[Federal Register Volume 77, Number 164 (Thursday, August 23, 2012)]
[Proposed Rules]
[Pages 51115-51457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17663]



[[Page 51115]]

Vol. 77

Thursday,

No. 164

August 23, 2012

Part II





Bureau of Consumer Financial Protection





-----------------------------------------------------------------------





12 CFR Parts 1024 and 1026





Integrated Mortgage Disclosures Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth In Lending Act (Regulation 
Z); Proposed Rule

Federal Register / Vol. 77 , No. 164 / Thursday, August 23, 2012 / 
Proposed Rules

[[Page 51116]]


-----------------------------------------------------------------------

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1024 and 1026

[Docket No. CFPB-2012-0028]
RIN 3170-AA19


Integrated Mortgage Disclosures Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth In Lending Act (Regulation 
Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

-----------------------------------------------------------------------

SUMMARY: Sections 1032(f), 1098, and 1100A of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act) direct the 
Bureau to issue proposed rules and forms that combine certain 
disclosures that consumers receive in connection with applying for and 
closing on a mortgage loan under the Truth in Lending Act and the Real 
Estate Settlement Procedures Act. Consistent with this requirement, the 
Bureau is proposing to amend Regulation X (Real Estate Settlement 
Procedures Act) and Regulation Z (Truth in Lending) to establish new 
disclosure requirements and forms in Regulation Z for most closed-end 
consumer credit transactions secured by real property. In addition to 
combining the existing disclosure requirements and implementing new 
requirements in the Dodd-Frank Act, the proposed rule provides 
extensive guidance regarding compliance with those requirements.

DATES: Comments regarding the proposed amendments to 12 CFR 1026.1(c) 
and 1026.4 must be received on or before September 7, 2012. For all 
other sections including proposed amendments, comments must be received 
on or before November 6, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0028 or RIN 3170-AA19, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail/Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1700 G 
Street NW., Washington, DC 20552.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1700 G 
Street NW., Washington, DC 20552, on official business days between the 
hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment 
to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: David Friend, Michael G. Silver and 
Priscilla Walton-Fein, Counsels; Andrea Pruitt Edmonds, Richard B. 
Horn, Joan Kayagil, and Thomas J. Kearney, Senior Counsels; Paul 
Mondor, Senior Counsel & Special Advisor; and Benjamin K. Olson, 
Managing Counsel, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of Proposed Rule

A. Background

    For more than 30 years, Federal law has required lenders to provide 
two different disclosure forms to consumers applying for a mortgage. 
The law also has generally required two different forms at or shortly 
before closing on the loan. Two different Federal agencies developed 
these forms separately, under two Federal statutes: the Truth in 
Lending Act (TILA) and the Real Estate Settlement Procedures Act of 
1974 (RESPA). The information on these forms is overlapping and the 
language is inconsistent. Not surprisingly, consumers often find the 
forms confusing. It is also not surprising that lenders and settlement 
agents find the forms burdensome to provide and explain.
    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) directs the Bureau to combine the forms. To accomplish 
this, the Bureau has engaged in extensive consumer and industry 
research and public outreach for more than a year.\1\ Based on this 
input, the Bureau is now proposing a rule with new, combined forms. The 
proposed rule also provides a detailed explanation of how the forms 
should be filled out and used.
---------------------------------------------------------------------------

    \1\ See part III below for a discussion of the Bureau's testing 
of the forms with more than 100 consumers, lenders, mortgage 
brokers, and settlement agents. This part also describes the 
Bureau's outreach efforts, including the panel convened by the 
Bureau to examine ways to minimize the burden of the proposed rule 
on small businesses.
---------------------------------------------------------------------------

    The first new form (the Loan Estimate) is designed to provide 
disclosures that will be helpful to consumers in understanding the key 
features, costs, and risks of the mortgage for which they are applying. 
This form will be provided to consumers within three business days 
after they submit a loan application. The second form (the Closing 
Disclosure) is designed to provide disclosures that will be helpful to 
consumers in understanding all of the costs of the transaction. This 
form will be provided to consumers three business days before they 
close on the loan.
    The forms use clear language and design to make it easier for 
consumers to locate key information, such as interest rate, monthly 
payments, and costs to close the loan. The forms also provide more 
information to help consumers decide whether they can afford the loan 
and to compare the cost of different loan offers, including the cost of 
the loans over time.
    In developing the new Loan Estimate form and Closing Disclosure 
form, the Bureau has reconciled the differences between the existing 
forms and combined several other mandated disclosures. The Bureau also 
has responded to industry complaints of uncertainty about how to fill 
out the existing forms by providing detailed instructions on how to 
complete the new forms.\2\ This should reduce the burden on lenders and 
others in preparing forms in the future.
---------------------------------------------------------------------------

    \2\ This guidance is provided in the proposed regulations and 
the proposed Official Interpretations, which are in Supplement I.
---------------------------------------------------------------------------

B. Scope of the Proposed Rule

    The proposed rule applies to most closed-end consumer mortgages. 
The proposed rule does not apply to home-equity lines of credit, 
reverse mortgages, or mortgages secured by a mobile home or by a 
dwelling that is not attached to real property (in other words, land). 
The proposed rule also does not apply to loans made by a creditor who 
makes five or fewer mortgages in a year.\3\
---------------------------------------------------------------------------

    \3\ For additional discussion of the scope of the proposed rule, 
see part VI below regarding section 1026.19, Coverage of Integrated 
Disclosure Requirements.
---------------------------------------------------------------------------

C. The Loan Estimate

    The Loan Estimate form would replace two current Federal forms. It 
would replace the Good Faith Estimate designed by the Department of 
Housing

[[Page 51117]]

and Urban Development (HUD) under RESPA and the ``early'' Truth in 
Lending disclosure designed by the Board of Governors of the Federal 
Reserve System (the Board) under TILA.\4\ The proposed rule and the 
Official Interpretations (on which lenders can rely) contain detailed 
instructions as to how each line on the Loan Estimate form would be 
completed.\5\ There are sample forms for different types of loan 
products.\6\ The Loan Estimate form also incorporates new disclosures 
required by Congress under the Dodd-Frank Act.\7\
---------------------------------------------------------------------------

    \4\ These disclosures are available at http://www.hud.gov/offices/hsg/rmra/res/gfestimate.pdf and http://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
    \5\ The requirements for the Loan Estimate are in proposed Sec.  
1026.37. Additional discussion of this and other sections of the 
proposed rule is provided in the relevant portion of part VI below.
    \6\ Appendix H to the proposed rule provides examples of how to 
fill out these forms for a variety of different loans, including 
loans with fixed or adjustable rates or features such as balloon 
payments and prepayment penalties.
    \7\ For a discussion of these disclosures, see part V.B below.
---------------------------------------------------------------------------

    Provision by mortgage broker. The lender may rely on a mortgage 
broker to provide the Loan Estimate form. However, the lender also 
remains responsible for the accuracy of the form.\8\
---------------------------------------------------------------------------

    \8\ This provision is in proposed Sec.  1026.19(e)(1)(ii).
---------------------------------------------------------------------------

    Timing. The lender or broker must give the form to the consumer 
within three business days after the consumer applies for a mortgage 
loan.\9\ The proposed rule contains a specific definition of what 
constitutes an ``application'' for these purposes.\10\
---------------------------------------------------------------------------

    \9\ This provision is in proposed Sec.  1026.19(e)(1)(iii).
    \10\ The definition of ``application'' is in proposed Sec.  
1026.2(a)(3).
---------------------------------------------------------------------------

    Limitation on fees. Consistent with current law, the lender 
generally cannot charge consumers any fees until after the consumers 
have been given the Loan Estimate form and the consumers have 
communicated their intent to proceed with the transaction. There is an 
exception that allows lenders to charge fees to obtain consumers' 
credit reports.\11\
---------------------------------------------------------------------------

    \11\ This provision is in proposed Sec.  1026.19(e)(2)(i).
---------------------------------------------------------------------------

    Disclaimer on early estimates. Lenders and brokers may provide 
consumers with written estimates prior to application. The proposed 
rule requires that any such written estimates contain a disclaimer to 
prevent confusion with the Loan Estimate form. This disclaimer would 
not be required for advertisements.\12\
---------------------------------------------------------------------------

    \12\ This provision is in proposed Sec.  1026.19(e)(2)(ii).
---------------------------------------------------------------------------

D. The Closing Disclosure

    The Closing Disclosure form would replace the current form used to 
close a loan, the HUD-1, which was designed by HUD under RESPA. It 
would also replace the revised Truth in Lending disclosure designed by 
the Board under TILA.\13\ The proposed rule and the Official 
Interpretations (on which lenders can rely) contain detailed 
instructions as to how each line on the Closing Disclosure form would 
be completed.\14\ The Closing Disclosure form contains additional new 
disclosures required by the Dodd-Frank Act and a detailed accounting of 
the settlement transaction.
---------------------------------------------------------------------------

    \13\ These disclosures are available at http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf and http://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
    \14\ The requirements for the Closing Disclosure are in proposed 
Sec.  1026.38.
---------------------------------------------------------------------------

    Timing. The lender must give consumers this Closing Disclosure form 
at least three business days before the consumer closes on the loan. 
Generally, if changes occur between the time the Closing Disclosure 
form is given and the closing, the consumer must be provided a new 
form. When that happens, the consumer must be given three additional 
business days to review that form before closing.\15\ However, the 
proposed rule contains an exception from the three-day requirement for 
some common changes. These include changes resulting from negotiations 
between buyer and seller after the final walk-through. There also is an 
exception for minor changes which result in less than $100 in increased 
costs.\16\ The Bureau seeks comment on whether to permit additional 
changes without requiring a new three-day period before closing.
---------------------------------------------------------------------------

    \15\ This provision is in proposed Sec.  1026.19(f)(1)(ii).
    \16\ These exceptions are in proposed Sec.  1026.19(f)(2).
---------------------------------------------------------------------------

    Provision. Currently, settlement agents are required to provide the 
HUD-1, while lenders are required to provide the revised Truth in 
Lending disclosure. The Bureau is proposing two alternatives for who is 
required to provide consumers with the new Closing Disclosure form. 
Under the first option, the lender would be responsible for delivering 
the Closing Disclosure form to the consumer. Under the second option, 
the lender may rely on the settlement agent to provide the form. 
However, under the second option, the lender would also remain 
responsible for the accuracy of the form.\17\ The Bureau seeks comment 
as to which alternative is preferable.
---------------------------------------------------------------------------

    \17\ These alternatives are set forth in proposed Sec.  
1026.19(f)(1).
---------------------------------------------------------------------------

E. Limits on Closing Cost Increases

    Similar to existing law, the proposed rule would restrict the 
circumstances in which consumers can be required to pay more for 
settlement services--the various services required to complete a loan, 
such as appraisals, inspections, etc.--than the amount stated on their 
Loan Estimate form. Unless an exception applies, charges for the 
following services could not increase: (1) The lender's or mortgage 
broker's charges for its own services; (2) charges for services 
provided by an affiliate of the lender or mortgage broker; and (3) 
charges for services for which the lender or mortgage broker does not 
permit the consumer to shop. Also unless an exception applies, charges 
for other services generally could not increase by more than 10 
percent.\18\
---------------------------------------------------------------------------

    \18\ The limitations and the exceptions discussed below are in 
proposed Sec.  1026.19(e)(3).
---------------------------------------------------------------------------

    The rule would provide exceptions, for example, when: (1) The 
consumer asks for a change; (2) the consumer chooses a service provider 
that was not identified by the lender; (3) information provided at 
application was inaccurate or becomes inaccurate; or (4) the Loan 
Estimate expires. When an exception applies, the lender generally must 
provide an updated Loan Estimate form within three business days.

F. Changes to APR

    The proposed rule redefines the way the Annual Percentage Rate or 
``APR'' is calculated. Under the rule, the APR will encompass almost 
all of the up-front costs of the loan.\19\ This will make it easier for 
consumers to use the APR to compare loans and easier for industry to 
calculate the APR.
---------------------------------------------------------------------------

    \19\ These revisions are in proposed Sec.  1026.4.
---------------------------------------------------------------------------

G. Recordkeeping

    The proposed rule requires lenders to keep records of the Loan 
Estimate and Closing Disclosure forms provided to consumers in a 
standard electronic format.\20\ This will make it easier for regulators 
to monitor compliance. The Bureau seeks comment on whether smaller 
lenders should be exempt from this requirement.
---------------------------------------------------------------------------

    \20\ This provision is in proposed Sec.  1026.25.
---------------------------------------------------------------------------

H. Effective Date

    The Bureau is seeking comment on when this final rule should be 
effective. Because the final rule will provide important benefits to 
consumers, the Bureau seeks to make it effective as soon as possible. 
However, the Bureau understands that the final rule will

[[Page 51118]]

require lenders, mortgage brokers, and settlement agents to make 
extensive revisions to their software and to retrain their staff. In 
addition, some entities will be required to implement other Dodd-Frank 
Act provisions, which are subject to separate rulemaking deadlines 
under the statute and will have separate effective dates. Therefore, 
the Bureau is seeking comment on how much time industry needs to make 
these changes. The Bureau is proposing to delay compliance with certain 
new disclosure requirements contained in the Dodd-Frank Act until the 
Bureau's final rule takes effect.\21\
---------------------------------------------------------------------------

    \21\ For additional discussion, see part V below.
---------------------------------------------------------------------------

II. Background

A. The Mortgage Market

Overview of the Market and the Mortgage Crisis
    The mortgage market is the single largest market for consumer 
financial products and services in the United States, with 
approximately $10.3 trillion in loans outstanding.\22\ During the last 
decade, the market went through an unprecedented cycle of expansion and 
contraction that was fueled in part by the securitization of mortgages 
and creation of increasingly sophisticated derivative products designed 
to mitigate accompanying risks. So many other parts of the American 
financial system were drawn into mortgage-related activities that when 
the bubble collapsed in 2008, it sparked the most severe recession in 
the United States since the Great Depression.
---------------------------------------------------------------------------

    \22\ Inside Mortgage Finance, Outstanding 1-4 Family Mortgage 
Securities, Mortgage Market Statistical Annual (2012).
---------------------------------------------------------------------------

    The expansion in this market is commonly attributed to both 
particular economic conditions and by changes within the industry. 
Interest rates dropped significantly--by more than 20 percent--from 
2000 through 2003.\23\ Housing prices increased dramatically--about 152 
percent--between 1997 and 2006.\24\ Driven by the decrease in interest 
rates and the increase in housing prices, the volume of refinances 
increased from about 2.5 million loans in 2000 to more than 15 million 
in 2003.\25\
---------------------------------------------------------------------------

    \23\ See U.S. Dep't. of Hous. and Urban Dev., An Analysis of 
Mortgage Refinancing, 2001-2003 (Nov. 2004), available at 
www.huduser.org/Publications/pdf/MortgageRefinance03.pdf; Souphala 
Chomsisengphet and Anthony Pennington-Cross, The Evolution of the 
Subprime Mortgage Market, Federal Reserve Bank of St. Louis Review, 
88(1), 31, 48 (Jan./Feb. 2006), available at http://research.stlouisfed.org/publications/review/article/5019.
    \24\ The Financial Crisis Inquiry Commission, The Financial 
Crisis Inquiry Report (Feb. 25, 2011) (FCIC Report) at 156, 
available at http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
    \25\ An Analysis of Mortgage Refinancing, 2001-2003, at 1.
---------------------------------------------------------------------------

    At the same time, advances in the securitization of mortgages 
attracted increasing involvement from financial institutions that were 
not directly involved in the extension of credit to consumers and from 
investors worldwide. Securitization of mortgages allows originating 
lenders to sell off their loans (and reinvest the funds earned in 
making new ones) to investors who want an income stream over time. 
Securitization had been pioneered by what are now called government 
sponsored enterprises (GSEs), such as the Federal National Mortgage 
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation 
(Freddie Mac). But by the early 2000s, large numbers of private 
financial institutions were deeply involved in creating increasingly 
sophisticated investment mortgage-related vehicles through securities 
and derivative products.
    Growth in the mortgage loan market was particularly pronounced in 
what are known as ``subprime'' and ``Alt-A'' products. Subprime 
products were sold both to borrowers with poor or no credit history, as 
well as to borrowers with good credit. The Alt-A category of loans 
permitted borrowers to provide little or no documentation of income or 
other repayment ability. Because these loans involved additional risk, 
they were typically more expensive to borrowers than so-called 
``prime'' mortgages, though many offered low introductory rates. In 
2003, subprime and Alt-A origination volume was about $400 billion. In 
2006, it had reached $830 billion.\26\
---------------------------------------------------------------------------

    \26\ Inside Mortgage Finance: Mortgage Market Statistical Annual 
2011.
---------------------------------------------------------------------------

    So long as housing prices were continuing to increase, it was 
relatively easy for borrowers to refinance their loans to avoid 
interest rate resets and other adjustments. However, housing prices 
began to decline as early as 2005, slowing the growth in 
refinances.\27\ At the same time, as the economy worsened the rates of 
serious delinquency (90 or more days past due or in foreclosure) for 
these subprime and Alt-A products began a steep increase from 
approximately 10 percent in 2006, to 20 percent in 2007, to over 40 
percent in 2010.\28\
---------------------------------------------------------------------------

    \27\ FCIC Report at 215.
    \28\ Id. at 217.
---------------------------------------------------------------------------

    The impact of this level of delinquencies on the private investors 
who purchased these loans from the mortgage originators was severe. 
Private securitizations of subprime loans peaked at $465 billion in 
2005, but were virtually eliminated in 2008. Private securitizations of 
Alt-A loans followed a similar trajectory.\29\ This effect was even 
felt by Fannie Mae and Freddie Mac, which were large purchasers of 
these securitizations, and it resulted in the Federal government in 
late 2008 placing the GSEs into conservatorship in order to support the 
collapsing mortgage market.
---------------------------------------------------------------------------

    \29\ Id. at 124.
---------------------------------------------------------------------------

    Four years later, the United States continues to grapple with the 
fallout. Home prices are down 35 percent from peak to trough on a 
national basis, and it is not clear whether the national market has 
reached bottom.\30\ The fall in housing prices is estimated to have 
resulted in about $7 trillion in household wealth losses.\31\ Moreover, 
mortgage markets continue to rely on extraordinary U.S government 
support. In addition, distressed homeownership and foreclosure rates 
remain at unprecedented levels. Approximately 5.8 million homeowners 
were somewhere between 30 days late on their mortgage and in the 
foreclosure process as of April 2012.\32\ Finally, the U.S. continues 
to face a stubbornly high unemployment rate, which was at 8.2 percent 
at the end of May 2012.\33\
---------------------------------------------------------------------------

    \30\ S&P/Case-Shiller 20-City Composite accessed from Bloomberg, 
LP on June 6, 2012.
    \31\ Board of Governors of the Federal Reserve System, The U.S. 
Housing Market: Current Conditions and Policy Considerations (Jan. 
4, 2012), available at http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf.
    \32\ Lender Processing Services April 2012 Mortgage Monitor.
    \33\ Bureau of Labor Statistics, accessed from Bloomberg, LP on 
June 6, 2012.
---------------------------------------------------------------------------

    While there remains debate about which market issues definitively 
sparked this crisis, there were several mortgage origination issues 
that pervaded the mortgage lending system prior to the crisis and are 
generally accepted as having contributed to its collapse. First, the 
market experienced a steady deterioration of credit standards in 
mortgage lending, particularly evidenced by the growth of subprime and 
Alt-A loans, which consumers were often unable or unwilling to 
repay.\34\
---------------------------------------------------------------------------

    \34\ FCIC Report at 88.
---------------------------------------------------------------------------

    Second, the mortgage market saw a proliferation of more complex 
mortgage products with terms that were often difficult for consumers to 
understand. These products included most notably 2/28 and 3/27 Hybrid 
Adjustable Rate Mortgages and Option ARM products.\35\

[[Page 51119]]

These products were often marketed to subprime and Alt-A customers. The 
appetite on the part of mortgage investors for such products often 
created inappropriate incentives for mortgage originators to originate 
these more expensive and profitable mortgage products.\36\
---------------------------------------------------------------------------

    \35\ Id. at 106. ``Hybrid Adjustable Rate Mortgage'' is a term 
frequently used to describe adjustable rate mortgage loans that have 
a low fixed introductory rate for a certain period of time. ``Option 
ARM'' is a term frequently used to describe adjustable rate mortgage 
loans that have a scheduled loan payment that may result in negative 
amortization for a certain period of time, but that expressly permit 
specified larger payments in the contract or servicing documents, 
such as an interest-only payment or a fully amortizing payment. For 
these loans, the scheduled negatively amortizing payment was 
typically described in marketing and servicing materials as the 
``optional payment.''
    \36\ Id. at 109.
---------------------------------------------------------------------------

    Third, responsibility for the regulation of consumer financial 
protection laws was spread across seven regulators including the Board, 
HUD, the Office of Thrift Supervision, the Federal Trade Commission, 
the Federal Deposit Insurance Corporation, the Office of the 
Comptroller of the Currency, and the National Credit Union 
Administration. Such a spread in responsibility may have hampered the 
government's ability to coordinate regulatory monitoring and response 
to such issues.\37\
---------------------------------------------------------------------------

    \37\ Id. at 111.
---------------------------------------------------------------------------

    In the wake of this financial crisis, Congress passed the Dodd-
Frank Act to address many of these concerns. In this Act, Congress 
created the Bureau and consolidated the rulemaking authority for many 
consumer financial protection statutes, including the two primary 
Federal consumer protection statutes governing mortgage origination, 
TILA and RESPA, in the Bureau.\38\ Congress also provided the Bureau 
with supervision authority for certain consumer financial protection 
statutes over certain entities, including insured depository 
institutions with total assets over $10 billion and their affiliates, 
and certain other non-depository entities.\39\
---------------------------------------------------------------------------

    \38\ Sections 1011 and 1021 of title X of the Dodd-Frank Act, 
the ``Consumer Financial Protection Act,'' Public Law 111-203, 
sections 1001-1100H, codified at 12 U.S.C. 5491, 5511. The Consumer 
Financial Protection Act is substantially codified at 12 U.S.C. 
5481-5603.
    \39\ Sections 1024 through 1026 of title X of the Dodd-Frank 
Act, codified at 12 U.S.C. 5514-5516.
---------------------------------------------------------------------------

    At the same time, Congress significantly amended the statutory 
requirements governing mortgage practices with the intent to restrict 
the practices that contributed to the crisis. For example, in response 
to concerns that some lenders made loans to consumers without 
sufficiently determining their ability to repay, section 1411 of the 
Dodd-Frank Act amended TILA to require that creditors make a reasonable 
and good faith determination, based on verified and documented 
information, that the consumer will have a reasonable ability to repay 
the loan.\40\ Sections 1032(f), 1098, and 1100A of the Dodd-Frank Act 
address concerns that Federal mortgage disclosures did not adequately 
explain to consumers the terms of their loans (particularly complex 
adjustable rate or optional payment loans) by requiring new disclosure 
forms that will improve consumer understanding of mortgage transactions 
(which is the subject of this proposal).\41\ In addition, the Dodd-
Frank Act established other new standards concerning a wide range of 
mortgage lending practices, including compensation for mortgage 
originators \42\ and mortgage servicing.\43\ For additional 
information, see the discussion below in part II.F.
---------------------------------------------------------------------------

    \40\ Section 1411 of the Dodd-Frank Act, codified at 15 U.S.C. 
1639c.
    \41\ 1032(f) of the Dodd-Frank Act, codified at 12 U.S.C. 
5532(f). Sections 1098 and 1100A of the Dodd-Frank Act amend RESPA 
and TILA, respectively.
    \42\ Sections 1402 through 1405 of the Dodd-Frank Act, codified 
at 15 U.S.C. 1639b.
    \43\ Sections 1418, 1420, 1463, and 1464 of the Dodd-Frank Act, 
codified at 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, and 1639g.
---------------------------------------------------------------------------

Size of the Current Mortgage Origination Market
    Even with the economic downturn, approximately $1.28 trillion in 
mortgage loans were originated in 2011.\44\ In exchange for a mortgage 
loan, borrowers promise to make regular mortgage payments and provide 
their home or real property as collateral. The overwhelming majority of 
homebuyers use mortgage loans to pay for at least some of their 
property. In 2011, 93 percent of all new home purchases were financed 
with a mortgage loan.\45\
---------------------------------------------------------------------------

    \44\ Moody's Analytics, Credit Forecast (2012). Reflects first-
lien mortgage loans.
    \45\ Inside Mortgage Finance, New Homes Sold by Financing, 
Mortgage Market Statistical Annual (2012).
---------------------------------------------------------------------------

    Borrowers may take out mortgage loans in order to purchase a new 
home, to refinance an existing mortgage, or to access home equity. 
Purchase loans and refinances produced 6.3 million new mortgage loan 
originations in 2011 alone.\46\ The proportion of loans that are for 
purchases as opposed to refinances varies with the interest rate 
environment. In 2011, 65 percent of the market was refinance 
transactions and 35 percent was purchase loans, by volume.\47\ 
Historically the distribution has been more even. In 2000, refinances 
accounted for 44 percent of the market while purchase loans comprised 
56 percent, and in 2005 the two products were split evenly.\48\
---------------------------------------------------------------------------

    \46\ Moody's Analytics, Credit Forecast (2012). Reflects first-
lien mortgage loans.
    \47\ Inside Mortgage Finance, Mortgage Originations by Product, 
Mortgage Market Statistical Annual (2012). These percentages are 
based on the dollar amount of the loans.
    \48\ Inside Mortgage Finance, Mortgage Originations by Product, 
Mortgage Market Statistical Annual (2012). These percentages are 
based on the dollar amount of the loans.
---------------------------------------------------------------------------

    Using a home equity loan, a homeowner can use their equity as 
collateral in exchange for a loan. The loan proceeds can be used, for 
example, to pay for home improvements or to pay off other debts. These 
home equity loans resulted in an additional 1.3 million mortgage loan 
originations in 2011.\49\
---------------------------------------------------------------------------

    \49\ Moody's Analytics, Credit Forecast (2012). Reflects open-
end and closed-end home equity loans.
---------------------------------------------------------------------------

Shopping for Mortgage Loans
    When shopping for a mortgage loan, research has shown that 
consumers are most concerned about the interest rate and their monthly 
payment.\50\ Consumers may underestimate the possibility that interest 
rates and payments can increase later on, or they may not fully 
understand that this possibility exists. They also may not appreciate 
other costs that could arise later, such as prepayment penalties.\51\ 
This focus on short term costs while underestimating long term costs 
may result in consumers taking out mortgage loans that are more costly 
than they realize.\52\
---------------------------------------------------------------------------

    \50\ Bd. of Governors of the Fed. Reserve Sys., Summary of 
Findings: Design and Testing of Truth in Lending Disclosures for 
Closed-End Mortgages, prepared by Macro International, Inc. (July 
16, 2009), p. 6, available at http://www.federalreserve.gov/boarddocs/meetings/2009/20090723/Full%20Macro%20CE%20Report.pdf.; 
see also Kleimann Communication Group, Inc., Know Before You Owe: 
Evolution of the Integrated TILA-RESPA Disclosures (July 2012), 
available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
    \51\ James Lacko and Janis Pappalardo, Improving Consumer 
Mortgage Disclosures: An Empirical Assessment of Current and 
Prototype Disclosure Forms, Federal Trade Commission, p. 26 (June 
2007) (finding borrowers had misunderstood key loan features, 
including the overall cost of the loan, future payment amount, 
ability to refinance, payment of up-front points and fees, whether 
the monthly payment included escrow for taxes and insurance, any 
balloon payment, whether the interest rate had been locked, whether 
the rate was adjustable or fixed, and any prepayment penalty), 
available at http://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf.
    \52\ Oren Bar-Gill, The Law, Economics and Psychology of 
Subprime Mortgage Contracts, 94 Cornell L. Rev. 1073, 1079 (2009) 
(discussing how subprime borrowers may not fully understand the loan 
costs due to product complexity and deferral of loan costs into the 
future); id. at 1133 (explaining that borrower underestimation of 
mortgage loan cost distorts their decision to take out a loan, 
resulting in excessive borrowing), available at http://legalworkshop.org/wp-content/uploads/2009/07/cornell-A23090727-bar-gill.pdf.

---------------------------------------------------------------------------

[[Page 51120]]

    Research points to a relationship between consumer confusion about 
loan terms and conditions and an increased likelihood of adopting 
higher-cost, higher-risk mortgage loans in the years leading up to the 
mortgage crisis. A study of data from the 2001 Survey of Consumer 
Finances found that some adjustable-rate mortgage loan borrowers--
particularly those with below median income--underestimated or did not 
realize how much their interest rates could change.\53\ These findings 
are consistent with a 2006 Government Accountability Office study, 
which raised concerns that mortgage loan disclosure laws did not 
require specific disclosures for adjustable rate loans.\54\ This 
evidence suggests that borrowers who are not presented with clear, 
understandable information about their mortgage loan offer may lack an 
accurate understanding of the loan costs and risks.
---------------------------------------------------------------------------

    \53\ Brian K. Bucks and Karen M. Pence, Do Borrowers Know their 
Mortgage Terms?, J. of Urban Econ. (2008), available at http://works.bepress.com/karen_pence/5.
    \54\ U.S. Government Accountability Office, Alternative Mortgage 
Products: Impact on Default Remains Unclear, but Disclosure of Risks 
to Borrowers Could Be Improved (Sept. 20, 2006), available at http://www.gao.gov/new.items/d061112t.pdf.
---------------------------------------------------------------------------

The Mortgage Origination Process
    Borrowers must go through a mortgage origination process to take 
out a mortgage loan. During this process, borrowers have two 
significant factors to consider: the costs that they pay to close the 
loan, and the costs over the life of the loan. Both factors can vary 
tremendously, making the home purchase especially complex. Furthermore, 
there are many actors involved in a mortgage origination. In addition 
to the lender and the borrower, a single transaction may involve a 
seller, mortgage broker, real estate agent, settlement agent, 
appraiser, multiple insurance providers, and local government clerks 
and tax offices. These actors typically charge fees or commissions for 
the services they provide. Borrowers learn about the loan costs and the 
sources of those costs through a variety of sources, including 
disclosures provided throughout the mortgage origination process.
    Loan Terms. The loan terms affect how the loan is to be repaid, 
including the type of loan product,\55\ the interest rate, the payment 
amount, and the length of the loan term.
---------------------------------------------------------------------------

    \55\ Types of loan products include a fixed rate loan, 
adjustable rate loan, and interest-only loan.
---------------------------------------------------------------------------

    Among other things, the type of loan product determines whether the 
interest rate can change and, if so, when and by how much. A fixed rate 
loan sets the interest rate at origination, and the rate stays the same 
until the borrower pays off the loan. However, the interest rate on an 
adjustable rate loan is periodically reset based on an interest rate 
index. This shifting rate could change the borrower's monthly payment. 
Typically, an adjustable rate loan will combine both types of rates, so 
that the interest rate is fixed for a certain period of time before 
adjusting. For example, a 5/1 adjustable rate loan would have a fixed 
interest rate for five years, and then adjust every year until the loan 
ends. Any changes in the interest rate after the first five years would 
change the borrower's payments. Today, fixed rate mortgages are the 
most common mortgage product, accounting for 87 percent of the mortgage 
loan market in 2011.\56\ Adjustable rate mortgages accounted for only 
13 percent of the mortgage loan market in 2011, although they have been 
more popular in the past.\57\ Adjustable-rate mortgages accounted for 
30 percent of mortgage loan volume in 2000, and reached a recent high 
of 50 percent in 2004.\58\
---------------------------------------------------------------------------

    \56\ Inside Mortgage Finance, Mortgage Originations by Product, 
Mortgage Market Statistical Annual (2012). These percentages are 
based on the dollar amount of the loans.
    \57\ Inside Mortgage Finance, Mortgage Originations by Product, 
Mortgage Market Statistical Annual (2012). These percentages are 
based on the dollar amount of the loans.
    \58\ Inside Mortgage Finance, Mortgage Originations by Product, 
Mortgage Market Statistical Annual (2012). These percentages are 
based on the dollar amount of the loans.
---------------------------------------------------------------------------

    Borrowers are usually required to make payments on a monthly basis. 
These payments typically are calculated to pay off the entire loan 
balance by the time the loan term ends.\59\ The way a borrower's 
payments affect the amount of the loan balance over time is called 
amortization. Most borrowers take out fully amortizing loans, meaning 
that their payments are applied to both principal and interest so that 
the loan's principal balance will gradually decrease until it is 
completely paid off. The typical 30-year fixed rate loan has fully 
amortizing monthly payments that are calculated to pay off the loan in 
full over 30 years. However, loan amortization can take other forms. An 
interest-only loan would require the borrower to make regular payments 
that cover interest but not principal. In some cases, these interest-
only payments end after a period of time (such as five years) and the 
borrower must begin making significantly higher payments that cover 
both interest and principal to amortize the loan over the remaining 
loan term. In other cases, the entire principal balance must be paid 
when the loan becomes due.
---------------------------------------------------------------------------

    \59\ Some loans may require a large final payment (or 
``balloon'' payment) in addition to monthly payments.
---------------------------------------------------------------------------

    The time period that the borrower has to repay the loan is known as 
the loan term, and is specified in the mortgage contract. Many loans 
are set for a term of 30 years. Depending on the amortization type of 
the loan, it will either be paid in full or have a balance due at the 
end of the term.
    Closing Costs. Closing costs are the costs of completing a mortgage 
transaction, including origination fees, appraisal fees, title 
insurance, taxes, and homeowner's insurance. The borrower may pay an 
application or origination fee. Lenders generally also require an 
appraisal as part of the origination process in order to determine the 
value of the home. The appraisal helps the lender determine whether the 
home is valuable enough to act as collateral for the mortgage loan. The 
borrower is generally responsible for the appraisal fee, which may be 
paid at or before closing. Finally, lenders typically require borrowers 
to take out various insurance policies. Insurance protects the lender's 
collateral interest in the property. Homeowner's insurance protects 
against the risk that the home is damaged or destroyed, while title 
insurance protects the lender against the risk of claims against the 
borrower's legal right to the property. In addition, the borrower may 
be required to take out mortgage insurance which protects the lender in 
the event of default.
    Application. In order to obtain a mortgage loan, borrowers must 
first apply through a loan originator. There are two different kinds of 
loan originators. A retail originator works directly for a mortgage 
lender. A mortgage lender that employs retail originators could be a 
bank or credit union, or it could be a specialized mortgage finance 
company. The other kind of loan originator is a mortgage broker. 
Mortgage brokers work with many different lenders and facilitate the 
transaction for the borrower.
    A loan originator may help borrowers determine what kind of loan 
best suits their needs, and will collect their completed loan 
application. The application includes borrower credit and income 
information, along with information about the home to be purchased.
    Borrowers can apply to multiple loan originators in order to 
compare the loans that they are being offered. Once they have decided 
to move forward with the loan, the borrower must notify the loan 
originator. The loan originator will

[[Page 51121]]

typically wait to receive this notification before taking more 
information from the borrower and giving the borrower's application to 
a loan underwriter.
    Mortgage Processing. A loan underwriter uses the application and 
additional information to confirm initial information provided by the 
borrower. The underwriter will assess whether the lender should take on 
the risk of making the mortgage loan. In order to make this decision, 
the underwriter considers whether the borrower can repay the loan, and 
whether the home is worth enough to act as collateral for the loan. If 
the underwriter finds that the borrower and the home qualify, the 
underwriter will approve the borrower's mortgage application.
    Depending on the loan terms, as discussed above, lenders may 
require borrowers to retain title insurance, homeowner's insurance, 
private mortgage insurance, and other services. The lender may allow 
the borrower to shop for certain closing services on their own.
    Closing. After being accepted for a mortgage loan, completing any 
closing requirements, and receiving necessary disclosures, the borrower 
can close on the loan. Multiple parties participate at closing, 
including the borrower and the settlement agent.
    The settlement agent ensures that all the closing requirements are 
met, and that all fees are collected. The settlement agent also 
completes all of the closing documents. The settlement agent makes sure 
that the borrower signs these closing documents, including a promissory 
note and the security instrument. This promissory note is evidence of 
the loan debt, and documents the borrower's promise to pay back the 
loan. It states the terms of the loan, including the interest rate and 
length. The security instrument, in the form of a mortgage, provides 
the home as collateral for the loan. A deed of trust is similar to a 
mortgage, except that a trustee is named to hold title to the property 
as security for the loan. The borrower receives title to the property 
after the loan is paid in full. Both a mortgage and deed of trust allow 
the lender to foreclose and sell the home if the borrower does not 
repay the loan.
    In the case of a purchase loan, the funds to purchase the home and 
pay closing costs are distributed at closing or shortly thereafter. In 
the case of a refinance loan, the funds from the new loan are used to 
pay off the old loan, with any additional amount going to the borrower 
or to pay off other debts. Refinance loans also have closing costs, 
which may be paid by the borrower at closing or, in some cases, rolled 
into the loan amount. In home-equity loans, the borrower's funds and 
the closing costs are provided upon closing. A settlement agent makes 
sure that all amounts are given to the appropriate parties. After the 
closing, the settlement agent records the deed at the local government 
registry.

B. RESPA and Regulation X

    Congress enacted the Real Estate Settlement Procedures Act of 1974 
based on findings that significant reforms in the real estate 
settlement process were needed to ensure that consumers are provided 
with greater and more timely information on the nature and costs of the 
residential real estate settlement process and are protected from 
unnecessarily high settlement charges caused by certain abusive 
practices that Congress found to have developed. 12 U.S.C. 2601(a). 
With respect to RESPA's disclosure requirements, the Act's purpose is 
to provide ``more effective advance disclosure to home buyers and 
sellers of settlement costs.'' Id. 2601(b)(1). In addition to providing 
consumers with appropriate disclosures, the purposes of RESPA include 
effecting certain changes in the settlement process for residential 
real estate that will result in (1) the elimination of kickbacks or 
referral fees that Congress found to increase unnecessarily the costs 
of certain settlement services; and (2) a reduction in the amounts home 
buyers are required to place in escrow accounts established to insure 
the payment of real estate taxes and insurance. Id. 2601. In 1990, 
Congress amended RESPA by adding a new section 6 covering persons 
responsible for servicing mortgage loans and amending statutory 
provisions related to mortgage servicers' administration of borrowers' 
escrow accounts.\60\
---------------------------------------------------------------------------

    \60\ Public Law 101-625, 104 Stat. 4079 (1990), sections 941-42.
---------------------------------------------------------------------------

    RESPA's disclosure requirements generally apply to ``settlement 
services'' for ``federally related mortgage loans.'' Under the statute, 
the term ``settlement services'' includes any service provided in 
connection with a real estate settlement. Id. 2602(3). The term 
``federally related mortgage loan'' is broadly defined to encompass 
virtually any purchase money or refinance loan, with the exception of 
temporary financing, that is ``secured by a first or subordinate lien 
on residential real property (including individual units of 
condominiums and cooperatives) designed principally for the occupancy 
of from one to four families * * *.'' Id. 2602(1).
    Section 4 of RESPA requires that, in connection with a ``mortgage 
loan transaction,'' a disclosure form that includes a ``real estate 
settlement cost statement'' be prepared and made available to the 
borrower for inspection at or before settlement.\61\ Id. 2603. The law 
further requires that form ``conspicuously and clearly itemize all 
charges imposed upon the borrower and all charges imposed upon the 
seller in connection with the settlement * * *.'' Id. 2603(a). Section 
5 of RESPA provides for a booklet to help consumers applying for loans 
to finance the purchase of residential real estate from lenders that 
make federally related mortgage loans to understand the nature and 
costs of real estate settlement services. Id. 2604(a). Further, each 
lender must ``include with the booklet a good faith estimate of the 
amount or range of charges for specific settlement services the 
borrower is likely to incur in connection with the settlement * * *.'' 
Id. 2604(c). The booklet and the good faith estimate must be provided 
not later than three business days after the lender receives an 
application, unless the lender denies the application for credit before 
the end of the three-day period. Id. 2604(d).
---------------------------------------------------------------------------

    \61\ Prior to the Dodd-Frank Act, section 4 of RESPA applied to 
``all transactions in the United States which involve federally 
related mortgage loans.'' 12 U.S.C. 2603 (2009). However, section 
1098 of the Dodd-Frank Act deleted the reference to ``federally 
related mortgage loan'' in this section and replaced it with 
``mortgage loan transactions.'' The regulation implementing this 
statutory requirement has historically applied and continues to 
apply to ``federally related mortgage loans.'' See 12 CFR 1024.8; 24 
CFR 3500.8 (2010).
---------------------------------------------------------------------------

    Historically, Regulation X of the Department of Housing and Urban 
Development (HUD), 24 CFR part 3500, has implemented RESPA. On March 
14, 2008, after a 10-year investigatory process, HUD proposed extensive 
revisions to the good faith estimate and settlement forms required 
under Regulation X, as well as new accuracy standards with respect to 
the estimates provided to consumers. 73 FR 14030 (Mar. 14, 2008) (HUD's 
2008 RESPA Proposal).\62\ In November 2008, HUD finalized the proposed 
revisions in substantially the same form, including new standard good 
faith estimate and settlement forms, which lenders, mortgage brokers, 
and settlement agents were required to use beginning on January 1, 
2010. 73 FR 68204 (Nov. 17, 2008) (HUD's 2008 RESPA Final Rule). HUD's 
2008 RESPA Final Rule implemented significant changes to the

[[Page 51122]]

rules regarding the accuracy of the estimates provided to consumers. 
The final rule required re-disclosure of the good faith estimate form 
when the actual costs increased beyond a certain percentage of the 
estimated amounts, and permitted such increases only under certain 
specified circumstances. Id. at 68240 (amending 24 CFR 3500.7). HUD's 
2008 RESPA Final Rule also included significant changes to the RESPA 
disclosure requirements, including prohibiting itemization of certain 
amounts and instead requiring the disclosure of aggregate settlement 
costs; adding loan terms, such as whether there is a prepayment penalty 
and the borrower's interest rate and monthly payment; and requiring use 
of a standard form for the good faith estimate. Id. The standard form 
was developed through consumer testing conducted by HUD, which included 
qualitative testing consisting of one-on-one cognitive interviews.\63\ 
HUD issued informal guidance regarding the final rule on its Web site, 
in the form of frequently asked questions \64\ (HUD RESPA FAQs) and 
bulletins \65\ (HUD RESPA Roundups).
---------------------------------------------------------------------------

    \62\ During this 10-year period, in 2002, HUD published a 
proposed rule revising the good faith estimate forms and accuracy 
standards for cost estimates, which it never finalized. 67 FR 49134 
(July 29, 2002).
    \63\ U.S. Dep't. of Hous. and Urban Dev., Summary Report: 
Consumer Testing of the Good Faith Estimate Form (GFE), prepared by 
Kleimann Communication Group, Inc. (2008), available at http://www.huduser.org/publications/pdf/Summary_Report_GFE.pdf.
    \64\ New RESPA Rule FAQs, available at http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf.
    \65\ RESPA Roundup Archive, available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/resroundup.
---------------------------------------------------------------------------

    The Dodd-Frank Act (discussed further in part I.D, below) 
transferred rulemaking authority for RESPA to the Bureau, effective 
July 21, 2011. See sections 1061 and 1098 of the Dodd-Frank Act. 
Pursuant to the Dodd-Frank Act and RESPA, as amended, the Bureau 
published for public comment an interim final rule establishing a new 
Regulation X, 12 CFR part 1024, implementing RESPA. 76 FR 78978 (Dec. 
20, 2011). This rule did not impose any new substantive obligations but 
did make certain technical, conforming, and stylistic changes to 
reflect the transfer of authority and certain other changes made by the 
Dodd-Frank Act. The Bureau's Regulation X took effect on December 30, 
2011. RESPA section 5's requirements of an information booklet and good 
faith estimate of settlement costs (RESPA GFE) are implemented in 
Regulation X by Sec. Sec.  1024.6 and 1024.7, respectively. RESPA 
section 4's requirement of a real estate settlement statement (RESPA 
settlement statement) is implemented by Sec.  1024.8.

C. TILA and Regulation Z

    Congress enacted the Truth in Lending Act based on findings that 
the informed use of credit resulting from consumers' awareness of the 
cost of credit would enhance economic stability and would strengthen 
competition among consumer credit providers. 15 U.S.C. 1601(a). One of 
the purposes of TILA is to provide meaningful disclosure of credit 
terms to enable consumers to compare credit terms available in the 
marketplace more readily and avoid the uninformed use of credit. Id. 
TILA's disclosures differ depending on whether credit is an open-end 
(revolving) plan or a closed-end (installment) loan. TILA also contains 
procedural and substantive protections for consumers.
    TILA's disclosure requirements apply to a ``consumer credit 
transaction'' extended by a ``creditor.'' Under the statute, consumer 
credit means ``the right granted by a creditor to a debtor to defer 
payment of debt or to incur debt and defer its payment,'' where ``the 
party to whom credit is offered or extended is a natural person, and 
the money, property, or services which are the subject of the 
transaction are primarily for personal, family, or household 
purposes.'' Id. 1602(f), (i). A creditor generally is ``a person who 
both (1) regularly extends * * * consumer credit which is payable by 
agreement in more than four installments or for which the payment of a 
finance charge is or may be required, and (2) is the person to whom the 
debt arising from the consumer credit transaction is initially payable 
on the face of the evidence of indebtedness or, if there is no such 
evidence of indebtedness, by agreement.'' Id. 1602(g).
    TILA section 128 requires that, for closed-end credit, the 
disclosures generally be made ``before the credit is extended.'' Id. 
1638(b)(1). For closed-end transactions secured by a consumer's 
dwelling and subject to RESPA, good faith estimates of the disclosures 
are required ``not later than three business days after the creditor 
receives the consumer's written application, which shall be at least 7 
business days before consummation of the transaction.'' Id. 
1638(b)(2)(A). Finally, if the annual percentage rate (APR) disclosed 
in this early TILA disclosure statement becomes inaccurate, ``the 
creditor shall furnish an additional, corrected statement to the 
borrower, not later than 3 business days before the date of 
consummation of the transaction.'' Id. 1638(b)(2)(D).
    Historically, Regulation Z of the Board of Governors of the Federal 
Reserve System, 12 CFR part 226, has implemented TILA. TILA section 
128's requirement that the disclosure statement be provided before the 
credit is extended (final TILA disclosure) is implemented in Regulation 
Z by Sec.  1026.17(b). The requirements that a good faith estimate of 
the disclosure be provided within three business days after application 
and at least seven business days prior to consummation (early TILA 
disclosure) and that a corrected disclosure be provided at least three 
business days before consummation (corrected TILA disclosure), as 
applicable, are implemented by Sec.  1026.19(a). The contents of the 
TILA disclosures, as required by TILA section 128, are implemented by 
Sec.  1026.18.
    On July 30, 2008, Congress enacted the Mortgage Disclosure 
Improvement Act of 2008 (MDIA).\66\ MDIA, in part, amended the timing 
requirements for the early TILA disclosures, requiring that these TILA 
disclosures be provided within three business days after an application 
for a dwelling-secured closed-end mortgage loan also subject to RESPA 
is received and before the consumer has paid any fee (other than a fee 
for obtaining the consumer's credit history).\67\ Creditors also must 
mail or deliver these early TILA disclosures at least seven business 
days before consummation and provide corrected disclosures if the 
disclosed APR changes in excess of a specified tolerance. The consumer 
must receive the corrected disclosures no later than three business 
days before consummation. The Board implemented these MDIA requirements 
in final rules published May 19, 2009, which became effective July 30, 
2009, as required by the statute. 74 FR 23289 (May 19, 2009) (MDIA 
Final Rule).
---------------------------------------------------------------------------

    \66\ MDIA is contained in sections 2501 through 2503 of the 
Housing and Economic Recovery Act of 2008, Public Law 110-289, 
enacted on July 30, 2008. MDIA was later amended by the Emergency 
Economic Stabilization Act of 2008, Public Law 110-343, enacted on 
October 3, 2008.
    \67\ MDIA codified some requirements previously adopted by the 
Board in a July 2008 final rule. 73 FR 44522 (July 30, 2008) (HOEPA 
Final Rule). To ease discussion, the description of MDIA's 
disclosure requirements includes the requirements of the 2008 HOEPA 
Final Rule.
---------------------------------------------------------------------------

    MDIA also requires disclosure of payment examples if the loan's 
interest rate or payments can change, along with a statement that there 
is no guarantee the consumer will be able to refinance the transaction 
in the future. Under the statute, these provisions of MDIA became 
effective on January 30, 2011. The Board worked to implement these 
provisions of MDIA at the same time that it was completing work on a 
several

[[Page 51123]]

year review of Regulation Z's provisions concerning home-secured 
credit. As a result, the Board issued two sets of proposals 
approximately one year apart. On August 26, 2009, the Board published 
proposed amendments to Regulation Z containing comprehensive changes to 
the disclosures for closed-end credit secured by real property or a 
consumer's dwelling, including revisions to the format and content of 
the disclosures implementing MDIA's payment examples and refinance 
statement requirements, and several new requirements. 74 FR 43232 (Aug. 
26, 2009) (2009 Closed-End Proposal).
    For the 2009 Closed-End Proposal, the Board developed several new 
model disclosure forms through consumer testing consisting of focus 
groups and one-on-one cognitive interviews.\68\ In addition, the 2009 
Closed-End Proposal proposed an extensive revision to the definition of 
``finance charge'' that would replace the ``some fees in, some fees 
out'' approach for determining the finance charge with a simpler, more 
inclusive ``all-in'' approach. The proposed definition of ``finance 
charge'' would include a fee or charge if it is (1) ``payable directly 
or indirectly by the consumer'' to whom credit is extended, and (2) 
``imposed directly or indirectly by the creditor as an incident to or a 
condition of the extension of credit.'' The finance charge would 
continue to exclude fees or charges paid in comparable cash 
transactions.\69\
---------------------------------------------------------------------------

    \68\ Bd. of Governors of the Fed. Reserve Sys., Summary of 
Findings: Design and Testing of Truth in Lending Disclosures for 
Closed-End Mortgages, prepared by Macro International, Inc. (July 
16, 2009) (Macro 2009 Closed-End Report), available at http://www.federalreserve.gov/boarddocs/meetings/2009/20090723/Full%20Macro%20CE%20Report.pdf.
    \69\ As discussed in the analysis of the proposed amendments to 
Sec.  1026.4 in part VI, in response to concerns about the effect of 
an ``all-in'' finance charge on the higher-priced and HOEPA coverage 
thresholds in Sec. Sec.  1026.35 and 1026.32, respectively, the 
Board proposed to implement a different ``transaction coverage 
rate'' for higher-priced coverage and to retain the existing ``some 
fees in, some fees out'' treatment of certain charges in the 
definition of points and fees for purposes of determining HOEPA 
coverage. See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598, 
11608-09 (Mar. 2, 2011); 75 FR 58539, 58636-38, 58660-61 (Sept. 24, 
2010).
---------------------------------------------------------------------------

    On September 24, 2010, the Board published an interim final rule to 
implement MDIA's payment example and refinance statement requirements. 
75 FR 58470 (Sept. 24, 2010) (MDIA Interim Rule). The Board's MDIA 
Interim Rule effectively adopted those aspects of the 2009 Closed-End 
Proposal that implemented these MDIA requirements, without adopting 
that proposal's other provisions, which were not subject to the same 
January 30, 2011 statutory effective date. The Board later issued 
another interim final rule to make certain clarifying changes to the 
provisions of the MDIA Interim Rule. 75 FR 81836 (Dec. 29, 2010).
    On September 24, 2010, the Board also proposed further amendments 
to Regulation Z regarding rescission rights, disclosure requirements in 
connection with modifications of existing mortgage loans, and 
disclosures and requirements for reverse mortgage loans. This proposal 
was the second stage of the comprehensive review conducted by the Board 
of TILA's rules for home-secured credit. 75 FR 58539 (Sept. 24, 2010) 
(2010 Mortgage Proposal).
    The Board also began, on September 24, 2010, issuing proposals 
implementing the Dodd-Frank Act, which had been signed on July 21, 
2010. The Board issued a proposed rule implementing section 1461 of the 
Dodd-Frank Act, which, in part, adjusts the rate threshold for 
determining whether escrow accounts are required for ``jumbo loans,'' 
whose principal amounts exceed the maximum eligible for purchase by 
Freddie Mac.\70\ 75 FR 58505 (Sept. 24, 2010). On March 2, 2011, the 
Board proposed amendments to Regulation Z implementing other 
requirements of sections 1461 and 1462 of the Dodd-Frank Act, which 
added new substantive and disclosure requirements regarding escrow 
accounts to TILA. 76 FR 11598 (March 2, 2011) (2011 Escrows Proposal). 
Sections 1461 and 1462 of the Dodd-Frank Act create new TILA section 
129D, which substantially codifies requirements that the Board had 
previously adopted in Regulation Z regarding escrow requirements for 
higher-priced mortgage loans (including the revised rate threshold for 
``jumbo loans'' described above), but also adds disclosure 
requirements, and lengthens the period for which escrow accounts are 
required.
---------------------------------------------------------------------------

    \70\ The Board finalized this proposal effective April 1, 2011. 
76 FR 11319 (Mar. 2, 2011).
---------------------------------------------------------------------------

    On May 11, 2011, the Board proposed amendments to Regulation Z to 
implement section 1411 of the Dodd-Frank Act, which amends TILA to 
prohibit creditors from making mortgage loans without regard to the 
consumer's repayment ability. 76 FR 27390 (May 11, 2011) (2011 ATR 
Proposal). Section 1411 of the Dodd-Frank Act adds section 129C to 
TILA, codified at 15 U.S.C. 1639c, which prohibits a creditor from 
making a mortgage loan unless the creditor makes a reasonable and good 
faith determination, based on verified and documented information, that 
the consumer will have a reasonable ability to repay the loan, 
including any mortgage-related obligations (such as property taxes).
    Effective July 21, 2011, the Dodd-Frank Act transferred rulemaking 
authority for TILA to the Bureau.\71\ See sections 1061 and 1100A of 
the Dodd-Frank Act. Along with this authority, the Bureau assumed 
responsibility for the proposed rules discussed above. Pursuant to the 
Dodd-Frank Act and TILA, as amended, the Bureau published for public 
comment an interim final rule establishing a new Regulation Z, 12 CFR 
part 1026, implementing TILA (except with respect to persons excluded 
from the Bureau's rulemaking authority by section 1029 of the Dodd-
Frank Act). 76 FR 79768 (Dec. 22, 2011). This rule did not impose any 
new substantive obligations but did make certain technical, conforming, 
and stylistic changes to reflect the transfer of authority and certain 
other changes made by the Dodd-Frank Act. The Bureau's Regulation Z 
took effect on December 30, 2011.
---------------------------------------------------------------------------

    \71\ Section 1029 of the Dodd-Frank Act excludes from this 
transfer of authority, subject to certain exceptions, any rulemaking 
authority over a motor vehicle dealer that is predominantly engaged 
in the sale and servicing of motor vehicles, the leasing and 
servicing of motor vehicles, or both. 12 U.S.C. 5519.
---------------------------------------------------------------------------

D. The History of Integration Efforts

    For more than 30 years, TILA and RESPA have required creditors and 
settlement agents to give consumers who apply for and obtain a mortgage 
loan different but overlapping disclosure forms regarding the loan's 
terms and costs. This duplication has long been recognized as 
inefficient and confusing for both consumers and industry.
    Previous efforts to develop a combined TILA and RESPA disclosure 
form were fueled by the amount, complexity, and overlap of information 
in the disclosures. On September 30, 1996, Congress enacted the 
Economic Growth and Regulatory Paperwork Reduction Act of 1996,\72\ 
which required the Board and HUD to ``simplify and improve the 
disclosures applicable to the transactions under [TILA and RESPA], 
including the timing of the disclosures; and to provide a single format 
for such disclosures which will satisfy the requirements of each such 
Act with respect to such transactions.'' \73\ If the agencies found 
that legislative action might be necessary or appropriate to simplify 
and unify the disclosures, they were to submit a report to Congress 
containing recommendations for such action. In the same legislation, 
Congress added

[[Page 51124]]

exemption authority in TILA section 105(f) for classes of transactions 
for which, in the determination of the Board (now the Bureau), coverage 
under all or part of TILA does not provide a meaningful benefit to 
consumers in the form of useful information or protection.\74\
---------------------------------------------------------------------------

    \72\ Public Law 104-208, 110 Stat. 3009 (1996).
    \73\ Id., section 2101.
    \74\ Id., section 2102(b).
---------------------------------------------------------------------------

    The Board and HUD did not propose an integrated disclosure pursuant 
to this legislation. Instead, in July 1998, the Board and HUD issued a 
``Joint Report to the Congress Concerning Reform to the Truth in 
Lending Act and the Real Estate Settlement Procedures Act'' (Board-HUD 
Joint Report).\75\ The Board-HUD Joint Report concluded that 
``meaningful change could come only through legislation'' and provided 
Congress with the Board's and HUD's recommendations for revising TILA 
and RESPA.
---------------------------------------------------------------------------

    \75\ Bd. of Governors of the Fed. Reserve Sys. And U.S. Dep't of 
Hous. and Urban Dev., Joint Report to the Congress Concerning Reform 
to the Truth in Lending Act and the Real Estate Settlement 
Procedures Act (1998), available at http://www.federalreserve.gov/boarddocs/rptcongress/tila.pdf.
---------------------------------------------------------------------------

    The agencies recommended a number of amendments to TILA and RESPA 
in the report, such as amendment of TILA's definition of ``finance 
charge'' to eliminate the ``some fees in, some fees out'' approach and 
instead include ``all costs the consumer is required to pay in order to 
close the loan, with limited exceptions''; the amendment of RESPA to 
require either the guaranteeing of closing costs on the GFE or 
estimates that are subject to an accuracy standard; and provision of 
the final TILA disclosure and settlement statement three days before 
closing, so that consumers would be able to study the disclosures in an 
unpressured environment.
    The Board-HUD Joint Report also recommended several additional 
changes to the TILA disclosures. In particular, the report recommended 
significant revisions to the ``Fed Box,'' which is the tabular 
disclosure provided to consumers in the early and final TILA 
disclosures under Regulation Z containing the APR, the finance charge 
(which is intended to be the cost of credit expressed as a dollar 
amount), the amount financed (which is intended to reflect the loan 
proceeds available to the consumer), and the total of payments (which 
is the dollar amount of the transaction over the loan term, including 
principal and finance charges).\76\ The report recommended, among other 
things, eliminating the amount financed from the disclosure for 
mortgage loans because it probably was not useful to consumers in 
understanding mortgage loans. The report also recommended adding 
disclosure of the total closing costs in the Fed Box, citing focus 
groups conducted by the Board in which participants stated that 
disclosure of the amount needed to close the loan would be useful.
---------------------------------------------------------------------------

    \76\ See, e.g., Regulation Z, 12 CFR part 1026 app. H-2 Loan 
Model Form.
---------------------------------------------------------------------------

    The Board-HUD Joint Report did not result in legislative action. 
Eleven years later, and four months before the revised RESPA 
disclosures under HUD's 2008 RESPA Final Rule were to become mandatory, 
the Board published the 2009 Closed-End Proposal, which proposed 
significant revisions to the TILA disclosures and stated that the Board 
would work with HUD towards integrating the two disclosure regimes. The 
proposal stated that ``the Board anticipates working with [HUD] to 
ensure that TILA and [RESPA] disclosures are compatible and 
complementary, including potentially developing a single disclosure 
form that creditors could use to combine the initial disclosures 
required under TILA and RESPA.'' \77\ The proposal stated that consumer 
testing would be used to ensure consumers could understand and use the 
combined disclosures. However, only ten months later in July 2010, the 
Dodd-Frank Act was enacted by Congress, which transferred rulemaking 
authority under both TILA and RESPA to the Bureau and mandated that the 
Bureau establish a single disclosure scheme under TILA and RESPA. Now, 
nearly 16 years after Congress first directed the Board and HUD to 
integrate the disclosures under TILA and RESPA, the Bureau publishes 
this proposed rule.
---------------------------------------------------------------------------

    \77\ 74 FR 43232, 43233.
---------------------------------------------------------------------------

E. The Dodd-Frank Act

    As noted above, RESPA and TILA historically have been implemented 
by regulations of HUD and the Board, respectively, and the Dodd-Frank 
Act consolidated this rulemaking authority in the Bureau. In addition, 
the Dodd-Frank Act amended both statutes to mandate that the Bureau 
establish a single disclosure scheme for use by lenders or creditors in 
complying comprehensively with the disclosure requirements discussed 
above. Section 1098(2) of the Dodd-Frank Act amended RESPA section 4(a) 
to require that the Bureau ``publish a single, integrated disclosure 
for mortgage loan transactions (including real estate settlement cost 
statements) which includes the disclosure requirements of this section 
and section 5, in conjunction with the disclosure requirements of 
[TILA] that, taken together, may apply to a transaction that is subject 
to both or either provisions of law.'' 12 U.S.C. 2603(a). Similarly, 
section 1100A(5) of the Dodd-Frank Act amended TILA section 105(b) to 
require that the Bureau ``publish a single, integrated disclosure for 
mortgage loan transactions (including real estate settlement cost 
statements) which includes the disclosure requirements of this title in 
conjunction with the disclosure requirements of [RESPA] that, taken 
together, may apply to a transaction that is subject to both or either 
provisions of law.'' 15 U.S.C. 1604(b).
    The amendments to RESPA and TILA mandating a ``single, integrated 
disclosure'' are among numerous conforming amendments to existing 
Federal laws found in subtitle H of the Consumer Financial Protection 
Act of 2010.\78\ Subtitle C of the Consumer Financial Protection Act, 
``Specific Bureau Authorities,'' codified at 12 U.S.C. chapter 53, 
subchapter V, part C, contains a similar provision. Specifically, 
section 1032(f) of the Dodd-Frank Act provides that, by July 21, 2012, 
the Bureau ``shall propose for public comment rules and model 
disclosures that combine the disclosures required under [TILA] and 
[sections 4 and 5 of RESPA] into a single, integrated disclosure for 
mortgage loan transactions covered by those laws, unless the Bureau 
determines that any proposal issued by the [Board] and [HUD] carries 
out the same purpose.'' 12 U.S.C. 5532(f). The Bureau is publishing 
this proposed rule pursuant to that mandate and the parallel mandates 
established by the conforming amendments to RESPA and TILA, discussed 
above.
---------------------------------------------------------------------------

    \78\ The Consumer Financial Protection Act is title X, ``Bureau 
of Consumer Financial Protection,'' of the Dodd-Frank Act, Public 
Law 111-203, 124 Stat. 1376 (2010), sections 1001-1100H. In the 
Consumer Financial Protection Act, Congress established the Bureau 
and its powers and authorities, transferred to the Bureau various 
existing functions of other agencies, mandated certain regulatory 
improvements, and prescribed other requirements and conforming 
amendments. Subtitle H, ``Conforming Amendments,'' is the last 
subtitle and consists of sections 1081-1100H. Certain titles of the 
Dodd-Frank Act are codified at 12 U.S.C. chapter 53. Subtitles A 
through G (but not H) of title X are codified at 12 U.S.C. chapter 
53, subchapter V, parts A through G. Thus, the Consumer Financial 
Protection Act is substantially codified at 12 U.S.C. 5481-5603.
---------------------------------------------------------------------------

F. Other Rulemakings

    In addition to this proposal, the Bureau currently is engaged in 
six other rulemakings relating to mortgage credit

[[Page 51125]]

to implement requirements of the Dodd-Frank Act:
     HOEPA: On the same day that this proposal is released by 
the Bureau, the Bureau is releasing a proposal to implement Dodd-Frank 
Act requirements expanding protections for ``high-cost'' mortgage loans 
under HOEPA, pursuant to TILA sections 103(bb) and 129, as amended by 
Dodd-Frank Act sections 1431 through 1433 (2012 HOEPA Proposal). 15 
U.S.C. 1602(bb) and 1639.\79\
---------------------------------------------------------------------------

    \79\ Available at http://www.consumerfinance.gov/notice-and-comment/.
---------------------------------------------------------------------------

     Servicing: The Bureau is in the process of developing a 
proposal to implement Dodd-Frank Act requirements regarding force-
placed insurance, error resolution, and payment crediting, as well as 
forms for mortgage loan periodic statements and ``hybrid'' adjustable-
rate mortgage reset disclosures, pursuant to sections 6 of RESPA and 
128, 128A, 129F, and 129G of TILA, as amended or established by Dodd-
Frank Act sections 1418, 1420, 1463, and 1464. The Bureau has publicly 
stated that in connection with the servicing rulemaking the Bureau is 
considering proposing rules on reasonable information management, early 
intervention for troubled and delinquent borrowers, and continuity of 
contact, pursuant to the Bureau's authority to carry out the consumer 
protection purposes of RESPA in section 6 of RESPA, as amended by Dodd-
Frank Act section 1463. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, 
and 1639g.
     Loan Originator Compensation: The Bureau is in the process 
of developing a proposal to implement provisions of the Dodd-Frank Act 
requiring certain creditors and mortgage loan originators to meet duty 
of care qualifications and prohibiting mortgage loan originators, 
creditors, and the affiliates of both from receiving compensation in 
various forms (including based on the terms of the transaction) and 
from sources other than the consumer, with specified exceptions, 
pursuant to TILA section 129B as established by Dodd-Frank Act sections 
1402 and 1403. 15 U.S.C. 1639b.
     Appraisals: The Bureau, jointly with Federal prudential 
regulators and other Federal agencies, is in the process of developing 
a proposal to implement Dodd-Frank Act requirements concerning 
appraisals for higher-risk mortgages, appraisal management companies, 
and automated valuation models, pursuant to TILA section 129H as 
established by Dodd-Frank Act section 1471, 15 U.S.C. 1639h, and 
sections 1124 and 1125 of the Financial Institutions Reform, Recovery, 
and Enforcement Act of 1989 (FIRREA) as established by Dodd-Frank Act 
sections 1473(f), 12 U.S.C. 3353, and 1473(q), 12 U.S.C. 3354, 
respectively. In addition, the Bureau is developing rules to implement 
section 701(e) of the Equal Credit Opportunity Act (ECOA), as amended 
by Dodd-Frank Act section 1474, to require that creditors provide 
applicants with a free copy of written appraisals and valuations 
developed in connection with applications for loans secured by a first 
lien on a dwelling (collectively, Appraisals Rulemaking). 15 U.S.C. 
1691(e).
     Ability to Repay: The Bureau is in the process of 
finalizing a proposal issued by the Board to implement provisions of 
the Dodd-Frank Act requiring creditors to determine that a consumer can 
repay a mortgage loan and establishing standards for compliance, such 
as by making a ``qualified mortgage,'' pursuant to TILA section 129C as 
established by Dodd-Frank Act sections 1411 and 1412 (Ability to Repay 
Rulemaking). 15 U.S.C. 1639c.
     Escrows: The Bureau is in the process of finalizing a 
proposal issued by the Board to implement provisions of the Dodd-Frank 
Act requiring certain escrow account disclosures and exempting from the 
higher-priced mortgage loan escrow requirement loans made by certain 
small creditors, among other provisions, pursuant to TILA section 129D 
as established by Dodd-Frank Act sections 1461 and 1462 (Escrows 
Rulemaking). 15 U.S.C. 1639d.
With the exception of the requirements being implemented in this 
rulemaking, the Dodd-Frank Act requirements referenced above generally 
will take effect on January 21, 2013 unless final rules implementing 
those requirements are issued on or before that date and provide for a 
different effective date. To provide an orderly, coordinated, and 
efficient comment process, the Bureau is generally setting the 
deadlines for comments on this and other proposed mortgage rules based 
on the date the proposal is issued, instead of the date this notice is 
published in the Federal Register. Specifically, as discussed below, it 
may be appropriate to finalize proposed Sec. Sec.  1026.1(c) and 1026.4 
in conjunction with the final rules adopted on or before January 21, 
2013. Therefore, the Bureau is providing 60 days for comment on those 
proposals (until September 7, 2012), which will ensure that the Bureau 
receives comments with sufficient time remaining to issue final rules 
by that date. For the other portions of this proposed rule (including 
the Paperwork Reduction Analysis in part IX below), the Bureau is 
providing 120 days (until November 6, 2012). Because the precise date 
this notice will be published cannot be predicted in advance, setting 
the deadlines based on the date of issuance will allow interested 
parties that intend to comment on multiple proposals to plan 
accordingly.
    The Bureau regards the foregoing rulemakings as components of a 
larger undertaking; many of them intersect with one or more of the 
others. Accordingly, the Bureau is coordinating carefully the 
development of the proposals and final rules identified above. Each 
rulemaking will adopt new regulatory provisions to implement the 
various Dodd-Frank Act mandates described above. In addition, each of 
them may include other provisions the Bureau considers necessary or 
appropriate to ensure that the overall undertaking is accomplished 
efficiently and that it ultimately yields a regulatory scheme for 
mortgage credit that achieves the statutory purposes set forth by 
Congress, while avoiding unnecessary burdens on industry.
    Thus, many of the rulemakings listed above involve issues that 
extend across two or more rulemakings. In this context, each rulemaking 
may raise concerns that might appear unaddressed if that rulemaking 
were viewed in isolation. For efficiency's sake, however, the Bureau is 
publishing and soliciting comment on proposed answers to certain issues 
raised by two or more of its mortgage rulemakings in whichever 
rulemaking is most appropriate, in the Bureau's judgment, for 
addressing each specific issue. Accordingly, the Bureau urges the 
public to review this and the other mortgage proposals identified 
above, including those previously published by the Board, together. 
Such a review will ensure a more complete understanding of the Bureau's 
overall approach and will foster more comprehensive and informed public 
comment on the Bureau's several proposals, including provisions that 
may have some relation to more than one rulemaking but are being 
proposed for comment in only one of them.
    For example, as discussed in detail in the section-by-section 
analysis under proposed Sec.  1026.4 below, this proposal includes a 
simpler, more inclusive definition of the finance charge, similar to 
what the Board proposed in its 2009 Closed-End Proposal. See 74 FR 
43232, 43241-45 (Aug. 26, 2009). The Board recognized at that time that 
the more inclusive finance charge would cause more loans to be 
considered higher-priced mortgage loans under Sec.  1026.35 and would 
expand the coverage of

[[Page 51126]]

HOEPA and similar State laws. Id. at 43244-45. For these reasons, in 
its 2010 Mortgage Proposal, the Board proposed to retain the existing 
treatment of third-party charges in the points and fees definition, 
notwithstanding the proposed expansion of the finance charge for 
disclosure purposes. 75 FR 58539, 58637-38 (Sept. 24, 2010). Similarly, 
the Board's 2010 Mortgage Proposal introduced a new metric for 
determining coverage of the higher-priced mortgage loan protections to 
be used in place of a transaction's APR, known as the ``transaction 
coverage rate'' (TCR), which does not reflect the additional charges 
that are reflected in the disclosed APR under the more inclusive 
finance charge definition. Id. at 58660-62.
    The Bureau recognizes, as did the Board, that the proposed more 
inclusive finance charge could affect the coverage of the higher-priced 
mortgage loan and HOEPA protections. The Bureau also is aware that, 
consequently, a more inclusive finance charge has implications for the 
HOEPA, Appraisals, Ability to Repay, and Escrows rulemakings identified 
above. Those impacts are analyzed below, but the Bureau believes that 
it is also helpful to analyze potential mitigation measures on a rule-
by-rule basis. Accordingly, the Bureau expects to seek comment in the 
HOEPA and Appraisals rulemakings on whether and how to account for the 
implications of the more inclusive finance charge on those specific 
regulatory regimes, for instance by adopting the TCR as previously 
proposed by the Board.\80\
---------------------------------------------------------------------------

    \80\ The Board already sought comment on this issue in its 
proposals to implement the ability to repay and escrow requirements.
---------------------------------------------------------------------------

III. Outreach and Consumer Testing

    As noted above, the Dodd-Frank Act established two goals for this 
rulemaking: ``to facilitate compliance with the disclosure requirements 
of [TILA and RESPA]'' and ``to aid the borrower or lessee in 
understanding the transaction by utilizing readily understandable 
language to simplify the technical nature of the disclosures.'' Dodd-
Frank Act sections 1098, 1100A. Further, the Bureau has a specific 
mandate and authority from Congress to promote consumer comprehension 
of financial transactions through clear disclosures. Section 1021(a) of 
the Dodd-Frank Act directs the Bureau to ``implement * * * Federal 
consumer financial law consistently for the purpose of ensuring,'' 
inter alia, that ``markets for consumer financial products and services 
are fair, transparent, and competitive.'' 12 U.S.C. 5511(a). Section 
1021(b) of the Dodd-Frank Act, in turn, authorizes the Bureau as part 
of its core mission to exercise its authorities to ensure that, with 
respect to consumer financial products and services, ``consumers are 
provided with timely and understandable information to make responsible 
decisions about financial transactions.'' 12 U.S.C. 5511(b). Consistent 
with these goals and in preparation for proposing integrated rules and 
forms, the Bureau conducted a multifaceted information gathering 
campaign, including researching how consumers interact with and 
understand information, testing of prototype forms, developing 
interactive online tools to gather public feedback, and hosting 
roundtable discussions, teleconferences, and meetings with consumer 
advocacy groups, industry stakeholders, and other government agencies.

A. Early Stakeholder Outreach & Prototype Form Design

    In September 2010, the Bureau began meeting with consumer 
advocates, other banking agencies, community banks, credit unions, 
settlement agents, and other industry representatives. This outreach 
helped the Bureau better understand the issues that consumers and 
industry face when they use the current TILA and RESPA disclosures.
    At the same time, the Bureau began to research how consumers 
interact with and understand information. Given the complexities and 
variability of mortgage loan transactions and their underlying real 
estate transactions, the Bureau understood that the integrated 
disclosures would have to convey a large amount of complex and 
technical information to consumers in a manner that they could use and 
understand. Considering that, in January 2011, the Bureau contracted 
with a communication, design, consumer testing, and research firm, 
Kleimann Communication Group, Inc. (Kleimann), which specializes in 
consumer financial disclosures. Kleimann has been hired by other 
Federal agencies to perform such design and qualitative testing work in 
connection with other financial disclosure forms. For example, the 
Federal Trade Commission and the Federal banking agencies contracted 
with Kleimann to design and conduct consumer testing for revised model 
privacy disclosures.\81\ Also, HUD contracted with Kleimann to assist 
in the design and consumer testing for its revised good faith estimate 
and settlement statement forms.\82\
---------------------------------------------------------------------------

    \81\ 72 FR 14940, 14944 (Mar. 29, 2007); 74 FR 62890, 62893 
(Dec. 1, 2009).
    \82\ 73 FR 14030, 14043; 73 FR 68204, 68265.
---------------------------------------------------------------------------

    The Bureau and Kleimann reviewed relevant research and the work of 
other Federal financial services regulatory agencies to inform the 
Bureau's design of the prototype integrated disclosures. One of the 
findings of this research was that there is a significant risk to 
consumers of experiencing ``information overload'' when the volume or 
complexity of information detracts from the consumer decision-making 
processes. ``Information overload'' has often been cited as a problem 
with financial disclosures.\83\ Researchers suggest that there should 
be a balance between the types and amount of information in the 
disclosures, because too much information has the potential to detract 
from consumers' decision-making processes.\84\ In its 2009 Closed-End 
Proposal, the Board cited a reduction in ``information overload'' as 
one of the potential benefits of its plan to harmonize the TILA and 
RESPA disclosures in collaboration with HUD.\85\ The Board's consumer 
testing in connection with its 2009 Closed-End Proposal found that when 
participants were asked what was most difficult about their mortgage 
experience, the most frequent answer was the amount of paperwork.\86\ 
HUD also stated that one of its guiding principles for HUD's 2008 RESPA 
Proposal was that ``the [mortgage loan settlement process] can be 
improved with simplification of disclosures and better borrower 
information,'' the complexity of which

[[Page 51127]]

caused many problems with the process.\87\
---------------------------------------------------------------------------

    \83\ See e.g., Debra Pogrund Stark and Jessica M. Choplin, A 
Cognitive and Social Psychological Analysis of Disclosure Laws and 
Call for Mortgage Counseling to Prevent Predatory Lending, 16 Psych. 
Pub. Pol. and L. 85, 96 (2010); Paula J. Dalley, The Use and Misuse 
of Disclosure as a Regulatory System, 34 Fla. St. U.L. Rev. 1089, 
1115 (2007); Patricia A. McCoy, The Middle-Class Crunch: Rethinking 
Disclosure in a World of Risk-Based Pricing, 44 Harv. J. on Legis. 
123, 133 (2007); Lauren E. Willis, Decisionmaking and The Limits of 
Disclosure: The Problem of Predatory Lending: Price, 65 Md. L. Rev. 
707, 766 (2006); Troy A. Paredes, After the Sarbanes-Oxley Act: The 
Future Disclosure System: Blinded by the Light: Information Overload 
and its Consequences for Securities Regulation, 81 Wash. U. L. Q. 
417 (2003); William N. Eskridge, Jr., One Hundred Years of 
Ineptitude: The Need for Mortgage Rules Consonant with the Economic 
and Psychological Dynamics of the Home Sale and Loan Transaction, 70 
Va. L. Rev. 1083, 1133 (1984).
    \84\ John Kozup & Jeanne M. Hogarth, Financial Literacy, Public 
Policy, and Consumers' Self-Protection--More Questions, Fewer 
Answers, 42 Journal of Consumer Affairs 2, 127 (2008).
    \85\ 74 FR 43232, 43234.
    \86\ See Macro 2009 Closed-End Report at 19. For additional 
discussion regarding information overload, see the section-by-
section analysis to proposed Sec.  1026.37(l).
    \87\ 73 FR 14030, 14031.
---------------------------------------------------------------------------

    The potential for ``information overload'' was also cited by 
Congress as one of the reasons it amended the TILA disclosures in the 
Truth-in-Lending Simplification and Reform Act of 1980.\88\ According 
to the Senate Committee on Banking, Housing and Urban Affairs, this 
legislation arose in part because:
---------------------------------------------------------------------------

    \88\ Public Law 96-221, 94 Stat 132 (1980).

During its hearings the Consumer Affairs Subcommittee heard 
testimony from a leading psychologist who has studied the problem of 
`informational overload.' The Subcommittee learned that judging from 
consumer tests in other areas, the typical disclosure statement 
utilized today by creditors is not an effective communication 
device. Most disclosure statements are lengthy, written in 
legalistic fine print, and have essential Truth in Lending 
disclosures scattered among various contractual terms. The result is 
a piece of paper which appears to be `just another legal document' 
instead of the simple, concise disclosure form Congress 
intended.\89\
---------------------------------------------------------------------------

    \89\ Public Law 96-221, Depository Institutions Deregulation and 
Monetary Control Act of 1980, Senate Report No. 96073 (Apr. 24, 
1979).

Based on this research, the Bureau is particularly mindful of the risk 
of information overload, especially considering the large volume of 
other information and paperwork consumers are required to process 
throughout the mortgage loan and real estate transaction.
    The Bureau began development of the integrated disclosures with 
certain design objectives. Considering that the quantity of information 
both on the disclosures and in other paperwork throughout the mortgage 
loan and real estate transaction may increase the risk of information 
overload, the Bureau began development of the integrated disclosures 
with the objective of creating a graphic design that used as few words 
as possible when presenting the key loan and cost information. The 
Bureau's purpose for such a design was to make the information readily 
visible so that consumers could quickly and easily find the information 
they were looking for, without being confronted with large amounts of 
text. Accordingly, the Bureau decided to limit the content of the 
disclosures to loan terms, cost information, and certain textual 
disclosures and to exclude educational material. The Bureau understood 
that consumers would receive educational materials under applicable 
law, such as the Special Information Booklet required by section 5 of 
RESPA, or through other means. In addition, the Bureau understood that 
it would provide additional educational information and tools on its 
Web site and place a Web site link on the integrated disclosures 
directing consumers to that site, which would obviate the need to place 
educational material directly on the disclosures.
    The Bureau also believed the design should highlight on the first 
page the most important loan information that consumers readily 
understand and use to evaluate and compare loans, placing more detailed 
and technical information later in the disclosure. In addition, the 
Bureau believed the design should use plain language and limit the use 
of technical, statutory, or complex financial terms wherever possible.
    The Bureau believes these design objectives best satisfy the 
purposes of the integrated disclosures set forth by Dodd-Frank Act 
sections 1098 and 1100A, as well as the Bureau's mandate under Dodd-
Frank Act section 1021(b) to ensure that consumers are provided with 
``understandable information'' to enable them to make responsible 
decisions about financial transactions.
    From January through May 2011, the Bureau and Kleimann developed a 
plan to design integrated disclosure prototypes and conduct qualitative 
usability testing, consisting of one-on-one cognitive interviews. The 
Bureau and Kleimann worked collaboratively on developing the 
qualitative testing plan and several prototype forms for the Loan 
Estimate (i.e., the disclosure to be provided in connection with a 
consumer's application integrating the RESPA GFE and the early TILA 
disclosure). Although qualitative testing is commonly used by Federal 
agencies to evaluate the effectiveness of disclosures prior to issuing 
a proposal, the qualitative testing plan developed by the Bureau and 
Kleimann was unique in that the Bureau conducted qualitative testing 
with industry participants as well as consumers. Each round of 
qualitative testing included at least two industry participants, 
including lenders from several different types of depository 
institutions (including credit unions and community banks) and non-
depository institutions, mortgage brokers, and settlement agents.

B. Prototype Testing and the Know Before You Owe (KBYO) Project

    In May 2011, the Bureau selected two initial prototype designs of 
the Loan Estimate, which were used in qualitative testing interviews in 
Baltimore, Maryland. In these interviews, consumers were asked to work 
through the prototype forms while conveying their impressions, and also 
asked a series of questions designed to assess whether the forms 
presented information in a format that enabled them to understand and 
compare the mortgage loans presented to them. These questions ranged 
from the highly specific (e.g., asking whether the consumer could 
identify the loan payment in year 10 of a 30-year, adjustable-rate 
loan) to the highly general (e.g., asking consumers to choose the loan 
that best met their needs).\90\ Industry participants were asked to use 
the prototype forms to explain mortgage loans as they would to a 
consumer and to identify implementation issues and areas for 
improvement.
---------------------------------------------------------------------------

    \90\ The consumers who participated in these interviews had 
varying levels of education (from consumers with less than a high 
school education to consumers with graduate degrees) and varying 
levels of experience with the home buying and mortgage loan process 
(from consumers who never owned a home to consumers who had been 
through the home buying and mortgage loan process before).
---------------------------------------------------------------------------

    At the same time, to supplement its qualitative testing, the Bureau 
launched an initiative, which it titled ``Know Before You Owe,'' to 
obtain public feedback on the prototype disclosure forms.\91\ The 
Bureau believed this would provide an opportunity to obtain a large 
amount of feedback from a broad base of consumers and industry 
respondents around the country. This initiative consisted of either 
publishing and obtaining feedback on the prototype designs through an 
interactive tool on the Bureau's Web site or posting the prototypes to 
the Bureau's blog on its Web site and providing an opportunity for the 
public to email feedback directly to the Bureau. Individual consumers, 
loan officers, mortgage brokers, settlement agents, and others provided 
feedback based on their own experiences with the mortgage loan process 
by commenting on specific sections of the form, prioritizing 
information presented on the form, and identifying additional 
information that should be included.\92\
---------------------------------------------------------------------------

    \91\ See http://www.consumerfinance.gov/knowbeforeyouowe/.
    \92\ Examples of consumer and industry responses to the 
prototypes of the disclosures can be seen in the CFPB blog, 
including at: www.consumerfinance.gov/know-before-you-owe-go; 
www.consumerfinance.gov/13000-lessons-learned; and 
www.consumerfinance.gov/know-before-you-owe-its-closing-time.
---------------------------------------------------------------------------

    From May to October 2011, Kleimann and the Bureau conducted a 
series of five rounds of qualitative testing of different iterations of 
the Loan Estimate with consumer and industry participants. In addition 
to Baltimore, Maryland, this testing was conducted in Los Angeles, 
California; Chicago,

[[Page 51128]]

Illinois; Springfield, Massachusetts; and Albuquerque, New Mexico. Each 
round focused on a different aspect of the integrated disclosure, such 
as the overall design, the disclosure of closing costs, and the 
disclosure of loan payments over the term of the loan. The overall goal 
of this qualitative testing was to ensure that the forms enabled 
consumers to understand and compare the terms and costs of the loan.
    After each round of testing, Kleimann analyzed and reported to the 
Bureau on the results of the testing. Based on these results and 
supplemental feedback received through the KBYO process, the Bureau 
revised the prototype disclosure forms for the next round of testing. 
This iterative process helped the Bureau develop forms that enable 
consumers to understand and compare mortgage loans and that assist 
industry in complying with the law. For a detailed discussion of this 
testing, see the report prepared by Kleimann, Know Before You Owe: 
Evolution of the Integrated TILA-RESPA Disclosures (Kleimann Testing 
Report), which the Bureau is publishing on its Web site in conjunction 
with this proposed rule.\93\
---------------------------------------------------------------------------

    \93\ Kleimann Communication Group, Inc., Know Before You Owe: 
Evolution of the Integrated TILA-RESPA Disclosures (July 2012), 
available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
---------------------------------------------------------------------------

    After completion of the qualitative testing that focused solely on 
the Loan Estimate, the Bureau and Kleimann began work on the prototype 
designs for the Closing Disclosure (i.e., the disclosure provided in 
connection with the closing of the mortgage loan that integrates the 
RESPA settlement statement and the final TILA disclosure). From 
November 2011 through March 2012, the Bureau and Kleimann conducted 
five rounds of qualitative testing of different iterations of the 
Closing Disclosure with consumer and industry participants. This 
testing was conducted in five different cities across the country: Des 
Moines, Iowa; Birmingham, Alabama; Philadelphia, Pennsylvania; Austin, 
Texas; and Baltimore, Maryland.
    Similar to the qualitative testing of the Loan Estimate, the Bureau 
revised the prototype Closing Disclosure forms after each round based 
on the results Kleimann provided to the Bureau and the feedback 
received from the KBYO process. The Bureau focused on several aspects 
of the prototypes during each round, such as the settlement disclosures 
adapted from the HUD-1, new disclosure items required under title XIV 
of the Dodd-Frank Act, and tables to help identify changes in the 
information disclosed in the initial Loan Estimate. The overall goal of 
the qualitative testing of the Closing Disclosure was to ensure that 
the forms enabled consumers to understand their actual terms and costs, 
and to compare the Closing Disclosure with the Loan Estimate to 
identify changes. Accordingly, several rounds included testing of 
different iterations of the Loan Estimate with the Closing Disclosure.
    Overall, the Bureau performed qualitative testing with 92 consumer 
participants and 22 industry participants, for a total of 114 
participants. In addition, through the Bureau's KBYO initiative, the 
Bureau received over 150,000 visits to the KBYO Web site and over 
27,000 public comments and emails about the prototype disclosures.

C. Ongoing Stakeholder Outreach

    Throughout the qualitative testing of the prototype disclosure 
forms, the Bureau continued to conduct extensive outreach to consumer 
advocacy groups, other regulatory agencies, and industry 
representatives and trade associations. The Bureau held meetings with 
individual stakeholders upon request, and also invited stakeholders to 
meetings in which individual views of each stakeholder could be heard. 
The Bureau conducted these meetings with a wide range of stakeholders 
that may be affected by the integrated disclosures, even if not 
directly regulated by the proposed rule. The meetings included 
community banks, credit unions, thrifts, mortgage companies, mortgage 
brokers, settlement agents, settlement service providers, software 
providers, appraisers, not-for-profit consumer and housing groups, and 
government and quasi-governmental agencies. Many of the persons 
attending these meetings represented small business entities from 
different parts of the country. In addition to these meetings, after 
each round of qualitative testing, the Bureau received numerous letters 
from individuals, consumer advocates, financial services providers, and 
trade associations, which provided the Bureau with additional feedback 
on the prototype disclosure forms.
    In preparing this proposal, the Bureau also considered comments 
provided in response to its December 2011 proposal regarding 
streamlining of regulations for which rulemaking authority was 
inherited by the CFPB from other Federal agencies, including TILA and 
RESPA. 76 FR 75825 (Dec. 5, 2011) (2011 Streamlining Proposal). That 
proposal specifically sought public comment on provisions of the 
inherited regulations that the Bureau should make the highest priority 
for updating, modifying, or eliminating because they are outdated, 
unduly burdensome, or unnecessary, and sought suggestions for practical 
measures to make compliance with the regulations easier. Several 
commenters requested that the Bureau reconcile inconsistencies in the 
terminology and requirements of Regulations X and Z. Wherever possible, 
the Bureau has proposed to do so in this rulemaking. In addition, other 
relevant comments received in response to the 2011 Streamlining 
Proposal are addressed below.

D. Small Business Review Panel

    In February 2012, the Bureau convened a Small Business Review Panel 
with the Chief Counsel for Advocacy of the Small Business 
Administration (SBA) and the Administrator of the Office of Information 
and Regulatory Affairs within the Office of Management and Budget 
(OMB).\94\ As part of this process, the Bureau prepared an outline of 
the proposals then under consideration and the alternatives considered 
(Small Business Review Panel Outline), which it posted on its Web site 
for review by the general public as well as the small entities 
participating in the panel process.\95\ The Small Business Review Panel 
gathered information from representatives of small lenders, mortgage 
brokers, settlement agents, and not-for-profit organizations and made 
findings and recommendations regarding the potential compliance costs 
and other impacts of the proposed rule on those entities. These 
findings and recommendations are set forth in the Small Business Review 
Panel Report, which will be made part of the administrative record in 
this rulemaking.\96\ The Bureau has carefully considered these findings 
and recommendations in preparing this proposal and has addressed 
certain specific examples below.
---------------------------------------------------------------------------

    \94\ The Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) requires the Bureau to convene a Small Business Review 
Panel before proposing a rule that may have a substantial economic 
impact on a significant number of small entities. See Public Law 
104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 
110-28, sec. 8302 (2007)).
    \95\ Available at http://www.consumerfinance.gov/blog/sbrefa-small-providers-and-mortgage-disclosure/.
    \96\ Final Report of the Small Business Review Panel on CFPB's 
Proposals Under Consideration for Integration of TILA and RESPA 
Mortgage Disclosure Requirements (Apr. 23, 2012), available at 
http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-sbrefa-feedback.pdf.
---------------------------------------------------------------------------

    In addition, the Bureau held roundtable meetings with other Federal 
banking and housing regulators, consumer advocacy groups, and

[[Page 51129]]

industry representatives regarding the Small Business Review Panel 
Outline. At the Bureau's request, many of the participants provided 
feedback, which the Bureau has used in preparing this proposal.

E. Next Steps

    The public may submit comments on the proposed rule for 120 days 
after issuance (with the exception of the proposed amendments to 
Sec. Sec.  1026.1(c) and 1026.4 that have a shorter 60-day comment 
period as discussed below). These comments will be available to the 
public, as will summaries of written or oral presentations in 
accordance with the Bureau's ex parte policy.\97\ During the comment 
period and after it closes, the Bureau will carefully review and 
analyze the comments.
---------------------------------------------------------------------------

    \97\ CFPB Bulletin 11-3 (August 16, 2011), available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------

    Once the Bureau has completed its review and analysis of the 
comments, it will consult with other Federal agencies and determine 
whether changes should be made to the proposed forms or rules. If 
changes are contemplated to the forms, the Bureau may conduct 
additional qualitative testing to evaluate the effectiveness of those 
changes. Whether or not changes are made, the Bureau may conduct large-
scale quantitative testing of the forms to confirm that the forms aid 
consumers' understanding of mortgage transactions, if appropriate. On 
March 28, 2012, the Bureau published a notice for comment under the 
Paperwork Reduction Act in connection with this quantitative testing, 
specifically inviting comment on whether the information collected will 
have practical utility, the accuracy of the Bureau's burden hour 
estimates, and ways to enhance the quality of the information collected 
and minimize the burden on respondents.\98\ The Bureau received no 
comments to this notice.
---------------------------------------------------------------------------

    \98\ 77 FR 18793 (Mar. 28, 2012).
---------------------------------------------------------------------------

    During the Small Business Review Panel, several small business 
representatives requested that the Bureau explore the feasibility of 
conducting testing of the disclosure forms on actual loans before 
issuing a final rule. See Small Business Review Panel Report at 28. 
Based on this feedback and consistent with the Small Business Review 
Panel's recommendation, the Bureau is considering testing the forms on 
actual loans after reviewing comments received in connection with this 
proposal, and making any appropriate revisions to the proposed forms.
    After the Bureau has completed the appropriate steps, it will 
prepare and issue a final rule. However, as discussed below in part 
V.A, the Bureau understands from the Small Business Review Panel 
process and from other outreach that lenders, settlement agents, and 
others will need a period of time to update their systems and processes 
to comply with the final rule and to train their employees. 
Accordingly, the Bureau is asking for comment on a time period that 
strikes the appropriate balance between providing consumers with 
improved disclosures as soon as possible and providing industry with 
the necessary time to come into compliance.
    In addition, during the Small Business Review Panel, several small 
business representatives requested that the Bureau provide detailed 
guidance on how to complete the integrated forms, including, as 
appropriate, samples of completed forms for a variety of loan 
transactions. See Small Business Review Panel Report at 28. Similar 
feedback was also submitted by several industry trade associations in 
response to the Small Business Review Panel Outline. The Bureau also 
understands from its other outreach efforts that industry has 
experienced difficulties in complying with HUD's 2008 RESPA Final Rule, 
in part because of a lack of detailed guidance in HUD's 2008 RESPA 
Final Rule, and the many informal interpretations of the rule issued by 
HUD in the HUD RESPA FAQs and HUD RESPA Roundups. Based on this 
feedback and consistent with the Small Business Review Panel's 
recommendation, the proposed rule contains detailed provisions 
regarding the completion of the integrated disclosures, multiple 
examples of completed disclosures forms in appendix H to Regulation Z, 
and additional guidance and clarification in the Bureau's official 
commentary to Regulation Z. Such detailed guidance has, of course, 
added significant length to the proposed rule. The Bureau solicits 
comment on whether the level of detail in the proposed regulations and 
guidance (including the number of examples illustrating what is and is 
not permitted) will make compliance more, rather than less, burdensome 
and whether the Bureau should adopt a less prescriptive approach in the 
final rule.

IV. Legal Authority

    The Bureau is issuing this proposed rule pursuant to its authority 
under TILA, RESPA, and the Dodd-Frank Act. On July 21, 2011, section 
1061 of the Dodd-Frank Act transferred to the Bureau all of the HUD 
Secretary's consumer protection functions relating to RESPA.\99\ 
Accordingly, effective July 21, 2011, the authority of HUD to issue 
regulations pursuant to RESPA transferred to the Bureau. Section 1061 
of the Dodd-Frank Act also transferred to the Bureau the ``consumer 
financial protection functions'' previously vested in certain other 
Federal agencies, including the Board. The term ``consumer financial 
protection function'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any Federal 
consumer financial law, including performing appropriate functions to 
promulgate and review such rules, orders, and guidelines.'' \100\ TILA, 
RESPA, and title X of the Dodd-Frank Act are Federal consumer financial 
laws.\101\ Accordingly, the Bureau has authority to issue regulations 
pursuant to TILA and RESPA, including the disclosure requirements added 
to those statutes by title XIV of the Dodd-Frank Act, as well as title 
X of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \99\ Public Law 111-203, 124 Stat. 1376, section 1061(b)(7); 12 
U.S.C. 5581(b)(7).
    \100\ 12 U.S.C. 5581(a)(1).
    \101\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws'' and the provisions of title X of the 
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) 
(defining ``enumerated consumer laws'' to include TILA and RESPA).
---------------------------------------------------------------------------

A. The Integrated Disclosure Mandate

    Section 1032(f) of the Dodd-Frank Act requires that, ``[n]ot later 
than one year after the designated transfer date [of July 21, 2011], 
the Bureau shall propose for public comment rules and model disclosures 
that combine the disclosures required under [TILA] and sections 4 and 5 
of [RESPA], into a single, integrated disclosure for mortgage loan 
transactions covered by those laws, unless the Bureau determines that 
any proposal issued by the [Board] and [HUD] carries out the same 
purpose.'' 12 U.S.C. 5532(f). In addition, the Dodd-Frank Act amended 
section 105(b) of TILA and section 4(a) of RESPA to require the 
integration of the TILA disclosures and the disclosures required by 
sections 4 and 5 of RESPA.\102\ The

[[Page 51130]]

purpose of the integrated disclosure is to facilitate compliance with 
the disclosure requirements of TILA and RESPA, and to help the borrower 
understand the transaction by utilizing readily understandable language 
to simplify the technical nature of the disclosures. Dodd-Frank Act 
sections 1098, 1100A.
---------------------------------------------------------------------------

    \102\ Section 1100A of the Dodd-Frank Act amended TILA section 
105(b) to provide that the ``Bureau shall publish a single, 
integrated disclosure for mortgage loan transactions (including real 
estate settlement cost statements) which includes the disclosure 
requirements of this title in conjunction with the disclosure 
requirements of the Real Estate Settlement Procedures Act of 1974 
that, taken together, may apply to a transaction that is subject to 
both or either provisions of law.'' 15 U.S.C. 1604(b). Section 1098 
of the Dodd-Frank amended RESPA section 4(a) to require the Bureau 
to publish a ``single, integrated disclosure for mortgage loan 
transactions (including real estate settlement cost statements) 
which includes the disclosure requirements of this section and 
section 5, in conjunction with the disclosure requirements of the 
Truth in Lending Act that, taken together, may apply to a 
transaction that is subject to both or either provisions of law.'' 
12 U.S.C. 2603(a).
---------------------------------------------------------------------------

    Although Congress imposed this integrated disclosure requirement, 
it did not fully harmonize the underlying statutes. In particular, TILA 
and RESPA establish different timing requirements for disclosing 
mortgage credit terms and costs to consumers and require that those 
disclosures be provided by different parties. TILA generally requires 
that, within three business days of receiving the consumer's 
application and at least seven business days before consummation of 
certain mortgage transactions, creditors must provide consumers a good 
faith estimate of the costs of credit.\103\ TILA section 128(b)(2)(A); 
15 U.S.C. 1638(b)(2)(A). If the annual percentage rate that was 
initially disclosed becomes inaccurate, TILA requires creditors to 
redisclose the information at least three business days before 
consummation. TILA section 128(b)(2)(D); 15 U.S.C. 1638(b)(2)(D). These 
disclosures must be provided in final form at consummation. TILA 
section 128(b)(2)(B)(ii); 15 U.S.C. 1638(b)(2)(B)(ii). RESPA also 
requires that the creditor or broker provide consumers with a good 
faith estimate of settlement charges no later than three business days 
after receiving the consumer's application. However, unlike TILA, RESPA 
requires that, at or before settlement, ``the person conducting the 
settlement'' (which may or may not be the creditor) provide the 
consumer with a statement that records all charges imposed upon the 
consumer in connection with the settlement. RESPA sections 4(b), 5(c); 
12 U.S.C. 2603(b), 2604(c).
---------------------------------------------------------------------------

    \103\ This requirement applies to extensions of credit that are 
both secured by a dwelling and subject to RESPA. TILA section 
128(b)(2)(A); 15 U.S.C. 1638(b)(2)(A).
---------------------------------------------------------------------------

    The Dodd-Frank Act did not reconcile these and other statutory 
differences. Therefore, to meet the Dodd-Frank Act's express 
requirement to integrate the disclosures required by TILA and RESPA, 
the Bureau must do so. Dodd-Frank Act section 1032(f), TILA section 
105(b), and RESPA section 4(a) provide the Bureau with implicit 
authority to issue regulations that reconcile certain provisions of 
TILA and RESPA to carry out Congress's mandate to integrate the 
statutory disclosure requirements. For the reasons discussed in this 
notice, the Bureau is proposing regulations to carry out the 
requirements of Dodd-Frank Act section 1032(f), TILA section 105(b), 
and RESPA section 4(a).

