Dentons US LLP
The TILA-RESPA Integrated
Disclosures
April 17, 2014
The History and Rulemaking
Process
April 17, 2014
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The History
• For more than 30 years, TILA and RESPA have required different but
overlapping disclosure forms regarding the loan’s terms and costs.
• Longstanding frustration from industry and consumers.
• On September 30, 1996, Congress directed the Federal Reserve Board
and HUD to integrate the disclosures, but they could instead submit a
report to Congress containing legislative recommendations.
• The Federal Reserve Board and HUD did not integrate the disclosures.
• In July 1998, the Federal Reserve Board and HUD issued a ‘‘Joint
Report to the Congress Concerning Reform to [TILA and RESPA]"
• Recommendations on timing of the disclosures, changing the definition of
"finance charge," and accuracy of estimates.
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The Final Rule
• Dodd-Frank Act sections 1032(f), 1098, and 1100A directed the CFPB to
integrate the mortgage disclosures under TILA and RESPA
• 1032(f) gave July 21, 2012 deadline for the proposal
• Two purposes of the integrated disclosures:
• Aid consumer understanding by utilizing readily understandable language to simplify the technical
nature of the disclosures.
• Facilitate compliance with the disclosure requirements of RESPA and TILA
• CFPB issued proposal on July 9, 2012
• 77 FR 51116 (August 23, 2012)
• Over 2,800 public comments
• CFPB issued final rule on November 20, 2013
• 1,888 pages
• 78 FR 79730 (Dec. 31, 2013) - only 637 pages!
• 17 years after Congress first directed the Board and HUD to integrate
• 22 different form models and samples
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The Design and Consumer Testing Process
• Before the proposal:
• Started designing prototypes in January 2011
• 10 rounds of qualitative usability testing from May 2011 - March
2012
• One on one interviews
• 92 consumer and 22 industry participants
• 9 locations across the country
• KBYO public outreach process
• Over 150,000 visits to the KBYO web site
• Over 27,000 public comments and emails about the prototype
disclosures
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The Design and Consumer Testing Process
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The Design and Consumer Testing Process
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The Design and Consumer Testing Process
• After the proposal:
• 7 rounds of qualitative usability testing from Oct 2012 - July 2013
• Spanish and Refinance versions
• Quantitative Test in Spring 2013
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Baseline test against current disclosures
858 consumers
20 locations across the country
Integrated disclosures performed statistically significantly better than
current disclosures
• Overall improvement around 29%
• 197% improvement in identifying the highest possible total monthly
payment in the final loan offer.
• 98% improvement in comparing the highest possible total monthly
payments between two loans.
• 28% improvement for comparing initial and closing disclosures
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The Final Rule
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Scope
• Applies to most closed-end consumer credit transactions secured by real
property
• Excludes:
• Open-end credit (i.e., HELOCs)
• Reverse mortgages
• Mortgages secured by a dwelling that is not real property (e.g., mobile home,
house boat).
• Lenders who made 5 or fewer mortgage loans in the preceding calendar year
(unless made more than one HOEPA loan in any 12-month period).
• Loans not covered by the rule are still covered by the current disclosure
requirements
• Final rule updates GFE and HUD-1 instructions to incorporate the guidance in
the HUD FAQs on reverse mortgages
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Effective Date
• Final Rule is effective Aug. 1, 2015
• Applies to applications received by a creditor or mortgage broker on or
after Aug. 1, 2015
• Except pre-disclosure restrictions and state preemption/exemption provisions
which become effective on Aug. 1, 2015 without respect to application date
• Early use of the integrated disclosures is not permitted
• Examples:
• If application received on July 31, 2015, provide the early TIL and GFE, and
final TIL and HUD-1.
• If application received on August 1, 2015, provide the LE and CD.
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What is Not in the Final Rule (All-in APR and Machine
Readable)
• "All in" APR
• Proposal revised definition "finance charge" to include most fees
• Concerned about effects on other rule thresholds (e.g., QM, HOEPA), lack of
data, uncertain benefits of APR
• CFPB will study in connection with 5-year review of the final rule
• Electronic, Machine Readable
• Proposal required record retention in an electronic, machine readable format,
but did not specify a data format
• Concerned about costs and the data standard that would be required
• GSE Uniform Closing Dataset (UCD)
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Uses MISMO data standards
GSEs intend to collect this dataset from lenders in the future
http://www.freddiemac.com/singlefamily/sell/ucd.html
https://www.fanniemae.com/singlefamily/uniform-closing-dataset
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Pre-Disclosure Restrictions
• Fee Restriction
• Prohibits fees, except a bona fide and reasonable credit report fee, before the
consumer has received the Loan Estimate and indicated to the creditor an
intent to proceed.
