Jonathan Foxx
President & Managing Director
Lenders Compliance Group
President & Managing Director
Lenders Compliance Group
This is the sixth and final article
of a six-part series devoted to TILA-RESPA Integration Disclosure. In this sixth
part, I will discuss Page Four and Page Five. Through a review of
important highlights, I invite you to join me in a deep dive into the intricate
features of the Closing Disclosure.
In the first article, I discussed
the mission of TILA-RESPA Integration and the Loan Estimate (LE).[i]
The second article introduced and treated the numerous features of the Closing
Disclosure (CD).[ii]
These two articles (viz., on the Loan
Estimate and Closing Disclosure, respectively) were accompanied by separate,
detailed tables to be used for certain itemized categories and action
requirements. In the third article, I provided the salient features of the Loan
Estimate, in considerable detail.[iii]
In the fourth article, I took you through Page One and Page Two of the Closing
Disclosure.[iv]
The fifth article was devoted to Page Three, which outlined the sections for Calculating the Cash to Close and Summaries of Transactions.[v]
I would suggest that you read all
the articles in this series in order to better understand the TILA-RESPA
Integration Disclosure (TRID) rule promulgated by the Consumer Financial
Protection Bureau (“CFPB” or “Bureau”).
This series on TILA-RESPA is
meant to be informative, though it is not intended to be comprehensive. It is
always prudent to research areas of particular interest with respect to the
regulatory mandates. If assistance is needed, Lenders Compliance Group is a
resource. Indeed, we recently established two proactive paths toward a TRID
knowledgebase:
(1) We
established the TEAM TRID™ task force,[vi]
a relatively inexpensive, cost-effective way to get TRID integration
implementation done efficiently (viz., www.teamtrid.com); and importantly
(2) We
established TRIDHotline.com,[vii]
an entirely free online service,
manned by our task force, to assist people with their questions about TRID. We
want to listen to their compliance needs (viz., www.tridhotline.com).
Please consider my analysis
carefully. Follow along with a copy of the Closing Disclosure. I will provide,
where helpful, some information as Suggested
Guidance. Allow a few hours to consider this explication. And as
I have admonished all along, make notes, raise questions, and seek answers from
competent compliance professionals!
Hopefully, you will have read the
previous five articles. Now we will continue a detailed review of Page Four and
Page Five of the Closing Disclosure, a two-page set of tables set forth under
the rubric Additional Information About
This Loan. The fourth page of the Closing Disclosure, with the general
heading, Additional Information About This Loan, includes the sections
entitled Loan Disclosures, Adjustable Payments (AP) Table, and Adjustable Interest Rate (AIR) Table.
Page Four
Regulation Z[viii]
requires Page Four of the Closing Disclosure to contain from one to three
tables, depending on the type of product:
- A “Loan Disclosure” table, which addresses various requirements in or arising from the legal obligation, including assumption, demand feature, late payment, negative amortization, partial payments, security interest, and escrow account information.
- The Adjustable Payments (AP) table that also appears on Page Four of the Loan Estimate, as applicable.
- The Adjustable Interest Rate (AIR) table that also appears on Page Four of the Loan Estimate, as applicable.
loan disclosures
Loan Disclosures Table
The Loan Disclosures table
provides disclosures mandated by statute, including three disclosures added to
TILA by the Dodd-Frank Act.[ix]
Assumption
This is the first item in the
Loan Disclosures table. It is labeled Assumption,[x]
and mirrors the assumption disclosure on the Loan Estimate.[xi]
The only difference is the replacement of “we” with “your lender.” Form H-25
offers this text for the disclosure:
Assumption
If you sell or
transfer this property to another person, your lender
□ will allow,
under certain conditions, this person to assume this loan on the original terms.
□ will not allow
assumption of this loan on the original terms.
Demand Feature
The second item in the Loan
Disclosure table is labeled Demand
Feature and is intended to satisfy TILA requirements.[xii]
Regulation Z requires the creditor to disclose whether the legal obligation
permits the creditor to demand early repayment of the loan and, if so, a
statement that the consumer should review the loan document for more details.[xiii]
Form H-25 offers this text for the disclosure:
Demand
Feature
Your loan
□ has a demand
feature, which permits your lender to require early repayment of the loan. You
should review your note for details.
□ does not have
a demand feature.
Suggested Guidance
The type of
demand feature triggering these disclosures includes only those demand features
contemplated by the parties as part of the legal obligation.[xiv]
For example, this provision does not apply to transactions that convert to a
demand status as a result of the consumer’s default. A due-on-sale clause is
not considered a demand feature.