B. Other Rulemaking and Exception Authorities

    The proposed rule also relies on the rulemaking and exception 
authorities specifically granted to the Bureau by TILA, RESPA, and the 
Dodd-Frank Act, including the authorities discussed below.\104\
---------------------------------------------------------------------------

    \104\ As discussed in part II above, prior to the Dodd-Frank 
Act, rulemaking authority over TILA was vested in the Board and 
rulemaking authority over RESPA was vested in HUD. The Dodd-Frank 
Act transferred rulemaking authority for TILA and RESPA to the 
Bureau, effective July 21, 2011. See Dodd-Frank Act sections 1061, 
1098, and 1100A. The Bureau implements the proposed rule pursuant to 
its authorities in section 1061 of the Dodd-Frank Act.
---------------------------------------------------------------------------

Truth in Lending Act
    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations 
to carry out the purposes of TILA, and provides that such regulations 
may contain additional requirements, classifications, differentiations, 
or other provisions, and may provide for such adjustments and 
exceptions for all or any class of transactions, that the Bureau judges 
are necessary or proper to effectuate the purposes of TILA, to prevent 
circumvention or evasion thereof, or to facilitate compliance. A 
purpose of TILA is ``to assure a meaningful disclosure of credit terms 
so that the consumer will be able to compare more readily the various 
credit terms available to him and avoid the uninformed use of credit.'' 
TILA section 102(a); 15 U.S.C. 1601(a). This stated purpose is tied to 
Congress' finding that ``economic stabilization would be enhanced and 
the competition among the various financial institutions and other 
firms engaged in the extension of consumer credit would be strengthened 
by the informed use of credit[.]'' TILA section 102(a). Thus, 
strengthened competition among financial institutions is a goal of 
TILA, achieved through the effectuation of TILA's purposes.
    Historically, TILA section 105(a) has served as a broad source of 
authority for rules that promote the informed use of credit through 
required disclosures and substantive regulation of certain practices. 
However, Dodd-Frank Act section 1100A clarified the Bureau's section 
105(a) authority by amending that section to provide express authority 
to prescribe regulations that contain ``additional requirements'' that 
the Bureau finds are necessary or proper to effectuate the purposes of 
TILA, to prevent circumvention or evasion thereof, or to facilitate 
compliance. This amendment clarified the authority to exercise TILA 
section 105(a) to prescribe requirements beyond those specifically 
listed in the statute that meet the standards outlined in section 
105(a). The Dodd-Frank Act also clarified the Bureau's rulemaking 
authority over certain high-cost mortgages pursuant to section 105(a). 
As amended by the Dodd-Frank Act, TILA section 105(a) authority to make 
adjustments and exceptions to the requirements of TILA applies to all 
transactions subject to TILA, except with respect to the provisions of 
TILA section 129 \105\ that apply to the high-cost mortgages referred 
to in TILA section 103(bb), 15 U.S.C. 1602(bb). For the reasons 
discussed in this notice, the Bureau is proposing regulations to carry 
out TILA's purposes and is proposing such additional requirements, 
adjustments, and exceptions as, in the Bureau's judgment, are necessary 
and proper to carry out the purposes of TILA, prevent circumvention or 
evasion thereof, or to facilitate compliance. In developing these 
aspects of the proposal pursuant to its authority under TILA section 
105(a), the Bureau has considered the purposes of TILA, including 
ensuring meaningful disclosures, facilitating consumers' ability to 
compare credit terms, and helping consumers avoid the uninformed use of 
credit, and the findings of TILA, including strengthening competition 
among financial institutions and promoting economic stabilization.
---------------------------------------------------------------------------

    \105\ 15 U.S.C. 1639. TILA section 129 contains requirements for 
certain high-cost mortgages, established by the Home Ownership and 
Equity Protection Act (HOEPA), which are commonly called HOEPA 
loans.
---------------------------------------------------------------------------

    TILA section 105(f). Section 105(f) of TILA, 15 U.S.C. 1604(f), 
authorizes the Bureau to exempt from all or part of TILA any class of 
transactions if the Bureau determines that TILA coverage does not 
provide a meaningful benefit to consumers in the form of useful 
information or protection. In exercising this authority, the Bureau 
must consider the factors identified in section 105(f) of TILA and 
publish its rationale at the time it proposes an exemption for public 
comment. Specifically, the Bureau must consider:

[[Page 51131]]

    (a) The amount of the loan and whether the disclosures, right of 
rescission, and other provisions provide a benefit to the consumers who 
are parties to such transactions, as determined by the Bureau;
    (b) The extent to which the requirements of this subchapter 
complicate, hinder, or make more expensive the credit process for the 
class of transactions;
    (c) The status of the borrower, including--
    (1) Any related financial arrangements of the borrower, as 
determined by the Bureau;
    (2) The financial sophistication of the borrower relative to the 
type of transaction; and
    (3) The importance to the borrower of the credit, related 
supporting property, and coverage under this subchapter, as determined 
by the Bureau;
    (d) Whether the loan is secured by the principal residence of the 
consumer; and
    (e) Whether the goal of consumer protection would be undermined by 
such an exemption.

For the reasons discussed in this notice, the Bureau is proposing to 
exempt certain transactions from the requirements of TILA pursuant to 
its authority under TILA section 105(f). In developing this proposal 
under TILA section 105(f), the Bureau has considered the relevant 
factors and determined that the proposed exemptions may be appropriate.
    TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA 
to add new section 129B(e), 15 U.S.C. 1639B(e). That section authorizes 
the Bureau to prohibit or condition terms, acts, or practices relating 
to residential mortgage loans on a variety of bases, including when the 
Bureau finds the terms, acts, or practices are not in the interest of 
the borrower. In developing proposed rules under TILA section 129B(e), 
the Bureau has considered whether the proposed rules are in the 
interest of the borrower, as required by the statute. For the reasons 
discussed in this notice, the Bureau is proposing portions of this rule 
pursuant to its authority under TILA section 129B(e).
Real Estate Settlement Procedures Act
    Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to 
prescribe such rules and regulations and to make such interpretations 
and grant such reasonable exemptions for classes of transactions as may 
be necessary to achieve the purposes of RESPA. One purpose of RESPA is 
to effect certain changes in the settlement process for residential 
real estate that will result in more effective advance disclosure to 
home buyers and sellers of settlement costs. RESPA section 2(b); 12 
U.S.C. 2601(b). In addition, in enacting RESPA, Congress found that 
consumers are entitled to be ``provided with greater and more timely 
information on the nature and costs of the settlement process and [to 
be] protected from unnecessarily high settlement charges caused by 
certain abusive practices * * *'' RESPA section 2(a); 12 U.S.C. 
2601(a). In the past, section 19(a) has served as a broad source of 
authority to prescribe disclosures and substantive requirements to 
carry out the purposes of RESPA.
    In developing proposed rules under RESPA section 19(a) for this 
proposal, the Bureau has considered the purposes of RESPA, including to 
cause changes in the settlement process that will result in more 
effective advance disclosure of settlement costs. For the reasons 
discussed in this notice, the Bureau is proposing portions of this rule 
pursuant to its authority under RESPA section 19(a).
Dodd-Frank Act
    Dodd-Frank Act section 1021. Section 1021(a) of the Dodd-Frank Act 
provides that the Bureau shall seek to implement and, where applicable, 
enforce Federal consumer financial law consistently for the purpose of 
ensuring that all consumers have access to markets for consumer 
financial services and that markets for consumer financial products and 
services are fair, transparent, and competitive. 12 U.S.C. 5511(a). In 
addition, section 1021(b) of the Dodd-Frank Act provides that the 
Bureau is authorized to exercise its authorities under Federal consumer 
financial law for the purposes of ensuring that, with respect to 
consumer financial products and services: (1) Consumers are provided 
with timely and understandable information to make responsible 
decisions about financial transactions; (2) consumers are protected 
from unfair, deceptive, or abusive acts and practices and from 
discrimination; (3) outdated, unnecessary, or unduly burdensome 
regulations are regularly identified and addressed in order to reduce 
unwarranted regulatory burdens; (4) Federal consumer financial law is 
enforced consistently, without regard to the status of a person as a 
depository institution, in order to promote fair competition; and (5) 
markets for consumer financial products and services operate 
transparently and efficiently to facilitate access and innovation. 12 
U.S.C. 5511(b).
    Accordingly, this proposal is consistent with the purposes of Dodd-
Frank Act section 1021(a) and with the objectives of Dodd-Frank Act 
section 1021(b), specifically including Dodd-Frank Act section 
1021(b)(1) and (3).
    Dodd-Frank Act section 1022(b). Section 1022(b)(1) of the Dodd-
Frank Act authorizes the Bureau to prescribe rules ``as may be 
necessary or appropriate to enable the Bureau to administer and carry 
out the purposes and objectives of the Federal consumer financial laws, 
and to prevent evasions thereof[.]'' 12 U.S.C. 5512(b)(1). Section 
1022(b)(2) of the Dodd-Frank Act prescribes certain standards for 
rulemaking that the Bureau must follow in exercising its authority 
under section 1022(b)(1). 12 U.S.C. 5512(b)(2). As discussed above, 
TILA and RESPA are Federal consumer financial laws. Accordingly, the 
Bureau proposes to exercise its authority under Dodd-Frank Act section 
1022(b) to prescribe rules under TILA and RESPA that carry out the 
purposes and prevent evasion of those laws. See part VII for a 
discussion of the Bureau's standards for rulemaking under Dodd-Frank 
Act section 1022(b)(2).
    Dodd-Frank Act section 1032(a). Section 1032(a) of the Dodd-Frank 
Act provides that the Bureau ``may prescribe rules to ensure that the 
features of any consumer financial product or service, both initially 
and over the term of the product or service, are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.'' 12 
U.S.C. 5532(a). The authority granted to the Bureau in section 1032(a) 
is broad, and empowers the Bureau to prescribe rules regarding the 
disclosure of the ``features'' of consumer financial products and 
services generally. Accordingly, the Bureau may prescribe rules 
containing disclosure requirements even if other Federal consumer 
financial laws do not specifically require disclosure of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to section 1032, the Bureau ``shall consider available 
evidence about consumer awareness, understanding of, and responses to 
disclosures or communications about the risks, costs, and benefits of 
consumer financial products or services.'' 12 U.S.C. 5532(c). 
Accordingly, in developing proposed rules under Dodd-Frank Act section 
1032(a) for this proposal, the Bureau has considered available studies, 
reports, and other evidence about consumer

[[Page 51132]]

awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services. See parts II and III, above. Moreover, 
the Bureau has considered the evidence developed through its consumer 
testing of the integrated disclosures as well as prior testing done by 
the Board and HUD regarding TILA and RESPA disclosures. See part III 
for a discussion of the Bureau's testing. For the reasons discussed in 
this notice, the Bureau is proposing portions of this rule pursuant to 
its authority under Dodd-Frank Act section 1032(a).
    In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any 
final rule prescribed by the Bureau under this [section 1032] requiring 
disclosures may include a model form that may be used at the option of 
the covered person for provision of the required disclosures.'' 12 
U.S.C. 5532(b)(1). Any model form issued pursuant to that authority 
shall contain a clear and conspicuous disclosure that, at a minimum, 
uses plain language that is comprehensible to consumers, using a clear 
format and design, such as readable type font, and succinctly explains 
the information that must be communicated to the consumer. Dodd-Frank 
Act 1032(b)(2); 12 U.S.C. 5532(b)(2). As discussed in the section-by-
section analysis for proposed Sec. Sec.  1026.37(o) and 1026.38(t), the 
Bureau is proposing certain model disclosures for transactions subject 
to TILA, and standard forms for transactions subject to both TILA and 
RESPA. For the reasons discussed in this notice, the Bureau is 
proposing these model disclosures pursuant to its authority under Dodd-
Frank Act section 1032(b).
    Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank 
Act provides that, ``[n]otwithstanding any other provision of [title 14 
of the Dodd-Frank Act], in order to improve consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures, the Bureau may, by rule, exempt from or 
modify disclosure requirements, in whole or in part, for any class of 
residential mortgage loans if the Bureau determines that such exemption 
or modification is in the interest of consumers and in the public 
interest.'' 15 U.S.C. 1601 note. Section 1401 of the Dodd-Frank Act, 
which amends TILA section 103(cc)(5), 15 U.S.C. 1602(cc)(5), generally 
defines residential mortgage loan as any consumer credit transaction 
that is secured by a mortgage on a dwelling or on residential real 
property that includes a dwelling other than an open-end credit plan or 
an extension of credit secured by a consumer's interest in a timeshare 
plan. Notably, the authority granted by section 1405(b) applies to 
``disclosure requirements'' generally, and is not limited to a specific 
statute or statutes. Accordingly, Dodd-Frank Act section 1405(b) is a 
broad source of authority to modify the disclosure requirements of TILA 
and RESPA.
    In developing proposed rules for residential mortgage loans under 
Dodd-Frank Act section 1405(b) for this proposal, the Bureau has 
considered the purposes of improving consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures, and the interests of consumers and the 
public. For the reasons discussed in this notice, the Bureau is 
proposing portions of this rule pursuant to its authority under Dodd-
Frank Act section 1405(b).

V. Mandatory Compliance

A. Implementation Period

    As discussed in part II.E above, the Bureau is proposing rules and 
disclosures that combine the pre-consummation disclosure requirements 
of TILA and sections 4 and 5 of RESPA, not later than July 21, 2012, 
consistent with the requirements of sections 1032(f), 1098, and 1100A 
of the Dodd-Frank Act. 12 U.S.C. 2603(a); 5532(f); 15 U.S.C. 1604(b). 
The Dodd-Frank Act does not impose a deadline for issuing final rules 
and disclosures in connection with this mandate to integrate disclosure 
requirements or provide a specific amount of time for entities subject 
to those rules to come into compliance.
    As discussed in part II, above, the Dodd-Frank Act establishes two 
goals for the TILA-RESPA mortgage disclosure integration: To improve 
consumer understanding of mortgage loan transactions; and to facilitate 
industry compliance with TILA and RESPA. Dodd-Frank Act sections 1098 
and 1100A. The Bureau must balance these statutory objectives in 
considering the length of the implementation period. The Bureau 
believes requiring industry to implement the requirements of the final 
rule as soon as practicable after its issuance will benefit consumers 
by expediting the use of the integrated disclosure forms, which will 
improve consumer understanding of mortgage loan transactions. At the 
same time, the Bureau recognizes that the creditors, mortgage brokers, 
settlement agents, and other entities affected by the proposed rule 
will incur one-time compliance costs, such as software upgrades to 
generate the integrated disclosure forms, training staff and related 
parties to use the new disclosure forms, updating compliance systems 
and processes, and obtaining legal guidance.\106\ Consequently, the 
Bureau believes that a reasonable implementation period would help 
facilitate compliance and potentially reduce the one-time costs that 
may be incurred by the entities affected by the rule.
---------------------------------------------------------------------------

    \106\ These one-time costs are discussed in the section 1022 
analysis in part VII, below, with respect to covered persons as 
defined for purposes of the Dodd-Frank Act, and the initial 
regulatory flexibility analysis in part VIII, below, with respect to 
small entities as defined for purposes of the Regulatory Flexibility 
Act (RFA).
---------------------------------------------------------------------------

    The Bureau is mindful that small entities \107\ may face unique 
challenges in complying with the rule. During the SBREFA Small Business 
Review Panel process,\108\ the Small Business Review Panel received 
feedback from small entity representatives requesting that the Bureau 
provide a substantial compliance period after issuance of the final 
rule. The small entity representatives reported that they anticipated 
significant one-time software upgrade and training costs, though their 
estimates varied greatly, and they generally stated that these costs 
would be less burdensome if the Bureau provided a substantial 
compliance period to upgrade systems and to train staff. The small 
entity representatives requested a variety of implementation periods, 
however.\109\ As detailed in the Panel Report, the Panel recommended 
that the Bureau provide a compliance period that permits sufficient 
time for small entities to make necessary system upgrades and provide 
training, and that the Bureau solicit public comment on the amount of 
time needed for such upgrades and training.\110\ Moreover, industry 
feedback generally in response to the Bureau's Small Business Review 
Panel process stated that an implementation period for the final rule 
should provide sufficient time for training, systems development, and 
the operational changes that the rule will necessitate.
---------------------------------------------------------------------------

    \107\ The term ``small entities'' means those entities defined 
as small entities for purposes of the RFA, as discussed further in 
part VIII, below. The terms ``large entities'' or ``larger 
entities'' refer to all entities that are not small entities as 
defined for purposes of the RFA.
    \108\ See part VIII.A, below, for a discussion of the Bureau's 
Small Business Review Panel process.
    \109\ Small Business Review Panel Report, at 19. As noted in 
chapter 8.1 of the Panel Report, the small entity representatives 
generally asked for an implementation period ranging from 12 to 18 
months.
    \110\ See id. at p. 27.
---------------------------------------------------------------------------

    In feedback provided during the SBREFA process and through other

[[Page 51133]]

industry outreach, lenders, mortgage brokers, settlement agents, and 
forms vendors, as well as several trade associations representing 
lenders, brokers, and settlement agents, requested an implementation 
period of at least 12 months. Because the TILA-RESPA final rule will 
provide important benefits to consumers, the Bureau wishes to make the 
rule effective as soon as possible. However, the Bureau understands 
that the final rule will require lenders, mortgage brokers, and 
settlement agents to make extensive revisions to their software and to 
retrain their staff. In addition, some entities will be required to 
implement other Dodd-Frank Act provisions, which are subject to 
separate rulemaking deadlines under the statute and will have separate 
effective dates. Therefore, the Bureau is seeking comment on how much 
time industry needs to make these changes, and specifically requests 
details on the required updates and changes to systems and other 
measures that would be required to implement the rule and the amount of 
time needed to make those changes.
    Furthermore, in light of the feedback provided by small entity 
representatives during the SBREFA process, as reflected in the Panel 
Report of the Small Business Review Panel, the Bureau solicits comment 
on whether small entities affected by the rule should have more time to 
comply with the final rule than larger entities. In soliciting comment 
on this issue, however, the Bureau notes its concern that a bifurcated 
implementation period could be detrimental to consumers. During any 
period where only larger entities must comply with the final rule, 
consumers potentially would receive different disclosures and be 
subject to different sets of consumer protections depending on their 
choice of creditor, mortgage broker, or settlement agent. In addition, 
larger entities that are subject to the final rule and that purchase 
loans from small entities may nevertheless insist that small entities 
comply with the final rules. See, e.g., Small Business Review Panel 
Report at 30 (discussing recordkeeping requirements). Accordingly, 
based on the Small Business Review Panel recommendation, the Bureau 
solicits comment on whether any separate compliance period for larger 
entities should take into account the relationship between larger and 
smaller entities.

B. Delayed Effective Dates of Certain Disclosure Requirements 
Established by Title XIV of the Dodd-Frank Act

    As discussed above, the Bureau is proposing rules and disclosures 
that combine the pre-consummation disclosure requirements of TILA and 
sections 4 and 5 of RESPA, not later than July 21, 2012, consistent 
with the requirements of section 1032(f) of the Dodd-Frank Act. 12 
U.S.C. 5532(f). The Dodd-Frank Act does not impose a deadline for 
issuing final rules and disclosures.
    In addition to this integrated disclosure requirement in title X, 
various provisions of title XIV of the Dodd-Frank Act amend TILA, 
RESPA, and other consumer financial laws to impose new pre-consummation 
disclosure requirements for mortgage transactions. These provisions 
generally require disclosure of certain information when a consumer 
applies for a mortgage loan or shortly before consummation of the loan, 
around the same time that consumers will receive the integrated TILA-
RESPA disclosures required by section 1032(f) of the Dodd-Frank Act. If 
regulations that are required to implement the disclosure requirements 
in title XIV are not prescribed in final form within eighteen months 
after the designated transfer date (i.e., by January 21, 2013), 
institutions must comply with the statutory requirements on that date. 
Dodd-Frank Act section 1400(c)(3); 15 U.S.C. 1601 note.
    The Bureau believes that implementing a single, consolidated 
disclosure that satisfies section 1032(f) and certain of the disclosure 
requirements in title XIV of the Dodd-Frank Act will benefit consumers 
and facilitate compliance with TILA and RESPA. That is, the Bureau 
believes that both consumers and industry will benefit by incorporating 
many of the disclosure requirements in title XIV into this proposal 
(collectively, the ``Affected Title XIV Disclosures''). Consumers will 
benefit from a consolidated disclosure that conveys loan terms and 
costs to consumers in a coordinated way. Lenders and settlement agents 
will benefit by integrating two sets of overlapping disclosures into a 
single form and by avoiding regulatory burden associated with revising 
systems and practices multiple times. However, given the broad scope 
and complexity of this rulemaking and the 120-day comment period 
provided by this proposal, a final rule will not be issued by January 
21, 2013. Absent a final implementing rule, institutions would have to 
comply with the Affected Title XIV Disclosures on that date due to the 
statutory requirement that any section of title XIV for which 
regulations have not been issued by January 21, 2013 shall take effect 
on that date. This likely would result in widely varying approaches to 
compliance in the absence of regulatory guidance, creating confusion 
for consumers, and would impose a significant burden on industry. For 
example, this could result in a consumer who shops for a mortgage loan 
receiving different disclosures from different creditors. Such 
disclosures would not only be unhelpful to consumers, but likely would 
be confusing since the same disclosures would be provided in widely 
different ways. Moreover, implementing the title XIV disclosures 
separately from the integrated TILA-RESPA disclosure would increase 
compliance costs and burdens on industry. Nothing in the Dodd-Frank Act 
itself or its legislative history suggests that Congress contemplated 
how the separate requirements in titles X and XIV would work 
together.\111\
---------------------------------------------------------------------------

    \111\ Certain of the Affected Title XIV Disclosures highlight 
that Congress did not intend for the title XIV disclosure 
requirements and the integrated TILA-RESPA disclosure to operate 
independently. For example, Dodd-Frank Act section 1419 amended 
paragraphs (a)(16) through (19) of TILA section 128 to require 
additional content on the disclosure provided to consumers within 
three days of application and in final form at or before 
consummation. 15 U.S.C. 1638(a)(16) through (19). Pursuant to TILA 
section 128(b)(1), for residential mortgage transactions, all 
disclosures required by TILA section 128(a) must be ``conspicuously 
segregated'' from all other information provided in connection with 
the transaction. 15 U.S.C. 1638(b)(1). Therefore, these sections are 
directly implicated by the integrated TILA-RESPA requirement.
---------------------------------------------------------------------------

    Accordingly, and for the further reasons set forth below, the 
Bureau proposes to implement the Affected Title XIV Disclosures by 
delaying those requirements by temporarily exempting entities from the 
requirement to comply on January 21, 2013, until a final rule 
implementing the integrated TILA-RESPA disclosures take effect, 
pursuant to the Bureau's authority under TILA section 105(a), RESPA 
section 19(a), Dodd-Frank Act section 1032(a) and, for residential 
mortgage loans, Dodd-Frank Act section 1405(b). 15 U.S.C. 1604(a); 12 
U.S.C. 2617(a); 12 U.S.C. 5532(a); 15 U.S.C. 1601 note. Implementing 
the Affected Title XIV Disclosures as part of the broader integrated 
TILA-RESPA rulemaking, rather than issuing rules implementing each 
requirement individually or allowing those statutory provisions to take 
effect by operation of law, will improve the overall effectiveness of 
the integrated disclosure for consumers and reduce burden on industry. 
The Bureau will issue a final

[[Page 51134]]

rule finalizing the proposed delay prior to January 21, 2013.
    Specifically, as set forth in the section-by-section analysis to 
proposed Sec.  1026.1(c), the Bureau proposes to delay those 
requirements by temporarily exempting entities from the requirement to 
comply on January 21, 2013. This is, in effect, a delay of the 
effective date of the following statutory provisions:
     Warning regarding negative amortization features. Dodd-
Frank Act section 1414(a); TILA section 129C(f)(1).\112\
---------------------------------------------------------------------------

    \112\ Dodd-Frank Act section 1414(a) also added to TILA new 
section 129C(f)(2), which requires first-time borrowers for certain 
residential mortgage loans that could result in negative 
amortization to provide the creditor with documentation to 
demonstrate that the consumer received homeownership counseling from 
organizations or counselors certified by HUD. That provision is 
implemented in the Bureau's 2012 HOEPA Proposal, which also 
implements the requirement of RESPA section 5(c), added by section 
1450 of the Dodd-Frank Act, that lenders provide borrowers with a 
list of certified homeownership counselors.
---------------------------------------------------------------------------

     Disclosure of State law anti-deficiency protections. Dodd-
Frank Act section 1414(c); TILA section 129C(g)(2) and (3).
     Disclosure regarding creditor's partial payment policy. 
Dodd-Frank Act section 1414(d); TILA section 129C(h).
     Disclosure regarding mandatory escrow accounts. Dodd-Frank 
Act section 1461(a); TILA section 129D(h).
     Disclosure regarding waiver of escrow at consummation. 
Dodd-Frank Act section 1462; TILA section 129D(j)(1)(A).
     Disclosure of monthly payment, including escrow, at 
initial and fully-indexed rate for variable-rate transactions. Dodd-
Frank Act section 1419; TILA section 128(a)(16).
     Repayment analysis disclosure to include amount of escrow 
payments for taxes and insurance. Dodd-Frank Act section 1465; TILA 
128(b)(4).
     Disclosure of settlement charges and fees and the 
approximate amount of the wholesale rate of funds. Dodd-Frank Act 
section 1419; TILA section 128(a)(17).
     Disclosure of mortgage originator fees. Dodd-Frank Act 
section 1419; TILA section 128(a)(18).
     Disclosure of total interest as a percentage of principal. 
Dodd-Frank Act section 1419; TILA section 128(a)(19).
     Optional disclosure of appraisal management company fee. 
Dodd-Frank Act section 1475; RESPA section 4(c).
    The Bureau is not proposing to delay the effective date for the 
following disclosure requirements found in title XIV of the Dodd-Frank 
Act, and therefore these provisions are not Affected Title XIV 
Disclosures for purposes of this discussion. These provisions will be 
implemented in separate rulemakings, which are expected to be proposed 
in summer 2012 and finalized by January 21, 2013, with the specific 
effective dates set out in the final rules for those specific 
rulemakings.
     Disclosure regarding notice of reset of hybrid adjustable 
rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(a). 
The Bureau does not propose to delay this requirement because it 
applies, for the most part, to the period after consummation.
     Loan originator identifier requirement. Dodd-Frank section 
1402(a)(2); TILA section 129B(b)(1)(B). The Bureau does not propose to 
delay this requirement because it applies broadly to ``loan 
documents.'' In the integrated TILA-RESPA final rule, the Bureau will 
harmonize the loan originator identifier provisions of this proposal 
with the separate rulemaking implementing TILA section 129B(b)(1)(B).
     Disclosure regarding waiver of escrow after consummation. 
Dodd-Frank Act section 1462; TILA section 129D(j)(1)(B). The Bureau 
does not propose to delay this requirement because it applies to the 
period after consummation and because it will be implemented by final 
rule pursuant to an outstanding proposal published by the Board. 76 FR 
11598 (Mar. 2, 2011).
     Consumer notification regarding appraisals for higher-risk 
mortgages. Dodd-Frank Act section 1471; TILA section 129H(d). The 
Bureau does not propose to delay this requirement because it overlaps 
substantially with an existing disclosure requirement under ECOA (see 
below) and must be implemented through an interagency rulemaking. In 
the integrated TILA-RESPA final rule, the Bureau plans to harmonize the 
appraisal notification provisions of this proposal with the separate 
rulemaking implementing TILA section 129H(d), so that once the 
integrated form is finalized creditors will be able to use the 
integrated forms to satisfy the 129H(d) requirement.
     Consumer notification regarding the right to receive an 
appraisal copy. Dodd-Frank Act section 1474; ECOA section 701(e)(5). 
The Bureau does not propose to delay this requirement because it 
replaces an existing disclosure requirement under ECOA that is 
typically provided separately from other disclosures. In the integrated 
TILA-RESPA final rule, the Bureau will harmonize the provisions with 
the separate rulemaking implementing ECOA section 701(e)(5), so that 
once the integrated form is finalized creditors will be able to use it 
to satisfy the ECOA requirement.
    As discussed in the section-by-section analysis to proposed Sec.  
1026.19, the integrated disclosure provisions of this proposal apply to 
closed-end transactions secured by real property, other than reverse 
mortgages as defined in Sec.  1026.33(a). However, under the statute, 
the Affected Title XIV Disclosures vary in scope and are in some cases 
broader than the scope of the proposed integrated disclosure 
provisions.\113\ For example, certain of the Affected Title XIV 
Disclosures apply to open-end credit plans,\114\ transactions secured 
by dwellings that are not real property,\115\ and/or reverse 
mortgages,\116\ which are not the subject of this rulemaking. However, 
because the final scope of the integrated disclosure provisions is not 
yet known, the Bureau is proposing to delay the Affected Title XIV 
Disclosures to the fullest extent those requirements could apply under 
the statutory provisions. However, the Bureau also solicits comment on 
whether the final rule implementing the integrated disclosures should 
implement the Affected Title

[[Page 51135]]

XIV Disclosures for open-end credit plans, transactions secured by 
dwellings that are not real property, and reverse mortgages, as 
applicable, by requiring creditors to comply with the proposed 
provisions that implement those disclosure requirements.
---------------------------------------------------------------------------

    \113\ Except as described below, the Affected Title XIV 
Disclosures apply to ``residential mortgage loans,'' which are 
defined in TILA section 103(cc)(5). 15 U.S.C. 1602(cc)(5). TILA 
section 129C(f)(1) (requiring a negative amortization warning) 
applies to open- or closed-end consumer credit plans secured by a 
dwelling. 15 U.S.C. 1639c(f)(1). TILA section 129D(h) (disclosure 
regarding mandatory escrow accounts) applies to consumer credit 
transactions secured by a first lien on the principal dwelling of 
the consumer, other than open-end credit plans and reverse 
mortgages. 15 U.S.C. 1639d(h). TILA section 129D(j)(1)(A) applies to 
consumer credit transactions secured by real property. 15 U.S.C. 
1639d(j)(1)(A). TILA section 128(b)(4) (requiring escrow amounts to 
be included in the repayment analysis disclosure) applies to 
consumer credit transactions secured by a first lien on the 
consumer's principal dwelling, other than open-end plans or reverse 
mortgages. 15 U.S.C. 1638(b)(4). RESPA section 4(c) (permitting an 
appraisal management fee disclosure) applies to ``federally related 
mortgage loans.'' 12 U.S.C. 2603(c). To the extent these statutory 
provisions do not cover transactions that are within the scope of 
the integrated disclosure provisions of this proposal (e.g., vacant 
land), the Bureau is proposing to modify the statutory requirements 
to cover those transactions. See the section-by-section analysis to 
proposed Sec.  1026.19.
    \114\ The following Affected Title XIV Disclosures apply to 
open-end credit plans: TILA section 129C(f) (negative amortization 
warning); TILA section 129D(j)(1)(A) (disclosure regarding waiver of 
escrow at consummation); RESPA section 4(c) (appraisal management 
company fee disclosure).
    \115\ All of the Affected Title XIV Disclosures, other than TILA 
section 129D(j)(1)(A) (disclosure regarding waiver of escrow at 
consummation) and RESPA section 4(c) (appraisal management company 
fee disclosure), apply to transactions secured by dwellings that are 
not real property.
    \116\ All of the Affected Title XIV Disclosures, other than TILA 
section 128(b)(4) (requiring repayment analysis to include escrow) 
and TILA section 12D(h) (mandatory escrow or impound account 
disclosure), apply to reverse mortgages.
---------------------------------------------------------------------------

Improving Overall Effectiveness of Disclosures
    Issuing final rules implementing the Affected Title XIV Disclosures 
at the same time as the integrated TILA-RESPA final rule will improve 
the overall effectiveness of the integrated disclosure. One of TILA's 
primary purposes is to ``assure a meaningful disclosure of credit terms 
* * * and avoid the uninformed use of credit.'' TILA section 102(a); 15 
U.S.C. 1601(a). Similarly, one purpose of RESPA is to improve advance 
disclosure of settlement costs. RESPA section 2(b)(1); 12 U.S.C. 
2601(b)(1). As discussed above, however, TILA, RESPA, and current 
Regulations Z and X generally require that consumers receive two 
separate disclosures after applying for a mortgage loan, and then 
receive two additional separate disclosures prior to closing on that 
loan. Concerns have been raised that duplicative disclosures may reduce 
consumer understanding of mortgage loan transactions and increase 
burden on industry. Thus, when viewed together, the duplicative 
disclosures required by TILA and RESPA may inhibit consumers' 
understanding of their loans. Section 1032(f) of the Dodd-Frank Act 
addresses these concerns by directing the Bureau to integrate these 
disclosure requirements to improve consumer understanding of mortgage 
disclosures.
    This same rationale supports delaying the requirements of the 
Affected Title XIV Disclosures until such time as the Bureau issues a 
final rule implementing the broader TILA-RESPA integration. 
Incorporating the Affected Title XIV Disclosures will enable the Bureau 
to use the results of its consumer testing and public feedback to 
develop forms that include these pre-consummation disclosures in a way 
that could improve overall consumer understanding of mortgage loan 
transactions. Implementing the Affected Title XIV Disclosures in 
isolation could have the opposite effect, by multiplying the number of 
individual disclosures that consumers receive, thereby reducing the 
likelihood that consumers will focus on any of them.
    Through consumer testing, the Bureau has specifically examined how 
the required disclosures should work together on the integrated 
disclosure to maximize consumer understanding. For example, in its 
consumer testing of the integrated disclosures, the Bureau tested and 
solicited public feedback on clauses related to the Affected Title XIV 
Disclosures to determine how the language will be understood by 
consumers, both separately and in the context of the overall form.
    The Bureau estimates that, by incorporating Affected Title XIV 
Disclosures that would otherwise be provided separately, the total page 
count for pre-consummation TILA and RESPA disclosures would be reduced 
by as much as 50 percent. The Bureau believes that this reduction will 
not only improve consumer understanding of mortgage transactions, but 
also facilitate compliance as discussed below. Consumer testing also 
indicates that some disclosures are either not helpful or are 
detrimental to consumer understanding; as discussed in the section-by-
section analysis below, the Bureau proposes to use its authority to 
modify these disclosures to enhance consumer understanding.
Facilitating Compliance by Reducing Regulatory Burden
    As noted above, another purpose of the integrated TILA-RESPA 
disclosure is to facilitate compliance with the requirements and 
purposes of those statutes. TILA section 105(b); 15 U.S.C. 1604(b); 
RESPA section 4(a); 12 U.S.C. 2603(a). Delaying the effective date of 
the Affected Title XIV Disclosures until a rule implementing the 
integrated TILA-RESPA disclosure is final will further this purpose by 
reducing regulatory burden. A substantial burden would be imposed if 
entities were required to revise their systems and practices twice--
once to comply with the Affected Title XIV Disclosures and again to 
comply with the final rule integrating the TILA and RESPA disclosures. 
Implementing the changes twice would be particularly burdensome because 
compliance with the Affected Title XIV Disclosures will involve 
modifying forms and systems, updating compliance manuals, and training 
staff regarding the new disclosures.
    Implementing the Affected Title XIV Disclosures as part of the 
integrated TILA-RESPA rulemaking will reduce regulatory burden by 
allowing entities to adopt all the necessary changes at one time. 
Implementing a single, consolidated disclosure will also reduce ongoing 
regulatory burden because an integrated disclosure is less costly to 
provide than a series of disclosures.
Legal Authority
    For the reasons discussed above, the Bureau proposes to exercise 
its authority under TILA section 105(a) and (f), RESPA section 19(a), 
Dodd-Frank section 1032(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to, in effect, delay the effective date of 
the Affected Title XIV Disclosures by exempting regulated entities from 
these provisions until a final rule implementing Dodd-Frank Act section 
1032(f) takes effect. 15 U.S.C. 1604(a); 12 U.S.C. 2617(a); 12 U.S.C. 
5532(a); 15 U.S.C. 1601 note. TILA section 105(a) gives the Bureau 
authority to adjust or except from the disclosure requirements of TILA 
all or any class of transactions to effectuate the purposes of TILA or 
facilitate compliance. As set forth above, delaying the Affected Title 
XIV Disclosures until such time as a final rule implementing the 
integrated TILA-RESPA disclosures takes effect achieves the purpose of 
TILA to promote the informed use of credit through a more effective, 
consolidated disclosure, and facilitates compliance by reducing 
regulatory burden associated with revising systems and practices 
multiple times and providing multiple disclosures to consumers.
    The Bureau also proposes the exemption pursuant to TILA section 
105(f). The Bureau has considered the factors in TILA section 105(f) 
and believes that an exemption is appropriate under that provision. 
Specifically, the Bureau believes that the proposed exemption is 
appropriate for all affected borrowers, regardless of their other 
financial arrangements and financial sophistication and the importance 
of the loan to them. Similarly, the Bureau believes that the proposed 
exemption is appropriate for all affected loans, regardless of the 
amount of the loan and whether the loan is secured by the principal 
residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers.
    As discussed above, the Bureau believes that the exemption provides 
a benefit to consumers through a more effective, consolidated 
disclosure. Absent an exemption, the Affected Title XIV Disclosures 
would complicate and hinder the mortgage lending process because 
consumers would receive inconsistent disclosures and, likely, numerous 
additional pages of Federal disclosures that do not work together in a 
meaningful way. The Bureau also believes that the cost of credit would 
be increased if the Affected Title XIV Disclosures take effect 
independent of the larger TILA-RESPA integration

[[Page 51136]]

because industry would be required to revise systems and practices 
multiple times. The Bureau has also considered the status of mortgage 
borrowers in issuing the proposed exemptions, and believes the 
exemption is appropriate to improve the informed use of credit. The 
Bureau does not believe that the goal of consumer protection would be 
undermined by the exemption, because of the risk that layering the 
Affected Title XIV Disclosures on top of existing mandated disclosures 
would lead to consumer confusion. The exemption allows the Bureau to 
coordinate the changes in a way that improves overall consumer 
understanding of the disclosures.
    RESPA section 19(a) provides the Bureau with authority to grant 
exemptions from the requirements of RESPA as necessary to achieve the 
purposes of RESPA. As discussed above, one purpose of RESPA is to 
achieve more effective advance disclosure to home buyers and sellers of 
settlement costs. RESPA section 2(b)(1); 12 U.S.C. 2601(b). Delaying 
the Affected Title XIV Disclosures until such time as a final rule 
implementing the integrated TILA-RESPA disclosures takes effect will 
result in a more effective disclosure and improve consumer 
understanding and will facilitate compliance by reducing regulatory 
burden, as discussed above.
    In addition, section 1405(b) of the Dodd-Frank Act gives the Bureau 
authority to exempt from or modify disclosure requirements for any 
class of residential mortgage loans if the Bureau determines that the 
exemption or modification is in the interest of consumers and the 
public. As discussed above, implementing the Affected Title XIV 
Disclosures with the integrated TILA-RESPA disclosure is in the 
interest of consumers because it allows the Bureau to coordinate the 
changes in a way that improves overall consumer understanding of the 
disclosures. Further, implementing the Affected Title XIV Disclosures 
as part of the integrated disclosure rulemaking is in the public 
interest because it produces a more efficient regulatory scheme by 
incorporating multiple, potentially confusing disclosures into clear 
and understandable forms through consumer testing.
    Finally, consistent with section 1032(a) of the Dodd-Frank Act, 
implementing the Affected Title XIV Disclosures together with the 
integrated disclosure would ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances. The Bureau 
believes that implementing a single, consolidated disclosure will 
benefit consumers and facilitate compliance with TILA and RESPA. For 
these reasons, the Bureau is proposing to delay the Affected Title XIV 
Disclosures until the Bureau issues a final rule implementing the 
integrated TILA-RESPA disclosure required by section 1032(f) of the 
Dodd-Frank Act.
    The Bureau is proposing to implement the Affected Title XIV 
Disclosures in Sec.  1026.1(c), which is discussed further in the 
section-by-section analysis below. This proposal, therefore, 
incorporates the Affected Title XIV Disclosures as part of the 
integrated disclosure. The Bureau views proposed Sec.  1026.1(c) as 
prescribing the required rules in final form pursuant to Dodd-Frank Act 
section 1400(c)(1)(A) and the effective date of the final rule 
implementing the delay of the Affected Title XIV Disclosures as 
satisfying Dodd-Frank Act section 1400(c)(1)(B).
    The Bureau plans to issue a final rule implementing this exemption 
before the statutory provisions take effect in January 2013. For this 
reason, the Bureau is providing a comment period of 60 days for the 
proposed amendments to Sec.  1026.1(c), rather than the 120-day comment 
period provided for all other aspects of this proposed rule other than 
Sec.  1026.4, to permit the Bureau to evaluate comments received in 
response to this aspect of the proposal before issuing a final rule. 
The Bureau plans to issue a final notice that would remove this 
regulatory exemption at the time a final rule implementing the 
integrated TILA-RESPA disclosure takes effect, but solicits comment on 
whether the regulatory exemption should sunset on a specific date.

C. Potential Exemptions from Disclosure Requirements

    As discussed in part III, above, one of the Bureau's primary 
considerations in developing the integrated disclosures was to minimize 
the risk of information overload and enhance consumers' overall 
understanding of mortgage loan and real estate transactions. To that 
end, the integrated disclosures highlight information that is important 
to consumers in comparing and evaluating mortgage loans and deemphasize 
information that is secondary to consumer understanding. In addition, 
as discussed in the section-by-section analysis, below, the Bureau is 
proposing to use its exemption and modification authority to exempt 
transactions subject to proposed Sec.  1026.19(e) and (f) from certain 
disclosure requirements that consumer testing and research indicate are 
confusing and unhelpful to consumers. Specifically, the Bureau is 
proposing to use its authority under TILA section 105(a) and (f), Dodd-
Frank Act section 1032(a) and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to omit from the Loan Estimate provided three 
business days after receipt of the consumer's application: the amount 
financed (TILA section 128(a)(2)), the finance charge (TILA section 
128(a)(3)), a statement that the creditor is taking a security interest 
in the consumer's property (TILA section 128(a)(9)), a statement that 
the consumer should refer to the appropriate contract document for 
information about their loan (TILA section 128(a)(12)), a statement 
regarding certain tax implications (TILA section 128(a)(15)), and the 
creditor's cost of funds (TILA section 128(a)(17)). See the section-by-
section analysis to proposed Sec.  1026.37(l). Although the Bureau is 
generally proposing to require these disclosures on the Closing 
Disclosure provided three business days prior to consummation, the 
Bureau is alternatively proposing to use its exemption and modification 
authority to omit the creditor's cost of funds disclosure (TILA section 
128(a)(17)) and the total interest percentage disclosure (TILA section 
128(a)(19)) from both the Loan Estimate and the Closing Disclosure. See 
the section-by-section analysis to proposed Sec. Sec.  1026.37(l) and 
1026.38(o).
    For these same reasons, the Bureau solicits comment on additional 
disclosures that appear on the integrated disclosures that are 
unhelpful or potentially confusing to consumers and whether the Bureau 
should use its authority under TILA section 105(a) and (f), Dodd-Frank 
Act section 1032(a) and, for residential mortgage loans, Dodd-Frank Act 
section 1405(b) to exempt transactions subject to proposed Sec.  
1026.19(e) and (f) from any such disclosure requirements. The Bureau 
believes exempting transactions from those disclosure requirements 
would promote the informed use of credit and facilitate compliance, 
consistent with TILA section 105(a). For the same reasons, the Bureau 
believes such exemptions would be appropriate under TILA section 105(f) 
for all affected borrowers, regardless of their other financial 
arrangements and financial sophistication and the importance of the 
loan to them, and for all affected loans, regardless of the amount of 
the loan and whether the loan is secured by the principal residence of 
the consumer and

[[Page 51137]]

would simplify the credit process without undermining the goal of 
consumer protection or denying important benefits to consumers. Any 
such exemption would also ensure that the features of the transaction 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to better understand the costs, benefits, 
and risks associated with the mortgage transaction, in light of the 
facts and circumstances, consistent with Dodd-Frank Act section 
1032(a), and would improve consumer awareness and understanding of 
residential mortgage loans, which is in the interest of consumers and 
the public, consistent with Dodd-Frank Act section 1405(b).

VI. Section-by-Section Analysis

    As discussed above, TILA's mortgage disclosure requirements are 
currently implemented in Regulation Z, whereas RESPA's mortgage 
disclosure requirements are currently implemented in Regulation X. 
Regulation Z contains detailed regulations and guidance regarding 
disclosures for mortgage transactions, whereas Regulation X largely 
relies on the GFE and HUD-1 forms. The Bureau understands that the 
additional detail in Regulation Z facilitates compliance by industry, 
which is one of the goals of this rulemaking.\117\ Accordingly, the 
Bureau is proposing to establish the integrated disclosure requirements 
in Regulation Z, while making conforming and other amendments to 
Regulation X.\118\ However, as discussed above, the Bureau solicits 
comment on whether the level of detail in the proposed regulations and 
guidance (including the number of examples illustrating what is and is 
not permitted) will make compliance more, rather than less, burdensome 
and whether the Bureau should adopt a less prescriptive approach in the 
final rule.
---------------------------------------------------------------------------

    \117\ For example, the small financial service providers who 
advised the Small Business Review Panel stated that ambiguity in the 
application or interpretation of the current RESPA disclosure 
requirements produces substantial costs in the form of legal fees, 
staff training, and, for settlement agents, preparing forms 
differently for different lenders. To address this concern, these 
providers generally requested that the Bureau provide clear guidance 
on how to fill out the forms, similar to that currently provided in 
Regulation Z. See Small Business Review Panel Report at 19-20.
    \118\ The Bureau is proposing to retain established regulatory 
terminology in Regulations X and Z for consistency.
---------------------------------------------------------------------------

    As discussed in detail below with respect to proposed Sec.  
1026.19, certain mortgage transactions that are subject to TILA are not 
subject to RESPA and vice versa. As proposed, the integrated mortgage 
disclosures would apply to most closed-end consumer credit transactions 
secured by real property. Certain types of loans that are currently 
subject to TILA but not RESPA (construction-only loans and loans 
secured by vacant land or 25 or more acres) would be subject to the 
proposed integrated disclosure requirements, whereas others (such as 
mobile home loans and other loans that are secured by a dwelling but 
not real property) would remain solely subject to the existing 
Regulation Z disclosure requirements. Reverse mortgages are excluded 
from coverage of the proposed integrated disclosures and would 
therefore remain subject to the current Regulation X and Z disclosure 
requirements until the Bureau addresses those unique transactions in a 
separate, future rulemaking. Finally, consistent with the current rules 
under TILA, the integrated mortgage disclosures would not apply to 
mortgage loans made by persons who are not ``creditors'' as defined by 
Regulation Z (such as persons who make five or fewer mortgage loans in 
a year), although such loans would continue to be subject to RESPA.

A. Regulation X

Section 1024.5 Coverage of RESPA
5(a) Applicability
    For the reasons discussed below under proposed Sec.  1024.5(c), the 
Bureau is proposing to use its authority under RESPA section 19(a) and, 
for residential mortgage loans, Dodd-Frank Act section 1405(b) to 
exempt certain transactions from the existing RESPA GFE and RESPA 
settlement statement requirements of Regulation X. The Bureau therefore 
is proposing a conforming amendment to Sec.  1024.5(a) to reflect these 
partial exemptions pursuant to the same authority.
5(b) Exemptions
5(b)(1)
    Section 1024.5(b)(1) currently exempts from the coverage of RESPA 
and Regulation X loans on property of 25 acres or more. The Bureau 
believes that most loans that fall into this category are separately 
exempt under a provision excluding extensions of credit primarily for 
business, commercial, or agricultural purposes, set forth in Sec.  
1024.5(b)(2). Accordingly, the Bureau proposes to exercise its 
authority under RESPA section 19(a) and, for residential mortgage 
loans, Dodd-Frank Act section 1405(b) to eliminate the Regulation X 
exemption. This amendment will render the TILA and RESPA regimes more 
consistent, which promotes more effective advance disclosure of 
settlement costs (which is a purpose of RESPA). In addition, this 
consistency will improve consumer awareness and understanding of 
transactions involving residential mortgage loans and is therefore in 
the interest of consumers and the public, consistent with Dodd-Frank 
Act section 1405(b). Because it is unclear whether any mortgages are 
exempt based solely on Sec.  1024.5(b)(1), the Bureau solicits comment 
on the number of loans that may be affected by this aspect of the 
proposal and any reasons for any continued exemption of loans on 
property of 25 acres or more.
5(c) Partial Exemptions for Certain Mortgage Loans
    As discussed further below, the Bureau proposes to exercise its 
authority under RESPA section 19(a), Dodd-Frank Act section 1032(a) 
and, for residential mortgage loans, Dodd-Frank Act section 1405(b) to 
add new Sec.  1024.5(c), which would exempt two types of federally 
related mortgage loans from coverage of the RESPA settlement cost 
booklet, GFE, and settlement statement requirements of Sec. Sec.  
1024.6, 1024.7, 1024.8, and 1024.10. This partial exemption would apply 
to: (1) federally related mortgage loans that are subject to the 
integrated disclosures the Bureau is proposing in Regulation Z Sec.  
1026.19(e) and (f) and (2) federally related mortgage loans that 
satisfy specified criteria associated with certain housing assistance 
loan programs for low- and moderate-income persons. As described 
further below, these exemptions are designed to create consistency with 
the integrated disclosures under Regulation Z and to codify a 
disclosure exemption previously granted by HUD. However, the exemptions 
would retain coverage of affected loans for all other requirements of 
Regulation X, such as the servicing requirements in RESPA section 6, 
prohibitions on referral fees and kickbacks in RESPA section 8, and 
limits on amounts to be deposited in escrow accounts in RESPA section 
10.
5(c)(1)
    Pursuant to the authority discussed above, proposed Sec.  
1024.5(c)(1) exempts from the RESPA settlement cost booklet, GFE, and 
settlement statement requirements of Sec. Sec.  1024.6, 1024.7, 1024.8, 
and 1024.10 federally related mortgage loans that are subject to the 
special disclosure requirements for certain consumer credit 
transactions secured by real property set forth in Regulation Z, under 
proposed Sec.  1026.19(e) and (f). As discussed in detail below, 
proposed Sec.  1026.19(e) and (f) establishes the integrated 
disclosures

[[Page 51138]]

for compliance both with sections 4 and 5 of RESPA and with TILA 
disclosures required for mortgage transactions, as mandated by section 
1032(f) of the Dodd-Frank Act. Accordingly, compliance with Sec. Sec.  
1024.6, 1024.7, 1024.8, and 1024.10 is unnecessary for transactions 
that are subject to Sec.  1026.19(e), (f) and (g) of Regulation Z. 
Because proposed Sec.  1026.19(e) and (f) governs all closed-end 
transactions secured by real property other than reverse mortgages, the 
only federally related mortgage loans that will continue to comply with 
the Regulation X GFE and settlement statement requirements are reverse 
mortgages. The Bureau plans to address the disclosure requirements for 
reverse mortgages in a separate later rulemaking, at which time the 
Bureau may revise or eliminate the remaining disclosure provisions in 
Regulation X.
5(c)(2)
    Proposed Sec.  1024.5(c)(2) exempts from the RESPA settlement cost 
booklet, GFE, and settlement statement requirements of Sec. Sec.  
1024.6, 1024.7, 1024.8, and 1024.10 federally related mortgage loans 
that satisfy several criteria associated with certain housing 
assistance loan programs for low- and moderate-income persons. This 
provision cross-references proposed 12 CFR 1026.3(h), which codifies an 
exemption issued by HUD on October 6, 2010.\119\ Under the HUD 
exemption, lenders need not provide the GFE and settlement statement 
when six prerequisites are satisfied: (1) the loan is secured by a 
subordinate lien; (2) the loan's purpose is to finance downpayment, 
closing costs, or similar homebuyer assistance, such as principal or 
interest subsidies, property rehabilitation assistance, energy 
efficiency assistance, or foreclosure avoidance or prevention; (3) 
interest is not charged on the loan; (4) repayment of the loan is 
forgiven or deferred subject to specified conditions; (5) total 
settlement costs do not exceed one percent of the loan amount and are 
limited to fees for recordation, application, and housing counseling; 
and (6) the loan recipient is provided at or before settlement with a 
written disclosure of the loan terms, repayment conditions, and costs 
of the loan.
---------------------------------------------------------------------------

    \119\ See http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14574.pdf.
---------------------------------------------------------------------------

    In granting this partial exemption, HUD invoked its authority under 
RESPA section 19(a) to grant ``reasonable exemptions for classes of 
transactions, as may be necessary to achieve the purposes of [RESPA].'' 
HUD determined that, for transactions meeting the criteria listed 
above, the RESPA GFE and settlement statement forms would be difficult 
to complete in a meaningful way and would be likely to confuse 
consumers who received them. Moreover, because of the limited, fixed 
fees involved with such transactions, the comparison shopping purpose 
of the GFE would not be achieved. Finally, the alternative written 
disclosure required as a prerequisite of the exemption would ensure 
that consumers understand the loan terms and settlement costs charged. 
To facilitate compliance, the Bureau is proposing to codify this 
exemption in Regulations X and Z for the same reasons and under the 
same authority as cited by HUD. In addition, the Bureau relies on its 
authority under Dodd-Frank Act section 1405(b) because the proposed 
exemption will improve consumer awareness and understanding of 
transactions due to these same concerns discussed involving residential 
mortgage loans in the identified class of transactions and is therefore 
in the interest of consumers and the public.
    The Bureau is proposing to adopt this exemption with the same 
prerequisites established by HUD. The Bureau seeks comment, however, on 
whether the same rationale for the exemption still would exist 
regardless of lien position and, therefore, the subordinate lien 
position should be eliminated as a requirement for the exemption. The 
Bureau also seeks comment concerning the prerequisite that the loan 
contract not ``require the payment of interest.'' As noted above, the 
exemption as issued by HUD requires that the loan ``carr[y] an interest 
rate of -0- percent.'' This wording may be interpreted narrowly to 
refer only to the rate of interest stated in the note or loan contract 
but not to other requirements or features that may serve as interest 
substitutes. For example, such a narrow reading would mean that loans 
requiring private mortgage insurance or loans having shared-equity or 
shared-appreciation features could qualify for this exemption, provided 
the note recites an interest rate of zero percent. The Bureau's 
wording, on the other hand, could be interpreted as disallowing such 
requirements and features because they are essentially interest 
substitutes. The Bureau therefore seeks comment on whether such 
requirements and features should be considered ``interest'' and, 
therefore, should be impermissible for loans seeking to qualify for 
this partial exemption. In addition, the Bureau seeks comment on other 
types of loan requirements and features that should be similarly deemed 
``interest'' for purposes of this partial exemption. Alternatively, the 
Bureau seeks comment on whether this provision should be eliminated.
Appendix A--Instructions for Completing HUD-1 and HUD-1A Settlement 
Statements; Sample HUD-1 and HUD-1A Statements
    As previously discussed, the Bureau proposes to require creditors 
to use the integrated Closing Disclosure required by Sec. Sec.  
1026.19(f) and 1026.38 to satisfy the disclosure requirements under 
RESPA section 4 for most closed-end transactions covered by RESPA, 
except for reverse mortgage transactions. Currently, the manner in 
which reverse mortgage transactions are disclosed on the HUD-1 or HUD-
1A under appendix A of Regulation X is a source of confusion for 
creditors. HUD attempted to clarify the use of the RESPA settlement 
disclosure in reverse mortgage transactions by issuing frequently-asked 
questions, the HUD RESPA FAQs, the most recent of which was released on 
April 2, 2010. The Bureau proposes to exercise its authority under 
RESPA section 19(a) to modify appendix A of Regulation X to incorporate 
the guidance provided by the HUD RESPA FAQs because, under the proposed 
rule, the closing of reverse mortgage transactions will continue to be 
disclosed using the RESPA settlement statement. The proposed revisions 
can be found in the instructions for lines 202, 204 and page 3, loan 
terms.
    The Bureau believes that adopting this guidance will improve the 
effectiveness of the disclosures when used for reverse mortgages, 
thereby reducing industry confusion and advancing the purpose of RESPA 
to provide more effective advanced disclosure of settlement costs to 
both the consumer and the seller in the real estate transaction, 
consistent with RESPA section 19(a).
Appendix B--Illustrations of Requirements of RESPA
    Appendix B to part 1024 contains illustrations of requirements 
under RESPA. Illustration 12 provides a factual situation where a 
mortgage broker provides origination services to submit a loan to a 
lender for approval. The mortgage broker charges the borrower a uniform 
fee for the total origination services, as well as a direct up-front 
charge for reimbursement of credit reporting, appraisal services, or 
similar charges. To address this factual situation, illustration 12 
provides a comment that: the mortgage broker's fee

[[Page 51139]]

must be itemized in the Good Faith Estimate and on the HUD-1 Settlement 
Statement; other charges that are paid for by the borrower and paid in 
advance of consummation are listed as paid outside closing on the HUD-1 
Settlement Statement, and reflect the actual provider charge for such 
services; and any other fee or payment received by the mortgage broker 
from either the lender or the borrower arising from the initial funding 
transaction, including a servicing release premium or yield spread 
premium, is to be noted on the Good Faith Estimate and listed in the 
800 series of the HUD-1 Settlement Statement.
    Subsequent to the guidance provided in illustration 12, Regulation 
Z Sec.  1026.36(d)(2) was adopted. Section 1026.36(d)(2) states:

    If any loan originator receives compensation directly from a 
consumer in a consumer credit transaction secured by a dwelling: (i) 
No loan originator shall receive compensation, directly or 
indirectly, from any person other than the consumer in connection 
with the transaction; and (ii) No person who knows or has reason to 
know of the consumer-paid compensation to the loan originator (other 
than the consumer) shall pay any compensation to a loan originator, 
directly or indirectly, in connection with the transaction.

    The last sentence in illustration 12 clearly contemplates the loan 
originator, a mortgage broker, receiving compensation from the lender 
as well as the borrower, which therefore describes a factual situation 
prohibited by Sec.  1026.36(d)(2). Accordingly, for consistency with 
Sec.  1026.36(d)(2), the Bureau proposes to exercise its authority 
under RESPA section 19(a) to delete the last sentence of the comment 
provided in illustration 12 in Appendix B to part 1024.
Appendix C--Instructions for Completing Good Faith Estimate (GFE) Form
    As previously discussed, the Bureau proposes to require creditors 
to use the integrated loan estimate required by Sec. Sec.  1026.19(e) 
and 1026.37 to satisfy the disclosure requirements under RESPA section 
5 for most closed-end transactions covered by RESPA, except for reverse 
mortgage transactions. Currently, the manner in which reverse mortgage 
transactions are disclosed on the RESPA GFE under appendix C of 
Regulation X is a source of confusion for creditors. HUD clarified the 
use of the RESPA GFE in reverse mortgage transactions in the HUD RESPA 
FAQs. The Bureau proposes to exercise its authority under RESPA section 
19(a) to modify appendix C of Regulation X to incorporate the guidance 
provided by the HUD RESPA FAQs because, under the proposed rule, 
reverse mortgage transactions will continue to be disclosed using the 
RESPA GFE. The proposed revisions can be found in the instructions for 
the ``Summary of your loan'' and ``Escrow account information'' 
sections. The Bureau believes that these revisions satisfy the purpose 
of RESPA to provide more effective advanced disclosure of settlement 
costs to both the consumer and the seller in the real estate 
transaction.
Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, 
and Liability
    The Bureau is proposing conforming amendments to Sec.  1026.1 to 
reflect the fact that, under this proposal, Regulation Z implements not 
only TILA, but also certain provisions of RESPA. The details of the 
regulatory implementation of these statutory requirements are discussed 
below, under the applicable sections of Regulation Z. To reflect the 
expanded statutory scope of Regulation Z, the proposed conforming 
amendments revise Sec.  1026.1(a) (authority), (b) (purpose), (d)(5) 
(organization of subpart E), and (e) (enforcement and liability) to 
include references to the relevant provisions of RESPA.
1(c) Coverage
    As discussed in part V.B, the Bureau is proposing to exempt persons 
temporarily from the disclosure requirements of sections 128(a)(16) 
through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 129C(h), 
129D(h), and 129D(j)(1)(A) of TILA and section 4(c) of RESPA, until 
regulations implementing the integrated disclosures required by section 
1032(f) of the Dodd-Frank Act take effect. 15 U.S.C. 1638(a)(16)-(19), 
1638(b)(4), 1639c(f)(1), 1639c(g), 1639c(h), 1639d(h), and 
1639d(j)(1)(A); 12 U.S.C. 2604(c); 12 U.S.C. 5532(f). Proposed Sec.  
1026.1(c)(5) implements this exemption by stating that no person is 
required to provide the disclosures required by the statutory 
provisions listed above. Proposed comment 1(c)(5)-1 explains that Sec.  
1026.1(c)(5) implements the above-listed provisions of TILA and RESPA 
added by the Dodd-Frank Act by exempting persons from the disclosure 
requirements of those sections. The comment clarifies that the 
exemptions provided in proposed Sec.  1026.1(c)(5) are intended to be 
temporary and will apply only until compliance with the regulations 
implementing the integrated disclosures required by section 1032(f) of 
the Dodd-Frank Act become mandatory. Proposed comment 1(c)(5)-1 also 
clarifies that the exemption in proposed Sec.  1026.1(c)(5) does not 
exempt any person from any other requirement of Regulation Z, 
Regulation X, or of TILA or RESPA. For the reasons discussed in part 
V.B, the Bureau is providing a comment period of 60 days for the 
proposed amendments to Sec.  1026.1(c). In addition, as discussed above 
in part V.B, the Bureau requests comment on whether the exemptions 
provided in proposed Sec.  1026.1(c)(5) should expire after a specified 
period of time.
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
2(a)(3) Application
Background
    Neither TILA nor RESPA defines the term ``application.'' Although 
Regulation Z does not define this term, for the good faith estimate 
disclosures currently required by Sec.  1026.19(a), Regulation Z 
incorporates the Regulation X definition. See comment 19(a)(1)(i)-3. 
Section 1024.2(b) of Regulation X defines application as ``the 
submission of a borrower's financial information in anticipation of a 
credit decision relating to a federally related mortgage loan, which 
shall include the borrower's name, the borrower's monthly income, the 
borrower's social security number to obtain a credit report, the 
property address, an estimate of the value of the property, the 
mortgage loan amount sought, and any other information deemed necessary 
by the loan originator.'' 12 CFR 1024.2(b). This definition, adopted as 
part of HUD's 2008 RESPA Final Rule, was intended to ensure that 
consumers received a RESPA GFE containing reliable estimates of 
settlement costs early in the process of shopping for a mortgage loan.
    However, in response to concerns that a narrow definition of 
application might inhibit preliminary underwriting, the definition 
adopted by HUD includes seven elements, one of which is ``any other 
information deemed necessary by the loan originator.'' HUD added this 
``catch-all'' element to enable creditors to collect any additional 
information deemed necessary to underwrite a loan.
Concerns With the Current Definition Under Regulation X
    While the Bureau believes that creditors should be able to collect 
information in addition to the six elements, the Bureau is concerned 
that the seventh catch-all element may

[[Page 51140]]

permit creditors to delay providing consumers with the integrated Loan 
Estimate. One primary purpose of the integrated Loan Estimate is to 
inform consumers of the cost of credit when they have bargaining power 
to negotiate for better terms and time to compare other financing 
options. It is vital, however, that creditors be able to collect the 
information necessary to originate loans in a safe and sound manner. 
The Bureau does not believe that these principles conflict. The 
definition of application does not define or limit underwriting; it 
instead establishes a point in time at which disclosure obligations 
begin.
    Based on this premise, the definition of ``application'' should 
facilitate consumers' ability to receive reliable estimates early in 
the loan process, but should not restrict a creditor's ability to 
determine which information is necessary for sound underwriting. 
Removing the catch-all element from the definition under Regulation X 
may ensure that the disclosures are received both early in the loan 
process and based on the information most critical to providing 
reliable estimates. Consumers would be able to receive the disclosures 
as soon as consumers provide creditors with the information needed for 
reliable estimation. Creditors would be able to collect whatever 
information is, in the creditor's view, necessary for a reasonably 
reliable estimate, provided that it collects the additional information 
prior to collecting the six pieces of information specified in proposed 
Sec.  1026.2(a)(3)(ii), which are the consumer's name, income, and 
social security number to obtain a credit report, as well as the 
property address, an estimate of the value of the property, and the 
mortgage loan amount sought. For example, if a creditor believes that a 
reliable estimate cannot be provided without information related to the 
consumer's combined current liabilities, the creditor may collect this 
information, provided that it does so prior to, or at the same time as, 
collecting the six pieces of information specified in Sec.  
1026.2(a)(3)(ii). The Bureau acknowledges that creditors could 
strategically order information collection in a manner that best suits 
the needs of the creditor. Even if the creditor did so, the Bureau 
believes that the definition would enable the consumers to receive the 
disclosures early in the loan process. This approach may also ensure 
that consumers are not required to disclose sensitive information, such 
as the consumer's social security number or income, until after the 
creditor collects less sensitive information. Thus, removing the 
seventh catch-all element, while preserving creditors' ability to 
collect any additional necessary information, may strike the 
appropriate balance between the needs of consumers and the needs of 
industry.
    This approach also dovetails with the requirements of proposed 
Sec.  1026.19(e) establishing limitations on fee increases for the 
purposes of determining good faith, but which are subject to several 
exceptions, including exceptions based on the information the creditor 
relied on in disclosing the estimated loan costs. Thus, the proposed 
definition of application, by requiring creditors to collect any 
additional information prior to collecting the six pieces of 
information specified in Sec.  1026.2(a)(3)(ii), maintains creditors' 
current flexibility in deciding which additional information is 
necessary for providing estimates. For example, if a creditor chooses 
to collect a consumer's combined liability information prior to 
collecting the six pieces of information specified in Sec.  
1026.2(a)(3)(ii), the disclosures provided pursuant to Sec.  1026.19(e) 
may reflect such information. If the consumer's combined liabilities 
subsequently increase, the creditor may issue a revised disclosure 
reflecting the change in information relied upon in providing the 
original disclosure. If a different creditor chooses to rely on only 
the six pieces of information specified in Sec.  1026.2(a)(3)(ii) in 
providing the disclosures, but during underwriting information related 
to the consumer's combined liabilities is discovered, and such 
information requires a revision in loan terms, the creditor may issue a 
revised disclosure reflecting such new information not previously 
relied on in providing the disclosures. But neither creditor may delay 
providing consumers with the disclosures in the first instance by 
claiming that additional information related to the consumer's combined 
liabilities is required after the consumer has provided the six pieces 
of information specified in Sec.  1026.2(a)(3)(ii). Thus, removal of 
the seventh catch-all element may achieve the same outcome from the 
creditor's perspective as under the current Regulation X definition, 
while inhibiting the ability of creditors to delay providing consumers 
with the disclosures. This approach has the added benefit of being a 
uniform standard for disclosure obligations across all creditors, which 
facilitates compliance and supervision.
    Accordingly, pursuant to its authority under section 105(a) of TILA 
and 19(a) of RESPA, the Bureau is proposing to add Sec.  
1026.2(a)(3)(i) to define ``application'' as the submission of a 
consumer's financial information for the purposes of obtaining an 
extension of credit. Proposed Sec.  1026.2(a)(3)(ii) provides that, 
except for purposes of subpart B, subpart F, and subpart G, the term 
consists of the consumer's name, income, and social security number to 
obtain a credit report, and the property address, an estimate of the 
value of the property, and the mortgage loan amount sought. For the 
reasons discussed above, removal of the seventh catch-all element from 
the definition of application may help carry out the purposes of TILA 
by promoting the informed use of credit and achieve the purposes of 
RESPA by promoting more effective advance disclosure of settlement 
costs by encouraging creditors to provide consumers with good faith 
estimates of loan terms and costs earlier in the process.
    The Bureau has received feedback, including a comment received in 
response to the 2011 Streamlining Proposal, requesting a single 
definition of ``application'' under Regulation Z, Regulation B (which 
implements the Equal Credit Opportunity Act), and Regulation C (which 
implements the Home Mortgage Disclosure Act). The Bureau recognizes the 
potential consistency benefits of a single definition. However, for the 
reasons discussed above, the Bureau believes that the proposed 
definition provides important benefits to consumers in this context.
    During the Small Business Panel Review process, several small 
entity representatives expressed concern about eliminating the seventh 
prong of the definition of application currently under Regulation X. 
See Small Business Review Panel Report at 33-34, 49, and 67. Based on 
this feedback and consistent with the recommendation of the Small 
Business Review Panel, the Bureau solicits comment on what, if any, 
additional specific information beyond the six items included under the 
proposed definition of application is needed to provide a reasonably 
accurate Loan Estimate. See id. at 29.
    The proposed definition of application consists of two parts. The 
first part establishes a broad definition for all of Regulation Z. The 
second part provides that an application consists of six elements of 
data. These elements, which are currently set forth in the definition 
of application in Regulation X, have an established significance in the 
context of closed-end loans secured by real property, but may be less 
significant or even inapplicable to other types of credit. Thus, these 
six elements

[[Page 51141]]

do not apply to Subpart B (open-end loans), Subpart F (student loans), 
and Subpart G (special rules for credit card accounts and open-end 
credit offered to college students).
    Proposed comment 2(a)(3)-1 explains that a consumer's submission of 
financial information is for purposes of obtaining an extension of 
credit. A creditor is free to collect information in addition to that 
listed in Sec.  1026.2(a)(3)(ii) that it deems necessary in connection 
with the request for the extension of credit. However, once a creditor 
has received the six listed pieces of information, it has an 
application for purposes of Sec.  1026.2(a)(3). The proposed comment 
also contains illustrative examples of this provision.
    Proposed comment 2(a)(3)-2 clarifies that, if a consumer does not 
have a social security number, the creditor may instead request 
whatever unique identifier the creditor uses to obtain a credit report. 
For example, a creditor has obtained a social security number to obtain 
a credit report for purposes of Sec.  1026.2(a)(3)(ii) if the creditor 
collects a Tax Identification Number from a consumer who does not have 
a social security number, such as a foreign national. This comment is 
consistent with guidance provided by HUD in the HUD RESPA FAQs p. 7, 
14 (``GFE--General'').
    Proposed comment 2(a)(3)-3 clarifies that the creditor's receipt of 
a credit report fee does not affect whether an application has been 
received. Section 1026.19(a)(1)(iii) permits the imposition of a fee to 
obtain the consumer's credit history prior to the delivery of the 
disclosures required under Sec.  1026.19(a)(1)(i). Section 
1026.19(e)(2)(i)(B) permits the imposition of a fee to obtain the 
consumer's credit report prior to the delivery of the disclosures 
required under Sec.  1026.19(e)(1)(i). Whether, or when, such fees are 
received is irrelevant for the purposes of the definition in Sec.  
1026.2(a)(3) and the timing requirements in Sec.  1026.19(a)(1)(i) and 
(e)(1)(iii). For example, if, in a transaction subject to Sec.  
1026.19(e)(1)(i), a creditor receives the six pieces of information 
identified under Sec.  1026.2(a)(3)(ii) on Monday, June 1, but does not 
receive a credit report fee from the consumer until Tuesday, June 2, 
the creditor does not comply with Sec.  1026.19(e)(1)(iii) if it 
provides the disclosures required under Sec.  1026.19(e)(1)(i) after 
Thursday, June 4. The three-business-day period beings on Monday, June 
1, the date the creditor received the six pieces of information. The 
waiting period does not begin on Tuesday, June 2, the date the creditor 
received the credit report fee.
2(a)(6) Business Day
    Although neither RESPA nor TILA defines ``business day,'' that term 
is defined in Regulations X and Z. Both Regulation X Sec.  1024.2(b) 
and Regulation Z Sec.  1026.2(a)(6) generally define ``business day'' 
to mean a day on which the offices of the creditor or other business 
entity are open to the public for carrying on substantially all of the 
entity's business functions. For certain provisions of Regulation Z, 
however, an alternative definition applies. Under this definition, 
``business day'' means all calendar days except Sundays and the legal 
public holidays specified in 5 U.S.C. 6103(a), i.e., New Year's Day, 
the Birthday of Martin Luther King, Jr., Washington's Birthday, 
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, 
Thanksgiving Day, and Christmas Day.
    The alternative definition of business day applies to, among other 
things, the three-business-day limitation on the imposition of fees in 
Sec.  1026.19(a)(1)(ii) and the three- and seven-business-day waiting 
periods in Sec.  1026.19(a)(2). As discussed below, the Bureau is 
proposing to amend Sec.  1026.19 to implement the integrated disclosure 
requirement in section 1032(f) of the Dodd-Frank Act by adding new 
paragraphs (e) and (f). Accordingly, for consistency and to facilitate 
compliance with TILA, the Bureau is proposing to use its authority 
under TILA section 105(a) to amend Sec.  1026.2(a)(6) to apply the 
alternative definition of business day to the provisions of paragraphs 
(e) and (f) that are analogous to Sec.  1026.19(a)(1)(i), (a)(1)(ii), 
and (a)(2). The Bureau also proposes conforming amendments to comment 
2(a)(6)-2.
    The Bureau recognizes that this issue was previously raised during 
the Board's 2008-2009 MDIA rulemaking. See 73 FR 74989 at 74991 (Dec. 
10, 2008) and 74 FR 23289 at 23293-23294 (May 19, 2009). However, the 
Bureau believes that applying the alternative definition of business 
day to the integrated disclosures would facilitate compliance. The 
Bureau solicits feedback regarding whether the general definition of 
business day instead should apply to the integrated disclosure delivery 
requirements. The Bureau also solicits comment on whether the rules 
should be analogous to the current rules, where the general business 
day requirement applies to some requirements and the alternative 
business day requirement applies to other requirements. Finally, the 
Bureau seeks feedback regarding whether the business day usage under 
current Sec.  1026.19(a) should remain, or if Sec.  1026.19(a) should 
be modified to use a single definition of business day consistent with 
proposed Sec.  1026.19(e) and (f).
2(a)(17) Creditor
    Under current Regulation Z, a person who extended consumer credit 
25 or fewer times in the past calendar year, or five or fewer times for 
transactions secured by a dwelling, is exempt from the definition of 
``creditor.'' See Sec.  1026.2(a)(17)(v). The Bureau's 2011 
Streamlining Proposal specifically requested comment on whether these 
thresholds should be raised and, if so, to what number of transactions. 
In addition, the proposal solicited comment on whether a similar 
exemption should be applied to the pre-consummation disclosure 
requirements under RESPA that will be integrated with the TILA 
requirements pursuant to Dodd-Frank Act section 1032(f). In response, 
trade association commenters suggested raising the threshold number of 
transactions in order to reduce regulatory burden on more small 
lenders. For example, one trade association commenter suggested raising 
the threshold number of transactions to 50, regardless of transaction 
type. In light of this feedback, the Bureau requests comment on whether 
the five-loan exemption threshold is appropriate for transactions 
subject to this proposed rule and, if not, what number of transactions 
would be appropriate. The Bureau also solicits comment on whether any 
transaction-based exemption adopted in this rulemaking should be 
applied to the pre-consummation disclosure requirements of sections 4 
and 5 of RESPA.
2(a)(25) Security Interest
    Pursuant to its authority under TILA section 105(a), the Bureau 
proposes a conforming amendment to the definition of ``security 
interest'' in current Sec.  1026.2(a)(25). Under the current definition 
of security interest, for purposes of the disclosure requirements in 
Sec. Sec.  1026.6 and 1026.18, the term does not include an interest 
that arises solely by operation of law. For consistency and to 
facilitate compliance with TILA, the Bureau's proposed amendment 
extends that exemption to disclosures required under proposed 
Sec. Sec.  1026.19(e) and (f) and 1026.38(l)(6). The same conforming 
amendment would be made to comment 2(a)(25)-2.

[[Page 51142]]

Section 1026.3 Exempt Transactions
    The Bureau is proposing a partial exemption from the disclosure 
requirements of proposed Sec.  1026.19(e), (f), and (g) for certain 
mortgage loans. The Bureau therefore is proposing conforming amendments 
to Sec.  1026.3(h) to reflect this exemption. The Bureau is also 
proposing amendments to the commentary to Sec.  1026.3(a) to clarify 
the current exemption for certain trusts.
3(a) Business, Commercial, Agricultural, or Organizational Credit
    TILA section 104(1), 15 U.S.C. 1603(1), excludes from TILA's 
coverage extensions of credit to, among others, organizations. 
Accordingly, Sec.  1026.3(a)(2) provides that Regulation Z does not 
apply to extensions of credit to other than a natural person. The 
Bureau is proposing to revise comments 3(a)-9 and -10 to clarify that 
credit extended to certain trusts for tax or estate planning purposes 
is considered to be extended to a natural person rather than to an 
organization and, therefore, is not exempt from the coverage of 
Regulation Z under Sec.  1026.3(a)(2).
    Existing comment 3(a)-10 discusses land trusts, a relatively 
uncommon way of structuring consumer credit in which the creditor holds 
title to the property in trust and executes the loan contract as 
trustee on behalf of the trust. The comment states that, although a 
trust is technically not a natural person, such arrangements are 
subject to Regulation Z because ``in substance (if not form) consumer 
credit is being extended.'' This proposal amends comment 3(a)-10 to 
extend this rationale to more common forms of trusts. Specifically, 
proposed comment 3(a)-10 notes that consumers sometimes place their 
assets in trust with themselves as trustee(s), and with themselves or 
themselves and their families or other prospective heirs as 
beneficiaries, to obtain certain tax benefits and to facilitate the 
future administration of their estates. Under this proposal, revised 
comment 3(a)-10 states that Regulation Z applies to credit that is 
extended to such a trust, even if the consumer who is both trustee and 
beneficiary executes the loan documents only in the capacity of the 
trustee, for the same reason the existing comment notes with respect to 
land trusts: Such transactions are extensions of consumer credit in 
substance, if not in form. Comment 3(a)-9 would be revised to cross-
reference comment 3(a)-10.
3(h) Partial Exemption for Certain Mortgage Loans
    The Bureau is proposing a new Sec.  1026.3(h) to provide an 
exemption from proposed Sec.  1026.19(e), (f), and (g) for transactions 
that satisfy several criteria associated with certain housing 
assistance loan programs for low- and moderate-income persons. As 
discussed below, proposed Sec.  1026.19(e) and (f) establishes the 
requirement to provide the new integrated disclosures for transactions 
secured by real property, other than reverse mortgages, and proposed 
Sec.  1026.19(g) establishes the requirement to provide a special 
information booklet for those transactions. The partial exemption in 
proposed Sec.  1026.3(h) parallels Sec.  1024.5(c)(3), discussed above. 
The exemptions are designed to create consistency with Regulation X and 
to codify a disclosure exemption previously granted by HUD. Thus, under 
the two proposed exemptions, lenders would be exempt from providing the 
RESPA-mandated closing cost disclosures for federally related mortgage 
loans that satisfy the exemption's conditions, even if the transaction 
otherwise would be subject to RESPA.
    The Bureau proposes this exemption pursuant to its authority under 
TILA section 105(a) and (f), RESPA section 19(a), Dodd-Frank Act 
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act 
section 1405(b). The Bureau believes that the proposed exemption will 
create consistency with Regulation X and therefore facilitate 
compliance with TILA and RESPA. In addition, the Bureau believes the 
special disclosure requirements that covered persons must meet to 
qualify for the proposed exemption will help ensure that the features 
of these mortgage transactions are fully, accurately. and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with these mortgage 
transactions, consistent with Dodd-Frank Act section 1032(a). The 
proposed exemption will also improve consumer awareness and 
understanding of transactions involving residential mortgage loans, 
which is in the interest of consumers and the public, consistent with 
Dodd-Frank Act section 1405(b). The Bureau has considered the factors 
in TILA section 105(f) and believes that, for the reasons discussed 
above, an exception is appropriate under that provision. Specifically, 
the Bureau believes that the proposed exemption is appropriate for all 
affected borrowers, regardless of their other financial arrangements 
and financial sophistication and the importance of the loan to them. 
Similarly, the Bureau believes that the proposed exemption is 
appropriate for all affected loans, regardless of the amount of the 
loan and whether the loan is secured by the principal residence of the 
consumer. Furthermore, the Bureau believes that, on balance, the 
proposed exemption will simplify the credit process without undermining 
the goal of consumer protection or denying important benefits to 
consumers.
    The proposed exemption applies only to transactions secured by a 
subordinate lien. For the same reasons discussed in the section-by-
section analysis to proposed Sec.  1024.5(c)(3), the Bureau requests 
comment on whether the exemption in proposed Sec.  1026.3(h) should 
extend to first liens. In addition, for the reasons discussed above, 
the Bureau seeks comment on whether requirements and features that may 
serve as interest substitutes should be considered ``interest'' and, 
therefore, should be impermissible for loans seeking to qualify for 
this partial exemption. The Bureau also seeks comment on the types of 
loan requirements and features that should be similarly deemed 
``interest'' for purposes of this partial exemption. Alternatively, the 
Bureau seeks comment on whether such requirements and features should 
be permissible within the exemption on the grounds that the disclosure 
required by proposed Sec.  1026.3(h)(6) is sufficient to inform 
consumers of such loan terms.
    Proposed comments provide additional guidance. Proposed comment 
3(h)-1 notes that transactions that meet the requirements of Sec.  
1026.3(h) are exempt from only the integrated disclosure requirements 
and not from any other applicable requirement of Regulation Z. The 
comment further clarifies that Sec.  1026.3(h)(6) requires the creditor 
to comply with the disclosure requirements of Sec.  1026.18, even if 
the creditor would not otherwise be subject to that section because of 
proposed Sec.  1026.19(e), (f), and (g). In addition, the comment notes 
that the consumer also has the right to rescind the transaction under 
Sec.  1026.23, to the extent that provision is applicable.
    Proposed comment 3(h)-2 explains that the conditions that the 
transaction not require the payment of interest under Sec.  
1026.3(h)(3) and that repayment of the amount of credit extended be 
forgiven or deferred in accordance with Sec.  1026.3(h)(4) must be 
evidenced by terms in the credit contract. The comment further 
clarifies that, although the other conditions need not be reflected in 
the credit contract, the creditor must retain evidence of compliance 
with those requirements, as required by Sec.  1026.25(a). The Bureau

[[Page 51143]]

solicits comment on whether this exemption should be adopted in 
Regulation Z.
Section 1026.4 Finance Charge
TILA's Approach to the Finance Charge
    Section 106(a) of TILA defines the finance charge as ``the sum of 
all charges, payable directly or indirectly by the person to whom the 
credit is extended, and imposed directly or indirectly by the creditor 
as an incident to the extension of credit,'' excluding charges of a 
type payable in a comparable cash transaction. 15 U.S.C. 1605(a). 
Despite this broad general definition of the finance charge, TILA 
contains numerous exceptions. For example, TILA generally includes in 
the finance charge credit insurance and property and liability 
insurance charges or premiums, but it also excludes such amounts if 
certain conditions are met. 15 U.S.C. 1605(b), (c); TILA section 
106(b), (c). TILA also specifically excludes from the finance charge 
certain charges related to the perfecting of the security interest, and 
various fees in connection with loans secured by real property, such as 
title examination fees, title insurance premiums, fees for preparation 
of loan-related documents, escrows for future payment of taxes and 
insurance, notary fees, appraisal fees, pest and flood-hazard 
inspection fees, and credit report fees. 15 U.S.C. 1605(d), (e); TILA 
section 106(d), (e). Such amounts would otherwise be included in the 
finance charge under the general definition.
Current Regulatory Approach to the Finance Charge
    Current Sec.  1026.4 implements TILA section 106 by largely 
mirroring the statutory definition of finance charge and the specific 
exclusions from that definition. In addition, Sec.  1026.4 contains 
certain exclusions from the finance charge that are not specifically 
listed in the statute. For example, current Sec.  1026.4(c) 
specifically excludes application fees and forfeited interest from the 
definition of finance charge, whereas TILA does not.
    There are longstanding concerns about the ``some fees in, some fees 
out'' approach to the finance charge in TILA and Regulation Z. Early 
concerns about the problems with this approach to the finance charge 
are outlined in the Board-HUD Joint Report. Board-HUD Joint Report at 
10. The Board-HUD Joint Report states that a fundamental problem with 
the finance charge is that the ``cost of credit'' has different 
meanings from the perspective of the consumer and the creditor. Id. 
From the creditor's perspective, the cost of credit may mean the 
interest and fee income that the creditor receives in exchange for 
providing credit to the consumer. Id. However, the consumer views the 
cost of credit as what the consumer pays for the credit, regardless of 
the persons to whom such amounts are paid. Id. The current ``some fees 
in, some fees out'' approach to the finance charge largely reflects the 
creditor's perspective, not the consumer's.
    In its 2009 Closed-End Proposal, the Board proposed to broaden the 
definition of the finance charge in closed-end transactions secured by 
real property or a dwelling, citing the Board-HUD Joint Report and 
consumer testing conducted by the Board as support for an expanded 
approach to the finance charge. 74 FR 43232, 43243 (Aug. 26, 2009). 
First, the Board reasoned that excluding certain fees from the finance 
charge undermines the effectiveness of the APR as a measure of the true 
cost of credit. Id. Second, the Board's 2009 Closed-End Proposal stated 
that the numerous exclusions from the finance charge encourage lenders 
to shift the cost of credit to excluded fees. Id. This practice 
undermines the usefulness of the APR and has resulted in the creation 
of new so-called ``junk fees,'' such as fees for preparing loan-related 
documents, which are not part of the finance charge. Third, the Board 
cited the complexity of the implementing rules, which create 
significant regulatory burden and litigation risk, as support for a 
simplified definition of the finance charge. Id.
    In light of these concerns about the finance charge, for closed-end 
credit transactions secured by real property or a dwelling, the Board's 
2009 Closed-End Proposal would have replaced the ``some fees in, some 
fees out'' approach to the finance charge with a more inclusive 
approach to ensure that the finance charge and corresponding APR 
disclosed to consumers provides a more complete and useful measure of 
the cost of credit. The Board did not finalize its proposal prior to 
the transfer of its TILA rulemaking authority to the Bureau.
The Bureau's Proposal
    For the reasons set forth in the Board's 2009 Closed-End Proposal, 
discussed above, proposed Sec.  1026.4 revises the test for determining 
the finance charge. Except where otherwise noted, the Bureau's proposal 
generally mirrors the Board's 2009 Closed-End Proposal. Pursuant to its 
authority under TILA section 105(a) and (f), Dodd-Frank Act section 
1032(a), and, for residential mortgage loans, Dodd-Frank Act section 
1405(b), the Bureau is proposing to amend Sec.  1026.4 to replace the 
current ``some fees in, some fees out'' approach to the finance charge 
with a simpler, more inclusive test based on the general definition of 
finance charge in TILA section 106(a). 15 U.S.C. 1601 note; 1604(a), 
(f); 12 U.S.C. 5532(a). The proposed changes to Sec.  1026.4 apply to 
closed-end transactions secured by real property or a dwelling, and are 
not limited to transactions subject to proposed Sec.  1026.19(e) and 
(f).
    Under proposed Sec.  1026.4, the current exclusions from the 
finance charge would be largely eliminated, for closed-end transactions 
secured by real property or a dwelling. Specifically, under the 
proposed test, a fee or charge is included in the finance charge if it 
is (1) ``payable directly or indirectly by the consumer'' to whom 
credit is extended, and (2) ``imposed directly or indirectly by the 
creditor as an incident to or a condition of the extension of credit.'' 
However, the finance charge would continue to exclude fees or charges 
paid in comparable cash transactions. The proposed rule also retains a 
few narrow exclusions from the finance charge. As discussed below, 
proposed Sec.  1026.4 continues to exclude from the finance charge late 
fees and similar default or delinquency charges, seller's points, 
amounts required to be paid into escrow accounts if the amounts would 
not otherwise be included in the finance charge, and premiums for 
property and liability insurance if certain conditions are met.
    The Bureau proposes Sec.  1026.4 pursuant to its authority under 
TILA section 105(a) and (f), Dodd-Frank-Act section 1032(a), and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b). The Bureau 
has considered the purposes for which it may exercise its authority 
under TILA section 105(a) and, based on that review, believes that the 
proposed adjustments and exceptions are appropriate. The proposal would 
effectuate TILA's purpose by better informing consumers of the total 
cost of credit and prevent circumvention or evasion of the statute 
through the unbundling or shifting of the cost of credit from items 
that are included in the finance charge to fees or charges that are 
currently excluded from the finance charge. The Bureau has considered 
the factors in TILA section 105(f) and believes that, for the reasons 
discussed above, an exception is appropriate under that provision. 
Specifically, the Bureau believes that the proposed exemption is 
appropriate for all affected borrowers, regardless of their other 
financial arrangements and financial sophistication and the

[[Page 51144]]

importance of the loan to them. Similarly, the Bureau believes that the 
proposed exemption is appropriate for all affected loans, regardless of 
the amount of the loan and whether the loan is secured by the principal 
residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers. A more inclusive approach to the 
finance charge may improve the process of mortgage lending by enhancing 
consumer understanding of the finance charge and APR, and will also 
reduce compliance costs. The Bureau does not believe that the proposed 
exemptions undermine the goal of consumer protection; rather they 
promote and are more consistent with the overall purposes of TILA. 
Based on that review, the Bureau believes that treating the fees that 
are currently exempt as part of the finance charge, for closed-end 
transactions secured by real property or a dwelling, is appropriate.
    In addition, for the reasons set forth above, the proposed changes 
to the finance charge will ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances, consistent 
with section 1032(a) of the Dodd-Frank Act. Finally, for closed-end 
transactions secured by real property or a dwelling that are also 
residential mortgage loans as defined in TILA section 103(cc)(5), the 
Bureau proposes Sec.  1026.4 pursuant to its authority under Dodd-Frank 
Act section 1405(b). For the reasons set forth above, including 
avoiding consumer confusion and preventing the unbundling of the cost 
of credit, the Bureau believes this proposed modification may improve 
consumer understanding, and therefore is in the interest of consumers 
and the public.
    Industry feedback in response to the Bureau's Small Business Review 
Panel Outline raised concerns about the usefulness of the proposed 
expansion of the finance charge in light of the Bureau's proposal to 
deemphasize the finance charge and APR in the disclosures provided to 
consumers within three days of the consumers' application and prior to 
consummation, as discussed below in the section-by-section analysis for 
proposed Sec. Sec.  1026.37(l) and 1026.38(o). The Bureau has 
considered this feedback in developing the proposed rule, but 
nevertheless believes that, in addition to benefiting industry by 
simplifying the finance charge and APR calculation, the proposed 
approach could provide important benefits to consumers in the form of 
an APR that better reflects the true cost of credit. The Bureau intends 
to develop supplemental educational materials to further explain how to 
use the finance charge and APR in comparing loan costs over the long 
term. Accordingly, the Bureau's proposal to remove exclusions from the 
finance charge is one of several ways the Bureau intends to improve the 
disclosure as a useful measure for consumers.
    The Bureau recognizes that the proposed more inclusive finance 
charge could affect coverage under other laws, such as higher-priced 
mortgage loan and HOEPA protections, and that a more inclusive finance 
charge has implications for the HOEPA, Escrow, Appraisals, and Ability 
to Repay rulemakings identified in part II.F above. Absent further 
action by the Bureau, the more inclusive finance charge would:
     Cause more closed-end loans to trigger HOEPA protections 
for high-cost loans.\120\ The protections include special disclosures, 
restrictions on certain loan features and lender practices, and 
strengthened consumer remedies. The more inclusive finance charge would 
affect both the points and fees test (which currently uses the finance 
charge as its starting point) and the APR test (which under Dodd-Frank 
will depend on comparisons to APOR) for defining what constitutes a 
high-cost loan.
---------------------------------------------------------------------------

    \120\ Under the Dodd-Frank Act, a loan is defined as a high-cost 
mortgage, subject to HOEPA protections, if the total points and fees 
payable in connection with the transaction exceed specified 
thresholds (points and fees coverage test); the transaction's APR 
exceeds the applicable APOR by a specified threshold (APR coverage 
test); or the transaction has certain prepayment penalties. First, 
under the points and fees coverage test, the definition of points 
and fees includes, as its starting point, all items included in the 
finance charge. Therefore, a potential consequence of the more 
inclusive finance charge is that more loans might exceed HOEPA's 
points and fees threshold because new categories of charges would be 
included in the calculation of total points and fees for purposes of 
that coverage test. In addition, under the APR coverage test, the 
more inclusive finance charge could result in some additional loans 
being covered as high-cost mortgages because closed-end loans would 
have higher APRs. There are currently some differences between APR 
and the average prime offer rate, which is generally calculated 
using data that includes only contract interest rate and points but 
not other origination fees. See 75 FR 58660-58662. The current APR 
includes not only discount points and origination fees but also 
other charges the creditor retains and certain third-party charges. 
The more inclusive finance charge, which would also include most 
third-party charges, would widen the disparity between the APR and 
APOR and cause more closed-end loans to qualify as a high-cost 
mortgage. The Bureau notes that substantially similar implications 
would apply to each respective rulemaking in which coverage depends 
on comparing a transaction's APR to the applicable APOR. In 
addition, the Bureau notes that the Dodd-Frank Act expands HOEPA to 
apply to more types of mortgage transactions, including purchase 
money mortgage loans and open-end credit plans secured by a 
consumer's principal dwelling. However, the proposed more inclusive 
finance charge applies only to closed-end loans. Therefore, the 
Bureau notes that the more inclusive finance charge would not affect 
the potential coverage of open-end credit plans under HOEPA.
---------------------------------------------------------------------------

     Cause more loans to trigger Dodd-Frank Act requirements to 
maintain escrow accounts for first-lien higher-priced mortgage loans. 
Coverage depends on comparing a transaction's APR to the applicable 
APOR.
     Cause more loans to trigger Dodd-Frank Act requirements to 
obtain one or more interior appraisals for ``higher-risk'' mortgage 
loans. Coverage depends on comparing a transaction's APR to the 
applicable APOR.
     Reduce the number of loans that would otherwise be 
``qualified mortgages'' under the Dodd-Frank Act Ability to Repay 
requirements, given that qualified mortgages cannot have points and 
fees in excess of three percent of the loan amount. Also, more loans 
could be required to comply with separate underwriting requirements 
applicable to higher-priced balloon loans, and could be ineligible for 
certain exceptions authorizing creditors to offer prepayment penalties 
on fixed-rate, non-higher-priced qualified mortgage loans.\121\ Again, 
status as a higher-priced mortgage loan depends on comparing APR to 
APOR.
---------------------------------------------------------------------------

    \121\ Specifically, the Dodd-Frank Act generally prohibits 
prepayment penalties on closed-end, dwelling-secured mortgage loans, 
except on fixed-rate qualified mortgages that are not higher-priced 
mortgage loans. For balloon loans, the Dodd-Frank Act generally 
requires creditors to assess consumers' ability to repay a higher-
priced loan with a balloon payment using the scheduled payments 
required under the terms of the loan including any balloon payment, 
and based on income and assets other than the dwelling itself. Only 
consumers with substantial income or assets would likely qualify for 
such a loan. A separate Dodd-Frank Act provision authorizing balloon 
loans made by creditors that operate predominantly in rural or 
underserved areas is not affected by the finance charge issue.
---------------------------------------------------------------------------

    During the Small Business Review Panel and in industry feedback 
provided in response to the Small Business Review Panel Outline, 
concerns were expressed that one unintended consequence of a more 
inclusive definition of finance charge could be that more loans would 
qualify as high-cost loans subject to additional requirements under 
TILA section 129 and under similar State laws. See Small Business 
Review Panel Report at 25. Industry feedback generally suggests that 
the proposed revisions to the

[[Page 51145]]

finance charge be viewed in the context of other rulemakings 
implementing the Dodd-Frank Act revisions to the thresholds for high-
cost mortgages and qualified mortgage determinations, because of the 
relationship between the APR and those thresholds and because any 
changes to the APR calculation could be costly to implement and should 
be done in conjunction with other related changes.
    Based on this feedback and consistent with the Small Business 
Review Panel's recommendation, the Bureau has considered the 
requirements of TILA section 129 (high-cost mortgages) and TILA section 
129C (qualified mortgages), including the Dodd-Frank Act amendments to 
those provisions, as well as State predatory lending laws, in proposing 
the amendments to Sec.  1026.4. For example, the Board previously 
proposed two means of reconciling an expanded definition of the finance 
charge with existing thresholds for loan APR and points and fees, and 
the Bureau expects to seek comment on potential trigger modifications 
in each proposal it issues as discussed below. The Bureau will consider 
any final or proposed rules implementing those provisions prior to 
issuing a final rule on this issue. See Small Business Review Panel 
Report at 30.
    As described in the Sec.  1022 analysis below, the Bureau is 
seeking data that will allow it to perform a quantitative analysis to 
determine the impacts of a broader finance charge definition on APR 
thresholds for HOEPA and various other regimes.\122\ The Bureau seeks 
comment on its plans for data analysis, as well as additional data and 
comment on the potential impacts of a broader finance charge definition 
and potential modifications to the triggers.
---------------------------------------------------------------------------

    \122\ In its 2009 Closed-End Proposal, the Board relied on a 
2008 survey of closing costs conducted by Bankrate.com that contains 
data for hypothetical $200,000 loans in urban areas. Based on that 
data, the Board estimated that the share of first-lien refinance and 
home improvement loans that are subject to HOEPA would increase by 
.6 percent if the definition of finance charge was expanded. The 
Bureau is considering the 2010 version of that survey, but as 
described below the Bureau is also seeking additional data that 
would provide more representative information regarding closing and 
settlement costs that would allow for a more refined analysis of the 
proposals.
---------------------------------------------------------------------------

