments table under § 1026.38(t)(5)(vii)(B)
without the phrase ‘‘Paid Outside of Closing’’
or the abbreviation ‘‘P.O.C.’’ if it is paid from
closing funds. The amount of a principal
reduction that is paid with closing funds is
included in the applicable calculations
required under § 1026.38. For example, in a
refinance transaction using the alternative
tables on the Closing Disclosure, a creditor
discloses a $1,000 principal reduction to
reduce the cash provided to the consumer by
providing in the payoffs and payments table
under § 1026.38(t)(5)(vii)(B) a statement such
as ‘‘Principal Reduction to Consumer’’ under
the column heading ‘‘TO’’ and ‘‘$1,000.00’’
under the column heading ‘‘AMOUNT,’’ and
by including such amount in the total payoffs
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and payments amount under
§ 1026.38(t)(5)(vii)(B) and in the cash to close
amount under § 1026.38(e)(5)(ii). In this
example, the creditor must disclose the
following elements under
§ 1026.38(t)(5)(vii)(B): The amount of the
principal reduction, the phrase ‘‘principal
reduction’’ or a similar phrase, and the name
of the payee. The creditor should not include
in the disclosure the phrase ‘‘Paid Outside of
Closing’’ or ‘‘P.O.C.’’ and the name of the
party making the payment, or a statement
that the principal reduction is being provided
to offset charges that exceed the legal limits,
because those principal reduction disclosure
elements are not applicable to the transaction
in this particular example. The creditor may
not use an addendum for the principal
reduction disclosure in this example.
38(a) General information.
38(a)(3) Closing information.
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38(a)(3)(iii) Disbursement date.
1. Simultaneous subordinate financing
disbursement date. The disbursement date on
the simultaneous subordinate financing
Closing Disclosure is the date some or all of
the subordinate financing loan amount
disclosed under § 1026.38(b) is expected to
be paid to the consumer or a third party other
than a settlement agent.
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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.
For transactions involving construction
where there is no seller, the creditor must
disclose the value of the property that is used
to determine the approval of the credit
transaction, including improvements to be
made on the property if those improvements
are used in determining the approval of the
credit transaction.
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38(a)(4) Transaction information.
2. No seller transactions or simultaneous
subordinate financing transactions. In
transactions where there is no seller, such as
in a refinancing or home equity loan, or for
simultaneous subordinate financing 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).
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4. Consumers. Section 1026.38(a)(4)(i)
requires disclosure of the consumer’s name
and mailing address, labeled ‘‘Borrower.’’ For
purposes of § 1026.38(a)(4)(i), the term
‘‘consumer’’ is limited to persons to whom
the credit is offered or extended. For
guidance on how to disclose multiple
consumers, see comment 38(a)(4)–1.
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38(d) Costs at closing.
38(d)(2) Alternative table for transactions
without a seller or for simultaneous
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 subordinate financing
transaction. In a purchase transaction, the
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 or for
simultaneous subordinate financing
transactions 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). See comments 38(j)–3 and
38(k)(2)(vii)–1 for disclosure requirements
applicable to the first-lien transaction when
the alternative disclosures are used for a
simultaneous subordinate financing
transaction and a seller contributes to the
costs of the subordinate financing. See also
comments 38(t)(5)(vii)(B)–1 and –2 for the
requirement to disclose the seller’s
contributions, if any, toward the subordinate
financing in the payoffs and payments table
on the simultaneous subordinate financing
Closing Disclosure.
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38(e) Alternative calculating cash to close
table for transactions without a seller or for
simultaneous 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 subordinate financing
transaction. In a purchase transaction, the
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 or for
simultaneous subordinate financing is
required for transactions in which the Loan
Estimate provided to the consumer disclosed
the optional alternative table under
§ 1026.37(h)(2), and must be used in
conjunction with the alternative disclosure
under § 1026.38(d)(2).
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3. 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
alternative calculating cash to close table
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under § 1026.38(e) is shown to two decimal
places unless otherwise required. Pursuant to
§ 1026.38(t)(4)(i)(C), however, any amount in
the ‘‘Loan Estimate’’ column of the
alternative calculating cash to close table
under § 1026.38(e) 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(e)(1)(iii), (2)(iii), and (4)(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 shown to two
decimal places rather than a whole dollar
amount. For example, if the amounts in the
‘‘Loan Estimate’’ column of the total closing
costs row disclosed under § 1026.38(e)(2)(i) is
$12,500, but the non-rounded estimate of
total closing costs is $12,500.35, and the
‘‘Final’’ column of the total closing costs row
disclosed under § 1026.38(e)(2)(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(e)(2)(iii).
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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).
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38(e)(2) Total closing costs.
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Paragraph 38(e)(2)(iii)(A).
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2. Disclosure of excess amounts above
limitations on increases in closing costs.
i. Because certain closing costs,
individually, are generally subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(i) (e.g., fees paid to the
creditor, transfer taxes, fees paid to an
affiliate of the creditor), while other closing
costs are collectively subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(ii) (e.g., recording fees,
fees paid to an unaffiliated third party
identified by the creditor if the creditor
permitted the consumer to shop for the
service provider), § 1026.38(e)(2)(iii)(A)
requires the creditor or closing agent to
calculate subtotals for each type of excess
amount, and then add such subtotals together
to yield the dollar amount to be disclosed in
the table. See commentary to § 1026.19(e)(3)
for additional guidance on calculating excess
amounts above the limitations on increases
in closing costs under § 1026.19(e)(3).
ii. Under § 1026.38(e)(2)(iii)(A), calculation
of the excess amounts above the limitations
on increases in closing costs takes into
account that the itemized, estimated closing
costs disclosed on the Loan Estimate will not
result in charges to the consumer if the
service is not actually provided at or before
consummation. For example, if the Loan
Estimate included under ‘‘Services You
Cannot Shop For’’ a $30 charge for a ‘‘title
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courier fee,’’ but the title company elects to
hand-deliver the title documents package to
the creditor at no charge, the $30 fee is not
factored into the calculation of the ‘‘Total
Closing Costs’’ that are subject to the
limitations on increases in closing costs.
However, if the title courier fee was assessed,
but at only $15, the charge is factored into
the calculation because the third party
service was actually provided, albeit at a
lower amount than estimated. For an
example, see form H–25 of appendix H to
this part.
iii. Under § 1026.38(e)(2)(iii)(A),
calculation of the excess amounts above the
limitations on increases in closing costs takes
into account that certain itemized charges
listed on the Loan Estimate under the
subheading ‘‘Services You Can Shop For’’
may be subject to different limitations
depending on the circumstances. Although
§ 1026.19(e)(3)(iii) provides exceptions to the
general rule, such a charge would generally
be subject to the limitations under
§ 1026.19(e)(3)(i) if the consumer decided to
use a provider affiliated with the creditor.
However, the same charge would instead be
subject to the limitations under
§ 1026.19(e)(3)(ii) if the consumer selected a
third party service provider unaffiliated with
but identified by the creditor, and the
creditor permitted the consumer to shop for
the service provider. See commentary to
§ 1026.19(e)(3) for additional guidance on
calculating excess amounts above the
limitations on increases in closing costs
under § 1026.19(e)(3).
3. Statements regarding excess amount and
any credit to the consumer. Section
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 principal reduction
under § 1026.38(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.
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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, 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.
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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.vii. See § 1026.17(e) and its commentary
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concerning the effect of subsequent events
that cause inaccuracies in disclosures.
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38(g) Closing costs details; other costs.
38(g)(1) Taxes and other government fees.
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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.
38(g)(2) Prepaids.
§ 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), (5)(iii)(A), (7)(iii)(A),
and (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 some examples of these statements.
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).
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). See also comment
38(i)(7)(iii)(A)–1 for additional examples that
comply with the requirements under
§ 1026.38(i)(7)(iii)(A).
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3. No prepaid interest. If interest is not
collected for any period between closing and
the date from which interest will be collected
with the first monthly payment, then $0.00
is disclosed under § 1026.38(g)(2).
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).
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38(i) Calculating cash to close.
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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
unless otherwise required. 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
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
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2. Disclosure of excess amounts above
limitations on increases in closing costs.
i. Because certain closing costs,
individually, are generally subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(i) (e.g., fees paid to the
creditor, transfer taxes, fees paid to an
affiliate of the creditor), while other closing
costs are collectively subject to the
limitations on increases in closing costs
under § 1026.19(e)(3)(ii) (e.g., recording fees,
fees paid to an unaffiliated third party
identified by the creditor if the creditor
permitted the consumer to shop for the
service provider), § 1026.38(i)(1)(iii)(A)
requires the creditor or closing agent to
calculate subtotals for each type of excess
amount, and then add such subtotals together
to yield the dollar amount to be disclosed in
the table. See commentary to § 1026.19(e)(3)
for additional guidance on calculating excess
amounts above the limitations on increases
in closing costs under § 1026.19(e)(3).
ii. Under § 1026.38(i)(1)(iii)(A), calculation
of the excess amounts above the limitations
on increases in closing costs takes into
account that the itemized, estimated closing
costs disclosed on the Loan Estimate will not
result in charges to the consumer if the
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service is not actually provided at or before
consummation. For example, if the Loan
Estimate included under ‘‘Services You
Cannot Shop For’’ a $30 charge for a ‘‘title
courier fee,’’ but the title company elects to
hand-deliver the title documents package to
the creditor at no charge, the $30 fee is not
factored into the calculation of the ‘‘Total
Closing Costs’’ that are subject to the
limitations on increases in closing costs.
However, if the title courier fee was assessed,
but at only $15, the charge is factored into
the calculation because the third-party
service was actually provided, albeit at a
lower amount than estimated.
iii. Under § 1026.38(i)(1)(iii)(A),
calculation of the excess amounts above the
limitations on increases in closing costs takes
into account that certain itemized charges
listed on the Loan Estimate under the
subheading ‘‘Services You Can Shop For’’
may be subject to different limitations
depending on the circumstances. Although
§ 1026.19(e)(3)(iii) provides exceptions to the
general rule, such a charge would generally
be subject to the limitations under
§ 1026.19(e)(3)(i) if the consumer decided to
use a provider affiliated with the creditor.
However, the same charge would instead be
subject to the limitations under
§ 1026.19(e)(3)(ii) if the consumer selected a
third-party service provider unaffiliated with
but identified by the creditor, and the
creditor permitted the consumer to shop for
the service provider. See commentary to
§ 1026.19(e)(3) for additional guidance on
calculating excess amounts above the
limitations on increases in closing costs
under § 1026.19(e)(3).
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 principal reduction
under § 1026.38(j)(1)(v), if either is 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.
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38(i)(3) Closing costs financed.
1. Calculation of amount. i. Generally. 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). Other examples of
payments to third parties not otherwise
disclosed under § 1026.38(f) and (g) include
the amount of construction costs for
transactions that involve improvements to be
made on the property, and payoffs of secured
or unsecured debt. If the result of the
calculation is zero or negative, the amount of
$0 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
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disclosed under § 1026.38(i)(3) does not
exceed the total amount of closing costs
disclosed under § 1026.38(h)(1).
ii. Simultaneous subordinate financing.
For simultaneous subordinate financing
transactions, no sale price will be disclosed
under § 1026.38(j)(1)(ii), and therefore no sale
price will be included in the closing costs
financed calculation as a payment to third
parties. The total amount of payments to
third parties only includes payments
occurring in the simultaneous subordinate
financing transaction other than payments
toward the sale price.
2. Loan amount. The loan amount
disclosed under § 1026.38(b), 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.
38(i)(4) Down payment/funds from
borrower.
Paragraph 38(i)(4)(ii)(A).
1. Down payment and funds from borrower
calculation. Under § 1026.38(i)(4)(ii)(A)(1),
the down payment and funds from borrower
amount is calculated as the difference
between the sale price of the property
disclosed under § 1026.38(a)(3)(vii)(A) and
the sum of the loan amount disclosed under
§ 1026.38(b) and any amount of existing
loans assumed or taken subject to that is
disclosed under § 1026.38(j)(2)(iv), except as
required by § 1026.38(i)(4)(ii)(A)(2). The
calculation is independent of any loan
program or investor 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
and other funds 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, in a
purchase transaction as defined in
§ 1026.37(a)(9)(i) that is a simultaneous
subordinate financing transaction or that
involves improvements to be made on the
property, or when the sum of the loan
amount disclosed under § 1026.38(b) and any
amount of existing loans assumed or taken
subject to that is disclosed under
§ 1026.38(j)(2)(iv) exceeds the sale price
disclosed under § 1026.38(a)(3)(vii)(A), the
amount of funds from the consumer is
determined in accordance with
§ 1026.38(i)(6)(iv). Pursuant to
§ 1026.38(i)(6)(iv), the ‘‘Final’’ amount of
‘‘Down Payment/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 that is
disclosed under § 1026.38(j)(2)(iv) (excluding
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
of ‘‘Down Payment/Funds from Borrower’’
under the subheading ‘‘Final’’ is disclosed
either as a positive number or $0, depending
on the result of the calculation. When the
result of the calculation is positive, that
amount is disclosed under
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§ 1026.38(i)(4)(ii)(A)(2) as ‘‘Down Payment/
Funds from Borrower,’’ and $0 is disclosed
under § 1026.38(i)(6)(ii) as ‘‘Funds for
Borrower.’’ When the result of the calculation
is negative, that amount is disclosed under
§ 1026.38(i)(6)(ii) as ‘‘Funds for Borrower,’’
and $0 is disclosed under
§ 1026.38(i)(4)(ii)(A)(2) as ‘‘Down Payment/
Funds from Borrower.’’ When the result is
$0, $0 is disclosed as ‘‘Down Payment/Funds
from Borrower’’ and ‘‘Funds for Borrower’’
under § 1026.38(i)(4)(ii)(A)(2) and (6)(ii),
respectively. An increase in the amount of
‘‘Down Payment/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 transaction. 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 for 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 determined in
accordance with § 1026.38(i)(6)(iv). Pursuant
to § 1026.38(i)(6)(iv), the ‘‘Final’’ amount of
‘‘Down Payment/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 that is disclosed under
§ 1026.38(j)(2)(iv) (excluding 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 ‘‘Final’’
amount of ‘‘Down Payment/Funds from
Borrower’’ is disclosed either as a positive
number or $0, depending on the result of the
calculation. When the result of the
calculation is positive, that amount is
disclosed under § 1026.38(i)(4)(ii)(B) as
‘‘Down Payment/Funds from Borrower,’’ and
$0 is disclosed under § 1026.38(i)(6)(ii) as
‘‘Funds for Borrower.’’ When the result of the
calculation is negative, that amount is
disclosed under § 1026.38(i)(6)(ii) as ‘‘Funds
for Borrower,’’ and $0 is disclosed under
§ 1026.38(i)(4)(ii)(B) as ‘‘Down Payment/
Funds from Borrower.’’ When the result is
$0, $0 is disclosed as ‘‘Down Payment/Funds
from Borrower’’ and ‘‘Funds for Borrower’’
under § 1026.38(i)(4)(ii)(B) and (6)(ii),
respectively. An increase in the ‘‘Final’’
amount of ‘‘Down Payment/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 transaction. 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, as applicable, a
statement that the consumer has increased or
decreased this payment, along with a
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statement that the consumer should see the
details disclosed under § 1026.38(j)(1) or
(j)(2), as applicable. The applicable
disclosure to be referenced corresponds to
the label on the Closing Disclosure under
which the information accounting for the
increase in the ‘‘Down Payment/Funds from
Borrower’’ amount is disclosed. For example,
in a transaction that is a purchase as defined
in § 1026.37(a)(9)(i), if the purchase price of
the property has increased and therefore
caused the ‘‘Down Payment/Funds from
Borrower’’ 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 a purchase or refinancing
transaction, in the event the amount of the
credit extended by the creditor has decreased
and therefore caused the ‘‘Down Payment/
Funds from Borrower’’ amount to increase,
the statement can read, for example, ‘‘You
increased this payment. See details in
Section L,’’ with the same in boldface.
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) and (ii) the amount required
to be disclosed is $0.
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 that is disclosed under
§ 1026.38(j)(2)(iv) (excluding 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, depending on the
result of the calculation. The ‘‘Final’’ amount
of ‘‘Funds for Borrower’’ disclosed under
§ 1026.38(i)(6)(ii) is an 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 and funds from the borrower is
determined in accordance with
§ 1026.38(i)(4)(ii)(A)(1), the amount disclosed
under § 1026.38(i)(6)(ii) as ‘‘Funds for
Borrower’’ is $0.
38(i)(7) Seller credits.
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Paragraph 38(i)(7)(iii)(A).
1. Statement that the consumer should see
details. Under § 1026.38(i)(7)(iii)(A), if the
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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 either: (1)
Under § 1026.38(j)(2)(v) in the summaries of
transactions table and the seller-paid column
of the closing cost details table under
§ 1026.38(f) or (g); or (2) if the difference is
attributable only to general seller credits
disclosed under § 1026.38(j)(2)(v), or only to
specific seller credits disclosed in the sellerpaid column of the closing cost details table
under § 1026.38(f) or (g), under only the
applicable provision. If, for example, a
decrease in the seller credits disclosed under
§ 1026.38(i)(7)(ii) 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 close table that the
consumer should see the details disclosed
under § 1026.38(j)(2)(v) in the summaries of
transactions table and the seller-paid column
of § 1026.38(f) or (g), or 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 and the creditor choses only to
reference the applicable provision; 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 disclosed under § 1026.38(i)(7)(ii) is
attributable to specific and general seller
credits, or the creditor does not elect to
reference only the applicable provision, 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
of 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.
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38(j) Summary of borrower’s transaction.
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3. Identical amounts. The amounts
disclosed under the following provisions of
§ 1026.38(j) are the same as the amounts
disclosed under the corresponding
provisions of § 1026.38(k): § 1026.38(j)(1)(ii)
and (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); unless seller
contributions toward simultaneous
subordinate financing are disclosed under
§ 1026.38(t)(5)(vii)(B) on the simultaneous
subordinate financing Closing Disclosure and
§ 1026.38(k)(2)(vii) on the first-lien Closing
Disclosure, § 1026.38(j)(2)(v) and (k)(2)(vii);
§ 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 simultaneous
subordinate financing Closing Disclosure, 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, the amounts paid to any
holders of existing liens on the property in
a refinance transaction, construction costs in
connection with the transaction that the
consumer will be obligated to pay, payoff of
other secured or unsecured debt, any
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outstanding real estate property taxes, and
principal reductions 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). See
comment 38–4 for an explanation of how to
disclose a principal reduction under
§ 1026.38(j)(1)(v).
3. Simultaneous subordinate financing
Closing Disclosure. On the simultaneous
subordinate financing Closing Disclosure, the
proceeds of the subordinate financing
applied to the first-lien transaction may be
included in the summaries of transactions
table under § 1026.38(j)(1)(v). See also
comments 37(h)(1)(v)–2 and 37(h)(1)(vii)–6
for an explanation of how to disclose on the
Loan Estimate amounts that will be disclosed
on the Closing Disclosure under
§ 1026.38(j)(1)(v).
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38(j)(2) Itemization of amounts already
paid by or on behalf of borrower.
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Paragraph 38(j)(2)(vi).
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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 subordinate
financing 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 must also be
listed, and 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.
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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 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. The disclosures
made under § 1026.38(j)(2)(vi) must also
include a description for each disclosed
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amount. 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 by identifying the
amount as rent from a tenant under the
heading ‘‘Adjustments.’’ See also
§ 1026.38(k)(2)(viii), which requires
disclosure of a description and amount of
any and all other obligations required to be
paid by the seller at the real estate closing.
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.
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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
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 principal
reduction that is not paid from closing funds.
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38(k) Summary of seller’s transaction.
1. Transactions with no seller or
simultaneous subordinate financing
transactions. Section 1026.38(k) does not
apply in a transaction where there is no
seller, such as a refinance transaction or a
transaction with a construction purpose as
defined in § 1026.37(a)(9)(iii), or in a
simultaneous subordinate financing purchase
transaction as defined in § 1026.37(a)(9)(i) if
the first-lien Closing Disclosure records the
entirety of the seller’s transaction.
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38(k)(1) Itemization of amounts due to
seller.
1. Simultaneous subordinate financing.
Section 1026.38(k) does not apply in a
simultaneous subordinate financing purchase
transaction as defined in § 1026.37(a)(9)(i) if
the first-lien Closing Disclosure records the
entirety of the seller’s transaction. If
§ 1026.38(k) applies to a simultaneous
subordinate financing transaction,
§ 1026.38(k) is completed based only on the
terms and conditions of the simultaneous
subordinate financing transaction and no
contract sales price is disclosed under
§ 1026.38(k)(1)(ii) on the Closing Disclosure
for the simultaneous subordinate financing.
38(k)(2) Itemization of amounts due from
seller.
*
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Paragraph 38(k)(2)(vii).
1. Simultaneous subordinate financing—
seller contribution. If a simultaneous
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subordinate financing transaction is
disclosed with the alternative tables pursuant
to § 1026.38(d)(2) and (e), the first-lien
Closing Disclosure must include any
contributions from the seller toward the
simultaneous subordinate financing that are
disclosed in the payoffs and payments table
under § 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing Closing
Disclosure. For example, assume the
simultaneous subordinate financing
transaction is disclosed using the alternative
tables pursuant to § 1026.38(d)(2) and (e) and
the seller contributes $200.00 toward the
closing costs of the simultaneous subordinate
financing. The simultaneous subordinate
financing Closing Disclosure must include
the $200.00 contribution in the payoffs and
payments table pursuant to
§ 1026.38(t)(5)(vii)(B) and comments
38(t)(5)(vii)(B)–1 and –2. The first-lien
Closing Disclosure must include the $200.00
contribution in the summaries of transactions
table for the seller’s transaction under
§ 1026.38(k)(2)(vii).
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38(l) Loan disclosures.
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38(l)(7) Escrow account.
1. Definition of escrow account. For a
description of an escrow account for
purposes of the escrow account disclosure
under § 1026.38(l)(7), see the definition of
‘‘escrow account’’ in 12 CFR 1024.17(b).
2. Addenda. Additional pages may be
attached to the Closing Disclosure to add
lines, as necessary, to accommodate the
complete listing of all items required to be
shown on the Closing Disclosure under
§ 1026.38(l)(7). See § 1026.38(t)(5)(ix). A
reference such as ‘‘See attached page for
additional information’’ must be placed in
the applicable section of the Closing
Disclosure, if an additional page is used to
list all items required to be shown.
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
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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
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.
2. During the first year. Section
1026.38(l)(7)(i)(B)(1) requires disclosure
based on payments during the first year after
consummation. A creditor may comply with
this requirement by basing the disclosure on
a 12-month period beginning with the
borrower’s initial payment date or on a 12month period beginning with consummation.
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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
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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 the total, expressed as a
dollar amount, the consumer will have paid
after making all payments of principal,
interest, mortgage insurance, and loan costs,
as scheduled, through the end of the loan
term. The total of payments excludes charges
that would otherwise be included as
components of the total of payments if such
charges are designated on the Closing
Disclosure as paid by seller or paid by others.
A seller or other party, such as the creditor,
may agree to offset payments of principal,
interest, mortgage insurance, or loan costs,
whether in whole or in part, through a
specific credit, for example through a specific
seller or lender credit. Because these
amounts are not paid by the consumer, they
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 amounts for purposes
of the total of payments calculation. For
guidance on the amounts included in the
total of payments calculation, see the ‘‘In 5
Years’’ disclosure under § 1026.37(l)(1)(i) and
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.
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38(t) Form of disclosures.
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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
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to form H–25, the disclosures required by
§ 1026.38 must be provided on letter size
(8.5″ x 11″) paper.
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38(t)(5) Exceptions.
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38(t)(5)(v) Separation of consumer and
seller information.
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,
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 assist the settlement agent in providing
(or provide when acting as a settlement
agent) 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 assist the
settlement agent in providing (or provide
when acting as a settlement agent) 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.
38(t)(5)(vi) Modified version of the form for
a seller or third-party.
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 or
simultaneous subordinate financing
transaction.
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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
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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.
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, proceeds from loans that satisfy the
partial exemption criteria in § 1026.3(h), and,
on the Closing Disclosure for a simultaneous
subordinate financing transaction,
contributions from a seller for costs
associated with the subordinate financing.
2. Disclosure of subordinate financing. i.
First-lien Closing Disclosure. On the Closing
Disclosure for a first-lien transaction
disclosed with the alternative tables pursuant
to § 1026.38(d)(2) and (e), such as a refinance
transaction, that also has simultaneous
subordinate financing, the proceeds of the
subordinate financing are included in the
payoffs and payments table under
§ 1026.38(t)(5)(vii)(B) by disclosing, as a
credit, the principal amount of the
subordinate financing, and, if the net
proceeds of the subordinate financing are less
than the principal amount of the subordinate
financing, the net proceeds. The creditor may
list the principal amount and net proceeds of
the subordinate financing on the same line.
For example, the creditor may disclose the
principal amount of the subordinate
financing under the subheading ‘‘To’’ with a
description of the payment, and the net
proceeds of the subordinate financing under
the subheading ‘‘Amount.’’
ii. Simultaneous subordinate financing
Closing Disclosure. On the Closing Disclosure
for a simultaneous subordinate financing
transaction disclosed with the alternative
tables pursuant to § 1026.38(d)(2) and (e), the
proceeds of the subordinate financing
applied to the first-lien transaction may be
included in the payoffs and payments table
under § 1026.38(t)(5)(vii)(B).
iii. Simultaneous subordinate financing—
seller contribution. If a creditor discloses the
alternative tables pursuant to § 1026.38(d)(2)
and (e) on the simultaneous subordinate
financing Closing Disclosure, the creditor
must also disclose as a credit in the payoffs
and payments table on the simultaneous
subordinate financing Closing Disclosure,
any contributions from the seller toward the
simultaneous subordinate financing. For
example, assume the subordinate-lien
creditor provides the alternative tables
pursuant to § 1026.38(d)(2) and (e) on the
simultaneous subordinate financing Closing
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Disclosure and the seller contributes $200.00
toward the closing costs of the simultaneous
subordinate financing. The subordinate-lien
creditor must disclose the $200.00
contribution as a credit on the simultaneous
subordinate financing Closing Disclosure in
the payoffs and payments table under
§ 1026.38(t)(5)(vii)(B). See also comments
38(j)–3 and 38(k)(2)(vii)–1 for disclosure
requirements applicable to the first-lien
transaction when the alternative disclosures
are used for a simultaneous subordinate
financing transaction and a seller contributes
to the costs of the subordinate financing.
3. Other examples. For additional
examples of items disclosed under
§ 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 principal
reduction under § 1026.38(t)(5)(vii)(B).
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Appendix D—Multiple-Advance
Construction Loans
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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 the two
phases are disclosed as a single transaction,
the loan term disclosed is 31 years.
B. Term of permanent financing. The loan
term of the permanent financing is counted
from the date that interest for the permanent
financing periodic payments 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
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 plus any
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interest-only period for the permanent
financing. For example, the product
disclosure for a single disclosure, fixed rate,
construction-permanent loan with a 12
month interest-only construction phase
where the interest rate is not subject to
modification upon conversion to the
permanent phase is ‘‘1 Year Interest Only,
Fixed Rate.’’ If the first year of the permanent
phase in this example also has a 12 month
interest-only period, the product disclosure
is ‘‘2 Year Interest Only, Fixed Rate.’’
C. Product when interest rate at
consummation not known. If the interest rate
for the permanent phase is not known at
consummation for a construction-permanent
loan using a single, combined constructionpermanent disclosure or using separate
disclosures for the permanent phase, the
creditor shall disclose the loan product under
§§ 1026.37(a)(10) and 1026.38(a)(5)(iii) as
‘‘Adjustable Rate.’’ If the interest rate may
increase under the terms of the legal
obligation from the disclosures provided at
consummation, the loan product description
is ‘‘Adjustable Rate’’ in such cases, even if
the interest rate will be fixed for the term of
the permanent phase once it is set.
iii. Interest rate. If the permanent financing
has an adjustable rate at consummation and
separate disclosures are provided, the rate
disclosed for the permanent financing is the
fully-indexed rate pursuant to § 1026.37(b)(2)
and its commentary. If the permanent
financing has a fixed rate that will not be
adjusted when the construction phase
converts to the permanent phase, that fixed
rate is used for disclosure purposes. If the
permanent financing has a rate that may
adjust when the construction phase converts
to the permanent phase, the permanent
financing has an adjustable rate. If the legal
obligation for a loan secured by the
consumer’s principal dwelling provides that
the permanent financing interest rate may
adjust 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), but not (d), if the
interest rate for the permanent phase will be
fixed after the conversion.
iv. Increase in periodic payment. If the
amounts or timing of advances is unknown
at or before consummation and the appendix
D assumption that applies if interest is
payable only on the amount advanced for the
time it is outstanding is used to calculate the
periodic payment:
A. A creditor discloses ‘‘YES’’ as the
answer to ‘‘Can this amount increase after
closing?’’ pursuant to § 1026.37(b)(6)(iii)
whether the creditor provides separate
construction disclosures or combined
construction-permanent disclosures, even
though calculation of the construction
financing periodic payments using the
assumptions in appendix D produces
interest-only periodic payments that are
equal in amount.
B. A creditor that discloses ‘‘YES’’ as the
answer to ‘‘Can this amount increase after
closing?’’ pursuant to § 1026.37(b)(6)(iii) may
use months or years for the
§ 1026.37(b)(6)(iii) disclosures, consistent
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with comment 37(b)(6)–1. For example, for a
10-month construction loan, the first
§ 1026.37(b)(6)(iii) disclosure bullet may
disclose, ‘‘Adjusts every mo. starting in mo.
1’’ and the second § 1026.37(b)(6)(iii)
disclosure bullet may disclose, ‘‘Can go as
high as $[insert maximum possible periodic
principal and interest payment] in year 1’’.
The calculation of the maximum possible
periodic principal and interest payment
disclosed is based on the maximum principal
balance that could be outstanding during the
construction phase. As part of the ‘‘First
Change/Amount’’ disclosure in the
‘‘Adjustable Payment (AP) Table’’ pursuant
to § 1026.37(i)(5)(i), the creditor may omit
and leave blank the amount or range
corresponding to the first periodic principal
and interest payment that may change. In
such cases, the creditor must still disclose
the timing of the first change, which is the
number of the earliest possible payment (e.g.,
1st payment) that may change under the
terms of the legal obligation.
C. When separate construction disclosures
or the combined construction-permanent
disclosures are provided for adjustable-rate
construction financing, a creditor provides
the § 1026.37(b)(6)(iii) disclosures reflecting
changes that are due to changes in the
interest rate and changes that are due to
changes in the total amount advanced. Such
a creditor discloses ‘‘YES’’ as the answer to
‘‘Can this amount increase after closing?’’
pursuant to § 1026.37(b)(6), because the
initial periodic payment may increase based
upon an increase in the interest rate in
addition to a change based on the total
amount advanced. Such a creditor also
discloses a reference to the adjustable
payment table required by § 1026.37(i),
disclosed as provided in comment app. D–
7.iv.B, because that disclosure reflects both a
change due to a change in the total amount
advanced, which is a change to the periodic
principal and interest payment that is not
based on an adjustment to the interest rate,
as well as the fact that there are interest-only
payments. Such a creditor also includes a
reference to the adjustable interest rate table
required by § 1026.37(j) because that
disclosure reflects a change due to a change
in the interest rate.
v. 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).
Under § 1026.17(c)(6)(ii), when a multipleadvance construction loan may be
permanently financed by the same creditor,
the construction phase and the permanent
phase may be treated as either one
transaction or more than one transaction. The
following are illustrations of the application
of appendix D to transactions subject to
§§ 1026.37(c) and 1026.38(c), under each of
the § 1026.17(c)(6)(ii) alternatives:
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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 assumptions in appendix D, part I.A.1.
Also, because the construction phase is being
disclosed as a separate transaction and its
periodic payments do not repay the
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
§ 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 reflects the interestonly payments during the construction phase
in a first column. The first column also
reflects the amortizing payments, and
mortgage insurance and escrow payments, if
any, for the permanent phase if the term of
the construction phase is not a full year. The
following column(s) reflect the 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.
C. Consistent with comments 37(c)(2)(ii)–1
and 37(c)(2)(iii)–1, when the loan is
disclosed as one transaction and only the
terms of the legal obligation for the
permanent phase require mortgage insurance
or escrow, the way the creditor discloses the
escrow and mortgage insurance depends on
whether the first column of the projected
payments table exclusively discloses the
VerDate Sep<11>2014
17:46 Aug 10, 2017
Jkt 241001
construction phase. If the first column of the
projected payments table exclusively
discloses the construction phase, the creditor
discloses ‘‘0’’ in the first column of the
projected payments table for mortgage
insurance and a hyphen or dash in the first
column of the projected payments table for
escrow. If the first column discloses both the
construction phase and the permanent phase
payments, the amount of the mortgage
insurance premium or escrow payment (if
any) for the permanent phase is disclosed in
the first column.
vi. Disclosure of construction costs.
A. Construction costs are the costs of
improvements to be made to the property
that the consumer contracts for in connection
with the financing transaction and that will
be paid in whole or in part with loan
proceeds.
B. On the Loan Estimate, a creditor factors
construction costs into the funds for
borrower calculation under
§ 1026.37(h)(1)(v). Because these amounts are
disclosed under § 1026.38(j)(1)(v) on the
Closing Disclosure, they are included in
existing debt that is factored into the funds
for borrower calculation under
§ 1026.37(h)(1)(v). Comment 37(h)(1)(v)–2
explains that the total amount of all existing
debt being satisfied in the transaction that is
used in the funds for borrower calculation is
the sum of the 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. For transactions
without a seller or for simultaneous
subordinate financing, construction costs
may instead be disclosed under
§ 1026.37(h)(2)(iii) in the optional alternative
calculating cash to close table.
C. A creditor discloses the amount of
construction costs on the Closing Disclosure
under § 1026.38(j)(1)(v) in the summaries of
transactions table and factors them into the
down payment/funds from borrower and
funds for borrower calculation under
§ 1026.38(i)(4) and (6). For transactions
without a seller or for simultaneous
subordinate financing, construction costs
may instead be disclosed under
§ 1026.38(t)(5)(vii)(B) in the optional
alternative calculating cash to close table.
D. 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 under
§ 1026.38(j)(1)(v) if space permits, or may be
included in the amount disclosed for
construction costs under § 1026.38(j)(1)(v). 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 an
PO 00000
Frm 00139
Fmt 4701
Sfmt 9990
37793
itemized cost for the balance of the
construction costs, in accordance with the
disclosure and calculation options described
in comments app. D–7.vi–B and C. 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 placed in
an account is disclosed separately, the
balance of construction costs disclosed
excludes the amount placed in an account to
avoid double counting.
vii. Construction loan inspection and
handling fees. Comment 4(a)–1.ii.A provides
that inspection and handling fees, including
draw 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.
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
explains 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
explains how to disclose inspection and
handling fees that will be collected after
consummation in an addendum. Under
comment 38(f)–2, the same explanation
applies to an addendum used for disclosing
such fees in the Closing Disclosure. Comment
37(l)(1)–1 explains that 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, and that loan
costs are those costs disclosed under
§ 1026.37(f). Construction loan inspection
and handling fees are loan costs that must be
included in the sum of the ‘‘In 5 Years’’
disclosure under § 1026.37(l)(1) and the
‘‘Total of Payments’’ disclosure under
§ 1026.38(o)(1) because they are disclosed
under § 1026.37(f), even when they are
disclosed on an addendum.
*
*
*
*
*
Dated: July 6, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2017–15764 Filed 8–10–17; 8:45 am]
BILLING CODE 4810–AM–P
E:\FR\FM\11AUR2.SGM
11AUR2
Agencies
[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)]
[Rules and Regulations]
[Pages 37656-37793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15764]
[[Page 37655]]
Vol. 82
Friday,
No. 154
August 11, 2017
Part II
Bureau of Consumer Financial Protection
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12 CFR Part 1206
Amendments to Federal Mortgage Disclosure Requirements Under the Truth
in Lending Act (Regulation Z); Final Rule and Proposed Rule
Federal Register / Vol. 82 , No. 154 / Friday, August 11, 2017 /
Rules and Regulations
[[Page 37656]]
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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: Final rule; official interpretation.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
modifying the Federal mortgage disclosure requirements under the Real
Estate Settlement Procedures Act and the Truth in Lending Act that are
implemented in Regulation Z. This rule memorializes the Bureau's
informal guidance on various issues and makes additional clarifications
and technical amendments. This rule also creates tolerances for the
total of payments, adjusts a partial exemption mainly affecting housing
finance agencies and nonprofits, extends coverage of the TILA-RESPA
integrated disclosure (integrated disclosure) requirements to all
cooperative units, and provides guidance on sharing the integrated
disclosures with various parties involved in the mortgage origination
process.
DATES: The final rule is effective October 10, 2017. However, the
mandatory compliance date is October 1, 2018. For additional discussion
of these dates, see part VI of the SUPPLEMENTARY INFORMATION section
below.
FOR FURTHER INFORMATION CONTACT: Jeffrey Haywood, Paralegal Specialist,
Dania Ayoubi, Pedro De Oliveira, Angela Fox, Jaclyn Maier, Alexandra
Reimelt, and Shelley Thompson, Counsels, and Krista Ayoub, David
Friend, Nicholas Hluchyj, and Priscilla Walton-Fein, Senior Counsels,
Office of Regulations, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552, at 202-435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final 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, on July 28,
2016, the Bureau proposed amendments to the integrated disclosure
requirements in Regulation Z (the proposal).\2\
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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).
\2\ The proposal was published in the Federal Register on August
15, 2016. See 81 FR 54317 (Aug. 15, 2016).
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The Bureau is now issuing this final rule to memorialize certain
past informal guidance, whether provided through webinar, compliance
guide, or otherwise, and make additional clarifications and technical
amendments. This final rule also makes a limited number of additional
substantive changes where the Bureau has identified discrete solutions
to specific implementation challenges. Specifically, among other
changes, the final rule:
Creates tolerances for the total of payments. The Truth in
Lending Act (TILA) establishes certain tolerances for accuracy in
calculating the finance charge and disclosures affected by the finance
charge. In light of prior changes to certain underlying regulatory
definitions, the final rule establishes express tolerances for the
total of payments to parallel the existing provisions regarding the
finance charge.
Adjusts a partial exemption that mainly affects housing
finance agencies and nonprofits. The existing rule provides a partial
exemption from the integrated disclosure requirements 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 final rule includes two amendments to expand the scope of the
partial exemption and provide additional flexibility when loans satisfy
the partial exemption.
Provides a uniform rule regarding application of the
integrated 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 regarding coverage of the integrated disclosure
requirements. The final rule requires provision of the integrated
disclosures in transactions involving cooperative units, whether or not
cooperatives are classified under State law as real property.
Provides 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
the integrated disclosures with sellers and various other parties
involved in the origination process, including real estate agents, in
light of privacy concerns. The final rule incorporates and expands upon
previous webinar guidance in the Official Interpretations (commentary)
to the regulation to provide greater clarity.
The clarifications and technical corrections in this final rule
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 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; 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 Loan Estimate.
This final rule will generally benefit consumers and industry alike by
providing greater clarity for implementation going forward. As stated
in the proposal, the Bureau did not reopen any major policy decisions
with this rulemaking.
For the reasons discussed in the section-by-section analysis of
Sec. 1026.19(e)(4)(ii) below, the Bureau is not finalizing proposed
comment 19(e)(4)(ii)-2, which related to comparing charges paid by or
imposed on the consumer to charges disclosed on a corrected Closing
Disclosure to determine if an estimated charge was disclosed in good
faith. The Bureau is issuing a new proposal, concurrent with
[[Page 37657]]
this final rule, that would address this issue.
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 the Real Estate Settlement Procedures Act (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.\3\
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\3\ 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.
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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.\4\ The Bureau issued proposed integrated disclosure
forms and rules for comment on July 9, 2012 (the 2012 TILA-RESPA
Proposal),\5\ and 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).\6\ 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.\7\ The Bureau ultimately extended that effective date another
two months, to October 3, 2015, in a subsequent rulemaking.\8\ The
Bureau has reaffirmed continuously its commitment to support a smooth
transition for the mortgage market, including its commitment to be
sensitive to the good faith efforts made by institutions to come into
compliance.\9\
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\4\ Public Law 111-203, 124 Stat. 1376, 2007, 2103-04, 2107-09
(2010).
\5\ 77 FR 51116 (Aug. 23, 2012).
\6\ 78 FR 79730 (Dec. 31, 2013).
\7\ Most commenters supported an implementation period between
18 and 24 months. 78 FR 79730, 80071 (Dec. 31, 2013).
\8\ 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.
\9\ 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 https://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 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).\10\
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.\11\ The TILA-RESPA Final Rule, January
2015 Amendments, and July 2015 Amendments are collectively referred to
as the TILA-RESPA Rule in this final rule.
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\10\ 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).
\11\ 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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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 Web
pages targeted to real estate professionals and settlements service
providers 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 Final Rule
This final rule memorializes some of the Bureau's existing informal
guidance, whether provided through webinar, compliance guide, or
otherwise, and makes additional clarifications and technical
amendments. This final rule also makes a limited number of additional
substantive changes where the Bureau has identified discrete solutions
to specific implementation challenges.
The Bureau's focus in this rulemaking is providing additional
clarity to facilitate compliance. The Bureau did not reopen any major
policy decisions with this rulemaking. As stated in the proposal, the
Bureau was reluctant to entertain major changes that could involve
substantial reprogramming of
[[Page 37658]]
systems so soon after the TILA-RESPA Final Rule's October 2015
effective date or to otherwise distract from industry's efforts to
resolve outstanding implementation issues.
Accordingly, the final rule does not and cannot address every
concern that has been raised to the Bureau. The Bureau believes that
industry has made substantial implementation progress. The Bureau is
prioritizing its resources to further facilitate industry's
implementation progress. This final rule does not contain any revisions
that implicate fundamental policy choices, such as the disclosure of
simultaneous issuance title insurance premiums, made in the TILA-RESPA
Final Rule. This final rule also does not include additional cure
provisions.
As stated in the proposal, 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 focused this rulemaking process on facilitating
compliance with the TILA-RESPA Rule so that industry is able to provide
all consumers with disclosures that conform to the requirements of the
rule.
III. Comments
The Bureau issued the proposal on July 28, 2016, and it was
published in the Federal Register on August 15, 2016.\12\ The comment
period closed on October 18, 2016. In response to the proposal, the
Bureau received more than 1,600 comments from trade associations,
creditors, technology vendors, and other industry representatives, as
well as consumer groups, government sponsored enterprises (GSEs), and
others. As discussed in more detail below, the Bureau has considered
comments in adopting this final rule.
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\12\ 81 FR 54317 (Aug. 15, 2016).
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IV. Legal Authority
The Bureau is issuing this final rule pursuant to its authority
under TILA, RESPA, and the Dodd-Frank Act, including the authorities
discussed below. In general, the provisions this final rule amends were
previously adopted by the Bureau in the TILA-RESPA Rule. In doing so,
the Bureau relied on one or more of the authorities discussed below, as
well as other authority. Except as otherwise noted in the section-by-
section analysis in part V below, the Bureau is issuing this final rule
in reliance on the same authority and for the same reasons relied on in
adopting the relevant provisions of the TILA-RESPA Rule, as discussed
in detail in the Legal Authority and Section-by-Section Analysis parts
of the TILA-RESPA Final Rule and January 2015 Amendments,
respectively.\13\
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\13\ 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.\14\ 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.\15\ 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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\14\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified
at 12 U.S.C. 5532(f)).
\15\ 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)).
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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.\16\ 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.\17\ Pursuant to TILA section
128(b)(2)(B)(ii), the disclosures must be provided in final form at
consummation.\18\ 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.\19\ However, unlike TILA, RESPA section 4(b) requires
that, at or before settlement, the person conducting the settlement
(which may or may not be the creditor) provide the borrower with a
statement that records all charges imposed upon the borrower in
connection with the settlement.\20\
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\16\ 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.
\17\ 15 U.S.C. 1638(b)(2)(D).
\18\ 15 U.S.C. 1638(b)(2)(B)(ii).
\19\ 12 U.S.C. 2604(c).
\20\ 12 U.S.C. 2603(b).
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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),\21\ 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.\22\ In enacting TILA, Congress found that economic
stabilization would be enhanced and the competition among the various
financial institutions and other firms engaged in
[[Page 37659]]
the extension of consumer credit would be strengthened by the informed
use of credit.\23\ Strengthened competition among financial
institutions is a goal of TILA, achieved through the meaningful
disclosure of credit terms.
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\21\ 15 U.S.C. 1604(a).
\22\ 15 U.S.C. 1601(a).
\23\ Id.
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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.\24\
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\24\ 15 U.S.C. 1639. TILA section 129 contains requirements for
certain high-cost mortgages, established by the Home Ownership and
Equity Protection Act (HOEPA), which are commonly called HOEPA
loans.
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TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA
to add new section 129B(e).\25\ 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
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 issuing portions of this final rule pursuant to its
authority under TILA section 129B(e).
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\25\ Public Law 111-203, 124 Stat. 1376, 2141 (2010) (codified
at 15 U.S.C. 1639B(e)).
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Real Estate Settlement Procedures Act
RESPA section 19(a). 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.\26\
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.\27\
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.\28\ 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.
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\26\ 12 U.S.C. 2617(a).
\27\ 12 U.S.C. 2601(b).
\28\ 12 U.S.C. 2601(a).
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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 issuing portions of this
final 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.\29\ TILA and RESPA are Federal
consumer financial laws.\30\ Accordingly, in issuing 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).\31\
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\29\ Public Law 111-203, 124 Stat. 1376, 1980 (2010) (codified
at 15 U.S.C. 5512(b)(1)).
\30\ 12 U.S.C. 5481(12) and (14).
\31\ 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.\32\ 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.
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\32\ Public Law 111-203, 124 Stat. 1376, 2006-07 (2010)
(codified at 12 U.S.C. 5532(a)).
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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.\33\ 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.\34\ The
Bureau is issuing portions of this final rule pursuant to its authority
under Dodd-Frank Act section 1032(a).
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\33\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified
at 12 U.S.C. 5532(c)).
\34\ 78 FR 79730, 79743-50 (Dec. 31, 2013).
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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
[[Page 37660]]
residential mortgage loans if the Bureau determines that such exemption
or modification is in the interest of consumers and in the public
interest.\35\ 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.\36\ 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.
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\35\ Public Law 111-203, 124 Stat. 1376, 2142 (2010) (codified
at 15 U.S.C. 1601 note).
\36\ Public Law 111-203, 124 Stat. 1376, 2138 (2010) (codified
at 15 U.S.C. 1602(cc)(5)).
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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 issuing
portions of this final rule pursuant to its authority under Dodd-Frank
Act section 1405(b).
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 proposed and is now adopting conforming amendments to Sec.
1026.1(d)(5) and comment 1(d)(5)-1 to reflect a change to the coverage
of Sec. 1026.19(e) and (f) to include closed-end credit transactions
that are secured by a cooperative unit, regardless of whether a
cooperative unit is treated as real property under State or other
applicable law.
Current comment 1(d)(5)-1 provides in relevant part 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. In addition to the proposed revision noted above, the Bureau
proposed to restructure comment 1(d)(5)-1 and make other technical
revisions to enhance clarity. The Bureau also proposed revisions to
require a creditor, servicer, or covered person to provide the
applicable disclosures required under Sec. 1026.20(e) or Sec.
1026.39(d)(5) as of October 1, 2017, regardless of when the application
for a covered mortgage transaction was received. The proposed
amendments to the comment also would set forth an illustrative example.
Section 1026.20(e) requires the creditor or servicer to issue an
``Escrow Closing Notice'' when an escrow account subject to Sec.
1026.20(e) will be canceled. Section 1026.39(d)(5) requires a covered
person \37\ to disclose the lender's partial payment policy. The
obligation to provide these disclosures may occur after consummation.
In the proposal, the Bureau acknowledged that there is uncertainty
within industry as to whether the disclosures under Sec. Sec.
1026.20(e) and 1026.39(d)(5) (together, the post-consummation
disclosures under Sec. Sec. 1026.20(e) and 1026.39(d)(5)) apply to all
covered transactions as of the effective date of October 3, 2015, or
only to covered transactions for which the creditor or mortgage broker
received an application on or after October 3, 2015, and explained that
it considers either approach compliant under existing comment 1(d)(5)-
1. The Bureau proposed to clarify that the post-consummation disclosure
requirements under Sec. Sec. 1026.20(e) and 1026.39(d)(5) apply to all
covered transactions regardless of the date an application was
received. In light of current uncertainty that may exist regarding
compliance under existing comment 1(d)(5)-1, however, the Bureau
proposed to provide that the requirement to issue the post-consummation
disclosures under Sec. Sec. 1026.20(e) and 1026.39(d)(5) applies to
all covered transactions, regardless of the date an application was
received, as of the proposed effective date of October 1, 2017.
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\37\ ``A `covered person' means any person, as defined in Sec.
1026.2(a)(22), that becomes the owner of an existing mortgage loan
by acquiring legal title to the debt obligation, whether through a
purchase, assignment or other transfer, and who acquires more than
one mortgage loan in any twelve-month period.'' Sec. 1026.39(a)(1).
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The October 1, 2017, effective date in proposed comment 1(d)(5)-1
was based on the Bureau's working assumption that a final rule would be
promulgated on or before April 1, 2017. The Bureau proposed this
tentative 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. Accordingly, the Bureau noted that the effective
date recited for the post-consummation disclosures under Sec. Sec.
1026.20(e) and 1026.39(d)(5) in the proposal may differ in the final
rule, depending on when the final rule is promulgated. As noted in the
effective date discussion in part VI, below, the effective date of this
final rule is 60 days from publication in the Federal Register but the
amendments will not yet be mandatory. In general, compliance with the
amendments in the final rule will only be mandatory with respect to
transactions for which a creditor or mortgage broker received an
application on or after October 1, 2018. Nonetheless, on and after
October 1, 2018, the requirement to provide the post-consummation
disclosures Sec. Sec. 1026.20(e) and 1026.39(d)(5) will be mandatory
for all transactions regardless of the date a corresponding loan
application was received.
As stated in the proposal, the Bureau believes that consumers with
covered mortgage loans would benefit from the receipt of the post-
consummation disclosures under Sec. Sec. 1026.20(e) and 1026.39(d)(5)
without regard to when a corresponding application was received.
Information about an escrow account closure or the partial payment
policy contained in the post-consummation disclosures under Sec. Sec.
1026.20(e) and 1026.39(d)(5) is beneficial to consumers 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 under Sec. Sec. 1026.20(e)
and 1026.39(d)(5); consumers should be able to understand the latter
even if they have not received the former.
The Bureau also noted in its proposal that requiring the post-
consummation disclosures under Sec. Sec. 1026.20(e) and 1026.39(d)(5)
for covered accounts without regard to the application date would
simplify compliance. For example, under the final rule, creditors or
servicers would not have to track the application date for certain
covered transactions under Sec. Sec. 1026.20(e) and 1026.39(d)(5) and,
thus, requiring the disclosures under these provisions for all covered
accounts regardless of application date may simplify servicers'
compliance. Similarly, the post-consummation partial payment
[[Page 37661]]
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
for all mortgage loans rather than two distinct disclosures, depending
on the loan's application date.
The Bureau sought comment on whether applying the post-consummation
disclosures under Sec. Sec. 1026.20(e) and 1026.39(d)(5) to all
covered transactions regardless of when an application was received is
appropriate. The Bureau also sought 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 on transactions for which the
application was received on or after October 3, 2015. The Bureau
further sought comment on how often escrow accounts are canceled post-
consummation, whether the rate of escrow cancelations is expected to
remain static or change, and on the burden of tracking the application
date for the post-consummation disclosures under Sec. Sec. 1026.20(e)
and 1026.39(d)(5).
The Bureau received three comments regarding the proposed revision
to comment 1(d)(5)-1 to clarify that the post-consummation disclosure
requirements under Sec. Sec. 1026.20(e) and 1026.39(d)(5) apply to all
covered accounts regardless of the date an application was received.
All the commenters supported this proposed revision. The Bureau did not
receive comments regarding the restructuring of comment 1(d)(5)-1 or
the conforming amendments to Sec. 1026.1(d)(5) and comment 1(d)(5)-1
to reflect a change to the coverage of Sec. 1026.19(e) and (f) to
include closed-end credit transactions that are secured by a
cooperative unit, regardless of whether a cooperative unit is treated
as real property under State or other applicable law. For the reasons
discussed above the Bureau is finalizing comment 1(d)(5)-1
substantially as proposed, but with revisions to reflect the date of
October 1, 2018, instead of October 1, 2017, and to make other
clarifying edits.
In addition, as discussed above and in more detail in the effective
date discussion in part VI, below, the Bureau is establishing an
effective date, optional compliance period, and mandatory compliance
date for this final rule. The Bureau is adding new comment 1(d)(5)-2 in
order to memorialize the effective date, the optional compliance
period, and the mandatory compliance date.
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. The Bureau proposed to amend
comment 2(a)(11)-3 to clarify that, in addition to credit extended to
land trusts, credit extended to trusts established for taxation or
estate planning purposes would also be 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.
Several industry commenters supported the clarification in proposed
comment 2(a)(11)-3. Industry commenters also requested clarification as
to who should receive disclosures and how consumers' names should be
disclosed, including on the optional signature lines under Sec. Sec.
1026.37(n) and 1026.38(s), where credit is extended to trusts
established for tax or estate planning purposes. A title insurance
underwriter recommended that proposed comment 2(a)(11)-3 become
effective as soon as possible or even retroactively, while a vendor
group stated that reprogramming for some vendors could take up to six
months.
The Bureau is adopting comment 2(a)(11)-3 substantially as proposed
but with a minor change. Specifically, comment 2(a)(11)-3, as
finalized, uses the phrase ``tax or estate planning purposes'' (rather
than the phrase ``taxation or estate planning purposes'') for
consistency with comment 3(a)-10.
Guidance as to who should receive disclosures where credit is
extended to trusts established for tax or estate planning purposes can
be found in current Sec. Sec. 1026.2(a)(22) and 1026.17(d) and their
associated commentary. Comment 2(a)(22)-3 provides that a trust and its
trustee are considered to be the same person for purposes of Regulation
Z, and comment 17(d)-2 provides that disclosures must be given to the
principal debtor and, if two consumers are joint obligors with primary
liability on an obligation, the disclosures may be given to either one
of them. Thus, where credit is extended to trusts established for tax
or estate planning purposes, the disclosures may simply be provided to
the trustee on behalf of the trust. In rescindable transactions,
however, comment 17(d)-2 provides that the disclosures required by
Sec. 1026.19(f) must be given separately to each consumer who has the
right to rescind under Sec. 1026.23.
Current comment 37(a)(5)-1 provides guidance on how consumers'
names should be disclosed on the Loan Estimate. If there is more than
one consumer applying for the credit, Sec. 1026.37(a)(5) requires
disclosure of the name and the mailing address of each consumer to whom
the Loan Estimate will be delivered. Pursuant to current comment 17(d)-
2, as noted above, where credit is extended to trusts established for
tax or estate planning purposes, the disclosures may simply be provided
to the trustee on behalf of the trust. Therefore, to comply with Sec.
1026.37(a)(5), a creditor may opt to disclose the name and mailing
address of the trust only, although nothing prohibits the creditor from
additionally disclosing, pursuant to Sec. 1026.37(a)(5), the names of
the trustee or of other consumers applying for the credit. Regarding
the Closing Disclosure, current Sec. 1026.38(a)(4) and its associated
commentary provide that creditors must disclose the name and address of
each consumer and seller in the transaction. The section-by-section
analysis of Sec. 1026.38(a)(4) below includes a discussion of the
definition of consumer for purposes of such disclosure.
Current Sec. Sec. 1026.37(n) and 1026.38(s) and their associated
commentary permit a creditor to determine in its sole discretion
whether or not to include a signature line or insert the consumer's
name under the signature line rather than the designation ``Applicant''
or ``Co-Applicant.'' When credit is extended to trusts established for
tax or estate planning purposes and the creditor opts to insert a
signature line, nothing in the TILA-RESPA Rule prohibits the creditor
from inserting the trustee's name under the signature line along with a
designation that the trustee is serving in its capacity as trustee.
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
Section 1026.3 Exempt Transactions
3(h) Partial Exemption for Certain Mortgage Loans
The Bureau's Proposal
Section 1026.3(h) currently provides that the TILA-RESPA integrated
disclosure requirements do not apply to transactions that satisfy six
criteria that are associated with certain housing assistance loans for
low- and moderate-
[[Page 37662]]
income consumers. 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. Thus, Sec. 1026.3(h) provides an
exemption from certain Regulation Z disclosure requirements, though it
does not provide a full exemption from Regulation Z. In addition,
Regulation X Sec. 1024.5(d) provides a partial exemption from certain
RESPA disclosure requirements for federally related mortgage loans.\38\
Regulation X Sec. 1024.5(d)(2) cross-references the exemption criteria
set forth in Sec. 1026.3(h). The partial exemption in Sec. 1026.3(h)
and the parallel partial exemption in Regulation X Sec. 1024.5(d)(2)
replaced a disclosure exemption previously granted by HUD. The purpose
of these partial exemptions is to facilitate access to certain low-
cost, non-interest bearing, subordinate-lien transactions by
streamlining the disclosures required in connection with these loans.
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\38\ 12 CFR 1024.2(b) (defining federally related mortgage loan
for purposes of Regulation X).
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As discussed in the proposal, the Bureau understands that loans
that satisfy the criteria in Sec. 1026.3(h) generally provide a
benefit to consumers and are predominantly made by housing finance
agencies (HFAs) or by private creditors who partner with HFAs and
extend credit pursuant to HFA guidelines (collectively, HFA program
loans). The Bureau explained in the proposal that it understood that
many of the low-cost housing assistance loans that satisfy the criteria
in Sec. 1026.3(h) are not covered transactions subject to the TILA-
RESPA integrated disclosure requirements 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).\39\ These loans
generally are, however, federally related mortgage loans. Thus, unless
they meet the criteria in Sec. 1026.3(h) and qualify for the partial
exemption in Regulation X Sec. 1024.5(d)(2), lenders \40\ making these
housing assistance loans must comply with the RESPA disclosure
requirements. In the proposal, the Bureau stated that it had received
information that many HFAs were having difficulty finding lenders to
partner with in making these loans because, following the introduction
of the TILA-RESPA integrated disclosures, some vendors and loan
originator systems no longer support the RESPA disclosures. The Bureau
expressed concern that the limited support for the RESPA disclosures
might 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.
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\39\ 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.
\40\ 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.
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Among the criteria for the partial exemption is Sec. 1026.3(h)(5),
which provides that the total of costs payable by the consumer at
consummation must be less than 1 percent of the amount of credit
extended and include no charges other than fees for recordation,
application, and housing counseling. The Bureau proposed to revise
Sec. 1026.3(h)(5) to clarify the costs that may be payable by the
consumer at consummation without loss of eligibility for the partial
exemption. Specifically, it proposed to clarify that transfer taxes, in
addition to fees for recordation, application, and housing counseling,
may be payable by the consumer at consummation without losing
eligibility for the partial exemption. It also proposed to exclude
recording fees and transfer taxes from the 1-percent threshold on total
costs payable by the consumer at consummation. The Bureau proposed
these changes to enable more loans to satisfy the criteria in Sec.
1026.3(h), which the Bureau believed would support the extension of
beneficial, low-cost credit to consumers. In addition, the Bureau
proposed to amend comment 3(h)-2 and to add comments 3(h)-3 and -4. For
the reasons discussed below, the Bureau is adopting Sec. 1026.3(h)(5)
as proposed, and is adopting comments 3(h)-3 and -4 as proposed but
renumbered as comments 3(h)-4 and -5.
Additional criteria for the partial exemption are found in Sec.
1026.3(h)(6), which requires the creditor to comply with all other
applicable requirements of Regulation Z in connection with the
transaction, including without limitation the disclosures required by
Sec. 1026.18. For the reasons discussed below, the Bureau is revising
Sec. 1026.3(h)(6) to permit the provision of the Loan Estimate and
Closing Disclosure to satisfy this criteria for the partial exemption.
The Bureau is revising the introductory text of Sec. 1026.3(h) and
comments 3(h)-1 and -2 to reflect the revisions to Sec. 1026.3(h)(6).
The Bureau is adding new comment 3(h)-3 to clarify further the
relationship between the partial exemption in Sec. 1026.3(h) and the
parallel partial exemption for certain federally related mortgage loans
in Regulation X Sec. 1024.5(d)(2).
Comments Received
The Bureau received many comments supporting the proposal to
clarify that transfer taxes may be charged in connection with the
transaction without loss of eligibility for the partial exemption and
to exclude recording fees and transfer taxes from the 1-percent
threshold. Several commenters stated that the proposal would allow more
housing assistance loans to satisfy the criteria for the partial
exemption and would thus increase the availability of such loans. Some
commenters specified that recording fees and transfer taxes on their
own often preclude housing assistance loans from qualifying for the
partial exemption and limit creditors' ability to offer such loans. One
HFA commented that it offers a housing assistance program with loans
ranging from $1,000 to $10,000, and that, in one county in the State in
which it operates, it costs $222 to record four pages of a mortgage. As
a result, the HFA stated that recording fees alone often prevent even
the maximum $10,000 loan from being eligible for the partial exemption.
A consumer group commenter stated that the proposal to exclude
recording fees and transfer taxes from the 1-percent threshold was
reasonable, if such fees and taxes are the reason that HFAs and
nonprofits are having difficulty making otherwise exempt loans within
the current 1-percent threshold. Another HFA recommended that the
Bureau limit costs payable by the consumer in connection with the
transaction to recording fees, transfer taxes, a reasonable application
fee, and a reasonable housing counseling fee, and, along with an
industry commenter, stated that 1 percent would be the appropriate
threshold on permissible application and housing counseling fees.
[[Page 37663]]
Several commenters stated that the proposal to exclude recording
fees and transfer taxes from the 1-percent threshold would not create
or increase the risk of abuse or other consumer harm. Some commenters
stated that the proposal would not increase such risks because
recording fees and transfer taxes are determined by State and local
officials, rather than by HFAs or other parties to the transaction. One
industry commenter also stated that the provision of the disclosures
required by Sec. 1026.18 for transactions that satisfy the partial
exemption would limit any potential abuse by creditors. A consumer
group commenter stated that the risk that creditors would inflate the
application and housing counseling fees that would remain subject to
the 1-percent threshold if the proposal were finalized is mitigated by
the requirement that these fees be bona fide and reasonable. The
commenter recommended that the Bureau require creditors to maintain
adequate documentation of these fees so borrowers and regulators can
verify that the fees are truly bona fide and reasonable.
Many commenters that generally supported the proposal encouraged
the Bureau to adopt further amendments to the partial exemption. For
example, two industry commenters urged the Bureau to treat settlement
or closing fees as allowable fees for purposes of the partial exemption
and to exclude them from the 1-percent threshold. These commenters
stated that the settlement or closing fees charged by a third-party
settlement provider, and not by the creditor, can affect the creditor's
ability to meet the 1-percent threshold.
Many commenters recommended expanding access to the partial
exemption or providing broader exemptions from Regulation X or Z for
HFA program loans or HFAs that originate loans. One trade association
representing HFAs recommended that the partial exemption be expanded to
include all HFA second-lien loan programs to ensure that the RESPA
disclosures would never be required for any HFA program subordinate
lien. This commenter stated that the RESPA disclosures are required for
many HFA program loans that do not meet the partial exemption. It
stated further that, because many HFA lending partners have updated
their systems to comply with the TILA-RESPA integrated disclosure
requirements, such lending partners have difficulty generating the
RESPA disclosures and have thus decreased or suspended their
participation in HFA program lending. This commenter expressed concern
that other reasonable fees may still prevent some loans from meeting
the criteria in proposed Sec. 1026.3(h), and that certain other
beneficial HFA program loans, such as those that help consumers avoid
foreclosure, obtain home repairs, or make energy efficiency
improvements, would not qualify for the partial exemption due to the
inability to meet criteria aside from the 1-percent threshold.
One industry commenter stated that, although it believes consumers
should still receive meaningful disclosures of the cost of credit, the
Bureau could exempt HFA program loans from Regulation Z disclosure
requirements when the creditor itself imposes no charges in connection
with the loan. A trade association recommended a full exemption from
Regulation Z for HFA down payment assistance loans that have no finance
charge and are payable in four or fewer installments. A trade
association representing HFAs stated that, if the Bureau chose not to
adopt further amendments to the partial exemption itself, an exemption
from the disclosure requirements in Regulations X and Z for HFA second-
lien loans would be an appropriate method to ensure HFAs can continue
to serve constituents without being limited by the disclosure rules. A
few HFA commenters requested full exemptions from Regulations X and Z
for HFA program loans or for HFAs that originate loans without regard
to the criteria in Sec. 1026.3(h) and stated that such exemptions
would better enable HFAs to work with lenders.
A trade association representing HFAs and a few HFA commenters
stated that exemptions from Regulations X and Z, either in full or in
part, for HFA program loans or HFAs themselves would not increase risk
to consumers because HFAs are mission-driven entities that would
continue to require consumer disclosures. These commenters also noted
that the Bureau has previously extended exemptions to HFA program loans
or HFAs themselves in the Ability-to-Repay, HOEPA, and Mortgage
Servicing Final Rules. A few of these commenters suggested that the
Bureau adopt the same definition of HFA as set forth in Sec.
1026.41(e)(4)(ii)(B), which cross-references the definition in 24 CFR
266.5, while one commenter stated that HFAs are defined as special
purpose credit programs under Regulation B.
In response to the Bureau's request for comment, one nonprofit
commenter expressed strong opposition to explicitly limiting the Sec.
1026.3(h) partial exemption to HFAs and private creditors who partner
with HFAs and extend credit pursuant to HFA guidelines. It stated that
many entities, such as community banks and credit unions, use the
partial exemption and do not partner with HFAs. An individual commenter
stated that the partial exemption affects entities other than HFAs,
including hundreds of county and municipal programs as well as
nonprofit organizations that administer block grants and other programs
designed for low- and moderate-income individuals.
Many commenters discussed the disclosures required for loans that
satisfy the criteria for the partial exemption, HFA program loans, or
housing assistance loans generally. A few commenters expressed concern
that the unique characteristics of the loans that satisfy the criteria
for the partial exemption may make it difficult to comply with the
Sec. 1026.18 disclosure requirements. For example, one trade
association stated that some loan origination systems cannot create the
disclosures required by Sec. 1026.18 where the interest rate or
finance charge is zero, with the result that lenders must complete
these disclosures manually. This commenter stated further that some
lenders and loan origination systems no longer maintain the ability to
create RESPA disclosures as such disclosures are no longer required for
most of their loans and expressed a belief that the same was true for
the disclosures required by Sec. 1026.18.
Many commenters advocated permitting creditors to use TILA-RESPA
integrated disclosures more broadly, either in connection with all
loans that satisfy the criteria for the partial exemption, all HFA
program loans, or all housing assistance loans. Two trade associations
recommended that, for loans subject to TILA and RESPA as well as for
loans only subject to RESPA, creditors be permitted to provide TILA-
RESPA integrated disclosures for loans that satisfy the partial
exemption in place of the Sec. 1026.18 disclosures. One trade
association stated that TILA-RESPA integrated disclosures are generally
understood by consumers and, due to systems updates, easier to produce
than the disclosures required by Sec. 1026.18. One HFA recommended
that, to reduce burden and facilitate lender partnerships with HFAs,
the Bureau should clarify that lenders are allowed to provide TILA-
RESPA integrated disclosures for loans that qualify for the partial
exemption or any broader exemption that the Bureau might adopt.
One trade association representing HFAs and one HFA commenter urged
the Bureau to allow HFAs to use TILA-
[[Page 37664]]
RESPA integrated disclosures in connection with all HFA program second-
lien loans, regardless of whether such loans qualify for the partial
exemption. They stated that this option would improve efficiency and
reduce the compliance burden because many operating systems are set up
to provide TILA-RESPA integrated disclosures. The trade association
stated that many HFAs and their lending partners currently provide
TILA-RESPA integrated disclosures with limited difficulty when loans
subject to Regulation Z do not meet the partial exemption and that such
disclosures effectively convey critical loan information to consumers.
A different HFA recommended that the Bureau eliminate the partial
exemption and instead subject all HFA program second-lien loans to the
TILA-RESPA integrated disclosure requirements.
A few industry and vendor commenters recommended that the Bureau
require or permit TILA-RESPA integrated disclosures to be provided in
connection with all housing assistance loans. These commenters
expressed concern with the process of determining whether the partial
exemption applies to a transaction and stated that a streamlined
disclosure requirement for these loans would reduce compliance burden
and costs to creditors while improving consumer understanding. Two
commenters recommended that the Bureau adopt an alternative disclosure
specific to HFAs.
One industry commenter recommended an immediate effective date or
an effective date six months after the issuance of the final rule for
the proposed amendments to the partial exemption. The commenter
recommended that TILA-RESPA integrated disclosures be required for all
housing assistance loans, and stated that such a requirement would
involve minimal systems changes for creditors. One trade association
representing HFAs requested that any amendments to expand the partial
exemption for HFA second-lien loan programs be effective immediately.
It stated that most HFA lending partners are already able to produce
TILA-RESPA integrated disclosures and expressed concern that an
implementation period could prevent some consumers from benefiting from
HFA program lending.
Finally, a few commenters raised other issues regarding the partial
exemption. Some industry commenters stated that there is uncertainty
regarding the disclosure requirements where a loan satisfies the
criteria for the partial exemption at the time of application, but, due
to changed circumstances or an increase in closing costs charged by
third parties, no longer satisfies the criteria after the initial
disclosure is provided. One industry commenter stated that uncertainty
also exists regarding the disclosure requirements when a loan initially
does not satisfy the criteria for the partial exemption but subsequent
borrower-requested changes during loan origination result in the loan
qualifying for the partial exemption. A few commenters requested
further clarification around the partial exemption generally and the
preparation of the required disclosures. One HFA requested that the
Bureau consider revisions to the seven-business-day review period
between the initial disclosures and consummation in Sec.
1026.19(e)(1)(iii) and 1026.19(a)(2) for HFA down payment and closing
cost assistance loans, stating that determinations regarding consumers'
income that occur during these review periods could affect their
eligibility for such loans.
The Final Rule
The Bureau is adopting Sec. 1026.3(h)(5) as proposed to clarify
the costs that may be payable by the consumer at consummation without
loss of eligibility for the partial exemption. Further, and for the
reasons discussed below, the Bureau is revising the criteria in Sec.
1026.3(h)(6) to permit the provision of a Loan Estimate and Closing
Disclosure that comply with Regulation Z. The Bureau is revising the
introductory text of Sec. 1026.3(h) and comments 3(h)-1 and -2 to
reflect revised Sec. 1026.3(h)(6). The Bureau is adopting new comment
3(h)-3 to clarify further the relationship between the partial
exemption in Sec. 1026.3(h) and the parallel partial exemption for
certain federally related mortgage loans in Regulation X Sec.
1024.5(d)(2). The Bureau is adopting comments 3(h)-3 and -4 as
proposed, but renumbered as comments 3(h)-4 and -5 to reflect the
addition of new comment 3(h)-3.
The Bureau is revising the introductory text of Sec. 1026.3(h) to
reflect revised Sec. 1026.3(h)(6). Currently, the introductory text
explains that the special disclosure requirements in Sec. 1026.19(e),
(f), and (g) do not apply to a transaction that satisfies all of the
criteria in Sec. 1026.3(h). Section 1026.19(g) sets forth requirements
regarding the special information booklet, while Sec. 1026.19(e) and
(f) set forth requirements regarding the Loan Estimate and Closing
Disclosure, respectively. As discussed in more detail below, the Bureau
is revising Sec. 1026.3(h)(6) to require the provision of either
disclosures described in Sec. 1026.18 that comply with Regulation Z or
disclosures described in Sec. 1026.19(e) and (f) that comply with
Regulation Z as a condition for satisfying the partial exemption.
Consequently, if a creditor chooses to provide the TILA disclosures
described in Sec. 1026.18 in connection with a transaction that meets
the criteria in Sec. 1026.3(h), that transaction is exempt from the
requirements in Sec. 1026.19(e), (f), and (g). If a creditor instead
chooses to provide the Loan Estimate and Closing Disclosure in
connection with a transaction that meets the criteria in Sec.
1026.3(h), that transaction is exempt from the requirements in Sec.
1026.19(g), but not from the requirements in Sec. 1026.19(e) and (f).
Thus, Sec. 1026.3(h) provides an exemption from Sec. 1026.19(g), and,
depending on which of the available disclosure options a creditor
chooses under Sec. 1026.3(h)(6), may also provide an exemption from
Sec. 1026.19(e) and (f). Accordingly, the Bureau is revising the
introductory text of Sec. 1026.3(h) to explain that the special
disclosure requirements in Sec. 1026.19(g) and, unless the creditor
chooses to provide the disclosures described in Sec. 1026.19(e) and
(f), in Sec. 1026.19(e) and (f) do not apply to a transaction that
satisfies all of the criteria in Sec. 1026.3(h).
As adopted, Sec. 1026.3(h)(5)(i) provides 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. Section 1026.3(h)(5)(ii) requires 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. By
clarifying that transfer taxes may be charged in connection with the
transaction and excluding recording fees and transfer taxes from the 1-
percent threshold, the Bureau believes that final Sec. 1026.3(h)(5)
will enable more transactions to satisfy the criteria for the partial
exemption in Sec. 1026.3(h). This will also facilitate access to the
partial exemption from the RESPA disclosures in Regulation X Sec.
1024.5(d)(2), which the Bureau believes will further support the
extension of low-cost, non-interest bearing, subordinate-lien loans to
low- and moderate-income borrowers.
As discussed in the proposal, the Bureau believes that, because
recording fees and transfer taxes are established by State and local
jurisdictions, there is limited risk that excluding such fees and taxes
from the 1-percent threshold in Sec. 1026.3(h)(5)(ii) will result in
consumer harm. Additionally, in light of
[[Page 37665]]
comments received, the Bureau has determined that 1 percent is the
appropriate threshold for the bona fide and reasonable application and
housing counseling fees that may be payable by the consumer at
consummation. As one consumer group commenter noted, there is limited
risk that the application and housing counseling fees that remain
subject to the 1-percent threshold will be inflated because such fees
must be bona fide and reasonable.
The Bureau declines to revise Sec. 1026.3(h)(5) to permit
additional third-party settlement or closing fees to be charged in
connection with the transaction and to exclude such fees from the 1-
percent threshold, as requested by some commenters. The Bureau intends
that transactions eligible for the partial exemption in Sec. 1026.3(h)
remain low-cost, include only a certain limited set of fees that may be
charged to the consumer, and pose little risk of consumer harm. It does
not believe it would be appropriate to permit a creditor to provide
only the disclosures required by Sec. 1026.18, rather than the more
detailed TILA-RESPA integrated disclosures or RESPA disclosures, as
applicable, in connection with transactions that include additional
third-party fees not established by State or local jurisdictions and
not subject to the 1-percent threshold.
Regarding one commenter's recommendation that the Bureau require
creditors to maintain adequate documentation demonstrating that the
application and housing counseling fees permitted under Sec.
1026.3(h)(5)(i) are bona fide and reasonable, the Bureau notes that
Sec. 1026.25(a) sets forth the general requirement that creditors
retain evidence of compliance with Regulation Z for two years after the
date disclosures are required to be made or action is required to be
taken, and that Sec. 1026.25(c)(1) sets forth the specific record
retention requirements for evidence of compliance with the requirements
of Sec. 1026.19(e) and (f). Additionally, as discussed in more detail
below, revised comment 3(h)-2 clarifies that, although not all
requirements of Sec. 1026.3(h) must be reflected in the loan contract,
the creditor must retain evidence of compliance with those provisions,
as required by Sec. 1026.25(a) or (c), as applicable.
Additionally, in order to address concerns about access to the
partial exemption that were discussed in the Bureau's proposal and
further discussed by several commenters, the Bureau is revising Sec.
1026.3(h)(6) to provide creditors with greater optionality in
satisfying the criteria for the partial exemption. Specifically,
revised Sec. 1026.3(h)(6) provides that the following disclosures must
be provided: (i) Disclosures described in Sec. 1026.18 that comply
with Regulation Z; or (ii) alternatively, disclosures described in
Sec. 1026.19(e) and (f) that comply with Regulation Z. Thus, under
revised Sec. 1026.3(h)(6), the creditor must provide either the TILA
disclosures of the cost of credit or the Loan Estimate and Closing
Disclosure and must comply with all Regulation Z requirements
pertaining to the disclosures provided. Revised Sec. 1026.3(h)(6)
omits language in current Sec. 1026.3(h)(6) that made compliance with
all other applicable requirements of Regulation Z a condition for
satisfying the criteria for the partial exemption. Because the Bureau
is revising the commentary to Sec. 1026.3(h) to provide more precise
guidance regarding how transactions must comply with Regulation Z in
order to satisfy the criteria for the partial exemption, the Bureau
does not believe that the omitted language is necessary. As discussed
in more detail below, the Bureau believes the flexibility provided by
revised Sec. 1026.3(h)(6) will further expand access to the partial
exemption.
The Bureau finds persuasive comments recommending permissible use
of TILA-RESPA integrated disclosures for all loans with characteristics
that satisfy the non-procedural criteria for the partial exemption in
Sec. 1026.3(h)(1) through (5), as a way to address the issues
regarding access to the partial exemption for which the Bureau
requested comment. It is revising Sec. 1026.3(h)(6) to further
facilitate compliance for lenders making federally related mortgage
loans that qualify for the partial exemption from the RESPA disclosures
in Regulation X Sec. 1024.5(d)(2). Regulation X Sec. 1024.5(d)
provides a partial exemption from certain RESPA disclosure requirements
for federally related mortgage loans that meet the criteria set forth
in Sec. 1026.3(h). Specifically, Regulation X Sec. 1024.5(d) provides
that lenders 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 for 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
disclosure requirements; 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 disclosure requirements in
Sec. 1026.19(e), (f), and (g) because, for example, it imposes no
finance charge and is payable in four or fewer installments, and also
does not satisfy the criteria in Sec. 1026.3(h), the lender must
provide the RESPA disclosures. Under the current rule, to meet the
conditions of the partial exemption in Sec. 1026.3(h), lenders making
such loans must provide the disclosures required by Sec. 1026.18;
voluntary provision of TILA-RESPA integrated disclosures does not
satisfy the criteria in Sec. 1026.3(h), and thus does not make the
loan eligible for the partial exemption from the RESPA disclosures in
Regulation X Sec. 1024.5(d)(2).
Revised Sec. 1026.3(h)(6) provides lenders additional flexibility
regarding the required disclosures for those federally related mortgage
loans that are not otherwise subject to the disclosure requirements in
Sec. 1026.19(e), (f), and (g) and that satisfy the criteria in Sec.
1026.3(h). Under revised Sec. 1026.3(h)(6), to satisfy the criteria in
Sec. 1026.3(h), lenders making such loans may choose to provide either
TILA disclosures or Loan Estimates and Closing Disclosures that comply
with Regulation Z. Such lenders may also continue to instead provide
the RESPA disclosures in connection with a transaction that would
otherwise meet the criteria in Sec. 1026.3(h) and qualify for the
partial exemption in Regulation X Sec. 1024.5(d)(2).
In addition, revised Sec. 1026.3(h)(6) further clarifies and
reduces burden regarding the disclosure requirements for loans that are
covered transactions subject to the requirements in Sec. 1026.19(e),
(f), and (g) and that satisfy the criteria in Sec. 1026.3(h). Under
the current rule, creditors making a loan subject to the disclosure
requirements in Sec. 1026.19(e), (f), and (g) may continue to provide
compliant TILA-RESPA integrated disclosures even if the loan satisfies
the non-procedural criteria for the partial exemption in Sec.
1026.3(h)(1) through (5). There is no requirement to utilize the
partial exemption. The final rule clarifies further this optionality
for loans subject to the disclosure requirements in Sec. 1026.19(e),
(f), and (g). Under revised Sec. 1026.3(h)(6), when such loans satisfy
the criteria in Sec. 1026.3(h) creditors may elect to take advantage
of the partial exemption and provide
[[Page 37666]]
compliant TILA disclosures described in Sec. 1026.18, or they may, at
their option, continue to provide compliant Loan Estimates and Closing
Disclosures. The Bureau does not believe it is necessary that the
special information booklet described in Sec. 1026.19(g) be provided
to a consumer in connection with both a first lien and a subordinate
lien that meets the criteria in Sec. 1026.3(h), and the Bureau
believes that not requiring the special information booklet would help
address the issues regarding access to the partial exemption that were
raised in the proposal and by commenters. The Bureau is therefore
clarifying in revised Sec. 1026.3(h)(6) that, if a creditor elects to
provide TILA-RESPA integrated disclosures in connection with a
transaction that satisfies the partial exemption, it need only provide
the disclosures described in Sec. 1026.19(e) and (f).
The Bureau expects that, for federally related mortgage loans that
are not covered transactions subject to the disclosure requirements in
Sec. 1026.19(e), (f), and (g), revised Sec. 1026.3(h)(6) should
reduce further the procedural burden associated with the required
disclosures when such loans meet the criteria for the partial
exemption. As discussed in the proposal, the Bureau understands that
many loan origination systems have been updated to produce TILA-RESPA
integrated disclosures and that some vendors and loan origination
systems no longer support the RESPA disclosures. The Bureau understands
from comments received that some loan origination systems similarly
have limited capabilities with regard to the disclosures required by
Sec. 1026.18 and that it should, at least in some instances, be
operationally easier to provide compliant Loan Estimates and Closing
Disclosures for loans that satisfy the criteria for the partial
exemption. The Bureau continues to believe that, for the low-cost, non-
interest bearing, subordinate loans with characteristics that satisfy
the criteria in Sec. 1026.3(h), compliant TILA disclosures under Sec.
1026.18 would be relatively straightforward to calculate. However, the
Bureau recognizes that, in light of increased systems support for the
Loan Estimate and Closing Disclosure, it would facilitate compliance if
creditors are permitted the option to provide either disclosures
described in Sec. 1026.18 or Sec. 1026.19(e) and (f) that comply with
Regulation Z for loans that satisfy the criteria for the partial
exemption.
At the same time, the Bureau believes that the additional
flexibility finalized in Sec. 1026.3(h)(6) will not result in consumer
harm when loans satisfy the criteria for the partial exemption. Revised
Sec. 1026.3(h)(6) provides that the disclosures described in Sec.
1026.18 and the disclosures described in Sec. 1026.19(e) and (f) must
comply with Regulation Z. This means that regardless of which
disclosures a creditor or lender chooses to provide, the creditor or
lender must comply with all requirements of Regulation Z pertaining to
those disclosures. Further, the Bureau again notes that Sec. 1026.3(h)
exempts transactions only from the requirements of Sec. 1026.19(g)
and, unless the creditor chooses to provide the Loan Estimate and
Closing Disclosure, Sec. 1026.19(e) and (f); it does not exempt
transactions from any other applicable requirements of Regulation Z. In
recommending broader use of TILA-RESPA integrated disclosures for
certain housing assistance loans, commenters noted that such
disclosures effectively present loan information and are generally
understood by consumers. The Bureau believes that under revised Sec.
1026.3(h)(6) consumers will receive disclosures that effectively convey
the cost of credit in connection with a transaction that satisfies the
criteria for the partial exemption.
In the TILA-RESPA Final Rule, the Bureau declined to provide
creditors the option of either complying with the TILA-RESPA integrated
disclosure requirements or Sec. 1026.18, based in part on the Bureau's
belief that permitting the disclosures required by Sec. 1026.18 would
decrease the disclosure burden for creditors making the covered
transactions and thus render the option of using TILA-RESPA integrated
disclosures unnecessary. However, commenters have indicated that HFAs
that are currently required to provide TILA-RESPA integrated
disclosures do so with limited difficulty and that it may facilitate
compliance for some creditors to provide TILA-RESPA integrated
disclosures rather than the disclosures required by Sec. 1026.18 when
the partial exemption is satisfied. Accordingly, the Bureau now
believes that the optionality provided in revised Sec. 1026.3(h)(6)
will more effectively carry out the intent of the partial exemption in
facilitating access to certain beneficial low-cost, non-interest
bearing, subordinate-lien transactions for low- and moderate-income
consumers by reducing the disclosure burden associated with such
transactions.
The Bureau declines to permit or require broader use of TILA-RESPA
integrated disclosures for all HFA program loans or all housing
assistance loans without regard to the criteria in Sec. 1026.3(h), as
requested by some commenters. Thus, lenders making federally related
mortgage loans not subject to the disclosure requirements in Sec.
1026.19(e), (f), and (g) must continue to provide the RESPA disclosures
where the criteria in Sec. 1026.3(h) is not satisfied. The Bureau
recognizes that, in some instances, different disclosures may be
required in connection with a borrower's first lien and subordinate
financing. However, as discussed above, the Bureau believes that final
Sec. 1026.3(h)(5) should enable more transactions to satisfy the
criteria in Sec. 1026.3(h), which will facilitate access to the
partial exemption from the RESPA disclosures in Regulation X Sec.
1024.5(d)(2). The Bureau also notes that, to the extent loans do not
meet the criteria in Sec. 1026.3(h) because of additional fees beyond
those permitted under Sec. 1026.3(h)(5), such loans may be subject to
a finance charge and thus may be covered transactions subject to the
disclosure requirements in Sec. 1026.19(e), (f), and (g). Further, the
partial exemption is intended to apply where the specific
characteristics of the transaction generally ensure that the consumer
is obtaining beneficial, low-cost credit. Regulation Z does not
provide, nor did commenters suggest, a definition of what constitutes a
housing assistance loan. In the absence of supporting evidence
indicating how many federally related mortgage loans are not covered
transactions subject to the disclosure requirements in Sec.
1026.19(e), (f), and (g) and would also not meet the criteria in final
Sec. 1026.3(h), the Bureau does not believe it is appropriate to
permit or require broader use of TILA-RESPA integrated disclosures for
such loans at this time. The Bureau will continue to monitor the market
with regard to the required provision of the RESPA disclosures.
The Bureau also declines to apply the partial exemption to all HFA
program second-lien loans, as suggested by one commenter. The Bureau
believes that the criteria finalized in Sec. 1026.3(h)(5) should
increase the ability of HFAs and lenders making such loans to take
advantage of the partial exemption from the RESPA disclosures in
Regulation X Sec. 1024.5(d)(2). Such broader access to the partial
exemption will address concerns regarding the required provision of the
RESPA disclosures for many loans that do not currently meet the
criteria in Sec. 1026.3(h). Additionally, the Bureau notes that the
purpose of the partial exemption in Sec. 1026.3(h), cross-referenced
in Regulation X Sec. 1024.5(d)(2), is to reduce the procedural burden
associated with the disclosures for certain low-cost, non-
[[Page 37667]]
interest bearing, subordinate-lien transactions that represent a very
limited risk for consumer harm. Although the Bureau understands that
HFA lending is characterized by low-cost financing, it believes that,
to the extent an HFA program loan does not satisfy the criteria for the
partial exemption, it would not be appropriate to permit the creditor
to provide only the streamlined disclosures described in Sec. 1026.18
in connection with that loan. Further, a few commenters indicated that
the partial exemption is utilized for many non-HFA program loans, and
the Bureau has determined that it would not be appropriate to require
these loans to meet all of the criteria in Sec. 1026.3(h) while
applying automatically the partial exemption to all HFA program second-
lien loans without regard to their specific characteristics. As to the
commenter's concern that other beneficial loans in addition to those
that provide down payment assistance may not meet the criteria in Sec.
1026.3(h), the partial exemption also applies to transactions that
provide closing cost or other similar home buyer assistance, property
rehabilitation and energy efficiency assistance, and foreclosure
avoidance or prevention.
For similar reasons, the Bureau is not adopting a broader exemption
from Regulation X or Z, either in full or in part, for HFA program
loans or HFAs that originate mortgage loans. As to suggestions by
commenters that such broader exemptions could reduce burden and
incentivize creditors to make housing assistance loans available to
low- and-moderate income consumers, the Bureau again notes that the
revised criteria in final Sec. 1026.3(h) should facilitate access to
the partial exemption and alleviate the disclosure burden associated
with such loans. Additionally, a full exemption from Regulation X or
its disclosure requirements could result in borrowers not receiving
advance disclosure of settlement costs, which would undermine one of
the express purposes of RESPA and would not be authorized under RESPA's
section 19(a) exemption authority. The Bureau has considered the
factors for the exemption authority in TILA section 105(f) and has
determined that further exemptions from Regulation Z could undermine
the goal of consumer protection and deny important disclosure benefits
to consumers. Comments indicating that HFAs would provide alternative
disclosures if broader regulatory exemptions were granted did not
provide specific examples demonstrating that such disclosures would
adequately protect consumers from risk of abuse. Moreover, commenters
did not provide a clear consensus as to how an HFA should be defined,
whether an exemption from Regulation X or Z should apply in full or
only to disclosure requirements, or whether any such exemption should
apply to HFA program loans or HFAs directly.
As to one commenter's recommendation that nothing in Regulation Z
should apply to an HFA down payment assistance loan that is not a
covered transaction under Regulation Z, the Bureau notes that such a
loan would only be subject to the requirements of Regulation Z if it
met the criteria in Sec. 1026.3(h) and the lender elected to take
advantage of the partial exemption from the RESPA disclosures in
Regulation X Sec. 1024.5(d)(2). A lender is not required to utilize
the partial exemption from the RESPA disclosures in Regulation X Sec.
1024.5(d)(2). However, where a lender chooses to utilize the partial
exemption from the RESPA disclosures and provide either disclosures
described in Sec. 1026.18 or Sec. 1026.19(e) and (f), respectively,
the lender must comply with all Regulation Z requirements that pertain
to such disclosures. For example, in this situation the lender must
comply with the general disclosure requirements set forth in Sec.
1026.17, even if the lender would not otherwise be subject to those
requirements.
The Bureau believes that Sec. 1026.3(h), and in particular, the
requirement that disclosures in compliance with Regulation Z be
provided when a loan meets the partial exemption, is distinguishable
from other requirements of Regulation Z from which the Bureau has
exempted HFA program loans or HFAs themselves. The Bureau believes that
the requirement that creditors provide compliant disclosures of the
cost of credit where a loan satisfies the criteria for the partial
exemption provides consumers a benefit and, especially in light of the
flexibility adopted in the final rule, is not unnecessarily burdensome.
With respect to commenters' requests that the revisions to the
criteria for the partial exemption become effective immediately, the
Bureau refers to the discussion in part VI, below, regarding the final
rule's effective date and optional compliance period. As a consequence
of the optional compliance period, beginning on the effective date of
this final rule, creditors and lenders have the option to take
advantage of the partial exemptions in Sec. 1026.3(h) and Regulation X
Sec. 1024.5(d)(2), respectively, by satisfying the criteria in Sec.
1026.3(h) as revised by this final rule. Furthermore, if such creditors
or lenders choose to satisfy revised Sec. 1026.3(h)(6) by providing
compliant Loan Estimates and Closing Disclosures, they may use the
optional compliance period to phase in the changes to the TILA-RESPA
integrated disclosure requirements that are made elsewhere in this
final rule, in the manner described in part VI.