Late Payment
The third item in the Loan
Disclosure table, labeled Late Payment,
discloses any dollar charge or percentage amount that may be imposed due to a
late payment, other than a deferral or extension charge.[xv]
The creditor must disclose the statement which details the late payment charge
stated as dollar amount or percentage of the late payment amount, and the
number of days a payment may be late to trigger the late payment fee.[xvi]
This is similar to the feature regarding the Loan Estimate requirement. Form
H-25 offers this text for the disclosure:
Late Payment
If your payment
is more than __ days late, your lender will charge a late fee of _______.
Negative Amortization
The fourth item in the Loan
Disclosures table, labeled Negative
Amortization (Increase in Loan
Amount) provides that no creditor may extend credit to a borrower in
connection with a transaction secured by a dwelling or residential real
property that includes a dwelling, other than a reverse mortgage, that provides
for or permits a payment plan that may result in negative amortization unless
the creditor provides the consumer with a notice that the transaction may or
will result in negative amortization.[xvii]
A statement must be provided
about whether the regular periodic payment may cause the principal balance to
increase.[xviii]
The disclosure applies to all transactions subject to disclosure integration.
If the regular periodic payment
does not cover all of the interest due, the creditor must state that:
· the principal balance will increase,
· the principal balance will likely exceed the
original loan amount, and
· the increases in the principal balance will
lower the consumer’s equity in the property.
If the consumer
has the option of making regular periodic payments that do not cover all of the
interest accrued each month, the creditor must include a statement that, if the
consumer chooses that option, the principal balance may exceed the original
loan amount and that increases in the principal balance decrease the consumer’s
equity in the property. Form H-25 offers this text for this disclosure:
Negative
Amortization (Increase in Loan Amount)
Under your loan
terms, you
□ are scheduled
to make monthly payments that do not pay all of the interest due that month. As
a result, your loan amount will increase (negatively amortize), and your loan
amount will likely become larger than your original loan amount. Increases in
your loan amount lower the equity you have in this property.
□ may have
monthly payments that do not pay all of the interest due that month. If you do,
your loan amount will increase (negatively amortize), and, as a result, your
loan amount may become larger than your original loan amount. Increases in your
loan amount lower the equity you have in this property.
□ do not have a negative
amortization feature.
Partial Payments
The fifth item in the Loan
Disclosures table, labeled Partial
Payments provides that, in the case of any residential mortgage loan, the
creditor must disclose, prior to settlement or at the time a person becomes the
creditor for an existing loan,[xix]
the creditor’s policy regarding the acceptance of partial payments, and if
partial payments are accepted, how the payments will be applied to the loan and
whether the payments will be placed in escrow.[xx]
The creditor must disclose a statement of whether the creditor accepts periodic
payments less than the full amount due.[xxi]
If the creditor may accept partial payments, and apply the payments to the
consumer’s loan, or if the creditor may hold the payments in a separate account
until the consumer pays the rest of the payment, or if the creditor does not
accept any partial payments, then the disclosure must state that fact. The
creditor also must include a statement that, if the loan is sold, the new
lender may have a different policy.
It is clear that the Bureau
decided to alter the statutory requirement because it would have required a
detailed disclosure of the many variations of partial-payment processing,
resulting in information overload. There are disclosure requirements that apply
after consummation,[xxii]
[xxiii]
implemented as part of the CFPB’s January 2013 Servicing Rule. Form H-25 offers
this text for the disclosure:
Partial
Payments
Your lender
□ may accept
payments that are less than the full amount due (partial payments) and apply
them to your loan.
□ may hold them
in a separate account until you pay the rest of the payment, and then apply the
full payment to your loan.
□ does not
accept any partial payments.
If this loan is
sold, your new lender may have a different policy.
Security Interest
The sixth item in the Loan
Disclosures table, labeled Security Interest requires the creditor to provide a
statement that a security interest has been taken in the property securing the
transaction or in property not purchased as part of the transaction by item or
type.[xxiv]
The creditor must disclose that the creditor will take a security interest in
the property, that the consumer is granting a security interest in that
property, the address of the property (or other location information, such as a
lot, square, or similar number, if no street address exists), the zip code in
which the property is located, and a statement that the consumer may lose the
property if he or she does not make payments or satisfy other requirements of
the legal obligation.[xxv]
Form H-25(B) illustrates the completion of this disclosure, as follows:
Security
Interest
You are granting
a security interest in
[456 Somewhere
Avenue, Anytown, ST 12345]
You may lose
this property if you do not make your payments or satisfy other obligations for
this loan.
