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RESPA TILA INTEGRATED DISCLOSURE RULE

BCAC

Speakers:Richard Hogan, Vice President and Associate General Counsel, CATIC

Jeremy Potter, General Counsel and Chief Compliance Attorney, Norcom Mortgage

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Agenda

• Basics: Why We’re Here• Final Rule• The New Forms• Evaluating the Rule• Challenges for banks and its attorneys• Questions

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Statutes that Transferred to the CFPB

• Alternative Mortgage Transaction Parity Act

• Consumer Leasing Act of 1976• Electronic Fund Transfer Act*• Equal Credit Opportunity Act• Fair Credit Billing Act• Fair Credit Reporting Act*• Home Owners Protection Act

of 1998• Fair Debt Collection Practices

Act• Federal Deposit Insurance Act*• Gramm-Leach-Bliley Act*• Home Mortgage Disclosure Act

of 1975

• Home Ownership and Equity Protection Act of 1994

• Real Estate Settlement Procedures Act of 1974

• S.A.F.E. Mortgage Licensing Act of 2008

• Truth in Lending Act• Truth in Savings Act• Omnibus Appropriations Act

of 2009*• Interstate Land Sales Full

Disclosure Act• Mortgage Reform and Anti-

Predatory Lending Act*

*Indicates that portions of this Act transferred to the CFPB while other portions did not.

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Basics• Applicable Loans

o Final rule applies to most consumer mortgages, EXCEPT:• Home-equity lines of credit• Reverse mortgages• Mortgages secured by a mobile home or dwelling not

attached to land• No-interest second mortgage made for down payment

assistance, energy efficiency or foreclosure avoidance• Lenders who make 5 or fewer loans in a year

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The New Forms – TILA Liability

• Loan Estimateo Three pages long

• Combines early two-page TIL and three-page GFE

o Who provides?• Two options: lender or

mortgage brokero When?

• Within three days of application

o Still subject to tolerances

• Closing Disclosureo Five pages long

• Combines three-page HUD-1 and final two-page TIL

o Who provides?• Two options: lender or

combination of lender and settlement agent

o When?• Three days before closing• Exceptions

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LOAN ESTIMATE

• The New Forms Must Be Used with Respect to Any Applications Received for a Covered Transaction on or After August 1, 2015

• No change for the following:o Cannot Impost Fees (Except for credit report) Before Consumer

Receives Loan Estimate and Indicates Intent to Proceedo Cannot Require Submission of Verification Documents

• You Cannot Use New Forms Before Effective Date

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LOAN ESTIMATE – Timing - Quick

• Must Be Provided Within Three (3) Business Days (open for substantially all business) of Receiving an Applicationo Deliveredo Or Placed in Mail

• That Delivery Date (or Date Placed in Mail) Must Also Be no Later Than Seventh (7th) Business Date Before Consummation

• Trigger Date is Date When “Application” Receivedo By Creditoro Or by Mortgage Broker

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LOAN ESTIMATE – Who Provides

• Mortgage Broker Can Provide Loan Estimate – exception in MA

• But Broker Must Comply with All Requirements Applicable to Creditoro It Does Not Matter when the Credit Receives the Application

• And Creditor Must Ensure Broker’s Complianceo Bound by Disclosure

• Will Creditors Let Brokers Provide the Loan Estimate?

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LOAN ESTIMATE

• Loan Estimate Must be Completed in “Good Faith”o Based on Actual Information if Known

• Must Use “Good Faith” and Exercise “Due Diligence” to Try to Obtain Information

o Estimate Must be Based on “Best Information Available”• Using Good Faith and Due Diligence

o You Can Rely on Third Parties for Information• Including Consumer

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Identified Providers List

• List Must be Provided Within Same Time-Frame as Loan Estimate

• But Separate From Loan Estimate• New “Model” List Provided by CFPB• Identified Services Must Match Services Identified

as Shoppable on Page 2 of Loan Estimate Form

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Consumer Shopping

• A creditor permits a borrower to shop for third party settlement services when they:o Inform borrowers on Loan Estimateo Provide them with a written list of settlement service providers

• The creditor may still impose reasonable qualifications for providers.o Example: Provider must be licensed – Impact on closed list

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LOAN ESTIMATE and

VARIANCES

• Credit must identify at least one Provider for each serviceo Provider must be available to consumero Contact information must be provided

• Must disclose that consumer can choose a different Provider

• If consumer selects Provider on list, charge must be included in 10% Tolerance Bucket

• If consumer selects Provider not on list, charge is not subject to any variance

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10% Variance Bucket

• 10% Tolerance Bucket includes:o Recording feeso Charges for service providers selected by consumer

• Where Provider is on the written list• Not paid to creditor or affiliate

• 10% Tolerance is provided for All charges in bucketo Individual charges may increase by more than 10%o But aggregate cannot

• If charge in bucket is not actually performed, item must be removed for comparison purposes

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Zero Variance Bucket

• Includes the following:o Fees that are paid to a creditor and mortgage brokero Fees paid to an affiliate of the creditor (New)o Fees paid if borrower not permitted to shop for the

service (New) – appraisal, credit repot, etc.o Transfer Taxes

• Zero tolerance may be overcome in changed circumstances or in other circumstances where revisions are permitted

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Permitted Revision (cont.)

