TILA-RESPA Integrated Disclosures Developments

Transcription

1 TILA-RESPA Integrated Disclosures Developments By Jonathan W. Cannon, Christine Acree, and Brandy Hood* INTRODUCTION The Consumer Financial Protection Bureau ( CFPB ) has made the Know Before You Owe: TILA-RESPA Integrated Disclosures Rule ( TRID Rule ) 1 the centerpiece of its mortgage-regulatory mandate. 2 Since the TRID Rule s effective date of October 3, 2015, the CFPB has been steadily producing informal guidance to the mortgage industry through various forms, including webinars, as the industry has been adapting to the extensive changes brought about by the TRID Rule. Further, in response to industry questions and concerns, the CFPB has reopened the rulemaking in order to formally address some, but not all, of the concerns raised by industry stakeholders. PROPOSED AMENDMENTS On August 15, 2016, the CFPB published its proposed amendments to the TRID Rule, 3 consisting of a few significant changes and many minor changes. However, the CFPB emphasized that it was not proposing to reopen major policy decisions with this rulemaking 4 and that it was reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after * Jonathan W. Cannon is Vice President Counsel with City National Bank in Los Angeles. Christine Acree is Senior Product Counsel with Ellie Mae, Inc. in Irvine, California, and is the co-vice chair of the Housing Finance Subcommittee of the Consumer Financial Services Committee. Brandy Hood is an associate with BuckleySandler LLP in Washington, D.C. 1. Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 78 Fed. Reg (Dec. 31, 2013) (to be codified at 12 C.F.R. pts & 1026) [hereinafter TRID Rule]. Originally, the CFPB established the TRID Rule s effective date as August 1, 2015, id. at 79730, but it subsequently delayed the effective date until October 3, 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, 80 Fed. Reg (July 24, 2015) (to be codified at 12 C.F.R. pts & 1026). 2. See Jonathan W. Cannon, Christine Acree & Brandy Hood, TILA-RESPA Integrated Disclosures, 71 BUS. LAW. 639, (2016). 3. Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z), 81 Fed. Reg (proposed Aug. 15, 2016) (to be codified at 12 C.F.R. pt. 1026) [hereinafter TRID Amendments]. The CFPB had previously confirmed that it would reopen the rulemaking process. See Letter from Richard Cordray, Dir., Consumer Fin. Prot. Bureau, to Industry Trades and Their Members 1 (Apr. 28, 2016), CFPBLetterKBYO.pdf. 4. TRID Amendments, supra note 3, at

2 504 The Business Lawyer; Vol. 72, Spring 2017 the October 2015 effective date or to otherwise distract from industry s intense and very productive efforts to resolve outstanding implementation issues. 5 Despite industry requests, the CFPB opted not to propose any revisions that implicate fundamental policy choices, such as the disclosure of simultaneous issuance title insurance premiums, made in the TILA-RESPA Final Rule. The Bureau is also not proposing additional cure provisions. 6 The CFPB noted that it was concerned that further definition of cure provisions would not be practicable without substantially undermining incentives for compliance with the rule. 7 The CFPB proposed significant changes to a number of parts of the TRID Rule. Among other things, the CFPB proposed to align the Total of Payments disclosure with the existing rules for tolerances under the Truth in Lending Act ( TILA ). 8 The proposal would also change the rules regarding the use of the Closing Disclosure to reset tolerances by allowing creditors to provide a revised Closing Disclosure at any time before settlement, but after providing an initial Closing Disclosure, as long as the other requirements of Regulation Z are met, particularly the requirement that a revised disclosure be provided no more than three business days after the creditor receives information sufficient to reset tolerances. 9 If the proposed language is adopted, this revision would be particularly significant because current rules may preclude a creditor from being able to pass along to the borrower the cost of fee increases that occur after the Closing Disclosure has been issued in certain circumstances, even if the borrower requests the change. 10 The CFPB further proposed to expand the TRID Rule to apply to all transactions involving cooperative units, regardless of whether state law considers them to be real property or personal property. 11 In response to industry requests, especially from real estate professionals, the CFPB proposed to incorporate and expand upon previous webinar guidance in the Official Interpretations (commentary) to the regulation to provide greater clarity regarding the sharing of disclosures with various parties involved in the mortgage transaction. 12 The proposal would also adjust a partial exemption that mainly affects housing finance agencies and nonprofits 13 and provide additional guidance regarding construction loans. 14 The more minor changes and technical corrections in the TRID Rule address a variety of topics, including: Affiliate charges; the calculating cash to close table;... 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;... the list of service providers; model forms; non-obligor 5. Id. at Id. 7. Id. 8. Id. at (to be codified at 12 C.F.R (g)). 9. Id. at (to be codified at 12 C.F.R. pt. 1026, supp. I, cmt. 19(e)(4)(ii)-2). 10. See id. at (to be codified at 12 C.F.R. pt. 1026, supp. I, cmt. 19(e)(4)(ii)-2). 11. Id. at (to be codified at 12 C.F.R (e), (f)). 12. Id. at Id. at (to be codified at 12 C.F.R (h)). 14. Id. at (to be codified at 12 C.F.R. pt. 1026, supp. I, cmt. 17(c)(6)-5).