Suggested Guidance
- For transactions secured by a consumer’s interest in a timeshare plan, Regulation Z permits the creditor to disclose as “other location information” a lot, square, or other such number or other legal description assigned by the local governing authority, or if no number or description is available, the name of the time share property or properties with a designation indicating that the property is an interest in a timeshare plan.[xxvi]
- If personal property also secures the transaction, a description of that property may be disclosed. When the personal property description does not fit in the space on form H-25, the creditor may use an addendum to disclose the property.[xxvii]
- Even though this is not addressed by the Comments, Regulation Z presumably would also allow an addendum if the descriptions for multiple real properties do not fit in the space allocated on the Closing Disclosure. The Comments allow such an addendum for the Loan Estimate, but for real property only.[xxviii] I do not believe a different rule would apply to the Closing Disclosure, that is, it seems reasonable to take the position that the Comments (1) address only the use of addenda for personal property because of the specific, different treatment the Comments provide personal property in the Loan Estimate versus the Closing Disclosure, and (2) they inadvertently overlook the use of addenda for real property descriptions.[xxix] In other words, it seems that the Bureau’s comments (and preamble to the Rule) assume addenda may be used for multiple real properties if the property listing or description does not fit in the space allocated on form H-25.
- The creditor should insert the property description using italics to emphasize that the italicized information has been completed by the creditor.[xxx]
- The creditor complies with the requirements regarding “Escrowed Property Costs over Year 1” and “Monthly Escrow Payment” if the creditor bases the numerical disclosures on amounts derived from the escrow account analysis required under RESPA.[xxxi]
- If the consumer’s escrowed costs do not include homeowner’s association fees, but the creditor knows the consumer is likely to pay, say, $1,000 in homeowner’s association fees, then the creditor must disclose the fee as part of “Non-Escrowed Property Costs over Year 1.”
- When the creditor does not impose a fee for not establishing an escrow account, the “Escrow Waiver Fee” disclosure must be left blank.
Adjustable Payment (AP) Table
Page Four of the Closing
Disclosure must include two other tables, as applicable.[xxxii]
The first is the Adjustable Payment (AP)
Table, the same table that appears on the Loan Estimate, which the creditor
must include if, under the terms of the legal obligation, the principal and
interest payment may adjust without a corresponding adjustment to the interest
rate or if the loan is a seasonal payment product.
The table must contain:
- The periodic payment at the first adjustment of the payment,
- The number of the earliest payment that could reflect an adjustment to the amount of the periodic payment,
- The maximum possible principal and interest payment,
- The number of the earliest payment that could reflect the maximum possible periodic payment, and
- An affirmative or negative statement of whether the loan has an interest-only payment option, step-payment period, or seasonal payment period and the length of that period and payments affected.[xxxiii]
Adjustable Interest Rate (AIR) Table
The second table is the Adjustable Interest Rate (AIR) Table,
the same table that appears on the Loan Estimate, which the creditor must
include if, under the terms of the legal obligation, the interest rate may
adjust after consummation.
The table must include:
- The index and margin if the interest rate will adjust according to an index beyond the control of the creditor,
- The amount of scheduled adjustments and their frequency if the interest rate will change based on something other than an index beyond the control of the creditor (such as a “step-rate” product),
- The interest rate at consummation,
- The minimum and maximum possible interest rates after consummation of the loan after any introductory or teaser rate expires,
- The maximum possible change in the interest rate at the first adjustment,
- The maximum possible change for subsequent interest rate adjustments,
- The month after consummation when the interest rate may first change (counted from the date interest begins to accrue for the first periodic principal and interest payment), and
- The frequency of subsequent interest rate adjustments.[xxxiv]
Page Five
The fifth and last page of the
Closing Disclosure contains a Questions?
box and an optional Confirm Receipt
signature section. The three tables are labeled Loan Calculations, Other
Disclosures, and Contact Information.[xxxv]
Loan Calculations
The creditor must disclose in a separate
table, labeled Loan Calculations,
information required regarding the “Total of Payments,” “Finance Charge,”
“Amount Financed,” “Annual Percentage Rate,” and “Total Interest Percentage.”[xxxvi]
Total of
Payments
The first item
in the Loan Calculations table is the Total of Payments with a statement that
it is the “Total you will have paid after you make all payments of principal,
interest, mortgage insurance, and loan costs, as scheduled.”[xxxvii]
The revised
Total of Payments is calculated in the same manner as the “In 5 Years”
disclosure on the Loan Estimate,[xxxviii]
except that the Total of Payments reflects the total payments through the end
of the loan term instead of five years. The amount includes principal,
interest, mortgage insurance (including any prepaid or escrowed mortgage
insurance), and the Loan Costs disclosed in the Closing Costs Details on Page
Two of the Closing Disclosure.
