The CFPB s New Mortgage Disclosures

Transcription

1 The CFPB s New Mortgage Disclosures Benjamin K. Olson March 10, 2015

2 Key Changes Effective August 1, 2015: GFE and initial TIL replaced with the Loan Estimate The items constituting an application are narrowed, requiring lenders to provide earlier disclosures based on more limited information Tolerances imposed by HUD in 2010 under RESPA that limit changes in estimated costs have been tightened and are now subject to CFPB enforcement and a TILA private right of action HUD-1/1A and final TIL replaced with Closing Disclosure Disclosure must be provided three days before closing, requiring additional work earlier in process Lender is now responsible for errors in the settlement agent s preparation of the settlement disclosures, creating private liability and vendor management risk 2

3 Liability Today Two different statutes with two different liability schemes TILA 130 Private right of action for actual damages with attorney s fees and costs Statutory penalties of up to $4,000 for failure to properly provide certain disclosures (including finance charge and APR) RESPA: No private right of action for GFE and HUD-1 disclosures Also CFPB enforcement under the Dodd-Frank Act 1055 Civil money penalties of $5,000 per day per violation; $25,000 per day for reckless violations; $1M per day for knowing violations 3

4 Liability in August 2015 Neither Congress nor the CFPB clearly defined liability under the integrated TILA and RESPA disclosures The CFPB states only that each provision of the rule carries the same liability as the statute on which it is based [78 Fed. Reg ] TILA liability for requirements based on TILA RESPA liability for requirements based on RESPA No change in CFPB enforcement authority 4

5 Example Tolerance Violations In 2010, HUD interpreted the good faith estimate requirement in RESPA to limit variations between estimated settlement charges on the GFE and actual settlement charges on the HUD-1 [See, e.g., 78 Fed. Reg ] Referred to as tolerances Implementation has proved to be extraordinarily challenging for industry Extensive compliance issues and remediation CFPB adopted tolerances under TILA s good faith estimate requirement, creating a private right of action [See, e.g., 78 Fed. Reg ] 5

6 Example Settlement Costs Historically, cost of credit governed by TILA (e.g., APR and finance charges) and settlement costs governed by RESPA Dodd-Frank expanded TILA to include the aggregate amount of all settlement charges and all other fees and payments required in connection with the loan Lenders will be responsible for settlement cost information historically controlled and provided by settlement agent Lenders and assignees may be subject to a private right of action for failing to accurately disclose any single settlement charge that affects the aggregate total 6

7 7 Coverage of TRID Rule

8 Scope The rule applies to most closed-end consumer mortgage loans, although it establishes different requirements for timeshares and construction loans The rule does not apply to: Home-equity lines of credit Reverse mortgages Mortgages secured by a mobile home or by a dwelling that is not attached to land Loans made by a creditor who makes five or fewer mortgages in a year Certain no-interest second mortgage loans made for the purpose of downpayment assistance, property rehabilitation, energy efficiency, or foreclosure avoidance 8

9 Assumptions July 2014 CFPB Interpretive Rule: The assumption of a loan by a successor-in-interest who previously acquired an interest in the property (e.g., by inheritance) is not a new transaction under Regulation Z Regulation Z looks to whether the loan being assumed is a residential mortgage transaction as to the assuming consumer CFPB concluded that there is no RMT if the successor had an interest in the property before assuming the loan Interpretive rule intended to address concerns about the application of the Ability-to-Repay/Qualified Mortgage Rule CFPB staff has informally confirmed that the interpretation applies equally to the TRID Rule [79 Fed. Reg ] 9

10 Effective Date Rule generally applies to applications received on or after August 1, 2015 Lenders must be ready to flip the switch No early usage of forms permitted Systems must be able to track the application date and provide the correct disclosures Application received on July 31 Old disclosures Application received in August 1 New disclosures 10

11 CFPB Expectations September 2014 CFPB Director Cordray Speech to NAFCU: Although these forms are not required until August 2015, mortgage lenders should already be working on the new rule and getting ready for next summer. Implementation of the new rule will require significant changes to business operations and technology platforms, which may require close collaboration with third-party service providers. While many mortgage institutions are already deep into the process of implementing these changes, we want to make sure that everyone understands the need to be focusing on August 2015 right now. We have allowed a very reasonable timeframe 21 months for industry to implement these changes, and we are now nearly halfway through that period of preparation. CFPB staff also signaling that lenders cannot expect an extension of the effective date or lenity once the rule takes effect This is not HUD in

12 The Loan Estimate (GFE + Initial TIL) 12

13 General Use of the Bureau s forms is mandatory for most transactions and only limited modifications are permitted Creditor must exercise due diligence to obtain the best information reasonably available... at the time the estimate is provided. When are credit reports reasonably available? 13

14 Model Form H-24(C) 14

15 Model Form H-24(C) Model Form H-24(D) 15

16 Model Form H-24(C) Itemization Discount points v. origination points Only amounts paid by consumer disclosed 16

17 Model Form H-24(C) 17

18 Providing the Loan Estimate Who? Creditor or broker (but creditor ultimately responsible) Broker provision: If a broker receives a consumer s application and provides the Loan Estimate, the broker must comply with all relevant requirements The creditor must ensure that all requirements are met Broker provision satisfies creditor s obligation [12 C.F.R (e)(1)(i)-(ii)] 18

19 Providing the Loan Estimate When? Deliver or place in the mail within three business days after creditor receives application and seven business days before consummation [12 C.F.R (e)(1)(iii)] Application: (1) borrower name; (2) income; (3) SSN to obtain credit report; (4) property address; (5) estimate of property value; (6) loan amount sought [12 C.F.R (a)(3)(ii)] May attempt to sequence the collection of information [Cmt. 2(a)(3)- 1] But you cannot refuse to accept any of the six items Fees & Verification: Retains limitation on fees and requiring documentation until consumer gives notice of intent to proceed in any manner specified by creditor [12 C.F.R (e)(2)] 19

