If you are on the edge of your seat waiting for the combined RESPA/TILA proposed regulations and disclosure forms, we have our first glimpse into the changes being contemplated by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”). On February 21, 2012, the CFPB announced its plan, in accordance with the Small Business Regulatory Enforcement Fairness Act, to solicit feedback from a group of small business mortgage and settlement companies that will be directly impacted by new and combined RESPA and TILA disclosure forms. In addition to describing the purpose and process for a Small Business Review Panel (“Panel”), and publishing a list of questions and issues for small business representatives to discuss at the upcoming Panel, the Bureau released an outline of the proposals currently under consideration for combined RESPA and TILA regulations. At this point, the outline is a list of issues that will allow the CFPB to measure whether the regulations under development could have a significant economic impact on a substantial number of small entities, but it gives us a first glance at the changes that could be coming for mortgage disclosures under RESPA and TILA.
Of significant interest for mortgage lenders, the Bureau is considering the addition of fees to the zero tolerance category, which, under current RESPA regulations, holds lenders accountable for any increase in certain fees between the Good Faith Estimate and HUD-1 Settlement Statement. Currently, origination charges and transfer taxes are subject to the zero tolerance. Based on the Bureau’s outline, the CFPB is considering the inclusion of fees charged by a lender’s affiliated service providers and fees charged by lender-selected companies in the zero tolerance category, presumably because the CFPB believes that lenders can control the accuracy of these charges. If incorporated into future proposals amending the RESPA and TILA regulations, that means a lender could be required to make consumer refunds if the actual fees charged by an affiliated title insurance company, for instance, are higher than the title fees disclosed by the lender on the estimate disclosure. It also means the legal issue of whether the CFPB even has the authority to impose tolerance restrictions on lenders is, once again, ripe for discussion.
The Bureau also is considering broadening the fees and charges included in the calculation of the finance charge by removing many of the exclusions currently available for mortgage transactions under TILA. Should the CFPB move forward with such a plan, fees for services like title searches, document preparation, appraisals, credit reports, and notaries would be included as part of the finance charge. That could result in higher APRs, which could cause more loans to trigger federal and state high-cost laws. The Bureau acknowledges this concern and specifically identifies this issue for discussion with the Panel. The CFPB, however, does not mention the fact that this change could also cause more loans to fail the three-point test under the definitions of “qualified mortgage” and “qualified residential mortgage.”
With regard to a combined closing statement, the Bureau is navigating the different timing requirements currently mandated under RESPA and TILA as it relates to disclosure of final loan terms and settlement costs. As part of a single, integrated disclosure form, the Bureau is considering requiring that the closing disclosure be provided to the consumer three days before closing and permitting only limited changes to the form to reflect common adjustments after it has been provided. With both loan terms and settlement charges on this form, who should be responsible for providing the disclosure? The Bureau is still working through the issue, but it is considering whether the lender should be solely responsible for delivering the closing disclosure to the consumer or whether the lender and settlement agent should be jointly responsible for providing the consumer with the integrated closing form. In addition, similar to current requirements under TILA, the Bureau is considering a requirement that the settlement disclosure be re-disclosed and a three-day waiting period be imposed if the APR or cash needed to close increases beyond a certain tolerance or certain features are added to the loan.
Last but not least, based on the Bureau’s outline, lenders and closing agents may be faced with possible changes in the following:
• The definition of “application,” which could be limited to specific pieces of borrower and property information and serve to expand the circumstances in which disclosures would be required;
• Mandated disclosure language for pre-application summaries of loan terms and settlement fees;
• The accounting involved to execute average cost pricing; and
• Electronic recordkeeping.
The Bureau has made clear that it expects to publish proposed changes to RESPA and TILA regulations, including combined mortgage disclosure forms, in July 2012 for public comment. Until then, certain small business mortgage and settlement companies will have the opportunity to influence the Bureau’s thinking on the issues currently under consideration. While there is no way to predict the specific components of the RESPA and TILA forms and regulations the CFPB will target for change, the issues outlined by the Bureau in conjunction with the Panel highlight the concerns that may find themselves incorporated into proposed regulations.