This second White Paper of a
four-part series will introduce and treat the numerous features of the Closing Disclosure. In the first part,
I discussed the mission of the RESPA/TILA Integration and the Loan Estimate. The third part will be a
detailed analysis of the Loan Estimate. The fourth part will provide an in
depth scrutiny of the Closing Disclosure.
Accompanying this article is a Closing Disclosure Table that may be
used for certain itemized categories and action requirements. The table
outlines the types of areas of interest in many of the routine requirements of
the Closing Disclosure process. Rather than a before-and-after, comparative
analysis, the Closing Disclosure Table provides the requirements with the compliance
effective date of August 1, 2015.
In the other articles of the two
remaining White Papers, I will provide charts, tables, form specimens, and
annotations for applicable categories and action requirements relating to the RESPA-TILA
Integration. In the third part of this four-part series on RESPA-TILA
Integration, I will provide a deep dive, line by line outline of the Loan
Estimate. The fourth part will provide a thorough analysis of the Closing
Disclosure.
The full series, and accompanying
charts, tables, and form specimens, first appeared in the October 2014 edition
of National Mortgage Professional Magazine.
As I indicated in Part I, brand
new disclosures have a compliance effective date of August 1, 2015 – a combined
set, as in a new disclosure at the commencement of the loan origination and a new
disclosure at its closing: these are, respectively, the Loan Estimate and the
Closing Disclosure.[i]
The new set has been dubbed
“RESPA-TILA Integration,” since the consolidation requirements reflect the
mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act), which directed the Bureau to integrate the mortgage loan
disclosures under TILA and RESPA Sections 4 and 5.[ii]
For the balance of this article, I will refer to these provisions as the “RESPA-TILA
Rule” or (“Rule”). The Bureau often refers to these provisions as the
“TILA-RESPA Integrated Disclosure Rule.” Additionally, I will refer to the
consolidated disclosures as “Integrated Disclosures.”
The Rule applies to most
closed-end consumer mortgages. It does not apply to home equity lines of credit
(HELOCs), reverse mortgages, or chattel-dwelling loans, such as mortgages
secured by a mobile home or by a dwelling that is not attached to real property
(i.e., land). The provisions also do not apply to loans made by persons who are
not considered “creditors,” where such persons make five or fewer mortgages in
a year. However, certain types of loans that are currently subject to TILA but
not RESPA are subject to the Rule’s Integrated Disclosure requirements,
including construction-only loans, loans secured by vacant land or by 25 or
more acres, and credit extended to certain trusts for tax or estate planning
purposes. So, creditors originating these types
of mortgages
must continue to use,
as applicable, the Good
Faith Estimate (“GFE”) GFE, Truth
in Lending Disclosure (“TIL”), and HUD-1
Settlement Statement (“HUD-1”) disclosures
required under current law.
There is also a partial exemption
for certain transactions associated with housing assistance loan programs for
low- and moderate-income consumers. These creditors are exempt from the
requirement to provide the RESPA settlement cost booklet, GFE, HUD-1, and
application servicing disclosure statement requirements, and, thus, exempt from
the requirements to provide a Loan Estimate, Closing Disclosure, and Special
Information Booklet for these loans.
I would also like to answer the
question about whether or not creditors may use the Integrated Disclosure on
loans not covered by the Rule but subject to RESPA and TILA. The answer is that
using the Integrated Disclosures for such purposes is not prohibited on loans
that are not covered by RESPA and TILA (i.e., mortgages associated with housing
assistance loan programs for low- and moderate-income consumers). But a
creditor cannot use the new Integrated Disclosure forms instead of the GFE, TIL
and HUD-1 forms for transactions, such as reverse mortgages, that are covered
by RESPA and TILA that require those disclosures.
Also, to repeat my statement from
Part I, it should be emphasized that the Rule can be encapsulated, as follows:
The TILA-RESPA
rule consolidates four existing disclosures required under TILA and RESPA for
closed-end credit transactions secured by real property into two forms: a Loan Estimate that must be delivered or
placed in the mail no later than the third business
day after receiving the consumer’s application,
and a Closing Disclosure that must be
provided to the consumer at least three business
days prior to consummation.[iii]
(Emphases in original.)
The new Integrated Disclosures
must be provided by a creditor or mortgage broker that receives an application
from a consumer for a closed-end credit transaction secured by real property on
or after August 1, 2015. But creditors will still be required to use the GFE, TIL,
and HUD-1 forms for applications received prior to August 1, 2015.
Operationally speaking, as the
applications received prior to August 1, 2015 are consummated, withdrawn, or
cancelled, the use of the GFE, TIL, and HUD-1 forms will no longer be used for
most mortgage loans.[iv]
Four General Requirements
If the loan requires a Loan
Estimate, creditors must also provide the Closing Disclosure, to be received by
the consumer no later than three business days before consummation of the loan.[v]
[vi]
A practical way to view the
Closing Disclosure is as a consolidation of the HUD-1 and the final TIL
disclosure, containing additional elements. There are four rudimentary
requirements of the Closing Disclosure.