20 What Can Change? Unless an exception applies: Category 1 ( Zero Tolerance ) - Disclosed amounts cannot increase [12 C.F.R (e)(3)(i)] Category 2 ( 10 % Aggregate Tolerance ) - Aggregate disclosed amount for third-party services selected from List of Providers and recording fees cannot increase by more than 10% [12 C.F.R (e)(3)(ii)] Category 3 ( No Tolerance ) Disclosed amount must be based on best information reasonably available at the time using reasonable due diligence but otherwise no limitation on increases [12 C.F.R (e)(3)(iii)] Redisclosure: Provide revised disclosure within three open for business days of receiving information sufficient to establish permitted change [12 C.F.R (e)(4)] 20

21 Category 1 ( Zero Tolerance ) The following amounts disclosed on the Loan Estimate cannot increase unless an exception applies: Creditor s or broker s charges for own services Charges for services provided by an affiliate of the creditor or broker Charges for services for which consumer is not permitted to shop (List of Providers) Transfer taxes [Comment (e)(3)(i)-1] 21

22 Category 2 ( 10% Aggregate Tolerance ) The aggregate of the following amounts disclosed on the Loan Estimate cannot increase by more than 10% unless an exception applies: Third-party services selected from List of Providers Recording fees [12 C.F.R (e)(3)(ii)] 22

23 Category 3 ( No Tolerance ) The following amounts disclosed on the Loan Estimate must be based on best information reasonably available at the time using reasonable due diligence Otherwise, no limitation on increases Prepaid interest Property insurance premiums Amounts placed into escrow or impound Charges paid to consumer-selected, third-party service providers not on List of Providers Charges paid for third-party services not required by the creditor, even if paid to an affiliate of the creditor [12 C.F.R (e)(3)(iii)] 23

24 Exceptions for Permitted Changes 1. Changed circumstances affecting eligibility or settlement charges. One of the following affects creditworthiness or the value of the security or causes estimated charge to increase: An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided New information specific to the consumer or transaction that the creditor did not rely on when providing the original Loan Estimate [12 C.F.R (e)(3)(iv)(A)-(B)] 24

25 Exceptions for Permitted Changes 2. Consumer request. The consumer requests revisions to terms or the settlement that cause an estimated charge to increase. [12 C.F.R (e)(3)(iv)(C)] 3. Interest rate dependent charges. Discount points, loan originator charges, and loan originator credits change because the interest rate was not locked when the Loan Estimate was provided. [12 C.F.R (e)(3)(iv)(D)] Amendment: In January 2015, CFPB relaxed the same-day redisclosure requirement for rate locks and allowed the revised Loan Estimate to be provided within three business days. 4. Expiration. Consumer does not indicate an intent to proceed with the transaction within 10 business days after the Loan Estimate was provided. [12 C.F.R (e)(3)(iv)(E)] 5. New construction. Closing more than 60 days after initial Loan Estimate. [12 C.F.R (e)(3)(iv)(F)] Amendment: For this exception to apply, disclosure must be clearly and conspicuously provided on Loan Estimate. Final rule inadvertently prohibited disclosure, so Bureau amended the rule to permit disclosure on page 3 under the Other Considerations heading 25

26 The Closing Disclosure (HUD-1/1A + Final TIL) 26

27 Model Form H-25(B) 27

28 Model Form H-25(B) Loan originator compensation paid by the creditor is disclosed in Paid by Others column 28

29 Model Form H-25(B) 29

30 Model Form H-25(B) 30

31 Model Form H-25(B) 31

32 Providing the Closing Disclosure Who? Borrower: Creditor or settlement agent Settlement agent must comply with all applicable requirements Creditor must ensure that requirements followed [12 C.F.R (f)(1)(v)] Seller: Settlement agent [12 C.F.R (f)(4)] 32

33 Providing the Closing Disclosure When? Initial: Deliver to borrower in person at least three business days before closing; otherwise, six business days before closing [12 C.F.R (f)(1)(i), (iii)] Right to inspect: Borrower can request business day before closing based on information known at time but omit seller information [12 C.F.R (f)(2)(i)] Seller: Settlement agent provides at closing [12 C.F.R (f)(4)] Redisclosure: At closing except additional three-day waiting period if: APR increases by more than 1/8 of one percent (1/4 for certain loans) [12 C.F.R (f)(2)(ii)(A), 22(a)] Change in loan product (e.g., fixed rate to variable) [12 C.F.R (f)(2)(ii)(B), 37(a)(10)] Addition of prepayment penalty [12 C.F.R (f)(2)(ii)(C)] 33

34 Permitted Changes After Closing Curing Tolerance Violations: If consumer pays amounts in excess of tolerances at consummation, then no later than 60 days after consummation the creditor must: Refund the excess payment to the consumer and Provide a corrected CD reflecting the refund [12 C.F.R (f)(2)(v)] 34

35 Permitted Changes After Closing Other Permitted Changes: If event occurs during the 30 calendar days following consummation that causes an amount paid by the consumer to change (e.g., recording fees or transfer taxes), creditor must provide a corrected disclosure within 30 calendar days of receiving information sufficient to establish the event [12 C.F.R (f)(2)(iii)] Non-numeric clerical errors must be corrected within 60 days after consummation [12 C.F.R (f)(2)(iv)] 35

36 Contact Information Benjamin K. Olson