The CFPB s TILA-RESPA Integrated Disclosure Rule: What You Need to Know for October 3rd by Paul Bugoni, Esq. Stewart Title Guaranty Company New York, NY 1
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The CFPB s TILA-RESPA Integrated Disclosure Rule: What You Need to Know for October 3rd. eptember 2015 The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 The market peaked in 2007. 3 1
The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 The bottom fell out of the real estate market The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 September 24, 2008 President Bush explained: Easy credit - combined with the faulty assumption that home values would continue to rise - led to excesses and bad decisions. 4 2
The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 Officially dubbed Financial Collapse of 2008 The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 June 2009 President Obama introduced a proposal for a sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression. December 2, 2009, revised versions were introduced in the House of Representatives by Financial Services Committee Chairman Barney Frank, and in the Senate Banking Committee by Chairman Chris Dodd. 5 3
The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 July 2010 The Dodd-Frank Wall Street Reform and Consumer Protection Act 6 4
The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013 Title X of Dodd-Frank creates the Consumer Financial Protection Bureau ( CFPB ). The CFPB Timeline 2007 2008 2009 2010 2011 2012 2013-7 5
CFPB s PURPOSE: Dodd-Frank 1021(a) To seek to implement and, where applicable, enforce federal consumer financial laws consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. Focus on Consumer Protections Centralizing consumer financial protection in a single organization with broad rulemaking and enforcement powers. Designed to consolidate employees and responsibilities from a other federal regulatory agencies, including the Federal Reserve, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Department of Housing and Urban Development. The CFPB works closely with state regulators in coordinating supervision and enforcement activities. 8 6
CFPB Oversight: Credit card agreements Prepaid credit cards Prepaid cell phone cards Student loan origination Student loan servicing Debt collection Debt relief / counselors Foreclosure relief Payday loans Credit reporting Mortgage servicing Mortgage origination First Three Years 9 7
The CFPB Timeline 2008 2009 2010 2011 2012 2013 2014 QM The Qualified Mortgage Rule - Effective January, 2014; - Imposes a borrower ability to pay requirement on lenders; - Debt-to-income ratio 43% or less, 30 year loans, points and fees charged to borrowers cannot exceed 3% of the mortgage value; - Adherence to this Rule provides lenders with a safe harbor in lawsuits by borrowers based upon ability to repay. The CFPB Timeline 2008 2009 2010 2011 2012 2013 2014 The Bureau remains focused on education, enforcement and studying how to improve the consumer s experiences. With the finalized rule on Integrated Disclosures going into effect October 3, 2015, the time period between now and then is being called the implementation period. Lenders, Loan Origination System companies, Title and Settlement Service Providers, and many other 3rd party providers are all discussing how the new rules will affect each of our roles in the transaction. 10 8
The CFPB Timeline 2009 2010 2011 2012 2013 2014 2015 TRID goes into effect on October 3, 2015! TILA RESPA Integrated Disclosure Rule Combines, HUD, TILA and GFE Highlights information proven to be most important to consumers Goal is to make it easier for consumers to understand so they make more informed financial choices Consumer-Friendly FORMS May 19, 2011 May 24, 2011 Testing begins in Baltimore June 27, 2011 July 1, 2011 Los Angeles, CA Aug 1, 2011 Aug 3, 2011 Chicago, IL Sept 12, 2011 Sept 14, 2011 Springfield, MA Oct 17, 2011 Oct 19, 2011 Albuquerque, NM Nov 8, 2011 Nov 10, 2011 Des Moines, IA Dec 13, 2011 Dec 15, 2011 Birmingham, AL Jan 24, 2012 Jan 26, 2012 Philadelphia, PA Feb 20, 2012 Feb 23, 2012 Austin, TX March 26, 2012 - March 29, 2012 Back to Baltimore! 11 9
TRID: Intended To Remedy Historic Closing Problems Buyer and real estate professionals have arrived at the title company for closing Buyer has no idea how much money they need to bring Real estate professional is frustrated they have yet to receive a copy of the HUD-1 Loan officer says the title company is responsible for the delay Title company is saying they just received the loan package NO GRACE PERIOD Applications submitted on or after Use Current Disclosures October 3rd Use New Disclosures 20 12 10