    The Bureau is carefully weighing whether modifications may be 
warranted to the thresholds for particular regulatory regimes to 
approximate coverage levels under the current definition of finance 
charge. It is not clear from the legislative history of the Dodd-Frank 
Act whether Congress was aware of the Board's 2009 Closed-End Proposal 
to expand the current definition of finance charge or whether Congress 
considered the interplay between an expanded definition and coverage 
under various thresholds addressed in the Dodd-Frank Act. In light of 
this fact and the concerns raised by commenters on the Board's 2009 
Closed-End Proposal regarding effects on access to credit, the Bureau 
believes that it is appropriate to explore alternatives to 
implementation of the expanded finance charge definition for purposes 
of coverage under HOEPA and other regulatory regimes.
    For example, the Board previously proposed two means of reconciling 
an expanded definition of the finance charge with existing APR-based 
thresholds. On several occasions, the Board proposed to replace the APR 
with a ``transaction coverage rate'' as a transaction-specific metric a 
creditor compares to the average prime offer rate to determine whether 
the transaction meets the higher-priced loan threshold in Sec.  
1026.35(a). See 76 FR 27390, 27411-12 (May 11, 2011); 76 FR 11598, 
11608-09 (Mar. 2, 2011); 75 FR 58539, 58660-61 (Sept. 24, 2010).\123\ 
Although adopting the TCR would mean that lenders would have to 
calculate one metric for purposes of disclosure and another for 
purposes of regulatory coverage, both metrics would be simpler to 
compute than APR today using the current definition of finance 
charge.\124\ In addition, the Board proposed to amend Sec.  1026.32 to 
retain the existing treatment of certain charges in the definition of 
points and fees for purposes of determining HOEPA coverage. 75 FR at 
58539, 58636-38 (Sept. 24, 2010). The Bureau has proposed language to 
adopt the transaction coverage rate and to exclude the additional 
charges from the HOEPA points and fees test in its 2012 HOEPA Proposal. 
The Bureau has proposed language to adopt the transaction coverage rate 
and to exclude the additional charges from the HOEPA points and fees 
test in its 2012 HOEPA Proposal. The Bureau seeks comment on these 
prior proposals and other potential methods of addressing the impact of 
a more inclusive approach to the finance charge on other regimes.
---------------------------------------------------------------------------

    \123\ The transaction coverage rate would be determined in 
accordance with the applicable rules of Regulation Z for the 
calculation of the annual percentage rate for a closed-end 
transaction, except that the prepaid finance charge for purposes of 
calculating the transaction coverage rate includes only charges that 
will be retained by the creditor, mortgage broker, or affiliates of 
either. The wording of the Board's proposed definition of 
``transaction coverage rate'' varied slightly between the 2010 
Mortgage Proposal and the 2011 Escrows Proposal as to treatment of 
charges retained by mortgage broker affiliates. In its 2012 HOEPA 
Proposal, the Bureau proposes to use the 2011 Escrows Proposal 
version, which would include charges retained by broker affiliates. 
The Bureau believes that this approach is consistent with the 
rationale articulated by the Board in its earlier proposals and with 
certain other parts of the Dodd-Frank Act that distinguish between 
charges retained by the creditor, mortgage broker, or affiliates of 
either company. See, e.g., Dodd-Frank Act sections 1403, 1411(a).
    \124\ To the extent that lenders believe that it is burdensome 
to calculate two metrics, they could continue to use APR for both 
purposes.
---------------------------------------------------------------------------

    The Bureau also seeks comment on the potential advantages and 
disadvantages to both consumers and creditors of using different 
metrics for purposes of disclosures and for purposes of determining 
coverage of various regulatory regimes. With regard to the transaction 
coverage rate, the Bureau believes that the potential compliance burden 
is mitigated by the fact that both TCR and APR would be easier to 
compute than the APR today using the current definition of finance 
charge. However, the Bureau seeks comment on the issue generally and in 
particular on whether use of the TCR or other trigger modifications 
should be optional, so that creditors could use the broader definition 
of finance charge to calculate APR and points and fees triggers if they 
would prefer. The Board's 2010 Mortgage Proposal structured TCR as a 
mandatory requirement out of concern that identical transactions 
extended by two different creditors could have inconsistent coverage 
under regulations governing higher-priced mortgage loans, but similarly 
sought comment on the issue.
    Finally, the Bureau also seeks comment on the timing of 
implementation. There is no statutory deadline for issuing final rules 
to integrate the mortgage disclosures under TILA and RESPA, and the 
Bureau expects that it may take some time to conduct quantitative 
testing of the forms prior to issuing final rules. However, the Bureau 
expects to issue several final rules to implement provisions of title 
XIV of the Dodd-Frank Act by January 21, 2013, that address thresholds 
for compliance with various substantive requirements under HOEPA and 
other Dodd-Frank Act provisions. In some cases the Dodd-Frank Act 
requires that regulations implementing title XIV take effect within one 
year of issuance.
    The Bureau believes that it would be preferable to make any change 
to the definition of finance charge and any related adjustments in 
regulatory triggers take effect at the same time, in order to provide 
for consistency and efficient systems modification. The Bureau also 
believes that it may be advantageous to consumers and creditors to make 
any such changes at

[[Page 51146]]

the same time that creditors are implementing new title XIV 
requirements involving APR and points and fees thresholds, rather than 
waiting until the Bureau finalizes other aspects of this rulemaking 
relating to disclosures. If the Bureau expands the definition of 
finance charge, this approach would likely provide the benefits to 
consumers of the final rule at an earlier date as well as avoid 
requiring creditors to make two sets of systems and procedures changes 
focused on determining which loans trigger particular regulatory 
requirements. However, given that implementation of the disclosure-
related elements of this proposal will also require systems and 
procedures changes, there may be advantages to delaying any change in 
the definition of finance charge and any related adjustments to 
regulatory triggers until those changes occur. The Bureau therefore 
seeks comment on whether to sequence any change in the proposal 
considering the benefits and costs to both consumers and industry of 
both approaches.
    In light of these implementation issues, the Bureau wishes to 
evaluate comments on the cumulative effect of an expanded definition of 
the finance charge simultaneously with comments on the rules to 
implement title XIV. The Bureau therefore is providing a comment period 
of 60 days for the proposed amendments to Sec.  1026.4, rather than the 
120-day comment period provided for all other aspects of this proposed 
rule other than Sec.  1026.1(c). The Bureau believes a shorter comment 
period is particularly appropriate given that this aspect of the 
proposal largely mirrors the proposed changes to Sec.  1026.4 in the 
Board's 2009 Closed-End Proposal.
4(a) Definition
    Section 1026.4 states the basic test for the finance charge, as set 
forth in TILA section 106(a), and specifies that it does not include 
types of charges payable in a comparable cash transaction. Consistent 
with the Board's 2009 Closed-End Proposal, the Bureau is proposing new 
comment 4(a)-6 to clarify that, in a transaction where there is no 
seller, such as a refinancing of an existing extension of credit 
described in Sec.  1026.20(a), there is no comparable cash transaction 
and, therefore, the exclusion from the finance charge in proposed Sec.  
1026.4(a) for types of charges payable in a comparable cash transaction 
does not apply to such transactions. The Bureau solicits comment on 
this proposed clarification.
4(a)(2) Special Rule; Closing Agent Charges
    Section 1026.4(a)(2) provides a special rule for the treatment of 
closing agent charges in determining the finance charge. That section 
excludes from the finance charge fees charged by a third party that 
conducts a loan closing unless the creditor (1) requires the particular 
service for which the consumer is charged; (2) requires the imposition 
of the charge; or (3) retains a portion of the third-party charge. 
Under proposed Sec.  1026.4(a)(2), this exclusion is inapplicable to 
closed-end transactions secured by real property or a dwelling. Under 
the basic test for the finance charge in TILA section 106(a), many 
closing agent charges described in Sec.  1026.4(a)(2) would typically 
be part of the finance charge because creditors generally require 
closing agents to conduct closings who, in turn, impose various fees on 
the consumer. As the Board described in its 2009 Closed-End Proposal, 
in some cases, the creditor clearly requires the particular fee charged 
by the closing agent but that, in other cases, it is not clear whether 
a charge is specifically required by the creditor. A case-by-case 
determination as to whether the creditor requires the particular 
service charged by a closing agent would result in significant burden 
and risk for consumers and, likely, inconsistent treatment of such 
fees, which would undermine the purpose of disclosing the finance 
charge to consumers. 74 FR at 43246. For these reasons, proposed Sec.  
1026.4(a)(2) adopts a bright-line rule that includes in the finance 
charge fees charged by closing agents, including fees of other third 
parties hired by closing agents to perform particular services, 
assuming those fees meet the general definition of finance charge and 
that no other exclusion applies. Proposed comment 4(a)(2)-3 clarifies 
that comments 4(a)(2)-1 and 4(a)(2)-2 do not apply to closed-end 
transactions secured by real property or a dwelling.
    As the Board noted in its 2009 Closed-End Proposal, the inclusion 
of third-party charges in the finance charge may create some risk that 
creditors will understate the finance charge if the creditor does not 
know that a charge is imposed by a third party or the particular amount 
of such charge. 74 FR at 43246. Some industry commenters in response to 
the 2009 Closed-End Proposal supported the inclusion of all closing 
agent charges in the finance charge as a means of simplifying 
compliance. Other industry commenters opposed the inclusion of all 
closing agent charges in the finance charge due to the creditor's lack 
of control over these charges, and also because including these amounts 
in the finance charge makes creditors responsible for settlement fees 
under TILA. The Bureau has considered these comments in developing the 
proposed rule, but believes that a determination of whether a creditor 
requires the particular service for which the consumer is charged 
results in significant confusion for consumers and inconsistent 
treatment of such fees. In addition, as discussed below, the Dodd-Frank 
Act added to TILA a requirement that creditors disclose aggregate 
settlement charges, so that creditors now have a statutory disclosure 
responsibility for such charges under TILA. Furthermore, creditors are 
responsible for disclosing settlement charges subject to certain 
estimation requirements and limitations on increases in settlement 
costs pursuant to HUD's 2008 RESPA Final Rule and proposed Sec.  
1026.19(e), discussed below. The Bureau also notes that the risk of 
understating the finance charge is lessened by TILA section 106(f), 15 
U.S.C. 1605(f), current Sec.  1026.18(d)(1), and proposed Sec.  
1026.38(o)(2), which provide that a disclosed finance charge is treated 
as accurate if it does not vary from the actual finance charge by more 
than $100 or is greater than the amount required to be disclosed. The 
Bureau requests comment on the extent to which settlement costs 
increase from the good faith estimate to closing and whether the Bureau 
should increase the finance charge tolerance for closed-end 
transactions secured by real property or a dwelling in light of the 
proposal to include third-party charges in the finance charge, and the 
amount of any such increase.
    In addition, the Board's 2009 Closed-End Proposal stated that 
excluding certain fees from the finance charge because they are 
voluntary or optional is inconsistent with the statutory objective of 
disclosing the ``cost of credit,'' including charges imposed ``as an 
incident to the extension of credit.'' 74 FR at 43246. As the Board 
noted, an assumption underlying the exclusion from the finance charge 
for certain voluntary or optional charges is that they are not 
``imposed directly or indirectly by the creditor.'' Id. However, some 
charges may be imposed by the creditor even if the services for which 
the fee is imposed are not specifically required by the creditor. Id. 
For example, a creditor may require the use of a closing agent, but may 
not impose or require certain fees or services imposed by that closing 
agent for which

[[Page 51147]]

the consumer is charged, such as administration fees for voluntary 
escrow accounts. Excluding such charges from the finance charge 
conflicts with the statutory purpose of including charges that are 
imposed ``as an incident to the extension of credit.''
    The Board historically interpreted the definition of ``finance 
charge'' as not dependent on whether a charge is voluntary or required. 
See, e.g., 61 FR 49237, 49239 (Sept. 19, 1996) (``The Board has 
generally taken a case by case approach in determining whether 
particular fees are `finance charges' and does not interpret Regulation 
Z to automatically exclude all `voluntary' charges from the finance 
charge.''). This approach is reflected in current Regulation Z's 
treatment of voluntary credit insurance premiums and debt cancellation 
fees, which are by definition voluntary, as excluded from the finance 
charge only under certain circumstances. This special rule presupposes 
that voluntary credit insurance and debt cancellation charges would be 
included in the finance charge under the general definition.
    Furthermore, excluding certain fees from the finance charge because 
they are voluntary or optional requires a factual determination, which 
is not practical in all cases since it may be difficult to determine 
whether a fee or charge is truly voluntary. The Board's 2009 Closed-End 
Proposal cited the current provisions addressing whether a charge for 
credit insurance is optional as an example of an approach to defining a 
voluntariness test that has proven unsatisfactory. Id. For this reason, 
the Bureau proposes a bright-line rule to include in the finance charge 
both voluntary and required charges that are imposed by the creditor to 
avoid fact-based analysis and improve consistency in disclosure of the 
finance charge and APR.
    The Board cited as another basis for the current exclusions from 
the finance charge the assumption that creditors cannot know the 
amounts of voluntary or optional charges at the time the finance charge 
and APR disclosures must be provided to consumers. Id. However, like 
the Board, the Bureau believes that creditors know the amounts of their 
own voluntary charges, if any, and that creditors know or can readily 
determine voluntary charges when disclosing the finance charge and APR 
to consumers at least three business days prior to consummation. As a 
practical matter, most voluntary fees would be excluded from the 
finance charge because they are also payable in a comparable cash 
transaction (e.g., home warranty fees). The Board cited voluntary 
credit insurance premiums as the primary voluntary third-party charge 
in connection with a mortgage transaction that is not otherwise 
excluded from the finance charge, noting that creditors generally 
solicit consumers for this insurance and that, historically, creditors 
had to disclose the premium for voluntary credit insurance to exclude 
such amounts from the finance charge. However, the Bureau solicits 
comment on whether there are voluntary third-party charges that would 
be included in the finance charge under the proposed more-inclusive 
approach the amounts of which cannot be determined three business days 
before consummation.
    The Bureau also recognizes that, within three business days of 
receiving the consumer's application, creditors may not know what 
voluntary or optional charges the consumer will incur. Regulation Z 
generally permits creditors to rely on reasonable assumptions regarding 
voluntary or optional charges and label those disclosures as estimates 
pursuant to Sec.  1026.17(c) and its commentary. The Bureau requests 
comment on whether further guidance is required regarding reasonable 
assumptions for the voluntary or optional charges.
4(b) Examples of Finance Charges
    The Bureau proposes to amend comment 4(b)-1 to be consistent with 
proposed Sec.  1026.4(g), which provides that the exclusions from the 
finance charge under Sec.  1026.4(a)(2) and (c) through (e), other than 
Sec.  1026.4(c)(2), (c)(5), (c)(7)(v), and (d)(2), do not apply to 
closed-end transactions secured by real property or a dwelling, as 
discussed below.
4(c) Charges Excluded From the Finance Charge
    The Bureau proposes to amend Sec.  1026.4(c), which lists specific 
exclusions from the finance charge, to be consistent with proposed 
Sec.  1026.4(g). Pursuant to proposed Sec.  1026.4(g), the exclusions 
in Sec.  1026.4(c), other than the exclusion for late fees, exceeding a 
credit limit, and default, delinquency, or similar charges, seller's 
points, and escrowed items that are otherwise not included in the 
finance charge, would not apply to closed-end transactions secured by 
real property or a dwelling. The Bureau also proposes to amend the 
commentary to Sec.  1026.4(c) to be consistent with Sec.  1026.4(g).
4(c)(2)
    The Bureau proposes to retain the exclusion from the finance charge 
under Sec.  1026.4(c)(2) of fees for actual unanticipated late payment, 
exceeding a credit limit, or for delinquency, default, or a similar 
occurrence. Although the Bureau is generally proposing a more inclusive 
approach to the finance charge through proposed Sec.  1026.4, the 
charges described in Sec.  1026.4(c)(2) should be excluded from the 
finance charge because they are incurred, if at all, only after 
consummation of the transaction. At the time a creditor must disclose 
the finance charge and other items affected by the finance charge, the 
creditor cannot know whether or how many times such charges may be 
imposed.
4(c)(5)
    The Bureau proposes to retain the exclusion from the finance charge 
under Sec.  1026.4(c)(5) of seller's points. Seller's points include 
any charges imposed by the creditor upon the non-creditor seller of 
property for providing credit to the buyer or for providing credit on 
certain terms. Although the Bureau is generally proposing a more 
inclusive approach to the finance charge, the Bureau believes that it 
is appropriate to continue to exclude seller's points from the finance 
charge because seller's points are not payable by the consumer and 
because the extent to which seller's points are passed on to the 
consumer in the form of a higher sales price is unknown. However, the 
Bureau requests comment on whether seller's points should be included 
in the finance charge for closed-end transactions secured by real 
property or a dwelling. In particular, the Bureau requests comment on 
the frequency with which seller's points are passed on to the borrower 
through a higher sales price. In addition, although the scope of the 
changes to Sec.  1026.4 under this proposal is limited to closed-end 
transactions secured by real property or a dwelling, the Bureau 
solicits comment on the potential ramifications of including seller's 
points in the finance charge for other types of credit.
4(c)(7) Real-Estate Related Fees
    Section 106(e) of TILA, 15 U.S.C. 1605(e), excludes certain charges 
from the finance charge for credit secured by an interest in real 
property. This provision is implemented in current Sec.  1026.4(c)(7), 
which contains exclusions from the finance charge that generally mirror 
the statute, for transactions secured by real property or in 
residential mortgage transactions, provided that the fees for such 
charges are bona fide and reasonable in amount. Specifically, Sec.  
1026.4(c)(7) excludes from the finance charge those fees for: title 
examination, abstract of title, title insurance, property survey, and 
similar

[[Page 51148]]

purposes; preparing loan-related documents, such as deeds, mortgages, 
and reconveyance or settlement documents; notary and credit report 
fees; property appraisal or inspections to assess the value or 
condition of the property prior to closing, including pest-infestation 
or flood-hazard determination; and amounts required to be paid into 
escrow or trustee accounts if the amounts would not otherwise be 
included in the finance charge. These fees fall squarely within the 
general statutory definition of the finance charge, and their exclusion 
from the finance charge significantly undermines the purpose of the 
finance charge as a reflection of the cost of credit since the charges 
comprise a significant portion of the up-front costs paid by consumers. 
As noted by some industry commenters to the 2009 Closed-End Proposal, 
the inclusion of real-estate related fees such as application, 
appraisal, and credit report fees in the finance would reduce the 
possibility that a creditor can manipulate the APR by shifting some 
costs of credit to fees that are currently excluded from the finance 
charge. Some commenters also noted that these charges are generally 
known to the creditor early in the loan process. Accordingly, proposed 
Sec.  1026.4 includes these charges in the finance charge.
    However, proposed Sec.  1026.4 retains the exclusion from the 
finance charge in current Sec.  1026.4(c)(7)(v) for amounts required to 
be paid into escrow or trustee accounts if the amounts would not 
otherwise be included in the finance charge. For example, homeowner's 
insurance premiums that are excluded from the finance charge pursuant 
to Sec.  1026.4(d)(2) would not be included in the finance charge 
simply because such premiums will be paid into an escrow account.
    Under the Board's 2009 Closed-End Proposal, Sec.  1026.4(c)(7) 
would have applied only to open-end credit plans secured by real 
property or open-end residential mortgage transactions. Some commenters 
interpreted that proposal to mean that amounts required to be paid into 
escrow or trustee accounts should be included in the finance charge 
calculation, even if such amounts would not otherwise be included in 
the finance charge if not paid into an escrow or trustee account. 
Concerns about including escrowed taxes and insurance in the finance 
charge were raised during the Small Business Review Panel (see Small 
Business Review Panel Report at 30), in industry feedback provided in 
response to the Small Business Review Panel Outline, and in comment 
letters provided to the Board in response to the 2009 Closed-End 
Proposal. The Small Business Review Panel specifically recommended that 
escrowed taxes and insurance remain excluded from the finance charge, 
unless those amounts would otherwise be considered finance charges 
under the expanded definition. Small Business Review Panel Report at 
30. Commenters to the 2009 Closed-End Proposal noted that including 
escrowed taxes and insurance in the finance charge while excluding 
those paid outside of escrow may mislead consumers who try to compare 
escrowed and non-escrowed loans. Commenters also noted that the APR for 
identical loans could be vastly different because the escrow deposit is 
calculated based on the date the loan closes and when the next tax 
payment is due. Based on this feedback and consistent with the Small 
Business Review Panel's recommendation, the Bureau is proposing to 
exclude escrowed taxes and insurance from the finance charge, unless 
those amounts would otherwise be considered finance charges under the 
expanded definition. In short, a fee or charge that is not part of the 
finance charge does not become part of the finance charge merely 
because it is paid to an escrow account.
    Accordingly, proposed comment 4(c)(7)-1 clarifies that the 
exclusion of escrowed amounts under Sec.  1026.4(c)(7)(v) applies to 
all residential mortgage transactions and to other transactions secured 
by real estate. The Bureau also proposes other amendments to the 
commentary to Sec.  1026.4(c)(7) to be consistent with proposed Sec.  
1026.4(g).
4(d) Insurance and Debt Cancellation and Debt Suspension Coverage
    The Bureau proposes to amend Sec.  1026.4(d), which currently 
excludes from the finance charge, under certain circumstances, 
voluntary credit insurance premiums, property insurance premiums, and 
voluntary debt cancellation or debt suspension fees. Consistent with 
proposed Sec.  1026.4(g), proposed Sec.  1026.4(d) would not exclude 
from the finance charge credit insurance premiums and debt cancellation 
or debt suspension fees, for closed-end mortgage transactions. The 
Bureau also proposes to amend the commentary to Sec.  1026.4(d) to be 
consistent with Sec.  1026.4(g).
4(d)(1) Voluntary Credit Insurance Premiums
4(d)(3) Voluntary Debt Cancellation or Debt Suspension Fees
    TILA section 106(b)(7), 15 U.S.C. 1605(b)(7), provides that 
premiums for credit life, accident, or health insurance written in 
connection with any consumer credit transaction are part of the finance 
charge unless (1) the coverage is not a factor in the approval by the 
creditor of the extension of credit, and this fact is clearly disclosed 
in writing to the consumer; and (2) to obtain the insurance, the 
consumer specifically requests the insurance after getting the 
disclosures. Current Sec.  1026.4(d)(1) and (d)(3) implement this 
provision by providing that the creditor may exclude from the finance 
charge any premium for credit life, accident, health or loss-of-income 
insurance; any charge or premium paid for debt cancellation coverage 
for amounts exceeding the value of the collateral securing the 
obligation; or any charge or premium for debt cancellation or debt 
suspension coverage in the event of loss of life, health, or income or 
in case of accident, whether or not the coverage is insurance, if (1) 
the insurance or coverage is not required by the creditor and the 
creditor discloses this fact in writing, (2) the creditor discloses the 
premium or charge for the initial term of the insurance or coverage, 
(3) the creditor discloses the term of insurance or coverage, if the 
term is less than the term of the credit transaction, and (4) the 
consumer signs or initials an affirmative written request for the 
insurance or coverage after receiving the required disclosures. In 
addition, under Sec.  1026.4(d)(3)(iii), the creditor must disclose, 
for debt suspension coverage, the fact that the obligation to pay loan 
principal and interest is only suspended, and that interest will 
continue to accrue during the period of suspension.
    Proposed Sec.  1026.4(d)(1) and (3) includes credit insurance and 
debt cancellation charges in the finance charge for closed-end 
transactions secured by real property or a dwelling to be consistent 
with Sec.  1026.4(g). Proposed Sec.  1026.4(d) is consistent with the 
overall proposed changes to Sec.  1026.4, which remove exclusions from 
the finance charge, to make the finance charge and APR more accurately 
reflect the cost of credit. As discussed above, the Bureau does not 
believe that a rule that excludes fees from the finance charge simply 
because they are ``voluntary'' is consistent with the statute, which 
says that the finance charge include charges ``imposed as an incident 
to the extension of credit,'' and that a determination of whether a fee 
is, in fact, voluntary simply has not been effective. As discussed 
above and as the Board noted in its 2009 Closed-End Proposal, the 
current test for defining

[[Page 51149]]

whether a charge for credit insurance and debt cancellation or 
suspension coverage is ``voluntary'' has proven unsatisfactory. See 74 
FR at 43246-50. Instead, the Bureau proposes a bright-line rule to 
include in the finance charge premiums for credit insurance and debt 
suspension fees. The Bureau also proposes to amend the commentary to 
Sec.  1026.4(d) to be consistent with Sec.  1026.4(g).
    Concerns were raised in industry feedback in response to the Small 
Business Review Panel Outline and in comment letters in response to the 
2009 Closed-End Proposal that voluntary charges such as credit 
insurance and debt cancellation fees should not be part of the finance 
charge because they are not ``imposed'' by the creditor. Commenters to 
the 2009 Closed-End Proposal also noted that the products are often 
sold after consummation of the transaction and that including fees for 
these products in the finance charge may confuse consumers into 
believing they are mandatory. The Bureau has considered this feedback 
in developing the proposed rule, but, as discussed above, believes that 
whether or not a fee is ``voluntary'' is not determinative of whether 
it is imposed as an ``incident to the extension of credit.'' Concerns 
that consumers might mistake voluntary charges for mandatory ones due 
to their inclusion in the finance charge are mitigated by the fact that 
(1) the TILA disclosures do not itemize the components of the finance 
charge or APR, and (2) for transactions secured by real property other 
than reverse mortgages, creditors must indicate that voluntary credit 
insurance or debt suspension, or cancellation fees are ``optional'' on 
the Loan Estimate provided to consumers within three business days of 
application and the Closing Disclosure provided three business days 
before consummation pursuant to proposed Sec.  1026.37(g)(4)(ii). 
Furthermore, existing commentary makes clear that credit insurance and 
debt cancellation and suspension products requested by the consumer 
after consummation are not considered written in connection with the 
credit transaction and therefore do not meet the basic test for 
inclusion in the finance charge. See comments 4(b)(7) and (b)(8)-2 and 
4(b)(1)-2.
4(d)(2) Property Insurance Premiums
    Section 106(c) of TILA, 15 U.S.C. 1605(c), provides that premiums 
for insurance, written in connection with any consumer credit 
transaction, against loss of or damage to property or against liability 
arising out of the ownership or use of property, should be included in 
the finance charge unless the creditor provides the consumer with a 
clear written statement that discloses the cost of such insurance if 
obtained from or through the creditor, and informs the consumer that he 
may choose his own insurance provider. Current Sec.  1026.4(d)(2) 
implements TILA section 106(c), and generally provides that such 
premiums may be excluded from the finance charge if (1) the insurance 
may be obtained from a person of the consumer's choice, and that fact 
is disclosed to the consumer, and (2) if the coverage is obtained from 
or through the creditor, the premium for the initial term of insurance 
coverage is disclosed.
    The Bureau proposes to retain the current exclusion from the 
finance charge under Sec.  1026.4(d)(2) for premiums for insurance 
against loss of or damage to property, or against liability arising out 
of the ownership or use of property. As the Board noted in its 2009 
Closed-End Proposal, property insurance is generally a hybrid product 
that protects both the value of the creditor's collateral and the 
consumer's equity in the property, such that it is impossible to 
segregate the premium into the portion that protects the creditor and 
the portion that protects the consumer. 74 FR at 43250. Although 
creditors generally require property insurance as a condition to 
extending credit secured by real property or a dwelling, consumers who 
do not have mortgages also regularly purchase property insurance to 
protect themselves from the risk of loss of or damage to property. Id. 
For these reasons, the Bureau proposes to retain the current exclusion 
from the finance charge under Sec.  1026.4(d)(2).
    The Bureau proposes to revise comment 4(d)-8 to conform it to the 
statutory language providing that, to be excluded from the finance 
charge, premiums for property insurance obtained ``from or through the 
creditor'' must be disclosed to the consumer. 15 U.S.C. 1605(c). 
Current Sec.  1026.4(d)(2) also provides that if coverage is obtained 
``from or through the creditor,'' the premium for the initial term must 
be disclosed. However, current comment 4(d)-8 states, in relevant part, 
that ``[t]he premium or charge must be disclosed only if the consumer 
elects to purchase the insurance from the creditor; in such a case, the 
creditor must also disclose the term of the property insurance coverage 
if it is less than the term of the obligation.'' (Emphasis added.) 
Accordingly, the Bureau proposes to amend comment 4(d)-8 to conform to 
the statutory language. In addition, proposed Sec.  1026.4(d)(2) and 
comment 4(d)-8 clarify that insurance is available ``from or through a 
creditor'' only if it is available from the creditor or the creditor's 
``affiliate,'' as that term is defined under the Bank Holding Company 
Act, 12 U.S.C. 1841(k). The Bank Holding Company Act defines an 
``affiliate'' as ``any company that controls, is controlled by, or is 
under common control with another company.'' Thus, if the consumer 
elects to purchase property insurance from a company that controls, is 
controlled by, or is under common control with the creditor, then the 
creditor is required to disclose the cost of the insurance and its 
term, if it is less than the term of the obligation, for the charge to 
be excluded from the finance charge.
4(e) Certain Security Interest Charges
    TILA section 106(d), 15 U.S.C. 1605(d), provides exclusions from 
the finance charge for certain government recording taxes and related 
fees and the premiums for any insurance in lieu of perfecting a 
security interest, provided those amounts are disclosed to the 
consumer. This provision is implemented in current Sec.  1026.4(e). 
Consistent with the overall approach to largely eliminate the specific 
exclusions from the finance charge for closed-end transactions secured 
by real property or a dwelling, the Bureau proposes to amend Sec.  
1026.4(e) to eliminate those exclusions, consistent with proposed Sec.  
1026.4(g). The Bureau believes this approach will better inform 
consumers of the total cost of credit and prevent circumvention or 
evasion of the statute through the unbundling of the cost of credit to 
fees or charges that are currently excluded from the finance charge. 
The Bureau also proposes to amend the commentary to Sec.  1026.4(e) to 
be consistent with Sec.  1026.4(g).
4(g) Special Rule for Closed-End Mortgage Transactions
    The Bureau proposes new Sec.  1026.4(g), which treats certain fees 
as part of the finance charge, for closed-end transactions secured by 
real property or a dwelling. Specifically, proposed Sec.  1026.4(g) 
provides that the exclusions from the finance charge in Sec.  
1026.4(a)(2) (closing agent charges) and (c) (fees for actual 
unanticipated late payment, exceeding a credit limit, or for 
delinquency, default, or similar occurrence), (d) (premiums for credit 
insurance and debt cancellation coverage), and (e) (certain security-
interest charges), other than Sec.  1026.4(c)(2) (late, over-limit, 
delinquency, default, and similar fees), (5) (seller's points), (7)(v) 
(escrowed items that are not included in the finance charge), and 
(d)(2) (property and

[[Page 51150]]

liability insurance premiums), do not apply to closed-end transactions 
secured by real property or a dwelling.
    As discussed above, the Bureau proposes to retain the exclusion 
from the finance charge for late, over-limit, delinquency, default and 
similar fees in Sec.  1026.4(c)(2), seller's points described in Sec.  
1026.4(c)(5), amounts required to be paid into escrow or trustee 
accounts if the amounts would not otherwise be included in the finance 
charge described in Sec.  1026.4(c)(7)(v), and property and liability 
insurance described in Sec.  1026.4(d)(2).
    Proposed comments 1026.4(g)-1 through -3 provide guidance to 
creditors on compliance with the special rule for closed-end mortgage 
transactions provided in proposed Sec.  1026.4(g). Proposed comment 
4(g)-1 clarifies that the commentary under the exclusions identified 
above no longer applies to closed-end credit transactions secured by 
real property or a dwelling. Proposed comment 4(g)-2 clarifies that 
third-party charges that meet the definition under Sec.  1026.4(a) and 
are not otherwise excluded from the finance charge generally are 
included in the finance charge, whether or not the creditor requires 
the services for which they are imposed. Proposed comment 4(g)-3 
clarifies that charges payable in a comparable cash transaction, such 
as property taxes and fees or taxes imposed to record the deed 
evidencing transfer of title to the property from the seller to the 
buyer, are not part of the finance charge because they would have to be 
paid even if no credit were extended to finance the purchase.
Section 1026.17 General Disclosure Requirements
    The Bureau is proposing conforming amendments to current Sec.  
1026.17 to reflect the proposed rules regarding the format, content, 
and timing of disclosures for closed-end transactions secured by real 
property, other than reverse mortgages subject to Sec.  1026.33.
17(a) Form of Disclosures
    TILA section 128(b)(1) provides that the disclosures required by 
TILA sections 128(a) and 106(b), (c), and (d) must be conspicuously 
segregated from all other terms, data, or information provided in 
connection with the transaction, including any computations or 
itemizations. 15 U.S.C. 1638(a), (b)(1); 15 U.S.C. 1605(b), (c), (d). 
In addition, TILA section 122(a) requires that the ``annual percentage 
rate'' and ``finance charge'' disclosures be more conspicuous than 
other terms, data, or information provided in connection with the 
transaction, except information relating to the identity of the 
creditor. 15 U.S.C. 1632(a). Current Sec.  1026.17(a) implements these 
statutory provisions. Current Sec.  1026.17(a)(1) implements TILA 
section 128(b)(1) by providing that closed-end credit disclosures must 
be grouped together and segregated from all other disclosures and must 
not contain any information not directly related to the disclosures. 
Current Sec.  1026.17(a)(2) implements TILA section 122(a) for closed-
end credit transactions by requiring that the terms ``annual percentage 
rate'' and ``finance charge,'' together with a corresponding amount or 
percentage rate, be disclosed more conspicuously than any disclosure 
other than the creditor's identity.
    The Bureau proposes to revise Sec.  1026.17(a) to reflect the fact 
that special rules apply to the disclosures required by Sec.  
1026.19(e), (f), and (g), by providing that Sec.  1026.17(a) is 
inapplicable to those disclosures. As discussed below, the Bureau is 
implementing the grouping and segregation requirements of TILA section 
128(b)(1) in proposed Sec. Sec.  1026.37(o) and 1026.38(t). Further, 
for the reasons set forth in the section-by-section analysis to 
proposed Sec. Sec.  1026.37(l)(3) and 1026.38(o)(2) and (4), the Bureau 
proposes to use its authority under TILA section 105(a), Dodd-Frank Act 
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act 
section 1405(b), to modify the requirements of TILA section 122(a) for 
transactions subject to Sec.  1026.19(e) and(f). Proposed comment 17-1 
states that, for the disclosures required by proposed Sec.  1026.19(e), 
(f), and (g), rules regarding the disclosures' form are found in 
proposed Sec. Sec.  1026.19(g), 1026.37(o), and 1026.38(t). In 
addition, proposed comment 17(a)(1)-7 reflects the special disclosure 
rules for transactions subject to Sec.  1026.18(g) or (s).
17(b) Time of Disclosures
    TILA section 128(b)(1) provides that the disclosures required by 
TILA section 128(a) shall be made before credit is extended. 15 U.S.C. 
1638(b)(1). Special timing rules for transactions subject to RESPA are 
found in TILA section 128(b)(2). 15 U.S.C. 1638(b)(2). Current Sec.  
1026.17(b) implements TILA section 128(b)(1) by requiring creditors to 
make closed-end credit disclosures before consummation. The special 
timing rules for transactions subject to RESPA are implemented in 
current Sec.  1026.19(a). As discussed below, the Bureau is proposing 
special timing rules for the disclosures required by proposed Sec.  
1026.19(e), (f), and (g) in those provisions. Proposed Sec.  1026.17(b) 
reflects these special rules by providing that Sec.  1026.17(b) is 
inapplicable to the disclosures required by Sec.  1026.19(e), (f), and 
(g). Proposed comment 17-1 states that, for to the disclosures required 
by Sec.  1026.19(e), (f), and (g), rules regarding timing are found in 
those sections.
17(c) Basis of Disclosures and Use of Estimates
17(c)(1)
    Current Sec.  1026.17(c)(1) requires that the disclosures that 
creditors provide pursuant to subpart C of Regulation Z reflect the 
terms of the legal obligation between the parties. The commentary to 
current Sec.  1026.17(c)(1) provides guidance to creditors regarding 
the disclosure of specific transaction types and loan features.
    As discussed more fully in the section-by-section analysis to 
proposed Sec. Sec.  1026.37 and 1026.38, the Bureau is proposing to 
integrate the disclosure requirements of TILA and sections 4 and 5 of 
RESPA in the Loan Estimate that creditors must provide to consumers 
within three business days after receiving the consumer's application 
and the Closing Disclosure that creditors must provide to consumers at 
least three business days prior to consummation. Some disclosures 
required by RESPA pertain to services performed by third parties, other 
than the lender. Accordingly, the Bureau is proposing conforming 
amendments to the commentary to Sec.  1026.17(c) to clarify that the 
``parties'' referred to in the commentary to Sec.  1026.17(c) are the 
consumer and the creditor and that the ``agreement'' referred to in the 
commentary to Sec.  1026.17(c) is the legal obligation between the 
consumer and the creditor. The proposed conforming amendments to the 
commentary also clarify that the ``disclosures'' referred to in the 
commentary to current Sec.  1026.17(c) are the finance charge and the 
disclosures affected by the finance charge. Finally, the proposed 
conforming amendments to the commentary extend existing guidance on 
special disclosure rules for transactions subject to Sec.  1026.18(s) 
to reflect the addition of new special rules under Sec.  1026.19(e) and 
(f).
    The Bureau also proposes amendments to the commentary to Sec.  
1026.17(c)(1) to address areas of industry uncertainty regarding TILA 
disclosures. First, the Bureau proposes to revise comment 17(c)(1)-1 to 
provide the general principle that disclosures based on the assumption 
that the consumer will abide by the terms of the legal obligation 
throughout its term comply with Sec.  1026.17(c)(1). In

[[Page 51151]]

addition, the Bureau proposes to revise comments 17(c)(1)-3 and -4, 
regarding third-party and consumer buydowns, respectively. Under 
existing Regulation Z, whether the effect of third-party or consumer 
buydowns are disclosed depends on State law. To address uncertainty, 
the Bureau is proposing to revise the examples in comments 17(c)(1)-3 
and -4 to clarify that, in the disclosure of the finance charge and 
other disclosures affected by the finance charge, third-party buydowns 
must be reflected as an amendment to the contract's interest rate 
provision if the buydown is reflected in the credit contract between 
the consumer and the creditor and that consumer buydowns must always be 
reflected as an amendment to the contract's interest rate provision.
    The Bureau also proposes new comment 17(c)(1)-19, regarding 
disclosure of rebates and loan premiums offered by a creditor. In its 
2009 Closed-End Proposal, the Board proposed to revise comment 18(b)-2, 
which provides guidance regarding the treatment of rebates and loan 
premiums for the amount financed calculation required by Sec.  
1026.18(b). 74 FR at 43385. Comment 18(b)-2 primarily addresses credit 
sales, such as automobile financing, and provides that creditors may 
choose whether to reflect creditor-paid premiums and seller- or 
manufacturer-paid rebates in the disclosures required by Sec.  1026.18. 
The Board stated its belief that such premiums and rebates are 
analogous to buy-downs because they may or may not be funded by the 
creditor and reduce costs that otherwise would be borne by the 
consumer. 2009 Closed-End Proposal, 74 FR at 43256. Accordingly, their 
impact on the Sec.  1026.18 disclosures properly depends on whether 
they are part of the legal obligation, in accordance with Sec.  
1026.17(c)(1) and its commentary. The Board therefore proposed to 
revise comment 18(b)-2 to clarify that the disclosures, including the 
amount financed, must reflect loan premiums and rebates regardless of 
their source, but only if they are part of the legal obligation between 
the creditor and the consumer. The Board also proposed a parallel 
comment under the section requiring disclosure of the amount financed 
for transactions subject to the proposed, separate disclosure scheme 
for transactions secured by real property or a dwelling. 2009 Closed-
End Proposal, 74 FR at 43417 (proposed comment 38(e)(5)(iii)-2).
    The Bureau agrees with the Board's reasoning in proposing the 
foregoing revisions to comment 18(b)-2 that the disclosures must 
reflect loan premiums and rebates, even if paid by a third party such 
as a seller or manufacturer, but only if they are part of the legal 
obligation between the creditor and the consumer. The Bureau notes, 
however, that the comment's guidance extends beyond the calculation of 
the amount financed. For example, the guidance on whether and how to 
reflect premiums and rebates applies equally to such disclosures as the 
amount financed, the APR, the projected payments table, interest rate 
and payment summary table, or payment schedule, as applicable, and 
other disclosures affected by those disclosures. The Bureau therefore 
is proposing to place the guidance in the commentary to Sec.  
1026.17(c)(1), as that section is the basis for the underlying 
principal that the impact of premiums and rebates depends on the terms 
of the legal obligation.
17(c)(2)
    Current Sec.  1026.17(c)(2) and its commentary contain general 
rules regarding the use of estimates. The Bureau proposes conforming 
amendments to the commentary to Sec.  1026.17(c)(2) to be consistent 
with the special disclosure rules for closed-end mortgage transactions 
subject to proposed Sec.  1026.19(e) and (f).
    Comment 17(c)(2)(i)-1 provides guidance to creditors on the basis 
for estimates. The proposed rule amends this comment to specify that it 
applies except as otherwise provided in Sec. Sec.  1026.19, 1026.37, 
and 1026.38, and that creditors must disclose the actual amounts of the 
information required to be disclosed pursuant to Sec.  1026.19(e) and 
(f), subject only to the estimation and redisclosure rules in those 
sections. The proposed rule also revises comment 17(c)(2)(i)-2, which 
gives guidance to creditors on labeling estimated disclosures, to 
provide that, for the disclosures required by Sec.  1026.19(e), use of 
the Loan Estimate form H-24 in appendix H, pursuant to Sec.  
1026.37(o), satisfies the requirement that the disclosure state clearly 
that it is an estimate. In addition, consistent with the proposed 
revisions to comment 17(c)(1)-1, the proposed rule revises comment 
17(c)(2)(i)-3, which provides guidance to creditors regarding 
disclosures in simple interest transactions, to reflect that the 
comment applies only to the extent that it does not conflict with 
proposed Sec.  1026.19. Proposed comment 17(c)(2)(i)-3 also clarifies 
that, in all cases, creditors must base disclosures on the assumption 
that payments will be made on time and in the amounts required by the 
terms of the legal obligation, disregarding any possible differences 
resulting from consumers' payment patterns. Finally, proposed comment 
17(c)(2)(ii)-1, regarding disclosure of per diem interest, provides 
that the creditor shall disclose the actual amount of per diem interest 
that will be collected at consummation, subject only to the disclosure 
rules in Sec.  1026.19(e) and (f).
17(c)(4)
    The proposed rule revises comment 17(c)(4)-1 to clarify that 
creditors may disregard payment period irregularities when disclosing 
the payment summary tables pursuant to Sec. Sec.  1026.18(s), 
1026.37(c), and 1026.38(c), in addition to the payment schedule under 
Sec.  1026.18(g) discussed in the existing comment.
17(c)(5)
    Current Sec.  1026.17(c)(5) and its commentary contain general 
rules regarding the disclosure of demand obligations. The proposed rule 
revises comment 17(c)(5)-2, which addresses obligations whose maturity 
date is determined by a future event, to reflect the fact that special 
rules apply to the disclosures required by Sec.  1026.19(e) and (f). In 
addition, the proposal revises comment 17(c)(5)-3, regarding 
transactions that convert to demand status only after a fixed period, 
to delete obsolete references to specific loan programs and to update 
cross-references. Finally, the proposal revises comment 17(c)(5)-4, 
regarding balloon payment mortgages, to reflect the fact that special 
rules apply to the disclosure of balloon payments in the projected 
payments tables required by Sec. Sec.  1026.37(c) and 1026.38(c).
17(d) Multiple Creditors; Multiple Consumers
    Current Sec.  1026.17(d) addresses transactions that involve 
multiple creditors or consumers. The proposed rule revises comment 
17(d)-2, regarding multiple consumers, to clarify that the early 
disclosures required by Sec.  1026.19(a), (e), or (g), as applicable, 
need be provided to only one consumer who will have primary liability 
on the obligation. Material disclosures, as defined in Sec.  
1026.23(a)(3)(ii), under Sec.  1026.23(a) and the notice of the right 
to rescind required by Sec.  1026.23(b), however, must be given before 
consummation to each consumer who has the right to rescind, including 
any such consumer who is not an obligor. As the Board stated in its 
2010 Mortgage Proposal, the purpose of the TILA section 128 requirement 
that creditors provide early and final disclosures is to

[[Page 51152]]

ensure that consumers have information specific to their loan to use 
while shopping and evaluating their loan. See 75 FR at 58585. On the 
other hand, the purpose of the TILA section 121(a) requirement that 
each consumer with a right to rescind receive disclosures regarding 
that right is to ensure that each such consumer has the necessary 
information to decide whether to exercise that right. Id. For this 
reason, the proposed rule requires creditors to provide all consumers 
who have the right to rescind with the material disclosures under 
Sec. Sec.  1026.18 and 1026.38 and the notice of the right to rescind 
required by Sec.  1026.23(b), even if such consumer is not an obligor.
17(e) Effect of Subsequent Events
    Current Sec.  1026.17(e) provides rules regarding when a subsequent 
event makes a disclosure inaccurate and requires a new disclosure. The 
proposed rule revises comment 17(e)-1 to clarify that special rules 
apply to transactions subject to proposed Sec.  1026.19(e) and (f).
17(f) Early Disclosures
    Current Sec.  1026.17(f) contains rules regarding when a creditor 
must redisclose after providing disclosures prior to consummation. As 
discussed in the section-by-section analysis to proposed Sec.  
1026.19(a), (e), and (f), special timing requirements apply for 
transactions subject to those sections. Accordingly, Sec.  1026.17(f) 
is revised to reflect the fact that the general early disclosure rules 
in Sec.  1026.17(f) are subject to the special rules in Sec.  
1026.19(a), (e), and (f). In addition, comments 17(f)-1 through -4 
would be revised to conform to the special timing requirements under 
proposed Sec.  1026.19(a) or (e) and (f).
17(g) Mail or Telephone Orders--Delay in Disclosures
    Current Sec.  1026.17(g) and its commentary permit creditors to 
delay disclosures for transactions involving mail or telephone orders 
until the first payment is due if specific information, including the 
principal loan amount, total sale price, finance charge, annual 
percentage rate, and terms of repayment is provided to the consumer 
prior to the creditor's receipt of a purchase order or request for 
extension of credit. As discussed in the section-by-section analysis to 
proposed Sec.  1026.19(a), (e), and (f), the Bureau proposes special 
timing requirements for transactions subject to those provisions. 
Accordingly, the Bureau proposes to revise Sec.  1026.17(g) and comment 
17(g)-1 to clarify that Sec.  1026.17(g) does not apply to transactions 
subject to Sec.  1026.19(a), (e), and (f).
17(h) Series of Sales--Delay in Disclosures
    Current Sec.  1026.17(h) and its commentary permit creditors to 
delay disclosures until the due date of the first payment in 
transactions in which a credit sale is one of a series made under an 
agreement providing that subsequent sales may be added to the 
outstanding balance. As discussed in the section-by-section analysis to 
proposed Sec.  1026.19(a), (e), and (f), the Bureau proposes special 
timing requirements for transactions subject to those provisions. 
Accordingly, the Bureau proposes to revise Sec.  1026.17(h) and comment 
17(h)-1 to clarify that Sec.  1026.17(h) does not apply to transactions 
subject to Sec.  1026.19(a) or (e) and (f).

1026.18 Content of Disclosures

    Section 1026.18 sets forth the disclosure content for closed-end 
consumer credit transactions. As discussed in more detail below, the 
Bureau is proposing to establish separate disclosure requirements for 
closed-end transactions secured by real property, other than reverse 
mortgage transactions, through proposed Sec.  1026.19(e) and (f). 
Accordingly, the Bureau is proposing to amend Sec.  1026.18's 
introductory language to provide that its disclosure content 
requirements apply only to closed-end transactions other than mortgage 
transactions subject to Sec.  1026.19(e) and (f).
    The Bureau is also proposing revisions to Sec.  1026.18(k), which 
provides for disclosure of whether, if the obligation is prepaid in 
full, a penalty will be imposed or a consumer will be entitled to a 
rebate of any finance charge. The proposed revisions conform to the 
definition of ``prepayment penalty'' in proposed Sec.  1026.37(b)(4) 
and associated commentary. As explained in more detail in the section-
by-section analysis for proposed Sec.  1026.37(b)(4), the Bureau is 
coordinating the definition of ``prepayment penalty'' across its 
pending mortgage-related rulemakings, and proposed revisions to Sec.  
1026.18(k) are part of that comprehensive approach.
    The Bureau also is proposing to add a new comment 18-3 clarifying 
that, because of the exclusion of transactions subject to Sec.  
1026.19(e) and (f), the disclosures required by Sec.  1026.18 apply 
only to closed-end transactions that are unsecured or secured by 
personal property (including dwellings that are not also secured by 
real property) and to reverse mortgages. The comment would also clarify 
that, for unsecured transactions and transactions secured by personal 
property that is not a dwelling, creditors must disclose a payment 
schedule under Sec.  1026.18(g), and for other transactions that are 
subject to Sec.  1026.18, creditors must disclose an interest rate and 
payment summary table under Sec.  1016.18(s), as adopted by the Board's 
MDIA Interim Rule. 75 FR at 58482-84. Finally, the comment would 
clarify that, because Sec.  1026.18 does not apply to most transactions 
secured by real property, references in the section and its commentary 
to ``mortgages'' refer only to transactions secured by personal 
property that is not a dwelling and reverse mortgages, as applicable.
18(b) Amount Financed
    Section 1026.18(b) addresses the calculation and disclosure of the 
amount financed for closed-end transactions. Comment 18(b)-2 currently 
provides that creditors may choose whether to reflect creditor-paid 
premiums and seller- or manufacturer-paid rebates in the disclosures 
required by Sec.  1026.18. For the reasons discussed under Sec.  
1026.17(c)(1), above, the Bureau is proposing to remove comment 18(b)-2 
and place revised guidance regarding rebates and loan premiums in 
proposed comment 17(c)(1)-19.
18(b)(2)
    The Bureau is proposing certain conforming changes to comment 
18(b)(2)-1, which addresses amounts included in the amount financed 
calculation that are not otherwise included in the finance charge. As 
discussed more fully under proposed Sec.  1026.4, above, the Bureau 
proposes to adopt a simpler and more inclusive definition of the 
finance charge. Therefore, references to real estate settlement charges 
in comment 18(b)(2)-1 are inappropriate. Proposed comment 18(b)(2)-1 
removes those references and substitutes appropriate examples.
18(c) Itemization of Amount Financed
    Section 1026.18(c) requires an itemization of the amount financed 
and provides guidance on the amounts that must be included in the 
itemization. The Bureau proposes certain conforming amendments to two 
comments under Sec.  1026.18(c). Under this proposal, Sec.  1026.18 
disclosures, including the itemization of amount financed under Sec.  
1026.18(c), are required only for closed-end transactions that are not 
secured by real property and reverse mortgages;

[[Page 51153]]

transactions secured by real property other than reverse mortgages are 
subject instead to the disclosure content required by Sec. Sec.  
1026.37 and 1026.38. The Bureau therefore proposes technical revisions 
to comments 18(c)-4 and 18(c)(1)(iv)-2 to limit those comments' 
discussions of the RESPA disclosures and their interaction with Sec.  
1026.18(c) to reverse mortgages.
18(f) Variable Rate
18(f)(1)
18(f)(1)(iv)
    Section 1026.18(f)(1)(iv) requires that, for variable-rate 
transactions not secured by a consumer's principal dwelling and 
variable-rate transactions secured by a consumer's principal dwelling 
where the loan term is one year or less, creditors disclose an example 
of the payment terms that would result from an interest rate increase. 
The Bureau proposes to revise comment 18(f)(1)(iv)-2 by removing 
paragraph 2.iii, which provides that such an example is not required in 
a multiple-advance construction loan disclosed pursuant to appendix D, 
part I. Appendix D, part I provides guidance for disclosing the 
construction phase of a construction-to-permanent loan as a separate 
transaction pursuant to Sec.  1026.17(c)(6)(ii) (or for disclosing a 
construction-only loan). The Bureau's proposal to remove comment 
18(f)(1)(iv)-2.iii is intended solely as a conforming amendment, to 
reflect the fact that multiple-advance construction loans would no 
longer be subject to the Sec.  1026.18 disclosure requirements under 
this proposal. The Bureau believes that multiple-advance construction 
loans are limited to transactions with real property as collateral, and 
are not used for dwellings that are personal property or in reverse 
mortgages. Therefore, all construction loans would be subject instead 
to the new disclosure content requirements of Sec. Sec.  1026.37 and 
1026.38. The Bureau seeks comment, however, on whether any reason 
remains to preserve comment 18(f)(1)(iv)-2.iii.
18(g) Payment Schedule
    Section 1026.18(g) requires the disclosure of the number, amounts, 
and timing of payments scheduled to repay the obligation, for closed-
end transactions other than transactions subject to Sec.  1026.18(s). 
Section 1026.18(s) requires an interest rate and payment summary table, 
in place of the Sec.  1026.18(g) payment schedule, for closed-end 
transactions secured by real property or a dwelling, other than 
transactions that are secured by a consumer's interest in a timeshare 
plan. As noted above, however, the Bureau is proposing to remove from 
the coverage of Sec.  1026.18 transactions secured by real property, 
other than reverse mortgages, and subject them to the integrated 
disclosures under Sec. Sec.  1026.37 and 1026.38. Thus, under this 
proposal, Sec.  1026.18(g) applies only to closed-end transactions that 
are unsecured or secured by personal property that is not a dwelling. 
All closed-end transactions that are secured by either real property or 
a dwelling, including reverse mortgages, are subject instead to either 
the interest rate and payment summary table disclosure requirement 
under Sec.  1026.18(s) or the projected payments table disclosure 
requirement under Sec. Sec.  1026.37(c) and 1026.38(c), as applicable.
    In light of these changes to the coverage of Sec.  1026.18 
generally, and specifically Sec.  1026.18(g), the Bureau is proposing 
several conforming changes to the commentary under Sec.  1026.18(g). 
Specifically, comment 18(g)-4 would be revised to remove a reference to 
home repairs, and comment 18(g)-5, relating to mortgage insurance, 
would be removed and reserved. In addition, comment 18(g)-6, which 
currently discusses the coverage of mortgage transactions as between 
Sec. Sec.  1026.18(g) and 1026.18(s), would be revised to reflect the 
additional effect of proposed Sec.  1026.19(e) and (f), which requires 
the new integrated disclosures set forth in proposed Sec. Sec.  1026.37 
and 1026.38 for most transactions secured by real property. Finally, 
the Bureau also proposes to amend comments 18(g)(2)-1 and -2 to remove 
unnecessary, and potentially confusing, references to mortgages and 
mortgage insurance.
18(k) Prepayment
    Section 1026.18(k) implements the provisions of TILA section 
128(a)(11), which requires that the transaction-specific disclosures 
for closed-end consumer credit transactions disclose whether (1) a 
consumer is entitled to a rebate of any finance charge upon prepayment 
in full pursuant to acceleration or otherwise, if the obligation 
involves a precomputed finance charge, and (2) a ``penalty'' is imposed 
upon prepayment in full of such transactions if the obligation involves 
a finance charge computed from time to time by application of a rate to 
the unpaid principal balance. 15 U.S.C. 1638(a)(11). Commentary to 
Sec.  1026.18(k) provides further guidance regarding the disclosures 
and provides examples of prepayment penalties and the types of finance 
charges where a consumer may be entitled to a rebate. For further 
background on Sec.  1026.18(k), see the section-by-section analysis for 
proposed Sec.  1026.37(b)(4), below.
    The Bureau defines ``prepayment penalty'' in proposed Sec.  
1026.37(b)(4) for transactions subject to Sec. Sec.  1026.19(e) and (f) 
as a charge imposed for paying all or part of a loan's principal before 
the date on which the principal balance is due, and provides examples 
of prepayment penalties and other relevant guidance in proposed 
commentary. The Bureau's proposed definition of ``prepayment penalty'' 
and commentary is based on its consideration of the existing statutory 
and regulatory definitions of ``penalty'' and ``prepayment penalty'' 
under TILA and Regulation Z, the Board's proposed definitions of 
prepayment penalty in its 2009 Closed-End Proposal, 2010 Mortgage 
Proposal, and 2011 ATR Proposal, and the Bureau's authority under TILA 
section 105(a) and Dodd-Frank Act sections 1032(a) and, for residential 
mortgage loans, 1405(b). Further background on the Bureau's definition 
of prepayment penalty and the basis of its legal authority for 
proposing that definition are in the section-by-section analysis for 
proposed Sec.  1026.37(b)(4), below.
    As discussed in the section-by-section analysis for proposed Sec.  
1026.37(b)(4), the Bureau is coordinating the definition of 
``prepayment penalty'' in proposed Sec.  1026.37(b)(4) with the 
definitions in the Bureau's other pending rulemakings under the Dodd-
Frank Act concerning ability-to-repay requirements, high-cost mortgages 
under HOEPA, and mortgage servicing. The Bureau believes that, to the 
extent consistent with consumer protection objectives, adopting a 
consistent definition of ``prepayment penalty'' across its various 
pending rulemakings affecting closed-end mortgages will facilitate 
compliance. As an additional part of adopting a consistent regulatory 
definition of ``prepayment penalty,'' the Bureau is proposing certain 
conforming revisions to Sec.  1026.18(k) and associated commentary.
    The Bureau recognizes that, with such conforming revisions to Sec.  
1026.18(k) and associated commentary, the revised definition of 
``prepayment penalty'' will apply to both closed-end mortgage and non-
mortgage transactions. In particular, the proposed conforming revisions 
to Sec.  1026.18(k) define ``prepayment penalty'' with reference to a 
prepayment of ``all or part of'' the principal balance of a loan 
covered by the provision, while TILA section 128(a)(11) and current 
Sec.  1026.18(k) and its associated commentary refer to prepayment ``in 
full.'' This revision may lead to an expansion of the set of instances 
that trigger disclosure under Sec.  1026.18 of a

[[Page 51154]]

prepayment penalty for closed-end transactions. The Bureau believes 
that consumers entering into closed-end mortgage and non-mortgage 
transactions alike will benefit from the transparency associated with 
more frequent and consistent disclosure of prepayment penalties. 
Therefore, the Bureau is using its authority under TILA section 105(a) 
to make the proposed conforming revisions to Sec.  1026.18(k) because 
they will effectuate the purposes of TILA by promoting the informed use 
of credit. Similarly, these revisions will help ensure that the 
features of these mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand better the costs, benefits, and risks associated with 
mortgage transactions, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). The revisions will also 
improve consumer awareness and understanding of residential mortgage 
loans, and are in the interest of consumers and the public, consistent 
with Dodd-Frank Act section 1405(b). The Bureau solicits comment on 
this approach to the definition of prepayment penalty.
    To conform with the proposed definition of prepayment penalty in 
Sec.  1026.37(b)(4), proposed Sec.  1026.18(k)(1) deletes the phrase 
``a statement indicating whether or not a penalty may be imposed if the 
obligation is prepaid in full'' and replaces it with the phrase ``a 
statement indicating whether or not a charge may be imposed for paying 
all or part of a transaction's principal before the date on which the 
principal is due.'' Proposed Sec.  1026.18(k)(2) adds the phrase ``or 
in part'' at the end of the phrase ``a statement indicating whether or 
not the consumer is entitled to a rebate of any finance charge if the 
obligation is prepaid in full.''
    Proposed revised comments 18(k)-1 through -3 insert the word 
``prepayment'' before the words ``penalty'' and ``rebate'' when used, 
to standardize the terminology across Regulation Z (i.e., Sec.  
1026.32(d)(6) currently refers to ``prepayment penalty,'' and proposed 
Sec.  1026.37(b)(4) uses the same phrase). Proposed revised comment 
18(k)(1)-1 replaces the existing commentary text with the language from 
proposed comments 37(b)(4)-2 and -3. For further background on proposed 
comments 37(b)(4)-2 and -3, see the section-by-section analysis for 
proposed Sec.  1026.37(b)(4), below.
18(r) Required Deposit
    If a creditor requires the consumer to maintain a deposit as a 
condition of the specific transactions, Sec.  1026.18(r) requires that 
the creditor disclose a statement that the APR does not reflect the 
effect of the required deposit. Comment 18(r)-6 provides examples of 
arrangements that are not considered required deposits and therefore do 
not trigger this disclosure. The Bureau is proposing to remove and 
reserve paragraph 6.vi, which states that an escrow of condominium fees 
need not be treated as a required deposit. In light of the changes to 
the coverage of Sec.  1026.18 under this proposal, the only 
transactions to which this guidance could apply are reverse mortgages, 
which do not entail escrow accounts for condominium fees or any other 
recurring expenses. Accordingly, the Bureau believes that comment 
18(r)-6.vi is rendered unnecessary by this proposal. The Bureau seeks 
comment, however, on whether any kind of transaction exists for which 
this guidance would continue to be relevant under Sec.  1026.18, as 
amended by this proposal.
18(s) Interest Rate and Payment Summary for Mortgage Transactions
    Section 1026.18(s) currently requires the disclosure of an interest 
rate and payment summary table for transactions secured by real 
property or a dwelling, other than a transaction secured by a 
consumer's interest in a timeshare plan. Under this proposal, however, 
Sec.  1026.19(e) and (f) requires new, separate disclosures for 
transactions secured by real property, other than reverse mortgages. 
Generally, the disclosure requirements of Sec.  1026.19(e) and (f) 
apply to transactions currently subject to current Sec.  1026.18(s), 
except that reverse mortgages and transactions secured by dwellings 
that are personal property would be excluded. In addition, as discussed 
in the section-by-section analysis to proposed Sec.  1026.19, 
transactions secured by a consumer's interest in a timeshare plan are 
covered by the integrated disclosure requirements of Sec.  1026.19(e) 
and (f), although such transactions are not currently subject to the 
requirements of Sec.  1026.18(s).
    The new, integrated disclosures include a different form of 
projected payments table, under Sec. Sec.  1026.37(c) and 1026.38(c), 
instead of the summary table under Sec.  1026.18(s). Accordingly, the 
Bureau proposes to amend Sec.  1026.18(s) to provide that it applies to 
transactions that are secured by real property or a dwelling, other 
than transactions that are subject to Sec.  1026.19(e) and (f) (i.e. 
reverse mortgages and dwellings that are not secured by real property). 
The Bureau is proposing parallel revisions to comment 18(s)-1 to 
reflect this change in the scope of Sec.  1026.18(s)'s coverage. The 
Bureau also proposes to add a new comment 18(s)-4 to explain that Sec.  
1026.18(s) governs only closed-end reverse mortgages and closed-end 
transactions secured by a dwelling that is personal property.
18(s)(3) Payments for Amortizing Loans
18(s)(3)(i)(C)
    Current Sec.  1026.18(s)(3)(i)(C) requires creditors to disclose 
whether mortgage insurance is included in monthly escrow payments in 
the interest rate and payment summary. The Bureau understands that some 
government loan programs impose annual guarantee fees and that 
creditors typically collect a monthly escrow for the payment of such 
amounts. The Bureau has learned through industry inquiries that 
uncertainty exists regarding whether such guarantee fees should be 
disclosed as mortgage insurance under Sec.  1026.18(s)(3)(i)(C) if the 
guarantee technically is not insurance under applicable law. One way to 
comply with Sec.  1026.18(s) is to include such guarantee fees in the 
monthly payment amount, without using the check box for ``mortgage 
insurance.'' See comment 18(s)(3)(i)(C)-1 (escrowed amounts other than 
taxes and insurance may be included but need not be). Although the 
Bureau recognizes that government loan program guarantees may be 
legally distinguishable from mortgage insurance, they are functionally 
very similar. Moreover, such a technical, legal distinction is unlikely 
to be meaningful to most consumers. Therefore, the Bureau believes that 
the disclosure of such fees would be improved by including them in the 
monthly escrow payment amount and using the check box for ``mortgage 
insurance.''
    For these reasons, pursuant to its authority under TILA section 
105(a), Dodd-Frank Act section 1032(a), and, for residential mortgage 
loans, Dodd-Frank Act section 1405(b), the Bureau proposes to revise 
Sec.  1026.18(s)(3)(i)(C) to provide that mortgage insurance or any 
functional equivalent must be included in the estimate of the amount of 
taxes and insurance, payable with each periodic payment. Proposed 
comment 18(s)(3)(i)(C)-2 is revised to conform to Sec.  
1026.18(s)(3)(i)(C). Specifically, the proposed comment clarifies that, 
for purposes of the interest rate and payment summary disclosure 
required by Sec.  1026.18(s), ``mortgage insurance or any functional 
equivalent'' includes ``mortgage guarantees'' (such as a United States 
Department of Veterans

[[Page 51155]]

Affairs or United States Department of Agriculture guarantee) that 
provide coverage similar to mortgage insurance, even if not technically 
considered insurance under State or other applicable law. Since 
mortgage insurance and mortgage guarantee fees are functionally very 
similar, the Bureau believes that including both amounts in the 
estimate of taxes and insurance on the table required by Sec.  
1026.18(s) will promote the informed use of credit, thereby carrying 
out the purposes of TILA, consistent with TILA section 105(a). In 
addition, the proposed disclosure will ensure that more of the features 
of the mortgage transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that will permit consumers to 
understand the costs, benefits, and risks associated with the mortgage 
transaction, consistent with Dodd-Frank Act section 1032(a), and will 
improve consumer awareness and understanding of residential mortgage 
loans and will be in the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b). Proposed comment 
18(s)(3)(i)(C)-2 is consistent with the treatment of mortgage guarantee 
fees on the projected payments table required by proposed Sec. Sec.  
1026.37(c) and 1026.38(c). See proposed comment 37(c)(1)(i)(C)-1.
Section 1026.19 Certain Mortgage and Variable-Rate Transactions
    As discussed below, the Bureau proposes to amend Sec.  1026.19 to 
define the scope of the proposed integrated disclosures and to 
establish the requirements for provision of those disclosures.
Coverage of Integrated Disclosure Requirements
    For the reasons discussed in detail below, the Bureau proposes to 
require delivery of the integrated disclosures for closed-end consumer 
credit transactions secured by real property, other than reverse 
mortgages. As discussed above in part IV, section 1032(f) of the Dodd-
Frank Act requires that ``the Bureau shall propose for public comment 
rules and model disclosures that combine the disclosures required under 
[TILA] and sections 4 and 5 of [RESPA], into a single, integrated 
disclosure for mortgage loan transactions covered by those laws.'' 12 
U.S.C. 5532(f). In addition, sections 1098 and 1100A of the Dodd-Frank 
Act amended RESPA section 4(a) and TILA section 105(b), respectively, 
to require the Bureau to publish a ``single, integrated disclosure for 
mortgage loan transactions (including real estate settlement cost 
statements) which includes the disclosure requirements of [TILA and 
sections 4 and 5 of RESPA] that, taken together, may apply to a 
transaction that is subject to both or either provisions of law.'' 12 
U.S.C. 2604(a); 15 U.S.C. 1604(b). Accordingly, the Bureau is directed 
to establish the integrated disclosure requirements for ``mortgage loan 
transactions'' that are ``subject to both or either provisions of'' 
RESPA sections 4 and 5 (the statutory GFE and settlement statement 
requirements) and TILA.\125\
---------------------------------------------------------------------------

    \125\ In addition to, and at the same times as, provision of the 
GFE under RESPA section 5(c), section 5(d) also requires lenders to 
provide to mortgage applicants the home buying information booklet 
prepared by the Bureau pursuant to section 5(a). Although the Bureau 
is not proposing to integrate the booklet with the RESPA GFE and 
TILA disclosures, in the sense of building all of their contents 
into a single form, the Bureau is proposing to implement the booklet 
requirement in proposed Sec.  1026.19(g), discussed below. The same 
considerations of coverage discussed here with respect to the 
integrated disclosures also apply for purposes of the booklet 
requirement.
---------------------------------------------------------------------------

    The Legal Authority discussion in part IV also notes that, 
notwithstanding this integrated disclosure mandate, the Dodd-Frank Act 
did not reconcile important differences between RESPA and TILA relating 
to the timing of delivery of the RESPA settlement statement and the 
TILA disclosure, as well as the persons and transactions on whom those 
disclosure requirements are imposed. Accordingly, to meet the 
integrated disclosure mandate, the Bureau believes that it must 
reconcile such statutory differences. In addition to those differences 
already noted, RESPA and TILA have certain differences in the types of 
transactions to which their respective disclosure requirements apply. 
The Bureau also recognizes that application of the integrated 
disclosure requirements to certain transaction types may be 
inappropriate, even though those transaction types are within the 
scopes of one or both statutes. These issues and the Bureau's proposal 
for addressing them are discussed below.
    Differences in coverage of RESPA and TILA. RESPA applies generally 
to ``federally related mortgage loans,'' which means loans (other than 
temporary financing such as construction loans) secured by a lien on 
residential real property designed principally for occupancy by one to 
four families and that are (1) made by a lender with Federal deposit 
insurance; (2) made, insured, guaranteed, supplemented, or assisted in 
any way by any officer or agency of the Federal government; (3) 
intended to be sold to Fannie Mae, Ginnie Mae, or (directly or through 
an intervening purchaser) Freddie Mac; or (4) made by a ``creditor,'' 
as defined under TILA, that makes or invests in real estate loans 
aggregating more than $1,000,000 per year, other than a State agency. 
12 U.S.C. 2602(1), 2604.\126\ RESPA section 7(a) provides that RESPA 
does not apply to credit for business, commercial, or agricultural 
purposes or to credit extended to government agencies. Id. 2606(a). 
Thus, RESPA disclosures essentially are required for consumer-purpose 
loans that have some Federal nexus (or are made by a TILA creditor with 
sufficient volume) and that are secured by real property improved by 
single-family housing.
---------------------------------------------------------------------------

    \126\ Although section 4 of RESPA, 12 U.S.C. 2603, originally 
recited that it applied to federally related mortgage loans as well, 
as amended by the Dodd-Frank Act it no longer does so explicitly. 
The Bureau nevertheless regards the RESPA settlement statement 
requirement as continuing to apply to federally related mortgage 
loans, consistent with the rest of RESPA's scope generally.
---------------------------------------------------------------------------

    Regulation X Sec.  1024.5 implements these statutory provisions. 
Section 1024.5(a) provides that RESPA and Regulation X apply to 
federally related mortgage loans, which are defined by Sec.  1024.2(b) 
to parallel the statutory definition described above. Section 1024.5(b) 
establishes certain exemptions from coverage, including loans on 
property of 25 acres or more; loans for a business, commercial, or 
agricultural purpose; temporary financing, such as construction loans, 
unless the loan is used to finance transfer of title or may be 
converted to permanent financing by the same lender; and loans on 
unimproved property, unless within two years from settlement the loan 
proceeds will be used to construct or place a residence on the land. 12 
CFR 1024.5(b)(1) through (4). Unlike the others, the exemption for 
loans secured by properties of 25 acres or more is not statutory and is 
established by Regulation X only.
    TILA, on the other hand, applies generally to consumer credit 
transactions of all kinds, including unsecured credit and credit 
secured by nonresidential property. 15 U.S.C. 1602(f) (``credit'' 
defined as ``the right granted by a creditor to a debtor to defer 
payment of debt or to incur debt and defer its payment''). Similar to 
RESPA, TILA excludes, among others, extensions of credit primarily for 
business, commercial, or agricultural purposes, or to government or 
governmental agencies or instrumentalities, or to organizations. Id. 
1603(1). In contrast with RESPA and Regulation X, however, TILA (and 
therefore Regulation Z) has no exclusion

[[Page 51156]]

for property of 25 acres or more, temporary financing, or vacant land. 
Moreover, TILA applies only to transactions made by a person who 
``regularly extends'' consumer credit. Id. 1602(g) (definition of 
creditor).
    Regulation Z Sec. Sec.  1026.2(a)(14) and (17) and 1026.3(a) 
implement these statutory provisions. In particular, Sec.  
1026.2(a)(17) defines creditor in pertinent part as a person who 
regularly extends consumer credit, and Sec.  1026.2(a)(17)(v) further 
provides that, for transactions secured by a dwelling (other than 
``high-cost'' loans subject to HOEPA), a person ``regularly extends'' 
consumer credit if it extended credit more than five times in the 
preceding calendar year. Section 1026.3(a) implements the exclusion of 
credit extended primarily for a business, commercial, or agricultural 
purpose, as well as credit extended to other than a natural person, 
including government agencies or instrumentalities.
    Although TILA generally applies to consumer credit that is 
unsecured or secured by nonresidential property, Dodd-Frank Act section 
1032(f), RESPA section 4(a), and TILA section 105(b) specifically limit 
the integrated disclosure requirement to ``mortgage loan 
transactions.'' The Dodd-Frank Act did not specifically define 
``mortgage loan transaction,'' but did direct that the disclosures be 
designed to incorporate disclosure requirements that may apply to ``a 
transaction that is subject to both or either provisions of the law.''
    As described above, five types of loans are currently covered by 
TILA or RESPA, but not both. Under the foregoing provisions, loans to 
finance home construction that do not finance transfer of title and for 
which the creditor will not extend permanent financing (construction-
only loans), loans secured by unimproved land already owned by the 
consumer and on which a residence will not be constructed within two 
years (vacant-land loans), and loans secured by land of 25 acres or 
more (25-acre loans) all are subject to TILA but are currently exempt 
from RESPA coverage. In addition, loans secured by dwellings that are 
not real property, such as mobile homes, houseboats, recreational 
vehicles, and similar dwellings that are not deemed real property under 
State law, (chattel-dwelling loans) could be considered ``mortgage loan 
transactions,'' and they also are subject to TILA but not RESPA. 
Meanwhile, federally related mortgage loans made by persons who are not 
creditors under TILA, because they make five or fewer such loans per 
year, are subject to RESPA but not TILA. In addition, some types of 
mortgage loan transactions are covered by both statutes, but may 
warrant uniquely tailored disclosures because they involve terms or 
features that are so different from standard closed-end transactions 
that use of the same form may cause significant consumer confusion and 
compliance burden for industry.
    For the reasons discussed in detail below, the Bureau proposes to 
use its authority under TILA section 105(a), (b), and (f), RESPA 
sections 4(a) and 19(a), and Dodd-Frank Act sections 1032(a) and (f) 
and, for residential mortgage loans, 1405(b) to tailor the scope of 
this proposed rule so that the integrated disclosure requirements apply 
to all closed-end consumer credit transactions secured by real 
property, other than reverse mortgages. Doing so will ensure that, in 
most mortgage transactions, consumers receive integrated disclosure 
forms developed by the Bureau through extensive testing that will 
improve consumers' understanding of the transaction. Furthermore, 
applying a consistent set of disclosure requirements to most mortgage 
transactions will facilitate compliance by industry. However, for a 
subset of mortgage transactions, the Bureau believes that application 
of the integrated disclosure requirements would not improve consumer 
understanding or facilitate compliance and that these transactions 
should therefore be exempted from those requirements.
    In some cases, the Bureau is proposing to exempt transactions that 
could arguably fall within Dodd-Frank Act sections 1032(f), 1098, and 
1100A but are sufficiently different from other mortgage transactions 
that application of the integrated disclosure forms would neither 
improve consumer understanding nor facilitate compliance by industry 
(e.g., reverse mortgages, open-end transactions secured by real 
property or a dwelling, and closed-end transactions secured by a 
dwelling but not real property). These transactions will remains 
subject to the existing disclosure requirements under Regulations X and 
Z, as applicable, until the Bureau adopts integrated disclosures 
specifically tailored to their distinct features.\127\
---------------------------------------------------------------------------

    \127\ As discussed below, certain new mortgage disclosure 
requirements in the Dodd-Frank Act apply to these transactions, 
among others. Accordingly, transactions that are not subject to the 
proposed rule would be temporarily exempt from those requirements 
until the Bureau adopts a new disclosure scheme specific to those 
transactions.
---------------------------------------------------------------------------

    In other cases, the Bureau is proposing to expand the scope of 
certain mortgage disclosure requirements in order to ensure that, in 
most mortgage transactions, consumers receive a consistent set of 
disclosures, which the Bureau believes will improve consumer 
understanding and facilitate compliance. In particular, the proposed 
rule applies to certain transactions that are currently subject to 
Regulation Z but not Regulation X (construction-only loans, vacant-land 
loans, and 25-acre loans). In addition, many of the new Dodd-Frank Act 
mortgage disclosure requirements apply to ``residential mortgage 
loans,'' which--as noted above--are defined in section 1401 of the 
Dodd-Frank Act as any consumer credit transaction that is secured by a 
mortgage on a dwelling or on residential real property that includes a 
dwelling other than an open-end credit plan or an extension of credit 
secured by a consumer's interest in a timeshare plan.\128\ Thus, in 
addition to narrowing the application of these disclosures to exempt 
temporarily reverse mortgages and transactions that are not secured by 
real property, the proposed rule expands the application of these 
disclosure requirements to apply to transactions secured by real 
property that does not contain a dwelling. Similarly, the proposed rule 
both narrows and expands the application of other Dodd-Frank Act 
mortgage disclosure requirements to improve consumer understanding and 
facilitate compliance.\129\
---------------------------------------------------------------------------

    \128\ See, e.g., Dodd-Frank Act Sec.  1402(a)(2) (requires 
disclosure of loan originator identifier) (codified at TILA Sec.  
129B(b)(1)(B)); Dodd-Frank Act Sec.  1414(c) (requires disclosure of 
anti-deficiency protections) (codified at TILA Sec.  129C(g)); Dodd-
Frank Act Sec.  1414(d) (requires disclosure of partial payment 
policy) (codified at TILA Sec.  129C(h)); Dodd-Frank Act Sec.  1419 
(requires disclosure of certain aggregate amounts and wholesale rate 
of funds) (codified at TILA Sec.  128(a)(17)); Dodd-Frank Act Sec.  
1419 (requires disclosure of loan originator compensation) (codified 
at TILA Sec.  128(a)(18)); Dodd-Frank Act Sec.  1419 (requires 
disclosure of total interest) (codified at TILA Sec.  128(a)(19)).
    \129\ See, e.g., Dodd-Frank Act Sec.  1414(a) (requires negative 
amortization disclosure for open or closed end consumer credit plans 
secured by a dwelling or residential real property that includes a 
dwelling that provides or permits a payment plan that may result in 
negative amortization) (codified at TILA Sec.  129C(f)); Dodd-Frank 
Act Sec.  1419 (requires certain payment disclosures for variable 
rate residential mortgage loans for which an escrow account will be 
established) (codified at TILA Sec.  128(a)(16)); Dodd-Frank Act 
Sec. Sec.  1461(a), 1462, and 1465 (requires certain payment and 
escrow disclosures for consumer credit transactions secured by a 
first lien on the principal dwelling of the consumer, other than an 
open end credit plan or reverse mortgage) (codified at TILA Sec.  
129D(h) and (j) and 128(b)(4)); Dodd-Frank Act Sec.  1475 (permits 
disclosure of appraisal management fees for federally related 
mortgage loans) (codified at RESPA Sec.  4(c)).
---------------------------------------------------------------------------

    Accordingly, the Bureau believes adjusting the application of the 
provisions of TILA and RESPA is within its general mandate under Dodd-
Frank

[[Page 51157]]

Act section 1032(f) to prescribe integrated disclosures, which requires 
that the Bureau reconcile differences in coverage between the two 
statutes. The Bureau also believes that this approach is expressly 
authorized by sections 4(a) of RESPA and 105(b) of TILA because both 
provisions direct the Bureau to prescribe disclosures that ``may apply 
to a transaction that is subject to both or either provisions of law.'' 
(Emphasis added.) Those provisions authorize requiring the integrated 
disclosures for any transaction that is subject to either RESPA or 
TILA, and not only a transaction that is subject to both, precisely so 
that the Bureau has the flexibility necessary to reconcile those 
statutes' coverage differences for purposes of the integrated 
disclosure mandate.
    Furthermore, the Bureau believes that applying the integrated 
disclosures to closed-end consumer credit transactions secured by real 
property other than reverse mortgages will carry out the purposes of 
TILA and RESPA, consistent with TILA section 105(a) and RESPA section 
19(a), by promoting the informed use of credit and more effective 
advance disclosure of settlement costs, respectively. In addition, the 
proposed scope will ensure that the integrated disclosure requirements 
are applied only in circumstances where they will permit consumers to 
understand the costs, benefits, and risks associated with the mortgage 
transaction, consistent with Dodd-Frank Act section 1032(a), and will 
improve consumer awareness and understanding of residential mortgage 
loans, consistent with Dodd-Frank Act section 1405(b).
    Finally, the Bureau also proposes the exemption pursuant to TILA 
section 105(f). The Bureau has considered the factors in TILA section 
105(f) and believes that an exemption is appropriate under that 
provision. Specifically, the Bureau believes that the proposed 
exemption is appropriate for all affected borrowers, regardless of 
their other financial arrangements and financial sophistication and the 
importance of the loan to them. Similarly, the Bureau believes that the 
proposed exemption is appropriate for all affected loans, regardless of 
the amount of the loan and whether the loan is secured by the principal 
residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers. Based on these considerations, the 
results of the Bureau's consumer testing, and the analysis discussed 
elsewhere in this proposal, the Bureau believes that the proposed 
exemptions are appropriate.
    Coverage issues with HELOCs. Open-end transactions secured by real 
property or a dwelling (home-equity lines of credit, or HELOCs) and 
reverse mortgages are within the statutory scope of both TILA and RESPA 
and also reasonably could be considered ``mortgage loan transactions.'' 
Nevertheless, both types of transaction are by their natures 
fundamentally different from other forms of mortgage credit. For the 
reasons discussed below, the Bureau is proposing to exclude these types 
of transaction from the coverage of the integrated disclosure 
requirement.
    HELOCs are open-end credit plans and therefore are appropriately 
subject to the open-end disclosure requirements in subpart B of 
Regulation Z. The Bureau looked to the closed-end content requirements 
under TILA section 128 in developing the integrated disclosures. It did 
so because the Dodd-Frank Act mandate to propose integrated disclosures 
includes section 5 of RESPA, which requires the GFE, and only closed-
end transactions are subject to the parallel, early disclosure 
requirement under TILA section 128(b)(2)(A). Subjecting open-end 
transactions to the integrated disclosure requirements thus would 
result in consumers who are obtaining open-end credit receiving closed-
end disclosures, many of which would be inapposite and therefore 
potentially confusing or even misleading. Further, in recognition of 
the distinct nature of open-end credit, Regulation X effectively 
exempts such plans from the RESPA disclosure requirements. Sections 
1024.6(a)(2) and 1024.7(h) of Regulation X state that, for HELOCs, the 
requirements to provide the ``special information booklet'' regarding 
settlement costs and the GFE, respectively, are satisfied by delivery 
of the open-end disclosures required by Regulation Z. And Regulation X 
Sec.  1024.8(a) exempts HELOCs from the settlement statement 
requirement altogether. The Bureau expects to address HELOCs through a 
separate, future rulemaking that will establish a distinct disclosure 
scheme tailored to their unique features, which will achieve more 
effectively the purposes of both RESPA and TILA.\130\
---------------------------------------------------------------------------

    \130\ In 2009, the Board proposed significant revisions to the 
disclosure requirements for HELOCs. See 74 FR 43428 (Aug. 26, 2009). 
The Bureau is now responsible for this proposal.
---------------------------------------------------------------------------

    Coverage issues with reverse mortgages. The Bureau is aware that 
lenders and creditors face significant difficulties applying the 
disclosure requirements of RESPA and TILA to reverse mortgages, in 
light of those transactions' unusual terms and features. The 
difficulties appear to stem from the fact that a number of the 
disclosed items under existing Regulations X and Z are not relevant to 
such transactions and therefore have no meaning. Moreover, the Bureau 
developed the proposed integrated disclosure forms for use in 
``forward'' mortgage transactions and did not subject those forms, 
which implement essentially the same statutory disclosure requirements 
as do the current regulations, to any consumer testing using reverse 
mortgage transactions. The Bureau therefore is concerned that the use 
of the integrated disclosures for reverse mortgages may result in 
numerous disclosures of items that are not applicable, difficult to 
apply, or potentially even misleading or confusing for consumers.\131\ 
As with HELOCs, the Bureau expects to address reverse mortgages through 
a separate, future rulemaking process that will establish a distinct 
disclosure scheme.\132\
---------------------------------------------------------------------------

    \131\ In addition, many reverse mortgages are structured as 
open-end plans and therefore may be subject to the same concerns 
noted with respect to HELOCs.
    \132\ The Board's 2010 Mortgage Proposal included several 
provisions relating to reverse mortgages. See 75 FR 58539, 58638-59. 
Specifically, the Board proposed requiring creditors to use new 
forms of disclosures designed specifically for reverse mortgages, 
rather than the standard TILA disclosures. The 2010 Mortgage 
Proposal also proposed significant protections for reverse mortgage 
consumers, including with respect to advertising of reverse 
mortgages and cross-selling of reverse mortgages with other 
financial and insurance products. In addition, section 1076 of the 
Dodd-Frank Act required the Bureau to engage in a study of reverse 
mortgage transactions and instructed the Bureau to consider 
protections with respect to obtaining reverse mortgages for the 
purpose of funding investments, annuities, and other investment 
products and the suitability of a borrower in obtaining a reverse 
mortgage. The Bureau intends that its future rulemaking for reverse 
mortgages will address the issues identified in the Board's 2010 
Mortgage Proposal and the findings of the Bureau's reverse mortgage 
study.
---------------------------------------------------------------------------

    Coverage issues with chattel-dwelling loans. Chattel-dwelling loans 
(such as loans secured by mobile homes) do not involve real property, 
by definition. The Bureau estimates that approximately one-half of the 
closing-cost content of the integrated disclosures is not applicable to 
such transactions because they more closely resemble motor vehicle 
transactions than true mortgage transactions. Such transactions 
currently are not subject to RESPA and, unlike the transactions above 
that involve real property, generally are not consummated with ``real 
estate settlements,'' which are the basis of RESPA's coverage. Thus, 
were these

[[Page 51158]]

transactions subject to the integrated disclosures under this proposal, 
a significant portion of the disclosures' content would be 
inapplicable. The Bureau believes that permitting those items to be 
omitted altogether could compromise the overall integrity of the 
disclosures, which were developed through consumer testing that never 
contemplated such extensive omissions, and the Bureau therefore has no 
basis for expecting that they would necessarily be as informative to 
consumers if so dramatically altered. The Bureau has similar concerns 
about keeping the overall forms intact but directing creditors to 
complete the inapplicable portions with ``N/A'' or simply to leave them 
blank. Moreover, the Bureau believes that such an approach would risk 
undermining consumers' understanding of their transactions, which would 
be inconsistent with the purpose of this rulemaking, because they could 
be distracted by extensive blank or ``N/A'' disclosures from the 
relevant disclosures present on the form.
    Although chattel-dwelling loans are subject to TILA, excluding them 
from coverage of the integrated disclosures would not excuse them from 
TILA's disclosure requirements. Rather, they would remain subject to 
the existing closed-end TILA disclosure requirements as implemented in 
Sec.  1026.18. Thus, this approach preserves the current treatment of 
chattel-dwelling loans under both RESPA and TILA. The Bureau expects 
that it will undertake improvements to the Sec.  1026.18 disclosures in 
the future, through a process similar to the one used in this proposal. 
The Bureau believes that the TILA disclosures resulting from that 
process would be more appropriate and more beneficial to consumers than 
the integrated disclosures under this proposal. Excluding chattel-
dwellings from the integrated disclosure requirements means they would 
not be subjected by this rulemaking to certain new disclosure 
requirements added to TILA section 128(a) by the Dodd-Frank Act. As 
discussed under Sec.  1026.1(c) above, certain new mortgage disclosure 
requirements established by the Dodd-Frank Act are being deferred until 
such requirements are implemented by regulations. Such regulations 
include, but are not limited to, the final rule that will be adopted 
under this proposal. As noted above, the Bureau plans to address 
chattel-dwellings, as well as reverse mortgages and HELOCs, in future 
rulemakings. Accordingly, pursuant to the authority discussed above, 
those transactions also are subject to the temporary exemption in 
proposed Sec.  1026.1(c) until those rulemakings are completed.
    The Bureau's proposal. For the reasons discussed above, proposed 
Sec.  1026.19(e) and (f), discussed further below, requires that the 
integrated disclosures be provided for closed-end consumer credit 
transactions secured by real property, other than a reverse mortgage 
subject to Sec.  1026.33. Similarly, proposed Sec.  1026.19(g) requires 
provision of the home buying information booklet for closed-end 
consumer credit transactions secured by real property and states in 
Sec.  1026.19(g)(1)(iii)(C) that the requirement does not apply to 
reverse mortgages. Accordingly, construction-only loans and vacant-land 
loans are subject to the proposed integrated disclosure and booklet 
requirements. On the other hand, chattel-dwelling loans are not subject 
to the proposed integrated disclosure or booklet requirements and, 
instead, remain subject to the existing disclosure requirements in 
Sec.  1026.18. Finally, federally related mortgage loans extended by a 
person that is not a creditor, as defined in Regulation Z Sec.  
1026.2(a)(17), are not subject to the proposed integrated disclosure or 
booklet requirements because such transactions are not subject to 
Regulation Z at all.
    The Bureau believes that, although construction-only loans, vacant-
land loans, and 25-acre loans all currently are exempt from RESPA 
coverage either by statute or regulation, consumers may benefit from 
the integrated disclosures in such transactions. If such transactions 
were not subjected to the integrated disclosure requirements, they 
would remain subject to the existing TILA disclosures under Sec.  
1026.18. The Bureau believes this treatment would deprive consumers in 
such transactions of the benefits of the enhanced disclosures developed 
for this proposal. Moreover, these types of transactions involve real 
property and, therefore, are amenable to disclosure of the information 
currently disclosed through the RESPA GFE and settlement statement 
requirements. Thus, the Bureau expects that creditors should be able to 
use existing systems to provide the integrated disclosures for such 
transactions. The Bureau solicits comment, however, on whether 
application of the integrated disclosures to these transactions will 
impose significant burdens on creditors.
    The Bureau also believes that, if a lender extends five or fewer 
consumer credit transactions secured by a consumer's dwelling in a 
year, it should not be subject to TILA or Regulation Z. This treatment 
preserves the status of such transactions under existing Regulation Z. 
That is, currently, consumers do not receive Regulation Z disclosures 
from such lenders because they are not considered ``creditors'' 
pursuant to Sec.  1026.2(a)(17)(v). The Bureau believes that 
eliminating this exemption could represent a significant expansion of 
TILA coverage and is unaware of any significant problems encountered by 
consumers obtaining credit from such small lenders that might justify 
such an expansion. Further, because such small creditors may lack the 
systems to comply with TILA, they may cease to extend credit if forced 
to establish compliance systems. Although preserving this exemption 
means that the integrated disclosures would not be received by 
consumers in such transactions, the Bureau expects the impact of such 
an exemption to be limited. Based on data reported for 2010 under the 
Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., the Bureau 
notes that 569 creditors (seven percent of all HMDA reporters) reported 
five or fewer originations and, more significantly, that their combined 
originations of 1399 loans equaled only 0.02 percent of all 
originations reported under HMDA for that year. These transactions 
would remain subject to the RESPA disclosure requirements under 
Regulation X.
Provision of Current Disclosures Under TILA and RESPA
    TILA. Section 128(b)(2)(A) of TILA provides that for an extension 
of credit secured by a consumer's dwelling, which is also subject to 
RESPA, good faith estimates of the disclosures in section 128(a) shall 
be made in accordance with regulations of the Bureau and shall be 
delivered or placed in the mail not later than three business days 
after the creditor receives the consumer's written application. 15 
U.S.C. 1638(b)(2)(A). Section 128(b)(2)(A) also requires these 
disclosures to be delivered at least seven business days before 
consummation. Regulation Z implements this provision in Sec.  
1026.19(a), which generally tracks the statute except that it does not 
apply to home equity lines of credit subject to Sec.  1026.40 and 
mortgage transactions secured by a consumer's interest in a timeshare 
plan subject to Sec.  1026.19(a)(5).
    Section 128(b)(2)(A) and (D) of TILA states that, if the 
disclosures provided pursuant to section 128(b)(2)(A) contain an annual 
percentage rate that is no longer accurate, the creditor shall furnish 
an additional, corrected

[[Page 51159]]

statement to the borrower not later than three business days before the 
date of consummation of the transaction. 15 U.S.C. 1638(b)(2)(A), (D). 
Regulation Z implements TILA's requirement that the creditor deliver 
corrected disclosures in Sec.  1026.19(a)(2)(ii).
    RESPA. Section 5(c) of RESPA states that lenders shall provide, 
within three days of receiving the consumer's application, a good faith 
estimate of the amount or range of charges for specific settlement 
services the borrower is likely to incur in connection with the 
settlement as prescribed by the Bureau.\133\ 12 U.S.C. 2604(c). Section 
3(3) of RESPA defines ``settlement services'' as:
---------------------------------------------------------------------------

    \133\ RESPA section 5(d) provides that ``Each lender referred to 
in subsection (a) of this section shall provide the booklet 
described in such subsection to each person from whom it receives or 
for whom it prepares a written application to borrow money to 
finance the purchase of residential real estate. Such booklet shall 
be provided by delivering it or placing it in the mail not later 
than 3 business days after the lender receives the application, but 
no booklet need be provided if the lender denies the application for 
credit before the end of the 3-day period.'' RESPA section 5(c) 
provides that ``Each lender shall include with the booklet a good 
faith estimate of the amount or range of charges for specific 
settlement services the borrower is likely to incur in connection 
with the settlement as prescribed by the Bureau.'' Thus, the lender 
must deliver the good faith estimate not later than three business 
days after receiving the consumer's application.
---------------------------------------------------------------------------

    [A]ny service provided in connection with a real estate settlement 
including, but not limited to, the following: title searches, title 
examinations, the provision of title certificates, title insurance, 
services rendered by an attorney, the preparation of documents, 
property surveys, the rendering of credit reports or appraisals, pest 
and fungus inspections, services rendered by a real estate agent or 
broker, the origination of a federally related mortgage loan 
(including, but not limited to, the taking of loan applications, loan 
processing, and the underwriting and funding of loans), and the 
handling of the processing, and closing or settlement. 12 U.S.C. 
2602(3).
    Section 1024.7(a)(1) of Regulation X currently provides that, not 
later than three business days after a lender receives an application, 
or information sufficient to complete an application, the lender must 
provide the applicant with the GFE.
    In contrast to the TILA and RESPA good faith estimate requirements, 
which apply to creditors, the RESPA settlement statement requirement 
generally applies to settlement agents. Specifically, section 4 of 
RESPA provides that the settlement statement must be completed and made 
available for inspection by the borrower at or before settlement by the 
person conducting the settlement. 12 U.S.C. 2603(b). Section 4 also 
provides that, upon the request of the borrower, the person who will 
conduct the settlement shall permit the borrower to inspect those items 
which are known to such person on the settlement statement during the 
business day immediately preceding the day of settlement. Id. These 
requirements are implemented in Regulation X Sec.  1024.10(a).
    The Dodd-Frank Act. Sections 1098 and 1100A of the Dodd-Frank Act 
amended RESPA and TILA to require an integrated disclosure that ``may 
apply to a transaction that is subject to both or either provisions of 
law.'' Accordingly, as discussed below, the Bureau is proposing to 
integrate the TILA and RESPA good faith estimate requirements in a new 
Sec.  1026.19(e). The Bureau is also proposing to integrate the TILA 
and RESPA settlement statement requirements in a new Sec.  1026.19(f). 
Finally, as appropriate, the Bureau is proposing to incorporate related 
statutory and regulatory requirements into Sec.  1026.19 and to make 
conforming amendments.
19(a) Reverse Mortgage Transactions Subject to RESPA
    As discussed above, the proposal narrows the scope of Sec.  
1026.19(a) so that all loans currently subject to Sec.  1026.19(a), 
other than reverse mortgages, are instead subject to proposed Sec.  
1026.19(e) and (f). Pursuant to its authority under section 105(a) of 
TILA, the Bureau proposes to amend Sec.  1026.19(a)(1)(i) to apply only 
to reverse mortgage transactions subject to both Sec.  1026.33 and 
RESPA. This proposed amendment is consistent with TILA's purpose in 
that it seeks to ensure meaningful disclosure of credit terms by 
requiring the integrated disclosures only with respect to the loans for 
which they were designed--mortgage loans secured by real property other 
than reverse mortgages. This modification will also be in the interest 
of consumers and the public because consumer understanding will be 
improved if consumers of reverse mortgages are not provided with 
inapplicable disclosures, consistent with Dodd-Frank Act section 
1405(b). The Bureau also proposes to make conforming changes to Sec.  
1026.19(a)(1)(ii), to delete Sec.  1026.19(a)(5), to delete comments 
19(a)(5)(ii)-1 through -5, and to delete comments 19(a)(5)(iii)-1 and -
2.
19(e) Mortgage Loans Secured by Real Property--Early Disclosures
19(e)(1) Provision
19(e)(1)(i) Creditor
    As discussed above, the Bureau is proposing to integrate the good 
faith estimate requirements in TILA section 128 and RESPA section 5 in 
Sec.  1026.19(e)(1)(i), which provides that in a closed-end consumer 
credit transaction secured by real property, other than a reverse 
mortgage subject to Sec.  1026.33, the creditor shall make good faith 
estimates of the disclosures listed in Sec.  1026.37. Proposed comment 
19(e)(1)(i)-1 explains that Sec.  1026.19(e)(1)(i) requires early 
disclosure of credit terms in closed-end credit transactions that are 
secured by real property, other than reverse mortgages. These 
disclosures must be provided in good faith. Except as otherwise 
provided in Sec.  1026.19(e), a disclosure is in good faith if it is 
consistent with the best information reasonably available to the 
creditor at the time the disclosure is provided.
19(e)(1)(ii) Mortgage Broker
    Currently, neither TILA's nor RESPA's disclosure requirements apply 
to mortgage brokers. The disclosure requirements of Regulation Z also 
do not apply to mortgage brokers. Section 1024.7(b) of Regulation X, 
however, currently permits mortgage brokers to deliver the GFE, 
provided that the mortgage broker otherwise complies with the relevant 
requirements of Regulation X, and provided that the lender remains 
responsible for ensuring that the mortgage broker does so.
    The Bureau recognizes that, in some cases, permitting mortgage 
brokers to deliver the integrated disclosure may benefit consumers. 
Some consumers may have better relationships with mortgage brokers than 
with creditors, which may enable mortgage brokers to assist those 
consumers with understanding the GFE more effectively and efficiently. 
However, there are concerns regarding the ability of mortgage brokers 
to provide the information required by the integrated Loan Estimate 
accurately and reliably. For example, it is not clear that mortgage 
brokers have the ability to inform the consumer whether the lender 
intends to service the consumer's loan, or whether the lender will 
permit a person to assume the consumer's loan on the original terms. 
Similarly, it is uncertain that mortgage brokers have the ability to 
estimate taxes and insurance, which is a new disclosure on the Loan 
Estimate that is not included on the current RESPA GFE, to the level