Suggested Guidance
This differs
from the method of calculating Total of Payments under Regulation Z, which adds
the Amount Financed and the Finance Charge.[xxxix]
Creditors may not modify the descriptive statement (not even for variable-rate
transactions), and may not omit the Total of Payments disclosure in
single-payment transactions or demand obligations that have no alternative maturity
date.[xl]
Finance
Charge
The second item
in the Loan Calculations table is the Finance Charge with this statement: “The
dollar amount the loan will cost you.” This disclosure is identical to the
Finance Charge disclosure required under Regulation Z,[xli]
except that Regulation Z does not allow creditors to modify the descriptive
statement for variable-rate transactions (with a phrase indicating that the
disclosed amount is subject to change) and does not require (or allow)
creditors to disclose the finance charge (and the APR) more conspicuously than
any other required disclosure other than the creditor’s identity.[xlii]
Under Regulation
Z, the disclosed Finance Charge and other disclosures affected by the disclosed
Finance Charge (including the Amount Financed and the APR) are treated as
accurate if the amount disclosed as the Finance Charge is understated by no
more than $100 or is greater than the amount required to be disclosed.[xliii]
Amount
Financed
The third item
in the Loan Calculations table is the Amount Financed with a statement that
“The loan amount available after paying your upfront finance charge.”
Regulation Z requires the creditor or closing agent to calculate the amount in
accordance with the Regulation Z requirements.[xliv]
Annual
Percentage Rate
The fourth item
in the Loan Calculations table is the Annual Percentage Rate (APR) with a
statement that “Your costs over the loan expressed as a rate. This is not your
interest rate.”
Suggested Guidance
Regulation Z
does not require the APR to be disclosed more conspicuously than other required
disclosures.[xlv]
[xlvi]
TRID does not change the APR calculation, set forth in Appendix J.
Total
Interest Percentage
The fifth item
in the Loan Calculations table is the Total
Interest Percentage (TIP), with a statement that “The total amount of
interest that you will pay over the loan term as a percentage of your loan
amount.” Dodd-Frank Act[xlvii]
added this requirement to TILA.[xlviii]
Creditors must
disclose the TIP on Page Three of the Loan Estimate.[xlix]
Suggested Guidance
When the
creditor determines an initial interest rate without using the index or formula
for later rate adjustments, the disclosure should reflect a composite annual
percentage rate based on the initial rate for as long as it is charged and, for
the remainder of the term, the rate that would have been applied using the
index or formula at the time of consummation.[l]
Other Disclosures
The creditor is required to
disclose, in a separate table labeled “Other Disclosures,” information
regarding appraisals, contract details, liability after foreclosure,
refinancing, and tax deductions.[li]
Let’s give some consideration to each of these categories.
Appraisal
The Dodd-Frank
Act amended Equal Credit Opportunity Act (ECOA)[lii]
to require the creditor to provide the consumer with a copy of any written
appraisal obtained for a loan that is or will be secured by a first lien on a
dwelling, and also added a requirement that the creditor disclose that right to
the consumer at the time of application, which the Bureau implemented in its
January 2013 ECOA Appraisals Rule.[liii]
The Dodd-Frank Act also was amended to require creditors to provide consumers
with an appraisal copy at least three days prior to consummation of certain
higher-risk mortgages,[liv]
which the Bureau implemented for higher-priced mortgage loans (HPMLs).[lv]
The Bureau has harmonized
these appraisal notice requirements,[lvi]
for the Loan Estimate,[lvii]
and for the Closing Disclosure, with a disclosure labeled Appraisal. The Appraisal disclosure is required only for loans
subject to transactions that are or will be secured by first liens on dwellings
and HPMLs.[lviii]
[lix]
It may (but need not be) omitted for other loans. The Appraisal disclosure in
the Other Disclosures reminds consumers of their right to receive a copy of an
appraisal conducted for their loan, with the following text:
Appraisal
If the property
was appraised for your loan, your lender is required to give you a copy at no
additional cost at least three days before closing. If you have not yet
received it, please contact your lender at the information listed below.
The reference to
“information listed below” in the Appraisal disclosure relates to the Questions? box (viz., contacting the
lender).
Contract
Details
The second item
in the Other Disclosures table, labeled Contract
Details requires the creditor to provide a statement that “[t]he consumer
should refer to the appropriate document for any information such document
provides about nonpayment, default, the right to accelerate the maturity of the
debt, and prepayment rebates and penalties.”[lx]
[lxi]
[lxii]
Form H-25
provides this disclosure:
Contract
Details
See your note
and security instrument for information about
· what happens if you fail to make your payments,
· what is a default on the loan,
· situations in which your lender can require only
repayment of the loan, and
· the rules for making payments before they are
due.
Liability
after Foreclosure
The third item
in the Other Disclosures table, labeled Liability
after Foreclosure, follows up on the “Liability after Foreclosure”
disclosure on Page Three of the Loan Estimate. The Liability after Foreclosure
disclosure implements TILA,[lxiii]
as was added by Dodd-Frank Act.[lxiv]
The statute generally requires the creditor to provide a written notice to the
consumer describing the protection provided by the applicable state’s
anti-deficiency law and the significance for the consumer of the loss of that
protection, for refinance transactions only. Regulation Z requires the
disclosure for all disclosure integration transactions, not just refinances.[lxv]
The disclosure mentions that state law may protect the consumer from liability
for the unpaid balance, that any protection afforded under state law may be
lost if the consumer refinances or incurs additional debt, and that the
consumer should consult an attorney for additional information. If state law
does not protect the consumer from liability for the unpaid balance, the
creditor must disclose that fact by checking the appropriate box.