Requirement
1: The Closing Disclosure generally must contain the actual terms and
costs of the transaction.[vii]
·
Creditors may estimate disclosures using the
best information reasonably available when the actual term or cost is not
reasonably available to the creditor at the time the disclosure is made.
·
Creditors must act in good faith and use due
diligence in obtaining the information.
The creditor normally may rely on the representations of other parties
in obtaining the information, including, for example, the settlement agent.
·
Creditors are required to provide corrected
disclosures containing the actual terms of the transaction at or before
consummation.[viii]
Requirement
2: The Closing Disclosure must be in writing and contain the information
prescribed in § 1026.38, the section of Regulation Z that outlines the content
of disclosures for certain mortgage transactions (i.e., Closing Disclosure). Creditors
must disclose only the specific information set forth in § 1026.38(a)-(s), as
shown in the Bureau’s form (viz., Appendix H-25, the “Mortgage Loan Transaction
Closing Disclosure—Model Form”).[ix]
The specific information referred to covers a section-by-section analysis of
the Closing Disclosure’s content requirements.
Requirement
3: If the actual terms or costs of the transaction change prior to
consummation, creditors must provide a corrected disclosure that contains the
actual terms of the transaction and complies with other requirements[x],
such as the timing requirements, as well as the requirements for providing
corrected disclosures due to subsequent changes.[xi]
Requirement
4: There is a new three-day waiting period; that is, if a creditor
provides a corrected disclosure, it may also be required to provide the
consumer with an additional three-business-day waiting period prior to
consummation.[xii]
(I will elaborate further on this feature below. See also the Table that
accompanies this article.)
Page by Page
The Closing Disclosure is an
extensive, five-page document with numerous fields, containing information
disclosed in the Loan Estimate form, as well as additional information.
It may be categorically
organized, as follows:
Page 1:
Essentially the same as the first
page of the Loan Estimate, captures key mortgage loan terms, projected payment
amount scenarios, and costs at closing.
Pages 2 and 3:
Outline the closing costs, other
costs, cash to close and summaries of transactions, split between borrower and
seller information.
Pages 4 and 5:
Provide the total payments,
finance charge, amount financed, Annual Percentage Rate (APR) and the Total
Interest Percentage (TIP), the total amount of interest paid by the borrower
will pay over the loan term as a percentage of the loan amount.[xiii]
(Note that disclosing the TIP means that there are now three types of rates
disclosed, the interest rate, the APR, and the TIP.)
These pages also cover
disclaimers, such as potential need for appraisals, whether the loan is
assumable, whether homeowner’s insurance is required, brief information
regarding late payment policies, partial payments, escrow accounts, refinancing
not guaranteed, and possibility of servicing transfer.
Salient observations
Closing
cost details
The Closing Disclosure organizes
the elements of closing costs into the similar categories as the Loan Estimate,
with columns showing costs paid “At Closing” and “Before Closing.”
Consequently, lenders will need
to map both the cost estimates from the Loan Estimate form into the Closing
Disclosure cost detail section, as well as capture actual amounts and
surrounding detail rather than estimates. Those actual amounts will also need
to be screened against the tolerances for increases described above to prevent
passing any impermissible charges on to consumers.
Partial
payment policy
The requirement to disclose the
lender’s partial payment policy is a change from current disclosure
requirements. Under the Rule, a statement is required by the lender, affirming
if may accept periodic payments that are less than the full amount due, may
hold them in a separate account until the borrower pays the rest of the payment
before applying the full payment, or does not accept partial payments. The new
disclosures also include a warning that, if the loan is sold, the new lender
may have a different policy.
Please note that, in essence,
this is a servicing policy. Thus, the information required to populate the
partial payment policy in the Closing Disclosure should be incorporated into
the Loan Origination System or embedded into the underlying disclosure
template.
Escrow
Account
The Closing Disclosure provides
more information about escrow than current disclosures. This additional
information will require corresponding changes to loan originators’ systems and
processes. Specifically, the Closing Disclosure discloses whether the
consumer's loan will have an escrow account and must disclose certain details
as to payments made using escrow account funds and those the consumer must make
directly.
Note, also, that the Rule
requires both a warning to consumers that escrow payments may change and also a
warning as to the consequences of failing to pay property taxes or to pay
property costs.
Tolerances
and Revised Closing Disclosure
The Rule provides for
circumstances where a change can trigger a new Closing Disclosure and a new
waiting period if any of the following events occurs that causes the Closing
Disclosure to be inaccurate:
·
Changes to the APR greater than 1/8 of a percent
(or 1/4 of a percent for loans with irregular payments or periods) that causes
the disclosures to become inaccurate;
·
Changes to the loan product that cause the
disclosure to become inaccurate; or,
·
Adding a prepayment penalty, causing the disclosure
to become inaccurate.
The additional three-business-day
waiting period after the revised Closing Disclosure is subject to the
consumer's written waiver for a bona fide
financial emergency.
But not all changes to the
information in the Closing Disclosure require a restart of the waiting period.
For less significant changes than those described above, the lender may provide
the consumer with an updated Closing Disclosure at or before the closing
reflecting such changes. (Please see Closing Logistics in the Plan of Action
section of this article for more detail.)