[[Page 51160]]

of specificity required for the Loan Estimate under proposed Sec.  
1026.19(e)(3). There is an additional concern that mortgage brokers do 
not have the technology necessary to comply with TILA's requirements 
regarding delivery of estimates, delivery of revised disclosures, and 
recordkeeping.
    The Bureau proposes to exercise its authority under TILA section 
105(a) and, with respect to residential mortgage loans, Dodd-Frank Act 
section 1405(b) to preserve the flexibility in current Regulation X by 
permitting the mortgage broker to provide the integrated Loan Estimate 
under Sec.  1026.19(e)(1)(ii), subject to certain limitations. This 
proposed provision is consistent with TILA's purpose in that consumers 
will be able to compare more readily the credit terms available if 
mortgage brokers and creditors are able to disclose available credit 
terms by use of the Loan Estimate. In addition, this modification will 
be in the interest of consumers and the public because consumer 
understanding and awareness will be improved if consumers can rely on 
the Loan Estimate regardless of whether it is provided by a creditor or 
mortgage broker, consistent with Dodd-Frank Act section 1405(b). 
Specifically, proposed Sec.  1026.19(e)(1)(ii) provides that, in 
providing the Loan Estimate, the mortgage broker must act as the 
creditor in every respect, including complying with all of the 
requirements of proposed Sec.  1026.19(e) and assuming all related 
responsibilities and obligations. The Bureau also seeks comment on the 
ability of mortgage brokers to comply with the requirements of TILA. In 
addition, the Bureau seeks comment on the ability of creditors to 
coordinate their operations with mortgage brokers in a manner that 
provides the same or better information to consumers than if the 
creditor alone were permitted to provide the disclosures.
    Proposed comment 19(e)(1)(ii)-1 explains that a mortgage broker may 
provide the disclosures required under Sec.  1026.19(e)(1)(i) instead 
of the creditor. By assuming this responsibility, the mortgage broker 
becomes responsible for complying with all of the relevant requirements 
as if it were the creditor, meaning that ``mortgage broker'' should be 
read in the place of ``creditor'' for all the relevant provisions of 
Sec.  1026.19(e), except where the context indicates otherwise. The 
creditor and mortgage broker must effectively communicate to ensure 
timely and accurate compliance with the requirements of Sec.  
1026.19(e). Proposed comment 19(e)(1)(ii)-2 provides further guidance 
on the mortgage broker's responsibilities in the event that the 
mortgage broker provides the disclosures required under Sec.  
1026.19(e), explaining that if a mortgage broker issues any disclosure 
under Sec.  1026.19(e), the mortgage broker must comply with the 
requirements of Sec.  1026.19(e). For example, if the mortgage broker 
receives sufficient information to complete an application, the 
mortgage broker must issue the disclosures required under Sec.  
1026.19(e)(1)(i) within three business days in accordance with Sec.  
1026.19(e)(1)(iii). If the broker subsequently receives information 
sufficient to establish that a disclosure provided under Sec.  
1026.19(e)(1)(i) must be reissued under Sec.  1026.19(e)(3)(iv), then 
the mortgage broker is responsible for ensuring that a revised 
disclosure is provided.
    Proposed comment 19(e)(1)(ii)-3 discusses the creditor's 
responsibilities in the event that a mortgage broker provides 
disclosures under Sec.  1026.19(e). The proposed comment explains that 
if a mortgage broker issues any disclosure required under Sec.  
1026.19(e) in the creditor's place, the creditor remains responsible 
under Sec.  1026.19(e) for ensuring that the requirements of Sec.  
1026.19(e) have been satisfied. For example, the creditor must ensure 
that the broker provides the disclosures required under Sec.  
1026.19(e) not later than three business days after the mortgage broker 
received information sufficient to constitute an application, as 
defined in Sec.  1026.2(a)(3)(ii). The creditor does not satisfy the 
requirements of Sec.  1026.19(e) if it provides duplicative 
disclosures. For example, a creditor does not meet its burden by 
issuing disclosures required under Sec.  1026.19(e) that mirror 
disclosures already issued by the broker for the purpose of 
demonstrating that the consumer received timely disclosures. If the 
broker provides an erroneous disclosure, the creditor is responsible 
and may not issue a revised disclosure correcting the error. The 
creditor is expected to maintain communication with the broker to 
ensure that the broker is acting in place of the creditor. This comment 
is consistent with guidance provided by HUD in the HUD RESPA FAQs p. 8-
10,  16, 26, 29 (``GFE--General''). Disclosures provided by a 
broker in accordance with Sec.  1026.19(e)(1)(ii) satisfy the 
creditor's obligation under Sec.  1026.19(e)(1)(i).
    Proposed comment 19(e)(1)(ii)-4 discusses when mortgage brokers 
must comply with Sec.  1026.19(e)(2)(ii), regarding the provision of 
preliminary written estimates specific to the consumer. The proposed 
comment explains that Sec.  1026.19(e)(1)(ii) requires mortgage brokers 
to comply with Sec.  1026.19(e)(2)(ii) if a mortgage broker provides 
any disclosures under Sec.  1026.19(e). For example, if a mortgage 
broker never provides disclosures required by Sec.  1026.19(e), the 
mortgage broker need not include the disclosure required by Sec.  
1026.19(e)(2)(ii) on written information provided to consumers.
19(e)(1)(iii) Timing
    Section 128(b)(2)(A) of TILA provides that good faith estimates of 
the disclosures under section 128(a) shall be delivered or placed in 
the mail not later than three business days after the creditor receives 
the consumer's written application. 15 U.S.C. 1638(b)(2)(A). Section 
128(b)(2)(A) also requires these disclosures to be delivered at least 
seven business days before consummation. RESPA requires lenders to 
provide the GFE not later than three business days after receiving the 
consumer's application, but does not require provision at least seven 
business days before consummation. These requirements are implemented 
in Sec.  1026.19(a)(1)(i) and (a)(2)(i) of Regulation Z and Sec.  
1024.7(a)(2) of Regulation X, respectively.
    The Bureau believes that, for the proposed rule to be consistent 
with the requirements of both statutes, both the three-business-day 
delivery requirement and the seven-business-day waiting period should 
apply to the integrated Loan Estimate. Although RESPA does not contain 
a seven-business-day waiting period, this waiting period is consistent 
with the purposes of RESPA, and adopting it for the integrated 
disclosures may best effectuate the purposes of both TILA and RESPA by 
enabling the informed use of credit and ensuring effective advance 
disclosure of settlement charges. Accordingly, pursuant to its 
authority under TILA section 105(a), RESPA section 19(a), Dodd-Frank 
Act section 1032(a), and, for residential mortgage loans, section 
1405(b) of the Dodd-Frank Act, the Bureau proposes Sec.  
1026.19(e)(1)(iii), which provides that the creditor shall deliver the 
disclosures required by Sec.  1026.19(e)(1)(i) not later than the third 
business day after the creditor receives the consumer's application, as 
defined in proposed Sec.  1026.2(a)(3)(ii), and that the creditor shall 
deliver these disclosures not later than the seventh business day 
before consummation of the transaction. This proposed provision is 
consistent with TILA's purposes in that consumers will be able to 
compare more readily the various credit terms available and avoid the 
uninformed use of credit, thereby assuring a meaningful

[[Page 51161]]

disclosure of credit terms. This proposed regulation is consistent with 
section 19(a) of RESPA because it achieves the purposes of RESPA by 
requiring more effective advance disclosure to consumers of settlement 
costs. In addition, the Bureau is proposing this provision pursuant to 
its authority under Dodd-Frank Act section 1032(a) because the proposal 
ensures that the features of the credit transaction are fully, 
accurately, and effectively disclosed to the consumer in a manner that 
permits consumers to understand the costs, benefits, and risks 
associates with the mortgage loan by providing sufficient time to 
review, question, and understand the entire cost of the transaction, 
which is also in the best interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b).
    Proposed comment 19(e)(1)(iii)-1 further clarifies this provision 
and provides illustrative examples. Proposed comment 19(e)(1)(iii)-2 
discusses the waiting period, providing that the seven-business-day 
waiting period begins when the creditor delivers the disclosures or 
places them in the mail, not when the consumer receives or is presumed 
to have received the disclosures. For example, if a creditor delivers 
the early disclosures to the consumer in person or places them in the 
mail on Monday, June 1, consummation may occur on or after Tuesday, 
June 9, the seventh business day following delivery or mailing of the 
early disclosures, because, for the purposes of Sec.  
1026.19(e)(1)(iii), Saturday is a business day, pursuant to Sec.  
1026.2(a)(6).
    Proposed comment 19(e)(1)(iii)-3 relates to denied or withdrawn 
applications, explaining that the creditor may determine within the 
three-business-day period that the application will not or cannot be 
approved on the terms requested, such as when a consumer's credit score 
is lower than the minimum score required for the terms the consumer 
applied for, or the consumer applies for a type or amount of credit 
that the creditor does not offer. In that case, or if the consumer 
withdraws the application within the three-business-day period, the 
creditor need not make the disclosures required under Sec.  
1026.19(e)(1)(i). If the creditor fails to provide early disclosures 
and the transaction is later consummated on the terms originally 
applied for, then the creditor violates Sec.  1026.19(e)(1)(i). If, 
however, the consumer amends the application because of the creditor's 
unwillingness to approve it on the terms originally applied for, no 
violation occurs for not providing disclosures based on those original 
terms. But the amended application is a new application subject to 
Sec.  1026.19(e)(1)(i).
19(e)(1)(iv) Delivery
    Section 128(b)(2)(E) of TILA provides that, if the disclosures are 
mailed to the consumer, the consumer is considered to have received 
them three business days after they are mailed. 15 U.S.C. 
1638(b)(2)(E). RESPA provides that the GFE may be delivered either in 
person or by placing it in the mail. 12 U.S.C. Sec.  2604(c) and (d). 
Regulation Z provides that if the disclosures are provided to the 
consumer by means other than delivery in person, the consumer is 
considered to have received the disclosures three business days after 
they are mailed or delivered. See Sec.  1026.19(a)(1)(ii). Regulation X 
contains a similar provision. See Sec.  1024.7(a)(4).
    To establish a consistent standard for the integrated Loan 
Estimate, pursuant to its authority under TILA section 105(a), RESPA 
section 19(a), Dodd-Frank Act section 1032(a), and, for residential 
mortgage loans, section 1405(b) of the Dodd-Frank Act, the Bureau 
proposes Sec.  1026.19(e)(1)(iv), which states that, if the disclosures 
are provided to the consumer by means other than delivery in person, 
the consumer is presumed to have received the disclosures three 
business days after they are mailed or delivered to the address 
specified by the consumer.
    Proposed comment 19(e)(1)(iv)-1 explains that if any disclosures 
required under Sec.  1026.19(e)(1)(i) are not provided to the consumer 
in person, the consumer is presumed to have received the disclosures 
three business days after they are mailed or delivered. This is a 
presumption which may be rebutted by providing evidence that the 
consumer received the disclosures earlier than three business days. The 
proposed comment also contains illustrative examples. Proposed comment 
19(e)(1)(iv)-2 clarifies that the presumption established in Sec.  
1026.19(e)(1)(iv) applies to methods of electronic delivery, such as 
email. However, creditors using electronic delivery methods, such as 
email, must also comply with Sec.  1026.17(a)(1). The proposed comment 
also contains illustrative examples.
19(e)(1)(v) Consumer's Waiver of Waiting Period Before Consummation
    Section 128(b)(2)(F) of TILA provides that the consumer may waive 
or modify the timing requirements for disclosures to expedite 
consummation of a transaction, if the consumer determines that the 
extension of credit is needed to meet a bona fide personal financial 
emergency. Section 128(b)(2)(F) further provides that: (1) the term 
``bona fide personal financial emergency'' may be further defined in 
regulations issued by the Bureau; (2) the consumer must provide the 
creditor with a dated, written statement describing the emergency and 
specifically waiving or modifying the timing requirements, which bears 
the signature of all consumers entitled to receive the disclosures; and 
(3) the creditor must provide, at or before the time of waiver or 
modification, the final disclosures. 15 U.S.C. 1638(b)(2)(F). This 
provision is implemented in Sec.  1026.19(a)(3) of Regulation Z. 
Neither RESPA nor Regulation X contains a similar provision.
    Although the Bureau understands that waivers based on a bona fide 
personal financial emergency are rare, this exception serves an 
important purpose: consumers should be able to waive the protection 
afforded by the waiting period if, in the face of a financial 
emergency, the waiting period does more harm than good. Accordingly, 
pursuant to its authority under TILA section 105(a) and RESPA section 
19(a) the Bureau is proposing Sec.  1026.19(e)(1)(v), which allows a 
consumer to waive the seven-business-day waiting period in the event of 
a bona fide personal financial emergency. In addition, the Bureau seeks 
comment on the nature of waivers based on bona fide personal financial 
emergencies. The Bureau also seeks comment on whether the bona fide 
personal financial emergency exception is needed more in some contexts 
than in others (e.g., in refinance transactions or purchase money 
transactions).
    Proposed comment 19(e)(1)(v)-1 explains that a consumer may modify 
or waive the right to the seven-business-day waiting period required by 
Sec.  1026.19(e)(1)(iii) only after the creditor makes the disclosures 
required by Sec.  1026.19(e)(1)(i). The consumer must have a bona fide 
personal financial emergency that necessitates consummating the credit 
transaction before the end of the waiting period. Whether these 
conditions are met is determined by the individual facts and 
circumstances. The imminent sale of the consumer's home at foreclosure, 
where the foreclosure sale will proceed unless loan proceeds are made 
available to the consumer during the waiting period, is one example of 
a bona fide personal financial emergency. Each consumer who is 
primarily liable on the legal obligation must sign the written 
statement for the waiver to be effective. Proposed comment 19(e)(1)(v)-
2

[[Page 51162]]

provides illustrative examples of this requirement.
19(e)(1)(vi) Shopping for Settlement Service Providers
    Neither TILA nor RESPA nor Regulation Z requires creditors to 
inform consumers about settlement service providers for whom the 
consumer may shop. However, as explained above, Regulation X provides 
that where a lender or mortgage broker permits a borrower to shop for 
third party settlement services, the lender or broker must provide the 
borrower with a written list of settlement services providers at the 
time the GFE is provided on a separate sheet of paper. 12 CFR part 1024 
app. C. HUD intended this requirement to enable consumers to shop for 
settlement service providers, thereby enhancing market competition and 
lowering settlement service costs for consumers. See 73 FR at 14030. 
The Bureau agrees that the written list of settlement service providers 
may benefit consumers by fostering settlement service shopping.
    Therefore, the Bureau proposes Sec.  1026.19(e)(1)(vi). As an 
initial matter, proposed Sec.  1026.19(e)(1)(vi)(A) provides that a 
creditor permits a consumer to shop for a settlement service if the 
creditor permits the consumer to select the provider of that service, 
subject to reasonable minimum requirements regarding the qualifications 
of the provider. Comment 19(e)(1)(vi)-1 provides examples of minimum 
requirements that are and are not reasonable. For example, the creditor 
may require that a settlement agent chosen by the consumer must be 
appropriately licensed in the relevant jurisdiction. In contrast, a 
creditor may not require the consumer to choose a provider from a list 
provided by creditor. This comment also clarifies that the requirements 
of Sec.  1026.19(e)(1)(vi)(B) and (C) do not apply if the creditor does 
not permit the consumer to shop.
    Proposed Sec.  1026.19(e)(1)(vi)(B) provides that the creditor 
shall identify the services for which the consumer is permitted to shop 
in the Loan Estimate. Comment 19(e)(1)(vi)-2 clarifies that Sec.  
1026.37(f)(3) contains the content and format requirements for this 
disclosure.
    Proposed Sec.  1026.19(e)(1)(vi)(C) provides that, if the creditor 
permits a consumer to shop for a settlement service, the creditor shall 
provide the consumer with a written list identifying available 
providers of that service and stating that the consumer may choose a 
different provider for that service. It further requires that the list 
be provided separately from the Loan Estimate but in accordance with 
the timing requirements for that disclosure (i.e., within three days 
after application).
    Comment 19(e)(1)(vi)-3 explains that the settlement service 
providers identified on the written list must correspond to the 
settlement services for which the consumer may shop, as disclosed on 
the Loan Estimate pursuant to Sec.  1026.37(f)(3). It also refers to 
the model list provided in form H-27.
    Comment 19(e)(1)(vi)-4 clarifies that a creditor does not comply 
with the requirement in Sec.  1026.19(e)(1)(vi)(C) to ``identify'' 
providers unless it provides sufficient information to allow the 
consumer to contact the provider, such as the name under which the 
provider does business and the provider's address and telephone number. 
It also clarifies that a creditor does not comply with the availability 
requirement in Sec.  1026.19(e)(1)(vi)(C) if it provides a written list 
consisting of only settlement service providers that are no longer in 
business or that do not provide services where the consumer or property 
is located. However, if the creditor determines that there is only one 
available settlement service provider, the comment clarifies that the 
creditor need only identify that provider on the written list of 
providers. The guidance regarding availability is consistent with 
guidance provided by HUD in the HUD RESPA FAQs p. 15,  7 
(``GFE--Written list of providers'').
    Comment 19(e)(1)(vi)-5 refers to form H-27 for an example of a 
statement that the consumer may choose a provider that is not included 
on that list. Comment 19(e)(1)(vi)-6 clarifies that the creditor may 
include a statement on the written list that the listing of a 
settlement service provider does not constitute an endorsement of that 
service provider. It further clarifies that the creditor may also 
identify in the written list providers of services for which the 
consumer is not permitted to shop, provided that the creditor expressly 
and clearly distinguishes those services from the services for which 
the consumer is permitted to shop. This may be accomplished by placing 
the services under different headings.
    Finally, comment 19(e)(1)(vi)-7 discusses how proposed Sec.  
1026.19(e)(1)(vi) relates to the requirements of RESPA and Regulation 
X. The proposed comment explains that Sec.  1026.19 does not prohibit 
creditors from including affiliates on the written list under Sec.  
1026.19(e)(1)(vi). However, a creditor that includes affiliates on the 
written list must also comply with Sec.  1024.15 of Regulation X. This 
comment is consistent with guidance provided by HUD in its RESPA FAQs 
p. 16,  9 (``GFE--Written list of providers''). The proposed 
comment also explains that the written list is a ``referral'' under 
Sec.  1024.14(f). This comment is consistent with guidance provided by 
HUD in the HUD RESPA FAQs p. 14,  4 (``GFE--Written list of 
providers'').
    In addition to these proposed regulations and comments, the Bureau 
solicits comment regarding whether the final rule should provide more 
detailed requirements for the written list of providers. The Bureau 
also solicits comment regarding whether the final rule should include 
additional guidance regarding the content and format of the provider 
list.
    This proposal is made pursuant to the Bureau's authority under 
sections 105(a) of TILA, 19(a) of RESPA, and, for residential mortgage 
loans, sections 129B(e) of TILA and 1405(b) of the Dodd-Frank Act. This 
proposed provision is consistent with TILA's purposes in that it will 
increase consumer awareness of the costs of the transaction by 
informing consumers that settlement costs can be influenced by 
shopping, thereby promoting the informed use of credit. This provision 
is consistent with section 129B(e) of TILA because failing to inform 
borrowers of available settlement service providers increases the 
difficulty of shopping for those services, which is not in the interest 
of the borrower. It achieves the purposes of RESPA because disclosure 
of available settlement service providers encourages consumer shopping 
and settlement service provider competition, which will result in the 
elimination of kickbacks, referral fees, and other practices that tend 
to increase unnecessarily the costs of certain settlement services. In 
addition, the requirements in proposed Sec.  1026.19(e)(1)(vi) are in 
the interest of consumers and in the public interest because they will 
improve consumer understanding and awareness of the mortgage loan 
transaction through the use of disclosure by informing consumers about 
shopping for settlement service providers and making consumers aware of 
different settlement service providers available for the transaction, 
consistent with Dodd-Frank Act section 1405(b).
19(e)(2) Pre-Disclosure Activity
19(e)(2)(i) Imposition of Fees on Consumer
19(e)(2)(i)(A) Fee Restriction
    Section 128(b)(2)(E) of TILA provides that the ``consumer shall 
receive the disclosures required under [TILA

[[Page 51163]]

section 128(b)] before paying any fee to the creditor or other person 
in connection with the consumer's application for an extension of 
credit that is secured by the dwelling of a consumer.'' 15 U.S.C. 
1638(b)(2)(E). This provision is implemented in Sec.  
1026.19(a)(1)(ii). Although RESPA does not expressly contain a similar 
provision, Regulation X does. See Sec.  1024.7(a)(4). However, unlike 
Regulation Z, Regulation X prohibits a consumer from paying a fee until 
the consumer indicates an intent to proceed with the transaction after 
receiving the disclosures. Id. As discussed below, both Regulation Z 
and Regulation X provide an exception only for the cost of obtaining a 
credit report.
    Thus, Regulation X requires consumers to take an additional 
affirmative step before new fees may be charged. The Bureau believes 
that the goals of the integrated disclosure are best served by adopting 
the approach under Regulation X. The Bureau intends for consumers to 
use the integrated disclosure to make informed financial decisions. 
This goal may also be inhibited if fees are imposed on consumers before 
a consumer indicates intent to proceed. For example, after reviewing 
the Loan Estimate a consumer may be uncertain that the disclosed terms 
are in the consumer's best interest or that the disclosed terms are 
those for which the consumer originally asked. If fees may be imposed 
before the consumer decides to proceed with a particular loan, 
consumers may not take additional time to understand the costs and 
evaluate the risks of the disclosed loan. The Bureau also intends for 
consumers to use the integrated disclosure to compare loan products 
from different creditors. If creditors can impose fees on consumers 
once the Loan Estimate is delivered, but before the consumer indicates 
intent to proceed, shopping may be inhibited. For example, after 
reviewing the Loan Estimate a consumer may be uncertain that the 
disclosed terms are the most favorable terms the consumer could receive 
in the market. If fees may be imposed before the consumer decides to 
proceed with a particular loan, consumers may determine that too much 
cost has been expended on a particular Loan Estimate to continue 
shopping, even though the consumer believes more favorable terms could 
be obtained from another creditor. Or, consumers may determine that 
obtaining a Loan Estimate from multiple creditors is too costly if each 
creditor can impose fees for each Loan Estimate.
    Accordingly, pursuant to its authority under TILA section 105(a) 
and RESPA section 19(a), the Bureau proposes Sec.  1026.19(e)(2)(i)(A), 
which provides that no person may impose a fee on a consumer in 
connection with the consumer's application before the consumer has 
received the disclosures required by Sec.  1026.19(e)(1)(i) and 
indicated to the creditor an intent to proceed with the transaction 
described by those disclosures. This proposed regulation carries out 
the purposes of TILA because requiring the specific identification of 
the fee imposed assures meaningful disclosures of credit terms, 
consistent with section 105(a) of TILA, and it achieves the purposes of 
RESPA because the more specific identification of the fee is a more 
effective method of advance disclosure, consistent with section 19(a) 
of RESPA.
    Proposed comment 19(e)(2)(i)(A)-1 explains that a creditor or other 
person may not impose any fee, such as for an application, appraisal, 
or underwriting, until the consumer has received the disclosures 
required by Sec.  1026.19(e)(1)(i) and indicated an intent to proceed 
with the transaction. The only exception to the fee restriction allows 
the creditor or other person to impose a bona fide and reasonable fee 
for obtaining a consumer's credit report, pursuant to Sec.  
1026.19(e)(2)(i)(B). Proposed comment 19(e)(2)(i)(A)-2 explains that 
the consumer may indicate intent to proceed in any manner the consumer 
chooses, unless a particular manner of communication is required by the 
creditor, provided that the creditor does not assume silence is 
indicative of intent. The creditor must document this communication to 
satisfy the requirements of Sec.  1026.25. The proposed comment also 
includes illustrative examples.
    Proposed comment 19(e)(2)(i)(A)-3 discusses the collection of fees 
and provides that at any time prior to delivery of the required 
disclosures, the creditor may impose a credit report fee as provided in 
Sec.  1026.19(e)(2)(i)(B). However, the consumer must receive the 
disclosures required by Sec.  1026.19(e)(1)(i) and indicate an intent 
to proceed with the mortgage loan transaction before paying or 
incurring any other fee imposed by a creditor or other person in 
connection with the consumer's application for a mortgage loan that is 
subject to Sec.  1026.19(e)(1)(i). Proposed comment 19(e)(2)(i)(A)-4 
provides illustrative examples regarding these requirements.
    Proposed comment 19(e)(2)(i)(A)-5 discusses determining when a 
particular charge is ``imposed by'' a person. The proposed comment 
provides that, for purposes of Sec.  1026.19(e), a fee is ``imposed 
by'' a person if the person requires a consumer to provide a method for 
payment, even if the payment is not made at that time. For example, a 
creditor may not require the consumer to provide a $500 check to pay a 
``processing fee'' before the consumer receives the disclosures 
required by Sec.  1026.19(e)(1)(i) and the consumer subsequently 
indicates intent to proceed. The creditor in this example does not 
comply even if the creditor does not deposit the check until after the 
disclosures required by Sec.  1026.19(e)(1)(i) are received by the 
consumer and the consumer subsequently indicates intent to proceed. 
Similarly, a creditor may not require the consumer to provide a credit 
card number before the consumer receives the disclosures required by 
Sec.  1026.19(e)(1)(i) and the consumer subsequently indicates intent 
to proceed, even if the creditor promises not to charge the consumer's 
credit card for the $500 processing fee until after the disclosures 
required by Sec.  1026.19(e)(1)(i) are received by the consumer and the 
consumer subsequently indicates intent to proceed. In contrast, a 
creditor complies with Sec.  1026.19(e)(2) if the creditor requires the 
consumer to provide a credit card number before the consumer receives 
the disclosures required by Sec.  1026.19(e)(1)(i) and subsequently 
indicates intent to proceed if the consumer's authorization is only to 
pay for the cost of a credit report. This is so even if the creditor 
maintains the consumer's credit card number on file and charges the 
consumer a $500 processing fee after the disclosures required by Sec.  
1026.19(e)(1)(i) are received and the consumer subsequently indicates 
intent to proceed, provided that the creditor requested and received a 
separate authorization for the processing fee charge from the consumer 
after the consumer received the disclosures required by Sec.  
1026.19(e)(1)(i).
19(e)(2)(i)(B) Exception to Fee Restriction
    Section 1026.19(a)(1)(iii) of Regulation Z currently provides that 
a person may impose a fee for obtaining a consumer's credit history 
prior to providing the good faith estimates, which is the lone 
exception to the general rule established by Sec.  1026.19(a)(1)(ii) 
that fees may not be imposed prior to the consumer's receipt of the 
disclosures. Section 1024.7(a)(4) of Regulation X contains a similar 
exception, but it differs in two important respects. First, Regulation 
Z provides that the fee may be imposed for a consumer's ``credit 
history,'' while

[[Page 51164]]

Regulation X specifies that the fee must be for the consumer's ``credit 
report.'' The Regulation Z provision could be read as permitting a 
broader range of activity than just acquiring a consumer's credit 
report. The Bureau believes that the purposes of the integrated 
disclosure are better served by adopting the terminology used by 
Regulation X. Consumers should be able to receive a reliable estimate 
of mortgage loan costs with as little up-front expense and burden as 
possible, while creditors should be able to receive sufficient 
information from the credit report alone to develop a reasonably 
accurate estimate of costs.
    Another issue stems from existing commentary under Regulation Z, 
which provides that the fee charged pursuant to Sec.  
1026.19(a)(1)(iii) may be described or referred to as an ``application 
fee,'' provided the fee meets the other requirements of Sec.  
1026.19(a)(1)(iii). The Bureau believes that the better approach, for 
purposes of the integrated disclosure, is to require a fee for a credit 
report to be disclosed with the more precise label. Consumers may be 
more likely to understand that a credit report fee is imposed if a fee 
for the purpose of obtaining a credit report is clearly described as 
such. Additionally, compliance costs are generally reduced when 
regulatory requirements are standardized. Accordingly, the Bureau 
proposes Sec.  1026.19(e)(2)(i)(B), which provides that a person may 
impose a bona fide and reasonable fee for obtaining the consumer's 
credit report before the consumer has received the disclosures required 
by Sec.  1026.19(e)(1)(i). Proposed comment 19(e)(2)(i)(B)-1 clarifies 
that a creditor or other person may impose a fee before the consumer 
receives the required disclosures if it is for purchasing a credit 
report on the consumer, provided that such fee is bona fide and 
reasonable in amount. Also, the creditor must accurately describe or 
refer to this fee, for example, as a ``credit report fee.''
19(e)(2)(ii) Written Information Provided to Consumer
    The Bureau understands that consumers often request written 
estimates of loan terms before receiving the RESPA GFE. The Bureau 
recognizes that these written estimates may be helpful to consumers. 
However, the Bureau is concerned that consumers may confuse such 
written estimates, which are not subject to the good faith requirements 
of TILA section 128(b)(2)(A) and RESPA section 5 and may be unreliable, 
with the disclosures required under Sec.  1026.19(e)(1)(i), which must 
be made in good faith. The Bureau is also concerned that unscrupulous 
creditors may use formatting and language similar to the disclosures 
required under Sec.  1026.19(e)(1)(i) to deceive consumers into 
believing that the creditor's unreliable written estimate is actually 
the disclosure required under Sec.  1026.19(e)(1)(i). These concerns 
are particularly important in light of section 1405(b) of the Dodd-
Frank Act, which places emphasis on improving ``consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures.''
    Creditors may choose to issue, and consumers may want, preliminary 
written estimates based on less information than is needed to issue the 
disclosures required under Sec.  1026.19(e)(1)(i). However, mortgage 
loan costs are often highly sensitive to the information that triggers 
the disclosures. Thus, the disclosures required under Sec.  
1026.19(e)(1)(i) may be more accurate indicators of cost than 
preliminary written estimates. Consumers may better understand the 
sensitivity of mortgage loan costs to information about the consumer's 
creditworthiness and collateral value if consumers are aware of the 
difference between preliminary written estimates and disclosures 
required under Sec.  1026.19(e)(1)(i). Additionally, section 1032(a) of 
the Dodd-Frank Act authorizes the Bureau to prescribe rules to ensure 
the full, accurate, and effective disclosure of mortgage loan costs in 
a manner that permits consumers to understand the associated risks. 
Consumers may not appreciate that preliminary written estimates, which 
are not subject to the good faith requirements, may not constitute a 
full, accurate, and effective description of costs, as opposed to 
relying on the disclosures required under Sec.  1026.19(e)(1)(i), which 
must be made in good faith. The Bureau seeks to foster consumer 
understanding of the reliability of the cost information provided, 
while permitting the use of preliminary written estimates which may be 
beneficial to consumers.
    Accordingly, pursuant to its authority under section 105(a) of 
TILA, section 1032(a) of the Dodd-Frank Act, and, for residential 
mortgage loans, sections 129B(e) of TILA and 1405(b) of the Dodd-Frank 
Act, the Bureau proposes to require creditors to distinguish between 
preliminary written estimates of mortgage loan costs, which are not 
subject to the good faith requirements under TILA and RESPA, and the 
disclosures required under Sec.  1026.19(e)(1)(i), which are. Proposed 
Sec.  1026.19(e)(2)(ii) would require creditors to provide consumers 
with a disclosure indicating that the written estimate is not the Loan 
Estimate required by RESPA and TILA, if a creditor provides a consumer 
with a written estimate of specific credit terms or costs before the 
consumer receives the disclosures under Sec.  1026.19(e)(1)(i) and 
subsequently indicates an intent to proceed with the mortgage loan 
transaction. This proposed provision is consistent with section 105(a) 
of TILA in that it will increase consumer awareness of the costs of the 
transaction by informing consumers of the risk of relying on 
preliminary written estimates, thereby assuring a meaningful disclosure 
of credit terms and promoting the informed use of credit. This proposed 
provision is consistent with section 129B(e) of TILA because permitting 
creditors to provide borrowers with a preliminary written estimate and 
the Loan Estimate required by TILA and RESPA without a disclosure 
indicating the difference between the two is not in the interest of the 
borrower.
    Proposed comment 19(e)(2)(ii)-1 explains that this requirement 
applies only to written information specific to the consumer. For 
example, if the creditor provides a document showing the estimated 
monthly payment for a mortgage loan, and the estimate was based on the 
estimated loan amount and the consumer's estimated credit score, then 
the creditor must include a notice on the document. In contrast, if the 
creditor provides the consumer with a preprinted list of closing costs 
common in the consumer's area, the creditor need not include the 
warning. The proposed comment also clarifies that this requirement does 
not apply to an advertisement, as defined in Sec.  1026.2(a)(2). This 
proposed comment also contains a reference to comment 19(e)(1)(ii)-4 
regarding mortgage broker provision of written estimates specific to 
the consumer.
19(e)(2)(iii) Verification of Information
    Section 1024.7(a)(5) of Regulation X currently provides that a 
creditor may collect any information from the consumer deemed 
necessary, but the creditor may not require the consumer to provide 
documentation verifying any information the consumer provided in 
connection with the application. In order to minimize the cost to 
consumers of obtaining Loan Estimates, the Bureau believes that this 
provision should apply to the integrated disclosure. The Bureau 
proposes Sec.  1026.19(e)(2)(iii), which provides that a creditor shall 
not require a consumer to submit documents verifying information 
related

[[Page 51165]]

to the consumer's application before providing the disclosures required 
by Sec.  1026.19(e)(1)(i).
    The Bureau makes this proposal pursuant to its authority under 
section 105(a) of TILA, section 19(a) of RESPA, and, for residential 
mortgage loans, section 129B(e) of TILA. The proposed regulation will 
effectuate the purposes of TILA by reducing the burden to consumers 
associated with obtaining different offers of available credit terms, 
thereby facilitating consumers' ability to compare credit terms, 
consistent with section 105(a) of TILA. This proposed provision is 
consistent with section 129B(e) of TILA because requiring documentation 
to verify the information provided in connection with an application 
increases the burden on borrowers associated with obtaining different 
offers of available credit terms, which is not in the interest of the 
borrower. This proposed regulation will enable consumers to receive 
information about the mortgage loan without imposing costs or burdens 
on the consumer, which will facilitate shopping, thereby effecting 
changes in the settlement process that will result in the elimination 
of kickbacks, referral fees, and other practices that tend to increase 
unnecessarily the costs of certain settlement services, consistent with 
the Bureau's authority under section 19(a) of RESPA.
    Proposed comment 19(e)(2)(iii)-1 explains that the creditor may 
collect from the consumer any information that it requires prior to 
providing the early disclosures, including information not listed in 
Sec.  1026.2(a)(3)(ii). However, the creditor is not permitted to 
require, before providing the disclosures required by Sec.  
1026.19(e)(1)(i), that the consumer submit documentation to verify the 
information provided by the consumer. For example, the creditor may ask 
for the names, account numbers, and balances of the consumer's checking 
and savings accounts, but the creditor may not require the consumer to 
provide bank statements, or similar documentation, to support the 
information the consumer provides orally before providing the 
disclosures required by Sec.  1026.19(e)(1)(i).
19(e)(3) Good Faith Determination for Estimates of Closing Costs
Background
    As noted above, section 102(a) of TILA provides: ``The Congress 
finds that economic stabilization would be enhanced and the competition 
among the various financial institutions and other firms engaged in the 
extension of consumer credit would be strengthened by the informed use 
of credit. The informed use of credit results from an awareness of the 
cost thereof by consumers.'' 15 U.S.C. 1601(a). This section further 
provides that the purpose of TILA is ``to assure a meaningful 
disclosure of credit terms so that the consumer will be able to compare 
more readily the various credit terms available to him and avoid the 
uninformed use of credit.'' Id.
    To further these goals, TILA requires creditors to disclose certain 
information about the cost of credit. In the context of certain 
mortgage loans, the disclosures required under section 128(a) of TILA 
generally are either costs imposed in connection with the extension of 
credit, or measures of such costs, such as the annual percentage rate. 
15 U.S.C. 1638(b). Examples of items that affect the APR are fees and 
charges imposed by creditors, such as points and underwriting fees. 
Section 128(b)(2)(A) provides that these disclosures must be delivered 
not later than three business days after the creditor receives the 
consumer's written application. Section 128(b)(2)(D) requires the 
creditor to inform the consumer, no later than three business days 
before consummation, if the costs of the mortgage loan, as reflected in 
the annual percentage rate, change from what was originally disclosed. 
15 U.S.C. 1638(b)(2)(A), (D).
    TILA contains tolerances for determining whether an estimated 
disclosure is accurate. For example, section 106(f) provides that the 
finance charge is not accurate if the estimated finance charge 
disclosed to the consumer changes by more than a certain amount. 15 
U.S.C. 1605(f). If disclosures such as these become inaccurate, TILA 
requires creditors to provide revised disclosures with the corrected 
amounts. 15 U.S.C. 1638(b)(2)(D). TILA also permits the creation of new 
tolerances if the Bureau deems them necessary. Specifically, section 
121(d) provides that the ``Bureau shall determine whether tolerances 
for numerical disclosures other than the annual percentage rate are 
necessary to facilitate compliance with [TILA], and if it determines 
that such tolerances are necessary to facilitate compliance, it shall 
by regulation permit disclosures within such tolerances.'' 15 U.S.C. 
1631(d). Section 121(d) further provides that the ``Bureau shall 
exercise its authority to permit tolerances for numerical disclosures 
other than the annual percentage rate so that such tolerances are 
narrow enough to prevent such tolerances from resulting in misleading 
disclosures or disclosures that circumvent the purposes of [TILA].'' 
Id.
    Historically, TILA has generally focused on the costs imposed by 
creditors alone. In contrast, RESPA, in broadly focusing on all costs 
associated with real estate transactions, was designed to address 
market failures in the real estate settlement services industry. 
Echoing TILA, Congress enacted RESPA to ``[e]nsure that consumers 
throughout the Nation are provided with greater and more timely 
information on the nature and costs of the settlement process and are 
protected from unnecessarily high settlement charges caused by certain 
abusive practices.'' 12 U.S.C. 2601(a). Congress identified ``more 
effective advance disclosure to home buyers and sellers of settlement 
costs'' as a specific purpose of RESPA. Id.
    RESPA requires early disclosure of settlement costs to further 
Congress's stated purpose that consumers should receive effective 
advance disclosures of such costs. As discussed above, RESPA requires 
lenders to provide consumers with good faith estimates of settlement 
costs, which include most fees charged in connection with a real 
property settlement, within three days of receiving a consumer's 
application for a mortgage loan. 12 U.S.C. 2602(3), 2604(c), (d).
    Regulation Z also contains a good faith estimate requirement, which 
implements the requirements of TILA section 128(b)(2)(A), in the 
context of certain mortgage loans. Section 1026.19(a)(1)(i) of 
Regulation Z provides that ``the creditor shall make good faith 
estimates of the disclosures required by Sec.  1026.18 and shall 
deliver or place them in the mail not later than the third business day 
after the creditor receives the consumer's written application.'' 
Section 1026.18 includes several disclosures related to the cost of 
credit, such as the amount financed, finance charge, and annual 
percentage rate. Section 1026.18(c)(3) also provides that the 
itemization of amount financed need not be delivered if the RESPA GFE 
is provided.
    After a 10-year investigatory process, HUD amended Regulation X to 
establish new regulatory requirements surrounding the content, 
accuracy, and delivery of the GFE. HUD's 2008 RESPA Final Rule added 
``tolerance'' categories limiting the variation between the estimated 
amounts of settlement charges included on the GFE and the actual 
amounts included on the RESPA settlement statement. Section 
1024.7(e)(1) of Regulation X provides that the actual charges at 
settlement may not exceed the amounts included on the

[[Page 51166]]

GFE for (1) the origination charge, (2) while the borrower's interest 
rate is locked, the credit or charge for the interest rate chosen, (3) 
while the borrower's interest rate is locked, the adjusted origination 
charge; and (4) transfer taxes. Section 1024.7(e)(2) provides that the 
sum of the charges at settlement for the following services may not be 
greater than 10 percent above the sum of the estimated charges for 
those services included on the GFE for (1) lender-required settlement 
services, where the lender selects the third party settlement service 
provider, (2) lender-required services, title services and required 
title insurance, and owner's title insurance, when the borrower uses a 
settlement service provider identified by the loan originator, and (3) 
government recording charges. Section 1024.7(e)(3) provides that all 
other estimated charges may change by any amount prior to settlement.
    The 2008 RESPA Final Rule also provided that the estimates included 
on the GFE are binding, with certain limited exceptions and subject to 
variations permitted by the tolerance categories. 73 FR at 68218-19. 
Section 1024.7(f)(1) provides: ``If changed circumstances result in 
increased costs for any settlement services such that the charges at 
settlement would exceed the tolerances for those charges, the loan 
originator may provide a revised GFE to the borrower.'' Section 
1024.7(f)(2) provides: ``If changed circumstances result in a change in 
the borrower's eligibility for the specific loan terms identified in 
the GFE, the loan originator may provide a revised GFE to the 
borrower.''
    ``Changed circumstances'' are defined as (1) acts of God, war, 
disaster, or other emergency; (2) information particular to the 
borrower or transaction that was relied on in providing the GFE and 
that changes or is found to be inaccurate after the GFE has been 
provided, which may include information about the credit quality of the 
borrower, the amount of the loan, the estimated value of the property, 
or any other information that was used in providing the GFE; (3) new 
information particular to the borrower or transaction that was not 
relied on in providing the GFE; or (4) other circumstances that are 
particular to the borrower or transaction, including boundary disputes, 
the need for flood insurance, or environmental problems. 12 CFR 
1024.2(b). Changed circumstances, however, do not include the 
borrower's name, the borrower's monthly income, the property address, 
an estimate of the value of the property, the mortgage loan amount 
sought, and any information contained in any credit report obtained by 
the loan originator prior to providing the GFE, unless the information 
changes or is found to be inaccurate after the GFE has been provided, 
or market price fluctuations by themselves. Id.
    Additionally, Sec.  1024.7(f)(3) provides: ``If a borrower requests 
changes to the mortgage loan identified in the GFE that change the 
settlement charges or the terms of the loan, the loan originator may 
provide a revised GFE to the borrower.'' Section 1024.7(f)(4) provides: 
``If a borrower does not express an intent to continue with an 
application within 10 business days after the GFE is provided, or such 
longer time specified by the loan originator * * * the loan originator 
is no longer bound by the GFE.''
    The exception provided by Sec.  1024.7(f)(4) relates to the ability 
of consumers to use the GFE to shop and compare mortgage loans, which 
is one of the primary purposes of the 2008 RESPA Final Rule. A related 
provision, Sec.  1024.7(c), provides that ``the estimate of the charges 
and terms for all settlement services must be available for at least 10 
business days from when the GFE is provided, but it may remain 
available longer, if the loan originator extends the period of 
availability.''
    Section 1024.7(f)(5) provides: ``If the interest rate has not been 
locked, or a locked interest rate has expired, the charge or credit for 
the interest rate chosen, the adjusted origination charges, per diem 
interest, and loan terms related to the interest rate may change. When 
the interest rate is later locked, a revised GFE must be provided 
showing the revised interest rate-dependent charges and terms. All 
other charges and terms must remain the same as on the original GFE, 
except as otherwise provided [under] this section.''
    Section 1024.7(f)(6) provides: ``In transactions involving new 
construction home purchases, where settlement is anticipated to occur 
more than 60 calendar days from the time a GFE is provided, the loan 
originator may provide the GFE to the borrower with a clear and 
conspicuous disclosure stating that at any time up until 60 calendar 
days prior to closing, the loan originator may issue a revised GFE. If 
no such separate disclosure is provided, the loan originator cannot 
issue a revised GFE, except as otherwise provided [under] this 
section.''
    Although settlement charges have historically been the subject of 
RESPA, section 1419 of the Dodd-Frank Act amended TILA section 128(a) 
to require creditors to disclose: ``In the case of a residential 
mortgage loan, the aggregate amount of settlement charges for all 
settlement services provided in connection with the loan, the amount of 
charges that are included in the loan and the amount of such charges 
the borrower must pay at closing * * * and the aggregate amount of 
other fees or required payments in connection with the loan.'' 15 
U.S.C. 1638(a)(17). ``Settlement charges'' is not defined under TILA. 
This amendment expands the disclosure requirements of TILA section 
128(a) beyond the cost of credit to include all charges imposed in 
connection with the mortgage loan. No distinction is made between 
whether those charges relate to the extension of credit or the real 
estate transaction, or whether those charges are imposed by the 
creditor or another party, so long as the charges arise in the context 
of the mortgage loan settlement.
    Furthermore, as discussed above, section 1032(f) of the Dodd-Frank 
Act requires integration of the disclosure provisions under TILA and 
RESPA. Sections 1098 and 1100A of the Dodd-Frank Act further provide 
that the purpose of the integrated disclosure is ``to facilitate 
compliance with the disclosure requirements of [RESPA] and [TILA], and 
to aid the borrower or lessee in understanding the transaction by 
utilizing readily understandable language to simplify the technical 
nature of the disclosures.'' 15 U.S.C. 1604(b), 12 U.S.C. 2603(a). 
These amendments require integration of the regulations related to the 
accuracy and delivery of the disclosures, as well as their content.
Issues With Integrating Different Approaches to Good Faith Estimates, 
Tolerances, and Redisclosure
    As discussed above, TILA generally focused on redisclosure in 
response to changes in the cost of credit that occurred during the 
mortgage loan origination process. Over time, practices developed that 
diminished the value of the disclosures. Congress addressed these 
problems by revising TILA from time to time, seeking to ensure that 
consumers could use the disclosures to shop for credit.\134\ However, 
problems

[[Page 51167]]

in the market persisted, and evidence suggests that consumers were 
often surprised by the difference between their expectations of the 
cost of credit, based on the good faith estimates provided during the 
shopping phase, and the actual cost of credit revealed at 
settlement.\135\
---------------------------------------------------------------------------

    \134\ In explaining the 1980 amendment to TILA, Congress stated 
that the amendment ``would also make disclosures more meaningful to 
the consumer in mortgage transactions in two respects. First, the 
creditor would be required to give truth in lending disclosures 
within 3 days after receiving a consumer's written application. * * 
* Under current law, Truth in Lending disclosures are provided for 
the first time at the real estate closing, making them all but 
useless for credit shopping.'' S. Rep. No. 368, 96th Cong., 1st 
Sess. 1979, reprinted in 1980 U.S. Code Cong. & Ad. News 236, 266. 
Congress also amended the disclosure requirements in 1994 to provide 
more extensive disclosure on high-cost mortgage loans. Riegle 
Community Development and Regulatory Improvement Act of 1994, Public 
Law 103-325, Title I, Sec.  152(d), 108 Stat. 2191 (Sept. 23, 1994); 
15 U.S.C. 1639(a). Congress amended the TILA disclosure requirements 
again in 1996 to provide disclosures related to variable-rate 
mortgage loans. Economic Growth and Regulatory Paperwork Reduction 
Act of 1996, Public Law 104-208, Title I, Subtitle A, Sec.  2105, 
110 Stat. 3009 (Sept. 30, 1996); 15 U.S.C. 1638(a).
    \135\ ``For refinancings and second mortgages that fall below 
the HOEPA triggers, the only required written disclosure of the APR 
and finance charge is usually given at closing on the TILA 
disclosure, after which the borrower has only the three day 
rescission period for price shopping, again too short a period to 
obtain competing offers.'' Lauren E. Willis, Decisionmaking and the 
Limits of Disclosure: The Problem of Predatory Lending: Price, 65 
Md. L. Rev. 707, 750 (2006). ``[T]he prices on subprime loans often 
turned out to be a moving target. A lender or broker might have the 
customer apply for one type of loan, price A, say a fixed rate loan; 
changed the loan during underwriting to an adjustable rate mortgage, 
price B; and then finally change the loan at closing to something 
different at price C, say an interest only mortgage.'' Federal 
Reserve Board Public Hearing Re: Building Sustainable Homeownership: 
Responsible Lending and Informed Consumer Choice, 155 (July 11, 
2006) (testimony of Patricia McCoy), available at http://www.federalreserve.gov/events/publichearings/hoepa/2006/20060711/transcript.pdf.
---------------------------------------------------------------------------

    The issues arising under TILA were even more pronounced under 
RESPA. HUD spent over ten years investigating problems in the 
settlement services industry.\136\ HUD found that the principles of 
RESPA were undermined by market forces operating against 
consumers.\137\ In the context of home purchases, consumers' actual 
settlement costs were sometimes dramatically different from those 
originally estimated. Consumers did not realize this until immediately 
before settlement--the point in time where consumers are in the weakest 
bargaining position. As a result, consumers were often unable to 
challenge increases in settlement costs when confronted with them at 
the closing table.\138\ HUD found that these high closing costs were 
exacerbated by the fact that consumers rarely shopped for settlement 
service providers.\139\ Accordingly, settlement service providers were 
not accountable to the consumer, and creditors had little motivation to 
monitor the legitimacy of settlement costs because those costs were 
simply passed on to the consumer.\140\
---------------------------------------------------------------------------

    \136\ Joint Report to the Congress Concerning Reform of the 
Truth in Lending Act and the Real Estate Settlement Procedures Act, 
(July 1998); 2000 HUD-Treasury Report; 2002 RESPA Proposal (67 FR 
49134).
    \137\ ``Estimates appearing on the GFEs can be significantly 
lower than the amount ultimately charged at settlement and do not 
provide meaningful guidance on the costs borrowers will incur at 
settlement. While unforeseeable circumstances can drive up costs in 
particular circumstances, in most cases loan originators have the 
ability to estimate final settlement costs with great accuracy.'' 73 
FR 14030, 14039 (March 14, 2008).
    \138\ ``After agreeing to the price of a house, too many 
families sit down at the settlement table and discover unexpected 
fees that can add hundreds, if not thousands, of dollars to the cost 
of their loan. And at that point, they have no other options. On the 
spot, the borrower is forced to make an impossible choice: either 
hand over the extra cash and sign, or lose either the house or the 
funds needed to refinance.'' Reforming the Real Estate Settlement 
Procedure: Review of HUD's proposed RESPA Rule, 107th Cong. (October 
3, 2002) (testimony of Mel Martinez, Secretary of the U.S. 
Department of Housing and Urban Development).
    \139\ See 73 FR 14030, 14034 (March 14, 2008).
    \140\ ``There is not always an incentive in today's market for 
originators to control these costs. Too often, high third-party 
costs are simply passed through to the consumer.'' U.S. Dep't. of 
Housing and Urban Dev., Office of Pol'y Dev. and Research, RESPA: 
Regulatory Impact Analysis and Initial Regulatory Flexibility 
Analysis, FR-5180-F-02, Final Rule to Improve the Process of 
Obtaining Mortgages and Reduce Consumer Costs, iv (2008). See also 
Eskridge, supra note 83, at 1184-1185.
---------------------------------------------------------------------------

    These problems led HUD to the determination that a subjective 
requirement that estimates be made in ``good faith'' was not sufficient 
to achieve the purposes of RESPA. The tolerances included in the 2008 
RESPA Final Rule established objective measures of good faith that were 
designed to ensure that consumers were provided with estimates more 
closely tied to the actual costs. The provisions related to 
redisclosure provided industry with the flexibility to revise the 
charges originally estimated when legitimate and unforeseen issues 
arose that affected the cost of settlement services, while also 
ensuring that consumers were not pressured into paying unwarranted 
costs. The 2008 RESPA Final Rule established a requirement that costs 
be available for at least 10 business days, along with requirements 
related to allowing consumers to shop for settlement service providers, 
sought to re-introduce competition into the markets for both mortgage 
loan origination and settlement service providers, in accordance with 
RESPA's original principles.
    These revisions to Regulation X took effect in 2010. Some concerns 
were identified during the implementation process. In particular, 
concerns have been raised regarding the treatment of fees charged by 
affiliates of the lender.\141\ Under the 2008 rule, affiliates' fees 
are permitted to increase by as much as 10 percent prior to the real 
estate closing, in addition to increases based on changed circumstances 
and other similar events. Settlement service providers such as 
appraisal management companies and title companies may be affiliated 
with the creditor. Fees paid to these affiliates may constitute a large 
percentage of the total settlement service fees paid by consumers at 
consummation. Permitting these fees to vary by ten percent may 
significantly increase the actual cost of obtaining a mortgage loan. 
This variance is of particular concern given the nature of the 
relationship between creditors and their affiliates. Regulation X 
subjects fees paid to creditors to a zero percent tolerance because 
credit providers are expected to know their own costs. The same 
reasoning may apply to services provided by affiliates. An affiliate 
relationship between a creditor and a provider should facilitate 
greater communication and coordination than a relationship between 
independent entities acting at arm's length. This is especially so 
given that the rules require precise estimates only of costs that are 
likely to occur and provide flexibility for cost revisions when an 
unexpected event occurs, such as a changed circumstance or a change 
requested by the consumer.
---------------------------------------------------------------------------

    \141\ For purposes of this proposal, ``affiliate'' means any 
company that controls, is controlled by, or is under common control 
with another company, as set forth in the Bank Holding Company Act 
of 1956 (12 U.S.C. 1841 et seq.).
---------------------------------------------------------------------------

    Additional concerns about affiliate relationships stem from the 
fact that no justification is required if affiliate fees increase by as 
much as ten percent. Given that the affiliate relationship is 
beneficial to the creditor, this may create an incentive to increase 
fees at the real estate closing without justification, solely to obtain 
all money available under the tolerance. A rule that encourages such 
rent-seeking behavior could harm consumers by unjustifiably increasing 
settlement costs, which is contrary to the purposes of RESPA.
    Another concern with Regulation X centers on the ability of 
consumers to shop for settlement service providers. Regulation X 
requires loan originators to provide borrowers with a written list of 
providers in some cases.\142\ This provision was intended to enable 
consumers to shop for settlement

[[Page 51168]]

service providers, based on the principle that such shopping would spur 
competition in the settlement service market, thereby reducing the 
incidence of unnecessarily high settlement service charges. However, 
concerns have been raised that, rather than simply providing consumers 
with lists of available settlement service providers to facilitate 
shopping, creditors have instead developed ``closed'' lists that 
include only the creditor's ``preferred'' providers and are requiring 
consumers to select one of those providers. This practice effectively 
may limit competition among settlement service providers instead of 
promoting competition, contrary to the goals of the regulation.
---------------------------------------------------------------------------

    \142\ ``Where a loan originator permits a borrower to shop for 
third party settlement services, the loan originator must provide 
the borrower with a written list of settlement services providers at 
the time of the GFE, on a separate sheet of paper.'' 12 CFR 1024, 
app. C.
---------------------------------------------------------------------------

The Bureau's Proposal
    An enhanced reliability standard. The Bureau believes that 
consumers would benefit from having more reliable estimates of costs. A 
meaningful ``good faith'' estimate should be based on the best 
information reasonably available to the person providing the estimate. 
In many cases, a creditor should be able to estimate costs with 
considerable precision based on its familiarity with its own 
underwriting process and its knowledge of the real estate settlement 
process. A creditor originating a loan in a geographical area with 
which it is unfamiliar, or using settlement service providers with whom 
it is not familiar, may not be able to estimate the settlement service 
costs as accurately. In cases such as these, the ten-percent tolerance 
currently provided by Regulation X may be appropriate.
    However, creditors who have affiliate relationships with service 
providers should have access to the providers' data about the actual 
costs of those services, including how often changed circumstances 
occur, and the magnitude of resulting cost increases. Thus, in many 
cases, creditors may be able to provide accurate estimates of 
settlement costs for services provided by affiliates, and therefore 
should not need to rely on the ten-percent tolerance. In addition to 
the increased level of knowledge and communication suggested by the 
affiliate relationship, the frequency of business with a particular 
affiliate provides creditors with even more data, which may be used to 
develop more accurate estimates. It may be reasonable to expect 
creditors to use the significant amount of historical settlement cost 
data available to them, by virtue of the repeat business from affiliate 
relationships, to develop highly accurate estimates of costs. 
Accordingly, the Bureau proposes to include charges paid to affiliates 
of the creditor in the category of fees that may not vary from the 
estimated amount disclosed, subject to legitimate reasons for revision 
such as changed circumstances and revisions requested by the consumer.
    The Bureau also believes that consumers would benefit from a more 
competitive market for settlement service providers. A list of service 
providers offers consumers the opportunity to speak with multiple 
providers and select the providers and services that best fit 
consumers' needs. Although the Bureau understands the concerns 
regarding preferred provider lists identified above, such lists may be 
a natural outgrowth of creditors' business and are not necessarily 
harmful to consumers. Indeed, it would be much more difficult for 
creditors to provide good faith estimates of settlement service charges 
without basing such estimates on charges imposed by actual settlement 
service providers in a particular area with whom the creditor has 
established relationships and regularly does business.
    Creditors that assemble preferred provider lists are in a superior 
position of knowledge with respect to the expected costs of the 
services of those providers, for reasons similar to those seemingly 
inherent in the creditor-affiliate relationship. The relationship 
between creditor and preferred provider suggests a level of 
communication and knowledge that is absent from a relationship between 
a creditor and a settlement service provider who do not regularly do 
business. The repeat business afforded by the preferred provider 
relationship should also give creditors access to statistically 
significant amounts of historical settlement charge data, with which 
the creditor can accurately predict the cost of a settlement service, 
in the absence of a valid reason for revision such as a changed 
circumstance. It may be reasonable to expect the creditor to use this 
relationship for the benefit of consumers in the form of more accurate 
initial estimates of costs.
    The creditor's knowledge may be less certain with preferred 
providers, with whom the creditor has some pre-existing relationship or 
agreement, than for affiliates, with whom the creditor has an actual 
control-based relationship. But this difference is countered when the 
creditor does not permit the consumer to shop independently for the 
settlement service. Such closed lists require consumers to choose 
providers preferred by the creditor and prohibit consumers from 
choosing more cost efficient, or perhaps higher quality, settlement 
service providers. Consumers presented with a closed list of preferred 
providers are neither benefitted by more accurate estimates nor able to 
protect their own financial interests. Consumers should have the 
ability to influence the quality and cost of settlement services 
related to what, for most consumers, will be the most significant 
financial obligation of their lives. If the creditor arrogates that 
opportunity, then the creditor should also take a greater 
responsibility for estimating accurately and assume some of the risk of 
under-estimation if it does not. Thus, the Bureau proposes to include 
charges paid to non-affiliated third party service providers in the 
category of fees that may not vary from the estimated amount disclosed 
if the creditor does not permit the consumer to shop for those 
services, subject to legitimate reasons for revision such as changed 
circumstances and revisions requested by the consumer.
    This proposal seeks to strike the appropriate balance between 
consumers' need for accurate, timely, and reliable information about 
the costs of a mortgage loan and industry's need for flexibility for 
the wide range of unexpected issues that arise during the mortgage loan 
origination process. Creditors are routine participants in the mortgage 
market, but individual consumers are not. As a result, creditors have 
access to important cost data that are unavailable to consumers. It 
therefore may be reasonable to expect creditors to use this advantage 
to provide consumers with reasonably accurate estimates of the costs 
associated with a real estate settlement. This consideration is more 
compelling when creditors have pre-existing, and advantageous, 
relationships with affiliated and ``preferred'' settlement service 
providers. More reliable estimates are inherently beneficial because 
they enable consumers to make informed and responsible financial 
decisions, they promote honest competition among the majority of 
industry providers who want a fair and level playing field, and they 
prevent financial surprises at the real estate closing that may greatly 
harm consumers.
    More reliable estimates also make it more likely that consumers 
will shop for mortgage loans based on all relevant costs among multiple 
providers, furthering one of the key principles of TILA and RESPA. 
Encouraging consumers to shop for settlement services further 
facilitates a competitive market for those services, thereby preventing 
unnecessarily high settlement costs and achieving one of the key 
purposes of RESPA. This approach furthers the goals of the 2008

[[Page 51169]]

RESPA Final Rule and the principles upon which TILA and RESPA are 
founded.
    Legal authority. The Bureau is proposing to adopt an enhanced 
reliability standard for settlement costs pursuant to its authority to 
prescribe standards for ``good faith estimates'' under TILA section 128 
and RESPA section 5, as well as its general rulemaking, exception, and 
exemption authorities under TILA sections 105(a) and 121(d), RESPA 
section 19(a), section 1032(a) of the Dodd-Frank Act, and, for 
residential mortgage loans, section 1405(b) of the Dodd-Frank Act and 
section 129B(e) of TILA.
    The Bureau has considered the purposes for which it may exercise 
its authority under TILA section 105(a) and, based on that review, 
believes that the proposed adjustments and exceptions may be 
appropriate. The proposal is consistent with the statute's purpose in 
that it seeks to ensure that the cost estimates are more meaningful and 
better inform consumers of the actual costs associated with obtaining 
credit. The proposal has the potential to effectuate the statute's 
goals by ensuring more reliable estimates, which may increase the level 
of shopping for mortgage loans and foster honest competition for 
prospective consumers among financial institutions. The Bureau believes 
that technological advances in the mortgage loan origination market, 
coupled with the relationships that currently exist between creditors 
and the settlement service industry, may have improved the ability of 
creditors to provide accurate estimates, subject to reasonable 
exceptions. The proposal could also prevent potential circumvention or 
evasion of TILA by penalizing underestimation to gain a competitive 
advantage in situations where TILA requires good faith.
    Section 121(d) of TILA generally authorizes the Bureau to adopt 
tolerances necessary to facilitate compliance with the statute, 
provided such tolerances are narrow enough to prevent misleading 
disclosures or disclosures that circumvent the purposes of the statute. 
15 U.S.C. 1631(d). The Bureau has considered the purposes for which it 
may exercise its authority under TILA section 121(d) and, based on that 
review, believes that the proposed tolerances may be appropriate. The 
proposal has the potential to facilitate compliance with the statute by 
providing bright line rules for the determination of ``good faith'' 
based on the knowledge of costs that creditors have, or reasonably 
should have. The narrowed tolerances may also prevent misleading 
disclosures by forcing creditors who have access to accurate cost 
information through affiliate networks or exclusive provider 
arrangements, and today use such information strategically to 
underestimate cost estimates, to absorb any overages.
    The proposal also may prevent circumvention of TILA by preventing 
creditors from using the tolerances to capture rent through their 
affiliates, and thereby unnecessarily increasing the cost of credit. 
The proposed tolerances may be sufficiently narrow by focusing on areas 
where the creditor is, or reasonably should be, in a position of 
superior knowledge, while maintaining the existing tolerances in areas 
where the creditor is providing estimates based on less certain 
information, such as cost estimates for services provided by 
independent providers.
    In addition, the proposed regulation is consistent with Dodd-Frank 
Act section 1032(a) because requiring more accurate initial estimates 
of the costs of the transaction, thereby limiting the possibility of 
strategic underestimation to gain a competitive advantage, will ensure 
that the features of mortgage loan transactions and settlement services 
will be more fully, accurately, and effectively disclosed to consumer 
in a manner than permits consumers to understand the costs, benefits, 
and risks associated the mortgage loan. It is also in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b), because providing consumers with more accurate 
estimates of the cost of the mortgage loan transaction will improve 
consumer understanding and awareness of the mortgage loan transaction 
through the use of disclosure.
    Section 129B(e) of TILA generally authorizes the Bureau to adopt 
regulations prohibiting or conditioning terms, acts, or practices 
relating to residential mortgage loans that are not in the interest of 
the borrower. The Bureau has considered the purposes for which it may 
exercise its authority under TILA section 129B(e) and, based on that 
review, believes that the proposed regulations are appropriate because 
unreliable estimates are not in the interest of the borrower.
    Section 19(a) of RESPA authorizes the Bureau to prescribe 
regulations and make interpretations to carry out the purposes of 
RESPA, which include more effective advance disclosure of settlement 
costs. 12 U.S.C. 2601(a), 2617(a). The Bureau has considered the 
purposes for which it may exercise its authority under RESPA section 
19(a) and, based on that review, believes that the proposed rules and 
interpretations may be appropriate. The proposal has the potential to 
ensure more effective advance disclosure of settlement costs by 
requiring creditors to disclose accurate estimates when such creditors 
are in a position to do so.
    The Bureau solicits comment on all aspects of this proposal, 
including the cost, burden, and benefits to consumers and to industry 
regarding the proposed revisions to the good faith requirements. The 
Bureau solicits comment on the frequency, magnitude, and causes of 
settlement cost increases. The Bureau also requests comment on any 
alternatives to the proposal that would further the purposes of TILA, 
RESPA, and the Dodd-Frank Act and provide consumers with more useful 
disclosures.
19(e)(3)(i) General Rule
    Regulation X currently provides that the amounts imposed for the 
origination charge and transfer taxes may not exceed the amounts 
included on the RESPA GFE, unless certain exceptions are met. Sec.  
1024.7(e)(1). The items included under this category are generally 
limited to charges paid to lenders and brokers, in addition to transfer 
taxes.
    The Bureau is proposing to incorporate this provision in new Sec.  
1026.19(e)(3)(i). Furthermore, as discussed above, the Bureau is 
proposing to expand the scope of the current regulation. Under the 
proposed rule, the default rule is that any charge paid by the consumer 
that exceeds the amount originally estimated on the disclosures 
provided pursuant to Sec.  1026.19(e)(1)(i) was not provided in good 
faith. This default rule is subject to legitimate cost revisions when 
an unexpected event occurs, such as a changed circumstance or a change 
requested by the consumer. Also, the charges for certain items are 
subject to exceptions allowing other increases as permitted under Sec.  
1026.19(e)(3)(ii) and (iii). Thus, the Bureau believes that the rule 
offers a level of flexibility similar to the current rules under 
Regulation X. The Bureau believes that the primary impact of adopting 
this bright line default rule will be to protect consumers from 
unnecessary increases in charges.
    Consequently, the Bureau proposes Sec.  1026.19(e)(3)(i), which 
provides that the charges paid by or imposed on the consumer may not 
exceed the estimated amounts of those charges provided pursuant to 
Sec.  1026.19(e)(1)(i), subject to permissible reasons for revision 
such as changed circumstances and revisions requested by the consumer, 
and except

[[Page 51170]]

as otherwise provided under Sec.  1026.19(e)(3)(ii) and (iii).
    During the Small Business Panel Review process, several small 
entity representatives expressed concern about the unintended 
consequences that may result from applying the zero-percent tolerance 
rule currently under Regulation X to affiliates of the lender or 
mortgage broker and to providers selected by the lender. See Small 
Business Review Panel Report at 34, 37-38, 40, 64, 67, and 71. The 
Small Business Review Panel recommended that the Bureau consider 
alternatives to expanding application of the zero-percent tolerance 
that would increase the reliability of cost estimates while minimizing 
the impacts on small entities. See id. at 29. The Bureau has given 
careful consideration to this recommendation, but has not yet 
identified any alternatives that would increase disclosure reliability 
while minimizing small entity impact. The Bureau solicits comment on 
any such alternatives. The Panel also recommended that the Bureau 
solicit comment on the effectiveness of the current tolerance rules. 
Id. Consistent with the Small Business Review Panel's recommendation, 
the Bureau solicits comment on whether the current tolerance rules have 
sufficiently improved the reliability of the estimates that lenders 
give consumers, while preserving lenders' flexibility to respond to 
unanticipated changes that occur during the loan process.
    Proposed comment 19(e)(3)(i)-1 explains that Sec.  1026.19(e)(3)(i) 
imposes a general rule that an estimated charge disclosed pursuant to 
Sec.  1026.19(e) is not in good faith if the charge paid by or imposed 
on the consumer exceeds the amount originally disclosed. Although Sec.  
1026.19(e)(3)(ii) and (e)(3)(iii) provide exceptions to the general 
rule for certain types of charges, those exceptions generally do not 
apply to (1) fees paid to the creditor; (2) fees paid to a broker; (3) 
fees paid to an affiliate of the creditor or a broker; (4) fees paid to 
an unaffiliated third party if the creditor did not permit the consumer 
to shop for a third party service provider; and (5) transfer taxes.
    Proposed comment 19(e)(3)(i)-2 provides guidance on the issue of 
whether an item is ``paid to'' a particular person. In the mortgage 
loan origination process, individuals often receive payments for 
services and subsequently pass those payments on to others. Similarly, 
individuals often pay for services in advance of the real estate 
closing and subsequently seek reimbursement from the consumer. This 
comment provides examples of how situations such as these are treated 
for the purposes of Sec.  1026.19.
    Proposed comment 19(e)(3)(i)-3 discusses when items are 
characterized as transfer taxes, as opposed to recording fees. Transfer 
taxes are analyzed under Sec.  1026.19(e)(3)(i) for purposes of 
determining whether an estimate is provided in good faith. Recording 
fees are analyzed under Sec.  1026.19(e)(3)(ii) for purposes of 
determining whether an estimate is provided in good faith.
    Proposed comment 19(e)(3)(i)-4 provides examples illustrating the 
good faith requirement in the context of specific credits, rebates, or 
reimbursements. An item identified, on the disclosures provided 
pursuant to Sec.  1026.19(e), as a payment from a creditor to the 
consumer to pay for a particular fee, such as a credit, rebate, or 
reimbursement are not subject to the good faith determination 
requirements in Sec.  1026.19(e)(3)(i) or (ii) if the increased 
specific credit, rebate, or reimbursement actually reduces the cost to 
the consumer. Specific credits, rebates, or reimbursements may not be 
disclosed or revised in a way that would otherwise violate the 
requirements of Sec.  1026.19(e)(3)(i) and (ii). The proposed comment 
also provides illustrative examples of these requirements.
    Proposed comment 19(e)(3)(i)-5 discusses how to determine ``good 
faith'' in the context of lender credits. The proposed comment explains 
that the disclosure of ``lender credits,'' as identified in Sec.  
1026.37(g)(6)(ii), is required by Sec.  1026.19(e)(1)(i). These are 
payments from the creditor to the consumer that do not pay for a 
particular fee on the disclosures provided pursuant to Sec.  
1026.19(e)(1)(i). These non-specific credits are negative charges to 
the consumer--as the lender credit decreases the overall cost to the 
consumer increases. Thus, an actual lender credit provided at the real 
estate closing that is less than the estimated lender credit provided 
pursuant to Sec.  1026.19(e)(1)(i) is an increased charge to the 
consumer for purposes of determining good faith under Sec.  
1026.19(e)(3)(i). For example, if the creditor provides a $750 estimate 
for lender credits in the disclosures required by Sec.  
1026.19(e)(1)(i), but only a $500 lender credit is actually provided to 
the consumer at the real estate closing, the creditor does not comply 
with Sec.  1026.19(e)(3)(i) because, although the actual lender credit 
was less than the estimated lender credit provided in the revised 
disclosures, the overall cost to the consumer increased and, therefore, 
did not comply with Sec.  1026.19(e)(3)(i). See also Sec.  
1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of 
lender credits in the context of interest rate dependent charges.
19(e)(3)(ii) Limited Increases Permitted for Certain Charges
    Regulation X Sec.  1024.7(e)(2) currently provides that the sum of 
the amounts charged for all lender-required settlement services where 
the consumer does not independently choose a provider, title insurance, 
and recording charges may increase by as much as 10 percent prior to 
settlement, subject to revisions arising from exceptions such as 
changed circumstances. The Bureau believes that a more narrow 
regulation may be appropriate in this context. The Bureau therefore 
proposes Sec.  1026.19(e)(3)(ii), which permits the sum of all charges 
for lender-required settlement services where the lender permits the 
consumer to shop for a provider other than those identified by the 
creditor and recording fees to increase by 10 percent for the purposes 
of determining good faith. As explained in the general discussion under 
Sec.  1026.19(e)(3) above, the Bureau believes that the purposes of 
TILA and RESPA are better served by removing affiliate fees from this 
category and including other settlement services in this category only 
if the consumer is permitted to shop independently for a service 
provider. Proposed comment 19(e)(3)(ii)-1 explains that Sec.  
1026.19(e)(3)(ii) provides that certain estimated charges are in good 
faith if the sum of all such charges paid by or imposed on the consumer 
does not exceed the sum of all such charges disclosed pursuant to Sec.  
1026.19(e) by more than 10 percent. Section 1026.19(e)(3)(ii) permits 
this limited increase for only: (1) fees paid to an unaffiliated third 
party if the creditor permitted the consumer to shop for the service, 
consistent with Sec.  1026.19(e)(1)(vi)(A), and (2) recording fees.
    Proposed comment 19(e)(3)(ii)-2 clarifies that pursuant to Sec.  
1026.19(e)(3)(ii), whether an individual estimated charge subject to 
Sec.  1026.19(e)(3)(ii) is in good faith depends on whether the sum of 
all charges subject to Sec.  1026.19(e)(3)(ii) increase by more than 10 
percent, even if a particular charge does not increase by more than 10 
percent. This proposed comment also clarifies that Sec.  
1026.19(e)(3)(ii) provides flexibility in disclosing individual fees by 
focusing on aggregate amounts, and provides illustrative examples.
    Proposed comment 19(e)(3)(ii)-3 discusses the determination of good

[[Page 51171]]

faith when a consumer is permitted to shop for a settlement service, 
but either does not select a settlement service provider, or chooses a 
settlement service provider identified by the creditor on the list 
required by Sec.  1026.19(e)(1)(vi)(C). The proposed comment explains 
Sec.  1026.19(e)(3)(ii), which provides that if the creditor requires a 
service in connection with the mortgage loan transaction, and permits 
the consumer to shop, then good faith is determined pursuant to Sec.  
1026.19(e)(3)(ii)(A), instead of Sec.  1026.19(e)(3)(i) and subject to 
the other requirements in Sec.  1026.19(e)(3)(ii)(B) and (C). For 
example, if, in the disclosures provided pursuant to Sec.  
1026.19(e)(1)(i), a creditor includes an estimated fee for an 
unaffiliated settlement agent and permits the consumer to shop for a 
settlement agent, but the consumer does not choose a settlement agent, 
or chooses an agent identified by the creditor on the list required by 
Sec.  1026.19(e)(1)(vi)(C), then the estimated settlement agent fee is 
included with the fees that may, in aggregate, increase by no more than 
10 percent for the purposes of Sec.  1026.19(e)(3)(ii). If, however, 
the consumer chooses a provider that is not on the written list, then 
good faith is determined according to Sec.  1026.19(e)(3)(iii).
    Proposed comment 19(e)(3)(ii)-4 discusses how the good faith 
determination requirements apply to recording fees. Recording fees are 
mandated by State or local law and paid to a government agency. 
Consequently, several of the requirements regarding good faith do not 
apply. The proposed comment explains that the condition specified in 
Sec.  1026.19(e)(3)(ii)(B), that the charge not be paid to an affiliate 
of the creditor, is inapplicable in the context of recording fees. The 
condition specified in Sec.  1026.19(e)(3)(ii)(C), that the creditor 
permits the consumer to shop for the service, is similarly 
inapplicable. Therefore, estimates of recording fees need only satisfy 
the condition specified in Sec.  1026.19(e)(3)(ii)(A) (i.e., that the 
aggregate amount increased by no more than 10 percent) to meet the 
requirements of Sec.  1026.19(e)(3)(ii).
19(e)(3)(iii) Variations Permitted for Certain Charges
    Section 1024.7(e)(3) of Regulation X currently provides that the 
amounts charged for services, other than those identified in Sec.  
1024.7(e)(1) and Sec.  1024.7(e)(2), may change at settlement. The 
Bureau agrees that certain types of estimates, such as those for 
property insurance premiums, may change significantly between the time 
that the original disclosures are provided and consummation. However, 
the Bureau believes that the regulation will be improved by 
specifically identifying which items are included in this category. 
Clear delineation of these items should facilitate compliance by 
reducing the need to question how to categorize those items. Thus, the 
Bureau proposes Sec.  1026.19(e)(3)(iii), which provides that estimates 
of prepaid interest, property insurance premiums, amounts placed into 
an escrow, impound, reserve, or similar account, and charges paid to 
third-party service providers selected by the consumer consistent with 
Sec.  1026.19(e)(1)(vi)(A) that are not on the list provided pursuant 
to Sec.  1026.19(e)(1)(vi)(C) are in good faith regardless of whether 
the amount actually paid by the consumer exceeds the estimated amount 
disclosed, provided such estimates are consistent with the best 
information reasonably available to the creditor at the time the 
disclosures were made.
    Proposed comments 19(e)(3)(iii)-1, 19(e)(3)(iii)-2, and 
19(e)(3)(iii)-3 explain that the disclosures for items subject to Sec.  
1026.19(e)(3)(iii) must be made in good faith, even though good faith 
is not determined pursuant to a comparison of estimated amounts and 
actual costs. The comments clarify that the disclosures must be made 
according to the best information reasonably available to the creditor 
at the time the disclosures are made. The Bureau is concerned that 
unscrupulous creditors may underestimate, or fail to include estimates 
for, the items subject to Sec.  1026.19(e)(3)(iii) and mislead 
consumers into believing the cost of the mortgage loan is less than it 
actually is. This concern must be balanced against the fact that some 
items may change significantly and legitimately prior to consummation. 
Furthermore, while the creditor should include estimates for all fees 
``the borrower is likely to incur,'' it may not be reasonable to expect 
the creditor to know every fee, no matter how uncommon, agreed to by 
the consumer, for example in the purchase and sale agreement, prior to 
providing the estimated disclosures. The proposal strikes a balance 
between these considerations by imposing a general good faith 
requirement. Thus, proposed comment 19(e)(3)(iii)-1 explains that 
estimates of prepaid interest, property insurance premiums, and impound 
amounts must be consistent with the best information reasonably 
available to the creditor at the time the disclosures are provided. 
Differences between the amounts of such charges disclosed pursuant to 
Sec.  1026.19(e)(1)(i) and the amounts of such charges paid by or 
imposed upon the consumer do not constitute a lack of good faith, so 
long as the original estimated charge, or lack of an estimated charge 
for a particular service, was based on the best information reasonably 
available to the creditor at the time the disclosure was provided. For 
example, if the creditor requires homeowner's insurance but fails to 
include a homeowner's insurance premium on the estimates provided 
pursuant to Sec.  1026.19(e)(1)(i), then the creditor has not complied 
with Sec.  1026.19(e)(3)(iii). However, if the creditor does not 
require flood insurance and the subject property is located in an area 
where floods frequently occur, but not located in a zone where flood 
insurance is required, failure to include flood insurance on the 
original estimates provided pursuant to Sec.  1026.19(e)(1)(i) does not 
constitute a lack of good faith. Or, if the creditor knows that the 
loan must close on the 15th of the month but estimates prepaid interest 
to be paid from the 30th of that month, then the under-disclosure 
violates Sec.  1026.19(e)(3)(iii).
    Proposed comment 19(e)(3)(iii)-2 discusses the good faith 
requirement for required services chosen by the consumer that has been 
permitted to shop consistent with Sec.  1026.19(e)(1)(vi)(A). The 
proposed comment explains that, if a service is required by the 
creditor, the creditor permits the consumer to shop for that service 
consistent with Sec.  1026.19(e)(1)(vi)(A), the creditor provides the 
list required by Sec.  1026.19(e)(1)(vi)(C), and the consumer chooses a 
service provider that is not on the list to perform that service, then 
the actual amounts of such fees need not be compared to the original 
estimates for such fees to perform the good faith analysis required by 
Sec.  1026.19(e)(3)(i) or (ii). Differences between the amounts of such 
charges disclosed pursuant to Sec.  1026.19(e)(1)(i) and the amounts of 
such charges paid by or imposed on the consumer do not necessarily 
constitute a lack of good faith. However, the original estimated 
charge, or lack of an estimated charge for a particular service, must 
be made based on the best information reasonably available to the 
creditor at that time. For example, if the consumer informs the 
creditor that the consumer will choose a settlement agent not 
identified by the creditor, and the creditor subsequently discloses an 
unreasonably low estimated settlement agent fee, then the under-
disclosure does not comply with Sec.  1026.19(e)(3)(iii). The comment 
also

[[Page 51172]]

clarifies that, if the creditor permits the consumer to shop consistent 
with Sec.  1026.19(e)(1)(vi)(A) but fails to provide the list required 
by Sec.  1026.19(e)(1)(vi)(C), good faith is determined pursuant to 
Sec.  1026.19(e)(3)(ii) instead of Sec.  1026.19(e)(3)(iii) regardless 
of the provider selected by the consumer, unless the provider is an 
affiliate of the creditor in which case good faith is determined 
pursuant to Sec.  1026.19(e)(3)(i).
    Proposed comment 19(e)(3)(iii)-3 discusses the good faith 
requirement for non-required services chosen by the consumer. 
Differences between the amounts of estimated charges for services not 
required by the creditor disclosed pursuant to Sec.  1026.19(e)(1)(i) 
and the amounts of such charges paid by or imposed on the consumer do 
not necessarily constitute a lack of good faith. For example, if the 
consumer informs the creditor that the consumer will obtain a type of 
inspection not required by the creditor, the creditor may include the 
charge for that item in the disclosures provided pursuant to Sec.  
1026.19(e)(1)(i), but the actual amount of the inspection fee need not 
be compared to the original estimate for the inspection fee to perform 
the good faith analysis required by Sec.  1026.19(e)(3)(iii). However, 
the original estimated charge, or lack of an estimated charge for a 
particular service, must still be made based on the best information 
reasonably available to the creditor at the time that the estimate was 
provided. For example, if the subject property is located in a 
jurisdiction where consumers are customarily represented at the real 
estate closing by their own attorney, but the creditor fails to include 
a fee for the consumer's attorney, or includes an unreasonably low 
estimate for such fee, on the original estimates provided pursuant to 
Sec.  1026.19(e)(1)(i), then the creditor's failure to disclose, or 
under-estimation, does not comply with Sec.  1026.19(e)(3)(iii).
19(e)(3)(iv) Revised Estimates
    Regulation X Sec.  1024.7(f) currently provides that the estimates 
included on the RESPA GFE are binding, subject to six exceptions. If 
the lender establishes one of these six exceptions, the RESPA GFE may 
be re-issued with revised estimates. The Bureau agrees that there are 
certain situations that may legitimately cause increases over the 
amounts originally estimated, and that the regulations should provide a 
clear mechanism for providing revised estimates in good faith. The 
Bureau proposes Sec.  1026.19(e)(3)(iv), which provides that, for 
purposes of determining good faith, a charge paid by or imposed on the 
consumer may exceed the originally estimated charge if the revision is 
caused by one of the six reasons identified in Sec.  
1026.19(e)(3)(iv)(A) through (F). Proposed comment 19(e)(3)(iv)-1 
illustrates this provision.
    Consistent with current Regulation X,\143\ proposed comment 
19(e)(3)(iv)-2 clarifies that, to satisfy the good faith requirement, 
revised estimates may increase only to the extent that the reason for 
revision actually caused the increase and provides illustrative 
examples of this requirement. Proposed comment 19(e)(3)(iv)-3 discusses 
the documentation requirements related to the provision of revised 
estimates. Regulation X Sec.  1024.7(f) contains a separate regulatory 
provision related to documentation requirements. The Bureau believes 
that this requirement is encompassed within the requirements of Sec.  
1026.25. The proposed comment clarifies that the regulations include a 
documentation requirement related to the disclosures, but the 
requirements are located under Sec.  1026.25, instead of Sec.  1026.19. 
As discussed below, the Bureau is proposing to impose enhanced 
recordkeeping requirements under Sec.  1026.25.
---------------------------------------------------------------------------

    \143\ See Sec.  1024.7(f)(1), (2), (3), and (5).
---------------------------------------------------------------------------

19(e)(3)(iv)(A) Changed Circumstance Affecting Settlement Charges
    In general. Regulation X Sec.  1024.7(f)(1) currently provides that 
a revised RESPA GFE may be provided if changed circumstances result in 
increased costs for any settlement service such that charges at 
settlement would exceed the tolerances for those charges. The Bureau 
agrees that creditors should be able to provide revised estimates if 
certain situations occur that increase charges. The Bureau proposes 
Sec.  1026.19(e)(3)(iv)(A), which provides that a valid reason for re-
issuance exists when changed circumstances cause estimated charges to 
increase or, for those charges subject to Sec.  1026.19(e)(3)(ii), 
cause the sum of all such estimated charges to increase by more than 10 
percent. Proposed comment 19(e)(3)(iv)(A)-1 provides further 
explanation of this requirement and includes several practical 
examples.
    Changed circumstance. As explained in the general discussion under 
Sec.  1026.19(e)(3) above, Regulation X Sec.  1024.2 generally defines 
changed circumstances as information and events that warrant revision 
of the estimated amounts included on the RESPA GFE. The Bureau 
generally agrees with the information and events included in the 
current definition. However, the Bureau has received feedback that the 
current definition is confusing. Thus, the Bureau proposes, within 
Sec.  1026.19(e)(3)(iv)(A), a new definition of changed circumstance, 
which provides that a changed circumstance is 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 disclosures and that was inaccurate or subsequently changed, or new 
information specific to the consumer or transaction that was not relied 
on when providing the disclosures.
    This proposed definition, most significantly, omits the fourth 
prong of the existing definition, which provides that: ``[o]ther 
circumstances that are particular to the borrower or transaction, 
including boundary disputes, the need for flood insurance, or 
environmental problems'' is considered a changed circumstance. The 
Bureau believes that this prong is not needed because it is covered 
elsewhere in the definition, and may be contributing to the current 
industry uncertainty surrounding what constitutes a changed 
circumstance. However, the Bureau seeks comment on whether this 
proposal is appropriate, and specifically on whether there are 
scenarios that should be considered a changed circumstance that would 
not be captured under any of the other three prongs. Proposed comment 
19(e)(3)(iv)(A)-2 provides additional elaboration on this issue and 
provides several examples of changed circumstances.
    Proposed comment 19(e)(3)(iv)(A)-3 discusses how the definition of 
application under Sec.  1026.2(a)(3) relates to the definition of 
changed circumstances under Sec.  1026.19(e)(3)(iv)(A). The proposed 
comment explains that a creditor is not required to collect the 
consumer's name, monthly income, or social security number to obtain a 
credit report, the property address, an estimate of the value of the 
property, or the mortgage loan amount sought. However, for purposes of 
determining whether an estimate is provided in good faith under Sec.  
1026.19(e)(1)(i), a creditor is presumed to have collected these six 
pieces of information. For example, if a creditor provides the 
disclosures required by Sec.  1026.19(e)(1)(i) prior to receiving the 
property address from the consumer, the creditor cannot subsequently 
claim that the receipt of the property address is a

[[Page 51173]]

changed circumstance, under Sec.  1026.19(e)(3)(iv)(A) or (B).
19(e)(3)(iv)(B) Changed Circumstance Affecting Eligibility
    Regulation X Sec.  1024.7(f)(2) currently provides that a revised 
RESPA GFE may be provided if a changed circumstance affecting borrower 
eligibility results in increased costs for any settlement service such 
that charges at settlement would exceed the tolerances for those 
charges. The Bureau proposes Sec.  1026.19(e)(3)(iv)(B), which provides 
that a valid reason for reissuance exists when a changed circumstance 
affecting the consumer's creditworthiness or the value of the 
collateral causes the estimated charges to increase. Proposed comment 
19(e)(3)(iv)(B)-1 explains that if changed circumstances cause a change 
in the consumer's eligibility for specific loan terms disclosed 
pursuant to Sec.  1026.19(e)(1)(i) and revised disclosures are provided 
reflecting such change, the actual amounts paid by the consumer may be 
measured against the revised estimated disclosures to determine if the 
actual fee has increased above the estimated fee. The proposed comment 
also provides several illustrative examples.
19(e)(3)(iv)(C) Revisions Requested by the Consumer
    Regulation X Sec.  1024.7(f)(3) currently provides that a revised 
RESPA GFE may be provided if a borrower requests changes to the 
mortgage loan identified in the GFE that change the settlement charges 
or the terms of the loan. The Bureau agrees that creditors should be 
able to provide revised estimates that increase charges from the 
original estimates due to revisions requested by the consumer. The 
Bureau proposes Sec.  1026.19(e)(3)(iv)(C), which provides that a valid 
reason for reissuance exists when a consumer requests revisions to the 
credit terms or the settlement that cause estimated charges to 
increase. Proposed comment 19(e)(3)(iv)(C)-1 illustrates this 
requirement.
19(e)(3)(iv)(D) Interest Rate Dependent Charges
    Regulation X Sec.  1024.7(f)(5) currently provides that, if the 
interest rate has not been locked, or a locked interest rate has 
expired, the charge or credit for the interest rate chosen, the 
adjusted origination charges, per diem interest, and loan terms related 
to the interest rate may change, provided, however, that when the 
interest rate is later locked, a revised GFE must be provided showing 
the revised interest rate-dependent charges and terms. The Bureau 
agrees that disclosures related to the interest rate should be able to 
fluctuate if the consumer's rate has not been set. The Bureau also 
agrees that revised disclosures should be provided when the consumer's 
rate is later set. However, the Bureau is concerned that this provision 
may be used to harm consumers. There is a possibility that unscrupulous 
creditors could use this provision to engage in rent-seeking behavior, 
or to attempt to circumvent the requirements of TILA or RESPA. The 
Bureau acknowledges these concerns, but the Bureau is unaware of any 
evidence that creditors are using current Regulation X Sec.  
1024.7(f)(5) to harm consumers or to circumvent RESPA. The Bureau 
believes that the correct balance may be to retain the current 
regulation while monitoring the market to determine if the regulation 
is being used to the detriment of consumers. Thus, the Bureau proposes 
Sec.  1026.19(e)(3)(iv)(D), which provides that a valid reason for 
reissuance exists when a consumer's rate is set, and also provides that 
revised disclosures must be provided reflecting the revised interest 
rate, bona fide discount points, and lender credits. Proposed comment 
19(e)(3)(iv)(D)-1 illustrates this requirement. The Bureau also seeks 
comment on the frequency and magnitude of revisions to the interest 
rate dependent charges, the frequency of cancellations of contractual 
agreements related to interest rate dependent charges, such as rate 
lock agreements, and the reasons for such revisions and cancellations.
19(e)(3)(iv)(E) Expiration
    Regulation X Sec.  1024.7(f)(4) currently provides that if a 
borrower does not express an intent to continue with the transaction 
within ten business days after the RESPA GFE is provided, or such 
longer time specified by the loan originator, then the loan originator 
is no longer bound by the RESPA GFE. The Bureau believes that consumers 
should be able to rely on the estimated charges for a sufficient period 
of time to permit shopping. The Bureau also believes that, if the 
consumer does not indicate intent to proceed within the ten-day period, 
creditors should be able to provide revised disclosures reflecting new 
charges. The Bureau proposes Sec.  1026.19(e)(3)(iv)(E), which provides 
that a valid reason for reissuance exists when a consumer expresses an 
intent to proceed more than ten business days after the disclosures are 
provided. Proposed comment 19(e)(3)(iv)(E)-1 illustrates this 
requirement.
19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
    Regulation X Sec.  1024.7(f)(6) currently provides that in 
transactions involving new construction home purchases, where 
settlement is expected to occur more than 60 calendar days from the 
time a GFE is provided, the loan originator cannot issue a revised GFE 
unless the loan originator provided the borrower with a clear and 
conspicuous disclosure stating that at any time up until 60 calendar 
days prior to the real estate closing, the loan originator may issue a 
revised GFE. The Bureau believes that the current law under Regulation 
X should apply to the integrated disclosures. The Bureau agrees that 
creditors should be able to issue revised disclosures for construction 
loans where consummation will not occur until well into the future, 
likely after construction is completed, provided that the consumer is 
aware of this fact. The Bureau proposes Sec.  1026.19(e)(3)(iv)(F), 
which provides that a valid reason for revision exists on construction 
loans when consummation is scheduled to occur more than 60 days after 
delivery of the estimated disclosures, provided that the consumer was 
alerted to this fact when the estimated disclosures were provided.
    Proposed comment 19(e)(3)(iv)(F)-1 clarifies that a loan for the 
purchase of a home either to be constructed or under construction is 
considered a construction loan to purchase and build a home for the 
purposes of Sec.  1026.19(e)(3)(iv)(F). For example, a loan to build a 
home that has yet to be constructed, or a loan to purchase a home on 
which construction is currently underway, is a construction loan to 
build a home for the purposes of Sec.  1026.19(e)(3)(iv)(F). However, 
if a use and occupancy permit has been issued for the home prior to the 
issuance of the Loan Estimate, then the home is not considered to be 
under construction and the transaction would not be a construction loan 
to purchase and build a home for the purposes of Sec.  
1026.19(e)(3)(iv)(F). This comment is consistent with guidance provided 
by HUD in the HUD RESPA FAQs p. 21, 2 (``GFE--New 
construction'').
19(e)(4) Provision of Revised Disclosures
Timing Requirements for Provision of Revised Disclosures
    TILA's requirement that creditors provide corrected disclosures is 
not linked to the time when a creditor discovers that a correction is 
necessary. Instead, section 128(b)(2)(D) of TILA

[[Page 51174]]

provides that the creditor shall furnish additional, corrected 
disclosures to the borrower not later than three business days before 
the date of consummation of the transaction, if the previously 
disclosed annual percentage rate is no longer accurate, as determined 
under TILA section 107(c). 15 U.S.C. 1638(b)(2)(D). Regulation Z 
implements this requirement in Sec.  1026.19(a)(2)(ii). RESPA does not 
expressly address timing requirements for the delivery of revised GFEs, 
but Regulation X generally requires that a revised GFE must be provided 
within three business days of the creditor receiving information 
sufficient to establish a reason for revision.\144\
---------------------------------------------------------------------------

    \144\ ``If a revised GFE is to be provided, the loan originator 
must do so within 3 business days of receiving information 
sufficient to establish changed circumstances.'' 12 CFR 1024.7(f)(1) 
and (2). ``If a revised GFE is to be provided, the loan originator 
must do so within 3 business days of the borrower's request.'' 12 
CFR 1024.7(f)(3). ``The loan originator must provide the revised GFE 
within 3 business days of the interest rate being locked or, for an 
expired interest rate, re-locked.'' 12 CFR 1024.7(f)(5).
---------------------------------------------------------------------------

    While both regulations contain redisclosure requirements, their 
approaches are different. Regulation Z ensures that the consumer is 
made aware of changes at a specific point in time before consummation, 
but does not require the creditor to keep the consumer informed of 
incremental changes during the loan origination process. In contrast, 
Regulation X ensures that the consumer is kept aware of certain changes 
during the process, but those changes may occur up to the day of 
settlement. These different approaches may stem from the underlying 
purposes of the respective statutes: TILA focuses primarily on the 
disclosure of high-level measures of the costs imposed by the creditor, 
such as the APR, while RESPA requires itemized disclosure of all 
charges associated with the settlement of a federally related mortgage 
loan and any underlying real estate transaction, regardless of who 
imposes the charge.
    The Bureau believes that the policy goals of both statutes are best 
served by adopting the Regulation X requirement that revised 
disclosures be delivered within three business days of the creditor 
establishing that a valid reason for revision exists. Intermittent 
redisclosure of the integrated Loan Estimate is necessary under RESPA 
because settlement service provider costs typically fluctuate during 
the mortgage loan origination process. Furthermore, intermittent 
redisclosure is consistent with the purposes of TILA because it 
promotes the informed use of credit by keeping the consumer apprised of 
changes in costs.
    Accordingly, the Bureau is proposing Sec.  1026.19(e)(4)(i), which 
provides that, if a creditor delivers a revised Loan Estimate, the 
creditor must do so within three business days of establishing that a 
valid reason for revision exists. Proposed comment 19(e)(4)-1 provides 
illustrative examples of this requirement.
    The Bureau proposes this provision pursuant to its authority under 
TILA section 105(a), RESPA section 19(a), Dodd-Frank Act section 
1032(a), and, for residential mortgage loans, sections 129B(e) of TILA 
and 1405(b) of the Dodd-Frank Act. This proposed provision is 
consistent with TILA's purposes in that alerting consumers to 
significant settlement cost increases as they occur, rather than prior 
to consummation, increases consumer awareness during the mortgage loan 
origination process, enabling consumers to avoid the uninformed use of 
credit. This provision is consistent with section 129B(e) of TILA 
because failing to inform borrowers of significant settlement cost 
increases as they occur is not in the interest of the borrower. This 
also achieves RESPA's purposes because informing consumers of 
significant settlement cost increases as they occur is a more effective 
method of advance disclosure of settlement costs than only informing 
consumers at or shortly prior to consummation. In addition, the 
proposed regulation is consistent with Dodd-Frank Act section 1032(a) 
because the features of mortgage loan transactions and settlement 
services will be more fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the mortgage loan and settlement 
services if consumers are made aware of significant settlement cost 
increases as they occur, rather than prior to consummation. It is also 
in the interest of consumers and in the public interest, consistent 
with Dodd-Frank Act section 1405(b), because alerting consumers to 
significant settlement cost increases during the process will improve 
consumer understanding and awareness of the mortgage loan transaction 
through the use of disclosure.
Prohibition Against Delivering Early Disclosures at the Same Time as 
Final Disclosures
    As explained above, the purposes of RESPA and TILA include 
effective advance disclosure of settlement costs, and the informed use 
of credit by consumers. See TILA section 102; RESPA section 2. Section 
105(a) of TILA also permits the Bureau to prescribe regulations that 
would improve consumers' ability to understand the mortgage loan 
transaction. The Dodd-Frank Act enhances TILA's focus by placing 
special emphasis on the requirement that disclosures must be made in a 
way that is clear and understandable to the consumer. Section 1405 of 
the Dodd-Frank Act focuses on improving ``consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures.'' The Bureau is aware that, in some 
cases, creditors have provided a revised GFE at the real estate closing 
along with the RESPA settlement statement. The Bureau is concerned that 
this practice may be confusing for consumers and may diminish their 
awareness and understanding of the transaction.
    The Bureau recognizes that there are cases in which a consumer may 
not be confused by receiving good faith estimates on the same day, or 
even at the same time, as the consumer receives the actual settlement 
costs. However, because the estimated costs will match the actual 
costs, the Bureau is concerned that consumers may be confused by 
seemingly duplicative disclosures. The Bureau is also concerned that 
this duplication may contribute to information overload stemming from 
too many disclosures, which may, in turn, inhibit the consumer's 
ability to understand the transaction. Accordingly, proposed Sec.  
1026.19(e)(4)(ii) prohibits creditors from providing a consumer with 
disclosures of estimated and actual costs at the same time. To draw a 
clear line to facilitate compliance, the creditor does not comply with 
the requirements of proposed Sec.  1026.19(e) if the consumer receives 
revised versions of the disclosures required under Sec.  
1026.19(e)(1)(i) on the same business day as the consumer receives the 
disclosures required by Sec.  1026.19(f)(1)(i).
    Accordingly, the Bureau is proposing Sec.  1026.19(e)(4)(ii), which 
provides that the creditor shall deliver revised versions of the 
disclosures required by Sec.  1026.19(e) in a manner that ensures such 
revised disclosures are not received on the same business day as the 
consumer receives the disclosures required by Sec.  1026.19(f)(1)(i). 
The Bureau proposes this provision pursuant to its authority under TILA 
section 105(a), RESPA section 19(a), Dodd-Frank Act section 1032(a), 
and, for residential mortgage loans, Dodd-Frank Act section 1405(b). 
The