As to commenters that expressed uncertainty regarding situations
where changed circumstances effect the applicability of the partial
exemption, the Bureau refers such commenters to Sec. 1026.17(c), which
sets forth requirements pertaining to the basis of the disclosures and
the use of estimates, and to Sec. 1026.17(e), which addresses the
effect of subsequent events that cause a disclosure to become
inaccurate. As to commenters that requested further clarification
around the partial exemption generally and the preparation of the
required disclosures, the Bureau believes final Sec. 1026.3(h)
provides clear and objective criteria for the partial exemption and
that the requirements pertaining to the disclosures described in Sec.
1026.18 or Sec. 1026.19(e) and (f), as applicable, are adequately set
forth in Regulation Z. The Bureau declines one commenter's request to
revise the seven-business-day review period between the provision of
the initial disclosures and consummation for certain HFA loans. Section
1026.19(a)(2)(i) implements the timing requirements in TILA section
128(b)(2)(A), and, in adopting Sec. 1026.19(e)(1)(iii)(B), the Bureau
explained that the seven-business-day review period would best carry
out the purposes of TILA and RESPA by facilitating the informed use of
credit and ensuring advance disclosure of settlement charges.\41\
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\41\ 78 FR 79730, 79802 (Dec. 31, 2013).
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The Bureau is revising comment 3(h)-1 for further clarity and to
reflect the revisions adopted in Sec. 1026.3(h)(6) regarding the
disclosures required as a condition for meeting the partial exemption.
The Bureau is revising the first sentence of comment 3(h)-1 to explain
that Sec. 1026.3(h) exempts certain transactions from the disclosures
described in Sec. 1026.19(g), and, under certain circumstances, Sec.
1026.19(e) and (f). Revised comment 3(h)-1 includes an explanation that
Sec. 1026.3(h) exempts transactions from Sec. 1026.19(e) and (f) if
the creditor chooses to provide disclosures described in Sec. 1026.18
that comply with Regulation Z pursuant to Sec. 1026.3(h)(6)(i), but
does not exempt transactions from Sec. 1026.19(e) and (f) if the
creditor chooses to provide
[[Page 37668]]
disclosures described in Sec. 1026.19(e) and (f) that comply with
Regulation Z pursuant to Sec. 1026.3(h)(6)(ii). Revised comment 3(h)-1
clarifies that creditors may provide, at their option, either the
disclosures described in Sec. 1026.18 or the disclosures described in
Sec. 1026.19(e) and (f). The revised comment explains further that, in
providing these disclosures, creditors must comply with all provisions
of Regulation Z relating to those disclosures. Finally, revised comment
3(h)-1 explains that Sec. 1026.3(h) does not exempt transactions from
any of the other requirements of Regulation Z to the extent they are
applicable, and that, for transactions that would otherwise be subject
to Sec. 1026.19(e), (f), and (g), creditors must comply with all other
applicable requirements of Regulation Z, including the consumer's right
to rescind the transaction under Sec. 1026.23, to the extent that
provision is applicable. Thus, final comment 3(h)-1 clarifies that,
where a transaction satisfies the criteria for the partial exemption in
Sec. 1026.3(h), and therefore satisfies the parallel partial exemption
in Regulation X Sec. 1024.5(d)(2), the creditor may provide either
disclosures described in Sec. 1026.18 or TILA-RESPA integrated
disclosures in connection with the transaction. The creditor must,
however, provide compliant disclosures that satisfy all Regulation Z
requirements pertaining to those disclosures, even where the loan would
not otherwise be subject to those requirements.
The Bureau is also adopting comment 3(h)-2 with additional
clarifications and revisions to reflect revised Sec. 1026.3(h)(6).
Revised comment 3(h)-2 explains that the conditions that the
transaction not require the payment of interest under Sec.
1026.3(h)(3) and that repayment of the amount of credit extended be
forgiven or deferred in accordance with Sec. 1026.3(h)(4) must be
reflected in the loan contract. It explains that the other requirements
of Sec. 1026.3(h) need not be reflected in the loan contract, but the
creditor must retain evidence of compliance with those provisions, as
required by Sec. 1026.25(a) or (c), as applicable. As revised, comment
3(h)-2 provides further that, in particular, because the exemption in
Sec. 1026.3(h) means the creditor is not required to provide the
disclosures of closing costs under Sec. 1026.37 or Sec. 1026.38
(unless the creditor chooses to provide disclosures described in Sec.
1026.19(e) and (f) that comply with Regulation Z), 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, a bona fide and reasonable application
fee, and a bona fide and reasonable housing counseling fee, 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). Finally, the revised comment provides that, 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) or (c), as applicable.
Because a creditor may provide the Loan Estimate and Closing
Disclosure to meet the conditions of the partial exemption under
revised Sec. 1026.3(h)(6), the Bureau is finalizing comment 3(h)-2 to
include a reference to Sec. 1026.25(c), which, as discussed above,
sets forth the record retention requirements regarding Sec. 1026.19(e)
and (f). Additionally, because creditors have the option of providing
the Loan Estimate and Closing Disclosure under revised Sec.
1026.3(h)(6), the Bureau is revising comment 3(h)-2 to explain that the
exemption in Sec. 1026.3(h) means the creditor is not required to
provide, rather than the consumer will not receive, the disclosures of
closing costs under Sec. 1026.37 or Sec. 1026.38. The revised comment
clarifies, however, that creditors are required to provide the
disclosures of closing costs under Sec. 1026.37 and Sec. 1026.38 if
they choose to provide disclosures described in Sec. 1026.19(e) and
(f) that comply with Regulation Z. For further clarity and consistency
with the requirements in final Sec. 1026.3(h)(5)(i), revised comment
3(h)-2 refers to a bona fide and reasonable application fee and a bona
fide and reasonable housing counseling fee, instead of application fees
and housing counseling fees.
The Bureau is adding new comment 3(h)-3 to clarify further the
relationship between the partial exemption in Sec. 1026.3(h) and the
parallel partial exemption for certain federally related mortgage loans
in Regulation X Sec. 1024.5(d)(2). New comment 3(h)-3 explains that
Regulation X provides a partial exemption from certain Regulation X
disclosure requirements in Regulation X Sec. 1024.5(d). It explains
further that the partial exemption in Regulation X Sec. 1024.5(d)(2)
provides that certain Regulation X disclosure requirements do not apply
to a federally related mortgage loan, as defined in Regulation X Sec.
1024.2(b), that satisfies the criteria in Sec. 1026.3(h). Finally, new
comment 3(h)-3 clarifies that for a federally related mortgage loan
that is not otherwise covered by Regulation Z, lenders may satisfy the
criteria in Sec. 1026.3(h)(6) by providing the disclosures described
in Sec. 1026.18 that comply with Regulation Z or the disclosures
described in Sec. 1026.19(e) and (f) that comply with Regulation Z.
Thus, under this final rule, to meet the criteria in Sec. 1026.3(h)
and qualify for the partial exemption in Regulation X Sec.
1024.5(d)(2), lenders making such loans may choose to provide either
compliant TILA disclosures or compliant Loan Estimates and Closing
Disclosures, even though such loans are not otherwise subject to
Regulation Z.
The Bureau is adopting new comments 3(h)-3 and -4 as proposed, but
renumbered as comments 3(h)-4 and -5 to reflect the addition of new
comment 3(h)-3. New comment 3(h)-4 refers to comment 37(g)(1)-1 for a
discussion of what constitutes a recording fee for purposes of
Regulation Z, and new comment 3(h)-5 refers to comment 37(g)(1)-3 for a
discussion of what constitutes a transfer tax for purposes of
Regulation Z.
For the reasons set forth above, the Bureau is revising the
introductory text of Sec. 1026.3(h), adopting Sec. 1026.3(h)(5) as
proposed, and revising Sec. 1026.3(h)(6). The Bureau is revising
comments 3(h)-1 and -2, adopting new comment 3(h)-3, and adopting
comments 3(h)-3 and -4 as proposed but renumbered as comments 3(h)-4
and -5.
Legal Authority
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 will 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 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. By
broadening the Sec. 1026.3(h) partial exemption, this amendment will
enable more federally related mortgage loans to qualify for the partial
exemption at Regulation X Sec. 1024.5(d)(2) and permit lenders to
provide the streamlined disclosures described in Sec. 1026.18 that
comply with Regulation Z or the disclosures described in Sec.
1026.19(e) and (f) that comply with Regulation Z
[[Page 37669]]
for these low-cost, non-interest bearing, subordinate-lien
transactions.
In addition, the Bureau believes that the disclosure requirements
that covered persons must meet to qualify for the Sec. 1026.3(h)
partial exemption will help ensure that the features of these mortgage
transactions are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with these mortgage transactions,
consistent with Dodd-Frank Act section 1032(a).
Section 1026.17 General Disclosure Requirements
17(c) Basis of Disclosures and Use of Estimates
17(c)(6)
Allocation of Costs
The Bureau's Proposal
Comment 17(c)(6)-5 explains that a creditor, when using the special
rule under Sec. 1026.17(c)(6), may disclose certain construction-
permanent transactions as multiple transactions, and may allocate
buyers points or similar amounts imposed on the consumer between the
construction and permanent phases of the transaction in any manner the
creditor chooses. However, 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 costs associated with construction-
permanent loans, the Bureau proposed to amend comment 17(c)(6)-5 to
provide greater clarity by adding a ``but for'' test to allocate
amounts to the construction phase of a construction-permanent
transaction if a creditor chooses to disclose the credit extended as
more than one transaction.
Specifically, the Bureau proposed to amend comment 17(c)(6)-5 to
explain that in a construction-permanent transaction disclosed as more
than one transaction, 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. The proposed comment illustrated how the allocation would be
made, using inspection and handling fees for the staged disbursement of
construction loan proceeds as an example, and provided examples of how
to allocate origination and application fees between the construction
phase and the permanent phase.
The Bureau solicited comment on the proposed revision of comment
17(c)(6)-5, including whether the proposal presented 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.
Comments Received
Comments received on the proposed amendment to comment 17(c)(6)-5
were generally favorable. A trade association, a group of vendors, and
a compliance specialist stated the proposed clarification would help
provide clarity and be useful for allocating fees specific to the
construction phase when separate disclosures are used. The compliance
specialist commenter additionally noted the clarification would assist
creditors in avoiding potential regulatory criticisms or other
liability if challenged for evading the high-cost mortgage provisions.
However, commenters also expressed uncertainty as to what amounts the
proposed comment covered and how to allocate fees for services that
might be used for both the construction and permanent phases. One trade
association noted that there are services that are required for both
phases of the financing that would not be charged ``if not but for''
one phase alone. This commenter provided the example of updated
abstracts and final title opinions obtained in connection with the
construction loan and then reused for the permanent loan. The commenter
also stated that fees should be lower on the permanent financing loan
if the consumer stays with the same creditor that financed the
construction, as many of the paid-for services can also be used for the
permanent financing. The commenter requested that the final rule
continue to permit the creditor to allocate points and similar charges
in any way the creditor chooses when the construction and permanent
phases are disclosed separately.
A trade association noted that the appraisal is used to establish
the combined maximum loan amount for both the construction and
permanent phases. The commenter expressed uncertainty as to how the fee
for such an appraisal would be allocated. A vendor group and a
compliance specialist both commented that, ``but for'' the construction
financing, the land would not have been purchased and, consequently,
under the proposed comment, all the costs of the loan would be
reflected on the Loan Estimate and Closing Disclosure provided in
connection with the construction financing.
The Final Rule
The Bureau is adopting the proposed amendments to comment 17(c)(6)-
5, but with modifications. In response to comments that sought
clarification of the scope of costs covered by the ``but for''
approach, the Bureau is revising comment 17(c)(6)-5 to identify more
precisely the costs to which the ``but for'' allocation applies. As
revised, comment 17(c)(6)-5 specifies that the ``but for'' test only
applies to the finance charges under Sec. 1026.4 and the points and
fees under Sec. 1026.32(b)(1), the amounts that are most relevant in
determining whether the loan is a high-cost mortgage under Sec.
1026.32 or a higher-priced mortgage loan under Sec. 1026.35 or a
qualified mortgage under Sec. 1026.43(e). When a creditor uses the
special rule in Sec. 1026.17(c)(6) to disclose credit extensions as
multiple transactions, fees and charges must be allocated for purposes
of calculating disclosures. In the case of a construction-permanent
loan that a creditor chooses to disclose as multiple transactions, the
creditor must allocate to the construction transaction finance charges
under Sec. 1026.4 and points and fees under Sec. 1026.32(b)(1) that
would not be imposed but for the construction financing. If a creditor
charges separate finance charges under Sec. 1026.4 and points and fees
under Sec. 1026.32(b)(1) for the construction phase and the permanent
phase, such fees and charges must be allocated to the phase for which
they are charged. All other finance charges under Sec. 1026.4 and
points and fees under Sec. 1026.32(b)(1) must be allocated to the
permanent financing. Using the ``but for'' allocation for these amounts
when separate disclosures are provided for the phases of a
construction-permanent loan will allow creditors to determine more
accurately whether the permanent phase is a high-cost mortgage or
higher-priced mortgage loan or qualified mortgage.
The Bureau is revising the examples in comment 17(c)(6)-5 to
reflect these changes. The examples as finalized do not reference
application fees because application fees are not necessarily finance
charges under Sec. 1026.4 or points and fees under Sec.
1026.32(b)(1).\42\ As
[[Page 37670]]
proposed, the comment stated that, if a creditor charges an application
or origination fee for construction-only financing but charges a
greater application or origination fee for construction-permanent
financing, the difference between the two fees must be allocated to the
permanent transaction. Under this example, if the origination fee for
construction-only financing is $750, and the origination fee for
construction-permanent financing is $1000, then $750 is allocated to
the construction-only financing and $250 is allocated to the permanent
financing. This example is retained in the comment as finalized, though
the reference to an application fee is not. Creditors would conduct the
same kind of analysis to determine how other fees and charges are
allocated between the construction and permanent phases when separate
disclosures are used.
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\42\ Under Sec. 1026.4(c)(1), application fees charged to all
applicants for credit, whether or not credit is actually extended,
are excluded from the finance charge. Conversely, if the application
fee is only charged to applicants for credit upon the extension of
credit, the application fee is included in the finance charge.
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As finalized, the revisions to comment 17(c)(6)-5 also provide that
fees and charges that are not finance charges under Sec. 1026.4 or
points and fees under Sec. 1026.32(b)(1) may be allocated between the
transactions in any manner the creditor chooses. The comment provides
an example of the fees and charges that may be allocated in any manner
the creditor chooses. The example states that a reasonable appraisal
fee paid to an independent, third-party appraiser may be allocated in
any manner the creditor chooses because it would be excluded from the
finance charge pursuant to Sec. 1026.4(c)(7) and excluded from points
and fees pursuant to Sec. 1026.32(b)(1)(iii). This additional
commentary addresses how disclosures may be made when an appraisal is
used to establish the combined maximum loan amount for both the
construction phase and the permanent phase, a situation that commenters
on the proposed rule specifically described. Creditors would conduct
the same kind of analysis to determine other fees and charges that may
be allocated in any manner.
May Be Permanently Financed by the Same Creditor
The Bureau's Proposal
The Bureau proposed to add new comment 17(c)(6)-6 to clarify that
the may be permanently financed by the same creditor condition
specified in Sec. 1026.17(c)(6)(ii), 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 explained that a loan to
finance the construction of a dwelling may be considered 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 obtain
permanent financing from the creditor. This proposal aligned with
proposed comment 19(e)(1)(iii)-5, which provided 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 would
have still been permitted to make the disclosures as a single
transaction or as more than one transaction, as provided by Sec.
1026.17(c)(6)(ii).
The Bureau solicited comment on the proposed addition of comment
17(c)(6)-6 to determine 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 solicited comment on how the issues described in the
proposal might be addressed if the Bureau adopted the proposal as
final, and on any additional issues or complexities presented by the
proposal, as well as how those might be addressed.
Comments Received
Generally, commenters opposed the Bureau's proposal to clarify the
meaning of ``may be permanently financed'' in comment 17(c)(6)-6.
Commenters indicated that there was no need for clarification as
creditors already understand the meaning of ``may be permanently
financed'' as used in Sec. 1026.17(c)(6)(ii).
Commenters also believed the proposal could result in consumer
harm. Two trade associations and one industry commenter stated that
because the proposal would require creditors to provide a disclosure
for the permanent phase, even if the consumer had not applied for
permanent financing, consumers could perceive unrequested permanent
financing disclosures as a pressure tactic to enter into permanent
financing with the creditor. Commenters stated that consumers would
generally be confused by receiving disclosures for financing they did
not apply for and for which the creditor had not made a commitment to
provide. One commenter expressed that consumers would understand the
receipt of disclosures for permanent financing to mean that
construction-only loans would not be available.
Commenters also discussed additional compliance burdens that could
result from the proposed clarification. Three trade associations and
two industry commenters indicated that creditors would have difficulty
accurately disclosing the terms of the permanent transaction at the
time they receive an application for construction-only financing.
Commenters stated that, at the time of the construction disclosures,
creditors may not know the availability, costs, and consumer
application information for the permanent financing. Further, one trade
association and one industry commenter stated that, because
construction and permanent financings are usually in different
departments, with different staff and different underwriting
requirements, simultaneous disclosure would be extremely difficult and
burdensome for such institutions. Additionally, one trade association
and two industry commenters stated that creditors could have difficulty
documenting a consumer's express rejection of permanent financing
because there are many ways a consumer could reject permanent
financing. One software vendor indicated that creditors would need a
new form to document a consumer's rejection of permanent financing.
Additionally, commenters asserted that the proposal would be in
conflict with comment 17(c)(6)-2. Commenters stated that proposed
comment 17(c)(6)-6 would force treatment of the permanent and
construction financing as a single transaction despite comment
17(c)(6)-2's express optionality for separate transactions.
The Final Rule
The Bureau is persuaded by commenters' concerns over compliance and
consumer understanding. The Bureau concludes that proposed comment
17(c)(6)-6 would not provide
[[Page 37671]]
enough benefit to outweigh the potential consumer confusion and
compliance burdens that may result. For these reasons the Bureau is not
adopting proposed comment 17(c)(6)-6.
17(f) Early Disclosures
As detailed in the section-by-section analysis of Sec. 1026.19,
the Bureau proposed and is now adopting conforming amendments to
comments 17(f)-1 and -2 to reflect a change to the coverage of Sec.
1026.19(e) and (f) to include closed-end credit transactions, other
than reverse mortgages, that are secured by a cooperative unit,
regardless of whether a cooperative unit is treated as real property
under State or other applicable law.
Section 1026.18 Content of Disclosures
As detailed in the section-by-section analysis of Sec. 1026.19,
the Bureau proposed and is now adopting conforming amendments to
comments 18-3, 18(g)-6, and 18(s)-1 and -4 to reflect a change to the
coverage of Sec. 1026.19(e) and (f) to include closed-end credit
transactions, other than reverse mortgages, that are secured by a
cooperative unit, regardless of whether a cooperative unit is treated
as real property under State or other applicable law.
Section 1026.19 Certain Mortgage and Variable-Rate Transactions
Cooperatives
The Bureau's Proposal
The TILA-RESPA Rule 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.
The Bureau proposed to amend 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 also
proposed conforming amendments to Sec. Sec. 1026.1(d)(5) and
1026.37(c)(5)(i), the paragraph title for Sec. 1026.25(c)(1), a
subheading for the commentary to Sec. 1026.25(c)(1), and comments
17(f)-1 and -2, 18-3, 18(g)-6, 18(s)-1 and -4, and 37(a)(7)-2.
Comments Received
Commenters, including consumer groups, creditors, vendors, trade
associations, GSEs, a secondary market investor, and an individual
commenter, supported the amendments to Regulation Z, including the
amendments to Sec. 1026.19(e) and (f), 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.
A creditor commented that the proposed amendments to Sec.
1026.19(g), whereby the scope of coverage for Sec. 1026.19(g) would be
delineated by cross-referencing Sec. 1026.19(e)(1)(i), would have had
the effect of eliminating the current Sec. 1026.19(g) coverage of
open-end transactions (except as provided in Sec. 1026.19(g)(1)(ii)
and (iii)). To the extent that the Bureau were to finalize the
amendments to Sec. 1026.19(g) as proposed, that creditor commented
that Sec. 1026.19(g)(1)(ii) and its reference to home equity lines of
credit would be unnecessary and potentially confusing. An individual
commenter requested clarification as to whether transactions secured by
cooperative units are covered by the TILA-RESPA Rule if they are for
business purposes. Consumer group commenters noted that there may be
some uncertainty, beyond the TILA-RESPA Rule, as to whether Regulation
X otherwise covers transactions secured by cooperative units.
A trade association supported the amendments 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, while noting that these changes would
require reprogramming and therefore impose implementation costs.
Another trade association requested that these amendments become
effective retroactively to ease compliance. Another trade association
and two creditors requested retroactive protection from liability for
creditors who have been treating loans secured by cooperative units as
covered by the TILA-RESPA Rule as well as retroactive protection for
creditors who have not been doing so, regardless of whether State or
other applicable law considers cooperative units to be real or personal
property.
The Final Rule
For the reasons discussed below, the Bureau is adopting Sec. Sec.
1026.19(g) and 1026.37(c)(5)(i) substantially as proposed and is
adopting, as proposed, the other amendments to Regulation Z, including
Sec. 1026.19(e) and (f), 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. Specifically, in part in response to commenters'
concerns, Sec. 1026.19(g), as finalized, covers consumer credit
transactions secured by real property or a cooperative unit, regardless
of whether they are open-end or closed-end transactions (and except as
provided in Sec. 1026.19(g)(1)(ii) and (iii)). As finalized, Sec.
1026.19(g)'s coverage continues not to be limited to closed-end
transactions (except as provided in Sec. 1026.19(g)(1)(ii) and (iii)).
To conform Sec. 1026.37(c)(5)(i) with the other amendments to
Regulation Z, including Sec. 1026.19(e) and (f), Sec.
1026.37(c)(5)(i), as finalized, specifically references the real
property or cooperative unit securing the transaction.
Regarding a commenter's request for clarification as to whether
transactions secured by cooperative units are covered by the TILA-RESPA
Rule if they are for business purposes, the Bureau notes that an
extension of credit primarily for a business, commercial or
agricultural purpose is not subject to Regulation Z, as provided in
current Sec. 1026.3(a) and the associated commentary. With respect to
commenters asserting that there may be some uncertainty, beyond the
TILA-RESPA Rule, as to whether other parts of Regulation X cover
transactions secured by cooperative units, the Bureau notes that both
RESPA and Regulation Z include cooperatives within the definition of
federally related mortgage loan.\43\
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\43\ 12 U.S.C. 2602(1); 12 CFR 1024.2(b).
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In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
Legal Authority
The Bureau is finalizing 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
[[Page 37672]]
those laws,\44\ and, as discussed above, RESPA and TILA each generally
cover loans secured by cooperative units.
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\44\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified
at 12 U.S.C. 5532(f)).
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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 will facilitate compliance by industry, which is one of the
purposes of TILA. Furthermore, because this amendment will 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 amendment will 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
The Bureau's Proposal
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. The Bureau
proposed to add comment 19(e)(1)(iii)-5 to explain how the timing
requirements apply in the case of construction-permanent loans.
Proposed comment 19(e)(1)(iii)-5 summarized the provisions of
Sec. Sec. 1026.17(c)(6)(ii) and 1026.19(e)(1)(iii) and comment
17(c)(6)-2 relevant to construction-permanent loans, referenced
proposed comment 17(c)(6)-6, and explained the ways a creditor that
generally makes both construction and permanent financing available
complies with the timing requirements in Sec. 1026.19(e)(1)(iii).
Proposed comment 19(e)(1)(iii)-5 explained that, when the creditor
received 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 an application for
combined construction-permanent financing, the creditor 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, within the timing requirements of
Sec. 1026.19(e)(1)(iii). Proposed comment 19(e)(1)(iii)-5.i through -
5.iv would have provided illustrative examples of how the Loan Estimate
timing provisions apply to construction-permanent loans. Proposed
comment 19(e)(1)(iii)-5.v would have explained 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 also solicited comment on an alternative approach, under
which a creditor generally would provide a Loan Estimate only for the
financing for which a consumer applies. For example, under the
alternative approach, if a consumer applies for construction financing
only, a creditor would be required to provide the Loan Estimate for
only the construction financing. Similarly, under the alternative
approach if the consumer applies 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 construction financing may be permanently financed
by the same creditor, the proposed alternative approach stated the
creditor would be permitted to provide the Loan Estimate for the
permanent financing at the same time as the Loan Estimate was provide
for the construction financing, but would not be required to do so.
Comments Received
As explained in the section-by-section analysis for comment
17(c)(6)-6, commenters generally opposed the proposed clarification of
``may be permanently financed.'' Similarly, commenters opposed the
clarification under comment 19(e)(1)(iii)-5 that, consistent with the
proposed clarification of ``may be permanently financed,'' would have
required creditors to provide, upon receiving a consumer's application
for construction financing only, the disclosures required by Sec.
1026.19(e)(1)(i) for both the construction financing and the permanent
financing not later than the third business day after the creditor
receives the application and not later than the seventh business day
before consummation.
Commenters indicated that the proposed clarification of ``may be
permanently financed'' would cause consumer confusion, and the related
requirements under comment 19(e)(1)(iii)-5, would create substantial
compliance burdens and confusion about the meaning of comment 17(c)(6)-
2. As explained in the section-by-section analysis for comment
17(c)(6)-6, for these reasons, the Bureau is not finalizing proposed
comment 17(c)(6)-6.
However, several commenters indicated their support for the
alternative proposal under comment 19(e)(1)(iii)-5. Two trade
associations explicitly supported the Bureau's proposed alternative.
Additionally, two other commenters indicated they would support an
alternative that allowed the creditor to provide disclosures only for
the products for which a consumer applied, similar to the alternative
approach mentioned in the Bureau's proposal. One commenter requested
that, if the consumer applied for separate construction and permanent
financing, the Bureau require the creditor provide a separate Loan
Estimate for the construction and permanent financing within three days
of that application.
The Final Rule
For the reasons stated above, the Bureau is adopting the
alternative approach proposed with clarifications. The Bureau notes
this approach should ease any coordination challenges occasioned by
different departments, staff, and systems handling the construction and
permanent phase underwriting. Different departments of the same
creditor may continue to provide the construction and permanent
disclosures separately, but within the timing requirements of Sec.
1026.19(e)(1)(iii). Additionally, the Bureau believes that new
documentation procedures and systems would not be required under the
rule as finalized. The Bureau also believes this approach is consistent
with comment 17(c)(6)-2.
[[Page 37673]]
In response to comments, the Bureau is clarifying that, for
construction-permanent financing transactions, the creditor is required
to disclose the Loan Estimate only for the transaction for which it
received an application. As finalized, comment 19(e)(1)(iii)-5.i
provides an example of receipt of an application for construction
financing only and explains that the Loan Estimate for the construction
transaction is the only disclosure that is required to be provided at
that time. Aligned with comment 17(c)(6)-2, the Bureau clarifies under
comment 19(e)(1)(iii)-5.ii that, if a consumer's applications for
separate construction and permanent financing transactions are received
at the same time, the creditor provides the disclosures required under
Sec. 1026.19(e)(1)(i) as either a combined disclosure or separately
for each phase of the transaction and within the timing requirements
provided by Sec. 1026.19(e)(1)(iii). Comment 19(e)(1)(iii)-5.iii
explains the timing requirements under Sec. 1026.19(e)(1)(iii) when
construction and permanent phase applications are received separately.
Further, comment 19(e)(1)(iii)-5.iv clarifies that a creditor need not
provide a Loan Estimate for permanent financing for which a separate
application is made if the creditor has already provided a Loan
Estimate for the permanent phase under Sec. 1026.17(c)(6)(ii), and may
instead proceed with the disclosures required under Sec.
1026.19(f)(1)(i).
19(e)(1)(vi) Shopping for Settlement Service Providers
Section 1026.19(e)(1)(vi)(A) defines how a creditor permits a
consumer to shop for settlement services. Section 1026.19(e)(1)(vi)(B)
requires the creditor to identify, on the Loan Estimate, the settlement
services for which a consumer may shop. Section 1026.19(e)(1)(vi)(C),
among other things, sets forth the requirement to provide the consumer
with a written list identifying available providers of the settlement
services for which a consumer is permitted to shop.
Identifying Settlement Services and Available Providers
The Bureau's Proposal
Comment 19(e)(1)(vi)-2 refers to the requirement in Sec.
1026.19(e)(i)(vi)(B) that the creditor identify, on the Loan Estimate,
the settlement services for which the consumer is permitted to shop and
provides that the content and format for disclosure of such services
can be found at Sec. 1026.37(f)(3). In response to several informal
guidance inquiries regarding the treatment of a settlement service that
was excluded from the Loan Estimate, the Bureau proposed to revise
comment 19(e)(1)(vi)-2 to simplify the disclosure requirements under
Sec. 1026.19(e)(1)(vi)(B) in an effort to reduce uncertainty and to
ease compliance burden. The proposed revisions to comment 19(e)(1)(vi)-
2 would have clarified that the creditor must specifically identify the
settlement services for which a consumer is permitted to shop unless,
based on the best information reasonably available to the creditor, the
creditor knows that the service is provided as part of a package or
combination of settlement services (hereinafter referred to as a
package) offered by a single service provider.
Comment 19(e)(1)(vi)-4, among other things, provides requirements
for disclosing settlement service providers under Sec.
1026.19(e)(1)(vi)(C). It explains that the written list of providers
must identify settlement service providers that provide services in the
area in which the consumer or property is located, and must include
sufficient information about each provider to allow the consumer to
contact the provider. In response to several informal guidance
inquiries, the Bureau proposed to revise comment 19(e)(1)(vi)-4 to
simplify the disclosure requirements under Sec. 1026.19(e)(1)(vi)(C)
in an effort reduce uncertainty and ease compliance burden. The
proposed revision to comment 19(e)(1)(vi)-4 was identical to the
proposed revision to comment 19(e)(1)(vi)-2.
Comments Received
Several commenters expressed appreciation for the Bureau's interest
in clarifying and simplifying these provisions. A consumer group stated
that the Bureau should not allow the disclosure of a package, as
proposed, and should require the disclosure of all settlement services,
on the written list, for which a consumer may shop because allowing
creditors to disclose a package of settlement services would obscure
costs, reduce competition, and hinder the consumer's ability to shop.
Industry commenters stated that the Bureau should define and clarify,
with examples, what a package offered by a single service provider
means. Industry comments included requests for clarification about the
interplay between the itemization requirements under Sec. Sec.
1026.37(f)(3) and 1026.38(f)(3) and the ability to package settlement
services; how the disclosure of a package would work when title
services and settlement or closing services are provided by different
service providers; whether the phrase ``provided by a single service
provider'' would allow for the use of third parties; and whether a
package could include settlement services with different tolerance
thresholds.
The Final Rule
For the reasons set forth below, the Bureau has decided not to
finalize the proposed revisions to comments 19(e)(1)(vi)-2 and -4.
Instead the Bureau is revising comment 19(e)(1)(vi)-2 to clarify that
Sec. 1026.19(e)(1)(vi)(B) provides that the creditor who permits a
consumer to shop for settlement services must identify the settlement
services required by the creditor for which the consumer is permitted
to shop in the disclosures provided pursuant to Sec. 1026.19(e)(1)(i).
The Bureau is also revising comment 19(e)(1)(vi)-4 to clarify that
Sec. 1026.19(e)(1)(vi)(C) provides that the creditor must identify
settlement service providers, that are available to the consumer, for
the settlement services required by the creditor for which a consumer
is permitted to shop. The Bureau is also revising comment 19(e)(1)(vi)-
1 to conform with final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2.
The purpose of the proposed revisions to comments 19(e)(1)(vi)-2
and -4 was to clarify and simplify the disclosure requirements for
settlement services on the Loan Estimate and written list of providers.
As discussed above, commenters presented concerns about the potential
complexity and uncertainty the proposed revisions might introduce. In
pursuit of the original purpose to minimize confusion and compliance
burden the Bureau believes it can achieve this purpose by revising
comments 19(e)(1)(vi)-2 and -4 to clarify the current itemization
requirements under Sec. 1026.19(e)(1)(vi) instead of introducing a new
disclosure scheme.
The Bureau understands from the comments that there may be
uncertainty as to the extent a creditor must itemize settlement
services on the Loan Estimate and the written list of providers. In
revising comment 19(e)(1)(vi)-2, the Bureau is clarifying that the
disclosure of settlement services under Sec. 1026.19(e)(1)(vi)(B) need
not include all settlement services that may be charged to the
consumer, but must include at least those settlement services required
by the creditor for which the consumer may shop. The Bureau is also
revising comment 19(e)(1)(vi)-4 to provide that the creditor must
identify settlement service providers, that are available to the
[[Page 37674]]
consumer, for the settlement services that are required by the creditor
for which a consumer is permitted to shop.
Current comment 19(e)(1)(vi)-2 notes that Sec.
1026.19(e)(i)(vi)(B) requires the creditor to identify, on the Loan
Estimate, the settlement services a consumer is allowed to shop for and
cross-references Sec. 1026.37(f)(3). Current and final comment
19(e)(1)(vi)-3, among other things, notes the requirement in Sec.
1026.19(e)(1)(vi)(C) to identify at least one available provider of a
settlement service for which a consumer may shop and also cross-
references Sec. 1026.37(f)(3). In addition, the settlement service
providers identified on the written list required by Sec.
1026.19(e)(vi)(C) must correspond to the settlement services for which
the consumer may shop. Comment 37(f)(3)-1 provides that items included
under the subheading ``Services You Can Shop For'' pursuant to Sec.
1026.37(f)(3) are for those services: That the creditor requires in
connection with its decision to make the loan; that would be provided
by persons other than the creditor or mortgage broker; and for which
the creditor allows the consumer to shop in accordance with Sec.
1026.19(e)(1)(vi). Thus the provisions under Sec. 1026.19(e)(1)(vi)
require the creditor to identify, on the Loan Estimate and the written
list of providers, the settlement services required by the creditor for
which a consumer is permitted to shop. For example, if a creditor
requires a consumer to purchase lender's title insurance and the
creditor permits the consumer to shop for lender's title insurance, the
creditor is required by the provisions under Sec. 1026.19(e)(1)(vi) to
disclose the lender's title insurance, on the Loan Estimate, and at
least one provider of the required settlement service, on the written
list, capable of coordinating or performing the services necessary to
provide the required lender's title insurance. However, the creditor is
not required by the provisions under Sec. 1026.19(e)(1)(vi) to provide
a detailed breakdown of all related fees that are not themselves
required by the creditor but that may be charged to the consumer such
as a notary fee, title search fee, or other ancillary and
administrative services needed to perform or provide the settlement
service required by the creditor.\45\ The same principle is true for
the disclosure of settlement services under Sec. 1026.37(f)(3). This
is consistent with the Bureau's concern, noted in the TILA-RESPA Final
Rule, that a complete breakdown of all settlement services payable by
the consumer could lead to information overload for the consumer and
thereby hinder the consumer's ability to shop.\46\
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\45\ This is consistent with comment 19(e)(3)(ii)-2 which
explains that Sec. 1026.19(e)(3)(ii) provides flexibility in
disclosing individual fees by focusing on aggregate amounts and
illustrates this principle with an example of a Loan Estimate not
including an estimated charge for a notary fee that is subject to
Sec. 1026.19(e)(3)(ii) but the notary fee is later charged to the
consumer. In such example, the creditor does not violate Sec.
1026.19(e)(3)(ii) as long as the sum of all charges subject to Sec.
1026.19(e)(3)(ii), including the notary fee, does not exceed the 10
percent threshold.
\46\ See the Bureau's discussion regarding information overload
in the TILA-RESPA Final Rule. 78 FR 79730, 79742 (Dec. 31, 2013).
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As discussed in the respective section-by-section analyses of Sec.
1026.19(e)(3)(ii) and Sec. 1026.19(e)(3)(iii), the Bureau is adding
new comment 19(e)(3)(ii)-6 and revising comment 19(e)(3)(iii)-2, which
provide that, for fees paid to an unaffiliated third party, if the
creditor permits the consumer to shop consistent with Sec.
1026.19(e)(1)(vi)(A) but fails to provide the list required by Sec.
1026.19(e)(1)(vi)(C), good faith is determined under Sec.
1026.19(e)(3)(ii). Final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2
further provide that whether the creditor permits the consumer to shop
consistent with Sec. 1026.19(e)(1)(vi)(A) is determined based on all
the relevant facts and circumstances. As a result, the Bureau is making
a conforming amendment in final comment 19(e)(1)(vi)-1 to clarify that
whether the creditor permits the consumer to shop consistent with Sec.
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts and
circumstances.
Methods of Providing Settlement Service Providers List
Section 1026.19(e)(1)(vi) defines how a creditor permits a consumer
to shop for services and requires the creditor to identify the
settlement services for which the consumer may shop and provide a
written list identifying at least one available provider for each of
those services. The Bureau proposed to amend comment 19(e)(1)(vi)-3 to
clarify that, although use of the model form H-27 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).
A creditor requested that the Bureau consider mandating the use of
form H-27 rather than allowing creditors to use different variations.
However, several industry commenters urged the Bureau to further
clarify that creditors are not required to use model form H-27 and that
creditors do not lose the model form's safe harbor protection if they
opt not to include estimated fee amounts on the written list of
providers.
The Bureau is adopting comment 19(e)(1)(vi)-3 substantially as
proposed but with certain minor changes. Regarding commenters' requests
to consider mandating the use of form H-27 or, alternatively, to
further clarify that creditors are not required to use it, the Bureau
notes that 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. As
finalized, comment 19(e)(1)(vi)-3 explicitly notes that flexibility.
Regarding commenters' request for clarification that creditors do not
lose the model form's safe harbor protection if they delete the column
for estimated fee amounts, the Bureau notes that current Sec.
1026.19(e)(1)(vi) does not require creditors to list the estimated fees
of the service providers. As finalized, comment 19(e)(1)(vi)-3 states
that deleting the column for estimated fee amounts is an example of an
acceptable change to form H-27. Consistent with final comment
19(e)(1)(vi)-4, final comment 19(e)(1)(vi)-3 also clarifies that the
settlement service providers identified on the written list required by
Sec. 1026.19(e)(1)(vi)(C) must correspond to the required settlement
services for which the consumer may shop, disclosed under Sec.
1026.37(f)(3).
19(e)(3) Good Faith Determination for Estimates of Closing Costs
Section 1026.19(e)(3)(i) provides 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). Section 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. The Bureau proposed minor changes and technical corrections
for clarification
[[Page 37675]]
purposes to Sec. 1026.19(e)(3) and its accompanying commentary. Each
of these proposed changes is discussed in more detail below.
The Bureau is issuing the clarifications to Sec. 1026.19(e)(3) in
this final rule 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 section 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.\47\ 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.\48\
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\47\ 15 U.S.C. 1638(b)(2)(A).
\48\ 12 U.S.C. 2604(c).
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The Bureau believes the clarifications to Sec. 1026.19(e)(3) in
this final rule are authorized under TILA section 105(a). They
effectuate TILA's purposes, and help prevent potential circumvention or
evasion of TILA, by helping ensure that the cost estimates are more
meaningful and better inform consumers of the actual costs associated
with obtaining credit. The clarifications also further TILA's goals by
helping ensure more reliable estimates, which should foster competition
among financial institutions.
In addition, the Bureau believes the clarifications to Sec.
1026.19(e)(3) in this final rule are consistent with Dodd-Frank Act
section 1032(a) because requiring more accurate initial estimates of
the costs of the transaction helps 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 the
clarifications to Sec. 1026.19(e)(3) in this final rule 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 helps
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 as may be necessary to achieve the
purposes of RESPA,\49\ which include the elimination of kickbacks,
referral fees, and other practices that tend to increase unnecessarily
the costs of certain settlement services.\50\ The Bureau believes that
the clarifications to Sec. 1026.19(e)(3) in this final rule are
necessary to achieve the purposes of RESPA under RESPA section 19(a)
because they encourage settlement service provider competition. Each of
the clarifications to Sec. 1026.19(e)(3) is discussed in more detail
below.
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\49\ 12 U.S.C. 2617(a).
\50\ 12 U.S.C. 2601(a).
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19(e)(3)(i) General Rule
General Rule for Determining Good Faith Under Sec. 1026.19(e)(3)
Section 1026.19(e)(3)(i) provides 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. Comment 19(e)(3)(i)-1 clarifies that
fees paid to, among others, the creditor, an affiliate of the creditor,
or a mortgage broker are subject to that general rule, but Sec.
1026.19(e)(3)(iii) provides that certain 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. The Bureau proposed to modify comment
19(e)(3)(i)-1 to conform it with the regulation text of Sec.
1026.19(e)(3)(iii).
A creditor supported the clarification in proposed comment
19(e)(3)(i)-1. A vendor group noted that proposed comment 19(e)(3)(i)-1
would be a non-substantive technical change. A secondary market
investor broadly requested clarification as to which charges are
subject to the good faith determination under Sec. 1026.19(e)(3)(i).
The Bureau is adopting comment 19(e)(3)(i)-1 as proposed. Regarding
a commenter's broad request for clarification as to which charges are
subject to the good faith determination under Sec. 1026.19(e)(3)(i),
guidance can be found in Sec. 1026.19(e)(3)(i) through (iii) and the
associated commentary.
Paid by or Imposed on the Consumer
Section 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, while
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. The Bureau proposed for comment the view that
these standards, ``paid by or imposed on the consumer'' and ``payable
by the consumer,'' are interchangeable. The proposal would have added
comment 19(e)(3)(i)-8 to clarify that the phrase ``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.
A trade group and an industry commenter supported adopting proposed
comment 19(e)(3)(i)-8. One industry commenter supported the proposed
comment, but stated that the standard should not be applied to specific
lender or seller credits. A vendor commenter stated that creditors may
not understand the proposed comment and not accurately disclose costs
or conduct the good faith analysis under Sec. 1026.19(e)(3) properly.
The vendor commenter stated that the term ``payable'' would be
interpreted by industry to cover any types of fees which the consumer
has the ability to pay, rather than the ones the consumer will pay or
is legally obligated to pay. One trade group commenter stated that some
confusion still exists in industry, as the proposed comment was
substantially different from the standard previously discussed in
guidance documents issued by the Department of Housing and Urban
Development concerning the previous tolerance standards under RESPA. A
law firm commenter representing industry stated further clarification
of the proposed comment was needed. Lastly, a group of mortgage vendor
commenters stated that a charge may be imposed on a consumer but not
paid or payable by the consumer.
The comments received indicate that the term ``payable'' as used in
Regulation Z is not clear to industry. Since commenters have shown that
the term ``payable'' is not commonly understood, the Bureau is
concerned that proposed comment 19(e)(3)(i)-8 would increase confusion
concerning the meaning of the phrase ``paid by or imposed on'' in Sec.
1026.19(e)(3)(i). Additionally, the Bureau believes that other comments
in the Official Interpretations relating to the paragraphs of Sec.
1026.19(e) provide sufficient guidance as to the meaning of
[[Page 37676]]
the phrase ``paid by or imposed on.'' \51\ Accordingly, the Bureau is
not adopting proposed comment 19(e)(3)(i)-8.
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\51\ See, e.g., comment 19(e)(3)(i)-2.
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19(e)(3)(ii) Limited Increases Permitted for Certain Charges
The Bureau's Proposal
Comment 19(e)(3)(ii)-2, among other things, explains that Sec.
1026.19(e)(3)(ii) provides flexibility when disclosing individual fees
by focusing on aggregate amounts and illustrates this principle with an
example. The Bureau understands that there is some uncertainty
regarding the interplay between the requirements under Sec.
1026.19(e)(1)(vi), shopping for settlement service providers, and the
good faith determination under Sec. 1026.19(e)(3)(ii) and (iii). The
Bureau's proposed revisions to comment 19(e)(3)(ii)-2 provided that a
creditor is in compliance with Sec. 1026.19(e)(3)(ii) if the creditor
permits the consumer to shop for the settlement services disclosed
pursuant to 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 Loan Estimate. As proposed, comment
19(e)(3)(ii)-2 would have clarified 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. The Bureau also
proposed technical revisions to comment 19(e)(3)(ii)-2 and to make
other clarifying revisions.
Comments Received
The Bureau did not receive comments regarding the proposed
revisions to restructure comment 19(e)(3)(ii)-2 and to make other
clarifying and technical revisions. Three industry commenters supported
the Bureau's proposed clarification regarding compliance with Sec.
1026.19(e)(1)(vi) and the proposal to determine good faith under Sec.
1026.19(e)(3)(i) for required settlement services when the written list
of providers is not issued by a creditor.
Most comments focused on the Bureau's proposed clarification
regarding compliance with Sec. 1026.19(e)(1)(vi)(B) and (C). A
commenter asserted that the good faith determination under Sec.
1026.19(e)(3)(ii) and (iii) should not be tied to whether the written
list of providers was issued by the creditor. Several commenters
representing various financial services businesses requested that the
Bureau clarify and narrow the scope of what constitutes noncompliance
with Sec. 1026.19(e)(1)(vi)(B) and (C) under proposed comment
19(e)(3)(ii)-2. In general, these commenters were concerned that
inadvertent mistakes and typographical errors could be considered
noncompliance under the proposed revision and thereby constitute a
violation of Sec. 1026.19(e)(3)(ii) and subject certain settlement
services to zero tolerance under Sec. 1026.19(e)(3)(i). Two commenters
asked the Bureau to clarify whether a creditor's use of inconsistent
terminology between the Loan Estimate, the written list of providers,
and the Closing Disclosure would be deemed noncompliance with Sec.
1026.19(e)(3)(ii). One commenter asserted that, if finalized, a strict
interpretation of the proposed revision would impose litigation and
compliance risk on creditors and affect secondary market opportunities
because secondary market participants might not accept loans with
typographical errors on the written list of providers or Loan Estimate.
Some commenters asked that the Bureau provide a mechanism to allow
for a revised written list of providers if the consumer still has time
to shop, in lieu of prescribing the scope of noncompliance with Sec.
1026.19(e)(1)(vi)(B) and (C) under proposed revisions to comment
19(e)(3)(ii)-2. Some commenters stated that neither Regulation Z nor
the Bureau's informal guidance discuss the circumstances under which a
revised written list of providers may be issued. One commenter, arguing
in support of its request to allow for a revised written list of
providers, asserted that not allowing for a revised written list of
providers to correct an error would hinder the consumer's ability to
shop. Relatedly, some commenters noted the Bureau's informal guidance
allowing for a revised written list of providers when a settlement
service is added as a result of a change under Sec.
1026.19(e)(3)(iv).\52\ These commenters asked the Bureau to clarify
whether a revised written list of providers can be provided when a
Closing Disclosure is issued in lieu of the Loan Estimate for revised
estimates pursuant to Sec. 1026.19(e)(3)(iv).
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\52\ CFPB Webinar, TILA-RESPA Integrated Disclosure, Part 5--
Implementation Challenges and Questions (May 26, 2015), available at
https://consumercomplianceoutlook.org/outlook-live/2015/tila-respa-integrated-disclosures-rule-5/.
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A trade association representing banks asked the Bureau to clarify
whether a service or a fee mistakenly omitted from the Loan Estimate or
the written list of providers can be added to the Closing Disclosure
and charged to the consumer provided that the sum of the charges is
within the 10 percent threshold prescribed in Sec. 1026.19(e)(3)(ii).
The Final Rule
For the reasons discussed below, to conform with final comment
19(e)(3)(iii)-2, the Bureau is not finalizing proposed modifications to
comment 19(e)(3)(ii)-2 that would have provided that good faith is
determined under Sec. 1026.19(e)(3)(i) instead of under Sec.
1026.19(e)(3)(ii) or (iii) if a creditor permits a 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). As discussed in the section-by-section
analysis of Sec. 1026.19(e)(3)(iii), after considering the comments,
the Bureau is revising comment 19(e)(3)(iii)-2. Final comment
19(e)(3)(iii)-2 provides that good faith is determined under Sec.
1026.19(e)(3)(ii) even if the creditor fails to issue the list required
by Sec. 1026.19(e)(1)(vi)(C), as long as the fee for the settlement
service required by the creditor is paid to an unaffiliated third party
and the creditor permits the consumer to shop consistent with Sec.
1026.19(e)(1)(vi)(A). These revisions do not extinguish the obligation
to comply with Sec. 1026.19(e)(1)(vi)(B) and (C) if the creditor
permits the consumer to shop. For example, although the good faith
determination under Sec. 1026.19(e)(3)(ii) may apply to settlement
services even when a creditor fails to issue the written list of
providers, the creditor is still in violation of Sec.
1026.19(e)(1)(vi)(C) for failure to comply with the requirements to
issue a written list of providers.
The Bureau is adopting new comment 19(e)(3)(ii)-6 to conform to
final comment 19(e)(3)(iii)-2 and thereby clarify the interplay between
the shopping requirements under Sec. 1026.19(e)(1)(vi) and the good
faith determination under Sec. 1026.19(e)(3)(ii) and (iii). Comment
19(e)(3)(ii)-6 provides that when a creditor permits the consumer to
shop consistent with Sec. 1026.19(e)(1)(vi)(A) but fails to provide
the list required by Sec. 1026.19(e)(1)(vi)(C), good faith is
determined under Sec. 1026.19(e)(3)(ii), unless the settlement service
provider is the creditor or an affiliate of the creditor, in which case
good faith is determined under Sec. 1026.19(e)(3)(i). In conformity
with final comment 19(e)(1)(vi)-1, final comment 19(e)(3)(ii)-6 also
provides that whether
[[Page 37677]]
the creditor permits the consumer to shop consistent with Sec.
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts and
circumstances. In addition, the Bureau is revising comment
19(e)(3)(ii)-1.i to conform with new comment 19(e)(3)(ii)-6. Final
comment 19(e)(3)(ii)-1.i explains that Sec. 1026.19(e)(3)(ii) permits
limited increases for fees paid to an unaffiliated third party if the
creditor permitted the consumer to shop for the third-party service,
consistent with Sec. 1026.19(e)(1)(vi)(A).
The Bureau is finalizing as proposed, with minor stylistic changes,
the portion of comment 19(e)(3)(ii)-2 that relates to an individual
charge omitted from the Loan Estimate and then imposed at consummation.
As finalized, comment 19(e)(3)(ii)-2 provides that, 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 estimate provided under Sec. 1026.19(e)(1)(i) and then
imposed at consummation. Thus, final comment 19(e)(3)(ii)-2 provides
flexibility when disclosing individual fees by focusing on aggregate
amounts. The Bureau is also finalizing, as proposed, the revisions to
restructure comment 19(e)(3)(ii)-2 by separating the examples in the
comment into subparagraphs i. and ii. and other revisions to enhance
clarity.
As discussed above, some commenters asked the Bureau to clarify
whether a creditor may issue a revised written list of providers. As
Bureau staff noted in an informal webinar,\53\ a revised written list
of providers may be issued when a settlement service is added as a
result of a reason provided for under Sec. 1026.19(e)(3)(iv). Whether
or not a creditor issues a revised written list of providers, in
accordance with final comment 19(e)(3)(ii)-6, if the creditor permits
the consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A), good
faith is determined under Sec. 1026.19(e)(3)(ii), unless the
settlement service provider is the creditor or an affiliate of the
creditor, in which case good faith is determined under Sec.
1026.19(e)(3)(i). Whether the creditor permits the consumer to shop
consistent with Sec. 1026.19(e)(1)(vi)(A) is determined based on all
the relevant facts and circumstances.
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\53\ Id.
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As for comments regarding the Sec. 1026.19(e)(3) good faith
determination if a creditor has not complied with Sec.
1026.19(e)(1)(vi) because of a typographical error or has used
inconsistent terminology between disclosures, the Bureau is not
finalizing its proposal to provide that noncompliance with Sec.
1026.19(e)(1)(vi)(B) and (C) would subject a settlement service to zero
tolerance under Sec. 1026.19(e)(3)(i). As discussed above, many
commenters focused on noncompliance with Sec. 1026.19(e)(1)(vi)(C) and
remedies for resolving inadvertent errors and omissions on the written
list of providers. The Bureau believes new comment 19(e)(3)(ii)-6
addresses the concern regarding the omission of a required settlement
service from the written list of providers. Relatedly, commenters
requested clarification regarding the applicable good faith
determination when an untimely written list of providers is issued.
Consistent with new comment 19(e)(3)(ii)-6, the creditor may still
comply with Sec. 1026.19(e)(3)(ii), depending (in part) on whether the
creditor--based on all relevant facts and circumstances--permitted the
consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A).
19(e)(3)(iii) Variations Permitted for Certain Charges
Charges Paid to the Creditor or Affiliates of the Creditor
The Bureau's Proposal
Section 1026.19(e)(3)(iii) states that certain charges 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). Section 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 proposed to amend Sec.
1026.19(e)(3)(iii) to provide 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, even if such charges are paid to affiliates of the creditor,
so long as the charges are bona fide. In addition, proposed comment
19(e)(3)(iii)-4 would have clarified 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.
Comments Received
Industry commenters, including creditors, vendors, trade
associations, a title insurance underwriter, a secondary market
investor, and an individual compliance professional, supported the
provision in proposed Sec. 1026.19(e)(3)(iii) that good faith is
determined under Sec. 1026.19(e)(3)(iii) for all five of the
categories of charges listed therein, even if such charges are paid to
affiliates of the creditor. An individual attorney requested that the
Bureau further revise Sec. 1026.19(e)(3)(iii) to explicitly include
charges paid to mortgage broker affiliates. A secondary market investor
requested that the Bureau provide specific examples for Sec.
1026.19(e)(3)(iii).
Some industry commenters expressed concerns with the provision in
proposed Sec. 1026.19(e)(3)(iii) that excludes charges if they are not
bona fide. A creditor, trade association, and title insurance
underwriter stated that the proposed bona fide limitation adds
confusion and uncertainty. A creditor asserted that the proposed bona
fide limitation is unnecessary. A title insurance underwriter
questioned whether including a bona fide limitation for proposed Sec.
1026.19(e)(3)(iii) suggests that charges are not required to be bona
fide for purposes of Sec. 1026.19(e)(3)(i) and (ii). The title
insurance underwriter and a trade association also stated that the
proposed bona fide limitation can cause confusion as appearing to be in
conflict with the holding in Freeman v. Quicken Loans, Inc.\54\ The
trade association further stated that ``bona fide'' is a term of art
for purposes of analyzing claims under RESPA section 8; the Court in
Freeman held that the RESPA section 8(b) fee-splitting prohibition does
not, in the absence of fee-splitting, prohibit charging fees for which
no services were provided; and, given the holding in Freeman, some
industry members may be confused by use of the term ``bona fide'' in
proposed Sec. 1026.19(e)(3)(iii) to exclude charges for services that
are not actually performed. The trade association suggested that the
Bureau remove the term ``bona fide'' in proposed Sec.
1026.19(e)(3)(iii) and instead replace it with the phrase ``for
services actually performed.''
---------------------------------------------------------------------------
\54\ 132 S.Ct. 2034 (2012).
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[[Page 37678]]
Consumer group commenters did not object to the provision in
proposed Sec. 1026.19(e)(3)(iii) that good faith is determined under
Sec. 1026.19(e)(3)(iii) for all five of the categories of charges
listed therein, even if such charges are paid to affiliates of the
creditor. However, consumer group commenters expressed concerns with
comment 19(e)(3)(iii)-4 defining ``bona fide'' charges as being lawful
charges for services that are actually performed. Those commenters
stated that, if the Bureau intends for that definition to be limited to
determining good faith for purposes of Sec. 1026.19(e)(1)(i), then the
Bureau should expressly state such limitation in the text of Sec.
1026.19(e)(3)(iii) or its associated commentary. However, if the Bureau
intends for comment 19(e)(3)(iii)-4 to also define the term ``bona
fide'' for other purposes in Regulation Z, then consumer group
commenters stated that the definition should exclude any inflation or
padding of charges beyond the amount of the charge actually incurred
and unreasonable charges (i.e., charges exceeding the market rate for
equivalent services in the local community or any limits set by law).
Regarding implementation costs, a vendor group supported proposed
Sec. 1026.19(e)(3)(iii) and noted it would require some moderate
reprogramming. Regarding an implementation period, a creditor requested
that proposed Sec. 1026.19(e)(3)(iii) become effective retroactively
to address uncertainty and legal risk.
The Final Rule
For the reasons discussed below, the Bureau is adopting Sec.
1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 substantially as
proposed but with certain modifications. Specifically, in part in
response to commenters' concerns, the bona fide determination in
comment 19(e)(3)(iii)-4, as finalized, is expressly limited to
determining good faith for purposes of Sec. 1026.19(e)(1)(i). That
limitation is consistent with the Bureau's stated intent in the
proposal.\55\ For example, the bona fide determination in comment
19(e)(3)(iii)-4 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). Final Sec.
1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 also clarify that for
purposes of Sec. 1026.19(e)(1)(i), good faith is determined under
Sec. 1026.19(e)(3)(iii) for categories of charges listed therein, even
if such charges are paid to the creditor, so long as the charges are
bona fide. The Bureau believes that, as is the case for charges covered
under current Sec. 1026.19(e)(3)(ii), charges paid to a creditor
generally should be treated the same way for purposes of determining
good faith as is a charge paid to an affiliate of a creditor.
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\55\ 81 FR 54317, 54332 (Aug. 15, 2016).
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The Bureau declines to make any further changes requested by
commenters regarding Sec. 1026.19(e)(3)(iii) or comment 19(e)(3)(iii)-
4. The Bureau concludes that it is not necessary to revise Sec.
1026.19(e)(3)(iii) to explicitly include charges paid to mortgage
broker affiliates because, unlike creditor affiliates, mortgage broker
affiliates are not explicitly noted in current Sec.
1026.19(e)(3)(iii). Good faith is determined under Sec.
1026.19(e)(3)(i) unless a charge otherwise satisfies the conditions of
Sec. 1026.19(e)(3)(ii) or (iii). With respect to a commenter's request
for specific examples regarding Sec. 1026.19(e)(3)(iii), guidance can
be found in the commentary accompanying Sec. 1026.19(e)(3)(iii).
Regarding commenters' concern that there is confusion and
uncertainty associated with the provision in Sec. 1026.19(e)(3)(iii)
that excludes charges if they are not bona fide, the Bureau believes
that comment 19(e)(3)(iii)-4 provides sufficient clarity 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 the bona fide provision in Sec. 1026.19(e)(3)(iii) will
limit any potential consumer harm associated with permitting variations
for charges within the five categories paid to the creditor or to
affiliates of the creditor. In response to the commenter's question,
such a bona fide limitation is not necessary in Sec. 1026.19(e)(3)(i)
and (ii) because those provisions present less risk of consumer harm.
Regarding commenters' citation to the Supreme Court's
interpretation of RESPA section 8(b) in Freeman v. Quicken Loans, Inc.,
the Bureau is not relying on RESPA section 8(b) to adopt Sec.
1026.19(e)(3)(iii), as clarified by comment 19(e)(3)(iii)-4. Rather, as
stated in the proposal, the Bureau is adopting Sec.
1026.19(e)(3)(iii), as clarified by comment 19(e)(3)(iii)-4, 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.\56\
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\56\ 81 FR 54317, 54331 (Aug. 15, 2016).
---------------------------------------------------------------------------
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
Certain Service Providers Selected by the Consumer
The Bureau's Proposal
Currently, comment 19(e)(3)(iii)-2 explains that Sec.
1026.19(e)(3)(iii)(D) applies when (1) a creditor permits the consumer
to shop, consistent with Sec. 1026.19(e)(1)(vi)(A), for a settlement
service it requires; (2) the creditor provides the list required under
Sec. 1026.19(e)(1)(vi)(C); and (3) the consumer selects a service
provider that is not on that list to perform the service. If these
conditions are met, the actual estimate of a settlement service need
not be compared to the original estimate for purposes of determining
good faith under Sec. 1026.19(e)(3). Comment 19(e)(3)(iii)-2 also
provides that an estimate or lack of an estimate must be based on the
best information reasonably available at the time the disclosures are
provided. Although amounts disclosed pursuant to Sec.
1026.19(e)(3)(iii) may vary from the original estimates, the original
estimates must not be unreasonably low. Lastly, comment 19(e)(3)(iii)-2
provides 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). This is
true unless the provider selected by the consumer is an affiliate of
the creditor, in which case good faith is determined under Sec.
1026.19(e)(3)(i).
Section 1026.19(e)(1)(vi) sets forth the requirements creditors
must comply with if a creditor permits a consumer to shop for a
settlement service it requires. Among other things, the creditor must
identify the required settlement services for which the consumer is
permitted to shop and identify an available provider of that
service.\57\ Section
[[Page 37679]]
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, consistent with Sec. 1026.19(e)(1)(vi),
for required settlement services. If a creditor permits a consumer to
shop for a required settlement service, but fails to provide a written
list of providers, the creditor has not complied with Sec.
1026.19(e)(1)(vi)(C). The Bureau proposed to revise comment
19(e)(3)(iii)-2 to provide 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 issue the list required under Sec.
1026.19(e)(1)(vi)(C) or if the creditor does not otherwise comply with
the requirements under Sec. 1026.19(e)(1)(vi)(B) and (C).
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\57\ Section 1026.19(e)(1)(vi)(B) requires the creditor to
identify required settlement services for which the consumer is
permitted to shop on the Loan Estimate in accordance with Sec.
1026.37(f)(3). Section 1026.19(e)(1)(vi)(C) requires the creditor to
identify settlement service providers for required settlement
services for which a consumer is permitted to shop.
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Comments Received
Several industry commenters, including banks, credit unions,
settlement agents, and document management and compliance software
companies addressed the Bureau's proposed revisions to comment
19(e)(3)(ii)-2 in tandem with comment 19(e)(3)(iii)-2 to the extent
that the proposed revisions in these comments mirrored each other. As
stated above in the discussion of comment 19(e)(3)(ii)-2, these
commenters requested that the Bureau define noncompliance and narrow
the scope of noncompliance with Sec. 1026.19(e)(1)(vi)(B) and (C).
Commenters were generally concerned that inadvertent mistakes and
typographical errors could be considered noncompliance under a strict
interpretation of the proposed amendment. One commenter asked the
Bureau to clarify whether a creditor's use of inconsistent terminology
between the Loan Estimate, the written list of providers, and the
Closing Disclosure would be considered noncompliance.
Several commenters asked that the Bureau provide a mechanism for
issuing a revised or corrected written list of providers as long as the
consumer would still have time to shop. Most industry commenters were
opposed to the proposed revision to comment 19(e)(3)(ii)-2 that would
have changed the tolerance threshold for settlement services not
provided on the written list of providers. Three commenters agreed with
the Bureau's proposed revision. Commenters asked the Bureau to consider
the approach taken by the Department of Housing and Urban Development
(HUD) in the 2008 RESPA Final Rule, which commenters asserted, used the
10 percent tolerance threshold for settlement services when the written
list of providers was not issued.\58\ In general, commenters asserted
that the proposed revision to comment 19(e)(3)(ii)-2 would increase
compliance cost and require software and system reprogramming and staff
retraining. Other commenters stated that no industry or consumer
benefit would be achieved by the proposed revision. Some commenters
stated that creditors would be required to provide greater amounts of
tolerance refunds to consumers and the increased cost imposed on
creditors would ultimately be paid by consumers. One commenter stated
that the proposed revision did not take into account the potential that
a consumer actually shopped for settlement services. A state trade
association commenter representing credit unions stated the Bureau
should exempt credit unions from the requirement to provide the written
list of providers because requiring credit unions to provide the
written list of providers is an unnecessary burden that exposes credit
unions to compliance risk even when credit unions do not require the
use of any particular settlement service provider. In general, comments
regarding the implementation date for the proposed revision ranged from
six to twelve months.
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\58\ The Bureau notes that the 2008 RESPA Final Rule actually
provides that settlement services are subject to 10 percent
tolerance unless the borrower selects a provider other than one
identified by the loan originator in which case these fees are not
subject to any tolerance. 73 FR 14029, 14094 (Mar. 14, 2008).
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The Final Rule
For the reasons discussed below, the Bureau is not finalizing
comment 19(e)(3)(iii)-2 as proposed but is instead revising it to
clarify the applicable good faith determination when the written list
of providers is not issued. Comment 19(e)(3)(iii)-2 continues to
provide that, if the creditor permits the consumer to shop consistent
with Sec. 1026.19(e)(1)(vi)(A) but fails to provide the list required
by Sec. 1026.19(e)(1)(vi)(C), good faith is determined under Sec.
1026.19(e)(3)(ii) instead of Sec. 1026.19(e)(3)(iii) unless the
settlement service provider is an affiliate of the creditor in which
case good faith is determined pursuant to Sec. 1026.19(e)(3)(i). As
finalized, comment 19(e)(3)(iii)-2 clarifies that whether the creditor
permits the consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A)
is determined based on all the relevant facts and circumstances.
As discussed above, several commenters asserted that requiring the
good faith determination under Sec. 1026.19(e)(3)(i) (rather than the
good faith analysis under Sec. 1026.19(e)(3)(ii)) when a creditor does
not provide the written list of providers would, in summary, introduce
uncertainty and significantly increase compliance cost and burden. In
addition, many commenters presented concerns about the proposed
revision regarding compliance with the provisions of Sec.
1026.19(e)(1)(vi)(B) and (C). These comments persuaded the Bureau that
the proposed revisions could provoke confusion rather than provide
greater clarity about the requirements under Sec. 1026.19(e)(3).
As explained in the TILA-RESPA Final Rule, the Bureau believes that
information asymmetry between the creditor and the consumer is
pervasive in the mortgage origination process and that the disclosures
on the Loan Estimate and written list of providers play an important
role in partially correcting that asymmetry. The disclosures provided
related to settlement services are an important factor in determining
whether a creditor's estimates were disclosed in good faith. The Bureau
believes that the disclosures, presented on the Loan Estimate and the
written list of providers, inform consumers of their ability to shop
and promote a meaningful opportunity to shop for the required
settlement services.
Currently, comment 19(e)(3)(iii)-2 provides that the good faith
determination under Sec. 1026.19(e)(3)(ii) applies when a creditor
does not issue a written list of providers but the creditor permits the
consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A), unless the
settlement service provider is an affiliate of the creditor, in which
case good faith is determined under Sec. 1026.19(e)(3)(i).
As part of the good faith determination under Sec.
1026.19(e)(3)(ii), the creditor must permit the consumer to shop for a
third-party service. Comment 19(e)(1)(vi)-1 as finalized, and as cross-
referenced by final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2,
clarifies that whether a creditor permits a consumer to shop consistent
with Sec. 1026.19(e)(1)(vi)(A) is determined based on all the relevant
facts and circumstances.
The Bureau believes that, as finalized, the clarification provided
under revised comment 19(e)(3)(iii)-2 is a balanced approach to
preclude the weakening of the consumer protection interests implicit in
the written list of providers while avoiding a significant increase in
compliance cost and administrative burden. Although the Bureau is not
finalizing the proposed revision to comment 19(e)(3)(iii)-2 regarding
[[Page 37680]]
compliance with Sec. 1026.19(e)(1)(vi)(B) and (C), the Bureau
emphasizes that the good faith determination under Sec.
1026.19(e)(3)(ii) or (iii) for third-party service charges requires
compliance with Sec. 1026.19(e)(1)(vi)(A), which is determined based
on all the relevant facts and circumstances per final comments
19(e)(1)(vi)-1, 19(e)(3)(ii)-6, and 19(e)(3)(iii)-2.
Regarding the Sec. 1026.19(e)(3) good faith determination, as
discussed above some commenters were concerned that typographical
errors regarding Sec. 1026.19(e)(1)(vi)(B) and (C) could be considered
a violation of Sec. 1026.19(e)(3)(ii) and subject certain settlement
services to zero tolerance if the error hinders the consumer's ability
to shop. As noted in the section-by-section analysis of Sec.
1026.19(e)(3)(ii) above, typographical errors regarding a settlement
service under Sec. 1026.19(e)(1)(vi)(B) and (C) do not subject the
charges for such service to the zero percent tolerance category when
determining good faith, unless the error interferes with the consumer's
ability to shop.
In response to commenters that asked the Bureau to exempt credit
unions from providing the written list of providers because they do not
require the consumer to use a particular settlement service provider,
the Bureau declines to do so. The written list of providers and other
requirements under Sec. 1026.19(e)(1)(vi) only apply to settlement
services for which a creditor permits a consumer to shop and provide
helpful information to consumers to partially correct for the
information asymmetry between the creditor and the consumer.
19(e)(3)(iii)(E)
Under Sec. 1026.19(e)(3)(iii)(E) estimates of 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 they are disclosed, regardless of whether the
amount paid by the consumer exceeds the amount disclosed under Sec.
1026.19(e)(1)(i). The Bureau noted, in the proposal, its understanding
that there may be some uncertainty as to 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.\59\
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\59\ 81 FR 7032 (Feb. 10, 2016).
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The Bureau proposed to revise Sec. 1026.19(e)(3)(iii)(E) and
comment 19(e)(3)(iii)-3 to make explicit 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 Bureau also proposed
revisions to comment 19(e)(3)(iii)-3, which would provide an
illustrative example for disclosing property taxes under Sec.
1026.19(e)(3)(iii)(E).
In general, commenters representing various industry stakeholders
supported the proposed revisions to Sec. 1026.19(e)(3)(iii)(E) and
comment 19(e)(3)(iii)-3. A commenter representing a mortgage finance
company asked the Bureau to provide specific guidance on the disclosure
of property taxes under Sec. 1026.19(e)(3)(iii)(E) for new
construction, refinance, and purchase transactions. A commenter
representing banks asked the Bureau to define the good faith standard
under Sec. 1026.19(e)(3)(iii)(E) broadly to prevent industry
confusion. A commenter representing a mortgage company supported the
revisions but asked that the Bureau consider changing the good faith
determination of tolerance for appraisal cost. The commenter asserted
that appraiser's fees should not be subject to zero tolerance because
lenders may not know what an appraiser will charge.
The Bureau is finalizing, as proposed, the revisions to Sec.
1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3. In regard to the
commenter requesting specific guidance on the disclosure of property
taxes for new construction and refinance transactions, the Bureau notes
that the good faith determination under Sec. 1026.19(e)(3)(iii)(E)
applies to property taxes whether the loan is for new construction or
to refinance a loan. The original estimated charge, or lack of an
estimated charge for property taxes, complies with Sec.
1026.19(e)(3)(iii)(E) if the estimate for property taxes is consistent
with the best information reasonably available to the creditor at the
time it is disclosed.
As discussed above, a commenter asked the Bureau to define or
interpret good faith under Sec. 1026.19(e)(3)(iii)(E) broadly to stave
off industry confusion. The Bureau believes that the explanation of the
good faith determination under Sec. 1026.19(e)(3)(iii)(E) is
sufficient. The Bureau notes that the good faith determination of an
estimate under Sec. 1026.19(e)(3)(iii)(E) is based on the best
information reasonably available to the creditor at the time it is
disclosed. In addition, the Bureau illustrates this principle with
several examples under the comments 19(e)(3)(iii)-1 through -3. Revised
comment 19(e)(3)(iii)-3 as finalized under this rule will explain that
a creditor complies with the requirements under Sec.
1026.19(e)(3)(iii)(E) unless the creditor, contrary to the best
information reasonably available at the time the disclosures are made,
does not provide an estimate or an unreasonably low estimate.
In regard to the comment requesting the Bureau to reconsider the
good faith tolerance determination for appraisal fees, the Bureau
declines to address this issue in the final rule. The Bureau notes that
the disclosure of the appraisal fee must be based on the best
information reasonably available at the time the disclosure is provided
to the consumer.
19(e)(3)(iv) Revised Estimates
The Bureau's Proposal
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).
Section 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.
Proposed comments 19(e)(3)(iv)-2 and -4 would have clarified 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). Proposed comment 19(e)(3)(iv)-5
would have clarified 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.
[[Page 37681]]
Comments Received
Industry commenters, including vendors, a creditor, and an
individual compliance professional, supported the clarification in
proposed comments 19(e)(3)(iv)-2 and -4. However, consumer group
commenters opposed permitting revised disclosures for informational
purposes 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). Consumer group commenters asserted that such revised disclosures
may lead consumers to experience information overload; consumers
already receive similar information on the Closing Disclosure no later
than three business days before consummation; and consumers will not
understand the difference between revised Loan Estimates for resetting
tolerances and those simply for informational purposes. Consumer group
commenters also recommended that all disclosures include a statement,
at the top of the page, directing the consumer to keep any and all
versions of the disclosures; and a notation, on the first page,
indicating the quantity of any prior Loan Estimates provided to the
consumer.
Several industry commenters, including vendors and an individual
compliance professional, supported the clarification in proposed
comment 19(e)(3)(iv)-5. However, other industry commenters opposed
requiring that, if a creditor opts to provide a revised Loan Estimate,
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. A secondary market investor
expressed concern that the requirement increases the likelihood of
disclosure errors. Trade associations and a creditor stated that some
vendors are not currently in compliance with the requirement and their
systems will need substantial reprogramming. Trade associations also
expressed their belief that there would be no significant consumer
injury if creditors were excused from updating disclosures on revised
Loan Estimates based on the best information reasonably available. A
creditor requested that industry be given an implementation period of
at least 180 days if the Bureau finalizes proposed comment
19(e)(3)(iv)-5, while a vendor group stated that reprogramming for some
vendors could take up to 12 months.
Several industry commenters also sought additional clarifications
regarding revising the Loan Estimate based on the best information
reasonably available. A trade association requested further
clarification as to how the requirement noted in proposed comment
19(e)(3)(iv)-5 comports with the creditor discretion noted in proposed
comment 19(e)(3)(iv)-4. Two creditors requested clarification as to
what the impact is on tolerance baselines when a creditor decreases an
estimated charge on a revised Loan Estimate or Closing Disclosure; an
individual attorney requested similar clarification while suggesting
that the Bureau's current small entity compliance guide indicates that
such decreases do not impact tolerance baselines.
The Final Rule
The Bureau is adopting as proposed the amendments to comment
19(e)(3)(iv)-2 and new comment 19(e)(3)(iv)-4 and is adopting new
comment 19(e)(3)(iv)-5 substantially as proposed. As finalized,
comments 19(e)(3)(iv)-2 and -4 are consistent with current comment
19(e)(3)(iv)(A)-1.ii, which 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). The Bureau declines to make revisions
that would contradict current comment 19(e)(3)(iv)(A)-1.ii. The Bureau
concludes that the concerns expressed by consumer group commenters do
not warrant prohibiting consumers from receiving the best information
reasonably available, even if consumers will later receive a Closing
Disclosure. Regarding commenters' assertion that consumers will not
understand the difference between revised Loan Estimates for resetting
tolerances and those simply for informational purposes, the Bureau
notes that the Loan Estimate form intentionally has been designed,
first and foremost, as a means of providing consumers with the best
information reasonably available. Therefore, in many instances,
tracking legal compliance will require reviewing not just the most
recent Loan Estimate but also prior versions. With respect to the
comments recommending that creditors be required to add an additional
statement and notation on the Loan Estimate, the Bureau notes that
Sec. 1026.37(a)(2) already requires that all Loan Estimates include
the statement ``Save this Loan Estimate to compare with your Closing
Disclosure.'' The Bureau declines to mandate the additional disclosures
requested, which would impose additional regulatory implementation
costs.
Comment 19(e)(3)(iv)-5, as finalized, includes an example stating
that, 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
must be reflected on the revised disclosures based on the best
information reasonably available to the creditor at the time the
revised disclosures are provided. As finalized, comment 19(e)(3)(iv)-5,
including that example, is consistent with longstanding Sec.
1026.17(c)(2)(i), as well as current comments 19(e)(1)(i)-1 and 37-1,
which require that disclosures provided to the consumer must be based
on the best information reasonably available to the creditor. The
Bureau declines to make revisions that would contradict current Sec.
1026.17(c)(2)(i) and current comments 19(e)(1)(i)-1 and 37-1. The
Bureau concludes that commenters' concerns do not warrant consumers
receiving Loan Estimates that are not based on the best information
reasonably available. Regarding a commenter's request for further
clarification as to how the requirement noted in proposed comment
19(e)(3)(iv)-5 comports with the creditor discretion noted in proposed
comment 19(e)(3)(iv)-4, comment 19(e)(3)(iv)-4 notes that creditors
may, at their option, issue a revised Loan Estimate for informational
purposes even when creditors are not otherwise required to do so; but,
if a creditor opts to do so, comment 19(e)(3)(iv)-5, consistent with
Sec. 1026.17(c)(2)(i) and comments 19(e)(1)(i)-1 and 37-1, requires
the Loan Estimate to be based on the best information reasonably
available to the creditor at the time it is provided to the consumer.
Regarding commenters' request for clarification as to what the
impact is on tolerance baselines when a creditor decreases an estimated
charge on a revised Loan Estimate or Closing Disclosure, current Sec.
1026.19(e)(3)(i) states that, except as otherwise provided in Sec.
1026.19(e)(3)(ii) through (iv), an estimated closing cost 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. Moreover, for
purposes of determining good faith, Sec. 1026.19(e)(3)(iv) states that
in certain circumstances a creditor may use a revised estimate of a
charge instead of the estimate of the charge originally disclosed--but
the rule does not require the creditor to use a revised estimate for
[[Page 37682]]
purposes of determining good faith. Thus, if a creditor decreases an
estimated charge on a revised Loan Estimate or Closing Disclosure, the
creditor is not required to use the decreased estimate for purposes of
determining good faith; the creditor may determine good faith by
comparing the charge paid by or imposed on the consumer versus the
amount originally disclosed.
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
19(e)(3)(iv)(D) Interest Rate Dependent Charges
The Bureau's Proposal
In circumstances where a creditor provides an initial Loan Estimate
disclosing an interest rate without a rate lock agreement in place,
Sec. 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 subsequently 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. Consistent with Sec. 1026.19(e)(4)(ii), the Bureau
proposed 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. In addition, new comment
19(e)(3)(iv)(D)-2 would have also noted that the creditor must provide
a corrected Closing Disclosure if the disclosures on the previous
Closing Disclosure become inaccurate, in accordance with the existing
requirements of Sec. 1026.19(f)(2). The Bureau also proposed technical
revisions to existing comment 19(e)(3)(iv)(D)-1.
Comments Received
Some industry commenters stated that new comment 19(e)(3)(iv)(D)-2
clarified that a revised Loan Estimate must be provided to the consumer
when the initial Loan Estimate disclosed an interest rate without a
rate lock agreement, but the interest rate is subsequently locked.
Other industry commenters sought additional clarity on whether a
revised Loan Estimate was required in such a situation if the terms and
charges associated with the loan would not change on the revised Loan
Estimate, and therefore argued there is no basis to require a revised
Loan Estimate where there are no changes in the information disclosed.
Other commenters addressed the statement in proposed new comment
19(e)(3)(iv)(D)-2 that the creditor must provide a corrected Closing
Disclosure if the disclosures on the previous Closing Disclosure become
inaccurate, in accordance with the requirements of Sec. 1026.19(f)(2).
Some industry commenters sought more clarity on what a creditor must do
when the interest rate is subsequently locked by a rate lock agreement
after the Closing Disclosure is issued. A secondary market participant
commenter also stated that a creditor should not be required to issue a
revised Closing Disclosure when there are no changes made to the
interest rate or other terms.
The Final Rule
For the reasons discussed below, the Bureau is adopting the
technical revisions to existing comment 19(e)(3)(iv)(D)-1 as proposed
and is adopting new comment 19(e)(3)(iv)(D)-2 as proposed, with a
modification for clarity. Commenters that expressed a need for
clarification in relation to proposed new comment 19(e)(3)(iv)(D)-2 in
effect argued that Sec. 1026.19(e)(3)(iv)(D) should not require the
disclosure of a revised Loan Estimate if the terms and charges
disclosed have not changed. As noted above, Sec. 1026.19(e)(3)(iv)(D)
explicitly requires the creditor to provide a revised Loan Estimate
when the initial Loan Estimate did not disclose an interest rate
subject to a rate lock agreement, even if the terms and charges
disclosed are the same. As noted in the 2012 TILA-RESPA Proposal, the
disclosures on the initial Loan Estimate related to the interest rate
should be able to fluctuate on subsequent Loan Estimates if the
consumer's rate was not set on the initial Loan Estimate, but revised
disclosures should be provided when the consumer's interest rate is
later set.\60\ The Bureau's concern was, and continues to be, that,
absent a rate lock agreement, the terms and charges of the loan as
disclosed on the initial Loan Estimate are more likely to change, as
the consumer would only be able to rely on the interest rate related
charges and terms on the Loan Estimate when the rate has been locked.
When a revised Loan Estimate is provided as required by Sec.
1026.19(e)(3)(iv)(D), the rate lock information disclosed pursuant to
Sec. 1026.37(a)(13)(i) must be updated to reflect the expiration date
of the interest rate disclosed, regardless of any changes to the
disclosed interest rate or interest rate-related charges. Once the
interest rate is subject to a rate lock agreement, Sec.
1026.19(e)(3)(iv)(D) does not subsequently require the disclosure of a
revised Loan Estimate. As discussed above, proposed new comment
19(e)(3)(iv)(D)-2 included an explicit cross-reference to the
requirement in Sec. 1026.19(f)(2) for a creditor to provide a
corrected Closing Disclosure if the disclosures on the previous Closing
Disclosure become inaccurate. The Bureau is adopting new comment
19(e)(3)(iv)(D)-2 with this additional cross-reference to provide
clarity. To provide guidance to commenters that sought clarity on
whether a corrected Closing Disclosure is required if the interest rate
becomes subject to a rate lock agreement after the initial Closing
Disclosure has been provided to the consumer, such a corrected Closing
Disclosure is required only when the disclosures have become
inaccurate, pursuant to Sec. 1026.19(f)(2). Notably, information
disclosed on the Loan Estimate under Sec. 1026.37(a)(13) concerning
the terms of the rate lock agreement are not required on the Closing
Disclosure under Sec. 1026.38, therefore a subsequent rate lock
agreement by itself would not require a corrected Closing Disclosure
unless the charges and terms become inaccurate.
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\60\ 2012 TILA-RESPA Proposal, 77 FR 51116, 51173 (Aug. 23,
2012).
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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).
To reduce uncertainty, the Bureau proposed 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).
Proposed revisions to Sec. 1026.19(e)(3)(iv)(E) permitted a creditor
to use revised estimates under Sec. 1026.19(e)(3)(iv) when the
consumer indicates an intent to
[[Page 37683]]
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 new comment 19(e)(3)(iv)(E)-2
stated 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 stated 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. While not discussed in the section-by-
section analysis of Sec. 1026.19(e)(3)(iv)(E) in the proposal, the
Bureau also proposed minor stylistic changes to existing comment
19(e)(3)(iv)(E)-1.
Commenters generally supported revised Sec. 1026.19(e)(3)(iv)(E)
and new comment 19(e)(3)(iv)(E)-2, with some concerns related to the
proper disclosure of the expiration period on the Loan Estimate. These
concerns are discussed in the section-by-section analysis of Sec.
1026.37(a)(13), below. Accordingly, the Bureau is adopting, as
proposed, revised Sec. 1026.19(e)(3)(iv)(E), revised comment
19(e)(3)(iv)(E)-1, and new comment 19(e)(3)(iv)(E)-2.
19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
The Bureau proposed to amend Sec. 1026.19(e)(3)(iv)(F) to correct
a typographical error, replacing a reference to Sec. 1026.19(f) with a
reference to Sec. 1026.19(e)(3)(iv). Section 1026.19(e)(3)(iv)(F)
addresses when revised Loan Estimates can be provided for transactions
involving new construction. Currently, it provides that, if the
disclaimer under Sec. 1026.19(e)(3)(iv)(F) was not provided, the
creditor may not issue a revised Loan Estimate except as otherwise
allowed under Sec. 1026.19(f). However, revised Loan Estimates are
issued pursuant to Sec. 1026.19(e)(3)(iv), not Sec. 1026.19(f), and
the proposed modification would have corrected this reference in Sec.
1026.19(e)(3)(iv)(F).
In general, commenters supported the proposed revision. A
compliance professional asserted that there is confusion in the
industry regarding when Sec. 1026.19(e)(3)(iv)(F) is applicable.
Specifically, the commenter requested that the Bureau clarify whether
Sec. 1026.19(e)(3)(iv)(F) applies during the permanent phase or
construction phase of a construction-permanent loan. The Bureau notes
that Sec. 1026.19(e)(3)(iv)(F) is applicable to any new construction
transaction where the creditor reasonably expects that settlement will
occur more than 60 days after the Loan Estimate is required to be
provided under Sec. 1026.19(e)(1)(iii). If a construction-permanent
loan is disclosed as separate transactions and involves new
construction, Sec. 1026.19(e)(3)(iv)(F) would apply to the
construction phase Loan Estimate and permanent phase Loan Estimate if
the creditor reasonably expects that settlement will occur more than 60
days after that respective Loan Estimate is required to be provided
under Sec. 1026.19(e)(1)(iii). A commenter representing a title
company asked the Bureau to apply a retroactive effective date or
otherwise implement technical non-substantive changes such as this one
as soon as possible. See comment 1(d)(5)-2 and the Bureau's discussion
regarding the effective date in part VI, below. For the reasons
discussed above the Bureau is finalizing as proposed the modification
to Sec. 1026.19(e)(3)(iv)(F).
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)(3)(iv) permits creditors, in certain limited
circumstances, to use revised estimates, instead of the estimate
originally disclosed to the consumer, to compare to the charges
actually paid by or imposed on the consumer for purposes of determining
whether an estimated closing cost was disclosed in good faith (i.e.,
whether the actual charge exceeds the allowed tolerance). This is
referred to as resetting tolerances.
Section 1026.19(e)(4) contains rules for the provision and receipt
of those revised estimates, including a requirement that any revised
estimates used to determine good faith must be provided to the consumer
within three business days of the creditor receiving information
sufficient to establish that a permissible reason for revision applies.
If the conditions for revising the original estimates are met,
creditors generally may provide these revised estimates on revised Loan
Estimates or, in certain circumstances, on Closing Disclosures. The
creditor cannot provide revised estimates on a Loan Estimate on or
after the date the Closing Disclosure is provided to the consumer and
the consumer must receive any revised Loan Estimate used to reset
tolerances no later than four business days prior to consummation.\61\
However, if there are less than four business days between the time the
revised version of the disclosures is required to be provided (i.e.,
within three business days of the time the creditor received
information sufficient to establish the reason for revision) and
consummation, the creditor may provide the revised estimate on a
Closing Disclosure.\62\ This is referred to herein as the ``four-
business day limit.''
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\61\ 12 CFR 1026.19(e)(4)(ii).
\62\ Id. at comment 19(e)(4)(ii)-1.
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The Bureau's Proposal
The proposal would have added new comment 19(e)(4)(ii)-2, which
provided that ``[i]f 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).''
The proposed comment was intended to clarify that creditors may use
corrected Closing Disclosures provided under Sec. 1026.19(f)(2)(i) or
(ii) (in addition to the initial Closing Disclosure) to reflect changes
in costs that will be used to reset tolerances.\63\ As noted above,
existing comment 19(e)(4)(ii)-1 clarifies that creditors may reflect
revised estimates on the Closing Disclosure to reset tolerances if
there are less than four business days between the time the revised
version of the disclosures is required to be provided pursuant to Sec.
1026.19(e)(4)(i) and consummation. Although comment 19(e)(4)(ii)-1
expressly references only the Closing Disclosure required by Sec.
1026.19(f)(1)(i), the Bureau has provided informal guidance that the
provision also applies to corrected Closing Disclosures provided
pursuant to Sec. 1026.19(f)(2)(i) or (ii). The Bureau proposed comment
19(e)(4)(ii)-2 to clarify this point.
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\63\ See 81 FR 54317, 54334 (Aug. 15, 2016).
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Comments Received
The Bureau received comments on this aspect of the proposal from
trade associations, creditors, GSEs, mortgage software providers,
secondary market
[[Page 37684]]
purchasers, title companies, and servicers. Commenters generally
supported the clarification that creditors may use corrected Closing
Disclosures (in addition to initial Closing Disclosures) to reflect
revised amounts and reset tolerances. However, some commenters
expressed continued concern that the rule and commentary would not
fully clarify ambiguities on this subject even if comment 19(e)(4)(ii)-
2 were finalized as proposed. For example, one trade association
commenter requested that the Bureau clarify that corrected Closing
Disclosures can be provided at the closing table, and can be used to
reset tolerances, if the closing occurs prior to the end of the three-
business-day period after the creditor receives information sufficient
to establish that a reason for revision applies.
Further, many commenters interpreted proposed comment 19(e)(4)(ii)-
2 as allowing creditors to use corrected Closing Disclosures to reset
tolerances regardless of when consummation is expected to occur, as
long as the creditor provides the corrected Closing Disclosure within
three business days of receiving information sufficient to establish a
reason for revision applies pursuant to Sec. 1029.19(e)(4)(i).
Specifically, under this interpretation, creditors could provide
initial Closing Disclosures to reset tolerances only if there are less
than four business days between the time the revised version of the
disclosures is required to be provided pursuant to Sec.
1026.19(e)(4)(i) and consummation. But this interpretation would remove
the four-business day limit for corrected Closing Disclosures provided
pursuant to Sec. 1026.19(f)(2) and therefore allow creditors to
provide corrected Closing Disclosures to reset tolerances regardless of
when consummation is expected to occur. Commenters were not uniform in
their interpretation of the proposal.
Commenters who interpreted the proposal as removing the four-
business day limit as it applies to corrected Closing Disclosures were
generally supportive, citing uncertainty about the proper
interpretation of current rules and stating that current timing rules
regarding resetting tolerances with a Closing Disclosure are
unworkable. Some of these commenters described a situation that could
occur if the creditor has already provided the Closing Disclosure and
an event occurs or a consumer requests a change that causes an increase
in closing costs that would be a reason for revision under Sec.
1026.19(e)(3)(iv). In some circumstances, the creditor may be unable to
provide a corrected Closing Disclosure to reset tolerances because
there are four or more days between the time the revised disclosures
would be required to be provided pursuant to Sec. 1026.19(e)(4)(i) and
consummation. Commenters seemed to identify this as most likely to
occur where there was also a delay in the scheduled consummation date
after the initial Closing Disclosure is provided to the consumer.
The Bureau understands that this situation can occur because of the
intersection of current timing rules regarding the provision of revised
estimates to reset tolerances. Section 1026.19(e)(4)(ii) prohibits
creditors from providing Loan Estimates on or after the date on which
the creditor provides the Closing Disclosure. In many cases, this
limitation would not create issues for creditors because current
comment 19(e)(4)(ii)-1 explains that creditors may reflect revised
estimates on a Closing Disclosure to reset tolerances if there are less
than four business days between the time the revised version of the
disclosures is required to be provided pursuant to Sec.
1026.19(e)(4)(i) and consummation. But there is no similar provision
that explicitly provides that creditors may use a Closing Disclosure to
reflect the revised disclosures if there are four or more days between
the time the revised version of the disclosures is required to be
provided pursuant to Sec. 1026.19(e)(4)(i) and consummation.
Commenters stated that this can lead to circumstances where creditors
are unable to provide either a revised Loan Estimate (because the
Closing Disclosure has been provided) or a corrected Closing Disclosure
(because there are four or more days prior to consummation) to reset
tolerances. Commenters referred to this situation as a ``gap'' or
``black hole'' in the rules. Many commenters perceived proposed new
comment 19(e)(4)(ii)-2 as resolving this issue because they interpreted
it as allowing creditors to use corrected Closing Disclosures to reset
tolerances even if there are four or more business days between the
time the revised version of the disclosures is required to be provided
pursuant to Sec. 1026.19(e)(4)(i) and consummation.