Consummation versus Closing or
Settlement
Because the three-day waiting
period rule uses “consummation” as the triggering event, we have often been
asked for the difference between consummation and closing or settlement.[xiv]
Actually, consummation may commonly occur at the same time as closing or
settlement, but it is a legally distinct event. Consummation occurs when the consumer becomes contractually
obligated to the creditor on the loan, not, for example, when the consumer
becomes contractually obligated to a seller on a real estate transaction.
The point in time when a consumer
becomes contractually obligated to the creditor on the loan depends on
applicable state law.[xv]
Thus, creditors and settlement agents should verify the applicable state laws
to determine when consummation will occur, and make sure delivery of the
Closing Disclosure occurs at least three business days before this event.
Closing Disclosure versus HUD-1
Settlement Statement
For the most part, a creditor
must use the Bureau’s Closing Disclosure form[xvi]
for any loans subject to the Rule that are federally related mortgage loans
subject to RESPA (which will include most mortgages).[xvii]
With respect to other loan transactions
subject to the RESPA-TILA rule that are not federally related mortgage loans, the
Closing Disclosure is considered a “a model form”, meaning creditors are not
strictly required to use this form, but alternative disclosures must contain
the exact same information and be made with headings, content, and format
substantially similar to the Closing Disclosure.[xviii]
plan of action
In this final section, I will
outline some guidelines to follow in preparing for the RESPA-TILA
implementation. Notwithstanding these suggestions, companies should embark on a
training schedule to ensure that all personnel in the loan flow process –
including any business partners and agents – are properly educated in the
implementation requirements. In the Bureau’s view, companies should consider “the
training that will be necessary for your loan officer, processor, closing,
compliance, and quality-control staff, as well as anyone else who accepts
applications, processes loans, or monitors transaction compliance.”[xix]
The Bureau has set forth several elementary,
practical implementation and compliance issues, consisting of advice concerning
identifying affected products, departments, and staff; identifying the
business-process, operational, and technology changes that will be necessary
for compliance; and, identifying impacts on key service providers or business
partners. The following are highlights of such suggestions.
Identifying affected products, departments,
and staff
Compliance must
reflect the business model of the company. The first step in compliance with
the Rule is to identify all affected products, departments, and staff.
According to the
Bureau, origination, processing, closing and post-closing departmental staff
and processes are likely to be most broadly impacted by these rule changes.[xx]
However, “certain groups within servicing operations may be implicated by the
two new disclosures related to escrow account cancellation and partial payment
application policies during servicing transfers.”
Because the
company may originate certain products for which the existing disclosure regime
will persist following the RESPA-TILA rule’s effective date, be certain to
closely consider the coverage of the rule to different types of mortgage
products.[xxi]
Identifying business-process operational, and
technology changes
Review the
existing business processes, as well as relevant hardware and software, not
only of the company but also the company’s agents, settlement services
providers, or other business partners use.[xxii]
Note the gaps or concerns affecting the compliance nexus between any systems
involved in the loan flow process.
The Bureau
suggests that the company should review its technology platforms and determine
which version of MISMO is currently supported.[xxiii]
Evaluate the current integrations between the company’s technology platforms
and those of its relevant third party service providers, such as document
generators and settlement service providers, to determine required updates, as
needed.
Identifying impacts on key service providers
or business partners
Third-party
updates may be necessary to:[xxiv]
·
Update transaction coverage and calculations;
·
Obtain required information or verifications;
·
Incorporate new disclosures; and,
·
Make sure software, compliance, quality-control,
and recordkeeping protocols comply with this rule.
Software
providers, or other vendors and business partners, may offer compliance
solutions that can assist with any necessary changes. These key partners may
depend on the company’s business model. All creditors will likely need to
carefully coordinate readiness and compliance with the network of settlement
services providers on whom they rely for closing services.
The Bureau
states that “in some cases, a company may want to negotiate revised or new
contracts with these parties, or seek a different set of services.”[xxv]
Specifically, “creditors should be in close touch with all key business
partners and vendors to ensure that their process and technology changes will
meet a company’s business and compliance needs and are scheduled to occur on a
timeline that supports collaborative readiness.”[xxvi]
Therefore, it is
important to understand the extent of the assistance that vendors, settlement
services providers and other business partners provide and be prepared for the
consequences that may result from such assistance.
CLOSING LOGISTICS
At the closing, the Final TIL and
the HUD-1 are prepared by two different parties: the lender and the closing
agent respectively. But, due to the Rule, there is a combining of such information
that is now existing in two separate systems, in order to create the Closing
Disclosure. The result of this change will create significant challenges to
lenders and, of course, settlement agents. The Rule allows lenders to request
the assistance of settlement agents in the preparation of the Closing
Disclosure, but it leaves the ultimate responsibility (and, it should be noted,
also the liability) with the lender. Because the Rule allows preparation of all
or part of the Closing Disclosure by settlement agents, there are certain legal
responsibilities of settlement agents with respect to preparing a form
containing information and disclosure responsibilities under both RESPA and
TILA.