• No Change:• A revised loan estimate is also permitted if there

are “changed circumstances”o That affect the “settlement charges”o That affect eligibility for specific loan terms

• FICO• Appraisal

o Where the increase in charges exceeds applicable tolerances• Zero tolerance items• Items in 10% bucket (but only if increase exceeds 10%

aggregate limit)• APR tolerances

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When Must You Give the Revised Loan Estimate?

• No Change:• “General” rule, creditor must provide no later

than 3 business days (open for substantially all business) after you receive the information that permitted the revision (i.e., a “triggering event”)o Deliver in persono Place in mail

• Exceptions to “general” 3 business day rule includeo when you are too close to closingo or closing disclosure has already been provided

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When Must You Give the Revised Loan Estimate?

• Revised loan estimate may not be provided on the same date (or after) the closing disclosure is providedo Closing disclosure must be received by consumer no later

than three business days (Sundays and holidays) before closing

o Consumer must receive the revised loan estimate at least four (4) business days prior to closing

• If delivered in person, “receipt” is that day• If delivered by mail, email or other means, “receipt” is

considered to have occurred 3 business days latero Unless you have evidence of actual receipt

o Be careful of this prohibition if closing disclosure is provided early

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What Happens if Things Change Close to Closing and You Cannot issue a Revised Loan Estimate?

• You can reflect the revised disclosures in the closing statemento but only if there is a triggering event permitted in the revision

• And only if there are less than 4 business days between closing and the time the revised loan estimate would have otherwise been required to be providedo If the triggering event occurs between the 4th and 3rd business day from

closing• Show the revised disclosures on the closing disclosure provided 3

business days before closingo If the triggering event occurs after the first closing disclosure has been

provided• Show revised disclosures on closing disclosure provided at closing

• You would then be able to compare those revised disclosures to the actual charges for the purpose of determiningo Whether disclosures were made in “good faith”o Whether any refunds are necessary

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Figures Used In the Loan Estimate

Estimated Figures & Good Faith Requirement

Tolerances for Figures that Exceed the Estimate

• There may be some information that is unknown. The creditor may use estimates. When estimated figures are used, they must be designated as such.

• Creditors are responsible for ensuring that the figures stated in the Loan Estimate are made in good faith and consistent with the best information reasonably available to the creditor at the time they are disclosed.

A creditor may charge the consumer more than the amount disclosed in the Loan Estimate in specific circumstances: 1. Certain variations between the amount

disclosed and the amount charged are expressly permitted by the TILA-RESPA rule (See section 7.3 below for additional information on which variations are possible) (§ 1026.19(e)(3)(iii));

2. The amount charged falls within explicit tolerance thresholds (and the estimate is not for a zero tolerance charge where variations are never permitted) (§ 1026.19(e)(3)(ii)) (See sections 7.5 and 7.10 below); or

3. Changed circumstances permit a revised Loan Estimate or a Closing Disclosure that permits the charge to be changed. (§ 1026.19(e)(3)(iv))

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Exceptions to Rules Regarding Changes to Charges in the Le

The exceptions include situations when: 1) The consumer asks for a change; 2) The consumer chooses a service provider that

was not identified by the creditor;3) Information provided at application was

inaccurate or becomes inaccurate; or 4) The LE expires. When an exception applies, the creditor generally must provide an updated LE form within 3 business days.

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Change to Charges in the Loan Estimate

Charges for the following services cannot increase:

Charges for other services can increase…

1) The creditor’s or mortgage broker’s charges for its own services;

2) Charges for services provided by an affiliate of the creditor or mortgage broker; and

3) Charges for services for which the creditor or mortgage broker does not permit the consumer to shop.

• but generally not by more than 10 percent.

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What Must be Done if the Charges Exceed the LE Thresholds

• If the amounts paid by the consumer at closing exceed the amounts disclosed on the LE beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer no later than 60 calendar days after consummation. o For charges subject to zero tolerance, any amount charged

beyond the amount disclosed on the Loan Estimate must be refunded to the consumer.

o For charges subject to a 10% cumulative tolerance, to the extent the total sum of the charges added together exceeds the sum of all such charges disclosed on the LE by more than 10%, the difference must be refunded to the consumer.