Commenters noted various reasons for supporting such a change. Some
commenters asserted that the inability to pass unforeseen cost
increases directly to the affected consumers in these instances causes
the cost of credit to increase for all consumers. Two trade
associations representing settlement agents stated concerns about
creditors requesting that settlement agents reduce their fees to absorb
the cost of the unforeseen cost increases that could not be passed
directly to the affected consumers. A national title insurance company
commenter noted its belief that some creditors are currently rejecting
applications and starting new ones when closing is delayed and costs
increase, such as for additional appraisal or inspection fees or rate
lock extension fees, to avoid the compliance and legal risks associated
with the current rules. This commenter argued that these actions could
cause further delay to closings and expense to consumers. Other
commenters similarly noted that the change could minimize closing
delays and disruptions.
Some commenters who interpreted the proposal as removing the four-
business day limit for corrected Closing Disclosures supported that
perceived change, but also cautioned about unintended consequences. For
example, some commenters stated that the proposal would remove a
disincentive that currently exists under the rule from providing the
initial Closing Disclosure extremely early in the mortgage origination
process, which these commenters stated would not be consistent with the
Bureau's intent that the Closing Disclosure be a statement of actual
costs. Some commenters, including a national title insurance company, a
mortgage servicer, and a mortgage software provider, requested that the
Bureau provide additional guidance on the timing or circumstances under
which it is appropriate to provide Closing Disclosures, generally
(while one large creditor commenter cautioned against such an
approach). Some commenters suggested other revisions to the rule the
Bureau might consider in lieu of finalizing proposed comment
19(e)(4)(ii)-2. For example, one large national lender suggested that
the Bureau eliminate the four-business day limit and instead develop a
test to determine if the reason for revision is truly beyond the
control of the creditor.
In addition to these comments, some commenters also requested that
the Bureau amend Sec. 1026.19(e)(4)(i) and comment 19(e)(4)(ii)-1 to
specifically include interest rate dependent charges referred to in
Sec. 1026.19(e)(3)(iv)(D) as a reason for providing a revised
estimate. Further, one trade association commenter stated that it is
not clear that proposed comment 19(e)(4)(ii)-2 would apply to the
initial Closing Disclosure, such that a lender may not be able to
disclose a rate lock with an initial Closing Disclosure. This commenter
stated that such an interpretation could harm consumers that wish to
lock their interest rate three business days before
[[Page 37685]]
closing and receive an initial Closing Disclosure the same day to
ensure a timely closing.
The Final Rule
As noted above and described in the proposal, proposed comment
19(e)(4)(ii)-2 was intended to clarify that the reference to Closing
Disclosures required by Sec. 1026.19(f)(1) in existing comment
19(e)(4)(ii)-1 refers to both the initial Closing Disclosure required
by Sec. 1026.19(f)(1) and to any corrected Closing Disclosures
provided pursuant to Sec. 1026.19(f)(2). Although the Bureau
recognizes that the text of proposed comment 19(e)(4)(ii)-2 could
plausibly be interpreted as also removing the existing four-business
day limit for providing corrected Closing Disclosures to reset
tolerances, the preamble to the proposal does not describe that the
Bureau intended such a change.
At the same time, the Bureau has considered the concerns expressed
by industry through comments about the implementation challenges caused
by the current provisions regarding the use of Closing Disclosures to
reset tolerances, and the potential negative effects of those
provisions on consumers and creditors. In particular, the Bureau
recognizes that the current rules may lead to circumstances under which
creditors might be unable to provide revised estimates for purposes of
resetting tolerances where the Closing Disclosure has already been
provided and there are four or more days between consummation and the
time the revised version of the disclosures is required to be provided
pursuant to Sec. 1026.19(e)(4)(i). The Bureau believes, however, that
before finalizing a rule that addresses this issue it is advisable to
propose more explicit language and to seek comment so that stakeholders
who understood the proposal in accordance with the Bureau's intent will
have the opportunity to provide their perspectives on this issue. For
this reason, the Bureau is issuing a new proposal, concurrent with this
final rule, that would address this issue. Accordingly, the Bureau
declines to finalize proposed comment 19(e)(4)(ii)-2.
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 proposed and is now adopting conforming amendments to
comment 19(f)(1)(i)-1 to reflect a change to the coverage of Sec.
[thinsp]1026.19(f) to include closed-end credit transactions, other
than reverse mortgages, that are secured by a cooperative unit,
regardless of whether a cooperative unit is treated as real property
under State or other applicable law.
19(f)(2) Subsequent Changes
19(f)(2)(iii) Changes Due to Events Occurring After Consummation
The Bureau's Proposal
The Bureau proposed 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 would not be 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 from the amount disclosed under Sec. 1026.38(g)(2)
and (o). 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.
The Bureau requested comment on the benefits to consumers of
receiving a post-consummation disclosure under Sec. 1026.19(f)(2)(iii)
of the changed per-diem interest amounts reflecting the actual amounts
paid by the consumer. The Bureau also requested 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 of
Sec. Sec. 1026.17(e) and 1026.19(e).
Comments Received
Several industry commenters supported adding proposed comment
19(f)(2)(iii)-2. One industry commenter opposed adding this proposed
comment. This commenter indicated that consumers will not have accurate
disclosures of the per-diem interest that is paid (and other
disclosures affected by the change in per-diem interest such as the
annual percentage rate, finance charge, and other material disclosures
under TILA) if they do not receive a post-consummation disclosure under
Sec. 1026.19(f)(2)(iii) when the per-diem interest has changed after
consummation. The commenter also indicated that, with no final document
showing the actual amount of prepaid interest paid by the consumer,
buyers and sellers of loans will not be able to accurately calculate
the purchase amount of the loan, and servicers will not be able to
accurately credit the consumer's account or accurately provide the
Internal Revenue Service Form 1098.
Several industry commenters asked for additional clarifications
related to per-diem interest. One industry commenter requested
additional clarification on which disclosures are affected by the per-
diem interest and thus would be covered by proposed comment
19(f)(2)(iii)-2. Two industry commenters indicated that Sec.
1026.17(c)(2)(ii) should apply to all disclosures of per-diem interest
and any affected disclosures that are provided under Sec. 1026.19(e)
and (f), including disclosures provided before or at consummation. One
industry commenter suggested that the Bureau modify the proposal to
state that, even if a creditor is issuing a Closing Disclosure due to
events occurring after consummation for reasons other than changes in
the per-diem interest, the creditor must not amend the per-diem
interest (and affected disclosures) on the corrected disclosure if it
has changed.
Several industry commenters requested clarifications related to the
requirement to provide a corrected Closing Disclosure under Sec.
1026.19(f)(2)(iii). One industry commenter indicated that creditors in
escrow states need additional guidance on the requirements for
populating the post-consummation Closing Disclosure under Sec.
1026.19(f)(2)(iii) because it is unclear what point in time the Closing
Disclosure is disclosing. The commenter indicated that creditors in
escrow states may ``net out'' cash to close to equal ``$0'' because
these creditors understand the accuracy requirement to mean that they
must reflect changes that have happened since the time of consummation.
The commenter recommended that the Bureau amend Sec.
1026.19(f)(2)(iii) to clarify that this post-consummation Closing
Disclosure be revised to accurately reflect the changes to any charges
that are the subject of the redisclosure, and that the cash to close
amount be amended only to reflect the effect of the changed amount.
Another industry commenter requested additional guidance on when
disclosure is required under Sec. 1026.19(f)(2)(iii) in non-escrow
states where disbursement or recording occurs days after consummation
and the actual recording fee is found to be less than disclosed on the
Closing Disclosure at consummation. This commenter requested guidance
on whether a corrected disclosure under Sec. 1026.19(f)(2)(iii) is
required to be provided to the consumer after the
[[Page 37686]]
settlement agent has disbursed funds and refunded any excess funds
remaining. Another industry commenter requested additional guidance on
whether the delivery of a corrected disclosure under Sec.
1026.19(f)(2)(iii) would extend the right of rescission period under
Sec. 1026.23.
The Final Rule
The Bureau is adopting proposed comment 19(f)(2)(iii)-2 with
revisions. The Bureau is adopting comment 19(f)(2)(iii)-2 to provide
that a creditor is not required to provide corrected disclosures under
Sec. 1026.19(f)(2)(iii) if the only changes that would be required to
be disclosed in the corrected disclosure are changes to per-diem
interest and any disclosures affected by the change in per-diem
interest, even if the amount of per-diem interest actually paid by the
consumer differs from the amount disclosed under Sec. 1026.38(g)(2)
and (o). In finalizing new comment 19(f)(2)(iii)-2, the Bureau has
revised the comment to clarify that, if a creditor is providing a
corrected Closing Disclosure under Sec. 1026.19(f)(2)(iii) for reasons
other than changes in per-diem interest and the per-diem interest has
changed as well, the creditor must disclose in the corrected
disclosures under Sec. 1026.19(f)(2)(iii) the correct amount of the
per-diem interest and provide corrected disclosures for any disclosures
that are affected by the change in per-diem interest.
As discussed above, one industry commenter suggested that the
Bureau should modify the proposal to state that, even if a creditor is
issuing a Closing Disclosure due to events occurring after consummation
for reasons other than changes in the per-diem interest, the creditor
must not amend the per-diem interest (and affected disclosures) on the
corrected disclosure if it has changed. The Bureau is not implementing
this suggestion. The Bureau is concerned that, if creditors were not
required to correct the per-diem interest (and affected disclosures) in
the post-consummation corrected Closing Disclosure that is otherwise
being provided to consumers under Sec. 1026.19(f)(2)(iii), consumers
would receive inaccurate information in the corrected Closing
Disclosure that the creditor knows is incorrect at the time the
disclosure is provided.
As discussed above, several industry commenters indicated that
Sec. 1026.17(c)(2)(ii) should apply to all disclosures of per-diem
interest and any affected disclosures that are provided under Sec.
1026.19(e) and (f), including disclosures provided before or at
consummation. The Bureau is not adopting this suggestion. The Bureau
notes that Sec. 1026.17(c)(2)(ii) 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 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.
Nonetheless, comment 17(c)(2)(ii)-1 provides that for purposes of
transactions subject to Sec. 1026.19(e) and (f), the creditor shall
disclose the actual amount of per-diem interest that will be collected
at consummation, subject only to the disclosure rules in those
sections. The Bureau notes that for disclosure of per-diem interest in
the Loan Estimate, Sec. 1026.19(e)(3)(iii) provides that the prepaid
interest disclosure must be consistent with the best information
reasonably available to the creditor at the time it is disclosed. For
disclosures of per-diem interest in the Closing Disclosure provided on
or before consummation, comment 19(f)(1)(i)-2 provides that creditors
may estimate disclosures provided under Sec. 1026.19(f)(1)(ii)(A) and
(f)(2)(ii) using the best information reasonably available when the
actual term is unknown to the creditor at the time disclosures are
made, consistent with Sec. 1026.17(c)(2)(i). As discussed above, new
comment 19(f)(2)(iii)-2 sets forth the circumstances in which changes
in per-diem interest must be disclosed in post-consummation disclosures
under Sec. 1026.19(f)(2)(iii).
As discussed above, one industry commenter requested additional
guidance on when disclosure is required under Sec. 1026.19(f)(2)(iii)
in non-escrow states where disbursement or recording occurs days after
consummation and the actual recording fee is found to be less than
disclosed on the Closing Disclosure at consummation. The Bureau is not
adopting additional clarification in the final rule because this
situation is already addressed in the example in current comment
19(f)(2)(iii)-1.i.
Also, with respect to the comment requesting clarification as to
how the delivery of a corrected disclosure under Sec.
1026.19(f)(2)(iii) relates to the right of rescission period under
Sec. 1026.23, the Bureau notes that guidance for rescission rights
related to closed-end credit can be found in current Sec. 1026.23 and
its associated commentary. In addition, one industry commenter
recommended that the Bureau amend Sec. 1026.19(f)(2)(iii) to clarify
that the post-consummation Closing Disclosure be revised to accurately
reflect the changes to any charges that are the subject of the
redisclosure, and that the cash to close amount be amended only to
reflect the effect of the changed amount. The Bureau is not addressing
this issue as part of the final rule. The Bureau did not propose
changes in the proposal to address this issue and has not collected
sufficient information to address this issue as part of the final rule.
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 proposed to revise comment 19(f)(2)(v)-1 to add a cross-
reference to proposed comment 38-4. The Bureau also proposed to revise
the dollar amounts in the example in comment 19(f)(2)(v)-1 for greater
clarity.
A financial holding company asserted that the Bureau's preamble
states that the Bureau proposed to amend comment 38(h)(3)-2, but the
Bureau failed to provide amended commentary. The commenter requested
that the Bureau provide the text of the amended commentary. A mortgage
company requested that the Bureau increase the timing requirements for
refunds related to the good faith analysis in Sec. 1026.19(f)(2)(v)
from 60 days after consummation to the timing under Sec.
1026.43(e)(3)(iii)(B) for a creditor to cure a violation of the
qualified mortgage limit on points and fees.
The Bureau is adopting as proposed the revisions to comment
19(f)(2)(v)-1. The Bureau believes the cross-reference to final comment
38-4 is helpful for compliance purposes and the revised example is
clearer. Comment 19(f)(2)(v)-1 currently cross-references comment
38(h)(3)-2, and although the Bureau did propose to amend comment
19(f)(2)(v)-1, the Bureau did not propose to amend the cross-reference
to comment 38(h)(3)-2 or to amend comment 38(h)(3)-2 itself. Therefore,
the Bureau is not amending comment 38(h)(3)-2 in this final rule. The
Bureau also is not altering the timing requirements under Sec.
1026.19(f)(2)(v) in this final rule as requested by a
[[Page 37687]]
commenter. The Bureau believes that the current 60-day period after
consummation will give creditors sufficient time to cure tolerance
violations. Further, the Bureau believes that extending the cure period
further than 60 days after consummation would undermine the incentive
for creditors to conduct quality control reviews as soon as reasonably
practicable after consummation.
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 proposed and is now adopting conforming amendments to
comment 19(f)(3)(ii)-3 to reflect a change to the coverage of Sec.
[thinsp]1026.19(f) to include closed-end credit transactions, other
than reverse mortgages, that are secured by a cooperative unit,
regardless of whether a cooperative unit is treated as real property
under State or other applicable law.
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. The Bureau proposed to streamline Sec.
1026.19(f)(4)(i) by replacing unnecessary text with a cross-reference
to Sec. 1026.19(e)(1)(i), to streamline comment 19(f)(4)(i)-1, and to
add comment 19(f)(4)(i)-2 to clarify that in purchase transactions with
simultaneous 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.
A trade association commenter supported the clarifying language in
the proposed revisions to Sec. 1026.19(f)(4)(i) and its commentary.
Other commenters specifically supported the Bureau's proposal in
comment 19(f)(4)(i)-2 to clarify that, in a purchase transaction with
simultaneous 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.
For the reasons discussed below, the Bureau is adopting the
proposed amendments to Sec. 1026.19(f)(4)(i) and comment 19(f)(4)(i)-1
as final, and is revising new comment 19(f)(4)(i)-2 for better
alignment with comment 19(f)(4)(i)-1. The Bureau believes streamlining
Sec. 1026.19(f)(4)(i) and comment 19(f)(4)(i)-1 will aid in industry
compliance. Although not raised as a concern by commenters, the Bureau
recognizes that as proposed, new comment 19(f)(4)(i)-2 could have
appeared to impose additional disclosure requirements for simultaneous
subordinate financing. Therefore, the Bureau is revising comment
19(f)(4)(i)-2 to more closely mirror the language of comment
19(f)(4)(i)-1. Final comment 19(f)(4)(i)-2 provides that in a purchase
transaction with simultaneous subordinate financing, the settlement
agent complies with Sec. 1026.19(f)(4)(i) by providing the seller with
only the first-lien transaction disclosures required under Sec.
1026.38 that relate to the seller's transaction reflecting the actual
terms of the seller's transaction in accordance with comment
19(f)(4)(i)-1 if the first-lien 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, comment
19(f)(4)(i)-2 provides that the settlement agent complies with Sec.
1026.19(f)(4)(i) by providing the seller with both the first-lien and
simultaneous subordinate financing transaction disclosures required
under Sec. 1026.38 that relate to the seller's transaction reflecting
the actual terms of the seller's transaction in accordance with comment
19(f)(4)(i)-1. The Bureau concludes that in a purchase transaction with
simultaneous 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 Sec. 1026.38 disclosures for the simultaneous subordinate
financing.
19(g) Special Information Booklet at Time of Application
19(g)(1) Creditor To Provide Special Information Booklet
As detailed in the section-by-section analysis of Sec. 1026.19,
the Bureau is adopting amendments to Sec. 1026.19(g)(1) substantially
as proposed. Specifically, Sec. 1026.19(g)(1), as finalized, covers
consumer credit transactions secured by real property or a cooperative
unit, regardless of whether they are open-end or closed-end
transactions (and except as provided in Sec. 1026.19(g)(1)(ii) and
(iii)). As finalized, Sec. 1026.19(g)'s coverage continues not to be
limited to closed-end transactions (except as provided in Sec.
1026.19(g)(1)(ii) and (iii)).
Section 1026.23 Right of Rescission
23(g) Tolerances for Accuracy
The Bureau's Proposal
TILA section 125 sets forth a consumer's right to rescind certain
transactions.\64\ For purposes of a consumer's right of rescission,
TILA section 106(f)(2) \65\ sets forth the applicable tolerances for
accuracy of the finance charge \66\ and other disclosures affected by
any finance charge, which has been understood to include the total of
payments.\67\ Section 1026.23(g) implements this statutory provision.
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\64\ 15 U.S.C. 1635.
\65\ 15 U.S.C. 1605(f)(2).
\66\ 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.
\67\ 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).
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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 total of payments would improve consumer
understanding.\68\ As explained in the proposal, the Bureau believed it
would
[[Page 37688]]
be 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 proposed 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. The Bureau sought comment on these proposed
revisions to Sec. 1026.23(g).
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\68\ 78 FR 79730, 80038 (Dec. 31, 2013).
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Comments Received
Comments received on the proposed tolerances for the total of
payments apply generally to both Sec. Sec. 1026.23(g) and
1026.38(o)(1). See the discussion below in the section-by-section
analysis of Sec. 1026.38(o)(1) for a summary of and responses to those
comments.
The Final Rule
For the reasons discussed below in the section-by-section analysis
of Sec. 1026.38(o)(1), the Bureau adopts the revisions to Sec.
1026.23(g) as proposed. Specifically, the Bureau redesignates current
Sec. 1026.23(g)(1) and (2) as Sec. 1026.23(g)(1)(i) and (2)(i) and
amends 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 \1/2\
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.
The Bureau further amends 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 also
adopts new comment 23(g)-1 as proposed, which references the examples
set forth in new 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 revises 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).\69\
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.
---------------------------------------------------------------------------
\69\ 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 tolerances for the total of payments promote consistency with
the tolerances in effect before the TILA-RESPA Final Rule. The Bureau
therefore believes that the tolerances facilitate compliance with the
statute. Additionally, the Bureau believes that the tolerances in
revised 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
The Bureau's Proposal
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.\70\
Section 1026.23(h)(2) implements this statutory provision.
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\70\ 15 U.S.C. 1635(i)(2).
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As explained more fully above in the section-by-section analysis of
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. For the reasons discussed in the section-by-section analyses of
Sec. Sec. 1026.23(g) and 1026.38(o)(1), the Bureau proposed 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. The Bureau sought comment on the proposed amendment to
Sec. 1026.23(h)(2) and its commentary.
Comments Received
Comments received on the proposed tolerances for the total of
payments generally apply to both Sec. Sec. 1026.23(h)(2) and
1026.38(o)(1). See the discussion below in the section-by-section
analysis of Sec. 1026.38(o)(1) for a summary of and responses to those
comments.
The Final Rule
For the reasons discussed below in the section-by-section analysis
of Sec. 1026.38(o)(1), the Bureau adopts the revisions to Sec.
1026.23(h)(2) as proposed. Specifically, the Bureau redesignates
current Sec. 1026.23(h)(2) as Sec. 1026.23(h)(2)(i) and amends 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 revises comment 23(h)(2)-1 to also explain that, for
each transaction subject to Sec. 1026.19(e) and (f), Sec.
1026.23(h)(2) is based on the accuracy of the total of payments, taken
as a whole, rather than its component charges. The Bureau also adopts
new comment 23(h)(2)-2 as proposed, which references the examples set
forth in new 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 revises Sec. 1026.23(h)(2) 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).\71\
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.
[[Page 37689]]
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 tolerances for the total of payments promote consistency with the
tolerances in effect before the TILA-RESPA Final Rule. The Bureau
therefore believes that the tolerances facilitate compliance with the
statute. Additionally, the Bureau believes that the tolerances in
revised Sec. 1026.23(h)(2)(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.
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\71\ 15 U.S.C. 1631(d).
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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 the section-by-section analysis of Sec. 1026.19,
the Bureau proposed and is now adopting conforming amendments to the
paragraph title for Sec. 1026.25(c)(1), and a subheading for the
commentary to Sec. 1026.25(c)(1), to reflect a change to the coverage
of Sec. [thinsp]1026.19(e) and (f) to include closed-end credit
transactions, other than reverse mortgages, that are secured by a
cooperative unit, 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 explains 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 proposed 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).
One industry commenter requested that, with respect to a
transaction involving construction where there is no seller, the Bureau
clarify that the creditor must disclose under Sec. 1026.37(a)(7)(ii)
the value of the underlying lot at the time of issuing the Loan
Estimate, irrespective of what the projected value of the property may
be after construction is finished because the value of the land would
be the value of the property at the time the Loan Estimate is given.
This commenter also asked the Bureau to clarify the disclosure
requirement on the Closing Disclosure under Sec. 1026.38(a)(3)(vii)
for the appraised value for a transaction involving construction where
there is no seller. The commenter asked for clarification on whether
the creditor must disclose only the value of the underlying lot, or
instead must disclose the projected value of the completed project
after construction is finished that was used to determine approval of
the credit transaction.
The Bureau is adopting the proposed modifications to comment
37(a)(7)-1, with revisions. As discussed in more detail below, the
Bureau is adopting the proposed change to final comment 37(a)(7)-1.
Also, in response to the comment discussed above, the Bureau is
revising comment 37(a)(7)-1 to provide additional guidance on how
creditors may make the disclosures under Sec. 1026.37(a)(7)(ii) with
respect to transactions involving construction where there is no
seller.
Current comment 37(a)(7)-1, in part, provides that 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 commenter appears to read the
language ``at the time the disclosure is issued to the consumer'' to
mean that for transactions involving construction where there is no
seller, the creditor must disclose the value of the land under Sec.
1026.37(a)(7)(ii), irrespective of what the projected value of the
property may be after construction is finished, because the value of
the land would be the value of the property at the time the Loan
Estimate is given. At the time the Loan Estimate is given, the
improvements to be made to the land have not been completed.
Nonetheless, the Bureau notes that the language ``at the time of the
disclosure'' instead is intended to indicate that the disclosure of the
estimated value of the property must be based on the best information
reasonably available to the creditor at the time the disclosure is
provided, consistent with the general standard set forth for accuracy
of the Loan Estimate disclosures in comment 19(e)(1)(i)-1. To make this
clearer, the Bureau is revising comment 37(a)(7)-1 to indicate that
where there is no seller, Sec. 1026.37(a)(7)(ii) requires the creditor
to disclose the estimated value of the property identified in Sec.
1026.37(a)(6) based on the best information reasonably available to the
creditor at the time the disclosure is provided to the consumer. To
facilitate compliance, the Bureau also is revising comment 37(a)(7)-1
to clarify that for transactions involving construction where there is
no seller, the estimated value of the property may include, at the
creditor's option, the estimated value of the improvements to be made
on the property. Alternatively, the creditor in transactions involving
construction where there is no seller may disclose under Sec.
1026.37(a)(7)(ii) the estimated value of the property that does not
include the estimated value of the improvements to be made on the
property.
The Bureau believes that this flexibility will give a creditor the
option of maintaining consistency between the disclosure of the
estimated value of the property in the Loan Estimate under Sec.
1026.37(a)(7) and the disclosure of the value of the property in the
Closing Disclosure under Sec. 1026.38(a)(3)(vii) in transactions
involving construction where there is no seller. As discussed in the
section-by-section analysis of Sec. 1026.38(a)(3)(vii), current
comment 38(a)(3)(vii)-1 provides that, for transactions without a
seller, the creditor must disclose on the Closing Disclosure under
Sec. 1026.38(a)(3)(vii) the value of the property that is used to
determine the approval of the credit transaction. The Bureau is
revising comment 38(a)(3)(vii)-1 to make clear that, for transactions
involving construction where there is no seller, the creditor must
disclose the value of the property that is used to determine the
approval of the credit transaction, including improvements to be made
on the property if those improvements are used in determining the
approval of the credit transaction. Thus, if a creditor includes
improvements to be made on a property in determining the approval of a
credit transaction involving construction where there is no seller, the
creditor must include the improvements in the disclosure of the value
of the property on the Closing Disclosure under Sec.
1026.38(a)(3)(vii). Final comment 37(a)(7)-1 allows a creditor the
flexibility to include the improvements into the estimated value of the
property disclosed on the Loan Estimate under Sec. 1026.37(a)(7),
which
[[Page 37690]]
gives the creditor the option of maintaining consistency between the
disclosure that is given on the Loan Estimate under Sec. 1026.37(a)(7)
and the disclosure that will be given on the Closing Disclosure under
Sec. 1026.38(a)(3)(vii) by including improvements to be made in both
disclosures. On the other hand, if a creditor does not include
improvements to be made on the property in determining the approval of
a credit transaction involving construction where there is no seller,
the creditor must not include the improvements in the disclosure of the
value of the property on the Closing Disclosure under Sec.
1026.38(a)(3)(vii). Final comment 37(a)(7)-1 allows a creditor the
flexibility not to include the improvements into the estimated value of
the property disclosed under Sec. 1026.37(a)(7), which gives the
creditor the option of maintaining consistency between the disclosure
that is given on the Loan Estimate under Sec. 1026.37(a)(7) and the
disclosure that will be given on the Closing Disclosure under Sec.
1026.38(a)(3)(vii) by not including improvements to be made in both
disclosures.
Current comment 37(a)(7)-1 also provides, in part, that the
creditor may use the estimate provided by the consumer at application,
or if it has performed its own estimate of the property value by the
time the disclosure is provided to the consumer, use that estimate. If
the creditor has obtained any appraisals or valuations of the property
for the application at the time the disclosure is 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.
Consistent with the proposal, the Bureau is revising 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 rather than disclose an
estimate provided by the consumer at application.
Cooperatives
As detailed in the section-by-section analysis of Sec. 1026.19,
the Bureau proposed and is now adopting conforming amendments to
comment 37(a)(7)-2 to reflect a change to the coverage of Sec.
[thinsp]1026.19(e) and (f) to include closed-end credit transactions,
other than reverse mortgages, that are secured by a cooperative unit,
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 proposed 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.
Commenters generally appreciated the additional clarification
provided by comment 37(a)(8)-3 and comment app. D-7.i. However, two
commenters indicated the cross-references to comment 37(a)(8)-3 in
proposed comment app. D-7.i were not clear. Although both comments app.
D-7.i.A and B referred to comment 37(a)(8)-3 as providing relevant
explanations, comment 37(a)(8)-3, as proposed, provided a cross-
reference but did not include any explanations. Two commenters also
requested the Bureau clarify that the loan term for construction loans
is determined using the approach applicable to non-construction loans
in addition to the construction-specific clarifications provided in
comment 37(a)(8)-3 and comment app. D-7.i.
For the reasons explained in the discussion of comment app. D-7.i,
below, the Bureau is finalizing comment 37(a)(8)-3 as proposed. The
Bureau is not including more than a cross-reference to comment app. D-
7.i in comment 37(a)(8)-3. As explained in the section-by-section
analysis of comment app. D-7.i, sections, such as Sec. 1026.17(c)(3)
and (c)(4), are applicable in determining the impact of minor
variations in the number of days counted for the loan term, as well as
other disclosures, as applicable. In order to avoid creating an
impression that only Sec. 1026.17(c)(3) applies for purposes of
construction and construction-permanent disclosures to the exclusion of
other potentially applicable sections, the Bureau declines to add
further clarification in comment 37(a)(8)-3 about the applicability of
other sections to determining the loan term for loans.
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
simultaneous subordinate financing in a purchase transaction are used
to purchase the property that will secure the extension of credit, the
Bureau proposed to amend comment 37(a)(9)-1.i to clarify that
simultaneous subordinate financing used to purchase the property is
disclosed with the purpose ``Purchase'' under Sec. 1026.37(a)(9). The
Bureau also proposed to make a minor technical revision to comment
37(a)(9)-1.iii to change the phrase ``construction-to-permanent'' to
``construction-permanent'' for consistency with terminology used
elsewhere in the proposed rule.
The Bureau received one comment responsive to the proposals to
amend comments 37(a)(9)-1.i and 37(a)(9)-1.iii. A title insurance
company stated that the Bureau should provide a corresponding amendment
that pertains to the Closing Disclosure.
For the reasons discussed below, the Bureau is adopting the
amendment to comment 37(a)(9)-1.i as proposed with a technical revision
and the technical revision to comment 37(a)(9)-1.iii as proposed with
an additional revision. As discussed above, a commenter requested that
the Bureau provide an amendment for the Closing Disclosure comparable
to that in comment 37(a)(9)-1.i. The Bureau concludes that a
corresponding amendment for the Closing Disclosure is not necessary
because the Closing Disclosure's requirement to disclose the loan
purpose, in Sec. 1026.38(a)(5)(ii), specifically cross-references the
disclosure required by Sec. 1026.37(a)(9), which also includes the
commentary to Sec. 1026.37(a)(9). An additional conforming amendment
is being made to comment 37(a)(9)-1.iii to include a cross-reference to
comment 17(c)(6)-5, which is being amended as discussed above in the
section-by-section analysis of Sec. 1026.17(c)(6) and provides
additional guidance on disclosing construction-permanent loans.
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 proposed to add a cross-
[[Page 37691]]
reference in comment 37(a)(10)-2.ii to proposed comment app. D-7.ii,
which explained the disclosure of the time period of the interest-only
feature for a construction loan or a construction-permanent loan.
The Bureau did not receive comments on adding a cross-reference to
comment app. D-7.ii into comment 37(a)(10)-2.ii. The Bureau is adopting
as proposed the revision to comment 37(a)(10)-2.ii.
37(a)(13) Rate Lock
The Bureau's Proposal
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
proposed 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 proposed 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) in circumstances where 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
proposed to add new comment 37(a)(13)-4,\72\ 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.
---------------------------------------------------------------------------
\72\ Although the proposed amendatory instructions in the
proposal correctly labeled this new comment as 37(a)(13)-4, the
accompanying section-by-section analysis of Sec. 1026.37(a)(13)
inadvertently described the proposed comment as ``new comment
37(a)(13)-3.'' There is an existing comment 37(a)(13)-3 concerning
time zones in the Official Interpretations of Regulation Z, and no
modification of existing comment 37(a)(13)-3 was proposed.
---------------------------------------------------------------------------
Comments Received
Some industry commenters supported the revisions to comment
37(a)(13)-2 and proposed new comment 37(a)(13)-4. A vendor and two
State trade association commenters stated that the last sentence of the
Sec. 1026.37(a)(13) disclosure on form H-24 of appendix H, which
begins with the phrase ``All other estimated closing costs expire on''
and includes the date and time when the charges unrelated to the
interest rate expire, should be either deleted on revised Loan
Estimates after the consumer has expressed an intention to proceed or
completed with the term ``N/A.'' One industry commenter stated a
concern about the applicability of an extended expiration period to
loans that would be in process when revised comment 37(a)(13)-2 and new
comment 37(a)(13)-4 are effective, and indicated that changing the
expiration period for loans in process could be difficult for
creditors. One vendor and an industry commenter stated that there
should be no change to the expiration dates because no consumer testing
was conducted on the change, and that the change could prompt consumer
confusion and mistrust of creditors. A vendor group stated that the
proposed revisions could be read to require the disclosure of a 10-day
expiration date, with any potential extension documented outside the
disclosures.
The Final Rule
For the reasons discussed below, the Bureau is adopting revised
comment 37(a)(13)-2 as proposed and new comment 37(a)(13)-4 as
proposed. In response to commenters' suggestions to require the
deletion of the sentence, ``All other estimated closing costs expire
on,'' on the first page of the Loan Estimate or to complete the
sentence with the term ``N/A,'' the Bureau notes that new comment
37(a)(13)-4 was intended to provide guidance with respect to
expiration-date disclosures on any revised Loan Estimates provided once
a consumer has indicated an intent to proceed. However, the Bureau did
not propose modifications to the Loan Estimate form itself.\73\ In
addition, the terms ``N/A'' or ``not applicable'' are not permitted to
be used on the Loan Estimate.\74\ Regarding commenters' concerns
relating to the effect of the proposed revised comment 37(a)(13)-2 and
proposed new comment 37(a)(13)-4 on loans that are already in process
when the provisions are effective, the date disclosed on the initial
Loan Estimate provided by the creditor controls the length of the
expiration period. For loans where the initial Loan Estimate discloses
a 10-day expiration date, nothing in current Regulation Z requires a
creditor to subsequently permit a longer time period. Once the consumer
has expressed an intention to proceed, the expiration date is moot for
the purposes of the Loan Estimate, as the amounts disclosed provide the
applicable baseline for the good faith tolerance requirements under
Sec. 1026.19(e)(3). Accordingly, the disclosure of the expiration date
on revised Loan Estimates provided after the consumer indicates an
intention to proceed does not change the validity of the charges
disclosed on the Loan Estimate. Regarding suggestions that consumer
testing is necessary for various permutations of the disclosure on
revised Loan Estimates provided after the consumer indicates an
intention to proceed, the Bureau does not consider additional consumer
testing to be necessary in this instance. The general rule of leaving
inapplicable disclosures blank on the Loan Estimate furthers the goals
of reducing information overload.\75\ As to the commenter that stated
that the proposed revisions could be read to require the disclosure of
a 10-day expiration date, the Bureau believes that revised comment
37(a)(13)-2 is clear that the creditor may choose a longer expiration
period, and that the cross-reference to comment 19(e)(3)(iv)(E)-2,
which also explicitly references the permission of the creditor to set
a longer time period under Sec. 1026.19(e)(3)(iv)(E), provides
sufficient clarity to creditors. Accordingly, the Bureau is adopting
revised comment 37(a)(13)-2 as proposed and new comment 37(a)(13)-4 as
proposed.
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\73\ 81 FR 54317, 54320 (Aug. 15, 2016).
\74\ See comment 37-1.
\75\ 78 FR 79730, 79742 (Dec. 31, 2013).
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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.'' To reduce inconsistent
language in Regulation Z and facilitate compliance, the Bureau proposed
to revise Sec. 1026.37(b)(1) to indicate that the loan amount
disclosed on the Loan Estimate (and, accordingly, on the Closing
Disclosure) would be the total amount the consumer will borrow, as
reflected by the face amount of the note. This language parallels that
of Sec. 1026.32(c)(5), which requires the disclosure of the total
amount the consumer will borrow, as reflected by the face amount of the
note for loans subject to the Home Ownership and
[[Page 37692]]
Equity Protection Act (HOEPA). Commenters stated that they agreed that
the proposed revision would clarify the amount to be disclosed and
supported the proposed revision. Accordingly, the Bureau is adopting
the proposed revision to Sec. 1026.37(b)(1).
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
proposed to add a cross-reference in comment 37(b)(2)-1 to proposed
comment app. D-7.iii, which, as discussed further below, explained the
disclosure of the permanent financing interest rate for a construction-
permanent loan.
The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(2)-1 to proposed comment app. D-7.iii. The
Bureau is adopting as proposed the revision to comment 37(b)(2)-1.
37(b)(3) Principal and Interest Payment
Section 1026.37(b)(3) requires disclosure of the initial periodic
payment amount. The Bureau proposed to add a cross-reference in comment
37(b)(3)-2 to proposed comment app. D-7.iv, which explained the
disclosure of an initial periodic payment for a construction or
construction-permanent loan.
The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(3)-2 to proposed comment app. D-7.iv.
However, because, as discussed below, the Bureau is not adopting
proposed comment app. D-7.iv, the Bureau is not adopting the proposed
revision to comment 37(b)(3)-2.
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 if the periodic payment may increase after
consummation. The Bureau proposed to add a cross-reference in comment
37(b)(6)(iii)-1 to proposed comment app. D-7.v, which, as discussed
further below, explained the disclosure of an increase in the periodic
payment for a construction or construction-permanent loan.
The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(6)(iii)-1 to proposed comment app. D-7.v.
The Bureau is adopting as proposed the revision to comment
37(b)(6)(iii)-1, but, because proposed comment app. D-7.iv is not being
adopted, the reference to comment app. D-7.v is renumbered as comment
app. D-7.iv.
37(c) Projected Payments
Section 1026.37(c) requires itemization of each separate periodic
payment or range of payments. As described below, the Bureau proposed
to amend the commentary accompanying Sec. 1026.37(c), (c)(1)(iii)(B),
and (c)(4)(iv). The Bureau proposed to add new comment 37(c)-2 to
provide a cross-reference to comment app. D-7.vi, which explains the
projected payments disclosure for a construction or construction-
permanent loan.
The Bureau did not receive comments on the addition of the cross-
reference in comment 37(c)-2 to proposed comment app. D-7.vi. The
Bureau is adopting as proposed the revision to comment 37(c)-2, but,
because proposed comment app. D-7.iv is not being adopted, the
reference to comment app. D-7.vi is renumbered as comment app. D-7.v.
37(c)(1) Periodic Payment or Range of Payments
37(c)(1)(iii)
37(c)(1)(iii)(B)
The Bureau's Proposal
Section 1026.37(c) requires creditors to disclose an itemization of
the periodic payments. Under certain circumstances, described in Sec.
1026.37(c)(1)(iii), creditors must disclose the minimum and maximum
periodic payment amounts (the range). Section 1026.37(c)(1)(iii)(B)
requires disclosing 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. Generally, pursuant to Sec.
1026.37(c)(3)(ii), periodic payments or ranges of payments must be
disclosed under a subheading that states the years of the loan during
which the payment or range of payments will apply.
Comment 37(c)(1)(iii)(B)-1 illustrates the disclosure of ranges of
payments when multiple changes to periodic principal and interest
payments occur during a single year. One of the examples in that
comment involves a loan payment that adjusts upward at three months and
at six months, adjusts once more at 18 months, and becomes fixed
thereafter. The Bureau identified inconsistencies between that
commentary example and the requirements of Sec. 1026.37(c)(1).
Specifically, that commentary example 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; and the
periodic payment that would apply after the payment adjustment that
occurs at 18 months. However, Sec. 1026.37(c)(1)(iii)(B) 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).
Nor does any other provision of Sec. 1026.37(c)(1) require disclosing
a range in that circumstance. 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, nothing in
Sec. 1026.37(c)(1) requires disclosing an additional separate payment
disclosure for an anniversary in that circumstance. For example, Sec.
1026.37(c)(1)(i)(D) 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.
The Bureau proposed revisions to that example in comment
37(c)(1)(iii)(B)-1 to harmonize it with the requirements of Sec.
1026.37(c)(1). As proposed, rather than disclosing as a single payment
range, the example calls for separately disclosing, under a year two
subheading, the payment that would apply on the first anniversary of
the due date of the initial periodic payment and, under a year three
subheading, the payment that would apply after the payment adjustment
that occurs at 18 months. However, the Bureau requested 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 the
comment to conform to the text of Sec. 1026.37(c)(1)). The Bureau also
requested 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 current examples in comment
37(c)(1)(iii)(B)-1.
Comments Received
A vendor supported the proposed amendments to comment
37(c)(1)(iii)(B)-1 to harmonize it with the requirements of Sec.
1026.37(c)(1). The
[[Page 37693]]
vendor stated that the proposed amendments are consistent with current
comment 37(c)(3)(ii)-1, which provides that: If an event requiring an
additional separate payment disclosure occurs on a date (e.g., at 18
months) other than the anniversary of the due date of the initial
periodic payment, and if no other events occur during that single year
(e.g., during year two) that otherwise require disclosure of multiple
events under Sec. 1026.37(c)(1)(iii)(B), then such payment event is
disclosed beginning in the next year in the sequence (e.g., in year
three); in other words, under both current comment 37(c)(3)(ii)-1 and
proposed comment 37(c)(1)(iii)(B)-1, the payment event that occurs at
18 months is not disclosed as part of a range of payments in year two.
The vendor further stated that, in the section-by-section analysis of
Sec. 1026.37(c)(3) in the TILA-RESPA Final Rule, the Bureau expressly
concluded that such approach in current comment 37(c)(3)(ii)-1 ensures
that consumers receive a disclosure that clearly and accurately
discloses future changes to periodic payments.\76\ The vendor asserted
that that conclusion in the TILA-RESPA Final Rule similarly supports
proposed comment 37(c)(1)(iii)(B)-1.
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\76\ See 78 FR 79730, 79945 (Dec. 31, 2013).
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Regarding alternatives, the vendor stated that system reprogramming
would be more complicated if the Bureau were to amend the text of Sec.
1026.37(c)(1) to conform to the example in comment 37(c)(1)(iii)(B)-1
(instead of finalizing proposed comment 37(c)(1)(iii)(B)-1 to conform
it to the text of Sec. [thinsp]1026.37(c)(1)). The vendor stated that
conforming to comment 37(c)(1)(iii)(B)-1 would then require determining
not only whether a change of payments occurred within a single year,
but also require looking to previous years to determine whether
multiple changes occurred in those years, in order to determine whether
a year with a singular triggering event under Sec. 1026.37(c)(1)(i)(A)
should be treated as having multiple changes under Sec.
1026.37(c)(1)(iii)(B), because the year before it had multiple changes
(and whether such year had to be treated as having multiple triggering
events as well, even though there is only a singular triggering event
under Sec. 1026.37(c)(1)(i)(A), because the year prior to the previous
year had multiple triggering events).
The vendor objected to the possibility that, rather than requiring
compliance with a single, mandatory approach, the Bureau might provide
creditors with the discretion to disclose in conformity with either the
current text of Sec. 1026.37(c)(1) or the current examples in comment
37(c)(1)(iii)(B)-1. The vendor stated that such creditor discretion and
lack of uniformity would inhibit consumers' ability to comparison shop.
A trade association objected to proposed comment 37(c)(1)(iii)(B)-1
as overly prescriptive and requested that creditors be afforded greater
flexibility in deciding how to provide disclosures to consumers. A
vendor requested that, instead of finalizing proposed comment
37(c)(1)(iii)(B)-1 to conform it to the text of Sec. 1026.37(c)(1),
the Bureau amend the text of Sec. 1026.37(c)(1) to conform to the
example in comment 37(c)(1)(iii)(B)-1. The vendor asserted that doing
so would be more useful to consumers because, for example, a payment
event that occurs at 18 months would be disclosed as part of a range of
payments in year two, even if no other events occur during year two
that require disclosure of multiple events under Sec.
1026.37(c)(1)(iii)(B). The vendor stated that, where proposed comment
37(c)(1)(iii)(B)-1 would have such payment event disclosed in year
three, but not in year two, the projected payments table would cause
the consumer to believe mistakenly that the payment does not change in
year two. The vendor further stated that, for those creditors whose
current systems were programmed in reliance on current comment
37(c)(1)(iii)(B)-1, it would be extremely burdensome if the Bureau were
to finalize proposed comment 37(c)(1)(iii)(B)-1 to conform it to the
text of Sec. 1026.37(c)(1). An individual compliance professional also
requested that the Bureau amend the text of Sec. 1026.37(c)(1) to
conform to the example in comment 37(c)(1)(iii)(B)-1 and further
requested that that approach be mandatory for all creditors.
A vendor group discussed how either alternative (i.e., finalizing
proposed comment 37(c)(1)(iii)(B)-1 to conform it to the current text
of Sec. 1026.37(c)(1) or, instead, amending the text of Sec.
1026.37(c)(1)) could address uncertainty. The vendor group requested
that, either way, the Bureau require compliance with a single,
mandatory approach.
The vendor group noted that current Sec. 1026.37(c)(1) does not
provide for consistent disclosure of payment changes. During the same
year as the initial periodic payment (i.e., in year one), Sec.
1026.37(c)(1)(iii)(B) calls for disclosing any payment change, even a
single payment change, as part of a range in year one. But in years
other than year one (e.g., in year two), Sec. 1026.37(c)(1)(iii)(B)
calls for disclosing a range only if there are multiple payment changes
in a single year. Otherwise, consistent with current comment
37(c)(3)(ii)-1, a single payment change is disclosed beginning in the
next year in the sequence, e.g., in year three (and not as part of a
range in year two).
The vendor group requested that, if the Bureau finalizes proposed
amendments to comment 37(c)(1)(iii)(B)-1 to conform it to the current
text of Sec. 1026.37(c)(1), the Bureau also amend Sec.
1026.37(c)(1)(iii)(B) to further clarify that a range is disclosed when
an event described in Sec. 1026.37(c)(1)(i)(A) occurs prior to the
first anniversary date of the date the initial periodic payment is due.
The vendor group also requested that the Bureau make certain additional
clarifying amendments to the introductory sentence of comment
37(c)(1)(iii)(B)-1 and to the example of a payment adjustment that
occurs at 18 months in comment 37(c)(1)(ii)(B)-1.iii. The vendor group
requested an implementation period of up to one year for reprogramming.
The Final Rule
For the reasons discussed below, the Bureau is adopting the
revisions to comment 37(c)(1)(iii)(B)-1 substantially as proposed but
with certain minor changes. The Bureau concludes that comment
37(c)(1)(iii)(B)-1 as finalized is consistent with the requirements of
Sec. 1026.37(c)(1) as well as comment 37(c)(3)(ii)-1. As stated in the
section-by-section analysis of Sec. 1026.37(c)(3) in the TILA-RESPA
Final Rule, the approach in current comment 37(c)(3)(ii)-1 ensures that
consumers receive a disclosure that clearly and accurately discloses
future changes to periodic payments.\77\ The Bureau declines to adopt
the alternative of amending the text of Sec. 1026.37(c)(1) and comment
37(c)(3)(ii)-1 to conform to the example in current comment
37(c)(1)(iii)(B)-1 because, as noted above, that would unnecessarily
require disclosing ranges and additional separate payments in more
circumstances without providing overall benefit to consumers. The
Bureau also concludes that a single, mandatory approach with respect to
complying with Sec. 1026.37(c)(1)(iii)(B) and comment 37(c)(1)(ii)(B)-
1 will facilitate consumers' ability to comparison shop.
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\77\ 78 FR 79730, 79945 (Dec. 31, 2013).
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As to the commenter's concern that current Sec. 1026.37(c)(1) does
not provide for consistent disclosure of payment changes because Sec.
1026.37(c)(1)(iii)(B) distinguishes between changes
[[Page 37694]]
occurring in year one versus those occurring in other years, and also
distinguishes between a year with multiple changes versus a year with a
single change, the Bureau again declines to revisit major policy
decisions in this rulemaking. Unlike the example in current comment
37(c)(1)(iii)(B)-1, which is being amended here because its
contradiction of Sec. 1026.37(c)(1) and comment 37(c)(3)(ii)-1
generated uncertainty, the Bureau believes that the distinctions in
Sec. 1026.37(c)(1)(iii)(B) are clear and, for a given type of loan,
provide that all creditors will disclose the loan's payment provisions
in the same manner. As to commenters' request to amend Sec.
1026.37(c)(1)(iii)(B) to further clarify that a range is disclosed when
an event described in Sec. 1026.37(c)(1)(i)(A) occurs prior to the
first anniversary date of the date the initial periodic payment is due,
the Bureau concludes that such amendment is not warranted as Sec.
1026.37(c)(1)(iii)(B) already provides for disclosing a range when an
event described in Sec. 1026.37(c)(1)(i)(A) occurs during the same
year as the initial periodic payment or range of payments.
In part in response to commenters' concerns, the Bureau is
finalizing the introductory sentence of comment 37(c)(1)(iii)(B)-1 with
the phrase ``multiple changes,'' instead of ``changes,'' to further
emphasize that Sec. 1026.37(c)(1)(iii)(B) does not require disclosing
a range merely because the periodic principal and interest payment may
change once during a single year. The Bureau concludes that doing so
will further alleviate uncertainty regarding this comment. Moreover, to
provide clarification, the example in comment 37(c)(1)(iii)(B)-1.iii
includes a cross-reference to Sec. 1026.37(c)(3)(ii) and, consistent
with current comment 37(c)(3)(ii)-1, expressly states that, beginning
in the next year in the sequence (i.e., in year three), the creditor
separately discloses the periodic payment that would apply after the
payment adjustment that occurs at 18 months.
In response to the commenter's request for an implementation period
of up to one year with respect to this aspect of the proposal, as
discussed in part VI below, the rule will be effective 60 days from
publication in the Federal Register, but there will be an optional
compliance period in effect until October 1, 2018. During the optional
compliance period, a creditor has the option of complying based on the
example in current comment 37(c)(1)(iii)(B)-1.
37(c)(4) Taxes, Insurance, and Assessments
37(c)(4)(iv)
Section 1026.37(c)(4) requires the disclosure on the Loan Estimate
of the amount of periodic payments for taxes, insurance, and
assessments. Section 1026.37(c)(4)(iv) requires a statement of whether
the amounts disclosed under Sec. 1026.37(c)(4)(ii) include payments
for property taxes, amounts identified in Sec. 1026.4(b)(8), and other
amounts described under Sec. 1026.37(c)(4)(ii) along with a
description of any such other amounts, and an indication of whether
such amounts will be paid by the creditor using escrow account funds.
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 the January
2015 Amendments, the Bureau removed ``other than amounts for payments
of property taxes or homeowner's insurance'' from comment 37(c)(4)(iv)-
2 to permit creditors to disclose that only 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.
In the preamble to the proposal the Bureau noted that it
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 proposed 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.
The Bureau is finalizing as proposed the revisions to comment
37(c)(4)(iv)-2. The Bureau received two comments in support of the
proposed revision to comment 37(c)(4)(iv)-2. However, one commenter
asked the Bureau to define and address whether builder's risk insurance
is considered homeowner's insurance for purposes of the disclosures
under Sec. 1026.37(c)(4). The Bureau notes that it did not propose to
address this matter in the proposal, and that treatment of builder's
risk insurance premiums for purposes of these disclosures on the Loan
Estimate may depend on the facts and context. Accordingly, the
finalized revisions to comment 37(c)(4)(iv)-2 do not address the issue
raised by the commenter.
37(c)(5) Calculation of Taxes and Insurance
37(c)(5)(i)
As detailed in the section-by-section analysis of Sec. 1026.19,
the Bureau is adopting amendments to Sec. 1026.37(c)(5)(i)
substantially as proposed. Section 1026.37(c)(5)(i), as finalized,
specifically references the real property or cooperative unit securing
the transaction. This conforming amendment to Sec. 1026.37(c)(5)(i)
reflects the change to the coverage of Sec. 1026.19(e) and (f) to
include closed-end credit transactions, other than reverse mortgages,
that are secured by a cooperative unit, 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
or for Simultaneous Subordinate Financing
The Bureau's Proposal
Section 1026.37(d)(2) only permits creditors to use the optional
alternative table in transactions without a seller. The Bureau has
provided informal guidance that, in purchase transactions with
simultaneous subordinate financing, the optional alternative 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 cost of the
subordinate financing. The Bureau proposed to amend Sec. 1026.37(d)(2)
and comment 37(d)(2)-1 to clarify that creditors may use the optional
alternative table for simultaneous subordinate financing in purchase
transactions if the first-lien Closing Disclosure will record the
entirety of the seller's transaction. The Bureau specifically sought
comment on whether it is appropriate to limit use of the optional
alternative table for the disclosure of simultaneous subordinate
financing purchase transactions to situations in which the first-lien
Closing Disclosure will record the entirety of the seller's
transaction.
Comments Received
Commenters included a title insurance company, software vendors, a
bank, a loan originator, and a compliance professional. Most commenters
supported the Bureau's proposal to allow the use of the optional
alternative table if the first-lien Closing Disclosure will record the
entirety of the seller's transaction. One commenter questioned what
disclosures should be
[[Page 37695]]
used when the optional alternative tables were used on the Loan
Estimate because the creditor correctly concludes, based on the best
information reasonably available to the creditor at the time the
disclosure is provided to the consumer, that the Closing Disclosure for
the first-lien loan will record the entirety of the seller's
transaction, but a seller later agrees to contribute to the costs of
the subordinate financing. The commenter suggested that the Bureau
permit the use of the standard disclosures in situations where there is
a valid change of circumstance following the provision of the optional
alternative disclosures to the consumer. One commenter stated that the
proposal could lead to variation among creditors and another commenter
stated that the Uniform Closing Dataset (UCD) may not allow the use of
the alternative disclosures for any transactions with sellers.
Commenters asked the Bureau to clarify how to disclose the loan
proceeds from the simultaneous subordinate financing being applied to
the first lien, noting that most creditors prefer that the subordinate
lien is balanced to zero. A commenter explained that permitting the use
of the alternative disclosures for simultaneous subordinate financing
is extremely desirable for industry and consumers and should be
effective immediately, but that revisions which clarify how
simultaneous subordinate financing is disclosed on the standard forms
require systems changes which will take between four and nine months to
implement.
The Final Rule
For the reasons discussed below, the Bureau is finalizing the
proposed amendments to Sec. 1026.37(d)(2) and comment 37(d)(2)-1 with
minor technical revisions. The Bureau appreciates the commenter's
question regarding how to proceed under the proposal when the
alternative table was properly used on the Loan Estimate, or even the
Closing Disclosure, but a subsequent event causes the continued use of
the alternative table to be impermissible. However, the Bureau declines
to implement the commenter's suggestion to permit the use of standard
disclosures in situations where there is a valid change of circumstance
following the provision of the alternative disclosures to the consumer.
On the Closing Disclosure, the calculating cash to close table requires
a comparison of cash to close amounts disclosed on the Loan Estimate
and the Closing Disclosure. Because the standard and alternative
calculating cash to close tables do not contain the same components,
amounts disclosed on a Loan Estimate's optional alternative calculating
cash to close table could not be properly compared to amounts disclosed
on a Closing Disclosure's standard calculating cash to close table. The
Bureau is, however, directly addressing this concern by adding new
comment 38(k)(2)(vii)-1, amending comments 38(d)(2)-1 and 38(j)-3, and
amending proposed new comments 38(t)(5)(vii)(B)-1 and -2 to require the
disclosure of the seller's contributions to the subordinate financing,
if any, in the payoffs and payments table on the simultaneous
subordinate financing Closing Disclosure and the summaries of
transactions table on the first-lien Closing Disclosure, when the
alternative disclosures are used for the simultaneous subordinate
financing. The result of these amendments is that the first-lien
Closing Disclosure will be able to record the entirety of the seller's
transaction. For a more detailed discussion of these new and revised
comments, see the section-by-section analyses of Sec. 1026.38(d)(2),
(j), (k)(2), and (t)(5)(vii).
The Bureau recognizes that allowing the use of the optional
alternative tables for simultaneous subordinate financing purchase
transactions may cause variability in disclosure among creditors but
concludes that consumers will not be harmed by such optionality. In
addition, the Bureau understands that investor requirements may be more
restrictive than the optionality provided by the Bureau. However, the
Bureau believes flexibility is beneficial to some creditors, and the
Bureau will continue to provide the option for creditors to use the
optional alternative tables for simultaneous subordinate financing
transactions with sellers.
The Bureau is addressing the commenter's question regarding the
disclosure of simultaneous subordinate loan proceeds in the section-by-
section analysis of Sec. 1026.37(h)(2)(iii). The Bureau is clarifying
how to disclose the proceeds of subordinate financing on the Loan
Estimate for a first-lien transaction disclosed under Sec.
1026.37(h)(2), such as a refinance transaction. The Bureau is also
clarifying how a creditor may disclose, on the simultaneous subordinate
financing Loan Estimate itself, the amount of subordinate loan proceeds
that will be applied to the first-lien loan. The Bureau is making
related revisions in the commentary to Sec. 1026.38(j)(1)(v) and
(t)(5)(vii)(B).
As related to a commenter's discussion of the time needed to
implement these provisions, as discussed in part VI below, the final
rule will be effective 60 days from publication in the Federal
Register, but there will be an optional compliance period in effect
until October 1, 2018.
37(f) Closing Cost Details; Loan Costs
Construction Loan Inspection and Handling Fees
The Bureau's Proposal
Section 1026.37(f) requires the disclosure of all loan costs
associated with the transaction. Bureau staff previously has provided
informal guidance that construction loan inspection and handling fees
are loan costs associated with the transaction for purposes of Sec.
1026.37(f), and the Bureau proposed new comment 37(f)-3 to memorialize
this guidance.
Under comment 37(f)-3 as proposed, 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 under Sec. 1026.37(f)(1) as
an origination charge the consumer will pay to the creditor for
originating and extending the credit. If the creditor collects an
inspection fee at or before consummation that will be used to pay a
third-party inspector that is selected by the creditor, the fee would
be disclosed under Sec. 1026.37(f)(2) as an amount the consumer will
pay for settlement services for which the consumer cannot shop.
Under proposed comment 37(f)-3, a creditor would disclose
construction loan inspection and handling fees collected at or before
consummation in the loan costs table. Such fees collected after
consummation would be disclosed 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 inspection and handling fees to be collected after consummation
for purposes of the calculating cash to close table. In proposing
comment 37(f)-3, the Bureau noted its belief 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 calculating cash to close table that must
[[Page 37696]]
be provided to the consumer in the Loan Estimate.
Proposed comment 37(f)-3 included 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 included 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,
proposed comment 37(f)-3 included a cross-reference to comment
19(e)(1)(i)-1, which includes instruction on providing disclosures
based on the best information reasonably available. Finally, proposed
comment 37(f)-3 provided 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 requested 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.
Comments Received
Comments on the disclosure of construction loan inspection and
handling fees generally were favorable, although commenters also noted
the difficulties in accurately disclosing fees to be collected after
consummation and the additional software development that the proposal
would require. Commenters also requested additional clarifications
related to making this disclosure, as described below.
A trade association agreed that construction loan inspection and
handling fees should be disclosed to consumers seeking construction
loans as these costs are often significant. However, this association
stated its members were split on the use of an addendum for this
purpose, as further noted in the discussion of proposed comment
37(f)(6)-3, below. A compliance specialist commented that proposed
comment 37(f)-3 is a positive change that better facilitates the bank's
processes. Several vendors commented on the software changes the
disclosure of post-consummation inspection and handling fees would
require, as further explained in the discussion of proposed comment
37(f)(6)-3, below.
Comments received from another compliance specialist did not favor
the proposal. This commenter did not believe that disclosing the
construction loan inspection and handling fees that are collected after
consummation in an addendum would significantly promote the informed
use of credit by giving consumers loan cost information necessary to
exercise such informed use. This commenter pointed out a loan agreement
contract may call for any number of fees to be assessed on the consumer
for a variety of reasons after consummation, and construction loan
inspection and handling fees should not be singled out for separate
handling. A national trade association commented that it will be
extremely difficult for creditors to provide accurate Loan Estimate
disclosures for inspection fees because such fees are not known at the
time the Loan Estimate is required to be provided to the consumer.
A consumer organization commented that permitting post-consummation
fees of this type to be disclosed in an addendum raises the question of
whether they should be included in the Total of Payments, and urged the
Bureau to clarify that those charges must be added to the Total of
Payments disclosures on the Loan Estimate and Closing Disclosure. A
professional association asked whether anticipated inspection fees in
connection with multiple advance construction loan draws are subject to
a tolerance from the Loan Estimate to the Closing Disclosures.
The Final Rule
The Bureau is adopting comment 37(f)-3 as proposed with minor
modifications to provide additional consistency and clarity.
Specifically, comment 37(f)-3 as finalized provides that the total of
inspection and handling fees is disclosed in the loan costs table or in
a separate addendum. Proposed comment 37(f)(6)-3, discussed below,
provided that the total of inspection and handling fees to be collected
after consummation is disclosed on an addendum, but proposed comment
37(f)-3 did not specify that the total of fees collected at or before
consummation is disclosed in the loan costs table. While creditors may
have assumed that proposed comment 37(f)-3 also required a single
disclosure of the total amount of construction and handling fees,
rather than an individual listing of each separate fee, the change made
in finalizing comment 37(f)-3 confirms that the total fee is disclosed.
Otherwise, comment 37(f)-3 is adopted as proposed. Construction
loan inspection and handling fees are loan costs uniquely associated
with construction transactions and, as a commenter agreed, they are
often significant amounts. Because of the amounts involved, the Bureau
considers that disclosure of these amounts is particularly helpful in
promoting informed use of credit, and therefore merit separate
handling. The Bureau recognizes the difficulty of providing accurate
disclosures at or before consummation of amounts that will be collected
after consummation. For that reason, comment 37(f)-3 includes a cross-
reference to comment 19(e)(1)(i)-1, which includes instruction on
providing disclosures based on the best information reasonably
available. Comment 37(f)(6)-3, which is discussed below and explains
the use of an addendum to disclose inspection and handling fees
collected after consummation, provides examples of what the best
information reasonably available could be for such disclosures.
Disclosures made consistent with these comments would be considered
accurate, even though the inspection and handling fees actually
collected after consummation in a particular transaction may differ
from the amount of fees in previous similar transactions upon which the
disclosures were based. To underscore this outcome, comment 37(f)-3
also includes a cross-reference to Sec. 1026.17(e) and its commentary.
Section 1026.17(e) generally 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. Pursuant
to that section, the disclosure of inspection and handling fees that is
based on the best information reasonably available but that becomes
inaccurate because of an event occurring after consummation, for
example, topographical features are discovered or weather-related
events occur that affect the complexity and timing of the inspections
and therefore affect the amount or timing of the fees, would not be
considered a violation.
The impact of basing the disclosure of inspection and handling fees
on the best information reasonably available and taking into account
the effect of subsequent events is relevant for responding to the
commenter that asked whether anticipated inspection fees in connection
with multiple advance construction loan draws are subject to a
tolerance if the amount disclosed changes between the Loan Estimate and
the Closing Disclosures. These fees are subject to the same tolerance
as any other fees disclosed as loan costs depending on the category
into which they fall under Sec. 1026.19(e)(3), such as origination
charges or fees for a service the consumer can or cannot shop for,
[[Page 37697]]
regardless of whether they are paid at or before closing and disclosed
on the disclosures, or paid after consummation and disclosed on the
addendum. Thus, if the fees are collected at or before consummation and
are disclosed as ``Services Borrower Did Not Shop For,'' they would be
subject to the same tolerance as other amounts under that heading.
However, when such fees are to be collected after consummation and
disclosed on an addendum based on the best information reasonably
available, if a disclosure becomes inaccurate because of an event that
occurs after the creditor delivers the required disclosures, the
inaccuracy is not a violation, as provided by Sec. 1026.17(e).
To provide an example of how the tolerance requirements would
apply, in a case where a creditor does not permit the consumer to shop
for the construction inspection service provider, the inspection and
handling fees would be in the ``zero tolerance'' category under section
Sec. 1026.19(e)(3)(i). If, at the time a Loan Estimate must be
provided, the creditor has only a general sense of the scope and site
of the construction (as is often the case), the creditor may disclose a
total amount of inspection and handling fees based on the total amount
of fees the creditor has previously charged in construction
transactions the creditor believes to be similar to the present
transaction. The creditor may also disclose a total amount of fees
based on the estimate the creditor uses in setting the construction
transaction's commitment amount. In either case, the creditor will
likely consider the estimated number of inspections that will be
required and the estimated cost of each inspection to arrive at a
total, thus using the best information reasonably available. If after
the Loan Estimate is provided the creditor discovers, for example, that
the construction site has features that will require additional work
and therefore additional and more complex inspections, the best
information reasonably available to the creditor at that time is that
the total inspection and handling fees will be greater than initially
estimated. In such a case the creditor may issue a revised Loan
Estimate pursuant to Sec. 1026.19(e)(3)(iv) to reset the tolerance for
the inspection and handling fees.
Further, if after consummation additional topographical features
are discovered or weather-related events occur that result in
additional or more costly inspections, consistent with Sec. 1026.17(e)
there is not a violation when a disclosure becomes inaccurate because
of an event that occurs after the creditor delivers the required
disclosures. The example described here would apply both when the
inspection and handling fees are disclosed in the loan costs table
because they are collected at or before consummation and when such fees
are disclosed in a separate addendum because they are collected after
consummation.
Therefore, if the inspection and handling fees are in a category of
fees that is subject to tolerances and these fees change between the
Loan Estimate and the Closing Disclosure without the disclosure of
revised estimates that can reset tolerances, the applicable tolerance
violation could be present. However, if the fees change after
consummation because of subsequent events, as described in Sec.
1026.17(e), there would not be a tolerance violation.
The Bureau agrees with the commenter that noted construction loan
inspection and handling fees are Loan Cost charges that must be added
to the Total of Payments disclosures on the Loan Estimate and Closing
Disclosure. This clarification will be provided in comment app. D-
7.viii, which is also being finalized in this final rule as discussed
below as comment app D-7.vii. Although commenters assumed, correctly,
that draw fees are included as inspection and handling fees, the Bureau
is specifically including draw fees in comment 37(f)-3 for greater
clarity.
37(f)(6) Use of Addenda
The Bureau's Proposal
The Bureau proposed 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 explained
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 also cross-referenced comment
19(e)(1)(i)-1 and explained 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
best information reasonably available. To provide additional clarity,
proposed comment 37(f)(6)-3 also included 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.
Comments Received
The comments on the use of an addendum to disclose post-
consummation inspection and handling fees collected after consummation
focused on the technical aspects of the addendum and related software
implementation issues. Comments from a trade association stated its
members were split on the use of an addendum for disclosing
construction loan inspection and handling fees. The commenter noted
concerns that the use of addenda may result in some borrowers
overlooking these fees, although use of an addendum and omitting the
fees from the cash to close table seemed appropriate if the creditor
permits the consumer to take advances on the construction loan to cover
these fees. The commenter proposed that, if the creditor does not
permit advances on the construction loan to cover these costs,
creditors should disclose the fees and factor them into the cash to
close table on the Loan Estimate, but for the Closing Disclosure the
fees should be disclosed on a separate addendum because the Closing
Disclosure only permits the disclosure of borrower-paid costs in
columns labeled ``At Closing'' or ``Before Closing.''
Comments from a vendor's group asked for clarification of whether
the heading ``Inspection and Handling Fees Collected After Closing''
should be formatted pursuant to comment 37(o)(5)-5, which requires that
information disclosed on a separate page ``should be formatted
similarly to form H-24 of appendix H to this part, so as not to affect
the substance, clarity, or meaningful sequence of the disclosure'' or
in any style of the creditor's choosing, so long as the heading meets
the ``clear and conspicuous'' standards set forth in Sec.
1026.37(o)(1) and associated commentary. The commenter noted proposed
comment 37(f)(6)-3 makes reference to disclosing post-consummation
inspection and handling fees on ``an addendum'' and asked the Bureau to
clarify that this information may be included in any addendum provided
in connection with the Loan Estimate, which contains other additional
information, for example, pursuant to Sec. 1026.37(f)(6), or whether
this information should be disclosed in a separate addendum. The
commenter also estimated that software development for disclosure of
post-consummation inspection and handling
[[Page 37698]]
fees on a separate section of the addendum would require significant
time to implement.
A vendor commented that disclosure of post-consummation inspection
and handling fees on a separate section of an addendum would require
significant software development. Another vendor commented that it
generally supports the effort to provide clarification regarding
inspection and handling fees, but believed that the programming
required to differentiate fees paid at, before, and after consummation
for the disclosures would be extremely complicated. Technology
companies would be required to reprogram their software to provide for
a new category of closing costs, with new data points that would need
to be integrated between the different software companies to ensure
their proper disclosure. The commenter believed a better alternative
would be to allow creditors to disclose fees collected after
consummation using their own methods in documentation that is separate
from the Loan Estimate and Closing Disclosure, such as in their cover
letter to consumers or in a separate page.
The Final Rule
The Bureau is adopting comment 37(f)(6)-3 generally as proposed,
but with some modifications in response to comments received on
proposed comments 37(f)-3 and 37(f)(6)-3. Instead of referring to
``post-consummation charges'' as the proposed comment did, comment
37(f)(6)-3 as adopted is modified to emphasize that an addendum is used
only if the fees are to be collected after consummation. This
modification is made for consistency with comment 37(f)-3, which refers
to inspection and handling fees collected at or before consummation and
after consummation. This modification should also provide greater
clarity because the use of ``post-consummation fees'' may create an
impression that an addendum may be used for inspection and handling
fees collected both at or before consummation and after consummation if
the service that the fee covers is provided after consummation. If
construction loan inspection and handling fees are collected at or
before consummation, they are disclosed in the loan costs table and are
counted for purposes of the calculating cash to close table. Only if
the fees are expected to be collected after consummation are they
disclosed in an addendum to the Loan Estimate and in an addendum to the
Closing Disclosure and not counted for purposes of the calculating cash
to close table. The Bureau considers when fees are collected to be a
clearer determinant of when to use an addendum than if a creditor
permits the consumer to take advances on the construction loan to cover
these fees, as suggested by a commenter. An advance to cover these fees
may be taken at or after consummation. If the advance is taken at
consummation, the fee is collected at consummation and an addendum
would not be used.
Thus, if a consumer pays inspection and handling fees in cash that
is not from loan proceeds at consummation, or if the fees are financed
at consummation, they are considered collected at consummation and are
disclosed in the Loan Costs table. In a construction transaction, a fee
is financed at consummation if an advance to cover the fee is taken at
consummation. However, if the creditor permits the consumer to take
advances after consummation to cover construction loan inspection and
handling fees, the fees are collected after consummation and would be
disclosed on a Loan Estimate addendum and a Closing Disclosure
addendum. Further, because the creditor would have estimated the amount
of inspection and handling fees for purposes of setting the commitment
amount to allow for sufficient funds to be available for advances to
cover inspection and handling fees, comment 37(f)(6)-3 is also amended
to include such estimates as an additional example of the best
information reasonably available for inspection and handling fee
disclosures.
In response to commenters that requested additional clarification
on the form of the addendum, comment 37(f)(6)-3 is further modified to
specify that the total of construction loan inspection and handling
fees is disclosed in an addendum, which may be the addendum pursuant to
Sec. 1026.37(f)(6) or any other addendum or additional page under
Sec. 1026.37. A cross-reference to comment 37(o)(1)-1, which explains
the clear and conspicuous standard, is also added. Because comment
38(f)-2, discussed below, includes a reference to comment 37(f)(6)-3
for information on disclosing inspection and handling fees on the
closing disclosure, a clarifying statement is added for consistency
that for purposes of comment 38(f)-2, the addendum may be any addendum
or additional page under Sec. 1026.38.
To preserve a greater degree of consistency and clarity that such
fees are included in the transaction, the Bureau is not adopting the
suggestion from a commenter to allow creditors to disclose fees
collected after consummation using their own methods in documentation
that is separate from the Loan Estimate and Closing Disclosure. With
respect to comments concerning the software development and
implementation times estimated for these amendments, the Bureau refers
to the discussion in part VI, below, regarding the final rule's
effective date and optional compliance period.
37(g) Closing Cost Details; Other Costs
37(g)(4) Other
The Bureau's Proposal
Section 1026.37(g)(4) requires the disclosure of any other amounts
(other than amounts disclosed under Sec. 1026.37(g)(1) through (3)) 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 proposed 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.
It was expected that 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), would create
greater consistency between disclosures on the Loan Estimate and
Closing Disclosure for the clear and conspicuous disclosure of these
amounts, thus facilitating consumer understanding. The preamble
[[Page 37699]]
of the proposed rule also stated the Bureau did 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).
In proposing the revisions to comment 37(g)(4)-4, the Bureau noted
that it had 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), but did not because the Loan Estimate
does not have a comparable summaries of transactions table. The Bureau
noted that disclosing these costs 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 noted that it had 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,
the Bureau noted this approach could add complexity to the calculations
required on the Closing Disclosure.
The proposed revision of comment 37(g)(4)-4 also cross-referenced
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.
Comments Received
Comments on the proposed revision of comment 37(g)(4)-4, while
generally supportive of the attempt to clarify the disclosure of
payoffs and construction costs, did not generally favor the proposed
method of disclosure. Some commenters did support the proposal or
requested that alternative methods of disclosure be allowed to
continue. A multi-bank financial holding company commenter stated it
supported the proposed change, but did not explain the basis of its
support. A consumer organization supported the proposal, stating
consumer understanding is enhanced when these amounts appear in
corresponding tables on the Loan Estimate and Closing Disclosure. A
compliance specialist commenter also supported the proposed required
disclosure of the three items under Sec. 1026.37(g)(4) or (h)(2)(iii)
as applicable, stating the proposal would create a standardized
disclosure framework for all creditors, but strongly opposed the
disclosure of construction costs on an addendum.
A nonprofit housing organization commenter supported the proposed
disclosures but noted that the Bureau did not directly address financed
funds placed into escrow for repairs to be completed after closing.
This commenter recommended adoption of a new line in the calculating
cash to close table called ``Rehabilitation Escrow'' where funds
financed for home rehabilitation can be disclosed, stating that such
disclosure will allow consumers to see all of the funds for the
transaction in the calculating cash to close table without inaccurately
labeling the rehabilitation funds as loan costs or closing costs. Two
state bank association commenters and two national industry association
commenters requested that the Bureau permit alternative methods of
disclosing construction costs including disclosure on the alternative
form in the payoffs and payments table, so long as the method used
discloses the costs and the cash to close table and summaries of
transactions table balance. These commenters stated parties should not
be required to change programming that is reasonable and for which
significant time and expense were spent for an alternative means of
disclosure that the commenters believed did not provide a positive gain
for consumers.
However, a majority of the comments, including comments from
financial institutions, title insurers, state and national industry
associations, and software vendors all opposed the proposed required
disclosure of construction costs, payoff of existing liens, and payoff
of unsecured debt under Sec. Sec. 1026.37(g)(4) and 1026.38(g)(4).
Several commenters believed that significant confusion would result
from the proposed revision of comment 37(g)(4)-4. A financial
institution commenter stated the proposed changes would confuse
consumers, creditors, settlement agents, and real estate agents who for
decades have not considered the costs covered by the proposed comment
as closing costs. The commenter believed that disclosing funds
available to draw through construction under ``Other Costs'' would
significantly overstate a borrower's ``Total Closing Costs,'' which the
commenter believed to be contrary to the overall purpose of providing
clear and conspicuous disclosure related to costs and terms associated
with a loan transaction. A vendor commenter also believed that the
proposed method of disclosing payoffs and holdbacks would likely be
confusing to consumers. The commenter stated consumers expect that the
disclosures will categorize fees and charges to obtain and close the
loan separately from the costs that are directly or indirectly related
to the purpose of their transaction, such as payoffs of a prior lien or
unsecured debt, or construction costs in a construction loan.
Two trade association commenters stated the proposal will result in
making the closing costs in many loans, including construction loans,
appear to be enormous, causing concern and confusion on the part of
consumers. A title insurer commenter and a vendor commenter were
concerned that many consumers who see a large amount of closing costs
on page one of the disclosures may be discouraged from continuing to
the more detailed and technical information later in the disclosures.
The commenters believed consumers may even decide not to move forward
with a refinance or debt consolidation transaction that may be in their
best interest, because they may believe the closing costs of the
transaction to be prohibitively expensive.
A vendor commenter and a title insurer commenter stated that under
the proposal the actual closing costs that a consumer could negotiate
or shop for would be ``framed'' within a much larger amount of total
closing costs. The commenters believed such a framing effect may cause
the actual closing costs in the transaction to be more difficult to
discern by consumers and would likely hinder consumers' ability to
compare the actual closing costs between lenders when shopping for
mortgage loans. These commenters also believed consumers may view the
actual closing costs for which they can negotiate or shop as less
significant, because they could represent a small percentage of the
total closing costs. A mortgage creditor commenter pointed out that
Sec. 1026.37(g)(4)(iii) limits the number of items disclosed in
section H of the Loan Estimate to five. If more than four items need to
be disclosed, their charges are aggregated on the fifth line of section
H
[[Page 37700]]
of the Loan Estimate. The commenter stated that as a result of such
aggregation, the disclosure of construction costs, payoff of existing
liens, and payoff of unsecured debt would often disappear into the
aggregate amount along with other charges.
A title insurer and a vendor commented that a consumer obtaining a
mortgage loan for the purpose of consolidating credit card debt would
likely be confused to see such credit card debt included in the amount
of closing costs, because they would instead consider the payoffs of
credit card debt to be a reason they are paying closing costs. A
mortgage lender commenter stated that credit card debt paid at closing
on a purchase transaction is distinctly different than a ``charge'' in
connection with the transaction. A group of vendors commented that the
proposed revision can lead to confusion and misapplication of the
concept of ``third-party services'' by creditors. These commenters
asked if a payoff is a ``third-party service not required by the
creditor,'' what other types of costs could also be considered a
``third-party service not required by the creditor'' and subject to
good faith tolerance rather than a more restrictive tolerance? A
possible unintended outcome could be that consumers may end up paying
more at consummation than what is permitted. While such overpayments
may ultimately be refunded, consumers would still be inconvenienced
because of such confusion.
Two trade association commenters, a financial institution
commenter, a title insurer commenter, and a vendor commenter stated
that varying the disclosure methodology between the standard and the
alternative forms would be confusing to consumers, especially consumers
comparing loans between creditors using the different versions of the
disclosures. These commenters noted a creditor choosing to use the
alternative form will show significantly lower closing costs than a
creditor that uses the standard form.
Several commenters stated that the proposed required disclosure is
not an approach that has been tested extensively with regard to
consumers. A title insurer commenter and a trade association commenter
noted that consumer testing prior to issuance of the TILA-RESPA Final
Rule did not include the payoff of the prior mortgage loan as a closing
cost. A vendor commenter believed that consumer testing of this
proposed method of disclosure of payoffs and holdbacks as closing costs
should be conducted before its finalization, in light of the change it
represents from the original design and testing of the disclosures.
A group of vendors and an individual vendor commented that
currently, all of their systems can support construction costs in
``Section H. Other.'' However, these commenters noted the payment of
construction costs is the purpose for obtaining the loan, just as the
purchase of the real estate is the purpose of obtaining a general
purchase loan. The commenters also noted the Bureau is not proposing
that the sale price must be disclosed in ``Section H. Other'' even
though it is also a purpose for which loan proceeds must be used. The
commenters asked whether consumers would understand why the
construction costs are a closing cost but the sales price is not. The
commenters agreed if the proposed disclosure is mandated for all
lenders, results will be consistent when shopping, although that does
not mean that it is clear to consumers why these disclosures are
described as closing costs.
Two trade association commenters and a financial institution
commenter stated the proposed revision of comment 37(g)(4)-4 can create
both software and training issues, as loans with a seller would require
entirely different instruction than those transactions where use of the
alternate form is allowable. These commenters noted that creditors
would be required to input the covered costs into their systems
differently, depending on which version of the disclosures they were
using, which will create software and staff training difficulties.
Three trade association commenters stated the proposed addition of
a specific required method of disclosing construction costs would
require significant re-programming to the cash to close, loan costs,
and summary of transactions calculations. Two of these commenters noted
that many different software systems may be involved in the origination
of a loan and the production of the disclosures, including loan
origination software, lender's document production software, title
production software, and collaborative closing portals. The commenters
pointed out that these software systems may program the disparate set
of payoffs and construction costs between the standard and alternative
disclosures differently. Some systems may require coding of such costs
only as payoffs and then automatically place the data differently
between the versions of the disclosure, while some may require the user
to code such costs differently as payoffs or closing costs between the
different forms. The commenters concluded the difference in data
formats may increase costs and frustrate the industry's efforts to use
uniform data standards.
A financial institution commenter disagreed with the comparability
goal of the proposed revision, which would not have permitted
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) because the Loan
Estimate does not have a comparable summaries of transactions table.
This commenter believed the comparability goal should not be met at the
expense of the goal of developing clear disclosures that help consumers
understand the credit transaction and closing costs. A trade
association commenter also took issue with the comparability goal of
the proposal. This commenter stated disclosure on the summaries of
transactions table is a method that is commonly used now by many
creditors and closing agents to disclose construction costs or payoffs
when the standard Closing Disclosure is used and is understood by
consumers and settlements agents.
A title insurer, an asset manager, and a group of vendors noted
that the proposal did not account for disclosure of payoffs of other
types of secured debt, such as a loan secured by an automobile, which
should be treated consistently with other payoffs. These commenters
recommended that the disclosure for payoff of any existing debt be
treated consistently.
Two trade association commenters urged excluding temporary
construction financing transactions from coverage of the TILA-RESPA
Rule, leaving only the permanent phase of a construction-permanent loan
subject to the TILA-RESPA integrated disclosure requirements. These
commenters noted the exclusion of such construction financing
transactions from other Regulation Z requirements, such as those for
high-cost mortgages and for making ability-to-repay determinations.
Several commenters stated that payoffs and holdbacks should not be
disclosed as closing costs under Sec. Sec. 1026.37(g)(4) and
1026.38(g)(4) and instead suggested alternative disclosures. A title
insurer commenter, a vendor commenter, two trade association
commenters, and three creditor commenters recommended these costs
should be disclosed in the ``Adjustments and Other Credits'' row of the
calculating cash to close table under Sec. 1026.37(h)(1)(vii) on the
Loan Estimate and under Sec. 1026.38(i)(8) on the Closing Disclosure,
and in the summaries of transactions table on the Closing Disclosure
under Sec. 1026.38 (j)(1)(v). The
[[Page 37701]]
commenters noted current comment 38(j)(1)(v)-1 clarifies that,
``amounts paid to any existing holders of liens on the property in a
refinance transaction'' are disclosed in the summaries of transactions
table pursuant to Sec. 1026.38(j)(1)(v). These commenters generally
stated such disclosures would ensure that closing costs appear together
on the forms, but separate from payoffs and construction costs, which
consumers do not think of as closing costs. A mortgage lender commenter
stated it would seem to be more appropriate to provide for the
availability of a version of the payoffs and payments table for
purchase transactions in a consistent manner with transactions that do
not involve a seller.
Commenters also noted concerns with the reference to the ``bona
fide cost of construction'' in proposed comment 37(g)(4)-4. A vendor
group commenter requested that the language be modified to avoid any
unintended consequences of stating that construction costs and payoffs
are subject to good faith tolerance, subject to only whether the costs
are bona fide or not. As an alternative, the commenter requested an
explanation of how these costs are still subject to good faith
tolerance as long as they are bona fide. An asset manager commenter
stated the purpose behind the introduction of the ``bona fide''
requirement was not clear, and urged the Bureau to omit it from the
final rule as it introduces confusion and uncertainty into the process.
The Final Rule
In response to the comments received, the Bureau is not adopting
the revision of comment 37(g)(4)-4 as proposed. Instead of requiring
disclosure under Sec. 1026.37(g)(4) of construction costs in
connection with the transaction, payoff of existing liens secured by
the property identified under Sec. 1026.37(a)(6), and payoff of other
secured or unsecured debt, the final rule provides for the disclosure
of such amounts under Sec. 1026.38(j)(1)(v). Specifically, as
discussed below in the section-by-section analysis of Sec.
1026.38(j)(1)(v), comment 38(j)(1)(v)-2 as finalized identifies these
amounts as examples of amounts that are disclosed under Sec.
1026.38(j)(1)(v). The Bureau agrees with the commenters that noted
payoffs of other types of secured debt, such as a loan secured by an
automobile or another property, should be treated consistently with
other payoffs.
In the preamble to the proposal, the Bureau noted that it had
considered proposing disclosure of these amounts under Sec.
1026.38(j)(1)(v) in the summaries of transactions table, but had been
concerned that disclosure of the amounts under Sec. 1026.38(j)(1)(v)
would interfere with the comparability between the Loan Estimate and
the Closing Disclosure.\78\ However, the Bureau has been persuaded by
the comments raising concerns about the potential confusion that may
result were these amounts to be disclosed on the Loan Estimate as
``Other Costs'', and has concluded that the comparability goal should
not override considerations of clarity. The Bureau is, therefore,
providing for the disclosure of these amounts under Sec.
1026.38(j)(1)(v).
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\78\ 81 FR 54317, 54340 (Aug. 15, 2016).
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In transactions subject to Sec. 1026.37(h)(1)(iii)(A)(2) and (B),
a creditor factors 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), and payoff of other secured or unsecured debt into the
funds for borrower calculations under Sec. 1026.37(h)(1)(v). When
these amounts are disclosed under Sec. 1026.38(j)(1)(v) on the Closing
Disclosure, they are included in existing debt that is factored into
the funds for borrower calculation under Sec. 1026.37(h)(1)(v).
Comment 37(h)(1)(v)-2 explains that the total amount of all existing
debt that is used in the funds for borrower calculation is the sum of
the amounts that will be disclosed on the Closing Disclosure in the
summaries of transactions table under Sec. 1026.38(j)(1)(ii), (iii),
and (v), as applicable.
This rule does not factor the disclosure of construction costs,
payoff of existing liens, and payoff of unsecured debt into the
adjustments and other credits calculation under Sec.
1026.37(h)(1)(vii) for all transactions as requested by some of the
commenters. The Bureau is concerned that including these amounts in the
adjustments and other credits calculation would result in a very high
estimated cash to close disclosure under Sec. 1026.37(h)(1)(viii)
because the loan amount is not factored into the calculation for the
Sec. 1026.37(h)(1)(vii) disclosure. As an example, including
construction costs of $100,000 in adjustments and other credits on a
Loan Estimate where the total closing costs under Sec.
1026.37(h)(1)(i) are entirely offset by closing costs financed under
Sec. 1026.37(h)(1)(ii) and the disclosures under Sec.
1026.37(h)(1)(iii) through (vi) are each calculated to be $0 would
result in an estimated cash to close amount of $100,000.
However, there are circumstances when the payoff of other secured
and unsecured debt would be included in the adjustments and other
credits calculation under Sec. 1026.37(h)(1)(vii) rather than in the
funds for borrower calculation under Sec. 1026.37(h)(1)(v). Because
transactions using the down payment and funds for borrower calculation
under Sec. 1026.37(h)(1)(iii)(A)(1) do not also use the funds for
borrower calculation under Sec. 1026.37(h)(1)(v), these transactions
account for payoffs of secured or unsecured debt by including such
amounts in the adjustments and other credits calculation under Sec.
1026.37(h)(1)(vii). Comment 37(h)(1)(vii)-6 includes payoffs of secured
or unsecured debt in a purchase transaction disclosed using the formula
under Sec. 1026.37(h)(1)(iii)(A)(1) as an example of amounts disclosed
under Sec. 1026.37(h)(1)(vii). This example is consistent with the
revision made by this rule to Sec. 1026.37(h)(1)(vii). Under the
revision, amounts that are required to be paid by the consumer at
closing in a transaction subject to Sec. 1026.37(h)(1)(iii)(A)(1) are
included in the Sec. 1026.37(h)(1)(vii) calculation. A payoff of other
secured or unsecured debt may be required to be paid in a purchase
transaction subject to Sec. 1026.37(h)(1)(iii)(A)(1), which is a
transaction in which the loan amount does not exceed sale price. In
such circumstances, the payoff amounts, such as for a car loan, are
included in the Sec. 1026.37(h)(1)(vii) calculation, rather than the
Sec. 1026.37(h)(1)(v) calculation.
The Bureau declines to exclude construction financing transactions
from coverage as suggested by a set of commenters. Although such
transactions are excluded from certain Regulation Z requirements, they
have long been subject to Regulation Z disclosure requirements as
evidenced by the history of Appendix D, which provides special
procedures that creditors may use, at their option, to estimate and
disclose the terms of multiple-advance construction loans. As stated in
the TILA-RESPA Final Rule preamble, the Bureau believes that including
construction-only loans within the scope of the integrated disclosure
requirements effectuates the purposes of TILA under TILA section
105(a), because it would ensure meaningful disclosure of credit terms
to consumers and facilitate compliance with the statute.\79\ The ``bona
fide'' language in proposed comment 37(g)(4)-4 is omitted in this final
rule in response to the commenters that noted
[[Page 37702]]
it may lead to misunderstanding and confusion.
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\79\ 78 FR 79730, 79793 (Dec. 31, 2013).
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37(g)(6) Total Closing Costs
37(g)(6)(ii)
The Bureau's Proposal
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, which 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. However, comment 37(g)(6)(ii)-1 describes
lender credits as payments from the creditor to the consumer that do
not pay for a particular fee on the disclosures. To correct this
inconsistency, the Bureau proposed to revise comment 37(g)(6)(ii)-1 to
conform with the language in comment 19(e)(3)(i)-5. For the reasons
discussed below, the Bureau is adopting the modifications to comment
37(g)(6)(ii)-1 as proposed.
Comments Received
The Bureau received comments on this proposal from industry
individuals, a loan origination software vendor, a financial services
advocacy organization, a large bank, a state bank trade association, a
law firm, and a national credit union trade association. Generally
commenters supported the proposal, and one industry commenter
recommended implementing the proposal immediately. Some commenters
stated that the proposal provides clearer guidance in regard to
completion of Sec. 1026.37(g)(6)(ii) on the Loan Estimate.
Several commenters did not oppose the proposal but posited other
options for the Bureau to consider. An industry commenter requested the
Bureau provide a concrete definition for ``specific lender credit'' and
``general lender credit.'' They further suggested that the Bureau
provide an alternate method of disclosing lender credits. Other
commenters noted that there is consumer confusion regarding disclosure
of lender credits between the Loan Estimate and Closing Disclosure, due
to the ``Paid by Others'' column, which only appears on the Closing
Disclosure. An industry commenter recommended that Sec.
1026.37(g)(6)(ii) be revised to allow the disclosure of lender credits
for the interest rate chosen, separate from other lender credits.
Several commenters requested additional guidance from the Bureau on
the tolerance implications of disclosing lender credits, including a
request for additional guidance as to when it would be appropriate for
a lender credit to decrease based on a changed circumstance or a
borrower-requested change. Many commenters requested additional
guidance for situations where the actual cost of a service increases
from the estimate, and a creditor has provided a lender credit covering
the entire estimated cost of a service. Commenters requested that
comments 19(e)(3)(i)-5 and -6 be amended to state that where an actual
cost decreases from the estimated cost provided to the consumer, a
specific lender credit attached to that cost should be permitted to
decrease with it.
The Final Rule
The Bureau is adopting the modifications to comment 37(g)(6)(ii)-1
as proposed. In response to the commenter question on the definition of
``specific'' lender credits and ``general'' lender credits, the Bureau
references the definition in comment 19(e)(3)(i)-5, which states that
specific lender credits are specific payments, such as a credit,
rebate, or reimbursement, from a creditor to the consumer to pay for a
specific fee. Non-specific lender credits are generalized payments from
the creditor to the consumer that do not pay for a particular fee on
the disclosures provided pursuant to Sec. 1026.19(e)(1). With respect
to commenters who sought alternate methods for disclosing lender
credits or who expressed concern about the ``Paid by Others'' column,
the Bureau declines to make changes that were not proposed and that
would require significant changes to the disclosure forms themselves.
Wholesale changes to the manner in which costs are displayed on the
forms would require substantial reprogramming and the Bureau believes
that, for changes of this nature, it would be prudent to first test
them for consumer understanding.