Lawyers Title recently published in
their newsletter some insights into these challenges.[xxvii]
For instance, as noted in the newsletter, “one of the most notable closing
process changes concerns the delivery of the final Closing Disclosure to the
borrower. Instead of a borrower receiving the final HUD-1 Settlement Statement
at or directly before closing, borrowers must now receive the final Closing
Disclosure form three business days prior to ‘consummation’ (generally, the day
loan documents are signed). This is sometimes referred to as the ‘3-day waiting
period’.”[xxviii]
Receipt means actual receipt,
confirmed by the borrower. As the newsletter correctly observes, “if actual
receipt of the Closing Disclosure cannot be confirmed, the delivery will be
deemed received three business days after the Closing Disclosure is delivered
(i.e., placed in the mail) by the lender or settlement agent. (Sometimes called
the ‘3-day delivery rule’).”[xxix]
A confirmed receipt of the
Closing Disclosure permits certain changes to the loan terms and transaction
costs on the Closing Disclosure between the delivery of the Closing Disclosure
and the final closing, such changes limited to:
• Addition of a
prepayment penalty; or
• Annual
Percentage Rate (APR) becomes inaccurate, meaning a change of more than 1/8th
percent; or
• Change in Loan
Product.
But the confirmed receipt of the
Closing Disclosure is a requisite of the foregoing permissible changes: “Any of
the above changes require delivery of a new Closing Disclosure containing the
changes and another 3-day waiting period prior to signing.”[xxx]
Certain changes other than the foregoing permissible changes that are subject
to prior confirmed receipt by the borrower, may be changed in the Closing
Disclosure at the closing.
The actual closing charges passed
on to the consumer must comply with the zero and ten percent tolerances for
increases over the amounts disclosed in the Loan Estimate.
Chart of Readiness Tasks
The Bureau published the Rule in
November 2013,[xxxi]
thereby giving companies twenty months to be ready by the compliance effective
date of August 1, 2015.[xxxii]
Even though my firm manages the compliance support for a leading loan
origination system (LOS) and also provides ongoing implementation readiness for
our clients, the scope of the Rule is so extensive that the timeframe permitted
for such implementation still does not seem sufficient.
Most changes actually will be
technological, such as the updates and changes required by the loan origination
systems. However, all changes must reflect a company’s size, complexity, loan
products, and risk profile, and assuredly the inherent features of its business
model.
I offer the Chart of Readiness
Tasks as a modest guide, though it is not meant to be exhaustive, which
offers some direction to taking actions needed for implementation of the Rule. Please
see the Closing Disclosure Table, accompanying this article, for more details.
|
CHART OF READINESS TASKS
FOR RESPA-TILA INTEGRATION
|
|
|
Company and
Functions
|
Tasks and Actions
|
|
Loan Originators using proprietary
LOS
|
· Develop Business Requirement Rules in the LOS
·
Implement & Test Changes
·
Conduct Staff Training
|
|
Loan Originators using
non-proprietary LOS
|
·
Contact Service Provider for Updates
·
Test Upgrades
·
Attend Vendor System Training
|
|
Mortgage Brokers
|
·
Train on New Forms
·
Review Current Vendor Processes
·
Review Interaction with Lenders
|
|
Settlement Agents
|
·
Train on New Forms
·
Review Current Vendor Processes
·
Review Interaction with Lenders
|
[i] Integrated Mortgage Disclosures Under the
Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending
Act (Regulation Z), 78 FR 7973, December 31, 2013
[ii]
Section 1032(f) of the Dodd-Frank Act mandated that the Bureau propose for
public comment rules and model disclosures that integrate the TILA and RESPA
disclosures by July 21, 2012
[iii]
TILA-RESPA Integrated Disclosure Rule,
Small Entity Compliance Guide, September 2014, 2.1. Note: the September
2014 guide provides updates to the March guide with respect to information on
where to find additional resources on the rule; additional clarification on
questions relating to the Loan Estimate and the 7 day waiting period; and, additional
clarification on questions relating to Timing for Revisions to Loan Estimate.
In this article, I will use the September Guide, endeavoring to provide text
and citations as primary sources. The complete rule and the Official
Interpretations are available at: http://www.consumerfinance.gov/regulations/integrated-mortgage-disclosures-under-the-real-
estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z/
[iv]
Idem. 3.1
[v]
§ 1026.19(f)(1)(ii)
[vi]
§§ 1026.19(f) and 1026.38
[vii]
§ 1026.19(f)(1)(i)
[viii]
Comments 19(f)(1)(i)-2, -2.i, and -2.ii
[ix]
§ 1026.38(t)
[x]
§ 1026.19(f)
[xi]
Comment 19(f)(1)(i)-1
[xii]
§ 1026.19(f)(2)
[xiii]
§ 1026.38(o)(5)
[xiv]
§ 1026.2(a)(13)
[xv]
§ 1026.2(a)(13) and Comment 2(a)(13)-1
[xvi]
§ 1026.38(t)
[xvii]
§ 1026.38(t)(3)(i)
[xviii]
§ 1026.38(t)(3)(ii)
[xix]
TILA-RESPA Integrated Disclosure Rule, Small Entity Compliance Guide -
September 2014, Consumer Financial Protection Bureau, 16.4
[xx]
Idem, 16.1
[xxi]
Ibid
[xxii]
Op. cit. 18, 16.2
[xxiii]
The data standards to support the new Loan Estimate and Closing Disclosure
forms will exist in MISMO version 3.3 and later. A common industry dataset,
called the Uniform Closing Dataset (UCD), has been established to support the
Consumer Financial Protection Bureau’s (CFPB) Closing Disclosure. The Closing
Disclosure is part of the CFPB's Integrated Mortgage Disclosures final rule
under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in
Lending Act (Regulation Z) which was published in the Federal Register on
December 31, 2013. The UCD Appendix B: Closing Disclosure Mapping to the MISMO
v3.3 Reference Model contains the data required by the CFPB’s Closing
Disclosure and is mapped to the Mortgage Industry Standards Maintenance
Organization (MISMO) version 3.3 Residential Reference Model.