Information Contained on

the Loan Estimate

Page 1: General

information, loan terms,

projected payments, and

costs at closing

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Closing Disclosure

• Required by § 1026.19(f)

• Three business days before closing

• Provided by:o Lender - § 1026.19(f)(1)(i)

o Lender may rely on Settlement Agent, but Lender remains responsible for accuracy - § 1026.19(f)(1)(v)

• Contents in § 1026.38

Closing Disclosure Page 1§ 1026.38(a)-(d)

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(a) General Information

(b) Loan Terms

(c) Projected Payments

(d) Costs at Closing

Closing Disclosure Page 1 - Refi§ 1026.38(a)-(d)

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(a) General Information

Notes: “Sale Price” replaced with “Appraised Prop. Value”“Seller” removed and “Lender” moved up

(b) Loan Terms

(c) Projected Payments

(d) Costs at Closing

Closing Disclosure Page 2§ 1026.38(f)

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(f) Loan CostsA. Origination ChargesB. Services Borrower Did Not Shop ForC. Services Borrower Did Shop ForD. Total Loan Costs

Closing Disclosure Page 2 - refi§ 1026.38(f)

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(f) Loan CostsA. Origination ChargesB. Services Borrower Did Not Shop ForC. Services Borrower Did Shop ForD. Total Loan Costs

Closing Disclosure Page 2 (cont.)

§ 1026.38(g)-(h)

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(g) Other Costs

F. Prepaids:01. Homeowner’s Ins. Premium02. Mortgage Ins. Premium 03. Prepaid Interest04. Property Taxes

H. Other:01. HOA Capital Contribution ****05. Real Estate Commission 06. Real Estate Commission 07. Title - Owners title

(h) Total Closing Costs

Closing Disclosure Page 2 - Refi (cont.)

§ 1026.38(g)-(h)

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(g) Other Costs

F. Prepaids:01. Homeowner’s Ins. Premium02. Mortgage Ins. Premium 03. Prepaid Interest04. Property Taxes

H. Other:01. HOA Capital Contribution ****05. Real Estate Commission 06. Real Estate Commission 07. Title - Owners title

(h) Total Closing Costs

Closing Disclosure Page 3§ 1026.38(i)-(k)

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(i) Calculating Cash to Close

• Tolerance amounts shown here

(j) Summary of borrower’s transaction

(k) Summary of seller’s transaction• Itemizations in I and J are like

page 1 of today’s HUD-1 Settlement Statement

Closing Disclosure Page 3 - Refi§ 1026.38(i)-(k)

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(t)(5)(vii) Payoffs and Payments

(e) Calculating Cash to Close (alternative table)

• Tolerance amounts shown here

Closing Disclosure Page 4§ 1026.38(l)-(n)

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(l) Loan Disclosures

(m) Adjustable Payment (AP) Table*

(n) Adjustable Interest Rate (AIR) Table*

* Tables are only included if applicable

Closing Disclosure Page 5

§ 1026.38(o)-(q)

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(o) Loan Calculations

(p) Other Disclosures

(q) Questions Notice

Closing Disclosure Page Five (cont.)

§ 1026.38(r)-(s)

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(r) Contact information (Refinance)Contact information for:1. Lender2. Mortgage Broker3. Settlement Agent

(r) Contact Information (Sale) Contact information for:1. Lender2. Mortgage Broker3. Real Estate Broker (B)4. Real Estate Broker (S)5. Settlement Agent

(s) Signature Statement

Sale – Closing DateDelivery By Hand:

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SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY

1 2 3 4 5 6 7          Hand

Delivery = Receipt

 

Disclosure Day 1

 

8 9 10 11 12 13 14Sunday doesn't count

Disclosure Day 2

Disclosure Day 3 - OK

to close

 

Delivery By Mail:

SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY

1 2 3 4 5 6 7    Closing

Disclosure MAILED

Mail Day 1 Mail Day 2 Mail Day 3 = Receipt

Disclosure Day 1

8 9 10 11 12 13 14Sunday doesn't count

Disclosure Day 2

Disclosure Day 3 - OK

to close

 

Refinances – Closing Date• Even with 3 days advance disclosure before

closing (consummation)• 3-day rescission period still applies in refinance

of principal residence

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SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY1 2 3 4 5 6 7

          Closing Disclosure MAILED

Mail Day 1

8 9 10 11 12 13 14Sunday doesn't

countMail Day 2 Mail Day 3 =

ReceiptDisclosure Day

1Disclosure Day

2Disclosure Day 3 - OK to close

Rescission Day 1

15 16 17 18 19 20 21Sunday doesn't

countRescission Day

2Rescission Day 3 = Rescission

expires at midnight

       

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Issues to be Resolved

• Who creates Final Disclosure?• Who can amend Final Disclosure?• How will Lender and Closing software interact?• Will Lenders want to do more in-house?• What about Title Insurance disclosure?

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?QUESTIONS?