The Bureau also declines to make commenter-requested changes to
comments 19(e)(3)(i)-5 and -6 to state that where an actual cost
decreases from the estimated cost provided to the consumer, a specific
lender credit attached to that cost should be permitted to decrease
with it. In response to such request and other commenter requests for
clarity on the tolerance implications of lender credits on the Loan
Estimate, Sec. 1026.19(e)(3)(iv) already provides when a creditor may
use a revised estimate for purposes of the Sec. 1026.19(e)(3) good
faith determination. The section-by-section analysis of Sec.
1026.19(e)(3)(i) in the TILA-RESPA Final Rule stated that, with respect
to whether a changed circumstance or borrower-requested change can
apply to the revision of lender credits, the Bureau believes that a
changed circumstance or borrower-requested change can decrease such
credits, provided that all of the requirements of Sec.
1026.19(e)(3)(iv) are satisfied.\80\ Generally, lender credits are
determined by the terms of the legal obligation between the creditor
and consumer. Comment 17(c)(1)-1 requires that the disclosures reflect
the terms to which the consumer and creditor are legally bound at the
outset of the transaction and comment 19(e)(1)(i)-1 requires
disclosures based on the best information reasonably available at the
time the disclosure is provided to the consumer. Comment 17(c)(1)-1
also specifies that the legal obligation between the creditor and
consumer is determined by applicable State law or other law. Sales
contracts, government program guidelines, or other requirements may be
the basis for the legal obligation between the creditor and consumer. A
creditor must retain evidence of compliance with the requirements of
Sec. 1026.19(e), including Sec. 1026.19(e)(3)(iv), consistent with
the record retention requirements in Sec. 1026.25(c)(1)(i).
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\80\ 78 FR 79730, 79824 (Dec. 31, 2013).
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37(h) Calculating Cash to Close
The Bureau's Proposal
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
optional alternative calculating cash to close table for transactions
without a seller. The calculating cash to close table is designed to
provide the consumer, using a standardized calculation methodology,
with an estimate of the cash due from or to the consumer at
consummation. 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 and required that the disclosures be based on the best
information reasonably available.\81\ In doing so, the Bureau
acknowledged that the actual amount of cash to close at consummation
could differ significantly from the amount disclosed on the Loan
Estimate, but determined, nonetheless, that consumers would benefit
from receiving an estimate of cash due from or to the consumer at
consummation on the Loan Estimate. Notably, the amounts disclosed in
the calculating cash to close table are not subject to the specific
[[Page 37703]]
tolerances under Sec. 1026.19(e)(3) or Sec. 1026.22(a).
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\81\ 78 FR 79730, 79966-67 (Dec. 31, 2013).
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The Bureau proposed amendments to Sec. 1026.37(h) and its
commentary to address many questions the Bureau has received from
industry on the proper calculation of the various amounts disclosed on
the calculating cash to close table and the variation among creditors
in how the calculating cash to close disclosures are determined. The
Bureau did not propose any amendments that would require modification
of the Loan Estimate itself but did propose amendments that would
clarify or amend calculations that impact the amounts disclosed on the
calculating cash to close table. The Bureau also proposed similar
amendments to Sec. 1026.38(e) and (i), which contain the Closing
Disclosure's alternative and standard calculating cash to close tables,
respectively.
The Bureau sought comment on the calculating cash to close table
for the Loan Estimate and the Closing Disclosure generally. The Bureau
requested comments on possible alternative methods to determine the
amounts disclosed on the calculating cash to close table, whether the
proposed clarifications and revisions would 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 still
providing the consumer with an estimate of the amount due from 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 acknowledged 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 sought 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.
Comments Received
General comments on the calculating cash to close table for the
Loan Estimate in Sec. 1026.37(h) and for the Closing Disclosure in
Sec. 1026.38(e) and (i) are discussed below. Specific comments on the
proposed amendments to Sec. 1026.37(h) and Sec. 1026.38(e) and (i)
are discussed in more detail in the section-by-section analyses related
to those specific amendments.
A variety of commenters, including trade associations, GSEs, a
software vendor, a software vendor group, a mortgage company, a bank,
and a financial holding company, acknowledged that the calculating cash
to close tables provide important benefits to consumers and that the
proposed revisions would improve the ability of creditors to comply
with the calculating cash to close requirements and provide to
consumers an accurate cash to close amount. Commenters argued that the
calculating cash to close tables enable consumers to understand
components of their cash to close amount without the need to wade
through the detailed line items in the summaries of transactions or the
payoffs and payments tables, and described the calculating cash to
close tables as conducting many of the difficult calculations behind-
the-scenes so that consumers can review the high-level components of
the calculations, which generally mirror how they think about the
transaction. Commenters acknowledged the cost of reprogramming, but
nonetheless supported the proposals, stating that the revised
disclosure requirements would facilitate creditors' interactions with
consumers and result in more accurate calculating cash to close
disclosures.
One mortgage company, which generally opposed the Bureau's
proposals to make changes to the standard calculating cash to close
tables, specifically noted that the alternative calculating cash to
close tables function better, are less complicated, and present less
information than the standard tables. Further, the commenter provided
that the alternative calculating cash to close tables do not rely on
mathematical formulas that bear no relationship to reality.
A trade association commenter stated that secondary market
investors who purchase loans are requiring use of the alternative
tables for refinance transactions and asked the Bureau to clarify that
the standard disclosures may be used for refinance transactions. The
commenter explained that it would be helpful if a single disclosure
form could be utilized for all types of transactions.
A number of commenters, including other trade associations,
mortgage companies, and a consumer group, stated that the standard
calculating cash to close tables are confusing and complicated. Many
commenters specifically identified the ``Closing Costs Financed (Paid
from your Loan Amount)'' and ``Down Payment/Funds from Borrower''
labels and calculations as the main areas of concern, asserting that
the mathematical formulas used to calculate these disclosures do not
reflect how consumers understand those amounts in the context of a
residential real estate transaction. One commenter also identified the
``Funds for Borrower'' disclosure as fundamentally flawed for the same
reasons.
Commenters that opposed the proposed amendments suggested a variety
of solutions, including that the Bureau remove the standard calculating
cash to close tables, ``fix'' the tables completely, or leave the
tables alone. Some commenters recommended that the Bureau remove the
calculating cash to close tables on the Loan Estimate and Closing
Disclosure, while others recommended that the table only be removed
from the Closing Disclosure. Commenters that recommended that the
calculating cash to close table be removed only from the Closing
Disclosure asserted that the summaries of transactions table plays a
duplicative role and results in a more accurate cash to close amount,
rendering the Closing Disclosure's calculating cash to close table
useless and a source of added confusion for consumers.
According to some commenters, ``fixing'' the calculating cash to
close tables completely would involve a complete overhaul of the
tables. A consumer group argued that none of the proposed changes and
clarifications will make the table more understandable to consumers.
The commenter provided examples of its proposed new format, which
itemizes what the borrower must pay and what is paid by or for the
borrower, and does not include the closing costs financed disclosure.
The closing costs financed disclosure would instead be moved to the
last page. Another commenter recommended that the calculating cash to
close tables be expanded to identify each formula used and the values
that are included in each calculation.
Other commenters suggested different solutions to ``fix'' the
calculating cash to close tables. These commenters asserted that
``fixing'' the calculating cash to close tables completely would
involve replacing the current formulas for the closing costs financed,
down payment/funds from borrower, and, as requested by one commenter,
the funds for borrower calculations, with instructions that will allow
creditors to disclose amounts that consumers will better understand.
Creditors stated that they are unable to explain the formulas, as they
currently exist, in a manner that is understandable to consumers.
Some of these commenters also suggested revisions to the label for
the closing costs financed and the down payment/funds from borrower
disclosures to help alleviate consumer confusion. For example, one
commenter
[[Page 37704]]
suggested renaming the closing costs financed disclosure with what it
viewed as a more appropriate label, such as ``Amount Resulting from
Sec. 1026.38(i)(3) Calculation.'' In addition, some commenters
recommended that the Bureau relabel the down payment/funds from
borrower disclosure to eliminate consumer confusion. One recommendation
was for the Bureau to remove the label ``Down Payment'' on the Loan
Estimate and Closing Disclosure so that the disclosure is simply
labeled ``Funds from Borrower.'' Alternatively, commenters suggested
the Bureau relabel the disclosure as ``Funds from Borrower'' for a
transaction that does not involve a seller and ``Funds from Borrower
(including Down Payment)'' or ``Down Payment & Funds from Borrower''
for a transaction involving a seller. The suggested labels for
transactions with sellers would convey to the consumer that the amount
disclosed includes the down payment, as the term is commonly
understood, but may also include other amounts.
Commenters that recommended that the Bureau not amend the
calculating cash to close tables contended that the proposed amendments
will provide only marginal improvements to the tables without
addressing the more significant concerns with the closing costs
financed and down payment/funds from borrower calculations. These
commenters argued that implementing the proposed amendments will result
in significant costs related to programming, operational procedures,
testing, training, developing policies, and internal auditing.
The Final Rule
After considering the comments, the Bureau is not in this final
rule deviating significantly from the proposed amendments, which
address many questions the Bureau has received from industry on the
proper calculation of the various amounts disclosed on the calculating
cash to close tables and the variation among creditors in how the
calculating cash to close disclosures are determined. Removing the
calculating cash to close table from the Loan Estimate or Closing
Disclosure, as requested by some commenters, would be a significant
change from the current disclosure requirements. The Bureau did not
propose such a departure, nor did the Bureau receive comments on the
effect on consumers of removing the calculating cash to close tables.
The Bureau believes, as do a number of commenters, that the calculating
cash to close tables provide important benefits to consumers. In
addition to promoting the informed use of credit (which is a purpose of
TILA), the calculating cash to close tables ensure that the features of
the transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the loan product, consistent with
section 1032(a) of the Dodd-Frank Act. The tables conduct many of the
difficult calculations behind-the-scenes so that consumers can review
the high-level components of the calculation. The calculating cash to
close tables contain disclosures required by TILA section 128(a)(17),
including the amount of settlement charges included in the loan
(closing costs financed disclosure) and the amount of charges the
borrower must pay at closing (cash to close amount). The Bureau
believes that the amendments, as finalized, will improve the ability of
creditors to comply with the calculating cash to close requirements and
provide to consumers a more accurate cash to close amount.
Similarly, making the revisions requested by some commenters would
also be a significant change from the current disclosure requirements.
As discussed above, some commenters requested that the Bureau amend the
closing costs financed and down payment/funds from borrower formulas to
more closely reflect consumers' understanding of these disclosure
items. In response, the Bureau notes that each of the calculating cash
to close disclosure components is designed to work in conjunction with
the other calculating cash to close disclosures to yield the estimated
amount of cash due from or to the borrower at closing for a wide
variety of transaction types. Because money is fungible, in order to
create standardized disclosures that can be utilized in a wide variety
of transaction types, the Bureau had to create formulas that earmarked
loan funds for specific disclosures, including the closing costs
financed and down payment/funds from borrower disclosures. In addition,
the Bureau designed the closing costs financed disclosure, which is a
necessary component of the standard calculating cash to close tables,
to satisfy the TILA section 128(a)(17) statutory requirement to
disclose the amount of settlement charges included in the loan.
Removing that disclosure from the standard calculating cash to close
tables would result in an inaccurate disclosure of the amount due from
the consumer at consummation, which would be inconsistent with another
statutory requirement in TILA section 128(a)(17). One commenter even
admitted that it tried to develop an alternative closing costs financed
formula that would work for all transaction types but was unable to do
so.
The Bureau recognizes that creating revised labels for the closing
costs financed and down payment/funds from borrower disclosures, as
suggested by some commenters, could alleviate confusion associated with
the disclosures. Consumers would no longer associate the amount
disclosed on the currently labeled ``Closing Costs Financed (Paid from
your Loan Amount)'' line of the calculating cash to close table with
the amount of closing costs they understand to be financed in their
transactions, or the amount disclosed on the currently labeled ``Down
Payment/Funds from Borrower'' line of the calculating cash to close
table with the amount of the down payment they understand to be making
in their transactions. However, as discussed in the proposal, the
Bureau's focus in this rulemaking is to provide additional clarity to
facilitate compliance on an expedited schedule. The labels on the Loan
Estimate and Closing Disclosure forms were developed through consumer
testing processes, and it is not feasible, on an expedited schedule, to
reengage in consumer testing to validate revised labels. Although
consumer testing of disclosures is not necessary in all instances, the
Bureau considers that such testing is important in this context. The
Bureau also notes that the down payment/funds from borrower disclosure
required under Sec. 1026.37(h)(1)(iii) equally emphasizes ``Down
Payment'' and ``Funds from Borrower'' in its current display of ``Down
Payment/Funds from Borrower.'' Its calculation is designed to encompass
the down payment and other funds due from the borrower using a formula
that can be applied to a variety of transaction types, including
transactions with and without sellers.
The Bureau is not amending the calculating cash to close tables to
include the formulas used to calculate the individual components, as
suggested by one commenter. The tables intentionally conduct the
calculations behind-the-scenes so that consumers can review the high-
level components of the calculation. Consumers wishing to see the final
details of their transaction can review the summaries of transactions
table or the payoffs and payments table on the Closing Disclosure, as
applicable.
The Bureau is also not completely overhauling the calculating cash
to close tables, as suggested by a consumer group. The commenter's
proposed new format would itemize what the borrower
[[Page 37705]]
must pay and what is paid by or for the borrower, and would not include
the closing costs financed disclosure, which would instead be moved to
the last page. The examples ranged in length from 11 lines (for a
refinance transaction) to 16 lines (for a purchase transaction), and
were substantially longer than the current calculating cash to close
tables, which are four lines on the alternative calculating cash to
close tables, seven lines on the Loan Estimate's standard calculating
cash to close table, and nine lines on the Closing Disclosure's
standard calculating cash to close table. The Bureau believes the
degree of itemization in the calculating cash to close tables proposed
by the commenter is unnecessary and frustrates the benefits of the
calculating cash to close tables identified by other commenters,
including providing consumers with the high-level components of the
cash to close calculation and enabling consumers to understand
components of their cash to close amount without the need to wade
through the detailed line items in the summaries of transactions or the
payoffs and payments tables.
As discussed above, a trade association commenter asked the Bureau
to clarify that the standard disclosures may be used for refinance
transactions. The commenter is correct that, under the Bureau's
regulations, the standard calculating cash to close tables may be used
for refinance transactions. A refinance transaction may be disclosed
using the optional alternative calculating cash to close table under
Sec. 1026.37(h)(2), but use of that table is not required. However, if
the creditor previously disclosed the optional alternative calculating
cash to close table under Sec. 1026.37(h)(2), the alternative
calculating cash to close table must also be disclosed under Sec.
1026.38(e). At the same time, secondary market investors may decide, as
a business practice, to impose additional requirements, such as
requiring the use of the alternative disclosures for refinance
transactions.
The Bureau believes that finalizing the proposed amendments, with
some revisions as discussed in the applicable section-by-section
analyses, is necessary in order to resolve issues that have arisen
during the initial implementation of the TILA-RESPA Rule and on which
industry has asked the Bureau for guidance. The Bureau has been, and
remains, engaged in extensive efforts to support industry
implementation, and finalizing proposed clarifications and amendments
related to the calculating cash to close tables is one such effort.
The Bureau is finalizing the proposed amendments and additional
revisions pursuant to the Bureau's authority under TILA section 105(a)
and Dodd-Frank Act section 1032(a). The Bureau believes that finalizing
the proposed amendments and additional revisions 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).
37(h)(1) for All Transactions
The Bureau's Proposal
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
proposed to add comment 37(h)(1)-2 to clarify that, on the Loan
Estimate for simultaneous subordinate financing, the sale price
disclosed under Sec. 1026.37(a)(7) would not be used in any of the
Sec. 1026.37(h)(1) calculations. The Bureau explained that omitting
the sale price from the calculating cash to close table calculations
required under Sec. 1026.37(h)(1) for simultaneous subordinate
financing transactions would result in a cash to close amount
reflecting the proceeds of the simultaneous subordinate financing,
itself included on the first-lien Loan Estimate in the disclosure under
Sec. 1026.37(h)(1)(vii).
In the proposal, with respect to the Closing Disclosure, the Bureau
would have structured the calculating cash to close table calculations
in Sec. 1026.38(i) to use the sale price disclosed under Sec.
1026.38(j)(1)(ii), and further would have provided in proposed comment
38(j)(1)(ii)-1 that for simultaneous subordinate financing
transactions, the sale price would not be disclosed under Sec.
1026.38(j)(1)(ii). Thus, these proposed amendments would have meant
that for simultaneous subordinate financing, the sale price disclosed
under Sec. 1026.38(j)(1)(ii) would not be used in any of the Sec.
1026.38(i) calculations.
Comments Received
A compliance professional supported the proposal to clarify that,
on the Loan Estimate for simultaneous subordinate financing, the sale
price disclosed under Sec. 1026.37(a)(7) would not be used in any of
the Sec. 1026.37(h)(1) calculations. A financial holding company
stated that if the sale price is removed from the calculating cash to
close table calculations for simultaneous subordinate financing, the
calculations do not work on the Loan Estimate or Closing Disclosure. A
title insurance company noted that the Bureau did not make a
corresponding change to the commentary to Sec. 1026.38(i), so the
change appears only to affect the Loan Estimate. A commenter explained
that revisions which clarify how simultaneous subordinate financing is
disclosed, including treatment of the sale price, require systems
changes which will take a full software cycle to implement.
The Final Rule
For the reasons discussed below, the Bureau is finalizing comment
37(h)(1)-2 as proposed with technical and conforming revisions. The
Bureau believes that excluding the sale price from the calculating cash
to close calculations for simultaneous subordinate financing purchase
transactions will result in a more accurate disclosure of the actual
subordinate financing transaction and reduce consumer confusion. As
discussed above, the Bureau explained in the section-by-section
analysis of Sec. 1026.37(h)(1) of the proposal that omitting the sale
price from the cash to close calculations required under Sec.
1026.37(h)(1) for simultaneous subordinate financing transactions would
result in a cash to close amount reflecting the proceeds of the
subordinate financing, itself included on the first-lien Loan Estimate
in the disclosure under Sec. 1026.37(h)(1)(vii). The Bureau notes that
this statement is no longer accurate with respect to the final rule. As
discussed in the section-by-section analysis of Sec. 1026.38(j)(1)(v),
the Bureau is making amendments in the final rule to permit creditors
to reflect the proceeds of the subordinate financing that will be
applied to the first-lien transaction in the summaries of transactions
table on the subordinate financing Closing Disclosure. Amounts that
will be disclosed under Sec. 1026.38(j)(1)(v) on the Closing
Disclosure will be factored into the Loan Estimate in one of two ways.
In transactions subject to Sec. 1026.37(h)(1)(iii)(A)(2) and (B), a
[[Page 37706]]
creditor factors amounts that will be disclosed under Sec.
1026.38(j)(1)(v) into the funds for borrower calculation under Sec.
1026.37(h)(1)(v). However, in transactions subject to Sec.
1026.37(h)(1)(iii)(A)(1), a creditor factors amounts that will be
disclosed under Sec. 1026.38(j)(1)(v) into the adjustments and other
credits calculation under Sec. 1026.37(h)(1)(vii).
The Bureau is also amending proposed comment 37(h)(1)-2 to refer to
the sale price disclosure in Sec. 1026.37(a)(7)(i) when referring to
the sale price, for greater specificity. Section 1026.37(a)(7)(ii)
provides for the disclosure of the estimated property value, and the
Bureau does not intend to reference the estimated property value
disclosure in final comment 37(h)(1)-2.
The Bureau does not agree with an assertion raised by one commenter
that the calculating cash to close table calculations will not work if
the sale price is omitted from the calculations for the simultaneous
subordinate financing Loan Estimate and Closing Disclosure. Unless
information specific to the first-lien transaction, including the loan
amount, is accounted for in the simultaneous subordinate financing
calculating cash to close table calculations, inclusion of the sale
price in the subordinate financing cash to close calculations will
result in a large cash to close amount owed by the consumer, instead of
a cash to close amount specifically for the subordinate financing
transaction. The Bureau believes it is less burdensome to subordinate-
lien creditors to omit the sale price from the simultaneous subordinate
financing cash to close calculations than to import various elements of
the first-lien transaction into the simultaneous subordinate financing
calculating cash to close table calculations. For greater clarity and
ease of implementation, the Bureau is amending Sec. Sec.
1026.37(h)(1)(iii) and 1026.38(i)(4)(ii) to provide that for
simultaneous subordinate financing, the down payment/funds from
borrower amount is determined in accordance with Sec. Sec.
1026.37(h)(1)(v) and 1026.38(i)(6)(iv), respectively.
As discussed above, a title insurance company noted that the Bureau
did not propose an amendment to the commentary to Sec. 1026.38(i)
similar to the amendment set forth in proposed comment 37(h)(1)-2,
which caused the commenter to believe that the guidance regarding sale
price and simultaneous subordinate financing only affects the Loan
Estimate. The Bureau notes, however, that consistent with the proposal,
the Bureau is structuring the calculating cash to close table
calculations in Sec. 1026.38(i) to use the sale price disclosed under
Sec. 1026.38(j)(1)(ii), and further is providing in final comment
38(j)(1)(ii)-1 that for simultaneous subordinate financing purchase
transactions, the sale price is not disclosed under Sec.
1026.38(j)(1)(ii). These final amendments mean that for simultaneous
subordinate financing purchase transactions, because no sale price is
disclosed under Sec. 1026.38(j)(1)(ii), no sale price would be used in
any of the Sec. 1026.38(i) calculations. As a result, the Bureau does
not believe that a provision corresponding to the one in final comment
37(h)(1)-2 is needed in the commentary to Sec. 1026.38(i).
Nonetheless, the Bureau is making additional revisions to the
commentary to Sec. 1026.38(i) to clarify that no sale price is used in
any of the Sec. 1026.38(i) calculations for simultaneous subordinate
financing purchase transactions. As discussed in the section-by-section
analysis of Sec. 1026.38(i)(3), the Bureau is amending comment
38(i)(3)-1 to explain that for some loans, such as simultaneous
subordinate financing purchase transactions, no sale price will be
disclosed under Sec. 1026.38(j)(1)(ii) in accordance with final
comment 38(j)(1)(ii)-1. In addition, as discussed above and in the
section-by-section analysis of Sec. 1026.38(i)(4), the Bureau is
revising Sec. 1026.38(i)(4)(ii) and its commentary to make clear that
on the simultaneous subordinate financing Closing Disclosure, the down
payment/funds from borrower amount is determined in accordance with the
formula in Sec. 1026.38(i)(6)(iv).
The Bureau is providing industry sufficient time to implement all
of the amendments related to simultaneous subordinate financing. As
discussed in part VI below, the rule will be effective 60 days from
publication in the Federal Register, but there will be an optional
compliance period in effect until October 1, 2018.
37(h)(1)(i) Total Closing Costs
Section 1026.37(h)(1)(i) requires a creditor to disclose the amount
of total closing costs disclosed under Sec. 1026.37(g)(6) as a
positive number, labeled ``Total Closing Costs.'' The Bureau did not
propose any amendments to Sec. 1026.37(h)(1)(i), but the Bureau did
propose to address concerns regarding the required disclosure of
negative and positive numbers elsewhere, including in Sec.
1026.37(h)(1)(vii) and (2)(iii), and Sec. 1026.38(e)(2)(ii) and
(4)(ii). In addition, the Bureau received a comment from a software
vendor requesting that the Bureau amend Sec. 1026.37(h)(2)(ii), the
alternative calculating cash to close table's companion provision to
Sec. 1026.37(h)(1)(i), to account for situations where the amount of
total closing costs disclosed under Sec. 1026.37(g)(6) is a negative
number, and the Bureau is amending Sec. 1026.37(h)(2)(ii) accordingly.
Therefore, the Bureau believes it is also important to amend Sec.
1026.37(h)(1)(i) to account for situations where the amount of total
closing costs disclosed under Sec. 1026.37(g)(6) is a negative number.
As amended, Sec. 1026.37(h)(1)(i) requires creditors to disclose under
Sec. 1026.37(h)(1)(i) the amount disclosed under Sec. 1026.37(g)(6),
labeled ``Total Closing Costs.'' While the Bureau notes that it is not
common for the total closing costs disclosed under Sec. 1026.37(g)(6)
to be a negative number, the Bureau concludes that it is nonetheless
necessary to amend Sec. 1026.37(h)(1)(i) to address the limited
circumstances in which a negative number is disclosed under Sec.
1026.37(g)(6).
37(h)(1)(ii) Closing Costs Financed
The Bureau's Proposal
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
proposed 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
in relation to the closing costs financed calculation.
The Bureau proposed to revise comment 37(h)(1)(ii)-1 to clarify
that the sale price disclosed under Sec. 1026.37(a)(7) 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 would not have
been used in any calculating cash to close table calculations on the
[[Page 37707]]
Loan Estimate for a simultaneous subordinate financing purchase
transaction. Consistent with proposed revisions to comment
37(h)(1)(ii)-1, the Bureau also proposed to add comment 38(i)(3)-1 to
provide similar guidance for the Closing Disclosure regarding the sale
price in relation to the closing costs financed calculation.
In addition, the Bureau proposed to remove the word ``total'' from
the phrase ``total loan amount'' in comment 37(h)(1)(ii)-1 because
``total loan amount'' is a defined term under Sec. 1026.32(b)(4), and
the Bureau intended only to reference the loan amount disclosed under
Sec. 1026.37(b)(1). The Bureau also proposed a technical revision in
comment 37(h)(1)(ii)-1 to reference the absolute value of the amount
disclosed under Sec. 1026.37(h)(1)(ii) when that amount is negative in
order for the calculation to work properly.
Proposed comment 37(h)(1)(ii)-2 explained 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). The comment further
explained that financed closing costs, such as mortgage insurance
premiums payable at or before consummation, do not reduce the loan
amount. The intent of this proposed comment was to 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
under Sec. 1026.37(b)(1), and the basis for the calculating cash to
close table calculations, is the total amount the consumer will borrow
as reflected by the face amount of the note. This definition of loan
amount under Sec. 1026.37(b)(1) would not have affected how other
agencies define or use similar terms for purposes of their own
programmatic requirements. Consistent with proposed comment
37(h)(1)(ii)-2, the Bureau also proposed to add comment 38(i)(3)-2 to
provide similar guidance for the Closing Disclosure regarding the loan
amount in relation to the closing costs financed calculation.
Comments Received
A software vendor supported the proposed change to comment
37(h)(1)(ii)-1, while also noting that the problem it addresses was not
a significant concern to the industry. A software vendor and software
vendor group noted a slight inconsistency between the language
describing the closing costs financed calculation for the Loan Estimate
in the proposed revisions to comment 37(h)(1)(ii)-1 and the Closing
Disclosure in proposed comment 38(i)(3)-1, which could permit creditors
to use two different calculations for the closing costs financed
disclosures. Specifically, commenters identified the inclusion of the
word ``may'' in reference to the Loan Estimate's closing costs financed
formula in the proposed revisions to comment 37(h)(1)(ii)-1, which
would give creditors a discretionary option to include or exclude the
sale price in the closing costs financed disclosure on the Loan
Estimate's calculating cash to close table, whereas on the Closing
Disclosure, proposed comment 38(i)(3)-1 would have required that the
sale price disclosed under Sec. 1026.38(j)(1)(ii) be included in the
closing costs financed calculation.
A software vendor expressed support for the Bureau's proposed
comment 37(h)(1)(ii)-2 to clarify that financed mortgage insurance
premiums do not reduce the loan amount used in the calculation. A trade
association commenter did not support requiring the loan amount
disclosed in Sec. 1026.37(b)(1) to be used in the closing costs
financed calculation; instead, the commenter indicated that creditors
should be permitted to use the ``base loan amount.''
The Final Rule
For the reasons discussed below, the Bureau is finalizing the
proposed amendments to comments 37(h)(1)(ii)-1 and -2 with revisions.
The Bureau's use of the phrase ``may include the sale price disclosed
under Sec. 1026.37(a)(7), if applicable'' in the proposed revisions to
comment 37(h)(1)(ii)-1 was intended to address situations in which the
standard calculating cash to close table is used for simultaneous
subordinate financing, in which no sale price would be included, as
described in proposed comment 37(h)(1)-2. However, the Bureau
recognizes the need in final comment 37(h)(1)(ii)-1 for greater clarity
and alignment with final comment 38(i)(3)-1 and is revising comment
37(h)(1)(ii)-1 accordingly. For the reasons discussed in the section-
by-section analysis of Sec. 1026.37(h)(1), the Bureau is also amending
comment 37(h)(1)(ii)-1 to refer to the sale price disclosure in Sec.
1026.37(a)(7)(i) when referring to the sale price. As revised, final
comment 37(h)(1)(ii)-1 provides, in part, that the estimated total
amount of payments to third parties includes the sale price disclosed
under Sec. 1026.37(a)(7)(i), if applicable, unless otherwise excluded
under comment 37(h)(1)-2.
The Bureau is also amending comment 37(h)(1)(ii)-1 to include
additional examples for consistency with existing comment 37(g)(4)-4,
which is not being revised as proposed. As discussed in the section-by-
section analysis of Sec. 1026.37(g)(4), the Bureau is not finalizing
the proposal that would have required construction costs, payoff of
existing liens, and payoff of unsecured debt to be disclosed under
Sec. 1026.37(g)(4). The closing costs financed disclosure under Sec.
1026.37(h)(1)(ii) excludes payments to third parties disclosed under
Sec. 1026.37(f) and (g) from the calculation. Because amounts for
construction costs, payoff of existing liens, and payoff of unsecured
debt would be factored into either the funds for borrower calculation
under Sec. 1026.37(h)(1)(v) or the adjustments and other credits
calculation under Sec. 1026.37(h)(1)(vii), rather than disclosed under
Sec. 1026.37(f) or under Sec. 1026.37(g), they will be included in
the closing costs financed calculation as payments to third parties not
otherwise disclosed under Sec. 1026.37(f) and (g).
The Bureau believes its statement in proposed new comment
37(h)(1)(ii)-2 that the loan amount is the total amount the consumer
will borrow as reflected by the face amount of the note is sufficiently
clear and is therefore streamlining the comment by removing the
example. The Bureau is also making a technical correction, but is not
otherwise amending proposed comment 37(h)(1)(ii)-2 as requested by a
commenter. The loan amount disclosed under Sec. 1026.37(b)(1) is an
integral part of the closing costs financed calculation, and the
calculating cash to close table generally. Each of the calculating cash
to close disclosures is designed to work in conjunction with the other
calculating cash to close disclosures to yield the estimated amount of
cash due from or to the consumer at closing for a wide variety of
transaction types. The Bureau designed the calculations so that
financed closing costs, such as mortgage insurance premiums payable at
or before consummation, do not reduce the loan amount. For purposes of
the Loan Estimate, the amount disclosed as the loan amount under Sec.
1026.37(b)(1), and the basis for the calculating cash to close table
calculations, is the total amount the consumer will borrow as reflected
by the face amount of the note. The Bureau emphasizes that this
definition of loan amount under Sec. 1026.37(b)(1) does not affect how
other agencies may define or use similar terms for purposes of their
own programmatic requirements. For example, the ``base
[[Page 37708]]
loan amount'' and ``total loan amount,'' as those terms are used for
loans made under programs of the Federal Housing Administration (FHA),
may not be the same as the loan amount required to be disclosed under
Sec. 1026.37(b)(1).
37(h)(1)(iii) Down Payment and Other Funds From Borrower
The Bureau's Proposal
Section 1026.37(h)(1)(iii)(A) requires the down payment and funds
from borrower 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 amount 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 any existing
loans that the consumer is assuming or any loans subject to which the
consumer is taking title to the property (assumed or taken subject to)
that will be disclosed on the Closing Disclosure under Sec.
1026.38(j)(2)(iv). 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 disclosed must
be $0. 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 proposed 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. Proposed Sec. 1026.37(h)(1)(iii)(A)(1) would
have specified 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 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 that will be disclosed on the Closing Disclosure
exceed the sale price of the property. Proposed Sec.
1026.37(h)(1)(iii)(A)(2) would have provided that 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 revised Sec. 1026.37(h)(1)(v).
The Bureau also proposed to make conforming amendments to Sec.
1026.37(h)(1)(iii)(B). As proposed, Sec. 1026.37(h)(1)(iii)(B) would
have provided that, for all other transactions, the estimated funds
from the consumer is also calculated in accordance with the funds for
borrower calculation in revised Sec. 1026.37(h)(1)(v). The Bureau
proposed to add new comment 37(h)(1)(iii)-2 to explain that the amount
disclosed under Sec. 1026.37(h)(1)(iii)(A)(2) or (B) is determined in
accordance with the funds for borrower calculation in revised Sec.
1026.37(h)(1)(v).
In addition, the Bureau proposed to replace current comment
37(h)(1)(iii)-1 with a new comment. As a result of the proposed
revisions to Sec. 1026.37(h)(1)(iii), current comment 37(h)(1)(iii)-1
would not have been accurate or necessary. The Bureau proposed to
remove current comment 37(h)(1)(iii)-1 and to replace it with guidance
on the calculation set forth in the proposed revisions to Sec.
1026.37(h)(1)(iii). Proposed new comment 37(h)(1)(iii)-1 explained the
calculation that must be followed for accurate disclosure under Sec.
1026.37(h)(1)(iii). The proposed comment also provided guidance
regarding minimum cash investments. 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.'' The proposed comment explained that the minimum
cash investments required of consumers and referred to as ``down
payments'' under some loan programs would not necessarily be reflected
in the disclosure, and disclosure of the calculated amount would not
affect compliance or non-compliance with such loan programs'
requirements.
Comments Received
In response to the Bureau's general solicitation of comment on the
calculating cash to close table, many commenters raised concerns with
the down payment and funds from borrower disclosure requirements. The
Bureau discusses commenters' general concerns in the section-by-section
analysis of Sec. 1026.37(h). The comments summarized below are related
to the Bureau's specific proposals under Sec. 1026.37(h)(1)(iii) and
its commentary.
A bank commenter and a compliance professional supported the
Bureau's proposal 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. The commenters stated that
this change will allow the accurate reflection of proceeds due to the
borrower at closing and urged the Bureau to adopt the proposal.
A secondary market participant, a trade association, software
vendors, and a software vendor group objected to the Bureau's
distinction between the Bureau's down payment disclosure calculation
and minimum cash investments required of consumers under some loan
programs, which may also be called ``down payments'' under those loan
programs. Two commenters argued that creditors would be setting up a
particular definition of down payment for Sec. Sec. 1026.37 and
1026.38 that is different from the definition of down payment used by
consumers, other Federal agencies, and GSEs. The commenters asserted
that it is misleading to disclose to the consumer a down payment amount
that does not coincide with the consumer's understanding of what the
down payment amount should be, and recommended that the Bureau relabel
the disclosure as ``Funds from Borrower'' instead of ``Down Payment/
Funds from Borrower.'' Commenters also suggested variations of dynamic
text such as ``Funds from Borrower (including Down Payment)'' and
``Down Payment & Funds from Borrower'' for transactions involving a
seller. One commenter stated that the distinction drawn by the Bureau
in proposed new comment 37(h)(1)(iii)-1 would be extremely confusing to
a consumer. The commenter asserted that it will be difficult for first
time home buyers to understand that the federally insured home loan for
which they are applying requires a certain down payment, but the
federally required disclosure does not reflect that down payment
amount. The commenter asserted that it would also be difficult to
compare a Loan Estimate for a federally insured home loan program with
a Loan Estimate for a conventional home loan program.
The Final Rule
For the reasons discussed below, the Bureau is adopting, with
revisions, the proposed amendments to Sec. 1026.37(h)(1)(iii) and
proposed comments 37(h)(1)(iii)-1 and -2. The Bureau is adopting the
amendment to Sec. 1026.37(h)(1)(iii) as proposed with revisions to
clarify how Sec. 1026.37(h)(1)(iii) applies to simultaneous
subordinate financing purchase transactions and transactions with
improvements to be made on the property. The Bureau is also amending
Sec. 1026.37(h)(1)(iii)(A)(1) and (2) to refer to the sale price
disclosure in
[[Page 37709]]
Sec. 1026.37(a)(7)(i), specifically. The Bureau is making similar
amendments to Sec. 1026.38(i)(4)(ii)(A). The Bureau is making minor
technical revisions to Sec. 1026.37(h)(1)(iii)(B).
As discussed in more detail in the section-by-section analysis of
Sec. 1026.37(h)(1), under the proposal, in a simultaneous subordinate
financing transaction, the sale price would have been omitted from the
calculating cash to close table calculations, including under Sec.
1026.37(h)(1)(iii). As a result, under the proposal, for simultaneous
subordinate financing, proposed Sec. 1026.37(h)(1)(iii)(A)(2) would
have applied because 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 under Sec. 1026.38(j)(2)(iv) would have
exceeded the sale price of the property disclosed under Sec.
1026.37(a)(7). At least one commenter on the proposal to omit the sale
price from the cash to close calculations of simultaneous subordinate
financing transactions suggested that it was not clear that proposed
Sec. 1026.37(h)(1)(iii)(A)(2) would have applied to simultaneous
subordinate financing. Therefore, the Bureau is amending proposed Sec.
1026.37(h)(1)(iii)(A)(2) to explicitly provide that the down payment
and funds from borrower amount for simultaneous subordinate financing
is determined in accordance with Sec. 1026.37(h)(1)(iii)(A)(2). The
Bureau is making similar amendments to Sec. 1026.38(i)(4)(ii)(A)(2).
The Bureau anticipates that there may be similar uncertainty
regarding which subparagraph of Sec. 1026.37(h)(1)(iii)(A) applies to
purchase transactions that involve improvements to be made on the
property. Therefore, the Bureau is also amending proposed Sec.
1026.37(h)(1)(iii)(A)(2) to explicitly provide that the down payment
and funds from borrower amount for purchase transactions that involve
improvements to be made on the property is determined in accordance
with Sec. 1026.37(h)(1)(iii)(A)(2). The Bureau is making similar
amendments to Sec. 1026.38(i)(4)(ii)(A)(2).
The Bureau is adopting proposed comment 37(h)(1)(iii)-1 with
revisions. As discussed above, commenters raised concerns with the
Bureau's distinction between the down payment disclosure calculation
and minimum cash investments required of consumers under some loan
programs, which may also be called ``down payments'' under those loan
programs. The commenters recommended that the Bureau revise the ``Down
Payment/Funds from Borrower'' label to remove or deemphasize the ``Down
Payment'' aspect of the label. The Bureau is not amending Sec.
1026.37(h)(1)(iii) in response to these comments. The Bureau notes that
the disclosure required under Sec. 1026.37(h)(1)(iii) equally
emphasizes ``Down Payment'' and ``Funds from Borrower'' with its
current label, ``Down Payment/Funds from Borrower.'' Its calculation is
designed to encompass the down payment and other funds from the
borrower using a formula that can be applied to a variety of
transaction types, including transactions with and without sellers. The
Bureau is, however, amending proposed new comment 37(h)(1)(iii)-1 to
make clear that the disclosure required under Sec.
1026.37(h)(1)(iii)(A)(1) represents both the down payment and other
funds from the borrower and to explain that the down payment and funds
from borrower calculation is independent of any loan program or
investor requirements. Because the Bureau is revising Sec.
1026.37(h)(1)(iii)(A)(1) and (2) to refer to the sale price disclosure
in Sec. 1026.37(a)(7)(i), specifically, as discussed above, the Bureau
is also making a conforming revision in comment 37(h)(1)(iii)-1.
The Bureau is adopting comment 37(h)(1)(iii)-2 as proposed with
several revisions. The Bureau is revising proposed comment
37(h)(1)(iii)-2 for conformity with revisions made to Sec.
1026.37(h)(1)(iii) discussed above and for clarity. The Bureau also is
incorporating portions of the regulatory text and commentary from final
Sec. 1026.37(h)(1)(v) into comment 37(h)(1)(iii)-2 for additional
clarity regarding the disclosure requirements when the funds for
borrower formula under Sec. 1026.37(h)(1)(v) is used in accordance
with Sec. 1026.37(h)(1)(iii)(A)(2) and (B).
37(h)(1)(v) Funds for Borrower
The Bureau's Proposal
Section 1026.37(h)(1)(v) provides that the amount of down payment
and funds from the borrower disclosed under Sec. 1026.37(h)(1)(iii)(B)
and of funds for the borrower 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). For purposes of
the funds for borrower disclosure in Sec. 1026.37(h)(1)(v) and the
down payment/funds from borrower disclosure in Sec.
1026.37(h)(1)(iii)(B), the calculation 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)(B) as ``Down
Payment/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)(B) as ``Down Payment/Funds from Borrower.''
When the result is $0, $0 is disclosed as ``Down Payment/Funds from
Borrower'' and ``Funds for Borrower'' under Sec. 1026.37(h)(1)(iii)(B)
and (v), respectively. Current 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) and labeled ``Down Payment/Funds from
Borrower,'' and that, in a purchase transaction, other than a
construction loan, the amount disclosed under Sec. 1026.37(h)(1)(v)
and labeled ``Funds for Borrower,'' will be $0, in accordance with
Sec. 1026.37(h)(1)(v)(A).
The Bureau proposed 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 in purchase transactions. As
discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(iii) above, the Bureau proposed to amend the down
payment/funds from borrower calculation under Sec. 1026.37(h)(1)(iii)
to specify in proposed Sec. 1026.37(h)(1)(iii)(A)(2) 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 Sec. 1026.38(j)(2)(iv) exceeds the sale price, the funds for
borrower calculation in Sec. 1026.37(h)(1)(v), as proposed to be
revised, will be used for the transaction. The Bureau proposed
conforming revisions to Sec. 1026.37(h)(1)(v) to reflect the proposed
changes to Sec. 1026.37(h)(1)(iii)(A)(2). The Bureau also proposed to
revise comment 37(h)(1)(v)-1 to conform with proposed revisions to
Sec. 1026.37(h)(1)(iii)(A) and (v). The comment would have provided
that, when the down payment is determined in accordance with Sec.
1026.37(h)(1)(iii)(A)(1), $0 is disclosed under Sec. 1026.37(h)(1)(v)
as funds for borrower.
The Bureau also proposed to add comment 37(h)(1)(v)-2 to provide
that the amounts disclosed under Sec. 1026.37(h)(1)(iii)(A)(2) or (B),
as applicable, and Sec. 1026.37(h)(1)(v), are
[[Page 37710]]
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
further would have clarified that the phrase ``total amount of all
existing debt being satisfied in the transaction'' includes amounts
that will be disclosed on the Closing Disclosure under Sec.
1026.38(j)(1)(ii), (iii), and (v). The Bureau sought comment on whether
defining the phrase ``total amount of all existing debt being satisfied
in 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.'' Consistent with proposed revisions to Sec.
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1, and proposed comment
37(h)(1)(v)-2, the Bureau proposed similar provisions for the Closing
Disclosure in Sec. 1026.38(i)(6)(iv) and comment 38(i)(6)(ii)-1, and
proposed comment 38(i)(6)(ii)-2.
Comments Received
A bank, a compliance professional, and a settlement agent supported
the Bureau's proposed amendments to Sec. 1026.37(h)(1)(v). Two
commenters stated that the amendments will allow the accurate
reflection of proceeds due to the borrower at closing and urged the
Bureau to adopt the proposal. One commenter expressed support for the
prescriptive nature of proposed comment 37(h)(1)(v)-2 to clarify that
the amounts included as existing debt being satisfied in the
transaction are the amounts that will be disclosed on the Closing
Disclosure under Sec. 1026.38(j)(1)(ii), (iii), and (v), but cautioned
that the proposed amendments to the commentary of Sec. 1026.37(g)(4)
regarding the payoff of amounts secured by the real property would have
unintended consequences because under the proposal, the debt would not
be disclosed under those paragraphs. A software vendor noted a slight
wording difference between proposed comment 37(h)(1)(v)-2 pertaining to
the Loan Estimate and proposed amendments to comment 38(i)(6)(ii)-1
pertaining to the Closing Disclosure. Specifically, proposed comment
37(h)(1)(v)-2 provided that the total amount of all existing debt being
satisfied in the transaction includes the amounts that will be
disclosed on the Closing Disclosure in the summaries of transactions
table under Sec. 1026.38(j)(1)(ii), (iii), and (v), as applicable.
This commenter interpreted the word ``includes'' to mean ``includes,
but is not limited to,'' whereas the proposed revisions to comment
38(i)(6)(ii)-1 make clear that for the Closing Disclosure, the total
amount of all existing debt being satisfied in the transaction is the
sum of the amounts disclosed on the Closing Disclosure in the summaries
of transactions table under Sec. 1026.38(j)(1)(ii), (iii), and (v), as
applicable. The commenter requested that the Bureau revise the comments
for better consistency and alignment.
The Final Rule
For the reasons discussed below, the Bureau is adopting, with minor
revisions and clarifications, the proposed amendments to Sec.
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1, and proposed comment
37(h)(1)(v)-2. The Bureau is adopting the amendments to Sec.
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1 as proposed with minor
revisions to conform to the additional clarifications contained in
final comment 37(h)(1)(iii)-1. As discussed in the section-by-section
analysis of Sec. 1026.37(h)(1)(iii), the Bureau is amending comment
37(h)(1)(iii)-1 to make clear that the disclosure required under Sec.
1026.37(h)(1)(iii) represents both the down payment and other funds
from the borrower. The Bureau is making similar amendments to Sec.
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1.
As discussed above, a commenter noted a slight wording difference
between proposed comment 37(h)(1)(v)-2 pertaining to the Loan Estimate
and the proposed revisions to comment 38(i)(6)(ii)-1 pertaining to the
Closing Disclosure. The Bureau is revising comment 37(h)(1)(v)-2 to
replace the word ``includes'' with the phrase ``is the sum of'' for
consistency and alignment with final comment 38(i)(6)(ii)-1. The Bureau
is also making minor technical revisions to comment 37(h)(1)(v)-2.
As discussed above, a commenter cautioned that the proposed
amendments to the commentary of Sec. 1026.37(g)(4) regarding the
payoff of amounts secured by the real property would have unintended
consequences for the proposal to define existing debt being satisfied
in the transaction as the amounts that will be disclosed on the Closing
Disclosure under Sec. 1026.38(j)(1)(ii), (iii), and (v). As discussed
in the section-by-section analysis of Sec. 1026.37(g)(4), the Bureau
is not finalizing the proposal that would have required construction
costs, payoff of existing liens, and payoff of unsecured debt to be
disclosed under Sec. 1026.37(g)(4).
37(h)(1)(vi) Seller Credits
The Bureau's Proposal
Section 1026.37(h)(1)(vi) requires creditors to disclose the amount
that the seller will pay for total loan costs as determined by Sec.
1026.37(f)(4) and total other costs as determined by Sec.
1026.37(g)(5), 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. Current
comments 37(h)(1)(vi)-1 and -2 contain guidance on disclosure of seller
credits. The Bureau believes that under existing Sec. 1026.37,
creditors have the option to disclose specific seller credits either
under Sec. 1026.37(f) and (g) or under Sec. 1026.37(h)(1)(vi).
Nonetheless, the Bureau has received questions on this issue. Thus, the
Bureau proposed to amend comments 37(h)(1)(vi)-1 and -2 to provide 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. For the reasons discussed below, the Bureau is
finalizing comments 37(h)(1)(vi)-1 and -2 substantially as proposed but
with certain minor changes.
Comments Received
The Bureau received comments on these proposed changes from
industry individuals, title companies, settlement agents, large banks,
consumer groups, a large industry trade group, and non-banks. Generally
commenters supported the proposal.
Some industry commenters stated that seller credits should only be
disclosed as ``lump sum'' credits under Sec. 1026.37(h)(1)(vi). Some
of these commenters expressed the view that disclosing specific seller
credits in the same location on each Loan Estimate creates consistency
for consumers in comparing Loan Estimates. They further stated that
requiring seller credits to be disclosed in the same location on each
Loan Estimate under Sec. 1026.37(h)(1)(vi) would create less confusion
for other parties involved in the transaction, including due diligence
companies and secondary market investors. Several
[[Page 37711]]
commenters stated that the ``itemization'' of seller credits, the
disclosure of specific seller credits within Sec. 1026.37(f) and (g),
is a significant pain point for the secondary market, as due diligence
companies are flagging errors in the disclosure of seller credits,
because, often a creditor may not have received a breakdown of any
specific credits at the time the creditor provided the disclosure. One
industry commenter stated that the disclosure of specific seller
credits within Sec. 1026.37(f) and (g) presents a burden on the
creditor to adjust the disclosed amounts of affected closing costs, and
masks the true amount of these settlement costs to the consumer. This
commenter noted that the disclosure of seller credits within Sec.
1026.37(f) and (g) could impact the calculation of good faith tolerance
cures by lowering the disclosed costs of an individual service by the
amount of the seller credit.
Some industry and consumer group commenters, stated that the Bureau
should require creditors to disclose specific seller credits only in
the Loan Costs and Other Costs tables under Sec. 1026.37(f) and (g),
respectively. They noted that requiring a single standard for
disclosure of specific seller credits would allow consumers to more
easily compare the Loan Estimate to the Closing Disclosure, as specific
seller credits must be listed on the Closing Disclosures in the Loan
Costs and Other Costs tables, under Sec. 1026.38(i)(7), in the seller-
paid column. The consumer group commenters further stated that
consistent placement of seller credits on Loan Estimates would enhance
consumer understanding during the shopping process by creating
consistency in the disclosure of these credits.
Many industry commenters stated that the Bureau should retain the
optionality for disclosing specific seller credits under Sec.
1026.37(f) and (g), respectively, or under Sec. 1026.37(h)(1)(vi).
Some of these commenters noted that the optionality should be
maintained because the application of seller credits is governed by
contracts between buyers and sellers and government programs, such as
the Veterans Affairs home loan program, which may dictate whether
specific seller credits must be disclosed under Sec. 1026.37(f) and
(g), or under Sec. 1026.37(h)(1)(vi). Commenters noted that requiring
specific seller credits to be disclosed under Sec. 1026.37(f) and (g)
or Sec. 1026.37(h)(1)(vi) would necessitate mortgage origination
systems changes. An industry commenter noted that the Bureau should
retain the optionality because the Bureau has not done any consumer
testing to support taking away the optionality and that it is not clear
that consumers are currently confused by the different approaches.
Another industry commenter stated that it believes that mandating the
manner in which specific seller credits are disclosed would remove the
benefit of clarity the integrated disclosures were intended to provide.
Another industry commenter noted that optionality should be retained to
facilitate creditors' compliance with the good faith determination
under Sec. 1026.19(e)(3) and relevant tolerances.
A number of industry commenters requested additional clarification
on disclosing specific seller credits on the Loan Estimate. One
industry commenter specifically asked for clarification on situations
where the actual cost for that service is less than the estimate. Other
industry commenters requested clarification about whether a loan cost
that is fully paid by a specific seller credit may be excluded from the
Loan Costs and Other Costs tables entirely. A group of vendor
commenters requested clarification on how flexibility in the disclosure
of specific seller credits on the Loan Estimate affects the good faith
determination under Sec. 1026.19(e)(3) and the relevant tolerance for
those costs. Beyond the proposed clarification regarding the Loan
Estimate, one industry bank commenter encouraged the Bureau to provide
flexibility in displaying seller credits on the Closing Disclosure.
The Final Rule
The Bureau has considered these comments and is finalizing
amendments to comment 37(h)(1)(vi)-1 and finalizing amendments to
comment 37(h)(1)(vi)-2 substantially as proposed with certain minor
changes. The Bureau believes that final comments 37(h)(1)(vi)-1 and -2
are consistent with existing Sec. 1026.37(h)(1)(vi), under which
creditors already have the option to disclose seller credits in the
calculating cash to close table under Sec. 1026.37(h)(1)(vi) or within
the amounts disclosed for specific items in the Loan Costs and Other
Costs tables under Sec. 1026.37(f) and (g). In response to commenter
requests, the Bureau has added an additional example in comment
37(h)(1)(vi)-2 to provide clarification on circumstances where a seller
credit covers the entire cost of a service. Final comment 37(h)(1)(vi)-
2 provides the example that, 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 Sec. 1026.37(f) with a
$50 seller credit disclosed under Sec. 1026.37(h)(1)(vi) or disclose
the required pest inspection fee as $50 under Sec. 1026.37(f),
reflecting the specific seller credit in the amount disclosed for the
pest inspection fee. If the creditor knows at the time of the delivery
of the Loan Estimate that the seller has agreed to pay the entire $100
pest inspection fee, the creditor may either disclose the required pest
inspection fee as $100 under Sec. 1026.37(f) with a $100 seller credit
disclosed under Sec. 1026.37(h)(1)(vi) or disclose nothing under Sec.
1026.37(f), reflecting that the specific seller credit will cover the
entire pest inspection fee.
The Bureau declines to implement requests that specific seller
credits be disclosed exclusively in the calculating cash to close table
under Sec. 1026.37(h)(1)(vi) or exclusively within the specific
services in the Loan Costs and Other Costs tables under Sec.
1026.37(f) and (g). Commenters provided arguments in support of both
approaches, and many commenters supported preserving the optionality
consistent with existing Sec. 1026.37(h)(1)(vi). Since the Bureau
believes that comments 37(h)(1)(vi)-1 and -2 are consistent with
existing Sec. 1026.37(h)(1)(vi), additional consumer testing is not
necessary. In response to commenter requests for clarity on the
disclosure of seller credits on the Loan Estimate, the Bureau provides
the following discussion.
Generally, seller credits are determined by the terms of the legal
obligation between the seller and consumer. Since the creditor is not
setting the terms of the legal obligation between a seller and a
consumer, the basis for the optionality in disclosure of seller credits
is defined in comment 37(h)(1)(vi)-2. Comment 19(e)(1)(i)-1 requires
disclosures based on the best information reasonably available at the
time the disclosure is provided to the consumer.
Similar to the example provided in final comment 37(h)(1)(vi)-2, if
consistent with the terms of the legal obligation between the seller
and consumer, creditors may disclose the cost, in full, on the Loan
Estimate in the Loan Costs or Other Cost tables, pursuant to Sec.
1026.37(f) and (g), and disclose a seller credit pursuant to Sec.
1026.37(h)(1)(vi), or creditors may just disclose the cost less the
seller credit in the Loan Costs or Other Cost tables, pursuant to Sec.
1026.37(f) and (g). For example, assume the terms of the legal
obligation between the seller and consumer obligate the seller to
provide a credit of $200 to the consumer to go
[[Page 37712]]
towards the cost of the appraisal. The creditor may disclose the full
cost of the appraisal, $500, on the Loan Estimate, under Sec.
1026.37(f)(2), Services You Cannot Shop For, and include the specific
seller credit for $200 under Sec. 1026.37(h)(1)(vi). Alternatively, if
consistent with the terms of the legal obligation, the creditor can
show $300, i.e., the amount of the appraisal fee less the specific
seller credit, on the Loan Estimate, under Sec. 1026.37(f)(2),
Services You Cannot Shop For, and not include the specific seller
credit pursuant to Sec. 1026.37(h)(1)(vi).
In response to commenter requests for clarification on how
disclosing seller credits on the Loan Estimate impacts the good faith
determination under Sec. 1026.19(e)(3) and relevant tolerances, the
Bureau provides the following example. Assume a seller offers to
provide a $500 credit to the consumer to cover the anticipated cost of
the appraisal. The creditor discloses an appraisal fee of $500, under
Sec. 1026.37(f)(2), Services You Cannot Shop For, on the Loan Estimate
and includes a seller credit of $500 under Sec. 1026.37(h)(1)(vi). The
actual cost of the appraisal is $750. Assume that a review of the terms
of the legal obligation between the creditor and consumer indicates
that the consumer has agreed to be charged for any amount above the
estimated $500 for the appraisal. Given this set of facts, if the
creditor wants to reset the appraisal tolerance for purposes of the
good faith determination, the creditor must issue revised disclosures
with the corrected appraisal fee of $750, subject to the requirements
of Sec. 1026.19(e)(3)(iv) and (e)(4).
Assume the same example above, except that the creditor chooses not
to disclose an appraisal fee under Sec. 1026.37(f)(2), Services You
Cannot Shop For, on the Loan Estimate because the creditor assumed it
would be covered by the $500 seller credit for the appraisal. Under
these facts, and because the cost is in the zero tolerance category
under Sec. 1026.19(e)(3)(i), if the actual appraisal cost turns out to
be $750, the creditor will not be able to reset the appraisal tolerance
for purposes of the good faith determination under Sec. 1026.19(e)(3),
unless the creditor can otherwise establish a valid justification under
Sec. 1026.19(e)(3)(iv).
The Bureau declines to add further commentary in response to
commenters requesting flexibility in disclosing seller credits on the
Closing Disclosure, because, unlike the Loan Estimate, the Closing
Disclosure has a seller-paid column.
37(h)(1)(vii) Adjustments and Other Credits
The Bureau's Proposal
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 less than the amount of credits, which, the Bureau understands, may
not always be the case. Therefore, the Bureau proposed to revise Sec.
1026.37(h)(1)(vii) to eliminate the requirement that the amount
disclosed be a negative number. Also, as discussed below, the Bureau
proposed to revise comments 37(h)(1)(vii)-1, -5, and -6.
Current 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 proposed 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 have provided 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), would be 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, would not be required to be included in the amount disclosed
under Sec. 1026.37(h)(1)(vii).
Current 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 proposed 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. In the proposal, the Bureau explained that the funds that are
provided to the consumer from the proceeds of subordinate financing and
that will be applied to the first-lien transaction would not be
included in the adjustments and other credits calculation on the
simultaneous subordinate financing Loan Estimate. The Bureau sought
comment on whether there are circumstances in which local or State
housing assistance grants are applied to subordinate financing and not
to the first lien.
Current 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 proposed to revise
comment 37(h)(1)(vii)-6 to 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 revised
Sec. 1026.37(h)(1)(iii) or (v) as debt being satisfied in the
transaction. Otherwise, such amounts would be factored into the cash to
close calculations twice.
Comments Received
Industry commenters, including a trade association, a mortgage
company, a compliance professional, and a financial holding company
generally expressed support for the proposed amendments to Sec.
1026.37(h)(1)(vii) and its commentary. One commenter specifically
expressed support for the
[[Page 37713]]
proposal to amend Sec. 1026.37(h)(1)(vii) to remove the requirement
that the adjustments and other credits amount be disclosed as a
negative number, and another stated that eliminating the requirement to
disclose amounts as positive or negative numbers throughout will go a
long way in providing creditors with greater flexibility to complete
the calculating cash to close table in a manner that can be explained
to consumers and reflects the actual anticipated amount of cash needed
to close. A credit union commenter stated generally that there is
confusion surrounding the use of negative values on the form, but did
not provide specific concerns. Two commenters expressed support for the
clarification in comment 37(h)(1)(vii)-1 that amounts expected to be
paid to consumers in advance of consummation are not required to be
disclosed under Sec. 1026.37(h)(1)(vii), although one commenter was
concerned with the proposed clarification, noting that at the time of
disclosure, it is typically not evident whether the borrower will
receive gift funds before or at consummation. Two commenters supported
the proposed amendments to 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. Finally, one
commenter supported the proposed revisions to comment 37(h)(1)(vii)-6
to 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) only if they are not also
included in the calculation for Sec. 1026.37(h)(1)(iii) or (v) as
existing debt being satisfied in the transaction.
A trade association commenter stated that in the absence of
guidance on how to disclose certain amounts, such as loans assumed or
taken subject to and the sale price of personal property, some
creditors have been including these amounts in the adjustments and
other credits disclosures under Sec. Sec. 1026.37(h)(1)(vii) and
1026.38(i)(8) on the Loan Estimate and Closing Disclosure,
respectively. The commenter stated that updating software systems to
accommodate such proposals would require substantial reprogramming,
which has both time and cost implications.
The Final Rule
For the reasons discussed below, the Bureau is finalizing proposed
amendments to Sec. 1026.37(h)(1)(vii) and comment 37(h)(1)(vii)-1 with
revisions. The Bureau is amending comment 37(h)(1)(vii)-4 to conform to
final comment 37(h)(1)(vi)-1. The Bureau is finalizing amendments to
comment 37(h)(1)(vii)-5 as proposed and is finalizing amendments to
comment 37(h)(1)(vii)-6 with revisions.
The Bureau is adopting the proposed amendments to Sec.
1026.37(h)(1)(vii) that allow the adjustments and other credits amount
to be disclosed as a positive number. The Bureau is further revising
Sec. 1026.37(h)(1)(vii) for consistency with comment 37(g)(4)-4, for
which the proposed amendments are not being adopted. As discussed in
the section-by-section analysis of Sec. 1026.37(g)(4), the Bureau is
not finalizing the proposal that would have required construction
costs, payoff of existing liens, and payoff of unsecured debt to be
disclosed under Sec. 1026.37(g)(4). For transactions disclosed using
the calculations under Sec. 1026.37(h)(1)(iii)(A)(2) and (B) and Sec.
1026.37(h)(1)(v), which include certain purchase transactions (e.g.,
``cash back'' purchase transactions, simultaneous subordinate financing
purchase transactions, and purchase transactions that involve
improvements to be made on the property) and non-purchase transactions
(e.g., refinance transactions and construction-only transactions), any
construction costs and payoffs of secured and unsecured debt will be
factored into the down payment/funds from borrower and funds for
borrower calculations in Sec. 1026.37(h)(1)(iii)(A)(2) and (B) and
Sec. 1026.37(h)(1)(v). For purchase transactions disclosed using the
down payment/funds from borrower calculation under Sec.
1026.37(h)(1)(iii)(A)(1), however, payoffs of secured and unsecured
debt will not be factored into the Sec. 1026.37(h)(1)(iii)(A)(1)
calculation, which only factors in the sale price, loan amount, and
loans assumed or taken subject to. These purchase transactions do not
use the Sec. 1026.37(h)(1)(iii)(A)(2) and (B) and Sec.
1026.37(h)(1)(v) calculations where such payoffs would be factored in.
Therefore, for purchase transactions disclosed using the calculation
under Sec. 1026.37(h)(1)(iii)(A)(1), payoffs of secured and unsecured
debt will be factored into the adjustments and other credits disclosure
under Sec. 1026.37(h)(1)(vii). To enable these payoffs to be factored
into the adjustments and other credits disclosure under Sec.
1026.37(h)(1)(vii) for transactions disclosed under Sec.
1026.37(h)(1)(iii)(A)(1), the Bureau is also revising Sec.
1026.37(h)(1)(vii) for this subset of transactions to remove the
condition that amounts that are required to be paid by the consumer at
closing and disclosed in the adjustments and other credits row of the
calculating cash to close table must be amounts pursuant to a purchase
and sale contract. For additional clarity, Sec. 1026.37(h)(1)(vii) is
also revised to specify that other amounts that are required to be paid
by the consumer at closing in a transaction disclosed under Sec.
1026.37(h)(1)(iii)(A)(1) or pursuant to a purchase and sale contract do
not include amounts that are disclosed under Sec. 1026.37(f) and (g).
Final comment 37(h)(1)(vii)-6, discussed in more detail below, explains
that amounts included in the calculation for Sec.
1026.37(h)(1)(iii)(A)(2) or (B) or Sec. 1026.37(h)(1)(v) as existing
debt being satisfied in the transaction are not also included in the
adjustments and other credits calculation under Sec.
1026.37(h)(1)(vii).
Final comment 37(h)(1)(vii)-1 clarifies that amounts expected to be
paid at consummation by third parties not otherwise associated with 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 in advance of consummation by third parties, including
family members, not otherwise associated with the transaction are not
required to be disclosed under Sec. 1026.37(h)(1)(vii). The Bureau
does not believe that additional clarification is needed with respect
to a creditor not knowing at the time disclosures are provided whether
a consumer will receive gift funds before or at consummation. The
Bureau notes that current comment 19(e)(1)(i)-1 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, consistent with Sec.
1026.17(c)(2)(i).
The Bureau is removing the word ``verbally'' in comment
37(h)(1)(vii)-4. In comment 37(h)(1)(vi)-1, the Bureau proposed and
finalized the removal of the word ``verbally'' in the phrase ``verbally
from the consumer'' that was provided as an example of a way in which
the creditor may obtain information regarding the amount of seller
credits that will be paid in the
[[Page 37714]]
transaction, finding the word to be unnecessary. For consistency, the
Bureau is removing from comment 37(h)(1)(vii)-4 the word ``verbally''
in the example of ways in which the creditor may obtain information
regarding items to be disclosed under Sec. 1026.37(h)(1)(vii).
As discussed above, the Bureau is finalizing the amendments to
comment 37(h)(1)(vii)-6 as proposed with revisions for clarity and
conformity with final Sec. 1026.37(h)(1)(vii). Final comment
37(h)(1)(vii)-6 provides that adjustments that require additional funds
from the consumer in a transaction disclosed using the formula under
Sec. 1026.37(h)(1)(iii)(A)(1) or 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), are only included in the amount disclosed under
Sec. 1026.37(h)(1)(vii) if such amounts are not included in the
calculation under Sec. 1026.37(h)(1)(iii)(A)(2) or (B) or Sec.
1026.37(h)(1)(v) as debt being satisfied in the transaction. The
comment provides additional examples of such adjustments, including
payoffs of secured or unsecured debt in a purchase transaction
disclosed using the formula under Sec. 1026.37(h)(1)(iii)(A)(1) or
prorations for property taxes and homeowner's association dues.
The Bureau understands that creditors have been disclosing loans
assumed or taken subject to that will be disclosed on the Closing
Disclosure under Sec. 1026.38(j)(2)(iv) differently absent definitive
commentary from the Bureau. The amendments discussed in the section-by-
section analyses of Sec. 1026.37(h)(1)(iii) and (v), and Sec.
1026.38(i)(4) and (6), which include loans assumed or taken subject to
that will be disclosed on the Closing Disclosure under Sec.
1026.38(j)(2)(iv) in those calculating cash to close calculations, are
intended to address the variation among creditors in how this amount is
disclosed. As to the commenter's assertion that the disclosure
requirements for the sale price of personal property were unclear,
current comment 37(g)(4)-4 provides the sale price of personal property
as an example of an amount that would be disclosed under Sec.
1026.37(g)(4). The Bureau recognizes that the industry has taken
varying approaches to disclosing the amount of loans assumed or taken
subject to that will be disclosed on the Closing Disclosure under Sec.
1026.38(j)(2)(iv) absent definitive commentary from the Bureau and is
providing sufficient time for reprogramming. As discussed in part VI
below, the rule will be effective 60 days from publication in the
Federal Register, but there will be an optional compliance period in
effect until October 1, 2018.
37(h)(2) Optional Alternative Calculating Cash To Close Table for
Transactions Without a Seller or for Simultaneous Subordinate Financing
Section 1026.37(h)(2) only permits the use of the optional
alternative calculating cash to close table in transactions without a
seller. The Bureau has provided informal guidance that, in purchase
transactions with simultaneous 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 proposed 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 subordinate financing
purchase transactions if the first-lien Closing Disclosure will record
the entirety of the seller's transaction. The Bureau specifically
sought comment on whether it is appropriate to limit use of the
optional alternative calculating cash to close table for disclosure of
simultaneous subordinate financing purchase transactions to situations
in which the first-lien Closing Disclosure will record the entirety of
the seller's transaction.
Commenters include a title insurance company, software vendors, a
bank, and a state housing finance agency. Most commenters supported the
Bureau's proposal to allow the use of the optional alternative
calculating cash to close table if the first-lien Closing Disclosure
will record the entirety of the seller's transaction. As discussed more
fully in the section-by-section analysis of Sec. 1026.37(d)(2), one
commenter questioned what disclosures should be used when the optional
alternative tables were initially used for the simultaneous subordinate
financing, but a seller later agrees to contribute to the costs of the
subordinate financing, making continued use of the alternative tables
impermissible under the proposal. Another commenter noted that the
proposal could lead to variation among creditors and a commenter stated
that the UCD may not allow the use of the alternative tables for any
transactions with sellers.
For the reasons discussed below, the Bureau is finalizing the
proposed amendments to Sec. 1026.37(h)(2) and comment 37(h)(2)-1 with
minor technical revisions. As discussed in the section-by-section
analysis of Sec. 1026.37(d)(2), the Bureau appreciates the commenter's
question regarding how to proceed under the proposal when the
alternative table was properly used on the Loan Estimate, or even the
Closing Disclosure, but a subsequent event causes the continued use of
the alternative table to be impermissible. The Bureau is directly
addressing this concern by adding new comment 38(k)(2)(vii)-1, amending
comments 38(d)(2)-1 and 38(j)-3, and amending proposed new comments
38(t)(5)(vii)(B)-1 and -2 as discussed in the section-by-section
analysis of Sec. 1026.37(d)(2).
The Bureau recognizes that allowing the use of the optional
alternative tables for simultaneous subordinate financing purchase
transactions may cause variability in disclosure among creditors but
concludes that consumers will not be harmed by such optionality. In
addition, the Bureau understands that investor requirements may be more
restrictive than the optionality provided by the Bureau. However, the
Bureau believes flexibility is beneficial to some creditors, and the
Bureau will continue to provide the option for creditors to use the
alternative tables for simultaneous subordinate financing transactions
with sellers.
37(h)(2)(ii) Total Closing Costs
Section 1026.37(h)(2)(ii) requires a creditor to disclose the
amount of total closing costs disclosed under Sec. 1026.37(g)(6) as a
negative number, labeled ``Total Closing Costs.'' The Bureau did not
propose any amendments to Sec. 1026.37(h)(2)(ii), but the Bureau did
propose to address concerns regarding the required disclosure of
negative and positive numbers elsewhere, including in Sec. Sec.
1026.37(h)(1)(vii) and (2)(iii), and 1026.38(e)(2)(ii) and (4)(ii). In
addition, the Bureau received a comment from a software vendor
requesting that the Bureau amend Sec. 1026.37(h)(2)(ii) to account for
situations where the amount of total closing costs disclosed under
Sec. 1026.37(g)(6) is a negative number. While the Bureau notes that
it is not common for the total closing costs disclosed under Sec.
1026.37(g)(6) to be a negative number, the Bureau agrees with the
commenter that an amendment is necessary to address the limited
circumstances in which a negative
[[Page 37715]]
number is disclosed under Sec. 1026.37(g)(6) as total closing costs.
Therefore, the Bureau is amending Sec. 1026.37(h)(2)(ii) to provide
that, under Sec. 1026.37(h)(2)(ii), the creditor discloses the amount
disclosed under Sec. 1026.37(g)(6) as a negative number if the amount
disclosed under Sec. 1026.37(g)(6) is a positive number and as a
positive number if the amount disclosed under Sec. 1026.37(g)(6) is a
negative number, labeled ``Total Closing Costs.''
37(h)(2)(iii) Payoffs and Payments
The Bureau's Proposal
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 the 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). The Bureau proposed to
revise Sec. 1026.37(h)(2)(iii) to remove the requirement to disclose
as a negative number the total of all payments to third parties not
otherwise disclosed under Sec. 1026.37(f) or (g). The Bureau also
proposed to revise comment 37(h)(2)(iii)-1 for conformity with proposed
revisions to comment 37(g)(4)-4, which would have permitted disclosure
of certain payoffs under Sec. 1026.37(g)(4) instead of requiring them
to be included in the payoffs and payments disclosure under Sec.
1026.37(h)(2)(iii). The proposed revisions to comment 37(h)(2)(iii)-1
would have also added construction costs as an example of an amount
included in the payoffs and payments disclosure under Sec.
1026.37(h)(2)(iii) and explained that credits could be included in the
payoffs and payments disclosure. Finally, the Bureau proposed to add
comment 37(h)(2)(iii)-2 to clarify that on a first-lien Loan Estimate
that uses the optional alternative tables, the proceeds of simultaneous
subordinate financing, if any, would be included, as a positive number,
in the total amount disclosed under Sec. 1026.37(h)(2)(iii). The
Bureau explained that the funds from the subordinate financing that
will be applied to the first-lien transaction would not have been
included in the estimated total payoffs and payments amount on the
simultaneous subordinate financing Loan Estimate.
Comments Received
A trade association commenter commended the Bureau for permitting
credits to be included in the payoffs and payments disclosure under
revised Sec. 1026.37(h)(2)(iii) and comment 37(h)(2)(iii)-1, but
requested that the Bureau allow industry sufficient time to reprogram
the forms accordingly. Another trade association commenter stated that
eliminating the requirement to disclose amounts as positive or negative
numbers throughout will go a long way in providing creditors with
greater flexibility to complete the calculating cash to close table in
a manner that can be explained to consumers and reflects the actual
anticipated amount of cash needed to close. A credit union stated
generally that there is confusion surrounding the use of negative
values on the forms, but did not provide specific concerns. In response
to the proposed revisions to comment 37(h)(2)(iii)-1, a title insurance
company requested that the Bureau only permit creditors to disclose
construction costs and the payoff of existing liens secured by the
property in the payoffs and payments table under Sec.
1026.37(h)(2)(iii), instead of providing creditors with the option of
disclosing these costs under Sec. 1026.37(g)(4), as proposed. A law
firm expressed concern with the inclusion of construction costs for
construction purpose loans in the example of permissible payoffs and
payments, noting that the example seemed to be limited to transactions
where the loan purpose is construction in accordance with Sec.
1026.37(a)(9)(iii) and would not cover a refinance transaction that has
a construction loan component. The commenter requested that the Bureau
clarify that the example regarding construction costs in comment
37(h)(2)(iii)-1 will apply to any transaction with a construction loan
component in which the creditor is otherwise permitted to use the
alternative calculating cash to close table.
Commenters supported the Bureau's proposed comment 37(h)(2)(iii)-2
which would have clarified that the proceeds of simultaneous
subordinate financing would be required to be included, as a positive
number, in the total amount disclosed under Sec. 1026.37(h)(2)(iii) on
the first-lien Loan Estimate that is disclosed using the alternative
tables. The commenters stated that the revisions will improve the
ability of creditors to comply with the calculating cash to close table
requirements and provide an accurate cash to close amount to consumers,
and stated that the table provides important benefits to consumers. As
discussed in the section-by-section analysis of Sec. 1026.37(d)(2),
commenters asserted that most creditors prefer that the Loan Estimate
for the simultaneous subordinate financing include a disclosure of the
amount of proceeds that will be applied to the first-lien loan, and
asked the Bureau to permit this practice and clarify the provision
under which the disclosure should be made.
The Final Rule
For the reasons discussed below, the Bureau is adopting the
amendments to Sec. 1026.37(h)(2)(iii) as proposed, adopting the
proposed amendments to comment 37(h)(2)(iii)-1 in part and with
revisions, adopting proposed comment 37(h)(2)(iii)-2 with clarifying
revisions and renumbering it as comment 37(h)(2)(iii)-2.i, and adding a
new comment 37(h)(2)(iii)-2.ii. The Bureau appreciates commenters'
support of the proposal to permit disclosure of a positive number under
Sec. 1026.37(h)(2)(iii). This amendment to eliminate the requirement
that the total payoffs and payments amount be disclosed as a negative
number permits the inclusion of credits and proceeds from simultaneous
subordinate financing in the payoffs and payments table. Creditors are
required to disclose under final Sec. 1026.37(h)(2)(iii) the total
amount of payoffs and payments to be made to third parties not
otherwise disclosed under Sec. 1026.37(f) and (g), labeled ``Total
Payoffs and Payments.''
The Bureau is adopting the proposed amendments to comment
37(h)(2)(iii)-1 in part with revisions to the construction lending
example. As discussed in the section-by-section analysis of Sec.
1026.37(g)(4), the Bureau is not finalizing the proposal that would
have required certain costs and payoffs to be disclosed under Sec.
1026.37(g)(4) unless included in the payoffs and payments disclosure
under Sec. 1026.37(h)(2)(iii). Therefore, the Bureau is not finalizing
the proposed conforming revision in comment 37(h)(2)(iii)-1, which
would have permitted creditors to disclose these amounts under Sec.
1026.37(g)(4) instead of requiring creditors to include them in the
Sec. 1026.37(h)(2)(iii) payoffs and payments disclosure. The Bureau is
revising the construction lending example in the proposed revisions to
comment 37(h)(2)(iii)-1 as requested by a commenter. While the examples
of amounts incorporated into the total payoffs and payments disclosed
under Sec. 1026.37(h)(2)(iii) are intended to be informative, they are
not intended to cover the entire range of possibilities. Nonetheless,
the Bureau is taking the
[[Page 37716]]
opportunity to broaden the example regarding construction loans in the
proposed revisions to comment 37(h)(2)(iii)-1 to all loans with a
construction component in which the creditor is otherwise permitted to
use the optional alternative calculating cash to close table,
regardless of whether the loans have a construction purpose under Sec.
1026.37(a)(9)(iii). Final comment 37(h)(2)(iii)-1 explains that
examples of the amounts incorporated in the total amount disclosed
under Sec. 1026.37(h)(2)(iii) include, but are not limited to: Payoffs
of existing liens secured by the property identified under Sec.
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; construction costs associated with
the transaction that the consumer will be obligated to pay in any
transaction in which the creditor is otherwise permitted to use the
alternative calculating cash to close table; and payments to other
third parties for outstanding debts of the consumer (but not for
settlement services) as required to be paid as a condition for the
extension of credit.
The Bureau is renumbering proposed comment 37(h)(2)(iii)-2 as
comment 37(h)(2)(iii)-2.i and revising the comment for greater clarity.
Proposed comment 37(h)(2)(iii)-2 explained that on the Loan Estimate
for a first-lien transaction disclosed under Sec. 1026.37(h)(2) that
also has simultaneous subordinate financing, the proceeds of the
subordinate financing are included in the payoffs and payment
disclosure. In final comment 37(h)(2)(iii)-2.i, the Bureau adds the
heading ``First-lien Loan Estimate,'' provides a refinance transaction
as an example of a first-lien transaction that could be disclosed under
Sec. 1026.37(h)(2) and that also has simultaneous subordinate
financing, and makes technical revisions for greater clarity.
The Bureau is adding comment 37(h)(2)(iii)-2.ii to permit creditors
to include, in the payoffs and payments disclosure on the simultaneous
subordinate financing Loan Estimate, the proceeds of the subordinate
financing that will be applied to the first-lien transaction. Final
comment 37(h)(2)(iii)-2.ii responds to commenters' questions about how
to disclose the simultaneous subordinate financing proceeds that will
be applied to the first lien on the simultaneous subordinate financing
Loan Estimate. The commenters asserted that most creditors prefer that
the simultaneous subordinate financing Loan Estimate include a
disclosure of the amount of loan proceeds that will be applied to the
first-lien loan, and asked the Bureau to permit this common practice.
In the proposal, the Bureau noted that the funds that are provided to
the consumer from the proceeds of simultaneous subordinate financing
and that will be applied to the first-lien transaction would not be
included in the total payoffs and payments amount on the simultaneous
subordinate financing Loan Estimate. As a result, the cash to close
amount disclosed under Sec. 1026.37(h)(2)(iv) would have represented
the loan proceeds as ``cash out'' to the borrower. The Bureau
understands from the comments that a common industry practice may be to
include the loan proceeds from the simultaneous subordinate financing
as a payoff on the Loan Estimate and Closing Disclosure for the
simultaneous subordinate financing transaction, which is inconsistent
with the Bureau's proposal.
The Bureau believes that consumers may benefit from allowing
creditors to continue this apparently common practice. This practice
may help consumers better understand the simultaneous subordinate
financing transaction and its relation to the first-lien loan. It
provides a way for the simultaneous subordinate financing Loan Estimate
to include a disclosure of the amount of proceeds that will be applied
to the first-lien loan. Because, under this practice, the cash to close
amount disclosed under Sec. 1026.37(h)(2)(iv) would not include the
loan proceeds, the cash to close amount may better represent to
consumers the cash, if any, they will owe or receive from the
subordinate-lien loan that will not be applied directly to the first-
lien loan. The Bureau is making similar amendments in commentary to
Sec. 1026.38(j)(1)(v) and (t)(5)(vii)(B).
As discussed in part VI below, the Bureau is providing sufficient
time for industry to reprogram the forms to permit credits to be
disclosed. The rule will be effective 60 days from publication in the
Federal Register, but there will be an optional compliance period in
effect until October 1, 2018.
37(k) Contact Information
The Bureau proposed a technical, non-substantive, amendment to
comment 37(k)-3 to replace the current reference to Sec. 1026.38(k)(2)
with a reference to Sec. 1026.37(k)(2) to correct a typographical
error. Commenters did not provide any statements concerning this
typographical correction, other than to request that the correction of
typographical errors be effective as quickly as possible and be applied
retroactively.
The Bureau is adopting the revision to comment 37(k)-3 as proposed.
Although this revision is not retroactive, the Bureau considers the
current reference to Sec. 1026.38(k)(2) to be a scrivener's error that
should be interpreted as a reference to Sec. 1026.37(k)(2).
37(l) Comparisons
37(l)(1) In Five Years
37(l)(1)(i)
The Bureau proposed to make a technical, non-substantive amendment,
to comment 37(l)(1)(i)-1 to correct a typographical error. The Bureau
proposed 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. The Bureau received no comments on the proposed
change and is adopting as proposed the modification to the comment.
37(l)(3) Total Interest Percentage
The Bureau's Proposal
Section 1026.37(l)(3) requires creditors to disclose the total
interest percentage (TIP) and provides that the TIP 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.\82\ The Bureau proposed to amend
comment 37(l)(3)-1 to clarify further that prepaid interest is included
when calculating the TIP.
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\82\ 78 FR 79730, 79982 (Dec. 31, 2013).
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Comments Received
Several industry commenters supported the clarifications in the
proposed comment. Two industry commenters requested that the Bureau
delete disclosure of the TIP from the disclosures required under
Sec. Sec. 1026.37 and 1026.38.
Several industry commenters requested additional clarifications
related to the TIP. Several industry commenters requested that the
Bureau modify the proposed comment to clarify whether the prepaid
interest included in the TIP should only include the borrower-paid
prepaid interest, or whether all prepaid interest should be included,
regardless of which party is paying. Two industry commenters requested
clarification on the impact of a negative prepaid interest amount on
the calculation, namely whether the negative balance should be used or
[[Page 37717]]
whether a $0 value should be assigned to the prepaid interest component
of the calculation. One industry commenter indicated that the Bureau
should clarify that the TIP is considered accurate if the finance
charge is considered accurate because the TIP is comprised solely of a
finance charge (consumer-paid interest).
One industry commenter indicated that there appears to be a
discrepancy between the TILA statute and Regulation Z as to when the
amount of prepaid interest disclosed under Sec. 1026.37 is accurate.
The commenter indicated that that discrepancy can impact the accuracy
of the TIP. This commenter requested additional clarification on this
issue.
The Final Rule
The Bureau is adopting comment 37(l)(3)-1 as proposed with several
revisions. As proposed, the Bureau is adopting final comment 37(l)(3)-1
to provide that prepaid interest is included when calculating the TIP.
In response to comments received, the Bureau also is amending comment
37(l)(3)-1 to clarify that it is the prepaid interest that the consumer
will pay which is included when calculating the TIP. This clarification
is consistent with Sec. 1026.37(l)(3), which defines the TIP as the
total amount of interest that the consumer will pay over the life of
the loan, expressed as a percentage of the amount of credit extended.
In addition, in response to comments received, the Bureau also is
revising comment 37(l)(3)-1 to clarify that prepaid interest that is
disclosed as a negative number under Sec. Sec. 1026.37(g)(2) or
1026.38(g)(2) must be included as a negative value when calculating the
TIP.
As discussed above, one industry commenter indicated that the
Bureau should clarify that the TIP is considered accurate if the
finance charge is considered accurate because the TIP is comprised
solely of a finance charge (consumer-paid interest). The Bureau is not
addressing this issue in the final rule. The Bureau notes that total
interest is a component of the finance charge but is not the same as
the finance charge.
As discussed above, one industry commenter indicated that there
appears to be a discrepancy between the TILA statute and Regulation Z
as to when the amount of prepaid interest disclosed under Sec. 1026.37
is accurate. The commenter notes TILA section 121(c), which provides
that in the case of any consumer credit transaction a portion of the
interest on which is determined on a per-diem basis and is to be
collected upon the consummation of such transaction, any disclosure
with respect to such portion of interest shall be deemed to be accurate
for purposes of TILA 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 TILA
section is implemented in Sec. 1026.17(c)(2)(ii). The commenter also
notes that Sec. 1026.19(e)(3)(iii) provides that the prepaid interest
disclosure must be consistent with the best information reasonably
available to the creditor at the time it is disclosed. Thus, Sec.
1026.17(c)(2)(ii) provides that the prepaid interest disclosure is
accurate if it is based on information known to the creditor at the
time the disclosure is ``prepared,'' while Sec. 1026.19(e)(3)(iii)
provides that the prepaid interest disclosure is accurate if it is
based on the best information reasonably available to the creditor at
the time it is ``disclosed.'' The commenter indicated that that
discrepancy can impact the accuracy of the TIP and asked for additional
clarity on this issue.
The Bureau does not believe that additional clarification is
needed. In the TILA-RESPA Final Rule, the Bureau made clear that the
standard for accuracy for prepaid interest disclosures set forth in
TILA section 121(c), as implemented by Sec. 1026.17(c)(2)(ii), does
not apply to transactions subject to Sec. 1026.19(e) and (f).
Specifically, comment 17(c)(2)(ii)-1 provides that for purposes of
transactions subject to Sec. 1026.19(e) and (f), the creditor shall
disclose the actual amount of per-diem interest that will be collected
at consummation, subject only to the disclosure rules in Sec.
1026.19(e) and (f). The Bureau notes that for disclosures of per-diem
interest in the Loan Estimate, Sec. 1026.19(e)(3)(iii) provides that
the prepaid interest disclosure must be consistent with the best
information reasonably available to the creditor at the time it is
disclosed. For disclosure of per-diem interest in the Closing
Disclosure provided at or before consummation, comment 19(f)(1)(i)-2
provides that creditors may estimate disclosures provided under Sec.
1026.19(f)(1)(ii)(A) and (f)(2)(ii) using the best information
reasonably available when the actual term is unknown to the creditor at
the time disclosures are made, consistent with Sec. 1026.17(c)(2)(i).
See the section-by-section analysis of Sec. 1026.19(f)(2)(iii) for a
discussion of the disclosure of per-diem interest in post-consummation
disclosures required under Sec. 1026.19(f)(2)(iii).
37(o) Form of Disclosures
37(o)(4) Rounding
The Bureau's Proposal
Section 1026.37(o)(4)(i)(A) requires the disclosure of rounded
amounts for the amounts 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 (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,
through informal guidance, received many inquiries regarding rounding
requirements. Based on these inquiries the Bureau understands that
there is confusion and uncertainty regarding the rounding requirements
under Sec. 1026.37(o)(4). In response, the Bureau proposed 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
under Sec. 1026.37(o)(4).
The proposed revisions to Sec. 1026.37(o)(4)(i)(A) would have
provided that the disclosure of the per-diem amount under Sec.
1026.37(g)(2)(iii) and the monthly amounts under 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 would have added clarifying language and an
illustrative example of the disclosure of per-diem interest.
Proposed revisions to Sec. 1026.37(o)(4)(ii) would have simplified
the rounding requirements for amounts described in Sec.
1026.37(o)(4)(ii). Proposed Sec. 1026.37(o)(4)(ii) provides that the
percentage amounts required to be disclosed under Sec. 1026.37(b)(2)
and (6), (f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3) 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
proposed Sec. 1026.37(o)(4)(ii) with examples.
Comments Received
A mortgage company commenter and a software vendor commenter agreed
[[Page 37718]]
with the proposed revisions that would simplify rounding requirements.
A trade association commenter stated that the Bureau should not revise
Sec. 1026.37(o)(4)(i)(A). This commenter believes that Sec.
1026.37(o)(4)(i)(A) and related commentary clearly provide that the per
diem and monthly amounts are not rounded, but the creditor must
disclose the amounts to two decimal places and truncate partial cents.
This commenter indicated that its software is programmed to disclose
these amounts to two decimal places, because it believes partial cents
are not disclosed.
A bank holding company commenter stated that rounding on the Loan
Estimate in contrast to providing exact amounts on the Closing
Disclosure is confusing to the consumer. The commenter suggested that
the Bureau require the disclosure of exact unrounded amounts on the
Loan Estimate and the Closing Disclosure. A mortgage company commenter
supported the proposed revision, but asked that the Bureau reconsider
the requirement to round certain amounts under Sec. 1026.37(f), (g),
and (h). The commenter noted that the disclosures under these sections
are subject to the good faith tolerance provisions under Sec.
1026.19(e)(3) and that creditors are required to keep a separate record
of the unrounded amounts for the estimates disclosed pursuant to Sec.
1026.37(f), (g), and (h). The commenter further stated that providing
unrounded numbers for these sections would help consumers, auditors and
investors easily determine cost increases and reduce paperwork.
Two software vendors believed that the proposed revisions to Sec.
1026.37(o)(4)(i) would require the use of rounded numbers when
calculating certain aggregated amounts. One of these commenters
provided an example showing the range between calculations for per-diem
interest using rounded amounts and unrounded amounts.
A commenter representing a bank stated that the proposed revisions
to Sec. 1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1 would impose
significant burden. This commenter asserted that many in the industry
would have to invest significant resources into reprogramming their
systems for a change that would not benefit the consumer. The commenter
asserts that disclosing ``8%'' instead of ``8.00%'' would not increase
the consumers understanding of the disclosure, but it would require
significant effort from the creditor to reprogram its systems.
The Final Rule
The Bureau is adopting the proposed amendments 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 with several revisions to Sec. 1026.37(o)(4)(i)(A) and
comment 37(o)(4)(i)(A)-1 to clarify the requirements under these
provisions. Section 1026.37(o)(4)(i)(A) is being revised to include the
word ``dollar amounts'' instead of ``amounts'' and to require that the
per-diem and monthly dollar amounts not be rounded. Comment
37(o)(4)(i)(A)-1, as proposed, is being revised to explain that partial
cents are not disclosed for dollar amounts and that partial cents shall
be rounded or truncated to the nearest whole cent.
Although one commenter asserted that Sec. 1026.37(o)(4)(i)(A)
clearly provides that the per-diem and monthly amounts are disclosed to
two decimal places, the Bureau notes that it received several inquiries
from industry, namely software vendors, expressing uncertainty
regarding whether it is permissible to disclose partial cents for
certain dollar amounts under Sec. 1026.37(o)(4)(i)(A). As discussed
above, the Bureau is adding the option to round or truncate partial
cents which would not affect the commenter's current method for
disclosing certain dollar amounts pursuant to Sec.
1026.37(o)(4)(i)(A).
As discussed above, two commenters asserted that the proposed
revisions to Sec. 1026.37(o)(4)(i) would require the use of rounded
numbers when calculating certain aggregate amounts. The Bureau notes
that these final revisions discussed above would not change the method
for calculating the total dollar amounts that are required to be
rounded under Sec. 1026.37(o)(4)(i). The amendments in this final rule
do not change what is provided under comment 37(o)(4)-2, which explains
that if a dollar amount that is required to be rounded by Sec.
1026.37(o)(4)(i) on the Loan Estimate is a total of one or more dollar
amounts that are not required or permitted to be rounded, the total
amount must be rounded consistent with Sec. 1026.37(o)(4)(i), but such
component amounts used in the calculation must use such unrounded
numbers. As discussed above, a commenter asserted that the proposed
revision to Sec. 1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1 would be
burdensome because it would require the reprogramming and testing of
systems and that requiring the disclosure of ``8%'' instead of
``8.00%'' would be a change that would not provide any benefit to
consumers. Section 1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1
currently provide that whole numbers are truncated at the decimal
point, and this particular provision should, therefore, not require
reprogramming. In addition, as noted above, the Bureau believes too
many numbers on the Loan Estimate may lead to information overload for
the consumer. Dropping trailing zeros reduces information overload and
thereby increases a consumer's comprehension of the disclosures.