[xxiv]
Op. cit. 18, 16.3
[xxv]
Idem
[xxvi]
Ibid
[xxvii]
Lawyers Title, eJournal, June 2014
[xxviii]
Idem
[xxix]
Ibid
[xxx]
Ibid
[xxxi]
Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act
(Regulation X) and the Truth In Lending Act (Regulation Z), 12 CFR Parts 1024
and 1026, Final rule; official interpretation, Bureau of Consumer Financial
Protection, November 20, 2013
[xxxii]
This is actually a longer lead time than the Bureau provided the new mortgage
rules that came into effect on January 10th, 2014.
_______________________________________________________________
|
CLOSING DISCLOSURE TABLE
December 2014
|
|
|
CATEGORY
|
SYNOPSIS
|
|
GENERAL REQUIREMENTS
|
|
|
General requirements
[§§ 1026.19(f) and 1026.38]
|
·
For loans that require a Loan Estimate and
that proceed to closing, creditors must provide a new final disclosure
reflecting the actual terms of the transaction called the Closing Disclosure.
·
The form integrates and replaces the
existing HUD-1 and the final TIL disclosure for these transactions.
·
Creditor is generally required to ensure
that the consumer receives the Closing Disclosure no later than three
business days before consummation of the loan. [§ 1026.19(f)(1)(ii)]
·
Closing Disclosure generally must contain
the actual terms and costs of the transaction. [§ 1026.19(f)(1)(i)]
·
Creditors may estimate disclosures using
the best information reasonably available when the actual term or cost is not
reasonably available to the creditor at the time the disclosure is made.
·
Creditors must act in good faith and use
due diligence in obtaining the information.
·
Creditor normally may rely on the
representations of other parties in obtaining the information, including, for
example, the settlement agent.
·
Creditor is required to provide corrected
disclosures containing the actual terms of the transaction at or before
consummation.
[Comments 19(f)(1)(i)-2, -2.i, and -2.ii]
·
Closing Disclosure must be in writing and
contain the information prescribed in § 1026.38. The creditor must disclose
only the specific information set forth in § 1026.38(a) through (s), as shown
in the Bureau’s form in appendix H-25. [§ 1026.38(t)]
·
If
the actual terms or costs of the transaction change prior to consummation,
the creditor must provide a corrected disclosure that contains the actual
terms of the transaction and complies with the other requirements of §
1026.19(f), including the timing requirements, and requirements for providing
corrected disclosures due to subsequent changes. [Comment 19(f)(1)(i)-1]
·
New three-day waiting period. If the
creditor provides a corrected disclosure, it may also be required to provide
the consumer with an additional three-business-day waiting period prior to
consummation.
[§ 1026.19(f)(2)]
|
|
Consummation and closing or settlement definitions
[§ 1026.2(a)(13)]
|
·
Consummation may commonly occur at the
same time as closing or settlement, but it is a legally distinct event.
o Consummation
occurs when the consumer becomes contractually obligated to the creditor on
the loan; not, for example, when the consumer becomes contractually obligated
to a seller on a real estate transaction.
·
The point in time when a consumer becomes
contractually obligated to the creditor on the loan depends on applicable
State law.
[§ 1026.2(a)(13) and Comment 2(a)(13)-1]
·
Creditors and settlement agents should
verify the applicable State laws to determine when consummation will occur,
and make sure delivery of the Closing Disclosure occurs at least three
business days before this event.
|
|
Using the Bureau’s Closing Disclosure form
[§ 1026.38(t)]
|
·
For any loans subject to the TILA-RESPA
rule that are federally related mortgage loans subject to RESPA (which will
include most mortgages), form H-25 is a standard form, the Bureau’s Closing
Disclosure form, meaning creditors must use the form H-25.
[§ 1026.38(t)(3)(i)]
·
For other transactions subject to the
TILA-RESPA rule that are not federally related mortgage loans, form H-25 is a
model form, meaning creditors are not strictly required to use form H-25, but
the disclosures must contain the exact same information and be made with
headings, content, and format substantially similar to form H-25.
[§ 1026.38(t)(3)(ii)]
|
|
TIMING AND DELIVERY
|
|
|
Timing & Delivery
[§ 1026.19(f)]
|
·
Creditor is responsible for ensuring that the consumer receives
the Closing Disclosure form
no later than three business days before
consummation.