Suggested Guidance
- Whether the consumer is afforded protection from liability in a foreclosure varies by state; Regulation Z requires the creditor to provide a general description of the applicable state’s requirements, by checking one of the check boxes in the disclosure.[lxvi]
- Any type of protection afforded by state law, other than a statute of limitations, requires a statement that state law may protect the consumer from liability for the unpaid balance.[lxvii]
- The Bureau does not believe that the high-level disclosure constitutes the practice of law.[lxviii]
Form H-25
provides the following disclosure:
Liability
after Foreclosure
If your lender
forecloses on this property and the foreclosure does not cover the amount of
unpaid balance on the loan,
□ state law may
protect you from liability for the unpaid balance. If you refinance or take on
any additional debt on the property, you may lose the protection and have to
pay any debt remaining even after foreclosure. You may want to consult a lawyer
for more information.
□ state law does
not protect you from liability for the unpaid balance.
Refinance
The fourth item
in the Other Disclosures table, labeled Refinance
requires the creditor to disclose the same “Refinance” language that appears on
Page Three of the Loan Estimate.[lxix]
[lxx]
The following disclosure in H-25 states:
Refinance
Refinancing
this loan will depend on your future financial situation, the property value,
and market conditions. You may not be able to refinance this loan.
Tax
Deductions
The fifth and
final item in the Other Disclosures table, labeled Tax Deductions requires the creditor to disclose certain tax
implications for a consumer credit transaction secured by the principal
dwelling of the consumer in which the loan amount may exceed the fair market
value of the collateral.[lxxi]
This requirement must be implemented for all transactions subject to disclosure
integration.[lxxii]
It requires the creditor to state that, if the consumer borrows more than the
value of the property, the interest on the loan amount above the market value
is not deductible from federal income taxes. The disclosure must include a
statement advising the consumer to consult a tax professional for additional
information. Form H-25 provides the following disclosure:
Tax
Deductions
If you borrow
more than this property is worth, the interest on the loan amount above this
property’s fair market value is not deductible from your federal income taxes.
You should consult a tax advisor for more information.
Questions Notice
Under the Loan Calculations
table, the creditor must include a statement directing the consumer to use the
Contact Information table if he or she has any questions about the loan terms
or costs, and a reference to the Bureau’s web site to get more information or
make a complaint.[lxxiii]
The regulation requires a prominent question mark to appear in this disclosure.
If the creditor or closing agent deviates from the depiction of the question
mark shown on form H-25, it must comply with the applicable statute’s
description of the size and location of the question mark, and the creditor or
closing agent otherwise must company with any other permissible changes to the
form of the Closing Disclosure.[lxxiv]
[lxxv]
Contact Information Table
The Closing Disclosure must
contain a Contact Information table[lxxvi]
which requires the following contact information for each creditor (under the
subheading “Lender”), mortgage broker (under the subheading “Mortgage Broker”),
consumer’s real estate broker (under the subheading “Real Estate Broker (B),”
seller’s real estate broker (under the subheading “Real Estate Broker (S),” and
settlement agent (under the subheading “Settlement Agent”) participating in the
transaction:
- Name of the person, labeled “Name”
- Address, labeled “Address”
- Nationwide Mortgage Licensing System & Registry (NMLSR ID) identification number, labeled “NMLS ID”
- Name of the natural person who is the primary contact for the consumer with the person, labeled “Contact”
- NMLSR ID, labeled “Contact NMLS ID,” or, if none, the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the person is licensed and/or registered labeled “Contact License ID” with the two-letter abbreviation for the state of the applicable jurisdiction or regulatory body shown before the word “License” in the label, for the natural person
- Email address for the natural person, labeled “Email”
- Telephone number for the natural person, labeled “Phone”
Suggested Guidance
- Addresses. The address is the identified party’s place of business where the primary contact for the transaction is located (usually the local office), rather than a general corporate headquarters address.[lxxvii]
- Primary Contact. The primary contact working at the identified party is the individual who interacts most frequently with the consumer and who has an NMLSR identification number or, if none, a license number or other unique identifier.[lxxviii]
- Contacts. In general, the contact information at the top of page 3 of the Loan Estimate apply to this Closing Disclosure table.[lxxix]
- Blanks. Inapplicable items must be left blank, not marked “N/A.”[lxxx]
- General Addresses. Disclosure of a general number or email address for the lender, mortgage broker, real estate broker, or settlement agent, as applicable, satisfies this requirement if no such information is generally available for the natural person.[lxxxi]
- Multiple Persons. If the transaction involves more than one of the five categories of persons in the transaction (such as two sellers’ real estate brokers splitting a commission), the space in the Contract Information table may be altered to accommodate the information for the additional person, provided that the information required on Page Five is disclosed on the same page as illustrated by form H-25. If the space on form H-25 does not accommodate the addition, an additional table may be provided on a separate page, with an appropriate reference on Page Five to the additional table. A creditor or closing agent may, instead, omit a column on the table that does not apply or, if necessary, replace an inapplicable column with the contact information for the additional person.[lxxxii]
- Names. The person’s legal name (i.e., the name used for registration, incorporation, or chartering purposes), the person’s trade name, if any, or an abbreviation of the person’s legal name or trade name must be disclosed, so long as the disclosure is clear and conspicuous, that is, sufficiently distinct.[lxxxiii]
Confirm Receipt
The statement required by
Regulation Z[lxxxiv]
above the signature lines reads: “By signing, you are only confirming that you
have received this form. You do not have to accept this loan because you have
signed or received this form.”