As explained above, two commenters stated that rounding should not
be permitted on the Loan Estimate for various reasons. As the Bureau
explained in the TILA-RESPA Final Rule, consumer testing showed that it
was easier for consumers to quickly identify and evaluate the rounded
amounts as opposed to unrounded amounts described under Sec.
1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii),
(f), (g), (h), (i), and (l).\83\ Based on consumer testing, the Bureau
determined that providing a large number of exact amounts for every
disclosure could lead to information overload and thereby reduce the
effectiveness of the disclosures.\84\ The Bureau continues to believe
that rounding certain amounts described under Sec. 1026.37(o)(4) is
more beneficial than the disclosure of exact amounts.\85\
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\83\ See 78 FR 79730, 79995 (Dec. 31, 2013).
\84\ See id.
\85\ See id.
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Section 1026.38 Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
The Bureau's Proposal
Section 1026.38 sets forth the content of the Closing Disclosure
required by Sec. 1026.19(f) to be provided to the consumer. Comments
38-1 to 38-3 are applicable generally to Sec. 1026.38. The Bureau
proposed to add comment 38-4, which would have provided options for the
disclosure of reductions in principal balance (principal curtailments)
to satisfy the refund requirements of Sec. 1026.19(f)(2)(v), 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.
The proposal would have provided creditors the option to disclose
principal curtailments in the other costs table under Sec.
1026.38(g)(4), in the summaries of transactions table under Sec.
1026.38(j)(4)(i), in the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B), or on an additional page (addendum) under Sec.
1026.38(t)(5)(ix). The principal curtailment disclosure would have
contained a statement that the principal
[[Page 37719]]
curtailment 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. The Bureau sought comment on whether there
would be 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. For the reasons discussed below, the Bureau is revising and
broadening proposed comment 38-4 to address principal reductions
(curtailments) that are and are not paid for from closing funds, to
clarify that the disclosure of a principal reduction is permissible
regardless of whether contractual or other legal obligations of the
creditor prevent the creditor from refunding cash to the consumer, and
to limit where principal reductions may be disclosed on the Closing
Disclosure.
Comments Received
The Bureau received comments on this proposal from a variety of
commenters, including a law firm, a mortgage company, a title insurance
company, a software vendor, a software vendor group, a bank, a
financial holding company, a housing finance agency, GSEs, and other
industry commenters. Commenters generally appreciated that the Bureau
proposed to provide guidance on the disclosure of principal
curtailments, but provided significant feedback and sought
clarification on many aspects of the proposal.
An industry group recommended that the Bureau use the phrase
``principal reduction'' instead of ``principal curtailment,'' noting
that consumers would be more familiar with the recommended phrase. The
Bureau appreciates the suggestion to use the phrase ``principal
reduction'' instead of ``principal curtailment,'' and is revising the
commentary accordingly. As explained in final comment 38-4, when
referring to principal reductions on the Closing Disclosure, creditors
are permitted to use other similar phrases.
Many industry commenters requested that the Bureau permit the use
of principal curtailments for situations other than when a creditor is
providing a credit for a tolerance refund or to meet loan program or
investor requirements. An industry commenter and a law firm commenter
expressed concern that proposed comment 38-4 could be interpreted to
limit the use of principal curtailments to only those circumstances
where contractual or other legal obligations of the creditor prevent
the creditor from refunding cash to the consumer. Commenters stated
that consumers benefit more from a principal curtailment than from a
refund in the form of cash because it reduces the principal balance of
the loan on which a consumer is charged interest, and pointed to the
TILA-RESPA Final Rule in which the Bureau explicitly declined to
prescribe how refunds are made to consumers.\86\
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\86\ Commenters appear to be referencing the TILA-RESPA Final
Rule at 78 FR 79730, 79883 (Dec. 31, 2013).
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In the proposal, the Bureau sought to address the particular issue
of how to disclose a principal reduction that is used to provide a
tolerance refund, but did not intend to propose to limit the use of
principal reductions to situations where a creditor is providing a
tolerance refund under Sec. 1026.19(f)(2)(v). As noted above, the
Bureau is revising and restructuring comment 38-4 to provide greater
clarity regarding the disclosure of principal reductions, including the
disclosure of principal reductions that are not used to provide
tolerance refunds. Final comment 38-4 does not contain the language
identified by commenters as potentially restricting the use of
principal reductions to only those circumstances where contractual or
other legal obligations of the creditor prevent the creditor from
refunding cash to the consumer.
Many commenters, including an industry group, mortgage company,
title insurance company, and software vendor, noted a discrepancy
between the commentary, which stated that the principal curtailment
would be disclosed as a negative number, and the preamble, which stated
that the principal curtailment would be marked as ``Paid Outside of
Closing'' or ``P.O.C.'' The commenters asked the Bureau to clarify the
disclosure requirements. Because whether a principal reduction is
disclosed as a negative or positive number and with or without the
label ``Paid Outside of Closing'' or ``P.O.C.'' is dependent upon the
purpose of the principal reduction, the Bureau is revising comment 38-4
and restructuring the comment according to the purpose for which the
principal reduction is used. Final comment 38-4.i covers situations in
which a principal reduction is not paid for with closing funds, whereas
final comment 38-4.ii covers situations in which a principal reduction
is paid for with closing funds. In addition, the Bureau is not
prescribing whether the principal reduction is disclosed as a negative
number or as a positive number. The Bureau is taking a similar approach
in other sections of this final rule to provide for flexibility as to
the disclosure of negative and positive numbers because the Bureau
recognizes that mandating a negative number or mandating a positive
number for a particular disclosure may not be suitable for all
transaction types. See, for example, the section-by-section analyses of
Sec. 1026.37(h)(1)(i), (1)(vii), and (2)(iii), and Sec.
1026.38(e)(2)(ii) and (4)(ii).
The proposal would have provided that a principal curtailment may
be disclosed under Sec. 1026.38(j)(4)(i), which provides requirements
for the disclosure of costs that are not paid from closing funds. A
software vendor, industry group, and title insurance company requested
additional clarity regarding the disclosure of a principal curtailment
pursuant to Sec. 1026.38(j)(4)(i). Specifically, the commenters asked
where in the summaries of transactions table to disclose the principal
curtailment, since Sec. 1026.38(j)(4)(i) contains the requirement to
disclose costs that are not paid from closing funds but would otherwise
be disclosed pursuant to Sec. 1026.38(j) marked with the phrase ``Paid
Outside of Closing'' or ``P.O.C.,'' but does not itself provide a
specific location for the principal curtailment disclosure. The
commenters suggested that the appropriate location within the summaries
of transactions table is under Sec. 1026.38(j)(1)(v), as an amount due
from the consumer. For principal reductions disclosed in the summaries
of transactions table, the Bureau intended the disclosure to be made
under Sec. 1026.38(j)(1)(v) and is revising comment 38-4 to, among
other things, specifically reference Sec. 1026.38(j)(1)(v) instead of
Sec. 1026.38(j)(4)(i). The Bureau will continue to reference Sec.
1026.38(j)(4)(i) only for the requirement to mark costs that are not
paid from closing funds but would otherwise be disclosed pursuant to
Sec. 1026.38(j) with the phrase ``Paid Outside of Closing'' or
``P.O.C.''
A title insurance company, a bank, a financial holding company, a
software vendor, and GSEs raised concerns with the various options for
disclosing a principal curtailment proposed by the Bureau. One
commenter supported the flexibility that the Bureau proposed to provide
for the disclosure of principal curtailments under Sec. 1026.38(g)(4),
(j)(4)(i), (t)(5)(vii)(B) and (t)(5)(ix), but cautioned that some
lending programs may not permit the disclosure of principal
curtailments on an addendum pursuant to Sec. 1026.38(t)(5)(ix). Some
commenters asserted that a principal curtailment should not be
disclosed as a closing cost under Sec. 1026.38(g)(4)
[[Page 37720]]
because closing costs should only include fees and charges that the
consumer must pay to obtain and close the loan. Commenters also stated
that disclosing a principal curtailment as a closing cost would limit
the ability of consumers to compare the closing costs on the Loan
Estimate to the closing costs on the Closing Disclosure and would cause
consumer confusion. Commenters asserted that systems are not programmed
to provide under Sec. 1026.38(g)(4) the label ``Paid Outside of
Closing'' or ``P.O.C.,'' or lengthy text statements. Another commenter
requested that the Bureau limit the disclosure of principal
curtailments to Sec. 1026.38(g)(4) or (t)(5)(vii)(B), unless there is
insufficient space, at which time disclosure under Sec.
1026.38(t)(5)(ix) would be permissible. One commenter requested that
the Bureau limit disclosure of principal curtailments to Sec.
1026.38(j)(4)(i) or an addendum pursuant to Sec. 1026.38(t)(5)(ix),
while another commenter asked the Bureau to limit the disclosure of
principal curtailments to Sec. 1026.38(j)(1)(v) on the standard
disclosure and to Sec. 1026.38(t)(5)(vii)(B) on the alternative
disclosure. Finally, one commenter requested that the Bureau prescribe
only one location for the disclosure of principal curtailments on the
standard and alternative disclosures. Commenters who requested that the
Bureau limit the disclosure options stated that a uniform disclosure
method for principal curtailments would reduce compliance burden for
the industry, aid consumer understanding of the transaction, and aid
the utilization of a uniform data standard for the industry.
While the Bureau intended for the proposal to provide the
flexibility for the disclosure of principal reductions discussed in the
Bureau staff's informal April 2016 webinar, the Bureau appreciates
commenters' assertions that a uniform disclosure method for principal
reductions would reduce compliance burden, aid consumer understanding,
and aid the utilization of a uniform data standard. The Bureau is
therefore revising proposed comment 38-4 to limit the disclosure of
principal reductions to Sec. 1026.38(j)(1)(v) on the standard Closing
Disclosure and Sec. 1026.38(t)(5)(vii)(B) on the alternative Closing
Disclosure. The Bureau notes, however, that creditors are permitted to
disclose principal reductions under any currently permissible provision
prior to the mandatory compliance date of this provision, October 1,
2018, as discussed in part VI, below. For an informal summary of the
permissible disclosure options that are currently in effect and will
remain in effect until the mandatory compliance date of this rule,
please consult the Bureau staff's April 2016 webinar.
Many commenters responded to the Bureau's request for comment on
whether there is sufficient space in the corresponding rows on the
Closing Disclosure for creditors to provide a statement explaining that
the principal curtailment includes a tolerance refund for exceeding the
limitations on increases in closing costs and whether the Bureau should
prescribe a specific statement or permit creditors discretion in
developing such statement. A title insurance company, housing finance
agency, and financial holding company requested that the Bureau
prescribe a specific statement for uniformity, and two of the
commenters suggested statements that they asserted would have fit in
all proposed disclosure locations. Other commenters requested that the
Bureau permit creditors discretion in developing the statement but
provide an example of a permissible statement or a model statement that
would be deemed to be in compliance with the disclosure requirements. A
creditor opposed the requirement to make a statement that the amount
imposed exceeds the limitations on increases in closing costs,
identifying concerns with space limitations. The creditor requested
that if the requirement to disclose such a statement is finalized, the
Bureau allow creditors discretion in developing the statement. One
commenter stated that there is a moderate amount of space for such a
statement under Sec. 1026.38(g)(4), limited space under Sec.
1026.38(j)(1)(v), and sufficient space under Sec.
1026.38(t)(5)(vii)(B) and (ix). The same commenter also requested that
the Bureau permit the disclosure of the principal curtailment to refer
the consumer to an addendum, which would provide the required statement
concerning the tolerance refund for exceeding the limitations on
increases in closing costs.
While some commenters requested that the Bureau prescribe specific
disclosure language, others appreciated the flexibility provided in the
proposal to develop their own disclosure language. The commenters also
were not consistent as to whether there is sufficient space in the
corresponding rows on the Closing Disclosure for the required
disclosure, particularly when the disclosure must convey that the
principal reduction is being provided to offset charges that exceed the
legal limits. Because of potential space constraints anticipated by the
Bureau and raised by some commenters, the Bureau is permitting
creditors to develop their own disclosure language that contains the
required elements using any language that meets the clear and
conspicuous standard under Sec. 1026.38(t)(1)(i). The revised
commentary contains examples of disclosure statements that would meet
the requirements of comment 38-4.
A financial holding company stated that under Texas law, the
principal curtailment disclosure requirements could trigger cash-out
stipulations which would force creditors to provide principal
reductions instead of providing cash refunds to borrowers. Absent
additional information, the Bureau is unable to respond to this
comment. However, the Bureau notes that creditors have always had the
option of using a principal reduction to provide a tolerance refund or
for other purposes. Comment 38-4 is being added merely to provide
clarity on how to disclose a principal reduction.
A software vendor group explained that implementing proposed
comment 38-4 will require significant reprogramming and software
changes that will take up to nine months to complete. As discussed in
part VI, below, the final rule will be effective 60 days from
publication in the Federal Register, but compliance will be optional
until October 1, 2018, giving industry sufficient time to reprogram
systems.
The Final Rule
For the reasons discussed above, the Bureau is revising and
broadening proposed comment 38-4 to address principal reductions that
are and are not paid for from closing funds, to clarify that the
disclosure of a principal reduction is permissible regardless of
whether contractual or other legal obligations of the creditor prevent
the creditor from refunding cash to the consumer, and to limit where
principal reductions may be disclosed on the Closing Disclosure. The
introductory paragraph to final comment 38-4 provides only for the
disclosure of a principal reduction on the standard disclosure under
Sec. 1026.38(j)(1)(v) or on the alternative disclosure under Sec.
1026.38(t)(5)(vii)(B) and contains a list of the elements that must be
provided in the principal reduction disclosure. Final comment 38-4.i
covers situations in which a principal reduction is not paid from
closing funds. Final comment 38-4.ii covers situations in which a
principal reduction is paid from closing funds.
Final comment 38-4 provides that the disclosure of a principal
reduction must include the following elements: (1) The
[[Page 37721]]
amount of the principal reduction; (2) the phrase ``principal
reduction'' or a similar phrase; (3) for a principal reduction
disclosure under Sec. 1026.38(t)(5)(vii)(B) only, the name of the
payee; (4) if applicable to the transaction, the phrase ``Paid Outside
of Closing'' or ``P.O.C.'' and the name of the party making the
payment; and (5) if the principal reduction is used to satisfy the
requirements of Sec. 1026.19(f)(2)(v), a statement that the principal
reduction is being provided to offset charges that exceed the legal
limits.
Final comment 38-4 also provides that if there is insufficient
space under Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) for the creditor
to disclose certain elements of the principal reduction disclosure, the
creditor may omit these elements from the Sec. 1026.38(j)(1)(v) or
(t)(5)(vii)(B) disclosure and provide a complete disclosure, including
these elements, under an appropriate heading on an addendum, in
accordance with Sec. 1026.38(j) and (t)(5)(ix), as applicable, with a
reference to the abbreviated principal reduction disclosure under Sec.
1026.38(j)(1)(v) or (t)(5)(vii)(B). In this case, the elements that
must be included in the abbreviated principal reduction disclosure
under Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) are the amount of the
principal reduction, the phrase ``principal reduction'' or a similar
phrase, the phrase ``Paid Outside of Closing'' or ``P.O.C.'' if
applicable, and for the abbreviated principal reduction disclosure
under Sec. 1026.38(t)(5)(vii)(B) only, the name of the payee. The
elements that may be omitted from the abbreviated principal reduction
disclosure under Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) and included
in the complete principal reduction disclosure on an addendum are, if
applicable to the transaction, the name of the party making the payment
and a statement that the principal reduction is being provided to
offset charges that exceed the legal limits. The revised commentary
contains examples of principal reduction disclosures that would meet
the requirements of comment 38-4.
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 Sec.
1026.38(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 Sec. 1026.38(t)(5)(vii)(B)
(payoffs and payments) are expected to be paid to the consumer or a
third party. The Bureau proposed 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 disclosed under Sec. 1026.38(b) is
expected to be paid to the consumer or a third party, and to add
comment 38(a)(3)(iii)-1 to clarify that the disbursement date for
simultaneous 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. For the reasons discussed below, the Bureau
is adopting the amendments to Sec. 1026.38(a)(3)(iii) and new comment
38(a)(3)(iii)-1 substantially as proposed, but is revising Sec.
1026.38(a)(3)(iii) to accommodate purchase transactions where funds are
disbursed to the borrower and seller on different dates, and revising
Sec. 1026.38(a)(3)(iii) and comment 38(a)(3)(iii)-1 to provide
additional clarity regarding disbursement to third parties in certain
transactions.
Commenters stated that the proposed amendments would provide needed
clarity, but some requested additional revisions. A trade association,
software vendor, and title insurance company requested that the Bureau
clarify that the disbursement date in purchase transactions is the date
funds are expected to be paid to either the consumer or the seller,
because in some states disbursement to the consumer and seller may
occur on different dates. A title insurance company and trade
association requested that the Bureau clarify that in non-purchase
transactions and for simultaneous subordinate financing transactions,
the disbursement date is the date funds are disbursed from the
settlement agent to the consumer or third party, and not the date funds
are disbursed from the creditor to the settlement agent. Commenters
were concerned that settlement agents are considered to be third
parties. A software vendor noted that in construction transactions, the
initial disbursement date may not be known at closing and asked the
Bureau to provide additional clarity regarding how to disclose the
disbursement date in these transactions.
After considering the comments, the Bureau is adopting the
amendments to Sec. 1026.38(a)(3)(iii) and new comment 38(a)(3)(iii)-1
as proposed with revisions. The Bureau recognizes that in some states,
funds may be disbursed to the borrower and seller on different dates.
The Bureau is revising Sec. 1026.38(a)(3)(iii) to provide that in a
purchase transaction where funds are disbursed to the borrower and
seller on different dates, it is acceptable to disclose either date
under Sec. 1026.38(a)(3)(iii). The Bureau is also adding a cross-
reference to comment 38(a)(3)(iii)-1 which contains a different
standard for simultaneous subordinate financing transactions. Further,
as it pertains to non-purchase transactions and simultaneous
subordinate financing, the Bureau intended in the proposal for the
disbursement date to reflect the date that some or all of the loan
amount is paid to the consumer or a third party, but not the date some
or all of the loan amount is paid to the settlement agent. Because a
settlement agent is actually a third party to the credit transaction,
the Bureau is revising Sec. 1026.38(a)(3)(iii) and comment
38(a)(3)(iii)-1 to clarify that in a non-purchase or a simultaneous
subordinate financing transaction, the disbursement date disclosure
reflects the date funds are expected to be paid to the consumer or a
third party other than a settlement agent.
The Bureau declines to add commentary to explain how to disclose
the disbursement date in construction transactions where the date of
the initial disbursement is unknown to the creditor. Under final Sec.
1026.38(a)(3)(iii), the disbursement date in a transaction with a
construction purpose under Sec. 1026.37(a)(9)(iii) is the date that
some or all of the loan amount is paid to the consumer or a third party
other than the settlement agent. Depending on the facts and
circumstances of the transaction, the disbursement date may be, for
example, the date closing costs are paid with loan proceeds or the date
of the first scheduled draw. If these dates are not known at the time
the creditor provides the Closing Disclosure, the Bureau concludes that
comment 19(f)(1)(i)-2 provides sufficient guidance to creditors
regarding the disclosure of unknown information. Comment 19(f)(1)(i)-2
provides that creditors may estimate disclosures using the best
information reasonably available when the actual term is unknown to the
creditor at the time disclosures are provided, consistent with Sec.
1026.17(c)(2)(i).
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
[[Page 37722]]
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 proposed 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.
One industry commenter requested that with respect to a transaction
involving construction where there is no seller, the Bureau clarify
that the creditor must disclose under Sec. 1026.37(a)(7)(ii) the value
of the underlying lot at the time of issuing the Loan Estimate,
irrespective of what the projected value of the property may be after
construction is finished, because the value of the land would be the
value of the property at the time the Loan Estimate is given. This
commenter also asked the Bureau to clarify the disclosure requirement
on the Closing Disclosure under Sec. 1026.38(a)(3)(vii) for the
appraised value for a transaction involving construction where there is
no seller. The commenter asked for clarification on whether the
creditor must disclose only the value of the underlying lot, or instead
must disclose the projected value of the completed project after
construction is finished that was used to determine approval of the
credit transaction.
The Bureau is adopting proposed comment 38(a)(3)(vii)-1 with
revisions. As discussed in more detail below, the Bureau is adopting
the proposed change to final comment 38(a)(3)(vii)-1. Also, in response
to the comment discussed above, the Bureau is revising comment
38(a)(3)(vii)-1 to provide an example of how the guidance in comment
38(a)(3)(vii)-1 applies to transactions involving construction where
there is no seller.
Current comment 38(a)(3)(vii)-1 provides that in transactions where
there is no seller, such as in a refinancing, Sec.
1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised
value of the property. To comply with this requirement, the creditor
discloses the value determined by the appraisal or valuation used to
determine approval of the credit transaction. 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, or if it has performed its own estimate of the property
value by the time the disclosure is provided to the consumer, disclose
that estimate provided that it was the estimate the creditor used to
determine approval of the credit transaction. Consistent with the
proposal, the Bureau is revising comment 38(a)(3)(vii)-1 to clarify
that in circumstances where a creditor may use an estimate of the value
of the property as discussed above, 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 its own estimate it used for purposes of
approving the credit transaction, rather than disclose the estimate
provided by the consumer at application.
In response to a commenter's request for additional clarification
on how the guidance in comment 38(a)(3)(vii)-1 applies to transactions
involving construction where there is no seller, the Bureau is revising
comment 38(a)(3)(vii)-1 to clarify that for those transactions, the
creditor must disclose the value of the property that is used to
determine the approval of the credit transaction, including
improvements to be made on the property if those improvements are used
to determine the approval of the credit transaction. As discussed
above, current comment 38(a)(3)(vii)-1 provides that for transactions
where there is no seller, a creditor must disclose under Sec.
1026.38(a)(3)(vii)(B) the value of the property the creditor used to
determine approval of the credit transaction. Consistent with the
standard that is currently set forth in comment 38(a)(3)(vii)-1, for
transactions involving construction where there is no seller, the value
of the property disclosed under Sec. 1026.38(a)(3)(vii)(B) must
include the improvements to be made on the property if those
improvements are used in determining the approval of the credit
transaction.
Thus, if a creditor includes improvements to be made on a property
in determining the approval of a credit transaction involving
construction where there is no seller, the creditor must include the
improvements in the disclosure of the value of the property on the
Closing Disclosure under Sec. 1026.38(a)(3)(vii). As discussed in the
section-by-section analysis of Sec. 1026.37(a)(7), final comment
37(a)(7)-1 allows a creditor the flexibility to include the
improvements into the estimated value of the property disclosed on the
Loan Estimate under Sec. 1026.37(a)(7), which allows the creditor the
option of maintaining consistency between the disclosure that is given
on the Loan Estimate under Sec. 1026.37(a)(7) and the disclosure that
will be given on the Closing Disclosure under Sec. 1026.38(a)(3)(vii)
by including improvements to be made in both disclosures. On the other
hand, if a creditor does not include improvements to be made on the
property in determining the approval of a credit transaction involving
construction where there is no seller, the creditor must not include
the improvements in the disclosure of the value of the property on the
Closing Disclosure under Sec. 1026.38(a)(3)(vii). Final comment
37(a)(7)-1 allows a creditor the flexibility not to include the
improvements into the estimated value of the property disclosed on the
Loan Estimate under Sec. 1026.37(a)(7), which allows the creditor the
option of maintaining consistency between the disclosure that is given
on the Loan Estimate under Sec. 1026.37(a)(7) and the disclosure that
will be given on the Closing Disclosure under Sec. 1026.38(a)(3)(vii)
by not including improvements to be made in both disclosures.
38(a)(4) Transaction Information
The Bureau's Proposal
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 proposed to revise
comment 38(a)(4)-2 to include a simultaneous subordinate financing
purchase transaction as a transaction for which a creditor may leave
the Sec. 1026.38(a)(4)(ii) disclosure blank, but only if the first-
lien Closing Disclosure will record the entirety of the seller's
transaction. The Bureau specifically sought comment on whether the
consumer or seller would benefit if the Closing Disclosure for the
simultaneous subordinate financing purchase transaction contains the
seller's name and address even if the first-lien Closing Disclosure
will record the entirety of the
[[Page 37723]]
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, for purposes of
rescission under Sec. Sec. 1026.15 and 1026.23, 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. Proposed
comment 38(a)(4)-4 would have required that, in rescindable
transactions, pursuant to Sec. 1026.38(a)(4)(i), creditors disclose
the name and mailing address of each natural person in whose principal
dwelling a security interest is or will be retained or acquired,
labeled ``Borrower,'' 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.
Simultaneous Subordinate Financing
Comments Received
A title insurance company and a compliance professional expressed
support for the proposal. Commenters argued that there is no benefit to
the borrower or seller in requiring the disclosure of the seller's name
and address in the simultaneous subordinate financing purchase
transaction Closing Disclosure because the first-lien Closing
Disclosure will already have the seller's name and address. The first-
lien Closing Disclosure will be the document to which consumers and
sellers will refer to find this information. One commenter also stated
that because most simultaneous subordinate financing transactions are
handled in files separate from the first-lien transaction, data entry
on the part of creditors and settlement agents will be reduced.
The Final Rule
The Bureau is finalizing the proposed amendments to comment
38(a)(4)-2. The Bureau concludes that there is no substantial benefit
to the borrower or seller in requiring the disclosure of the seller's
name and address on the simultaneous subordinate financing purchase
transaction Closing Disclosure if the first-lien Closing Disclosure
will record the entirety of the seller's transaction. The Bureau also
believes that the amendments to comment 38(a)(4)-2 will reduce industry
burden.
Consumers Disclosed With the Label ``Borrower''
Comments Received
Several industry commenters supported proposed comment 38(a)(4)-4,
which would have required that creditors disclose, using the label
``Borrower,'' the name and mailing address of each natural person in
whose principal dwelling a security interest is or will be retained or
acquired, regardless of whether that person is an obligor. Vendors and
an individual compliance professional commented that the proposal
provided helpful guidance for determining which names and addresses
should be disclosed under current Sec. 1026.38(a)(4)(i). A vendor
group stated that proposed comment 38(a)(4)-4 is consistent with
informal guidance previously provided by the Bureau.
However, other industry commenters opposed proposed comment
38(a)(4)-4. Several creditors and trade associations asserted that it
is contradictory to disclose non-obligors with the label ``Borrower''
and that doing so may result in consumer confusion. A creditor
commented that the requirement would probably lead to a significant
decline in the volume of rescindable transactions involving non-obligor
property owners; current Federal regulations, including Regulation Z,
do not require disclosing non-obligors as ``Borrowers''; and current
Sec. 1026.37(a)(5) limits disclosure of ``Applicants'' on the Loan
Estimate to only include the name and mailing address of consumers
applying for the credit. A trade association and a secondary market
investor stated that proposed comment 38(a)(4)-4 would require
substantial reprogramming of many loan origination systems; the
investor also expressed concern that the proposal may increase the
likelihood of disclosure errors. Industry commenters suggested various
alternatives to disclosing non-obligors with the label ``Borrower,''
including replacing the label ``Borrower'' on the Closing Disclosure
form with another label such as ``consumer''; limiting the term
``consumer'' in Sec. 1026.38(a)(4)(i) to exclude persons who are not
contractually liable for repayment of the debt; or using an addendum,
acknowledgement statement, or non-categorized signature line for
disclosing non-obligors who have recession rights.
An individual commenter requested clarification regarding how to
document non-obligors' receipt of the Closing Disclosure. A secondary
market investor requested clarification as to which disclosures must be
provided to consumers who have recession rights.
The Final Rule
For the reasons discussed below, the Bureau is not adopting comment
38(a)(4)-4 as proposed and, instead, is revising comment 38(a)(4)-4 so
that only the name and mailing address of persons to whom the credit is
offered or extended are disclosed pursuant to Sec. 1026.38(a)(4)(i)
and labeled ``Borrower.'' After considering commenters' concerns, the
Bureau concludes that, for purposes of Sec. 1026.38(a)(4)(i), limiting
the term ``consumer'' to persons to whom the credit is offered or
extended will promote meaningful disclosure of credit terms and
informed use of credit and will facilitate compliance. By disclosing
the name and mailing address only of persons to whom the credit is
offered or extended pursuant to Sec. 1026.38(a)(4)(i), the Bureau
concludes that, as finalized, comment 38(a)(4)-4 yields a disclosure
that is more consistent with the label ``Borrower'' and presents less
potential for consumer confusion. As finalized, comment 38(a)(4)-4 is
also consistent with current Sec. 1026.37(a)(5), which limits
disclosure of ``Applicants'' on the Loan Estimate to only include the
name and mailing address of consumers applying for the credit. With
respect to a vendor group's statement that informal guidance previously
provided by the Bureau was consistent with proposed comment 38(a)(4)-4,
the Bureau understands that there has been uncertainty regarding
rescindable transactions as to whether current Sec. 1026.38(a)(4)(i)
requires disclosing, with the label ``Borrower,'' 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. As finalized in this rule, comment 38(a)(4)-4 will provide
helpful guidance for determining which names and addresses should be
disclosed under Sec. 1026.38(a)(4)(i). Comment 38(a)(4)-4 does not
change the definition of ``consumer'' in Sec. 1026.2(a)(11) nor does
it change the requirements of Sec. 1026.23, including disclosure
delivery requirements.
Regarding a commenter's request for clarification regarding how to
document non-obligors' receipt of the Closing Disclosure, current Sec.
1026.38(s) permits a creditor, at its option, to include a line for the
signatures of the consumers in the transaction--and current Sec.
1026.2(a)(11) provides that, for purposes of rescission under
Sec. Sec. 1026.15 and 1026.23, the term ``consumer'' also includes a
natural person in whose
[[Page 37724]]
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. If the creditor opts to
provide a line for consumers' signatures, current Sec. 1026.38(s)
requires that the creditor disclose, above the signature line, that
consumers do not have to accept the loan because they signed or
received the form. With respect to the comment requesting clarification
as to which disclosures must be provided to consumers who have
recession rights, guidance for closed-end credit can be found in
current Sec. 1026.23 and its associated commentary.
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
38(d) Costs at Closing
38(d)(2) Alternative Table for Transactions Without a Seller or for
Simultaneous Subordinate Financing
The Bureau's Proposal
Section 1026.38(d)(2) permits creditors to use the alternative
table on the Closing Disclosure in a transaction without a seller only
where the creditor disclosed the optional alternative table under Sec.
1026.37(d)(2) on the Loan Estimate. The Bureau has provided informal
guidance that, in purchase transactions with simultaneous subordinate
financing, the 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
proposed to amend Sec. 1026.38(d)(2) and comment 38(d)(2)-1 to
explicitly permit the use of the alternative table for simultaneous
subordinate financing purchase transactions if the first-lien Closing
Disclosure records the entirety of the seller's transaction. The Bureau
specifically sought comment on whether it is appropriate to limit use
of the alternative table for disclosure of simultaneous subordinate
financing purchase transactions to situations in which the first-lien
Closing Disclosure records the entirety of the seller's transaction.
Comments Received
Commenters included a title insurance company, software vendors,
and a bank. Generally commenters supported the Bureau's proposal to
allow the use of the alternative table if the first-lien Closing
Disclosure records the entirety of the seller's transaction. As
discussed more fully in the section-by-section analysis of Sec.
1026.37(d)(2), one commenter questioned what disclosures should be used
when the alternative tables were initially used for the simultaneous
subordinate financing, but a seller later agrees to contribute to the
costs of the subordinate financing, making continued use of the
alternative tables impermissible under the proposal. One commenter
noted that the proposal could lead to variation among creditors and
another commenter stated that the UCD may not allow the use of the
alternative disclosures for any transactions with sellers.
The Final Rule
For the reasons discussed below, the Bureau is finalizing the
proposed amendments to Sec. 1026.38(d)(2) with minor technical
revisions, and finalizing proposed amendments to comment 38(d)(2)-1
with a minor technical revision and revisions to cross-reference
related requirements, including those that pertain to first-lien
disclosures. The Bureau appreciates the commenter's question regarding
how to proceed under the proposal when the alternative table was
properly used on the Loan Estimate, or even the Closing Disclosure, but
a subsequent event causes the continued use of the alternative table to
be impermissible. For the reasons discussed in the section-by-section
analysis of Sec. 1026.37(d)(2), the Bureau is directly addressing this
concern by adding new comment 38(k)(2)(vii)-1, amending comments
38(d)(2)-1 and 38(j)-3, and amending proposed new comments
38(t)(5)(vii)(B)-1 and -2 to require the disclosure of the seller's
contributions to the subordinate financing, if any, in the payoffs and
payments table on the simultaneous subordinate financing Closing
Disclosure and the summaries of transactions table on the first-lien
Closing Disclosure, when the alternative tables are used for the
simultaneous subordinate financing. As discussed in more detail in the
section-by-section analysis of Sec. 1026.38(k)(2), the first-lien
Closing Disclosure must include, in the summaries of transactions table
for the seller's transaction under Sec. 1026.38(k)(2)(vii), any
contributions toward the simultaneous subordinate financing from the
seller that are disclosed in the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B), thereby recording the entirety of the seller's
transaction on the first-lien Closing Disclosure. Final comment
38(d)(2)-1 includes a cross-reference to comments 38(j)-3 and
38(k)(2)(vii)-1 for related disclosure requirements applicable to the
first-lien transaction when the alternative disclosures are used for a
simultaneous subordinate financing purchase transaction and a seller
contributes to the costs of the subordinate financing. Final comment
38(d)(2)-1 also includes a cross-reference to comments
38(t)(5)(vii)(B)-1 and -2 for the requirement to disclose the seller's
contributions toward the subordinate financing in the payoffs and
payments table on the simultaneous subordinate financing Closing
Disclosure.
The Bureau recognizes that allowing the use of the alternative
disclosures for simultaneous subordinate financing purchase
transactions may cause variability in disclosure among creditors, but
concludes that consumers are unlikely to be harmed by such optionality.
In addition, the Bureau understands that investor requirements may be
more restrictive than the optionality provided by the Bureau. However,
the Bureau believes flexibility is beneficial to some creditors, and
the Bureau will continue to provide the option for creditors to use the
alternative disclosures for simultaneous subordinate financing
transactions with sellers.
38(e) Alternative Calculating Cash to Close Table for Transactions
Without a Seller or for Simultaneous Subordinate Financing
The Bureau's Proposal
Section 1026.38(e) provides for the disclosure of an alternative
calculation of cash or other funds due from or due to the consumer at
consummation for transactions without a seller, using the heading
``Calculating Cash to Close.'' Specifically, Sec. 1026.38(e) only
permits the use of the alternative calculating cash to close table for
a transaction without a seller and requires a creditor to disclose the
alternative calculating cash to close table when the creditor disclosed
the optional alternative calculating cash to close table on the Loan
Estimate under Sec. 1026.37(h)(2). As discussed in the section-by-
section analysis of Sec. 1026.37(h) above, the Bureau sought comment
on the calculating cash to close table generally. The Bureau has
provided informal guidance that, in simultaneous subordinate financing
purchase transactions, the 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
[[Page 37725]]
did not contribute to the subordinate financing.
The Bureau proposed to amend Sec. 1026.38(e) and comment 38(e)-1
to explicitly permit the use of the alternative calculating cash to
close table for simultaneous subordinate financing purchase
transactions if the first-lien Closing Disclosure records the entirety
of the seller's transaction. The Bureau also proposed to add comment
38(e)-6 to specify which amounts are disclosed under the subheading
``Loan Estimate'' on the Closing Disclosure's alternative calculating
cash to close table. Proposed comment 38(e)-6 clarified that the
amounts disclosed under the subheading ``Loan Estimate'' pursuant to
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,
regardless of whether those amounts 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 sought
comment on whether that approach provides a helpful comparison to
consumers with the final amounts disclosed on the Closing Disclosure
and sought comment on other alternatives to provide consumers a
comparison of estimated and final amounts.
Comments Received
As noted above and discussed more fully in the section-by-section
analysis of Sec. 1026.37(h), the Bureau sought comment on the
calculating cash to close tables generally. A commenter asserted that
the alternative calculating cash to close tables function better, are
less complicated, and present less information than the standard
tables. Commenters also stated that the calculating cash to close
tables provide important benefits to consumers and assist consumers in
understanding their transactions by providing them with a high-level
view of how their cash to close amounts are determined. See the
section-by-section analysis of Sec. 1026.37(h) for a more detailed
discussion of those comments that relate to Sec. Sec. 1026.37(h)(2)
and 1026.38(e) generally.
A mortgage banker and software vendor supported proposed revisions
to Sec. 1026.38(e) and related commentary. The commenters stated that
these proposed revisions, if implemented, will improve the ability of
creditors to comply with the calculating cash to close table and
provide a more accurate cash to close amount to consumers.
Software vendors, a bank, and a state housing finance agency also
commented on the Bureau's proposed amendments to Sec. 1026.38(e) and
comment 38(e)-1. Most commenters supported the Bureau's proposal to
allow the use of the alternative calculating cash to close table if the
first-lien Closing Disclosure records the entirety of the seller's
transaction. As discussed more fully in the section-by-section analysis
of Sec. 1026.37(d)(2), one commenter questioned what disclosures
should be used when the optional alternative tables were initially used
for the simultaneous subordinate financing, but a seller later agrees
to contribute to the costs of the subordinate financing, making
continued use of the alternative tables impermissible under the
proposal. One commenter noted that the proposal could lead to variation
among creditors and another commenter stated that the UCD may not allow
the use of the alternative disclosures for any transactions with
sellers. Finally, a commenter suggested a technical revision to
proposed Sec. 1026.38(e).
A compliance professional and a financial holding company supported
the proposal 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, regardless of whether those amounts 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). One of the commenters stated that the comparison of
amounts from the most recent Loan Estimate to the current Closing
Disclosure is helpful to consumers and that there do not appear to be
other viable alternatives. A software vendor and software vendor group
noted that the proposal will help to settle industry differences of
opinion, but raised concerns with the proposal, discussed below.
A software vendor, a software vendor group, a credit union, and
trade associations questioned the usefulness of the comparison.
Commenters cited concerns that the table does not identify tolerance
violations for consumers' awareness and does not record amounts on any
Closing Disclosures provided to the consumer between the last provided
Loan Estimate and the current corrected Closing Disclosure. One
commenter asked the Bureau to clarify whether comparison between the
``Loan Estimate'' and ``Final'' columns affects the tolerance
provisions under Sec. 1026.19(e)(3). Another commenter stated that
good faith was difficult to determine based on a comparison of the
amounts disclosed on the last provided Loan Estimate and current
Closing Disclosure. In the context of the Bureau's companion proposal
in comment 38(i)-5, industry commenters offered alternative approaches
to help consumers evaluate changes between disclosures. For a more
detailed discussion of these related comments, please see the section-
by-section analysis of Sec. 1026.38(i).
A trade association commenter stated that secondary market
investors who purchase loans are requiring use of the alternative table
for refinances and asked the Bureau to clarify that the standard
disclosures may be used for refinance transactions. The commenter
argued that it would be helpful if a single disclosure form could be
utilized for all types of transactions.
The Final Rule
For the reasons discussed below, the Bureau is finalizing with
minor technical revisions the proposed amendments to Sec. 1026.38(e)
and comment 38(e)-1 and proposed comment 38(e)-6. The Bureau is also
amending comment 38(e)-3 for conformity with final comment 38(i)-2.
Final Sec. 1026.38(e) provides that for transactions that do not
involve a seller or for simultaneous subordinate financing, if the
creditor disclosed the optional alternative calculating cash to close
table under Sec. 1026.37(h)(2), the creditor is required also to
disclose the alternative calculating cash to close table under Sec.
1026.38(e). Final comment 38(e)-1 explains that the alternative
calculating cash to close table may be provided by a creditor in a
transaction without a seller, or for a simultaneous subordinate
financing purchase transaction only if the first-lien Closing
Disclosure records the entirety of the seller's transaction, and must
be used in conjunction with the alternative disclosure under Sec.
1026.38(d)(2).
As discussed in the section-by-section analysis of Sec.
1026.37(d)(2), the Bureau appreciates the commenter's question
regarding how to proceed under the proposal when the optional
alternative calculating cash to close table was initially used, but a
subsequent event causes the continued use of the alternative
calculating cash to close table to be impermissible. The Bureau is
directly addressing this concern by adding new comment 38(k)(2)(vii)-1,
amending comments 38(d)(2)-1 and 38(j)-3, and amending proposed new
comments 38(t)(5)(vii)(B)-1 and -2 as discussed in the section-by-
section analysis of Sec. 1026.37(d)(2).
The Bureau did not propose amendments to comment 38(e)-3, but is
making non-substantive amendments
[[Page 37726]]
for conformity with final comment 38(i)-2. As discussed in the section-
by-section analysis of Sec. 1026.38(i) below, the Bureau proposed to
revise comment 38(i)-2 to streamline the comment. Although comment
38(i)-2 pertains to Sec. 1026.38(i) and comment 38(e)-3 pertains to
Sec. 1026.38(e), the comments are otherwise identical. Therefore, for
consistency, the Bureau is making the same revisions to comment 38(e)-3
as it is making to comment 38(i)-2.
The Bureau is finalizing comment 38(e)-6 as proposed with a minor
technical revision. Final comment 38(e)-6 provides 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. The Bureau
believes that the comparison of amounts from the last provided Loan
Estimate to the current Closing Disclosure, as required by final
comment 38(e)-6, is helpful to consumers, and there are not viable
alternatives absent completely restructuring the alternative
calculating cash to close tables; at this time, restructuring the
calculating cash to close tables would be inconsistent with the
Bureau's focus in this rulemaking on providing additional clarity in an
expeditious manner. The comparison, as part of the Closing Disclosure's
alternative calculating cash to close table, illustrates how such
amounts changed from the estimated amounts disclosed on the Loan
Estimate, which helps to ensure that the features of the transaction
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to better understand the costs, benefits,
and risks associated with the transaction, in light of the facts and
circumstances, consistent with Dodd-Frank Act section 1032(a). The
table is not intended to identify every single change over the course
of the real estate transaction; it is intended to compare the most
recent estimated amounts represented to the consumer with the amounts
reflecting the actual terms of the transaction. As discussed in the
proposal, 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 at
the time the disclosure is provided, do not result in any separate
violation of any standard under Regulation Z. 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 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.
In disclosing amounts under Sec. 1026.38(e)(1)(i), (2)(i), (4)(i),
and (5)(i), when there are multiple Loan Estimates provided to a
consumer, the current regulatory provisions do not specify a particular
Loan Estimate to use. Therefore, it is currently permissible to
disclose amounts from any Loan Estimate provided to the consumer in the
``Loan Estimate'' column of the Closing Disclosure's alternative
calculating cash to close table, and will remain permissible until the
mandatory compliance date of this final rule, October 1, 2018. For a
discussion of the effective and mandatory compliance dates, see part
VI, below.
The trade association commenter is correct that, under the Bureau's
regulations, the standard disclosures may be used for refinance
transactions. A refinance transaction must be disclosed pursuant to
Sec. 1026.38(e) if the creditor previously disclosed the optional
alternative table under Sec. 1026.37(h)(2), but use of the optional
alternative table under Sec. 1026.37(h)(2) is not required. At the
same time, secondary market investors may decide, as a business
practice, to impose additional requirements, such as requiring the use
of the alternative disclosures for refinance transactions.
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
total amount of closing costs disclosed under Sec. 1026.38(e)(2)(ii)
generally represents an amount owed by the consumer; therefore, the
Bureau specified that the total closing costs be disclosed as a
negative number. However, lender credits disclosed 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 proposed to revise Sec.
1026.38(e)(2)(ii) to explain that the amount disclosed under that
paragraph 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.
A software vendor, compliance professional, and trade association
commenter praised the proposal. One commenter stated that eliminating
the requirement to disclose amounts as positive or negative numbers
throughout will go a long way in providing creditors with greater
flexibility to complete the calculating cash to close table in a manner
that can be explained to consumers and reflects the actual transaction.
Another commenter stated that there are a minority of loans which are
generated in the industry where total closing costs are actually
negative (the consumer will not be paying any closing costs, but will
also be receiving some cash back) and this change will enable accurate
closing costs to be reflected in the calculating cash to close table.
The commenter also requested that the Bureau make a similar change to
Sec. 1026.37(h)(2)(ii). A credit union stated generally that there is
confusion surrounding the use of negative values on the form, but did
not provide specific concerns.
The Bureau is finalizing as proposed the amendments to Sec.
1026.38(e)(2)(ii). The Bureau concludes that this amendment is
necessary for closing costs to be accurately reflected in the
calculating cash to close table. In response to the comment about Sec.
1026.37(h)(2)(ii), the Bureau notes that it is amending that provision,
as discussed in the section-by-section analysis of Sec.
1026.37(h)(2)(ii) above.
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). The Bureau proposed to
add comment 38-4, which explained how to disclose a principal
curtailment to provide a refund under Sec. 1026.19(f)(2)(v). The
comment would
[[Page 37727]]
have provided that a principal curtailment would be disclosed under
Sec. 1026.38(g)(4) or (t)(5)(vii)(B) for transactions using the
alternative calculating cash to close table under Sec. 1026.38(e).
Accordingly, the Bureau proposed 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).
As discussed in more detail in the section-by-section analysis of
Sec. 1026.38 pertaining to comment 38-4 above, some industry
commenters raised concerns with the various options for disclosing
principal curtailments proposed by the Bureau, including disclosure as
a closing cost under Sec. 1026.38(g)(4). In addition, an industry
group recommended that the Bureau use the phrase ``principal
reduction'' instead of ``principal curtailment,'' noting that consumers
would be more familiar with the recommended phrase.
For the reasons discussed below, the Bureau is revising the
proposed amendments to Sec. 1026.38(e)(2)(iii)(A)(3) and comment
38(e)(2)(iii)(A)-3, and is making conforming amendments to comments
38(e)(2)(iii)(A)-2.i and -2.iii. As discussed in the section-by-section
analysis of Sec. 1026.38 pertaining to comment 38-4 above, the Bureau
appreciates the suggestion to use the phrase ``principal reduction.''
The Bureau also explained that it is revising proposed comment 38-4 to
limit the disclosure of principal reductions on the alternative
disclosure to Sec. 1026.38(t)(5)(vii)(B). Therefore the Bureau is
revising the proposed amendments to Sec. 1026.38(e)(2)(iii)(A)(3) and
comment 38(e)(2)(iii)(A)-3 to reflect the phrase ``principal
reduction'' and to remove the cross-reference to Sec. 1026.38(g)(4).
As discussed in the section-by-section analysis of Sec.
1026.19(e)(3)(i), the Bureau is amending comment 19(e)(3)(i)-1 to
conform with final Sec. 1026.19(e)(3)(iii), which provides exceptions
to 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. As a result,
the Bureau is making conforming amendments in final comments
38(e)(2)(iii)(A)-2.i and -2.iii. Specifically, final comment
38(e)(2)(iii)(A)-2.i clarifies that certain closing costs (e.g., fees
paid to the creditor, transfer taxes, fees paid to an affiliate of the
creditor) are generally subject to the limitations on increases in
closing costs under Sec. 1026.19(e)(3)(i); however, Sec.
1026.19(e)(3)(iii) provides exceptions to the general rule for certain
charges. Final comment 38(e)(2)(iii)(A)-2.iii clarifies that, for a
charge listed on the Loan Estimate under the subheading ``Services You
Can Shop For,'' such charge would generally be subject to the
limitations under Sec. 1026.19(e)(3)(i) if the consumer decided to use
a provider affiliated with the creditor; however, Sec.
1026.19(e)(3)(iii) provides exceptions to the general rule for certain
charges.
38(e)(3) Closing Costs Paid Before Closing
38(e)(3)(iii)
38(e)(3)(iii)(B)
Comment 38(e)(3)(iii)(B)-1 explains the circumstances under which
the creditor gives a statement that the amount under the subheading
``Final'' pursuant to Sec. 1026.38(e)(3)(ii) is equal to the amount
disclosed under the subheading ``Loan Estimate'' pursuant to Sec.
1026.38(e)(3)(i) and, in so doing, refers to an amount of ``$0'' under
the subheading ``Final.'' The Bureau proposed two technical revisions
in comment 38(e)(3)(iii)(B)-1. First, the Bureau proposed to change
``$0'' to ``$0.00'' to reflect the disclosure of a dollar amount of
zero to two decimal places. Second, the reference to ``settlement
agent'' would be removed from comment 38(e)(3)(iii)(B)-1 because, 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.
The Bureau did not receive any specific comments on this proposal
and is finalizing the amendment to remove the reference to ``settlement
agent'' from comment 38(e)(3)(iii)(B)-1, but is not finalizing the
amendment to change ``$0'' to ``$0.00.'' The Bureau's proposal would
have changed ``$0'' to ``$0.00'' in many places in Sec. 1026.38(e) and
(i), and the associated commentary, so that dollar amounts of zero
would be disclosed consistently in the ``Final'' column of the Closing
Disclosure's calculating cash to close table. Generally, unless amounts
are required to be rounded by Sec. 1026.38(t)(4), amounts are
disclosed on the Closing Disclosure as exact numerical amounts, using
decimal places. Section 1026.38(t)(4) provides for exceptions to this
general rule. Upon further consideration, the Bureau is not finalizing
the proposed approach, and is instead changing the few instances of
``$0.00'' to ``$0.'' The Bureau believes this approach will achieve the
consistency intended by the proposal, but will be less burdensome to
creditors because Sec. 1026.38(e) and (i), and the associated
commentary, currently refer to dollar amounts of zero in the ``Final''
column of the calculating cash to close table as ``$0'' most of the
time.
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 total amount disclosed under Sec.
1026.38(t)(5)(vii)(B) will always be a positive number. The Bureau
proposed to revise Sec. 1026.38(e)(4)(ii) such that the amount
disclosed under Sec. 1026.38(e)(4)(ii) is disclosed as a negative
number if the total 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 total amount disclosed under
Sec. 1026.38(t)(5)(vii)(B) is a negative number, signifying amounts
due to the consumer.
A trade association commented that permitting the disclosure of
negative or positive amounts will go a long way in providing creditors
with greater flexibility to complete the calculating cash to close
table in a manner that reflects the actual transaction. A credit union
stated generally that there is confusion surrounding the use of
negative values on the form, but did not provide specific concerns.
For the reasons discussed below, the Bureau is finalizing the
proposed amendments to Sec. 1026.38(e)(4)(ii) with minor technical
revisions. In response to the proposed revision of Sec.
1026.38(e)(4)(ii) and other provisions of the proposal, the Bureau
received positive feedback that being less prescriptive about whether
amounts must be disclosed as negative or positive numbers will enable
more accurate disclosure for different types of transactions. The
Bureau believes this amendment will facilitate compliance with the
Bureau's disclosure requirements.
38(f) Closing Cost Details; Loan Costs
The Bureau proposed to add comment 38(f)-2. Consistent with
proposed comments 37(f)-3 and 37(f)(6)-3, proposed comment 38(f)-2
provided that construction loan inspection and handling fees are loan
costs associated
[[Page 37728]]
with the transaction for purposes of the Closing Disclosure under Sec.
1026.38(f). The proposed new comment also added 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).
The Bureau did not receive any comments on proposed comment 38(f)-
2. Having received no comments regarding this proposed revision, the
Bureau is finalizing comment 38(f)-2 as proposed, except to make a
conforming change to renumber comment app. D-7.viii as comment app. D-
7.vii.
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(A) of appendix H illustrates such
disclosures on a line labeled ``Recording Fees,'' with the additional
labels ``Deed'' and ``Mortgage,'' respectively. The Bureau proposed to
revise 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 each be disclosed on the first line under the
subheading ``Taxes and Other Government Fees'' before the columns
described in Sec. 1026.38(g) and 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). In addition, the
Bureau proposed to add new comment 38(g)(1)-3 to clarify the labels for
recording fees on form H-25(A) of appendix H.
Commenters generally indicated support for the revision and new
comment. Several industry commenters sought additional clarification on
the use of the term ``itemization'' in the first paragraph of proposed
revisions to Sec. 1026.38(g)(1). Other industry commenters submitted
that Sec. 1026.38(g)(1) should be revised to allow for a full
itemization of the recording fees charged to consumers in the
transaction to obviate the need for a separate settlement statement
that may be provided by settlement agents.
For the reasons stated below, the Bureau is adopting as proposed
the revisions to Sec. 1026.38(g)(1) and new comment 38(g)(1)-3. In
response to commenters seeking clarification of the use of the term
``itemization'' the first time it appears in Sec. 1026.38(g)(1), the
Bureau notes that Sec. 1026.38(g)(1) requires disclosing recording
fees separately from transfer taxes. Also, the Bureau notes that
transfer taxes are required to be itemized separately pursuant to Sec.
1026.38(g)(1)(ii). In contrast, Sec. 1026.38(g)(1)(i), relating to
recording fees, does not include the term ``itemization.''
As to some industry commenters' request to permit the full
itemization of each document recorded in the transaction, the Bureau
notes that permitting such a break out for the recording cost of each
recordable document would, in some instances, require many more lines,
potentially more than could be accommodated on a maximum of two pages,
as limited by Sec. 1026.38(t)(5)(iv)(B) and is unlikely to improve
consumer understanding of the Closing Disclosure.\87\ While not present
in all residential mortgage transactions, the list of separate
documents that could be required to be recorded depending on State law
requirements can include, but is not limited to, certificates of
satisfaction or partial satisfaction, contracts, deeds transferring
ownership of various types, leases, modification agreements, mortgages
or deeds of trust, easements, assumption agreements, covenants,
declarations, liens, judgments, and powers of attorney. However, the
Bureau notes that the creditor is permitted to provide a further
listing of recording fees, at its discretion, as information used
locally in real estate settlements pursuant to Sec. 1026.38(t)(5)(ix)
in order to comprehensively describe the cost of each document included
in the recording fees disclosed under Sec. 1026.38(g)(1)(i). Since
commenters otherwise generally supported the this proposal, the Bureau
is adopting the proposed revisions to Sec. 1026.38(g)(1) and new
comment 38(g)(1)-3 as proposed.
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\87\ 78 FR 79730, 80011 (Dec. 31, 2013).
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38(g)(2) Prepaids
Current 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 proposed to revise comment
38(g)(2)-3 to require $0.00 to be disclosed if interest is not
collected for a portion of a month or other period between closing and
the date from which the interest will be collected with the first
monthly payment. The Bureau explained that the amount required to be
disclosed under Sec. 1026.38(g)(2) is disclosed to two decimal places
in accordance with Sec. 1026.2(b)(4) and comment 38(t)(4)-1.
The Bureau received two comments regarding the proposed revision to
comment 38(g)(2)-3. A commenter representing a large bank asserted that
the revision would impose significant burden to reprogram and test its
systems. The commenter also asserted that the revision would realize
little or no benefit to the consumer. A compliance professional
asserted that prepaid interest should be left blank, like other
amounts, when the value for prepaid interest is zero.
The Bureau is finalizing comment 38(g)(2)-3 as proposed. To remain
consistent with the other disclosed dollar amounts under the closing
cost details column the Bureau is requiring the disclosure of $0.00
under Sec. 1026.38(g)(2) when prepaid interest is not collected. This
requirement is also consistent with Sec. 1026.2(b)(4) and comment
38(t)(4)-1 which requires the disclosure of dollar amounts to include
cents even when the value for cents is zero, unless otherwise provided.
The Bureau believes that the reprogramming cost for this revision
will not be significant given that creditors have until October 1,
2018, to come into compliance with this provision and in light of other
programming changes that creditors will be making in response to other
provisions in this final rule. In response to the commenter that
suggested that prepaid interest should be left blank, the label for
prepaid interest on the Closing Disclosure form shows components of the
prepaid interest equation, including the amount of prepaid interest to
be paid per day, and thus the Bureau declines to offer an option to
leave blank the amount required to be disclosed by Sec. 1026.38(g)(2).
38(g)(4) Other
The Bureau's Proposal
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 in
[[Page 37729]]
the section-by-section analysis of Sec. 1026.37(g)(4), above, the
Bureau proposed 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. Proposed comment 38(g)(4)-
1.iii would also have included a reference to comment 38-4 for an
explanation of how to disclose a reduction in principal balance
(principal curtailment) under Sec. 1026.38(g)(4).
In proposing to revise comment 38-4, the Bureau noted that it
expected consumer understanding to be enhanced by the clear and
conspicuous disclosure of these amounts in corresponding tables on the
Loan Estimate and Closing Disclosure, which would have also created
greater consistency between the Loan Estimate and Closing Disclosure.
In the preamble to the proposal, the Bureau noted that it also had
considered requiring the disclosure of construction costs, payoff of
existing liens, and payoff of unsecured debt on 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). The Bureau noted that 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 noted in the preamble to the proposal that it had
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 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, the Bureau believed this approach could
add more complexity to the calculations required on the Closing
Disclosure than disclosure under Sec. 1026.38(g)(4).
The Bureau also proposed 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 proposed 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 are to 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 have also clarified 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.
Comments Received
Comments on the proposed revision of comment 38(g)(4)-1 were
generally made together with comments submitted on the proposed
revision of comment 37(g)(4)-4 and, similarly, were generally
unfavorable. Commenters believed that significant confusion would
result from the proposed revision of comment 38(g)(4)-1, which the
commenters said would make the closing costs in many loans, including
construction loans, appear to be enormous. Commenters stated that
consumers would be concerned that loans were prohibitively expensive
upon seeing such high ``closing costs.'' Commenters also noted that
consumer testing had not been conducted for the proposed required
disclosures, and disagreed with what they perceived as giving a greater
priority to comparability between the Loan Estimate and the Closing
Disclosure than to consumer understanding. Significant staff training
and systems reprogramming were also cited as concerns by commenters. A
fuller presentation of these comments is in the discussion of comment
37(g)(4)-4 above in the section-by-section analysis of Sec.
1026.37(g)(4).
However, some commenters also pointed out an issue that was
specific to proposed comment 38(g)(4)-1. Comments from individual
vendors, a group of vendors and a trade association focused on proposed
comment 38(g)(4)-1.i, which would have provided that the amounts
disclosed under Sec. 1026.38(g)(4) must be placed in either the paid
``Before Closing'' or in the paid ``At Closing'' column under the
subheading ``H. Other.'' These commenters noted that because proposed
comment 38(g)(4)-1.i would have applied to all amounts disclosed under
Sec. 1026.38(g)(4), all ``Section H'' fees would need to appear in
these four columns and cannot appear in the ``Paid by Others'' column.
The commenters asked if the result was that fees disclosed under Sec.
1026.38(g)(4) cannot be paid for by anyone other than the borrower or
the seller or that fees disclosed under Sec. 1026.38(g)(4) can be paid
for by others, but the fee would have to be disclosed in an
inappropriate column. One of the commenters contrasted proposed comment
38(g)(4)-1.i with proposed comment 38(g)(4)-1.ii, which explicitly
states that ``construction costs'' should be disclosed under the paid
``At Closing'' column if such costs are contracted to be paid at
closing.
As noted in the discussion of comment 38-4, above, in the section-
by-section analysis of Sec. 1026.38 pertaining to comment 38-4,
commenters raised concerns regarding the disclosure of principal
reductions under Sec. 1026.38(g)(4).
The Final Rule
Consistent with the amendments described in connection with the
discussion of proposed comment 37(g)(4)-4, above, the Bureau is not
adopting the revision of comment 38(g)(4)-1 as proposed but is instead
providing for the disclosure of construction costs in connection with
the transaction, payoff of existing liens secured by the property
identified under Sec. 1026.37(a)(6), and payoff of other secured or
unsecured debt under Sec. 1026.38(j)(1)(v). As noted below, the Bureau
is amending comment 38(j)(1)(v)-2 to include 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 other secured and unsecured debt as
amounts disclosed under Sec. 1026.38(j)(1)(v). Such amounts are
disclosed in the summaries of transactions table on the Closing
Disclosure under Sec. 1026.38 (j)(1)(v) and factored into the
calculating cash to close table calculations.
The Bureau agrees with the commenters who noted that payoffs of
other types of secured debt, such as a loan secured by an automobile or
another property, should be treated consistently with other payoffs,
and comment 38(j)(1)(v)-2 is further amended to cover such other
secured debt.
Proposed comment 38(g)(4)-1.iii, which referred to comment 38-4 for
an explanation of how to disclose a reduction in principal balance
[[Page 37730]]
(principal curtailment) under Sec. 1026.38(g)(4), is also not included
in this rule. As explained above in the section-by-section analysis of
Sec. 1026.38 pertaining to comment 38-4, the Bureau is revising
comment 38-4 to limit the disclosure of principal reductions to Sec.
1026.38(j)(1)(v) and (t)(5)(vii)(B), making the reference to comment
38-4 in comment 38(g)(4)-1 unnecessary.
38(h) Closing Cost Totals
38(h)(3)
Current Sec. 1026.38(h)(3) uses a cross-reference to require
disclosure of the amount described in Sec. 1026.37(g)(6)(ii) as a
negative number, labeled ``Lender Credits.'' Current Sec.
1026.37(g)(6)(ii) requires disclosure of the amount of any lender
credits. As detailed in the section-by-section analysis of Sec.
1026.37(g)(6)(ii), while current comment 37(g)(6)(ii)-1 describes
lender credits as payments from the creditor to the consumer that do
not pay for a particular fee on the disclosures, final comment
37(g)(6)(ii)-1 provides that lender credits under Sec.
1026.37(g)(6)(ii) include non-specific lender credits as well as
specific lender credits. In contrast with final comment 37(g)(6)(ii)-1,
current comment 38(h)(3)-1 provides that a credit from the creditor
that is attributable to a specific loan cost or other cost is not
disclosed under Sec. 1026.38(h)(3) (but rather is reflected in the
Paid by Others column in the Closing Cost Details tables under Sec.
1026.38(f) or (g)). To conform with the amendment to comment
37(g)(6)(ii)-1, the Bureau is amending Sec. 1026.38(h)(3) to remove
the cross-reference to Sec. 1026.37(g)(6)(ii).
38(i) Calculating Cash To Close
The Bureau's Proposal
Section 1026.38(i) requires the disclosure of the calculation of
cash needed from the consumer at consummation of the transaction, using
the heading ``Calculating Cash to Close.'' The Bureau proposed
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 section
1032(a). The Bureau stated that it believed that the amendments would
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 more fully in the section-
by-section analysis of Sec. 1026.37(h) above, the Bureau sought
comment on the calculating cash to close table generally.
As discussed in more detail below, the Bureau proposed to revise
comments 38(i)-2 and 38(i)-3, and to add comment 38(i)-5. Under Sec.
1026.38(i), the calculating cash to close table sets forth three
subheadings: ``Loan Estimate,'' ``Final,'' and ``Did this change?.''
Current comment 38(i)-2 provides guidance on comparing the amounts that
are disclosed under the subheadings ``Loan Estimate'' and ``Final'' on
the Closing Disclosure's calculating cash to close table. The Bureau
proposed to revise comment 38(i)-2 to streamline the comment. Current
comment 38(i)-3 provides that Sec. 1026.38(i)(4)(iii)(A), (5)(iii)(A),
(7)(iii)(A), and (8)(iii)(A) each require a statement that the consumer
should see certain details of the closing costs disclosed under Sec.
1026.38(j) and provides examples of those statements in appendix H,
including an example related to the seller credits disclosure on the
calculating cash to close table. The Bureau proposed to revise comment
38(i)-3 for consistency with proposed changes to Sec. 1026.38(i)(7),
the seller credits disclosure in the calculating cash to close table.
The Bureau proposed to add comment 38(i)-5 to clarify that the
amounts disclosed under the subheading ``Loan Estimate'' pursuant to
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, regardless of 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 explained 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 sought comment on this approach. In
particular, the Bureau sought 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 also sought
comment on other alternatives to provide consumers with a comparison of
estimated and final amounts.
Comments Received
As noted above and discussed more fully in the section-by-section
analysis of Sec. 1026.37(h), the Bureau sought comment on the
calculating cash to close tables generally. A variety of commenters
acknowledged that the calculating cash to close tables provide
important benefits to consumers and that the proposed revisions would
improve the ability of creditors to comply with the calculating cash to
close requirements and provide to consumers a more accurate cash to
close amount. Commenters stated that the calculating cash to close
tables enable consumers to understand components of their cash to close
amount without the need to wade through the detailed line items in the
summaries of transactions table, and described the calculating cash to
close tables as conducting many of the difficult calculations behind-
the-scenes so that consumers can review the high-level components of
the calculations, which generally mirror how they think about the
transaction. However, a number of other commenters stated that the
standard calculating cash to close tables are confusing and
complicated. Many commenters specifically identified the ``Closing
Costs Financed (Paid from your Loan Amount)'' and ``Down Payment/Funds
from Borrower'' labels and calculations as the main areas of concern,
asserting that the mathematical formulas used to calculate the
disclosures do not reflect how consumers understand those amounts in
[[Page 37731]]
the context of a residential real estate transaction. Commenters
opposing the proposed amendments suggested a variety of solutions,
including that the Bureau remove the standard calculating cash to close
tables, ``fix'' the tables completely, or leave the tables alone. See
the section-by-section analysis of Sec. 1026.37(h) for a more detailed
discussion of those comments that relate to Sec. Sec. 1026.37(h) and
1026.38(i) generally.
The Bureau did not receive comments on its proposal related to
comments 38(i)-2 and 38(i)-3, but received several comments on proposed
comment 38(i)-5. In particular, a mortgage company supported the
Bureau's proposal 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, regardless of 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
commenter stated that it is beneficial for the consumer to be able to
compare the amounts disclosed on the most recent Loan Estimate to the
amounts disclosed on the Closing Disclosure, and that most creditors
are likely following this practice already. However, the commenter also
noted this clarification might require reprogramming for some
creditors, and recommended that the Bureau provide creditors with six
months to implement final comment 38(i)-5. A software vendor and
software vendor group noted that the proposal will help to settle
industry differences of opinion, but raised concerns with the proposal,
discussed below.
A software vendor, a software vendor group, a credit union,
mortgage companies, and trade associations questioned the usefulness of
the comparison. Commenters cited concerns that the table does not
identify tolerance violations for consumers' awareness and does not
record amounts on any Closing Disclosures provided to the consumer
between the last provided Loan Estimate and the current corrected
Closing Disclosure. One commenter asked the Bureau to clarify whether
comparison between the ``Loan Estimate'' and ``Final'' columns affects
the tolerance provisions under Sec. 1026.19(e)(3). Another commenter
stated that good faith was difficult to determine based on a comparison
of the amounts disclosed on the last provided Loan Estimate and current
Closing Disclosure.
Industry commenters offered alternative approaches to help
consumers evaluate changes between disclosures. A mortgage company
commented that the best alternative, for purposes of consumer
comparisons between the Loan Estimate and the current Closing
Disclosure, is for consumers to simply lay the most recent Loan
Estimate next to the Closing Disclosure, and then compare the closing
costs that are disclosed on each disclosure. The commenter asserted
that the calculating cash to close tables were not necessary for this
purpose, and that consumer testing and the Bureau's similar design for
closing costs on the Loan Estimate and Closing Disclosure already
supports this alternative. A trade association recommended that the
Bureau remove the comparison aspect of the table and instead require a
comparison of loan costs and lender credits that can be used to
identify tolerance violations. A trade association, software vendor,
and software vendor group suggested the comparison instead be between
amounts disclosed on the last disclosure, whether it be a Loan Estimate
or Closing Disclosure, and the current Closing Disclosure, which would
provide the consumer with timely updates and information as to why
costs increased or decreased between the two disclosures and a history
of why things changed from one disclosure to the next.
The Final Rule
After considering the comments, the Bureau is not in this final
rule deviating significantly from the proposed amendments, which
address many questions the Bureau has received from industry on the
proper calculation of the various amounts disclosed on the calculating
cash to close tables and the variation among creditors in how the
calculating cash to close disclosures are determined. The Bureau
believes that finalizing the proposed amendments to the calculating
cash to close table, with some revisions as discussed in the applicable
section-by-section analyses, is necessary in order to resolve issues
that have arisen during the initial implementation of the TILA-RESPA
Rule and on which industry has asked the Bureau for guidance. The
Bureau has been, and remains, engaged in extensive efforts to support
industry implementation, and finalizing proposed clarifications and
amendments related to the calculating cash to close tables is one such
effort. See the section-by-section analysis of Sec. 1026.37(h) for a
discussion of the Bureau's rationale for not following some commenters'
recommendations to remove the calculating cash to close tables,
significantly revise the tables, or not finalize the proposed
amendments to the tables.
For the reasons discussed in this section, the Bureau is adopting
comment 38(i)-2 as proposed to clarify how amounts are disclosed under
the subheading ``Loan Estimate'' on the Closing Disclosure's
calculating cash to close table, with minor technical revisions. The
Bureau also is adopting comment 38(i)-3 as proposed with revisions to
conform to final Sec. 1026.38(i)(7) and other minor technical
revisions. The Bureau concludes these amendments to comments 38(i)-2
and -3 are necessary and will aid in compliance.
The Bureau is finalizing comment 38(i)-5 as proposed. Final comment
38(i)-5 provides that the amounts disclosed in the ``Loan Estimate''
column of the calculating cash to close table 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. The Bureau believes that the comparison of
amounts from the last provided Loan Estimate to the current Closing
Disclosure, as required by final comment 38(i)-5, is helpful to
consumers, and there are not viable alternatives absent completely
restructuring the calculating cash to close tables; at this time,
restructuring the calculating cash to close tables would be
inconsistent with the Bureau's focus in this rulemaking on providing
additional clarity in an expeditious manner. The comparison, as part of
the Closing Disclosure's calculating cash to close table, illustrates
how such amounts changed from the estimated amounts disclosed on the
Loan Estimate, which helps to ensure that the features of the
transaction are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to better understand the
costs, benefits, and risks associated with the transaction, in light of
the facts and circumstances, consistent with Dodd-Frank Act section
1032(a). The table is not intended to identify every single change over
the course of the real estate transaction; it is intended to compare
the most recent estimated amounts represented to the consumer with the
amounts reflecting the actual terms of the transaction. As discussed in
the proposal, the amounts disclosed 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
[[Page 37732]]
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 at the time the disclosure is provided, do not result in any
separate violation of any standard under Regulation Z. 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 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.
In disclosing amounts under Sec. 1026.38(i)(1)(i), (3)(i), (4)(i),
(5)(i), (6)(i), (7)(i), (8)(i), and (9)(i), when there are multiple
Loan Estimates provided to a consumer, the current regulatory
provisions do not specify a particular Loan Estimate to use. Therefore,
it is currently permissible to disclose amounts from any Loan Estimate
provided to the consumer in the ``Loan Estimate'' column of the Closing
Disclosure's calculating cash to close table, and will remain
permissible until the mandatory compliance date of this final rule,
October 1, 2018. For a discussion of the effective date and optional
compliance period, see part VI, below.
38(i)(1) Total Closing Costs
38(i)(1)(iii)
The Bureau's Proposal
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 (i.e., under Sec. 1026.19(e)(3)) 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). Comments 38(i)(1)(iii)(A)-2.i, -2.iii, and -3
provide guidance regarding these statements. The Bureau proposed 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.
Specifically, the Bureau proposed to clarify that a reduction in
principal balance (principal curtailment) may be disclosed under Sec.
1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) to provide a tolerance refund
under Sec. 1026.19(f)(2)(v). Proposed revisions to Sec.
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 would have
allowed a creditor to provide a statement directing the consumer to the
disclosure of a principal curtailment under Sec. 1026.38(g)(4),
(j)(4)(i), or (t)(5)(ix) if a principal curtailment, instead of a
lender credit, was used to provide such refund. As a result of these
proposed amendments, the Bureau also proposed to revise comment
38(i)(1)(iii)(A)-3 to clarify that the examples of statements provided
by form H-25(F) of appendix H only relate to statements provided under
Sec. 1026.38(h)(3).
Comments Received
As discussed in more detail in the section-by-section analysis of
Sec. 1026.38 pertaining to comment 38-4 above, some industry
commenters raised concerns with the various options for disclosing
principal curtailments proposed by the Bureau. Commenters also
requested additional clarity regarding the disclosure of a principal
curtailment pursuant to Sec. 1026.38(j)(4)(i). Specifically, the
commenters questioned where in the summaries of transactions table the
disclosure is to be made, since Sec. 1026.38(j)(4)(i) contains the
requirement to disclose costs that are not paid from closing funds but
would otherwise be disclosed pursuant to Sec. 1026.38(j) marked with
the phrase ``Paid Outside of Closing'' or ``P.O.C.,'' but does not
provide a specific location for the principal curtailment disclosure.
In addition, an industry group recommended that the Bureau use the
phrase ``principal reduction'' instead of ``principal curtailment,''
noting that consumers would be more familiar with the recommended
phrase. A title insurance company requested that the Bureau update the
sample forms to reflect the disclosure of principal curtailments,
similar to how form H-25(F) of appendix H contains examples of the
required statements under Sec. 1026.38(h)(3), which is referenced in
comment 38(i)(1)(iii)(A)-3.
The Final Rule
For the reasons discussed below, the Bureau is adopting amendments
to Sec. 1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 as
proposed with technical and conforming revisions, and amending comments
38(i)(1)(iii)(A)-2.i and -2.iii. The Bureau is revising Sec.
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to use the
phrase ``principal reduction'' for clarity. As discussed in the
section-by-section analysis of Sec. 1026.38 pertaining to comment 38-4
above, the Bureau is revising comment 38-4 to clarify that principal
reductions disclosed in the summaries of transactions table are
disclosed under Sec. 1026.38(j)(1)(v), not Sec. 1026.38(j)(4)(i), and
to limit the disclosure of principal reductions to Sec.
1026.38(j)(1)(v) on the standard Closing Disclosure. As a result, the
Bureau is making conforming amendments in final Sec.
1026.38(i)(1)(iii)(A)(3) and final comment 38(i)(1)(iii)(A)-3 to remove
the proposed references to Sec. 1026.38(g)(4), (j)(4)(i), and
(t)(5)(ix) and to instead only refer to Sec. 1026.38(j)(1)(v). The
Bureau declines to update the sample forms at this time as requested by
a commenter. Doing so would be inconsistent with the Bureau's focus in
this rulemaking on providing additional clarity in an expeditious
manner.
As discussed in the section-by-section analysis of Sec.
1026.19(e)(3)(i), the Bureau is modifying comment 19(e)(3)(i)-1 to
conform to final Sec. 1026.19(e)(3)(iii), which provides exceptions to
the general rule that an estimated closing cost is in good faith (i.e.,
does not exceed legal limits) if the charge paid by or imposed on the
consumer does not exceed the estimate for the cost as disclosed on the
Loan Estimate. As a result, the Bureau is making conforming amendments
in final comments 38(i)(1)(iii)(A)-2.i and -2.iii. Specifically, final
comment 38(i)(1)(iii)(A)-2.i clarifies that certain closing costs
(e.g., fees paid to the creditor, transfer taxes, fees paid to an
affiliate of the creditor) are generally subject to the limitations on
increases in closing costs under Sec. 1026.19(e)(3)(i); however, Sec.
1026.19(e)(3)(iii) provides exceptions to the general rule for certain
charges. Final comment 38(i)(1)(iii)(A)-2.iii clarifies that, for a
charge listed on the Loan Estimate under the subheading ``Services You
Can Shop For,'' such charge would generally be subject to the
limitations under Sec. 1026.19(e)(3)(i) if the consumer decided to use
a provider affiliated with the creditor; however, Sec.
1026.19(e)(3)(iii) provides exceptions to the general rule for certain
charges.
[[Page 37733]]
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 proposed to change $0 to $0.00 to
reflect the disclosure of a dollar amount of zero to two decimal
places. The Bureau did not receive comments specific to this proposal.
However, for the reasons discussed in the section-by-section analysis
of Sec. 1026.38(e)(3)(iii)(B), the Bureau is not finalizing the
proposed amendment to comment 38(i)(2)(iii)(B)-1.
38(i)(3) Closing Costs Financed
The Bureau's Proposal
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
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 proposed 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) from the loan
amount disclosed under Sec. 1026.38(b). The proposed comment explained
that the total amount of payments to third parties includes the sale
price of the property disclosed under Sec. 1026.38(j)(1)(ii). Proposed
comment 38(i)(3)-1 also explained that 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 calculation is positive, that
amount would be disclosed as a negative number under Sec.
1026.38(i)(3), but only to the extent 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).
Consistent with proposed comment 37(h)(1)(ii)-2, the Bureau
proposed 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. The proposed
comment explained that financed closing costs, such as mortgage
insurance premiums payable at or before consummation, do not reduce the
loan amount. The intent of this proposed comment was to 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 under Sec. 1026.38(b), and the basis for the calculating cash
to close table calculations, is the total amount the consumer will
borrow as reflected by the face amount of the note. This definition of
loan amount under Sec. 1026.38(b) would not have affected how other
agencies define or use similar terms for purposes of their own
programmatic requirements. For example, the ``base loan amount'' and
``total loan amount,'' as those terms are used for loans made under FHA
programs, may not be the same as the loan amount required to be
disclosed under Sec. 1026.38(b).
Comments Received
The Bureau received several comments on proposed comment 38(i)(3)-
1. As discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(ii), two industry commenters noted a slight inconsistency
between the language describing the closing costs financed calculations
for the Loan Estimate in comment 37(h)(1)(ii)-1 and the Closing
Disclosure in comment 38(i)(3)-1. Such inconsistency could permit
creditors to use two different calculations for the closing costs
financed disclosures.
A title insurance company requested that the Bureau update the
sample forms to reflect $0.00 instead of $0 because the proposed new
commentary would require disclosure of $0.00 if the result of the
closing costs financed calculation was zero or negative.
A software vendor group stated that, in the absence of a method for
calculating the closing costs financed on the Closing Disclosure, some
lending platforms have been completing the closing costs financed
disclosure on the Closing Disclosure by entering the amount of closing
costs that have been added to the amount requested or subtracted from
the loan proceeds under Sec. 1026.38(i)(3)(ii). The commenter stated
that the approach yields a cash to close amount in the calculating cash
to close table consistent with the cash to close amount in the
summaries of transactions table. The commenter indicated that amending
its current practice to be consistent with proposed comment 38(i)(3)-1
would require a substantial reprogramming effort. A software vendor and
software vendor group stated that using the calculation method in
proposed comment 38(i)(3)-1 to determine the amount of closing costs
financed potentially could be confusing to consumers. Another software
vendor stated that the calculation method in proposed comment 38(i)(3)-
1 does not align with the language in Sec. 1026.38(i)(3). Finally, as
discussed in the section-by-section analysis of Sec. 1026.37(h)(1),
regarding the proposal to clarify that, on the simultaneous subordinate
financing Loan Estimate, the sale price disclosed under Sec.
1026.37(a)(7) would not be used in any of the Sec. 1026.37(h)(1)
calculations, a title insurance company noted that the Bureau did not
make a corresponding change for the Closing Disclosure.
The Bureau received several comments on proposed comment 38(i)(3)-
2. As discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(ii), consistent with comments received on proposed
comment 37(h)(1)(ii)-2, a software vendor expressed support for the
Bureau's proposed comment 38(i)(3)-2 to clarify that financed mortgage
insurance premiums do not reduce the loan amount used in the
calculation. One trade association commenter did not support requiring
the loan amount disclosed in Sec. 1026.38(b) to be used in the closing
costs financed calculation; instead, the commenter indicated that
creditors should be permitted to use the ``base loan amount.''
The Final Rule
For the reasons discussed below, the Bureau is adopting proposed
comment 38(i)(3)-1 in part with revisions and adopting proposed comment
38(i)(3)-2 with revisions. To address the slight inconsistency between
the language describing the closing costs financed calculation for the
Loan Estimate and Closing Disclosure in the proposed amendments to
comment 37(h)(1)(ii)-1 and proposed new comment 38(i)(3)-1,
respectively, the Bureau is amending comment 37(h)(1)(ii)-1, as
discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(ii), for consistency with comment 38(i)(3)-1. Therefore,
the Bureau is adopting the relevant
[[Page 37734]]
proposed revisions to comment 38(i)(3)-1.
For the reasons discussed in the section-by-section analysis of
Sec. 1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed
amendment to comment 38(i)(3)-1 which would have changed ``$0'' to
``$0.00.'' The Bureau is also not conducting a systematic review of
sample forms at this time. As discussed in the section-by-section
analysis of Appendix H--Closed-End Forms and Clauses below, doing so
would be inconsistent with the Bureau's focus in this rulemaking on
providing additional clarity in an expeditious manner.
As discussed above, some commenters raised concerns with the
Closing Disclosure's closing costs financed calculation set forth in
proposed comment 38(i)(3)-1. In the TILA-RESPA Final Rule, the Bureau
added comment 37(h)(1)(ii)-1 to specify a method to calculate the
amount of closing costs to be paid from mortgage loan proceeds on the
Loan Estimate, in response to comments asking how to conduct the
calculation.\88\ However, the Bureau did not add a similar comment
regarding the Closing Disclosure's closing costs financed disclosure.
The Bureau recognizes that this omission has caused confusion in the
industry and the industry has taken varying approaches to disclosing
the amount of closing costs financed on the Closing Disclosure absent a
formula. As discussed in part VI below, the Bureau is committed to
giving industry sufficient time to reprogram its software to
accommodate the formula. This final rule will be effective 60 days from
publication in the Federal Register, but there will be an optional
compliance period in effect until October 1, 2018.
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\88\ 78 FR 79730, 79967 (Dec. 31, 2013).
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As discussed in more detail in the section-by-section analysis of
Sec. 1026.37(h), several commenters expressed concern that the closing
costs financed disclosure may result in a disclosure that does not
necessarily align with consumers' understanding of their transactions,
and that consumers may not recognize that there is a calculation that
determines this disclosure component. One solution raised by commenters
is to include the formula in the calculating cash to close table. The
Bureau does not adopt this recommendation because it does not believe
that including the formula would be helpful to consumers. The table
intentionally conducts the calculations behind-the-scenes so that
consumers can review the high-level components of the calculation.
Another solution raised by commenters is to create a new label for the
closing costs financed disclosure so that consumers would not associate
the amount disclosed on the currently labeled ``Closing Costs Financed
(Paid from your Loan Amount)'' line of the calculating cash to close
table with the amount of closing costs they understand to be financed
in their transactions. The Bureau does not adopt this recommendation
because the labels were developed through consumer testing processes,
and it is not feasible, on the expedited schedule of this rulemaking,
to reengage in consumer testing to validate revised labels. Although
consumer testing of disclosures is not necessary in all instances, the
Bureau considers that such testing is important in this context.
As discussed above, one software vendor stated that the calculation
method in proposed comment 38(i)(3)-1 does not align with the language
in the regulatory text. The Bureau does not agree with this assertion.
Section 1026.38(i)(3) requires disclosure of the actual amount of the
closing costs that are to be paid out of loan proceeds. Because money
is fungible, in order to create standardized disclosures that can be
utilized in a wide variety of transaction types, the Bureau had to
create formulas that earmarked loan funds for specific disclosures,
including the closing costs financed disclosure; the closing costs
financed disclosure formula in final comment 38(i)(3)-1 explains to
creditors how to determine the amount of closing costs that are to be
paid out of loan proceeds for all transaction types in a standardized
manner. The Bureau concludes that it is important to specify a method
to calculate the amount of closing costs to be paid from loan proceeds
on the Closing Disclosure to create consistency and uniformity for this
disclosure component, and to ensure that all of the calculating cash to
close disclosure components work together to yield an accurate amount
of cash due from or to the borrower at closing.
The Bureau is revising comment 38(i)(3)-1 to explain that for some
loans, such as simultaneous subordinate financing transactions, no sale
price will be disclosed under Sec. 1026.38(j)(1)(ii) in accordance
with comment 38(j)(1)(ii)-1. While this revision is not necessary, the
Bureau believes the reference to comment 38(j)(1)(ii)-1 in comment
38(i)(3)-1 may be helpful to creditors conducting the closing costs
financed calculation for simultaneous subordinate financing.
The Bureau is also amending comment 38(i)(3)-1 to include
additional examples for consistency with comments 37(h)(1)(ii)-1 and
38(g)(4)-1. As discussed in the section-by-section analysis of Sec.
1026.38(g)(4), the Bureau is not finalizing the proposal that would
have required construction costs, payoff of existing liens, and payoff
of unsecured debt to be disclosed under Sec. 1026.38(g)(4). Because
amounts for construction costs, payoff of existing liens, and payoff of
unsecured debt are disclosed under Sec. 1026.38(j)(1)(v), they will be
included in the closing costs financed calculation as payments to third
parties not otherwise disclosed under Sec. 1026.38(f) and (g).
The Bureau is finalizing comment 38(i)(3)-2 with revisions. The
Bureau believes its statement in proposed new comment 38(i)(3)-2 that
the loan amount is the total amount the consumer will borrow as
reflected by the face amount of the note is sufficiently clear and is
therefore streamlining the comment by removing the example. The Bureau
is making minor technical revisions for greater consistency with
comment 37(h)(1)(ii)-2, but is not otherwise amending proposed comment
38(i)(3)-2 as requested by a commenter. The loan amount as disclosed
under Sec. 1026.38(b) is an integral part of the closing costs
financed calculation, and the calculating cash to close table
generally. The Bureau emphasizes that this definition of loan amount in
Sec. 1026.38(b) 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,'' as those
terms are used for loans made under FHA programs, 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
The Bureau's Proposal
Section 1026.38(i)(4)(ii)(A) requires the down payment and funds
from borrower 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 amount 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 that is disclosed under Sec.
1026.38(j)(2)(iv). Section 1026.38(i)(4)(ii)(B) requires that, in all
other transactions, the amount is determined in accordance with Sec.
1026.38(i)(6)(iv). As discussed below, the Bureau proposed to revise
[[Page 37735]]
Sec. 1026.38(i)(4)(ii)(A) and comment 38(i)(4)(ii)(A)-1. The Bureau
also proposed to add comment 38(i)(4)(ii)(A)-2.
Specifically, the Bureau proposed 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. Proposed Sec.
1026.38(i)(4)(ii)(A)(1) would have provided 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 is disclosed under Sec. 1026.38(j)(2)(iv)
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. Proposed Sec. 1026.38(i)(4)(ii)(A)(2)
would have provided that when the sum of the loan amount and any amount
for existing loans assumed or taken subject to that is disclosed under
Sec. 1026.38(j)(2)(iv) exceeds the sale price of the property, the
creditor instead would have calculated the funds from the consumer in
accordance with Sec. 1026.38(i)(6)(iv). Proposed comment
38(i)(4)(ii)(A)-2 would have explained that the amount the creditor
discloses under Sec. 1026.38(i)(4)(ii)(A)(2) is determined in
accordance with the funds for borrower calculation under Sec.
1026.38(i)(6)(iv).
Proposed comment 38(i)(4)(ii)(A)-1 would have explained the
calculation that must be followed for accurate disclosure of the down
payment/funds from borrower amount on the Closing Disclosure. The
proposed comment also would have explained that the minimum cash
investments required of consumers and referred to as ``down payments''
under some loan programs would not necessarily be reflected in the
disclosure, and disclosure of the calculated amount would not affect
compliance or non-compliance with such loan programs' requirements.
Section 1026.38(i)(4)(ii)(B) provides that in a transaction other
than the type described in Sec. 1026.38(i)(4)(ii)(A), the creditor
discloses the funds from the consumer in accordance with the formula in
Sec. 1026.38(i)(6)(iv), labeled ``Down Payment/Funds from Borrower.''
Current comment 38(i)(4)(ii)(B)-1 provides that under Sec.
1026.38(i)(6)(iv), the final amount of funds from the borrower
disclosed under Sec. 1026.38(i)(4)(ii)(B) is determined by subtracting
from the total amount of all existing debt being satisfied in the real
estate closing and disclosed under Sec. 1026.38(j)(1)(v) (except to
the extent the satisfaction of such existing debt is disclosed under
Sec. 1026.38(g)) the principal amount of the credit extended. The
Bureau proposed to revise Sec. 1026.38(i)(4)(ii)(B) for conformity
with proposed amendments to Sec. 1026.38(i)(4)(ii)(A). The Bureau
proposed to revise comment 38(i)(4)(ii)(B)-1 to clarify that the
``total amount of all existing debt being satisfied'' means the sum of
amounts disclosed under Sec. 1026.38(j)(1)(ii), (iii), and (v). The
Bureau sought comment on whether defining the phrase ``total amount of
all existing debt being satisfied'' 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.'' The Bureau also
proposed to revise comment 38(i)(4)(ii)(B)-1 for conformity with
proposed amendments to Sec. 1026.38(i)(4)(ii)(B). In addition, the
Bureau proposed a technical revision in comment 38(i)(4)(ii)(B)-1 to
change $0 in reference to the final amount to $0.00 to reflect the
disclosure of a dollar amount of zero to two decimal places.
Comments Received
In response to the Bureau's general solicitation of comment on the
calculating cash to close table, many commenters raised concerns with
the down payment/funds from borrower disclosure requirements. The
Bureau discusses commenters' general concerns in the section-by-section
analysis of Sec. 1026.37(h). The comments summarized below are related
to the Bureau's specific proposals under Sec. 1026.38(i)(4) and its
commentary.
As discussed more fully in the section-by-section analysis of Sec.
1026.37(h)(1)(iii), commenters supported the Bureau's proposal to
account for the amount expected to be disbursed to the consumer or used
at the consumer's discretion at consummation for purchase transactions.
Some commenters raised concerns about the distinction between the
Bureau's proposed down payment disclosure calculation and minimum cash
investments required of consumers under some loan programs, which may
also be called ``down payments'' under those loan programs.
In response to the Bureau's request for comments on whether
defining the phrase ``total amount of all existing debt being
satisfied'' to mean specifically amounts disclosed under Sec.
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive, a title
insurance company responded that it did not believe such a definition
was too prescriptive. However, the commenter cautioned that the
proposed amendments to the commentary of Sec. 1026.38(g)(4) regarding
payoffs of amounts secured by real property would have unintended
consequences because under the proposal, that debt would not have been
disclosed under any of those paragraphs of Sec. 1026.38(j).
A commenter raised a concern that the Bureau's requirement to label
the amount of funds from the consumer disclosed under Sec.
1026.38(i)(4)(ii) as ``Down Payment/Funds from Borrower'' when using
the ``Funds for Borrower'' calculation under Sec. 1026.38(i)(6)(iv)
conflicts with the ``Funds for Borrower'' disclosure requirements of
Sec. 1026.38(i)(6)(ii). The commenter cited to Sec.
1026.38(i)(4)(ii)(B)(2), which does not exist. The commenter may have
been referring to comment 38(i)(4)(ii)(A)-2 or comment 38(i)(4)(ii)(B)-
1.
The Final Rule
For the reasons discussed below and in the section-by-section
analysis of Sec. 1026.37(h)(1)(iii), the Bureau is adopting the
amendments to Sec. 1026.38(i)(4)(ii)(A) as proposed with several
revisions. The Bureau also is adopting conforming revisions to Sec.
1026.38(i)(4)(ii)(B). In addition, the Bureau generally is adopting,
with revisions, the proposed amendments to comments 38(i)(4)(ii)(A)-1
and 38(i)(4)(ii)(B)-1, and proposed comment 38(i)(4)(ii)(A)-2, and is
making a conforming amendment to comment 38(i)(4)(iii)(A)-1. For the
reasons discussed in the section-by-section analysis of Sec.
