April 17 2014 Dentons US LLP 2 April 17 2014 The History and Rulemaking Process Dentons US LLP The History April 17 2014 Dentons US LLP For more than 30 years TILA and RESPA have required different ID: 808788
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Slide1
The TILA-RESPA Integrated Disclosures
April 17, 2014
Dentons US LLP
Slide22
April 17, 2014
The History and Rulemaking Process
Dentons US LLP
Slide3The HistoryApril 17, 2014
Dentons US LLP
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.
3
Slide4The Final RuleMonth Day Year
Dentons US LLP Document reference #
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 proposalTwo 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 TILACFPB issued proposal on July 9, 201277 FR 51116 (August 23, 2012)Over 2,800 public commentsCFPB issued final rule on November 20, 20131,888 pages78 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
4
Slide5The Design and Consumer Testing Process
Month Day YearDentons US LLP Document reference #
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 processOver 150,000 visits to the KBYO web siteOver 27,000 public comments and emails about the prototype disclosures5
Slide6The Design and Consumer Testing Process
Month Day YearDentons US LLP Document reference #
6
Slide7The Design and Consumer Testing Process
Month Day YearDentons US LLP Document reference #
7
Slide8The Design and Consumer Testing Process
Month Day YearDentons US LLP Document reference #
After the proposal:
7 rounds of qualitative usability testing from Oct 2012 - July 2013
Spanish and Refinance versions
Quantitative Test in Spring 2013
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 8
Slide99
Month Day Year
The Final Rule
Dentons US LLP Document reference #
Slide10ScopeMonth Day Year
Dentons US LLP Document reference #
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 requirementsFinal rule updates GFE and HUD-1 instructions to incorporate the guidance in the HUD FAQs on reverse mortgages10
Slide11Effective DateMonth Day Year
Dentons US LLP Document reference #
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.11
Slide12What is Not in the Final Rule (All-in APR and Machine Readable)
Month Day Year
Dentons US LLP Document reference #
"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 APRCFPB will study in connection with 5-year review of the final ruleElectronic, Machine ReadableProposal required record retention in an electronic, machine readable format, but did not specify a data formatConcerned about costs and the data standard that would be requiredGSE Uniform Closing Dataset (UCD)Uses MISMO data standardsGSEs intend to collect this dataset from lenders in the futurehttp://www.freddiemac.com/singlefamily/sell/ucd.htmlhttps://www.fanniemae.com/singlefamily/uniform-closing-dataset
12
Slide13Pre-Disclosure RestrictionsMonth Day Year
Dentons US LLP Document reference #
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 DisclaimerStatement required on the top of any written estimate of terms or costs specific to a consumer (e.g., worksheets) before receipt of the LEIn 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.
13
Slide14Pre-Disclosure Restrictions
Month Day Year
Dentons US LLP Document reference #
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 XBe careful! Rule specifically mentions purchase and sale contracts14
Slide15Providing the Loan EstimateMonth Day Year
Dentons US LLP Document reference #
Creditor must
deliver or place
the Loan Estimate in
the mail
within 3
business
days
after
receipt of the applicationConsumer is considered to have received the disclosures 3 business days after they are sent or placed in the mailMust deliver the LE not later than the 7th business day before consummation of the transactionBona fide personal financial emergency waiverMortgage BrokersIf mortgage broker receives an application, either the creditor or mortgage broker has to provide the LEBut the creditor must ensure that the LE is provided in accordance with the rule15
Slide16Providing the Loan Estimate
Month Day YearDentons US LLP Document reference #
Definition of Application
The six items currently under Regulation X
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 itemsDefinition of Business Day: Proposal would have changed the definition of "business days" for this requirement to include SaturdaysAfter 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 SaturdaysFinal 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 functions16
Slide17Written List of ProvidersMonth Day Year
Dentons US LLP Document reference #
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 providerMust also state that the consumer may choose a different provider for that serviceThe creditor shall provide this written list of settlement service providers separately from the disclosuresShopping means can go off-listThe written list is a referral under RESPA 17
Slide18Written List of ProvidersMonth Day Year
Dentons US LLP Document reference #
Model Form H-27
18
Slide19TolerancesMonth Day Year
Dentons US LLP Document reference #
Final Rule Expands the 0% Tolerance Category
0% Tolerance Category:
Fees
paid to the
creditor,
a mortgage
broker
Affiliates of the creditor or mortgage broker
Third-party services for which the consumer cannot shopTransfer taxes10% Category (aggregate amount):Services for which the consumer can shop, but selects a provider on the written list of providersRecording feesNo Tolerance LimitationVoluntary servicesPrepaid interestProperty insurance premiumsAmounts placed into an escrow, impound, reserve, or similar accountThe LE lasts for 10 business daysChanged circumstances/borrower requested changes still applyGenerally have to send revised LE within three business days of the change
19
Slide20TolerancesMonth Day Year
Dentons US LLP Document reference #
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; orNew 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 lockedMust provide revised LE on the date interest rate locked20
Slide21Providing the Closing Disclosure
Month Day YearDentons US LLP Document reference #
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; orA prepayment penalty is added.Proposal required additional three business day waiting period for any changes except:$100 or less change in cash to closeBuyer/seller negotiations (e.g., walk-throughs)After analysis of public comments, CFPB concerned about frequently delayed closingsNarrowed triggers of additional three business day waiting period21
Slide22Providing the Closing Disclosure
Month Day YearDentons US LLP Document reference #
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.