Suggested Guidance
- If the creditor believes the signature line and accompanying statement are confusing, it may omit them at the creditor’s option.
- Regarding consumers in rescindable transactions, the definition of consumer includes a non-applicant co-owner of a principal dwelling, and the Closing Disclosure must be given to each consumer who has a right to rescind, including each non-applicant co-owner.[lxxxv]
- To the extent that consumers’ names do not fit on the space allocated for a signature on form H-24, an additional page may be added to the Closing Disclosure.[lxxxvi]
Conclusion of the Six-Part
Series
This six-part series has provided
a broad, introductory overview of TILA-RESPA Integration Disclosure. TRID is so
extensive and involves such a significant generational change in disclosure
that there will be a continual need to understand both its current and future
implications. Even now, on the cusp of TRID implementation, the Bureau is
providing written announcements, rule updates, and webinar responses to TRID’s
implementation challenges.
Examinations and enforcement are
right around the corner! The importance of complying with the specialized requirements
cannot be overstated. Failure to comply with TRID’s precise and detailed rules
may lead to significant liability and litigation risk, under both TILA and
RESPA, as well as other statutes, such as the Equal Credit Opportunity Act,
state and federal UDAAP statutes, and state mini-TILA and mini-RESPA statutes.
Keep in mind that TRID introduced
a new feature to TILA and RESPA enforcement. RESPA does not provide private
rights of action for violations of Sections 4 and 5, regarding Good Faith
Estimates, Settlement Statements, and Special Information Booklets. But TRID ‘moved’
some of the RESPA Section 4 and 5 requirements that previously appeared in
RESPA’s Regulation X to TILA’s Regulation Z. The effect of this change was an
expansion of RESPA liability, by bringing those provisions into the purview of
the Truth in Lending Act, which provides for a private right of action.
Clearly, a probable factor
motivating the movement in this direction, instead of from TILA to RESPA, was
the more robust civil penalty regime offered by TILA. Closing agents concerned
about additional liability seem to be finding some comfort in the Bureau’s
statement that it does not believe a settlement agent’s provision of the
Closing Disclosure exposes the agent to civil liability under TILA[lxxxvii]
so long as the agent is not also functioning as a creditor under TILA[lxxxviii].
Mortgage brokers appear to find the same comfort regarding their involvement in
providing Loan Estimates.
When TRID was proposed and
comments were elicited from the public, commenters expressed concern that TRID’s
combination of RESPA and TILA disclosure requirements would invite consumers to
bring lawsuits seeking TILA remedies for RESPA violations. Hoping to block this
path to litigation, they asked the CFPB to specify which provisions of Regulation
Z, as affected by TRID, relate to TILA requirements and which relate to RESPA
requirements. One commenter suggested that the CFPB should implement the TILA
disclosure requirements in Regulation Z and the RESPA disclosure requirements
in Regulation X to discourage litigation invoking TILA’s liability scheme for
RESPA violations.
However, in the Final Rule the
CFPB responded in this way:
“While the final
regulations and official interpretations do not specify which provisions relate
to TILA requirements and which relate to RESPA requirements, the
section-by-section analysis of the final rule contains a detailed discussion of
the statutory authority for each of the integrated disclosure provisions… [T]he
authority for the integrated disclosure provisions is based on specific
disclosure mandates in TILA and RESPA, as well as certain rulemaking and
exception authorities granted to the [CFPB] by TILA, RESPA, and the Dodd-Frank
Act. The details of the [CFPB’s] use of such authority are described in the
section-by-section analysis. The [CFPB]
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.”[lxxxix]
(My emphasis.)
I have yet to make my peace with
this statement. The notion of “sufficient guidance” seems to be the exact
coordinate where litigation will aim its ‘test case’ missile.
