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

12 CFR Part 1026

Prepared by the NASCUS Legislative and Regulatory Affairs Department
August 2017

The Consumer Financial Protection Bureau issued a proposed rule that would amend the Federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) that are implemented in Regulation Z.  The proposed amendments relate to when a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a “Closing Disclosure”, instead of a “Loan Estimate”, to determine if an estimated closing cost was disclosed in good faith.  The amendments would permit creditors to do so regardless of when the “Closing Disclosure” is provided relative to consummation. 

The proposal can be found here and comments are due to the CFPB by October 10, 2017.

Summary

Currently, the TILA-RESPA rule requires creditors to provide consumers with good faith estimates of the loan terms and closing costs required to be disclosed on a “Loan Estimate.”  Under Section 1026.19, an estimated loan closing cost is considered to be disclosed in “good faith” if:

  • If the charge paid by the consumer does not exceed the amount originally disclosed unless otherwise provided under Section 1026.19(e).
  • If the total paid by the consumer for certain types of third-party services and recording fees does not exceed the disclosed amount by more than 10 percent
  • If the estimate of certain charges is consistent with the best information reasonably available to the creditor at the time the estimate was provided

 

In addition, Section 1026.19 permits creditors, under certain circumstances, to use revised estimates instead of the estimate originally disclosed to the consumer to compare the charges actually paid by the consumer for purposes of determining whether an estimated closing cost was disclosed in good faith.

This section also contains rules for the provision/receipt of 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 the reason for the revision applies.  If the conditions are met, creditors generally may provide revised estimates on revised Loan Estimates (or in certain circumstances) on “Closing Disclosures.” 

A creditor cannot provide a revised estimate on a “Loan Estimate” on or after the date the “Closing Disclosure” is provided to the consumer.  In addition, the consumer must receive any revised “Loan Estimate” no later than four business days prior to consummation.  However, if there are less than four business days between the time the revised version of the disclosure is required to be provided and consummation, the creditor may provide the revised estimate on a “Closing Disclosure.”  This is referred to as the “four-business day limit.”

Current Proposal

The Bureau is issuing this proposal to amend Section 1026.19 and the associated commentary to remove the four business day limit for providing “Closing Disclosures” for the purpose of resetting tolerances and determining if an estimated closing cost was disclosed in good faith.

The proposal would allow creditors to reset tolerances using a “Closing Disclosure,” without regard to the current four business day limit. 

Comment Request

The Bureau’s proposal is seeking comment on a number of suggested amendments, a few of the more significant of which have been highlighted below.  Please see the proposal for all questions.

The extent to which the current four business day limit has caused situations where creditors cannot provide either a revised “Loan Estimate” or “Closing Disclosure” to reset tolerances even if a reason for the revision under Section 1026.19(e)(3)(iv) is permissible

The Bureau requests information on the frequency and the cause of such occurrences, specifically, whether the event that would have otherwise permitted the creditor to reset tolerances occurred after the “Closing Disclosure” had been provided to the consumer and whether there was a delay to the expected consummation date after the creditor provided the “Closing Disclosure”

The Bureau requests comment on the extent to which creditors are currently providing “Closing Disclosures” to consumers so that they are received substantially before the required three business days prior to consummation with terms and costs that are nearly certain to be revised

The Bureau requests comment on the number of business days before consummation consumers are receiving the “Closing Disclosure”

Whether creditors might change their current practices regarding the provision of “Closing Disclosures” if the proposal to remove the four business day limit is adopted

Whether there is potential harm for consumers where creditors provide “Closing Disclosures” to consumers so that they are received more than the required three business days prior to consummation with terms/costs that are nearly certain to be revised.

Whether the Bureau should consider adopting measures to prevent such harms in a future rulemaking

Whether the rule should be more restrictive with respect to resetting tolerances with a corrected “Closing Disclosure” for certain third-party costs and creditor fees

Whether removing the four business day limit might result in confusion or information overload to the consumer as a result of receiving more corrected “Closing Disclosures”

The Bureau also requests comment on the average costs and nature of such costs (such as rate lock extension fees, additional appraisal or inspection fees, etc) associated with such occurrences

The Bureau also requests additional information that would assist in evaluating potential consequences of the proposal.