3 TILA-RESPA Integrated Disclosures Developments 505 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 LIABILITY FOR TRID RULE VIOLATIONS The TRID Rule contains hundreds of highly technical requirements, some of which carry a private right of action and some of which do not. 16 In the TRID Rule, the CFPB responded to requests for clarity on potential liability by directing readers to the section-by-section analysis of the final rule for discussion of the statutory authority that the CFPB used for each provision of the TRID Rule and noting that [t]he Bureau believes these detailed discussions of the statutory authority for each of the integrated disclosure provisions provide sufficient guidance for industry, consumers, and the courts regarding the liability issues raised by the commenters. 17 Notably, a violation of any one of these requirements, no matter how minor, could lead to action by a regulator or a violation of the representations and warranties made when a loan is sold or securitized even if the borrowers cannot sue for the violation. As of now, the TRID Rule allows creditors to cure violations in only two circumstances: when the Closing Disclosure contains a non-numeric clerical error or when there is a tolerance violation. 18 TILA also provides limited protection from TILA liability, but not cures, for some violations if the creditor or assignee takes certain corrective actions or shows that the violation was a bona fide error Id. at ; see id. at (affiliate charges), (calculating cash to close table on the Loan Estimate), (total interest percentage, decimal places, and rounding), (escrow account disclosure), (escrow cancellation notice and partial payment disclosure), (expiration date, property value, rate lock), (gift funds on the Loan Estimate, seller credits), (In 5 Years and Total of Payments), (lender credits, payoffs with a purchase loan), (written list of providers), (model forms), (non-obligor consumers), (projected payments table), (payoffs and payments table), (post-consummation fees), (principal reductions), (property taxes), (recording fees), (summaries of transactions table), (trusts) (informational Loan Estimates). 16. See TRID Rule, supra note 1, at Id. TILA provides for a private right of action, with statutory damages for some violations, whereas RESPA does not provide a private right of action related to the RESPA GFE and RESPA settlement statement requirements. Id.; see TILA, 15 U.S.C f (2012); RESPA, 12 U.S.C (2012) C.F.R (f)(2)(iv) (v) (2016) U.S.C. 1640(b) (c) (2012). Examples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programing, and printing errors.... Id. 1640(c).

4 506 The Business Lawyer; Vol. 72, Spring 2017 As a result, liability and the availability of cures for TRID violations have been major concerns. Those concerns have been repeatedly expressed to the CFPB, and the CFPB has responded in only a limited fashion. PRE-EFFECTIVE DATE IMPLEMENTATION CONCERNS As the mortgage lending industry worked toward implementation of the TRID Rule, there was concern that implementation would likely be imperfect. 20 In response to these concerns, the CFPB and other regulators stated that initial examinations would be limited: During initial examinations for compliance with the [TRID] Rule, the agencies examiners will evaluate an institution s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance. Examiners will expect supervised entities to make good faith efforts to comply with the [TRID] Rule s requirements in a timely manner. Specifically, examiners will consider: the institution s implementation plan, including actions taken to update its policies, procedures, and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges. 21 INITIAL IMPLEMENTATION AND THE CFPB S EVALUATION OF TILA LIABILITY Soon after the TRID Rule became effective, the industry s concerns proved to be valid, with over 90 percent of loans reportedly violating the rule two months after it went into effect. 22 As a result, investors expressed concerns that these errors would expose them to an unknown degree of liability, which reportedly led to many loans being rejected and to at least one lender s eventual demise in March To quell concerns regarding these initial reports, CFPB Director Cordray wrote in a December 2015 letter that the TRID Rule did not change the prior, fundamental principles of liability under either TILA or RESPA, and if investors were to reject loans on the basis of formatting and other minor errors, 20. See Letter from Frank Keating, President & CEO, Am. Bankers Ass n, to Fed. Fin. Insts. Examination Council 1 2 (Aug. 12, 2015), Documents/TRIDFFIECAug pdf. 21. Letter from Richard Cordray, Dir., Consumer Fin. Prot. Bureau, to Frank Keating, President & CEO, Am. Bankers Ass n 2 (Oct. 1, 2015), pdf; see Letter from Thomas J. Curry, Comptroller of the Currency, to Frank Keating, President & CEO, Am. Bankers Ass n 1 2 (Oct. 1, 2015), Documents/OCC-Response-TRID-Guidance.pdf (setting forth virtually the same language). 22. See Ben Lane, Moody s: TRID Violations Found in 90% of Recently Reviewed Mortgages, HOUSING- WIRE (Dec. 10, 2015), 90-of-recently-reviewed-mortgages. 23. See Brad Finkelstein, TRID Problems Led to W.J. Bradley s Demise, NAT L MORTG. NEWS (Mar. 16, 2016),