[[Page 51175]]

proposed provision is consistent with TILA's purposes because 
prohibiting simultaneous provision of a revised Loan Estimate and the 
Closing Disclosure promotes the informed use of credit by reducing the 
potential for consumer confusion and information overload. Similarly, 
this provision achieves RESPA's purposes because the receipt of 
settlement cost information on a single disclosure is a more effective 
method of advance disclosure of settlement costs. In addition, the 
proposed regulation is consistent with Dodd-Frank Act section 1032(a) 
because consumers will understand the costs, benefits, and risks 
associated with the mortgage loan and settlement services if the actual 
terms and costs of the transaction are disclosed on the Closing 
Disclosure only. It is also in the interest of consumers and in the 
public interest, consistent with Dodd-Frank Act section 1405(b), 
because ensuring that consumers do not receive duplicative disclosures 
will improve consumer understanding and awareness of the mortgage loan 
transaction through the use of disclosure.
    Proposed comment 19(e)(4)-2 discusses the requirement that revised 
disclosures may not be delivered at the same time as the final 
disclosures. The proposed comment explains that creditors comply with 
the requirements of Sec.  1026.19(e)(4) if the revised disclosures are 
reflected in the disclosures required by Sec.  1026.19(f)(1)(i) (i.e., 
the Closing Disclosure). This comment also includes illustrative 
examples of the requirement.
19(f) Mortgage Loans Secured by Real Property--Final Disclosures
    As discussed in the preamble text introducing Sec.  1026.19, TILA 
applies only to creditors and requires, for certain mortgage 
transactions, creditors to furnish a corrected disclosure to the 
borrower not later than three business days before the date of 
consummation of the transaction if the prior disclosed APR has become 
inaccurate. 15 U.S.C. 1638(b)(2)(A), (D). In contrast, RESPA generally 
applies to settlement agents and requires the person conducting the 
settlement (e.g., the settlement agent) to complete a settlement 
statement and make it available for inspection by the borrower at or 
before settlement. 12 U.S.C. 2603(b). RESPA also provides that, upon 
the request of the borrower, the person who conducts the settlement 
must permit the borrower to inspect those items which are known to such 
person on the settlement statement during the business day immediately 
preceding the day of settlement. Id.
    Regulation Z implements TILA's requirement that the creditor 
deliver corrected disclosures and provides that, if the annual 
percentage rate disclosed in the early TILA disclosure becomes 
inaccurate, the creditor shall provide corrected disclosures with all 
changed terms. Sec.  1026.19(a)(2)(ii). Regulation Z further provides 
that the consumer must receive the corrected disclosures no later than 
three business days before consummation. Id. Regulation X provides that 
the settlement agent shall permit the borrower to inspect the RESPA 
settlement statement, completed to set forth those items that are known 
to the settlement agent at the time of inspection, during the business 
day immediately preceding settlement. Sec.  1024.10(a).
    Section 1032(f) of the Dodd-Frank Act provides that the Bureau 
shall propose for public comment rules that combine the disclosures 
required under TILA and sections 4 and 5 of RESPA. As noted above, 
although the Dodd-Frank Act amended TILA and RESPA to reflect section 
1032(f)'s mandate to integrate the rules under TILA and RESPA, Congress 
did not reconcile the timing requirements or amend the division of 
responsibilities between creditor and settlement agent in TILA and 
RESPA.
19(f)(1) Provision
19(f)(1)(i) Scope
    As discussed above, the integrated disclosure mandate requires the 
Bureau to reconcile what Congress did not. Thus, pursuant to its 
authority under sections 105(a) of TILA, 19(a) of RESPA, and 1032(f) of 
the Dodd-Frank Act, the Bureau is proposing to integrate the disclosure 
requirements in TILA section 128 and RESPA section 4 in Sec.  
1026.19(f)(1)(i). This section provides that in a closed-end consumer 
credit transaction secured by real property, other than a reverse 
mortgage subject to Sec.  1026.33, the creditor shall provide the 
consumer with the disclosures in Sec.  1026.38 reflecting the actual 
terms of the credit transaction. Proposed comment 19(f)(1)(i)-1 
provides illustrative examples of this provision.
19(f)(1)(ii) Timing
19(f)(1)(ii)(A) In General
    The Bureau must determine when the integrated disclosures must be 
provided, given that the statutory requirements are not in sync. The 
Bureau believes that, to comply with both TILA and RESPA, the 
integrated disclosure must be delivered no later than three days before 
consummation. The Bureau recognizes that RESPA requires settlement 
agents to permit borrower inspection of the settlement statement only 
one business day in advance of settlement, and even then RESPA requires 
disclosure of only the information to the extent that it is known to 
the settlement agent. However, the fact that Congress did not alter the 
timing requirements under RESPA does not imply that the timing 
requirements under TILA were eliminated. It can be safely presumed that 
Congress was aware of the requirement that creditors must deliver final 
disclosures three business days before consummation because Congress 
created the three-business-day waiting period in 2008. Furthermore, 
section 1098 of the Dodd-Frank Act, which amends RESPA section 4 to 
require integrated disclosures, specifically provides that such 
integrated disclosures shall ``include real estate settlement cost 
statements.'' This suggests that Congress intended creditors to deliver 
the settlement cost statements with the TILA disclosures required to be 
delivered no later than three business days before consummation, even 
though the language in RESPA section 4 related to settlement agent 
delivery remains.\145\
---------------------------------------------------------------------------

    \145\ The language in section 4 of RESPA requiring settlement 
statement delivery one business day in advance of settlement was 
added in 1976. See section 3 of Public Law 94-205 (Jan. 2, 1976). 
Interpreting the recent amendments in a way that overrides the 
legacy language is consistent with Supreme Court precedent. See FDA 
v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) 
(``[T]he meaning of one statute may be affected by other Acts, 
particularly where Congress has spoken subsequently and more 
specifically to the topic at hand.'').
---------------------------------------------------------------------------

    The expansion of the items required to be disclosed three business 
days prior to consummation also supports the Bureau's interpretation. 
As discussed above, section 1419 of the Dodd-Frank Act also amended 
TILA by adding section 128(a)(17), which requires creditors to disclose 
the aggregate amount of settlement charges for all settlement services 
provided in connection with the loan and the aggregate amount of other 
fees or required payments in connection with the loan. The items 
included in this amendment are nearly all of the items that are 
included on the RESPA settlement statement, which suggests that 
Congress intended for creditors to disclose information that was 
traditionally known only to settlement agents in advance of 
consummation. This amendment, coupled with the fact that Regulation Z 
requires redisclosure of all changed terms three business days before 
consummation when the APR is inaccurate, implies that Dodd-Frank 
requires provision of the integrated

[[Page 51176]]

disclosure no later than three business days before consummation.
    The determination of how to integrate these conflicting statutory 
provisions also must be made in light of section 1405(b) of the Dodd-
Frank Act, which focuses on improving ``consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures.'' Consumers may be more aware of and 
better understand their transactions if consumers receive the 
disclosures reflecting all of the terms and costs associated with their 
transactions three days before consummation. This should afford 
consumers sufficient time to review, analyze, and question the 
information reflected in the disclosure, such that consumers are aware 
of and understand the transactions by the time consumers are required 
to obligate themselves. This should also provide consumers with 
sufficient time to identify and correct errors, discuss and negotiate 
cost increases, and have the necessary funds available. This may also 
eliminate the opportunity for bad actors to surprise consumers with 
unexpected costs at the closing table, when consumers are less able to 
question such costs.
    In addition, the Bureau is concerned that consumers would not 
receive the disclosures far enough in advance of consummation to review 
and understand the transaction under an alternate reading of the 
statute. As explained above, Regulation Z currently requires creditors 
to ensure that consumers receive the corrected TIL disclosures no later 
than three business days prior to consummation. A less stringent rule 
that allowed consumers to receive the disclosures on the day of 
consummation would be inconsistent with both TILA and the goals this 
proposal seeks to achieve. However, the Bureau is also concerned that 
it would be impractical to require delivery earlier than three business 
days before consummation. Thus, the Bureau believes that the proposal 
should provide flexibility to industry by requiring creditors to ensure 
that consumers receive the disclosures no later than the third business 
day before consummation. Under this approach, a creditor need not 
complete the disclosures until the third business day before 
consummation, provided it can ensure that the consumer will receive the 
disclosures that day, such as via electronic mail consistent with 
applicable requirements or hand delivery.
    As discussed above, the integrated disclosure mandate requires the 
Bureau to reconcile what Congress did not. Section 105(a) of TILA 
authorizes the Bureau to modify and add requirements under certain 
circumstances, and the Bureau believes that requiring redisclosure in 
cases where it is not currently required under Regulation Z or 
Regulation X is necessary to effectively integrate the disclosures. 
Accordingly, the Bureau proposes Sec.  1026.19(f)(1)(ii)(A), which 
provides that, except for transactions secured by timeshares, or as 
provided under Sec.  1026.19(f)(2), the creditor shall ensure that the 
consumer receives the disclosures no later than three business days 
before consummation. Proposed comment 19(f)(1)(ii)-1 provides 
illustrations of this requirement. Proposed comment 19(f)(1)(ii)-2 
explains the requirement that consumers must receive disclosures no 
later than three days in advance of consummation, and provides 
practical examples illustrating appropriate delivery methods.
    The Bureau informed the Small Business Review Panel that the Bureau 
was considering requiring reissuance if the APR increased by more than 
\1/8\ of 1 percent, certain loan features were added, or if the amount 
needed to close increased beyond a certain tolerance. See Small 
Business Panel Review Report at 11. While this proposal includes the 
tolerance for the amount needed to close and would require reissuance 
if certain loan features are added, this proposal does not include an 
additional APR tolerance for reissuance. Based on further review, the 
Bureau believes that the $100 amount needed to close tolerance provides 
sufficient flexibility, thereby making an additional APR tolerance 
unnecessary. The Bureau was also concerned that the additional APR 
tolerance would harm consumers by allowing potentially large costs to 
change immediately prior to closing. Importantly, the Bureau believes 
that this proposal is substantially similar to the possibilities 
discussed with the Small Business Review Panel. In virtually all cases 
where the APR increases by more than \1/8\ of 1 percent, the amount 
needed to close would also have increased by more than $100, requiring 
re-disclosure. However, the Bureau solicits comment on whether the use 
of an APR tolerance would provide any additional benefits.
    The Bureau recognizes that this modification would require 
redisclosure three days before consummation in circumstances that are 
not currently required under Regulation Z. This proposal removes the 
condition, provided for under TILA section 128(b)(2)(D), that corrected 
disclosures need not be delivered if the estimated APR included in the 
early TILA disclosure is accurate at the time of consummation. The 
Bureau has received extensive feedback indicating that APR estimates 
included in the early TILA disclosures are so rarely accurate that most 
creditors provide corrected disclosures as a standard business 
practice, instead of analyzing the accuracy of the disclosed APR. Thus, 
the Bureau believes that the benefit afforded by the condition under 
TILA section 128(b)(2)(D) is more illusory than real, and may, in fact, 
impose an unnecessary compliance burden on industry. In addition, the 
Bureau suspects that the expansion of the list of items included in the 
APR, pursuant to the proposed amendments to Sec.  1026.4, may make it 
less likely that a creditor will be able to accurately estimate the APR 
within three business days of application. Therefore, this proposal 
does not condition disclosure prior to consummation on APR accuracy.
    These proposals are made pursuant to the Bureau's legal authority 
under sections 105(a) of TILA, 19(a) of RESPA, 1032(a) of the Dodd-
Frank Act, and, for residential mortgage transactions, sections 129B(e) 
of TILA and 1405(b) of the Dodd-Frank Act. The Bureau has considered 
the purposes for which it may exercise its authority under section 
105(a) of TILA and, based on that review, believes that the proposed 
modifications are appropriate. The proposal may help consumers avoid 
the uninformed use of credit by ensuring that consumers receive 
disclosures of the actual terms and costs associated with the mortgage 
loan transaction early enough that consumers have sufficient time to 
become fully informed as to the cost of their credit. This provision is 
consistent with section 129B(e) of TILA because failing to provide 
borrowers with enough time to become fully informed of the actual terms 
and costs of the transaction is not in the interest of the borrower.
    The Bureau has also considered the purposes for which it may 
exercise its authority under section 19(a) of RESPA and, based on that 
review, believes that the proposed rules and interpretations are 
appropriate. The proposal has the potential to ensure more effective 
advance disclosure of settlement costs by requiring creditors to 
disclose the actual settlement costs associated with the transaction 
three business days before consummation.
    Proposed Sec.  1026.19(f)(1)(ii)(A) is consistent with Dodd-Frank 
Act section 1032(a) because the features of mortgage loan transactions 
and settlement services will be more fully, accurately, and effectively 
disclosed to consumer in

[[Page 51177]]

a manner than permits consumers to understand the costs, benefits, and 
risks associated consumers will understand the costs and risks 
associated with the mortgage loan and settlement services if consumers 
receive the disclosures reflecting all of the terms and costs 
associated with their transactions three days before consummation.
    In addition, the Bureau has considered the purposes for which it 
may exercise its authority under section 1405(b) of the Dodd-Frank Act 
and, based on that review, believes that the proposed modifications are 
appropriate. The proposal may improve consumer awareness and 
understanding of the mortgage loan transaction by ensuring that 
consumers receive the disclosures reflecting all of the terms and costs 
associated with their transactions three days in advance of 
consummation. The proposal may also be in the interest of consumers and 
in the public interest because the proposal may eliminate the 
opportunity for bad actors to surprise consumers with unexpected costs 
at the closing table, when consumers are less able to question such 
costs.
    The Bureau recognizes that this is a change from current industry 
practice. During the Small Business Review process, several small 
entity representatives were opposed to this modification. See Small 
Business Review Panel report at 35, 38, 40, 45, 53-54, 59-60, 67-68, 
72, and 77. The Small Business Review Panel recommended that the Bureau 
explore ways to mitigate the potential impact of the three business day 
requirement on small entities. See id at 29. Based on this feedback and 
consistent with the Small Business Review Panel's recommendation, the 
Bureau solicits comment on alternative approaches, including any that 
can minimize the burden on industry, especially small entities, while 
serving the needs of consumers and effectively integrating the 
disclosures, as required by the Dodd-Frank Act.
19(f)(1)(ii)(B) Timeshares
    As explained above, in 2008 Congress amended TILA to require 
delivery of final disclosures three business days prior to 
consummation. However, Congress explicitly exempted mortgage loans 
secured by timeshares, as defined by 11 U.S.C. 101(53D), from the 
three-day requirement.\146\ Accordingly, pursuant to its authority 
under sections 105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-
Frank Act, the Bureau proposes Sec.  1026.19(f)(1)(ii)(B), which states 
that for transactions secured by a consumer's interest in a timeshare 
plan described in 11 U.S.C. 101(53D), the creditor shall ensure that 
the consumer receives the disclosures required under paragraph 
(f)(1)(i) of this section as soon as reasonably practicable, but no 
later than consummation. This proposed regulation carries out the 
purposes of TILA and RESPA by ensuring meaningful disclosure of credit 
terms and effective advance disclosure of settlement costs, consistent 
with section 105(a) of TILA and 19(a) of RESPA, respectively. Also, 
this proposed regulation will improve consumer awareness and 
understanding of transactions involving residential mortgage loans by 
requiring effective disclosure within a timeframe appropriate for loans 
secured by a timeshare, which will be in the best interest of consumers 
and the public consistent with Dodd-Frank Act section 1405(b).
---------------------------------------------------------------------------

    \146\ Mortgage Disclosure Improvement of 2008, Public Law 110-
289, Title V, Sec.  2502(a)(6), 122 Stat. 2654, 2857 (July 30, 
2008); 15 U.S.C. 1638(b)(2)(G).
---------------------------------------------------------------------------

    Proposed comment 19(f)(1)(ii)-3 explains that for loans secured by 
timeshares, as defined under 11 U.S.C. 101(53D), Sec.  
1026.19(f)(1)(ii)(B) requires a creditor to ensure that the consumer 
receives the disclosures required under Sec.  1026.19 (f)(1)(i) as soon 
as reasonably practicable, but no later than consummation. The proposed 
comment also includes illustrative examples of this requirement.
19(f)(1)(iii) Delivery
    Section 128(b)(2)(E) of TILA provides that, if the disclosures are 
mailed to the consumer, the consumer is considered to have received 
them three business days after they are mailed. 15 U.S.C. 
1638(b)(2)(E). RESPA does not expressly address delivery requirements. 
Regulation Z provides that if the disclosures are provided to the 
consumer by means other than delivery in person, the consumer is deemed 
to have received the disclosures three business days after they are 
mailed or delivered. See Sec.  1026.19(a)(1)(ii). Regulation X provides 
that the settlement agent shall deliver the completed RESPA settlement 
statement at or before the settlement, except if the borrower waives 
the right to delivery of the completed RESPA settlement statement, in 
which case the completed RESPA settlement statement shall be mailed or 
delivered as soon as practicable after settlement. Sec.  1024.10(b), 
(c).
    To establish a consistent standard for the integrated Closing 
Disclosure, pursuant to its authority under sections 105(a) of TILA, 
19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the Bureau proposes 
to adopt Sec.  1026.19(f)(1)(iii), which provides that, if any 
disclosures required under Sec.  1026.19(f)(1)(i) are not provided to 
the consumer in person, the consumer is presumed to have received the 
disclosures three business days after they are mailed or delivered to 
the address specified by the consumer.
    Proposed comment 19(f)(1)(iii)-1 explains that if any disclosures 
required under Sec.  1026.19(f)(1)(i) are not provided to the consumer 
in person, the consumer is presumed to have received the disclosures 
three business days after they are mailed or delivered. This is a 
presumption which may be rebutted by providing evidence that the 
consumer received the disclosures earlier than three business days. The 
proposed comment also contains illustrative examples. Proposed comment 
19(f)(1)(iii)-2 clarifies that the presumption established in Sec.  
1026.19(f)(1)(iii) applies to methods of electronic delivery, such as 
email. However, creditors using electronic delivery methods, such as 
email, must also comply with Sec.  1026.17(a)(1). This proposed comment 
also contains illustrative examples.
    The Bureau recognizes that this requirement is different than the 
current requirement in Regulation Z. As explained above, the current 
rules deem corrected disclosures mailed or delivered to the consumer by 
a method other than in-person delivery to be received three business 
days after mailing or delivery. In contrast, the proposed rule instead 
creates a presumption that the disclosures are received three business 
days after they are mailed or delivered to the address provided by the 
consumer. While the current rule may be appropriate for the disclosures 
provided under Sec.  1026.19(a), the Bureau is concerned that the 
current rule may not be appropriate for the integrated Closing 
Disclosure, which contains much more information than the final TILA 
disclosures subject to the current rule, and therefore will require 
more time to review and understand. It therefore may be appropriate to 
create a presumption of receipt, which would provide additional 
encouragement for lenders to ensure that the disclosures are received 
in a timely manner. However, the Bureau solicits feedback regarding 
whether the proposed rules will create uncertainty regarding 
compliance. The Bureau also solicits comment on whether the rules 
should be analogous to the current rule under Sec.  1026.19(a)(2), 
which uses ``deem'' instead of ``presume.'' Finally, the Bureau seeks 
feedback regarding

[[Page 51178]]

whether Sec.  1026.19(a) should be modified to reflect Sec.  
1026.19(f)(1)(iii), if the final rule adopts the presumption of 
receipt.
    This proposed provision is consistent with section 105(a) of TILA 
in that it may help consumers avoid the uninformed use of credit by 
ensuring that consumers receive disclosures of the actual terms and 
costs associated with the mortgage loan transaction early enough that 
consumers have sufficient time to become fully informed as to the cost 
of credit. This proposed provision is also consistent with section 
19(a) of RESPA because it has the potential to ensure more effective 
advance disclosure of settlement costs by requiring creditors to make 
sure that the disclosures are delivered to the address specified by the 
consumer three business days before consummation. In addition, the 
proposal is consistent with section 1405(b) of the Dodd-Frank Act 
because the proposal may improve consumer awareness and understanding 
of the mortgage loan transaction by ensuring that disclosures 
reflecting all of the terms and costs associated with their 
transactions are delivered to the address specified by the consumer 
three business days in advance of consummation. Ensuring that consumers 
receive disclosures in a timely manner is also in the interest of 
consumers and in the public interest because the proposal may allow 
consumers to receive the disclosure early enough to question and 
understand their mortgage loan transaction.
19(f)(1)(iv) Consumer's Waiver of Waiting Period Before Consummation
    Section 128(b)(2)(F) of TILA provides that the consumer may waive 
or modify the timing requirements for disclosures to expedite 
consummation of a transaction, if the consumer determines that the 
extension of credit is needed to meet a bona fide personal financial 
emergency. Section 128(b)(2)(F) further provides that: (1) The term 
``bona fide personal financial emergency'' may be further defined in 
regulations issued by the Bureau; (2) the consumer must provide the 
creditor with a dated, written statement describing the emergency and 
specifically waiving or modifying the timing requirements, which bears 
the signature of all consumers entitled to receive the disclosures; and 
(3) the creditor must provide, at or before the time of waiver or 
modification, the final disclosures. 15 U.S.C. 1638(b)(2)(F). This 
provision is implemented in Sec.  1026.19(a)(3) of Regulation Z. 
Neither RESPA nor Regulation X contains a similar provision.
    Although the Bureau understands that waivers based on a bona fide 
personal financial emergency are rare, this exception serves an 
important purpose: consumers should be able to waive the protection 
afforded by the waiting period if, in the face of a financial 
emergency, the waiting period does more harm than good. Accordingly, 
the Bureau is proposing Sec.  1026.19(f)(1)(iv), which allows a 
consumer to waive the three-business-day waiting period in the event of 
a bona fide personal financial emergency. In addition, the Bureau seeks 
comment on the nature of waivers based on bona fide personal financial 
emergencies. The Bureau also seeks comment on whether the bona fide 
personal financial emergency exception is needed more in some contexts 
than in others (e.g., in refinance transactions or purchase money 
transactions).
    Proposed comment 19(f)(1)(iv)-1 states that, a consumer may modify 
or waive the right to the three-business-day waiting period required by 
Sec.  1026.19(f)(1)(ii) only after the creditor makes the disclosures 
required by Sec.  1026.19(f)(1)(i). This comment is modeled after 
comment 19(a)(3)-1, which is based on the same statutory text, and is 
consistent with commentary on waiving the rescission period and the 
pre-consummation waiting period required for certain high-cost mortgage 
transactions. The consumer must have a bona fide personal financial 
emergency that necessitates consummating the credit transaction before 
the end of the waiting period. Whether these conditions are met is 
determined by the facts surrounding individual situations. The imminent 
sale of the consumer's home at foreclosure, where the foreclosure sale 
will proceed unless loan proceeds are made available to the consumer 
during the waiting period, is one example of a bona fide personal 
financial emergency. Each consumer who is primarily liable on the legal 
obligation must sign the written statement for the waiver to be 
effective.
Alternative--Proposed 19(f)(1)(v) Settlement Agent
    As discussed above, neither TILA nor Regulation Z contain 
requirements related to settlement agents, but RESPA and Regulation X 
generally apply to settlement agents with respect to closing disclosure 
requirements. Section 1032(f) of the Dodd-Frank Act requires the Bureau 
to propose for public comment rules that combine the disclosures 
required under TILA and sections 4 and 5 of RESPA. The Dodd-Frank Act 
amended TILA and RESPA to reflect section 1032(f)'s mandate to 
integrate the rules under TILA and RESPA, but Congress did not 
reconcile the division of responsibilities between creditor and 
settlement agent in TILA and RESPA.
    The Bureau recognizes that people who conduct settlements, such as 
settlement agents and closing attorneys, play a valuable role in the 
real estate settlement process. The Bureau also believes that 
settlement agents may be able to assist consumers with issues that 
arise during a real estate settlement as, or perhaps more, effectively 
than creditors. However, the Bureau is concerned that, in the context 
of providing disclosures, settlement agents may not be able to fulfill 
the obligations imposed by TILA. The Bureau is also concerned that 
consumers will receive duplicative, inaccurate, or unreliable 
disclosures if the responsibility to provide disclosures is divided.
    As discussed above, proposed Sec.  1026.19(f)(1)(i) makes the 
creditor solely responsible for the provision of the disclosures 
required by Sec.  1026.19(f). Although this may be the appropriate 
solution, an alternative approach that permits creditors and settlement 
agents to split responsibility may also be appropriate. This 
alternative would require the creditor and settlement agent to agree on 
a division of responsibilities regarding the delivery of the 
disclosures. Accordingly, pursuant to its authority under sections 
105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the 
Bureau proposes alternative Sec.  1026.19(f)(1)(v), which provides that 
a settlement agent may provide a consumer with the disclosures required 
under Sec.  1026.19(f)(1)(i), provided the settlement agent complies 
with all requirements of Sec.  1026.19(f) as if it were the creditor. 
As discussed under proposed alternative comment 19(f)(1)(v)-3 below, 
this proposed regulation is not intended to relieve the creditor's 
responsibility under TILA. The creditor would remain responsible for 
ensuring that disclosures are provided in accordance with the 
requirements of Sec.  1026.19(f). Disclosures provided by a settlement 
agent in accordance with the requirements of Sec.  1026.19(f) satisfy 
the creditor's obligation under Sec.  1026.19(f)(1)(i). As discussed 
under proposed alternative comment 19(f)(1)(v)-3 below, this proposed 
regulation is not intended to relieve the creditor's responsibility 
under TILA. The creditor would remain responsible for ensuring that 
disclosures are provided in accordance with the requirements of Sec.  
1026.19(f). Disclosures provided by a settlement agent in accordance 
with the requirements of Sec.  1026.19(f) satisfy the creditor's

[[Page 51179]]

obligation under Sec.  1026.19(f)(1)(i). In addition, the Bureau 
invites comment on other methods of dividing responsibility between 
creditors and settlement service providers, provided that such other 
methods ensure that consumers are provided with prompt, accurate, and 
reliable disclosures.
    The Bureau informed the Small Business Review Panel that the Bureau 
was considering an alternate proposal where the lender would be 
responsible for preparing the TILA-required information, the settlement 
agent would be responsible for preparing the RESPA-required 
information, and the lender and settlement agent would be jointly 
responsible for providing the consumer with an integrated Closing 
Disclosure three business days before closing. See Small Business Panel 
Review Report at 12. While the alternate proposal in this proposed rule 
permits shared responsibility, it does not delineate responsibility 
between RESPA and TILA content. Based on further review, the Bureau 
determined that such a division would be impracticable. There is 
significant overlap between the disclosures required by the statutes, 
and creditors and settlement agents have access to both RESPA and TILA 
information. The Bureau believes that the better approach is to permit 
shared responsibility, but allow creditors and settlement agents to 
decide how to most effectively divide that responsibility. However, the 
Bureau solicits comment on the benefits and costs associated with this 
alternative, especially regarding any impact on small businesses that 
was not raised during the Small Business Review process.
    This proposed regulation carries out the purposes of TILA because 
requiring the involvement of a settlement agent could result in 
increased consumer awareness and more meaningful disclosure of credit 
terms, consistent with section 105(a) of TILA. This proposed regulation 
could also achieve the purposes of RESPA by resulting in more effective 
advance disclosure of settlement costs, consistent with section 19(a) 
of RESPA. This proposed regulation could also improve consumer 
understanding and awareness of the transaction by permitting the form 
to be completed and provided by settlement agents, who often assist 
consumers during a real estate closing, which is in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b).
    Proposed alternative comment 19(f)(1)(v)-1 clarifies that a 
settlement agent may provide the disclosures required under Sec.  
1026.19(f)(1)(i) instead of the creditor. By assuming this 
responsibility, the settlement agent becomes responsible for complying 
with all of the relevant requirements as if it were the creditor, 
meaning that ``settlement agent'' should be read in the place of 
``creditor'' for all the relevant provisions of Sec.  1026.19(f), 
except where the context indicates otherwise. The creditor and 
settlement agent must effectively communicate to ensure timely and 
accurate compliance with the requirements of this section.
    Proposed alternative comment 19(f)(1)(v)-2 clarifies that if a 
settlement agent issues any disclosure under Sec.  1026.19(f), the 
settlement agent must comply with the requirements of Sec.  1026.19(f). 
This proposed alternative comment also clarifies that the settlement 
agent may assume the responsibility to provide some or all of the 
disclosures required by Sec.  1026.19(f), provides that the consumer 
receives one single disclosure form containing all of the information 
required to be disclosed pursuant to Sec.  1026.19(f)(1)(i), in 
accordance with the other requirements in Sec.  1026.19(f), such as 
requirements related to timing and delivery. The comment also includes 
illustrative examples.
    Proposed alternative comment 19(f)(1)(v)-3 explains that if a 
settlement agent provides disclosures required under Sec.  1026.19(f) 
in the creditor's place, the creditor remains responsible under Sec.  
1026.19(f) for ensuring that the requirements of Sec.  1026.19(f) have 
been satisfied. For example, the creditor does not comply with Sec.  
1026.19(f) if the settlement agent does not provide the disclosures 
required under Sec.  1026.19(f)(1)(i), or if the consumer receives the 
disclosures later than three business days before consummation.
    The proposed comment also clarifies that the creditor does not 
satisfy the requirements of Sec.  1026.19(f) if it provides duplicative 
disclosures. For example, a creditor does not satisfy its obligation by 
issuing disclosures required under Sec.  1026.19(f) that mirror ones 
already issued by the settlement agent for the purpose of demonstrating 
that the consumer received timely disclosures. The creditor is expected 
to maintain communication with the settlement agent to ensure that the 
settlement agent is acting in place of the creditor. Disclosures 
provided by a settlement agent in accordance with Sec.  
1026.19(f)(1)(v) satisfy the creditor's obligation under Sec.  
1026.19(f)(1)(i).
    Proposed alternative comment 19(f)(1)(v)-4 clarifies that the 
settlement agent may assume the responsibility to provide some or all 
of the disclosures required by Sec.  1026.19(f). However, the consumer 
must receive one single disclosure form containing all of the 
information required to be disclosed pursuant to Sec.  
1026.19(f)(1)(i), in accordance with the other requirements in Sec.  
1026.19(f), such as requirements related to timing and delivery. The 
proposed alternative comment also includes illustrative examples.
19(f)(2) Subsequent Changes
    There are several circumstances where the strict application of the 
three-day-waiting period required by Sec.  1026.19(f)(1)(ii) may 
operate to the consumer's detriment. The Bureau seeks to provide 
flexibility where doing so would benefit the consumer. Thus, the Bureau 
is proposing Sec.  1026.19(f)(2), which provides that creditors need 
not comply with the timing requirements in Sec.  1026.19(f)(1)(ii) if 
the disclosure provided pursuant to Sec.  1026.19(f)(1)(i) is 
subsequently revised for any of the reasons described in Sec.  
1026.19(f)(2)(i) through (v).
    The Bureau proposes Sec.  1026.19(f)(2) pursuant to its authority 
under sections 105(a) of TILA and 19(a) of RESPA. As explained in more 
detail below, the Bureau believes that these proposed regulations will 
carry out the purposes of TILA and RESPA by ensuring meaningful 
disclosure of credit terms, more effective advance disclosure of 
settlement costs, and will result in the elimination of kickbacks, 
referral fees, and other practices that tend to increase unnecessarily 
the costs of certain settlement services, consistent with sections 
105(a) of TILA and 19(a) of RESPA, respectively.
19(f)(2)(i) Changes Due to Consumer and Seller Negotiations
    The Bureau recognizes that sellers and buyers frequently alter the 
terms of the real estate transaction based on the condition of the 
house at the time of the walk-though inspection, which is often the day 
before the scheduled real estate closing, and in some cases even 
continue to negotiate the deal at the closing table. These negotiations 
may affect items included on the Closing Disclosure, which, under the 
proposal, must be delivered three days prior to consummation. The 
Bureau believes that the regulations should provide flexibility to 
address this common occurrence, so that these changes do not trigger an 
additional three-day-waiting period. Thus, pursuant to its authority 
under section 105(a) of TILA and section 19(a) of RESPA, the Bureau 
proposes Sec.  1026.19(f)(2)(i), which states that if, after the 
creditor provides the consumer with the disclosures, the consumer and 
the seller agree to make changes to the transaction that affect

[[Page 51180]]

items disclosed, the creditor shall deliver revised disclosures 
reflecting such changes at or before consummation. Proposed comment 
19(f)(2)(i)-1 provides illustrative examples of this requirement. This 
proposed regulation will carry out the purposes of TILA by ensuring 
meaningful disclosure of credit terms and enable the informed use of 
credit by enabling buyers and sellers to conduct final negotiations 
informed by the final credit terms provided in the disclosures, and by 
ensuring that the disclosures can be modified to reflect such 
negotiations immediately prior to the real estate closing, consistent 
with section 105(a) of TILA. This will also help to achieve the 
purposes of RESPA by enabling more effective advance disclosure of 
settlement costs, and will result in the elimination of kickbacks, 
referral fees, and other practices that tend to increase unnecessarily 
the costs of certain settlement services, by enabling buyers and 
sellers to conduct final negotiations informed by the final credit 
terms provided in the disclosures, and by ensuring that the disclosures 
can be modified to reflect such negotiations immediately prior to the 
real estate closing, consistent with section 19(a) of RESPA.
19(f)(2)(ii) Changes to the Amount Actually Paid by the Consumer
    The Bureau does not believe that small miscalculations or minor 
changes to the transaction should result in closing delays. Therefore, 
the Bureau proposes Sec.  1026.19(f)(2)(ii), which provides that, if 
the amount actually paid by the consumer does not exceed the amount 
disclosed under Sec.  1026.38(d)(1) by more than $100, the creditor 
shall deliver revised disclosures at or before consummation. The Bureau 
believes that $100 may be the correct tolerance based on feedback 
received regarding the items most likely to change prior to 
consummation. The Bureau seeks comment on whether the threshold to 
accommodate small miscalculations or minor changes prior to 
consummation should be higher or lower than the proposed $100.
    The Bureau proposes Sec.  1026.19(f)(2)(ii) pursuant to its 
authority under section 105(a) of TILA and section 19(a) of RESPA. This 
proposed regulation will carry out the purposes of TILA by ensuring 
meaningful disclosure of credit terms and enable the informed use of 
credit by permitting minor underestimation in the final amount paid by 
the consumer, which will lessen the likelihood that creditors will 
overestimate the final amount paid by the consumer, consistent with 
section 105(a) of TILA. This will also help to achieve the purposes of 
RESPA by enabling more effective advance disclosure of settlement 
costs, and will result in the elimination of kickbacks, referral fees, 
and other practices that tend to increase unnecessarily the costs of 
certain settlement services by permitting minor underestimation in the 
final amount paid by the consumer, which will lessen the likelihood 
that creditors will unnecessarily increase the cost of settlement 
services by overestimating the final amount paid by the consumer, 
consistent with section 19(a) of RESPA.
    Proposed comment 19(f)(2)(ii)-1 discusses the requirements of Sec.  
1026.19(f)(2)(ii), which states that the creditor may provide revised 
disclosures without regard to the timing requirements in Sec.  
1026.19(f)(1)(ii) if the amount actually paid by the consumer does not 
exceed the amount disclosed pursuant to Sec.  1026.38(d)(1) by more 
than $100, provided that the creditor delivers revised disclosures at 
or before consummation. This proposed comment also includes 
illustrative examples of these requirements.
    Proposed comment 19(f)(2)(ii)-2 clarifies that revised disclosures 
provided at consummation may reflect adjustments pursuant to both Sec.  
1026.19(f)(2)(i) and Sec.  1026.19(f)(2)(ii). Thus, although Sec.  
1026.19(f)(2)(ii) limits the difference between the amount disclosed 
pursuant to Sec.  1026.19(f)(1)(i) and the amount actually paid at the 
real estate closing by the consumer to $100, the amount actually paid 
by the consumer at the real estate closing may vary by more than $100, 
to the extent permitted by Sec.  1026.19(f)(2)(i). This proposed 
comment also includes illustrative examples of this provision.
19(f)(2)(iii) Changes Due to Events Occurring After Consummation
    The Bureau is aware that some costs are not known with absolute 
certainty until the documents are recorded. For example, it is possible 
that a locality could change its schedule of recording fees, without 
advance notice, the day after the consumer signs the mortgage loan 
documents, but before the documents are recorded. The regulations need 
to provide sufficient flexibility to accommodate issues, such as these, 
when such changes are caused by a government entity. Thus, pursuant to 
its authority under section 105(a) of TILA and section 19(a) of RESPA, 
the Bureau proposes Sec.  1026.19(f)(2)(iii), which provides that, if 
an event occurs after consummation that causes the disclosures to 
become inaccurate, and such inaccuracy results solely from payments to 
a government entity in connection with the transaction, the creditor 
shall deliver revised disclosures to the consumer no later than the 
third business day after the event occurs, provided the consumer 
receives the corrected disclosures no later than 30 days after 
consummation. This proposed regulation will prevent circumvention and 
evasion of, and will facilitate compliance with, TILA, by ensuring that 
consumers receive correct disclosures of the final terms and costs of 
the transaction, consistent with section 105(a) of TILA. This proposed 
regulation is also made pursuant to the Bureau's authority to implement 
section 4 of RESPA, consistent with section 19(a) of RESPA. Proposed 
comment 19(f)(2)(iii)-1 clarifies that this provision applies to 
payments imposed by government entities, such as taxes, recording fees, 
and other taxes related to the real estate transaction, and provides 
several illustrative examples. The Bureau also solicits feedback on 
whether changes, other than payments to government entities, may occur 
after the real estate closing, and whether the regulation should 
provide additional flexibility for such changes.
19(f)(2)(iv) Changes Due to Clerical Errors
    Regulation X Sec.  1024.8(c) provides that an inadvertent or 
technical error in completing the HUD-1 or HUD-1A shall not be deemed a 
violation of section 4 of RESPA if a revised HUD-1 or HUD-1A is 
provided within 30 calendar days after settlement. Section 130 of TILA 
has a similar provision, with respect to civil liability, which 
relieves creditors of civil liability under certain circumstances, 
including if, within 60 days of identifying an error, the creditor 
notifies the person concerned and makes whatever adjustments are 
necessary.\147\ There is no similar provision in RESPA or Regulation Z. 
Pursuant to its authority under section 105(a) of TILA and 19(a) of 
RESPA, the Bureau proposes

[[Page 51181]]

Sec.  1026.19(f)(2)(iv), which provides that a creditor does not 
violate Sec.  1026.19(f)(1)(i) if the disclosures contain non-numeric 
clerical errors, provided the creditor delivers corrected disclosures 
as soon as reasonably practicable and no later than 30 days after 
consummation. Proposed comment 19(f)(2)(iv)-1 clarifies that clerical 
errors are errors such as typographical errors, or other minor errors 
that do not affect the amount owed by the consumer. This proposed 
regulation will prevent circumvention and evasion of, and will 
facilitate compliance with, TILA, by ensuring that consumers receive 
correct disclosures consistent with section 105(a) of TILA. This 
proposed regulation will also result in the elimination of kickbacks, 
referral fees, and other practices that tend to increase unnecessarily 
the costs of certain settlement services by ensuring that the 
consumers' records correctly reflect the terms, payments, and entities 
involved in the transaction, consistent with section 19(a) of RESPA. 
The Bureau also solicits feedback on whether the regulations should 
provide flexibility for numeric clerical errors, and how such 
flexibility could be provided without undermining the reliability of 
the disclosures provided to consumers at or before consummation.
---------------------------------------------------------------------------

    \147\ ``A creditor or assignee has no liability under this 
section or section 108 or section 112 for any failure to comply with 
any requirement imposed under this chapter or chapter 5, if within 
sixty days after discovering an error, whether pursuant to a final 
written examination or notice issued under section 108(e)(1) or 
through the creditor's or assignee's own procedures, and prior to 
the institution of an action under this section or the receipt of 
written notice of the error from the obligor, the creditor or 
assignee notifies the person concerned of the error and makes 
whatever adjustments in the appropriate account are necessary to 
assure that the person will not be required to pay an amount in 
excess of the charge actually disclosed, or the dollar equivalent of 
the annual percentage rate actually disclosed, whichever is lower.'' 
15 U.S.C. 1640(b).
---------------------------------------------------------------------------

19(f)(2)(v) Refunds Related to the Good Faith Analysis
    Neither RESPA nor Regulation Z expressly require creditors to 
refund money to the consumer based on variations between the disclosed 
estimated costs of settlement services and the amounts for such 
settlement services actually paid by the consumer. Section 1024.7(i) of 
Regulation X, however, provides that a lender or mortgage broker 
violates section 5 of RESPA if any charges at settlement exceed the 
charges listed on the GFE by more than the permitted tolerances, 
provided, however, that the loan originator may cure the tolerance 
violation by reimbursing to the borrower the amount by which the 
tolerance was exceeded at settlement or within 30 calendar days after 
settlement. As noted above, section 130 of TILA has a similar 
provision, with respect to civil liability, which relieves creditors of 
civil liability under certain circumstances, including if, within 60 
days of identifying an error, the creditor notifies the person 
concerned and makes whatever adjustments are necessary to assure that 
the person will not be required to pay an amount in excess of the 
charge actually disclosed.
    Accordingly, pursuant to its authority under sections 105(a) of 
TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act, the Bureau 
proposes Sec.  1026.19(f)(2)(v), which provides that, if amounts paid 
by the consumer exceed the amounts specified under Sec.  
1026.19(e)(3)(i) or (ii), the creditor complies with Sec.  
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer as 
soon as reasonably practicable and no later than 30 days after 
consummation, and the creditor complies with Sec.  1026.19(f)(1)(i) if 
the creditor provides revised disclosures that reflect such refund as 
soon as reasonably practicable and no later than 30 days after 
consummation. This proposed regulation will enable meaningful 
disclosure of credit terms, prevent circumvention and evasion of TILA, 
and will facilitate compliance with TILA by enabling creditors to 
refund amounts collected in excess of the good faith requirements, 
consistent with TILA section 105(a). This will also result in the 
meaningful advance disclosure of settlement costs and the elimination 
of kickbacks, referral fees, and other practices that tend to increase 
unnecessarily the costs of certain settlement services by enabling 
creditors to refund amounts collected in excess of the good faith 
requirements, thereby furthering the meaningfulness and reliability of 
the estimated disclosures, consistent with section 19(a) of RESPA.
    Proposed comment 19(f)(2)(v)-1 discusses refunds related to the 
good faith analysis. The proposed comment explains the requirement 
under Sec.  1026.19(f)(2)(v) providing that, if amounts paid by the 
consumer exceed the amounts specified under Sec.  1026.19(e)(3)(i) or 
(ii) of this section, the creditor does not violate Sec.  
1026.19(e)(1)(i) if the creditor delivers disclosures revised to 
reflect the refund of such excess as soon as reasonably practicable and 
no later than 30 days after consummation. This proposed comment also 
includes illustrative examples of these requirements.
19(f)(3) Charges Disclosed
19(f)(3)(i) Actual Charge
    Neither TILA nor Regulation Z addresses the amounts paid to 
settlement service providers for settlement services. However, section 
4 of RESPA provides that the settlement statement shall contain the 
amount imposed upon the consumer in connection with the settlement. 12 
U.S.C. 2603(a). Section 1024.8(b)(1) of Regulation X provides the 
general rule that the settlement agent shall state the actual charges 
paid by the borrower and seller on the HUD-1, or by the borrower on the 
HUD-1A. Pursuant to its authority under section 105(a) of TILA, section 
19(a) of RESPA, Dodd-Frank Act section 1032(a), and, for residential 
mortgage loans, Dodd-Frank Act section 1405(b), the Bureau proposes 
Sec.  1026.19(f)(3)(i), which provides that the amount imposed upon the 
consumer for any settlement service shall not exceed the amount 
actually received by the service provider for that service, except if 
the charge is an average charge, as provided under Sec.  
1026.19(f)(3)(ii).
    This proposed regulation will prevent circumvention and evasion of, 
and will facilitate compliance with, TILA by requiring disclosure of 
the actual terms and costs of the transaction, consistent with section 
105(a) of TILA. The proposed regulation implements the requirements of 
RESPA section 4, pursuant to the Bureau's implementation authority 
under RESPA section 19(a). This will also result in the elimination of 
kickbacks, referral fees, and other practices that tend to increase 
unnecessarily the costs of certain settlement services, consistent with 
RESPA sections 2(b) and 8. This will also ensure that the features of 
the consumer's mortgage loan are fully and accurately disclosed to the 
consumer, consistent with Dodd-Frank Act section 1032(a). The proposed 
regulation will also improve consumer awareness and understanding of 
transactions involving residential mortgage loans and is in the 
interest of consumers and in the public interest, consistent with Dodd-
Frank Act section 1405(b).
    Proposed comment 19(f)(3)(i)-1 explains that Sec.  1026.19(f)(3)(i) 
provides the general rule that the amount imposed upon the consumer for 
any settlement service shall not exceed the amount actually received by 
the service provider for that service. Except as otherwise provided in 
Sec.  1026.19(f)(3)(ii), a creditor violates Sec.  1026.19(f)(3)(i) if 
the amount imposed upon the consumer exceeds the amount actually 
received by the service provider for that service.
19(f)(3)(ii) Average Charge
    As part of the 2008 RESPA Final Rule, HUD adopted a limited 
exception to the requirement that the settlement statement shall 
contain the amount imposed on the consumer, which shall not be more 
than the amount received by the settlement service provider. 12 U.S.C. 
2603(a), 2607(b). A lender or settlement service provider may charge 
more for a settlement service than the amount paid for that service if 
the charge is an average charge. Specifically, Regulation X Sec.  
1024.8(b) provides that the average charge for a settlement service 
shall be no more than the average amount paid for a settlement

[[Page 51182]]

service by one settlement service provider to another settlement 
service provider on behalf of borrowers and sellers for a particular 
class of transactions involving federally related mortgage loans, and 
that the total amounts paid by borrowers and sellers for a settlement 
service based on the use of an average charge may not exceed the total 
amounts paid to the providers of that service for the particular class 
of transactions.
    Section 1024.8(b)(2) also provides that, the settlement service 
provider shall define the particular class of transactions for purposes 
of calculating the average charge as all transactions involving 
federally related mortgage loans for a period of time as determined by 
the settlement service provider, but not less than 30 calendar days and 
not more than 6 months, a geographic area as determined by the 
settlement service provider, and a type of loan as determined by the 
settlement service provider. Regulation X also requires a settlement 
service provider to use an average charge in the same class of 
transactions for which the charge was calculated, and if the settlement 
service provider uses the average charge for any transaction in the 
class, then the settlement service provider must use the same average 
charge in every transaction within that class for which a GFE was 
provided. Id. Regulation X prohibits the use of an average charge for 
any settlement service if the charge for the service is based on the 
loan amount or property value, such as transfer taxes, interest 
charges, reserves or escrow, or any type of insurance, including 
mortgage insurance, title insurance, or hazard insurance, and also 
requires the settlement service provider to retain all documentation 
used to calculate the average charge for a particular class of 
transactions for at least three years after any settlement for which 
that average charge was used. Id.
    Pursuant to its authority under section 105(a) of TILA and 19(a) of 
RESPA, the Bureau proposes Sec.  1026.19(f)(3)(ii), which provides that 
a creditor or settlement service provider may charge a consumer or 
seller the average charge for a settlement service if the average 
charge is no more than the average amount paid for that service by or 
on behalf of all consumers and sellers for a class of transactions, the 
creditor or settlement service provider defines the class of 
transactions based on an appropriate period of time, geographic area, 
and type of loan, the creditor or settlement service provider uses the 
same average charge for every transaction within the defined class, and 
the creditor or settlement service provider does not use an average 
charge for any type of insurance, for any charge based on the loan 
amount or property value, or if doing so is otherwise prohibited by 
law. HUD adopted average-charge pricing pursuant to its authority under 
section 19(a) of RESPA after finding that average-charge pricing would 
benefit consumers by lowering settlement costs and enabling more 
effective advance disclosure of such costs, consistent with RESPA 
sections 2(b), 4, 5, 8(c)(5), and 19(a).\148\ In addition to this 
authority, the Bureau finds that proposed Sec.  1026.19(f)(3)(ii) will 
prevent circumvention and evasion of, and will facilitate compliance 
with, TILA, consistent with section 105(a) of TILA. This proposed 
regulation will also improve consumer awareness and understanding of 
the transaction, which will be in the interest of consumers and in the 
public interest, consistent with Dodd-Frank Act section 1405(b).
---------------------------------------------------------------------------

    \148\ See 73 FR 14030, 14051-14052 (March 14, 2008). Section 
8(c)(5) of RESPA provided that: ``Nothing in this section shall be 
construed as prohibiting * * * such other payments or classes of 
payments or other transfers as are specified in regulations 
prescribed by the Secretary.'' 12 U.S.C. 2607(c)(5)(2008).
---------------------------------------------------------------------------

    Proposed comment 19(f)(3)(ii)-1 explains that average-charge 
pricing is the exception to the rule in Sec.  1026.19(f)(3)(i) that 
consumers shall not pay more than the exact amount charged by a 
settlement service provider for the performance of that service. If the 
creditor develops representative samples of specific settlement costs 
for a particular class of transactions, the creditor may charge the 
average cost for that settlement service instead of the actual cost for 
such transactions. An average-charge program may not be used in a way 
that inflates the cost for settlement services overall.
    Proposed comment 19(f)(3)(ii)-2 explains how an appropriate period 
of time, geographic area, and type of loan may be defined, and provides 
illustrative examples of issues a person may encounter when defining an 
appropriate geographic area and an appropriate type of loan. Proposed 
comment 19(f)(3)(ii)-3 provides further explanation related to the 
requirement that if a creditor chooses to use an average charge for a 
settlement service for a particular loan within a class, then the 
creditor must use that average charge for that service on all loans 
within the class. Proposed comment 19(f)(3)(ii)-3 also provides 
practical examples illustrating the uniform use requirement.
    Proposed comment 19(f)(3)(ii)-4 illustrates the requirement that 
the average charge must be calculated according to the average amount 
paid for a settlement service in a prior period, and clarifies that 
updates to the average charge may be delayed for an amount of time 
sufficient to re-calculate the average charge, provided that such 
delays are applied uniformly from one time period to the next.
    Proposed comment 19(f)(3)(ii)-5 discusses the requirement that the 
total amount of average charges paid by consumers for settlement 
services may not exceed the total amount paid for those settlement 
services overall. The Bureau has received extensive feedback from 
industry that this requirement, which currently exists under RESPA and 
Regulation X, has impeded industry adoption of average-charge pricing. 
Prohibiting industry from collecting more money than is actually paid 
to settlement service providers means that industry cannot actually 
average costs over time, and must instead operate at a loss in the long 
term if industry chooses to use average-charge pricing. The Bureau 
believes that the use of average-charge pricing promotes greater 
reliability for consumers. Therefore, the Bureau seeks to address this 
concern to facilitate the adoption of average-charge pricing. Proposed 
comment 19(f)(3)(ii)-5 addresses this issue and discusses the ways in 
which a person may comply with this requirement. A person may refund 
the excess amounts collected or may factor in the excesses when 
determining the average charge for the next period. A person may also 
comply by establishing a rolling monthly period of re-evaluation. A 
person complies by re-calculating the average amount every month, and 
will be deemed to be in compliance with Sections 4 and 8 of RESPA if 
the person uses this method, even if the person collects more for 
settlement services than the total amount paid for those settlement 
services over time.
    Proposed comment 19(f)(3)(ii)-6 explains that adjustments to the 
average charge based on prospective analysis are permitted if the 
creditor or settlement service provider develops a statistically 
accurate and reliable method for doing so. However, the Bureau is 
concerned that prospective adjustments may not be practicable in the 
context of determining average charges. Accordingly, the Bureau seeks 
comment on whether such a provision is appropriate.
    Proposed comment 19(f)(3)(ii)-7 discusses the requirement that 
average charges may not be used for insurance premiums or for items 
that vary according to the loan amount or property value, such as 
transfer taxes. Proposed comment 19(f)(3)(ii)-8

[[Page 51183]]

clarifies that an average charge may not be used where prohibited by 
any applicable State or local law. Proposed comment 19(f)(3)(ii)-9 
explains how the recordkeeping requirements in Sec.  1026.25 apply to 
the documents related to the calculation of average charge.
19(f)(4) Transactions Involving a Seller
    Neither TILA nor Regulation Z contain requirements related to the 
seller. Section 4 of RESPA provides that the integrated disclosure 
shall conspicuously and clearly itemize all charges imposed upon the 
seller in connection with the settlement. 12 U.S.C. 2603(a). Regulation 
X states that the settlement agent shall provide a completed HUD-1 to 
any seller at or before the settlement, unless the borrower waives the 
right to delivery of the HUD-1 at or before settlement, in which case 
the HUD-1 shall be mailed to the seller as soon as practicable after 
settlement. Sec.  1024.10(b) and (c). Pursuant to its authority under 
sections 105(a) of TILA, 19(a) of RESPA, Dodd-Frank Act section 
1032(a), and, for residential mortgage loans, Dodd-Frank Act section 
1405(b), the Bureau proposes Sec.  1026.19(f)(4)(i), (ii), and (iii). 
Proposed Sec.  1026.19(f)(4)(i) provides that in a closed-end consumer 
credit transaction secured by real property, other than a reverse 
mortgage subject to Sec.  1026.33, the person conducting the settlement 
shall provide the seller with the disclosures in Sec.  1026.38 that 
relate to the seller. Proposed Sec.  1026.19(f)(4)(ii) provides that 
the person conducting the settlement shall provide these disclosures no 
later than the day of consummation. If an event occurs after 
consummation that causes such disclosures to become inaccurate, and 
such inaccuracy results solely from payments to a government entity, 
the person conducting the real estate closing shall deliver revised 
disclosures to the seller no later than 30 days after consummation. 
Proposed Sec.  1026.19(f)(4)(iii) provides that the amount imposed upon 
the seller for any settlement service shall not exceed the amount 
actually received by the service provider for that service, except for 
average charges calculated pursuant to Sec.  1026.19(f)(3)(ii).
    This proposed regulation will prevent circumvention and evasion of, 
and will facilitate compliance with, TILA, consistent with section 
105(a) of TILA. The proposed regulation implements the requirements of 
RESPA section 4, pursuant to the Bureau's implementation authority 
under RESPA section 19(a). This proposed regulation will also result in 
the meaningful advance disclosure of settlement costs and the 
elimination of kickbacks, referral fees, and other practices that tend 
to increase unnecessarily the costs of certain settlement services by 
ensuring that the terms of the transaction that relate to the seller, 
which include amounts owed to the seller, are fully and accurately 
disclosed to the seller, consistent with RESPA sections 8 and 19(a). 
Receipt of the integrated disclosures in accordance with this proposed 
regulation will also ensure that the features of the transaction and 
settlement services will be more fully and accurately disclosed to the 
consumer in a manner that permits sellers to understand the costs of 
the transaction, consistent with Dodd-Frank Act section 1032(a). The 
proposed regulation, by requiring sellers to receive the integrated 
disclosure, will also improve seller's awareness and understanding of 
the seller's transaction, which involves a residential mortgage loan, 
which is in the interest of consumers and in the public interest, 
consistent with Dodd-Frank Act section 1405(b).
    Proposed comment 19(f)(4)(ii)-1 explains that, if an event occurs 
after consummation that causes such disclosures to become inaccurate 
and such inaccuracy results solely from payments to a government 
entity, the person conducting the real estate closing shall deliver 
revised disclosures to the seller no later than 30 days after 
consummation. Section 1026.19(f)(4)(i) requires disclosure of the items 
that relate to the seller's transaction. Thus, the person conducting 
the real estate closing need only provide revised disclosures if an 
item related to the seller's transaction becomes inaccurate and such 
inaccuracy results solely from payments to a government entity. The 
proposed comment also provides illustrative examples of this 
requirement.
19(f)(5) No Fee
    Although TILA does not address fees related to the preparation of 
disclosures, RESPA provides that no fee may be imposed on any person, 
as a part of settlement costs or otherwise, by a lender in connection 
with a federally related mortgage loan made by such lender for the 
preparation or delivery of the settlement statement required by section 
4 of RESPA or for statements required by TILA. 12 U.S.C. 2610. Although 
Regulation Z does not contain a similar requirement, Sec.  1024.12 of 
Regulation X implements RESPA's requirement. Pursuant to its authority 
under sections 105(a) of TILA and 19(a) of RESPA, the Bureau proposes 
Sec.  1026.19(f)(5), which provides that no fee may be imposed on any 
person, as a part of settlement costs or otherwise, by a creditor or by 
a servicer for the preparation or delivery of the disclosures required 
under Sec.  1026.19(f)(1)(i), escrow account statements required 
pursuant to section 10 of RESPA, or other statements required by TILA. 
This proposed regulation will strengthen the informed use of credit by 
ensuring that consumers are not informed that consumers must pay fees 
prohibited by law, and enhance competition by ensuring that creditors 
do not attempt to gain a competitive advantage by charging prohibited 
fees, both of which are consistent with section 105(a) of TILA. This 
proposal is also made pursuant to the Bureau's authority to implement 
section 10 of RESPA, consistent with section 19(a) of RESPA. This 
proposed regulation will also result in the meaningful advance 
disclosure of settlement costs and the elimination of kickbacks, 
referral fees, and other practices that tend to increase unnecessarily 
the costs of certain settlement services by ensuring that illegal fees 
are not included on the disclosures, consistent with section 19(a) of 
RESPA.
19(g) Special Information Booklet at Time of Application
    Section 1024.6 of Regulation X contains the provisions related to 
the Special Information Booklet, which is required by section 5 of 
RESPA. 12 U.S.C. 2604. The Bureau plans to update the booklet 
consistent with the amendments to section 5 of RESPA in section 1450 of 
the Dodd-Frank Act and to reflect the integrated disclosures, once 
those disclosures are finalized. Pursuant to its authority under TILA 
section 105(a) and RESPA section 19(a), the Bureau proposes Sec.  
1026.19(g), which is substantially similar to the existing requirements 
in Regulation X, but modified to conform to the usage associated with 
TILA. The Bureau also solicits feedback on whether the CHARM booklet, 
required under Sec.  1026.19(b)(1), should be incorporated into the 
Special Information Booklet. This proposed provision is consistent with 
TILA's purposes in that it will increase consumer awareness of the 
costs of the transaction by informing consumers that settlement costs 
can be influenced by shopping, thereby promoting the informed use of 
credit. This proposed regulation will enhance consumers' ability to 
shop for a mortgage loan, which will effect changes in the settlement 
process that will result in the elimination of kickbacks, referral 
fees, and other

[[Page 51184]]

practices that tend to increase unnecessarily the costs of certain 
settlement services, consistent with the Bureau's authority under 
section 19(a) of RESPA.
    Proposed comment 19(g)(1)-1 provides that the Bureau may, after 
publishing a notice in the Federal Register, issue a revised or 
separate special information booklet that addresses transactions 
subject to Sec.  1026.19(g). The Bureau may also choose to permit the 
forms or booklets of other Federal agencies, in which case the 
availability of the booklet or alternate materials for these 
transactions will be set forth in a notice in the Federal Register.
    Proposed comment 19(g)(1)-2 clarifies that when two or more persons 
apply together for a loan, the creditor complies with Sec.  1026.19(g) 
if the creditor provides a copy of the booklet to one of the persons 
applying.
    Proposed comment 19(g)(2)-1 explains that the special information 
booklet may be reproduced in any form, provided that no changes are 
made, except as otherwise provided under Sec.  1026.19(g). Provision of 
the special information booklet as a part of a larger document does not 
satisfy the requirements of Sec.  1026.19(g). Any color, size and 
quality of paper, type of print, and method of reproduction may be used 
so long as the booklet is clearly legible. Proposed comment 19(g)(2)-2 
clarifies that the special information booklet may be translated into 
languages other than English.
Section 1026.22 Determination of Annual Percentage Rate
22(a) Accuracy of Annual Percentage Rate
    The Bureau is proposing conforming amendments to Sec.  1026.22 to 
reflect the fact that proposed Sec.  1026.38(o)(2) sets forth finance 
charge tolerances for mortgage transactions subject to Sec.  
1026.19(f), as discussed below. The tolerances set forth in Sec.  
1026.18(d)(1) continue to apply to closed-end transactions that are not 
subject to proposed Sec.  1026.19(f). Accordingly, the Bureau proposes 
to revise Sec.  1026.22(a)(4) and (5) and comment 22(a)(4)-1 to add 
references to Sec.  1026.38(o)(2).
Section 1026.24--Advertising
24(d) Advertisement of Terms That Require Additional Disclosures
24(d)(2) Additional Terms
    Comment 24(d)(2)-2 currently provides guidance on how to state the 
terms of repayment in an advertisement, as required in Sec.  
1026.24(d)(2)(ii). The Bureau is proposing to exercise its authority 
under TILA section 105(a) to revise the comment to conform with the 
additional forms of repayment term disclosures that may apply to 
various types of mortgage transactions under this proposal. Proposed 
comment 24(d)(2)-2 clarifies that, in advertisements for closed-end 
credit secured by real property or a dwelling, the repayment terms 
disclosed in the interest rate and payment summary table or the 
projected payments table in Sec. Sec.  1026.18(s) or 1026.37(c) and 
1026.38(c), as applicable, can be provided in an advertisement pursuant 
to Sec.  1026.24(d)(2)(ii). The use of either the payment schedule 
described in Sec.  1026.18(g) or the interest rate and payments summary 
table described in Sec.  1026.18(s) to state the terms of repayment can 
be provided for transactions secured by real property or a dwelling 
under comment 24(d)(2)-2. In light of the existence of the interest 
rate and payment summary table described in Sec.  1026.18(s) and the 
addition of the projected payments table described in Sec. Sec.  
1026.37(c) and 1026.38(c) of this proposed rule, the Bureau believes 
that the format of disclosure applicable to a particular transaction is 
also the most appropriate format for advertising purposes. Comment 
24(d)(2)-2 would therefore be revised to clarify that disclosing the 
terms of repayment in the interest rate and payment summary table and 
the projected payment tables described in Sec.  1026.18(s) or 
Sec. Sec.  1026.37(c) and 1026.38(c), as applicable, satisfies the 
requirements in Sec.  1026.24(d)(2)(ii). These revisions would also 
make clear that the payment schedule described in Sec.  1026.18(g) is 
not the only permissible disclosure under Sec.  1026.24(d)(2)(ii).
Section 1026.25 Record Retention
    As discussed below, the Bureau proposes to amend Sec.  1026.25 to 
apply the recordkeeping requirements currently under Regulation X to 
the proposed integrated disclosures and to require creditors to keep 
such records in an electronic, machine readable format.
25(a) General Rule
    The Bureau proposes to amend Sec.  1026.25(a) to exempt the 
requirements of Sec. Sec.  1026.19(e) and (f). Instead, the record 
retention requirements for compliance with these sections will be 
established under a new Sec.  1026.25(c)(1).
25(c) Records Related to Certain Requirements for Mortgage Loans
25(c)(1) Records Related to Requirements for Loans Secured by Real 
Property
25(c)(1)(i) General Rule
    Neither TILA nor RESPA contain record retention requirements. 
Section 1026.25 of Regulation Z requires creditors to retain evidence 
of compliance with TILA for two years after the date disclosures are 
required to be made or action is required to be taken. Section 
1024.7(f) of Regulation X requires lenders to retain documentation of 
any reason for providing a revised GFE for no less than three years 
after settlement. Furthermore, Sec.  1024.10(e) of Regulation X 
requires lenders to retain each completed RESPA settlement statement 
and related documents for five years after settlement, unless the 
lender disposes of its interest in the mortgage and does not service 
the mortgage.
    The Bureau proposes to reconcile these provisions by generally 
requiring a creditor to retain evidence of compliance with the 
requirements of Sec.  1026.19(e) and (f) for three years. The Bureau 
recognizes that extending the record retention requirement from two 
years, as currently provided in Regulation Z, to three years may 
increase costs. However, the Bureau is unaware of any issues related to 
complying with the three year period currently required by Regulation 
X. Creditors may be able to use existing recordkeeping systems to 
maintain the integrated disclosure data at no additional cost. 
Additionally, several sections of RESPA are subject to a three year 
statute of limitations.\149\ Adopting a document retention period of 
less than three years may affect legal actions brought under RESPA. 
Thus, it may be appropriate to require creditors to maintain records 
related to compliance for three years, as opposed to the two year 
requirement currently under Regulation Z.
---------------------------------------------------------------------------

    \149\ ``[A]ctions [under sections 6, 8, or 9] brought by the 
Bureau, the Secretary, the Attorney General of any State, or the 
insurance commissioner of any State may be brought within 3 years 
from the date of the occurrence of the violation.'' RESPA section 
16, 12 U.S.C. 2614.
---------------------------------------------------------------------------

    Pursuant to its authority under section 105(a) of TILA and section 
19(a) of RESPA, the Bureau proposes Sec.  1026.25(c)(1)(i), which 
states that, except as provided under Sec.  1026.25(c)(1)(ii), a 
creditor shall retain evidence of compliance with the requirements of 
Sec.  1026.19(e) and (f) for three years after the later of the date of 
consummation, the date disclosures are

[[Page 51185]]

required to be made, or the date the action is required to be taken. 
The Bureau believes that this proposed modification will ensure that 
records associated with the integrated disclosures are kept long enough 
to facilitate compliance with both TILA and RESPA, which is necessary 
to both prevent circumvention of and facilitate compliance with TILA 
and RESPA. The Bureau also solicits comment on whether the three year 
period is appropriate, whether the retention requirement should be 
extended to five years to match the recordkeeping requirement in 
proposed Sec.  1026.25(c)(1)(ii), and whether a shorter time period 
would conflict with the statute of limitations under section 16 of 
RESPA.
    Proposed comment 25(c)(1)(i)-1 applies guidance currently 
applicable under Sec.  1026.25(a) to proposed Sec.  1026.25(c). The 
proposed comment clarifies that the creditor must retain evidence that 
it performed the required actions as well as made the required 
disclosures. This includes, for example, evidence that the creditor 
properly differentiated between affiliated and independent third party 
settlement service providers for determining good faith under Sec.  
1026.19(e)(3); evidence that the creditor properly documented the 
reason for revisions under Sec.  1026.19(e)(3)(iv); or evidence that 
the creditor properly calculated average cost under Sec.  
1026.19(f)(3)(ii). Proposed comment 25(c)(1)(i)-2 provides a cross-
reference to Sec.  1026.19(e)(1)(ii), which imposes responsibilities on 
mortgage brokers in some situations and may implicate Sec.  1026.25(c).
25(c)(1)(ii) Closing Disclosures
    As noted above, while Sec.  1026.25 of Regulation Z generally 
requires creditors to retain evidence of compliance with TILA for two 
years after the date disclosures are required to be made or action is 
required to be taken, Sec.  1024.10(e) of Regulation X requires lenders 
to retain each completed RESPA settlement statement and related 
documents for five years after settlement, unless the lender disposes 
of its interest in the mortgage and does not service the mortgage. If 
the lender disposes of its interest and does not service the mortgage, 
Sec.  1024.10(e) requires the lender to provide the lender's copy of 
the RESPA settlement statement to the owner or servicer of the mortgage 
as part of the transfer of the loan file. The owner or servicer to whom 
the files are transferred must retain the RESPA settlement statement 
for the remainder of the five-year period.
    Because the Closing Disclosure contains the settlement information 
that is currently provided on the RESPA settlement statement, the 
Bureau proposes to adopt the five-year requirement. This information 
serves an important purpose as both the record of all fees associated 
with the transaction and as part of the official disbursement record. 
As such, this information may be needed for more than two years after 
the transaction. For example, State and local laws related to 
transactions involving real property may depend on the information 
being available for five years. Additionally, the current five-year 
recordkeeping requirement under Regulation X has been in effect since 
1992.\150\ The Bureau is unaware of any problems caused by the five 
year requirement and does not believe the time period should be 
shortened without evidence that the rule is not operating as intended, 
is unnecessary, or otherwise harms consumers. Thus, it appears that 
requiring creditors to retain copies of the Closing Disclosure for five 
years is appropriate.
---------------------------------------------------------------------------

    \150\ 57 FR 49600, 49607 (Nov. 2, 1992).
---------------------------------------------------------------------------

    Pursuant to its authority under section 105(a) of TILA and section 
19(a) of RESPA, the Bureau proposes Sec.  1026.25(c)(1)(ii). Proposed 
Sec.  1026.25(c)(1)(ii)(A) states that the creditor shall retain each 
completed disclosure required under Sec.  1026.19(f)(1)(i) and 
(f)(4)(i), and all documents related to such disclosures, for five 
years after settlement. The Bureau believes that this proposed 
modification will ensure that records associated with the integrated 
disclosures are kept long enough to facilitate compliance with both 
TILA and RESPA, which is necessary to both prevent circumvention of and 
facilitate compliance with TILA. The proposed recordkeeping requirement 
will also enable accurate supervision, which will result in the more 
effective advance disclosure of settlement costs, consistent with 
section 19(a) of RESPA. Proposed Sec.  1026.25(c)(1)(ii)(B) provides 
that, if a creditor sells, transfers, or otherwise disposes of its 
interest in a mortgage and does not service the mortgage, the creditor 
shall provide a copy of the disclosures required under Sec.  
1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage 
as a part of the transfer of the loan file. Such owner or servicer 
shall retain such disclosures for the remainder of the five-year 
period. Proposed Sec.  1026.25(c)(1)(ii)(C) provides that the Bureau 
shall have the right to require provision of copies of records related 
to the disclosures required under Sec.  1026.19(f)(1)(i) or (f)(4)(i).
    The Bureau recognizes that this proposal is different from the 
current requirements under Regulation X, which does not require a 
creditor to maintain these documents if the creditor disposes of its 
interest in the mortgage loan and does not service the mortgage loan. 
However, the Bureau believes that the current requirement provides 
little practical benefit to creditors, because other provisions of 
Regulations Z and X require creditors to maintain records of compliance 
for several years, even if the creditor transfers, sells, or otherwise 
disposes of its interest in the mortgage loan. The Bureau solicits 
feedback regarding whether it is appropriate for creditors that 
transfer, sell, or otherwise dispose of their interest in the mortgage 
loan, and do not service the mortgage loan, to keep these records for 
the five-year period. The Bureau also requests feedback on the 
additional costs that would result from such a requirement.
25(c)(1)(iii) Electronic Records
    Issues Related to Adopting a Standard, Machine Readable, Electronic 
Data Format. Neither TILA nor RESPA address electronic recordkeeping. 
Regulation Z permits, but does not require, electronic recordkeeping. 
Comment 25(a)-2 provides that records can be maintained by any method 
that reproduces disclosures accurately, including computer programs. 
Regulation X also permits, but does not require, electronic records. 
See Sec.  1024.23 and HUD RESPA FAQs p.3, 4 (``GFE--
General'').
    The Bureau has sought information regarding the costs of keeping 
records in an electronic, machine readable format. ``Machine readable'' 
means a format where the individual data elements comprising the record 
can be transmitted, analyzed, and processed by a computer program, such 
as a spreadsheet or database program. Data formats for image 
reproductions (e.g., PDF) or document text, such as those used by word 
processing programs, are not machine readable for purposes of this 
proposal. Based on these discussions, including information learned 
from the Small Entity Representatives participating in the Small 
Business Review Panel process, the Bureau recognizes that requiring 
records in an electronic, machine readable format will impose new costs 
on industry. Industry would incur costs for either acquiring a system 
to create records in electronic, machine readable format, or for 
modifying their current systems to use a standard format required by 
regulation. See Small

[[Page 51186]]

Business Review Panel Report at 30. However, feedback provided to the 
Small Business Review Panel indicates that creditors currently rely on 
electronic systems for most aspects of the mortgage loan origination 
process, which include electronic record creation and storage. See id. 
Thus, any new costs caused by a machine readable recordkeeping 
requirement would be limited to the up-front costs of upgrading 
existing computer systems and additional, ongoing data storage costs.
    In contrast, the benefits of keeping records in machine readable 
format may be significant. A prescribed electronic format may reduce 
costs across the entire mortgage loan origination industry due to 
efficiency gains associated with a standardized data format. 
Information received by the Bureau suggests that creditors, mortgage 
brokers, title companies, investors, and other mortgage technology 
providers use systems with proprietary data formats. As a result, data 
must be translated between formats as it is transmitted from one point 
to another throughout the mortgage loan origination process. A standard 
electronic record format may eliminate these multiple data formats, 
thereby increasing efficiency in the origination process, reducing 
industry costs in the long term, and reducing costs to consumers. Also, 
the Bureau is aware that many firms currently face significant internal 
costs for maintaining multiple internal technological systems. A single 
data format may lower overall and long-term costs by enabling creditors 
to migrate from older data formats to a single, standard data format.
    Other benefits may be realized from a standard, electronic, machine 
readable format. A standard format may facilitate innovation in the 
financial services industry by making it easier for technology 
companies to create new programs that improve the mortgage origination 
process and lower industry costs, instead of tailoring programs to each 
firm's unique proprietary data format. A standard machine readable 
format may also facilitate industry adoption of mortgage documentation 
technology. Such developments would reduce industry's reliance on paper 
files, which would lower ongoing costs while reducing the paperwork 
burden on both industry and consumers. Furthermore, electronic, machine 
readable records may allow regulators to monitor some aspects of 
compliance remotely. Remote examinations may benefit creditors by 
easing the burden associated with devoting staff time and resources to 
on-site examinations. All of these benefits may reduce industry cost 
and burden in the long run, thereby reducing costs to consumers as 
well.
    The Bureau believes that the benefits of a standard, machine 
readable electronic data format may outweigh the costs associated with 
adopting and maintaining such a format. Thus, pursuant to its authority 
under section 105(a) of TILA, the Bureau proposes Sec.  
1026.25(c)(1)(iii), which provides that a creditor shall retain 
evidence of compliance in electronic, machine readable format. The 
Bureau believes that this proposed requirement will ensure that records 
associated with the integrated disclosures are readily available for 
examination, which is necessary to both prevent circumvention of and 
facilitate compliance with TILA. This proposed regulation may also 
facilitate compliance with TILA by easing the burden of examinations 
and ensuring that all entities subject to TILA keep records in a 
standard format. Proposed comment 25(c)(1)(iii)-1 clarifies that the 
requirements of Sec.  1026.25(c)(1)(iii) are in addition to any other 
formats that may be required by administrative agencies responsible for 
enforcing the regulation. The Bureau solicits comment on this approach, 
including the costs associated with such a requirement.
    As discussed in the Initial Regulatory Flexibility Analysis, 
section VIII.B.4.b below, the proposed electronic recordkeeping 
requirement may not be appropriate for certain classes of entities, 
such as small creditors that do not currently have such electronic 
filing systems or use vendor software. The upfront and ongoing costs of 
such a requirement on small creditors may outweigh any benefits. 
However, the Bureau does not have sufficient data to determine whether 
and which small creditors should be exempt from the requirements. 
Accordingly, pursuant to its authority under section 105(f) of TILA, 
the Bureau proposes that, as an alternative to requiring electronic 
records, that a class of entities consisting of small creditors be 
exempted based on either entity size or the number of loans originated.
    The Bureau has considered the factors in TILA section 105(f) and 
believes that an exception could be appropriate under that provision if 
the costs imposed on small entities outweigh the benefits to consumers. 
In such circumstances, an exemption would be appropriate for all 
affected borrowers who receive mortgage loans from small entities, 
regardless of their other financial arrangements and financial 
sophistication and the importance of the loan to them. Similarly, an 
exemption would be appropriate for all affected loans issued by exempt 
small entities, regardless of the amount of the loan and whether the 
loan is secured by the principal residence of the consumer. 
Furthermore, on balance, the proposed exemption would simplify the 
credit process for small entities without undermining the goal of 
consumer protection or denying important benefits to consumers. The 
Bureau recognizes that its exemption and exception authorities apply to 
a class of transactions, and proposes to apply these authorities to the 
loans covered under the proposal of the entities proposed for potential 
exemption.
    Consistent with the recommendation of the Small Business Review 
Panel, the Bureau solicits comment on whether a small business 
exemption is appropriate, whether such small business exemption should 
be based on entity size or the number of loans originated, and the 
appropriate exemption threshold in terms of institution size or the 
number of loans originated, respectively. The Bureau solicits feedback 
on whether such an exemption for depository institutions should be 
different than an exemption for non-depository institutions. The Bureau 
also solicits feedback on small business' current technology costs, and 
how such costs might be affected by an electronic recordkeeping 
requirement.
    Based on the Bureau's discussions with industry regarding machine 
readable data formats, the Bureau believes that XML may be the most 
appropriate format for electronic recordkeeping. However, the Bureau 
solicits comment on the costs and challenges associated with adopting 
an XML format. The Bureau also solicits feedback on other data formats 
that may be more appropriate than XML.
    Smart Disclosure. ``Smart disclosure'' generally refers to a 
requirement that data be kept in standard, machine readable format that 
is also available to the public. In the context of mortgage loans, any 
regulation implementing smart disclosure would require creditors to 
provide consumers with data related to the loan origination process. 
Smart disclosure can facilitate intelligent decision-making by 
consumers and encourage innovation. For example, if consumers were 
provided with Loan Estimates in electronic format, computer programs 
and applications may be developed to allow consumers to compare Loan 
Estimates between different creditors. Or, programs may be developed 
that assist consumers in assessing the ongoing costs, risks, and 
affordability of a single Loan Estimate for the individual consumer.

[[Page 51187]]

    The Bureau recognizes that smart disclosures may encourage the 
informed use of credit and promote innovation in the consumer financial 
services industry. While the Bureau supports these goals, the Bureau is 
not proposing a smart disclosure requirement at this time. The Bureau 
intends to continue monitoring the consumer financial services market 
and will revisit this issue if, in the future, the Bureau determines 
that such a requirement is appropriate.
Section 1026.28 Effect on State Laws
    TILA preempts State laws to the extent of their inconsistency with 
that statute and permits States, creditors, and other interested 
parties to request a determination by the Bureau regarding such 
inconsistency. Specifically, section 111(a)(1) states that the 
provisions of chapters 1 (General Provisions), 2 (Credit Transactions), 
and 3 (Credit Advertising and Limits on Credit Card Fees) of TILA do 
not annul, alter, or affect the laws of any State relating to the 
disclosure of information in connection with credit transactions, 
except to the extent that those laws are inconsistent with the 
provisions of TILA and then only to the extent of the inconsistency. 15 
U.S.C. 1610(a)(1). Upon its own motion or upon the request of any 
creditor, State, or other interested party that is submitted in 
accordance with procedures prescribed in regulations of the Bureau, the 
Bureau shall determine whether any such inconsistency exists. Id. If 
the Bureau determines that a State-required disclosure is inconsistent, 
creditors located in that State may not make disclosures using the 
inconsistent term or form, and shall incur no liability under the State 
law for failure to use such term or form, notwithstanding that such 
determination is subsequently amended, rescinded, or determined by 
judicial or other authority to be invalid for any reason. Id. Section 
111(b) generally provides that TILA does not otherwise annul, alter, or 
effect in any manner the meaning, scope, or applicability of the laws 
of any State, including, but not limited to, laws relating to the 
types, amounts, or rates of charges, or any elements of charges, 
permissible under such laws in connection with the extension or use of 
credit, and neither does TILA extend the applicability of those laws to 
any class of persons or transactions to which they would not otherwise 
apply. 15 U.S.C. 1610(b).
    Regulation Z Sec.  1026.28 implements TILA section 111. Section 
1026.28(a) provides that State law requirements that are inconsistent 
with the requirements contained in chapters 1 through 3 of TILA and the 
implementing provisions of Regulation Z are preempted to the extent of 
the inconsistency.\151\ Under Sec.  1026.28(a), a State law is 
inconsistent with a TILA provision if it requires a creditor to make 
disclosures or take actions that contradict the requirements of TILA. A 
State law contradicts a requirement of TILA if it requires the use of 
the same term to represent a different amount or a different meaning 
than TILA, or if it requires the use of a term different from that 
required in TILA to describe the same item. A creditor, State, or other 
interested party may request the Bureau to determine whether a State 
law requirement is inconsistent, and if the Bureau makes such a 
determination a creditor may not make disclosures using the 
inconsistent term or form.\152\ The specific procedures for requesting 
a State law preemption determination are set forth in Sec.  1026.28(c) 
and appendix A to part 1026. Appendix A states, among other things, 
that the Bureau reserves the right to reverse a determination for any 
reason bearing on the coverage or effect of State or Federal law.
---------------------------------------------------------------------------

    \151\ There are different rules regarding preemption of State 
laws relating to the disclosure of credit information in any credit 
or charge card application or solicitation that is subject to the 
requirements of section 127 of TILA and the correction of billing 
errors, but those rules are outside the scope of this rulemaking. 
See Sec.  1026.28(a)(2), (d).
    \152\ TILA section 111(a)(2) and Sec.  1026.28(b) generally 
permit a creditor, State, or other interested party to request that 
the Bureau determine whether a State-required disclosure is 
substantially the same in meaning as a TILA disclosure, and if the 
Bureau makes such a determination, creditors in the State can 
provide the State-required disclosure in lieu of the TILA 
disclosure. Comment 28(b)-1 clarifies that under Sec.  1026.28, a 
State disclosure can be substituted for a Federal disclosure only 
after a determination of substantial similarity. State exemptions 
are addressed in more detail under Sec.  1026.29 and associated 
commentary.
---------------------------------------------------------------------------

    Current Regulation Z commentary provides further guidance on the 
TILA preemption rules. Comment 28(a)-2 includes examples of State laws 
that would be preempted (e.g., a State law requiring use of the term 
``finance charge'' but defining the term to include fees that TILA 
excludes, or to exclude fees that TILA includes). Comment 28(a)-3 
explains that State law requirements calling for disclosure of items 
not covered by TILA or that require more detailed disclosures generally 
do not contradict the TILA requirements, provides examples of State 
laws that would not be preempted, and gives guidance as to whether a 
State law requiring itemization of the amount financed would be 
preempted. Comment 28(a)-4 explains that a creditor, prior to a 
preemption determination, may either (1) give the State disclosures or 
(2) apply the preemption standards to a State law, conclude that it is 
inconsistent, and choose not to give the State-required disclosures 
(but that no immunity is given under Sec.  1026.28(a) for violations of 
State law if the creditor chooses not to make State disclosures and the 
Bureau later determines that the State law is not preempted). The 
comment also states that the Bureau will give sufficient time to 
creditors to revise their forms and procedures as necessary to conform 
with its preemption determinations. Comments 28(a)-8 through -15 
discuss prior determinations made by the Federal Reserve Board prior to 
July 21, 2011, and recognized by the Bureau unless and until the Bureau 
makes and publishes any contrary determinations, to preempt certain 
State laws. For example, comment 28(a)-15 notes that, in Wisconsin, 
disclosure of the annual percentage rate under the particular State law 
referenced in the comment is preempted, because while the statute 
refers to ``annual percentage rate,'' it requires disclosure of a 
different amount than under TILA.
    Section 18 of RESPA and Regulation X Sec.  1024.13 provide that 
State laws that are inconsistent with RESPA or Regulation X are 
preempted to the extent of the inconsistency. 12 U.S.C. 2616; 12 CFR 
1024.13. RESPA and Regulation X do not annul, alter, affect, or exempt 
any person subject to their provisions from complying with the laws of 
any State with respect to settlement practices, except to the extent of 
the inconsistency. Id. Upon request by any person, the Bureau is 
authorized to determine whether such inconsistencies exist, and the 
Bureau may not determine that any State law is inconsistent with any 
provision of RESPA if the Bureau determines that such law or regulation 
gives greater protection to the consumer. 12 CFR 1024.13(b). In making 
this determination, the Bureau must consult with ``appropriate Federal 
agencies.'' Id.; see also 12 U.S.C. 2616. Section 1024.13(c) sets forth 
the process by which the Bureau makes a preemption determination. 
Unlike Regulation Z, Regulation X does not list any State laws 
preempted by RESPA, and the Bureau is not aware of any.
    The preemption provisions in TILA and RESPA and their implementing 
regulations thus contain similar language as far as scope of the 
preemption (i.e., in both cases State laws generally are preempted only 
``to the extent of the inconsistency''), but include different 
authority and

[[Page 51188]]

procedures for determining whether State laws are preempted. For 
example, unlike Regulation X, Sec.  1026.28 provides a regulatory 
standard for determining ``inconsistency'' (i.e., disclosures or 
actions that contradict Federal law requirements) along with detailed 
commentary. RESPA, but not TILA, requires the preemption determination 
to be made by the Bureau in consultation with other appropriate Federal 
agencies. Moreover, while the Regulation Z provision addresses the 
relationship between Federal and State laws governing credit 
transactions, Sec.  1024.13 refers to laws regarding settlement 
practices.
    As noted previously, section 1032(f) of the Dodd-Frank Act requires 
the Bureau to propose rules and forms that combine the disclosures 
required under TILA and sections 4 and 5 of RESPA into a single, 
integrated disclosure for mortgage loan transactions covered by those 
laws. In addition, the Dodd-Frank Act amended sections 105(b) of TILA 
and 4(a) of RESPA, respectively, to require the integration of those 
disclosure requirements. However, the Dodd-Frank Act did not specify 
whether the TILA or the RESPA State law preemption provision applies to 
the provision of the integrated mortgage disclosures. In order to meet 
the Dodd-Frank Act's mandate, the proposed rule must reconcile the 
differences regarding these State law preemption regimes.
    Furthermore, there are certain transactions subject to TILA, but 
not RESPA, for which the integrated mortgage disclosures must be 
delivered under the proposed rule. Pursuant to Sec.  1026.19(e) and 
(f), the proposed rule covers all closed-end consumer credit 
transactions secured by real property, other than reverse mortgages. 
Some of these transactions are not subject to RESPA (i.e., if they are 
not a federally related mortgage loan as defined in Regulation X Sec.  
1024.2), but consumers in such transactions will receive integrated 
mortgage disclosures containing certain content mandated by RESPA. This 
may create confusion as to which preemption provision controls were a 
State law preemption question to arise with respect to the RESPA-
mandated content on the integrated mortgage disclosures.
    Accordingly, Dodd-Frank Act section 1032(f), TILA section 105(b), 
and RESPA section 19(a) provide the Bureau with authority to reconcile 
the provisions of TILA and RESPA to carry out the integrated disclosure 
requirement. Based on such authority and the Bureau's authority under 
TILA section 105(a) and RESPA section 19(a) to make rules consistent 
with the purposes of those statutes, the Bureau is proposing to require 
that the State law preemption provisions of Regulation Z, Sec.  
1026.28, apply to any State law preemption question arising with 
respect to the requirements of sections 4 and 5 of RESPA (other than 
the RESPA section 5(c) requirements regarding provision of a list of 
certified homeownership counselors), and Sec. Sec.  1026.19(e) and (f), 
1026.37, and 1026.38. By applying the Regulation Z State law preemption 
provision to any State law preemption question arising with respect to 
the requirements of Sec. Sec.  1026.19(e) and (f), 1026.37, and 
1026.38, this requirement encompasses all closed-end consumer credit 
transactions secured by real property that are covered by the proposed 
rule, regardless of whether they are independently subject to RESPA. 
However, Sec.  1024.13 applies to State law preemption questions 
arising with respect to other aspects of RESPA and Regulation X, 
including the RESPA section 5(c) requirements regarding provision of a 
list of certified homeownership counselors.
    To effectuate this change, the Bureau is proposing two 
modifications to Sec.  1026.28 and its associated commentary. First, 
the proposed rule modifies Sec.  1026.28(a) to provide that a 
determination of whether a State law is inconsistent with the 
requirements of sections 4 and 5 of RESPA (other than the RESPA section 
5(c) requirements regarding provision of a list of certified 
homeownership counselors) and proposed Sec. Sec.  1026.19(e) and (f), 
1026.37, and 1026.38 shall be made in accordance with Sec.  1026.28 and 
not Regulation X Sec.  1024.13. Second, the proposed rule adds text to 
comment 28(a)-1 providing that, to the extent applicable to a 
transaction subject to Sec.  1026.19(e) and (f), any reference to 
``creditor'' in Sec.  1026.28 includes a creditor, a mortgage broker, 
or a closing agent, as applicable. This change coincides with the 
alternative proposed Sec.  1026.19(f)(1)(v), which permits the closing 
agent to deliver the Closing Disclosure in place of the creditor. If 
the alternative permitting the closing agent to deliver the Closing 
Disclosure is not adopted, the closing agent reference in the proposed 
edit to comment 28(a)-1 will not be adopted.
    The Bureau notes that proposed Sec.  1026.28 and associated 
commentary do not incorporate the language in RESPA section 18 and 
Regulation X Sec.  1024.13(b) providing that the Bureau may not 
determine that any State law is inconsistent with any RESPA provision 
if the Bureau determines that such law or regulation gives greater 
protection to the consumer. However, the Bureau believes that proposed 
Sec.  1026.28 is consistent with RESPA section 18. Specifically, a 
State disclosure is likely to confuse consumers if it uses the same 
term to represent a different amount or a different meaning than, or if 
it requires the use of a different term to describe the same item as, 
the integrated mortgage disclosures developed in this rulemaking 
through extensive consumer testing. Accordingly, for purposes of this 
rulemaking, the Bureau believes that such State disclosures generally 
do not provide greater protection for consumers.
    Nevertheless, the Bureau intends to take a cautious case-by-case 
approach to evaluating inconsistency under RESPA section 18. The Bureau 
also intends to consult with other Federal agencies, as appropriate, 
within the scope of RESPA concerning any evaluations of inconsistency 
under RESPA section 18. Furthermore, the Bureau emphasizes that nothing 
in this proposed rule is intended to preempt State laws that offer 
greater substantive consumer protections than those provided under 
sections 4 and 5 of RESPA \153\ and Sec. Sec.  1026.19(e) and (f), 
1026.37, and 1026.38 (e.g., a State law imposing stricter limits on 
closing cost increases or requiring disclosures of the final closing 
costs seven days before consummation). A more protective State law 
would not be inconsistent with such RESPA and Regulation Z provisions, 
and therefore would not be preempted by Sec.  1026.28, because a 
creditor's compliance with the more protective State law would also 
satisfy the requirements of such RESPA and Regulation Z provisions.
---------------------------------------------------------------------------

    \153\ As discussed above, proposed revised Sec.  1026.28 and 
associated commentary do not govern State law preemption questions 
arising under the RESPA section 5(c) requirements for provision of a 
list of certified homeownership counselors.
---------------------------------------------------------------------------

    The Bureau believes that the proposed revisions to the regulatory 
text and commentary to Sec.  1026.28 effectively specify whether the 
Regulation Z or RESPA State law preemption provision applies to any 
State law preemption question arising with respect to the requirements 
of sections 4 and 5 of RESPA (other than the RESPA section 5(c) 
requirements regarding provision of a list of certified homeownership 
counselors) and proposed Sec. Sec.  1026.19(e) and (f), 1026.37, and 
1026.38.
Section 1026.29 State Exemptions
    TILA has several provisions that permit the Bureau to grant State 
exemptions from certain TILA disclosure provisions. Section 111(a)(2) 
allows the Bureau, upon its own motion

[[Page 51189]]

or upon the request of any creditor, State, or other interested party 
that is submitted in accordance with procedures prescribed in 
regulations of the Bureau, to determine whether any disclosure required 
under any State law is substantially the same in meaning as a 
disclosure required under TILA. 15 U.S.C. 1610(a)(2). If the Bureau 
makes such a determination, TILA section 111(a)(2) provides that 
creditors located in that State may make such disclosure in compliance 
with such State law in lieu of the TILA disclosure, except that (1) the 
annual percentage rate and finance charge must be disclosed as required 
by section 122 of TILA, and (2) State-required disclosures may not be 
made in lieu of the high-cost mortgage disclosures under section 129 of 
TILA. Section 123 of TILA allows the Bureau by regulation to exempt any 
class of credit transactions within any State from the requirements of 
chapter 2 of TILA (Credit transactions) if the Bureau determines that 
the law of the State subjects the class of transactions to requirements 
substantially similar to those imposed under chapter 2 of TILA, and 
that there is adequate provision for enforcement.\154\ 15 U.S.C. 1633.
---------------------------------------------------------------------------

    \154\ Section 171(b) of TILA also addresses State exemptions and 
contains nearly identical language to section 123, but section 
171(b) applies with respect to TILA chapter 4 (credit billing), 
which is not affected by this rulemaking. 15 U.S.C. 1661j(b).
---------------------------------------------------------------------------

    Regulation Z Sec.  1026.29 and appendix B to part 1026 implement 
the TILA State exemption provisions.\155\ Pursuant to Sec.  1026.29(a), 
a State may apply to the Bureau to exempt a class of transactions 
within the State from the requirements of chapter 2 (Credit 
transactions) or chapter 4 (Credit billing) of TILA and the 
corresponding provisions of Regulation Z. The Bureau shall grant an 
exemption if it determines that (1) the State law is substantially 
similar to the Federal law or, in the case of chapter 4 of TILA, 
affords the consumer greater protection than the Federal law, and (2) 
there is adequate provision for enforcement. Comment 29(a)-2 clarifies 
that State law is ``substantially similar'' for purposes of Sec.  
1026.29(a) if the State statutory or regulatory provisions and State 
interpretations of those provisions are generally the same as TILA and 
Regulation Z. Comment 29(a)-3 clarifies that, generally, there is 
adequate provision for enforcement if appropriate State officials are 
authorized to enforce the State law through procedures and sanctions 
comparable to those available to Federal enforcement agencies. Comment 
29(a)-4 states that the Bureau recognizes certain TILA exemptions 
granted by the Federal Reserve Board to Maine, Connecticut, 
Massachusetts, Wyoming, and Oklahoma prior to July 21, 2011, until and 
unless the Bureau makes and publishes any contrary determination. 
Comment 29(a)-4.i through -4.v currently provides, in relevant part, 
that credit transactions in these five States that are subject to the 
State consumer credit codes or truth in lending acts enumerated in such 
comment are exempt from the requirements of chapter 2 of TILA, which 
sets forth, among other provisions, the disclosure requirements for 
closed-end mortgages. The specific procedures for requesting a State 
exemption are set forth in Sec.  1026.29(c) and appendix B to part 
1026. Appendix B states, among other things, that the Bureau reserves 
the right to revoke an exemption if at any time it determines that the 
standards required for an exemption are not met.
---------------------------------------------------------------------------

    \155\ As noted earlier, Sec.  1026.28(b) generally permits a 
creditor, State, or other interested party to request that the 
Bureau determine whether a State-required disclosure is 
substantially the same in meaning as a TILA disclosure, and if the 
Bureau makes such a determination, creditors in the State can 
provide the State-required disclosure in lieu of the TILA 
disclosure. Comment 28(b)-1 clarifies that under Sec.  1026.28, a 
State disclosure can be substituted for a Federal disclosure only 
after a determination of substantial similarity.
---------------------------------------------------------------------------

    Unlike TILA, RESPA does not contain a State exemption provision for 
credit transactions subject to RESPA. Rather, as discussed above with 
respect to Sec.  1026.28, section 18 of RESPA and Regulation X Sec.  
1024.13 provide that State laws that are inconsistent with RESPA or 
Regulation X are preempted to the extent of the inconsistency. 12 
U.S.C. 2616; 12 CFR 1024.13.
    As noted above, sections 1032(f), 1098, and 1100A of the Dodd-Frank 
Act require the Bureau to propose for public comment, rules and forms 
that combine the disclosures required under TILA and sections 4 and 5 
of RESPA into a single, integrated disclosure for mortgage loan 
transactions covered by those laws. However, the Dodd-Frank Act did not 
address a number of inconsistencies between TILA and RESPA that affect 
the provision of the integrated mortgage disclosures, including 
inconsistent provisions regarding the application of State law. In 
order to meet the Dodd-Frank Act's mandate, the proposed rule must 
reconcile the State exemption provisions.
    Accordingly, pursuant to its authority under Dodd-Frank Act section 
1032(f), TILA section 105(b), and RESPA section 19(a) as well as its 
authority under TILA section 105(a) and RESPA section 19(a) to make 
rules consistent with the purposes of those statutes, the Bureau is 
proposing to require that the TILA State exemption provision apply to 
transactions subject to proposed Sec.  1026.19(e) and (f) (i.e., all 
closed-end consumer credit transactions secured by real property, other 
than a reverse mortgage). By applying the TILA State exemption 
provision to transactions subject to Sec.  1026.19(e) and (f), rather 
than the RESPA State preemption provision (which is silent as to the 
granting of State exemptions under RESPA), this requirement would cover 
all closed-end consumer credit transactions secured by real property 
that are covered by the proposed rule, including those subject to 
RESPA. The Bureau believes this is consistent with the intent of TILA's 
State exemption provision and the integrated disclosure mandate in 
Dodd-Frank Act section 1032(f), TILA section 105(b), and RESPA section 
19(a) because it allows States to maintain their existing exemptions so 
long as consumers receive disclosures and protections that are 
substantially similar to those in the proposed rule. Furthermore, using 
the TILA State law exemption provision for transactions subject to 
Sec.  1026.19(e) and (f) will facilitate compliance with the disclosure 
requirements of TILA and RESPA and promote the informed use of credit 
and more effective advance notice of settlement costs since creditors, 
consistent with TILA section 105(a) and RESPA section 19(a), by 
applying a consistent standard to those transactions.
    To effectuate this change, the Bureau is proposing two substantive 
modifications to the commentary to Sec.  1026.29, in addition to 
relabeling some of the section numbering and lettering. First, proposed 
revised comment 29(a)-2 modifies the guidance regarding the 
``substantially similar'' standard set forth in Sec.  1026.29(a)(1) 
(i.e., one of the two preconditions to the granting of an exemption). 
Proposed revised comment 29(a)-2 clarifies that, in order for 
transactions that would otherwise be subject to the integrated 
disclosures required by Sec.  1026.19(e) and (f) to be exempt from 
those disclosure requirements, the State statutory or regulatory 
provisions and State interpretations of those provisions must require 
disclosures that are generally the same as those prescribed by Sec.  
1026.19(e) and (f), in the forms prescribed by Sec. Sec.  1026.37 and 
1026.38. This means that, in order for an existing State exemption to 
be maintained, the State's law must require disclosures that are 
generally the same as the integrated disclosures, including the RESPA 
content.
    Second, proposed revised comment 29(a)-4 states that, although 
RESPA and Regulation X do not provide procedures

[[Page 51190]]

for State exemptions, for transactions subject to Sec.  1026.19(e) and 
(f), compliance with the requirements of Sec. Sec.  1026.19(e) and (f), 
1026.37, and 1026.38 satisfies the requirements of sections 4 and 5 of 
RESPA (other than the RESPA section 5(c) requirements regarding 
provision of a list of certified homeownership counselors). 
Furthermore, the proposed revised comment states that if the 
transaction is subject to a previously-granted State exemption, then 
compliance with the requirements of any State laws and regulations 
incorporating the requirements of Sec. Sec.  1026.19(e) and (f), 
1026.37, and 1026.38 likewise satisfies the requirements of sections 4 
and 5 of RESPA (other than the RESPA section 5(c) requirements 
regarding provision of a list of certified homeownership counselors). 
Thus, in Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming, 
creditors, mortgage brokers, and settlement agents, as applicable, may 
satisfy sections 4 and 5 of RESPA (other than the RESPA section 5(c) 
requirements regarding provision of a list of certified homeownership 
counselors) through compliance with State law so long as the 
``substantially similar'' State statutory and regulatory provisions 
(i.e., the State consumer codes or truth in lending acts enumerated in 
comment 29(a)-4.1 through -4.v, as applicable) expressly mandate 
delivery of the integrated mortgage disclosures required by the Dodd-
Frank Act and implemented by the proposed rule.
    The Bureau believes that the proposed revisions to the commentary 
to Sec.  1026.29 effectively reconcile the conflicting TILA and RESPA 
provisions by clarifying the standards for the Bureau's granting of 
exemptions from certain relevant TILA and RESPA provisions going 
forward. The proposed revisions also clarify how compliance with 
sections 4 and 5 of RESPA (other than the RESPA section 5(c) 
requirements regarding provision of a list of certified homeownership 
counselors) may be accomplished with respect to transactions subject to 
the previously-granted TILA exemptions in light of the Dodd-Frank Act's 
mandate to integrate the mortgage disclosures under TILA and sections 4 
and 5 of RESPA. Finally, the proposed revisions do not change the 
existing language in comment 29(a)-4 and appendix B to part 1026 
reserving the Bureau's right to make and publish any contrary 
determination regarding State exemptions previously granted by the 
Federal Reserve Board and, more generally, to revoke State exemptions 
if the standards for granting them are no longer met.
    The Bureau understands these proposed changes will likely require 
some of the five States previously granted State exemptions under 12 
CFR 226.29, the predecessor to Sec.  1026.29, to change their laws and/
or regulations, which may be a lengthy process.\156\ This is because to 
the extent the ``substantially similar'' State laws and regulations 
underlying the TILA State exemptions do not currently require the 
integrated disclosures mandated by the Dodd-Frank Act (specifically, 
the portions mandated by RESPA), there is a gap in these States' 
current statutory and regulatory regimes that must be filled in order 
to maintain the State exemptions. As such, the Bureau hereby solicits 
comment on the amount of time that will be needed for these States to 
change their laws and/or regulations.
---------------------------------------------------------------------------

    \156\ While these proposed changes may require some of these 
five States to change their laws and/or regulations, others 
incorporate TILA and Regulation Z into their State laws and/or 
regulations by reference. Therefore, the Bureau anticipates that 
these other States should not have to take any action to maintain 
their existing exemptions directly as a result of this proposed 
rule.
---------------------------------------------------------------------------

Section 1026.37 Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)
    Proposed Sec.  1026.37 sets forth the required content of the 
integrated Loan Estimate disclosures, required by proposed Sec.  
1026.19(e) to be provided to a consumer within three business days of 
the creditor's receipt of the consumer's application.
    As discussed above, the Loan Estimate integrates the disclosures 
currently provided in the RESPA GFE and the early TILA disclosure. In 
addition, the Loan Estimate integrates several disclosures that would 
otherwise be provided separately under various Federal laws. The Bureau 
believes the three-page Loan Estimate integrates at least seven pages 
of disclosures. Specifically, the Loan Estimate incorporates: (i) three 
pages of the RESPA GFE; (ii) two pages typically used for the early 
TILA disclosure; (iii) one page typically used for the appraisal 
notification provided under ECOA section 701(e); and (iv) one page 
typically used for the servicing disclosure provided under RESPA 
section 6. In addition, the Loan Estimate incorporates the disclosure 
of: (i) The total interest percentage under TILA section 128(a)(19), 
which was added by section 1419 of the Dodd-Frank Act; (ii) the 
aggregate amount of loan charges and closing costs the consumer must 
pay at consummation under TILA section 128(a)(17), which was added by 
section 1419 of the Dodd-Frank Act; (iii) for refinance transactions, 
the anti-deficiency protection notice under TILA section 129C(g)(3), 
which was added by section 1414(c) of the Dodd-Frank Act; and (iv) the 
homeowner's insurance disclosure in TILA section 106(c) and Sec.  
1026.4(d)(2)(i), which is required to exclude homeowner's insurance 
premiums from the finance charge. In absence of the Bureau's 
integration of the early TILA disclosure and the RESPA GFE, some these 
new disclosures would have been added to the early TILA disclosure, 
which potentially could have increased that disclosure's typical two 
pages to three pages.
    Proposed Sec.  1026.37 provides that the information set forth in 
Sec.  1026.37(a) through (n) shall be disclosed ``as applicable.'' The 
Bureau is proposing a new comment 37-1 to clarify that a disclosure 
that is not applicable to a transaction generally may be eliminated 
entirely or may be included but marked ``not applicable'' or ``N/A.''
    As discussed below, proposed Sec.  1026.37(o) provides rules for 
the form of the disclosures required by Sec.  1026.37(a) through (n). 
Proposed comment 37-2 directs creditors to Sec.  1026.37(o) and its 
commentary for guidance on format and permissible modifications to the 
form of the disclosures.
37(a) General Information
    The Bureau proposes Sec.  1026.37(a), which combines and modifies 
disclosures currently provided under Regulations X and Z and adds 
additional disclosures in the Loan Estimate for transactions subject to 
proposed Sec.  1026.19(e). For the reasons discussed below and 
consistent with TILA section 105(a), RESPA section 19(a), and the 
purposes of those statutes, proposed Sec.  1026.37(a) will promote the 
informed use of credit and more effective advance disclosure of 
settlement costs. In addition, proposed Sec.  1026.37(a) will enable 
consumers to better understand the costs, benefits, and risks 
associated with mortgage transactions, consistent with Dodd-Frank Act 
section 1032(a). Furthermore, proposed Sec.  1026.37(a) will improve 
consumer awareness and understanding of transactions involving 
residential mortgage loans and is therefore in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b).