In my view, “sufficient guidance”
means an item-by-item analysis of the integrated disclosures explaining each
statutory source for the disclosure item, any prior implementation of that
requirement, the Bureau’s research into the effectiveness of that disclosure
from both a consumer and industry perspective, the CFPB’s alteration (if
applicable) of the statutory requirement or previous regulatory implementation
of the requirement to respond to its research, its reasons for implementing
that disclosure as part of TILA-RESPA disclosure integration, and the statutory
support for including the final version of the disclosure. Frankly, in most
cases, the ultimate statutory support rests on a specific requirement stated in
TILA, RESPA and/or the Dodd-Frank Act, further supported by the regulatory
flexibility offered in TILA Section 105(a) (sometimes also TILA Section
105(f)), RESPA Section 19(a), and the Dodd-Frank Act Sections 1032(a) and
1405(b).
In other words, the CFPB relied for
the most part on the ‘regulatory flexibility’ given by these provisions because
it found it necessary to reconcile differences between the RESPA and TILA
statutes, and between sometimes differing provisions within the TILA statute
itself. The Bureau also found it appropriate to alter many of the statutory requirements
(even discarding some). Thus, many resulting disclosure items are not derived
solely from one statute or the other but from one or more statutory starting
points and the broad rulemaking authority given the CFPB by TILA, RESPA and the
Dodd-Frank Act. Unraveling the final result to separate a RESPA claim from a
TILA claim will prove difficult. These authorities give the Bureau an
extraordinary amount of freedom to adopt disclosure requirements and
constraints on consumer credit terms and conditions, including requirements
different from those specified in any statute affecting mortgage loans.
[i]
Foxx, Jonathan, RESPA/TILA Integration –
Part I: Overview and Loan Estimate, pp 28-54, National Mortgage
Professional, October 2014
[ii]
Foxx, Jonathan, RESPA/TILA Integration –
Part II: Closing Disclosure and Action Plan, pp 26-50, National Mortgage
Professional, December 2014
[iii]
Foxx, Jonathan, Loan Estimate: Deep Dive
(Part III), pp 40-75, National Mortgage Professional, June 2015
[iv]
Foxx, Jonathan, Closing Disclosure: Deep
Dive – Pages One and Two (Part IV), pp
40-82, National Mortgage Professional, July 2015
[v]
Foxx, Jonathan, Closing Disclosure: Deep Dive – Page Three (Part V), pp
56-78, National Mortgage Professional,
August 2015
[vi]
www.teamtrid.com
[vii]
www.tridhotline.com
[viii]
Regulation Z §§ 1026.38(l)-(n)
[ix]
Regulation Z § 1026.38(l)
[x]
Required by TILA § 128(a)(13)
[xi]
Required by Regulation Z § 1026.37(m)(2)
[xii]
TILA § 128(a)(12)
[xiii]
Regulation Z § 1026.38(l)(2) incorporates certain of the requirements of Regulation
Z § 1026.18(i) and (p). Comment 38(l)(2)-1 refers to Comment 18(i)-2 for a
description of demand features that trigger this disclosure requirement.
[xiv]
Regulation Z § 1026.18(i) - Commentary; § 1026.38(l)(2)
[xv]
TILA § 128(a)(10)
[xvi]
Regulation Z 1026.38(l)(3). Also, Regulation Z § 1026.37(m)(4) [similar to
§ 1026.18(l)]
[xvii]
TILA § 129C(f), added by Dodd-Frank Act § 1414(a)
[xviii]
Regulation Z § 1026.38(l)(4)
[xix]
TILA § 129C(h) uses the phrase “in the case of a person becoming a creditor
with respect to an existing residential mortgage loan, at the time such person
becomes a creditor ….” This phrase is meaningless in light of TILA’s definition
of “creditor,” which refers only to a person who both (1) regularly extends,
whether in connection with loans, sales of property or services, or otherwise,
consumer credit which is payable by agreement in more than four installments or
for which the payment of a finance charge is or may be required, and (2) is the
person to whom the debt arising from the consumer credit transaction is
initially payable on the face of the evidence of indebtedness. (See TILA
§ 103(g) and Regulation Z § 1026.2(a)(17).) Congress presumably meant
“servicer” instead of “creditor.”
[xx]
TILA § 129C(h), added by Dodd-Frank Act § 1414(d)
[xxi]
Regulation Z § 1026.38(l)(5)
[xxii]
TILA § 129C(h)
[xxiii]
Regulation Z § 1026.39
[xxiv]
TILA § 128(a)(9)
[xxv]
Regulation Z § 1026.18(m), also Regulation Z § 1026.38(l)(6)
[xxvi]
Comment 38(l)(6)-1
[xxvii]
Comment 38(l)(6)-2. The Comment addresses only the use of an addendum for
personal property, as does Comment 38(a)(3)(vi)-1, which allows an addendum to
describe the property address required by Regulation Z § 1026.38(a)(3)(vi) on Page
One of the Closing Disclosure if the description does not fit in the space
allocated on form H-25. The creditor may use one addendum to combine these Page
One and Page Four personal property disclosures.