5 TILA-RESPA Integrated Disclosures Developments 507 as [industry representatives] indicate has been occurring, they would be rejecting loans for reasons unrelated to potential liability associated with the... disclosures. 24 The letter also suggested that such rejections are an overreaction, and that these concerns will dissipate as the industry gains experience with closings, loan purchases, and examinations. 25 Although the letter also attempted to explain how TILA liability is limited, it appeared only to focus on a subset of the disclosures and thus did not wholly describe a lender s or investor s potential TILA liability for errors. In response to continued requests, the CFPB also created annotated versions of the Loan Estimate and Closing Disclosure in May 2016 that were designed to show which specific disclosure requirements were adopted under TILA Part B and, thus, may carry a private right of action. 26 However, the annotations do not appear to completely align with the statutory authority cited in the preamble to the TRID Rule. 27 RESPONSE TO REQUESTS FOR ADDITIONAL CURES Although the CFPB considered proposing additional cures, it has chosen not to, noting in its proposed rule that: 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. 28 GUIDANCE ON LIABILITY TO DATE IS NON-BINDING All of the CFPB s statements on TILA liability have come in the form of informal letters and guidance and, they generally state that they are not binding on 24. Letter from Richard Cordray, Dir., Consumer Fin. Prot. Bureau, to David Stevens, President & CEO, Mortg. Bankers Ass n 2 3 (Dec. 29, 2015), CFPB_Response_to_MBA_TRID_Letter.pdf. 25. Id. at CONSUMER FIN. PROT. BUREAU, LOAN ESTIMATE WITH TRUTH IN LENDING ACT DISCLOSURE CITATIONS (May 2016), CONSUMER FIN. PROT. BUREAU, CLOSING DISCLOSURE WITH TRUTH IN LENDING ACT: DISCLOSURE CITATIONS (May 2016), _cfpb_closing-disclosure-with-truth-in-lending-act-disclosure-citations.pdf. In the field of each form, the CFPB listed the pertinent disclosure provisions of Chapter 2 of the... TILA... referenced in the preamble of the [TRID] Rule. 27. For example, the TILA Mapping Disclosures indicate that the Loan Estimate Adjustable Interest Rate ( AIR ) table requirements were adopted under 15 U.S.C. 1638(b)(2)(C)(ii) (2012), but that does not align with the section-by-section analysis of that provision. See TRID Rule, supra note 1, at (citing 15 U.S.C. 1604(a)). 28. TRID Amendments, supra note 3, at