[[Page 51191]]

37(a)(1) Form Title
    Although the Dodd-Frank Act requires the Bureau to combine the TILA 
and RESPA mortgage disclosures that are currently provided to consumers 
within three business days after application, the Act does not 
prescribe a title for the integrated form. Under Sec.  1024.2(b) of 
Regulation X, the form providing consumers with the RESPA good faith 
estimate of settlement charges they are likely to incur is called the 
``Good Faith Estimate'' or ``GFE.'' Regulation Z does not prescribe a 
name for the TILA good faith estimate required by Sec.  1026.19(a)(1), 
although comment 17(a)(1)-5.ix permits the creditor to provide ``[a] 
brief caption identifying the disclosures'' and provides as examples of 
acceptable titles, ``Federal Truth in Lending Disclosures'' and ``Real 
Estate Loan Disclosures.''
    Proposed Sec.  1026.37(a)(1) requires the creditor to use the term 
``Loan Estimate'' as the title of the integrated disclosures creditors 
provide pursuant to proposed Sec.  1026.19(e). The Bureau believes the 
adoption of a standardized form name may eliminate confusion for 
consumers seeking to compare estimates for different loans and thereby 
promote the informed use of credit and more effective advance notice of 
settlement costs, consistent with TILA section 105(a) and RESPA section 
19(a), and will enable consumers to better understand the costs, 
benefits, and risks associated with mortgage transactions, consistent 
with Dodd-Frank Act section 1032(a). In addition, the use of standard 
terminology for the integrated disclosures will facilitate compliance 
for industry, which is a purpose of this rulemaking under Dodd-Frank 
Act sections 1098 and 1100A.
37(a)(2) Form Purpose
    Proposed Sec.  1026.37(a)(2) requires the creditor to include a 
statement regarding one of the primary uses of the Loan Estimate for 
consumers, which is to compare with the Closing Disclosure to verify 
the loan terms and costs. Specifically, proposed Sec.  1026.37(a)(2) 
requires the creditor to provide the following statement at the top of 
all Loan Estimates, ``Save this Loan Estimate to compare with your 
Closing Disclosure.'' The proposed language may benefit consumers and 
promote the informed use of credit by encouraging consumers to use the 
Loan Estimate as a tool to help them readily identify any changes to 
the loan transaction or costs that may have occurred between issuance 
of the initial Loan Estimate and the Closing Disclosure.
    Requiring creditors to disclose the purpose for the Loan Estimate 
and related disclosures is not a new requirement. Appendix C of 
Regulation X currently requires specific language regarding the purpose 
of the GFE.\157\ And while the Bureau's proposed language differs from 
that prescribed by HUD, the Bureau believes that the disclosure in 
proposed Sec.  1026.37(a)(2) accomplishes the same goal in a clearer 
and more succinct manner. Accordingly, this disclosure promotes the 
informed use of credit and more effective advance notice of settlement 
costs, consistent with TILA section 105(a) and RESPA section 19(a), and 
will enable consumers to better understand the costs, benefits, and 
risks associated with mortgage transactions, consistent with Dodd-Frank 
Act section 1032(a).
---------------------------------------------------------------------------

    \157\ Appendix C to Regulation X requires the following 
statement on the GFE under the heading ``Purpose'': ``This GFE gives 
you an estimate of your settlement charges and loan terms if you are 
approved for this loan. For more information, see HUD's Special 
Information Booklet on settlement charges, your Truth-in-Lending 
Disclosures, and other consumer information at www.hud.gov/respa. If 
you decide you would like to proceed with this loan, contact us.''
---------------------------------------------------------------------------

37(a)(3) Creditor
    TILA section 128(a)(1) requires disclosure of the ``identity of the 
creditor required to make [the] disclosure.'' 15 U.S.C. 1638(a)(1). 
Regulation Z Sec.  1026.18(a) implements TILA section 128(a)(1) and 
requires for each transaction the identity of the creditor making the 
disclosure. HUD imposed a similar requirement in appendix C to 
Regulation X, requiring the name and contact information for the ``loan 
originator.''
    Pursuant to TILA section 105(a), RESPA section 19(a), and Dodd-
Frank Act section 1032(a), proposed Sec.  1026.37(a)(3) mirrors Sec.  
1026.18(a) and requires the name of the creditor making the disclosure. 
By allowing the consumer to identify the name of the creditor providing 
the Loan Estimate, this disclosure will promote the informed use of 
credit and more effective advance notice of settlement costs and will 
enable consumers to better understand the costs, benefits, and risks 
associated with mortgage transactions.
    Proposed comment 1026.37(a)(3)-1 cross-references Sec.  1026.17(d) 
and comment 17(d)-1 and clarifies that, in transactions with multiple 
creditors, only the creditor making the disclosure must be identified. 
Proposed comment 37(a)(3)-2 states that, in transactions where the loan 
is originated by a mortgage broker, the name of the creditor, if known, 
must still be provided even if the mortgage broker provides the 
disclosure to the consumer.
37(a)(4) Date Issued
    Appendix C to Regulation X requires creditors to provide the date 
of the GFE. Proposed Sec.  1026.37(a)(4) mirrors this requirement by 
mandating disclosure of the date the Loan Estimate is mailed or 
delivered to the consumer. Proposed comment 1026.37(a)-1 clarifies that 
the ``date issued'' is the date the creditor delivers the Loan Estimate 
to the consumer and is not affected by the creditor's method of 
delivery.
    The Bureau is proposing this requirement pursuant to its authority 
under TILA section 105(a) and RESPA section 19(a) because disclosure of 
the date the Loan Estimate is issued will promote the informed use of 
credit and more effective advance disclosure of settlement costs, which 
are purposes of TILA and RESPA respectively, by enabling consumers to 
compare the Loan Estimate with any revised Loan Estimates that may be 
issued. In addition, this comparison will enable consumers to identify 
changes in loan terms and costs and thereby understand the costs, 
benefits, and risks associated with the mortgage transaction, 
consistent with Dodd-Frank Act section 1032(a).
37(a)(5) Applicants
    Appendix C to Regulation X requires disclosure of the name of the 
applicants for the mortgage loan transaction. Similarly, pursuant to 
TILA section 105(a), RESPA section 19(a), and Dodd-Frank Act section 
1032(a), proposed Sec.  1026.37(a)(5) requires creditors to disclose 
the name of the applicants for the loan transaction. By enabling 
consumers to confirm that the Loan Estimate is intended for them, this 
disclosure will promote the informed use of credit and more effective 
advance notice of settlement costs and will enable consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions. Proposed comment 37(a)(5)-1 clarifies that the names of 
all applicants for the mortgage loan must be disclosed on the form and 
that if the form cannot accommodate the names of all the applicants, 
the creditor may attach to the back of the form a separate page listing 
the remaining applicants.
37(a)(6) Property
    Appendix C to Regulation X requires at the top of the GFE the 
``address or location of the property'' for which the financing is 
sought. The Bureau proposes to use its authority in TILA

[[Page 51192]]

section 105(a), RESPA section 19(a), and section 1032(a) of the Dodd-
Frank Act to impose a similar requirement for the Loan Estimate 
required by proposed Sec.  1026.19(e). The Bureau believes that, by 
providing the consumer with basic information about the property that 
is the subject of the loan transaction, this disclosure will promote 
the informed use of credit and more effective advance notice of 
settlement costs and will enable consumers to better understand the 
costs, benefits, and risks associated with mortgage transactions.
    Accordingly, proposed Sec.  1026.37(a)(6) requires the creditor to 
disclose the street address or location of the property that secures 
the transaction that is the subject of the Loan Estimate. Proposed 
comment 37(a)(6)-1 instructs creditors to provide a legal description 
or other locator for the property in cases where there is no street 
address. The proposed comment also clarifies that a zip code would be 
required in all instances.
37(a)(7) Sale Price
    Proposed Sec.  1026.37(a)(7)(i) requires disclosure of the contract 
sale price for the property identified in proposed Sec.  1026.37(a)(6). 
For transactions that do not involve a seller, proposed Sec.  
1026.37(a)(7)(ii) requires disclosure of the estimated value for the 
property identified in proposed Sec.  1026.37(a)(6). Proposed comment 
37(a)(7)-1 provides guidance regarding the requirement to provide the 
estimated value of the property, if a creditor has performed its own 
estimate or obtained an appraisal or valuation of the property.
    The disclosure of the contract sale price and estimated property 
value, as applicable, is a new requirement, which the Bureau proposes 
pursuant to its authority under TILA section 105(a), RESPA section 
19(a), and section 1032(a) of the Dodd-Frank Act for transactions 
subject to proposed Sec.  1026.19(e). The Bureau believes that 
including the contract sales price or estimated property value in the 
Loan Estimate will help promote the informed use of credit and more 
effective advance notice of settlement costs and will enable consumers 
to better understand the costs, benefits, and risks associated with 
mortgage transactions by ensuring that consumers have in a single 
location all the information needed to decide whether to enter into a 
legal obligation.
37(a)(8) Loan Term
    Existing appendix C to Regulation X requires the loan originator to 
disclose the loan term as part of the ``Summary of Your Loan'' 
disclosure. Regulation Z does not have a similar requirement, although 
TILA provides for such a disclosure.\158\ Proposed Sec.  1026.37(a)(8) 
essentially mirrors appendix C to Regulation X and requires the 
creditor to disclose the term to maturity of the credit. The prototype 
mortgage disclosures used at the Bureau's consumer testing displayed 
this in terms of years, and consumers were able to understand and 
evaluate easily the term to maturity. The Bureau believes that this 
unit of time provides a frame of reference to consumers that they use 
more regularly and that is easier to understand than months, which may 
result in large numbers that are unfamiliar to consumers, such as 180 
or 360 months. Accordingly, proposed Sec.  1026.37(a)(8) requires the 
loan term to be expressed in years.
---------------------------------------------------------------------------

    \158\ TILA section 128(a)(6) requires disclosure of the 
``number, amount, and due dates or period'' of periodic payments 
which, in effect, makes disclosure of the loan term a statutory 
requirement. Section 1026.18(g) implements TILA section 128(a)(6) 
for non-mortgage transactions, but there is no corresponding 
disclosure requirement for mortgage loan transactions in existing 
Sec.  1026.18(s). In this proposal, the Bureau intends to implement 
TILA section 128(a)(6) by requiring disclosure of the loan term for 
mortgages in proposed Sec.  1026.37(a)(8).
---------------------------------------------------------------------------

    The Bureau understands from industry feedback provided in 
connection with the Bureau's stakeholder outreach that some adjustable 
rate loans may be structured so that the periodic principal and 
interest payment is fixed and increases in the interest rate increase 
the loan term instead of the payment. Accordingly, proposed comment 
37(a)(8)-1 provides guidance regarding compliance with the requirement 
of proposed Sec.  1026.37(a)(8) if the term to maturity is adjustable 
under the terms of the legal obligation.
    The Bureau proposes Sec.  1026.37(a)(8) pursuant to its authority 
under TILA section 105(a), RESPA section 19(a), and section 1032(a) of 
the Dodd-Frank Act to implement TILA section 128(a)(6) and because 
disclosing the loan term will help promote the informed use of credit 
and more effective advance notice of settlement costs and will enable 
consumers to better understand the costs, benefits, and risks 
associated with mortgage transactions.
37(a)(9) Purpose
    Neither Regulation Z nor Regulation X currently requires disclosure 
of the purpose of the loan. With the number of loan products available 
on the market, some of which are targeted for a particular purpose, 
inclusion of this information on the Loan Estimate will promote the 
informed use of credit and more effective advance notice of settlement 
costs and will enable consumers to better understand the costs, 
benefits, and risks associated with mortgage transactions. Accordingly, 
the Bureau proposes to use its authority under TILA section 105(a), 
RESPA section 19(a), and section 1032(a) of the Dodd-Frank Act to 
require creditors to disclose the intended purpose of the extension of 
credit.
    Under proposed Sec.  1026.37(a)(9), the creditor is required to 
disclose as the purpose of the loan one of the following: (1) Purchase; 
(2) refinance; (3) construction; or (4) home equity loan. Proposed 
comment 37(a)(9)-1 provides general guidance on identifying the most 
accurate loan purpose and clarifies that, in disclosing the loan 
purpose, the creditor must consider all relevant information available 
to the creditor at the time of the disclosure and that, if there is 
uncertainty, the creditor may rely on the consumer's stated purpose. 
The Bureau seeks comment on whether additional loan purposes should be 
added to Sec.  1026.37(a)(9).
37(a)(9)(i) Purchase
    If the credit is to finance the acquisition of the property that is 
the subject of the loan transaction, proposed Sec.  1026.37(a)(9)(i) 
requires the creditor to disclose that the loan is a ``Purchase.'' 
Proposed comment 37(a)(9)-1.i clarifies the meaning of the term 
``purchase.''
37(a)(9)(ii) Refinance
    Proposed Sec.  1026.37(a)(9)(ii) requires the creditor to disclose 
that the loan is for a ``Refinance'' if, consistent with Sec.  
1026.20(a) other than with regard to the identity of the creditor, the 
credit is to refinance an existing obligation already secured by the 
property that is the subject of the transaction. Like Sec.  1026.20(a), 
whether a transaction is a refinancing under proposed Sec.  
1026.37(a)(9)(ii) depends on whether the original obligation has been 
satisfied or extinguished and replaced by a new obligation, based on 
the parties' contract and applicable law. This may include an 
obligation under which amounts other than principal remain due under 
the existing obligation and are to be paid with the new obligation to 
satisfy the existing obligation. Proposed comment 37(a)(9)-1.ii 
clarifies the meaning of the term ``refinance'' and that the consumer 
may or may not receive cash from the transaction. Proposed comment 
37(a)(9)(ii)-1.ii also provides a description of a refinancing with and 
without cash provided and provides an example of how a consumer may use 
cash received in a refinancing transaction with cash provided. Proposed 
comment 37(a)(9)-2 also

[[Page 51193]]

clarifies that proposed Sec.  1026.37(a)(9)(ii), unlike Sec.  
1026.20(a), applies to all such transactions even if the refinancing is 
undertaken by a new creditor.
37(a)(9)(iii) Construction
    If the extension of credit is to finance the construction of a 
dwelling on the property, proposed Sec.  1026.37(a)(9)(iii) requires 
the creditor to disclose that the loan is for ``Construction.'' 
Proposed comment 37(a)(9)-1.iii clarifies that the creditor is required 
to disclose that the loan is for ``construction'' both in transactions 
where the extension of credit is to cover the costs of a construction 
project only (``construction-only'' loan), whether it is a new 
construction or a renovation project, and in transactions where a 
multiple advance loan may be permanently financed by the same creditor 
(``construction-to-permanent'' loan). The proposed comment also 
clarifies that, in construction-only transactions, the consumer may be 
required to make interest-only payments during the construction phase 
of the project with the loan balance due at the completion of the 
construction project. Finally, proposed comment 37(a)(9)-1.iii cross-
references Sec.  1026.17(c)(6)(ii) and comments 17(c)(6)-2 and -3 for 
further guidance regarding construction-to-permanent transactions.
37(a)(9)(iv) Home Equity Loan
    If the extension of credit does not involve the purchase of real 
property as described in proposed Sec.  1026.37(a)(9)(i) or the 
construction of a dwelling as described in proposed Sec.  
1026.37(a)(9)(iii) and will not be used to refinance an existing 
obligation as described in proposed Sec.  1026.37(a)(9)(ii), proposed 
Sec.  1026.37(a)(9)(iv) requires the creditor to state that the 
extension of credit is for a ``Home Equity Loan.'' Proposed comment 
37(a)(9)(iv)-1.iv clarifies that the home equity loan disclosure 
applies whether the transaction will be secured by a first or 
subordinate lien on the property.
37(a)(10) Product
    Pursuant to TILA section 128(b)(2)(C)(ii), under existing Sec.  
1026.18(s), the creditor is required to provide certain information 
about the interest rate and payments, which is based on the loan 
product. In proposed Sec.  1026.37(a)(10), the Bureau requires a 
description of the loan product. The Bureau proposes this new 
requirement pursuant to its authority under TILA section 105(a), RESPA 
section 19(a), section 1032(a) of the Dodd-Frank Act, and section 
1405(b) of the Dodd-Frank Act with respect to residential mortgage 
loans. The Bureau believes that requiring the disclosure of the loan 
product on the Loan Estimate promotes the informed use of credit and 
more effective advance disclosure of settlement charges by providing 
consumers with key loan terms early in the transaction and in a clear 
and conspicuous manner. This disclosure also enables consumers to 
better understand the costs, benefits, and risks associated with 
mortgage transactions. In addition, the disclosure of the loan product 
may improve consumer awareness and understanding of transactions 
involving residential mortgage loans through the use of disclosures, 
and is in the interest of consumers and in the public interest.
    Specifically, proposed Sec.  1026.37(a)(10)(i) requires the 
creditor to identify the type of loan product for which the consumer 
has applied and proposed Sec.  1026.37(a)(10)(ii) requires a 
description of certain loan features added to the loan product that may 
change the consumer's periodic payment. Proposed Sec.  
1026.37(a)(10)(iii) provides instructions on how to disclose loan 
products that contain one or more loan features, states that the 
creditor may disclose only one loan feature, and cross-references 
proposed Sec.  1026.37(a)(10)(ii) as establishing the following 
hierarchy to be adhered to when disclosing a loan product with more 
than one loan feature: (1) Negative amortization; (2) interest-only; 
(3) step payment; and (4) balloon payment. Proposed Sec.  
1026.37(a)(10)(iv) requires that the disclosure of any loan product or 
loan feature be preceded by any introductory rate periods, adjustable 
features, and applicable time periods. This aspect of the proposal 
would not apply to fixed rate loans with no additional features. 
Finally, comments to proposed Sec.  1026.37(a)(10) provide further 
descriptions and examples of the loan products and features to be 
disclosed, as discussed below.
37(a)(10)(i)
    Proposed Sec.  1026.37(a)(10)(i) requires disclosure of one of the 
following as the product for which the consumer has applied:
37(a)(10)(i)(A) Adjustable Rate
    If the annual percentage rate may increase after consummation, but 
the rates that will apply or the periods for which they will apply are 
not known at consummation, proposed Sec.  1026.37(a)(10)(i)(A) requires 
that the loan be disclosed as an ``Adjustable Rate.'' Proposed comment 
37(a)(10)-1.i clarifies the proper format for disclosure of an 
adjustable-rate product.
37(a)(10)(i)(B) Step Rate
    Under proposed Sec.  1026.37(a)(10)(i)(B), the loan product is 
required to be disclosed as a ``Step Rate'' if the interest rate will 
change after consummation and the applicable rates and the periods for 
the applicable rates are known. Proposed comment 37(a)(10)-1.ii 
clarifies that the proper format for disclosure of a step-rate product.
37(a)(10)(i)(C) Fixed Rate
    Proposed Sec.  1026.37(a)(10)(i)(C) requires the creditor to 
disclose the loan product as a ``Fixed Rate'' if the product is neither 
an Adjustable Rate nor a Step Rate, as described in Sec.  
1026.37(a)(10)(i)(A) and (B), respectively. Proposed comment 37(a)(10)-
1.iii provides guidance regarding the disclosure required by Sec.  
1026.37(a)(10)(i)(C).
37(a)(10)(ii)
    Proposed Sec.  1026.37(a)(10)(ii) requires the disclosure of loan 
features that may change the consumer's periodic payment. As noted 
above, although structured differently, Sec.  1026.18(s) requires a 
similar disclosure. Proposed Sec.  1026.37(a)(10)(ii) requires the 
consumer to disclose one of the following features, as applicable: 
Negative amortization, interest-only, step payment, balloon payment, or 
seasonal payment. Proposed comment 37(a)(10)-2 clarifies the 
requirements of Sec.  1026.37(a)(10)(iii) and (iv) with respect to the 
feature that is disclosed and the time period or the length of the 
introductory period and the frequency of the adjustment periods, as 
applicable, that preceded the feature. For example: an adjustable-rate 
product with an introductory rate that is interest-only for the first 
five years and then adjusts every three years starting in year six 
would be disclosed as ``5 Year Interest Only, 5/3 Adjustable Rate''; a 
step-rate product with an introductory interest rate that lasts for 
seven years, and adjusts every year thereafter for the next five years 
at a predetermined rate would be disclosed as ``7/1 Step Rate''; and a 
fixed rate product that is interest-only for ten years with a balloon 
payment due at the end of the ten-year period would be disclosed as 
``10 Year Interest Only, Fixed Rate.'' The balloon payment feature, 
however, would be disclosed elsewhere on the form as described in the 
section-by-section analysis of proposed Sec.  1026.37(b) and (c).

[[Page 51194]]

37(a)(10)(ii)(A) Negative Amortization
    Proposed Sec.  1026.37(a)(10)(ii)(A) requires that the creditor 
disclose a ``Negative Amortization'' loan feature if, under the terms 
of the legal obligation, the loan balance may increase. Proposed 
comment 37(a)(10)-2.i provides an example of the disclosure of a loan 
product with a negative amortization feature.
37(a)(10)(ii)(B) Interest Only
    Proposed Sec.  1026.37(a)(10)(ii)(B) requires that the creditor 
disclose an ``Interest Only'' loan feature if, under the legal 
obligation, one or more regular periodic payments may be applied only 
to interest accrued and not to the loan principal. Proposed comment 
37(a)(10)-2.ii provides an example of the disclosure of a loan product 
with an interest only feature.
37(a)(10)(ii)(C) Step Payment
    Proposed Sec.  1026.37(a)(10)(ii)(C) requires that the creditor 
disclose a ``Step Payment'' loan feature if the terms of the legal 
obligation include a feature that involves scheduled variations in the 
periodic payment during the term of the loan that are not caused by 
changes in the interest rate. Proposed comment 37(a)(10)-2.iii 
clarifies that the term ``step payment'' is sometimes also called a 
``graduated payment'' and provides an example and guidance on the 
format to be used when disclosing a loan product with a Step Payment 
feature.
37(a)(10)(ii)(D) Balloon Payment
    Proposed Sec.  1026.37(a)(10)(ii)(D) requires that the creditor 
disclose a ``Balloon Payment'' loan feature if the transaction includes 
a balloon payment as defined in proposed Sec.  1026.37(b)(5). Proposed 
comment 37(a)(10)-2.iv clarifies that the term ``balloon payment'' has 
the same meaning as in proposed Sec.  1026.37(b)(5) and provides 
further guidance on the format to be used when disclosing a loan 
product with a balloon payment feature.
37(a)(10)(ii)(E) Seasonal Payment
    Proposed Sec.  1026.37(a)(10)(ii)(E) requires that the creditor 
disclose whether the terms of the legal obligation expressly provide 
that regular periodic payments are not scheduled for specified unit-
periods on a regular basis, disclosed as a ``Seasonal Payment'' 
feature. The Bureau understands from industry feedback provided in 
connection with the Bureau's stakeholder outreach that some loans, 
which may be more prevalent in the community bank market, may be 
structured so that periodic principal and interest payments are not 
scheduled to be made by the consumer in between specified unit-periods 
on a regular basis. For example, such a loan may be structured so that 
payments are not required to be made by the consumer during the months 
of June through August each year of the loan term. These loans are 
sometimes called ``teacher loans.'' Accordingly, proposed Sec.  
1026.37(a)(10)(ii)(E) provides for the disclosure of such a product 
feature. Proposed comment 37(a)(10)-2.v provides guidance regarding 
this requirement.
37(a)(10)(iii)
    Proposed Sec.  1026.37(a)(10)(iii) requires that if more than one 
loan feature is applicable to the transaction, the creditor disclose 
only the first applicable loan feature from the order in which they are 
presented in proposed Sec.  1026.37(a)(10)(ii). This proposed order of 
loan features prioritizes the loan features to ensure that consumers 
receive information about potential costs and risks in a readily 
visible format, understanding that consumers will receive information 
about some applicable features elsewhere in the Loan Estimate. For 
example, the existence of a balloon payment is also disclosed under 
both proposed Sec.  1026.37(b) and (c), and thus, is later in the order 
of loan features under proposed Sec.  1026.37(a)(10)(iii). In addition, 
seasonal payments do not pose as great a risk to consumers as do 
negatively amortizing or non-amortizing payments, and thus, disclosure 
of these features is earlier than seasonal payments in the order under 
proposed Sec.  1026.37(a)(10)(iii).
37(a)(10)(iv)
    Finally, proposed Sec.  1026.37(a)(10)(iv) requires the creditor to 
include in the disclosures required by Sec.  1026.37(a)(10)(i) and (ii) 
information regarding any introductory rate period, adjustment period, 
or time period, as applicable, and that this information should precede 
both the loan product and any features disclosed, as applicable. For 
example, if the consumer applies for an adjustable-rate loan that 
includes a scheduled regular periodic payment that results in negative 
amortization in years one through three, interest-only payments in 
years four and five, and an interest rate that adjusts every two years 
after year three, the creditor would disclose the product as ``3 Year 
Negative Amortization, 3/2 Adjustable Rate.''
37(a)(11) Loan Type
    Existing appendix A to Regulation X requires disclosure of the loan 
type in section B of the RESPA settlement statement. The Bureau 
proposes to use its authority under TILA section 105(a), RESPA section 
19(a), and Dodd-Frank Act 1032(a) to require a similar disclosure. The 
types of transactions disclosed under proposed Sec.  1026.37(a)(11) may 
include different cost structures or underwriting requirements. The 
disclosure of the type of transaction enables consumers to evaluate 
whether it is the type of transaction that is best suited for their 
personal situation. The Bureau believes that including information 
regarding the type of transaction for which the consumer has applied 
will promote the informed use of credit and more effective advance 
disclosure of closing costs, and will enable consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions by providing consumers with information regarding 
important characteristics of the loan early in the transaction. 
Accordingly, under proposed Sec.  1026.37(a)(11), creditors are 
required to disclose one of the following loan types: Conventional, 
FHA, VA, or Other.
37(a)(11)(i) Conventional
    If the loan is not guaranteed or insured by a Federal or State 
government agency, proposed Sec.  1026.37(a)(11)(i) requires the 
creditor to disclose that the loan is a ``Conventional.''
37(a)(11)(ii) FHA
    If the loan is insured by the Federal Housing Administration, 
proposed Sec.  1026.37(a)(11)(ii) requires the creditor to disclose 
that the loan is a ``FHA.''
37(a)(11)(iii) VA
    If the loan is guaranteed by the U.S. Department of Veterans 
Affairs, proposed Sec.  1026.37(a)(11)(iii) requires the creditor to 
disclose that the loan is a ``VA.''
37(a)(11)(iv) Other
    For federally-insured or guaranteed loans that do not fall within 
the categories described in proposed Sec.  1026.37(a)(11)(i) through 
(iii) and loans insured or guaranteed by a State agency or other 
entity, proposed Sec.  1026.37(a)(11)(iv) requires the creditor to 
disclose the loan type as ``Other'' and provide a brief description of 
the loan. Proposed comment 1026.37(a)(11)-1 provides details on the 
type of loans that would be categorized as ``Other'' and an example of 
an acceptable description of a loan that falls within that category.

[[Page 51195]]

37(a)(12) Loan Identification Number (Loan ID )
    Appendix A to Regulation X requires the settlement agent to provide 
the ``loan number'' in the RESPA settlement statement. The Bureau 
proposes to use its authority in TILA section 105(a), RESPA section 
19(a), and Dodd-Frank Act section 1032(a) to require disclosure of the 
loan number on the Loan Estimate. The Bureau believes that including 
this information in a prominent position on the Loan Estimate will 
promote the informed use of credit and more effective advance 
disclosure of settlement costs and will enable consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions by providing consumers with access to information they may 
use repeatedly throughout the transaction.
    Accordingly, proposed Sec.  1026.37(a)(12) requires the creditor to 
provide a unique number that may be used by the lender, consumer, and 
other parties to identify the loan transaction, labeled as ``Loan ID 
.'' Proposed comment 37(a)(12)-1 clarifies that the lender has 
the discretion to create the unique loan identification number and that 
different and unrelated loan transactions with the same creditor may 
not share the same loan identification number.
37(a)(13) Rate Lock
    Existing appendix C to Regulation X requires the loan originator to 
disclose information regarding the expiration date for the interest 
rate, charges, and related terms offered by the originator in the GFE. 
The Bureau believes that this information is critical to the consumer's 
ability to understand the transaction and avoid the uninformed use of 
credit. Furthermore, disclosure of this information promotes more 
effective advance disclosure of settlement costs and will enable 
consumers to better understand the costs, benefits, and risks 
associated with mortgage transactions. Thus, the Bureau proposes to use 
its authority under TILA section 105(a), RESPA section 19(a), and Dodd-
Frank Act section 1032(a) to require creditors to provide the rate lock 
information currently provided in the RESPA GFE.
    Consistent with this requirement, proposed Sec.  1026.37(a)(13) 
requires the creditor to disclose whether the interest rate identified 
under proposed Sec.  1026.37(b)(2) has been locked by the consumer and, 
if set, proposed Sec.  1026.37(a)(13)(i) requires disclosure of the 
date and time (including the applicable time zone) the locked rate 
would expire. Proposed Sec.  1026.37(a)(13)(ii) states that the ``rate 
lock'' statement required by proposed Sec.  1026.37(a)(13) is to be 
accompanied by a statement notifying the consumer that the interest 
rate, points, and lender credits provided in the Loan Estimate are 
subject to change unless the rate has been set by the consumer and the 
date and time (including the applicable time zone) all estimated 
closing costs provided in the Loan Estimate will expire. Proposed 
comment 37(a)(13)-1 clarifies that for purposes of proposed Sec.  
1026.37(a)(13), a disclosed interest rate is set for a specific period 
of time even if subject to conditions set forth in the rate-lock 
agreement between the creditor and consumer. Proposed comment 
37(a)(13)-2 clarifies that the information provided under proposed 
Sec.  1026.37(a)(13) is required whether or not the transaction is 
consummated or the terms are otherwise not accepted or extended. 
Proposed comment 37(a)(13)-3 states that all times provided in the 
disclosure must reference the applicable time zone and provides an 
example of an appropriate disclosure of the applicable time zone.
37(b) Loan Terms
    To shop for and understand the cost of credit, consumers must be 
able to identify and understand the key loan terms offered to them. As 
discussed below, the Bureau's consumer testing suggests that the 
following are key loan terms that consumers recognize and expect to see 
on closed-end mortgage disclosures, together with their settlement 
charges: Loan amount; interest rate; periodic principal and interest 
payment; whether the loan amount, interest rate, or periodic payment 
can increase; and whether the loan has a prepayment penalty or balloon 
payment.
    TILA requires the disclosure of some of these key loan terms, but 
not all. Notably, the loan amount and interest rate are currently not 
specifically required to be disclosed by TILA section 128. 15 U.S.C. 
1638. Although Regulation Z currently requires the interest rate to be 
disclosed in the payment schedule required by Sec.  1026.18(s), it does 
not require the loan amount to be disclosed for non-HOEPA loans, and 
does not require a summary table identifying these key loan terms for 
closed-end credit secured by real property. 12 CFR 1026.18. For 
federally related mortgage loans, Sec.  1024.7(d) of Regulation X 
currently requires the GFE to contain a table on page 1, labeled 
``Summary of your loan terms,'' which contains the following 
information: (i) Initial loan amount; (ii) loan term; (iii) initial 
interest rate; (iv) initial monthly amount owed for principal, 
interest, and mortgage insurance; (v) whether the interest rate can 
rise, and if so, the maximum interest rate and the date of the first 
interest rate change; (vi) whether the loan balance can rise, and if 
so, the maximum loan balance; (vii) whether the monthly amount owed for 
principal, interest, and mortgage insurance can rise, and if so, the 
payment amount at the first change and the maximum payment; (viii) 
whether the loan has a prepayment penalty and the maximum prepayment 
penalty; and (xi) whether the loan has a balloon payment, the amount, 
and when it is due. 12 CFR 1024.7(d).
    Pursuant to its authority under TILA section 105(a), RESPA section 
19(a), and Dodd-Frank Act section 1032(a), the Bureau proposes to 
require creditors to provide the key loan terms described above in a 
summary table as part of the integrated Loan Estimate required by 
proposed Sec.  1026.19(e) for closed-end transactions secured by real 
property (other than reverse mortgages). At the Bureau's consumer 
testing, participants were able to use the summary table to identify 
and compare easily the key loan terms for different loans. Based on its 
consumer testing, the Bureau believes that a concise loan summary table 
will improve consumer understanding of the loan terms presented, such 
as an understanding of whether the consumer can afford the loan, enable 
comparisons of different credit terms offered by the same or multiple 
creditors, and enable consumers to verify information about the loan 
provided by the creditor orally or in some other form, such as a 
worksheet. The Bureau believes that this disclosure will effectuate the 
purposes of TILA by promoting the informed use of credit and assuring a 
meaningful disclosure to consumers, including more effective advance 
disclosure of settlement costs. Furthermore, consistent with section 
1032(a) of the Dodd-Frank Act, this disclosure would ensure that the 
features of consumer credit transactions secured by real property are 
fully, accurately, and effectively disclosed to consumers in a manner 
that permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances.
    The table appears under the heading ``Loan Terms'' to enhance 
visibility. The individual items of information in the table are also 
labeled to enhance visibility. The format provides consumers with a 
bold ``yes'' or ``no'' answer to the questions of whether the loan 
amount, interest rate, or periodic payment can increase, and whether 
the loan has a prepayment penalty or

[[Page 51196]]

balloon payment. The format of the Loan Terms table will help consumers 
quickly and easily identify their key loan terms.
    The Bureau proposes comment 37(b)-1 to provide additional guidance 
to creditors regarding the Loan Terms table. Proposed comment 37(b)-1 
clarifies that the Loan Terms table should reflect the terms of the 
legal obligation that the consumer will enter into, based on 
information the creditor knows or reasonably should know. A discussion 
of the specific items included in the table follows.
37(b)(1) Loan Amount
    Neither TILA nor RESPA specifically requires the disclosure of the 
loan amount for the transaction. TILA section 128(a)(2) requires 
disclosure of the amount financed, of which the principal amount of the 
loan is the most significant component, but the section does not 
require a separate disclosure of the principal amount of the loan. 15 
U.S.C. 1638(a)(2). Regulation Z Sec.  1026.32(c)(5) currently requires 
the disclosure of the total amount the consumer will borrow, as 
reflected by the face amount of the note, for loans subject to HOEPA. 
For federally related mortgage loans under RESPA, Sec.  1024.7(d) of 
Regulation X currently requires the disclosure of the loan amount in 
the summary table on page 1 of the GFE with the text, ``Your initial 
loan amount is.''
    The Bureau believes, based on its consumer testing, that the loan 
amount is important to consumers to understand readily, compare, and 
verify the amount of credit offered to them. The principal amount of 
the loan is a basic element of the transaction that should be disclosed 
to consumers.
    Pursuant to its authority under TILA section 105(a), Dodd-Frank Act 
section 1032(a), and RESPA section 19(a), the Bureau proposes to 
require a disclosure of the principal amount of the transaction for 
closed-end transactions secured by real property (other than reverse 
mortgages). The Bureau proposes this requirement to effectuate the 
purposes of TILA to promote the informed use of credit and ensure a 
meaningful disclosure of credit terms to consumers. In addition, 
consistent with section 1032(a) of the Dodd-Frank Act, the Bureau 
believes that the disclosure of the loan amount in the Loan Terms table 
may ensure that the features of consumer credit transactions secured by 
real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances. Further, like HUD, the Bureau believes the 
loan amount is necessary to understanding the transaction and its 
disclosure would effectuate the purposes of RESPA.
    Proposed Sec.  1026.37(b)(1) requires creditors to disclose the 
``loan amount,'' which is defined as the amount of credit to be 
extended under the terms of the legal obligation. This disclosure is 
labeled ``Loan Amount'' to enhance visibility. Disclosing the loan 
amount may also alert the consumer to fees that are financed in 
addition to the amount of credit sought for the consumer's purchase, 
refinance, or other purpose.
37(b)(2) Interest Rate
    TILA section 128(a)(3) and (4) requires disclosure of the finance 
charge and the annual percentage rate, for which the interest rate is a 
factor in the calculation. 15 U.S.C. 1638(a)(3), (4).\159\ However, the 
statute does not require a separate disclosure of the interest rate. 
Currently, Regulation Z requires creditors to disclose the interest 
rate only in the interest rate and payment summary table required by 
Sec.  1026.18(s). For federally related mortgage loans, Sec.  1024.7(d) 
of Regulation X requires that the GFE state the interest rate with the 
text ``your initial interest rate is'' in the summary table on page 1.
---------------------------------------------------------------------------

    \159\ As discussed below, the finance charge disclosure is 
implemented in proposed Sec.  1026.38(o)(2). The APR disclosure is 
implemented in proposed Sec. Sec.  1026.37(l)(2) and 1026.38(o)(4).
---------------------------------------------------------------------------

    The Bureau believes that the interest rate is an important loan 
term that consumers should be able to locate readily on the disclosure, 
because it is the basis for the periodic payments of principal and 
interest that the consumer will be obligated to make. Participants in 
the Bureau's consumer testing used the interest rate as one of the 
primary factors when evaluating, comparing, and verifying loan terms.
    The Bureau proposes to use its authority under TILA section 105(a) 
to require disclosure of the interest rate for the transaction to 
effectuate the purposes of TILA to promote the informed use of credit 
and ensure a meaningful disclosure of credit terms to consumers. In 
addition, consistent with section 1032(a) of the Dodd-Frank Act, the 
Bureau believes that the disclosure of the interest rate in the Loan 
Terms table may ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances. Further, 
like HUD, which required disclosure of the interest rate in its good 
faith estimate form, the Bureau proposes to use its authority under 
RESPA section 19(a) to require disclosure of the interest rate, because 
the interest rate is important to consumer understanding of the 
transaction.
    Proposed Sec.  1026.37(b)(2) requires disclosure of the initial 
interest rate that will be applicable to the transaction, labeled the 
``Interest Rate.'' If the initial interest rate may adjust based on an 
index, the creditor must disclose the fully-indexed rate, which is 
defined within that paragraph. Proposed comment 37(b)(2)-1 provides 
guidance regarding how to calculate the fully-indexed rate to be 
disclosed.
37(b)(3) Principal and Interest Payment
    TILA section 128(a)(6) requires disclosure of the number, amount, 
and due dates or period of payments scheduled to repay the loan. 15 
U.S.C. 1638(a)(6). TILA section 128(b)(2)(C)(ii) requires the maximum 
principal and interest payment and examples of other potential 
principal and interest payments to be disclosed when the ``annual rate 
of interest is variable * * * or the regular payments may otherwise be 
variable.'' 15 U.S.C. 1638(b)(2)(C)(ii).
    Currently, for closed-end transactions secured by real property or 
a dwelling, Regulation Z requires creditors to disclose the periodic 
principal and interest payment only in the interest rate and payment 
summary table required by Sec.  1026.18(s). For federally related 
mortgage loans, Sec.  1024.7(d) of Regulation X requires the GFE to 
contain the initial periodic payment for principal and interest and 
mortgage insurance with the text ``Your initial monthly amount owed for 
principal, interest, and any mortgage insurance is.''
    The Bureau believes that, like the interest rate, the periodic 
principal and interest payment is a key loan term that consumers should 
be able to locate readily on the form. The Bureau's consumer testing 
indicates that consumers use the periodic principal and interest 
payment of the loan as a primary factor in evaluating and comparing a 
loan. The Bureau believes that a specific disclosure of the periodic 
principal and interest payment in the Loan Terms table will assist 
consumers in readily evaluating, comparing, and verifying possible loan 
terms. This payment enables consumers to compare loans of one or 
multiple creditors based on the same measure, rather than a payment 
that may include estimates for escrow payments for property costs or

[[Page 51197]]

mortgage insurance. Accordingly, the Bureau proposes Sec.  
1026.37(b)(3) to require the Loan Terms table to include the periodic 
principal and interest payment simply labeled ``Principal & Interest,'' 
with an indication of the applicable unit-period. If the initial 
periodic payment may adjust based on changes to an index, the payment 
disclosed is required to be based on the fully-indexed rate disclosed 
under proposed Sec.  1026.37(b)(2). The unit-period that is applicable 
to a transaction is currently described in appendix J to Regulation Z. 
Proposed comment 37(b)(3)-1 clarifies that the label of the periodic 
principal and interest payment should reflect the appropriate unit-
period for the transaction. Proposed comment 37(b)(3)-2 provides 
guidance regarding how to calculate the payment to be disclosed if the 
initial interest rate is adjustable based on an index.
    The Bureau believes that the total periodic payment the consumer 
would be responsible to make to the creditor, including any required 
mortgage insurance and escrow payments, is also important for the 
consumer to consider when evaluating a loan offer. This amount allows a 
consumer to determine the affordability of the credit transaction and 
underlying real estate transaction. Accordingly, the Bureau proposes to 
include with the principal and interest payment a statement referring 
the consumer to the total periodic payment, including estimated amounts 
for any escrow and mortgage insurance payments, which is disclosed in 
the Projected Payments table under proposed Sec.  1026.37(c), 
immediately below the Loan Terms table.
    The Bureau proposes to use its authority under TILA section 105(a) 
to require disclosure of the periodic principal and interest payment, 
along with a reference to the total periodic payment, in the Loan Terms 
table to effectuate the purposes of TILA to promote the informed use of 
credit and ensure a meaningful disclosure of credit terms to consumers. 
In addition, consistent with section 1032(a) of the Dodd-Frank Act, the 
Bureau believes that this disclosure may ensure that the features of 
consumer credit transactions secured by real property are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances. Further, the Bureau proposes to use its authority under 
RESPA section 19(a) to require this disclosure because the disclosure 
will improve consumer understanding of the transaction, including 
settlement costs. The Bureau also proposes this requirement pursuant to 
its authority under section 1405(b) of the Dodd-Frank Act. The Bureau 
believes this disclosure may improve consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures, and is in the interest of consumers and 
in the public interest.
37(b)(4) Prepayment Penalty
    Currently, TILA section 128(a)(11), 15 U.S.C. 1638(a)(11), and 
Regulation Z Sec.  1026.18(k)(1) require the creditor to disclose 
whether or not a penalty may be imposed if the obligation is prepaid in 
full for a transaction that includes a finance charge computed from 
time to time by application of a rate to the unpaid principal balance. 
For federally related mortgage loans, Sec.  1024.7(d) of Regulation X 
requires the summary table on page 1 of the GFE to state whether or not 
the loan has a prepayment penalty with the text, ``Does your loan have 
a prepayment penalty?''
    The Bureau's consumer testing indicates that consumers use the 
existence of a prepayment penalty as an important factor in 
understanding and evaluating loan offers. Accordingly, because of the 
importance to consumers of prepayment penalties, proposed Sec.  
1026.37(b)(4) requires disclosure of whether the loan has a prepayment 
penalty in the Loan Terms table, labeled ``Prepayment Penalty.'' As 
discussed below, under proposed Sec.  1026.37(b)(7), the existence or 
non-existence of a prepayment penalty provision in the loan contract is 
indicated by an affirmative or negative answer (designed as a simple 
``yes'' or ``no'') to the question, ``Does the loan have these 
features?'' In the Bureau's consumer testing, consumers were able to 
use this disclosure to determine easily if the loan had a prepayment 
penalty.
    The Bureau proposes to require disclosure of whether the 
transaction includes a prepayment penalty under TILA section 
128(a)(11), its implementation authority under TILA section 105(a), and 
RESPA section 19(a). The Bureau believes this additional information 
will promote consumer understanding of the cost of credit and more 
effective disclosure of the terms of the credit.
Definition of Prepayment Penalty
    TILA establishes certain disclosure requirements for transactions 
for which a penalty is imposed upon prepayment, but does not define the 
term ``prepayment penalty.'' TILA section 128(a)(11) requires that the 
transaction-specific disclosures for closed-end consumer credit 
transactions disclose whether (1) a consumer is entitled to a rebate of 
any finance charge upon refinancing or prepayment in full pursuant to 
acceleration or otherwise, if the obligation involves a precomputed 
finance charge, and (2) a ``penalty'' is imposed upon prepayment in 
full if the obligation involves a finance charge computed from time to 
time by application of a rate to the unpaid principal balance. 15 
U.S.C. 1638(a)(11). Also, TILA section 128(a)(12) requires that the 
transaction-specific disclosures state that the consumer should refer 
to the appropriate contract document for information regarding certain 
loan terms or features, including ``prepayment rebates and penalties.'' 
15 U.S.C. 1638(a)(12).
    Section 1026.18(k) implements (and largely mirrors) TILA section 
128(a)(11). Section 1026.18(k)(1) provides that ``when an obligation 
includes a finance charge computed from time to time by application of 
a rate to the unpaid principal balance,'' the creditor must disclose 
``a statement indicating whether or not a penalty may be imposed if the 
obligation is prepaid in full.'' Comment 18(k)(1)-1 clarifies that such 
a ``penalty'' includes, for example, ``interest charges for any period 
after prepayment in full is made'' and a minimum finance charge, but 
does not include, for example, loan guarantee fees. Section 
1026.18(k)(2) provides for the disclosure of a statement indicating 
whether or not the consumer is entitled to a rebate of any finance 
charge if the obligation is prepaid in full when an obligation includes 
a finance charge other than the finance charge described in Sec.  
1026.18(k)(1). Comment 18(k)(2)-1 clarifies that Sec.  1026.18(k)(2) 
applies to any finance charges that do not take account of each 
reduction in the principal balance of an obligation, such as recomputed 
finance charges and charges that take account of some but not all 
reductions in principal.
    In addition, TILA section 129(c)(1) limits the circumstances in 
which a high-cost mortgage may include a prepayment penalty where the 
consumer pays all or part of the principal before the date on which the 
principal is due. 15 U.S.C. 1639(c)(1)(A). In the high-cost mortgage 
context, any method of computing a refund of unearned scheduled 
interest is a prepayment penalty if it is less favorable than the 
actuarial method, as defined by section 933(d) of the Housing and 
Community Development Act of 1992. 15 U.S.C. 1639(c)(1)(B). Section 
1026.32(d)(6) implements these TILA provisions.
    Although the disclosure requirements under current Sec.  1026.18(k) 
apply to

[[Page 51198]]

closed-end mortgage and non-mortgage transactions, in its 2009 Closed-
End Proposal, the Board proposed to establish a new Sec.  226.38(a)(5) 
for disclosure of prepayment penalties for closed-end mortgage 
transactions. See 74 FR at 43334, 43413. In proposed comment 38(a)(5)-
2, the Board stated that examples of prepayment penalties include 
charges determined by treating the loan balance as outstanding for a 
period after prepayment in full and applying the interest rate to such 
``balance,'' a minimum finance charge in a simple-interest transaction, 
and charges that a creditor waives unless the consumer prepays the 
obligation. 74 FR at 43413. In addition, the Board's proposed comment 
38(a)(5)-3 listed loan guarantee fees and fees imposed for preparing a 
payoff statement or other documents in connection with the prepayment 
as examples of charges that are not prepayment penalties. Id. The 
Board's 2010 Mortgage Proposal included amendments to existing comment 
18(k)(1)-1 and proposed comment 38(a)(5)-2 stating that prepayment 
penalties include ``interest'' charges after prepayment in full even if 
the charge results from interest accrual amortization used for other 
payments in the transaction. See 75 FR at 58756, 58781.\160\
---------------------------------------------------------------------------

    \160\ The preamble to the Board's 2010 Mortgage Proposal 
explained that the proposed revisions to current Regulation Z 
commentary and the proposed comment 38(a)(5) from the Board's 2009 
Closed-End Proposal regarding interest accrual amortization were in 
response to concerns about the application of prepayment penalties 
to certain Federal Housing Administration (FHA) and other loans 
(i.e., when a consumer prepays an FHA loan in full, the consumer 
must pay interest through the end of the month in which prepayment 
is made). See 75 FR at 58586.
---------------------------------------------------------------------------

    Prepayment penalties were also addressed in the Board's 2011 ATR 
Proposal implementing sections 1411, 1412, and 1414 of the Dodd-Frank 
Act (codified at 15 U.S.C. 1629c), which expand the scope of the 
ability-to-repay requirement under TILA and establish ``qualified 
mortgage'' standards for complying with such requirement. See 76 FR at 
27482, 27491. Specifically, the Board's proposed Sec.  226.43(b)(10) 
generally followed the current Regulation Z guidance on prepayment 
penalties (i.e., comment 18(k)(1)-1) and the proposed definitions and 
guidance in the Board's 2009 Closed-End Proposal and 2010 Mortgage 
Proposal. However, the Board's 2011 ATR Proposal differed from the 
prior proposals and current guidance in the following respects: (1) 
Proposed Sec.  226.43(b)(10) defined prepayment penalty with reference 
to a payment of ``all or part of'' the principal in a transaction 
covered by the provision, while Sec.  1026.18(k) and associated 
commentary and the Board's 2009 Closed-End Proposal and 2010 Mortgage 
Proposal referred to payment ``in full,'' (2) the examples provided 
omitted reference to a minimum finance charge and loan guarantee 
fees,\161\ and (3) proposed Sec.  226.43(b)(10) did not incorporate, 
and the Board's 2011 ATR Proposal did not otherwise address, the 
language in Sec.  1026.18(k)(2) and associated commentary regarding 
disclosure of a rebate of a precomputed finance charge.
---------------------------------------------------------------------------

    \161\ The preamble to the Board's 2011 ATR Proposal addressed 
why the Board chose to omit these two items. The Board reasoned that 
a minimum finance charge need not be included as an example of a 
prepayment penalty because such a charge typically is imposed with 
open-end, rather than closed-end, transactions. The Board stated 
that loan guarantee fees are not prepayment penalties because they 
are not charges imposed for paying all or part of a loan's principal 
before the date on which the principal is due. See 76 FR at 27416.
---------------------------------------------------------------------------

    Based on the Bureau's consideration of the existing statutory and 
regulatory definitions of ``penalty'' and ``prepayment penalty'' under 
TILA sections 128(a) and 129(c) and Sec. Sec.  1026.18(k) and 
1026.32(d)(6), the Board's proposed definitions of prepayment penalty, 
and the Bureau's authority under TILA section 105(a) and Dodd-Frank Act 
sections 1032(a) and, for residential mortgage transactions, 1405(b), 
the Bureau is proposing to define ``prepayment penalty'' in proposed 
Sec.  1026.37(b)(4) for transactions subject to Sec. Sec.  1026.19(e) 
and (f) as a charge imposed for paying all or part of a transaction's 
principal before the date on which the principal is due. The proposed 
definition of prepayment penalty as applicable to the transactions 
subject to Sec. Sec.  1026.19(e) and (f) broadens the existing 
statutory and regulatory definitions under TILA section 128(a)(11) and 
Sec.  1026.18(k), and thereby may result in more frequent disclosures 
of prepayment penalties to consumers than would be made under the 
existing definitions. Therefore, the Bureau believes that the 
disclosures of prepayment penalties under proposed Sec.  1026.37(b)(4) 
will effectuate the purposes of TILA and RESPA by facilitating the 
informed use of credit and more effective advance disclosure of 
settlement costs. In addition, the revised disclosures will ensure that 
the features of mortgage loan products initially and over their terms 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the loan products in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a). 
Furthermore, these disclosures will improve consumers' awareness and 
understanding of residential mortgage transactions, which is in the 
interest of consumers and the public, consistent with Dodd-Frank Act 
section 1405(b).
    Proposed comment 37(b)(4)-1 clarifies that the disclosure of the 
prepayment penalty under Sec.  1026.37(b)(4) applies to transactions 
where the terms of the loan contract provide for a prepayment penalty, 
even though it is not certain at the time of the disclosure whether the 
consumer will, in fact, make a payment to the creditor that would cause 
imposition of the penalty. This proposed comment also clarifies that if 
the transaction includes a prepayment penalty, Sec.  1026.37(b)(7) sets 
forth the information that must be disclosed under Sec.  1026.37(b)(4).
    Proposed comment 37(b)(4)-2.i through -2.iv gives the following 
examples of prepayment penalties: (1) A charge determined by treating 
the loan balance as outstanding for a period of time after prepayment 
in full and applying the interest rate to such ``balance,'' even if the 
charge results from interest accrual amortization used for other 
payments in the transaction under the terms of the loan contract; (2) a 
fee, such as an origination or other loan closing cost, that is waived 
by the creditor on the condition that the consumer does not prepay the 
loan; (3) a minimum finance charge in a simple interest transaction; 
and (4) computing a refund of unearned interest by a method that is 
less favorable to the consumer than the actuarial method, as defined by 
section 933(d) of the Housing and Community Development Act of 1992, 15 
U.S.C. 1615(d). Proposed comment 37(b)(4)-2.i further clarifies that 
``interest accrual amortization'' refers to the method by which the 
amount of interest due for each period (e.g., month) in a transaction's 
term is determined and notes, for example, that ``monthly interest 
accrual amortization'' treats each payment as made on the scheduled, 
monthly due date even if it is actually paid early or late (until the 
expiration of any grace period). The proposed comment also provides an 
example where a prepayment penalty of $1,000 is imposed because a full 
month's interest of $3,000 is charged even though only $2,000 in 
interest was earned in the month during which the consumer prepaid.
    Proposed comment 37(b)(4)-3 clarifies that a prepayment penalty 
does not include: (1) Fees imposed for preparing and providing 
documents when a loan is paid in full, whether or not the loan is 
prepaid, such as a loan

[[Page 51199]]

payoff statement, a reconveyance document, or another document 
releasing the creditor's security interest in the dwelling that secures 
the loan; or (2) loan guarantee fees.
    Proposed comment 37(b)(4)-4 clarifies that, with respect to an 
obligation that includes a finance charge that does not take into 
account each reduction in the principal balance of the obligation 
(e.g., precomputed finance charges), Sec.  1026.37(b)(4) satisfies 
disclosure of whether or not the consumer is entitled to a rebate of 
any finance charge if the obligation is prepaid in full or part. The 
comment further clarifies that if the transaction involves both a 
precomputed finance charge and a finance charge computed by application 
of a rate to an unpaid balance, disclosures about both the prepayment 
rebate and the prepayment penalty are made under Sec.  1026.37(b)(4) as 
one disclosure to the question required by Sec.  1026.37(b)(7). For 
example, if in such a transaction, a portion of the precomputed finance 
charge will not be provided as a rebate and also a prepayment penalty 
based on the amount prepaid is provided for by the loan contract, both 
disclosures are made under Sec.  1026.37(b)(4) as one aggregate amount, 
stating the maximum amount and time period under Sec.  1026.37(b)(7). 
If the transaction instead provides a rebate of the precomputed finance 
charge upon prepayment, but imposes a prepayment penalty based on the 
amount prepaid, the disclosure required by Sec.  1026.37(b)(4) is an 
affirmative answer and the information required by Sec.  1026.37(b)(7). 
This proposed comment incorporates existing guidance in Regulation Z 
commentary regarding disclosure of whether the consumer is entitled to 
a rebate of finance charges that do not take into account each 
reduction in principal balance. See comments 18(k)-2 and -3 and 
18(k)(2)-1.
    The definition of prepayment penalty in proposed Sec.  
1026.37(b)(4) and associated commentary substantially incorporates the 
definitions of and guidance on prepayment penalty from the Board's 2009 
Closed-End Proposal, 2010 Mortgage Proposal, and 2011 ATR Proposal and, 
as necessary, reconciles their differences. For example, the Bureau 
proposes that the prepayment penalty definition in Sec.  1026.37(b)(4) 
refer to payment of ``all or part of a covered transaction's 
principal,'' rather than merely payment ``in full,'' because knowledge 
of whether a partial prepayment triggers a penalty is important for 
consumers. Also, the Bureau is proposing to incorporate the language 
from the Board's 2009 Closed-End Proposal and 2010 Mortgage Proposal 
but omitted in the Board's 2011 ATR Proposal listing a minimum finance 
charge as an example of a prepayment penalty and stating that loan 
guarantee fees are not prepayment penalties, because similar language 
is found in longstanding Regulation Z commentary. Based on the 
differing approaches taken by the Board in its recent mortgage 
proposals, however, the Bureau seeks comment on whether a minimum 
finance charge should be listed as an example of a prepayment penalty 
and whether loan guarantee fees should be excluded from the definition 
of prepayment penalty.
    The Bureau expects to coordinate the definition of prepayment 
penalty in proposed Sec.  1026.37(b)(4) with the definitions in the 
Bureau's other pending rulemakings mandated by the Dodd-Frank Act 
concerning ability-to-repay, high-cost mortgages under HOEPA, and 
mortgage servicing. To the extent consistent with consumer protection 
objectives, the Bureau believes that adopting a consistent definition 
of ``prepayment penalty'' across its various pending rulemakings 
affecting closed-end mortgages will facilitate compliance. As an 
additional part of this effort to adopt a consistent regulatory 
definition of ``prepayment penalty,'' the Bureau is also proposing 
certain conforming revisions to Sec.  1026.18(k) and associated 
commentary, as discussed earlier in the section-by-section analysis for 
the proposed revised Sec.  1026.18(k).
37(b)(5) Balloon Payment
    TILA section 128(a)(6) requires disclosure of the number, amount, 
and due dates or period of payments scheduled to repay the loan. 
Currently, for closed-end transactions secured by real property or a 
dwelling, Regulation Z requires balloon payments to be disclosed only 
in connection with the interest rate and payment summary table required 
by Sec.  1026.18(s). For federally related mortgage loans, Sec.  
1024.7(d) of Regulation X requires the GFE to state in the summary 
table on page 1 whether or not the loan has a balloon payment with the 
text, ``Does your loan have a balloon payment?''
    Pursuant to its authority under TILA section 128(a)(6), TILA 
section 105(a), RESPA section 19(a), and Dodd-Frank Act section 
1032(a), the Bureau proposes Sec.  1026.37(b)(5), which requires 
disclosure of whether the credit transaction requires a balloon 
payment, as defined within the provision. This disclosure is provided 
in the Loan Terms table, labeled ``Balloon Payment.'' As discussed 
below, under proposed Sec.  1026.37(b)(7), the existence or non-
existence of a balloon payment provision is indicated by a ``yes'' or 
``no'' answer to the question, ``Does the loan have these features?'' 
In the Bureau's consumer testing, consumers were able to determine 
readily whether a loan had a balloon payment. The Bureau's consumer 
testing indicates that consumers consider whether a loan has a balloon 
payment to be an important factor in evaluating loans. The Bureau 
believes that this disclosure will effectuate the purposes of TILA and 
RESPA because it will promote the informed use of credit and assure a 
meaningful disclosure to consumers, and thus, will benefit consumers 
and the public and result in more effective advance disclosure.
Definition of Balloon Payment
    Sections 1412 and 1432(b) of the Dodd-Frank Act both define 
``balloon payment'' as ``a scheduled payment that is more than twice as 
large as the average of earlier scheduled payments.'' These definitions 
are incorporated into TILA sections 129C(b)(2)(A)(ii) and 129(e), 
respectively. 15 U.S.C. 1639c(b)(2)(A)(ii), 1639(e). Regulation Z Sec.  
1026.18(s)(5)(i), however, defines ``balloon payment'' as ``a payment 
that is more than two times a regular periodic payment.''
    The Board's 2011 ATR Proposal implementing section 1412 of the 
Dodd-Frank Act incorporates Regulation Z's existing definition of 
``balloon payment'' in Sec.  1026.18(s)(5)(i) rather than the 
definition in section 1412. See proposed Sec.  226.43(e)(2)(i)(C), 76 
FR 27390, 27484. The Board noted that this definition is substantially 
similar to the statutory one, except that it uses as its benchmark any 
regular periodic payment rather than the average of earlier scheduled 
payments. 76 FR at 27455. The Board also reasoned that incorporating 
the Regulation Z, rather than Dodd-Frank Act, definition of ``balloon 
payment'' facilitates compliance by affording creditors a single 
definition of the term within Regulation Z. Id. at 27456.
    By defining ``balloon payment'' in the 2011 ATR Proposal based on 
the Regulation Z definition, the Board proposed to adjust the Dodd-
Frank Act statutory definition. In doing so, the Board stated that it 
was relying on TILA section 105(a) authority to make such adjustments 
for all or any class of transactions as in the judgment of the Board 
are necessary or proper to facilitate compliance with TILA. Id.; 15 
U.S.C. 1604(a). The class of transactions for which the adjustment was 
proposed encompassed all transactions covered

[[Page 51200]]

by the 2011 ATR Proposal, i.e., closed-end consumer credit transactions 
that are secured by a dwelling. The Board, however, solicited comment 
on the appropriateness of the proposed adjustment. The Board also 
stated that the proposed adjustment was supported by the Board's 
authority under TILA section 129B(e) to condition terms, acts, or 
practices relating to residential mortgage loans that the Board finds 
necessary or proper to facilitate compliance. 15 U.S.C. 1639b(e).
    In view of the different definitions of ``balloon payment'' between 
the Dodd-Frank Act and Regulation Z and the approach taken by the Board 
in the 2011 ATR Proposal, and based on the Bureau's authority under 
TILA section 105(a) and Dodd-Frank Act sections 1032(a), and for 
residential mortgage loans, Dodd-Frank Act section 1405(b), the Bureau 
is proposing a definition of ``balloon payment'' in proposed Sec.  
1026.37(b)(5) that largely incorporates the existing Regulation Z 
definition in Sec.  1026.18(s)(5)(i), i.e., a payment that is more than 
two times a regular periodic payment. For the reasons discussed below, 
the Bureau believes that the proposed definition will promote the 
informed use of credit and facilitate compliance with TILA, consistent 
with TILA section 105(a). In addition, this definition will enhance 
consumer understanding of the costs, benefits, and risks associated 
with the transaction in light of the facts and circumstances 
(consistent with Dodd-Frank Act section 1032(a)), and improve 
consumers' awareness and understanding of residential mortgage 
transactions, which is in the interest of consumers and the public 
(consistent with Dodd-Frank Act section 1405(b)).
    The proposed definition in Sec.  1026.37(b)(5) revises the current 
regulatory language to state that a balloon payment cannot be a regular 
periodic payment. This revision is intended to prevent a regular 
periodic payment following a scheduled or permitted payment increase 
under the terms of a loan contract (e.g., based on a rate adjustment 
under an adjustable rate loan) from being characterized as a balloon 
payment if it is more than two times a regular periodic payment 
occurring prior to the payment increase. Moreover, proposed commentary 
to Sec.  1026.37(b)(5) clarifies the meaning of regular periodic 
payment and discusses how all regular periodic payments during the loan 
term are used to determine whether a particular payment is a balloon 
payment (i.e., if the particular payment is more than two times any one 
regular periodic payment during the loan term, it is disclosed as a 
balloon payment under Sec.  1026.37(b)(5) unless the particular payment 
itself is a regular periodic payment). These clarifications are 
intended to resolve ambiguity in the current regulatory definition and 
associated commentary, and thereby facilitate compliance.\162\
---------------------------------------------------------------------------

    \162\ According to existing comment 32(d)(1)(i), a payment is a 
``regular periodic payment'' if it is not more than twice the amount 
of other payments. This definition, which is essentially the mirror 
image of the balloon payment definition in Sec.  1026.18(s)(5)(i) 
(i.e., a payment that is more than two times a regular periodic 
payment), leaves uncertainty as to how to determine whether a 
payment is a balloon payment when there are multiple regular 
periodic payments during the loan term (e.g., if the regularly 
scheduled payments increase due to an adjustable rate feature).
---------------------------------------------------------------------------

    This definition applies to all transactions subject to proposed 
Sec.  1026.19(e). The Bureau recognizes that this proposed definition 
deviates from that prescribed in the Dodd-Frank Act. However, for the 
reasons set forth in the 2011 ATR Proposal, the Bureau believes that 
adopting a consistent definition within Regulation Z will promote the 
informed use of credit and facilitate compliance and, therefore, will 
also benefit consumers and the public. See 76 FR at 27456.
    The Bureau recognizes that these additional clarifications may 
result in more payments being disclosed as balloon payments than under 
the current regulatory definition. The Bureau believes that more 
frequent disclosure of balloon payment terms facilitates the informed 
use of credit, ensures that the features of mortgage loan products 
initially and over their terms are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the loan products in 
light of the facts and circumstances, and improves consumers' awareness 
and understanding of residential mortgage transactions, which is in the 
interest of consumers and the public. The Bureau seeks comment, 
however, on whether the definition of balloon payment in proposed Sec.  
1026.37(b)(5) should be revised to exclude any particular type of 
payment. Furthermore, the Bureau believes that a payment that is twice 
any one regular periodic payment using the regulatory definition, as 
revised in this proposed rule, would be equal to or less than a payment 
that is twice the average of earlier scheduled payments using the 
statutory definition. The Bureau notes that the range of scheduled 
payment amounts under the first approach is more limited and defined. 
For example, if the regular periodic payment is $200, a payment of 
greater than $400 would constitute a balloon payment. Under the 
statutory definition, however, the threshold amount for a balloon 
payment could be greater than $400 if, for example, the regular 
periodic payments were increased by $100 each year. Under this 
scenario, the amount constituting a ``balloon payment'' could increase 
with the incremental increase of the average of earlier scheduled 
payments. The Bureau believes that under the existing regulatory 
definition, as revised by the proposed rule, consumers would have a 
better understanding of the highest possible regular periodic payment 
in a repayment schedule and may experience less ``payment shock'' as a 
result. Therefore, the Bureau believes that the existing regulatory 
definition may better protect consumers and would be in their interest. 
In addition, the Bureau believes that the definition of ``balloon 
payment'' based on the existing regulatory definition would facilitate 
and simplify compliance by eliminating the need to average earlier 
scheduled payments.
    Proposed comment 37(b)(5)-1 clarifies that the ``regular periodic 
payment'' used to determine whether a payment is a ``balloon payment'' 
for purposes of Sec.  1026.37(b)(5) is the payment of principal and 
interest (or interest only, depending on the loan features) payable 
under the terms of the loan contract for two or more unit periods in 
succession. The comment also clarifies that all regular periodic 
payments during the loan term are used to determine whether a 
particular payment is a balloon payment, regardless of whether the 
regular periodic payments change during the loan term due to rate 
adjustments or other payment changes permitted or required under the 
loan contract (i.e., if the particular payment is more than two times 
any one regular periodic payment during the loan term, it is disclosed 
as a balloon payment under Sec.  1026.37(b)(5) unless the particular 
payment itself is a regular periodic payment). Proposed comment 
37(b)(5)-1.i gives an example of a step-rate mortgage with two 
different regular periodic payment amounts. Proposed comment 37(b)(5)-
1.ii clarifies the definition of ``regular periodic payment'' in the 
context of a loan with an adjustable rate, where, under the terms of 
the loan contract, the regular periodic payments may increase after 
consummation, but the amounts of such payment increases (if any) are 
unknown at the time of consummation. In such instance, the proposed 
comment clarifies that the ``regular periodic payments'' are based on 
the fully-indexed rate, except as otherwise

[[Page 51201]]

determined by any premium or discounted rates, the application of any 
interest rate adjustment caps, or any other known, scheduled rates 
under the terms specified in the loan contract. The proposed comment 
also refers to the analogous guidance provided in current comments 
17(c)(1)-8 and -10, and gives an example of an adjustable rate mortgage 
with two different periodic payment amounts.
    Proposed comment 37(b)(5)-1.iii clarifies that for a loan with a 
negative amortization feature, the ``regular periodic payment'' does 
not take into account the possibility that the consumer may exercise an 
option to make a payment greater than the minimum scheduled periodic 
payment. Proposed comment 37(b)(5)-1.iv clarifies that, for purposes of 
Sec.  1026.37(c), Sec.  1026.37(b)(5) governs the threshold 
determination of whether a loan has a balloon payment feature, but 
Sec.  1026.37(c) governs the disclosure of balloon payments in the 
``Projected Payments'' table under that section.
    The proposed definition of balloon payment in proposed Sec.  
1026.37(b)(5) includes the payments of a single or double payment 
transaction. Proposed comment 37(b)(5)-2 provides clarification 
regarding such single and double-payment transactions, which require a 
single payment due at maturity or only two payments during the loan 
term, and do not require regular periodic payments. A single payment 
transaction does not have regular periodic payments, because regular 
periodic payments must be made two or more unit periods in succession 
(see proposed comment 37(b)(5)-1, described above). And while a loan 
with only two scheduled payments, depending on the circumstances, may 
have regular periodic payments (e.g., if the two payments are made 
during the last month of years one and two of a two-year loan term), 
there is no third payment that could potentially be the balloon payment 
(i.e., a payment that is more than twice the amount of the regular 
periodic payments). The Bureau believes the payments of such 
transactions are essentially equivalent, economically and practically, 
from the perspective of a consumer, to a balloon payment. The comment 
clarifies that notwithstanding the fact that there is no regular 
periodic payment to compare such single or double payments to, any 
payment in a single payment transaction or a transaction with only two 
scheduled payments is a ``balloon payment'' under Sec.  1026.37(b)(5).
    The Bureau is coordinating the definition of ``balloon payment'' in 
proposed Sec.  1026.37(b)(5) with the definitions of ``balloon 
payment'' in the Bureau's other pending rulemakings under the Dodd-
Frank Act concerning ability-to-repay and high-cost mortgages under 
HOEPA. To the extent consistent with consumer protection objectives, 
the Bureau believes that adopting a consistent definition of ``balloon 
payment'' across the Bureau's Dodd-Frank Act rulemakings affecting 
closed-end credit transactions will facilitate compliance, as discussed 
in part II above.
37(b)(6) Increases after Consummation
    TILA section 128(b)(2)(C)(ii) requires, for closed-end credit 
transactions secured by a dwelling in which the interest rate or 
payments may vary, the disclosure of examples of adjustments to the 
regular required payment based on changes in the interest rates, 
including the maximum payment amount of the regular required payments 
based on the maximum interest rate under the contract. TILA section 
128(b)(2)(C)(ii) also requires the Bureau to conduct consumer testing 
so that consumers can easily understand the fact that the initial 
regular payments are for a specific time period and will end on a 
certain date and that payments will subsequently adjust to a 
potentially higher amount. Currently, Regulation Z's disclosures for 
closed-end credit transactions secured by real property or a dwelling 
require information about whether the interest rate, periodic principal 
and interest payment, and loan amount can change. The disclosures are 
given in the interest rate and payment table required by Sec.  
1026.18(s). For federally related mortgage loans, Sec.  1024.7(d) of 
Regulation X requires this information to be disclosed in the summary 
table on page 1 of the GFE, as affirmative or negative answers to the 
questions ``Can your interest rate rise,'' ``Even if you make payments 
on time, can your loan balance rise,'' and ``Even if you make payments 
on time, can your monthly amount owed for principal, interest, and any 
mortgage insurance rise?''
    As discussed above, the Bureau conducted consumer testing of 
prototype mortgage disclosures over ten rounds. During each round of 
testing, consumers placed significant emphasis when evaluating loans on 
whether the loan amount, interest rate, or periodic principal and 
interest payment could increase, the amount and timing of such 
increases, and whether they were scheduled increases or only potential 
increases. Accordingly, the Bureau believes that this information 
should be disclosed so that consumers can easily find and understand 
it.
    The Bureau proposes Sec.  1026.37(b)(6) to require that this 
information be disclosed in the Loan Terms table. Specifically, 
proposed Sec.  1026.37(b)(6) requires disclosure of whether the amounts 
required to be disclosed by proposed Sec.  1026.37(b)(1) through (3) 
may increase. If those amounts may increase, the creditor must also 
disclose, as applicable: (i) The maximum principal balance for the 
transaction and the date when the last payment for which the principal 
balance is permitted to increase will occur; (ii) the frequency of 
interest rate adjustments, the date when the interest rate begins to 
adjust, the maximum interest rate under the terms of the transaction, 
and the first adjustment that could result in the maximum interest 
rate; (iii) the frequency of adjustments to the periodic principal and 
interest payment, the date when the principal and interest payment 
begins to adjust, the maximum principal and interest under the 
transaction, and the first adjustment that can result in the maximum 
principal and interest payment; and (iv) the periods of any features 
that permit the periodic principal and interest payment to adjust 
without an adjustment to the interest rate, such as information about 
interest-only periods. The Bureau also understands from industry 
feedback provided in connection with the Bureau's stakeholder outreach 
that some adjustable rate loans, which may be more prevalent in the 
community bank market, may be structured so that the periodic principal 
and interest payment is fixed and increases in the interest rate 
increase the loan term instead of the payment. Accordingly, the 
information required by proposed Sec.  1026.37(b)(6)(ii) also includes 
a statement of that fact for transactions that contain such a feature.
    The Bureau proposes a format that provides this information as 
affirmative or negative answers to one comprehensive question, ``Can 
this amount increase after closing?'' The answers to this question are 
capitalized and in bold text. In addition, bullet-pointed text 
immediately to the right of these answers provides the maximum amounts, 
frequencies of changes, references to more detailed information 
disclosed elsewhere on the form, and other relevant information. Bold 
text will be used for important information in these statements, to 
enable consumers to see it quickly. Proposed form H-24 in appendix H of 
Regulation Z illustrates the disclosure of such information, including 
the bullet-pointed text required and the portions of such text that are 
to be bolded.
    The Bureau tested prototype versions of this table in its consumer 
testing.

[[Page 51202]]

During testing, consumers were able to understand and use this 
information in the proposed format when evaluating and comparing terms 
of credit. Based on these results, the Bureau believes that this format 
will enable consumers to find the information readily, to use it for 
evaluating and comparing terms of credit, and to understand the 
information.
    Accordingly, pursuant to TILA section 128(b)(2)(C)(ii) and the 
Bureau's authority under TILA section 105(a), RESPA section 19(a), 
Dodd-Frank Act section 1032(a), and Dodd-Frank Act 1405(b), the Bureau 
proposes Sec.  1026.37(b)(6) to require this information in the Loan 
Terms table and in the format required to be used by proposed Sec.  
1026.37(o). The Bureau believes that this disclosure will effectuate 
the purposes of TILA because it will promote the informed use of credit 
and assure a meaningful disclosure to consumers, and thus, will benefit 
consumers and the public. The Bureau believes this information improves 
consumer awareness and understanding of residential mortgage loans and 
is in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b). The Bureau also believes that, consistent 
with Dodd-Frank Act section 1032(a), this requirement may ensure that 
the features of any consumer financial product or service, both 
initially and over the term of the product or service, are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances. In addition, like HUD, the Bureau believes this 
information is important to consumer understanding of the transaction 
and as a result, will promote more effective advance disclosure of 
settlement costs and should be provided on the disclosure.
37(b)(7) Details about Prepayment Penalty and Balloon Payment
    Currently, for closed-end credit transactions secured by real 
property or a dwelling, Sec.  1026.18(k) of Regulation Z does not 
require the disclosure of the maximum prepayment penalty that may be 
charged. While Sec.  1026.18(s) currently requires the balloon payment 
that may be charged on a loan to be disclosed, it is not required to be 
disclosed with other key terms of the transaction. For federally 
related mortgage loans, Sec.  1024.7(d) of Regulation X currently 
requires the maximum prepayment penalty and balloon payment in the 
summary table on page 1 of the GFE with the text, ``your maximum 
prepayment penalty is $-- and ``you have a balloon payment of $-- due 
in -- years.''
    Proposed Sec.  1026.37(b)(7) requires the information in proposed 
Sec.  1026.37(b)(4) and (5) to be disclosed as an affirmative or 
negative answer to the question ``Does the loan have these features?'' 
The section also requires disclosure of the maximum prepayment penalty, 
the period in which a prepayment penalty may be imposed, the amounts of 
any balloon payments and the dates of such payments. Like the 
information required to be disclosed by proposed Sec.  1026.37(b)(6), 
the format required for this information by proposed Sec.  1026.37(o) 
emphasizes the maximum amounts by using bold text, to enable consumers 
to find these amounts quickly.
    In the Bureau's consumer testing, consumers were able to use this 
disclosure to determine easily if the loan had a prepayment penalty, 
the maximum amount, and the period during which the penalty applied, 
and the amount and time of a balloon payment. The Bureau's consumer 
testing has indicated that consumers place significant emphasis when 
evaluating loans on the potential for large balloon or prepayment 
penalty amounts.
    The Bureau proposes to use its authority under TILA sections 
105(a), Dodd-Frank Act section 1032(a), and RESPA section 19(a) to 
require disclosure of this information in the Loan Terms table of the 
Loan Estimate. The Bureau believes that placing these details about 
prepayment penalties and balloon payments in the summary table with 
bold text for the maximum amounts allows consumers to find this 
information easily, enabling consumers to understand and evaluate 
loans, promoting meaningful disclosure of credit terms to consumers. 
The Bureau believes that this disclosure will effectuate the purposes 
of TILA because it will promote the informed use of credit and assure a 
meaningful disclosure to consumers, and thus, will benefit consumers 
and the public. In addition, like HUD, the Bureau believes this 
information is important to consumer understanding of the transaction 
and as a result, will promote more effective advance disclosure of 
settlement costs and should be provided on the disclosure. Proposed 
comment 37(b)(7)(i)-1 provides guidance regarding calculating the 
maximum amount of the prepayment penalty.
37(b)(8) Timing
    The Bureau's consumer testing indicated the references to the dates 
required to be disclosed by proposed Sec.  1026.37(b)(6) and (7) are 
easily understood by consumers if disclosed in whole years. The 
prototype mortgage disclosures used at the Bureau's consumer testing 
displayed these dates as years, and consumers were able to understand 
and evaluate the risks posed by these maximum amounts. The Bureau 
believes that this unit of time provides a frame of reference to 
consumers that they use more regularly and that is easier to understand 
than ``payments'' or high-number values of ``months,'' such as 60 
months.
    Accordingly, pursuant to its authority under TILA section 105(a), 
Dodd-Frank section 1032(a), and RESPA section 19(a), proposed Sec.  
1026.37(b)(8) requires the information required to be disclosed by 
paragraphs (b)(6) and (7) to be disclosed by stating the number of the 
year in which the payment or adjustment occurs, counting from the date 
that interest for the regularly scheduled periodic payment begins to 
accrue. Proposed comment 37(b)(8)-1 provides examples of how to 
disclose dates using the timing rules of proposed Sec.  1026.37(b)(8). 
The Bureau believes this disclosure provides a meaningful disclosure of 
credit terms, promotes the informed use of credit by consumers, and may 
ensure that the features of consumer credit transactions secured by 
real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
37(c) Projected Payments
Statutory Requirements
    TILA section 128(a)(6) requires creditors to disclose the number, 
amount, and due dates or period of payments scheduled to repay the 
total of payments. 15 U.S.C. 1638(a)(6). TILA section 128(b)(2)(C)(ii) 
requires the disclosure of certain payment-related information for 
closed-end variable-rate transactions, or transactions where the 
regular payment may otherwise be variable, that are secured by a 
dwelling, including examples of payments. 15 U.S.C. 1638(b)(2)(C)(ii). 
Specifically, creditors must provide examples of adjustments to the 
regular required payment on the extension of credit based on the change 
in the interest rates specified by the contract for such extension of 
credit. Id. Among the examples required is an example that reflects the 
maximum payment amount

[[Page 51203]]

of the regular required payments on the extension of credit, based on 
the maximum interest rate allowed under the contract. Id. TILA section 
128(b)(2)(C)(i) also provides that these examples must be in 
conspicuous type size and format and that the payment schedule be 
labeled ``Payment Schedule: Payments Will Vary Based on Interest Rate 
Changes.'' Section 128(b)(2)(C)(ii) requires the Bureau to conduct 
consumer testing to determine the appropriate format for providing the 
disclosures to consumers so that the disclosures can be easily 
understood.
    In addition, TILA section 128(a)(16)(A), added to TILA by section 
1419 of the Dodd-Frank Act, provides that, for variable-rate 
residential mortgage loans for which an escrow account will be 
established, the creditor must disclose both the initial monthly 
principal and interest payment, and the initial monthly principal and 
interest payment including any amount deposited in an escrow account 
for the payment of applicable taxes, insurance, and assessments. 15 
U.S.C. 1638(a)(16)(A). New TILA section 128(a)(16)(B) also requires 
that, for variable-rate residential mortgage loans for which an escrow 
account will be established, the creditor disclose the amount of the 
fully-indexed monthly payment due under the loan for the payment of 
principal and interest, and the fully-indexed monthly payment including 
any amount deposited in an escrow account for the payment of applicable 
taxes, insurance, and assessments. 15 U.S.C. 1638(a)(16)(B). TILA 
section 128(b)(4)(A), added by section 1465 of the Dodd-Frank Act, 
provides that, in the case of any consumer credit transaction secured 
by a first mortgage on the principal dwelling of the consumer, other 
than an open-end credit plan or reverse mortgage, for which an escrow 
account has been or will be established, the disclosures required by 
TILA section 128(a)(6) must take into account the amount of any monthly 
payment to such account, in accordance with section 10(a)(2) of 
RESPA.\163\ 15 U.S.C. 1638(b)(4)(A); 12 U.S.C. 2609(a)(2). New TILA 
section 128(b)(4)(B) generally requires creditors to take into account 
the taxable assessed value of the property during the first year after 
consummation, including the value of any improvements constructed or to 
be constructed on the property, if known, and the replacement costs of 
the property for hazard insurance, when disclosing taxes and insurance 
escrows pursuant to TILA section 128(b)(4)(A). 15 U.S.C. 1638(b)(4)(B).
---------------------------------------------------------------------------

    \163\ Section 10(a)(2) of RESPA prohibits the lender, over the 
life of the escrow account, from requiring the borrower to make 
payments to an escrow account that exceed one-twelfth of the total 
annual escrow disbursements that the lender reasonably anticipates 
paying from the escrow account during the year, plus the amount 
necessary to maintain a one-sixth cushion. 12 U.S.C. 2609(a)(2).
---------------------------------------------------------------------------

Current Rules
    Current Sec.  1026.18(s) implements the requirements of TILA 
sections 128(a)(6) and 128(b)(2)(C) for all closed-end transactions 
secured by real property or a dwelling, other than transactions secured 
by the consumer's interest in a timeshare plan described in 11 U.S.C. 
101(53D). Section 1026.18(s) requires creditors to disclose the 
contract interest rate, regular periodic payment, and any balloon 
payment. For adjustable-rate or step-rate amortizing mortgages, the 
creditor must disclose up to three interest rates and corresponding 
periodic payments. If payments are scheduled to increase independent of 
an interest-rate adjustment, the creditor must disclose the increased 
payment. If a borrower may make one or more payments of interest only, 
all payment amounts disclosed must be itemized to show the amount that 
will be applied to interest and the amount that will be applied to 
principal. Current Sec.  1026.18(s) requires special interest rate and 
payment disclosures for loans that permit negative amortization. Also 
under current Sec.  1026.18(s), creditors must separately itemize an 
estimate of the amount for taxes and insurance, including mortgage 
insurance, if the creditor will establish an escrow account for the 
payment of such amounts. The Board adopted this requirement pursuant to 
its authority under TILA section 105(a), based on consumer testing 
which indicated that consumers compare loans based on the monthly 
payment amount and that escrow payment information is necessary for 
consumers to understand the monthly amount they will pay. MDIA Interim 
Rule, 75 FR at 58476-77. Current Sec.  1026.18(s) also requires the 
disclosure of total periodic payments. Creditors must provide the 
information about interest rates and payments in the form of a table, 
and creditors are not permitted to include other, unrelated information 
in the table.
    Current Sec.  1026.18(s) expands the scope of TILA section 
128(b)(2)(C) to all closed-end transactions secured by real property or 
a dwelling, other than transactions secured by the consumer's interest 
in a timeshare plan, including transactions in which the interest rate 
and regular payments do not vary and those that are secured by real 
property that does not include a dwelling. The Board adjusted the scope 
of this provision pursuant to its authority under TILA section 105(a). 
The Board reasoned that providing examples of increased interest rates 
and payments will help consumers understand the risks involved in 
certain loans, and that consistent disclosure requirements for all 
mortgage-secured, closed-end consumer credit transactions, whether or 
not they include a dwelling, would ease compliance burden for mortgage 
creditors. MDIA Interim Rule, 75 FR at 58473-74. The Board also stated 
that applying Sec.  1026.18(s) to transactions where the interest rate 
or regular payments do not vary would simplify compliance for creditors 
and make it easier for consumers to compare different loan products. 
For all other closed-end credit transactions, Sec.  1026.18(g) provides 
the rules for disclosing the payment schedule.
The Bureau's Proposal
    Pursuant to its authority under TILA section 105(a) and Dodd-Frank 
Act sections 1032(a) and 1405(b), the Bureau proposes to incorporate 
the requirements of current Sec.  1026.18(s) into new Sec.  1026.37(c), 
for closed-end mortgages subject to proposed Sec.  1026.19(e), with 
certain adjustments that are outlined below. The Bureau believes that 
these requirements are necessary and proper to effectuate the purposes 
of TILA by promoting the informed use of credit. Accordingly, proposed 
Sec.  1026.37(c) implements the requirements of TILA sections 128(a)(6) 
and 128(b)(2)(C), and also implements the requirements of new TILA 
sections 128(a)(16) and (b)(4), for closed-end mortgages subject to 
proposed Sec.  1026.19(e). For all other closed-end transactions, Sec.  
1026.18(g) and (s) would continue to apply.
    Like existing Sec.  1026.18(s), proposed Sec.  1026.37(c) requires 
creditors to disclose, in a separate table, an itemization of each 
separate periodic payment or range of payments required after 
consummation under the terms of the legal obligation. Proposed Sec.  
1026.37(c) also requires disclosure of an estimate of taxes, insurance, 
and assessments and the payments to be made with escrow account funds. 
Specifically, the table required by proposed Sec.  1026.37(c) must 
contain the projected principal and interest, mortgage insurance, 
estimated escrowed taxes and insurance, estimated total monthly 
payment, and estimated taxes, insurance, and assessment disclosures, 
required by Sec.  1026.37(c)(1) through (4). Pursuant to proposed Sec.  
1026.37(o) and form H-24, the table required by

[[Page 51204]]

proposed Sec.  1026.37(c) will appear on the first page of the Loan 
Estimate. The Bureau proposes that, as under Sec.  1026.18(s), the 
table required by proposed Sec.  1026.37(c) must be disclosed in all 
transactions subject to proposed Sec.  1026.19(e), even in transactions 
where the interest rate will not vary and those that are secured by 
real property that does not include a dwelling. Unlike current Sec.  
1026.18(s), the projected payment table required by proposed Sec.  
1026.37(c) applies to transactions secured by the consumer's interest 
in a timeshare plan but does not apply to transactions secured by a 
dwelling that is not real property, for the reasons discussed in the 
section-by-section analysis to proposed Sec.  1026.19.
    The Bureau proposes to exercise its authority under TILA section 
105(a), Dodd-Frank Act 1032(a), and, for residential mortgage loans, 
Dodd-Frank Act section 1405(b) to require the information disclosed 
pursuant to proposed Sec.  1026.37(c) to appear under the heading 
``Projected Payments.'' As discussed above, TILA section 
128(b)(2)(C)(i) requires the payment schedule to be labeled ``Payment 
Schedule: Payments Will Vary Based on Interest Rate.'' The Bureau 
believes that ``Projected Payments'' conveys the same substantive 
meaning, in plainer and simpler language, and is a more accurate 
heading for the table required by proposed Sec.  1026.37(c) since 
payment amounts may vary for reasons other than interest rate, such as 
in graduated-payment plans or the termination of mortgage insurance 
under applicable law. The heading also performed well in consumer 
testing. Using the table under the heading ``Projected Payments,'' 
participants in the Bureau's consumer testing were able to readily 
identify that their monthly payments might change in the future. 
Furthermore, the Bureau believes that the Loan Terms table required by 
proposed Sec.  1026.37(b) effectively discloses when payments and 
interest rate will vary, and that consumers will not benefit from 
disclosure of that information in multiple places on the disclosure. 
Accordingly, this proposed adjustment promotes the informed use of 
credit, improves consumer awareness and understanding of transactions 
involving residential mortgage loans, and is in the interest of 
consumers and the public, consistent with the purpose of TILA and with 
Dodd-Frank Act section 1405(b). In addition, the Bureau believes that 
this disclosure would ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances, consistent 
with section 1032(a) of the Dodd-Frank Act.
    Proposed comment 37(c)-1 provides that, for purposes of proposed 
Sec.  1026.37(c), the terms ``adjustable rate,'' ``fixed rate,'' 
``negative amortization,'' and ``interest-only'' have the meanings 
prescribed in Sec.  1026.37(a)(10).
37(c)(1) Periodic Payment or Range of Payments
37(c)(1)(i)
    Proposed Sec.  1026.37(c)(1)(i) provides rules regarding the 
separate periodic payments or ranges of payments to be disclosed on the 
table required by Sec.  1026.37(c). Specifically, proposed Sec.  
1026.37(c)(1)(i) provides that the initial periodic payment or range of 
payments is a separate periodic payment or range of payments and, 
except as otherwise provided in Sec.  1026.37(c)(1)(ii), the following 
events require the disclosure of additional separate periodic payments 
or ranges of payments: (A) periodic principal and interest payment or 
range of such payments may change; (B) a scheduled balloon payment; and 
(C) the creditor must automatically terminate mortgage insurance 
coverage, or any functional equivalent, under applicable law.
    Proposed comments 37(c)(1)(i)-1, 37(c)(1)(i)(A)-1 through -3, 
37(c)(1)(i)(B)-1, and 37(c)(1)(i)(C)-1 through -3 provide guidance to 
creditors on the events requiring the disclosure of a separate periodic 
payment or range of payments. Proposed comment 37(c)(1)(i)-1 clarifies 
that, for purposes of Sec.  1026.37(c)(1)(i), the periodic payment is 
the regularly scheduled payment of principal and interest, mortgage 
insurance, and escrow payments described in Sec.  1026.37(c)(2) without 
regard to any final payment that differs from other payments because of 
rounding to account for payment amounts including fractions of cents. 
Proposed comment 37(c)(1)(i)(A)-1 provides that periodic principal and 
interest payments may change when the interest rate, applicable 
interest rate caps, required periodic principal and interest payments, 
or ranges of such payments may change. Minor payment variations 
resulting solely from the fact that months have different numbers of 
days are not changes to periodic principal and interest payments. For a 
loan that permits negative amortization, proposed comment 
37(c)(1)(i)(A)-2 clarifies that periodic principal and interest 
payments may change at the time of a scheduled recast of the mortgage 
loan and when the consumer must begin making fully amortizing payments 
of principal and interest. The comment also provides that the 
disclosure should be based on the assumption that the consumer will 
make only the minimum payment required under the terms of the legal 
obligation, for the maximum amount of time permitted, taking into 
account changes to interest rates that may occur under the terms of the 
legal obligation, and that the table required by Sec.  1026.37(c) 
should reflect any balloon payment that would result from making the 
minimum payment required under the terms of the legal obligation. In a 
loan that permits payment of only interest for a specified period, 
proposed comment 37(c)(1)(i)(A)-3 clarifies that periodic principal and 
interest payments may change for purposes of Sec.  1026.37(c)(1)(i)(A) 
when the consumer must begin making fully amortizing periodic payments 
of principal and interest.
    Proposed comment 37(c)(1)(i)(B)-1 states that, for purposes of 
Sec.  1026.37(c)(1)(i)(B), whether a balloon payment occurs is 
determined pursuant to Sec.  1026.37(b)(5) and its commentary. Although 
the existence of a balloon payment is determined pursuant to Sec.  
1026.37(b)(5) and its commentary, balloon payment amounts to be 
disclosed under Sec.  1026.37(c) are calculated in the same manner as 
periodic principal and interest payments under Sec.  1026.37(c). For 
example, for a balloon payment amount that can change depending on 
previous interest rate adjustments that are based on the value of an 
index at the time of the adjustment, the balloon payment amounts are 
calculated using the assumptions for minimum and maximum interest rates 
described in Sec.  1026.37(c)(1)(iii) and its commentary, and should be 
disclosed as a range of payments.
    Proposed comments 37(c)(1)(i)(C)-1 through -3 provide guidance to 
creditors regarding the disclosure of mortgage insurance. Proposed 
comment 37(c)(1)(i)(C)-1 states that ``mortgage insurance'' means 
insurance against the nonpayment of, or default on, an individual 
mortgage, and that, for purposes of proposed Sec.  1026.37(c), 
``mortgage insurance or any functional equivalent'' includes any 
mortgage guarantee that provides coverage similar to mortgage insurance 
(such as a United States Department of Veterans Affairs or United 
States Department of Agriculture guarantee), even if not technically 
considered insurance under State or other applicable law. The Bureau