[xxviii]
Comment 37(a)(6)-2
[xxix]
Comments 37(a)(6)-2, 38(a)(3)(vi)-1, and 38(l)(6)-2. See 78 FR 79729,
80001-80002 (December 31, 2013)
[xxx]
78 FR 79729, 80030 (December 31, 2013)
[xxxi]
Regulation X § 1024.17
[xxxii]
Regulation Z § 1026.38(m) and (n)
[xxxiii]
Comment 38(m)-1 directs creditors to the commentary to § 1026.37(i) for guidance
on this disclosure table.
[xxxiv]
Comment 38(n)-1 directs creditors to the commentary to § 1026.37(j) for guidance
on this disclosure table.
[xxxv]
Regulation Z § 1026.38(o)-(s)
[xxxvi]
Regulation Z § 1026.38(o); see also TILA § 128(a)(2)-(5), (8), (17), (19)
[xxxvii]
This is a modification made by the Bureau, to wit, modifying the existing “Total
of Payments” disclosure, set forth in TILA § 128(a)(5) and Regulation Z
§ 1026.18(h).
[xxxviii]
Regulation Z § 1026.37(l)(1)(i), see also § 10.02[2][b] and Comment 38(o)(1)-1).
[xxxix]
Regulation Z § 1026.18(h)
[xl]
Contrast with Comments 18(h)-1, -3, and -4
[xli]
Regulation Z § 1026.18(d)
[xlii]
Regulation Z § 1026.38(o)(2); See also § 1026.17(a)(2).
[xliii]
Regulation Z § 1026.38(o)(2). The finance charge continues to be calculated in
accordance with the requirements of § 1026.4 and its commentary. See Comments
38(o)(2)-1 and -2.
[xliv]
Regulation Z § 1026.38(o)(3). See also § 1026.18(b) and its commentary.
[xlv]
Regulation Z § 1026.38(o)(4)
[xlvi]
As differentiated from Regulation Z § 1026.17(a)(2).
[xlvii]
Dodd-Frank Act § 1419
[xlviii]
TILA § 128(a)(19)
[xlix]
Comment 38(o)(5)-1. See § 1026.37(l)(3) and its commentary.
[l]
Regulation Z § 1026.38(o)(5)
[li]
Regulation Z § 1026.38(p)
[lii]
Equal Credit Opportunity Act (ECOA) §§ 701(e)
[liii]
Regulation B, 12 CFR § 1002.14
[liv]
TILA §§ 129H(c)–(d)
[lv]
Regulation Z § 1026.35(c)(6)
[lvi]
Regulation Z § 1026.37(m)(1)
[lvii]
Regulation Z § 1026.38(p)(1)
[lviii]
ECOA § 701(e)
[lix]
TILA § 129H
[lx]
TILA § 128(a)(12)
[lxi]
Regulation Z § 1026.18(p)
[lxii]
Regulation Z § 1026.38(p)(2)
[lxiii]
TILA §129C(g)
[lxiv]
Dodd-Frank Act § 1414(c)
[lxv]
Regulation Z § 1026.38(p)(3)
[lxvi]
Comment 38(p)(3)-1
[lxvii]
Idem
[lxviii]
78 FR 79729, 80047 (December 31, 2013)
[lxix]
TILA § 128(b)(2)(C)(ii)
[lxx]
Regulation Z § 1026.37(m)(5); also § 1026.38(p)(4)
[lxxi]
TILA § 128(a)(15), which was added by the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005
[lxxii]
Regulation Z § 1026.38(p)(5)
[lxxiii]
Regulation Z § 1026.38(q)
[lxxiv]
Regulation Z § 1026.38(q)
[lxxv]
Regulation Z § 1026.38(t)(5). See Comment 38(q)(3)-1.
[lxxvi]
Regulation Z § 1026.38(r)
[lxxvii]
Comment 38(r)-3
[lxxviii]
Comment 38(r)-6
[lxxix]
Regulation Z § 1026.37(k). See Comments.
[lxxx]
Comment 38(r)-1
[lxxxi]
Comment 38(r)-7
[lxxxii]
Comment 18(r)-1
[lxxxiii]
Comment 38(r)-2
[lxxxiv]
Regulation Z § 1026.38(s)
[lxxxv]
For the definition of “consumer,” see Regulation Z § 1026.2(a)(11)
[lxxxvi]
Comment 38(s)-1 (referring to Comment 37(n)-2); Comment 38(t)(5)-4
[lxxxvii]
TILA Section 130
[lxxxviii]
TILA Sections 130 and 131
[lxxxix]
Bureau of Consumer Financial Protection, 12
CFR Parts 1024 and 1026, Integrated Mortgage Disclosures under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth In Lending Act
(Regulation Z), Action: Final rule; official interpretation, pp100-101
[Docket No. CFPB-2012-0028]
