- Consumer Finance Update: CFPB Issues Update to the TILA-RESPA Integrated Mortgage Disclosure Rule
- April 23, 2015
- Law Firm: Dentons Canada LLP - Toronto Office
- On January 20, 2015, the US Consumer Financial Protection Bureau ("CFPB") issued a final rule ("Final Rule") to amend the TILA-RESPA Integrated Mortgage Disclosure Rule ("TILA-RESPA Rule") it issued in November 2013. The CFPB's Final Rule finalizes a proposal it issued in October 2014. It makes two substantive modifications to the TILA-RESPA Rule: (1) it extends the timing requirement for when a revised Loan Estimate is required to be provided when the consumer locks an interest rate from the same business day of the rate lock to within three business days after the rate lock; and (2) provides a place on the Loan Estimate for language to be included related to providing revised disclosures for construction loans. The Final Rule also makes other non-substantive clarifications and technical amendments to the TILA-RESPA Rule.
The Final Rule's two substantive amendments to the TILA-RESPA Rule are the result of early feedback from stakeholders after issuance of the original TILA-RESPA Rule. The first of two these amendments revises § 1026.19(e)(3)(iv)(D) and related commentary to extend the period in which a creditor must provide revised Loan Estimate in the case of a rate lock to use the revised interest rate-dependent charges for the tolerance calculations. The original TILA-RESPA Rule required the revised Loan Estimate to be provided on the same business day as the rate lock. The CFPB proposed in October 2014 to extend this period to the next business day, because of stakeholder feedback that same day delivery raised operational concerns. The Final Rule extends the time period further than the CFPB proposed, requiring the revised Loan Estimate to be provided within three business days after the rate lock. The CFPB stated that all of the comments on the proposal supported extending the time period. It did not receive any comments opposing the proposed extension. The CFPB stated that most of the comments requested that the CFPB extend the period to three days. Commenters stated that the proposed next-business day requirement would still not provide sufficient time, citing many operational difficulties such as software issues, staffing constraints, difficulties obtaining accurate revised estimates within one business day, and other problems. The CFPB noted that the three business-day period is equivalent to the periods for other revisions to the Loan Estimate under the TILA-RESPA Rule, as well as the period to disclose a revised Good Faith Estimate in the event of a rate lock under current Regulation X.
The second substantive amendment enables creditors to provide the statement required on the Loan Estimate in order to utilize a provision allowing the creditor to provide revised Loan Estimates more than 60 days before consummation for construction loans. Under § 1026.19(e)(3)(iv)(F) of the TILA-RESPA Rule, for construction loans for which the creditor reasonably expects settlement will occur more than 60 days after providing the initial Loan Estimate, the creditor can provide revised Loan Estimates any time more than 60 days before consummation, if the creditor includes a statement regarding this on the Loan Estimate. However, the TILA-RESPA Rule did not provide a place on the Loan Estimate for such a statement. The Final Rule corrects this issue by adding new subsection § 1026.37(m)(8) to the TILA-RESPA Rule, which provides a place on the Loan Estimate for this statement in the "Other Considerations" section on the last page of the Loan Estimate. The Final Rule provides the following language for this statement: "You may receive a revised Loan Estimate at any time prior to 60 days before consummation." Although requested by commenters, the CFPB did not include a sample or model form for this statement in Appendix H, stating that it believed such a sample was unnecessary. We also note that the CFPB did not conduct any consumer testing of the statement, and that the statement includes the word "consummation," which may be a confusing term to many consumers. Lenders that plan to utilize this provision may find it prudent to include training for their loan officers to field questions regarding the statement and the term "consummation."
In addition, the Final Rule adds § 1026.36(g)(2)(ii) under the Loan Originator Compensation Rule, to include the integrated disclosures in the list of loan documents that must contain the loan originator’s name and NMLSR ID. The Final Rule also includes other non-substantive clarifying and technical amendments.
We note that many commenters to the CFPB's proposed rule suggested that the CFPB make substantive changes to the TILA-RESPA Rule that were not the subject of the proposal, such as amendments to the provisions regarding the disclosure of the simultaneous issuance rates for lender's and owner's title insurance policies. The CFPB declined to address such comments, stating that, "many of the comments discussed issues beyond the scope of the proposal...This final rule does not make any changes outside the scope of the proposal, other than additional, non-substantive corrections identified since the proposal was issued."
We believe it is unlikely that the CFPB will extend the effective date or provide a formal grace period from enforcement. The CFPB did not extend the effective date of the TILA-RESPA Rule upon issuance of the Final Rule. Both the TILA-RESPA Rule and the Final Rule are effective on August 1, 2015. In the CFPB's press release announcing the Final Rule, the CFPB states that it "does not anticipate that today’s minor modifications will affect the industry’s ability to come into compliance with the rules within the 20 month implementation period." The industry should be undertaking implementation efforts to ensure compliance on August 1, 2015.