[[Page 51205]]

understands that some governmental loan programs impose an annual 
guarantee fee, and that creditors typically collect a monthly escrow 
for the payment of such amounts. Current Sec.  1026.18(s) requires 
creditors to disclose whether mortgage insurance is included in monthly 
escrow payments, but industry uncertainty exists as to whether it is 
permissible to identify such guarantees as mortgage insurance on the 
disclosure required by Sec.  1026.18(s). Although the Bureau recognizes 
that such guarantees are legally distinguishable from mortgage 
insurance, they are functionally very similar. Accordingly, proposed 
comment 37(c)(1)(i)(C)-1 clarifies that creditors should disclose any 
mortgage guarantee that provides coverage similar to mortgage 
insurance, even if not considered insurance under State or other 
applicable law, as mortgage insurance on the disclosure required by 
Sec.  1026.37(c). Proposed comment 37(c)(1)(i)(C)-1 is consistent with 
the treatment of mortgage guarantee fees under proposed comment 
18(s)(3)(i)(C)-2.
    Proposed comment 37(c)(1)(i)(C)-2 gives guidance to creditors on 
the calculation and termination of mortgage insurance premiums by 
providing that, for purposes of proposed Sec.  1026.37(c)(1)(i)(C), 
mortgage insurance premiums should be calculated based on the declining 
principal balance that will occur as a result of changes to the 
interest rate and payment amounts, assuming the fully-indexed rate at 
consummation, taking into account any introductory rates. Finally, 
proposed comment 37(c)(1)(i)(C)-3 clarifies that the table required by 
proposed Sec.  1026.37(c) reflects the consumer's mortgage insurance 
payments until the date on which the creditor must automatically 
terminate coverage under applicable law, even though the consumer may 
have a right to request that the insurance be cancelled earlier. Unlike 
termination of mortgage insurance, a subsequent decline in the 
consumer's mortgage insurance premiums is not, by itself, an event that 
requires the disclosure of additional separate periodic payments or 
ranges of payments in the table required by Sec.  1026.37(c). For 
example, some mortgage insurance programs annually adjust premiums 
based on the declining loan balance. Such annual adjustment to the 
amount of premiums would not require a separate disclosure of a 
periodic payment or range payments.
37(c)(1)(ii)
    Proposed Sec.  1026.37(c)(1)(ii) contains special rules for the 
disclosure of separate periodic payments or ranges of payments 
described in Sec.  1026.37(c)(1)(i). Specifically, proposed Sec.  
1026.37(c)(1)(ii) provides that the table required by Sec.  1026.37(c) 
shall not disclose more than four separate periodic payments or ranges 
of payments. For all events requiring disclosure of additional separate 
periodic payments or ranges of payments described in Sec.  
1026.37(c)(1)(i) after the second to occur, the separate periodic 
payments or ranges of payments shall be disclosed as a single range of 
payments, subject to the special rules listed in proposed Sec.  
1026.37(c)(1)(ii)(A) through (C).
    Proposed Sec.  1026.37(c)(1)(ii)(A) contains a special rule for 
final balloon payments. That section would require that a final balloon 
payment shall always be disclosed as a separate periodic payment or 
range of payments and that, if a final balloon payment is disclosed, no 
more than three other separate periodic payments or ranges of payments 
are disclosed. Proposed comment 37(c)(1)(ii)(A)-1 clarifies that Sec.  
1026.37(c)(1)(ii)(A) is an exception to the general rule in Sec.  
1026.37(c)(1)(ii), and requires that a balloon payment that is 
scheduled as a final payment under the terms of the legal obligation is 
always disclosed as a separate periodic payment or range of payments. 
Balloon payments that are not final payments, such as a balloon payment 
due at the scheduled recast of a loan that permits negative 
amortization, are disclosed pursuant to the general rule in Sec.  
1026.37(c)(1)(ii). Proposed Sec.  1026.37(c)(1)(ii)(B) provides a 
special rule for disclosure of mortgage insurance premiums, requiring 
that the automatic termination of mortgage insurance, or any functional 
equivalent, under applicable law shall be disclosed as a separate 
periodic payment or range of payments only if the total number of 
events that require disclosure of additional separate periodic payments 
or ranges of payments described in Sec.  1026.37(c)(1)(i), other than 
the termination of mortgage insurance or any functional equivalent, 
does not exceed two.
    Finally, proposed Sec.  1026.37(c)(1)(ii)(C) provides a special 
rule for events that require additional separate periodic payments or 
ranges of payments that occur during the same year. Under proposed 
Sec.  1026.37(c)(1)(ii)(C), if changes to periodic principal and 
interest payments described in Sec.  1026.37(c)(1)(i)(A) would require 
more than one separate disclosure during a single year, such periodic 
payments must be disclosed as a single range of payments.
37(c)(1)(iii)
    Proposed Sec.  1026.37(c)(1)(iii) provides rules for the disclosure 
of ranges of payments. A range of payments is disclosed when the 
periodic principal and interest payment may adjust based on index rates 
at the time an interest rate adjustment may occur or multiple events 
are combined in a range of payments pursuant to proposed Sec.  
1026.37(c)(1)(ii). When a range of payments is required, the creditor 
must disclose the minimum and maximum possible payment amount for both 
the principal and interest payment under proposed Sec.  
1026.37(c)(2)(i) and the total periodic payment under proposed Sec.  
1026.37(c)(2)(iv). In the case of an interest rate adjustment, the 
maximum payment amounts are determined by assuming that the interest 
rate in effect throughout the loan term is the maximum possible 
interest, and the minimum payment amounts are determined by assuming 
that the interest rate in effect throughout the loan term is the 
minimum possible interest rate.
    Proposed comment 37(c)(1)(iii)-1 clarifies that a range of payments 
must be disclosed when the periodic principal and interest payments are 
not known at the time the disclosure is provided because they are 
subject to changes based on index rates at the time of an interest rate 
adjustment or when multiple events are disclosed as a range of payments 
pursuant to Sec.  1026.37(c)(1)(ii). For such transactions, proposed 
Sec.  1026.37(c)(3)(iii) requires the creditor to disclose both the 
minimum and maximum periodic principal and interest payments, expressed 
as a range. In disclosing the maximum possible interest rate for 
purposes of Sec.  1026.37(c), the creditor assumes that the interest 
rate will rise as rapidly as possible after consummation, taking into 
account the terms of the legal obligation, including any applicable 
caps on interest rate adjustments and lifetime interest rate cap. For a 
loan with no lifetime interest rate cap, the maximum rate is determined 
by reference to other applicable laws, such as State usury law. In 
disclosing the minimum possible interest rate for purposes of Sec.  
1026.37(c), the creditor assumes that the interest rate will decrease 
as rapidly possible after consummation, taking into account any 
introductory rates, caps on interest rate adjustments, and lifetime 
interest rate floor. For an adjustable rate mortgage based on an index 
that has no lifetime interest rate floor, the minimum interest rate is 
equal to the margin. Proposed comment

[[Page 51206]]

37(c)(1)(iii)-2 clarifies that, when a range of payments is required, 
the amount required to be disclosed for mortgage insurance premiums 
pursuant to Sec.  1026.37(c)(2)(ii) and the amount payable into escrow 
pursuant to Sec.  1026.37(c)(2)(iii) shall not be disclosed as a range. 
Proposed comment 37(c)(1)(iii)-3 provides guidance to creditors on the 
disclosure of ranges of payments in adjustable rate mortgages.
37(c)(2) Itemization
    Proposed Sec.  1026.37(c)(2) requires that each separate periodic 
payment or range of payments included in the table required by proposed 
Sec.  1026.37(c) must be itemized to include the following: (1) The 
amount payable for principal and interest, labeled as ``Principal & 
Interest,'' including the term ``only interest'' if the payment or 
range of payments includes any interest-only payment; (2) the maximum 
amount payable for mortgage insurance premiums corresponding to the 
principal and interest payment disclosed pursuant to Sec.  
1026.37(c)(2)(i), labeled ``Mortgage Insurance''; (3) the amount 
payable into an escrow account to pay for some or all of the charges 
described in Sec.  1026.37(c)(4)(ii)(A) through (E), labeled 
``Estimated Escrow,'' including a statement that the amount disclosed 
can increase over time; and (4) the total periodic payment, calculated 
as the sum of the amounts disclosed pursuant to Sec.  1026.37(c)(2)(i) 
through (iii), labeled ``Total Monthly Payment.'' As discussed in the 
Kleimann Testing Report, the Bureau's consumer testing indicates that 
consumers understand the table and can identify the components of their 
total monthly payment using this itemization of payments.
    Proposed comment 37(c)(2)(ii)-1 clarifies that mortgage insurance 
payments should be reflected on the disclosure required by Sec.  
1026.37(c) even if no escrow account is established for the payment of 
mortgage insurance premiums. If the consumer is not required to 
purchase mortgage insurance, the creditor discloses the mortgage 
insurance premium as ``0''. Proposed comment 37(c)(2)(ii)-2 clarifies 
that the creditor must disclose mortgage insurance pursuant to Sec.  
1026.37(c)(2)(ii) on the same periodic basis that payments for 
principal and interest are disclosed pursuant to Sec.  
1026.37(c)(2)(i), even if mortgage insurance premiums are actually paid 
on some other periodic basis.
    The Bureau proposes to require creditors to disclose the amount of 
estimated escrow payments pursuant to its authority under TILA sections 
128(a)(16), 128(b)(4)(A), and 105(a), Dodd-Frank Act section 1032(a), 
and, for residential mortgage loans, Dodd-Frank Act section 1405(b). As 
discussed above, TILA section 128(a)(16) requires that, for variable-
rate residential mortgage loans for which an escrow account will be 
established, the creditor must disclose the initial total monthly 
payment, including escrow payments for taxes and insurance. The Bureau 
proposes to modify this requirement to cover all transactions subject 
to proposed Sec.  1026.19(e) for which an escrow account will be 
established, including fixed-rate loans. Additionally, TILA section 
128(b)(4)(A) requires that, for any consumer credit transaction secured 
by a first lien on the principal dwelling of the consumer for which an 
escrow account will be established, the creditor must take into account 
escrow payments when making the disclosures required by TILA section 
128(a)(6). The Bureau also proposes to modify the scope of this 
requirement to cover all transactions subject to proposed Sec.  
1026.19(e) for which an escrow account will be established, pursuant to 
its authority under TILA sections 128(a)(16), 128(b)(4)(A), and 105(a), 
Dodd-Frank Act section 1032(a), and, for residential mortgage loans, 
Dodd-Frank Act section 1405(b). These modifications are consistent with 
the purposes of TILA, as they may promote the informed use of credit by 
allowing consumers to more readily compare loans. Further, applying a 
single disclosure rule to all transactions subject to proposed Sec.  
1026.19(e) may ease compliance burden for creditors. Accordingly, these 
modifications will improve consumer awareness and understanding of 
residential mortgage loans and are in the interest of consumers and the 
public, consistent with Dodd-Frank Act section 1405(b). In addition, 
consistent with section 1032(a) of the Dodd-Frank Act, this disclosure 
would ensure that the features of consumer credit transactions secured 
by real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
    Further, the Bureau proposes to require creditors to disclose the 
maximum periodic payment for mortgage insurance premiums corresponding 
to the periodic principal and interest payment disclosed pursuant to 
Sec.  1026.37(c)(2)(i), separately from other escrowed amounts, 
pursuant to its authority under TILA section 105(a), Dodd-Frank Act 
section 1032(a), and, for residential mortgage loans, Dodd-Frank Act 
section 1405(b), even if no escrow account is established for the 
payment of such amounts. Current Sec.  1026.18(s) requires creditors to 
include mortgage insurance in the disclosure of the amounts required to 
be paid into escrow. However, Sec.  1026.18(s) does not require 
creditors to separately disclose payments for mortgage insurance. The 
Bureau believes that consumers would benefit from disclosure of the 
periodic amount of mortgage insurance payments required by the 
creditor, and believes that consumers would benefit from the disclosure 
of any required mortgage insurance payments even if no escrow account 
for the payment of such amounts will be established. Requiring such 
disclosure in all cases may facilitate comparison between loans and 
improve overall understanding of credit terms. Accordingly, the Bureau 
believes this requirement promotes the informed use of credit, will 
improve consumer awareness and understanding of transactions involving 
residential mortgage loans, and is in the interest of consumers and the 
public, consistent with the purpose of TILA and with Dodd-Frank Act 
section 1405(b). Further, consistent with section 1032(a) of the Dodd-
Frank Act, this disclosure would ensure that the features of consumer 
credit transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.
    In addition, the Bureau understands that some mortgage insurance 
plans are structured such that periodic mortgage insurance payments 
decrease over time. Accordingly, the Bureau proposes to require 
creditors to disclose the maximum amount payable for mortgage insurance 
premiums, or any functional equivalent, corresponding to the periodic 
principal and interest payment disclosed pursuant to Sec.  
1026.37(c)(2)(i). The Bureau believes this disclosure will enhance 
consumer understanding of and facilitate comparison between loans by 
more accurately reflecting the amount of mortgage insurance payments 
over time.
    Proposed comment 37(c)(2)(iii)-1 clarifies that the disclosure of 
taxes and insurance described in Sec.  1026.37(c)(2)(iii) is required 
only if the creditor will establish an escrow account for the payment 
of the amounts described in Sec.  1026.37(c)(4)(ii)(A) through (E), 
consistent with TILA

[[Page 51207]]

section 128(b)(4)(A) and current Sec.  1026.18(s).
37(c)(3) Subheadings
    Proposed Sec.  1026.37(c)(3)(i) provides that the labels required 
pursuant to Sec.  1026.37(c)(2) must be listed under the subheading 
``Payment Calculation.'' Proposed Sec.  1026.37(c)(3)(ii) provides that 
each separate, itemized periodic payment or range of payments to be 
disclosed under Sec.  1026.37(c) must be disclosed under a subheading 
that states the number of years of the loan during which that payment 
or range of payments will apply. The subheadings must be stated in a 
sequence of whole years from the date that the first such payment is 
due. Proposed comment 37(c)(3)(ii)-1 provides additional guidance on 
the disclosure of the number of years of the loan during which the 
payment or range of payments will apply, and proposed comment 
37(c)(3)(ii)-2 provides guidance on disclosure of the years of the loan 
for transactions with variable terms, such as transactions where the 
loan term may increase based on an adjustment of the interest rate.
37(c)(4) Taxes, Insurance, and Assessments
    As discussed above, the Bureau is proposing to require creditors in 
transactions subject to proposed Sec.  1026.19(e) to disclose estimated 
payments to escrow accounts pursuant to its authority under TILA 
sections 128(a)(16), 128(b)(4)(A), and 105(a), Dodd-Frank Act section 
1032(a), and, for residential mortgage loans, Dodd-Frank Act section 
1405(b). The Bureau also proposes Sec.  1026.37(c)(4) pursuant to this 
authority. Proposed Sec.  1026.37(c)(4)(i) provides that creditors must 
disclose the label ``Estimated Taxes, Insurance & Assessments.'' 
Proposed Sec.  1026.37(c)(4)(ii) requires creditors to disclose the sum 
of property taxes, mortgage-related insurance premiums required by the 
creditor other than amounts payable for mortgage insurance premiums, 
homeowner's association, condominium or cooperative fees, ground rent 
or leasehold payments, and special assessments, as applicable, 
expressed as a monthly amount. The creditor must disclose this amount 
even if no escrow account for the payment of some or any such charges 
will be established. Proposed comments 37(c)(4)(ii)-1 and -2 provide 
guidance to creditors on the meaning of mortgage-related insurance 
premiums and special assessments.
    Proposed Sec.  1026.37(c)(4)(iii) requires creditors to state that 
the amount disclosed pursuant to Sec.  1026.37(c)(4)(ii) can increase 
over time. Proposed Sec.  1026.37(c)(4)(iv) requires creditors to state 
whether the amount disclosed pursuant to Sec.  1026.37(c)(4)(ii) 
includes payments for property taxes, hazard insurance, and other 
amounts described in Sec.  1026.37(c)(4)(ii), along with a description 
of any such amounts, and an indication of whether such amounts will be 
paid by the creditor using escrow account funds. Proposed Sec.  
1026.37(c)(4)(v) requires creditors to provide a statement that the 
consumer must pay separately any amounts described in Sec.  
1026.37(c)(4)(ii) that are not paid by the creditor using escrow funds. 
Finally, proposed Sec.  1026.37(c)(4)(vi) requires creditors to provide 
a reference to the information disclosed pursuant to Sec.  
1026.37(g)(3).
    Under proposed Sec.  1026.37(c)(4), the disclosure of estimated 
taxes, insurance, and assessments is required even where no escrow 
account will be established for the payment some or any such amounts. 
The Bureau proposes this requirement pursuant to its authority under 
TILA section 105(a), Dodd-Frank Act section 1032(a), and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b). As 
discussed in the Kleimann Testing Report, consumer testing indicates 
that consumers view the total monthly payment amount as a key piece of 
information and look for this amount when shopping for mortgages. Even 
when no escrow account is established for the payment of taxes and 
insurance, this is an important measure of the consumer's ability to 
afford the transaction. For this reason, the Bureau believes that 
consumers would benefit from the disclosure of the amounts that will 
required to be paid for taxes, insurance, and assessments, even if no 
escrow account will be established for the payment of such amounts. 
Absent such a disclosure, consumers may not fully comprehend the cost 
of their home loan on a periodic basis, and may not be as readily able 
to compare credit terms and make an informed decision about whether to 
proceed with the transaction. Accordingly, the Bureau believes this 
modification is consistent with the purpose of TILA to promote the 
informed use of credit, and will improve consumer awareness and 
understanding of residential mortgage loans and is in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b). In addition, consistent with section 1032(a) of the Dodd-Frank 
Act, this disclosure would ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.
37(c)(5) Calculation of Taxes and Insurance
    As previously discussed, section 1465 of the Dodd-Frank Act added 
to TILA new section 128(b)(4)(A), which provides that, in the case of 
any consumer credit transaction secured by a first mortgage on the 
principal dwelling of the consumer, other than an open-end credit plan 
or reverse mortgage, for which an escrow account has been or will be 
established in connection with the transaction for the payment of 
property taxes, homeowner's (also referred to and including hazard) and 
flood insurance premiums, as applicable, or other periodic payments 
with respect to the property, the disclosures required by TILA section 
128(a)(6) must take into account the amount of any monthly payment to 
such account, in accordance with section 10(a)(2) of RESPA. In 
addition, new TILA section 128(b)(4)(B) requires that the amount taken 
into account under TILA section 128(b)(4)(A) for the payment of 
property taxes, hazard or flood insurance premiums, or other periodic 
payments or premiums with respect to the property shall reflect the 
taxable assessed value of the real property securing the transaction 
after consummation of the transaction. That amount must include the 
value of any improvements on the property or to be constructed on the 
property, if known, even if such construction costs are not financed 
from the proceeds of the transaction, and the replacement costs of the 
property for hazard insurance, in the initial year after the 
transaction.
    Pursuant to the Bureau's implementation authority under TILA 
section 105(a), proposed Sec.  1026.37(c)(5) implements this 
requirement for transactions subject to Sec.  1026.19(e) and requires 
that the estimated escrow and estimated taxes, insurance, and 
assessments disclosures required pursuant to Sec.  1026.37(c)(2)(iii) 
and (4)(ii), respectively, reflect (1) the taxable assessed value of 
the real property securing the transaction after consummation, 
including the value of any improvements on the property or to be 
constructed on the property, whether or not such construction will be 
financed from the proceeds of the transaction, if known, for property 
taxes; and (2) the replacement costs of the property during the initial 
year after the transaction, for hazard and flood insurance.

[[Page 51208]]

    Pursuant to its authority under TILA section 105(a) and Dodd-Frank 
Act sections 1032(a) and 1405(b), the Bureau proposes to expand the 
requirements of TILA section 128(b)(4)(A) and (B) to cover all 
transactions subject to proposed Sec.  1026.19(e), including 
transactions where no escrow account will be established for the 
payment of property taxes or hazard insurance, transactions that are 
secured by real property that does not include the principal dwelling 
of the consumer, and transactions secured by subordinate liens. These 
modifications appear to be consistent with the purposes of TILA, as 
they may promote the informed use of credit by allowing consumers to 
more readily compare loans. Further, applying a single disclosure rule 
to all transactions subject to proposed Sec.  1026.19(e) may ease 
compliance burden for creditors. Accordingly, these modifications will 
improve consumer awareness and understanding of residential mortgage 
loans and are in the interest of consumers and the public, consistent 
with Dodd-Frank Act section 1405(b). In addition, consistent with 
section 1032(a) of the Dodd-Frank Act, the proposed disclosure would 
ensure that the features of consumer credit transactions secured by 
real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
37(d) Cash to Close
    Pursuant to its authority under TILA section 105(a) and Dodd-Frank 
section 1032(a), the Bureau proposes to require creditors to provide 
the estimated total closing costs imposed upon the consumer and the 
estimated amount of cash needed at consummation from the consumer. This 
disclosure will effectuate the purposes of TILA by promoting the 
informed use of credit and will ensure the features of the mortgage 
transaction are fully, accurately and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the mortgage transaction, in light 
of the facts and circumstances, because it will indicate to the 
consumer the amount the consumer will have to pay at consummation of 
the credit transaction and closing of the real estate transaction. 
Accordingly, proposed Sec.  1026.37(d) requires the disclosure of an 
estimate of the cash needed from the consumer at consummation of the 
transaction, with a breakdown of the amounts of loan costs and other 
costs associated with the transaction.
    Under Sec.  1026.37(d)(1), the dollar amount due from the consumer 
is the same amount as calculated in accordance with proposed Sec.  
1026.37(h)(4) and is disclosed under the heading of ``Cash to Close'' 
and labeled ``Estimated Cash to Close.'' The total dollar amount of the 
loan costs to be paid by the consumer at closing as calculated under 
proposed Sec.  1026.37(f)(4) is disclosed under proposed Sec.  
1026.37(d)(2). The total dollar amount of the other costs to be paid by 
the consumer at closing as calculated under proposed Sec.  
1026.37(g)(5) is disclosed under proposed Sec.  1026.37(d)(3). The 
amount of lender credits disclosed under Sec.  1026.37(g)(6)(ii) is 
disclosed under Sec.  1026.37(d)(4). The sum of the amounts disclosed 
under proposed Sec.  1026.37(d)(2), through 1026.37(d)(4) is disclosed 
with a description of ``Closing Costs'' under Sec.  1026.37(d)(5). A 
statement directing the consumer to refer to the location of the Loan 
Estimate that contains the tables required under Sec.  1026.37(f) and 
(g) is required under Sec.  1026.37(d)(6).
37(e) Web Site Reference
    Appendix C to Regulation X includes a statement in the RESPA GFE 
that directs consumers to HUD's Web site and other sources of 
additional information, stating the following, ``For more information, 
see HUD's Special Information Booklet on settlement charges, your 
Truth-in-Lending Disclosures, and other consumer information at 
www.hud.gov/respa.'' Regulation Z does not contain a similar provision. 
The Bureau proposes to use its authority under TILA section 105(a), 
RESPA section 19(a), and Dodd-Frank Act section 1032(a) to require 
disclosure of the Bureau's Web site in proposed Sec.  1026.37(e). The 
Bureau believes that a disclosure in the Loan Estimate directing 
consumers to additional information and tools on its Web site may help 
consumers understand the mortgage process and the various loan products 
in the market, and consequently better understand their loan 
transaction and make informed decisions about whether to enter into a 
loan transaction or which loan product best meets their needs. 
Accordingly, this disclosure will effectuate the purposes of TILA and 
RESPA by promoting the informed use of credit and more effective 
advance notice of settlement costs, consistent with TILA section 105(a) 
and RESPA section 19(a), and will ensure that the features of the 
mortgage transactions are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to better understand 
the costs, benefits, and risks associated with mortgage transactions, 
in light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a).
    Therefore, proposed Sec.  1026.37(e) requires creditors to include 
a statement notifying the consumer that additional information and 
tools regarding mortgage loans may be found at the Bureau's Web site. 
Proposed Sec.  1026.37(e) also requires a reference to the link/uniform 
resource locator (URL) address for the Bureau's Web site.
37(f) Closing Cost Details; Loan Costs
    Under section 5(c) of RESPA creditors must provide mortgage loan 
applicants with a good faith estimate of the amount or range of charges 
for specific settlement services the applicant is likely to incur in 
connection with the consummation of the loan. 12 U.S.C. 2604(c). 
Section 1024.7 of Regulation X implements this mandate by requiring 
creditors and mortgage brokers to provide the RESPA GFE, which must be 
completed in accordance with the instructions in appendix C to 
Regulation X. Appendix C sets out specific instructions for the 
information that must be disclosed on the RESPA GFE, including the loan 
costs that must be included and how to identify those costs on the 
disclosure.
    As discussed above, Dodd-Frank Act section 1032(f) requires the 
Bureau to combine these RESPA disclosures with the disclosures required 
by TILA. In addition to existing TILA disclosure requirements, section 
1419 of the Dodd-Frank Act amended TILA section 128(a) to require, in 
the case of a residential mortgage loan, disclosure of the aggregate 
amount of settlement charges for all settlement services provided in 
connection with the loan and the aggregate amount of other fees or 
required payments in connection with the loan. 15 U.S.C. 1638(a)(17).
    Pursuant to its authority under TILA section 105(a), RESPA section 
19(a), and Dodd-Frank Act sections 1032(f) and, for residential 
mortgage loans, 1405(b), the Bureau proposes to require creditors to 
provide the loan costs and other costs imposed upon the consumer in 
tables as part of the integrated Loan Estimate. Proposed Sec.  
1026.37(f) and (g) implement these early disclosure requirements of 
TILA and RESPA by setting out details relating to the costs for 
consummating the mortgage loan, including loan costs and other costs. 
Based on its consumer testing, the Bureau believes that early 
disclosure of estimated loan costs and other costs, as set forth in 
proposed

[[Page 51209]]

Sec.  1026.37(f) and (g), will improve consumer understanding of the 
credit and property transactions. The Bureau believes that these 
disclosures will effectuate the purpose of TILA by promoting the 
informed use of credit and assuring a meaningful disclosure to 
consumers. The Bureau believes that the disclosures will also satisfy 
the RESPA requirement to provide a consumer with a good faith estimate 
of the amount or range of charges for specific settlement services the 
consumer is likely to incur in connection with the closing. In 
addition, these disclosures will ensure that the features of the 
mortgage transactions are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the mortgage transaction, in 
light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a).
    In particular, proposed Sec.  1026.37(f) requires the creditor to 
itemize, as ``Loan Costs,'' its fees and other charges to the consumer 
for extending the credit or that compensate a mortgage broker for 
originating the transaction. The creditor must disclose the individual 
itemized charges, along with subtotals for prescribed categories of 
those itemized charges, and the total of all such itemized charges. In 
general, these charges are currently required to be disclosed--as 
itemized or aggregate charges and amounts--on the RESPA GFE, the RESPA 
settlement statement, or both.\164\
---------------------------------------------------------------------------

    \164\ On June 20, 2012, HUD's Office of Policy Development and 
Research and the Urban Institute released a study entitled ``What 
Explains Variation in Title Charges? A Study of Five Large 
Markets,'' http://www.huduser.org/portal/publications/hsgfin/title_charges_2012.html, based on HUD-1 settlement statements of FHA 
loans from 2001. See p. 13. The study discusses, among other things, 
that an observed positive association between the number of items 
listed and net service fees was statistically significant after 
taking home prices into account. See p. 29. However, the report 
could not determine whether this indicates additional value to the 
consumer or additional costs to the settlement agent due to 
limitations of the data. Id. The study states that ``there is no way 
to ascertain from the data whether an itemized cost is an attempt to 
confuse consumers or the provision of an additional, valuable 
service that the homebuyer is willing to pay for. Both 
interpretations are plausible.'' Id. Under this proposal, 
itemization is permitted on the Loan Estimate, but highly visible 
subtotals in gray shading and bold font are displayed above the 
itemized charges for specific categories of costs. Based on its 
consumer testing, the Bureau believes the highly visible subtotals, 
along with the highly visible ``Services You Can Shop For'' 
subcategory of Closing Costs on the Loan Estimate, will inform 
consumers that they can shop for their own service providers and 
provide them with, along with the itemization, readily comparable 
cost categories to shop between creditors and service providers. 
Such shopping for settlement service providers, according to the 
study, could provide ``significant benefits to consumers.'' See p. 
28. The study suggests that future research using more detailed data 
on costs incurred by settlement agents would be valuable. See p. 29. 
The Bureau welcomes additional comments and studies on the issue of 
itemization of costs on the Loan Estimate and Closing Disclosure 
during the comment period.
---------------------------------------------------------------------------

    Proposed comment 37(f)-1 explains that the items disclosed as Loan 
Costs pursuant to Sec.  1026.37(f) are those that the creditor or 
mortgage broker require for consummation. Proposed comment 37(f)-2 
provides a cross-reference to the commentary under Sec.  
1026.19(e)(1)(ii), which discusses the requirements and 
responsibilities of mortgage brokers that provide the disclosures 
required under Sec.  1026.19(e) and Sec.  1026.37(f).
37(f)(1) Origination Charges
    Under proposed Sec.  1026.37(f)(1), charges included on the Loan 
Estimate under the subheading of ``Origination Charges'' are those that 
the consumer will pay to the creditor and any loan originator for 
originating and extending the credit. The points that the consumer will 
pay to the creditor to reduce the interest rate are specifically 
identified and itemized as the first item under this subheading.
    As discussed above in part II.F, the Bureau currently is engaged in 
six other rulemakings that relate to mortgage credit and intends that 
the rulemakings function collectively as a whole. Accordingly, the 
Bureau may have to modify aspects of this proposed rule not only in 
response to public comment on this proposal, but also to maintain 
consistency with final determinations made after opportunity for public 
comment in the other, related rulemakings. For example, Dodd-Frank Act 
section 1403 amended TILA section 129B(c)(2) to prohibit an origination 
fee or charge that is paid to a mortgage originator by any person other 
than the consumer, unless the mortgage originator does not receive 
compensation directly from the consumer and the consumer does not make 
an upfront payment of discount points, origination points, or fees 
(other than certain third-party fees). 15 U.S.C. 1639b(c)(2)(B). 
Amended TILA section 129B(c)(2) also provides the Bureau with the 
authority to waive or create exemptions from this prohibition with 
respect to the clause against the consumer making an upfront payment of 
discount points, origination points, or fees, where doing so is in the 
interest of consumers and in the public interest. Id. As discussed in 
the materials distributed for the Small Business Review Panel convened 
for the Residential Mortgage Loan Origination Standards rulemaking 
implementing amended TILA section 129B(c)(2), the Bureau is considering 
exercising its waiver or exemption authority in that rulemaking.\165\ 
The Bureau will coordinate these rulemakings and, if applicable and 
appropriate, will modify the disclosure of origination charges under 
Sec.  1026.37(f)(1) for consistency with the final rule implementing 
amended TILA section 129B(c)(2). The Bureau invites comment on how, in 
light of amended TILA section 129B(c)(2), the Bureau should refine or 
modify the way in which origination charges are disclosed under 
proposed Sec.  1026.37(f)(1). The public will also have the opportunity 
to comment on the Bureau's implementation of amended TILA section 
129B(c)(2) when a proposed rule is published later this summer. The 
Bureau expects the comment period for the proposal set forth in this 
notice will still be open at that time.
---------------------------------------------------------------------------

    \165\ Small Business Review Panel for Residential Mortgage Loan 
Origination Standards Rulemaking: Outline of Proposals Under 
Consideration and Alternatives Considered (May 19, 2012), available 
at http://files.consumerfinance.gov/f/201205_cfpb_MLO_SBREFA_Outline_of_Proposals.pdf.
---------------------------------------------------------------------------

    TILA section 128(a)(18), as added by Dodd-Frank Act section 1419, 
requires the creditor to disclose, for residential mortgage loans, the 
aggregate amount of fees paid to the mortgage originator in connection 
with the loan, the amount of such fees paid directly by the consumer, 
and any additional amount received by the originator from the creditor. 
In the discussion of proposed Sec.  1026.37(l) below, the Bureau notes 
that research regarding consumer comprehension and behavior and the 
results of the Bureau's consumer testing suggest that an effective 
disclosure regime minimizes the risk of consumer distraction and 
information overload by providing only information that will assist 
most consumers. The Bureau has evaluated the usefulness to consumers 
and others at early stages of the loan process of the disclosures 
required by TILA section 128(a)(18), as added by Dodd-Frank Act section 
1419. Based on that evaluation, and as discussed further below, the 
Bureau is proposing to use its authority under TILA section 105(a) and 
(f), RESPA section 19(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b), to exempt transactions subject to proposed 
Sec.  1026.19(e) from certain of the itemized disclosures required by 
TILA section 128(a)(18). In particular, for transactions subject to 
proposed Sec.  1026.19(e), proposed Sec.  1026.37(f)(1) requires the 
creditor to disclose the amounts of origination fees paid by the 
consumer to creditors and loan

[[Page 51210]]

originators in connection with the loan, but not any amounts received 
by a loan originator from the creditor. However, as discussed below 
with respect to proposed Sec.  1026.38(f)(1), the full disclosure 
required by TILA section 128(a)(18) is included in the disclosure 
requirements for transactions subject to proposed Sec.  1026.19(f). In 
other words, although certain TILA section 128(a)(18) disclosures would 
not be included in the Loan Estimate, they would be provided in the 
Closing Disclosure.
    The RESPA GFE currently required by Regulation X aggregates all 
compensation paid to all loan originators and includes a separate item 
that reflects as a ``credit'' to the consumer fees received by mortgage 
brokers from the creditor rather than the consumer. A major goal of the 
RESPA GFE disclosure requirements was to provide consumers with a clear 
disclosure of any rate-based payments being made by creditors to 
mortgage brokers who may be working with the consumer. Regulation X 
provides generally that lender and mortgage broker origination charges 
are to be included on page 2 of the RESPA GFE, in Block 1 (``Our 
origination charge''), Block 2 (``Your credit or charge (points) for 
the specific interest rate chosen''), and Line A (Your Adjusted 
Origination Charges''). See 12 CFR part 1024, appendix C (instructions 
for ``Your Adjusted Origination Charges''). Under the disclosure 
requirements in Regulation X, all charges for services related to the 
creation of the mortgage loan are to be included on the RESPA GFE in 
the single amount stated in Block 1 and the single amount in Block 2, 
as applicable. The RESPA GFE disclosure requirements prohibit creditors 
and mortgage brokers from charging any fees for getting the loan that 
are in addition to the amounts included in Blocks 1 and 2. Id. 
(instructions for ``Block 1'').
    The requirements related to the disclosures in Blocks 1 and 2 of 
the GFE have been a source of uncertainty for creditors, mortgage 
brokers, and consumers. HUD provided informal guidance to address some 
of the uncertainty in a number of its HUD RESPA FAQs and HUD RESPA 
Roundups, much of which involved where and how to disclose compensation 
paid directly and indirectly to mortgage brokers.
    In 2010, subsequent to the issuance of HUD's 2008 RESPA Final Rule, 
the Board established by regulation in Sec.  1026.36 of Regulation Z 
restrictions on the compensation of loan originators, including 
mortgage brokers.\166\ The Board adopted these restrictions only after 
concluding that disclosure of creditor-paid compensation did not 
provide sufficient protection for consumers.\167\
---------------------------------------------------------------------------

    \166\ 75 FR 58509 (Sept. 24, 2010) (Board's 2010 Compensation 
Final Rule).
    \167\ The Board's 2010 Compensation Final Rule discussed the 
history of efforts by the Board to address concerns regarding 
consumers' understanding of fees received by mortgage brokers from 
creditors. Before issuing that final rule, the Board considered 
proposed disclosures of such compensation, but had withdrawn the 
proposed disclosures because of concern that they could confuse 
consumers and undermine their decisionmaking rather than improve it. 
75 FR at 58511. A 2008 study referenced in the Board's 2010 
Compensation Final Rule indicated additional disclosures may not 
help consumers understand and avoid financial incentives for loan 
originators that may be contrary to consumer interests. Id. The 
study found that consumers were confused by, and in some cases did 
not appropriately apply, the information provided in disclosures 
about mortgage broker compensation arrangements. Macro 
International, Consumer Testing of Mortgage Broker Disclosures (July 
10, 2008), available at http://www.federalreserve.gov/newsevents/press/bcreg/20080714regzconstest.pdf.
---------------------------------------------------------------------------

    Section 1403 of the Dodd-Frank Act codified similar restrictions. 
15 U.S.C. 1639b(c). As a result of these additional consumer 
protections and based on consumer testing, the Bureau believes that 
consumers may not benefit from any additional disclosure of rate-based 
compensation when shopping for and considering the costs of a mortgage 
loan. Therefore, in proposed Sec.  1026.37(f)(1), the Bureau proposes 
to eliminate the separate GFE Blocks 1 and 2 disclosures, thereby 
eliminating the need to follow different instructions for loans 
involving a mortgage broker than for loans originated without one.
    Consistent with Dodd-Frank section 1405(b), disclosure of only the 
direct charges the consumer will pay will reduce both consumer 
confusion and the possibility of information overload, improve consumer 
understanding of the Loan Estimate form, and make it easier for 
creditors or mortgage brokers to complete the estimates of closing 
costs, which is in the interest of consumers and in the public 
interest. In addition, consistent with TILA section 105(a) and RESPA 
section 19(a), the proposed disclosure will effectuate the purposes of 
TILA and RESPA by promoting the informed use of credit and more 
effective disclosure of settlement costs by allowing consumers to focus 
only on the amounts they will pay. Furthermore, consistent with section 
1032(a) of the Dodd-Frank Act, proposed Sec.  1026.37(f) would ensure 
that the origination costs for consumer credit transactions secured by 
real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
    As noted above, Sec.  1026.37(f) is also proposed pursuant to the 
Bureau's exemption authority under TILA section 105(f). The Bureau has 
considered the factors in TILA section 105(f) and believes that, for 
the reasons discussed above, an exception is appropriate under that 
provision. Specifically, the Bureau believes that the proposed 
exemption is appropriate for all affected borrowers, regardless of 
their other financial arrangements and financial sophistication and the 
importance of the loan to them. Similarly, the Bureau believes that the 
proposed exemption is appropriate for all affected loans, regardless of 
the amount of the loan and whether the loan is secured by the principal 
residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers. Accordingly, the Bureau is proposing 
to exempt the disclosures required pursuant to Sec.  1026.19(e) from 
the requirement in TILA section 128(a)(18) to itemize fees received by 
loan originators from the creditor.
    The Bureau invites comment on whether the final rule should require 
that fees received by loan originators from the creditor be included in 
the Loan Estimate. In addition, because the foregoing analysis under 
TILA section 105(f) and the Bureau's other exemption authorities may 
apply to the disclosure of creditor-paid compensation on the Closing 
Disclosure pursuant to proposed Sec.  1026.38(f)(1), the Bureau 
solicits comments on whether the disclosure should be omitted there as 
well. While a goal of the proposed forms and requirements is to develop 
clear disclosures that help consumers understand the credit transaction 
and closing costs, another goal is to facilitate consumer comparison of 
the actual charges at consummation with the charges estimated soon 
after application. If, as proposed, the amounts received by loan 
originators from the creditor are not itemized in the Loan Estimate, 
the consumer-comparison purpose of the disclosure forms is not advanced 
by itemizing those amounts in the Closing Disclosure. In fact, 
itemizing amounts in the Closing Disclosure that are not itemized on 
the Loan Estimate may add to consumer confusion without any offsetting 
benefit.
    The Bureau believes, however, that certain additional information 
about

[[Page 51211]]

origination costs may benefit consumers at early stages of the loan 
process. In its 2008 RESPA Final Rule, HUD explained its reason for 
limiting to lump-sum amounts certain disclosures, such as for 
origination and title charges, as avoiding consumer confusion resulting 
from a proliferation of itemized fees. HUD described the RESPA GFE that 
was in place before the effective date of the 2008 RESPA final rule as 
``not inform[ing] consumers what the major costs are so that they can 
effectively shop and compare mortgage offers among different loan 
originators.'' 73 FR at 68260. Therefore HUD sought to simplify the 
mortgage loan origination process by consolidating costs into a few 
major cost categories on the RESPA GFE. Id.
    The Bureau understands HUD's reasoning in its 2008 RESPA final rule 
for establishing revised requirements for the disclosure of 
origination-related charges in the RESPA GFE form. The Bureau notes, 
however, that HUD did not specifically test the effect of separating 
the lump sum amounts for major categories of loan costs into component 
charges.\168\ As discussed in the Kleimann Testing Report, in several 
rounds of testing, the Bureau examined the effect of such itemization 
of loan costs on consumers' understanding of the loan transaction and 
their tendency and ability to shop. As a result of its testing, the 
Bureau proposes to modify the requirements for disclosing origination-
related items on the Loan Estimate. As discussed in the Kleimann 
Testing Report, at the Bureau's consumer testing, participants were 
more likely to question loan costs when they were presented in an 
itemized format, rather than as only an aggregate or lump sum of those 
costs. While participants commented favorably on lump-sum totals, they 
also asked for more detail about the fees that were included in the 
lump sum, especially when the total was a significant amount, such as 
for origination charges or title fees.
---------------------------------------------------------------------------

    \168\ See, U.S. Dep't. of Hous. and Urban Dev., Summary Report: 
Consumer Testing of the Good Faith Estimate Form (GFE), prepared by 
Kleimann Communications Group, Inc. (2008), available at http://www.huduser.org/publications/pdf/Summary_Report_GFE.pdf.
---------------------------------------------------------------------------

    Further, as discussed in the Kleimann Testing Report, participants 
more often indicated a desire to negotiate origination charges and shop 
for third-party services when provided the additional details about 
these closing costs. Itemized closing costs also prompted participants 
to ask more questions about the other costs in the Loan Estimate. 
Although participants also responded favorably to lump-sum disclosures, 
without the additional information about the cost category they were 
less likely to indicate a desire to negotiate costs, shop for 
providers, and ask for additional detail about a large cost. As 
discussed in the Kleimann Testing Report, testing indicates that 
descriptive, itemized listings of the component charges in a category 
of closing costs related to improved performance of the participants in 
understanding both the underlying services provided and the amounts 
imposed for those services. In addition, testing participants stated 
that they felt more comfortable with the transaction when provided with 
additional detail, in part because they believed they were more 
responsible consumers when they were more informed. The more-complete 
information also may help a consumer determine whether to shop for a 
particular service or services. During its outreach efforts, the Bureau 
heard anecdotal reports that creditors are often prepared to provide 
consumers with additional detail about aggregate amounts disclosed on 
the RESPA GFE, in any event. State law also may require creditors to 
provide such additional detail about certain categories of costs by 
consummation or before accepting a fee,\169\ or to retain such detail 
in their loan files.\170\
---------------------------------------------------------------------------

    \169\ See, e.g., Tex. Ins. Code Ann. Sec.  2702.053 (title 
charges); Ga. Comp. R. & Regs. 80-11-1-.01 (origination charges).
    \170\ See, e.g., North Carolina Commissioner of Banks 
Memorandum, Disclosure of Origination Fees under HUD's New RESPA 
Rules (December 3, 2010), available at http://www.nccob.gov/public/docs/Financial%20Institutions/Mortgage/OCOB_Letter_Regarding_Disclosure_of_Origination_Fees_under_HUDs_new_RESPA_Rules.pdf.
---------------------------------------------------------------------------

    Therefore, proposed Sec.  1026.37(f)(1) does not limit the 
disclosure of origination-related closing costs to an aggregate amount 
with two lines under predefined headings (as is the case with the RESPA 
GFE). Instead, proposed Sec.  1026.37(f)(1) requires that the Loan 
Estimate include a subtotal of the amounts for all ``Origination 
Charges,'' but permits the creditor to list up to 13 component items. 
The creditor must use a descriptive label for each component fee or 
charge, and must disclose the amount of that fee or charge. Proposed 
Sec.  1026.37(f)(1) requires the creditor to include under the 
subheading ``Origination Charges'' the percentage of the loan amount, 
and the resulting calculation of the dollar amount, that is charged to 
the consumer as points to lower the interest rate. The Loan Estimate 
form H-24, in appendix H to Regulation Z, includes a line for this 
disclosure immediately under the subheading ``Origination Charges.'' 
The line's label reads: ``--% of Loan Amount (Points),'' and the blank 
before the percentage sign is to be filled in with the applicable 
number.
    The Bureau does not propose to eliminate the disclosure of a single 
total amount of origination charges from the Loan Estimate form, 
however. The RESPA GFE currently shows a subtotal of the origination 
charges on Line A (``Your Adjusted Origination Charges''). Pursuant to 
Sec.  1026.37(f)(1), the Bureau proposes to show in the Loan Estimate a 
similar subtotal accompanying the subheading ``Origination Charges.'' 
The Bureau's testing of the Loan Estimate forms indicates that 
consumers can easily find and use this subtotal of the origination 
charges to evaluate and compare loans, as discussed in the Kleimann 
Testing Report. Further, the testing indicates that consumers easily 
understand that the subtotal represents the sum of the itemized fees 
and charges.
    The Bureau is proposing the requirements in Sec.  1026.37(f)(1) 
pursuant to its implementation authority under TILA section 105(a) and 
RESPA section 19(a) because disclosure of the points, component 
charges, and total origination charges will promote the informed use of 
credit and more effective advance disclosure of settlement costs, which 
are purposes of TILA and RESPA respectively. Dodd-Frank Act sections 
1032(a) and 1405(b) are also sources of authority for the proposed 
requirements in Sec.  1026.37(f)(1). The information disclosed under 
Sec.  1026.37(f)(1) will enable consumers to understand and negotiate 
fees, shop for origination services, and compare the Loan Estimate with 
any revised Loan Estimate and the Closing Disclosure, thereby ensuring 
that the features of the mortgage transactions are fully, accurately, 
and effectively disclosed to consumers in a manner that permits 
consumers to understand the costs, benefits, and risks associated with 
the mortgage transaction, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the 
reasons stated above, the proposed rule is in the interest of consumers 
and in the public interest, consistent with Dodd-Frank Act section 
1405(b).
    The Bureau is aware of concerns that permitting itemization may 
encourage creditors to list numerous component charges that the RESPA 
GFE currently requires to be consolidated into one

[[Page 51212]]

charge.\171\ Based on its testing, however, the Bureau believes that 
proposed Sec.  1026.37(f)(1), which permits some itemization but also 
requires disclosure of the subtotal of origination charges, provides 
consumers with information they want without encumbering their ability 
to compare credit offers among different creditors. The Bureau invites 
comment on whether other limits on itemization, in addition to the 
proposed limits on the number of charges that may be itemized pursuant 
to Sec.  1026.37(f)(1), should be included in the final rule and, if 
so, what those limits should be.
---------------------------------------------------------------------------

    \171\ In its 2008 RESPA Final Rule, HUD stated that: ``Current 
RESPA regulations have led to a proliferation of charges that makes 
consumer shopping and the mortgage settlement process both difficult 
and confusing, even for the most informed shoppers. Long lists of 
charges certainly do not highlight the bottom-line costs so 
consumers can shop and compare mortgage offers among different 
originators.'' 73 FR 68204, 68267 (Nov. 17, 2008).
---------------------------------------------------------------------------

    Proposed comment 37(f)(1)-1 clarifies that charges that are 
included under the subheading ``Origination Charges'' pursuant to Sec.  
1026.37(f)(1) are those charges paid by the consumer for which the 
amount is paid to the creditor or loan originator for originating and 
extending the mortgage credit. The comment includes cross-references to 
Sec.  1026.37(o)(4) for rules on rounding amounts disclosed, comment 
19(e)(3)(i)-2 for a discussion of when a fee is considered to be ``paid 
to'' a person, and comment 36(a)-1 for a discussion of the meaning of 
``loan originator.'' Proposed comment 37(f)(1)-2 clarifies that only 
loan originator charges paid directly by the consumer are included in 
the items listed pursuant to Sec.  1026.37(f)(1), but notes that 
charges paid by the creditor through the interest rate are disclosed on 
the Closing Disclosure pursuant to Sec.  1026.38(f)(1). Proposed 
comment 37(f)(1)-3 provides examples of the items that might be 
disclosed as ``Origination Charges'' on the Loan Estimate. Proposed 
comment 37(f)(1)-4 explains that if the consumer is not charged any 
points for the loan, the creditor may leave blank the percentage of 
points required by Sec.  1026.37(f)(1)(i), but must disclose the dollar 
amount of ``$0.'' Proposed comment 37(f)(1)-5 clarifies that the 
creditor may decide the level of itemization of origination charges 
that is appropriate, subject to the limitations in Sec.  
1026.37(f)(1)(ii) on the number of lines.
37(f)(2) Services You Cannot Shop For
    The fees and charges listed under the subheading ``Services You 
Cannot Shop For'' pursuant to proposed Sec.  1026.37(f)(2) are for 
services that the creditor would require in connection with the 
transaction, but that would be provided by persons other than the 
creditor or mortgage broker. Only items for which the creditor does not 
permit the consumer to shop in accordance with Sec.  
1026.19(e)(1)(vi)(A) are listed under this subheading. As discussed 
above, Sec.  1026.19(e)(3)(ii) applies the same criterion in 
determining whether an estimated charge is subsequently permitted to 
increase by a limited amount, absent other considerations set out in 
Sec.  1026.19(e)(3).
    Currently, Regulation X provides that third-party services required 
by the creditor and for which the creditor does not permit the consumer 
to shop are to be included, as applicable, in Blocks 3 (``Required 
services that we select'') and 4 (``Title services and lender's title 
insurance'') on the RESPA GFE. Regulation X also provides that charges 
for title services, like charges for origination services, are not 
itemized on the RESPA GFE, but are disclosed only as a total. See 
appendix C to Regulation X (instructions for Blocks 3, 4 (``all fees 
for title searches, examinations, and endorsements, for example, would 
be included in this total''), and 6).
    As discussed in connection with proposed Sec.  1026.37(f)(1), 
consumer testing performed on Loan Estimate forms indicated that 
itemization related to improved performance of the participants in 
understanding both the services provided and the charges imposed for 
those services. Participants appeared more likely to negotiate fees and 
shop for services when provided additional details that helped them to 
understand the nature of the services and the potential value of 
shopping for a particular service. Pursuant to Sec.  1026.37(f)(2) and 
(3), the Bureau proposes to show in the Loan Estimate subtotals and 
itemized amounts for loan costs, including for title-related services, 
on the highlighted lines with the subheadings ``Services You Cannot 
Shop For'' and ``Services You Can Shop For.'' The Bureau's testing of 
the forms indicates that consumers can easily find and appropriately 
use the subtotals of these amounts, as discussed in the Kleimann 
Testing Report.
    Pursuant to Sec.  1026.37(f)(2), each item disclosed under the 
subheading ``Services You Cannot Shop For'' must include a descriptive 
name and the estimated charge, and the creditor must provide a subtotal 
of all such items. All items for which the charges relate to the 
provision of title insurance and the handling of the closing must be 
identified beginning with ``Title--.'' The creditor may use up to 13 
lines to itemize charges under the subheading for ``Services You Cannot 
Shop For.''
    The Bureau is proposing the requirements in Sec.  1026.37(f)(2) 
pursuant to its authority under TILA section 105(a) and RESPA section 
19(a) because disclosure of third-party services required by a creditor 
for consummation of the loan, their component and total charges, and 
the fact that the creditor will limit the choice of providers for those 
services will promote the informed use of credit and more effective 
advance disclosure of settlement costs, which are purposes of TILA and 
RESPA respectively. Dodd-Frank Act sections 1032(a) and 1405(b) are 
also sources of authority for the proposed requirements in Sec.  
1026.37(f)(2). The information disclosed under Sec.  1026.37(f)(2) will 
enable consumers to understand and negotiate fees, shop for a mortgage 
loan, and compare the Loan Estimate with any revised Loan Estimate and 
the Closing Disclosure, thereby ensuring that the features of the 
mortgage transactions are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the mortgage transaction, in 
light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a). Furthermore, for the reasons stated above, the 
proposed disclosure is in the interest of consumers and in the public 
interest, consistent with Dodd-Frank Act section 1405(b).
    As discussed above, the Bureau is aware of concerns that permitting 
itemization may encourage creditors to list numerous component charges 
that the RESPA GFE currently requires to be consolidated. The Bureau 
invites comment on whether other limits on itemization, in addition to 
the proposed limits on the number of charges that may be itemized 
pursuant to Sec.  1026.37(f)(2), should be included in the final rule 
and, if so, what those limits should be.
    Proposed comment 37(f)(2)-1 cross-references comments 19(e)(1)(iv)-
1, 19(3)(i)-1, and 19(e)(3)(iv)-1 through -3 for discussions of the 
factors relevant to determining whether a consumer is permitted to shop 
and whether a creditor has exercised good faith in providing estimates 
of charges. Proposed comment 37(f)(2)-2 provides examples of the 
services that might be listed under ``Services You Cannot Shop For.'' 
Proposed comment 37(f)(2)-3 provides examples of services that would be 
listed using a phrase beginning with ``Title--.'' Proposed comment 
37(f)(2)-4 clarifies that the

[[Page 51213]]

amount listed for the lender's title insurance coverage is the amount 
of the premium without any adjustment that might be made for the 
simultaneous purchase of an owner's title insurance policy, and it 
cross-references comment 37(g)(4)-1 for the disclosure of the premium 
for owner's title insurance.
37(f)(3) Services You Can Shop For
    The fees and charges listed under the subheading ``Services You Can 
Shop For'' pursuant to proposed Sec.  1026.37(f)(3) are for services 
that the creditor would require in connection with its decision to make 
the loan, but that would be provided by persons other than the creditor 
or mortgage broker. Only items for which the creditor permits the 
consumer to shop in accordance with Sec.  1026.19(e)(1)(vi)(A) are 
listed under this subheading. Thus, all Loan Costs that are not paid to 
the creditor or mortgage broker are itemized exclusively under either 
this subheading or the subheading ``Services You Cannot Shop For.''
    Currently, Regulation X provides that third-party services required 
by the creditor but for which the creditor permits the consumer to shop 
are to be included, as applicable, in Blocks 4 (``Title services and 
lender's title insurance'') and 6 (``Required services that you can 
shop for'') on the RESPA GFE. Regulation X also provides that charges 
for title services, like charges for origination services, are not 
itemized on the RESPA GFE, but are disclosed only as a total. See 
appendix C to Regulation X (instructions for Blocks 3, 4 (``all fees 
for title searches, examinations, and endorsements, for example, would 
be included in this total''), and 6).
    As discussed in connection with proposed Sec.  1026.37(f)(1) and 
(2), consumer testing performed on Loan Estimate forms indicated that 
itemization related to improved performance of the participants in 
understanding both the services charged and the costs of those 
services. Participants appeared more likely to negotiate fees and shop 
for services when provided additional details that helped them to 
understand the nature of the services and the potential value of 
shopping for a particular service. Pursuant to Sec.  1026.37(f)(2) and 
(3), the Bureau proposes to show in the Loan Estimate subtotals and 
itemized amounts for loan costs, including for title-related services, 
on the highlighted lines with the subheadings ``Services You Cannot 
Shop For'' and ``Services You Can Shop For.'' The Bureau's testing of 
the forms indicates that consumers can easily find and appropriately 
use the subtotals of these amounts.
    Pursuant to Sec.  1026.37(f)(3), each item disclosed under the 
subheading ``Services You Can Shop For'' must include a descriptive 
name and the estimated charge, and the creditor must provide a subtotal 
of all such items. All items for which the fees and charges relate to 
the provision of title insurance and the handling of the closing must 
be identified beginning with ``Title--.'' The creditor may use up to 14 
lines to itemize charges under this subheading.
    The Bureau is proposing the requirements in Sec.  1026.37(f)(3) 
pursuant to its authority under TILA section 105(a) and RESPA section 
19(a) because disclosure of third-party services required by a creditor 
for consummation of the loan, their component and total charges, and 
the fact that the creditor will permit the consumer to choose the 
providers for those services will promote the informed use of credit 
and more effective advance disclosure of settlement costs, which are 
purposes of TILA and RESPA respectively. Dodd-Frank Act sections 
1032(a) and 1405(b) are also sources of authority for the proposed 
requirements in Sec.  1026.37(f)(3). The information disclosed under 
Sec.  1026.37(f)(3) will enable consumers to understand and negotiate 
fees, shop for a mortgage loan, and compare the Loan Estimate with any 
revised Loan Estimate and the Closing Disclosure, thereby ensuring that 
the features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
mortgage transaction, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the 
reasons stated above, the proposed disclosure is in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b).
    As discussed above, the Bureau is aware of concerns that 
itemization may encourage creditors to list numerous component charges 
that the RESPA GFE currently requires to be consolidated. The Bureau 
invites comment on whether other limits on itemization, in addition to 
the proposed limits on the number of charges that may be itemized 
pursuant to Sec.  1026.37(f)(3), should be included in the final rule 
and, if so, what those limits should be.
    Proposed comment 37(f)(3)-1 provides cross-references to comments 
19(e)(3)(ii)-1 through -3, 19(e)(3)(iii)-2, and 19(e)(3)(iv)-1 through 
-3 for discussions of determining good faith in estimating the costs 
for required services when the consumer is permitted to choose the 
provider of those services. Proposed comment 37(f)(3)-2 provides 
examples of the services that might be listed under ``Services You Can 
Shop For.'' Proposed comment 37(f)(3)-3 provides cross-references to 
comments 37(f)(2)-3 and -4 for guidance on services that would be 
labeled beginning with ``Title--'' and on calculating the amount 
disclosed for lender's title insurance, and it cross-references comment 
37(g)(4)-1 for the disclosure of the premium for owner's title 
insurance.
37(f)(4) Total Loan Costs
    Proposed Sec.  1026.37(f)(4) requires the creditor to disclose, 
labeled ``Total Loan Costs,'' the sum of the subtotals disclosed under 
Sec.  1026.37(f)(1) through (3) for Origination Charges, Services You 
Cannot Shop For, and Services You Can Shop For, respectively. This 
total represents all costs that the creditor and mortgage broker impose 
in connection with the transaction.
    Although a comparable total is not required to be stated on the 
current RESPA GFE, the same costs are included in other subtotals on 
the RESPA GFE. The Bureau believes that grouping and subtotaling these 
items in this way will provide better information to the consumer about 
costs that are specific to obtaining the mortgage loan from the 
creditor. Other costs that the consumer may encounter as part of the 
transfer of ownership of the property are generally related to items 
and requirements for which the amounts are controlled by other entities 
or persons, including governmental jurisdictions and the consumer, and 
are addressed in proposed Sec.  1026.37(g). Accordingly, disclosure of 
this information will promote the informed use of credit and more 
effective advance notice of settlement costs, consistent with TILA 
section 105(a) and RESPA section 19(a). It will also ensure that the 
features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to better understand the costs, benefits, and risks associated with 
mortgage transactions, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the 
reasons stated above, the proposed disclosure is in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b).
37(f)(5) Item Descriptions and Ordering
    Proposed Sec.  1026.37(f)(5) requires the creditor to use 
terminology that briefly

[[Page 51214]]

and clearly describes each item disclosed under Sec.  1026.37(f). 
Except for the item for points that the consumer will pay, which must 
be listed as the first item under the subheading ``Origination 
Charges,'' all items must be listed in alphabetical order under the 
applicable subheading. The current RESPA GFE and early TILA disclosure 
do not include a similar requirement. The Bureau believes that a 
consistent listing of the costs that appear on the Loan Estimate and 
the Closing Disclosure will facilitate the consumer's comparison of the 
two disclosure documents and understanding of the transaction as a 
whole. Accordingly, this requirement will effectuate the purposes of 
TILA and RESPA by promoting the informed use of credit and more 
effective advance notice of settlement costs, consistent with TILA 
section 105(a) and RESPA section 19(a), and will ensure that the 
features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to better understand the costs, benefits, and risks associated with 
mortgage transactions, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a).
37(f)(6) Use of Addenda
    Proposed Sec.  1026.37(f)(6) provides that addenda may not be used 
to itemize disclosures required by Sec.  1026.37(f)(1) or (2). If the 
creditor is not able to itemize all of the charges required to be 
disclosed in the number of lines provided under Sec.  1026.37(f)(1)(ii) 
and (f)(2)(ii), the remaining charges must be disclosed as an aggregate 
amount in the last line permitted under the applicable paragraph. An 
addendum may be used to itemize disclosures required by Sec.  
1026.37(f)(3), or any remaining charges may be disclosed as an 
aggregate amount in the last line permitted under paragraph (f)(3). The 
Bureau is proposing the requirements in Sec.  1026.37(f)(6) pursuant to 
its authority under TILA section 105(a) and RESPA section 19(a) because 
standardization of the information provided on the disclosures required 
under Sec.  1026.19(e) will provide consistent information that 
consumers will be able to use to better understand the mortgage 
transaction, shop for loans, and compare the Loan Estimate with any 
revised Loan Estimate and the Closing Disclosure, thereby promoting the 
informed use of credit and more effective advance disclosure of 
settlement costs, which are purposes of TILA and RESPA respectively. 
This standardization will also ensure that the features of the mortgage 
transactions are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to more readily understand 
the costs, benefits, and risks associated with the mortgage 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a), which is also a source of authority for 
the proposed requirements.
    Proposed comment 37(f)(6)-1 clarifies that a creditor is permitted 
to provide additional disclosures that are required by State law, as 
long as those disclosures are provided on a document whose pages are 
separate from, and are not presented as part of, the disclosures 
provided in accordance with Sec.  1026.37(f). Proposed comment 
37(f)(6)-2 provides an example of a label that may be used to reference 
an addendum as permitted under Sec.  1026.37(f)(6)(ii).
37(g) Closing Cost Details; Other Costs
    Under section 5(c) of RESPA, creditors must provide mortgage loan 
applicants with a good faith estimate of the amount or range of charges 
for specific settlement services the applicant is likely to incur in 
connection with the consummation of the loan. 12 U.S.C. 2604(c). 
Section 1024.7 of Regulation X implements this mandate by requiring 
creditors and mortgage brokers to provide the GFE, which must be 
completed in accordance with the instructions in appendix C to 
Regulation X. Appendix C sets out specific instructions for the 
information that must be disclosed on the GFE, including which loan 
costs must be included and how to identify those costs on the GFE.
    As discussed above, Dodd-Frank Act section 1032(f) requires the 
Bureau to combine these RESPA disclosures with the pre-consummation 
disclosures required by TILA. In addition to existing TILA disclosure 
requirements, section 1419 of the Dodd-Frank Act amended TILA section 
128(a) to require, in the case of a residential mortgage loan, 
disclosure of the aggregate amount of settlement charges for all 
settlement services provided in connection with the loan and the 
aggregate amount of other fees or required payments in connection with 
the loan. 15 U.S.C. 1638(a)(17).
    Pursuant to its authority under Dodd-Frank Act section 1032(f), 
TILA section 105(a), and RESPA section 19(a), the Bureau proposes to 
require creditors to disclose the loan costs and other costs imposed 
upon the consumer in tables as part of the integrated Loan Estimate. 
Proposed Sec.  1026.37(f) and (g) implement the early disclosure 
requirements in TILA and RESPA by setting out details relating to the 
costs for consummating the mortgage loan, including loan costs and 
other costs. Based on its consumer testing, the Bureau believes that 
early disclosure of estimated loan costs and other costs, as set forth 
in proposed Sec.  1026.37(f) and (g), will improve consumer 
understanding of the credit and property transactions. The Bureau 
believes that these disclosures will effectuate the purpose of TILA by 
promoting the informed use of credit and assuring a meaningful 
disclosure to consumers. The Bureau believes that the disclosures will 
also satisfy the RESPA requirement to provide a consumer with a good 
faith estimate of the amount or range of charges for specific 
settlement services the consumer is likely to incur in connection with 
the closing. Dodd-Frank Act sections 1032(a) and 1405(b) are also 
sources of authority for the proposed rule. These disclosures will 
ensure that the features of the mortgage transactions are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the mortgage transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a). 
Furthermore, for the reasons stated above, the proposed rule is in the 
interest of consumers and in the public interest, consistent with Dodd-
Frank Act section 1405(b).
    Proposed Sec.  1026.37(g) requires creditors to disclose as ``Other 
Costs'' on the Loan Estimate certain items that are in addition to the 
Loan Costs that are specifically required by the creditor before 
consummation of a credit transaction and are disclosed pursuant to 
Sec.  1026.37(f). The ``Other Costs'' disclosed pursuant to Sec.  
1026.37(g) are necessary to complete the real estate closing. These 
items usually concern payments for governmental requirements, insurance 
premiums, and items that are charged by parties to the property 
transaction other than the creditor. The creditor must disclose under 
four subheadings individual itemized charges, along with subtotals for 
categories of those itemized charges.
    Consumer feedback from the Bureau's consumer testing indicated that 
clear amounts for the total costs of the loan and real estate closing 
were also important to consumers' understanding of the complete 
transaction. Consistent with that feedback, under two additional 
subheadings, the creditor must disclose the total of Other Costs and 
the total of Loan Costs plus Other Costs. In general, all of these 
charges are currently required to be disclosed--as itemized or 
aggregate charges and

[[Page 51215]]

amounts--on the RESPA GFE, the RESPA settlement statement, or both. 
Combining these charges and totals into the disclosures required by 
Sec.  1026.19(e) will enable consumers to understand the services and 
charges related to the loan and property transactions, shop for the 
loan and certain services, and compare the Loan Estimate with any 
revised Loan Estimate and the Closing Disclosure, thereby ensuring that 
the features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
mortgage transaction, in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). Proposed comment 37(g)-
1 describes the kinds of charges that are disclosed under Sec.  
1026.37(g). Proposed comment 37(g)-2 clarifies that items that are paid 
at or before closing under the real estate contract are not disclosed 
on the Loan Estimate, except to the extent the creditor is aware of 
those charges at the time the Loan Estimate is issued. These items will 
be disclosed, however, in the Closing Disclosure pursuant to Sec.  
1026.38(f), (g), (j) and (k).
37(g)(1) Taxes and Other Government Fees
    Proposed Sec.  1026.37(g)(1) requires the disclosure of taxes and 
other government fees for recording of documents and transfer taxes 
assessed against the purchase price of a real estate contract or the 
loan amount. Recording fees differ from transfer taxes because 
recording fees are based on the nature or physical characteristics of 
the document being recorded and are not based on the sales price or 
loan amount. The Bureau is proposing the requirements in Sec.  
1026.37(g)(1) pursuant to its authority under TILA section 105(a) and 
RESPA section 19(a) because disclosure of taxes and government fees 
required to be paid in the real estate closing will educate consumers 
about costs they must be prepared to pay in the transaction, thereby 
promoting the informed use of credit and more effective advance 
disclosure of settlement costs, which are purposes of TILA and RESPA 
respectively. Dodd-Frank Act sections 1032(a) and 1405(b) are also 
sources of authority for the proposed requirements in Sec.  
1026.37(g)(1). This information also ensures that the features of the 
mortgage transactions are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the mortgage transaction, in 
light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a). Furthermore, for the reasons stated above, the 
proposed disclosure is in the interest of consumers and in the public 
interest, consistent with Dodd-Frank Act section 1405(b).
    Proposed comment 37(g)(1)-1 clarifies that recording fees are 
assessed by a government authority in order to record and index 
documents related to property transfers under State or local law. 
Proposed comment 37(g)(1)-2 clarifies that government charges that are 
not transfer taxes are disclosed with recording fees under Sec.  
1026.37(g)(1)(i). Proposed comment 37(g)(1)-3 explains that, in 
general, transfer taxes are State and local government fees on 
mortgages and home sales that are based on the loan amount or sales 
price. Proposed comment 37(g)(1)-4 clarifies that the only transfer 
taxes disclosed under Sec.  1026.37(g)(1) are transfer taxes imposed on 
the consumer, as determined under State or local law, and that if 
unpaid transfer taxes can result in a lien being placed on the property 
of the consumer, the transfer tax is disclosed under Sec.  
1026.37(g)(1). The comment further clarifies that if State or local law 
is unclear, or does not specifically attribute the transfer tax, the 
creditor may use common practice in the locality of the property to 
apportion the amount of the transfer tax disclosed as paid by the 
consumer under Sec.  1026.37(g)(1). This comment is consistent with 
guidance provided by HUD in the HUD RESPA FAQs p.34, 2 (``GFE-
Block 8''). Proposed comment 37(g)(1)-5 explains that although transfer 
taxes paid by the seller in a purchase transaction are not disclosed 
pursuant to Sec.  1026.37(g), they will be disclosed on the Closing 
Disclosure under Sec.  1026.38(g)(1)(ii). Proposed comment 37(g)(1)-6 
clarifies that the lines and labels required under Sec.  1026.37(g)(1) 
may not be deleted, and that additional items may not be listed under 
the subheading.
37(g)(2) Prepaids
    Proposed Sec.  1026.37(g)(2) requires the disclosure of prepaid 
charges for real estate property taxes, insurance premiums, and other 
items that must be paid to insure the property or satisfy real estate 
tax obligations, as well as other charges that must be satisfied before 
consummation of the credit transaction and the real estate closing. 
Proposed Sec.  1026.37(g)(2) also prescribes some of the items, and 
additional information about those items, that must be included under 
the subheading ``Prepaids.'' The Bureau is proposing the requirements 
in Sec.  1026.37(g)(2) pursuant to its authority under TILA section 
105(a) and RESPA section 19(a) because disclosure of charges that must 
be satisfied as part of the mortgage transaction will educate consumers 
about costs they must be prepared to pay, thereby promoting the 
informed use of credit and more effective advance disclosure of 
settlement costs, which are purposes of TILA and RESPA respectively. 
Dodd-Frank Act sections 1032(a) and 1405(b) are also sources of 
authority for the proposed requirements. This information ensures that 
the features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a). Furthermore, for the reasons stated 
above, the proposed disclosure is in the interest of consumers and in 
the public interest, consistent with Dodd-Frank Act section 1405(b).
    Proposed comment 37(g)(2)-1 provides examples of other periodic 
charges that are required to be paid at consummation and are disclosed 
under Sec.  1026.37(g)(2). Proposed comment 37(g)(2)-2 clarifies that 
the interest rate disclosed under Sec.  1026.37(g)(2)(iii) is the same 
interest rate that is disclosed under Sec.  1026.37(b)(2). Proposed 
comment 37(g)(2)-3 clarifies that the terms ``property taxes,'' 
``homeowner's insurance,'' and ``mortgage insurance'' have the same 
meaning as those terms are used under Sec.  1026.37(c) and its 
commentary. Proposed comment 37(g)(2)-4 clarifies that the lines and 
labels required under Sec.  1026.37(g)(2) may not be deleted.
37(g)(3) Initial Escrow Payment at Closing
    Proposed Sec.  1026.37(g)(3) requires the disclosure of the initial 
payments to establish an escrow account to pay for future recurring 
charges. Disclosure of these amounts is required under Sec.  1024.7 and 
Sec.  1024.17 of Regulation X, and the items and amounts must be 
disclosed in Block 9 of the RESPA GFE. Proposed Sec.  1026.37(g)(3) 
also prescribes some of the items, and additional information about 
those items, that must be included under the subheading ``Initial 
Escrow Payment at Closing.'' The Bureau is proposing the requirements 
in Sec.  1026.37(g)(3) pursuant to its authority under TILA section 
105(a) and RESPA section 19(a) because disclosure of initial payments 
that consumers are required to make to establish escrow accounts for 
future recurring charges will educate

[[Page 51216]]

consumers about costs they must be prepared to pay in the mortgage 
transaction, thereby promoting the informed use of credit and more 
effective advance disclosure of settlement costs, which are purposes of 
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and 
1405(b) are also sources of authority for the proposed requirements. 
This information ensures that the features of the mortgage transactions 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a). 
Furthermore, for the reasons stated above, the proposed disclosure is 
in the interest of consumers and in the public interest, consistent 
with Dodd-Frank Act section 1405(b).
    Proposed comment 37(g)(3)-1 clarifies that for any item required to 
be listed that is not charged to the consumer, the monthly payment 
amount and time period may be left blank, but the dollar amount for the 
item must be shown as zero. Proposed comment 37(g)(3)-2 clarifies that 
the aggregate escrow account adjustment required for the HUD-1 
settlement statement under Regulation X Sec.  1024.17(d)(2) is not 
included on the Loan Estimate, but is included on the Closing 
Disclosure under Sec.  1026.38(g)(3). Proposed comment 38(g)(3)-3 
clarifies that ``property taxes,'' ``homeowner's insurance,'' and 
``mortgage insurance'' have the same meaning as those terms are used 
under Sec.  1026.37(c) and its commentary. Proposed comment 37(g)(3)-4 
clarifies that the lines and labels required under Sec.  1026.37(g)(3) 
may not be deleted.
37(g)(4) Other
    Proposed Sec.  1026.37(g)(4) requires the disclosure of any other 
items that the consumer has become legally obligated to pay in 
connection with the transaction, to the extent that the existence of 
these items is known by the creditor at the time the Loan Estimate is 
issued. The label for any item that is a component of title insurance 
must include the description ``Title--'' at the beginning. The label 
for all items for which the amounts disclosed are premiums for separate 
optional insurance, warranty, guarantee, or event-coverage products 
must include the parenthetical ``(optional)'' at the end. The items 
disclosed under proposed Sec.  1026.37(g)(4) are not required by the 
creditor. These items are also not additional coverage or endorsements 
added to products required by the creditor. Accordingly, they are not 
disclosed under other paragraphs of proposed Sec.  1026.37(f) or (g) 
and are disclosed under the subheading ``Other.'' These items are 
voluntary products that the consumer may be likely or may have already 
elected to purchase, and of which the creditor knows or is aware. The 
Bureau is proposing the requirements in Sec.  1026.37(g)(4) pursuant to 
its authority under TILA section 105(a) and RESPA section 19(a) because 
disclosure of payments that consumers are likely to pay in a mortgage 
transaction will educate consumers about costs they must be prepared to 
pay at closing, thereby promoting the informed use of credit and more 
effective advance disclosure of settlement costs, which are purposes of 
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and 
1405(b) are also sources of authority for the proposed requirements. 
This information ensures that the features of the mortgage transactions 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the transaction in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a). 
Furthermore, for the reasons stated above, the proposed disclosure is 
in the interest of consumers and in the public interest, consistent 
with Dodd-Frank Act section 1405(b).
    Proposed comment 37(g)(4)-1 clarifies that any owner's title 
insurance policy premium disclosed under Sec.  1026.37(g)(4) is based 
on a basic rate, and not an ``enhanced'' premium. This comment is 
consistent with guidance provided in the HUD RESPA FAQs p.33, 
3 (``GFE-Block 5''). Proposed comment 37(g)(4)-1 also provides 
an example of a label for owner's title insurance and cross-references 
comment 37(f)(2)-4 for disclosure of the premium for lender's title 
insurance. Proposed comment 37(g)(4)-2 clarifies that any title 
insurance policy disclosed on the Loan Estimate based on a simultaneous 
issuance calculation must be disclosed by adding the full owner's title 
insurance premium plus the simultaneous issuance premium, and then 
deducting the amount of the lender's title at the full premium rate. 
Proposed comment 37(g)(4)-3 provides examples of products to which the 
description ``(optional'') applies and cross-references comments 
4(b)(7) and (b)(8)-1 through -3 and comments 4(b)(10)-1 and -2 for 
descriptions and guidance concerning disclosure of premiums for credit 
life, debt suspension, and debt cancellation coverage. Proposed comment 
37(g)(4)-4 provides examples of other items that are disclosed under 
Sec.  1026.37(g)(4) if known by the creditor at the time the Loan 
Estimate is issued and refers to comment 19(e)(3)(iii)-3 concerning 
application of the good faith requirement for services that are not 
required by the creditor.
37(g)(5) Total Other Costs
    Proposed Sec.  1026.37(g)(5) requires disclosure under the 
subheading ``Total Other Costs'' of the sum of the subtotals disclosed 
pursuant to paragraphs (g)(1) through (g)(4). The Bureau is proposing 
the requirements in Sec.  1026.37(g)(5) pursuant to its authority under 
TILA section 105(a) and RESPA section 19(a) because disclosure of the 
total of the charges consumers must pay, in addition to charges for 
consummating the loan, will promote the informed use of credit and more 
effective advance disclosure of settlement costs, which are purposes of 
TILA and RESPA respectively. Dodd-Frank Act sections 1032(a) and 
1405(b) are also sources of authority for the proposed requirements. 
This information ensures that the features of the mortgage transactions 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the mortgage transaction in light of the facts 
and circumstances, consistent with Dodd-Frank Act section 1032(a). 
Furthermore, for the reasons stated above, the proposed disclosure is 
in the interest of consumers and in the public interest, consistent 
with Dodd-Frank Act section 1405(b).
37(g)(6) Total Closing Costs
    Proposed Sec.  1026.37(g)(6) requires the disclosure under the 
subheading ``Total Closing Costs'' of a subtotal of the items disclosed 
as ``Total Loan Costs'' and ``Total Other Costs'' pursuant to 
paragraphs (f)(4) and (g)(5); the amount of any generalized lender 
credits to be provided at consummation, stated as a negative number; 
and the sum of the subtotal of loan and other costs and the (negative) 
amount of lender credits. The Bureau is proposing the requirements in 
Sec.  1026.37(g)(6) pursuant to its authority under TILA section 105(a) 
and RESPA section 19(a) because disclosure of the total amounts 
consumers must pay to consummate the loan and close the property 
transaction will promote the informed use of credit and more effective 
advance disclosure of settlement costs, which are purposes of TILA and 
RESPA respectively. Dodd-

[[Page 51217]]

Frank Act sections 1032(a) and 1405(b) are also sources of authority 
for the proposed requirements. This information ensures that the 
features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
mortgage transaction in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a). Furthermore, for the 
reasons stated above, the proposed disclosure is in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b). Proposed comment 37(g)(6)(iii)-1 clarifies that 
generalized lender credits not associated with a particular service are 
disclosed under Sec.  1026.37(g)(6)(iii), but lender credits for 
specific items disclosed on the Loan Estimate are disclosed as paid by 
others on the Closing Disclosure under Sec.  1026.38(f) and (g), as 
applicable.
37(g)(7) Item Descriptions and Ordering
    In identifying the items listed as Other Costs, the creditor is 
required to use terminology that briefly and clearly describes the 
item. All items must be listed in alphabetical order following the 
items prescribed to be included under the subheading. The current RESPA 
GFE and early TILA disclosure do not include a similar requirement. The 
Bureau is proposing the requirements in Sec.  1026.37(g)(7) pursuant to 
its authority under TILA section 105(a) and RESPA section 19(a) because 
a consistent listing of the costs that appear on the Loan Estimate and 
the Closing Disclosure will facilitate the consumer's comparison of the 
two disclosure documents and understanding of the transaction as a 
whole, thereby promoting the informed use of credit and more effective 
advance disclosure of settlement costs, which are purposes of TILA and 
RESPA respectively. This requirement also will ensure that the features 
of the mortgage transactions are fully, accurately, and effectively 
disclosed to consumers in a manner that permit consumers to understand 
the costs, benefits, and risks associated with the mortgage transaction 
in light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a).
37(g)(8) Use of Addenda
    Proposed Sec.  1026.37(g)(8) provides that addenda may not be used 
to itemize disclosures required by Sec.  1026.37(g). If the creditor is 
not able to itemize all of the charges required to be disclosed in the 
number of lines provided under a subheading, the remaining charges must 
be disclosed as an aggregate amount in the last line permitted under 
the applicable subheading. The Bureau is proposing the requirements in 
Sec.  1026.37(g)(8) pursuant to its authority under TILA section 105(a) 
and RESPA section 19(a) because standardization of the information 
provided on the disclosures required under Sec.  1026.19(e) will 
provide consistent information that consumers will be able to use to 
better understand the mortgage transaction, shop for loans, and compare 
the Loan Estimate with any revised Loan Estimate and the Closing 
Disclosure, thereby promoting the informed use of credit and more 
effective advance disclosure of settlement costs, which are purposes of 
TILA and RESPA respectively. This standardization will also ensure that 
the features of the mortgage transactions are fully, accurately, and 
effectively disclosed to consumers in a manner that permit consumers to 
more readily understand the costs, benefits, and risks associated with 
the mortgage transaction in light of the facts and circumstances, 
consistent with Dodd-Frank Act section 1032(a), which is also a source 
of authority for the proposed requirements.
    Proposed comment 37(g)(8)-1 clarifies that a creditor is permitted 
to provide additional disclosures that are required by State law, as 
long as those disclosures are provided on a separate document whose 
pages are physically separate from, and are not presented as part of, 
the disclosures provided in accordance with Sec.  1026.37.
37(h) Calculating Cash To Close
    Pursuant to its authority under TILA section 105(a) and Dodd-Frank 
Act section 1032(a), the Bureau proposes Sec.  1026.37(h), which 
requires the disclosure of the calculation of an estimate of the cash 
needed from the consumer at consummation of the transaction. In 
addition to promoting the informed use of credit (which is a purpose of 
TILA), this disclosure would ensure that the features of the 
transaction are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product, in light of the facts 
and circumstances, consistent with section 1032(a) of the Dodd-Frank 
Act. Proposed comment 37(h)-1 clarifies that the labels to be used on 
the Loan Estimate for each amount must match their description in 
proposed Sec.  1026.37(h)(1) to (7).
37(h)(1) Total Closing Costs
37(h)(2) Closing Costs To Be Financed
    Under Sec.  1026.37(h)(1), the total closing costs would be 
disclosed as calculated under Sec.  1026.37(g)(6) as a positive number. 
Under Sec.  1026.37(h)(2), the amount of the closing costs to be paid 
from loan proceeds would be disclosed as a negative number.
37(h)(3) Downpayment and Other Funds From Borrower
    Under Sec.  1026.37(h)(3), the amount of the downpayment and other 
funds from consumer at consummation would be disclosed as a positive 
number. In a purchase transaction the downpayment would be calculated 
as the difference between the purchase price of the property and the 
principal amount of the credit. In all other transactions, the funds 
from the consumer would be calculated under Sec.  1026.37(h)(5).
37(h)(4) Deposit
    Under proposed Sec.  1026.37(h)(4), the amount that is paid to the 
seller or held in trust or escrow by a third party pursuant to the 
terms of a contract for sale of real estate disclosed as a negative 
number. Proposed comment 37(h)(4)-1 clarifies that in any transaction 
other than a purchase transaction, the amount disclosed under proposed 
Sec.  1026.37(h)(4) must be $0.
37(h)(5) Funds for Borrower
    Under proposed Sec.  1026.37(h)(5), the amounts to be disclosed 
under both Sec.  1026.37(h)(3) and Sec.  1026.37(h)(5) are calculated 
by subtracting the amount of debt being satisfied by the real estate 
transaction and the amount of the credit extended by the new loan, 
excluding any amount under Sec.  1026.37(h)(2) since that amount of the 
credit extended has already been accounted for in the cash to close 
calculation by inclusion in Sec.  1026.37(h)(2). Funds for Borrower'' 
is intended to generally represent the amount anticipated to be 
disbursed to the consumer or used at consumer's discretion at 
consummation of the transaction, such as in cash-out refinance 
transactions. The determination of whether the transaction will result 
in ``Funds for Borrower'' is made under proposed Sec.  1026.37(h)(5). 
When the result of the calculation is positive, that amount is 
disclosed under Sec.  1026.37(h)(3), and $0.00 is disclosed under Sec.  
1026.37(h)(5). When the result of the calculation is negative, that 
amount is disclosed under Sec.  1026.37(h)(5), and $0.00 is disclosed 
under Sec.  1026.37(h)(3). When the result is $0.00, $0.00 is disclosed 
in both Sec. Sec.  1026.37(h)(3) and 1026.37(h)(5).

[[Page 51218]]

37(h)(6) Seller Credits
    Under proposed Sec.  1026.37(h)(6), the amount of any seller 
credit, to the extent known by the creditor, is disclosed as a negative 
number. Proposed comment 37(6)-1 clarifies that seller credits known by 
the creditor at the time of application are disclosed under Sec.  
1026.37(h)(6), and that seller credits that are not known by the 
creditor are not disclosed under Sec.  1026.37(h)(6).
37(h)(7) Adjustments and Other Credits
    Under proposed Sec.  1026.37(h)(7) the amount of other credits for 
all loan costs and other costs, to the extent known, that are to be 
paid by persons other than the loan originator, creditor, consumer, or 
seller disclosed as a negative number. Proposed comment 37(h)(7)-1 
clarifies that amounts expected to be paid by third parties not 
involved in the transaction, such as gifts from family members and not 
otherwise identified under Sec.  1026.37(h), would be included in this 
amount to the extent known by the creditor. Proposed comment 37(h)(7)-2 
clarifies that the term ``persons'' as used in Sec.  1026.37(h)(7) 
includes all individuals and any entity, regardless of the legal 
structure of such entity. Proposed comment 37(h)(7)-3 clarifies that 
only credits from parties other than the creditor or seller can be 
disclosed pursuant to Sec.  1026.37(h)(7). Seller credits and credits 
from the creditor are disclosed pursuant to Sec.  1026.37(h)(6) and 
Sec.  1026.37(g)(6)(ii), respectively. Proposed comment 37(h)(7)-4 
clarifies that other credits known by the creditor at the time of 
application are disclosed under Sec.  1026.37(h)(7), and that other 
credits that are not known by the creditor are not disclosed under 
Sec.  1026.37(h)(6).
37(h)(8) Estimated Cash To Close
    Under proposed Sec.  1026.37(h)(8) the total of the amounts 
disclosed under proposed Sec.  1026.37(h)(1) to (7) is disclosed. 
Proposed comment 37(h)(8)-1 clarifies that the sum total of Sec.  
1026.37(h)(1) through (7) must be disclosed pursuant to Sec.  
1026.37(h)(8) as either a positive number, a negative number, or zero. 
A positive number indicates the estimated amount that the consumer can 
be expected to pay at consummation to complete the transaction. A 
negative number indicates the estimated amount that the consumer can 
receive from the transaction at consummation. A result of zero 
indicates that the consumer is anticipated to neither need to pay any 
amount or receive any amount from the transaction at consummation.
37(i) Adjustable Payment Table
    For certain credit transactions secured by a dwelling, TILA section 
128(b)(2)(C)(ii) requires the disclosure of examples of adjustments to 
the regular required payment on the extension of credit based on the 
change in the interest rates specified by the contract. Among the 
examples must be the maximum regular required payment based on the 
maximum interest rate allowed under the contract. While this section 
requires examples based on changes to the interest rates, the 
requirement is triggered if either the interest rate may change or the 
``regular payments may otherwise be variable.'' 15 U.S.C. 
1638(b)(2)(C)(ii). TILA section 128(b)(2)(C)(ii) does not, however, 
require the disclosure of the existence of loan terms that may cause 
the periodic payment to adjust without a change to the interest rate.
    The Bureau believes that, to promote the informed use of credit, 
loan terms that may cause the periodic principal and interest payment 
to adjust without a change to the interest rate (such as an optional 
payment loan) or include a period during which the payment may not pay 
principal (such as an interest-only period) or is not required to make 
payments should be clearly disclosed to consumers. In the Bureau's 
consumer testing, participants generally were able to use this 
information to evaluate the credit terms of the loan disclosed.
    For example, the Bureau provided mortgage disclosures for interest-
only loans to participants using a prototype of an ``adjustable payment 
table'' at its consumer testing. The table displayed whether the loan 
had an interest-only, optional-payment, or step-payment period; the 
length of such period; the amount of the periodic principal and 
interest payment at the first adjustment; the frequency and amounts of 
subsequent adjustments; and the maximum possible principal and interest 
payment under the terms of the loan. Participants were able to use this 
table to determine the presence of the interest-only period and the 
length of the period, as well as how the principal and interest 
payments would change as a result. Also, participants were able to 
understand that the purpose of the table generally was to inform them 
about such features. They were able to determine from the prototype 
table that the credit terms did not include one of the other features, 
such as an optional-payment or step-payment period.
    Proposed Sec.  1026.37(i) requires an Adjustable Payment (AP) table 
to disclose examples of the required periodic principal and interest 
payment, including the maximum possible required principal and interest 
payment, for loans with terms that allow the principal and interest 
payment to adjust not based on adjustments to the interest rate. In 
contrast, proposed Sec.  1026.37(j) requires provision of an Adjustable 
Interest Rate table for credit transactions with terms that permit the 
interest rate to adjust after consummation. Proposed Sec.  
1026.37(i)(1) through (3) requires the disclosure to state 
affirmatively or negatively whether the loan has an interest-only, 
payment-option, or step-payment period, and the length of such period. 
Proposed Sec.  1026.37(i)(4) also requires the disclosure to state 
affirmatively or negatively whether the loan has a seasonal payment 
feature and the period during which periodic payments are affected by 
such feature. As discussed above with respect to proposed Sec.  
1026.37(a)(10), the Bureau understands that some loans may be 
structured so that periodic principal and interest payments are not 
required to be made by the consumer in between specified unit-periods 
on a regular basis.
    The format of the table as required by proposed Sec.  1026.37(o), 
and as illustrated by form H-24 in appendix H to Regulation Z, provides 
the affirmative or negative statement in bold text in the form of a 
question and answer. In addition, the examples of the periodic 
principal and interest payments are set apart from these answers by a 
subheading in bold text. The Bureau believes, based on consumer 
testing, that this format displays the information in a readily 
visible, clear, and understandable manner for consumers.
    The Bureau proposes these requirements pursuant to TILA section 
128(b)(2)(C)(ii), and its authority under TILA section 105(a), section 
1032(a) of the Dodd-Frank Act, and, for residential mortgage loans, 
section 1405(b) of the Dodd-Frank Act. The Bureau proposes to use its 
authority under TILA section 105(a) to require this information to be 
disclosed for all transactions subject to Sec.  1026.19(e) and (f). The 
Bureau believes this information may effectuate the purposes of TILA by 
allowing consumers to compare more readily the different loan terms 
available to them, and specifically, whether they contain such 
adjustable or seasonal payment terms. In addition, consistent with 
section 1032(a) of the Dodd-Frank Act, this disclosure would ensure 
that the features of the transaction are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks. In addition, the Bureau 
believes this information may improve consumer awareness and

[[Page 51219]]

understanding of transactions involving residential mortgage loans and 
is in the interest of consumers and the public interest.
    Proposed comment 37(i)-1 clarifies that under Sec.  1026.37(i), the 
AP table may only be disclosed if the periodic principal and interest 
payment may change after consummation based on an adjustment that is 
not an adjustment to the interest rate, or if the transaction is a 
seasonal payment product as described in proposed Sec.  
1026.37(a)(10)(ii)(E). The creditor is not permitted to disclose the 
table if the loan terms do not meet these requirements, even if the 
table is left blank or disclosed with an ``N/A'' within each row. The 
Bureau believes that the inclusion of the AP table in such cases would 
be unduly distracting and confusing to a consumer and could contribute 
to information overload--especially if an entire table is included only 
to be marked ``not applicable.'' As the information within the table 
must be determined dynamically, depending on each transaction's terms, 
the Bureau believes a requirement that it be omitted when not 
applicable is unlikely to be a significant additional burden. This 
comment references proposed comment 37-1, which clarifies the general 
permission in proposed Sec.  1026.37 to provide the required 
disclosures ``as applicable'' is subject to the more specific 
prohibition in proposed Sec.  1026.37(i), which does not permit 
disclosure of the AP table when it is not applicable. As the two 
tables' numbers of rows and columns are determined dynamically, 
depending on each transaction's terms, the Bureau believes a 
requirement that they be omitted when not applicable is unlikely to be 
a significant additional burden. The Bureau seeks comment on whether 
this dynamic inclusion/exclusion requirement would be unduly burdensome 
for creditors.
    Proposed comment 37(i)-2 provides guidance and examples of how the 
information required by proposed Sec.  1026.37(i)(1) through (4) should 
be disclosed. Proposed comment 37(i)(5)-1 clarifies that the applicable 
unit-period should be disclosed in the subheading required by proposed 
Sec.  1026.37(i)(5). Proposed comment 38(i)(5)-2 provides guidance on 
how to disclose the first payment adjustment required to be disclosed 
by proposed Sec.  1026.37(i)(5)(i) when the exact payment number is 
unknown at the time of the disclosure. Proposed comment 38(i)(5)-3 
provides guidance regarding how to disclose the frequency of 
adjustments to the periodic principal and interest payment after the 
initial adjustment, as required by proposed Sec.  1026.37(i)(5)(ii). 
Proposed comment 37(i)(5)-4 provides guidance regarding how to 
calculate the maximum periodic principal and interest payment for 
purposes of the disclosure required by proposed Sec.  
1026.37(i)(5)(iii).
    The format required by proposed Sec.  1026.37(o), and illustrated 
by forms H-24(b) and (c) in appendix H to this part, provides the 
information required by proposed Sec.  1026.37(i) in a concise, 
organized table. This table appears immediately adjacent to the 
Adjustable Interest Rate (AIR) Table required by proposed Sec.  
1026.37(j) for loans that also permit the interest rate to adjust after 
consummation. The table uses bold text for the questions and 
capitalized ``yes'' and ``no'' text for the answers required by 
proposed Sec.  1026.37(i)(1), (2), (3), and (4). The AP table also uses 
bold text for the subheading required by proposed Sec.  1026.37(i)(5). 
Based on its testing, the Bureau believes this format displays the 
information in a clear, readily visible, and understandable manner for 
consumers.
37(j) Adjustable Interest Rate Table
    Currently, TILA does not expressly require disclosure of the 
interest rate for closed-end credit. However, as noted above, for 
closed-end credit secured by a dwelling, TILA section 128(b)(2)(C)(ii) 
requires disclosure of examples of the periodic principal and interest 
payment based on changes to the interest rate, including the maximum 
principal and interest payment during the life of the loan. 15 U.S.C. 
1638(b)(2)(C)(ii). Regulation Z Sec.  1026.18(s) currently requires, 
for closed-end credit transactions with adjustable interest rates 
secured by real property or a dwelling, disclosure of examples of the 
interest rate and periodic principal and interest payments, including 
the maximum of these amounts under the terms of the loan. For federally 
related mortgage loans, Sec.  1024.7(d) of Regulation X currently 
requires the summary table on page one of the RESPA GFE to disclose the 
initial interest rate, labeled ``Your initial interest rate is.'' Then 
below another row of the summary table stating the initial monthly 
payment, the RESPA GFE states whether the interest rate is adjustable 
as an affirmative or negative answer, labeled ``Can your interest rate 
rise?'' If the answer is affirmative, the RESPA GFE states the maximum 
interest rate and when the first change in the interest rate will occur 
within the following sentence: ``It can rise to a maximum of ----%. The 
first change will be in ----------.''
    The Bureau believes that loan terms that can cause the interest 
rate to adjust should be clearly disclosed to consumers. At the 
Bureau's consumer testing, participants generally stated that 
information regarding potential changes to the interest rate was 
important in their evaluation of a loan. Participants generally 
understood that the interest rate affected the amount of interest due 
under the loan and used the information regarding potential changes to 
the interest rate to evaluate loans. Although proposed Sec.  
1026.37(b)(2) provides key information about interest rate adjustments, 
the Bureau believes more detail regarding an adjustable interest rate 
is important because it would provide consumers with additional detail 
regarding potential changes to the interest and periodic payments that 
may be useful in evaluating and comparing loans.
    The Bureau provided mortgage disclosures for adjustable interest 
rate loans to participants using a prototype of an ``Adjustable 
Interest Rate Table'' at its consumer testing. The table displayed 
information about the index and margin applicable to the loan, the 
initial interest rate, the minimum and maximum interest rates during 
the life of the loan, the frequency of changes to the interest rate, 
and limits on the interest rate changes. Participants were able to 
understand that the purpose of the table generally was to inform them 
about the adjustable interest rate terms under the loan and often used 
the table to compare adjustable-rate loans. The table enabled consumers 
to determine the interest rate terms of the transaction and to compare 
two adjustable-rate loans with different terms.
    Therefore, the Bureau proposes to use its authority under TILA 
section 105(a), section 1032(a) of the Dodd-Frank Act, and, for 
residential mortgage loans, section 1405(b) of the Dodd-Frank Act to 
require more detailed information regarding the terms of an adjustable 
interest rate to be disclosed in a separate table, called the 
Adjustable Interest Rate (AIR) Table, under proposed Sec.  1026.37(j). 
The information regarding the index and margin applicable to the 
interest rate changes, the lifetime cap and floor on the interest rate, 
and limits on interest rate adjustments are not currently provided 
together to consumers in a clear, readily visible, and understandable 
manner. Consumers can find this information within the promissory note, 
but they typically do not receive the promissory note until they are at 
the closing table. Disclosure of this information in the Loan Estimate 
and Closing Disclosure will enable consumers to verify whether these 
terms

