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

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Presentation on theme: "The TILA-RESPA Integrated Disclosures April 17, 2014 Dentons US LLP."— Presentation transcript:

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

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

3 The History April 17, 2014Dentons 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

4 The Final Rule Month Day YearDentons 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 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, FR (August 23, 2012) Over 2,800 public comments CFPB issued final rule on November 20, ,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 4

5 The Design and Consumer Testing Process Month Day YearDentons US LLP Document reference # Before the proposal: Started designing prototypes in January 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 5

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

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

8 The Design and Consumer Testing Process Month Day YearDentons US LLP Document reference # 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 8

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

10 Scope Month Day YearDentons 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 requirements Final rule updates GFE and HUD-1 instructions to incorporate the guidance in the HUD FAQs on reverse mortgages 10

11 Effective Date Month Day YearDentons 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

12 What is Not in the Final Rule (All-in APR and Machine Readable) Month Day YearDentons 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 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 12

13 Pre-Disclosure Restrictions Month Day YearDentons 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 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. 13

14 Pre-Disclosure Restrictions Month Day YearDentons 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 X Be careful! Rule specifically mentions purchase and sale contracts 14

15 Providing the Loan Estimate Month Day YearDentons US LLP Document reference # 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 15

16 Providing 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 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 16

17 Written List of Providers Month Day YearDentons 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 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 17

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

19 Tolerances Month Day YearDentons 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 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 19

20 Tolerances Month Day YearDentons 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; 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 20

21 Providing 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; 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 21

22 Providing 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

23 Settlement 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 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. 23

24 Record Retention Month Day YearDentons 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 taken Closing Disclosure Five years If sell or transfer the loan, still required to retain records for the remainder of the five years 24

25 New 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

26 New 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 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.’’

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

28 The Forms Month Day YearDentons US LLP Document reference #28 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

29 Loan Estimate

30

31

32 Closing Disclosure

33

34

35

36

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

38 Liability Month Day YearDentons US LLP Document reference #38 TILA 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 Administrative enforcement 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.

39 Liability Month Day YearDentons US LLP Document reference #39 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

40 Challenges and Next Steps Month Day YearDentons US LLP Document reference #40 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

41 Challenges and Next Steps Month Day YearDentons 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 Items Sales Price/Appraised Value Anti-Deficiency Disclosure State Surveys Partial Payments Contact Information

42 Challenges and Next Steps Month Day YearDentons US LLP Document reference #42 Software Systems Dynamic forms Detailed regulations Staff Training Policies and Procedures Vendor Agreements Customer Experience Trial Disclosure Program (DFA 1032(e))

43 Thank You Richard Horn Partner Dentons US LLP (202) 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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