TRID APPLIES TO: Most closed end consumer credit transactions secured by real property, including credit extended to certain trusts for tax or estate planning purposes Includes loans extended for: Construction Vacant land or parcels 25 acres or more Single-family residences 21 TRID DOES NOT APPLY TO: HELOCs Reverse mortgages Loans secured by mobile homes Still subject to RESPA Some loans for down payment assistance, energy efficiency, or foreclosure avoidance Loans made by those who make 5 or fewer loans per year Non-consumer loans (commercial or business purpose) 22 13 11
TRID TOP TAKEAWAYS New terms Lender is the creditor Borrower is the consumer Changes to charges disclosed on the new disclosure forms are variations Consummation is not the same thing as settlement and closing 23 TRID TOP TAKEAWAYS A few important definitions Consummation is defined as [t]he time that a consumer becomes contractually obligated on a credit transaction and depends on state law. ( 1026.2(a)(13)). Generally, this is when the Promissory Note is signed. Business day has two definitions: When providing LE to the consumer within 3 business of application, defined as a day on which the creditor s offices are open to the public to carry on substantially all functions. 1026.2(a)(6) For waiting period between receipt of LE and CD and between the CD and Consummation, defined as all calendar days except Sunday and certain specified federal holidays. 1026.19(f)(1)(ii) 24 14 12
TRID TOP TAKEAWAYS New terms Initial GFE and TIL = Loan Estimate 25 TRID TOP TAKEAWAYS New terms HUD-1 and Final TIL = Closing Disclosure 26 15 13
TRID TOP TAKEAWAYS New terms Written List of Providers: A form provided by the Creditor to the Consumer which identifies at least one available provider for services the Consumer can shop for. 27 DELIVERY OF LOAN ESTIMATE LE must be delivered or placed in mail no later than the third business day after loan application received by creditor When is an application received by the creditor? When consumer gives the following information to creditor: Name Income Social security number (for credit report) Property address Estimated property value Mortgage loan amount sought The Loan Estimate must be delivered no later than 7 th business day before consummation creates waiting period Purpose: so consumers may review and compare disclosure forms May only be waived for a bona fide financial emergency (requires written statement by consumer) 28 16 14
LOAN ESTIMATE Can the LE be revised? Generally, creditors cannot revise LE once provided to consumer, even when technical errors identified after delivery LE may only be revised for changed circumstance, which is: Extraordinary event beyond control of an interested party; or Info creditor relied on for LE becomes inaccurate; or New consumer-specific info available, which creditor must rely on to provide LE Revised LE must be placed in mail within three business days Revised LE cannot be delivered to consumer same day as CD 29 CLOSING DISCLOSURE Who will prepare it? Creditors are responsible for CD s: Accuracy Delivery to consumer Several large lenders intend to handle preparation and delivery Many lenders may use settlement agents for prep and delivery The keys to compliance are communication and collaboration! 30 17 15
CLOSING DISCLOSURE When must it be delivered to consumer? Consumer must receive CD 3 business days before consummation of the loan REMINDER Consummation is when consumer becomes contractually obligated (i.e., when Note is signed) 3 day waiting period is created Consumer may only waive waiting period for bona fide personal financial emergency 31 DELIVERY METHODS 1. In Person: received on day of delivery 2. USPS or Private Courier The Mailbox Rule : receipt by consumer presumed three days after mailing through USPS No Mailbox Rule for private couriers burden on sender to prove receipt by consumer 3. Email Mailbox Rule applies unless creditor obtains evidence of receipt by consumer (then treated same as In Person) Must comply with Federal E-Sign requirements Consumer s consent to communicate electronically required Must protect NPPI (encryption) 32 18 16
THREE DAY RULE CHART 33 CLOSING DISCLOSURE How are changes before consummation handled? When change occurs between delivery and consummation, revised form provided to consumer at or before consummation EXCEPT Creditors must provide a new CD and an additional 3 day waiting period when the following changes occur: 1. APR changes 1/8 of a percent generally, and ¼ for irregular loans 2. Pre-payment penalty added 3. Different Loan product (e.g., adjustable rate to fixed) 34 19 17