[§ 1026.19(f)(1)(ii)(A);
Comment 19(f)(1)(v)-3]
See also, delivery via a settlement
agent).
·
Creditor is responsible for
ensuring that the Closing Disclosure meets the content, delivery,
and timing requirements.
[§§ 1026.19(f) and 1026.38]
|
|
Delivery Method
[§ 1026.19(f)(1)(ii)]
|
·
By providing it to the consumer in person.
·
By mailing, or by other delivery methods,
including email.
·
Electronic delivery methods subject to
compliance with the consumer consent and other applicable provisions of the
Electronic Signatures in Global and National Commerce Act
[15
U.S.C. 7001 et seq.; § 1026.38(t)(3)(iii)]
·
Creditors must ensure that the consumer
receives the Closing Disclosure at least three business days prior to
consummation.
[§
1026.19(f)(1)(ii)(A)]
|
|
Consumer Receipt
[§ 1026.19(f)(1)(iii)]
|
·
If the Closing Disclosure is provided in
person, it is considered received by the consumer on the day it is provided.
·
If it is mailed or delivered
electronically, the consumer is considered to have received the Closing
Disclosure three business days after it is delivered or placed in the mail.
[§
1026.19(f)(1)(iii); Comment 19(f)(1)(ii)-2]
·
If the creditor has evidence that the
consumer received the Closing Disclosure earlier than three business days
after it is mailed or delivered, it may rely on that evidence and consider it
to be received on that date.
[Comments
19(f)(1)(iii)-1 and -2]
|
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Delivery by
Settlement Agent
[§ 1026.19(f)(1)(v)]
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·
Creditors may contract with settlement
agents to have the settlement agent provide the Closing Disclosure to
consumers on the creditor’s behalf.
·
Creditors and settlement agents also may
agree to divide responsibility with regard to completing the Closing
Disclosure, with the settlement agent assuming responsibility to complete
some or all the Closing Disclosure.
[Comment
19(f)(1)(v)-4]
·
Any such creditor must maintain
communication with the settlement agent to ensure that the Closing Disclosure
and its delivery satisfy the requirements described above, and the creditor
is legally responsible for any errors or defects.
[§
1026.19(f)(1)(v) and Comment 19(f)(1)(v)-3]
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Delivery to Seller
[§ 1026.19(f)(4)(i)]
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·
The settlement agent is required to provide
the seller with the Closing Disclosure reflecting the actual terms of the
seller’s transaction.
·
The settlement agent may comply with this
requirement by providing the seller with a copy of the Closing Disclosure
provided to the consumer (buyer) if it also contains information relating to
the seller’s transaction.
[Comment
19(f)(4)(i)-1]
·
The settlement agent may also provide the
seller with a separate disclosure, including only the information applicable
to the seller’s transaction from the Closing Disclosure.
[§ 1026.38(t)(5)(v) or (vi), as
applicable]
NOTE: If the seller’s disclosure is
provided in a separate document, the settlement agent has to provide the
creditor with a copy of the disclosure provided to the seller.
[§ 1026.19(f)(4)(iv)]
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Multiple Transactions
[§ 1026.17(d)]
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·
In rescindable transactions, the Closing
Disclosure must be given separately to each consumer who has the right to
rescind under TILA, although the disclosures required for adjustable rate
mortgages need only be provided to the consumer who expresses an interest in
a variable-rate loan program.
[§ 1026.19(b)]
·
In transactions that are not rescindable,
the Closing Disclosure may be provided to any consumer with primary liability
on the obligation.
NOTE: The CFPB provides this
implementation tip – “some creditors may desire that each obligor to a
transaction subject to § 1026.19(f) receive a Closing Disclosure to obtain a
signature of customary recitals or certifications that are appended to the
disclosure pursuant to § 1026.38(t)(5).”
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Delivery timing to consumer
[§ 1026.19(f)(1)(ii)]
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·
Creditors must ensure that consumers
receive the Closing Disclosure no later than three business days before
consummation.
[§
1026.19(f)(1)(ii)(A)]
·
Consummation is the time that a consumer
becomes contractually obligated on the credit transaction, and may not
necessarily coincide with the settlement or closing of the entire real estate
transaction.
[§
1026.2(a)(13)]
·
Timeshare transactions: the creditor must
ensure that the consumer receives the Closing Disclosure no later than
consummation.
[§
1026.19(f)(1)(ii)(B)]
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Business Days
[§§ 1026.2(a)(6), 1026.19(f)(1)(ii)(A) and (f)(1)(iii)]
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·
For purposes of providing the Closing
Disclosure, the term business day means all calendar days except Sundays and
the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s
Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving
Day, and Christmas Day.
·
This requirement imposes a
three-business-day waiting period, meaning that the loan may not be
consummated less than three business days after the Closing Disclosure is
received by the consumer. If a settlement is scheduled during the waiting
period, the creditor generally must postpone settlement, unless a settlement
within the waiting period is necessary to meet a bona fide personal financial
emergency.
[§
1026.19(f)(1)(iv)]
NOTE:
Business day is given a different meaning for purposes of providing the
Closing Disclosure than it is for purposes of providing the Loan Estimate
after receiving a consumer’s application.