1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed
amendment to comment 38(i)(4)(ii)(B)-1 which would have changed ``$0''
to ``$0.00,'' and is amending proposed comment 38(i)(4)(ii)(A)-2 to
reflect ``$0'' instead of ``$0.00.''
Consistent with final Sec. 1026.37(h)(1)(iii) and for the reasons
discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(iii), the Bureau is adopting the amendments to Sec.
1026.38(i)(4)(ii)(A) and (B), and adopting comment 38(i)(4)(ii)(A)-2,
as proposed with revisions discussed above and revisions to clarify how
Sec. 1026.38(i)(4)(ii) applies to simultaneous subordinate financing
purchase transactions and purchase transactions with improvements to be
made on the property. Specifically, final Sec. 1026.38(i)(4)(ii)(A)(2)
provides that for a purchase transaction that is a simultaneous
subordinate financing transaction or that involves improvements to be
made on the
[[Page 37736]]
property, the amount of funds from the consumer is determined in
accordance with Sec. 1026.38(i)(6)(iv). Because simultaneous
subordinate financing is specifically covered by final Sec.
1026.38(i)(4)(ii)(A)(2), it is no longer necessary to reference in
Sec. 1026.38(i)(4)(ii)(A)(1) the sale price disclosed under Sec.
1026.38(j)(1)(ii) instead of the sale price disclosed under Sec.
1026.38(a)(3)(vii)(A). The Bureau notes that for transactions that use
the down payment/funds from borrower calculation under Sec.
1026.38(i)(4)(ii)(A)(1), the sale price disclosed on page 1 of the
Closing Disclosure under Sec. 1026.38(a)(3)(vii)(A) will be the same
as the sale price disclosed in the summaries of transactions table on
page 3 of the Closing Disclosure pursuant to Sec. 1026.38(j)(1)(ii).
Therefore, in final Sec. 1026.38(i)(4)(ii)(A)(1) the Bureau is
referencing the sale price disclosed under Sec. 1026.38(a)(3)(vii)(A),
consistent with the corresponding provision for the Loan Estimate, and
is making conforming amendments to final Sec. 1026.38(i)(4)(ii)(A)(2).
The Bureau is also making several technical revisions to comments
38(i)(4)(ii)(A)-1 and -2, and 38(i)(4)(ii)(B)-1. Specifically, the
Bureau is revising comments 38(i)(4)(ii)(A)-2 and 38(i)(4)(ii)(B)-1 to
make technical revisions to reflect the phrase ``total amount of all
existing debt being satisfied in the transaction'' instead of ``total
amount of all existing debt being satisfied in the real estate
closing'' for consistency with the terminology used in Sec. 1026.37.
Similar amendments are discussed in the section-by-section analysis of
Sec. 1026.38(i)(6)(iv).
As discussed above, a commenter cautioned that the proposed
amendments to the commentary of Sec. 1026.38(g)(4) regarding the
payoffs of amounts secured by real property would have unintended
consequences to the proposal to define existing debt being satisfied in
the transaction as the amounts that are disclosed on the Closing
Disclosure under Sec. 1026.38(j)(1)(ii), (iii), and (v). As discussed
in the section-by-section analysis of Sec. 1026.38(g)(4), the Bureau
is not finalizing the proposal that would have required construction
costs, payoff of existing liens, and payoff of unsecured debt to be
disclosed under Sec. 1026.38(g)(4).
The Bureau also is amending comments 38(i)(4)(ii)(A)-1 and -2,
38(i)(4)(ii)(B)-1, and 38(i)(4)(iii)(A)-1 to make clear that the
disclosure required under Sec. 1026.38(i)(4)(ii)(A) or (B),
respectively, represents both the down payment and the funds from the
borrower. For the reasons discussed in the section-by-section analysis
of Sec. 1026.37(h)(1)(iii), the Bureau is not making other amendments
to comment 38(i)(4)(ii)(A)-1 in response to the comments that raised
concerns with the Bureau's distinction between the down payment
disclosure calculation and minimum cash investments required of
consumers under some loan programs, except to explain that the down
payment and funds from borrower calculation is independent of any loan
program or investor requirements.
Although the Bureau is not able to determine the commenter's
precise concern regarding the potentially conflicting labeling
requirements in Sec. 1026.38(i)(4)(ii) and (6)(ii), the Bureau is
revising Sec. 1026.38(i)(4)(ii)(B) and comments 38(i)(4)(ii)(A)-2 and
38(i)(4)(ii)(B)-1 to provide greater clarity regarding the calculations
and labeling requirements in Sec. 1026.38(i)(4)(ii) and (6)(ii).
38(i)(5) Deposit
The Bureau proposed a technical revision 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 to reflect the disclosure of a dollar amount
of zero to two decimal places. The Bureau did not receive comments on
this proposal. For the reasons discussed in the section-by-section
analysis of Sec. 1026.38(e)(3)(iii)(B), the Bureau is not finalizing
the proposed amendment to comment 38(i)(5)-1 which would have changed
``$0'' to ``$0.00.'' The Bureau is, however, finalizing other proposed
minor technical revisions to comment 38(i)(5)-1.
38(i)(6) Funds for Borrower
38(i)(6)(ii)
Comment 38(i)(6)(ii)-1 provides clarification about how the funds
for borrower amount is determined under Sec. 1026.38(i)(6)(iv) and to
whom such amount is disbursed. The Bureau proposed to revise comment
38(i)(6)(ii)-1 to conform to proposed revisions and clarifications to
Sec. 1026.38(i)(6)(iv). The Bureau proposed to add comment
38(i)(6)(ii)-2 to conform to proposed revisions to comment 37(h)(1)(v)-
1.
As discussed more fully in the section-by-section analysis of Sec.
1026.37(h)(1)(v), commenters supported the Bureau's proposed amendments
and clarifications to the funds for borrower disclosure in Sec. Sec.
1026.37(h)(1)(v) and 1026.38(i)(6) and the associated commentary.
Commenters stated that the amendments will allow the accurate
reflection of proceeds due to the borrower at closing and urged the
Bureau to adopt the proposed amendments. One commenter supported the
clarification in the proposed revisions to comment 38(i)(6)(ii)-1 that
the ``total amount of all existing debt being satisfied'' is the total
of the amounts disclosed under Sec. 1026.38(j)(1)(ii), (iii), and (v).
A commenter noted a slight wording difference between proposed comment
37(h)(1)(v)-2 and proposed amendments to comment 38(i)(6)(ii)-1
regarding the Loan Estimate and Closing Disclosure, respectively.
Specifically, proposed comment 37(h)(1)(v)-2 provided that the total
amount of all existing debt being satisfied in the transaction includes
the amounts that will be disclosed on the Closing Disclosure in the
summaries of transactions table under Sec. 1026.38(j)(1)(ii), (iii),
and (v). This commenter interpreted the word ``includes'' to mean
``includes, but is not limited to,'' whereas the proposed amendments to
comment 38(i)(6)(ii)-1 make clear that for the Closing Disclosure the
total amount of all existing debt being satisfied is the sum of the
amounts that are disclosed on the Closing Disclosure in the summaries
of transactions table under Sec. 1026.38(j)(1)(ii), (iii), and (v).
The commenter requested that the Bureau revise the comments for better
consistency and alignment.
For the reasons discussed below, the Bureau is finalizing with
revisions the proposed amendments to comments 38(i)(6)(ii)-1 and
proposed comment 38(i)(6)(ii)-2. The Bureau's amendments to comment
38(i)(6)(ii)-1 and proposed comment 38(i)(6)(ii)-2 are necessary to
conform to the amendments made to Sec. 1026.38(i)(6)(iv) and for
clarity. As discussed above and in the section-by-section analysis of
Sec. 1026.37(h)(1)(v), a commenter noted a slight wording difference
between proposed comment 37(h)(1)(v)-2 pertaining to the Loan Estimate
and the proposed amendments to comment 38(i)(6)(ii)-1 pertaining to the
Closing Disclosure. The Bureau is revising comment 37(h)(1)(v)-2 to
replace the word ``includes'' with the phrase ``is the sum of'' for
consistency and alignment with final comment 38(i)(6)(ii)-1.
As discussed in the section-by-section analyses of Sec.
1026.37(h)(1)(iii) and (v), the Bureau is amending comments
37(h)(1)(iii)-1 and 37(h)(1)(v)-1 to make clear that the disclosure
required under Sec. 1026.37(h)(1)(iii) represents both the down
payment and other funds from the borrower. The Bureau is similarly
[[Page 37737]]
amending proposed comment 38(i)(6)(ii)-2 to make clear that the
disclosure required under Sec. 1026.38(i)(4)(ii)(A)(1) represents both
the down payment and funds from the borrower. In addition, the Bureau
is streamlining the comment for greater clarity.
As discussed in the section-by-section analysis of Sec.
1026.38(e)(3)(iii)(B), the Bureau's proposal would have changed ``$0''
to ``$0.00'' in many places in Sec. 1026.38(e) and (i), and the
associated commentary, so that dollar amounts of zero would be
disclosed consistently in the ``Final'' column of the Closing
Disclosure's calculating cash to close table. Generally, unless amounts
are required to be rounded by Sec. 1026.38(t)(4), amounts are
disclosed on the Closing Disclosure as exact numerical amounts, using
decimal places. Section 1026.38(t)(4) provides for exceptions to this
general rule. Upon further consideration, the Bureau is not finalizing
the proposed approach, and is instead changing the few instances of
``$0.00'' to ``$0.'' The Bureau believes this approach will achieve the
consistency intended by the proposal, but will be less burdensome to
creditors because Sec. 1026.38(e) and (i), and the associated
commentary, currently refer to dollar amounts of zero in the ``Final''
column of the calculating cash to close table as ``$0'' most of the
time. Therefore, the Bureau is making conforming amendments to comment
38(i)(6)(ii)-1 and proposed comment 38(i)(6)(ii)-2 to change ``$0.00''
to ``$0.''
38(i)(6)(iv)
Section 1026.38(i)(6)(iv) provides that the funds from borrower
disclosed under Sec. 1026.38(i)(4)(ii)(B) and funds for borrower
disclosed under 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 closing and
disclosed under Sec. 1026.38(j)(1)(v) (except to the extent the
satisfaction of such existing debt is disclosed under Sec.
1026.38(g)). This calculation does not capture the amount of existing
loans assumed or taken subject to that is disclosed under Sec.
1026.38(j)(2)(iv). The Bureau proposed 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 loans assumed or taken
subject to, and to clarify that the phrase ``total amount of all
existing debt being satisfied'' means amounts that are disclosed in the
summaries of transactions table under Sec. 1026.38(j)(1)(ii), (iii),
and (v). The Bureau sought comment on whether defining the phrase
``total amount of all existing debt being satisfied'' 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.'' The Bureau also
proposed technical revisions to Sec. 1026.38(i)(6)(iv)(A), (B), and
(C) which explain the amounts to disclose under Sec. 1026.38(i)(4)(ii)
and (6)(ii). Specifically, in paragraphs (A), (B), and (C), the Bureau
proposed to change ``$0'' to ``$0.00'' to reflect the disclosure of a
dollar amount of zero to two decimal places.
As discussed in the section-by-section analysis of Sec.
1026.37(h)(1)(v), a number of commenters supported the Bureau's
proposed amendments to account for the amount expected to be disbursed
to the consumer or used at the consumer's discretion at consummation in
purchase transactions. Two commenters stated that the proposed
amendments would allow the accurate reflection of proceeds due to the
borrower and urged the Bureau to adopt the proposed amendments.
In response to the Bureau's request for comments on whether
defining the phrase ``total amount of all existing debt being
satisfied'' to mean specifically amounts disclosed under Sec.
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive, a title
insurance company responded that it did not believe such a definition
was too prescriptive. However, the commenter cautioned that the
proposed amendments to the commentary of Sec. 1026.38(g)(4) regarding
payoffs of amounts secured by real property would have unintended
consequences because that debt would not be disclosed under Sec.
1026.38(j)(1)(ii), (iii), or (v).
A title insurance company also noted that the integrated disclosure
sample form H-25(B) displays $0, not $0.00. The commenter requested
that the Bureau revise sample form H-25(B) to illustrate $0.00 instead
of $0.
For the reasons discussed below, the Bureau is generally adopting
Sec. 1026.38(i)(6)(iv) as proposed with technical revisions, but, for
the reasons discussed in the section-by-section analysis of Sec.
1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed
amendment to Sec. 1026.38(i)(6)(iv) which would have changed ``$0'' to
``$0.00.'' The amendments the Bureau proposed to make to Sec.
1026.38(i)(6)(iv) and which the Bureau is finalizing are necessary to
conform to final Sec. 1026.38(i)(4). The Bureau is making technical
revisions to Sec. 1026.38(i)(6)(iv) to reflect the full label ``Down
Payment/Funds from Borrower'' instead of only ``Funds from Borrower''
for greater clarity. The Bureau is also revising Sec.
1026.38(i)(6)(iv) to use the phrase ``total amount of all existing debt
being satisfied in the transaction'' instead of ``total amount of all
existing debt being satisfied in the real estate closing'' for
consistency with the terminology used in Sec. 1026.37.
As discussed above, a commenter cautioned that the proposed
amendments to the commentary of Sec. 1026.38(g)(4) regarding the
payoffs of amounts secured by real property would have unintended
consequences to the proposal to define existing debt being satisfied in
the transaction as the amounts that are disclosed on the Closing
Disclosure under Sec. 1026.38(j)(1)(ii), (iii), and (v). As discussed
in the section-by-section analysis of Sec. 1026.38(g)(4), the Bureau
is not finalizing the proposal that would have required construction
costs, payoff of existing liens, and payoff of unsecured debt to be
disclosed under Sec. 1026.38(g)(4).
The Bureau is not conducting a systematic review of sample forms at
this time. As discussed in the section-by-section analysis of Appendix
H--Closed-End Forms and Clauses below, doing so would be inconsistent
with the Bureau's focus in this rulemaking on providing additional
clarity in an expeditious manner.
38(i)(7) Seller Credits
The Bureau's Proposal
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). The amount of seller credits
disclosed on the Loan Estimate under Sec. 1026.37(h)(1)(vi) may
include only general (i.e., lump sum) seller credits or general credits
and specific seller credits. However, Sec. 1026.38(j)(2)(v) and
comment 38(j)(2)(v)-1 state that only general 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
[[Page 37738]]
the closing cost details table under Sec. 1026.38(f) or (g).
Consistent with Sec. 1026.38(j)(2)(v) and comment 38(j)(2)(v)-1,
the Bureau proposed to amend to Sec. 1026.38(i)(7)(iii)(A) to provide
that, if there is a difference between the amount of seller credits
disclosed under Sec. Sec. 1026.37(h)(1)(vi) and 1026.38(j)(2)(v) that
is not attributed to rounding of the amount 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 proposed new comment 38(i)(7)(iii)(A)-1 with
examples of the required statement.
Comments Received
The Bureau received comments on these proposed changes from various
industry commenters, including a title insurance company, a group of
software vendors, and a non-bank. Some commenters supported the change,
other commenters requested different requirements from what the Bureau
proposed, and some requested additional clarity.
An industry commenter noted that if creditors are given discretion
to disclose a statement that the consumer should see the details
disclosed in both the seller-paid column on page 2 and Section L under
form H-25(B) in appendix H, when the seller credit only appears in one
of those locations (i.e., is only general or only specific), this
creates consumer confusion. Instead, the commenter stated that the
Bureau should require a statement that consumer should only see the
details disclosed under Sec. 1026.38(j)(2)(v) in the summaries of
transactions table if the credit is general, or only be directed to the
seller-paid column of Sec. 1026.38(f) and (g) if the credit is
specific. Conversely, industry software vendor commenters stated that
the Bureau should require a statement that the consumer should see the
details in the seller-paid column under Sec. 1026.38(f) or (g) and in
Sec. 1026.38(j)(2)(v) for every transaction, as the proposed
amendments to Sec. 1026.38(i)(7)(iii)(A) would be burdensome and
challenging for software vendors to implement. An industry individual
commenter requested that the Bureau change the ``Seller Credits'' line
in the calculating cash to close table to distinguish between general
seller credits and specific seller credits, to ease consumer confusion.
The Final Rule
Based on comments received, the Bureau is finalizing Sec.
1026.38(i)(7)(iii)(A) and comment 38(i)(7)(iii)(A)-1 with revisions. In
response to the commenter who requested that the Bureau require a
statement that consumer should only see the details disclosed under
Sec. 1026.38(j)(2)(v) in the summaries of transactions table if the
credit is general, or only be directed to the seller-paid column of
Sec. 1026.38(f) and (g) if the credit is specific, the Bureau is
providing this option in the final rule. However, the Bureau does not
believe that requiring all creditors to provide a statement that
consumers should only see the details disclosed under Sec.
1026.38(j)(2)(v) in the summaries of transactions table if the credit
is general, or only be directed to the seller-paid column of Sec.
1026.38(f) and (g) if the credit is specific, would substantially aid
in consumer understanding and is concerned that doing so may be
burdensome. In response to the commenters who requested that the Bureau
require a statement that the consumer should see the details in the
seller-paid column under Sec. 1026.38(f) or (g) and Sec.
1026.38(j)(2)(v) for every transaction in order to reduce
implementation burden, the Bureau is providing this option in the final
rule. However, the Bureau declines to require creditors to provide a
statement that the consumer should see the details in the seller-paid
column under Sec. 1026.38(f) or (g) and Sec. 1026.38(j)(2)(v) for
every transaction because doing so would eliminate the option for a
creditor to provide more clarity for consumers by specifying which
section the change in seller credits is located, if it is only located
in the closing cost details table under Sec. 1026.38(f) or (g) or the
summaries of transactions table under Sec. 1026.38(j)(2)(v). As
finalized, Sec. 1026.38(i)(7) will provide more accurate information
to consumers, while providing optionality to ease compliance for
industry. The Bureau declines to revisit major policy decisions in this
rulemaking, such as the commenter request to change the ``Seller
Credits'' line in the calculating cash to close table to distinguish
between general seller credits and specific seller credits.
Pursuant to commenter requests for additional clarity, the Bureau
provides the following discussion. Creditors will now have options for
the text under the subheading ``Did this change,'' when disclosing a
difference in the amount of seller credits from the Loan Estimate to
the Closing Disclosure, depending on whether the seller credits are
either entirely general, entirely specific, or both. A creditor may,
under the subheading ``Did this change?,'' either disclose a statement
that the consumer should see the details disclosed under Sec.
1026.38(j)(2)(v) in the summaries of transactions table and the seller-
paid column of Sec. 1026.38(f) and (g), or disclose a statement that
the consumer should see the details disclosed under Sec.
1026.38(j)(2)(v) in the summaries of transactions table if the credit
is general, or the seller-paid column of Sec. 1026.38(f) and (g) if
the credit is specific. If the difference in ``Seller Credits'' in the
calculating cash to close table is attributable to general and specific
seller credits, the creditor must disclose a statement that the
consumer should see the details disclosed under Sec. 1026.38(j)(2)(v)
in the summaries of transactions table and the seller-paid column of
Sec. 1026.38(f) and (g).
38(i)(8) Adjustments and Other Credits
38(i)(8)(i)
Section 1026.38(i)(8)(i) requires disclosure under the subheading
``Loan Estimate'' of the amount disclosed on the Loan Estimate under
Sec. 1026.37(h)(1)(vii) rounded to the nearest whole dollar, labeled
``Adjustments and Other Credits.'' The Bureau proposed a technical
revision 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
in accordance with Sec. 1026.37(o)(4)(i)(A).
The Bureau did not receive any comments on this proposal. However,
a trade association commenter stated that sample form H-25(B) contains
a final value of -$1,035.04, which the commenter asserted was in
violation of Sec. 1026.38(i)(8)(i) because the amount is not rounded
to the nearest whole dollar, and requested that the Bureau amend the
sample form to correctly reflect the disclosure requirements.
For the reasons discussed below, the Bureau is finalizing the
technical revision to Sec. 1026.38(i)(8)(i) as proposed. The Bureau
concludes that this technical revision is necessary. In response to the
commenter's assertion that the disclosure of -$1,035.04 in sample form
H-25(B) is in violation of Sec. 1026.38(i)(8)(i), the Bureau
disagrees. On sample form H-25(B), -$1,035.04 is disclosed under the
subheading ``Final'' pursuant to Sec. 1026.38(i)(8)(ii), not Sec.
1026.38(i)(8)(i). The amount disclosed under Sec. 1026.38(i)(8)(i) is
the amount
[[Page 37739]]
disclosed on the Loan Estimate under Sec. 1026.37(h)(1)(vii), and that
amount is the amount required to be rounded to the nearest whole dollar
in accordance with Sec. 1026.37(o)(4)(i)(A).
38(i)(8)(ii)
Section 1026.38(i)(8)(ii) provides that the amount disclosed under
the subheading ``Final'' 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, because
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 proposed 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 existing debt being satisfied in the
transaction, as provided by proposed revisions to those paragraphs,
they are not also counted in the adjustments and other credits
calculation. The Bureau also proposed a technical revision to comment
38(i)(8)(ii)-1, which incorrectly references Sec. 1026.37(h)(7)
instead of Sec. 1026.37(h)(1)(vii). The Bureau did not receive
comments on these proposals. The Bureau is finalizing the amendments to
Sec. 1026.38(i)(8)(ii) with a minor technical revision and finalizing
comment 38(i)(8)(ii)-1 as proposed. The Bureau continues to believe
that, in order to arrive at a more accurate cash to close amount, it is
necessary to prevent amounts disclosed under Sec. 1026.38(j)(1)(iii)
and (v) from being counted twice in the calculating cash to close table
calculations.
38(i)(8)(iii)
The Bureau proposed to revise Sec. 1026.38(i)(8)(iii)(A) to
conform to proposed revisions to Sec. 1026.38(i)(8)(ii). As discussed
in the section-by-section analysis of Sec. 1026.38(i)(8)(ii) above,
the Bureau is finalizing the exclusion of 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 existing debt being
satisfied in the transaction from the calculation of adjustments and
other credits under Sec. 1026.38(i)(8)(ii). The Bureau did not receive
comments on this proposed amendment. Because the proposed amendment to
Sec. 1026.38(i)(8)(iii)(A) is necessary to conform to final Sec.
1026.38(i)(8)(ii), the Bureau is adopting the amendment to Sec.
1026.38(i)(8)(iii)(A) as proposed.
38(j) Summary of Borrower's Transaction
Comment 38(j)-3 clarifies that certain amounts disclosed under
Sec. 1026.38(j) are the same as the amounts disclosed under
corresponding provisions identified in Sec. 1026.38(k). The Bureau
proposed to revise comment 38(j)-3 to conform to the proposed revisions
to Sec. 1026.38(j)(2)(vi).
The Bureau did not receive any comments on its proposed amendments
to comment 38(j)-3. However, the Bureau has decided not to finalize the
proposed revision to comment 38(j)-3 that certain amounts disclosed
under Sec. 1026.38(j)(2)(vi) and (k)(2)(viii) are identical if the
amount disclosed under Sec. 1026.38(j)(2)(vi) is attributable to
contractual adjustments between the consumer and the seller. Instead
the Bureau finalizing comment 38(j)(2)(vi)-6 to cross-reference Sec.
1026.38(k)(2)(viii), which requires disclosure of a description and
amount of any and all other obligations required to be paid by the
seller at the real estate closing.
For the reasons discussed in this section, the Bureau is revising
comment 38(j)-3 for consistency with new comment 38(k)(2)(vii)-1. As
discussed in the section-by-section analysis of Sec. 1026.38(k)(2),
the Bureau is adding comment 38(k)(2)(vii)-1 to explain that if the
simultaneous subordinate financing purchase transaction is disclosed
using the alternative tables pursuant to Sec. 1026.38(d)(2) and (e),
the first-lien Closing Disclosure must include, in the summaries of
transactions table for the seller's transaction under Sec.
1026.38(k)(2)(vii), any contributions toward the simultaneous
subordinate financing from the seller that are disclosed in the payoffs
and payments table under Sec. 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing Closing Disclosure. As a result,
amounts disclosed under Sec. 1026.38(j)(2)(v) and (k)(2)(vii) will not
be identical. The amount disclosed under Sec. 1026.38(j)(2)(v) will
reflect the lump sum seller credit on the first-lien Closing
Disclosure, whereas the amount disclosed under Sec. 1026.38(k)(2)(vii)
will reflect the lump sum seller credits on the first-lien Closing
Disclosure and the simultaneous subordinate financing Closing
Disclosure, when the alternative tables are used for the simultaneous
subordinate financing. Therefore, the Bureau is amending comment 38(j)-
3 to provide that the amounts disclosed under Sec. 1026.38(j)(2)(v)
and (k)(2)(vii) will be identical unless seller contributions toward a
simultaneous subordinate financing transaction are disclosed under
Sec. 1026.38(t)(5)(vii)(B) on the simultaneous subordinate financing
Closing Disclosure and Sec. 1026.38(k)(2)(vii) on the first-lien
Closing Disclosure.
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 simultaneous
subordinate financing Loan Estimate as discussed above, the Bureau
proposed to revise comment 38(j)(1)(ii)-1. As revised, comment
38(j)(1)(ii)-1 would have clarified that the sale price would not be
disclosed under Sec. 1026.38(j)(1)(ii) on the simultaneous subordinate
financing Closing Disclosure.
The Bureau did not receive comments specific to the proposed
conforming amendments to comment 38(j)(1)(ii)-1. As discussed in the
section-by-section analysis of Sec. 1026.37(h)(1), the Bureau is
finalizing the proposal regarding the use of the sale price in the
calculating cash to close table calculations on the simultaneous
subordinate financing Loan Estimate. For these reasons, the Bureau is
finalizing the corresponding amendments to comment 38(j)(1)(ii)-1 as
proposed.
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 Sec. 1026.38(f), (g), or (j). 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 proposed to revise comment
38(j)(1)(v)-1 to clarify that the amounts disclosed under this
provision can include amounts owed to the seller but payable to the
consumer after the real estate closing, providing the following as
examples: Any balance in the seller's reserve account held in
connection with
[[Page 37740]]
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. Proposed comment
38(j)(1)(v)-1 also provides 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, the Bureau proposed to
revise comment 38(j)(1)(v)-2 to conform to the proposed revisions to
comment 38(g)(4)-1. As discussed in the section-by-section analysis of
Sec. 1026.38(g)(4) above, the Bureau proposed to require the
disclosure of the payoff of existing liens secured by the property
identified in Sec. 1026.38(a)(3)(vi) under the heading ``H. Other'' of
the other costs table on the Closing Disclosure. The Bureau therefore
proposed to revise comment 38(j)(1)(v)-2 to conform to the proposed
amendments to comment 38(g)(4)-1.
For the reasons discussed in this section, the Bureau is adopting
comment 38(j)(1)(v)-1 as proposed, is not adopting the proposed
amendments to comment 38(j)(1)(v)-2 but is otherwise revising the
comment, and is adding comment 38(j)(1)(v)-3. The Bureau did not
receive comments regarding proposed amendments to comment 38(j)(1)(v)-1
or -2.
The Bureau is not adopting the proposed amendments to comment
38(j)(1)(v)-2. As discussed in the section-by-section analyses of
Sec. Sec. 1026.37(g)(4) and 1026.38(g)(4), the Bureau is not
finalizing the proposal that would have required certain costs and
payoffs, including construction costs, the payoff of existing liens
secured by the property and other secured or unsecured debt, to be
disclosed on the Loan Estimate and Closing Disclosure as closing costs.
That proposal, if finalized, would have made the disclosure of these
costs and payoffs under Sec. 1026.38(j)(1)(v) impermissible. Because
the Bureau is not finalizing the proposed amendments to comment
38(g)(4)-1, the Bureau is also not finalizing the proposed conforming
revision in comment 38(j)(1)(v)-2.
Because the Loan Estimate does not have a disclosure comparable to
that in the summaries of transactions table under Sec.
1026.38(j)(1)(v), amounts that will be disclosed on the Closing
Disclosure under Sec. 1026.38(j)(1)(v) will be disclosed on the Loan
Estimate in one of two ways. In transactions subject to Sec.
1026.37(h)(1)(iii)(A)(2) and (B), a creditor factors amounts that will
be disclosed under Sec. 1026.38(j)(1)(v), such as those paid to any
holders of existing liens on the property in a refinance transaction,
construction costs in connection with the transaction that the consumer
will be obligated to pay, and payoffs of other secured or unsecured
debt, into the funds for borrower calculations under Sec.
1026.37(h)(1)(v) on the Loan Estimate. Because these amounts will be
disclosed under Sec. 1026.38(j)(1)(v) on the Closing Disclosure, they
are included in existing debt that is factored into the funds for
borrower calculation under Sec. [deg]1026.37(h)(1)(v). Comment
37(h)(1)(v)-2 explains that the total amount of all existing debt being
satisfied in the transaction that is used in the funds for borrower
calculation is the sum of the amounts that will be disclosed on the
Closing Disclosure in the summaries of transactions table under Sec.
1026.38(j)(1)(ii), (iii), and (v), as applicable. However, in
transactions subject to Sec. 1026.37(h)(1)(iii)(A)(1), payoffs of
other secured or unsecured debt that will be disclosed under Sec.
1026.38(j)(1)(v) are factored into the adjustments and other credits
calculation under Sec. [deg]1026.37(h)(1)(vii) on the Loan Estimate.
The Bureau is, however, revising current comment 38(j)(1)(v)-2 to
add construction costs in connection with the transaction that the
consumer will be obligated to pay, payoff of other secured or unsecured
debt, and principal reductions as examples of amounts that will not
have a corresponding credit in the summary of the seller's transaction
under Sec. 1026.38(k)(1)(iv) and to cross-reference to comment 38-4
for an explanation of how to disclose a principal reduction under Sec.
1026.38(j)(1)(v). As discussed in the section-by-section analysis of
Sec. 1026.38 pertaining to comment 38-4 above, industry commenters
requested additional clarity regarding where in the summaries of
transactions table the principal reduction disclosure is to be made,
since Sec. 1026.38(j)(4)(i) contains the requirement to disclose costs
that are not paid from closing funds but would otherwise be disclosed
pursuant to Sec. 1026.38(j) marked with the phrase ``Paid Outside of
Closing'' or ``P.O.C.,'' but does not provide a specific location for
the principal reduction disclosure. The commenters suggested that the
appropriate location within the summaries of transactions table is
under Sec. 1026.38(j)(1)(v). The Bureau intended for a principal
reduction to be disclosed under Sec. 1026.38(j)(1)(v) in the summaries
of transactions table and is revising comment 38-4 to, among other
things, specifically reference Sec. 1026.38(j)(1)(v). As a result, the
Bureau is including a corresponding amendment to comment 38(j)(1)(v)-2.
Final comment 38(j)(1)(v)-2 cross-references comment 38-4 for an
explanation of how to disclose a principal reduction under Sec.
1026.38(j)(1)(v).
The Bureau is adding comment 38(j)(1)(v)-3 to permit creditors to
include the proceeds of the subordinate financing applied to the first-
lien transaction in the summaries of transactions table on the
simultaneous subordinate financing Closing Disclosure. Commenters
asked, in the context of the alternative disclosures, how creditors
would show the proceeds being applied to the first-lien on the
alternative disclosures. The commenters asserted that most creditors
prefer that the simultaneous subordinate financing Loan Estimate and
Closing Disclosure include a disclosure of the amount of loan proceeds
that will be applied to the first-lien loan, and asked the Bureau to
permit this common practice. In the proposal, the Bureau noted that the
funds that are provided to the consumer from the proceeds of
subordinate financing and that will be applied to the first-lien
transaction would not be included on the simultaneous subordinate
financing Loan Estimate or Closing Disclosure. As a result, the cash to
close amount disclosed under Sec. Sec. 1026.37(h)(1)(viii) and
1026.38(i)(9) would have represented the loan proceeds as ``cash out''
to the borrower. The Bureau understands from the comments that a common
industry practice may be instead to include the loan proceeds from the
simultaneous subordinate financing as an adjustment on the Loan
Estimate and Closing Disclosure for the simultaneous subordinate
financing transaction, which is inconsistent with the Bureau's
proposal. The Bureau is addressing these comments related to the
alternative disclosures in the section-by-section analyses of
Sec. Sec. 1026.37(h)(2)(iii) and 1026.38(t)(5)(v), but also finds it
appropriate to address these comments in the context of the standard
disclosures because simultaneous subordinate financing may be disclosed
using the standard disclosures.
The Bureau believes that consumers may benefit from allowing
creditors to continue this apparently common practice. This practice
may help consumers better understand the simultaneous subordinate
financing transaction and its relation to the first-lien loan. It
provides a way for the simultaneous subordinate financing Loan Estimate
and Closing Disclosure to include a disclosure of the amount of
proceeds that will be applied to the first-lien loan. Because, under
this practice, the cash to close amount
[[Page 37741]]
disclosed under Sec. Sec. 1026.37(h)(1)(viii) and 1026.38(i)(9) would
not include the subordinate loan proceeds, the cash to close amount may
better represent to consumers the cash, if any, they will owe or
receive from the subordinate-lien loan that will not be applied
directly to the first-lien loan.
Therefore, the Bureau is adding new comment 38(j)(1)(v)-3 to permit
creditors to include the proceeds of the subordinate financing applied
to the first-lien transaction in the summaries of transactions table on
the simultaneous subordinate financing Closing Disclosure. As explained
in the discussion of comment 38(j)(1)(v)-2 above, amounts that will be
disclosed under Sec. 1026.38(j)(1)(v) on the Closing Disclosure are
factored into the Loan Estimate in one of two ways. In transactions
subject to Sec. 1026.37(h)(1)(iii)(A)(2) and (B), a creditor factors
amounts that will be disclosed under Sec. 1026.38(j)(1)(v) into the
funds for borrower calculations under Sec. 1026.37(h)(1)(v). Comment
37(h)(1)(v)-2 explains that the total amount of all existing debt being
satisfied in the transaction that is used in the funds for borrower
calculation is the sum of the amounts that will be disclosed on the
Closing Disclosure in the summaries of transactions table under Sec.
1026.38(j)(1)(ii), (iii), and (v), as applicable. However, in
transactions subject to Sec. 1026.37(h)(1)(iii)(A)(1), a creditor
factors amounts that will be disclosed under Sec. 1026.38(j)(1)(v)
into the adjustments and other credits calculation under Sec.
1026.37(h)(1)(vii). The Bureau is making related amendments in
commentary to Sec. Sec. 1026.37(h)(2)(iii) and 1026.38(t)(5)(vii)(B).
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 under Sec.
1026.38(j)(2)(vi), 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. The Bureau proposed 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. The Bureau proposed to revise comment
38(j)(2)(vi)-2 to clarify that subordinate financing proceeds are
disclosed pursuant to Sec. 1026.38(j)(2)(vi) on the first-lien
transaction Closing Disclosure and to revise comment 38(j)(2)(vi)-5 to
clarify that 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
Sec. 1026.38(j)(2)(vi). The Bureau also proposed to add new comment
38(j)(2)(vi)-6 to provide an example of an amount that would be
disclosed under the heading ``Adjustments.'' Having received no
comments on the proposed revision to Sec. 1026.38(j)(2)(vi) or the
proposal to add new comment 38(j)(2)(vi)-6, the Bureau is finalizing
Sec. 1026.38(j)(2)(vi) as proposed and finalizing new comment
38(j)(2)(vi)-6 as proposed with a revision that adds a cross-reference
to Sec. 1026.38(k)(2)(viii), which requires disclosure of a
description and amount of any and all other obligations required to be
paid by the seller at the real estate closing. For the reasons
discussed below, the Bureau is adopting as proposed the amendments to
comments 38(j)(2)(vi)-2 and -5.
A mortgage company supported the proposed amendments to comment
38(j)(2)(vi)-2 to clarify that the proceeds of simultaneous subordinate
financing are disclosed on the first-lien Closing Disclosure. The
commenter asserted that this, accompanied by other proposed revisions,
will enable creditors to provide a more accurate cash to close amount
to consumers. The Bureau concludes that this clarification is necessary
for accurate disclosure on the first-lien Closing Disclosure, and is
therefore adopting the revisions to comment 38(j)(2)(vi)-2 as proposed.
One compliance professional supported the proposed amendments to
comment 38(j)(2)(vi)-5 to clarify that 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 Sec. 1026.38(j)(2)(vi). One industry
commenter raised concerns about the proposed change because at the time
of disclosure, it is typically not evident if the borrower will receive
gift funds before or at consummation.
The Bureau is adopting the amendments to comment 38(j)(2)(vi)-5 as
proposed. The Bureau does not believe that additional clarification is
needed for a scenario in which the creditor does not know at the time
disclosures are given whether a borrower will receive gift funds before
or at consummation. The Bureau notes that current comment 19(f)(1)(i)-2
provides that creditors may estimate disclosures provided under Sec.
1026.19(f)(1)(ii)(A) and (2)(ii) using the best information reasonably
available when the actual term is unknown to the creditor at the time
disclosures are made, consistent with Sec. 1026.17(c)(2)(i).
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 is 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 adds that example as an item to be
disclosed under the heading ``Adjustments.'' The Bureau did not receive
comments regarding the proposed change to comment 38(j)(2)(xi)-1. For
the reasons stated above the Bureau is finalizing as proposed comment
38(j)(2)(xi)-1.
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. The Bureau proposed
to add comment 38-4 which would have provided 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 principal curtailment may be used to provide a refund under
Sec. 1026.19(f)(2)(v). The Bureau proposed to revise comment
38(j)(4)(i)-1 to provide a cross-reference to comment 38-4 for an
explanation of how to disclose a principal curtailment to provide a
refund under
[[Page 37742]]
Sec. 1026.19(f)(2)(v). The Bureau also proposed to clarify that ``a
statement of the party making the payment'' means the disclosure must
identify the party making the payment.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.38 pertaining to comment 38-4 above, industry commenters
requested that the Bureau permit the use of principal curtailments for
situations other than when a creditor is providing a credit for a
tolerance refund and requested additional clarity regarding where in
the summaries of transactions table the principal curtailment
disclosure is to be made, since Sec. 1026.38(j)(4)(i) contains the
requirement to disclose costs that are not paid from closing funds but
would otherwise be disclosed pursuant to Sec. 1026.38(j) marked with
the phrase ``Paid Outside of Closing'' or ``P.O.C.,'' but does not
provide a specific location for the principal curtailment disclosure.
In addition, an industry group recommended that the Bureau use the
phrase ``principal reduction'' instead of ``principal curtailment,''
noting that consumers would be more familiar with the recommended
phrase.
For the reasons discussed below, the Bureau is adopting as proposed
the modifications to comment 38(j)(4)(i)-1, with additional revisions
for conformity with final comment 38-4. The Bureau appreciates the
suggestion to use the phrase ``principal reduction'' and is revising
final comment 38(j)(4)(i)-1 accordingly. As discussed in the section-
by-section analysis of Sec. 1026.38 pertaining to comment 38-4 above,
the Bureau sought to address the particular issue of how to disclose a
principal reduction that is used to provide a tolerance refund, but did
not intend to propose to limit the use of principal reductions to
situations where creditors were required to provide a tolerance refund
under Sec. 1026.19(f)(2)(v). The Bureau is revising and restructuring
proposed comment 38-4 to provide clarity on the disclosure of principal
reductions that are and are not used to provide tolerance refunds.
Final comment 38-4 discusses the requirement to mark a principal
reduction with the phrase ``Paid Outside of Closing,'' or the
abbreviation ``P.O.C.'' pursuant to Sec. 1026.38(j)(4)(i) if it is not
paid with closing funds. Therefore, the Bureau is amending comment
38(j)(4)(i)-1 to cross-reference to final comment 38-4 for an
explanation of how to disclose a principal reduction that is not paid
from closing funds. The Bureau also explains, in the section-by-section
analysis of Sec. 1026.38 pertaining to comment 38-4 above, that the
Bureau intended for a principal reduction to be disclosed in the
summaries of transactions table under Sec. 1026.38(j)(1)(v). Final
comment 38-4, among other things, specifically references Sec.
1026.38(j)(1)(v) instead of Sec. 1026.38(j)(4)(i) for this
requirement.
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 proposed 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) which also do not have a seller, or for simultaneous
subordinate financing transactions if the first-lien Closing Disclosure
records the entirety of the seller's transaction. The Bureau did not
receive any comments on this specific proposal. The Bureau concludes
that the additional examples will aid in compliance with the disclosure
requirements and is therefore finalizing the proposed amendments to
comment 38(k)-1 with additional revisions to specify that the example
of simultaneous subordinate financing applies to simultaneous
subordinate financing transactions with a purchase purpose as defined
in Sec. 1026.37(a)(9)(i).
38(k)(1) Itemization of Amounts Due to Seller
Section 1026.38(k)(1) requires a disclosure in the summaries of
transactions table of the amounts due to the seller at consummation.
Section 1026.38(k)(1)(ii) requires a disclosure of the amount of the
contract sales price of the property being sold, excluding the price of
any tangible personal property if the consumer and seller have agreed
to a separate price for such items, labeled ``Sale Price of Property.''
The Bureau did not propose to amend Sec. 1026.38(k)(1)(ii) or its
commentary.
For the reasons discussed below, the Bureau is adding final comment
38(k)(1)-1 to explain what amounts are disclosed under Sec.
1026.38(k)(1)(ii) for a simultaneous subordinate financing transaction
if the first-lien Closing Disclosure does not record the entirety of
the seller's transaction. As discussed in the section-by-section
analysis of Sec. 1026.38(k) above, Sec. 1026.38(k) does not apply in
a simultaneous subordinate financing purchase transaction as defined in
Sec. 1026.37(a)(9)(i) if the first-lien Closing Disclosure records the
entirety of the seller's transaction. In addition, when the alternative
tables are used, the table required to be disclosed by Sec. 1026.38(k)
may be deleted pursuant to Sec. 1026.38(t)(5)(vii)(C); the alternative
tables may only be used for the disclosure of simultaneous subordinate
financing if the first-lien Closing Disclosure records the entirety of
the seller's transaction.
The Bureau expects that in most transactions with simultaneous
subordinate financing for which the alternative tables are not used,
the first-lien Closing Disclosure will also record the entirety of the
seller's transaction, and therefore Sec. 1026.38(k) will not apply to
the simultaneous subordinate financing transaction. However, there may
be circumstances in which the first-lien Closing Disclosure will not
record the entirety of the seller's transaction, and therefore Sec.
1026.38(k) will apply to the simultaneous subordinate financing
transaction. Therefore, the Bureau is adding comment 38(k)(1)-1 to
explain that if Sec. 1026.38(k) applies to a simultaneous subordinate
financing transaction because the first-lien Closing Disclosure does
not record the entirety of the seller's transaction, Sec. 1026.38(k)
must be completed based only on the terms and conditions of the
simultaneous subordinate financing transaction. Comment 38(k)(1)-1
explains that no contract sales price is disclosed under Sec.
1026.38(k)(1)(ii) on the Closing Disclosure for the simultaneous
subordinate financing. This is consistent with the amendment to comment
38(j)(1)(ii)-1 which explains that on the simultaneous subordinate
financing Closing Disclosure, no contract sales price is disclosed in
the summaries of transactions table for the borrower's transaction
under Sec. 1026.38(j)(1)(ii), and comment 38(j)-3 which provides that
amounts disclosed under Sec. 1026.38(j)(1)(ii) and (k)(1)(ii) are the
same.
38(k)(2) Itemization of Amounts Due From Seller
Section 1026.38(k)(2)(vii) requires a disclosure in the summaries
of transactions table, under the seller's transaction, of the total
amount of money that the seller will provide at the real estate closing
as a lump sum not otherwise itemized to pay for loan costs as
determined by Sec. 1026.38(f) and other costs as determined by Sec.
1026.38(g), and any other obligations of the seller to be paid directly
to the consumer, labeled ``Seller Credit.'' The Bureau did not propose
to amend Sec. 1026.38(k)(2)(vii) or its commentary.
For the reasons discussed below, the Bureau is adding final comment
38(k)(2)(vii)-1. Final comment 38(k)(2)(vii)-1 explains that if a
simultaneous subordinate financing transaction is disclosed using the
[[Page 37743]]
alternative tables pursuant to Sec. 1026.38(d)(2) and (e), the first-
lien Closing Disclosure must include any contributions from the seller
toward the simultaneous subordinate financing that are disclosed in the
payoffs and payments table under Sec. 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing Closing Disclosure. This amendment
enables the first-lien Closing Disclosure to record the entirety of the
seller's transaction, which is a requirement of providing the
alternative disclosures for simultaneous subordinate financing purchase
transactions. Specifically, final comments 37(d)(2)-1, 37(h)(2)-1,
38(d)(2)-1, and 38(e)-1, taken together, permit creditors of
simultaneous subordinate financing purchase transactions to use the
alternative disclosures only if the first-lien Closing Disclosure will
record the entirety of the seller's transaction.
As discussed more fully in the section-by-section analysis of Sec.
1026.37(d)(2), in response to the proposals to permit the disclosure of
simultaneous subordinate financing purchase transactions using the
alternative tables, one commenter questioned which disclosures should
be used when the optional alternative tables were initially used for
the simultaneous subordinate financing, but a seller later agrees to
contribute to the costs of the subordinate financing, making continued
use of the alternative tables impermissible under the proposal. For the
reasons discussed in the section-by-section analysis of Sec.
1026.37(d)(2), the Bureau is directly addressing the commenter's
concern by adding new comment 38(k)(2)(vii)-1, amending comments
38(d)(2)-1 and 38(j)-3, and amending proposed new comments
38(t)(5)(vii)(B)-1 and -2, to require the disclosure of the seller's
contributions to the subordinate financing, if any, in the payoffs and
payments table on the simultaneous subordinate financing Closing
Disclosure and the summaries of transactions table on the first-lien
Closing Disclosure, when the alternative disclosures are used for the
simultaneous subordinate financing. As discussed in the section-by-
section analysis of Sec. 1026.38(t)(5)(vii), final comments
38(t)(5)(vii)(B)-1 and -2.iii explain that if a simultaneous
subordinate financing transaction is disclosed using the alternative
tables pursuant to Sec. 1026.38(d)(2) and (e), any contributions from
the seller toward the simultaneous subordinate financing must be
disclosed in the payoffs and payments table on the simultaneous
subordinate financing Closing Disclosure. Final comment 38(k)(2)(vii)-1
explains that if a simultaneous subordinate financing transaction is
disclosed with the alternative tables pursuant to Sec. 1026.38(d)(2)
and (e), the first-lien Closing Disclosure must include, in the
summaries of transactions table for the seller's transaction under
Sec. 1026.38(k)(2)(vii), any contributions from the seller toward the
simultaneous subordinate financing that are disclosed in the payoffs
and payments table under Sec. 1026.38(t)(5)(vii)(B) on the
simultaneous subordinate financing Closing Disclosure. The result of
these amendments, coupled with the amendments to comment 38(j)-3, is
that the first-lien Closing Disclosure will be able to record the
entirety of the seller's transaction.
For example, assume the alternative tables are provided for the
simultaneous subordinate financing transaction pursuant to Sec.
1026.38(d)(2) and (e) and the seller contributes $200.00 toward the
closing costs of the simultaneous subordinate financing. The
simultaneous subordinate financing Closing Disclosure must include the
$200.00 contribution in the payoffs and payments table in accordance
with Sec. 1026.38(t)(5)(vii)(B). The first-lien Closing Disclosure
must include the $200.00 contribution in the summaries of transactions
table for the seller's transaction under Sec. 1026.38(k)(2)(vii),
thereby recording the entirety of the seller's transaction on the
first-lien Closing Disclosure. For a more detailed discussion of these
new and revised comments, see the section-by-section analyses of Sec.
1026.38(d)(2), (j), and (t)(5)(vii).
38(l) Loan Disclosures
38(l)(7) Escrow Account
Mortgage Insurance Premiums
The Bureau's Proposal
If an escrow account is or will be established, Sec.
1026.38(l)(7)(i)(A)(1), (2), and (4) 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
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 proposed to amend
Sec. 1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)-1 and
38(l)(7)(i)(A)(4)-1 to permit disclosure of amounts for ongoing
mortgage insurance premiums.
Comments Received
Several commenters, including creditors and vendors, supported the
proposed amendments to Sec. 1026.38(l)(7)(i) and associated commentary
to permit disclosure of amounts for ongoing mortgage insurance
premiums. Vendors stated that such amendments are necessary both for
consumer understanding and for facilitating industry compliance. A
creditor noted that, by permitting disclosure of amounts for ongoing
mortgage insurance premiums, the proposed amendments to Sec.
1026.38(l)(7)(i) and associated commentary are consistent with current
Sec. 1026.38(g)(3), which cross-references Sec. 1026.37(g)(3) and
requires disclosure of the amount to be paid into the escrow account
for mortgage insurance premiums at consummation.
However, some industry commenters opposed the proposed amendments
to Sec. 1026.38(l)(7)(i) and associated commentary to permit
disclosure of amounts for ongoing mortgage insurance premiums. Trade
association commenters stated that such amendments regarding the
disclosures on page 4 of the Closing Disclosure are inconsistent with
the estimated escrow payment disclosed on page 1 of the Closing
Disclosure, which excludes amounts for mortgage insurance. A trade
association and a vendor asserted that, while various labels on page 4
of the Closing Disclosure use the phrase ``property costs,'' mortgage
insurance premiums are not a property cost and the Bureau should not
finalize the proposed amendments without testing for potential consumer
confusion.
A trade association requested that, if the Bureau finalizes the
proposed amendments to permit disclosure of amounts for ongoing
mortgage insurance premiums, such disclosure should include only
mortgage insurance premiums that are included in the escrow account
analysis prescribed under Regulation X, 12 CFR 1024.17. A vendor group
requested clarification regarding escrow account disclosures and space
limitations on page 4 of the Closing Disclosure form. Vendors also
requested that the Bureau amend Sec. 1026.38(l)(7)(i) to require
disclosure of all amounts paid into an escrow account, regardless of
whether the consumer is required to make such payment or, rather, opts
to do so.
Regarding implementation costs, a vendor commented that the
proposed amendments to permit disclosure of
[[Page 37744]]
amounts for ongoing mortgage insurance premiums would require
significant reprogramming. A vendor group noted that the amendments are
consistent with informal guidance previously provided by the Bureau to
some vendors but the amendments would require substantial changes for
others. The vendor group stated that the proposed amendments would
eliminate industry uncertainty. Regarding an implementation period for
the various amendments to Sec. 1026.38(l)(7) and associated
commentary, including new comments 38(l)(7)(i)(A)(2)-2 and
38(l)(7)(i)(A)(5)-1 discussed below, the vendor group stated that
reprogramming could take up to nine months for some vendors and a
creditor recommended a six-month implementation period.
The Final Rule
For the reasons discussed below, the Bureau is adopting Sec.
1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)-1 and
38(l)(7)(i)(A)(4)-1 as proposed and, in part in response to commenters'
concerns, is also adding new comments 38(l)(7)-1 and -2. After
considering the commenter's concern that the amendments should align
with Regulation X, 12 CFR 1024.17, and consistent with current comment
38(g)(3)-5, new comment 38(l)(7)-1 cross-references the definition of
``escrow account'' in 12 CFR 1024.17(b) to provide a description of an
escrow account for purposes of the escrow account disclosure under
Sec. 1026.38(l)(7). After considering the commenter's concern
regarding space limitations on page 4 of the Closing Disclosure form,
and consistent with current comment 38(j)-2, new comment 38(l)(7)-2
cross-references Sec. 1026.38(t)(5)(ix) and provides that additional
pages may be attached to the Closing Disclosure to add lines, as
necessary, to accommodate the complete listing of all items required to
be shown on the Closing Disclosure under Sec. 1026.38(l)(7), with a
reference such as ``See attached page for additional information''
placed in the applicable section of the Closing Disclosure.
As to commenters' concerns regarding potential consumer confusion
as a result of the amendments permitting disclosure of amounts for
ongoing mortgage insurance premiums, the Bureau notes that such
disclosure is consistent with current Sec. 1026.38(l)(7)(i)(A)(3),
which cross-references current Sec. 1026.38(g)(3) and requires
disclosure of the amount to be paid into the escrow account for
mortgage insurance premiums at consummation. Regarding commenters'
concern that permitting disclosure of amounts for ongoing mortgage
insurance premiums on page 4 of the Closing Disclosure is inconsistent
with the estimated escrow payment disclosed on page 1 of the Closing
Disclosure, the Bureau concludes that such disclosures are not
inconsistent because the estimated escrow payment on page 1 is
disclosed adjacent to the mortgage insurance premium. Regarding
commenters' assertion that mortgage insurance premiums should not be
labeled ``property costs'' without testing for potential consumer
confusion, the Bureau notes that current Sec. 1026.38(l)(7)(i) already
requires certain disclosures, labeled ``property costs,'' based on the
amounts described in Sec. 1026.37(c)(4)(ii). Section
1026.37(c)(4)(ii), in turn, cross-references the mortgage-related
obligations identified in Sec. 1026.43(b)(8) and includes, among other
costs, premiums for credit life, accident, health, or loss-of-income
insurance that are written in connection with a credit transaction if
such premiums are required by the creditor. Similarly, the Bureau
concludes it is appropriate to include mortgage insurance premiums as
part of such ``property costs'' disclosures and additional consumer
testing is not necessary in this instance. With respect to the comments
requesting that the Bureau amend Sec. 1026.38(l)(7)(i) to disclose
amounts that a consumer optionally pays into an escrow account, the
Bureau notes that, consistent with the model language on page 4 of the
Closing Disclosure form and TILA section 129D(h)(2), (3), and (4),
creditors may disclose amounts a consumer pays into an escrow account
if consistent with the terms of the legal obligation between the
creditor and consumer.
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
The First Year
The Bureau's Proposal
Section 1026.38(l)(7) provides for various disclosures based on
payments during the first year after consummation. Specifically, Sec.
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. Depending on the payment schedule dictated by
the legal obligation, sometimes fewer than 12 periodic payments will be
made to the escrow account during the first year after consummation--in
which case creditors may comply with Sec. 1026.38(l)(7)(i)(A)(1) and
(4) by basing such disclosures on less than 12 periodic payments.
Alternatively, Sec. 1026.38(l)(7)(i)(A)(5) provides that a creditor
may comply with Sec. 1026.38(l)(7)(i)(A)(1) and (4) by basing the
disclosures on amounts derived from the escrow account analysis
required under Regulation X, 12 CFR 1024.17. To clarify the alternative
means by which creditors may comply with Sec. 1026.38(l)(7)(i)(A)(1)
and (4), the Bureau proposed to add new comment 38(l)(7)(i)(A)(5)-1.
Current Sec. 1026.38(l)(7)(i)(A)(2) requires a disclosure of
certain charges, labeled ``Non-Escrowed Property Costs over Year 1,''
that the consumer is likely to pay during the first year after
consummation but without using escrow account funds. The Bureau
proposed to add new comment 38(l)(7)(i)(A)(2)-2 so that, if the
creditor elects to make the disclosures required by Sec.
[thinsp]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, the creditor may make the disclosures required by Sec.
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).
Comments Received
Several commenters, including vendors, a creditor, a trade
association, and an individual compliance consultant, generally
supported proposed comments 38(l)(7)(i)(A)(2)-2 and 38(l)(7)(i)(A)(5)-1
to provide creditors with flexibility as to the means by which they may
comply with Sec. 1026.38(l)(7)(i)(A)(1), (2), and (4). However,
several commenters, including creditors, trade associations, and a
vendor, requested that the Bureau require such disclosures to be based
on a 12-month period beginning with the borrower's initial payment date
(and not permit creditors the alternative option of a 12-month period
beginning with consummation). Another vendor did not specify a
preference between either disclosure timeframe, but nonetheless
[[Page 37745]]
requested that the Bureau adopt a single, mandatory timeframe, rather
than allowing creditors flexibility to choose among the alternatives. A
vendor, a creditor, and a trade association asserted that disclosing on
a 12-month period beginning with the borrower's initial payment date is
better for consumer understanding. The vendor also stated that allowing
creditors to choose among alternative options could conflict with
secondary market investors' preferences.
The Final Rule
For the reasons discussed below, the Bureau is adopting comments
38(l)(7)(i)(A)(2)-2 and 38(l)(7)(i)(A)(5)-1 as proposed. The Bureau
concludes that allowing creditors the flexibility of choosing among
alternative disclosure options will facilitate compliance. As to
commenters' assertion that disclosing on a 12-month period beginning
with the borrower's initial payment date is better for consumer
understanding than a 12-month period beginning with consummation, the
Bureau notes that the model language on page 4 of the Closing
Disclosure form simply uses the phrase ``over Year 1'' and the Bureau
believes either option supports consumer understanding. The Bureau does
not believe any benefits to disclosing on a 12-month period beginning
with the borrower's initial payment date would warrant limiting
flexibility for facilitating compliance here. Regarding commenters'
concern that allowing creditors to choose among alternative options
could conflict with secondary market investors' preferences, among the
alternative options provided by comments 38(l)(7)(i)(A)(2)-2 and
38(l)(7)(i)(A)(5)-1, nothing in the rule prohibits a creditor from
choosing the option that an investor prefers or requires.
In response to comments regarding the effective date and
implementation period, as discussed in part VI below, the rule will be
effective 60 days from publication in the Federal Register, but there
will be an optional compliance period in effect until October 1, 2018.
38(l)(7)(i)
38(l)(7)(i)(B)
38(l)(7)(i)(B)(1)
If an escrow account will not be established, Sec.
1026.38(l)(7)(i)(B)(1) requires disclosure of the estimated total
amount, labeled ``Property Costs over Year 1,'' that the consumer will
pay directly for charges described in Sec. 1026.37(c)(4)(ii) during
the first year after consummation. As discussed above, 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 proposed to amend Sec.
1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1 to permit
disclosure of amounts for ongoing mortgage insurance premiums.
In addition to the comments received regarding Sec. 1026.38(l)(7)
and associated commentary discussed above, a vendor requested an
additional revision to proposed Sec. 1026.38(l)(7)(i)(B)(1) or its
associated commentary that, similar to proposed 38(l)(7)(i)(A)(2)-2,
would permit creditors to disclose based on a 12-month period beginning
with the borrower's initial payment date (rather than beginning with
consummation).
For the reasons discussed below, the Bureau is adopting Sec.
1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1 as proposed and,
in part in response to commenters' feedback, is also adding new comment
38(l)(7)(i)(B)(1)-2. Specifically, new comment 38(l)(7)(i)(B)(1)-2
provides creditors with an option to make the disclosures required by
Sec. 1026.38(l)(7)(i)(B)(1) based on a 12-month period beginning with
the borrower's initial payment date or beginning with consummation. The
Bureau concludes that allowing creditors the flexibility of choosing
among alternative disclosure options is consistent with comment
38(l)(7)(i)(A)(2)-2, as finalized, and will facilitate compliance.
Moreover, for the reasons discussed above, both as proposed and as
finalized, Sec. 1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1
permit disclosure of amounts for ongoing mortgage insurance premiums,
which is consistent with current Sec. 1026.38(l)(7)(i)(A)(3).
38(o) Loan Calculations
38(o)(1) Total of Payments
The Bureau's Proposal
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.\89\
In the TILA-RESPA Final Rule, to promote consumer understanding, the
Bureau adopted a modified definition of total of payments that differs
from the statutory definition under TILA section 128(a)(5). 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 proposed 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. The Bureau also proposed conforming revisions to Sec.
1026.23(g) and (h)(2) as discussed in the section-by-section analyses
of those provisions above. For the reasons discussed below, the Bureau
adopts the revisions to Sec. 1026.38(o)(1) as proposed.
---------------------------------------------------------------------------
\89\ 15 U.S.C. 1638(a)(5), (8). For transactions subject to
Sec. 1026.19(e) and (f), Sec. 1026.38(o)(1) implements this
disclosure requirement.
---------------------------------------------------------------------------
Comments Received
The Bureau received several comments from industry that were
generally supportive of the proposal to adopt tolerances for the total
of payments that parallel the statutory tolerances for the finance
charge and disclosures affected by the finance charge. A number of
creditors stated that they support the proposed change and believe that
it would provide clarity to both consumers and creditors. Several trade
groups similarly supported the addition of tolerances for the total of
payments, with one stating that it believes the approach proposed will
positively impact secondary market execution by affording investors
comfort that minor inaccuracies do not raise liability concerns. One
commenter stated that this proposed change by the Bureau represented a
good example of a flexible approach that balances consumer protection
and accurate disclosure of loan terms and costs with the practical
challenges faced by creditors and investors. A group of vendor
commenters agreed that the addition of tolerances for the total of
payments is a necessary and desirable change. One specific vendor
commented that these clarifications would assist industry in complying
with the rule, provide for more uniform data for transactions subject
to the rule, and reduce legal risk for creditors and investors.
Among commenters that generally supported the proposal to adopt
tolerances for the total of payments, some encouraged the Bureau to go
further. Two trade groups requested that the Bureau increase the
tolerance beyond $100. With respect to implementation, a number of
industry commenters requested that the
[[Page 37746]]
tolerances for the total of payments be effective immediately and, in
some cases, commenters requested that the tolerances apply
retroactively to the effective date of the TILA-RESPA Final Rule
(October 3, 2015).
Commenters generally supported the proposal to adopt tolerances for
the total of payments that parallel the statutory tolerances for the
finance charge and disclosures affected by the finance charge. In
response to those industry commenters who requested that the Bureau go
further by adopting a tolerance greater than $100, the Bureau declines
to do so. The Bureau believes that applying 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 promotes consistency with the tolerances in
effect before the TILA-RESPA Final Rule. The Bureau has determined that
the tolerances are narrow enough to prevent misleading disclosures or
disclosures that circumvent the purposes of TILA and are thus
appropriate pursuant to the Bureau's authority under TILA section
121(d) to adopt tolerances necessary to facilitate compliance with the
statute. And with respect to commenters' request that the new tolerance
for the total of payments be effective immediately or retroactively,
the Bureau similarly declines this request for the reasons discussed in
part VI, below, regarding the rule's effective date.
The Bureau also received comments from industry that questioned the
proposal to adopt tolerances for the total of payments. One trade group
stated that there would be significant cost and a lengthy reprogramming
process for compliance. Another trade group stated that the Bureau's
proposal to extend a tolerance for the total of payments applies only
to the extent that the finance charge is accurate and that, therefore,
the Bureau should extend an additional tolerance to the total of
payments for errors in loan costs when the finance charge is not
correct. One industry commenter stated that the proposed amendment
would be confusing and overly burdensome because it would expand the
current finance charge tolerance to all components of the total of
payments. One creditor stated that it considers the proposed tolerance
limitations for the total of payments redundant and overlapping with
the APR tolerance limitations and encouraged the Bureau to abandon the
APR tolerance limitations if the proposed tolerances for the total of
payments were adopted. An individual commenter opposed the proposal on
the basis that finance charges are already subject to tolerance and
adding non-finance charge loan costs to the tolerance test would
increase creditor liability.
The existing finance charge tolerance extends to any disclosure
affected by the finance charge, including the total of payments as long
as a misdisclosure of the total of payments resulted from a
misdisclosure of the finance charge. Conversely, under the current
rule, a misdisclosure of the total of payments that does not result
from a misdisclosure of the finance charge is not subject to the
finance charge tolerances. Because the current rule does not provide
for a tolerance for the total of payments, other than to the extent a
total of payments misdisclosure results from a misdisclosure of the
finance charge, under the current rule, any misdisclosure of the total
of payments that does not result from a misdisclosure of the finance
charge could potentially subject a creditor to liability.
Those industry comments that did not support the proposal to adopt
tolerances for the total of payments seemed to imply that the total of
payments currently may vary by any amount and that therefore the
proposal to adopt a tolerance for the total of payments would impose a
new and undue restriction. To the contrary, however, the adoption of
tolerances for the total of payments offers a new tolerance that
applies to the components of the total of payments that were previously
not permitted to vary by any amount, even if those components are not
finance charges and therefore would not benefit from the existing
finance charge tolerance. The adopted tolerances for the total of
payments apply independently, whether the disclosed finance charge is
accurate or not. And in neither the TILA-RESPA Final Rule nor the
proposal did the Bureau make changes or propose to make changes that
impact the APR tolerance.
Some industry commenters offered alternatives to the proposal to
adopt tolerances for the total of payments. One creditor suggested that
the Bureau either make clear that the new total of payments calculation
is no longer tied to the finance charge and therefore not subject to
tolerance; or revert to TILA's definition of the total of payments.
Another creditor suggested that the Bureau clarify that the amount by
which the total of payments is understated may be corrected when the
finance charge understatement is made whole. One trade group suggested
that when good faith tolerances under Sec. 1026.19(e)(3)(i) and (ii)
are met for components, including loan costs, of the total of payments
that the new total of payments tolerance should also be satisfied.
None of those suggested alternatives would achieve the Bureau's
goal of adopting tolerances for the total of payments necessary to
facilitate compliance with TILA. In response to the first creditor's
set of alternatives, although in the TILA-RESPA Final Rule the Bureau
modified the total of payments calculation, it is still a disclosure
affected by any finance charge in that certain loan costs may also be
finance charges. Additionally, the Bureau did not propose to revise the
definition of the total of payments in the proposal and continues to
believe, as stated in the TILA-RESPA Final Rule, that the revised
definition of the total of payments enhances consumer
understanding.\90\ The second creditor's suggestion does not recognize
that the total of payments may be understated for reasons unrelated to
the finance charge. And the final alternative offered does not
distinguish between the Sec. 1026.19(e)(3) good faith analysis adopted
in the TILA-RESPA Final Rule and the separate and independent statutory
tolerances afforded under TILA.
---------------------------------------------------------------------------
\90\ See 78 FR 79730, 80038 (Dec. 31, 2013).
---------------------------------------------------------------------------
A few industry commenters sought clarification of issues related to
the proposal to adopt tolerances for the total of payments. One trade
group requested clarification as to whether the proposed tolerances for
the total of payments change the existing finance charge tolerances.
Two industry commenters expressed uncertainty about the remedy or cure
required if the tolerance for the total of payments were exceeded and
the interaction between the proposed tolerances for the total of
payments and the existing tolerances for the finance charge and APR.
One trade group specifically expressed concern that the proposed rule
does not clearly state that when a violation occurs it can be cured
with a reimbursement to the consumer. Other industry commenters
requested information specifically about how to account for financed
loan costs, stating that including financed loan costs in the total of
payments calculation would be redundant to the extent such loan costs
are accounted for in the principal and interest payments.
To clarify, the new tolerances for the total of payments do not
change the existing finance charge tolerances or those tolerances that
apply to the APR. The tolerances for each of these disclosures operates
independently as explained in new comment 38(o)-1. As to the question
of the rule addressing
[[Page 37747]]
how a violation may be cured, nothing in the TILA-RESPA Final Rule
altered the remedies available to creditors for the correction of
errors under TILA section 130(b). Creditors may employ the statutory
provisions for correction of errors with respect to the total of
payments to the same extent today as they could prior to the adoption
of the TILA-RESPA Final Rule and to the same extent as they will be
able to after the effective date of this final rule. Section
1026.38(o)(1) likewise remains that same as to the calculation of the
total of payments: The total the consumer will have paid after making
all payments of principal, interest, mortgage insurance, and loan costs
as scheduled through the end of the loan term. The rule does not offer
an alternative calculation if the consumer elects to finance loan
costs. The Bureau declines to adopt commenters' request that the Bureau
amend the total of payments calculation in the event that loan costs
are financed because the Bureau did not propose to change and did not
request comment on amending the underlying calculation for the total of
payments.
The Bureau received comments from consumer groups opposing the
proposal to adopt tolerances for the total of payments that parallel
the statutory tolerances for the finance charge and disclosures
affected by the finance charge. The consumer groups stated that the
proposal would not promote consistency or avoid misleading disclosures
and that it would dramatically change the tolerance rules by applying
them to errors in the total of payments that are not caused by an
understatement of the finance charge. The consumer groups stated that
the total of payments calculation is straightforward for creditors and
that errors should be rare in light of computer programming. The
commenters stated that creditors wishing to make the total of payments
appear smaller could intentionally and improperly disclose loan costs
under the other costs table on the Closing Disclosure or incorrectly
amortize the principal. Additionally, the commenters urged the Bureau
to require creditors to use an addendum for variable rate loans to
disclose the projected actual monthly payment at each change listed
under the projected payments table, not just the maximum and minimum,
and to require creditors to disclose the total of each component of the
total of payments in an addendum.
The Bureau considered the comments submitted by the consumer
groups. The commenters expressed concern that a creditor could
intentionally make the total of payments appear smaller by improperly
disclosing loan costs under the other costs table on the Closing
Disclosure or by incorrectly amortizing the principal. However, the
adoption of tolerances for the total of payments does not give
creditors license to violate the rule by, for example, improperly
disclosing costs or incorrectly calculating required disclosures, nor
does it permit creditors to overstate intentionally the total of
payments by ``padding'' fees. Additionally, the Bureau declines to
require an addendum for variable rate loans to disclose the projected
actual monthly payment at each change listed under the projected
payments table or to disclose the total of each component of the total
of payments, as requiring such an addendum would impose additional
regulatory implementation costs and the Bureau believes that the
disclosures required by the TILA-RESPA Rule already promote the
meaningful disclosure of credit terms and informed use of credit.
The Final Rule
For the reasons discussed in this section-by-section analysis, the
Bureau adopts the revisions to Sec. 1026.38(o)(1) as proposed.
Specifically, the Bureau revises Sec. 1026.38(o)(1) to provide that
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. The Bureau also finalizes conforming revisions to Sec.
1026.23(g) and (h)(2) as discussed in the section-by-section analyses
of each of those provisions above.
As the Bureau explained in the proposal, TILA section 128(a)(3) and
(8) requires a creditor to disclose the finance charge, using that
term.\91\ As amended by Congress in 1995,\92\ 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.\93\ 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).
---------------------------------------------------------------------------
\91\ 15 U.S.C. 1638(a)(3).
\92\ Truth in Lending Act Amendments of 1995, Public Law 104-29,
3(a), 109 Stat 271 (1995).
\93\ 15 U.S.C. 1605(f)(1). As discussed in the section-by-
section analysis of Sec. 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 such components are not interest, mortgage insurance, loan
costs, or included in the principal amount of the loan. This in turn
may have introduced ambiguity as to whether the total of payments as
modified by the Bureau for purposes of the Closing Disclosure is a
disclosure affected by the disclosed finance charge and therefore
subject to the same tolerances. 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.
To apply the same 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 proposed 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
[[Page 37748]]
TILA and RESPA disclosures recommended changes to several disclosures,
including the total of payments.\94\ 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.\95\
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\94\ 77 FR 51116, 51124 (Aug. 23, 2012), 78 FR 79730, 79976
(Dec. 31, 2013).
\95\ 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.\96\ 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.'' \97\ 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.\98\
Including mortgage insurance and 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. 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.\99\ 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.\100\
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\96\ 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).
\97\ 77 FR 51116, 51223 (Aug. 23, 2012), 78 FR 79730, 79977
(Dec. 31, 2013).
\98\ 78 FR 79730, 80038 (Dec. 31, 2013).
\99\ See 78 FR 79730, 80010 (Dec. 31, 2013).
\100\ 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.
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The Bureau believes that applying 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 now applies the
same tolerances for accuracy of the finance charge to the total of
payments for purposes of the Closing Disclosure.
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.\101\
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.\102\ 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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\101\ 15 U.S.C. 1640(a).
\102\ 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 also adopts as proposed 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). A number of industry commenters stated that
they support the application of tolerances for the total of payments
that operate independently from the finance charge tolerances.
Further, the Bureau adopts the revisions to comment 38(o)(1)-1
substantially as proposed, but with changes to clarify that the total
of payments calculation excludes any amount of principal, interest,
mortgage insurance, or loan costs that is not paid by the consumer and
offset by another party through a specific credit. As proposed, the
revisions to comment 38(o)(1)-1 would have explained 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 and
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. However, some industry commenters stated that an agreement
between the consumer and the seller or other party to offset a cost
through a specific credit does not only apply to loan costs, but may
also be used to offset other components of the total of payments
including, for example, prepaid interest. Therefore, the Bureau revises
comment 38(o)(1)-1 to clarify that the total of payments calculation on
the Closing Disclosure excludes any component of the total of payments
that is not paid by the consumer and offset by the seller or other
party through a specific credit.
A seller or other party, such as the creditor, may agree to offset
payments of principal, interest, mortgage insurance, or loan costs,
whether in whole or in part, through a specific credit, for example
through a specific seller or lender credit. The revision to the comment
clarifies that, because these amounts are not paid by the consumer,
they are excluded from the total of payments calculation. The revision
to comment 38(o)(1)-1 references only amounts offset by specific
credits as
[[Page 37749]]
being excluded from the total of payments calculation. A few industry
commenters stated that the Bureau should permit creditors to exclude
from the total of payments any credit offered by the seller or other
party, including general credits. Non-specific credits, however, are
generalized payments to the consumer that do not represent an agreement
to pay for a particular fee or amount and therefore do not serve to
offset payments of principal, interest, mortgage insurance, or loans
costs for purposes of the total of payments calculation.
One industry commenter stated that the Bureau should also permit
creditors to calculate the ``In 5 Years'' disclosure to reflect any
amount of principal, interest, mortgage insurance, or loan costs that
is offset by the seller or other party. However, as the Bureau
explained in the proposal, 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 component of
the total of payments, whether in whole or in part. Further, unlike the
Closing Disclosure, the Loan Estimate does not allow for the itemized
disclosure of amounts paid by the seller or others.
Legal Authority
The Bureau revises Sec. 1026.38(o)(1) and its commentary, and
makes conforming revisions to Sec. 1026.23(g) and (h)(2), 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).\103\ 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 tolerances for the total of
payments promote consistency with the tolerances in effect before the
TILA-RESPA Final Rule. The Bureau therefore believes that the
tolerances facilitate compliance with the statute. Additionally, the
Bureau believes that the tolerances in revised 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.
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\103\ 15 U.S.C. 1631(d).
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38(t) Form of Disclosures
38(t)(3) Form
The Bureau proposed 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 proposed to add the words ``is not'' and delete the prefix
``non'' that precedes the word ``federally.'' The Bureau noted that the
proposed technical amendment would not alter the substance of comment
38(t)(3)-1. The Bureau did not receive comments on the proposed changes
and is finalizing comment 38(t)(3)-1 as proposed.
38(t)(4) Rounding
38(t)(4)(ii) Percentages
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). As explained in the TILA-RESPA Final Rule the
Bureau required rounding 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)
provides that 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.
In its proposal the Bureau noted that it understands that there is
uncertainty about the rounding requirements under Sec.
1026.38(t)(4)(ii). In an effort to eschew uncertainty about rounding
requirements under Sec. 1026.38(t)(4)(ii) the Bureau proposed to
revise Sec. 1026.38(t)(4)(ii) to simplify the rounding requirements
for the percentages disclosed pursuant to the requirements of Sec.
1026.38(t)(4)(ii). Proposed Sec. 1026.38(t)(4)(ii) provided that the
percentage amounts disclosed under Sec. 1026.38(b), (f)(1), (n),
(o)(4), and (o)(5) 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. The Bureau did not receive comment regarding the
proposed revision to Sec. 1026.38(t)(4)(ii). The Bureau is finalizing
the revisions to Sec. 1026.38(t)(4)(ii) as proposed.
38(t)(5) Exceptions
38(t)(5)(v) Separation of Consumer and Seller Information
The Bureau's Proposal
Regulation Z requires the use of the Closing Disclosure by the
creditor to provide the required disclosures concerning the transaction
to the consumer under Sec. 1026.19(f)(1)(i) and requires the
settlement agent to provide a copy of the Closing Disclosure to the
seller under Sec. 1026.19(f)(4)(i). 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). The Bureau proposed 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 also proposed 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.
The preamble to the proposal also discussed the existing
requirements of the Gramm-Leach-Bliley Act (GLBA) and Regulation P,
which generally provide 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. The Bureau noted that there are several
exceptions to these notice and opt-out requirements.\104\
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\104\ 81 FR 54317, 54356 (Aug. 15, 2016).
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[[Page 37750]]
Comments Received
The Bureau received comments from settlement agents, real estate
agents, GSEs, title insurers and title trade associations, credit
unions, a mortgage industry consultant, settlement services provider
trade associations, a credit union trade association, a state bankers
association, a group of mortgage software vendors, creditors, and other
industry associations. Commenters generally supported the proposed
comments 38(t)(5)(v)-1, -2, and -3; however, several commenters
requested various clarifications.
One commenter requested that the Bureau cross-reference the exact
regulatory provisions expressly permitted to be left blank under Sec.
1026.38(t)(5)(v)(A), (B), and (C). The commenter stated that as
proposed, the comment refers to the ``applicable disclosure,'' which
may be confusing or interpreted in unintended ways. The commenter
further stated that the Bureau should restate the exact regulatory
provisions or state the names of the part of form H-25 that may be left
blank. Another commenter stated that the Bureau lacked the authority to
permit revisions to a consumer-only form since no model of such form
has been published in appendix H of Regulation Z.
One commenter noted that the Bureau had a misstatement in its
proposal. The Bureau stated that 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). The
commenter noted that the correct cite for this statement should have
been Sec. 1026.19(f)(4)(i).
One commenter requested clarification of the Bureau's use of the
term ``omit'' in the proposal. Section 1026.38(t)(5)(v) permits
creditors to modify the Closing Disclosure by omitting certain
information concerning the seller or consumer on the form provided to
the other party. The commenter stated that the proposed use of the word
``omit'' could be interpreted to mean that the inapplicable tables and
labels can be deleted from form H-25. The commenter further stated that
this interpretation would conflict with the regulatory text of Sec.
1026.38(t)(5)(v), which authorizes information to be left ``blank'' on
the separate Closing Disclosures but does not expressly permit
creditors or settlement agents to ``omit'' or ``delete'' information
from form H-25. The commenter further noted that Sec.
1026.38(t)(5)(vi) expressly allows information to be ``deleted'' on a
modified version of the Closing Disclosure provided to the seller or a
third party. The commenter requested clarification as to whether the
Bureau intended to propose that the regulatory text in Sec.
1026.38(t)(5)(v) would authorize the deletion of inapplicable tables
and labels on separate Closing Disclosures. The commenter stated that
the authority to delete inapplicable tables and labels on a separate
Closing Disclosure provided to the consumer would complicate compliance
and constitute a new version of the Closing Disclosure that currently
is not included in appendix H of Regulation Z.
Another commenter noted that manually omitting or modifying
sections of the Closing Disclosure from a systems programming
perspective is challenging and will likely lead to an increase in
errors. A different commenter stated that the Bureau should clarify
that the seller's closing costs under Sec. 1026.38(f) and (g) cannot
be left blank on the Closing Disclosure provided to the consumer
because Sec. 1026.38(t)(5)(v)(B) does not provide such authority. Some
commenters sought more clarity on the interplay between State privacy
laws and contractual provisions and proposed comments 38(t)(5)(v)-1, -
2, and -3.
The Bureau also received many comments related to the proposal's
preamble discussion of the existing requirements of the GLBA and
Regulation P. The Bureau received a number of observations on the
changes in consumer information included on the Closing Disclosure
compared to what was previously on the HUD-1 settlement statement. Many
commenters noted that the real estate contract sets forth the terms of
the purchase-sale agreement and may also address sharing of the Closing
Disclosure, either specifically or generally via contract terms related
to the delivery of information.
Commenters generally requested additional clarity on sharing a
combined or separate Closing Disclosure with third parties, including
requests for the Bureau to provide clearer guidance, or frequently
asked questions, concerning what customer information a creditor may
share with a settlement agent, a real estate agent, or other parties to
a transaction. Some also requested changes to Regulation P and
Regulation Z to require or expressly permit creditors and settlement
agents to provide Closing Disclosures to real estate agents without
providing notice to the customer of such information sharing and an
opportunity to opt-out of such sharing. Other commenters suggested that
the Bureau create a list of third parties with whom creditors are
``affirmatively permitted'' to share consumer and seller information,
such as the Closing Disclosure.
One commenter suggested that the Bureau's preamble discussion
applies only to the provision of the consumer's Closing Disclosure to
the borrower's agent or broker and to the provision of the seller's
Closing Disclosure to the seller's agent or broker. This commenter also
noted that, unless a different arrangement is established, all real
estate agents in a transaction typically represent the seller and not
the buyer. Real estate agent commenters stated that they should receive
a copy of both the seller's and consumer's Closing Disclosures when
separate Closing Disclosures are provided, regardless of whether the
real estate agent is an agent of the other party. These commenters
stated that such sharing should be required for several reasons: To
inform their clients, imposed by a fiduciary relationship or a
contractual obligation; to be used as an accounting tool for the real
estate brokerage for which the real estate agent is associated; to find
mistakes in the financial terms of the real estate transaction or on
the Closing Disclosure; to assist non-English speakers; or to provide
accurate transaction data to be included in multiple listing services
or shared with appraisers. GSEs commented that it is important for
creditors, and their successors and assigns, to see the seller's
Closing Disclosure to ensure compliance with investor guidelines and
the identification of potential fraudulent transactions.
Many commenters mentioned that the easiest, simplest, and safest
way to handle issues concerning the sharing of the Closing Disclosure
with third parties would be for creditors, settlement agents, real
estate agents and others to obtain written consent to the sharing from
consumers and sellers. Some commenters stated that, to help alleviate
secondary market concerns, it would be helpful for the Bureau to
affirmatively state that the sharing of the Closing Disclosure is
permissible under GLBA with the consent of the consumer or seller. One
commenter noted that for creditors that currently utilize the consent
method for the sharing of forms, and who have a proprietary loan
origination system rather than a system from a third party vendor, the
associated reprogramming expense could be avoided if the Bureau
indicated that the written consent method was acceptable. Further,
several commenters requested that the Bureau provide guidance on the
type of authorizations it would view as sufficient, or a model form, to
be able to provide the disclosures. One
[[Page 37751]]
commenter noted that because of the legal risk in sharing Loan
Estimates and Closing Disclosures, creditors and settlement agents are
asking consumers to sign separate written authorization forms to obtain
the consent of the consumer to share these disclosures with third
parties, including real estate agents, through the closing or
settlement of the transaction, pursuant to GLBA. They stated that
greater clarity regarding the ability to share Loan Estimates and
Closing Disclosures pursuant to GLBA sections 502(e)(1) and 502(e)(8)
may reduce the utilization of such separate authorization forms, and
better avoid information overload for consumers and enable them to
focus on the important information in their disclosures regarding their
loan terms and costs. Some commenters stated that it would be
beneficial to the industry if the Bureau provided further clarification
in the rule or commentary that the exception under GLBA section
502(e)(8) applies to the sharing of the seller's closing cost
information under Sec. 1026.38(f) and (g) by the settlement agent with
the creditor, and to the settlement agent's provision to the creditor
of a copy of the separate seller's Closing Disclosure pursuant to Sec.
1026.19(f)(4).
Though not addressed in the proposal or preamble discussion, some
commenters discussed issues of lender and settlement agent liability,
and requested Bureau guidance. One commenter stated that it would be
beneficial if the Bureau provided clarification regarding the
administrative liability of settlement agents that provide the Closing
Disclosure to the consumer pursuant to Sec. 1026.19(f)(1)(v),
including whether settlement agents would be liable for noncompliant
actions that were required by creditors. Some commenters noted that
many creditors are attempting to shift liability to settlement agents
in contracts and in loan closing instructions. One commenter stated
that liability for the Closing Disclosure is unclear because under
Sec. 1026.19(f)(4) the settlement agent appears to be responsible for
the Closing Disclosure provided to the seller, including liability for
its accuracy; however, proposed comments 38(t)(5)(v)-1 and -3 appear to
place this responsibility on the creditor.
The Final Rule
Since commenters generally supported the proposed additional
provisions, the Bureau is adopting comments 38(t)(5)(v)-1 and -2 and
comment 38(t)(5)(vi)-1 as proposed. The Bureau is adopting comment
38(t)(5)(v)-3 with minor modifications clarifying the circumstances in
which a creditor may be providing a Closing Disclosure to a seller. In
response to the commenter requesting that the Bureau cross-reference
the exact regulatory provisions expressly permitted to be left blank
under Sec. 1026.38(t)(5)(v)(A), (B), and (C), the Bureau believes that
the additions to comments 38(t)(5)(v)-1, -2, and -3, and comment
38(t)(5)(vi)-1 are adequately specific and should allow creditors
sufficient flexibility to modify the Closing Disclosure form for the
consumer and the seller in a way that facilitates the transaction.
In response to commenters' questions regarding the omission of
inapplicable tables and labels when creating separate forms for
consumers and sellers, the Bureau notes that the omission of a table or
label from the consumer-only Closing Disclosure does not materially
differ from reproducing the applicable table and labels without
disclosing any numerical values. In either case, the disclosures
required under Sec. 1026.38 are still made, just to the seller, not to
the consumer. Accordingly, comment 38(t)(5)(v)-1 permits the creditor
to leave blank or omit the applicable tables and labels on the
consumer-only Closing Disclosure.
In response to the commenter who stated that the Bureau should
clarify that the seller's closing costs under Sec. 1026.38(f) and (g)
cannot be left blank on the Closing Disclosure provided to the consumer
because Sec. 1026.38(t)(5)(v)(B) does not provide such authority, the
Bureau notes that certain information about the seller's transaction is
required by Sec. 1026.38 because such information is necessary to
comply with TILA section 128(a)(17).\105\ The Bureau believes TILA
section 128(a)(17) requires disclosure of information about the
seller's transaction. In addition RESPA section 4(a) requires that the
RESPA settlement statement itemize all charges imposed upon the seller
in connection with the settlement.\106\
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\105\ In the case of a residential mortgage loan, the aggregate
amount of settlement charges for all settlement services provided in
connection with the loan, the amount of charges that are included in
the loan and the amount of such charges the borrower must pay at
closing, the approximate amount of the wholesale rate of funds in
connection with the loan, and the aggregate amount of other fees or
required payments in connection with the loan. TILA Section
128(a)(17), 15 U.S.C. 1638.
\106\ 78 FR 79730, 80038 (Dec. 31, 2013).
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In response to commenters who raised questions about the interplay
between State privacy laws and contractual provisions, and proposed
comments 38(t)(5)(v)-1, -2, and -3, the Bureau notes that the comments
as proposed described three different methods by which creditors may
separate a consumer's information from a seller's information. In some
instances, State law or contractual provisions may bar a creditor from
disclosing a consumer's information to parties other than the consumer
or bar a creditor from disclosing a seller's information to parties
other than the seller. The comments as proposed provided options
creditors could use to separate information to comply with these
requirements or to comport with a creditor's decision to separate such
information, while remaining in compliance with Sec. 1026.38(t)
requirements as to the form of disclosures. The Bureau notes that one
commenter read the language of Sec. 1026.38(t)(5)(v)-1 as proposed as
potentially granting a creditor a Federal protection to make
modifications to the form and provide the modified form to other
parties, notwithstanding State law saying no other party has a right to
those forms. However, the commenter provided no explanation for the
proposition that a provision permitting separation of information is
properly viewed as in conflict with a State law limiting or barring
disclosure of such information, nor did the commenter cite to a
specific State law. The Bureau believes that comments 38(t)(5)(v)-1, -
2, and -3 as finalized could facilitate creditors' compliance with
State privacy laws by ensuring that creditors can separate consumer and
seller information while remaining in compliance with Regulation Z
requirements as to the form of disclosures.
One commenter highlighted as incorrect the following sentence in
the Bureau's proposal, ``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),'' (emphasis
added). The sentence in the proposal was a misstatement and should have
stated that the settlement agent must provide to the creditor either a
copy of the Closing Disclosure or a permissible separate Closing
Disclosure, under Sec. 1026.19(f)(4)(iv), if the creditor is not the
settlement agent.\107\
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\107\ 81 FR 54317, 54355 (Aug. 15, 2016).
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As discussed in the preamble to the proposal, there are several
exceptions to the GLBA's general prohibition on a financial
institution's disclosure of 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
[[Page 37752]]
sharing. 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. Regulation Z requires
the use of the Closing Disclosure by the creditor to provide the
required disclosures under Sec. 1026.38 concerning the transaction to
the consumer under Sec. 1026.19(f)(1)(i), requires the settlement
agent to provide to the creditor a copy of the disclosures provided to
the seller under Sec. 1026.19(f)(4)(iv) when the consumer and seller's
disclosures are provided in separate documents, and requires the
settlement agent to 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 under Sec. 1026.19(f)(4)(i). GLBA
section 502(e)(8) and Regulation P Sec. 1016.15(a)(7)(i) permit this
required sharing of information without providing notice of such
information sharing and an opportunity to opt-out of such sharing.\108\
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\108\ GLBA 502(e)(8); 12 CFR 1016.15(a)(7)(i).
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GLBA sections 502(e)(1) and 509(7)(A) provide an 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 the 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 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.
The Bureau in the preamble to the proposal stated that, based on its
understanding of the real estate settlement process, it understands
that it is usual, appropriate, and accepted for creditors and
settlement agents to provide the combined or separate Closing
Disclosure to consumers, sellers, and their agents as a confirmation,
statement, or other record of the transaction, or to provide
information on the status or value of the financial service or
financial product to their customers or their customers' agents or
brokers.
The Bureau included discussion of GLBA and Regulation P in the
preamble in response to inquiries from creditors, settlement agents,
and real estate agents about the sharing of the Closing Disclosure with
third parties. One commenter correctly noted that GLBA sections
502(e)(1) and 509(7)(A) would apply only to the provision of the
consumer's Closing Disclosure to the consumer's agent or broker and to
the provision of the seller's Closing Disclosure to the seller's agent
or broker.
As noted by several commenters, creditors and settlement agents may
disclose customer information with the consent or at the direction of
the customer provided that the customer has not revoked the consent or
direction.\109\ Some commenters requested that the Bureau provide a
model form or guidance on the type of authorizations it would view as
sufficient to satisfy GLBA section 502(e)(2). The Bureau did not
propose such guidance or a model form in the proposal, however, nor did
the Bureau in the proposal propose any amendments to Regulation P or
its accompanying model forms. Furthermore, the Bureau does not believe
that providing a model form or guidance as recommended by commenters
would further the purposes of Regulation Z, which is to assure a
meaningful disclosure of credit terms so that the consumer will be able
to compare more readily the various credit terms available to him and
avoid the uninformed use of credit, and to protect the consumer against
inaccurate and unfair credit billing and credit card practices. For
these reasons, the Bureau declines in this rulemaking to provide such
guidance or amend Regulation P to provide a model form.\110\
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\109\ GLBA 502(e)(2); 12 CFR 1016.15(a)(1).
\110\ TILA section 102(a), 15 U.S.C 1601. The Bureau also notes
that, when the regulations implementing the GLBA's privacy
provisions were first adopted, the Office of the Comptroller of the
Currency, Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, and the Office of Thrift Supervision
(collectively, the Agencies) declined to elaborate on the
requirements for obtaining consent or the consumer safeguards that
should be in place when a consumer consents, stating that ``the
resolution of this issue is appropriately left to the particular
circumstances of a given transaction.'' The Agencies noted that
``any financial institution that obtains the consent of a consumer
to disclose nonpublic personal information should take steps to
ensure that the limits of the consent are well understood by both
the financial institution and the consumer. If misunderstandings
arise, consumers may have means of redress, such as in situations
when a financial institution obtains consent through a deceptive or
fraudulent practice. Moreover, a consumer may always revoke his or
her consent. In light of the safeguards already in place, the
Agencies have decided not to add safeguards to the consent
exception.'' Privacy of Consumer Financial Information, 65 FR 35182,
35184 (Jun. 1, 2000).