6 508 The Business Lawyer; Vol. 72, Spring 2017 the CFPB, other regulators, or courts. 29 Industry s doubts about relying on such guidance have been reinforced by the CFPB s emphatic rejection of informal regulatory guidance when enforcing RESPA violations. 30 GUIDANCE THROUGH WEBINARS As noted in the proposed amendments to the TRID Rule, 31 the CFPB staff has addressed a wide range of topics related to the TRID Rule during seven webinars it hosted between June 2014 and April Although the guidance provided in the webinars was not issued as an Official Interpretation under either TILA or RESPA, 33 and therefore is not binding on the CFPB, these webinars nevertheless provide helpful clarification of ambiguities in the TRID Rule and set forth the CFPB s expectations about matters that are not expressed in that rule. For example, in webinar guidance, the CFPB staff stated that the creditor must provide an updated or revised Written List of Providers ( WLP ) if a new service is added, after the initial Loan Estimate is provided, and that, if the creditor fails to provide a revised WLP, the service is subject to a 0 percent tolerance. 34 This guidance adds a new requirement not otherwise prescribed in the TRID Rule because the TRID Rule only requires that one WLP be provided within three business days after application. The guidance changes regulatory requirements because, under the plain language of the TRID Rule, the new service would be subject to a 10 percent tolerance, not a 0 percent tolerance. 35 The first webinar provided an initial high-level overview of the TRID Rule and addressed questions related to collecting application information and pre-disclosure 29. See supra note 27; 5 U.S.C. 552, 553 (2012); see, e.g., United States v. One 1985 Mercedes, 917 F.2d 415, 423 (9th Cir. 1990) (holding that, unlike promulgated rules, interpretive rules, general statements of policy or rules of agency organization, procedure or practice do not have the force and effect of law (internal quotations and citation omitted). 30. See In re PHH Corp., No CFPB-0002, slip op. at (June 4, 2015), consumerfinance.gov/f/201506_cfpb_decision-by-director-cordray-redacted-226.pdf (concluding that HUD letter responding to industry concerns regarding RESPA compliance provided no protection to PHH in this proceeding because it was not an official interpretation published in the Federal Register). 31. See supra note 12 and accompanying text. 32. TILA-RESPA Integrated Disclosure Rule Implementation, CONSUMER FIN. PROTECTION BUREAU, (last visited Nov. 14, 2016). 33. See 15 U.S.C. 1640(f) (2012); 12 U.S.C (2012). 34. See TILA-RESPA Integrated Disclosure, Part 5 Implementation Challenges and Questions, CON- SUMER FIN. PROTECTION BUREAU (May 26, 2015), outlook-live/2015/tila-respa-integrated-disclosures-rule-5 [hereinafter Webinar Part 5] (addressing, via webinar and accompanying hand-out, Written Services Provider List); Consumer TILA-RESPA Integrated Disclosures Rule Webinar Index, CONSUMER FIN. PROTECTION BUREAU, consumercomplianceoutlook.org/outlook-live/2014/faq-on-tila-respa-integrated-disclosures- Rule-4/assets/74d596f5d4b24b0aa14e37936eec6370.ashx (last updated Apr. 12, 2016) [hereinafter Webinar Index]. 35. See 12 C.F.R (e)(1)(vi) (2016); id. pt. 1026, supp. I, cmt 19(e)(3)(iii)-2; id (e)(3)(ii) (providing a 10 percent tolerance for good faith).

7 TILA-RESPA Integrated Disclosures Developments 509 estimate disclaimer requirements. 36 The following webinar addressed frequently asked questions ( FAQs ) related to the definition of application, the scope of the TRID Rule, record retention requirements, the general rule on fee variations and tolerances, disclosure and re-disclosure timing requirements, and general questions on the Loan Estimate. 37 The third webinar addressed FAQs on completing the Loan Estimate, especially related to loan costs, loan terms, and required tables. 38 The fourth webinar focused on general information and required tables related to the Closing Disclosure. 39 The fifth webinar addressed TRID Rule implementation challenges and questions surrounding the Loan Estimate and the Closing Disclosure. 40 The sixth webinar examined multiple aspects of construction lending. 41 Finally, the seventh webinar provided guidance on common questions related to the Loan Estimate generally, disclosure timing, required tables, and loan costs, as well as general questions and disclosure requirements related to the Closing Disclosure after the TRID Rule was in effect See TILA-RESPA Integrated Disclosures, Part 1 Overview of the Rule, CONSUMER FIN. PROTECTION BUREAU (June 17, 2014), RESPA-Integrated-Disclosures-Rule; Webinar Index, supra note 34, at See FAQs on the TILA-RESPA Integrated Disclosures, Part 2 Various Topics, CONSUMER FIN. PRO- TECTION BUREAU (Aug. 26, 2014), FAQ-on-TILA-RESPA-Integrated-Disclosures-Rule; Webinar Index, supra note 34, at See FAQs on the TILA-RESPA Integrated Disclosures, Part 3 Completing the Loan Estimate, CON- SUMER FIN. PROTECTION BUREAU (Oct. 1, 2014), Webinar Index, supra note 34, at See TILA-RESPA Integrated Disclosures, Part 4 Completing the Closing Disclosure, CONSUMER FIN. PROTECTION BUREAU (Nov. 18, 2014), /FAQ-on-TILA-RESPA-Integrated-Disclosures-Rule-4; Webinar Index, supra note 34, at See Webinar Part 5, supra note 34; Webinar Index, supra note 34, at 2, See Know Before You Owe Mortgage Disclosure Rule Construction Lending,CONSUMER FIN.PROTEC- TION BUREAU (Mar. 1, 2016), Webinar Index, supra note 34, at See Know Before You Owe Mortgage Disclosure Rule: Post-Effective Date Questions & Guidance, CON- SUMER FIN. PROTECTION BUREAU (Apr. 12, 2016), Webinar Index, supra note 34, at 2 7.

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