CLOSING DISCLOSURE How are changes after consummation handled? Creditor must correct CD and re-disclose when: Inaccuracy discovered during the 30 calendar days after consummation resulting in change to amount paid by consumer or seller. Re-disclose within 30 calendar days of discovery. Non-numeric clerical error discovered. Re-disclose within 60 days of consummation. Tolerance violation discovered. Re-disclose within 60 days of consummation. 35 THE NEW TOLERANCE REGIME How does TRID regulate accuracy? TRID restricts the circumstances in which consumers actually pay more for certain settlement services than what was originally stated in Loan Estimate Creditors must make a good faith determination (i.e., whether fees originally on LE were disclosed in good faith ). How is that done? Through the new tolerance regime: Zero Tolerance Bucket 10% Cumulative Tolerance Bucket Variations Permitted Bucket (no limit on changes as long as fee disclosed on LE in good faith ) HUD s position: All fees are subject to increase, with some exceptions Provided guidance on classifying fees CFPB s position: All fees are subject to Zero Tolerance, unless otherwise excepted Little guidance on classifying fees 36 20 18
ZERO TOLERANCE BUCKET Fees that cannot increase Fees to brokers and creditors for their services Charges to an affiliate of broker or creditor (NEW!) Charges to unaffiliated third party if consumer was not allowed to shop (NEW!) Transfer taxes Any variation from original disclosure of fee on LE must be refunded to consumer no later than 60 days after consummation!!! 37 10% TOLERANCE BUCKET Fees that can increase by 10% in aggregate Recording Fees Charges paid to unaffiliated third party that consumer selected from creditor s settlement service provider list Fees for services for which a consumer may but does not shop Aggregate amount paid for items in this bucket may increase up to 10% from the aggregate amount for the same items on the LE If aggregate increase exceeds 10%, difference must be refunded no later than 60 calendar days after consummation!!! 38 21 19
VARIATIONS PERMITTED BUCKET No limit on increase if originally disclosed in good faith Prepaid interest Property insurance premiums Amounts placed in escrow Charges for consumer selected services (service provider not on settlement service provider list) Charges paid to third party for services not required by creditor 39 A FINAL LOOK AT TOLERANCES Provided by American Land Title Association 40 22 20
SELLER S CLOSING DISCLOSURE Protecting Non-public Personal Information (NPI) Settlement agent must provide CD to seller by or at consummation Buyer CD discloses NPPI about consumer and mortgage loan Think: ALTA Best Practices Protecting NPPI seller s CD does not disclose buyer s transaction ALTA is working on a uniform combined settlement statement 41 LIABILITY - CIVIL RESPA Liability Administrative enforcement only No private right of action TILA Liability Private right of action individual and class action Potential assignee liability - investor lawsuits Actual and statutory (elevated) damages + costs + attorneys fees 3 year right to rescind on any Reg Z disclosures (i.e. APR, finance charge, payment schedule, prepayment penalties) TRID Relies Heavily on TILA Statutory Authority CFPB does not explicitly state which statutory liability applies to the various sections of the final rule (or the forms) 42 23 21
LIABILITY ADMINISTRATIVE CFPB enforcement under Sec. 1055 of Dodd-Frank Act May hold administrative proceedings or bring court actions for violating any provision of Federal consumer financial law Relief may include Contract rescission/reformation Refunds or return of property Restitution Payment of damages Public notification regarding violation Civil money penalties (accumulate for as long as violation exists or failure to reimburse continues!) Penalties Violation Reckless Knowing $5,000 / day $25,000 / day $1 Million / day 43 Service Provider Compliance CFPB Service Provider Bulletin ALTA Best Practices The CFPB expects supervised banks and nonbanks to have an effective process for managing the risks of service provider relationships These steps should include, but are not limited to: Requesting and reviewing the service provider s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents 24 22
Service Provider Compliance CFPB Service Provider Bulletin = ALTA Best Practices 1. Maintain current licenses 2. Controls for trust accounts and reconciliation 3. Controls over Privacy, security and nonpublic personal data 4. Compliance with Federal Consumer Financial Laws 5. Controls over policy production and remittance 6. Maintain liability and fidelity coverage 7. Procedures for resolving written complaints o Lenders are interested in using the Best Practices as part of their compliance program and are limiting to quality title/escrow agents THE KEYS TO COMPLIANCE Communication & Collaboration 46 25 23
LET S LOOK AT THE NEW FORMS THE LOAN ESTIMATE (LE) A good faith estimate of costs and terms 48 26 24
THE CLOSING DISCLOSURE (CD) 49 Educational resources for you and your team Stewart.com/cfpb 27 25
Questions? 28 26
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