• Consumer can indicate an intent to proceed in any manner, unless creditor
requires certain method. Need to document intent to proceed.
• Be careful! Prohibited from requiring method for payment before receipt of LE
and intent to proceed (e.g., checks or credit card numbers)
• Worksheet Disclaimer
• Statement required on the top of any written estimate of terms or costs specific
to a consumer (e.g., worksheets) before receipt of the LE
• In a font size that is no smaller than 12-point font: ‘‘Your actual rate, payment,
and costs could be higher. Get an official Loan Estimate before choosing a
loan.’’
• Written estimates may not be made with headings, content, and format
substantially similar to LE or CD.
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Pre-Disclosure Restrictions
• Worksheet Disclaimer (cont.)
• Model Form H-26
• Verification of Information
• Prohibits requiring a consumer to submit documents verifying information
related to the consumer’s application before providing the disclosures required.
• Similar to current Reg X
• Be careful! Rule specifically mentions purchase and sale contracts
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Providing the Loan Estimate
• Creditor must deliver or place the Loan Estimate in the mail within 3
business days after receipt of the application
• Consumer is considered to have received the disclosures 3 business
days after they are sent or placed in the mail
• Must deliver the LE not later than the 7th business day before
consummation of the transaction
• Bona fide personal financial emergency waiver
• Mortgage Brokers
• If mortgage broker receives an application, either the creditor or mortgage
broker has to provide the LE
• But the creditor must ensure that the LE is provided in accordance with the rule
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Providing the Loan Estimate
• Definition of Application
• The six items currently under Regulation X
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Name
Income
Social security number to obtain a credit report
The property address
Estimate of the value of the property
Mortgage loan amount sought
• Deletes the seventh "catch all" item from current Reg X definition
• "Any other information deemed necessary by the loan originator.’’
• But can collect additional information before collect all six items
• Definition of Business Day:
• Proposal would have changed the definition of "business days" for this requirement to include
Saturdays
• After analysis of public comments, CFPB was concerned that including Saturdays would impose
additional costs on industry, especially smaller entities, because would have to open on Saturdays
• Final Rule uses the general definition for this requirement: days on which the creditor’s offices are
open to the public for carrying on substantially all of its business functions
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Written List of Providers
• Written List of Providers
• Must provide a written list identifying at least one available provider for each
settlement service for which the consumer is permitted to shop
• Must include sufficient information to allow the consumer to contact the
provider
• Must also state that the consumer may choose a different provider for that
service
• The creditor shall provide this written list of settlement service providers
separately from the disclosures
• Shopping means can go off-list
• The written list is a referral under RESPA
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Written List of Providers
• Model Form H-27
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Tolerances
• Final Rule Expands the 0% Tolerance Category
• 0% Tolerance Category:
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Fees paid to the creditor, a mortgage broker
Affiliates of the creditor or mortgage broker
Third-party services for which the consumer cannot shop
Transfer taxes
• 10% Category (aggregate amount):
• Services for which the consumer can shop, but selects a provider on the written list of providers
• Recording fees
• No Tolerance Limitation
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Voluntary services
Prepaid interest
Property insurance premiums
Amounts placed into an escrow, impound, reserve, or similar account
• The LE lasts for 10 business days
• Changed circumstances/borrower requested changes still apply
• Generally have to send revised LE within three business days of the change
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Tolerances
• Changed Circumstance. Causes the charge to increase or affects the
consumer’s creditworthiness or the value of the security for the loan:
• An extraordinary event beyond the control of any interested party or other
unexpected event specific to the consumer or transaction;
• Information specific to the consumer or transaction that the creditor relied upon
when providing the Loan Estimate and that was inaccurate or changed after the
disclosures were provided; or
• New information specific to the consumer or transaction that the creditor did not
rely on when providing the Loan Estimate.
• Borrower requested change. The consumer requests revisions to the
credit terms or the settlement that cause an estimated charge to
increase.
• Interest rate dependent charges change because interest rate not locked
• Must provide revised LE on the date interest rate locked
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Providing the Closing Disclosure
• Closing Disclosure required to be received by the consumer no later than
three business days before consummation
• Business days for this requirement includes Saturdays
• Redisclose and additional three business day waiting period if:
• The annual percentage rate becomes inaccurate (1/8 of a percent or 1/4 for
irregular loans);
• The loan product changes; or
• A prepayment penalty is added.
• Proposal required additional three business day waiting period for any changes except:
• $100 or less change in cash to close
• Buyer/seller negotiations (e.g., walk-throughs)
• After analysis of public comments, CFPB concerned about frequently delayed closings
• Narrowed triggers of additional three business day waiting period
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Providing the Closing Disclosure
• Post-Consummation Requirements.
