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The TILA-RESPA Integrated Disclosures

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Presentation on theme: "The TILA-RESPA Integrated Disclosures"— Presentation transcript:

1 The TILA-RESPA Integrated Disclosures
Dentons US LLP The TILA-RESPA Integrated Disclosures April 17, 2014

2 The History and Rulemaking Process
April 17, 2014 Dentons US LLP

3 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. April 17, 2014 Dentons US LLP

4 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 (August 23, 2012) Over 2,800 public comments CFPB issued final rule on November 20, 2013 1,888 pages 78 FR (Dec. 31, 2013) - only 637 pages! 17 years after Congress first directed the Board and HUD to integrate 22 different form models and samples Month Day Year Dentons US LLP Document reference #

5 The Design and Consumer Testing Process
Before the proposal: Started designing prototypes in January 2011 10 rounds of qualitative usability testing from May 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 s about the prototype disclosures Month Day Year Dentons US LLP Document reference #

6 The Design and Consumer Testing Process
Month Day Year Dentons US LLP Document reference #

7 The Design and Consumer Testing Process
Month Day Year Dentons US LLP Document reference #

8 The Design and Consumer Testing Process
After the proposal: 7 rounds of qualitative usability testing from Oct 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 Month Day Year Dentons US LLP Document reference #

9 The Final Rule Month Day Year Dentons US LLP Document reference #

10 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 Month Day Year Dentons US LLP Document reference #

11 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. Month Day Year Dentons US LLP Document reference #

12 What is Not in the Final Rule (All-in APR and Machine Readable)
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) Uses MISMO data standards GSEs intend to collect this dataset from lenders in the future https://www.fanniemae.com/singlefamily/uniform-closing-dataset Month Day Year Dentons US LLP Document reference #

13 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. Month Day Year Dentons US LLP Document reference #

14 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 Month Day Year Dentons US LLP Document reference #

15 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 Month Day Year Dentons US LLP Document reference #

16 Providing the Loan Estimate
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 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 Month Day Year Dentons US LLP Document reference #

17 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 Month Day Year Dentons US LLP Document reference #

18 Written List of Providers
Model Form H-27 Month Day Year Dentons US LLP Document reference #

19 Tolerances Final Rule Expands the 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 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 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 Month Day Year Dentons US LLP Document reference #

20 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 Month Day Year Dentons US LLP Document reference #

21 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 Month Day Year Dentons US LLP Document reference #

22 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. Month Day Year Dentons US LLP Document reference #

23 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. Month Day Year Dentons US LLP Document reference #

24 Record Retention Loan Estimate Closing Disclosure 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 Month Day Year Dentons US LLP Document reference #

25 New Post-Closing Disclosure Requirements
Escrow Cancellation Disclosure Uses similar format and language as Escrow disclosure on CD Model Form H-29 Month Day Year Dentons US LLP Document reference #

26 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.’’ Month Day Year Dentons US LLP Document reference #

27 The Forms Month Day Year Dentons US LLP Document reference #

28 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 Month Day Year Dentons US LLP Document reference #

29 Loan Estimate

30 Loan Estimate

31 Loan Estimate

32 Closing Disclosure

33 Closing Disclosure

34 Closing Disclosure

35 Closing Disclosure

36 Closing Disclosure

37 Other Issues Month Day Year Dentons US LLP Document reference #

38 Liability TILA Liability RESPA 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 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. Month Day Year Dentons US LLP Document reference #

39 Liability CFPB Enforcement (DFA 1055) Administrative or Judicial
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 Month Day Year Dentons US LLP Document reference #

40 Challenges and Next Steps
Creditor – Settlement Agent Relationship Creditors now liable for HUD-1 settlement cost Information CFPB Service Provider Bulletin - CFPB Bulletin (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 Month Day Year Dentons US LLP Document reference #

41 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 Month Day Year Dentons US LLP Document reference #

42 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)) Month Day Year Dentons US LLP Document reference #

43 Thank You Richard Horn Partner Dentons US LLP (202) 1301 K Street, NW, Suite 600, East Tower, Washington, DC USA © 2013 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices.


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