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From Banking and Finance Law Daily, July 7, 2017

CFPB finalizes mortgage rule updates, proposes treatment of closing disclosure

By Thomas G. Wolfe, J.D.

The Consumer Financial Protection Bureau has finalized updates to its "Know Before You Owe" mortgage disclosure rule. The CFPB notes that the amendments to the federal Truth in Lending Act’s Regulation Z (12 CFR Part 1026) not only seek to "formalize guidance in the rule and provide greater clarity and certainty," but also aim to facilitate the mortgage industry’s implementation of the rule. While the final rule takes effect 60 days after its publication in the Federal Register, the mandatory compliance date is set at Oct. 1, 2018.

In addition, the CFPB has issued a "follow-up proposal" to address occasions when a creditor may use a Closing Disclosure, instead of a Loan Estimate, to determine whether an estimated closing cost was disclosed "in good faith and within tolerance." Public comments on the CFPB’s proposal are due 60 days after its publication in the Federal Register.

CFPB Director Richard Cordray stated that the CFPB’s latest rules will "help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives. Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers."

The CFPB’s "Know Before You Owe" mortgage disclosure rule, which took effect Oct. 3, 2015, created new, streamlined forms that consumers receive when applying for a mortgage loan and when closing on the mortgage. According to the CFPB, in adopting its final updates, the bureau took into account more than 1,600 comments it received from industry groups, trade associations, consumer groups, the government-sponsored enterprises, and others.

Final rule. In finalizing the updates, the CFPB has modified the mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act that are implemented in Reg. Z. Apart from certain clarifications and technical corrections, the CFPB’s finalized updates to Reg. Z include provisions on:

  • Tolerances for total payments. In keeping with the rule’s current approach not to make specific use of the finance charge in the calculation of total payments, the tolerance provisions provide for the total of payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge;
  • Housing assistance lending. In keeping with the rule’s approach to give a partial exemption from disclosure requirements to certain housing assistance loans originated primarily by housing finance agencies, the rule now further promotes housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. In addition, the update excludes recording fees and transfer taxes from the exemption’s limits on costs.
  • Cooperatives. The mortgage disclosure rule’s coverage is now extended to include all cooperative units—those secured by or treated as real property and those secured by or treated as personal property under state law. According to the CFPB, by including all cooperatives in the rule, "the Bureau is simplifying compliance and ensuring that more consumers benefit from the rule."
  • Privacy and sharing of information. The CFPB indicates that it has received many questions about sharing the mortgage disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. Since the CFPB recognizes that it is "usual, accepted, and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers, and their real estate brokers or other agents," the bureau has finalized its commentary to "clarify how a creditor may provide separate disclosure forms to the consumer and the seller."

Proposed rule. In addressing what it describes as a Reg. Z "implementation issue," the CFPB is proposing to modify RESPA and TILA mortgage disclosure requirements contained in Reg. Z. Generally, the proposed amendments pertain to the situation in which a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, to determine whether an estimated closing cost was disclosed in good faith. More specifically, the proposal would permit creditors to do so regardless of when the Closing Disclosure is provided relative to the transaction’s consummation.

MainStory: TopStory CFPB Loans Mortgages RESPA TruthInLending

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