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Waiving the three- business-day waiting period
[§ 1026.19(f)(1)(iv)]
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·
Consumers may waive or modify the
three-business-day waiting period when:
o
The extension of credit is needed to meet a
bona fide personal financial emergency.
[§ 1026.19(f)(1)(iv)];
o
The consumer has received the Closing
Disclosure; and
o
The consumer (1) gives the creditor a dated
written statement that describes the emergency, (2) specifically modifies or
waives the waiting period, and (3) bears the signature of all consumers who
are primarily liable on the legal obligation.
[§ 1026.19(f)(1)(iv)]
·
The creditor is prohibited from providing
the consumer with a pre-printed waiver form.
[§ 1026.19(f)(1)(iv)]
NOTE:
The CFPB provides this implementation tip – “for example, the imminent sale
of the consumer’s home at foreclosure, where the foreclosure sale will
proceed unless loan proceeds are made available to the consumer during the
waiting period, may be considered a bona fide personal financial emergency.”
[Comment 19(f)(1)(iv)-1]
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Corrected Closing Disclosures three-business-day waiting period
[§ 1026.19(f)(2)(i) and (ii)]
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·
The three-business-day waiting period
requirement applies to a corrected Closing Disclosure that is provided when
there are:
o
Changes to the loan’s APR;
o
Changes to the loan product; or,
o
The addition of a prepayment penalty.
·
If other types of changes occur, creditors
must ensure that the consumer receives a corrected Closing Disclosure at or
before consummation.
[§ 1026.19(f)(2)(i) and (ii)]
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Settlement agent timing delivery to the seller
[§ 1026.19(f)(4)(ii)]
|
The
settlement agent must provide the seller its copy of the Closing Disclosure
no later than the day of consummation.
[§
1026.19(f)(4)(ii)]
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Imposing average charges instead of actual amount received
[§ 1026.19(f)(3)(i)-(ii)]
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·
Amount imposed on the consumer for any
settlement service must not exceed the amount the settlement service provider
actually received for that service. However, an average charge may be imposed
instead of the actual amount received for a particular service, as long as
the average charge satisfies certain conditions.
[§
1026.19(f)(3)(i)-(ii); Comment 19(f)(3)(i)-1]
·
An average charge may be used if the following
conditions are satisfied [§ 1026.19(f)(3)(ii)]:
o
The average charge is no more than the
average amount paid for that service by or on behalf of all consumers and
sellers for a class of transactions;
o
The creditor or settlement service provider
defines the class of transactions based on an appropriate period of time,
geographic area, and type of loan;
o
The creditor or settlement service provider
uses the same average charge for every transaction within the defined class;
and
o
The creditor or settlement service provider
does not use an average charge:
§ For
any type of insurance;
§ For
any charge based on the loan amount or property value; or,
§ If
doing so is otherwise prohibited by law.
·
If the creditor develops representative
samples of specific settlement costs for a particular class of transactions,
the creditor may charge the average cost for that settlement service instead
of the actual cost for such transactions.
An average-charge program may not be used in a way that inflates the
cost for settlement services overall.
[Comment
19(f)(3)(ii)-1]
·
Creditors should consult the commentary to
§ 1026.19(f)(3)(ii) for additional guidance on using average-charge pricing.
[See
Comments 19(f)(3)(ii)-1 through -9]
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Revisions and Corrections
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Timing to correct or revise
[§ 1026.19(f)(2)]
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·
Creditors must redisclose terms or costs on
the Closing Disclosure if certain changes occur to the transaction after the
Closing Disclosure was first provided that cause the disclosures to become
inaccurate.
·
There are three categories of changes that
require a corrected Closing Disclosure containing all changed terms:
o
Changes that occur before consummation that
require a new three-business-day waiting period. [§ 1026.19(f)(2)(ii)]
o
Changes that occur before consummation and
do not require a new three-business- day waiting period. [§ 1026.19(f)(2)(i)]
o
Changes that occur after consummation. [§ 1026.19(f)(2)(iii)]
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Changes before consummation requiring new waiting period
(§ 1026.19(f)(2)(ii))
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·
If one of the following occurs after
delivery of the Closing Disclosure and before consummation, the creditor must
provide a corrected Closing Disclosure containing all changed terms and
ensure that the consumer receives it no later than three business days before
consummation:
[§
1026.19(f)(2)(ii); Comment 19(f)(2)(ii)-1]
o
The disclosed APR becomes inaccurate: If
the annual percentage rate (APR) previously disclosed becomes inaccurate, the
creditor must provide a corrected Closing Disclosure with the corrected APR
disclosure and all other terms that have changed. The APR’s accuracy is
determined according to § 1026.22.
[§
1026.19(f)(2)(ii)(A)]
o
The loan product changes: If the loan
product previously disclosed becomes inaccurate, the creditor must provide a
corrected Closing Disclosure with the corrected loan product and all other
terms that have changed.
[§
1026.19(f)(2)(ii)(B)]
o
A prepayment penalty is added: If a
prepayment penalty is added to the transaction, the creditor must provide a
corrected Closing Disclosure with the prepayment penalty provision disclosed
and all other terms that have changed.