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With respect to comments requesting that the Bureau require or
permit sharing of the Closing Disclosure with third parties, such as
counterparties' real estate agents or other enumerated third parties,
the Bureau notes that such sharing of the Closing Disclosure may be
permissible currently to the extent that it is consistent with GLBA and
Regulation P and is not barred by applicable State law. However, the
Bureau does not believe that expansion of the scope of such permissible
sharing would, in this rulemaking, be germane to the purposes of
Regulation Z. The Bureau also notes that some of the rationales posed
by commenters for including a requirement to share the Closing
Disclosure with real estate agents, including as an accounting tool for
the real estate brokerage for which the real estate agent is
associated, or to provide accurate transaction data to be included in
multiple listing services or shared with appraisers, are arguments
concerning the sharing of information after consummation and also do
not further the stated purposes of Regulation Z.
Since the Bureau did not propose any amendments or clarifications
to creditor and settlement agent liability, commenter requests related
to changes or clarifications on these issues are largely outside the
scope of this rulemaking. The Bureau refers commenters to the section-
by-section analysis to the TILA-RESPA Final Rule, where the Bureau
stated that creditors under Sec. 1026.19(f)(1)(v) are responsible for
ensuring compliance with Sec. 1026.19(f), even where a settlement
agent provides the disclosure.\111\ In the section by section analysis
to the TILA-RESPA Final Rule the Bureau also stated, in response to
commenter questions regarding creditor and settlement agent liability
in providing the required disclosures under Sec. 1026.19(f)(4) to the
seller, that the Bureau proposed a separate requirement under Sec.
1026.19(f)(4)(i) for the person conducting the settlement to provide
the disclosures in Sec. 1026.38 that relate to the seller's
transaction to the seller because the Bureau recognizes that a creditor
does not owe a duty to the seller and to account for variations in
local law that may require that the seller
[[Page 37753]]
receive a separate disclosure (e.g., for privacy reasons) or variations
in local practice in which a seller and a consumer may not attend
settlements in-person or at the same time.\112\ The Bureau does not
believe it is necessary to mandate how a settlement agent and creditor
must coordinate to ensure settlement agent compliance as discussed in
Sec. 1026.19(f)(4)(iv) and comments 19(f)(1)(v)-2 through -4. In
general, the Bureau believes final Sec. 1026.19(f)(1)(v) sets forth a
clear standard for settlement agents to comply with Sec. 1026.19(f) to
the extent they provide disclosures under that section.\113\ In
response to the commenter statement that proposed comments 38(t)(5)(v)-
1 and -3 appear to place the liability for providing the Closing
Disclosure on the creditor, whereas under Sec. 1026.19(f)(4) the
settlement agent appears to be responsible for the Closing Disclosure
provided to the seller, under the proposed commentary, the decision to
provide separate Closing Disclosures to the consumer and the seller is
to be made by the creditor. Even though Sec. 1026.19(f)(4) indicates
that the settlement agent is to provide the seller with a Closing
Disclosure, the creditor is not prohibited from providing the Closing
Disclosure to the seller if the creditor decides to provide it in some
instances (such as if the creditor is performing the functions of a
settlement agent, or the settlement agent refuses to provide a single,
integrated disclosure or a seller-specific separate disclosure).
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\111\ 78 FR 79730, 79869 (Dec. 31, 2013).
\112\ 78 FR 79730, 79890 (Dec. 31, 2013).
\113\ 78 FR 79730, 79869 (Dec. 31, 2013).
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38(t)(5)(vi) Modified Version of the Form for a Seller or Third-Party
As detailed in the section-by-section analysis of Sec.
1026.38(t)(5)(v), the Bureau proposed and is now adopting new 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) Transaction Without a Seller or for Simultaneous
Subordinate Financing
The Bureau's Proposal
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 Prop. Value'' where there is no appraisal. The
Bureau proposed to revise Sec. 1026.38(t)(5)(vii), consistent with
proposed revisions to Sec. 1026.38(d)(2) and (e), to include
simultaneous subordinate financing as transactions for which a
modification of form H-25 of appendix H is permitted. The Bureau also
proposed a technical revision 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. In addition,
the Bureau proposed 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
principal reduction to provide a refund).
Comments Received
Many of the comments that were submitted and that related to Sec.
1026.38(d)(2) and (e) would be applicable to the proposal set forth
under Sec. 1026.38(t)(5)(vii) to permit simultaneous subordinate
financing purchase transactions to be disclosed using the alternative
disclosures. Please see the section-by-section analyses of Sec.
1026.38(d)(2) and (e) for a general discussion of such comments.
As discussed more fully in the section-by-section analysis of Sec.
1026.37(d)(2), and relevant to comments 38(t)(5)(vii)(B)-1 and -2, one
commenter questioned what disclosures should be used when the optional
alternative tables were initially used for the simultaneous subordinate
financing transaction, but a seller later agrees to contribute to the
costs of the subordinate financing, making continued use of the
alternative tables impermissible under the proposal.
An industry commenter supported the Bureau's proposed amendments to
comment 38(t)(5)(vii)(B)-2, which provided that simultaneous
subordinate financing proceeds are required to be disclosed in the
payoffs and payments table under Sec. 1026.38(t)(5)(vii)(B) on a
first-lien transaction. However, other commenters noted that the Bureau
did not propose any amendments to the provisions of the alternative
Loan Estimate and Closing Disclosure to explain how simultaneous
subordinate financing itself would be disclosed on the alternative
disclosures, including how to disclose the amount of proceeds from the
subordinate financing being applied to the first-lien transaction.
Commenters also asserted that most creditors prefer that the Closing
Disclosure for the simultaneous subordinate financing include a
disclosure of the amount of proceeds being applied to the first-lien
loan, and asked the Bureau to permit this common practice and clarify
the provision under which the disclosure should be made.
The Final Rule
For the reasons discussed below, the Bureau is adopting Sec.
1026.38(t)(5)(vii) as proposed with a minor technical revision, comment
38(t)(5)(vii)-2 as proposed, and comments 38(t)(5)(vii)(B)-1 and -2 as
proposed with revisions; renumbering proposed comment 38(t)(5)(vii)(B)-
2 as comment 38(t)(5)(vii)(B)-2.i; adding new comments
38(t)(5)(vii)(B)-2.ii and -2.iii; and adopting proposed comment
38(t)(5)(vii)(B)-3 with revisions. For the reasons discussed in the
section-by-section analyses of Sec. 1026.38(d)(2) and (e), the Bureau
is finalizing the proposed amendment to Sec. 1026.38(t)(5)(vii), which
permits simultaneous subordinate financing purchase transactions to be
disclosed using the alternative disclosures. Final Sec.
1026.38(t)(5)(vii) permits modifications to form H-25 of appendix H for
a transaction that does not involve a seller or for simultaneous
subordinate financing transactions, and for which the alternative
tables are disclosed under Sec. 1026.38(d)(2) and (e). The Bureau did
not receive any comments in response to the proposed technical revision
to comment 38(t)(5)(vii)-2 and the Bureau is adopting the proposed
revision as final.
The Bureau is revising the reference to the partial exemption
criteria of Sec. 1026.3(h) in proposed comment 38(t)(5)(vii)(B)-1 to
more closely align with final Sec. 1026.3(h). Final comment
38(t)(5)(vii)(B)-1 provides, in part, that the proceeds from a loan
that satisfies the partial exemption criteria in Sec. 1026.3(h) is an
example of an amount paid by a third party that may be disclosed as a
credit on the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B). As discussed in more detail below, the Bureau is
also amending proposed comment 38(t)(5)(vii)(B)-1 to address the
commenter's question regarding how to proceed under the proposal when
the optional alternative table was properly used on the Loan Estimate,
or even the Closing Disclosure, but a subsequent event would cause the
continued use of
[[Page 37754]]
the alternative table to be impermissible.
The Bureau is not finalizing the requirement to disclose certain
amounts as negative numbers in proposed comments 38(t)(5)(vii)(B)-1 and
-2 for the same reasons the Bureau is removing certain references to
positive or negative numbers elsewhere in this final rule. While the
Bureau did not propose these revisions and does not anticipate any
circumstances in which funds provided on behalf of consumers and the
proceeds from simultaneous subordinate financing disclosed on the
first-lien Closing Disclosure would not be disclosed as negative
numbers, the Bureau is not finalizing the technical requirement to
disclose these amounts as negative numbers to allow flexibility for any
unforeseen situations.
The Bureau is renumbering proposed comment 38(t)(5)(vii)(B)-2 as
comment 38(t)(5)(vii)(B)-2.i and revising the comment for greater
clarity. Proposed comment 38(t)(5)(vii)(B)-2 explained that on the
Closing Disclosure for a first-lien transaction that also has
simultaneous subordinate financing, the proceeds of the subordinate
financing are disclosed in the payoffs and payment table under Sec.
1026.38(t)(5)(vii)(B). As discussed in the section-by-section analysis
of Sec. 1026.37(d)(2), a commenter asked the Bureau to clarify how to
disclose the simultaneous subordinate financing loan proceeds that are
applied to the first-lien transaction. In final comment
38(t)(5)(vii)(B)-2.i, the Bureau adds the heading ``First-lien Closing
Disclosure,'' explains that the comment pertains to first-lien Closing
Disclosures disclosed using the alternative tables under Sec.
1026.38(d)(2) and (e), and provides a refinance transaction as an
example of a first-lien transaction that could be disclosed under Sec.
1026.38(d)(2) and (e) that also has simultaneous subordinate financing.
In response to the comments received on the proposal, the Bureau is
also providing additional guidance on how to disclose the amount of
subordinate financing, consistent with the requirements in comment
38(j)(2)(vi)-2 for disclosing the proceeds of subordinate financing on
the standard Closing Disclosure.
The Bureau is adding comment 38(t)(5)(vii)(B)-2.ii to permit
creditors to include, in the payoffs and payments table on the
simultaneous subordinate financing Closing Disclosure, the proceeds of
the subordinate financing applied to the first-lien transaction. Final
comment 38(t)(5)(vii)(B)-2.ii responds to commenters' questions about
how to disclose the simultaneous subordinate loan proceeds that will be
applied to the first lien on the disclosure for the simultaneous
subordinate financing. The commenters asserted that most creditors
prefer that the simultaneous subordinate financing Closing Disclosure
include a disclosure of the amount of loan proceeds that are applied to
the first-lien loan, and asked the Bureau to permit this practice. In
the proposal, the Bureau noted that the funds that are provided to the
consumer from the proceeds of subordinate financing being applied to
the first-lien transaction would not be included in the payoffs and
payments table on the simultaneous subordinate financing disclosure. As
a result, the cash to close amount disclosed under Sec.
1026.38(e)(5)(ii) would have represented the loan proceeds as ``cash
out'' to the borrower. For the same reasons discussed in the section-
by-section analysis of Sec. 1026.37(h)(2)(iii), the Bureau is not
finalizing the proposed approach and instead is adding new comment
38(t)(5)(vii)(B)-2.ii to permit creditors to include the proceeds of
the subordinate financing applied to the first-lien transaction in the
payoffs and payments table on the simultaneous subordinate financing
Closing Disclosure. The Bureau is making similar amendments in
commentary to Sec. Sec. 1026.37(h)(2)(iii) and 1026.38(j)(1)(v).
The Bureau is adding comment 38(t)(5)(vii)(B)-2.iii and amending
proposed comment 38(t)(5)(vii)(B)-1 to address the commenter's question
regarding how to proceed under the proposal when the optional
alternative table was properly used on the Loan Estimate, or even the
Closing Disclosure, but a subsequent event would cause the continued
use of the alternative table to be impermissible. For the reasons
discussed in the section-by-section analysis of Sec. 1026.37(d)(2),
the Bureau is directly addressing the commenter's concern by adding new
comment 38(k)(2)(vii)-1, amending comments 38(d)(2)-1 and 38(j)-3, and
amending proposed comments 38(t)(5)(vii)(B)-1 and -2 (including adding
comment 38(t)(5)(vii)(B)-2.iii), to require the disclosure of the
seller's contributions to the subordinate financing, if any, in the
payoffs and payments table on the simultaneous subordinate financing
Closing Disclosure and the summaries of transactions table on the
first-lien Closing Disclosure, when the alternative disclosures are
used for the simultaneous subordinate financing transaction. Final
comment 38(t)(5)(vii)(B)-2.iii explains that if a creditor discloses
the alternative tables pursuant to Sec. 1026.38(d)(2) and (e) on the
simultaneous subordinate financing Closing Disclosure, the creditor
must also disclose in the payoffs and payments table on the
simultaneous subordinate financing Closing Disclosure, any seller
contributions toward the simultaneous subordinate financing. Final
comment 38(t)(5)(vii)(B)-1 includes, as an example of amounts paid by
third parties that may be disclosed as credits on the simultaneous
subordinate financing's payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B), contributions from a seller for costs associated
with a simultaneous subordinate financing transaction. As discussed in
the section-by-section analysis of Sec. 1026.38(k)(2), final comment
38(k)(2)(vii)-1 explains that if the simultaneous subordinate financing
transaction is disclosed using the alternative tables pursuant to Sec.
1026.38(d)(2) and (e), the first-lien Closing Disclosure must include,
in the summaries of transactions table for the seller's transaction
under Sec. 1026.38(k)(2)(vii), any contributions toward the
simultaneous subordinate financing from the seller that are disclosed
in the payoffs and payments table under Sec. 1026.38(t)(5)(vii)(B) on
the simultaneous subordinate financing Closing Disclosure. The result
of these amendments, coupled with the amendments to comment 38(j)-3, is
that the first-lien Closing Disclosure will be able to record the
entirety of the seller's transaction.
For example, assume the simultaneous subordinate financing
transaction is disclosed using the alternative tables pursuant to Sec.
1026.38(d)(2) and (e) and the seller contributes $200.00 toward the
closing costs of the simultaneous subordinate financing. The
simultaneous subordinate financing transaction Closing Disclosure must
disclose the $200.00 contribution in the payoffs and payments table in
accordance with Sec. 1026.38(t)(5)(vii)(B) and comment
38(t)(5)(vii)(B)-1. The first-lien Closing Disclosure must disclose the
$200.00 contribution in the summaries of transactions table for the
seller's transaction under Sec. 1026.38(k)(2)(vii) on the first-lien
Closing Disclosure, thereby recording the entirety of the seller's
transaction on the first-lien Closing Disclosure. For a more detailed
discussion of these new and revised comments, see the section-by-
section analyses of Sec. 1026.38(d)(2), (j), and (k)(2).
The Bureau is adopting proposed comment 38(t)(5)(vii)(B)-3 with
technical conforming revisions. As
[[Page 37755]]
discussed in more detail in the section-by-section analysis of Sec.
1026.38 pertaining to comment 38-4 above, an industry group recommended
that the Bureau use the phrase ``principal reduction'' instead of
``principal curtailment,'' noting that consumers would be more familiar
with the recommended phrase. The Bureau is revising proposed comment
38(t)(5)(vii)(B)-3 to reflect the phrase ``principal reduction.''
Industry commenters also requested that the Bureau permit the use of
principal curtailments for situations other than when a creditor is
providing a credit for a tolerance refund. In the proposal, the Bureau
sought to address the particular issue of how to disclose a principal
curtailment that is used to provide a tolerance refund, but did not
intend to propose to limit the use of principal curtailments to
providing tolerance refunds. The Bureau is revising and restructuring
comment 38-4 to provide clarity on the disclosure of principal
reductions that are and are not used to provide tolerance refunds. As a
result, the Bureau is amending comment 38(t)(5)(vii)(B)-3 to remove the
reference to a tolerance refund under Sec. 1026.19(f)(2)(v), making
the comment applicable to all principal reductions, regardless of
whether the principal reduction is for the purpose of providing a
tolerance refund.
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 proposed to revise comment 38(t)(5)(ix)-1 to cross-reference
proposed comment 38-4, which would have provided options for the
disclosure of a principal curtailment to provide a refund under Sec.
1026.19(f)(2)(v), including disclosure under Sec. 1026.38(t)(5)(ix).
For the reasons discussed below, the Bureau is not finalizing the
proposed amendments to comment 38(t)(5)(ix)-1. As discussed in more
detail in the section-by-section analysis of Sec. 1026.38 pertaining
to comment 38-4 above, some industry commenters raised concerns with
the various options for disclosure of principal curtailments proposed
by the Bureau. While the Bureau intended for the proposal to provide
the flexibility for the disclosure of principal curtailments discussed
in the Bureau staff's informal April 2016 webinar, the Bureau
appreciates commenters' assertions that a uniform disclosure method for
principal curtailments would reduce compliance burden, aid consumer
understanding, and aid the utilization of a uniform data standard. The
Bureau is therefore revising proposed comment 38-4 to, among other
things, limit the locations in which a creditor may disclose principal
reductions to only Sec. 1026.38(j)(1)(v) and (t)(5)(vii)(B). As a
result, the Bureau is not finalizing the proposed revisions to comment
38(t)(5)(ix)-1, which would have cross-referenced comment 38-4 for an
explanation of how to disclose a principal curtailment under Sec.
1026.38(t)(5)(ix). If there is insufficient space under Sec.
1026.38(j)(1)(v) or (t)(5)(vii)(B) for certain required elements of the
principal reduction disclosure, final comment 38-4 permits a creditor
to provide an abbreviated disclosure under Sec. 1026.38(j)(1)(v) or
(t)(5)(vii)(B) and a complete disclosure with a reference to the
abbreviated disclosure under an appropriate heading on an addendum, in
accordance with Sec. 1026.38(j) and (t)(5)(ix), as applicable. No
amendments to comment 38(t)(5)(ix)-1 are necessary to effectuate this
change. See the section-by-section analysis of Sec. 1026.38 pertaining
to comment 38-4 for an explanation of when and how an addendum may be
used in the context of a principal reduction disclosure.
Appendix D--Multiple-Advance Construction Loans
Loan Term
The Bureau's Proposal
Proposed comment app. D-7.i clarified 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 disclosed 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 provided 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 disclosed is 31
years. Proposed comment app. D-7.i.A also included a cross-reference
to comment 37(a)(8)-3 intending to explain 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 clarified how to disclose the term
of the permanent phase of a construction-permanent loan when the
creditor elected 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 explained 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.
Comments Received
As explained in the above section-by-section analysis of comment
37(a)(8)-3, commenters were concerned that comment 37(a)(8)-3 did
not include the explanations referred to in comment app. D-7.i.
The Final Rule
For the reasons discussed below, the Bureau is finalizing
comment app. D-7.i substantially as proposed, but the Bureau is
removing the cross-references to comment 37(a)(8)-3 in comment app.
D-7.i.
The intent of the cross-reference to comment 37(a)(8)-3 in
comment app. D-7.i.A was to explain 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.
However, citing only to Sec. 1026.17(c)(3) might raise questions as
to the applicability of other sections that are not cited, which was
not the intent of the Bureau. Sections such as Sec. 1026.17(c)(4)
are also applicable in determining the impact of minor variations in
the number of days counted for the loan term, as well as other
disclosures, as applicable. In order to avoid creating an impression
that only Sec. 1026.17(c)(3) applies for purposes of construction
and construction-permanent disclosures to the exclusion of other
potentially applicable sections, the Bureau is not finalizing the
cross-references to comment 37(a)(8)-3 in comment app.D-7.i.
A similar approach to generally applicable provisions was taken
in the TILA-RESPA Final Rule with respect to providing specific
guidance in Sec. 1026.37(c) regarding whether the periodic
principal and interest disclosure should be based on an average 30-
day month or some other measure. There, the Bureau noted that
creditors may base their disclosures on calculation tools that
assume that all months have an equal number of days, even if their
practice is to take account of the variations in months for purposes
of collecting interest. The Bureau further noted that because this
Sec. 1026.17(c)(3) guidance applies generally to the disclosures
required by Sec. 1026.37, the Bureau did not believe it
[[Page 37756]]
was necessary or appropriate to provide such guidance in Sec.
1026.37(c).\114\
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\114\ See 78 FR 79730, 79937 (Dec. 31, 2013).
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Comment app. D-7.i.B, which explains how the loan term of the
permanent phase is counted, also included a statement that it was
consistent with comment 37(a)(8)-3. As explained above, comment
37(a)(8)-3 only contains a cross-reference to comment app. D-7.i.
and no additional explanations. Accordingly, the reference to
comment 37(a)(8)-3 is deleted, because there is no explanation there
for comment app. D-7.i. to be ``consistent with.''
Product
The Bureau's Proposal
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 provided this explanation and example.
Proposed comment app. D-7.ii.B explained 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 provided 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.''
Comments Received
While the Bureau did not receive any comments that directly
addressed proposed comment app. D-7.ii, a comment on proposed
comment app. D-7.iii, which is further discussed in the section-by-
section analysis for comment app. D-7.iii below, raised issues that
directly concern the disclosure of the loan product under Sec.
1026.37(a)(10). Proposed comment app. D-7.iii provided, in part,
that if the creditor may modify the rate for permanent financing
when the construction financing converts to permanent financing,
certain variable-rate disclosures are provided regardless of whether
the permanent financing has a fixed, adjustable, or step rate. The
commenter indicated that there could be confusion over the
applicable product disclosures for construction-permanent loans
disclosed as either one transaction or two transactions but
consummated simultaneously where the interest rate for the permanent
phase is set upon completion of the construction phase. The
commenter indicated the loan product for such a loan would seem to
be adjustable rate, rather than fixed rate, which could generate
confusion over how to disclose the loan product for this scenario.
The Final Rule
The Bureau agrees with the commenter and, for this reason, is
finalizing comment app. D-7.ii substantially as proposed, but adding
comment app. D-7.ii.C and making a conforming change to comment app.
D-7.ii.B for consistency. Comment app. D-7.ii.C clarifies that for
construction-permanent loans with a single consummation, in the case
of either a separate disclosure for the permanent phase or a single
combined disclosure for both phases, if the creditor reserves the
right to modify the disclosed interest rate for the permanent phase
at a post-consummation date and the modified interest rate for the
permanent phase is not known at the time of consummation, the loan
product disclosed under Sec. Sec. 1026.37(a)(10) and
1026.38(a)(5)(iii) is ``Adjustable Rate.'' This is true even if,
once set at the later date, the interest rate for the permanent
phase would not change again.
Comment app. D-7.ii.C reflects the applicability of Sec.
1026.37(a)(10)(i) when disclosing the loan product for construction-
permanent loans with a single consummation, just as it would apply
to any other covered loan. Under Sec. 1026.37(a)(10)(i), if the
creditor reserves the right to modify the interest rate for the
permanent phase of a construction-permanent loan with a single
consummation, and that interest rate may increase but the rate that
will apply is not known at consummation, the loan product disclosed
under Sec. Sec. 1026.37(a)(10) and 1026.38(a)(5)(iii) is
``Adjustable Rate,'' if the permanent phase is disclosed separately
or a single disclosure is used for the combined construction-
permanent financing. Further, any other disclosures required for the
loan product specified would also apply. For example, the
introductory rate or payment period disclosure as required by
Sec. Sec. 1026.37(a)(10)(iv) and 1026.38(a)(5)(iii) is disclosed
even if the construction and permanent phases individually are fixed
rate. In the loan described above, if the loan is disclosed using a
single disclosure for a combined construction-permanent financing,
the introductory period disclosure would be the term of the
construction phase and then the term of the permanent phase, e.g.
``1/30 Adjustable Rate.'' If, however, the permanent phase is
disclosed separately, assuming the permanent phase is a fixed rate
upon conversion from the construction phase, the introductory rate
disclosure would be zero followed by the term of the permanent
phase, e.g., ``0/30 Adjustable Rate.''
Additionally, should the creditor reserve the right to modify
the interest rate for the permanent phase of a construction-
permanent loan with a single consummation, and that interest rate
may increase but the rate that will apply is not known at
consummation, the other adjustable-rate loan disclosures would be
required, if not otherwise already required. For example, comment
app. D-7.iii as finalized discusses the requirements for the
disclosure under Sec. 1026.20(c).
Similarly, the Adjustable Interest Rate table, as required by
Sec. Sec. 1026.37(j) and 1026.38(n), is disclosed where the
creditor reserves the right to modify the interest rate for the
permanent phase of a construction-permanent loan with a single
consummation, and that interest rate may increase but the rate that
will apply is not known at consummation. If the permanent phase is
disclosed separately or a single disclosure is used for the combined
construction-permanent financing, the creditor discloses the index
and margin, as required Sec. 1026.37(j)(1), using the index and/or
margin identified in the legal obligation that will be used to
determine the interest rate for the permanent phase at conversion.
The creditor also discloses the initial interest rate at
consummation under Sec. 1026.37(j)(3), which may be the interest
rate for the construction phase. Finally, the creditor discloses the
minimum and maximum interest rates for the permanent phase, as
required by Sec. 1026.37(j)(4). If the legal obligation does not
provide a minimum and/or maximum interest rate cap for the permanent
phase interest rate upon conversion, as stated in current comment
37(j)(4)-1 and -2, the disclosure is based on the applicable law.
Comment app. D-7.ii.C is consistent with the applicability of
the other Sec. 1026.37(a)(10)(i) provisions to construction-
permanent loans. For example, using the definition in Sec.
1026.37(a)(10)(i)(B), if, for a construction-permanent loan using a
single disclosure for both phases, the interest rates for both
phases are fixed at consummation and the creditor does not reserve
the right to modify the rate after consummation, but the interest
rates are not the same, the creditor would disclose the loan product
under Sec. Sec. 1026.37(a)(10) and 1026.38(a)(5)(iii) as a
[[Page 37757]]
``Step Rate'' product because the interest rate will change after
consummation and the rates and periods they will apply are known.
Further, the introductory rate and payment period disclosures
required by Sec. Sec. 1026.37(a)(10)(iv) and 1026.38(a)(5)(iii)
would also be required.
But it should be noted that comment app. D-7.ii.C is read in the
context of the rest of the rule. For example, while a construction-
permanent loan using a single disclosure for both phases where the
creditor reserves the right to modify the permanent phase interest
rate after consummation would not by itself require disclosure of
the Adjustable Payments table, an aspect of the construction phase
or permanent phase might otherwise require it, such as an interest-
only period in the construction phase. As explained in the
discussion of proposed comment app. D-7.v, finalized as comment app.
D-7.iv, the adjustable payment table is included for separate
disclosures of the construction phase or combined construction-
permanent disclosures if the interest during the construction phase
is payable only on the amount actually advanced--in such cases the
periodic payment may change after consummation but not based on an
adjustment to the interest rate.
Interest Rate
The Bureau's Proposal
Proposed comment app. D-7.iii explained 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 addressed a
unique aspect of some 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 stated 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 have explained
that the rate disclosed is based on the best information reasonably
available at the time the disclosures are made and included 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 also provided instruction on disclosures that
may be required after consummation if the creditor may modify the
rate disclosed for the permanent financing when the construction
financing converts to permanent financing. If such an adjustment of
the interest rate occurs at the time of conversion and results in a
payment change, the creditor must provide the rate and payment
adjustment disclosures required by Sec. 1026.20(c) (commonly
referred to as ARM notices) 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 sought 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 disclosure required by Sec. 1026.20(c), generally required at
least 60 days, and no more than 120 days, before the first payment
at the adjusted level is due.
Comments Received
The Bureau received one comment on the proposal regarding
comment app. D-7.iii. The commenter noted that, if the loan in
question is a two-phase construction-permanent loan in which the
permanent phase will be consummated at the close of the construction
phase of the loan, the creditor can issue a revised Loan Estimate
for the permanent phase of the loan any time prior to 60 days before
consummation of the permanent phase. The Bureau agrees that such a
revision of the Loan Estimate may be permissible under Sec.
1026.19(e)(3)(iv). The commenter stated that if the transaction is a
single consummation construction-permanent loan and the creditor may
modify the rate for permanent financing when the construction
financing converts to permanent financing, the loan product would
not be fixed-rate, and if that rate upon conversion is unknown would
not be step-rate either, as stated in proposed comment app. D-7.iii.
The commenter further noted that the permanent phase of the
transaction would be an adjustable-rate loan product if the creditor
reserves the right to modify the rate when the construction loan
ends.
The Final Rule
The Bureau is finalizing comment app. D-7.iii substantially as
proposed, but with clarifications. The interest rate disclosed under
Sec. Sec. 1026.37(b)(2) and 1026.38(b) is the interest rate
applicable to the transaction at consummation. If the construction
phase and permanent phase of a construction-permanent transaction
are consummated at the same time, the payments for the permanent
phase will often not be due for a year or more. In such situations,
the legal obligation may provide that the interest rate of the
permanent phase may change when the construction phase converts to
the permanent phase, and further, may not specify what the interest
rate will change to at the permanent phase. As discussed in final
comment app. D-7.ii, the fact that the permanent phase interest rate
may change and increase after consummation requires the permanent
phase, if considered separately, to be disclosed as an adjustable-
rate product, as defined in Sec. 1026.37(a)(10)(i)(A) and not a
fixed-rate or step-rate product, even if the loan will become a
fixed-rate or a step-rate at the time of conversion. Similarly, as
discussed in final comment app. D-7.ii, the combined construction-
permanent transaction in such a situation would also be disclosed on
the combined Loan Estimate and Closing Disclosure as an adjustable-
rate product. However, the construction phase, if disclosed
separately and if it has no interest rate changes of its own, would
not. The disclosure of the permanent phase as an adjustable-rate
product in these circumstances applies even if, upon conversion, the
permanent phase will have a fixed interest rate. The statement
``regardless of whether the permanent financing has a fixed,
adjustable, or step rate'' at the end of the comment as proposed is
not adopted given the clarification of the product in final comment
app. D-7.ii.
The Bureau is providing clarification in comment app. D-7.iii
that in a transaction secured by the consumer's principal dwelling,
if the legal obligation provides that the interest rate of the
permanent financing may change, and therefore may increase, when the
construction financing converts to permanent financing, and such
conversion results in a fixed-rate transaction and payment change,
the creditor must provide the disclosures pursuant to Sec.
1026.20(c) generally at least 60 days, and no more than 120 days,
before the first payment on the permanent phase at the adjusted
level is due. Pursuant to Sec. 1026.20(c), an adjustable-rate
mortgage (ARM) payment change disclosure must be provided to the
consumer when an interest rate adjustment resulting from the
conversion of an adjustable-rate mortgage to a fixed-rate
transaction, if that interest rate adjustment results in a
corresponding payment change, as is the case in the conversion of
the construction to a permanent loan described above.
If the permanent phase interest rate disclosed at consummation
may increase when the construction phase converts to the permanent
phase, the permanent phase is both an adjustable-rate product under
Sec. 1026.37(a)(10)(i)(A) and an ARM, as identified in Sec.
1026.20(c)(1). If the interest rate set at conversion for the
permanent financing will not change post-conversion, the permanent
financing then becomes a fixed-rate loan, and the conversion from
construction to permanent financing is a conversion of the permanent
financing from an adjustable-rate mortgage to a fixed-rate
transaction. Thus, the ARM payment change disclosure must be
provided to consumers in this situation because, pursuant to Sec.
1026.20(c), the disclosure is required when an ARM converts to a
fixed-rate transaction, if the interest rate adjustment results in a
payment change. Note that this requirement only applies if the loan
is secured by the consumer's principal dwelling. Because the Sec.
1026.20(d) ARM initial interest rate adjustment disclosure is not
required when an ARM converts to a fixed-rate transaction, that
requirement would not be triggered by the construction to permanent
phase conversion. However, should the construction or permanent
phase individually otherwise meet the coverage requirements of Sec.
1026.20(c) or (d), for example, if the permanent phase has an
adjustable rate after conversion or if the initial term of the
construction phase exceeds one year, nothing in comment app. D-7.iii
should be read to exclude or modify those requirements.
Finally, in response to the commenter's assertion regarding
resetting tolerances for the permanent phase, the Bureau notes that
if the loan in question is a two-phase construction-permanent loan
in which the
[[Page 37758]]
permanent phase will be consummated at the close of the construction
phase, and if consistent with Sec. 1026.19(e)(3)(iv), the creditor
can issue revised disclosures and reset tolerances by issuing a
revised Loan Estimate for the permanent phase, which may disclose a
different interest rate than originally disclosed.
Initial Periodic Payment
Proposed comment appendix D-7.iv would have clarified 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.
The Bureau did not receive comments on the proposed
clarification to comment app. D-7.iv. However, for the reasons
explained in the above section-by-section analysis of comment app.
D-7.i, the Bureau is removing this cross-reference for consistency.
While the creditor may consider Sec. 1026.17(c)(3) to determine the
effects of certain minor variations in making calculations and
disclosures, this should not be to the exclusion of other applicable
sections, such as Sec. 1026.17(c)(4). Accordingly, proposed comment
app. D-7.iv is not being adopted.
Increase in Periodic Payment
The Bureau's Proposal
Sections 1026.37(b)(6) and 1026.38(b), by cross-reference,
require 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 explained 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 discussed the disclosure of fixed-rate
construction financing, and proposed comment app. D-7.v.C discussed
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. The
preamble of the proposed rule explained that 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. Thus, the Bureau proposed
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 also explained that a technically
correct answer to ``Can this amount increase after closing'' is
``NO.'' The proposed comment is consistent with informal guidance
provided by the Bureau.
Proposed comment app. D-7.v.B explained that, if separate
disclosures are provided for fixed-rate construction and permanent
financing and appendix D is used to compute the periodic payment for
the construction phase, 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, the proposal stated 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). The proposal also
stated 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.
Proposed comment app. D-7.v.C stated 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 provided an illustrative example. Proposed
comment app. D-7.v.C. also stated that 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, 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. also stated 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. explained
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 would also disclose a range of
payments in the principal and interest row of the projected payments
table under Sec. 1026.37(c)(2)(i).
Comments Received
Commenters raised concerns regarding the options provided by the
proposed commentary and the time that would be required to implement
it. An individual commenter objected to the option to provide either
an affirmative or negative answer to the question, ``Can this amount
increase after closing?'' The commenter stated that disclosing
``NO'' would be inaccurate as the payment can range as high as
interest on the total amount of the approved loan or as little as
$0.00, if no funds have been drawn. A vendor commented that the
optionality in proposed comment app. D-7.v.A would complicate
compliance because creditors and investors would need to conduct
additional staff training regarding these options, including that
they are only applicable for fixed-rate transactions. The option
provided under proposed comment app. D-7.v.B to omit the disclosures
under Sec. 1026.37(b)(6)(iii) and (c)(2)(i) would similarly
complicate compliance and require training. The commenter further
noted that implementing these options would require significant
reprogramming for technology providers across the industry,
including loan origination, document production, and compliance
software companies. The commenter also stated that useful
information under Sec. 1026.37(b)(6)(iii) and (c) that is based on
the principal balance would be able to be disclosed and noted
consumers would benefit from a disclosure of the maximum principal
and interest payment
[[Page 37759]]
based on the maximum principal balance that could be outstanding
during the construction phase.
Several vendors expressed implementation concerns with proposed
comments app. D-7.v.A and B. They indicated their systems cannot
support a ``YES'' for fixed-rate construction-only disclosures
without the Sec. 1026.37(b)(6)(iii) bullet points as the proposed
comments would permit. The vendors' comments noted that, currently,
most software automatically produces the bullets under Sec.
1026.37(b)(6)(iii) when a ``YES'' answer is provided under Sec.
1026.37(b)(6). Thus, while the proposal indicated the bullets under
Sec. 1026.37(b)(6)(iii) are optional, the vendors indicated the
optionality did not exist under their programs. The proposed changes
would require reprogramming and would also complicate software
integrations. Vendors estimated the proposed comments would require
9 to 12 months to implement. These implementation concerns were
echoed by a trade organization, which commented that the
construction loan management (CLM) systems that creditors use to
manage draws and inspections during the construction phase do not
communicate with servicing and loan origination software. Because of
such software issues, creditors manually interface their CLM systems
with their other systems. The comment noted sufficient time will be
needed to adjust systems and processes to the new rules.
The Final Rule
Based on the concerns initially raised by creditors and noted in
the proposed rule, and the additional concerns expressed in the
comments, the Bureau is adopting comment app. D-7.v with
modification. The option to disclose an answer of either ``YES'' or
``NO'' to the question ``Can this amount increase after closing?''
under comment app. D-7.v.A is not adopted under this final rule.
Only a disclosure of ``YES'' would be provided as the Sec.
1026.37(b)(6) response to whether there will be an increase in the
periodic payment when the amounts or timing of advances is unknown
at or before consummation and the appendix D assumption that applies
if interest is payable only on the amount advanced for the time it
is outstanding is used to calculate the periodic payment. This
change will address the concerns of creditors and others that the
disclosure should reflect the fact that the payments actually
increase over the term of the construction financing, even though
the amount of such increases is not known at or before consummation.
However, during the optional compliance period before October 1,
2018, and after the optional compliance period with respect to
transactions for which a creditor or mortgage broker received an
application during the optional compliance period, disclosures may
continue to be made in the manner explained by the informal guidance
provided by the Bureau and restated in proposed comment app. D-
7.v.A. This takes into account the concerns of vendors, creditors,
and others for sufficient time to reprogram systems and train staff
to integrate the disclosures finalized here into their systems and
processes.
To further simplify the disclosures and their implementation,
the scope of comments app. D-7.v.A. and B is not limited to
circumstances when separate disclosures are provided for fixed-rate
construction financing as they were in the proposed rule and comment
app. D-7.v.C is not limited to separate disclosures for adjustable-
rate construction financing. As a practical matter, if ``YES'' is
the answer to ``Can this amount increase after closing?'' when
separate disclosures are provided for either fixed-rate or
adjustable-rate construction financing, ``YES'' will necessarily be
the answer when a combined disclosure for that financing is
provided. This is generally the result whenever a combined
disclosure is used because the interest-only payment of the
construction financing increases to the principle and interest
payment of the permanent financing. Comment app. D-7.v therefore
applies to both separate construction disclosures and combined
construction-permanent disclosures because, in either case, the
Sec. 1026.37(b)(6) disclosures would reflect the construction phase
during which there may be an increase in the periodic payment. In
addition, the statement, ``If the amounts or timing of advances is
unknown at or before consummation and the appendix D assumption that
applies if interest is payable only on the amount advanced for the
time it is outstanding is used to calculate the periodic payment''
is provided as the introductory paragraph that applies to all of
comment app. D-7.v.A through C. This condition in the introductory
paragraph is the perquisite for the applicability of the
explanations that follow in the subsequent paragraphs of the
comment. The Bureau considers that the greater consistency provided
for the Sec. 1026.37(b)(6) disclosures by the final rule will
provide greater clarity and help creditors facilitate the
implementation of these provisions. However, the option to answer
``NO'' during the optional compliance period before October 1, 2018,
will continue to be limited to circumstances when separate
disclosures are provided for fixed-rate construction financing. As
noted above, when a single, combined disclosure is used for both the
construction and permanent phases, or when the construction phase
has an adjustable rate and either separate or combined disclosures
are provided, the initial interest-only periodic payment may
increase, even when the initial payment is calculated in accordance
with appendix D.
The option in proposed comment app. D-7.v.B to omit the
disclosures under Sec. 1026.37(b)(6)(iii) and the disclosure of a
range of payments under Sec. 1026.37(c)(2)(i) is adopted with
modifications. In adopting these modifications, the Bureau agrees
with the comments noting that useful information could be provided
to consumers based on the maximum principal balance that could be
outstanding during the construction phase. The Bureau is also taking
into account the practical consequences of the comments noting that
many systems automatically populate the Sec. 1026.37(b)(6)(iii)
``bullets'' when a response of ``YES'' is disclosed.
Comment app. D-7.v.B, as modified, provides an explanation of
how to make the Sec. 1026.37(b)(6)(iii) disclosures when a ``YES''
response to ``Can this amount increase after closing?'' is
disclosed. The comment explains that years or months may be used for
the Sec. 1026.37(b)(6)(iii) disclosures, consistent with comment
37(b)(6)-1. Using months for the disclosures provides more useful
information for construction loans in particular, as such loans
often do not exceed 12, rather than 24, months. The comment provides
examples that, for a 10-month construction loan, the first bullet
may disclose, ``Adjusts every mo. starting in mo. 1'' and the second
bullet may disclose, ``Can go as high as $ [ insert maximum possible
payment] in year 1.'' The comment clarifies the maximum possible
payment disclosed would be based on the maximum principal balance
that could be outstanding during the construction phase. The
adjustment may start in the first month (``mo. 1'') because the
first payment is not likely to equal the amount computed using the
appendix D assumptions when the amounts or timing of advances is
unknown at or before consummation and interest is payable only on
the amount advanced for the time it is outstanding.
Comment app. D-7.v.B further explains that as part of the
``First Change/Amount'' disclosure in the ``Adjustable Payment (AP)
Table'' pursuant to Sec. 1026.37(i)(5)(i), the creditor may omit
and leave blank the amount or range corresponding to the first
periodic principal and interest payment that may change. The timing
of the first change, which is the earliest possible payment that may
change under the terms of the legal obligation under comment
37(i)(5)-2, is still disclosed. This disclosure, in particular,
reflects a change due to a change in the total amount advanced, but
when the amounts or timing of advances is unknown at or before
consummation and interest is payable only on the amount advanced for
the time it is outstanding, there is not a method for computing the
amount at the first change in payment. However, the other
disclosures in the ``Adjustable Payment (AP) Table'' may be made
without having to take an unknown quantity into account. For
example, the first change may take place at the first payment, the
earliest possible payment that may change, because the first payment
likely may not equal the amount computed using the appendix D
assumption, and the maximum payment would be based on the maximum
draw that could be outstanding during the construction phase.
The reference to Sec. 1026.37(c)(2)(i) in proposed comment app.
D-7.v.B is also removed in this rule. Because the payment can range
as high as the interest on the total amount of the approved loan or
as little as $0.00, as noted in the comments, the proposed option to
omit the Sec. 1026.37(c)(2)(i) disclosures is not adopted. As
discussed below, proposed comment app. D-7.vi adopted in this rule
as comment app. D-7.v, which directly addresses the projected
payments disclosures for multiple-advance construction loans, more
appropriately addresses such issues.
Comment app. D-7.v.C, which addresses the increase in periodic
payment disclosures for adjustable-rate construction financing, is
modified for consistency with the app. D-7.v
[[Page 37760]]
changes described above. It applies to both the separate
construction disclosures and the combined construction-permanent
disclosures, rather than only to separate construction disclosures
as proposed. Because the Sec. 1026.37(b)(6)(iii) bullets may be
disclosed as provided in comment app. D-7.v.B, comment app. D-7.v.C
explains that both the adjustable payment table and the adjustable
interest rate table are included in the Sec. 1026.37(b)(6)
disclosures for adjustable-rate construction financing.
Finally, because proposed comment app. D-7.iv is not being
adopted, a conforming change is being made and proposed comment app.
D-7.v is renumbered as comment app. D-7.iv in this rule.
Projected Payments Table
The Bureau's Proposal
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. The proposed rule would have restated comment app. D-
7.i as comment app. D-7.vi.A and added clarifying language to
specify that, if interest is payable only on the amount actually
advanced for the time it is outstanding, the creditor uses the
assumption in appendix D, part I.A.1, to determine the amount of the
interest-only payment to be made during the construction phase. The
proposed comment would have also clarified that comment app. D-7.i's
statement that the creditor must disclose the construction phase
transaction as a product with a balloon payment feature, pursuant to
Sec. Sec. 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), applies
unless the transaction has negative amortization, interest-only, or
step payment features, consistent with Sec. 1026.37(a)(10)(iii).
References to the balloon payment disclosures under Sec. Sec.
1026.37(b)(5), 1026.37(b)(7)(ii), and 1026.38(b) would have been
added to the existing statement that the creditor must disclose the
balloon payment in the projected payments table.
The proposed rule would have also restated comment app. D-7.ii
as comment app. D-7.vi.B. Language consistent with informal guidance
provided by the Bureau would have been added to clarify comment app.
D-7.ii's statement that the projected payments table must reflect
the interest-only payments during the construction phase in a first
column. As proposed, the comment would have explained 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 have ensured 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 have also
been added to proposed comment app. D-7.vi.B to explain that, if
interest is payable only on the amount actually advanced for the
time it is outstanding, the creditor uses the assumption in appendix
D, part II.A.1 to determine the amount of the interest-only payment
to be made during the construction phase.
Comments Received
A law firm commenter recommended that the Bureau incorporate the
guidance from Section 14.7 of the Bureau's TILA-RESPA Integrated
Disclosure Rule Small Entity Compliance Guide regarding the mortgage
insurance and estimated escrow disclosures in the projected payments
table for transactions where the terms of the legal obligation for
the permanent phase, but not the construction phase, require
mortgage insurance or escrow. This commenter also recommended that
the Bureau clarify the impact of the mortgage insurance and
estimated escrow disclosures on the estimated total monthly payment
disclosure where the construction phase is not a full year and,
therefore, the first column in the projected payments table
discloses a range of payments reflecting the interest-only payments
during the construction phase and the amortizing payments for the
permanent phase. A vendor group commenter similarly recommended that
the rule address the treatment of estimated escrow payments as they
relate to single-close construction-to-permanent transactions.
Another law firm commenter stated that the regulation does not
explain how to calculate the amount of the periodic payment of
``only interest'' other than directing creditors to assume that
interest is ``outstanding at the contract interest rate for the
entire construction period.'' This commenter provided an example of
the interest-only monthly payment computed using a daily interest
accrual method. The commenter requested that the Bureau validate the
formula used to compute the monthly payment.
The Final Rule
As an initial matter, because proposed comment app. D-7.iv is
not being adopted, proposed comment app. D-7.vi is renumbered as
comment app. D-7.v in this rule. In addition, the description of the
Sec. 1026.17(c)(6)(ii) provision that is currently in the
introductory paragraph of comment app. D-7, but did not appear in
proposed comment app. D-7.vi, is reinstated in the introductory
paragraph of comment app. D-7.v in this rule. This revision is
necessary to provide the context of the ``two alternatives'' cited
in the following sentence of the comment.
As discussed above concerning proposed comment app. D-7.v,
comments noted the actual payment during the construction phase can
range as high as the interest on the total amount of the approved
loan or as little as $0.00. Nonetheless, current comment app. D-7.i
and proposed comment app. D-7.vi provided 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. To promote consistency and continuity for construction
disclosures in the projected payments table, comment app. D-7.v.A as
adopted in this final rule continues to require the creditor to
determine the amount of the interest-only payment to be made during
the construction phase using the assumption in appendix D, part
I.A.1. This means that the interest-only construction payments are
not disclosed as a range of payments in the projected payments
table. If a separate disclosure is used for the construction phase
or if the term of the construction phase is a full year and a
combined disclosure for both phases is used, only the payment
determined using the appendix D assumption is disclosed in the
projected payments table rather than a range of payments between $0
and the interest on the total amount of the approved loan. If a
single disclosure is used for both the construction and permanent
phases and the term of the construction phase is less than a full
year, a range of payments reflecting the payment determined using
the appendix D assumption and the amortizing payments that will
begin in the first year is disclosed.
The Bureau agrees with the commenters that recommended
incorporating additional discussion on disclosing escrow and
mortgage insurance that was previously provided in an informal
webinar by Bureau staff and incorporated into the Bureau's TILA-
RESPA Integrated Disclosure Rule Small Entity Compliance Guide. That
discussion is added as comment app. D-7.v.C. Comment app. D-7.v.B is
also revised to include a reference to mortgage insurance and escrow
payments, which are reflected in the first column of the projected
payments table along with the amortizing payments of the permanent
phase if the creditor elects to disclose the construction and
permanent phases as a single transaction and the construction phase
is not a full year.
With respect to the commenter that requested the Bureau validate
the method used to compute the monthly interest payment for
disclosure purposes, appendix D does not specify the method used to
calculate the interest or monthly payment of the construction
transaction. Appendix D only provides assumptions that creditors may
use to estimate and disclose the terms of multiple advance
construction loans. For example, if interest is payable only on
amounts advanced, the estimated interest is computed based on the
assumption that one-half the commitment amount is outstanding for
the entire construction. The example that follows section I.B.4 of
appendix D demonstrates how the interest-only monthly payment may be
calculated using the assumptions provided, including the assumed use
of monthly periods for calculation purposes. The example in the (B)
column states the amount of the calculated monthly payment. The
amount of the monthly payment in column (A) may be calculated by
dividing the estimated interest by the number of months of the
construction transaction in the example. However, these are only
examples. Neither the regulation nor appendix D requires the use of
monthly periods, or any other particular unit-periods. A creditor
may use daily, or other, unit-periods for calculation purposes, as
long as the period
[[Page 37761]]
used is not inconsistent with the terms of the legal obligation
between the creditor and the consumer.
Construction Costs as ``Other'' Costs
The Bureau's Proposal
Proposed comment app. D-7.vii.A would have explained 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). This proposed comment was consistent with proposed
amendments to comment 37(g)(4)-4, which would have provided that the
amount of construction costs must be disclosed under the subheading
``Other'' pursuant to Sec. 1026.37(g)(4).
Proposed comment app. D-7.vii.B would have also addressed
disclosure of a portion of a construction loan's proceeds that is
placed in a reserve or other account at consummation, sometimes
referred to as a ``construction holdback.'' Consistent with informal
guidance provided by the Bureau, the proposed comment would have
explained 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. The comment would also have explained that
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 in accordance with the clear and
conspicuous standard explained at comment 37(f)(5)-1, and the
balance of construction costs must exclude the designated amount to
avoid double counting.
Comments Received
Comments on proposed comment app. D-7.vii were generally made
together with comments submitted on the proposed revision of
comments 37(g)(4)-4 and 38(g)(4)-1 and, similarly, were generally
unfavorable. Commenters stated that disclosure of construction costs
under Sec. Sec. 1026.37(g)(4) and 1026.38 (g)(4) would make the
closing costs in many loans, including construction loans, appear to
be enormous, causing confusion. Commenters stated that consumers
would be concerned that loans were prohibitively expensive upon
seeing such high ``closing costs.'' Commenters also noted that
consumer testing had not been conducted for the proposed required
disclosures, and disagreed with what they perceived as giving a
greater priority to comparability between the Loan Estimate and the
Closing Disclosure than to consumer understanding. Significant staff
training and systems reprogramming were also cited as concerns by
commenters. A fuller presentation of these comments is in the
discussion of comment 37(g)(4)-4 above in this preamble.
However, some commenters also pointed out an issue that was
specific to proposed comment app. D-7.vii. Two trade association
commenters noted that proposed comment app. D-7.vii.A did not
expressly refer to the alternative disclosure for transactions
without a seller, which was referenced in the proposed commentary to
Sec. Sec. 1026.37(g)(4) and 1026.38 (g)(4). The commenters believed
that not including this reference would create legal complexity and
may introduce different interpretations between creditors and
investors, causing confusion for the industry.
The Final Rule
The Bureau is not adopting comment app. D-7.vii as proposed but
is adopting the comment with modifications in response to comments.
The changes adopted are consistent with the changes made to other
provisions in this rule that address construction costs. Because the
disclosure of construction costs under Sec. Sec. 1026.37(g)(4) and
1026.38 (g)(4) is not being required as proposed, comment app. D-
7.vii as adopted is revised to describe the options available for a
creditor to disclose and calculate construction costs rather than
focus only on the disclosure of construction costs as ``Other
costs.'' In addition, because proposed comment app. D-7.iv is not
being adopted in this rule, proposed comment app. D-7.vii is
renumbered as comment app. D-7.vi in this rule.
Comment app. D-7.vi, as redesignated, is renamed ``Disclosure of
construction costs.'' The reference to construction costs as ``other
costs'' is removed, because construction costs will no longer be
disclosed as ``other costs'' under Sec. Sec. 1026.37(g)(4) and
1026.38(g)(4). Proposed comment app. D-7.vii.A is redesignated as
comment app. D-7.vi.A and revised to provide a description of
``construction costs,'' as costs related to the improvements to be
made to the property that the consumer contracts for in connection
with the financing transaction and that will be paid in whole or in
part with loan proceeds. Proposed comment app. D-7.vii.A is revised
to refer to costs for which the consumer contracts in connection
with the financing transaction rather than costs the consumer
contracts at or before the real estate closing to pay, as proposed,
because it may not be clear if there is a ``real estate closing''
when the financial transaction only involves construction. Even when
a ``real estate closing'' is clearly present, improvements in
connection with the financing transaction may not be contracted for
until shortly after the closing takes place. In such cases, as long
as the creditor knows that financing the improvement is a purpose of
the loan proceeds, the construction costs are in connection with the
financing transaction.
Further, proposed comment app. D-7.vii.B is redesignated as
comment app. D-7.vi.D. Comments app. D-7.vi.B and C as adopted in
this rule describe the options available for a creditor to disclose
and calculate construction costs under the Loan Estimate and Closing
Disclosure, respectively.
Comment app. D-7.vi.B as adopted provides that on the Loan
Estimate the creditor factors construction costs into the funds for
borrower calculation under Sec. 1026.37(h)(1)(v), or discloses
these costs under Sec. 1026.37(h)(2)(iii) in the optional
alternative calculating cash to close table for transactions without
a seller or for simultaneous subordinate financing. Comment app. D-
7.vi.C as adopted in this rule describes the options a creditor has
with respect to construction costs on the Closing Disclosure: to
disclose these costs under Sec. 1026.38(j)(1)(v) in the summaries
of transactions table and factor them into the funds for borrower
calculation under Sec. 1026.38(i)(4) and (6) or disclose these
costs under Sec. 1026.38(t)(5)(vii)(B) in the optional alternative
calculating cash to close table for transactions without a seller or
for simultaneous subordinate financing.
A conforming change is made to comment app. D-7.vi.D, which was
proposed comment app. D-7.vii.B, by removing the reference to Sec.
1026.37(g)(4) and replacing it with a reference to ``the disclosure
and calculation options described in comments app. D-7.vi.B and C.''
Construction Loan Inspection and Handling Fees
Proposed comment app. D-7.viii provided instructions for the
disclosure of construction loan inspection and handling fees
consistent with informal guidance provided by the Bureau. The
proposed comment explained 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
also provided 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.
The Bureau did not receive any comments on proposed comment app.
D-7.viii. Although the Bureau received no comments regarding this
proposed comment, as stated in the discussion of comment 37(f)-3,
above, the Bureau is finalizing comment app. D-7.viii as proposed
with an additional clarification in response to comments received
that construction loan inspection and handling fees are loan cost
charges that must be added to the ``In 5 Years'' disclosure under
Sec. 1026.37(l)(1) and the total of payments disclosure under Sec.
1026.38(o)(1) because they are disclosed under Sec. 1026.37(f),
even when they are disclosed on an addendum. Consistent with a
clarification being adopted in comment 37(f)-3, a statement is added
that inspection and handling fees include draw fees. In addition,
because proposed comment app. D-7.iv is not being adopted in this
rule, proposed comment app. D-7.viii is renumbered as comment app.
D-7.vii in this rule.
Appendix H--Closed-End Forms and Clauses
The Bureau's Proposal
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
[[Page 37762]]
published by the Bureau.\115\ 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 blank forms). 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 sample forms).
---------------------------------------------------------------------------
\115\ 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.
---------------------------------------------------------------------------
Current comment app. H-30 provides that forms H-24(A) through
(G), H-25(A) through (J), and H-28(A) through (J), i.e., both the
blank forms and the sample forms, are model forms for the
disclosures required under Sec. Sec. 1026.37 and 1026.38 and that
use of an appropriate model form is mandatory for a transaction that
is a federally related mortgage loan (as defined in Regulation X).
The Bureau proposed to revise comment app. H-30 to distinguish
between the blank forms and the sample forms and to establish that
only the blank forms are model forms.
Comments Received
Commenters, including creditors, vendors, trade associations,
government sponsored enterprises (GSEs), a title insurance
underwriter, and an individual attorney, opposed the proposed
revisions to comment app. H-30 that would remove the sample forms'
status as model forms, and thus remove the existing safe harbor
protection afforded by use of the sample forms. A title insurance
underwriter, a trade association, and GSE commenters noted the
Bureau's statement in the TILA-RESPA Final Rule that the sample
forms ``illustrate the disclosures required under Sec. Sec. 1026.37
and 1026.38, for particular types of transactions.'' \116\ Trade
association commenters challenged the Bureau's legal authority to
revise comment app. H-30 as proposed and stated that reversing the
decision made in the TILA-RESPA Final Rule at this point would
appear to be arbitrary and capricious.
---------------------------------------------------------------------------
\116\ 78 FR 79730, 80064 (Dec. 31, 2013).
---------------------------------------------------------------------------
GSE commenters stated that the sample forms were critical to the
GSEs' development of the Uniform Closing Dataset (UCD) and that it
is important to preserve the safe harbor protection afforded by use
of the sample forms. As an example of the importance of safe harbor
protection, a title insurance underwriter cited Sec. 1026.37(b)(6),
which, for each amount required to be disclosed by Sec.
1026.37(b)(1) through (3), requires creditors to provide a statement
of whether the amount may increase after consummation as an
affirmative or negative answer to the question, and under such
question disclosed as a subheading, ``Can this amount increase after
closing?'' Moreover, in the case of an affirmative answer, Sec.
1026.37(b)(6) requires creditors to provide additional information
specified in Sec. 1026.37(b)(6)(i) through (iii), as applicable.
The title insurance underwriter commented that, without the status
of the sample forms as model forms, there would be no safe harbor
regarding the formatting or organization of the disclosures required
under Sec. 1026.37(b)(6). The title insurance underwriter stated
that the proposed revisions to comment app. H-30 would increase
legal risk for creditors, which could potentially increase costs for
consumers.
Some commenters, including a creditor, a title insurance
underwriter, a trade association, and a vendor group, requested that
the Bureau conduct a systematic review of the sample forms to
address errors and for consistency with the final rule. A trade
association commenter requested that the Bureau publish more details
regarding the hypothetical transactions and assumptions that
underlie the various existing sample forms. That commenter further
requested that the Bureau develop additional sample forms to
demonstrate alternative approaches for disclosing the same
hypothetical transactions that underlie the existing sample forms.
The Final Rule
For the reasons discussed below, the Bureau is not adopting the
proposed revisions to current comment app. H-30. Accordingly, use of
an appropriate sample form, if properly completed with accurate
content, constitutes compliance with the requirements of Sec. Sec.
1026.37 or 1026.38 and associated commentary, as applicable. In part
in response to commenters' concerns, the Bureau concludes that
maintaining the current text of comment app. H-30 and the sample
forms' status as model forms will facilitate compliance and promote
greater consistency in formatting the disclosures required under
Sec. Sec. 1026.37 and 1026.38. Such consistency, in turn, can
facilitate comparison shopping for consumers.
In finalizing the current proposal, the Bureau has not pursued
commenters' suggestions to develop additional sample forms, publish
more details regarding the forms' underlying assumptions, and
conduct a systematic review of the forms, because such actions would
be very time consuming and resource-intensive, whereas the Bureau's
focus in this rulemaking is providing additional clarity in an
expeditious manner.
VI. Effective Date
A. The Bureau's Proposal
The Bureau proposed an effective date 120 days after publication in
the Federal Register of any final rule based on the proposal. The
Bureau also requested comment on when the changes proposed should be
effective. In addition, the Bureau requested comment on whether there
is a better or worse time of year for any of the proposed changes to
become effective. The Bureau also requested comment on whether specific
changes, as detailed in the section-by-section analysis of the
proposal, should have a separate effective date and, if so, whether it
should be earlier or later than the general effective date and why. In
the proposal, the Bureau stated that it believed that the proposed
changes should enable industry to implement the provisions set forth in
the TILA-RESPA Rule more cost-effectively and that industry should be
able to implement these changes relatively quickly. At the same time,
the Bureau stated that it recognized that some of the proposed changes
might require changes to systems or procedures.
In addition, the Bureau proposed revisions to comment 1(d)(5)-1
related to the implementation timeframe for the escrow cancellation
notice required by Sec. 1026.20(e) and the partial payment disclosure
required by Sec. 1026.39(d)(5). Those revisions are discussed further
in the section-by-section analysis of Sec. 1026.1(d)(5).
B. Comments Received
In response to the proposed rule, the Bureau received many comments
concerning the effective date and implementation period. One consumer
group commenter indicated that the changes in the final rule should be
applied prospectively only. Thus, the changes should only be effective
to applications received on or after a date certain. The commenter
stated that such prospective application of the changes would create
clarity for enforcement agencies and consumers.
A large number of industry commenters addressed the effective date
and implementation period issues. Some industry commenters suggested a
single implementation period applicable to all changes made in the
final rule. These industry commenters indicated that 120 days was not
adequate to implement the changes. They indicated they needed
additional time to complete software updates, to conduct testing and
self-audits, to update training policies, and to complete staff
training. These commenters' suggestions for the implementation period
ranged from 6 months to 24 months. One commenter suggested 6 months,
one commenter suggested 6 to 9 months, one commenter suggested 18
months, one commenter suggested 24 months, and the predominance of
commenters suggested 12 months. One commenter suggested that the
implementation period should extend to the later of (1) 12 months or
(2) 180 days after the effective date for all other regulations related
to mortgages that have recently been finalized by the Bureau.
Several industry commenters suggested that the implementation
timeframe should vary based on the particular change. One commenter
suggested a 30-day implementation period for changes requiring little
or no reprogramming and a 180-day
[[Page 37763]]
implementation period for other changes, such as changes to the
calculating cash to close table, and the total of payments disclosure.
One commenter recommended an earlier implementation period for changes
related to the official interpretations, but recommended a voluntary
compliance period coupled with a mandatory compliance deadline of 12
months for provisions that it perceived as requiring changes to the
forms, including the calculating cash to close table. One commenter
indicated that changes that require little reprogramming should be
effective immediately upon publication. This commenter indicated that,
for other changes, the effective date should be 180 days from
publication of the final rule. One commenter suggested that certain
changes that do not require software upgrades should be effective upon
finalization and asked the Bureau to work with vendors to determine an
appropriate effective date for other provisions.
Several industry commenters suggested that the Bureau allow
optional compliance. One commenter indicated that an optional
compliance period would allow changes to loan origination systems to be
``rolled out'' prior to the final compliance date, so that all of the
changes do not have to occur on one day. This commenter stated that an
optional compliance period would ease the transition process for both
providers of loan origination systems and for the users of the systems
who must learn about and understand the changes being implemented. One
commenter stated that because some of the proposed changes are based on
unofficial guidance previously provided by the Bureau's staff, many
creditors are already complying with those proposed changes. This
commenter indicated that the Bureau should permit optional compliance
with the final changes so that creditors already complying with the
final changes are not penalized.
Several industry commenters asked that certain changes be made
retroactive. For example, one industry commenter indicated that
technical, non-substantive changes (i.e., typographical errors,
incorrect rule references, and other minor modifications) should be
effective as quickly as possible and should apply retroactively.
Another industry commenter recommended that certain amendments, such as
the proposed changes related to cooperative units and the proposed
changes related to the sharing of Closing Disclosures, should be
effective for all loan applications received on or after October 3,
2015. One industry commenter recommended retroactivity for proposed
changes related to tolerances for the total of payments for
transactions for which creditors received applications before the
effective date of the tolerance. One industry commenter indicated that,
where the Bureau is memorializing unofficial guidance, the provisions
should be effective upon rule finalization for all transactions
originated on or after October 3, 2015. One industry commenter
indicated that the Bureau should provide retroactive protection for
clarifications of ambiguous provisions and formal adoption of informal
guidance previously provided by the Bureau. This commenter also
indicated that any cure or correction provisions that are adopted
should be retroactive. The commenter also asked the Bureau to confirm
that the Bureau's ``good faith'' approach to oversight of the TILA-
RESPA integrated disclosures is still in effect and will remain in
effect during the implementation period after the proposal is
finalized.
C. The Final Rule
Overview of the Final Rule
Based on the requests that creditors be allowed to implement some
aspects of the final rule soon after issuance, the amendments in the
final rule (2017 TILA-RESPA Amendments) will become effective on
October 10, 2017. The Bureau is further allowing optional compliance
until compliance with the 2017 TILA-RESPA Amendments becomes mandatory.
As discussed in more detail below, the Bureau believes that an optional
compliance period is the best framework for addressing the specific
implementation challenges that are present in this rulemaking as
identified in the proposal and in comments. Therefore, compliance with
the 2017 TILA-RESPA Amendments is mandatory only with respect to
transactions for which a creditor or mortgage broker received an
application on or after October 1, 2018 (except for compliance with the
escrow cancellation notice required by Sec. 1026.20(e) and the partial
payment policy disclosure required by Sec. 1026.39(d)(5) discussed in
the section-by-section analysis of Sec. 1026.1(d)(5)). Except with
respect to the escrow cancellation notice and the partial payment
disclosure requirements, for transactions for which a creditor or
mortgage broker received an application prior to October 1, 2018, from
the effective date of the 2017 TILA-RESPA Amendments, a person may
comply either with Regulation Z (as interpreted by the commentary) as
it is in effect (including the amendments set forth in the 2017 TILA-
RESPA Amendments) or as it was in effect on October 9, 2017, together
with any amendments that become effective other than the 2017 TILA-
RESPA Amendments.
After considering the comments, the Bureau believes that it is
appropriate for several reasons to require compliance with the 2017
TILA-RESPA Amendments only with respect to transactions for which a
creditor or mortgage broker received an application on or after October
1, 2018 (except for compliance with the escrow cancellation notice and
partial payment policy disclosure requirements discussed above with
which compliance will become mandatory on October 1, 2018, regardless
of when an application was received). The final rule will require
several changes to systems used to produce the TILA-RESPA integrated
disclosure forms. The Bureau believes that mandating compliance with
the 2017 TILA-RESPA Amendments only with respect to transactions for
which a creditor or mortgage broker received an application on or after
October 1, 2018, will provide creditors sufficient time to complete
software updates, to conduct testing and self-audits, to update
training policies, and to complete staff training that may be needed to
implement the changes in the final rule. The Bureau does not believe
that a longer timeframe, as requested by a small number of commenters,
is necessary given the nature of the changes in this final rule.
The Bureau believes that it is appropriate to allow optional
compliance with the 2017 TILA-RESPA Amendments for several reasons. As
the Bureau noted in its proposal, this final rule does not reopen major
policy decisions made in the TILA-RESPA Final Rule. This final rule
generally clarifies ambiguous provisions, including by memorializing
past informal guidance, and makes technical amendments. The Bureau
believes many creditors, either in reliance on informal guidance or
otherwise, currently may be complying with some of the final rule's
clarifications. At the same time, given that the Bureau is clarifying
existing ambiguity, the Bureau recognizes that not all creditors have
already adopted processes in compliance with the final rule and that
creditors are likely at various points along a continuum of adopting
practices in compliance with the final rule. Therefore, the Bureau
believes it reasonable to grant creditors an interim period in which to
phase in their compliance with the final rule, in accordance with their
individual circumstances. As to the purely
[[Page 37764]]
technical and clarifying amendments, the Bureau does not believe that
this phased-in optional compliance period poses any risks of consumer
harm.
The final rule also contains a few substantive changes to the TILA-
RESPA Rule in a limited number of situations in which the Bureau has
identified potential discrete solutions to specific implementation
challenges. While the Bureau believes that these limited substantive
changes will generally benefit consumers and industry alike by
providing greater clarity for implementation, the Bureau also does not
believe that permitting a phased-in optional compliance period for
these limited substantive changes is likely to cause consumer harm.
These substantive changes are limited and do not affect the content of
the disclosures giving rise to statutory damages. Moreover, the changes
to the disclosures do not alter the bottom-line dollar disclosures
consumers are most likely to rely on in shopping for and closing on a
mortgage, thereby minimizing the risk of consumer harm during the
optional compliance period. For example, a creditor phasing in changes
relating to the calculating cash to close table would nonetheless be
required to disclose a final cash to close amount that is consistent
with the summaries of transactions table. In general, the Bureau
believes, therefore, that the minor variations in disclosure possible
during the limited duration of the optional compliance period will not
cause significant consumer confusion, whether such minor variations
occur as between a Loan Estimate and Closing Disclosure issued by the
same creditor or between Loan Estimates issued by two different
creditors, although creditors may not phase in compliance in a way that
violates provisions of Regulation Z (as interpreted by the commentary)
unchanged by this final rule, as discussed further below in the Details
of the Final Rule section.
The Bureau also believes that industry's overall compliance with
the TILA-RESPA Rule will be facilitated by the implementation of these
limited substantive changes and that therefore there is both a consumer
and industry benefit to allowing creditors to implement these changes
as quickly as possible after the effective date. At the same time, the
commenters clearly indicated that not all creditors will be able to
implement these changes on the same schedule. The flexibility afforded
under the optional compliance period may help creditors implement the
provisions of the final rule more quickly and easily.
For these reasons, the Bureau agrees with several commenters that
it is appropriate to allow creditors flexibility to comply with the
2017 TILA-RESPA Amendments all at one time, or to phase in the changes
prior to the mandatory compliance date. After considering the comments,
the Bureau does not believe that it would be optimal in these
circumstances for the Bureau to impose a detailed schedule for
creditors to phase in the changes required by this final rule, for
example by establishing multiple effective dates that are staggered
over time. Thus, after the effective date of the 2017 TILA-RESPA
Amendments, creditors generally may phase in the 2017 TILA-RESPA
Amendments as best comports with their business models, whether based
on application dates for specific provisions or even during the course
of a transaction, although such phased-in compliance may not place the
creditor in violation of provisions of Regulation Z (as interpreted by
the commentary) unchanged by this final rule, as discussed further
below in the Details of the Final Rule section. The Bureau bases this
decision on the general clarifying purpose of the final rule coupled
with the limited, technical nature of the few substantive changes. Such
expansive flexibility during the optional compliance period may not be
appropriate in the context of other final rules with more significant
substantive changes, more novel (as opposed to clarifying) amendments,
or provisions whose staggered implementation posed a greater risk of
consumer harm. Additionally, this approach may not be appropriate in
circumstances where the provisions of the final rule were sufficiently
related that implementing them piecemeal would cause significant
conflict with either the existing rule or the final rule.
With respect to some commenters' requests that the Bureau make
provisions of the final rule retroactive, the Bureau declines to do so.
Retroactive rulemaking is disfavored by the courts, and commenters have
not established why it would be appropriate here.
As discussed above, one commenter asked the Bureau to confirm that
the Bureau's ``good faith'' approach to oversight of the TILA-RESPA
integrated disclosures is still in effect and will remain in effect
during the implementation period after the proposal is finalized. The
Director of the Bureau publicly stated, in the early days after the
TILA-RESPA Final Rule became effective in 2015, that the Bureau's
oversight would be sensitive to the progress made by those entities
that have squarely focused on making good-faith efforts to come into
compliance with the TILA-RESPA Final Rule on time.\117\ The Bureau will
take this approach in its oversight of efforts by creditors to come
into compliance by the mandatory compliance date with the changes in
this final rule.
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\117\ 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).
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Details of the Final Rule
After considering the comments received and for the reasons
discussed above, the Bureau is establishing an effective date, optional
compliance provision, and mandatory compliance date for this final
rule. Comment 1(d)(5)-2 sets forth the effective date, the optional
compliance provision, and the mandatory compliance date.
The effective date is 60 days after publication in the Federal
Register. Consistent with the practice of other agencies in similar
contexts, the 2017 TILA-RESPA Amendments will be incorporated into the
Code of Federal Regulations on the effective date, but the amendments
will not yet be mandatory. Instead, compliance with the July 2017 TILA-
RESPA Amendments is only mandatory with respect to transactions for
which a creditor or mortgage broker received an application on or after
October 1, 2018 (except for compliance with the escrow cancellation
notice required by Sec. 1026.20(e) and the partial payment policy
disclosure required by Sec. 1026.39(d)(5) discussed in comment
1(d)(5)-1.iv, which, starting October 1, 2018, apply without regard to
when the application for the covered loan was received).
Except as discussed in comment 1(d)(5)-1.iv with respect to the
escrow cancellation notice and the partial payment disclosure, for
transactions for which a creditor or mortgage broker received an
application prior to October 1, 2018, from the effective date of the
2017 TILA-RESPA Amendments, a person has the option of complying with
Regulation Z (as interpreted by the commentary) either as it is in
effect or as it was in effect on October 9, 2017, together with any
amendments that become effective other than the 2017 TILA-RESPA
Amendments. With respect to transactions subject to the optional
compliance provision, this means that an act or omission violates
Regulation Z (as interpreted by the commentary) only if the act or
omission violates both: (1) Regulation Z (as interpreted by the
commentary), as it is
[[Page 37765]]
in effect; and (2) Regulation Z (as interpreted by the commentary), as
it was in effect on October 9, 2017, together with any amendments that
become effective other than the 2017 TILA-RESPA Amendments. Consistent
with Sec. 1026.25, a creditor must keep records of such compliance and
permit the agency responsible for enforcing Regulation Z with respect
to that creditor to inspect those records.
Under the optional compliance provision, as discussed above, a
creditor is permitted to comply with the 2017 TILA-RESPA Amendments all
at one time, or to phase in the changes prior to the mandatory
compliance date whether based on application dates or during the course
of a transaction, although such phased-in compliance may not place the
creditor in violation of provisions of Regulation Z (as interpreted by
the commentary) unchanged by this final rule, as discussed further
below. For example, current Sec. 1026.37(l)(3) requires creditors to
disclose the total interest percentage (TIP) and provides that the TIP
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. Among other things, the final rule revises comment 37(l)(3)-1 to
state that prepaid interest that is disclosed as a negative number
under Sec. Sec. 1026.37(g)(2) or 1026.38(g)(2) must be included as a
negative value when calculating the TIP. With respect to transactions
subject to the optional compliance provision, a creditor may either (1)
include negative prepaid interest into the TIP calculation as a
negative value as discussed in final comment 37(l)(3)-1; or (2) not
include negative prepaid interest into the TIP calculation because the
current regulation and commentary do not restrict how a creditor
factors negative prepaid interest into the TIP calculation. As another
example, current Sec. 1026.38(e) and 1026.38(i) provide that, in the
Closing Disclosure's calculating cash to close table, the amounts that
are required to be disclosed under the subheading ``Loan Estimate'' are
the amounts disclosed on the Loan Estimate. Sections 1026.38(e) and
1026.38(i) do not specify which Loan Estimate's amounts should be used
if multiple Loan Estimates have been provided. The final rule adds
comments 38(e)-6 and 38(i)-5 to specify that the amounts required to be
disclosed under the subheading ``Loan Estimate'' on the Closing
Disclosure's calculating cash to close table are the amounts disclosed
on the most recent Loan Estimate provided to the consumer. With respect
to transactions subject to the optional compliance provision, a
creditor may disclose, under the subheading ``Loan Estimate'' on the
Closing Disclosure's calculating cash to close table, the amounts from
any Loan Estimate provided to the consumer, including the most recent
Loan Estimate provided to the consumer.
Notwithstanding the flexibility discussed above to phase in the
2017 TILA-RESPA Amendments prior to the mandatory compliance date,
creditors cannot phase in the amendments in a way that violates
provisions of Regulation Z (as interpreted by the commentary) unchanged
by this final rule, because doing so would not comply with either of
the permissible versions of Regulation Z (as interpreted by the
commentary). For example, a creditor could not, during the optional
compliance period, provide a RESPA good faith estimate followed by a
Closing Disclosure to a consumer in a transaction secured by a
cooperative unit, even though the creditor is permitted to provide
either the RESPA disclosures (the good faith estimate and settlement
statement) or the Integrated Disclosures (the Loan Estimate and Closing
Disclosure) for transactions secured by cooperative units where State
law does not treat the cooperative unit as real property during the
optional compliance period. The creditor could not provide a RESPA good
faith estimate and then provide a Closing Disclosure (instead of a
RESPA settlement statement) because, in doing so, the creditor would
violate Sec. 1026.38(i) in both permissible versions of Regulation Z,
which requires that information that was disclosed on the Loan Estimate
be included on the Closing Disclosure. Thus, during the optional
compliance period, if State law provides that a transaction secured by
a cooperative unit is not a transaction secured by real property, for a
particular cooperative transaction, if the creditor provides a RESPA
good faith estimate, the creditor would be required to provide a RESPA
settlement statement rather than a Closing Disclosure. Conversely, if
the creditor provides a Loan Estimate for a particular cooperative
transaction described above, the creditor would be required to provide
a Closing Disclosure. At the same time, creditors could still choose to
phase in compliance for other 2017 TILA-RESPA Amendments in cooperative
unit transactions that are disclosed using the Loan Estimate and the
Closing Disclosure, even within the course of a transaction, for
example, with respect to the provisions relating to the calculating
cash to close table, so long as doing so complies with either of the
two permissible versions of Regulation Z (as interpreted by the
commentary).
VII. Dodd-Frank Act Section 1022(b)(2) Analysis
A. Overview
In developing the final rule, the Bureau has considered the
potential benefits, costs, and impacts.\118\ 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.
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\118\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on depository institutions and
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act; and the impact on consumers
in rural areas.
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This final rule makes three substantive changes to the TILA-RESPA
Final Rule, along with a number of technical corrections and
clarifications: Tolerances for the total of payments, adjustment of the
partial exemption under Sec. 1026.3(h), and coverage of loans secured
by cooperative units, whether or not treated as real property under
State law. The potential benefits and costs of the provisions contained
in this final 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 provides 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 tolerances for the finance charge and disclosures
affected by the finance charge. The Bureau modified the calculation of
the total of payments in the TILA-RESPA Final Rule, which may have
introduced ambiguity as to whether the total of payments is a
disclosure affected by the disclosed finance charge and therefore
subject to the same tolerances. To apply the same tolerances for
accuracy of the disclosed finance charge and other disclosures affected
by the disclosed finance charge
[[Page 37766]]
unambiguously to the total of payments on the Closing Disclosure, the
Bureau revises Sec. 1026.38(o)(1).
The second change revises the partial exemption from the TILA-RESPA
integrated disclosure requirements at Sec. 1026.3(h), which, as cross-
referenced at Regulation X Sec. 1024.5(d)(2), also provides an
exemption from the RESPA disclosures. If a creditor is not subject to
the TILA-RESPA integrated disclosure requirements 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 HFAs 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. Under the current rule, in order to satisfy the criteria for
the partial exemption, the total costs of 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 housing assistance 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 current Sec. 1026.3(h)(5) and are not eligible for the
partial exemption from the RESPA disclosures in Regulation X Sec.
1024.5(d)(2). This means that for loans that are not subject to the
TILA-RESPA integrated disclosure requirements, creditors must continue
to provide the RESPA disclosures.
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. In addition, software systems used by HFAs
may no longer support the RESPA disclosures, making it necessary to
complete RESPA disclosures manually. Manual completion of the
disclosures, while compliant, may be costly and error-prone. As a
result of these additional difficulties, some creditors may be less
willing to work with HFAs and other organizations to continue providing
these housing assistance loans. As revised, Sec. 1026.3(h)(5) makes
explicit that transfer taxes are among the permissible costs for these
loans and provides 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 envisioned by Sec. 1026.3(h). Additionally, the final rule
revises Sec. 1026.3(h)(6) to permit creditors to provide either the
TILA disclosures described in Sec. 1026.18 or the Loan Estimate and
Closing Disclosure described in Sec. 1026.19(e) and (f), respectively,
to meet the criteria for the partial exemption. The Bureau believes the
flexibility provided by final Sec. 1026.3(h)(6) will further expand
access to the partial exemption.
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 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. This change creates uniform application
where integrated disclosures are issued for all covered transactions
secured by cooperative units.
The final rule also includes a variety of technical corrections and
clarifications, some of which may require one-time reprogramming costs,
but otherwise the Bureau generally believes those changes to be burden
reducing or burden neutral.
B. Potential Benefits and Costs to Consumers and Covered Persons
Tolerance for Total of Payments
Under this final rule, the same tolerances apply to the total of
payments as apply, by statute, to the finance charge and disclosures
affected by the finance charge. Because the existing rule does not
provide for a tolerance for the total of payments, other than to the
extent a total of payments misdisclosure results from a misdisclosure
of the finance charge, under the existing rule, any misdisclosure of
the total of payments that does not result from a misdisclosure of the
finance charge could potentially subject a creditor to liability under
TILA.
The Bureau believes that the adopted change will benefit creditors,
in the limited circumstances where a small, within tolerance,
misdisclosure in the total of payments occurs. Creditors and their
assignees would be less likely to face litigation, and its accompanying
costs and risks, over such errors.
The Bureau does not believe that creditors would bear any
associated costs from the adopted provision, aside from one-time
reprogramming costs, for those creditors that use proprietary software
systems.
To the extent that creditors restrict credit in response to
additional litigation or secondary market risks given the absence of
explicit tolerances for the total of payments, the adopted provision
would benefit consumers in the form of expanded credit or a reduced
cost of credit.
Excluding Recording Fees and Transfer Taxes From Sec. 1026.3(h)
Exemption Requirements
Under this final rule, recording fees and transfer taxes will 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 will 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). Additionally, under this final rule, creditors issuing loans
that satisfy the criteria in Sec. 1026.3(h), and thus qualify for the
partial exemption in Regulation X Sec. 1024.5(d)(2), will be exempted
from providing the RESPA disclosures and will have the choice to
provide either a TILA disclosure (described in Sec. 1026.18) or a Loan
Estimate and Closing Disclosure (described in Sec. 1026.19(e) and (f),
respectively).
These revisions benefit creditors by allowing them to provide the
more streamlined disclosures described in Sec. 1026.18 or the Loan
Estimate and Closing Disclosure described in Sec. 1026.19(e) and (f),
respectively (without also having to provide the special information
booklet described in Sec. 1026.19(g)), in connection with loans that
satisfy the criteria for the partial exemption at Sec. 1026.3(h). In
particular, more housing assistance loans originated by HFAs and others
will qualify for the partial exemption, thereby reducing costs incurred
under the baseline (described above), and increasing the wiliness of
creditors to work with HFAs and other organizations in providing
housing assistance loans. The Bureau does not believe that creditors
would bear any
[[Page 37767]]
associated costs from the adopted amendments to Sec. 1026.3(h).
This provision may 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 disclosure requirements, the loans eligible for
the partial exemption at Sec. 1026.3(h) generally have a simpler cost
structure that is adequately communicated by the Sec. 1026.18 TILA
disclosures.
Including Cooperatives in the Coverage of the TILA-RESPA Final Rule
Under this final rule, consumer credit transactions secured by a
cooperative unit will be covered by the TILA-RESPA Rule, whether or not
applicable State law treats cooperative units as real property. The
adopted provision benefits 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 adopted provision may benefit consumers who borrow against
cooperative units in States where such units are treated as personal
property under applicable State law. Such consumers will receive an
integrated disclosure which, the Bureau believes, is better designed to
communicate cost information than is the legacy RESPA disclosure.
Other Technical Corrections and Clarifications
This final rule contains numerous technical corrections and
clarifications. Although some of them may require a one-time
reprogramming cost, the Bureau does not believe these changes will
increase ongoing origination costs. The Bureau believes creditors will
generally benefit from the adopted changes through greater clarity, and
in some cases, additional optionality, regarding compliance with
existing law.
Consumers would benefit from these changes by receiving more timely
and more 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 any of the
adopted provisions. One possible exception is creditors that provide
loans that satisfy criteria in Sec. 1026.3(h): If the majority of such
creditors have $10 billion or less in assets, the exemption of
recording fees and transfer taxes from the Sec. 1026.3(h)(5) 1-percent
threshold and the permissible provision of the Loan Estimate and
Closing Disclosure under Sec. 1026.3(h)(6) would create a
disproportional benefit for covered persons in that asset category.
D. Impact on Access to Credit
As pointed out above, the exemption of recording fees and transfer
taxes from the Sec. 1026.3(h)(5) 1-percent threshold and the increased
flexibility in the permitted disclosures for loans that satisfy the
criteria in Sec. 1026.3(h) has the potential to improve access to
housing assistance loans for consumers. Generally, a reduction in
ambiguity regarding compliance with the law may potentially improve
access to credit for all consumers. None of the changes is likely to
have an adverse impact on access to credit.
E. Impact on Rural Areas
The Bureau believes that none of the changes is likely to have an
adverse impact on consumers in rural areas.
VIII. 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.
The undersigned certified that the proposal would not have a
significant economic impact on a substantial number of small entities
and that an IRFA was therefore not required. The Bureau's conclusion
that the rule will not have a significant economic impact on a
substantial number of small entities is unchanged. Therefore, a FRFA is
not required.\119\
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\119\ 5 U.S.C. 605(b).
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Accordingly, the undersigned hereby certifies that this final rule
will not have a significant economic impact on a substantial number of
small entities.
IX. 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. 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). 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 Bureau has determined that this proposed rule will not impose
any significant change in ongoing the paperwork burden on covered
persons. Some of the changes would require a one-time reprogramming
cost.
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 amends 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.
[[Page 37768]]
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 paragraph (h) introductory
text and paragraphs (h)(5) and (6) to read as follows:
Sec. 1026.3 Exempt transactions.
* * * * *
(h) Partial exemption for certain mortgage loans. The special
disclosure requirements in Sec. 1026.19(g) and, unless the creditor
chooses to provide the disclosures described in Sec. 1026.19(e) and
(f), in Sec. 1026.19(e) and (f) do not apply to a transaction that
satisfies all of the following criteria:
* * * * *
(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 following disclosures are provided:
(i) Disclosures described in Sec. 1026.18 that comply with this
part; or
(ii) Alternatively, disclosures described in Sec. 1026.19(e) and
(f) that comply with this part.
Subpart C--Closed-End Credit
0
4. Section 1026.19 is amended by revising the paragraph (e) heading,
paragraphs (e)(1)(i), (e)(3)(iii), (e)(3)(iv)(E) and (F), the paragraph
(f) heading, and paragraphs (f)(1)(i), (f)(4)(i), and (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 the creditor or
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 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 that
involves a seller, 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 consumer credit transaction secured by real
property or a cooperative unit.
(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.
[[Page 37769]]
(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) and (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 the 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 paragraphs (b) introductory
text, (b)(1), (c)(5)(i), (d)(2) introductory text, (d)(2)(i),
(h)(1)(i), (h)(1)(iii), (h)(1)(v), (h)(1)(vii), (h)(2) introductory
text, (h)(2)(ii) and (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 real property or cooperative
unit securing the transaction after consummation, including the value
of any improvements on the property or to be constructed on the
property, if known, whether or not such construction will be financed
from the proceeds of the transaction, for property taxes; and
* * * * *
(d) * * *
(2) Optional alternative table for transactions without a seller or
for simultaneous subordinate financing. For transactions that do not
involve a seller or for simultaneous 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 paragraph (h)(2)(iv)
of this section;
* * * * *
(h) * * *
(1) * * *
(i) Total closing costs. The amount disclosed under paragraph
(g)(6) of this section, labeled ``Total Closing Costs'';
* * * * *
(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)(i) 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 that is a simultaneous subordinate financing transaction
or that involves improvements to be made on the property, or 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)(i) of this section, the
[[Page 37770]]
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 amount of 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 the down payment and
other 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) (excluding any closing costs financed 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) of this section and other costs
determined under paragraph (g) of this section that are paid by persons
other than the loan originator, creditor, consumer, or seller, together
with any other amounts not otherwise disclosed under paragraph (f) or
(g) of this section that are required to be paid by the consumer at
closing in a transaction disclosed under paragraph (h)(1)(iii)(A)(1) of
this section or 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 or for simultaneous subordinate
financing. For transactions that do not involve a seller or for
simultaneous subordinate financing, instead of the table described in
paragraph (h)(1) above, 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:
* * * * *
(ii) Total closing costs. The amount disclosed under paragraph
(g)(6) of this section, disclosed as a negative number if the amount
disclosed under paragraph (g)(6) of this section is a positive number
and disclosed as a positive number if the amount disclosed under
paragraph (g)(6) of this section is a negative number, labeled ``Total
Closing Costs'';
(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
dollar amount required to be disclosed by paragraph (g)(2)(iii) of this
section and the monthly dollar amounts required to be disclosed by
paragraphs (g)(3)(i) through (iii) and (g)(3)(v) of this section shall
not be rounded.
(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), and
(l)(2) and (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 paragraphs (a)(3)(iii),
(d)(2) introductory text, (e) introductory text, (e)(2)(ii),
(e)(2)(iii)(A)(3), (e)(4)(ii), (g)(1), (h)(3), (i)(1)(iii)(A)(3),
(i)(4)(ii), (i)(6)(iv), (i)(7)(iii), (i)(8), (j)(2)(vi), (l)(7)(i),
(o)(1), (t)(4)(ii), and (t)(5)(vii) introductory text to read as
follows:
Sec. 1026.38 Content of disclosures for certain mortgage transactions
(Closing Disclosure).
* * * * *
(a) * * *
(3) * * *
(iii) Disbursement date. The date the amount disclosed under
paragraph (j)(3)(iii) (cash to close from or to borrower) or
(k)(3)(iii) (cash from or to seller) of this section is expected to be
paid in a purchase transaction under Sec. 1026.37(a)(9)(i) to the
consumer or seller, respectively, as applicable, except as provided in
comment 38(a)(3)(iii)-1, or the date some or all of the loan amount
disclosed under paragraph (b) of this section is expected to be paid to
the consumer or a third party other than a settlement agent 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 or for
simultaneous subordinate financing. For transactions that do not
involve a seller or for simultaneous 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:
* * * * *
(e) Alternative calculating cash to close table for transactions
without a seller or for simultaneous subordinate financing. For
transactions that do not involve a seller or for simultaneous
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) * * *
[[Page 37771]]
(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
principal reduction disclosure under paragraph (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 total amount disclosed under paragraph
(t)(5)(vii)(B) of this section is a positive number and disclosed as a
positive number if the total 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.
* * * * *
(h) * * *
(3) The amount of lender credits as a negative number, labeled
``Lender Credits'' and designated borrower-paid at closing, and if a
refund is provided pursuant to Sec. 1026.19(f)(2)(v), a statement that
this amount includes a credit for an amount that exceeds the
limitations on increases in closing costs under Sec. 1026.19(e)(3),
and the amount of such credit under Sec. 1026.19(f)(2)(v).
* * * * *
(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 principal reduction is used to provide the refund, a
statement directing the consumer to the principal reduction disclosure
under paragraph (j)(1)(v) 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 that is disclosed
under paragraph (j)(2)(iv) of this section from the sale price of the
property disclosed under paragraph (a)(3)(vii)(A) 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)
that is a simultaneous subordinate financing transaction or that
involves improvements to be made on the property, or 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 that is disclosed
under paragraph (j)(2)(iv) of this section exceeds the sale price
disclosed under paragraph (a)(3)(vii)(A) 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 amount of funds from the consumer as determined in
accordance with paragraph (i)(6)(iv) of this section, labeled ``Down
Payment/Funds from Borrower.''
* * * * *
(6) * * *
(iv) The ``Down Payment/Funds from Borrower'' to be disclosed under
paragraph (i)(4)(ii)(A)(2) or (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 taken subject to that is disclosed under
paragraph (j)(2)(iv) of this section (excluding 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 transaction
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 (B) of this section, as applicable, and
$0 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 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 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
[[Page 37772]]
rounding), a statement of that fact, along with a statement that the
consumer should see the details disclosed:
(1) Under paragraph (j)(2)(v) of this section and in the seller-
paid column under paragraphs (f) and (g) of this section; or
(2) Under either paragraph (j)(2)(v) of this section or in the
seller-paid column under paragraphs (f) or (g) of this section, if the
details are only disclosed under paragraph (j)(2)(v) or paragraph (f)
or (g); 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) * * *
(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) * * *
(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 paragraphs (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 paragraphs
(l)(7)(i)(A)(1) through (4) of this section;
(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 (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 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), and (o)(4) and (5) of this section
shall be disclosed by rounding the exact amounts to three decimal
places and then dropping any trailing zeros to the right of the decimal
point.