• Changes within 30 days after consummation. If an event causes the CD to be
inaccurate with respect to an amount the consumer pays, the creditor must
provide a corrected CD within 30 days after learning of the change.
• Non-numeric clerical errors. Not a violation if non-numeric clerical errors, if the
creditor provides corrected disclosures within 60 days after consummation.
• Tolerance cures. To cure a tolerance violation, the refund and corrected CD has
to be provided within 60 days after consummation.
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Settlement Agents and the Closing Disclosure
• Creditor is ultimately responsible for providing the CD
• This includes the HUD-1 information for which the settlement agent was
previously responsible
• Settlement agent may provide the CD
• But creditor still ultimately liable
• Creditor and settlement agent can divide responsibilities for providing the
CD at different times, or for different portions of the CD
• Settlement agent responsible for providing the CD to the seller
• Required to be provided no later than the day of consummation
• If within 30 days after consummation, an event causes the CD to be inaccurate
with respect to an amount the seller pays, the settlement agent must provide a
corrected CD within 30 days after learning of the change.
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Record Retention
• Loan Estimate
• Three years
• After the later of the date of consummation, the date disclosures are required to
be made, or the date the action is required to be taken
• Closing Disclosure
• Five years
• If sell or transfer the loan, still required to retain records for the remainder of the
five years
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New Post-Closing Disclosure Requirements
• Escrow Cancellation Disclosure
• Uses similar format and language as Escrow disclosure on CD
• Model Form H-29
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New Post-Closing Disclosure Requirements
• Partial Payments Disclosure
• Adds partial payment disclosure to the Mortgage Transfer Notice
• Can use similar language as the Partial Payments disclosure on the CD
• Can make modifications to the language from the CD to make the disclosure
suitable to the format of the covered person’s Mortgage Transfer Notice.
• E.g., can change ‘‘Your lender may’’ or ‘‘Your lender does not,’’ to ‘‘We will’’ or
‘‘We are your new lender and have a different Partial Payment Policy than your
previous lender. Under our policy we will.’’
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The Forms
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The Forms
• LE combines the early TIL and GFE
• CD combines the final TIL and HUD-1
• Standard forms for RESPA transactions
• Dynamic forms
• Inapplicable disclosures are left blank or do not appear
• AIR/AP Tables
• Not permitted to use N/A
• Design Principles
• Less text, more graphic design
• Information not education
• More important and usable information earlier
• LE and CD should match
• One-page mortgage shopping sheet
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Loan Estimate
Loan Estimate
Loan Estimate
Closing
Disclosure
Closing
Disclosure
Closing
Disclosure
Closing
Disclosure
Closing
Disclosure
Other Issues
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Liability
• TILA Liability
• Private right of action
• Actual damages
• Statutory damages up to $4,000
• Attorney’s fees
• Administrative enforcement
• RESPA Liability
• No private right of action for integrated disclosures under RESPA
• Administrative enforcement
• Rule does not state whether TILA or RESPA statutory liability applies to
different parts of the disclosures
• Instead states that the preamble describes the statutory authority for
each provision, which provides sufficient guidance for industry,
consumers, and the courts regarding liability.
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Liability
• CFPB Enforcement (DFA 1055)
• Administrative or Judicial
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Relief
Refunds
Restitution
Damages
Limitations on activities
Costs in enforcing action
• Civil Money Penalties
• Tier 1: Up to $5,000 per day
• Tier 2: Reckless violations - up to $25,000 per day
• Tier 3: Knowing violations - up to $1,000,000 per day
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Challenges and Next Steps
• Creditor – Settlement Agent Relationship
• Creditors now liable for HUD-1 settlement cost Information
• CFPB Service Provider Bulletin - CFPB Bulletin 2012-03 (April 13, 2012)
• Increased scrutiny over third party service providers
• ALTA Best Practices
• Communicating with settlement agents earlier in the process to provide CD at
least 3 days before consummation
• Expanded Tolerances
• Obtaining accurate estimates from service providers
• Application Process
• Obtain information in addition to the 6 items
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Challenges and Next Steps
• Changes in vocabulary
• Itemization
• No more HUD-1 line numbers
• Fewer hard coded lines
• No more POCs on closing cost details page
• New Disclosure Items
• Sales Price/Appraised Value
• Anti-Deficiency Disclosure
• State Surveys
• Partial Payments
• Contact Information
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Challenges and Next Steps
• Software Systems
• Dynamic forms
• Detailed regulations
• Staff Training
• Policies and Procedures
• Vendor Agreements
• Customer Experience
• Trial Disclosure Program (DFA 1032(e))
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Thank You
Richard Horn
Partner
Dentons US LLP
(202) 408-9190
richard.horn@dentons.com
1301 K Street, NW, Suite 600, East
Tower, Washington, DC 20005-3364
USA
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