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
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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
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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
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6. The Design and Consumer Testing Process
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7. The Design and Consumer Testing Process
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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
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9. The Final Rule
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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
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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.
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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
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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.
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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
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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
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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
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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
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18. Written List of Providers
Model Form H-27
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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
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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
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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
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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.
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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.
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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
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25. 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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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.’’
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27. The Forms
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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
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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
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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.
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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
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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
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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
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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))
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43. Thank You
Richard Horn
Partner
Dentons US LLP
(202)
1301 K Street, NW, Suite 600, East Tower, Washington, DC USA
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