22
Slide23Settlement Agents and the Closing Disclosure
Month Day YearDentons US LLP Document reference #
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 liableCreditor and settlement agent can divide responsibilities for providing the CD at different times, or for different portions of the CDSettlement agent responsible for providing the CD to the seller Required to be provided no later than the day of consummationIf 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.23
Slide24Record RetentionMonth Day Year
Dentons US LLP Document reference #
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 takenClosing DisclosureFive years If sell or transfer the loan, still required to retain records for the remainder of the five years24
Slide25New Post-Closing Disclosure Requirements
Month Day YearDentons US LLP Document reference #
25
Escrow Cancellation Disclosure
Uses similar format and language as Escrow disclosure on CD
Model Form H-29
Slide26New Post-Closing Disclosure Requirements
Month Day YearDentons US LLP Document reference #
26
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
T
ransfer 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.’’
Slide2727
Month Day Year
The Forms
Dentons US LLP Document reference #
Slide28The FormsMonth Day Year
Dentons US LLP Document reference #
28
LE combines the early
TIL
and
GFE
CD combines the final
TIL
and
HUD-1Standard forms for RESPA transactionsDynamic formsInapplicable disclosures are left blank or do not appearAIR/AP TablesNot permitted to use N/ADesign PrinciplesLess text, more graphic designInformation not educationMore important and usable information earlierLE and CD should matchOne-page mortgage shopping sheet
Slide29Loan Estimate
Slide30Loan Estimate
Slide31Loan Estimate
Slide32Closing Disclosure
Slide33Closing Disclosure
Slide34Closing Disclosure
Slide35Closing Disclosure
Slide36Closing Disclosure
Slide3737
Month Day Year
Other Issues
Dentons US LLP Document reference #
Slide38LiabilityMonth Day Year
Dentons US LLP Document reference #
38
TILA
Liability
Private right of action
Actual
damages
Statutory
damages
up to $4,000Attorney’s feesAdministrative enforcementRESPA LiabilityNo private right of action for integrated disclosures under RESPAAdministrative enforcementRule does not state whether TILA or RESPA statutory liability applies to different parts of the disclosuresInstead states that the preamble describes the statutory authority for each provision, which provides sufficient guidance for industry, consumers, and the courts regarding liability.
Slide39LiabilityMonth Day Year
Dentons US LLP Document reference #
39
CFPB
Enforcement (
DFA
1055
)
Administrative or
JudicialReliefRefundsRestitutionDamagesLimitations on activitiesCosts in enforcing actionCivil Money PenaltiesTier 1: Up to $5,000 per dayTier 2: Reckless violations - up to $25,000 per day Tier 3: Knowing violations - up to $1,000,000 per day
Slide40Challenges and Next StepsMonth Day Year
Dentons US LLP Document reference #
40
Creditor – Settlement Agent Relationship
Creditors
now
l
iable
for HUD-1 settlement cost Information
CFPB
Service Provider Bulletin - CFPB Bulletin 2012-03 (April 13, 2012)Increased scrutiny over third party service providersALTA Best PracticesCommunicating with settlement agents earlier in the process to provide CD at least 3 days before consummationExpanded TolerancesObtaining accurate estimates from service providersApplication ProcessObtain information in addition to the 6 items
Slide41Challenges and Next StepsMonth Day Year
Dentons US LLP Document reference #
41
Changes in vocabulary
Itemization
No more HUD-1 line numbers
Fewer hard coded lines
No more
POCs
on closing cost details page
New Disclosure ItemsSales Price/Appraised ValueAnti-Deficiency DisclosureState SurveysPartial PaymentsContact Information
Slide42Challenges and Next StepsMonth Day Year
Dentons US LLP Document reference #
42
Software
Systems
Dynamic forms
Detailed regulations
Staff Training
Policies and Procedures
Vendor Agreements
Customer ExperienceTrial Disclosure Program (DFA 1032(e))
Slide43Thank 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
© 2013 Dentons
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