By: Kristie D. Kully
The Consumer Financial Protection Bureau recently issued a final rule amending certain aspects of its integrated disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act. The CFPB gave the mortgage lending and settlement industries over 18 months—until August 1, 2015—to prepare for the comprehensive overhaul of the disclosures provided to consumers upon application for and settlement of most residential mortgage loans. (Some have called that overhaul effort “TRID”—the TILA/RESPA Integrated Disclosures.) During that preparation time, the CFPB has learned of the need for corrections or improvements to those complex requirements. In its latest rulemaking, the CFPB attempts to fix certain issues related to providing a revised Loan Estimate disclosure (the first part of TRID) when a creditor and consumer decide to lock in the interest rate or other charges, and when the creditor expects a long construction period prior to settlement. The new rule also requires loan originators to include their names and identification numbers on the Loan Estimate and the Closing Disclosure (the second part of TRID), and clarifies how creditors must disclose per diem interest. Below, is a description of the changes that the CFPB’s most recent rulemaking makes to the disclosure requirements under the original TRID rule.
Loan Estimate and Rate Locks
In general, a creditor is largely bound by the charges disclosed in the Loan Estimate it provides within three business days of receiving a mortgage loan application. The creditor may only issue a revised Loan Estimate under limited circumstances. One such set of circumstances is if the consumer decides to lock in his or her interest rate after receiving the Loan Estimate. The original TRID rule imposed a deadline for issuing that revised Loan Estimate upon locking the loan, requiring the creditor to provide the revised Loan Estimate “on the date the interest rate is locked.” The CFPB initially thought this short timing would be feasible, because the creditor can ostensibly control the timing of locking the rate and can quickly estimate the new rate and rate-dependent charges. However, the CFPB learned that such a tight deadline is too challenging in some cases and may cause creditors either to impose cut-off times or otherwise restrict the consumers’ ability to lock. Accordingly, the CFPB proposed in October 2014 to change that deadline to the next business day after the rate is locked. However, in response to public comments, the CFPB decided to give more time, and in its final amendment it requires that the revised Loan Estimate be delivered within three business days after the rate is locked. (For this purpose, “business days” means those days on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.)
Another circumstance under which a creditor may provide a revised Loan Estimate relates to loans involving new construction. RESPA regulations have provided for years that in transactions involving new construction, where the creditor reasonably expects that settlement will occur more than 60 days after the cost estimates are initially provided, the creditor may provide a revised estimate to the consumer, but only if the initial estimate notifies the consumer of the possibility that the creditor may issue such a revised estimate. However, the CFPB’s original TRID rule did not provide any allowance for that notification and, in fact, admonished creditors that they must not add any additional information to the estimate form as it is set forth in the appendix to the rule.
The CFPB’s most recent rule provides for this notification to the consumer that the creditor may issue a revised estimate for those loans. In the “Other Considerations” portion of the Loan Estimate, for transactions involving new construction in which the creditor reasonably expects that settlement will occur more than 60 days after the provision of the Loan Estimate, the creditor may include a clear and conspicuous statement that the creditor may issue a revised disclosure any time prior to 60 days before consummation.
NMLSR Unique Identifier on Loan Estimate/Closing Disclosure
In addition to the two tweaks described above regarding providing a revised Loan Estimate, the CFPB also finalized its proposal to require a loan originator to include its unique identifier (ID) assigned by the Nationwide Mortgage Licensing System and Registry (NMLSR) on the Loan Estimate and Closing Disclosure. Regulation Z requires that “loan documents” must include the loan originator organization’s name and NMLSR ID (if the organization has one), as well as the name of the individual loan originator with primary responsibility for the origination and the individual’s NMLSR ID (if he/she has one). For that purpose, “loan documents” originally included the credit application, the note or loan contract, and the security instrument. According to this new final rule, the loan originator and the loan originator organization’s names and NMLSR IDs (if applicable) also must be included on the disclosures required under the TRID rule (the Loan Estimate and Closing Disclosure).
No Disclosure of Per Diem Rate
The CFPB’s new final rule also adds text to the Regulation Z official commentary clarifying that creditors are not required to disclose an interest rate applicable to the calculation of the per diem interest sum that must be disclosed. Creditors must disclose on the Closing Disclosure certain prepaid items that were disclosed on the Loan Estimate, including prepaid interest. The model forms in Appendix H of Regulation Z provide that prepaid interest must be disclosed on the Closing Disclosure as a per diem sum amount, along with a range of dates (“Prepaid Interest (___ per day from _____ to _____)”). Although the commentary addresses the interest rate that a creditor should use to calculate that sum of per diem interest, the regulation does not expressly require the inclusion in the disclosure of that rate. The new CFPB rule clarifies that creditors must disclose amounts of prepaid interest as per diem sum amounts, based on the appropriate interest rate as required, but the Closing Disclosure description of the per diem sum amount and date range does not need to include the per diem interest rate itself.
These TRID tweaks (along with other technical/nonsubstantive corrections in the recent rulemaking) become effective along with the new disclosures on August 1, 2015.