[§
1026.19(f)(2)(ii)(C)]
Note:
This period may be waived if the consumer is facing a bona fide personal financial emergency. [§ 1026.19(f)(1)(iv)]
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Changes not requiring a new three-day waiting period
[§ 1026.19(f)(2)(i)]
|
·
For any other changes before consummation
that do not fall under the three categories above (i.e., related to the APR,
loan product, or the addition of a prepayment penalty), creditor still must
provide a corrected Closing Disclosure with any terms or costs that have
changed and ensure that the consumer receives it.
·
For these changes, there is no additional
three-business-day waiting period required. Creditor must ensure only that
the consumer receives the revised Closing Disclosure at or before
consummation.
[§
1026.19(f)(2)(i); Comment 19(f)(2)(i)-1 through -2]
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Consumer requests revised Closing Disclosure before
consummation
[§ 1026.19(f)(2)(i)]
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·
For changes other than to the APR, loan
product, or the addition of a prepayment penalty, creditor is not required to
provide the consumer with the revised Closing Disclosure until the day of
consummation. However, a consumer has the right to inspect the Closing
Disclosure during the business day before consummation.
[§
1026.19(f)(2)(i)]
·
If a consumer asks to inspect the Closing
Disclosure the business day before consummation, the Closing Disclosure
presented to the consumer must reflect any adjustments to the costs or terms
that are known to the creditor at the time the consumer inspects it.
[§
1026.19(f)(2)(i))]
·
Creditors may arrange for settlement agents
to permit consumers to inspect the Closing Disclosure.
[§
1026.19(f)(1)(v) and Comment 19(f)(2)(i)-2]
NOTE:
An example of a post-consummation event that would require a new Closing Disclosure
is a discovery that a recording fee paid by the consumer is different from
the amount that was disclosed on the Closing Disclosure. [Comment
19(f)(2)(iii)-1.i]
Other
post-consummation events that are not related to settlement, such as tax
increases, do not require a revised Closing Disclosure.
[Comment
19(f)(2)(iii)-1.iii]
Guidance
on when a creditor receives information sufficient to establish that an event
has occurred after consummation, see Comment 19(e)(4)(i)-1.
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Creditors required to provide corrected Closing Disclosures if
terms or costs change after consummation
[§ 1026.19(f)(2)(iii)]
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·
Limited circumstances. Creditor must
provide a corrected Closing Disclosure if an event in connection with the
settlement occurs during the 30-calendar-day period after consummation that
causes the Closing Disclosure to become inaccurate and results in a change to
an amount paid by the consumer from what was previously disclosed.
§
1026.19(f)(2)(iii); Comment 19(f)(2)(iii)-1]
·
When a post-consummation event requires a
corrected Closing Disclosure, creditors must deliver or place in the mail a
corrected Closing Disclosure not later than 30 calendar days after receiving
information sufficient to establish that such an event has occurred.
[§
1026.19(f)(2)(iii); Comment 19(f)(2)(iii)-1]
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Correcting Closing Disclosure if post-consummation event affects
amount paid by seller
[§ 1026.19(f)(4)(ii)]
|
·
Settlement agents must provide a revised
Closing Disclosure if an event related to the settlement occurs during the
30-day period after consummation that causes the Closing Disclosure to become
inaccurate and results in a change to an amount actually paid by the seller
from what was previously disclosed.
·
The settlement agent must deliver or place
in the mail a corrected Closing Disclosure not later than 30 calendar days
after receiving information sufficient to establish that such an event has
occurred.
[§
1026.19(f)(4)(ii)]
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Clerical errors discovered after consummation subject to the
redisclosure obligation
[§ 1026.19(f)(2)(iv); Comment 19(f)(2)(iv)-1]
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·
Creditors must provide a revised Closing
Disclosure to correct non-numerical clerical errors and document refunds for
tolerance violations no later than 60 calendar days after consummation.
[§
1026.19(f)(2)(iv)-(v)]
NOTE: An error is clerical if it
does not affect a numerical disclosure and does not affect the timing,
delivery, or other requirements that are imposed by § 1026.19(e) or (f).
[Comment 19(f)(2)(iv)-1]
Examples:
o
If the Closing Disclosure identifies the
incorrect settlement service provider as the recipient of a payment, the
error would be considered clerical because it is non-numerical and does not
affect any of the delivery requirements set forth in § 1026.19(e) or (f).
o
However, if the Closing Disclosure lists
the wrong property address, which affects the delivery requirement imposed by
§ 1026.19(e) or (f), the error would not be considered clerical.
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Corrected Closing Disclosures when refunding money to cure
tolerance violations
[§ 1026.19(f)(2)(v)]
|
If
the creditor cures a tolerance violation by providing a refund to the
consumer, the creditor must deliver or place in the mail a corrected Closing
Disclosure that reflects the refund no later than 60 calendar days after
consummation.
[§
1026.19(f)(2)(v)]
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Source: TILA-RESPA Integrated
Disclosure Rule, Small Entity Compliance Guide - September 2014, Consumer
Financial Protection Bureau. The Closing Disclosure Table is extrapolated
from several sections of this guide, as a primary source, in order to provide
text and citations.
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