* * * * *
(5) * * *
(vii) Transaction without a seller or simultaneous subordinate
financing transaction. The following
[[Page 37773]]
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
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:
* * * * *
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, Paragraph 1(d)(5)
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, 3(h) Partial exemption
for certain mortgage loans is revised.
0
d. Under Section 1026.17--General Disclosure Requirements:
0
i. Under 17(c) Basis of Disclosures and Use of Estimates, under
Paragraph 17(c)(6), paragraph 5 is revised.
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. 19(e)(1)(i) Creditor is revised.
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 1 through 4 are revised.
0
E. Under 19(e)(3)(i) General rule, paragraph 1 is revised.
0
F. Under 19(e)(3)(ii) Limited increases permitted for certain charges,
paragraphs 1 and 2 are revised and paragraph 6 is added.
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. 19(e)(3)(iv)(D) Interest rate dependent charges is revised.
0
J. 19(e)(3)(iv)(E) Expiration is revised.
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. 19(f)(2)(v) Refunds related to the good faith analysis is revised.
0
E. Under 19(f)(3)(ii) Average charge, paragraph 3 is revised.
0
F. 19(f)(4)(i) Provision to seller is revised.
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 Foreclosures, 23(h)(2) Tolerance for
Disclosures is revised.
0
h. Under Section 1026.25--Record Retention, under 25(c) Records Related
to Certain Requirements for Mortgage Loans, the heading for 25(c)(1) 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. 37(a)(7) Sale price is 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. 37(b)(2) Interest rate 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. Paragraph 37(c)(1)(iii)(B) is revised.
0
C. Under Paragraph 37(c)(4)(iv), paragraph 2 is revised.
0
iv. Under 37(d) Costs at closing, the heading for 37(d)(2) and
paragraph 1 are 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, 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. 37(h)(1)(ii), 37(h)(1)(iii), 37(h)(1)(v), and 37(h)(1)(vi) are
revised.
0
C. Under 37(h)(1)(vii) Adjustments and other credits, paragraphs 1, 4,
5, and 6 are revised.
0
D. 37(h)(2) and 37(h)(2)(iii) are revised.
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, 37(o)(4)(i)(A) and 37(o)(4)(ii) are
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. 38(a)(3)(iii) Disbursement date is 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, the heading for 38(d)(2) and
paragraph 1 are revised.
0
iv. Under 38(e) Alternative calculating cash to close table for
transactions without a seller:
0
A. The heading is revised, paragraphs 1 and 3 are revised, and
paragraph 6 is added.
0
B. Under Paragraph 38(e)(2)(iii)(A), paragraphs 2 and 3 are revised.
0
C. Paragraph 38(e)(3)(iii)(B) 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
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), paragraphs 2 and 3 are revised.
0
C. 38(i)(3) Closing costs financed is added.
0
D. Paragraph 38(i)(4)(ii)(A) is revised.
0
E. Paragraph 38(i)(4)(ii)(B) is revised.
0
F. Paragraph 38(i)(4)(iii)(A) is revised.
0
G. 38(i)(5) Deposit is revised.
0
H. Paragraph 38(i)(6)(ii) is revised.
0
I. Paragraph 38(i)(7)(iii)(A) is added.
0
J. Paragraph 38(i)(8)(ii) is revised.
0
viii. Under 38(j) Summary of borrower's transaction:
0
A. Paragraph 3 is revised.
0
B. Paragraph 38(j)(1)(ii) is revised.
0
C. Paragraph 38(j)(1)(v) is revised.
0
D. Under Paragraph 38(j)(2)(vi), paragraphs 2 and 5 are revised and
paragraph 6 is added.
[[Page 37774]]
0
E. Paragraph 38(j)(2)(xi) is revised.
0
F. Under Paragraph 38(j)(4)(i), paragraph 1 is revised.
0
ix. Under 38(k) Summary of seller's transaction:
0
A. Paragraph 1 is revised.
0
B. 38(k)(1) Itemization of amounts due to seller is added.
0
C. Paragraph 38(k)(2)(vii) is added.
0
x. Under 38(l) Loan disclosures:
0
A. Under 38(l)(7) Escrow account, paragraphs 1 and 2 are added.
0
B. Paragraph 38(l)(7)(i)(A)(2) is revised.
0
C. Paragraph 38(l)(7)(i)(A)(4) is revised.
0
D. Paragraph 38(l)(7)(i)(A)(5) is added.
0
E. Paragraph 38(l)(7)(i)(B)(1) is revised.
0
xi. Under 38(o) Loan calculations:
0
A. Paragraph 1 is added.
0
B. 38(o)(1) Total of payments is revised.
0
xii. Under 38(t) Form of disclosures:
0
A. 38(t)(3) Form is revised.
0
B. 38(t)(5)(v) and 38(t)(5)(vi) are added.
0
C. The heading for 38(t)(5)(vii) and paragraph 2 are revised.
0
D. Paragraph 38(t)(5)(vii)(B) is added.
0
k. Under Appendix D--Multiple-Advance Construction Loans, paragraph 7
is revised.
The revisions and additions read as follows:
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 that are secured by real property or a cooperative
unit, whether or 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, 2018, 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, 2018, regardless of when
the corresponding applications were received. For transactions in
which such conditions exist on or after October 3, 2015, through
September 30, 2018, 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 of the TILA-RESPA
Final Rule. 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 of the TILA-RESPA Final Rule, 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. Effective dates for the post-consummation escrow cancelation
disclosure and partial payment disclosure. Assume a creditor
receives an application on October 10, 2010, and that the loan was
consummated on November 19, 2010. Assume further that, on December
19, 2016, the escrow account established in connection with the
mortgage loan was canceled or the loan is sold to another covered
person. A creditor, servicer, or covered person, as applicable, may
provide the disclosures required under Sec. Sec. 1026.20(e) and
1026.39(d)(5) to the consumer, but the creditor, servicer, or
covered person, as applicable, is not required to provide those
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, 2020. A creditor, servicer, or covered person, as
applicable, must provide the disclosures in Sec. Sec. 1026.20(e)
and 1026.39(d)(5), as applicable, because a condition requiring
these disclosures occurred after October 1, 2018 (thus the date the
application was received is irrelevant).
2. 2017 TILA-RESPA Amendments. i. Generally. Except as provided
in comment 1(d)(5)-2.ii, compliance with the
[[Page 37775]]
amendments to this part effective on October 10, 2017 (the 2017
TILA-RESPA Amendments) is mandatory with respect to transactions for
which a creditor or mortgage broker received an application on or
after October 1, 2018. Except as provided in comment 1(d)(5)-2.ii,
for transactions for which a creditor or mortgage broker received an
application prior to October 1, 2018, from the effective date of the
2017 TILA-RESPA Amendments:
A. A person has the option of complying either: with 12 CFR part
1026 as it is in effect; or with 12 CFR part 1026 as it was in
effect on October 9, 2017, together with any amendments to 12 CFR
part 1026 that become effective after October 9, 2017, other than
the 2017 TILA-RESPA Amendments; and
B. An act or omission violates 12 CFR part 1026 only if it
violates both: 12 CFR part 1026 as it is in effect; and 12 CFR part
1026 as it was in effect on October 9, 2017, together with any
amendments to 12 CFR part 1026 that become effective after October
9, 2017, other than the 2017 TILA-RESPA Amendments.
ii. Post-consummation escrow cancellation disclosure and partial
payment disclosure. Comment 1(d)(5)-1.iv sets forth the transactions
to which the disclosures required by Sec. Sec. 1026.20(e) and
1026.39(d)(5) are applicable.
Section 1026.2--Definitions and Rules of Construction
* * * * *
2(a)(11) Consumer
* * * * *
3. Trusts. Credit extended to trusts established for tax 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.
1. Partial exemption. Section 1026.3(h) exempts certain
transactions from the disclosures described in Sec. 1026.19(g),
and, under certain circumstances, Sec. 1026.19(e) and (f). Section
1026.3(h) exempts transactions from Sec. 1026.19(e) and (f) if the
creditor chooses to provide disclosures described in Sec. 1026.18
that comply with this part pursuant to Sec. 1026.3(h)(6)(i), but
does not exempt transactions from Sec. 1026.19(e) and (f) if the
creditor chooses to provide disclosures described in Sec.
1026.19(e) and (f) that comply with this part pursuant to Sec.
1026.3(h)(6)(ii). Creditors may provide, at their option, either the
disclosures described in Sec. 1026.18 or the disclosures described
in Sec. 1026.19(e) and (f). In providing these disclosures,
creditors must comply with all provisions of this part relating to
those disclosures. Section 1026.3(h) does not exempt transactions
from any of the other requirements of this part, to the extent they
are applicable. For transactions that would otherwise be subject to
Sec. 1026.19(e), (f), and (g), creditors must comply with all other
applicable requirements of this part, including the consumer's right
to rescind the transaction under Sec. 1026.23, to the extent that
provision is applicable.
2. Establishing compliance. The conditions that the transaction
not require the payment of interest under Sec. 1026.3(h)(3) and
that repayment of the amount of credit extended be forgiven or
deferred in accordance with Sec. 1026.3(h)(4) must be reflected in
the loan contract. The other requirements of Sec. 1026.3(h) need
not be reflected in the loan contract, but the creditor must retain
evidence of compliance with those provisions, as required by Sec.
1026.25(a) or (c), as applicable. In particular, because the
exemption in Sec. 1026.3(h) means the creditor is not required to
provide the disclosures of closing costs under Sec. 1026.37 or
Sec. 1026.38 (unless the creditor chooses to provide disclosures
described in Sec. 1026.19(e) and (f) that comply with this part),
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, a bona fide and
reasonable application fee, and a bona fide and reasonable housing
counseling fee, 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) or (c), as
applicable.
3. Relationship to partial exemption for certain federally
related mortgage loans. Regulation X provides a partial exemption
from certain Regulation X disclosure requirements in 12 CFR
1024.5(d). The partial exemption in Regulation X, 12 CFR
1024.5(d)(2) provides that certain Regulation X disclosure
requirements do not apply to a federally related mortgage loan, as
defined in Regulation X, 12 CFR 1024.2(b), that satisfies the
criteria in Sec. 1026.3(h) of this part. For a federally related
mortgage loan that is not otherwise covered by Regulation Z, lenders
may satisfy the criteria in Sec. 1026.3(h)(6) by providing the
disclosures described in Sec. 1026.18 that comply with this part or
the disclosures described in Sec. 1026.19(e) and (f) that comply
with this part.
4. Recording fees. See comment 37(g)(1)-1 for a discussion of
what constitutes a recording fee.
5. Transfer taxes. See comment 37(g)(1)-3 for a discussion of
what constitutes a transfer tax.
* * * * *
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 uses the special rule in
Sec. 1026.17(c)(6) to disclose credit extensions as multiple
transactions, fees and charges must be allocated for purposes of
calculating disclosures. In the case of a construction-permanent
loan that a creditor chooses to disclose as multiple transactions,
the creditor must allocate to the construction transaction finance
charges under Sec. 1026.4 and points and fees under Sec.
1026.32(b)(1) that would not be imposed but for the construction
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 amounts for finance charges under Sec. 1026.4 and points
and fees under Sec. 1026.32(b)(1) for the construction phase and
the permanent phase, such amounts must be allocated to the phase for
which they are charged. If a creditor charges an origination fee for
construction financing only but charges a greater origination fee
for construction-permanent financing, the difference between the two
fees must be allocated to the permanent phase. All other finance
charges under Sec. 1026.4 and points and fees under Sec.
1026.32(b)(1) must be allocated to the permanent financing. Fees and
charges that are not used to compute the finance charge under Sec.
1026.4 or points and fees under Sec. 1026.32(b)(1) may be allocated
between the transactions in any manner the creditor chooses. For
example, a reasonable appraisal fee paid to an independent, third-
party appraiser may be allocated in any manner the creditor chooses
because it would be excluded from the finance charge pursuant to
Sec. 1026.4(c)(7) and excluded from points and fees pursuant to
Sec. 1026.32(b)(1)(iii).
* * * * *
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
[[Page 37776]]
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 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.
* * * * *
[[Page 37777]]
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. For
construction--permanent transactions disclosed as one transaction,
the creditor complies with Sec. 1026.19(e)(1)(iii) by delivering or
placing in the mail one combined disclosure required by Sec.
1026.19(e)(1)(i) not later than the third business day after the
creditor receives an application and not later than the seventh
business day before consummation. For construction--permanent
transactions disclosed as a separate construction phase and a
separate permanent phase for which an application for both the
construction and permanent financing has been received, the creditor
complies with Sec. 1026.19(e)(1)(iii) by delivering or placing in
the mail the separate disclosures required by Sec. 1026.19(e)(1)(i)
for both the construction financing and the permanent financing not
later than the third business day after the creditor receives the
application and not later than the seventh business day before
consummation. A creditor may also provide a separate disclosure
required by Sec. 1026.19(e)(1)(i) for the permanent phase before
receiving an application for permanent financing at any time 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. The creditor must
deliver or place in the mail the disclosures required by Sec.
1026.19(e)(1)(i) for only the construction financing no 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.
ii. Assume the creditor receives a consumer's application for
both construction and permanent financing on Monday, June 1. The
creditor must deliver or place in the mail the disclosures required
by Sec. 1026.19(e)(1)(i) for both the construction and permanent
financing, disclosed as either one transaction or separate
transactions, no 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 the creditor receives a consumer's application for
construction financing only on Monday, June 1. Assume further that
the creditor receives the consumer's application for permanent
financing on Monday, June 8. The creditor must deliver or place in
the mail the disclosures required by Sec. 1026.19(e)(1)(i) for the
construction financing no later than Thursday, June 4, the third
business day after the creditor received the consumer's application
for the construction financing only, and not later than the seventh
business day before consummation of the construction transaction.
The creditor must deliver or place in the mail the disclosures
required by Sec. 1026.19(e)(1)(i) for the permanent financing no
later than Thursday, June 11, the third business day after the
creditor received the consumer's application for the permanent
financing, and not later than the seventh business day before
consummation of the permanent financing transaction.
iv. Assume the same facts as in comment 19(e)(1)(iii)-5.ii,
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).
* * * * *
19(e)(1)(vi) Shopping for settlement service providers.
1. Permission to shop. Section 1026.19(e)(1)(vi)(A) permits
creditors to impose reasonable requirements regarding the
qualifications of the provider. For example, the creditor may
require that a settlement agent chosen by the consumer must be
appropriately licensed in the relevant jurisdiction. In contrast, a
creditor does not permit a consumer to shop for purposes of Sec.
1026.19(e)(1)(vi) if the creditor requires the consumer to choose a
provider from a list provided by the creditor. Whether the creditor
permits the consumer to shop consistent with Sec.
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts
and circumstances. The requirements of Sec. 1026.19(e)(1)(vi)(B)
and (C) do not apply if the creditor does not permit the consumer to
shop consistent with Sec. 1026.19(e)(1)(vi)(A).
2. Disclosure of services for which the consumer may shop. If a
creditor permits a consumer to shop for a settlement service, Sec.
1026.19(e)(1)(vi)(B) requires the creditor to identify settlement
services required by the creditor for which the consumer is
permitted to shop in the disclosures provided pursuant to Sec.
1026.19(e)(1)(i). See Sec. 1026.37(f)(3) regarding the content and
format for disclosure of services required by the creditor for which
the consumer is permitted to shop.
3. Written list of providers. If the creditor permits the
consumer to shop for a settlement service it requires, 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 required 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. Creditors using form H-27 in appendix H properly are deemed to
be in compliance with Sec. 1026.19(e)(1)(vi)(C). Creditors may make
changes in the format or content of form H-27 in appendix H and be
deemed to be in compliance with Sec. 1026.19(e)(1)(vi)(C), so long
as the changes do not affect the substance, clarity, or meaningful
sequence of the form. An acceptable change to form H-27 in appendix
H includes, for example, deleting the column for estimated fee
amounts.
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,
for the settlement services that are required by the creditor for
which a consumer is permitted to shop. 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.
* * * * *
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.
[[Page 37778]]
v. Transfer taxes.
* * * * *
19(e)(3)(ii) Limited increases permitted for certain charges.
1. Requirements. Section 1026.19(e)(3)(ii) provides that certain
estimated charges are in good faith if the sum of all such charges
paid by or imposed on the consumer does not exceed the sum of all
such charges disclosed pursuant to Sec. 1026.19(e) by more than 10
percent. Section 1026.19(e)(3)(ii) permits this limited increase for
only the following items:
i. Fees paid to an unaffiliated third party if the creditor
permitted the consumer to shop for the third-party service,
consistent with Sec. 1026.19(e)(1)(vi)(A).
ii. Recording fees.
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 estimate provided under Sec.
1026.19(e)(1)(i) and then imposed at consummation. The following
examples illustrate the determination of good faith for charges
subject to Sec. 1026.19(e)(3)(ii):
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).
* * * * *
6. Shopping for a third-party service. For good faith to be
determined under Sec. 1026.19(e)(3)(ii) a creditor must permit a
consumer to shop consistent with Sec. 1026.19(e)(1)(vi)(A). Section
1026.19(e)(1)(vi)(A) provides that a creditor permits a consumer to
shop for a settlement service if the creditor permits the consumer
to select the provider of that service, subject to reasonable
requirements. If the creditor permits the consumer to shop
consistent with Sec. 1026.19(e)(1)(vi)(A) good faith is determined
under Sec. 1026.19(e)(3)(ii), unless the settlement service
provider is the creditor or an affiliate of the creditor, in which
case good faith is determined under Sec. 1026.19(e)(3)(i). As noted
in comment 19(e)(1)(vi)-1, whether the creditor permits the consumer
to shop consistent with Sec. 1026.19(e)(1)(vi)(A) is determined
based on all the relevant facts and circumstances.
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 under
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
under 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
discloses an unreasonably low estimated settlement agent fee of $20
when the average prices for settlement agent fees in that area are
$150, 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
written list required under Sec. 1026.19(e)(1)(vi)(C), good faith
is determined under Sec. 1026.19(e)(3)(ii) instead of Sec.
1026.19(e)(3)(iii) unless the settlement service provider is the
creditor or an affiliate of the creditor in which case good faith is
determined under Sec. 1026.19(e)(3)(i). As noted in comment
19(e)(1)(vi)-1 whether the creditor permits the consumer to shop
consistent with Sec. 1026.19(e)(1)(vi)(A) is determined based on
all the relevant facts and circumstances.
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 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) and the charge for property tax would be subject
to the good faith determination under Sec. 1026.19(e)(3)(i).
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 the creditor or affiliates of the creditor, so long as the
charges are bona fide. For determining good faith under Sec.
1026.19(e)(1)(i), 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).
* * * * *
[[Page 37779]]
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
must 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 rate 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 to the
consumer a revised version of the Loan Estimate as required by Sec.
1026.19(e)(1)(i). 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, pursuant to Sec.
1026.19(f)(2). 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.
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 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(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, except as described in this
comment. A creditor is not required to provide corrected disclosures
under Sec. 1026.19(f)(2)(iii) if the only changes that would be
required to be disclosed in the corrected disclosure are changes to
per-diem interest and any disclosures affected by the change in per-
diem interest, even if the amount of per-diem interest actually paid
by
[[Page 37780]]
the consumer differs from the amount disclosed under Sec.
1026.38(g)(2) and (o). Nonetheless, if a creditor is providing a
corrected disclosure under Sec. 1026.19(f)(2)(iii) for reasons
other than changes in per-diem interest and the per-diem interest
has changed as well, the creditor must disclose in the corrected
disclosures under Sec. 1026.19(f)(2)(iii) the correct amount of the
per-diem interest and provide corrected disclosures for any
disclosures that are affected by the change in per-diem interest.
* * * * *
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 subordinate financing. In a purchase transaction
with simultaneous subordinate financing, the settlement agent
complies with Sec. 1026.19(f)(4)(i) by providing the seller with
only the first-lien transaction disclosures required under Sec.
1026.38 that relate to the seller's transaction reflecting the
actual terms of the seller's transaction in accordance with comment
19(f)(4)(i)-1 if the first-lien 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 settlement agent complies with Sec. 1026.19(f)(4)(i) by
providing the seller with both the first-lien and simultaneous
subordinate financing transaction disclosures required under Sec.
1026.38 that relate to the seller's transaction reflecting the
actual terms of the seller's transaction in accordance with comment
19(f)(4)(i)-1.
* * * * *
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. The tolerance for disclosure of the finance charge
is based on the accuracy of the total finance charge rather than its
component charges. For transactions subject to Sec. 1026.19(e) and
(f), the tolerance for disclosure of the total of payments is based
on the accuracy of the total of payments, taken as a whole, rather
than its component charges.
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) based on the best information
reasonably available to the creditor at the time the disclosure is
provided to the consumer, which may include, at the creditor's
option, the estimated value of the improvements to be made on the
property in transactions involving construction. 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 the creditor
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
[[Page 37781]]
(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.
37(a)(8) Loan term.
* * * * *
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, Sec. 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 simultaneous subordinate
financing, the simultaneous subordinate 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 newly-extended
credit to pay off the balance of the existing mortgage and other
consumer debt, such as a credit card balance.
iii. Construction. Section 1026.37(a)(9)(iii) requires the
creditor to disclose that the loan is for construction in
transactions where the creditor extends credit to finance only the
cost of initial construction (construction-only 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 Sec. 1026.17(c)(6)(ii), comments
17(c)(6)-2, -3, and -5, 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.
* * * * *
37(a)(10) Product.
* * * * *
2. Additional features. When disclosing a loan product with at
least one of the features described in Sec. 1026.37(a)(10)(ii),
Sec. 1026.37(a)(10)(iii) and (iv) require the disclosure of only
the first applicable feature in the order of Sec.
1026.37(a)(10)(ii) and that it be preceded by the time period or the
length of the introductory period and the frequency of the first
adjustment period, as applicable, followed by a description of the
loan product and its time period as provided for in Sec.
1026.37(a)(10)(i). For example:
i. Negative amortization. Some loan products, such as ``payment
option'' loans, permit the borrower to make payments that are
insufficient to cover all of the interest accrued, and the unpaid
interest is added to the principal balance. Where the loan product
includes a loan feature that may cause the loan balance to increase,
the disclosure required by Sec. 1026.37(a)(10)(ii)(A) is preceded
by the time period that the 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 Sec. 1026.18(s)(7)(iv), the applicable time period
must precede the label ``Interest Only.'' Thus, a fixed rate loan
with only interest due for the first five years of the loan term is
disclosed as ``5 Year Interest Only, Fixed Rate.'' If the interest
only feature fails to cover the total interest due, then, as
required by Sec. 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 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 Sec. 1026.37(b)(5), the
disclosure of the balloon payment feature, including the year the
payment is due, precedes the disclosure of the loan product. Thus,
if the loan product is 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, Sec. 1026.37(a)(10)(ii)(E) requires that the
creditor disclose the feature. The feature is not, however, required
to be disclosed with any preceding time period. Disclosure of the
label ``Seasonal Payment'' without any preceding number of years
satisfies this requirement.
* * * * *
37(a)(13) Rate lock.
* * * * *
2. Expiration date. The disclosure required by Sec.
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 Sec. 1026.19(e)(1)(iii) (or within
any longer time period established by the creditor), then, for
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). See
comment 19(e)(3)(iv)(E)-2.
* * * * *
4. Revised disclosures. Once the consumer indicates an intent to
proceed within the time specified by the creditor under Sec.
1026.37(a)(13)(ii), the date and time at which estimated closing
costs expire are left blank on any subsequent revised disclosures.
The creditor may extend the period of availability to expire beyond
the time disclosed under Sec. 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 Sec. 1026.19(e),
Sec. 1026.37(b)(2) requires disclosure of the fully-indexed rate,
defined as the index plus the margin at consummation. Although Sec.
1026.37(b)(2) refers to the index plus margin ``at consummation,''
if the index value that will be in effect at consummation is unknown
at the time the disclosures are provided under Sec.
1026.19(e)(1)(iii), i.e., within three business days after receipt
of a consumer's application, the fully-indexed rate disclosed under
Sec. 1026.37(b)(2) may be based on the index in effect at the time
the disclosure is delivered. The index in effect at consummation (or
the time the disclosure is delivered under Sec. 1026.19(e)) need
not be used if the contract provides for a delay in the
implementation of changes in an index value. For example, if the
contract specifies
[[Page 37782]]
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 Sec.
1026.37(b)(3), the initial periodic payment amount that will be due
under the terms of the legal obligation must be disclosed. If the
initial periodic payment 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 Sec. 1026.19(e) must be provided, for
example, if it is based on an external index that may fluctuate
before consummation, Sec. 1026.37(b)(3) requires that the
disclosure be based on the fully-indexed rate disclosed under Sec.
1026.37(b)(2). See comment 37(b)(2)-1 for guidance regarding
calculating the fully-indexed rate.
* * * * *
37(b)(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 Sec.
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
Sec. 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 Sec. 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 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 Sec. 1026.37(o)(3). See comment app.
D-7.iv 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.v 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 multiple
changes to periodic principal and interest payments would result in
more than one separate periodic payment or range of payments in a
single year, Sec. 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 Sec.
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 Sec. 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 Sec. 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 Sec.
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 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 Sec.
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
Sec. 1026.37(c)(1)(i)(A) and (c)(3)(ii), beginning in the next year
in the sequence (i.e., in year three), the creditor 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 Sec.
1026.37(c)(4)(ii) will be paid by the creditor using escrow account
funds. If only a portion of the amounts disclosed under Sec.
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 or for simultaneous subordinate financing.
1. Optional use. The optional alternative disclosure of the
estimated cash to close provided for in Sec. 1026.37(d)(2) may be
used by a creditor only in a transaction without a seller or a
simultaneous subordinate financing transaction. 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 Sec. 1026.37(h)(2).
* * * * *
37(f) Closing cost details; loan costs.
* * * * *
3. Construction loan inspection and handling fees. Inspection
and handling fees for the staged disbursement of construction loan
proceeds, including draw fees, are loan costs associated with the
transaction for purposes of Sec. 1026.37(f). If inspection and
handling fees are collected at or before consummation, the total of
such fees is disclosed in the loan costs table. If inspection and
handling fees will be collected after consummation, the total of
such fees is disclosed in a separate addendum and the fees are not
counted for purposes of the calculating cash to close table. See
comment 37(f)(6)-3 for a description of an addendum used to disclose
inspection and handling fees that will be collected after
consummation. See also comments 38(f)-2 and app. D-7.vii. 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 Sec. 1026.17(e) and its commentary for an
explanation of the effect of subsequent events that cause
inaccuracies in disclosures.
* * * * *
[[Page 37783]]
37(f)(6) Use of addenda.
* * * * *
3. Addendum for post-consummation inspection and handling fees.
A creditor makes the disclosures required by Sec. 1026.37(f) and
comment 37(f)-3 for construction loan inspection and handling fees
collected after consummation by disclosing the total of such fees
under the heading ``Inspection and Handling Fees Collected After
Closing'' in an addendum, which may be the addendum pursuant to
Sec. 1026.37(f)(6) or any other addendum or additional page under
Sec. 1026.37. See comment 37(o)(1)-1. For purposes of comment
38(f)-2, the addendum may be any addendum or additional page under
Sec. 1026.38. If the actual 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 construction
transactions or the amount of estimated inspection and handling fees
used by the creditor for purposes of setting the construction loan's
commitment amount.
37(g) Closing cost details; other costs.
* * * * *
37(g)(6) Total closing costs.
Paragraph 37(g)(6)(ii).
1. Lender credits. Section 1026.19(e)(1)(i) requires disclosure
of lender credits as provided in Sec. 1026.37(g)(6)(ii). Such
lender credits include non-specific lender credits as well as
specific lender credits. See comment 19(e)(3)(i)-5.
* * * * *
37(h) Calculating cash to close.
37(h)(1) For all transactions.
* * * * *
2. Simultaneous subordinate financing. On the Loan Estimate for
simultaneous subordinate financing purchase transactions, the sale
price disclosed under Sec. 1026.37(a)(7)(i) is not used under Sec.
1026.37(h)(1) for the calculating cash to close table calculations
that include the sale price as a component of the calculation. For
example, sale price is generally included in the closing costs
financed calculation under Sec. 1026.37(h)(1)(ii) as a component of
the estimated total amount of payments to third parties. However,
for simultaneous subordinate financing transactions, the estimated
total amount of payments to third parties would not include the sale
price. The estimated total amount of payments to third parties only
includes payments occurring in the simultaneous subordinate
financing transaction other than payments toward the sale price.
37(h)(1)(ii) Closing costs financed.
1. Calculation of amount. 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). The estimated total
amount of payments to third parties includes the sale price
disclosed under Sec. 1026.37(a)(7)(i), if applicable, unless
otherwise excluded under comment 37(h)(1)-2. Other examples of
payments to third parties not otherwise disclosed under Sec.
1026.37(f) and (g) include the amount of construction costs for
transactions that involve improvements to be made on the property
and payoffs of secured or unsecured debt. If the result of the
calculation is zero or negative, the amount of $0 is disclosed under
Sec. 1026.37(h)(1)(ii). 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 the absolute
value of the amount disclosed under Sec. 1026.37(h)(1)(ii) does not
exceed the total amount of closing costs disclosed under Sec.
1026.37(g)(6).
2. Loan amount. The loan amount disclosed under Sec.
1026.37(b)(1), 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.
37(h)(1)(iii) Down payment and other funds from borrower.
1. Down payment and funds from borrower calculation. For
purposes of Sec. 1026.37(h)(1)(iii)(A)(1), the down payment and
funds from borrower amount is calculated as the difference between
the sale price of the property disclosed under Sec.
1026.37(a)(7)(i) 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 Sec. 1026.38(j)(2)(iv). The
calculation is independent of any loan program or investor
requirements.
2. Funds for borrower. Section 1026.37(h)(1)(iii)(A)(2) requires
that, in a purchase transaction as defined in paragraph (a)(9)(i) of
this section that is a simultaneous subordinate financing
transaction or that involves improvements to be made on the
property, or when 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 under Sec. 1026.38(j)(2)(iv)
exceeds the sale price disclosed under Sec. 1026.37(a)(7)(i), the
amount of funds from the consumer is determined in accordance with
Sec. 1026.37(h)(1)(v). Section 1026.37(h)(1)(iii)(B) requires that,
for all non-purchase transactions, the amount of estimated funds
from the consumer is determined in accordance with Sec.
1026.37(h)(1)(v). Pursuant to Sec. 1026.37(h)(1)(v), the amount to
be disclosed under Sec. 1026.37(h)(1)(iii)(A)(2) or (B) is
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 under Sec.
1026.38(j)(2)(iv) (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. The total amount of all
existing debt being satisfied in the transaction is the sum of the
amounts that will be disclosed on the Closing Disclosure in the
summaries of transactions table under Sec. 1026.38(j)(1)(ii),
(iii), and (v), as applicable. When the result of the calculation is
positive, that amount is disclosed under Sec. 1026.37(h)(1)(iii) as
``Down Payment/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 as a negative
number under Sec. 1026.37(h)(1)(v) as ``Funds for Borrower,'' and
$0 is disclosed under Sec. 1026.37(h)(1)(iii) as ``Down Payment/
Funds from Borrower.'' When the result is $0, $0 is disclosed as
``Down Payment/Funds from Borrower'' and ``Funds for Borrower''
under Sec. 1026.37(h)(1)(iii) and (v), respectively.
* * * * *
37(h)(1)(v) Funds for borrower.
1. No funds for borrower. When the down payment and other funds
from the borrower 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.
2. Total amount of existing debt satisfied in the transaction.
The amounts disclosed under Sec. 1026.37(h)(1)(iii)(A)(2) or (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)
(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. The total amount of all existing debt
being satisfied in the transaction is the sum of the amounts that
will be disclosed on the Closing Disclosure in the summaries of
transactions table under Sec. 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 Sec. 1026.19(e)(1), known to the creditor at the
time of delivery of the Loan Estimate, are disclosed under Sec.
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 Sec. 1026.37(f) and (g), may be either disclosed under Sec.
1026.37(h)(1)(vi) or reflected in the amounts disclosed for those
specific items under Sec. 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 Sec. 1026.37(f) with a $50 seller credit
disclosed under Sec. 1026.37(h)(1)(vi) or disclose the required
pest inspection fee as $50 under Sec. 1026.37(f), reflecting the
specific seller credit in the amount disclosed for the pest
inspection fee. If the creditor knows at the time of the delivery of
the Loan Estimate that the seller has agreed to pay the entire $100
pest
[[Page 37784]]
inspection fee, the creditor may either disclose the required pest
inspection fee as $100 under Sec. 1026.37(f) with a $100 seller
credit disclosed under Sec. 1026.37(h)(1)(vi) or disclose nothing
under Sec. 1026.37(f), reflecting that the specific seller credit
will cover the entire 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
otherwise associated with 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).
Amounts expected to be provided in advance of closing by third
parties, including family members, not otherwise associated with the
transaction are not required to be disclosed under Sec.
1026.37(h)(1)(vii).
* * * * *
4. Other credits to be disclosed. Credits other than those from
the creditor or seller are disclosed under Sec. 1026.37(h)(1)(vii).
Disclosure of other credits is, like other disclosures under Sec.
1026.37, subject to the good faith requirement under Sec.
1026.19(e)(1)(i). See Sec. 1026.19(e)(1)(i) and comments
17(c)(2)(i)-1 and 19(e)(1)(i)-1. The creditor may obtain information
regarding items to be disclosed under Sec. 1026.37(h)(1)(vii), for
example, from the consumer, from a review of the purchase and sale
contract, or from information obtained from a real estate agent in
the transaction.
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 Sec.
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 in a transaction
disclosed using the formula under Sec. 1026.37(h)(1)(iii)(A)(1) or
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),
are only included in the amount disclosed under Sec.
1026.37(h)(1)(vii) if such amounts are not included in the
calculation under Sec. 1026.37(h)(1)(iii)(A)(2) or (B) or Sec.
1026.37(h)(1)(v) as debt being satisfied in the transaction. Other
examples of adjustments for additional funds from the consumer
include payoffs of secured or unsecured debt in a purchase
transaction disclosed using the formula under Sec.
1026.37(h)(1)(iii)(A)(1) or prorations for property taxes and
homeowner's association dues. The total amount disclosed under Sec.
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)(2) Optional alternative calculating cash to close table
for transactions without a seller or for simultaneous subordinate
financing.
1. Optional use. The optional alternative disclosure of the
calculating cash to close table in Sec. 1026.37(h)(2) may only be
provided by a creditor in a transaction without a seller or for
simultaneous 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 or
for simultaneous subordinate financing is optional, but creditors
may only use this alternative estimated cash to close disclosure in
conjunction with the alternative disclosure under Sec.
1026.37(d)(2).
37(h)(2)(iii) Payoffs and payments.
1. Examples. Examples of the amounts incorporated in the total
amount disclosed under Sec. 1026.37(h)(2)(iii) include, but are not
limited to: Payoffs of existing liens secured by the property
identified under Sec. 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;
construction costs associated with the transaction that the consumer
will be obligated to pay in any transaction in which the creditor is
otherwise permitted to use the alternative calculating cash to close
table; and payments to other third parties for outstanding debts of
the consumer, excluding settlement services, as required to be paid
as a condition for the extension of credit. Amounts that will be
paid with funds provided by the consumer, including partial
payments, such as a portion of construction costs, or amounts that
will be paid by third parties and will be disclosed on the Closing
Disclosure under Sec. 1026.38(t)(5)(vii)(B), are calculated as
credits, using positive numbers, in the total amount disclosed under
Sec. 1026.37(h)(2)(iii).
2. Disclosure of subordinate financing. i. First-lien Loan
Estimate. On the Loan Estimate for a first-lien transaction
disclosed with the optional alternative table pursuant to Sec.
1026.37(h)(2), such as a refinance transaction that also has
simultaneous subordinate financing, the proceeds of the simultaneous
subordinate financing are included, as a positive number, in the
total amount disclosed under Sec. 1026.37(h)(2)(iii). The total
amount disclosed under Sec. 1026.37(h)(2)(iii) is a negative number
unless the proceeds from the 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 under Sec. 1026.37(h)(2)(iii). If the
proceeds from the 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 under Sec. 1026.37(h)(2)(iii), the total amount
disclosed under Sec. 1026.37(h)(2)(iii) is disclosed as $0 or a
positive number.
ii. Simultaneous subordinate financing Loan Estimate. On the
simultaneous subordinate financing Loan Estimate disclosed with the
optional alternative table pursuant to Sec. 1026.37(h)(2), the
proceeds of the subordinate financing that will be applied to the
first-lien transaction may be included in the payoffs and payments
disclosure under Sec. 1026.37(h)(2)(iii).
* * * * *
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 Sec. 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 Sec.
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 Sec. 1026.37(l)(1)(i) is the sum of principal,
interest, mortgage insurance, and loan costs scheduled to be paid
through the end of the 60th month after the due date of the first
periodic payment. For guidance on how to calculate interest for
mortgage loans that are Adjustable Rate products under Sec.
1026.37(a)(10)(i)(A) for purposes of Sec. 1026.37(l)(1)(i), see
comment 17(c)(1)-10. In addition, for purposes of Sec.
1026.37(l)(1)(i), the creditor should assume that the consumer makes
payments as scheduled and on time. For purposes of Sec.
1026.37(l)(1)(i), mortgage insurance 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 Sec. 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 that the consumer will pay when
calculating the total interest percentage. Prepaid interest that is
disclosed as a negative number under Sec. Sec. 1026.37(g)(2) or
1026.38(g)(2) is included as a negative value 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 Sec. 1026.37(o)(4)(i)(A), periodic
mortgage
[[Page 37785]]
insurance payments are rounded and disclosed to the nearest dollar,
such that a periodic mortgage insurance payment of $164.50 is
disclosed under Sec. 1026.37(c)(2)(ii) as $165, but a periodic
mortgage insurance payment of $164.49 is disclosed as $164. The per-
diem amount disclosed under Sec. 1026.37(g)(2)(iii) and the monthly
amounts for the initial escrow payment at closing disclosed pursuant
to Sec. 1026.37(g)(3)(i) through (iii) and (v) do not include
partial cents. Dollar amounts are rounded or truncated to the
nearest whole cent. For example, under Sec. 1026.37(g)(2)(iii), the
creditor discloses per-diem interest of $68.1254 as $68.13 or
$68.12. 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 Sec. 1026.37(g)(3)(i).
* * * * *
37(o)(4)(ii) Percentages.
1. Decimal places. Section 1026.37(o)(4)(ii) requires the
percentage amounts disclosed rounding exact amounts 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 is disclosed as ``2.5%'' under Sec.
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%.''
* * * * *
Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
* * * * *
4. Reductions in principal balance. A principal reduction that
occurs immediately or very soon after closing must be disclosed in
the summaries of transactions table on the standard Closing
Disclosure pursuant to Sec. 1026.38(j)(1)(v) or in the payoffs and
payments table on the alternative Closing Disclosure pursuant to
Sec. 1026.38(t)(5)(vii)(B). The disclosure of a principal reduction
under Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) includes the
following elements: (1) The amount of the principal reduction; (2)
the phrase ``principal reduction'' or a similar phrase; (3) for a
principal reduction disclosure under Sec. 1026.38(t)(5)(vii)(B)
only, the name of the payee; (4) if applicable to the transaction,
the phrase ``Paid Outside of Closing'' or ``P.O.C.'' and the name of
the party making the payment; and (5) if the principal reduction is
used to satisfy the requirements of Sec. 1026.19(f)(2)(v), a
statement that the principal reduction is being provided to offset
charges that exceed the legal limits, using any language that meets
the clear and conspicuous standard under Sec. 1026.38(t)(1)(i). If
a creditor is required to disclose the name of the party making the
payment or that the principal reduction is being provided to offset
charges that exceed the legal limits, and there is insufficient
space under the Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure
for these elements of the principal reduction disclosure, the
creditor may omit these elements from the Sec. 1026.38(j)(1)(v) or
(t)(5)(vii)(B) disclosure. If the creditor omits these elements from
the Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure, the
creditor must provide a complete principal reduction disclosure
under an appropriate heading on an additional page, in accordance
with Sec. 1026.38(j) and (t)(5)(ix), as applicable, with a
reference to the abbreviated principal reduction disclosure under
Sec. 1026.38(j)(1)(v) or (t)(5)(vii)(B).
i. Principal reduction not paid with closing funds. A principal
reduction is disclosed in the summaries of transactions table under
Sec. 1026.38(j)(1)(v) and marked with the phrase ``Paid Outside of
Closing'' or the abbreviation ``P.O.C.'' pursuant to Sec.
1026.38(j)(4)(i), or in the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B) marked with the phrase ``Paid Outside of
Closing'' or the abbreviation ``P.O.C.,'' if it is not paid from
closing funds. For a principal reduction disclosed under Sec.
1026.38(j)(1)(v) that is not paid from closing funds, the amount of
the principal reduction is not included in computing the summaries
of transactions totals under Sec. 1026.38(j) or the cash to close
disclosures under Sec. 1026.38(i). For a principal reduction
disclosed under Sec. 1026.38(t)(5)(vii)(B) that is not paid from
closing funds, the amount of the principal reduction is not included
in computing the total payoffs and payments amount disclosed under
Sec. 1026.38(t)(5)(vii)(B) or the cash to close amount disclosed
under Sec. 1026.38(e)(5)(ii). For example, a creditor providing a
$500 principal reduction to satisfy the refund requirements of Sec.
1026.19(f)(2)(v) discloses the principal reduction under Sec.
1026.38(j)(1)(v) by providing in Section K of the summaries of
transactions table a statement such as ``$500.00 Principal Reduction
for exceeding legal limits P.O.C. Lender,'' and not including the
amount of the principal reduction in the summaries of transactions
totals under Sec. 1026.38(j) or the calculating cash to close
disclosures under Sec. 1026.38(i). Alternatively, if there is
insufficient space under Sec. 1026.38(j)(1)(v) for a creditor to
disclose the name of the party making the payment or a statement
that the principal reduction is being provided to offset charges
that exceed the legal limits, a creditor may disclose a statement
such as ``$500.00 Principal Reduction P.O.C.'' under Sec.
1026.38(j)(1)(v) and a statement on an additional page such as
``$500.00 Principal Reduction for exceeding legal limits P.O.C.
Lender. See Section K on page 3.''
ii. Principal reduction paid with closing funds. A principal
reduction is disclosed in the summaries of transactions table under
Sec. 1026.38(j)(1)(v) or in the payoffs and payments table under
Sec. 1026.38(t)(5)(vii)(B) without the phrase ``Paid Outside of
Closing'' or the abbreviation ``P.O.C.'' if it is paid from closing
funds. The amount of a principal reduction that is paid with closing
funds is included in the applicable calculations required under
Sec. 1026.38. For example, in a refinance transaction using the
alternative tables on the Closing Disclosure, a creditor discloses a
$1,000 principal reduction to reduce the cash provided to the
consumer by providing in the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B) a statement such as ``Principal Reduction to
Consumer'' under the column heading ``TO'' and ``$1,000.00'' under
the column heading ``AMOUNT,'' and by including such amount in the
total payoffs and payments amount under Sec. 1026.38(t)(5)(vii)(B)
and in the cash to close amount under Sec. 1026.38(e)(5)(ii). In
this example, the creditor must disclose the following elements
under Sec. 1026.38(t)(5)(vii)(B): The amount of the principal
reduction, the phrase ``principal reduction'' or a similar phrase,
and the name of the payee. The creditor should not include in the
disclosure the phrase ``Paid Outside of Closing'' or ``P.O.C.'' and
the name of the party making the payment, or a statement that the
principal reduction is being provided to offset charges that exceed
the legal limits, because those principal reduction disclosure
elements are not applicable to the transaction in this particular
example. The creditor may not use an addendum for the principal
reduction disclosure in this example.
38(a) General information.
38(a)(3) Closing information.
* * * * *
38(a)(3)(iii) Disbursement date.
1. Simultaneous subordinate financing disbursement date. The
disbursement date on the simultaneous subordinate financing Closing
Disclosure is the date some or all of the subordinate financing loan
amount disclosed under Sec. 1026.38(b) is expected to be paid to
the consumer or a third party other than a settlement agent.
* * * * *
38(a)(3)(vii) Sale price.
1. No seller. In transactions where there is no seller, such as
in a refinancing, Sec. 1026.38(a)(3)(vii)(B) requires the creditor
to disclose the appraised value of the property. To comply with this
requirement, the creditor discloses the value determined by the
appraisal or valuation used to determine approval of the credit
transaction. 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. For
transactions involving construction where there is no seller, the
creditor must disclose the value of the property that is used to
determine the approval of the credit transaction, including
improvements to be made on the property if those improvements are
used in determining the approval of the credit transaction.
* * * * *
38(a)(4) Transaction information.
2. No seller transactions or simultaneous subordinate financing
transactions. In transactions where there is no seller, such as in a
refinancing or home equity loan, or for simultaneous subordinate
financing purchase transactions if the first-lien Closing Disclosure
will record the entirety of the seller's transaction, the disclosure
under Sec. 1026.38(a)(4)(ii) may be left blank. See also Sec.
1026.38(t)(5)(vii)(A).
* * * * *
[[Page 37786]]
4. Consumers. Section 1026.38(a)(4)(i) requires disclosure of
the consumer's name and mailing address, labeled ``Borrower.'' For
purposes of Sec. 1026.38(a)(4)(i), the term ``consumer'' is limited
to persons to whom the credit is offered or extended. 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 or
for simultaneous subordinate financing.
1. Required use. The disclosure of the alternative cash to close
table in Sec. 1026.38(d)(2) may only be provided by a creditor in a
transaction without a seller or for a simultaneous subordinate
financing transaction. In a purchase transaction, the 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 or for
simultaneous subordinate financing transactions is required if the
Loan Estimate provided to the consumer disclosed the optional
alternative table under Sec. 1026.37(d)(2) and must be used in
conjunction with the use of the alternative calculating cash to
close disclosure under Sec. 1026.38(e). See comments 38(j)-3 and
38(k)(2)(vii)-1 for disclosure requirements applicable to the first-
lien transaction when the alternative disclosures are used for a
simultaneous subordinate financing transaction and a seller
contributes to the costs of the subordinate financing. See also
comments 38(t)(5)(vii)(B)-1 and -2 for the requirement to disclose
the seller's contributions, if any, toward the subordinate financing
in the payoffs and payments table on the simultaneous subordinate
financing Closing Disclosure.
* * * * *
38(e) Alternative calculating cash to close table for
transactions without a seller or for simultaneous subordinate
financing.
1. Required use. The disclosure of the table in Sec. 1026.38(e)
may only be provided by a creditor in a transaction without a seller
or for a simultaneous subordinate financing transaction. In a
purchase transaction, the 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 or for simultaneous
subordinate financing is required for transactions in which the Loan
Estimate provided to the consumer disclosed the optional alternative
table under Sec. 1026.37(h)(2), and must be used in conjunction
with the alternative disclosure under Sec. 1026.38(d)(2).
* * * * *
3. Statements of differences. The dollar amounts disclosed under
Sec. 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 alternative calculating cash to close table
under Sec. 1026.38(e) is shown to two decimal places unless
otherwise required. Pursuant to Sec. 1026.38(t)(4)(i)(C), however,
any amount in the ``Loan Estimate'' column of the alternative
calculating cash to close table under Sec. 1026.38(e) 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 Sec. 1026.37(h). For purposes of Sec.
1026.38(e)(1)(iii), (2)(iii), and (4)(iii), each statement of a
change between the amounts disclosed on the Loan Estimate and the
Closing Disclosure is based on the actual, non-rounded estimate that
would have been disclosed on the Loan Estimate under Sec.
1026.37(h) if it had been shown to two decimal places rather than a
whole dollar amount. For example, if the amounts in the ``Loan
Estimate'' column of the total closing costs row disclosed under
Sec. 1026.38(e)(2)(i) is $12,500, but the non-rounded estimate of
total closing costs is $12,500.35, and the ``Final'' column of the
total closing costs row disclosed under Sec. 1026.38(e)(2)(ii) is
$12,500.35, then, even though the table would appear to show a $0.35
increase in total closing costs, no statement of such increase is
given under Sec. 1026.38(e)(2)(iii).
* * * * *
6. Estimated amounts. The amounts disclosed on the alternative
calculating cash to close table 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 under Sec. 1026.19(e).
* * * * *
38(e)(2) Total closing costs.
* * * * *
Paragraph 38(e)(2)(iii)(A).
* * * * *
2. Disclosure of excess amounts above limitations on increases
in closing costs.
i. Because certain closing costs, individually, are generally
subject to the limitations on increases in closing costs under Sec.
1026.19(e)(3)(i) (e.g., fees paid to the creditor, transfer taxes,
fees paid to an affiliate of the creditor), while other closing
costs are collectively subject to the limitations on increases in
closing costs under Sec. 1026.19(e)(3)(ii) (e.g., recording fees,
fees paid to an unaffiliated third party identified by the creditor
if the creditor permitted the consumer to shop for the service
provider), Sec. 1026.38(e)(2)(iii)(A) requires the creditor or
closing agent to calculate subtotals for each type of excess amount,
and then add such subtotals together to yield the dollar amount to
be disclosed in the table. See commentary to Sec. 1026.19(e)(3) for
additional guidance on calculating excess amounts above the
limitations on increases in closing costs under Sec. 1026.19(e)(3).
ii. Under Sec. 1026.38(e)(2)(iii)(A), calculation of the excess
amounts above the limitations on increases in closing costs takes
into account that the itemized, estimated closing costs disclosed on
the Loan Estimate will not result in charges to the consumer if the
service is not actually provided at or before consummation. For
example, if the Loan Estimate included under ``Services You Cannot
Shop For'' a $30 charge for a ``title courier fee,'' but the title
company elects to hand-deliver the title documents package to the
creditor at no charge, the $30 fee is not factored into the
calculation of the ``Total Closing Costs'' that are subject to the
limitations on increases in closing costs. However, if the title
courier fee was assessed, but at only $15, the charge is factored
into the calculation because the third party service was actually
provided, albeit at a lower amount than estimated. For an example,
see form H-25 of appendix H to this part.
iii. Under Sec. 1026.38(e)(2)(iii)(A), calculation of the
excess amounts above the limitations on increases in closing costs
takes into account that certain itemized charges listed on the Loan
Estimate under the subheading ``Services You Can Shop For'' may be
subject to different limitations depending on the circumstances.
Although Sec. 1026.19(e)(3)(iii) provides exceptions to the general
rule, such a charge would generally be subject to the limitations
under Sec. 1026.19(e)(3)(i) if the consumer decided to use a
provider affiliated with the creditor. However, the same charge
would instead be subject to the limitations under Sec.
1026.19(e)(3)(ii) if the consumer selected a third party service
provider unaffiliated with but identified by the creditor, and the
creditor permitted the consumer to shop for the service provider.
See commentary to Sec. 1026.19(e)(3) for additional guidance on
calculating excess amounts above the limitations on increases in
closing costs under Sec. 1026.19(e)(3).
3. Statements regarding excess amount and any credit to the
consumer. Section 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 Sec. 1026.38(h)(3) or a
principal reduction under Sec. 1026.38(t)(5)(vii)(B), if provided
under Sec. 1026.19(f)(2)(v). See form H-25(F) in appendix H to this
part for examples of such statements under Sec. 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 Sec. 1026.38(e)(3)(iii)(B), the creditor
gives a statement that the ``Final'' amount disclosed under Sec.
1026.38(e)(3)(ii) is equal to the ``Loan Estimate'' amount disclosed
under Sec. 1026.38(e)(3)(i), only if the ``Final'' amount is $0,
because the ``Loan Estimate'' amount is always disclosed as $0 under
Sec. 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 Sec. 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.vii.
See Sec. 1026.17(e) and its commentary
[[Page 37787]]
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.
* * * * *
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 Sec. 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 Sec.
1026.38(g), disclosure of the total amounts paid for recording fees,
including but not limited to the amounts subject to Sec.
1026.38(g)(1)(i)(A). The total amount disclosed under Sec.
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.
38(g)(2) Prepaids.
* * * * *
3. No prepaid interest. If interest is not collected for any
period between closing and the date from which interest will be
collected with the first monthly payment, then $0.00 is disclosed
under Sec. 1026.38(g)(2).
* * * * *
38(i) Calculating cash to close.
* * * * *
2. Statements of differences. The dollar amounts disclosed under
Sec. 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 Sec.
1026.38(i) is shown to two decimal places unless otherwise required.
Under Sec. 1026.38(t)(4)(i)(C), however, any amount in the ``Loan
Estimate'' column of the calculating cash to close table under Sec.
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 Sec. 1026.37(h). For purposes
of Sec. 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 Sec. 1026.37(h) if it had been
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 Sec. 1026.38(i)(1)(i) is $12,500,
but the non-rounded estimate of total closing costs is $12,500.35,
and the amount in the ``Final'' column of the total closing costs
row disclosed under Sec. 1026.38(i)(1)(ii) is $12,500.35, then,
even though the table would appear to show a $0.35 increase in total
closing costs, no statement of such increase is given under Sec.
1026.38(i)(1)(iii).
3. Statements that the consumer should see details. The
provisions of Sec. 1026.38(i)(4)(iii)(A), (5)(iii)(A), (7)(iii)(A),
and (8)(iii)(A) each require a statement that the consumer should
see certain details of the closing costs disclosed under Sec.
1026.38(j). Form H-25 of appendix H to this part contains some
examples of these statements. For example, Sec.
1026.38(i)(5)(iii)(A) requires a statement that the consumer should
see the details disclosed under Sec. 1026.38(j)(2)(ii). The
following statement, which is similar to that shown on form H-25(B)
of appendix H to this part for Sec. 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 Sec. 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 Sec. 1026.38(i)(8)(iii)(A). See also comment 38(i)(7)(iii)(A)-1
for additional examples that comply with the requirements under
Sec. 1026.38(i)(7)(iii)(A).
* * * * *
5. Estimated amounts. The amounts disclosed in the ``Loan
Estimate'' column of the calculating cash to close table 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.
38(i)(1) Total closing costs.
Paragraph 38(i)(1)(iii)(A).
* * * * *
2. Disclosure of excess amounts above limitations on increases
in closing costs.
i. Because certain closing costs, individually, are generally
subject to the limitations on increases in closing costs under Sec.
1026.19(e)(3)(i) (e.g., fees paid to the creditor, transfer taxes,
fees paid to an affiliate of the creditor), while other closing
costs are collectively subject to the limitations on increases in
closing costs under Sec. 1026.19(e)(3)(ii) (e.g., recording fees,
fees paid to an unaffiliated third party identified by the creditor
if the creditor permitted the consumer to shop for the service
provider), Sec. 1026.38(i)(1)(iii)(A) requires the creditor or
closing agent to calculate subtotals for each type of excess amount,
and then add such subtotals together to yield the dollar amount to
be disclosed in the table. See commentary to Sec. 1026.19(e)(3) for
additional guidance on calculating excess amounts above the
limitations on increases in closing costs under Sec. 1026.19(e)(3).
ii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the excess
amounts above the limitations on increases in closing costs takes
into account that the itemized, estimated closing costs disclosed on
the Loan Estimate will not result in charges to the consumer if the
service is not actually provided at or before consummation. For
example, if the Loan Estimate included under ``Services You Cannot
Shop For'' a $30 charge for a ``title courier fee,'' but the title
company elects to hand-deliver the title documents package to the
creditor at no charge, the $30 fee is not factored into the
calculation of the ``Total Closing Costs'' that are subject to the
limitations on increases in closing costs. However, if the title
courier fee was assessed, but at only $15, the charge is factored
into the calculation because the third-party service was actually
provided, albeit at a lower amount than estimated.
iii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the
excess amounts above the limitations on increases in closing costs
takes into account that certain itemized charges listed on the Loan
Estimate under the subheading ``Services You Can Shop For'' may be
subject to different limitations depending on the circumstances.
Although Sec. 1026.19(e)(3)(iii) provides exceptions to the general
rule, such a charge would generally be subject to the limitations
under Sec. 1026.19(e)(3)(i) if the consumer decided to use a
provider affiliated with the creditor. However, the same charge
would instead be subject to the limitations under Sec.
1026.19(e)(3)(ii) if the consumer selected a third-party service
provider unaffiliated with but identified by the creditor, and the
creditor permitted the consumer to shop for the service provider.
See commentary to Sec. 1026.19(e)(3) for additional guidance on
calculating excess amounts above the limitations on increases in
closing costs under Sec. 1026.19(e)(3).
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 Sec. 1026.38(h)(3), or a
principal reduction under Sec. 1026.38(j)(1)(v), if either is
provided under Sec. 1026.19(f)(2)(v). See form H-25(F) of appendix
H to this part for examples of such statements under Sec.
1026.38(h)(3). See also comments 38-4 and 38(h)(3)-2.
* * * * *
38(i)(3) Closing costs financed.
1. Calculation of amount. i. Generally. 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) from the loan
amount disclosed under Sec. 1026.38(b). The total amount of
payments to third parties includes the sale price of the property
disclosed under Sec. 1026.38(j)(1)(ii). Other examples of payments
to third parties not otherwise disclosed under Sec. 1026.38(f) and
(g) include the amount of construction costs for transactions that
involve improvements to be made on the property, and payoffs of
secured or unsecured debt. If the result of the calculation is zero
or negative, the amount of $0 is disclosed under Sec.
1026.38(i)(3). If the result of the calculation is positive, that
amount is disclosed as a negative number under Sec. 1026.38(i)(3),
but only to the extent that the absolute value of the amount
[[Page 37788]]
disclosed under Sec. 1026.38(i)(3) does not exceed the total amount
of closing costs disclosed under Sec. 1026.38(h)(1).
ii. Simultaneous subordinate financing. For simultaneous
subordinate financing transactions, no sale price will be disclosed
under Sec. 1026.38(j)(1)(ii), and therefore no sale price will be
included in the closing costs financed calculation as a payment to
third parties. The total amount of payments to third parties only
includes payments occurring in the simultaneous subordinate
financing transaction other than payments toward the sale price.
2. Loan amount. The loan amount disclosed under Sec.
1026.38(b), 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.
38(i)(4) Down payment/funds from borrower.
Paragraph 38(i)(4)(ii)(A).
1. Down payment and funds from borrower calculation. Under Sec.
1026.38(i)(4)(ii)(A)(1), the down payment and funds from borrower
amount is calculated as the difference between the sale price of the
property disclosed under Sec. 1026.38(a)(3)(vii)(A) and the sum of
the loan amount disclosed under Sec. 1026.38(b) and any amount of
existing loans assumed or taken subject to that is disclosed under
Sec. 1026.38(j)(2)(iv), except as required by Sec.
1026.38(i)(4)(ii)(A)(2). The calculation is independent of any loan
program or investor 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 and
other funds 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, in a purchase transaction as defined in Sec. 1026.37(a)(9)(i)
that is a simultaneous subordinate financing transaction or that
involves improvements to be made on the property, or when the sum of
the loan amount disclosed under Sec. 1026.38(b) and any amount of
existing loans assumed or taken subject to that is disclosed under
Sec. 1026.38(j)(2)(iv) exceeds the sale price disclosed under Sec.
1026.38(a)(3)(vii)(A), the amount of funds from the consumer is
determined in accordance with Sec. 1026.38(i)(6)(iv). Pursuant to
Sec. 1026.38(i)(6)(iv), the ``Final'' amount of ``Down Payment/
Funds from Borrower'' to be disclosed under Sec.
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 that is disclosed under Sec. 1026.38(j)(2)(iv)
(excluding any closing costs financed disclosed under Sec.
1026.38(i)(3)(ii)) from the total amount of all existing debt being
satisfied in the transaction disclosed under Sec.
1026.38(j)(1)(ii), (iii), and (v). The amount of ``Down Payment/
Funds from Borrower'' under the subheading ``Final'' is disclosed
either as a positive number or $0, depending on the result of the
calculation. When the result of the calculation is positive, that
amount is disclosed under Sec. 1026.38(i)(4)(ii)(A)(2) as ``Down
Payment/Funds from Borrower,'' and $0 is disclosed under Sec.
1026.38(i)(6)(ii) as ``Funds for Borrower.'' When the result of the
calculation is negative, that amount is disclosed under Sec.
1026.38(i)(6)(ii) as ``Funds for Borrower,'' and $0 is disclosed
under Sec. 1026.38(i)(4)(ii)(A)(2) as ``Down Payment/Funds from
Borrower.'' When the result is $0, $0 is disclosed as ``Down
Payment/Funds from Borrower'' and ``Funds for Borrower'' under Sec.
1026.38(i)(4)(ii)(A)(2) and (6)(ii), respectively. An increase in
the amount of ``Down Payment/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 transaction. 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 for borrower. Section 1026.38(i)(4)(ii)(B) requires
that, in all transactions not subject to Sec. 1026.38(i)(4)(ii)(A),
the ``Final'' amount disclosed for ``Down Payment/Funds from
Borrower'' is the amount determined in accordance with Sec.
1026.38(i)(6)(iv). Pursuant to Sec. 1026.38(i)(6)(iv), the
``Final'' amount of ``Down Payment/Funds from Borrower'' to be
disclosed under Sec. 1026.38(i)(4)(ii)(B) is determined by
subtracting the sum of the loan amount disclosed under Sec.
1026.38(b) and any amount of existing loans assumed or taken subject
to that is disclosed under Sec. 1026.38(j)(2)(iv) (excluding any
closing costs financed disclosed under Sec. 1026.38(i)(3)(ii)) from
the total amount of all existing debt being satisfied in the
transaction disclosed under Sec. 1026.38(j)(1)(ii), (iii), and (v).
The ``Final'' amount of ``Down Payment/Funds from Borrower'' is
disclosed either as a positive number or $0, depending on the result
of the calculation. When the result of the calculation is positive,
that amount is disclosed under Sec. 1026.38(i)(4)(ii)(B) as ``Down
Payment/Funds from Borrower,'' and $0 is disclosed under Sec.
1026.38(i)(6)(ii) as ``Funds for Borrower.'' When the result of the
calculation is negative, that amount is disclosed under Sec.
1026.38(i)(6)(ii) as ``Funds for Borrower,'' and $0 is disclosed
under Sec. 1026.38(i)(4)(ii)(B) as ``Down Payment/Funds from
Borrower.'' When the result is $0, $0 is disclosed as ``Down
Payment/Funds from Borrower'' and ``Funds for Borrower'' under Sec.
1026.38(i)(4)(ii)(B) and (6)(ii), respectively. An increase in the
``Final'' amount of ``Down Payment/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 transaction. 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, as applicable, a statement that the consumer has increased
or decreased this payment, along with a statement that the consumer
should see the details disclosed under Sec. 1026.38(j)(1) or
(j)(2), as applicable. The applicable disclosure to be referenced
corresponds to the label on the Closing Disclosure under which the
information accounting for the increase in the ``Down Payment/Funds
from Borrower'' amount is disclosed. For example, in a transaction
that is a purchase as defined in Sec. 1026.37(a)(9)(i), if the
purchase price of the property has increased and therefore caused
the ``Down Payment/Funds from Borrower'' 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 a purchase or refinancing transaction, in
the event the amount of the credit extended by the creditor has
decreased and therefore caused the ``Down Payment/Funds from
Borrower'' amount to increase, the statement can read, for example,
``You increased this payment. See details in Section L,'' with the
same in boldface.
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 Sec. 1026.37(h)(1)(iv) and under
Sec. 1026.38(j)(2)(ii), under the subheadings ``Loan Estimate'' and
``Final,'' respectively. Under Sec. 1026.37(h)(1)(iv), for all
transactions other than a purchase transaction as defined in Sec.
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 Sec. Sec. 1026.37(h)(1)(iv) and
1026.38(i)(5)(i) and (ii) the amount required to be disclosed is $0.
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 Sec. 1026.38(i)(6)(iv). Under Sec.
1026.38(i)(6)(iv), the ``Final'' amount of ``Funds for Borrower'' to
be disclosed under Sec. 1026.38(i)(6)(ii) is determined by
subtracting the sum of the loan amount disclosed under Sec.
1026.38(b) and any amount of existing loans assumed or taken subject
to that is disclosed under Sec. 1026.38(j)(2)(iv) (excluding any
closing costs financed disclosed under Sec. 1026.38(i)(3)(ii)) from
the total amount of all existing debt being satisfied in the
transaction disclosed under Sec. 1026.38(j)(1)(ii), (iii), and (v).
The amount is disclosed under Sec. 1026.38(i)(6)(ii) either as a
negative number or as $0, depending on the result of the
calculation. The ``Final'' amount of ``Funds for Borrower''
disclosed under Sec. 1026.38(i)(6)(ii) is an 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 and funds from
the borrower is determined in accordance with Sec.
1026.38(i)(4)(ii)(A)(1), the amount disclosed under Sec.
1026.38(i)(6)(ii) as ``Funds for Borrower'' is $0.
38(i)(7) Seller credits.
* * * * *
Paragraph 38(i)(7)(iii)(A).
1. Statement that the consumer should see details. Under Sec.
1026.38(i)(7)(iii)(A), if the
[[Page 37789]]
amount disclosed under Sec. 1026.38(i)(7)(ii) in the ``Final''
column is not equal to the amount disclosed under Sec.
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 either:
(1) Under Sec. 1026.38(j)(2)(v) in the summaries of transactions
table and the seller-paid column of the closing cost details table
under Sec. 1026.38(f) or (g); or (2) if the difference is
attributable only to general seller credits disclosed under Sec.
1026.38(j)(2)(v), or only to specific seller credits disclosed in
the seller-paid column of the closing cost details table under Sec.
1026.38(f) or (g), under only the applicable provision. If, for
example, a decrease in the seller credits disclosed under Sec.
1026.38(i)(7)(ii) 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 close
table that the consumer should see the details disclosed under Sec.
1026.38(j)(2)(v) in the summaries of transactions table and the
seller-paid column of Sec. 1026.38(f) or (g), or that the consumer
should see the details disclosed under Sec. 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
and the creditor choses only to reference the applicable provision;
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 disclosed
under Sec. 1026.38(i)(7)(ii) is attributable to specific and
general seller credits, or the creditor does not elect to reference
only the applicable provision, then a statement is given under the
subheading ``Did this change?'' that the consumer should see both
the details disclosed under Sec. 1026.38(j)(2)(v) in the summaries
of transactions table and the seller-paid column of the closing cost
details table under Sec. 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 Sec. 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 Sec. Sec.
1026.37(h)(1)(vii) and 1026.38(j)(2)(vi) and (xi). If the
calculation required by Sec. 1026.38(i)(8)(ii) yields a negative
number, the creditor or closing agent discloses the amount as a
negative number.
* * * * *
38(j) Summary of borrower's transaction.
* * * * *
3. Identical amounts. The amounts disclosed under the following
provisions of Sec. 1026.38(j) are the same as the amounts disclosed
under the corresponding provisions of Sec. 1026.38(k): Sec.
1026.38(j)(1)(ii) and (k)(1)(ii); Sec. 1026.38(j)(1)(iii) and
(k)(1)(iii); if the amount disclosed under Sec. 1026.38(j)(1)(v) is
attributable to contractual adjustments between the consumer and
seller, Sec. 1026.38(j)(1)(v) and (k)(1)(iv); Sec.
1026.38(j)(1)(vii) and (k)(1)(vi); Sec. 1026.38(j)(1)(viii) and
(k)(1)(vii); Sec. 1026.38(j)(1)(ix) and (k)(1)(viii); Sec.
1026.38(j)(1)(x) and (k)(1)(ix); Sec. 1026.38(j)(2)(iv) and
(k)(2)(iv); unless seller contributions toward simultaneous
subordinate financing are disclosed under Sec.
1026.38(t)(5)(vii)(B) on the simultaneous subordinate financing
Closing Disclosure and Sec. 1026.38(k)(2)(vii) on the first-lien
Closing Disclosure, Sec. 1026.38(j)(2)(v) and (k)(2)(vii); Sec.
1026.38(j)(2)(viii) and (k)(2)(x); Sec. 1026.38(j)(2)(ix) and
(k)(2)(xi); Sec. 1026.38(j)(2)(x) and (k)(2)(xii); and Sec.
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 simultaneous subordinate
financing Closing Disclosure, no contract sales price is disclosed
under Sec. 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 Sec. 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 Sec. 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 Sec.
1026.38(j), to the extent applicable:
i. The balance in the seller's reserve account held in
connection with an existing loan, if assigned to the consumer in a
loan assumption transaction;
ii. Any rent that the consumer will collect after the real
estate closing for a period of time prior to the real estate
closing; and
iii. The treatment of any tenant security deposit.
2. Other consumer charges. The amounts disclosed under Sec.
1026.38(j)(1)(v) which are for charges owed by the consumer at the
real estate closing not otherwise disclosed under Sec. 1026.38(f),
(g), and (j) will not have a corresponding credit in the summary of
the seller's transaction under Sec. 1026.38(k)(1)(iv). For example,
the amounts paid to any holders of existing liens on the property in
a refinance transaction, construction costs in connection with the
transaction that the consumer will be obligated to pay, payoff of
other secured or unsecured debt, any outstanding real estate
property taxes, and principal reductions are disclosed under Sec.
1026.38(j)(1)(v) without a corresponding credit in the summary of
the seller's transaction under Sec. 1026.38(k)(1)(iv). See comment
38-4 for an explanation of how to disclose a principal reduction
under Sec. 1026.38(j)(1)(v).
3. Simultaneous subordinate financing Closing Disclosure. On the
simultaneous subordinate financing Closing Disclosure, the proceeds
of the subordinate financing applied to the first-lien transaction
may be included in the summaries of transactions table under Sec.
1026.38(j)(1)(v). See also comments 37(h)(1)(v)-2 and 37(h)(1)(vii)-
6 for an explanation of how to disclose on the Loan Estimate amounts
that will be disclosed on the Closing Disclosure under Sec.
1026.38(j)(1)(v).
* * * * *
38(j)(2) Itemization of amounts already paid by or on behalf of
borrower.
* * * * *
Paragraph 38(j)(2)(vi).
* * * * *
2. Subordinate financing proceeds on first-lien Closing
Disclosure. Any financing arrangements or other new loans not
otherwise disclosed under Sec. 1026.38(j)(2)(iii) or (iv) must be
disclosed under Sec. 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 subordinate financing 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 must also be
listed, and 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 Sec.
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 Sec. 1026.38(j)(2)(vi).
6. Adjustments. Section 1026.38(j)(2)(vi) requires the
disclosure of any additional amounts not already disclosed under
Sec. 1026.38(f), (g), (h), and (j)(2), that are owed to the
consumer but payable to the seller before the real estate closing.
The disclosures made under Sec. 1026.38(j)(2)(vi) must also include
a description for each disclosed
[[Page 37790]]
amount. 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 by identifying the amount as rent from a
tenant under the heading ``Adjustments.'' See also Sec.
1026.38(k)(2)(viii), which requires disclosure of a description and
amount of any and all other obligations required to be paid by the
seller at the real estate closing.
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 Sec. 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 Sec. 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 H to this part. For an explanation of what
constitutes closing funds, see Sec. 1026.38(j)(4)(ii). See also
comment 38-4 for an explanation of how to disclose a principal
reduction that is not paid from closing funds.
* * * * *
38(k) Summary of seller's transaction.
1. Transactions with no seller or simultaneous subordinate
financing transactions. Section 1026.38(k) does not apply in a
transaction where there is no seller, such as a refinance
transaction or a transaction with a construction purpose as defined
in Sec. 1026.37(a)(9)(iii), or in a simultaneous subordinate
financing purchase transaction as defined in Sec. 1026.37(a)(9)(i)
if the first-lien Closing Disclosure records the entirety of the
seller's transaction.
* * * * *
38(k)(1) Itemization of amounts due to seller.
1. Simultaneous subordinate financing. Section 1026.38(k) does
not apply in a simultaneous subordinate financing purchase
transaction as defined in Sec. 1026.37(a)(9)(i) if the first-lien
Closing Disclosure records the entirety of the seller's transaction.
If Sec. 1026.38(k) applies to a simultaneous subordinate financing
transaction, Sec. 1026.38(k) is completed based only on the terms
and conditions of the simultaneous subordinate financing transaction
and no contract sales price is disclosed under Sec.
1026.38(k)(1)(ii) on the Closing Disclosure for the simultaneous
subordinate financing.
38(k)(2) Itemization of amounts due from seller.
* * * * *
Paragraph 38(k)(2)(vii).
1. Simultaneous subordinate financing--seller contribution. If a
simultaneous subordinate financing transaction is disclosed with the
alternative tables pursuant to Sec. 1026.38(d)(2) and (e), the
first-lien Closing Disclosure must include any contributions from
the seller toward the simultaneous subordinate financing that are
disclosed in the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B) on the simultaneous subordinate financing
Closing Disclosure. For example, assume the simultaneous subordinate
financing transaction is disclosed using the alternative tables
pursuant to Sec. 1026.38(d)(2) and (e) and the seller contributes
$200.00 toward the closing costs of the simultaneous subordinate
financing. The simultaneous subordinate financing Closing Disclosure
must include the $200.00 contribution in the payoffs and payments
table pursuant to Sec. 1026.38(t)(5)(vii)(B) and comments
38(t)(5)(vii)(B)-1 and -2. The first-lien Closing Disclosure must
include the $200.00 contribution in the summaries of transactions
table for the seller's transaction under Sec. 1026.38(k)(2)(vii).
* * * * *
38(l) Loan disclosures.
* * * * *
38(l)(7) Escrow account.
1. Definition of escrow account. For a description of an escrow
account for purposes of the escrow account disclosure under Sec.
1026.38(l)(7), see the definition of ``escrow account'' in 12 CFR
1024.17(b).
2. Addenda. Additional pages may be attached to the Closing
Disclosure to add lines, as necessary, to accommodate the complete
listing of all items required to be shown on the Closing Disclosure
under Sec. 1026.38(l)(7). See Sec. 1026.38(t)(5)(ix). A reference
such as ``See attached page for additional information'' must be
placed in the applicable section of the Closing Disclosure, if an
additional page is used to list all items required to be shown.
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 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. 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 Sec. 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 Sec.
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 Sec. 1026.38(l)(7)(i)(A)(4) is equal to the sum of
the amount of estimated escrow payments disclosed under Sec.
1026.38(c)(1) (as described in Sec. 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 Sec. 1026.38(c)(1) (as described in Sec. 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 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. 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, 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.
Paragraph 38(l)(7)(i)(B)(1).
1. Estimated costs paid directly by the consumer. The creditor
discloses an amount under Sec. 1026.38(l)(7)(i)(B)(1) only if no
escrow account will be established.
2. During the first year. Section 1026.38(l)(7)(i)(B)(1)
requires disclosure based on payments during the first year after
consummation. A creditor may comply with this requirement by basing
the disclosure on a 12-month period beginning with the borrower's
initial payment date or on a 12-month period beginning with
consummation.
* * * * *
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 Sec.
1026.4 for calculation of the finance charge) are understated by
more than $100. For example, assume that borrower-paid loan
origination fees (see Sec. 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
[[Page 37791]]
purposes of Sec. 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 Sec. 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 Sec.
1026.38(o)(1), but the disclosed finance charge would be accurate
for purposes of Sec. 1026.38(o)(2).
38(o)(1) Total of payments.
1. Calculation of total of payments. The total of payments is
the total, expressed as a dollar amount, the consumer will have paid
after making all payments of principal, interest, mortgage
insurance, and loan costs, as scheduled, through the end of the loan
term. The total of payments excludes charges that would otherwise be
included as components of the total of payments if such charges are
designated on the Closing Disclosure as paid by seller or paid by
others. A seller or other party, such as the creditor, may agree to
offset payments of principal, interest, mortgage insurance, or loan
costs, whether in whole or in part, through a specific credit, for
example through a specific seller or lender credit. Because these
amounts are not paid by the consumer, they 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 amounts for purposes of
the total of payments calculation. For guidance on the amounts
included in the total of payments calculation, see the ``In 5
Years'' disclosure under Sec. 1026.37(l)(1)(i) and 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 Sec. 1026.38(t)(1)(i).
Even when the creditor elects not to use the model form, Sec.
1026.38(t)(1)(ii) requires that the disclosures contain only the
information required by Sec. 1026.38(a) through (s), and that the
creditor make the disclosures in the same order as they occur in
form H-25, use the same headings, labels, and similar designations
as used in the form (many of which also are expressly required by
Sec. 1026.38(a) through (s)), and position the disclosures relative
to those designations in the same manner as shown in the form. In
order to be in a format substantially similar to form H-25, the
disclosures required by Sec. 1026.38 must be provided on letter
size (8.5'' x 11'') paper.
* * * * *
38(t)(5) Exceptions.
* * * * *
38(t)(5)(v) Separation of consumer and seller information.
1. Permissible form modifications to separate consumer and
seller information. The modifications to the form permitted by Sec.
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 Sec.
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 Sec. 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, 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 Sec. 1026.38(t)(5)(v),
a creditor may assist the settlement agent in providing (or provide
when acting as a settlement agent) a separate form to the seller
where applicable State law prohibits sharing with the seller the
information disclosed under Sec. 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 Sec. 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 assist the settlement agent in providing
(or provide when acting as a settlement agent) 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.
38(t)(5)(vi) Modified version of the form for a seller or third-
party.
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 or simultaneous
subordinate financing transaction.
* * * * *
2. Appraised property value. The modifications permitted by
Sec. 1026.38(t)(5)(vii) do not specifically refer to the label
required by Sec. 1026.38(a)(3)(vii)(B) for transactions that do not
involve a seller, because the label is required by that section and
therefore is not a modification. As required by Sec.
1026.38(a)(3)(vii)(B), a form used for a transaction that does not
involve a seller and is modified under Sec. 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 Sec.
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 Sec. 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. Some
examples of amounts paid by third parties that may be disclosed as
credits on the payoffs and payments table under Sec.
1026.38(t)(5)(vii)(B) include gift funds, grants, proceeds from
loans that satisfy the partial exemption criteria in Sec.
1026.3(h), and, on the Closing Disclosure for a simultaneous
subordinate financing transaction, contributions from a seller for
costs associated with the subordinate financing.
2. Disclosure of subordinate financing. i. First-lien Closing
Disclosure. On the Closing Disclosure for a first-lien transaction
disclosed with the alternative tables pursuant to Sec.
1026.38(d)(2) and (e), such as a refinance transaction, that also
has simultaneous subordinate financing, the proceeds of the
subordinate financing are included in the payoffs and payments table
under Sec. 1026.38(t)(5)(vii)(B) by disclosing, as a credit, the
principal amount of the subordinate financing, and, if the net
proceeds of the subordinate financing are less than the principal
amount of the subordinate financing, the net proceeds. The creditor
may list the principal amount and net proceeds of the subordinate
financing on the same line. For example, the creditor may disclose
the principal amount of the subordinate financing under the
subheading ``To'' with a description of the payment, and the net
proceeds of the subordinate financing under the subheading
``Amount.''
ii. Simultaneous subordinate financing Closing Disclosure. On
the Closing Disclosure for a simultaneous subordinate financing
transaction disclosed with the alternative tables pursuant to Sec.
1026.38(d)(2) and (e), the proceeds of the subordinate financing
applied to the first-lien transaction may be included in the payoffs
and payments table under Sec. 1026.38(t)(5)(vii)(B).
iii. Simultaneous subordinate financing--seller contribution. If
a creditor discloses the alternative tables pursuant to Sec.
1026.38(d)(2) and (e) on the simultaneous subordinate financing
Closing Disclosure, the creditor must also disclose as a credit in
the payoffs and payments table on the simultaneous subordinate
financing Closing Disclosure, any contributions from the seller
toward the simultaneous subordinate financing. For example, assume
the subordinate-lien creditor provides the alternative tables
pursuant to Sec. 1026.38(d)(2) and (e) on the simultaneous
subordinate financing Closing
[[Page 37792]]
Disclosure and the seller contributes $200.00 toward the closing
costs of the simultaneous subordinate financing. The subordinate-
lien creditor must disclose the $200.00 contribution as a credit on
the simultaneous subordinate financing Closing Disclosure in the
payoffs and payments table under Sec. 1026.38(t)(5)(vii)(B). See
also comments 38(j)-3 and 38(k)(2)(vii)-1 for disclosure
requirements applicable to the first-lien transaction when the
alternative disclosures are used for a simultaneous subordinate
financing transaction and a seller contributes to the costs of the
subordinate financing.
3. Other examples. For additional examples of items disclosed
under Sec. 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 principal
reduction under Sec. 1026.38(t)(5)(vii)(B).
* * * * *
Appendix D--Multiple-Advance Construction Loans
* * * * *
7. Relation to Sec. Sec. 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
Sec. Sec. 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 the two phases are
disclosed as a single transaction, the loan term disclosed is 31
years.
B. Term of permanent financing. The loan term of the permanent
financing is counted from the date that interest for the permanent
financing periodic payments 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 Sec. Sec.
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 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 Sec. Sec. 1026.37(a)(10) and
1026.38(a)(5)(iii) is the full term of the interest-only
construction financing plus any interest-only period for the
permanent financing. For example, the product disclosure for a
single disclosure, fixed rate, construction-permanent loan with a 12
month interest-only construction phase where the interest rate is
not subject to modification upon conversion to the permanent phase
is ``1 Year Interest Only, Fixed Rate.'' If the first year of the
permanent phase in this example also has a 12 month interest-only
period, the product disclosure is ``2 Year Interest Only, Fixed
Rate.''
C. Product when interest rate at consummation not known. If the
interest rate for the permanent phase is not known at consummation
for a construction-permanent loan using a single, combined
construction-permanent disclosure or using separate disclosures for
the permanent phase, the creditor shall disclose the loan product
under Sec. Sec. 1026.37(a)(10) and 1026.38(a)(5)(iii) as
``Adjustable Rate.'' If the interest rate may increase under the
terms of the legal obligation from the disclosures provided at
consummation, the loan product description is ``Adjustable Rate'' in
such cases, even if the interest rate will be fixed for the term of
the permanent phase once it is set.
iii. Interest rate. If the permanent financing has an adjustable
rate at consummation and separate disclosures are provided, 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 that will not be adjusted when the
construction phase converts to the permanent phase, that fixed rate
is used for disclosure purposes. If the permanent financing has a
rate that may adjust when the construction phase converts to the
permanent phase, the permanent financing has an adjustable rate. If
the legal obligation for a loan secured by the consumer's principal
dwelling provides that the permanent financing interest rate may
adjust 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 Sec. 1026.20(c), but not (d), if the
interest rate for the permanent phase will be fixed after the
conversion.
iv. Increase in periodic payment. If the amounts or timing of
advances is unknown at or before consummation and the appendix D
assumption that applies if interest is payable only on the amount
advanced for the time it is outstanding is used to calculate the
periodic payment:
A. A creditor discloses ``YES'' as the answer to ``Can this
amount increase after closing?'' pursuant to Sec.
1026.37(b)(6)(iii) whether the creditor provides separate
construction disclosures or combined construction-permanent
disclosures, even though calculation of the construction financing
periodic payments using the assumptions in appendix D produces
interest-only periodic payments that are equal in amount.
B. A creditor that discloses ``YES'' as the answer to ``Can this
amount increase after closing?'' pursuant to Sec.
1026.37(b)(6)(iii) may use months or years for the Sec.
1026.37(b)(6)(iii) disclosures, consistent with comment 37(b)(6)-1.
For example, for a 10-month construction loan, the first Sec.
1026.37(b)(6)(iii) disclosure bullet may disclose, ``Adjusts every
mo. starting in mo. 1'' and the second Sec. 1026.37(b)(6)(iii)
disclosure bullet may disclose, ``Can go as high as $[insert maximum
possible periodic principal and interest payment] in year 1''. The
calculation of the maximum possible periodic principal and interest
payment disclosed is based on the maximum principal balance that
could be outstanding during the construction phase. As part of the
``First Change/Amount'' disclosure in the ``Adjustable Payment (AP)
Table'' pursuant to Sec. 1026.37(i)(5)(i), the creditor may omit
and leave blank the amount or range corresponding to the first
periodic principal and interest payment that may change. In such
cases, the creditor must still disclose the timing of the first
change, which is the number of the earliest possible payment (e.g.,
1st payment) that may change under the terms of the legal
obligation.
C. When separate construction disclosures or the combined
construction-permanent disclosures are provided for adjustable-rate
construction financing, a creditor provides the Sec.
1026.37(b)(6)(iii) disclosures reflecting changes that are due to
changes in the interest rate and changes that are due to changes in
the total amount advanced. Such a creditor discloses ``YES'' as the
answer to ``Can this amount increase after closing?'' pursuant to
Sec. 1026.37(b)(6), because the initial periodic payment may
increase based upon an increase in the interest rate in addition to
a change based on the total amount advanced. Such a creditor also
discloses a reference to the adjustable payment table required by
Sec. 1026.37(i), disclosed as provided in comment app. D-7.iv.B,
because that disclosure reflects both a change due to a change in
the total amount advanced, which is a change to the periodic
principal and interest payment that is not based on an adjustment to
the interest rate, as well as the fact that there are interest-only
payments. Such a creditor also includes a reference to the
adjustable interest rate table required by Sec. 1026.37(j) because
that disclosure reflects a change due to a change in the interest
rate.
v. Projected payments table. A creditor must disclose a
projected payments table for certain transactions secured by real
property or a cooperative unit, pursuant to Sec. Sec. 1026.37(c)
and 1026.38(c), instead of the general payment schedule required by
Sec. 1026.18(g) or the interest rate and payments summary table
required by Sec. 1026.18(s). Accordingly, some home construction
loans that are secured by real property or a cooperative unit are
subject to Sec. Sec. 1026.37(c) and 1026.38(c) and not Sec.
1026.18(g). See comment app. D-6 for a discussion of transactions
that are subject to Sec. 1026.18(s). Under Sec. 1026.17(c)(6)(ii),
when a multiple-advance construction loan may be permanently
financed by the same creditor, the construction phase and the
permanent phase may be treated as either one transaction or more
than one transaction. The following are illustrations of the
application of appendix D to transactions subject to Sec. Sec.
1026.37(c) and 1026.38(c), under each of the Sec. 1026.17(c)(6)(ii)
alternatives:
[[Page 37793]]
A. If a creditor uses appendix D and elects pursuant to Sec.
1026.17(c)(6)(ii) to disclose the construction and permanent phases
as separate transactions, the construction phase must be disclosed
according to the rules in Sec. Sec. 1026.37(c) and 1026.38(c).
Under Sec. Sec. 1026.37(c) and 1026.38(c), the creditor must
disclose the periodic payments during the construction phase in a
projected payments table. The provision in appendix D, part I.A.3,
which allows the creditor to omit the number and amounts of any
interest payments ``in disclosing the payment schedule under Sec.
1026.18(g)'' does not apply because the transaction is governed by
Sec. Sec. 1026.37(c) and 1026.38(c) rather than Sec. 1026.18(g).
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 assumptions in appendix D, part I.A.1. Also, because the
construction phase is being disclosed as a separate transaction and
its periodic payments do not repay the principal, the creditor must
disclose the construction phase transaction as a product with a
balloon payment feature, pursuant to Sec. Sec.
1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), unless the transaction
has negative amortization, interest-only, or step payment features,
consistent with the requirement at Sec. 1026.37(a)(10)(iii). In
addition, the creditor must provide the balloon payment disclosures
pursuant to Sec. Sec. 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 reflects the
interest-only payments during the construction phase in a first
column. The first column also reflects the amortizing payments, and
mortgage insurance and escrow payments, if any, for the permanent
phase if the term of the construction phase is not a full year. The
following column(s) reflect the 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.
C. Consistent with comments 37(c)(2)(ii)-1 and 37(c)(2)(iii)-1,
when the loan is disclosed as one transaction and only the terms of
the legal obligation for the permanent phase require mortgage
insurance or escrow, the way the creditor discloses the escrow and
mortgage insurance depends on whether the first column of the
projected payments table exclusively discloses the construction
phase. If the first column of the projected payments table
exclusively discloses the construction phase, the creditor discloses
``0'' in the first column of the projected payments table for
mortgage insurance and a hyphen or dash in the first column of the
projected payments table for escrow. If the first column discloses
both the construction phase and the permanent phase payments, the
amount of the mortgage insurance premium or escrow payment (if any)
for the permanent phase is disclosed in the first column.
vi. Disclosure of construction costs.
A. Construction costs are the costs of improvements to be made
to the property that the consumer contracts for in connection with
the financing transaction and that will be paid in whole or in part
with loan proceeds.
B. On the Loan Estimate, a creditor factors construction costs
into the funds for borrower calculation under Sec.
1026.37(h)(1)(v). Because these amounts are disclosed under Sec.
1026.38(j)(1)(v) on the Closing Disclosure, they are included in
existing debt that is factored into the funds for borrower
calculation under Sec. 1026.37(h)(1)(v). Comment 37(h)(1)(v)-2
explains that the total amount of all existing debt being satisfied
in the transaction that is used in the funds for borrower
calculation is the sum of the amounts that will be disclosed on the
Closing Disclosure in the summaries of transactions table under
Sec. 1026.38(j)(1)(ii), (iii), and (v), as applicable. For
transactions without a seller or for simultaneous subordinate
financing, construction costs may instead be disclosed under Sec.
1026.37(h)(2)(iii) in the optional alternative calculating cash to
close table.
C. A creditor discloses the amount of construction costs on the
Closing Disclosure under Sec. 1026.38(j)(1)(v) in the summaries of
transactions table and factors them into the down payment/funds from
borrower and funds for borrower calculation under Sec.
1026.38(i)(4) and (6). For transactions without a seller or for
simultaneous subordinate financing, construction costs may instead
be disclosed under Sec. 1026.38(t)(5)(vii)(B) in the optional
alternative calculating cash to close table.
D. 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 under Sec.
1026.38(j)(1)(v) if space permits, or may be included in the amount
disclosed for construction costs under Sec. 1026.38(j)(1)(v). 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 an itemized cost for the balance of the construction costs, in
accordance with the disclosure and calculation options described in
comments app. D-7.vi-B and C. 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 placed in an account is disclosed
separately, the balance of construction costs disclosed excludes the
amount placed in an account to avoid double counting.
vii. Construction loan inspection and handling fees. Comment
4(a)-1.ii.A provides that inspection and handling fees, including
draw 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 Sec. 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.
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 explains
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 explains how to disclose inspection and handling
fees that will be collected after consummation in an addendum. Under
comment 38(f)-2, the same explanation applies to an addendum used
for disclosing such fees in the Closing Disclosure. Comment
37(l)(1)-1 explains that the amount disclosed under Sec.
1026.37(l)(1)(i) is the sum of principal, interest, mortgage
insurance, and loan costs scheduled to be paid through the end of
the 60th month after the due date of the first periodic payment, and
that loan costs are those costs disclosed under Sec. 1026.37(f).
Construction loan inspection and handling fees are loan costs that
must be included in the sum of the ``In 5 Years'' disclosure under
Sec. 1026.37(l)(1) and the ``Total of Payments'' disclosure under
Sec. 1026.38(o)(1) because they are disclosed under Sec.
1026.37(f), even when they are disclosed on an addendum.
* * * * *
Dated: July 6, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-15764 Filed 8-10-17; 8:45 am]
BILLING CODE 4810-AM-P