[[Page 51220]]

have changed during the loan process. This is especially important if 
the index and margin have changed or the lifetime maximum interest rate 
has changed, because such changes can significantly affect the amounts 
of periodic payments over the life of the loan.
    As described above, participants in the Bureau's consumer testing 
used much of this information and generally considered interest rate 
information to be an important factor in evaluating a loan. 
Participants were able to compare this information between loans and 
between the disclosures provided after application and prior to loan 
closing. The Bureau believes this information may enable consumers to 
understand and compare credit terms more readily, effectuating the 
purposes of TILA. For similar reasons, the Bureau believes this 
disclosure will ensure that the features of the transactions are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks, in 
light of the facts and circumstances, consistent with section 1032(a) 
of the Dodd-Frank Act. The Bureau also believe this information will 
improve consumer awareness and understanding of transactions involving 
residential mortgage loans through the use of disclosures, and is in 
the interest of consumers and in the public interest.
    Proposed Sec.  1026.37(j) requires disclosure of the index and 
margin for an adjustable rate loan for which the interest rate will 
adjust according to an external index. For a loan with an interest rate 
that changes based on scheduled or pre-determined interest rate 
adjustments and does not also change based on the adjustment of an 
external index, such as a ``step-rate'' product, proposed Sec.  
1026.37(j) requires disclosure of the amount of any adjustments to the 
interest rate that are scheduled and their frequency. The table also 
requires disclosure of: (i) The interest rate at consummation of the 
loan transaction; (ii) the minimum and maximum possible interest rates 
after the introductory rate expires; (iii) the maximum possible change 
for the first adjustment of the interest rate; (iv) the maximum 
possible change for subsequent adjustments of the interest rate; (v) 
the number of months after interest for the first regularly scheduled 
periodic principal and interest payment begins to accrue when the 
interest rate may first change; and (vi) the frequency of subsequent 
interest rate adjustments.
    Proposed comment 37(j)-1 clarifies that the table required by 
proposed Sec.  1026.37(j) may only be provided in the Loan Estimate 
when the interest rate may change after consummation. The creditor is 
not permitted to disclose the table in the Loan Estimate if the 
interest rate will remain fixed, even if the table is left blank or 
disclosed with an ``N/A'' within each row. As with the AP table, the 
Bureau believes that the inclusion of the AIR table in such cases would 
be unduly distracting and confusing to a consumer and potentially cause 
information overload--especially if an entire table is included only to 
be marked ``not applicable.'' As the information within the table must 
be determined dynamically, depending on each transaction's terms, the 
Bureau believes a requirement that it be omitted when not applicable is 
unlikely to be a significant additional burden. In the discussion of 
proposed Sec.  1026.37(i) above, the Bureau seeks comment on whether 
this dynamic inclusion/exclusion requirement would be unduly burdensome 
for creditors.
    Proposed comment 37(j)(1)-1 provides guidance regarding how the 
name of the index may be shortened. Proposed comment 37(j)(2)-1 
clarifies that the table discloses the information required by proposed 
Sec.  1026.37(j)(2) only if the loan does not also permit the interest 
rate to adjust according to an external index. Proposed comment 
37(j)(3)-1 provides guidance regarding the initial interest rate that 
must be disclosed. Proposed comment 37(j)(4)-1 clarifies how the 
minimum interest rate should be disclosed if the legal obligation does 
not state a minimum rate. Proposed comment 37(j)(4)-2 clarifies how the 
maximum interest rate should be disclosed if the legal obligation does 
not state a maximum interest rate. While Sec.  1026.30 currently 
provides that a creditor must include a maximum interest rate in any 
closed-end consumer credit contract secured by a dwelling for which the 
annual percentage rate may increase after consummation, that section 
applies only to transactions secured by a dwelling. The disclosure 
required by proposed Sec.  1026.37(j)(4) applies to transactions 
subject to Sec.  1026.19(e), which includes consumer credit 
transactions secured by real property, which may not include a 
dwelling.
    Proposed comment 37(j)(5)-1 clarifies that if the exact month of 
the first adjustment to the interest rate is not known at the time the 
disclosure is provided, the earliest possible month must be disclosed 
under proposed Sec.  1026.37(j)(6). Proposed comment 37(j)(6)-1 
clarifies that when more than one limit applies to subsequent 
adjustments to the interest rate, the largest amount must be disclosed 
under proposed Sec.  1026.37(j)(6).
    The format required by proposed Sec.  1026.37(o), and illustrated 
by proposed form H-24(C) in appendix H to this part, provides the 
information required by proposed Sec.  1026.37(j) in a concise, single 
table. This table appears immediately adjacent to the AP table required 
by proposed Sec.  1026.37(i) for loans that permit the periodic 
principal and interest payment to adjust based on an adjustment other 
than an adjustment to the interest rate. The table uses concise labels 
and bold subheadings for disclosures of the frequency of interest rate 
changes and the limits on interest rate changes. Based on its testing, 
the Bureau believes this format displays the information in a clear, 
readily visible, and understandable manner for consumers.
37(k) Contact Information
    Under TILA section 128(a)(1) and Regulation Z Sec.  1026.18(a), the 
TILA disclosures must include the identity of the creditor. Comment 
18(a)-1 clarifies that the ``identity'' of the creditor must include 
the name of the creditor, but may also include the creditor's address 
and/or telephone number. As stated in appendix C to Regulation X, the 
RESPA GFE must include the name, address, phone number, and email 
address (if any) of the loan originator.
    TILA, RESPA, and their implementing regulations do not currently 
require the disclosure of contact information for the individual loan 
officer, however. Therefore, the Bureau is proposing to require that 
the Loan Estimate contain certain contact information for the loan 
officer as set forth in proposed Sec.  1026.37(k) based on its 
authority under TILA section 105(a), RESPA section 19(a), Dodd-Frank 
Act section 1032(a), and, for residential mortgage loans, Dodd-Frank 
Act section 1405(b). The Bureau believes that this contact information 
will effectuate the purposes of TILA and RESPA by facilitating the 
informed use of credit and ensuring that consumers are provided with 
greater and more timely information on the costs of the settlement 
process. Providing consumers with multiple types of contact information 
for the loan officers with whom they interact on the transaction will 
allow consumers easier access to information relevant to the 
transaction (including costs), which in turn ensures that the features 
of the transaction are fully, accurately, and effectively disclosed to 
consumers in a matter that permits consumers to understand the costs, 
benefits, and risks associated with the transaction in light of the 
facts and circumstances, consistent with Dodd-Frank Act section 
1032(a). The Bureau also believes such

[[Page 51221]]

disclosure will improve consumers' awareness and understanding of 
residential mortgage transactions, which is in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b).
    In light of the differing requirements under TILA and RESPA with 
regard to the types of contact information disclosed on the early TILA 
disclosure and RESPA GFE, respectively, the Bureau also is proposing 
Sec.  1026.37(k) based on its mandate under sections 1032(f), 1098, and 
1100A of the Dodd-Frank Act to propose rules and forms that combine the 
disclosures required under TILA and sections 4 and 5 of RESPA into a 
single, integrated disclosure for mortgage loan transactions covered by 
those laws. As discussed above, appendix C to Regulation X states that 
the RESPA GFE must include the name, address, phone number, and email 
address (if any) of the loan originator. Thus, as part of the Bureau's 
statutory mandate to integrate the TILA and RESPA disclosures, the 
Bureau must integrate the disclosures currently required under 
Regulation X with the TILA-mandated disclosures of the creditor's 
identity, discussed above.
    Furthermore, TILA section 129B(b)(1)(B), 15 U.S.C. 1639b(b)(1)(B), 
which was added by section 1402(a)(2) of the Dodd-Frank Act, mandates 
that each mortgage originator include on all loan documents any unique 
identifier of the mortgage originator provided by the Nationwide 
Mortgage Licensing System and Registry (NMLSR or NMLS). TILA section 
129B(b)(1)(B) will be implemented in a separate rulemaking. The Bureau 
proposes to use its authority under TILA section 105(a) and Dodd-Frank 
Act sections 1032(a) and, for residential mortgage loans, 1405(b) of 
the Dodd-Frank Act to propose Sec.  1026.37(k) for transactions subject 
to proposed Sec.  1026.19(e). Proposed Sec.  1026.37(k) requires 
creditors to provide certain contact and licensing information for 
themselves, the mortgage broker, and their respective loan officers, as 
applicable. The Bureau expects to harmonize this proposal with the 
rulemaking implementing TILA section 129B(b)(1)(B).
    The Bureau believes that requiring on the Loan Estimate the 
disclosure of the name and NMLSR identification number (NMLSR ID) 
number, if any, for the creditor, mortgage broker, and the loan 
officers employed by such entities, as applicable (or, if none, the 
license number or other unique identifier, if any, issued by the 
applicable State, locality, or other regulatory body with 
responsibility for licensing and/or registering such entity's or 
individual's business activities) may provide consumers with the 
information they need to conduct the due diligence necessary to ensure 
that any creditor, mortgage broker, and associated loan officer 
selected to originate the loan are appropriately licensed. Having this 
information may help consumers assess the risks associated with 
services and service providers retained in connection with the 
transaction, which in turn promotes the informed use of credit 
(consistent with TILA section 105(a)), ensures that consumers are 
provided with greater and more timely information on the costs of the 
settlement process (consistent with RESPA section 19(a)), ensures that 
the features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the transaction in light 
of the facts and circumstances (consistent with Dodd-Frank Act section 
1032(a)), and improves consumers' awareness and understanding of 
residential mortgage transactions, which is in the interest of 
consumers and the public (consistent with Dodd-Frank Act section 
1405(b)).
    Thus, under the master heading ``Additional Information About This 
Loan,'' proposed Sec.  1026.37(k)(1) requires the name and NMLSR ID, if 
any, for the creditor and the mortgage broker, if applicable. Proposed 
Sec.  1026.37(k)(2) requires the name and NMLSR ID for the loan officer 
associated with the creditor and mortgage broker identified in proposed 
Sec.  1026.37(k)(1), if applicable. In the event the creditor, mortgage 
broker, or individual loan officer has not been assigned an NMLSR ID, 
proposed Sec.  1026.37(k)(1) and (2) require the license number or 
other unique identifier issued by the applicable jurisdiction or 
regulating body with which the creditor or mortgage broker is licensed 
and/or registered to be disclosed, if any. Proposed Sec.  1026.37(k)(3) 
requires an email address and phone number for each loan officer 
identified in proposed Sec.  1026.37(k)(2).
    Proposed comment 37(k)-1 provides a description of the NMLSR ID. 
Proposed comment 37(k)-1 also references provisions of the Secure and 
Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) 
requiring individuals to register or obtain a license through the 
NMLSR, and clarifies that the information required in Sec.  
1026.37(k)(1) and (2) must be provided for any creditor, mortgage 
broker, and loan officer that has obtained an NMLSR ID. Proposed 
comment 37(k)-2 provides clarification as to the nature of the license 
or other unique identifier that is to be disclosed in the event the 
creditor, mortgage broker, or individual loan officer has not been 
assigned an NMLSR ID. Proposed comment 37(k)-3 clarifies that the loan 
officer is the individual who interacts most frequently with the 
consumer and who has an NMLSR identification number or, if none, a 
license number, or other unique identifier to be disclosed under 
proposed Sec.  1026.37(k)(2), as applicable.
37(l) Comparisons
    TILA generally focuses on disclosing the long-term cost of credit. 
However, many of the disclosures required by the statute have proven 
confusing for consumers. As discussed below and in part II above, 
Federal agencies have long recognized that certain statutorily-required 
disclosures, such as the finance charge and amount financed, are not 
effective for communicating the cost of credit to consumers and that, 
in some cases, the disclosures hinder consumers' ability to understand 
their credit terms.
    One problem with the TILA disclosures is consumer confusion between 
common contract terms, such as interest rate and loan amount, and the 
required statutory disclosures. For example, as discussed below, 
consumer testing conducted by the Board indicates that consumers are 
confused about the difference between the required TILA disclosure of 
the ``amount financed'' and the amount of their loan or sale price of 
the property. Similarly, the Board-HUD Joint Report and consumer 
testing conducted by the Board and the Bureau indicates consumer 
confusion over the difference between the contract interest rate and 
the APR, in part because both are expressed in the form of a rate and 
in part because of the difficulty in communicating to consumers the 
meaning of the APR. Third, the TILA disclosures focus on the cost of 
credit over the entire life of the loan, which is of limited use in the 
context of mortgage lending since consumers generally do not hold those 
loans for the entire loan term. As discussed below and in part III 
above, the results of the Bureau's consumer testing is consistent with 
these concerns.
    The Bureau believes that providing consumers with useful tools to 
compare loans is critical to carrying out the purposes of TILA, RESPA, 
and the Dodd-Frank Act. Accordingly, for the reasons described below, 
the Bureau is proposing to group several key metrics together on the 
first page of the Loan Estimate and shift others to the last page of 
the Loan Estimate. In addition, the

[[Page 51222]]

Bureau is proposing to provide certain items only on the Closing 
Disclosure because they are less useful to consumers early in the 
lending process and create the risk of undermining the effectiveness of 
the Loan Estimate. The Bureau proposes this approach to the TILA 
disclosures because consumer testing conducted by the Bureau, as well 
as prior testing conducted by the Board, strongly indicates that 
consumers benefit from a disclosure that highlights loan terms that are 
useful to consumers in evaluating the cost of credit and consumers' 
ability to afford those costs, such as the interest rate, monthly 
payment amount, and amount of cash needed to close the loan, and 
deemphasizes terms that have proven confusing or unhelpful to 
consumers.
    The proposed rule shifts some statutorily required disclosures from 
the first page because the Bureau's consumer testing shows that 
consumers benefit from this approach. The proposed forms focus on 
presenting the basic loan terms and risk features to consumers first, 
because these disclosures are critical to evaluating affordability and 
facilitating comparison of loans. The Bureau's consumer testing 
confirms that consumers are able to locate the longer-term measures of 
the cost of credit, notwithstanding the fact that the proposed forms 
shift those disclosures from the first page of the disclosure. 
Moreover, the Bureau's consumer testing suggests that moving the 
disclosure of the APR away from the disclosure of the loan's contract 
interest rate and placing the APR with other long-term metrics may 
reduce consumer confusion and highlight the APR as a special tool for 
comparing costs over time.
    Accordingly, proposed Sec.  1026.37(l) requires creditors to 
disclose, under the master heading ``Additional Information About This 
Loan,'' information required by TILA section 128(a)(4), (5), (8), and 
(19) in a separate table under the heading ``Comparisons,'' along with 
the statement, ``Use these measures to compare this loan with other 
loans.'' Specifically, the table required by proposed Sec.  1026.37(l) 
must contain the total payments (of principal, interest, mortgage 
insurance, and loan costs) a consumer will have made through the end of 
the 60th month after the due date of the first periodic payment (In 5 
Years), the annual percentage rate (APR), and the total interest 
percentage (TIP), as described in Sec.  1026.37(l)(1) through (3). 
Pursuant to proposed Sec.  1026.37(o) and proposed form H-24, the table 
required by proposed Sec.  1026.37(l) will appear on the final page of 
the Loan Estimate, apart from the key loan terms identified on the 
first page of the Loan Estimate. Based on research regarding consumer 
comprehension and behavior and the results of the Bureau's consumer 
testing, as discussed above, the Bureau believes that the disclosure of 
these calculations on the final page of the Loan Estimate and apart 
from the key loan terms may enhance the overall understanding of the 
disclosures.
37(l)(1) In Five Years
    TILA section 128(a)(5) and (8) requires creditors to disclose the 
sum of the amount financed and the finance charge using the term 
``Total of Payments,'' and a descriptive explanation of that term. 15 
U.S.C. 1638(a)(5), (8). Current Sec.  1026.18(h) implements these 
statutory provisions by requiring creditors to disclose the ``total of 
payments,'' using that term, and a descriptive explanation that the 
figure represents the amount the consumer will have paid after making 
all scheduled payments. Current comment 18(h)-2 provides that creditors 
calculate the total of payments amount for transactions subject to 
current Sec.  1026.18(s) using the rules in current Sec.  1026.18(g) 
and associated commentary and, for adjustable-rate transactions, 
comments 17(c)(1)-8 and -10. Current comment 18(g)-1 provides guidance 
to creditors on the amounts to be included in the total of payments 
calculation. Current comment 18(h)-1 allows creditors to revise the 
total of payments descriptive statement for variable-rate transactions 
to convey that the disclosed amount is based on the annual percentage 
rate and may change. In addition, current comments 18(h)-3 and -4 
permit creditors to omit the total of payments disclosure in certain 
single-payment transactions and for demand obligations that have no 
alternate maturity rate.
    The total of payments disclosure has historically been confusing 
for consumers. For example, consumer testing conducted for purposes of 
the Board's 2009 Closed-End Proposal found that many consumers did not 
understand the total of payments disclosure and that, even when 
consumers understood the meaning, most did not consider it important in 
their decision-making process. Macro 2009 Closed-End Report at 11, v. 
Based on the Board's testing and prior research about the total of 
payment disclosure, the Bureau considered alternative metrics that 
might prove more useful to consumers. As discussed above, one problem 
with the TILA-required disclosures is that they are calculated over the 
entire length of the loan, although the Bureau understands that 
consumers may typically only hold mortgage loans for five to seven 
years before selling the property or refinancing. Accordingly, the 
total of payments over the life of the loan is such a large number that 
consumers often find it overwhelming or unrealistic, and therefore not 
a meaningful disclosure of the cost of credit. Furthermore, the total 
of payments over the life of the loan does not provide an accurate 
basis for identifying the lowest cost loan for the time a consumer will 
realistically hold the loan.
    Since the Board's testing has already shown that consumers do not 
understand the total of payments disclosure, the Bureau's testing 
focused on expressions of dollar amounts that are more likely to be 
understood and used by consumers. The Bureau also recognized that 
simply providing one disclosure would not give consumers an accurate 
view of how much their payments actually reduce the principal balance 
of the loan, which would help consumers pick the loan that puts them in 
the best financial position after the five to seven year mark if they 
do not sell the property or refinance. Accordingly, the Bureau 
developed a two-element disclosure.
    First, proposed Sec.  1026.37(l)(1)(i) requires the creditor to 
disclose the dollar amount of the total principal, interest, mortgage 
insurance, and loan costs (disclosed pursuant to proposed Sec.  
1026.37(f)) scheduled to be paid through the end of the 60th month 
after the due date of the first periodic payment, expressed as a dollar 
amount, along with the statement ``Total you will have paid in 
principal, interest, mortgage insurance, and loan costs.'' Proposed 
comment 37(l)(1)(i)-1 clarifies that the amount disclosed pursuant to 
Sec.  1026.37(l)(1)(i) is the sum of principal, interest, mortgage 
insurance, and loan costs scheduled to be paid through the end of the 
60th month after the due date of the first periodic payment. The 
comment also clarifies that, for purposes of Sec.  1026.37(l)(1)(i), 
interest is calculated using the fully-indexed rate at consummation and 
includes any prepaid interest. The comment further provides that, for 
purposes of Sec.  1026.37(l)(1)(i), the creditor assumes that the 
consumer makes payments as scheduled and on time. In addition, proposed 
comment 37(l)(1)(i)-1 provides that, for purposes of Sec.  
1026.37(l)(1)(i), mortgage insurance is defined pursuant to comment 
37(c)(1)(i)(C)-1, and includes prepaid or escrowed mortgage insurance, 
and that loan costs are those costs disclosed

[[Page 51223]]

pursuant to paragraph 1026.37(f). Proposed comment 37(l)(1)(i)-2 
provides guidance to creditors on calculating principal and interest 
disclosures for loans with negative amortization features.
    Second, proposed Sec.  1026.37(l)(1)(ii) requires the creditor to 
disclose the dollar amount of principal scheduled to be paid through 
the end of the 60th month after the due date of the first periodic 
payment, expressed as a dollar amount, along with the statement 
``Principal you will have paid off.'' Proposed comment 37(l)(1)(ii)-1 
clarifies that the disclosure required by proposed Sec.  
1026.37(l)(1)(ii) is calculated in the same manner as the disclosure 
required by proposed Sec.  1026.37(l)(1)(i), provided, however, that 
the disclosed amount reflects only the total payments to principal 
through the end of the 60th month after the due date of the first 
periodic payment.
    Proposed Sec.  1026.37(l)(1)(i) implements the requirements of TILA 
section 128(a)(5) and (8) for transactions subject to proposed Sec.  
1026.19(e). The Bureau proposes to modify the total of payments 
disclosure to reflect the total payments over five years, rather than 
the life of the loan, on the Loan Estimate provided to consumers near 
the time of application. The Bureau proposes this modification pursuant 
to its authority under TILA section 105(a), Dodd-Frank Act 1032(a), 
and, for residential mortgage loans, Dodd-Frank Act section 1405(b). By 
reducing the scope of the total of payments disclosure to five years 
after the due date of the first periodic payment, the disclosure more 
accurately reflects the typical life of a mortgage loan, thus 
effectuating the purposes of TILA by enhancing consumer understanding 
of mortgage transactions. For this same reason, the proposed 
modification will ensure that the features of the mortgage transaction 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the mortgage transaction, in light of the facts 
and circumstances, consistent with Dodd-Frank Act section 1032(a), and 
will improve consumer awareness and understanding of residential 
mortgage loans and is in the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b).
    As discussed in the Kleimann Testing Report, consumer testing 
conducted by the Bureau indicates that consumers can use the ``In 5 
Years'' disclosure to compare loans they are considering and that, in 
some instances, these disclosures increase consumers' understanding of 
loan costs. For example, some consumers who did not understand from 
page one of the Loan Estimate that a loan provided for interest-only 
payments for a specified period were able to recognize that they would 
be making interest-only payments as a result of the principal paid ``In 
5 Years'' disclosure. Consumer participants understood the relationship 
of principal and interest and generally wanted to choose loans with 
more principal paid off during the first five years. Industry feedback 
provided in response to the Bureau's Small Business Review Panel 
Outline stated that implementation of the ``In 5 Years'' disclosure 
will require additional training and systems changes, and that it is 
unclear that the disclosure will assist consumers. The Bureau has 
considered this feedback but, in light of the research and consumer 
testing results discussed above, nevertheless believes that the ``In 5 
Years'' disclosure will provide important benefits to consumers by 
disclosing the total of payments over a period that more accurately 
reflects the typical life of a mortgage loan.
    The Bureau also proposes to exercise its authority under TILA 
section 105(a), Dodd-Frank Act section 1032(a), and, for residential 
mortgage loans, Dodd-Frank Act section 1405(b) to include mortgage 
insurance and other loan costs in the ``In 5 Years'' calculation. TILA 
section 128(a)(5) defines the total of payments as the sum of the 
amount financed and the finance charge. However, the Bureau believes 
including mortgage insurance and other loan costs, rather than the 
finance charge, in the calculation may enhance consumer understanding 
of mortgage transactions because consumers can cross-reference other 
sections of the Loan Estimate to determine what costs are actually 
included in the ``In 5 Years'' disclosure, permitting consumers to more 
readily compare loans, consistent with the purposes of TILA. In 
contrast, as discussed below, consumers have no way to know which costs 
are included in the finance charge. For these same reasons, the Bureau 
believes that the proposed modification will ensure that the features 
of consumer credit transactions secured by real property are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances, consistent with section 1032(a) of the Dodd-Frank Act, 
and will improve consumer awareness and understanding of residential 
mortgage loans and be in the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b).
    Proposed Sec.  1026.37(l)(1)(ii) requires creditors to disclose the 
dollar amount of principal scheduled to be paid through the end of the 
60th month after the due date of the first periodic payment. The Bureau 
proposes this additional requirement pursuant to its authority under 
TILA section 105(a) and Dodd-Frank Act section 1032(a). As discussed 
above, the Bureau believes the proposed disclosure will enhance 
consumer understanding of the allocation of their payments between 
principal and interest and help consumers pick the loan that puts them 
in the best financial position after the five to seven year mark if 
they do not sell the property or refinance, consistent with the 
purposes of TILA. For these same reasons, consistent with section 
1032(a) of the Dodd-Frank Act, the Bureau believes that the disclosure 
would ensure that the features of consumer credit transactions secured 
by real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
    The Bureau recognizes, however, that the total of payments 
disclosure is commonly used by creditors and supervisory agencies for 
compliance purposes, as well as consumer advocates. Therefore, under 
the proposal, creditors would be required to disclose a modified total 
of payments over the loan's full term in the Closing Disclosure 
provided to consumers at least three days prior to consummation. See 
proposed Sec.  1026.38(o)(1).
37(l)(2) Annual Percentage Rate
    TILA section 128(a)(4) and (8) requires creditors to disclose the 
annual percentage rate, together with a brief descriptive statement of 
the annual percentage rate. 15 U.S.C. 1638(a)(4), (a)(8). Current Sec.  
1026.18(e) implements these statutory provisions by requiring creditors 
to disclose the ``annual percentage rate,'' using that term, and a 
brief description such as ``the cost of your credit as a yearly rate.'' 
In addition, TILA section 122(a) requires that the annual percentage 
rate be more conspicuous than other disclosures, except the disclosure 
of the creditor's identity. 15 U.S.C. 1632(a). This requirement is also 
implemented in current Sec.  1026.18(e).
    Concerns have been raised repeatedly over the last two decades that 
consumers are confused by what the APR represents and do not use it for 
its intended purpose: to compare loans.

[[Page 51224]]

The Board-HUD Joint Report noted that consumers generally do not 
understand what the APR represents or how to use it, and that some 
consumers mistake the APR with the interest rate. Board-HUD Joint 
Report at 10. Consumer testing conducted for purposes of the Board's 
2009 Closed-End Proposal revealed these same problems with the APR. 74 
FR at 43296. The Board tested alternative descriptions and formats for 
the APR, but the APR continued to confuse consumers. Id. The Board's 
consumer testing also indicated that consumers did not use the APR to 
compare loans but, instead, focused on the interest rate, monthly 
payment amount, and settlement costs when comparing loan offers. Id. at 
43296-97.
    As discussed in the Kleimann Testing Report, the Bureau's consumer 
testing similarly indicates consumer confusion regarding the APR 
disclosure and that consumers do not use the APR when comparing loans. 
Like the prior testing, the Bureau's consumer testing indicates that 
consumers do not grasp the concept of the APR and often confuse it with 
the loan's interest rate. Most consumers confused the APR with the 
interest rate and misinterpreted the meaning of the disclosure. In 
Round 3 of the Bureau's consumer testing, the statement ``This is not 
your interest rate'' was added to the description of the APR to reduce 
consumer confusion between the interest rate and the APR. While most 
consumer participants understood from that statement that the interest 
rate and APR were separate items, they still had trouble understanding 
what the APR means, how it relates to the interest rate, and how it is 
useful as a comparison. Participants also misunderstood the APR in 
other ways, such as the average interest rate of other loans, an 
interest rate imposed once a year, and an interest rate listed by the 
creditor to mislead the consumer.
    Pursuant to its implementation authority under TILA section 105(a), 
the Bureau proposes Sec.  1026.37(l)(2) to implement the requirements 
of TILA section 128(a)(4) and (8) for transactions subject to proposed 
Sec.  1026.19(e) by requiring creditors to disclose the ``annual 
percentage rate'' and the abbreviation ``APR,'' together with the 
following statement: ``Your costs over the loan term expressed as a 
rate. This is not your interest rate.'' Further, in light of consumer 
confusion over the APR and the fact that consumers do not appear to use 
the APR in comparing loan offers, the Bureau proposes to exercise its 
authority under TILA section 105(a) and (f), Dodd-Frank Act section 
1032(a) and, for residential mortgage loans, Dodd-Frank Act section 
1405(b), to except transactions subject to Sec.  1026.19(e) from the 
requirement of TILA section 122(a) that the annual percentage rate 
disclosure be more conspicuous than other disclosures, except the 
disclosure of the creditor's identity. As discussed above, testing 
conducted by the Board and the Bureau consistently indicate consumer 
confusion over the APR. When the Bureau added the statement ``this is 
not your interest rate'' to the descriptive explanation of the APR 
during its consumer testing, although confusion was reduced, 
participants still did not understand how to use the APR. Instead, 
participants used measures they readily understood, such as the maximum 
interest rates, maximum periodic payments, and closing cost details to 
evaluate, compare, and verify loan terms. Participants were able to use 
these measures to evaluate and compare loans, making sophisticated 
trade-offs, often based on rationales involving their personal 
circumstances.
    Accordingly, the Bureau believes the proposed exemption may enhance 
consumer understanding by separating the APR disclosure from the 
interest rate disclosure, which could prevent consumer confusion over 
the two rates and reduce the possibility of information overload for 
consumers attempting to compare loan terms, consistent with the 
purposes of TILA. The Bureau believes that grouping the APR with the 
``In 5 Years'' and Total Interest Percentage disclosures will also 
enhance consumer understanding by emphasizing that the APR is a special 
metric created specifically for comparison purposes that may help 
consumers think about their costs over their life of the loan. In 
addition, the purpose of the integrated disclosure under TILA section 
105(b) and RESPA section 4(a) is to ``aid the borrower * * * in 
understanding the transaction by utilizing readily understandable 
language to simplify the technical nature of the disclosures.'' The 
Bureau believes that placing measures that are readily understandable 
to consumers on the first page of the Loan Estimate, and complex 
measures that consumers find confusing on latter pages, meets this 
statutory objective.
    The Bureau has also considered the factors in TILA section 105(f) 
and believes that an exception is appropriate under that provision. 
Specifically, the Bureau believes that the proposed exemption is 
appropriate for all affected borrowers, regardless of their other 
financial arrangements and financial sophistication and the importance 
of the loan to them. Similarly, the Bureau believes that the proposed 
exemption is appropriate for all affected loans, regardless of the 
amount of the loan and whether the loan is secured by the principal 
residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers. As discussed above, consumer testing 
and historical research indicate that consumers do not understand the 
APR and do not use it when shopping for a loan. Highlighting the APR on 
the disclosure form contributes to overall consumer confusion and 
information overload, complicates the mortgage lending process, and 
hinders consumers' ability to understand important loan terms. As such, 
the Bureau believes that the proposed exemption from the requirement 
that the APR be disclosed more conspicuously than other disclosures 
will not undermine the goal of consumer protection but, instead, will 
improve consumer understanding of the loans. For all these reasons, the 
Bureau believes that the proposed APR disclosure will improve consumer 
awareness and understanding of residential mortgage loans and is in the 
interest of consumers and the public, consistent with Dodd-Frank Act 
section 1405(b), and that, consistent with section 1032(a) of the Dodd-
Frank Act, the disclosure would ensure that the features of consumer 
credit transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.
    In response to the Bureau's Small Business Review Panel Outline, 
some consumer advocacy groups expressed concern about disclosing the 
APR on the final page of the Loan Estimate and, as discussed below, on 
the final page of the Closing Disclosure. Specifically, this feedback 
stated that the APR is a widely recognized disclosure that is a useful 
tool for consumers in comparing and understanding mortgage loans, and 
that deemphasizing the APR is not the most effective way of dealing 
with known problems with the APR disclosure. Instead, these groups 
suggested that the APR disclosure can be improved through an all-in 
APR, better descriptive language of the APR, or by supplementing the 
APR with other disclosures. For example, consumer advocacy groups 
recommended that the APR be more prominent than the

[[Page 51225]]

interest rate on the Loan Estimate and to be disclosed in a graphic 
format.
    The Bureau has considered this feedback, but based on the long 
history of consumer confusion of the APR, the Board's prior efforts to 
improve the APR disclosure, and the Bureau's testing of various 
descriptive statements of the APR, described above, the Bureau believes 
that the proposed approach to the APR could provide important benefits 
to consumers by emphasizing the difference between the APR and the 
contract interest rate. The Bureau is, however, proposing to improve 
the APR disclosure through a more inclusive definition of the finance 
charge, as discussed above, and a descriptive statement that clearly 
distinguishes the APR from the interest rate. The Bureau also intends 
to develop supplemental educational materials in booklets and its Web 
site that will further explain how the APR differs from the interest 
rate, how it provides a good way of comparing the entire costs of the 
loan over the entire term, and why consumers may want to use both the 
``In 5 Years'' and APR figures to think about their financial futures.
37(l)(3) Total Interest Percentage
    The Dodd-Frank Act amended TILA to add new section 128(a)(19), 
which requires that, in the case of a residential mortgage loan, the 
creditor disclose the total amount of interest that the consumer will 
pay over the life of the loan as a percentage of the principal of the 
loan. That section also requires that the disclosure be computed 
assuming the consumer makes each monthly payment in full and on time, 
and does not make any over-payments.
    The Bureau proposes Sec.  1026.37(l)(3) to implement TILA section 
128(a)(19) by requiring creditors to disclose the total interest 
percentage, using that term and the abbreviation ``TIP,'' and requiring 
creditors to disclose the descriptive statement ``The total amount of 
interest that you will pay over the loan term as a percentage of your 
loan amount.'' Proposed Sec.  1026.37(l)(3) also provides that the 
``total interest percentage'' is the total amount of interest that the 
consumer will pay over the life of the loan, expressed as a percentage 
of the principal of the loan. Proposed comments 37(l)(3)-1 through -3 
provide further guidance to creditors on calculation of the total 
interest percentage. Proposed comment 37(l)(3)-1 provides that, when 
calculating the total interest percentage, the creditor assumes that 
the consumer will make each payment in full and on time, and will not 
make any additional payments. Proposed comment 37(l)(3)-2 provides 
that, for adjustable-rate mortgages, Sec.  1026.37(l)-(3) requires that 
the creditor compute the total interest percentage using the fully-
indexed rate and that, for step-rate mortgages, Sec.  1026.37(l)(3) 
requires that the creditor compute the total interest percentage in 
accordance with Sec.  1026.17(c)(1) and its commentary. Proposed 
comment 37(l)(3)-3 provides that, for loans that permit negative 
amortization, Sec.  1026.37(l)(3) requires that the creditor compute 
the total interest percentage using the minimum payment amount until 
the consumer must begin making fully amortizing payments under the 
terms of the legal obligation.
    As discussed in the Kleimann Testing Report, the Bureau's consumer 
testing indicates that consumers are able to use the total interest 
percentage to compare loans, and can generally recognize that better 
loans disclose a lower total interest percentage. Along with the ``In 
Five Years'' disclosure, total interest percentage was cited as the 
most useful comparative tool. However, some consumers did not 
understand the total interest disclosure and questioned why it is 
included on the form. Even consumers who used the total interest 
percentage disclosure generally did not understand the more technical 
aspects of the total interest percentage disclosure, such as the 
difficulty of using the measure in an adjustable-rate loan. Concerns 
were also raised during the Bureau's Small Business Review Panel, by 
industry in feedback provided in response to the Small Business Review 
Panel Outline, and in feedback received through the Bureau's Web site 
that the total interest percentage could be difficult to calculate and 
explain to consumers, and would not likely be helpful to consumer. See, 
e.g., Small Business Review Panel Report at 20.
    In light of the Bureau's testing of the total interest percentage 
disclosure and the concerns about consumers' ability to understand the 
disclosure, the Bureau proposes to require creditors to disclose the 
descriptive statement, ``The total amount of interest that you will pay 
over the loan term as a percentage of your loan amount.'' The Bureau 
proposes this pursuant to its authority under TILA section 105(a), 
Dodd-Frank Act section 1032(a), and, for residential mortgage loans, 
Dodd-Frank Act section 1405(b). Based on consumer testing, the Bureau 
believes that consumer understanding of the total interest percentage 
disclosure may be enhanced through the descriptive statement of the 
total interest percentage, consistent with the purposes of TILA, and 
that the proposed descriptive statement is in the interest of consumers 
and the public, consistent with section 1405(b) of the Dodd-Frank Act. 
For these reasons, the Bureau also believes that the disclosure of the 
descriptive statement regarding the total interest percentage may 
ensure that the features of consumer credit transactions secured by 
real property are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances, consistent with section 1032(a) of the 
Dodd-Frank Act.
    Notwithstanding the proposed modifications, based on concerns 
raised by the Small Business Review Panel, industry feedback, and its 
own consumer testing, the Bureau remains concerned that the total 
interest percentage may not be a useful tool for consumers and could 
create confusion and contribute to information overload. In light of 
these concerns, the Bureau alternatively proposes to use its exception 
and modification authority under TILA section 105(a) and (f), Dodd-
Frank Act section 1032(a), and, for residential mortgage loans, Dodd-
Frank Act section 1405(b) to exempt transactions subject to proposed 
Sec.  1026.19(e) and (f) from the requirements of TILA section 
128(a)(19). The Bureau believes the proposed exemption will carry out 
the purposes of TILA, consistent with TILA section 105(a), by avoiding 
consumer confusion and information overload, thereby promoting the 
informed use of credit. For these same reasons, the proposed exemption 
will help ensure that the features of the mortgage transaction are 
fully, accurately and effectively disclosed to consumers in a manner 
that permits consumers to understand the costs, benefits, and risks 
associated with the mortgage transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a), and will 
improve consumer awareness and understanding of residential mortgage 
loans and is in the interest of consumers and the public, consistent 
with Dodd-Frank Act section 1405(b). Finally, the Bureau has considered 
the factors in TILA section 105(f) and believes that, for the reasons 
discussed above, an exception may be appropriate under that provision. 
Specifically, the Bureau believes that the proposed exemption is 
appropriate for all affected borrowers, regardless of their other 
financial arrangements and financial sophistication and the importance 
of the loan to them. Similarly, the Bureau believes that the proposed 
exemption is appropriate for all affected loans, regardless of the 
amount of the loan and

[[Page 51226]]

whether the loan is secured by the principal residence of the consumer. 
Furthermore, the Bureau believes that, on balance, the proposed 
exemption will simplify the credit process without undermining the goal 
of consumer protection or denying important benefits to consumers. 
Based on these considerations, the results of the Bureau's consumer 
testing, and the analysis discussed elsewhere in this proposal, the 
Bureau believes that the proposed exemption may be appropriate. The 
Bureau solicits comment on the proposed exemption and, alternatively, 
whether the Bureau should implement the total interest percentage 
disclosure only in the Closing Disclosure.
Other Statutory Disclosures
    As discussed above, the research regarding consumer comprehension 
and behavior and the results of the Board's and the Bureau's consumer 
testing suggest that an effective disclosure regime minimizes the risk 
of consumer distraction and information overload by providing only 
information that will assist most consumers. The Bureau therefore 
carefully evaluated each statutory element required under TILA, whether 
the element has been required for decades or is newly imposed by Dodd-
Frank, as to its usefulness to consumers and others at early stages of 
the loan process, during the real estate closing process, and as 
general reference information over the life of the loan. Based on that 
analysis, the Bureau is proposing to use its authority under TILA 
section 105(a) and (f), Dodd-Frank Act section 1032(a), and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b), to except 
from and modify the timing requirements for certain disclosures 
required by TILA section 128. Specifically, those disclosures are: The 
amount financed (TILA section 128(a)(2)), the finance charge (TILA 
section 128(a)(3)), a statement that the creditor is taking a security 
interest in the consumer's property (TILA section 128(a)(9)), a 
statement that the consumer should refer to the appropriate contract 
document for information about their loan (TILA section 128(a)(12)), a 
statement regarding certain tax implications (TILA section 128(a)(15)), 
and the creditor's cost of funds (TILA section 128(a)(17)).
    The Bureau believes the proposed exemptions discussed above will 
carry out the purposes of TILA, consistent with TILA section 105(a), by 
avoiding consumer confusion and information overload, thereby promoting 
the informed use of credit, as discussed above. For these same reasons, 
the proposed exemptions will help ensure that the features of the 
mortgage transaction are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the mortgage transaction, 
consistent with Dodd-Frank Act section 1032(a), and will improve 
consumer awareness and understanding of residential mortgage loans and 
are in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b). The Bureau has considered the factors in 
TILA section 105(f) and believes that, for the reasons discussed above, 
an exception is appropriate under that provision. Specifically, the 
Bureau believes that the proposed exemption is appropriate for all 
affected borrowers, regardless of their other financial arrangements 
and financial sophistication and the importance of the loan to them. 
Similarly, the Bureau believes that the proposed exemption is 
appropriate for all affected loans, regardless of the amount of the 
loan and whether the loan is secured by the principal residence of the 
consumer. Furthermore, the Bureau believes that, on balance, the 
proposed exemption will simplify the credit process without undermining 
the goal of consumer protection or denying important benefits to 
consumers. Based on these considerations, the results of the Bureau's 
consumer testing, and the analysis discussed elsewhere in this 
proposal, the Bureau believes that the proposed exemptions are 
appropriate. The proposed exclusion of the finance charge and the 
amount financed from the Loan Estimate is discussed at length below.
    Finance charge. TILA section 128(a)(3) and (8) requires creditors 
to disclose the ``finance charge'' and a brief descriptive statement of 
the finance charge. 15 U.S.C. 1638(a)(3), (a)(8). For transactions 
subject to RESPA, TILA section 128(b)(2)(A) requires creditors to 
provide this disclosure not later than three business days after the 
creditor receives the consumer's application, and at least seven 
business days before consummation. 15 U.S.C. 1638(b)(2)(A). Current 
Sec.  1026.18(d) implements TILA section 128(a)(3) and (8) by requiring 
creditors to disclose the ``finance charge,'' using that term, and a 
brief description such as ``the dollar amount the credit will cost 
you.'' For transactions subject to RESPA, current Sec.  1026.19(a) 
requires creditors to provide the finance charge disclosure not later 
than the third business day after the creditor receives the consumer's 
application.
    Federal agency research has long recognized consumer confusion over 
the finance charge. The Board-HUD Joint Report found that TILA 
disclosures fall short of meeting their goal of informing consumers 
about the cost of credit, in part because of consumer confusion over 
the finance charge. Board-HUD Joint Report at III. Evidence of consumer 
confusion over the finance charge was echoed in the Board's 2009 
Closed-End Proposal. 74 FR at 43307-08. The Board's consumer testing 
indicates that consumers often fail to understand that the finance 
charge contains both interest and fees,\172\ and that consumers place 
very little value on the finance charge when making decisions regarding 
their loan.\173\ The report stated that ``[testing] participants * * * 
generally disregarded the finance charge when reading their TILA 
statements.''\174\
---------------------------------------------------------------------------

    \172\ Macro 2009 Closed-End Report at 11, 41 (stating that, in 
Round 8 of the testing, ``[m]ost [participants] thought the finance 
charges were equal to the amount of interest that the borrower would 
pay over time; only a few understood the finance charges shown on 
the form included fees as well as interest'').
    \173\ For example, only one of the nine participants in one 
round of the Board's testing found the finance charge useful. Id. at 
35. In another round, most participants said that they would not use 
the finance charge in their decision-making. Id. at 28.
    \174\ Id. at 41.
---------------------------------------------------------------------------

    For these reasons, the Bureau proposes to exercise its authority 
under TILA section 105(a) and (f) and Dodd-Frank sections 1032(a) and, 
for residential mortgage loans, 1405(b), to except transactions subject 
to proposed Sec.  1026.19(e) from the requirements of TILA section 
128(a)(3) and (8) as it applies to the Loan Estimate provided to 
consumers within three business days of application. As discussed 
above, the Bureau believes that the proposed exclusion of the finance 
charge disclosure from the Loan Estimate effectuates the purposes of 
TILA by avoiding consumer confusion and information overload 
historically associated with the finance charge disclosure, thereby 
improving the informed use of credit. The Bureau has considered the 
factors in TILA section 105(f) and believes that, for the reasons 
discussed above, an exception is appropriate under that provision. 
Specifically, the Bureau believes that the proposed exemption is 
appropriate for all affected borrowers, regardless of their other 
financial arrangements and financial sophistication and the importance 
of the loan to them. Similarly, the Bureau believes that the proposed 
exemption is appropriate for all affected loans, regardless of the 
amount of the loan and whether the loan is secured by the principal

[[Page 51227]]

residence of the consumer. Furthermore, the Bureau believes that, on 
balance, the proposed exemption will simplify the credit process 
without undermining the goal of consumer protection or denying 
important benefits to consumers. Based on these considerations, the 
results of the Bureau's consumer testing, and the analysis discussed 
above, the Bureau believes that the proposed exemption is appropriate.
    Specifically, the Bureau does not believe that disclosure of the 
finance charge on the Loan Estimate provides a meaningful benefit to 
consumers in the form of useful information or protection. Rather, the 
Bureau believes that disclosure of the finance charge to consumers 
early in the lending process actually complicates and hinders the 
process of mortgage lending because consumers do not understand the 
disclosure. Removing the finance charge disclosure from the Loan 
Estimate that consumers receive early in the lending process may assure 
meaningful disclosure of credit terms, facilitate consumer comparison 
of credit terms, and improve the informed use of credit by avoiding 
information overload and improving consumer understanding of loan 
terms, consistent with the purposes of TILA and with section 1405(b) of 
the Dodd-Frank Act. As consumer testing indicates that consumers 
generally do not use the finance charge when shopping for a loan, the 
absence of the finance charge from the Loan Estimate should not detract 
from consumers' understanding of their credit terms but, instead, will 
permit consumers to focus on other important terms. In addition, 
consistent with Dodd-Frank Act section 1032(a), removal of the finance 
charge from the Loan Estimate would help ensure that the features of 
consumer credit transactions secured by real property are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances.
    The Bureau recognizes that creditors, consumer advocates, and State 
and Federal supervisory agencies use the finance charge when 
calculating or verifying the calculation of the APR, determining 
compliance with certain price thresholds, and for a range of other 
purposes, including the right of rescission pursuant to TILA section 
125. 15 U.S.C. 1635. Accordingly, to preserve the finance charge 
disclosure for these purposes, proposed Sec.  1026.38(o)(2) requires 
creditors to disclose the finance charge on the Closing Disclosure 
provided to consumers at least three days prior to prior to 
consummation. Although concerns regarding consumer distraction and 
information overload persist at the stage of the transaction where the 
consumer receives the Closing Disclosure, the Bureau believes that 
disclosing the finance charge with other loan calculations on the final 
page of the Closing Disclosure as a general reference for the consumer 
after closing will mitigate these concerns. In addition, though the 
finance charge is not disclosed on the Loan Estimate, creditors must, 
in order to comply with the record retention requirements in Sec.  
1026.25, document the finance charge used to calculate the APR 
disclosed on the Loan Estimate. As discussed above, the Bureau is 
proposing conforming amendments to Sec.  1026.22 to reflect the 
accuracy standards applicable to the finance charge disclosed on the 
Closing Disclosure under proposed Sec.  1026.38(o)(2). The Bureau seeks 
comment on whether the final rule should contain similar accuracy 
standards for the finance charge used in the APR calculation for the 
Loan Estimate.
    Amount financed. TILA section 128(a)(2) and (8) requires creditors 
to disclose the ``amount financed,'' using that term, and a brief 
descriptive statement of the amount financed. 15 U.S.C. 1638(a)(2), 
(a)(8). Current Sec.  1026.18(b) implements this requirement and 
requires creditors to disclose the amount financed, using that term, 
together with a brief description that the amount financed represents 
the amount of credit of which the consumer has actual use. Like the 
finance charge disclosure, for transactions subject to RESPA, TILA 
section 128(b)(2)(A) requires that creditors provide a good faith 
estimate of this disclosure not later than three business days after 
the creditor receives the consumer's application, and at least seven 
business days before consummation. 15 U.S.C. 1638(b)(2)(A). This 
requirement is implemented in current Sec.  1026.19(a).
    Like the finance charge, the amount financed disclosure has 
historically been viewed as confusing for consumers. The Board-HUD 
Joint Report recommended removing the amount financed from consumer 
disclosures altogether because it ``is probably not a useful disclosure 
for mortgage lending.'' \175\ The Board-HUD Joint Report found that the 
primary use of the ``amount financed'' is to help supervisory agencies 
confirm APR calculations, and is not a useful shopping tool for 
consumers.\176\ The Board's consumer testing in connection with the 
2009 Closed-End Proposal also indicated consumer confusion about the 
``amount financed.'' Some testing participants incorrectly assumed that 
the ``amount financed'' was their loan amount or the sale price of the 
home.\177\ Based on this testing, the Board concluded that the ``amount 
financed'' disclosure detracted from, rather than enhanced, consumers' 
understanding of other disclosures \178\ and that consumers ``would not 
consider the amount financed when shopping for a mortgage or evaluating 
competing loan offers.'' \179\ The Board also found that ``requiring 
creditors to disclose the amount financed in the loan summary with 
other key loan terms would add unnecessary complexity and result in 
`information overload.' '' \180\
---------------------------------------------------------------------------

    \175\  Board-HUD Joint Report at 16.
    \176\ Id. at 17.
    \177\ Macro 2009 Closed-End Report at v. For example, in Round 8 
of testing, participants were ``confused about the difference 
between the `loan amount' and the `amount financed.''' Id. at 26. In 
Round 9, participants gave a variety of incorrect explanations of 
the term, including that it was ``how much escrow they would have,'' 
the amount they would have to pay back, or the amount that they 
borrowed. Id. at 35. In both of these rounds, some participants 
believed the ``amount financed'' was equal to the amount of money 
they would be borrowing. Id. at 40. In Round 11, the ``amount 
financed'' was moved to the second page, under the heading ``Total 
Payments'' in the ``More Information About Your Payments'' section. 
Id. at 51. As in previous rounds, no participant was able to explain 
the meaning of ``amount financed.'' Id. at 55. In Round 12, with the 
``amount financed'' in the same place on the second page, two 
participants incorrectly believed they were borrowing the ``amount 
financed.'' Id. at 55. In the final round of testing, none of the 
participants understood the meaning of ``amount financed.'' Id. at 
72.
    \178\ 74 FR at 43308. For example, ``sample disclosures were 
used to try to explain that the difference between the loan amount 
and amount financed is attributable to prepaid finance charges, but 
this explanation did not appear to improve consumer comprehension.'' 
Id.
    \179\ Id.
    \180\ Id.
---------------------------------------------------------------------------

    For these reasons, the Bureau proposes to exercise its authority 
under TILA section 105(a) and (f), Dodd-Frank section 1032(a), and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b), to modify 
and except transactions subject to proposed Sec.  1026.19(e) from the 
requirements of TILA section 128(a)(2) and (8) as it applies to the 
Loan Estimate provided to consumers within three business days of 
application. As discussed above, the Bureau believes that the proposed 
exclusion of the amount financed disclosure from the Loan Estimate 
effectuates the purposes of TILA by avoiding consumer confusion and 
information overload historically associated with the disclosure, 
thereby improving the informed use of credit. In addition, the Bureau 
has considered the factors in TILA section 105(f) and

[[Page 51228]]

believes that, for the reasons discussed above, an exception is 
appropriate under that provision. Specifically, the Bureau believes 
that the proposed exemption is appropriate for all affected borrowers, 
regardless of their other financial arrangements and financial 
sophistication and the importance of the loan to them. Similarly, the 
Bureau believes that the proposed exemption is appropriate for all 
affected loans, regardless of the amount of the loan and whether the 
loan is secured by the principal residence of the consumer. 
Furthermore, the Bureau believes that, on balance, the proposed 
exemption will simplify the credit process without undermining the goal 
of consumer protection or denying important benefits to consumers. 
Based on these considerations, the results of the Bureau's consumer 
testing, and the analysis discussed above, the Bureau believes that the 
proposed exemption is appropriate.
    The Bureau does not believe that disclosure of the amount financed 
on the Loan Estimate provides a meaningful benefit to consumers in the 
form of useful information or protection. Rather, the Bureau believes 
that disclosure of the amount financed to consumers early in the 
lending process actually complicates and hinders the process of 
mortgage lending because consumers do not understand the disclosure. 
Removing the amount financed from the Loan Estimate may improve the 
informed use of credit by avoiding information overload and improving 
consumer understanding of loan terms, consistent with the purposes of 
TILA and will be in the interest of consumers and the public, 
consistent with section 1405(b) of the Dodd-Frank Act. Enhanced 
consumer understanding of mortgage transactions is also in the interest 
of consumers and the public. In addition, consistent with Dodd-Frank 
Act section 1032(a), removal of the amount financed from the Loan 
Estimate would help ensure that the features of consumer credit 
transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.
    However, the Bureau recognizes that, like the finance charge, the 
amount financed is commonly used by creditors and supervisory agencies 
for compliance purposes, as well as by consumer advocates. Therefore, 
under the proposal, creditors would be required to disclose the amount 
financed in the Closing Disclosure provided to consumers at least three 
business days prior to consummation. Like the finance charge, the 
Bureau believes that disclosing the amount financed with other loan 
calculations on the final page of the Closing Disclosure as a general 
reference for the consumer after closing will mitigate concerns about 
consumer distraction and information overload at the Closing Disclosure 
stage.
37(m) Other Considerations
    Under proposed Sec.  1026.37(m), creditors disclose certain 
information pertaining to: (1) The consumer's right to receive copies 
of appraisals; (2) future assumability of the loan; (3) at the 
creditor's option, homeowner's insurance requirements; (4) the 
creditor's late payment policy; (5) loan refinancing; (6) loan 
servicing, and (7) in refinance transactions, the consumer's liability 
for deficiency after foreclosure. This information is provided under 
the master heading ``Additional Information About This Loan'' required 
by Sec.  1026.37(k) and under the heading ``Other Considerations.''
    As set forth below, consumers already receive most of these 
disclosures at or after application or prior to consummation. Thus, by 
incorporating all of these disclosures into the Loan Estimate, the 
proposed rule will reduce the number of separate disclosures that 
consumers receive. Instead, consumers will receive these disclosures in 
a single, integrated document, which will reduce the potential for 
information overload, promote the informed use of credit by the 
consumer, and facilitate compliance by industry.
37(m)(1) Appraisal
    Prior to the Dodd-Frank Act, ECOA section 701(e) required creditors 
to provide to applicants, upon written request, a copy of the appraisal 
report used in connection with the consumer's application for a loan 
secured by a lien on residential real property. Section 1474 of the 
Dodd-Frank Act amended ECOA section 701(e) to remove the provision 
requiring consumers to request a copy of their appraisal. That section 
now requires the creditor to provide the consumer with a copy of any 
written appraisal or valuation developed in connection with an 
application for a loan that is or will be secured by a first lien on a 
dwelling promptly upon completion, and no later than three days prior 
to the closing of the loan, even if the creditor denies the consumer's 
application or the application is incomplete or withdrawn. 15 U.S.C. 
1691(e)(1). Under ECOA section 701(e)(5), the creditor must notify the 
consumer in writing at the time of application of the right to receive 
a copy of any appraisal or valuation. 15 U.S.C. 1691(e)(5).
    In addition, section 1471(a) of the Dodd-Frank Act added to TILA 
new appraisal requirements for higher-risk mortgages. Specifically, new 
TILA section 129H(c) requires creditors to provide consumers, at least 
three days prior to closing, a copy of any appraisal prepared in 
connection with a higher-risk mortgage. 15 U.S.C. 1639h(c). Section 
1471(f) of the Dodd-Frank Act defines the term ``higher-risk mortgage'' 
generally as a residential mortgage loan, other than a reverse 
mortgage, that is secured by a principal dwelling with an APR that 
exceeds the average prime offer rate for a comparable transaction by a 
specified percentage. 15 U.S.C. 1639h(f). New TILA section 129H(d) 
contains a disclosure requirement that creditors must provide 
consumers, at the time of the initial mortgage application, a statement 
that any appraisal prepared for the mortgage is for the creditor's sole 
use and that the consumer may choose to have a separate appraisal 
conducted at his or her own expense. 15 U.S.C. 1639h(d).
    ECOA section 701(e), as amended by the Dodd-Frank Act, and new TILA 
section 129H(c) and (d) will be implemented in separate Bureau and 
joint interagency rulemakings, respectively. However, the Bureau 
proposes to use its authority under TILA section 105(a) and Dodd-Frank 
Act section 1032(a) to include on the Loan Estimate disclosure of the 
new requirements regarding the consumer's right to appraisal copies for 
loans subject to ECOA section 701(e)(5) or TILA section 129H(c) and 
(d). In the integrated TILA-RESPA final rule, the Bureau will harmonize 
this proposal with its rulemaking implementing amended ECOA section 
701(e) and the interagency rulemaking implementing new TILA section 
129H(c) and (d), so that creditors may satisfy the ECOA section 
701(e)(5) and TILA section 129H requirements in a single disclosure.
    Proposed Sec.  1026.37(m)(1) applies only to closed-end credit 
transactions subject to proposed Sec.  1026.19(e) and ECOA section 
701(e) or TILA section 129H, as implemented in Regulation B, 12 CFR 
part 1002, and Regulation Z, respectively. For such transactions, 
proposed Sec.  1026.37(m)(1) requires the disclosure under the label 
``Appraisal.'' The disclosure may be omitted for other transactions. 
Proposed Sec.  1026.37(m)(1)(i) requires the disclosure to state that 
the creditor may order an appraisal to determine the

[[Page 51229]]

value of the property that is the subject of the transaction and may 
charge the consumer the cost for any such appraisal. Proposed Sec.  
1026.37(m)(1)(ii) requires the disclosure to state that the creditor 
will promptly provide the consumer a copy of the appraisal, even if the 
transaction is not consummated. Finally, proposed Sec.  
1026.37(m)(1)(iii) requires the disclosure to state that the consumer 
has the right to order an additional appraisal of the property for the 
consumer's own use. Proposed comment 37(m)(1)-1 clarifies that if a 
transaction subject to proposed Sec.  1026.19(e) is not also subject to 
either ECOA section 701(e) or TILA section 129H, as implemented in 
Regulations B and Z, respectively, the disclosure required by proposed 
Sec.  1026.37(m)(1) may be omitted from the Loan Estimate.
    The Bureau believes that including these appraisal disclosures on 
the Loan Estimate is consistent with the purposes of TILA and will 
reduce burden on industry. Rather than requiring two separate appraisal 
disclosures in addition to the Loan Estimate consumers will receive 
after application, the Bureau believes one integrated disclosure will 
facilitate compliance for creditors, promote the informed use of credit 
by consumers, and ensure effective disclosure to consumers, consistent 
with the purposes of TILA and TILA section 105(a). In addition, the 
Bureau believes that incorporating the appraisal disclosures into the 
Loan Estimate in a way that is consistent with the presentation of 
other disclosures will ensure that the features of the transaction are 
fully, accurately, and effectively disclosed to consumers in a manner 
that permits consumers to understand the costs, benefits, and risks 
associated with the mortgage transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a).
37(m)(2) Assumption
    TILA section 128(a)(13) requires the creditor to disclose, in any 
residential mortgage transaction, a statement indicating whether a 
subsequent purchaser may be permitted to assume the remaining loan 
obligation on its original terms. 15 U.S.C. 1638(a)(13). This provision 
is currently implemented in Sec.  1026.18(q), and applies only to 
residential mortgage transactions. TILA section 103(x) defines 
``residential mortgage transaction'' as a ``transaction in which a 
mortgage, deed of trust, purchase money security interest arising under 
an installment sales contract, or equivalent consensual security 
interest is created or retained against the consumer's dwelling to 
finance the acquisition or initial construction of a dwelling.'' 15 
U.S.C. 1602(x).
    Proposed Sec.  1026.37(m)(2) implements TILA section 128(a)(13) for 
all transactions subject to Sec.  1026.19(e) by requiring the creditor 
to disclose whether a subsequent purchaser of the property may be 
permitted to assume the remaining loan obligation on its original 
terms. Proposed comment 37(m)(2)-1 clarifies that the creditor must 
disclose whether or not a third party may be allowed to assume the loan 
on its original terms if the property is sold or transferred by the 
consumer. Proposed comment 37(m)(2)-1 also notes that in many 
mortgages, the creditor may be unable to determine whether the loan is 
assumable at the time the Loan Estimate is provided and cites to the 
Federal National Mortgage Association and the Federal Home Loan 
Mortgage Corporation as examples of entities that as a common practice 
condition assumability on a number of factors such as the subsequent 
borrower's creditworthiness. Proposed comment 37(m)(2)-1 clarifies 
that, if the creditor can determine that such assumption is not 
permitted, the creditor complies with Sec.  1026.37(m)(2) by disclosing 
that the loan is not assumable. In all other situations, including 
where assumption of a loan is permitted or is dependent on certain 
conditions or factors, or uncertainty exists as to the future 
assumability of a mortgage, the creditor complies with Sec.  
1026.37(m)(2) by disclosing that, under certain conditions, the 
creditor may allow a third party to assume the loan on its original 
terms. Proposed comment 37(m)(2)-2 clarifies that the phrase ``original 
terms'' as used in Sec.  1027.37(m)(2) does not preclude an assumption 
fee but may represent different terms, and provides an example of a 
modified term.
    The Bureau proposes Sec.  1026.37(m)(2) to implement TILA section 
128(a)(13) for transactions subject to Sec.  1026.19(e), pursuant to 
its authority under TILA section 105(a), Dodd-Frank Act section 
1032(a), and, for residential mortgage loans, Dodd-Frank Act section 
1405(b). In addition, the Bureau proposes to modify the scope of TILA 
section 128(a)(13), pursuant to its authority under TILA section 105(a) 
and Dodd-Frank Act sections 1032(a) and 1405(b), to apply to all 
transactions subject to proposed Sec.  1026.19(e), even if not a 
``residential mortgage transaction'' as defined in TILA section 103(x). 
The Bureau believes that consumers in transactions secured by real 
property would benefit from the disclosure, even if the property does 
not contain a dwelling. Accordingly, the proposed modification promotes 
the informed use of credit, consistent with the purposes of TILA. For 
this same reason, the proposed modification will ensure that the 
features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the mortgage 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a), and will improve consumer awareness and 
understanding of residential mortgage loans and is in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b). Transactions subject to the disclosure requirements of Sec.  
1026.18 continue to be subject to Sec.  1026.18(q).
37(m)(3) Homeowner's Insurance
    TILA section 106(c) provides that premiums for homeowner's 
insurance written in connection with any consumer credit transaction 
shall be included in the finance charge unless a clear and specific 
statement in writing is furnished by the creditor to the person to whom 
credit is extended, setting forth the cost of the insurance if obtained 
from or through the creditor, and stating that the person to whom 
credit is extended may choose the insurance provider. 15 U.S.C. 
1605(c). Current Sec. Sec.  1026.4(d)(2)(i) and 1026.18(n) implement 
this provision.
    The Bureau understands that many creditors provide consumers the 
disclosure described in TILA section 106(c) and Sec.  1026.4(d)(2)(i) 
in order to exclude homeowner's insurance premiums from the finance 
charge. To reduce the number of individual disclosures provided to 
consumers and facilitate compliance for creditors, the Bureau proposes 
Sec.  1026.37(m)(3) which provides that, at the creditor's option, the 
creditor may disclose a statement of whether homeowner's insurance is 
required on the property and whether the consumer may choose the 
insurance provider, labeled ``Homeowner's Insurance.'' Proposed comment 
37(m)(3)-1 clarifies that the disclosure required in Sec.  
1026.37(m)(3) is optional. Proposed comment 37(m)(3)-2 clarifies that a 
creditor satisfies the condition for excluding homeowner's insurance 
premiums from the finance charge described in Sec.  1026.4(d)(2)(i) by 
disclosing the statement described in Sec.  1026.37(m)(3).
    The Bureau proposes Sec.  1026.37(m)(3) pursuant to its authority 
under TILA section 105(a), Dodd-Frank Act section 1032(a), and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b).

[[Page 51230]]

The Bureau believes that combining the optional disclosure regarding 
homeowner's insurance premiums with the other disclosures on the Loan 
Estimate may avoid information overload and therefore promote the 
informed use of credit, consistent with the purposes of TILA. In 
addition, the proposed disclosure will help ensure that the features of 
the transaction are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the mortgage transaction, 
consistent with Dodd-Frank Act section 1032(a), and will improve 
consumer awareness and understanding of residential mortgage loans, in 
the interest of consumers and the public, consistent with Dodd-Frank 
Act section 1405(b).
37(m)(4) Late Payment
    TILA section 128(a)(10) requires disclosure of ``any dollar charge 
or percentage amount which may be imposed by a creditor solely on 
account of a late payment.'' 15 U.S.C. 1638(a)(10). This requirement is 
currently implemented in Sec.  1026.18(l), which requires a statement 
detailing any ``dollar or percentage charge that may be imposed before 
maturity due to a late payment.''
    Proposed Sec.  1026.37(m)(4) implements TILA section 128(a)(10) for 
transactions subject to Sec.  1026.19(e) and requires the creditor to 
disclose a statement detailing any charge that may be imposed on the 
consumer for a late payment and the number of days a payment must be 
late before a penalty for late payment may be assessed. Proposed 
comment 37(m)(4)-1 clarifies that the late payment disclosure is 
required if charges are added to an individual delinquent installment 
of a transaction that remains ongoing on its original terms. Proposed 
comment 37(m)(4)-1 also clarifies which charges and creditor actions 
under the legal obligation do not qualify as a late payment charge and 
that an increase in the interest rate is a late payment charge to the 
extent of the increase. Comment 37(m)(4)-2 clarifies that the creditor 
may make changes to the disclosure to reflect the requirements imposed 
and alternatives allowed under State law.
    The Bureau proposes Sec.  1026.37(m)(4) to implement TILA section 
128(a)(10) for transactions subject to Sec.  1026.19(e), pursuant to 
its implementation authority under TILA section 105(a). In addition, 
the Bureau proposes to require creditors to disclose the number of days 
that a payment must be late to trigger the late payment charge pursuant 
to its authority under TILA section 105(a) and Dodd-Frank Act section 
1032(a). The Bureau believes the additional disclosure enhances the 
late payment disclosure by describing the conditions that may trigger a 
late payment charge and therefore promotes the informed use of credit, 
consistent with the purpose of TILA. For this same reason, the Bureau 
believes the proposed disclosure will ensure that the features of the 
transaction are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the mortgage transaction, in light 
of the facts and circumstances, consistent with Dodd-Frank Act section 
1032(a).
37(m)(5) Refinance
    TILA section 128(b)(2)(C)(ii) requires that, for variable-rate 
transactions or transactions where the regular payment may otherwise be 
variable and that are secured by the consumer's dwelling, the borrower 
be provided with a disclosure that there is no guarantee to refinance 
to a lower amount. Current Sec.  1026.18(t) implements this provision 
by requiring creditors to disclose a statement that there is no 
guarantee that the consumer may refinance to lower the interest rate or 
monthly payment. Current Sec.  1026.18(t) also expands the no-
guarantee-to-refinance disclosure to apply to, not only variable-rate 
or variable-payment transactions, but all closed-end transactions 
secured by real property or a dwelling, other than transactions secured 
by the consumer's interest in a timeshare.
    The Bureau proposes Sec.  1026.37(m)(5) to implement TILA section 
128(b)(2)(C)(ii) for transactions subject to proposed Sec.  1026.19(e). 
Based on the results of several rounds of consumer testing of language 
regarding the refinance disclosure, Sec.  1026.37(m)(5) specifically 
requires disclosure of the following statement: ``Refinancing this loan 
will depend on your future financial situation, the property value, and 
market conditions. You may not be able to refinance this loan.'' As 
discussed in the Kleimann Testing Report, consumers in the Bureau's 
consumer testing understood this language to mean that they are 
permitted to try, but may not be able to refinance their loan in the 
future.
    In implementing TILA section 128(b)(2)(C)(ii), the Bureau proposes 
to use its authority under section TILA section 105(a) and Dodd-Frank 
Act sections 1032(a) and 1405(b) to expand the requirement to all 
transactions subject to Sec.  1026.19(e). Like the Board, the Bureau is 
concerned that some consumers may accept loan terms that could present 
refinancing problems similar to those experienced by consumers in 
variable-rate or variable-payment transactions (e.g., a three-year 
fixed rate mortgage with a balloon payment), and that all consumers 
would benefit from a statement that encourages consideration of 
possible future market rate increases on refinancing. See 2009 Closed-
End Proposal, 74 FR at 43310. Accordingly, the Bureau believes the 
proposed disclosure effectuates the purpose of TILA to help consumers 
avoid the uninformed use of credit. In addition, the proposed 
disclosure helps to ensure that the features of mortgage transactions 
are fully and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with a financial product, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a), and will 
improve consumer awareness and understanding of residential mortgage 
loans, which is in is the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b). Transactions subject to 
the disclosure requirements of Sec.  1026.18 continue to be subject to 
Sec.  1026.18(t).
37(m)(6) Servicing
    RESPA section 6(a) requires disclosures to loan applicants 
concerning the assignment, sale, or transfer of the servicing of the 
loan to another party. 12 U.S.C. 2605(a). Current appendix C to 
Regulation X implements RESPA section 6(a) and requires a statement in 
the GFE regarding loan servicing under the section ``If your loan is 
sold in the future,'' albeit using relatively generic language that 
does not express the creditor's actual intent.\181\ Proposed Sec.  
1026.37(m)(6) requires the creditor to disclose in the Loan Estimate 
whether it intends to service the loan directly or transfer its 
servicing. Proposed comment 37(m)(6)-1 clarifies that the disclosure 
required in proposed Sec.  1026.37(m)(6) requires only that the 
creditor state its intent at the time the disclosure is issued.
---------------------------------------------------------------------------

    \181\ The standard RESPA GFE form in appendix C to Regulation X 
reads as follows: ``Some lenders may sell your loan after 
settlement. Any fees lenders receive in the future cannot change the 
loan you receive or the charges you paid at settlement.''
---------------------------------------------------------------------------

    For transactions subject to RESPA, the Bureau proposes Sec.  
1026.37(m)(6) to implement RESPA section 6(a), pursuant to its 
authority under RESPA section 19(a). For transactions subject the 
requirements of proposed Sec.  1026.19(e) but that are not subject to 
RESPA, the Bureau proposes to require creditors to provide the 
servicing disclosure described in Sec.  1026.37(m)(6)

[[Page 51231]]

pursuant to its authority under TILA section 105(a) and Dodd-Frank Act 
1032(a). The Bureau believes that requiring the disclosure regarding 
loan servicing in these transactions will improve consumer 
understanding and avoid the uninformed use of credit, consistent with 
the purposes of TILA, and that the disclosure will ensure that the 
features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the mortgage 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a).
37(m)(7) Liability After Foreclosure
    Section 1414(c) of the Dodd-Frank Act created new TILA section 
129C(g), which establishes certain requirements for residential 
mortgage loans subject to protection under a State anti-deficiency law. 
15 U.S.C. 1639c(g). TILA section 129C(g)(2) requires that, prior to 
consummation, the creditor or mortgage originator provide a written 
notice to the consumer describing the protection provided by the anti-
deficiency law and the significance to the consumer of the loss of such 
protection. TILA section 129C(g)(3) requires that any creditor or 
mortgage originator that provides an application to a consumer or 
receives an application from a consumer, for any type of refinancing 
for such loan that would cause the loan to lose the protection of an 
anti-deficiency law, the creditor or mortgage originator shall provide 
a written notice to the consumer describing the protection provided by 
the anti-deficiency law and the significance for the consumer of the 
loss of such protection before any agreement for refinancing is 
consummated. TILA section 129C(g)(1) defines anti-deficiency law to 
mean the law of any State which provides that, in the event of 
foreclosure on the residential property of a consumer securing a 
mortgage, the consumer is not liable, in accordance with the terms and 
limitations of such State law, for any deficiency between the sale 
price obtained from a foreclosure sale and the outstanding balance of 
the mortgage.
    Proposed Sec.  1026.37(m)(7) implements TILA section 129C(g)(3), 
which applies to refinance transactions. Specifically, proposed Sec.  
1026.37(m)(7) provides that, if the credit is to refinance an extension 
of credit as described in Sec.  1026.37(a)(9)(ii) or (iii), the 
creditor must disclose a brief statement that certain State law 
protections against liability for any deficiency after foreclosure may 
be lost upon refinancing, the potential consequences of the loss of 
such protections, and a statement that the consumer should consult an 
attorney for additional information, labeled ``Liability after 
Foreclosure.''
    The Bureau proposes this requirement pursuant to its implementation 
authority under TILA section 105(a). TILA section 129C(g)(3) requires 
creditors to provide the anti-deficiency disclosure prior to 
consummation. The Bureau believes that consumers would benefit from 
receiving the disclosure in the Loan Estimate provided three days after 
application since the disclosure informs consumers of the potentially 
significant consequences of refinancing and is therefore an important 
consideration for a consumer evaluating whether to proceed with the 
loan. Further, the Bureau believes that the anti-deficiency disclosure 
is appropriately tied to the submission of the consumer's application 
since TILA section 129C(g)(3) requires creditors to provide the 
disclosure to all consumers to whom it provides an application or from 
whom it receives an application. The Bureau does not believe that it is 
feasible to require the disclosure to be provided to any consumer to 
whom the creditor ``provides'' a loan application because, as discussed 
above in the section-by-section analysis of proposed Sec.  
1026.2(a)(3), ``application'' is defined by proposed Sec.  1026.2(a)(3) 
as the consumer's submission of certain specific information to a 
creditor. The requirements of TILA section 129C(g)(2) are implemented 
in proposed Sec.  1026.38(p)(3).
37(n) Signature Statement
    TILA section 128(b)(2)(B)(i) requires the following statement in 
transactions that are also subject to RESPA and where the extension of 
credit is secured by the consumer's dwelling, other than timeshares: 
``You are not required to complete this agreement merely because you 
have received these disclosures or signed a loan application.'' 15 
U.S.C. 1638(b)(2)(B)(i). Current Sec.  1026.19(a)(4) implements this 
provision by requiring, for transactions subject to RESPA that are 
secured by the consumer's dwelling (other than home equity lines of 
credit subject to Sec.  1026.5(b) and timeshares), the statement 
required by TILA section 128(b)(2)(B)(i) in the good faith estimates 
and corrected disclosures provided pursuant to Sec.  1026.19(a)(1) 
and(2).
    The Bureau proposes to implement the signature requirement of TILA 
section 128(b)(2)(B)(i) in proposed Sec.  1026.37(n), for all 
transactions subject to proposed Sec.  1026.19(e). Proposed Sec.  
1026.37(n)(1) states that, at the creditor's option, lines for the 
signatures of the consumers in the transaction may be provided. The 
optional signatures lines would be located under the master heading 
``Additional Information About This Loan'' required by proposed Sec.  
1026.37(k) and under the heading ``Confirm Receipt.'' Proposed Sec.  
1026.37(n)(1) also states that if the creditor includes a line for the 
consumer's signature, the creditor is required to disclose to that, by 
signing the Loan Estimate, the consumer is only confirming receipt of 
the form and is not required to accept the loan. For transactions where 
the creditor does not include a line for the consumer's signature, 
proposed Sec.  1026.37(n)(2) requires disclosure of the statement that 
the consumer does not have to accept the loan because the consumer 
received or signed the Loan Estimate. The statement required by 
proposed Sec.  1026.37(n)(2) is located under the heading ``Other 
Considerations'' required by proposed Sec.  1026.37(m), labeled ``Loan 
Acceptance.''
    Proposed comment 37(n)-1 clarifies that it is at the creditor's 
discretion whether to provide a signature line for the consumer's 
signature, but if a signature line is provided, the statement in 
proposed Sec.  1026.37(n)(1) must be provided. Proposed comment 37(n)-2 
clarifies that, if there is more than one consumer in the transaction, 
the first consumer signs as the applicant and each additional consumer 
signs as a ``co-applicant.'' Proposed comment 37(n)-2 also clarifies 
that the creditor may add an additional signature page to the back of 
the form if additional signature lines are necessary to accommodate the 
number of consumers in the transaction.
    The Bureau proposes to modify the signature language required by 
TILA section 128(b)(2)(B)(i) pursuant to its authority under TILA 
section 105(a), Dodd-Frank Act section 1032(a), and, for residential 
mortgage loans, Dodd-Frank Act section 1405(b). While the substance of 
the disclosure required by proposed Sec.  1026.37(n) is the same as the 
statutory language, as discussed in the Kleimann Testing Report, the 
Bureau's consumer testing indicated that consumers more easily 
understand from the proposed language that a signature does not bind 
them to accept the loan. Accordingly, the proposed modification 
promotes the informed use of credit, consistent with the purposes of 
TILA. For this same reason, the proposed modification will ensure that 
the features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs,

[[Page 51232]]

benefits, and risks associated with the mortgage transaction, 
consistent with Dodd-Frank Act section 1032(a), and will improve 
consumer awareness and understanding of residential mortgage loans and 
is in the interest of consumers and the public, consistent with Dodd-
Frank Act section 1405(b).
    The Bureau also proposes to use its authority under TILA section 
105(a), Dodd-Frank Act section 1032(a), and, for residential mortgage 
loans, Dodd-Frank Act section 1405(b) to expand the scope of TILA 
section 128(b)(2)(B)(i) to apply to all transactions subject to 
proposed Sec.  1026.19(e). As discussed above, TILA section 
128(b)(2)(B)(i) applies only to transactions subject to both TILA and 
RESPA that are secured by the consumer's dwelling, and excludes 
transactions secured by the consumer's interest in a timeshare. 
However, the Bureau believes that consumers in all transactions subject 
to proposed Sec.  1026.19(e) will benefit from the disclosure because 
it ensures that consumers understand they are not obligated to complete 
the loan transaction just because they signed or received the Loan 
Estimate. Accordingly, the proposed disclosure promotes the informed 
use of credit, consistent with the purposes of TILA. For these same 
reasons, the Bureau believes that the proposed disclosure will ensure 
that the features of the transaction are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
mortgage transaction, consistent with Dodd-Frank Act section 1032(a), 
and will improve consumer awareness and understanding of residential 
mortgage loans and is in the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b).
37(o) Form of Disclosures
    TILA section 122(a) provides that the information required to be 
disclosed under TILA shall be disclosed clearly and conspicuously, in 
accordance with regulations of the Bureau. 15 U.S.C. 1632(a). TILA 
section 128(b)(1) provides that the disclosures required by sections 
128(a) and 106(b) through (d) generally shall be conspicuously 
segregated from all other terms, data, or information provided in 
connection with a transaction, including any computations or 
itemization. Id. 1638(b)(1). Regulation Z currently implements these 
requirements for closed-end transactions in Sec.  1026.17(a)(1), which 
provides that the disclosures shall be made clearly and conspicuously 
in writing, in a form that the consumer may keep. Section 1026.17(a)(1) 
further provides that the disclosures shall be grouped together, shall 
be segregated from everything else, and shall not contain any 
information not directly related to the disclosures under Sec.  1026.18 
(and Sec.  1026.47 for private education loans).
    As discussed above, the Bureau is proposing to exclude transactions 
subject to Sec.  1026.19(e) and (f) from the coverage of Sec.  
1026.17(a) and (b). Consequently, the requirements of TILA sections 
122(a) and 128(b)(1) must be implemented elsewhere. The Bureau, 
pursuant to its implementation authority under TILA section 105(a), 
therefore proposes to implement the statutory segregation and clear and 
conspicuous requirements of TILA sections 122(a) and 128(b)(1) for 
those disclosures in new Sec. Sec.  1026.37(o) and 1026.38(t). The 
Bureau believes these requirements will effectuate the purposes of TILA 
by assuring a meaningful disclosure of credit terms so that the 
consumer will be able to compare more readily the various credit terms 
available to him and avoid the uninformed use of credit. In addition, 
Sec.  1026.37(o) establishes a standard form requirement for 
transactions subject to RESPA and provides flexibility for certain 
aspects of the integrated disclosures.
37(o)(1) General Requirements
    Proposed Sec.  1026.37(o)(1)(i) establishes the requirements that 
the disclosures required by Sec.  1026.37 be clear and conspicuous, in 
writing, and grouped together, segregated from everything else, and 
provided on separate pages that are not commingled with any other 
documents or disclosures, including any other disclosures required by 
State or other laws. Proposed comment 37(o)-1 clarifies that the clear 
and conspicuous standard requires that the disclosures be legible and 
in a readily understandable form. This guidance is adopted from 
existing comment 17(a)(1)-1. The comment also clarifies that proposed 
Sec.  1026.37(o)(1)(i) requires that the disclosures required by Sec.  
1026.37 be provided in a form that is physically separate from any 
other documents or disclosures, including any other disclosures 
required by State or other laws. This requirement is stricter than the 
guidance found in existing comment 17(a)(1)-2, which provides that the 
disclosures may be grouped together and segregated from other 
information in a variety of ways other than a separate piece of paper.
    The Bureau recognizes that, in certain credit sale and other non-
mortgage, closed-end credit transactions, creditors include the 
disclosures required by Sec.  1026.18 in the loan contract or some 
other document and ensure that they are grouped together and segregated 
by outlining them in a box or other means authorized by comment 
17(a)(1)-2. The Bureau understands, however, that this approach is 
virtually never employed for mortgage credit, for which the new 
disclosures under proposed Sec. Sec.  1026.19(e) and 1026.37, rather 
than Sec.  1026.18 disclosures, are required. Mortgage creditors 
generally use a standardized note that cannot accommodate dynamically 
generated, transaction-specific disclosures, and they almost 
universally employ the model disclosure forms provided in appendix H to 
Regulation Z as stand-alone, separate documents for providing required 
TILA disclosures. The RESPA GFE and RESPA settlement statement forms 
required by RESPA for federally related mortgage loans currently are 
delivered as separate documents, in accordance with the standard form 
requirements of Regulation X. Moreover, the forms in this proposal were 
developed as stand-alone documents through an extensive outreach and 
consumer testing process, as discussed above, and the Bureau is 
concerned that much of the informative benefit of the forms could be 
lost or compromised if they were permitted to be included within other 
documents. For these reasons, it appears that requiring the Sec.  
1026.37 disclosures to be delivered as a separate document maximizes 
the benefits of the forms and does not present any significant new 
obligation that mortgage creditors do not already effectively observe. 
The Bureau seeks comment, however, on whether there currently are 
transactions subject to proposed Sec.  1026.19(e) that may be burdened 
by the adoption of this requirement.
    Proposed Sec.  1026.37(o)(1)(ii) also provides that, except as 
provided in Sec.  1026.37(o)(5), the disclosures shall contain only the 
information required by Sec.  1026.37(a) through (n) and that they 
generally shall be made in the same order, and positioned relative to 
the master headings, headings, subheadings, labels, and similar 
designations in the same manner, as shown in form H-24. Proposed 
comment 37(o)(1)-2 clarifies that, even if a creditor elects not to use 
the form as a model (when so permitted because the transaction is not a 
federally related mortgage loan, as discussed above), failure to comply 
with these requirements, to designate as ``estimated'' all disclosures 
designated as such in the form, or to use letter size paper as shown in 
form H-24

[[Page 51233]]

constitutes noncompliance with the requirement of Sec.  
1026.37(o)(3)(ii) that the disclosures be made with headings, content, 
and format substantially similar to the model form.
37(o)(2) Estimated Disclosures
    Proposed Sec.  1026.37(o)(2) provides that, wherever form H-24 
discloses the required master heading, heading, subheading, label, or 
similar designation for a disclosure as ``estimated,'' that 
corresponding master heading, heading, subheading, label, or similar 
designation required by Sec.  1026.37 must contain the word 
``estimated,'' even if the provision requiring such headings, label, or 
similar designation does not. As noted below under Sec.  1026.38, many 
of the disclosure items required by that section cross-reference their 
estimated counterparts in Sec.  1026.37, although the same items may 
not be estimates as required by Sec.  1026.19(f). To avoid confusion 
over which items are estimates and which are not, the content 
provisions of Sec.  1026.37 do not qualify any of the master headings, 
headings, subheadings, labels, and similar designations of the items 
disclosed as ``estimated.'' Instead, proposed Sec.  1026.37(o)(2) 
incorporates by reference the ``estimated'' designations reflected on 
form H-24, and as discussed below, proposed Sec.  1026.38(t)(2) 
incorporates by reference the ``estimated'' designations reflected on 
form H-25.
37(o)(3) Form
    Proposed Sec.  1026.37(o)(3)(i) also provides that, for a 
transaction that is a federally related mortgage loan, as defined in 
Regulation X, the disclosures must be made using form H-24, set forth 
in appendix H to Regulation Z. The Bureau is proposing to require that 
creditors use a standard form (form H-24 of appendix H) for federally 
related mortgage loans pursuant to RESPA section 4, as amended by the 
Dodd-Frank Act. 12 U.S.C. 2603(a). Section 4 has long authorized the 
use of standard forms. As discussed above, the Dodd-Frank Act amended 
section RESPA section 4(a) to require the integrated disclosures that 
are the subject of this proposal, which specifically include both the 
settlement statement under section 4 and the good faith estimate under 
section 5(c). Although the Dodd-Frank Act eliminated one reference in 
section 4(a) to a ``standard'' form, it left another reference in 
place, as well as another reference to a ``standard'' form in section 
4(c). And by including the cross-reference to section 5(c) in section 4 
in relation to the integrated disclosure mandate, Congress effectively 
extended RESPA's existing standard-form authority to the good faith 
estimate as well as the settlement statement requirement. More notably, 
in amending section 4(a), Congress did not include an explicit 
prohibition of a mandatory-use form as is found in TILA section 
105(b).\182\ For this reason, the Bureau does not believe that Congress 
intended to eliminate standard-form authority from RESPA section 4.
---------------------------------------------------------------------------

    \182\ TILA section 105(b) states that ``nothing in this title 
may be construed to require a creditor or lessor to use any such 
model form or clause prescribed by the Bureau under this section.'' 
15 U.S.C. 1604(b).
---------------------------------------------------------------------------

    The Bureau also proposes a mandatory form pursuant to its authority 
under RESPA section 19(a) to prescribe such rules and regulations as 
may be necessary to achieve RESPA's purposes. 12 U.S.C. 2617(a). 
RESPA's purposes include the establishment of more effective advance 
disclosure to home buyers and sellers of settlement costs. Id. 
2601(b)(1). The Bureau believes, based on consumer testing results, 
that the purpose of more effective advance disclosure of settlement 
costs is better achieved if all lenders provide those disclosures in a 
standardized format that consumers can recognize and understand. 
Moreover, the credit terms included in the Loan Estimate facilitate and 
enhance the consumer's ability to shop for the best-priced loan, 
including settlement charges, which have a direct relationship to, and 
can overlap with, credit terms. Disclosure of the settlement costs 
alone, without the context provided by the credit terms, is therefore 
far less effective. This is consistent with HUD's rationale in HUD's 
2008 RESPA Final Rule for including credit terms in its good faith 
estimate form. See 73 FR 68204, 68214-15 (Nov. 17, 2008). Accordingly, 
the Bureau is authorized under section 19(a) to require the standard 
form for the disclosure of all of the information it contains, both 
settlement costs and credit terms alike.
    Certain closed-end consumer credit transactions are subject to the 
requirements of proposed Sec.  1026.19(e) but do not fall within the 
Regulation X definition of ``federally related mortgage loan.'' These 
include construction-only loans with terms of less than two years that 
do not finance the transfer of title to the borrower and loans secured 
by vacant land on which a home will not be constructed or placed using 
the loan proceeds within two years after settlement of the loan. See 
Sec.  1024.5(b)(3) and (4). In addition, transactions subject to 
proposed Sec.  1026.19(e) but not subject to RESPA would include loans 
secured by non-residential real property, provided they have a consumer 
purpose as required by Sec.  1026.1(c)(1)(iv). See Sec.  1024.2, 
definition of ``federally related mortgage loan,'' paragraph (1)(i) 
(requiring that the securing property be ``residential real 
property'').
    For such transactions that are subject to proposed Sec.  1026.19(e) 
because they are subject to TILA and are secured by real property, but 
that are not subject to RESPA, the Bureau does not mandate the use of 
form H-24 as a standard form. As noted above, TILA section 105(b) 
explicitly provides that nothing in TILA may be construed to require a 
creditor to use any model form or clause prescribed by the Bureau under 
that section. Accordingly, proposed Sec.  1026.37(o)(3)(ii) provides 
that, for transactions subject to Sec.  1026.37 that are not federally 
related mortgage loans, the disclosures must be made with headings, 
content, and format substantially similar to form H-24 but does not 
mandate the use of that form. Consistent with TILA section 105(b), 
proposed comment 37(o)(3)-1 explains that, although use of the form as 
a standard form is not mandatory for such transactions, its use as a 
model form, if properly completed with accurate content, constitutes 
compliance with the clear and conspicuous and segregation requirements 
of Sec.  1026.37(o). In consideration of the recommendation of the 
Small Business Review Panel, the Bureau seeks comment on the 
advantages, such as cost-saving benefits, and disadvantages of 
requiring a standard form for the Loan Estimate for federally related 
mortgage loans and model forms for other credit transactions subject to 
proposed Sec.  1026.19(e). See Small Business Review Panel Report at 
28.
    Proposed Sec.  1026.37(o)(3)(iii) also provides that the 
disclosures may be provided in electronic form, subject to compliance 
with the Electronic Signatures in Global and National Commerce Act (15 
U.S.C. 7001 et seq.). This provision parallels existing Sec.  
1026.17(a)(1).
37(o)(4) Rounding
    The prototype disclosure forms used in the Bureau's consumer 
testing displayed rounded numbers for certain information required to 
be disclosed by proposed Sec.  1026.37. For example, rounded numbers 
were disclosed for the information required by proposed Sec.  
1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), 
(f), (g), (h), (i), and (l). In addition, the total monthly payment 
required by proposed Sec.  1026.37(c)(2)(iv) was rounded if any of its 
component amounts were required to be rounded. The loan amount required

[[Page 51234]]

to be disclosed by proposed Sec.  1026.37(b)(1) and percentage amounts 
required to be disclosed by proposed Sec.  1026.37(b)(2) and (6), 
(f)(1)(i), (g)(2)(iii), (j), and (l)(2) and (3) that did not contain 
cents or fractional amounts were disclosed without decimal places.
    In the Bureau's consumer testing, using rounded numbers in this 
manner, consumers were able to see and evaluate the information 
required by the above-mentioned paragraphs of proposed Sec.  1026.37 
quickly. The Bureau is concerned that a large number of exact dollar 
amounts and percentages has the potential to cause information overload 
and reduce the overall effectiveness of the disclosure. The Bureau 
believes that rounding certain amounts on the Loan Estimate reduces the 
quantity of numbers on the form and the complexity of information about 
potential risks. For example, participants at the Bureau's testing were 
able to evaluate the risks of maximum payments and interest rates in 
the Loan Terms table using rounded numbers, as well as evaluate the 
rounded closing cost estimates, enhancing the utility of the disclosure 
for consumers. The Bureau believes the exact number of cents or decimal 
places for information required to be disclosed by the above-mentioned 
paragraphs of proposed Sec.  1026.37 at the time the Loan Estimate is 
provided would not provide a benefit to consumers that would outweigh 
the risk of information overload.
    Accordingly, the Bureau proposes to use its implementation 
authority under TILA section 105(a), its authority under section 
1032(a) of the Dodd-Frank Act, and its authority under section 1405(b) 
of the Dodd-Frank Act with respect to residential mortgage loans, to 
require only rounded numbers and percentages without fractional amounts 
to be disclosed without decimal places for certain information on the 
Loan Estimate. Whole dollar and certain whole percentage amounts appear 
to be sufficient to inform consumers of the estimated periodic payment 
amounts, estimated closing costs, financial risks posed by maximum 
amounts, and ensure a meaningful disclosure of credit terms. In 
addition, the disclosure of exact amounts could suggest to consumers a 
degree of accuracy that may not be warranted for some of the estimated 
figures. The Bureau believes this requirement ensures the meaningful 
disclosure of credit terms to consumers and promotes the informed use 
of credit. In addition, the Bureau believes this requirement may ensure 
that the features of any consumer financial product or service, both 
initially and over the term of the product or service, are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances. Further, the Bureau believes this requirement may 
improve consumer awareness and understanding of transactions involving 
residential mortgage loans and is in the interest of consumers and in 
the public interest.
    Proposed Sec.  1026.37(o)(4)(i)(A) requires only rounded numbers 
for the information disclosed pursuant to proposed Sec.  1026.37(b)(6) 
and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h), 
(i), and (l). Proposed Sec.  1026.37(o)(4)(i)(B) requires the loan 
amount disclosed pursuant to proposed Sec.  1026.37(b)(1) to be 
disclosed without decimal places denoting cents if the amount of cents 
are zero. Proposed Sec.  1026.37(o)(4)(i)(C) requires the total monthly 
payment disclosed pursuant to proposed Sec.  1026.37(c)(2)(iv) to be 
disclosed as a rounded number if any of its component amounts are 
required to be rounded. Proposed Sec.  1026.37(o)(4)(ii) requires 
percentages without fractional amounts that are disclosed pursuant to 
proposed Sec.  1026.37(b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and 
(l)(2) and (3) to be disclosed without decimal places.
    Proposed comment 37(o)(4)-1 provides clarifies that consistent with 
Sec.  1026.2(b)(4) all numbers are to be disclosed as exact numbers, 
unless required to be rounded by proposed Sec.  1026.37(o)(4). Proposed 
comments 37(o)(4)-2, 37(o)(4)(i)(A)-1, 37(o)(4)(i)(B)-1, and 
37(o)(4)(ii)-1 provide guidance regarding rounding amounts on the Loan 
Estimate.
37(o)(5) Exceptions
    The Bureau's consumer testing has indicated that the format of 
information on the disclosures required by proposed Sec.  1026.37 
substantially affects the way in which a consumer interacts with and 
understands the information disclosed. In addition, the Bureau 
understands that credit and real estate transactions involve 
significant variability and believes that it is important to provide 
industry with clear guidance regarding permissible changes to the 
format requirements to accommodate this variability. Accordingly, the 
Bureau believes it must specify the changes to the format that are 
required and permissible, to ensure the disclosures provided to 
consumers convey the information required by proposed Sec.  1026.37 in 
a clear, understandable, and effective manner for consumers.
    As described above, pursuant to RESPA section 19(a), 12 U.S.C. 
2617(a), Sec.  1024.7 of Regulation X currently requires the use of a 
standard from to provide the disclosures required by section 5 of 
RESPA, 12 U.S.C. 2604. In contrast, TILA section 105(b), 15 U.S.C. 
1604(b), provides for model disclosures instead of a standard form. 
However, TILA permits creditors to delete information not required 
under the statute, other than numerical disclosures, and rearrange the 
format, only if doing so does not affect the substance, clarity, or 
meaningful sequence of the disclosure. Pursuant to its authority under 
RESPA section 19(a), its implementation authority under TILA section 
105(a), and its authority under section 1032(a) of the Dodd-Frank Act, 
the Bureau proposes Sec.  1026.37(o)(5), which sets forth the required 
changes to the format required to be used by proposed Sec.  
1026.37(o)(3), illustrated by form H-24 in appendix H to Regulation Z, 
and the permissible changes that do not affect the substance, clarity, 
or meaningful sequence of the disclosure. In addition, consistent with 
section 1032(a) of the Dodd-Frank Act, providing specified changes to 
the form would ensure that the features of consumer credit transactions 
secured by real property are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the product or service, 
in light of the facts and circumstances. The Bureau believes providing 
for only specified changes to the form effectuates the purposes of TILA 
set forth in TILA section 102(a) and the purpose of the integrated 
disclosure set forth in TILA section 105(b), because it would ensure 
meaningful disclosure of credit terms to consumers, promote the 
informed use of credit, and facilitate compliance by providing 
flexibility where warranted. In addition, the Bureau believes this 
requirement would effectuate the purposes of RESPA by promoting more 
effective advance disclosure of settlement costs.
    Accordingly, proposed Sec.  1026.37(o)(5) specifies certain changes 
to form H-24 that are required or that do not affect the substance, 
clarity, or meaningful sequence of the disclosure and therefore are 
permissible. Proposed Sec.  1026.37(o)(5)(i) requires the substitution 
of the words ``month'' or ``monthly'' on the form H-24, where used to 
designate the frequency of payments or the applicable unit-period of 
the transaction, with a different word representing the frequency of 
payments or unit-period under the transaction's actual terms, if 
different from monthly. Proposed Sec.  1026.37(o)(5)(ii) permits the

[[Page 51235]]

deletion of lender credits from the Cash to Close table, required by 
proposed Sec.  1026.37(d)(4), if the amount is zero. Proposed Sec.  
1026.37(o)(5)(iii) permits the use of a logo for, or addition of a 
slogan with, the information required by proposed Sec.  1026.37(a)(3), 
and requires the information disclosed pursuant to Sec.  1026.37(a)(3), 
if no logo is used, to be disclosed in a similar format as form H-24 of 
appendix H to Regulation Z. Proposed Sec.  1026.37(o)(5)(iv) permits 
the attachment of a business card over the information required by 
proposed Sec.  1026.37(a)(3). Proposed Sec.  1026.37(o)(5)(v) permits 
the insertion of administrative information above the information 
required to be disclosed by proposed Sec.  1026.37(a)(2) and adjacent 
to the information required to be disclosed by proposed Sec.  
1026.37(a)(3) to assist in the identification of the form or the 
information contained on the form.
    Proposed Sec.  1026.37(o)(5)(vi) permits the form to be translated 
into languages other than English. The Bureau understands that some 
State laws require versions of the disclosures required under TILA and 
RESPA to be provided to consumers in a language other than English when 
the negotiation of the transaction is conducted in that language.\183\ 
In addition, some of the regulatory authorities in these States publish 
their own translations of these disclosures for use by the public.\184\ 
The Bureau's consumer testing included two rounds of testing with 
Spanish-speaking consumers of Spanish-language prototype disclosure 
forms to determine whether co-development of a non-English version of 
the disclosure would be beneficial to consumers.\185\ The Bureau 
determined that co-development of a separate non-English version of the 
disclosures would likely yield little benefit to consumers, because any 
differences in performance with the Spanish prototypes during testing 
were caused more by translation than design and structure issues. This 
may be due, in part, because the Bureau intentionally pursued a more 
graphic than textual design for the Loan Estimate with as few words as 
possible. This design highlights key information and allows consumers 
to quickly recognize and find the key information about the transaction 
without large amounts of text. The differences in language did not 
necessitate changes to the design of the disclosure. Accordingly, the 
proposed rule only includes English-language disclosure forms and 
permits the translation of these forms. The Bureau plans to review 
issues surrounding translations of the integrated disclosures after 
issuance of this proposal. As discussed below with respect to appendix 
H, the Bureau solicits comment on whether the final rule should include 
sample Spanish-language or other non-English language forms.
---------------------------------------------------------------------------

    \183\ See Cal. Civ. Code Sec. Sec.  1632, 1632.5, Or. Rev. Stat. 
Sec.  86A.198.
    \184\ The California Department of Corporations has translated 
the RESPA GFE into Chinese, Korean, Tagalog, and Vietnamese, 
available at http://www.corp.ca.gov/Forms/Default.asp. The Oregon 
Division of Finance and Corporate Securities provides version of the 
RESPA GFE and early TILA disclosure in Russian, Spanish, and 
Vietnamese, available at http://www.cbs.state.or.us/dfcs/ml/mortgage_disclosures_translations.html.
    \185\ According to the U.S. Census Bureau, based on data from 
the 2007 American Community Survey, 55.4 million people spoke a 
language other than English at home, and of those people, 62 percent 
spoke Spanish. U.S. Census Bureau, Language Use in the United 
States: 2007, ACS-12 (Apr. 2010), available at http://www.census.gov/hhes/socdemo/language/data/acs/ACS-12.pdf.
---------------------------------------------------------------------------

    Proposed comment 37(o)(5)-1 clarifies that creditors making any 
changes that are not expressly permitted may lose their protection from 
civil liability under TILA. Proposed comment 37(o)(5)-2 clarifies that 
the form may be completed by hand, typewriter, computer, or other word 
processing device, as long as the method produces clear and legible 
text and uses the required formatting, including bold font where shown 
on form H-24. Such completion by hand or typewriter would not exempt 
the creditor from the requirement to keep records in an electronic, 
machine readable format under proposed Sec.  1026.25.
    Proposed comment 1026.37(o)(5)-3 clarifies that if there are 
multiple creditors or mortgage brokers for a transaction, a creditor 
may alter the space provided on form H-24 and add labels to disclose 
additional contact information under proposed Sec.  1026.37(m), or 
disclose the additional information on a separate page with an 
appropriate cross-reference, if the space provided does not accommodate 
the information to be disclosed on the page. Proposed comment 
1026.37(o)(5)-4 clarifies that a creditor may add signature lines to 
form H-24 under the ``Confirm Receipt'' heading required by proposed 
Sec.  1026.37(n), or an additional page with an appropriate cross-
reference, if the space provided by form H-24 cannot accommodate the 
signature lines for multiple applicants. Proposed comment 
1026.37(o)(5)-5 clarifies the requirements of proposed Sec.  1026.37(o) 
as they apply to the use of a separate page.
Section 1026.38 Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure)
    Proposed Sec.  1026.38 sets forth the required content of the 
integrated Closing Disclosure, required by proposed Sec.  1026.19(f) to 
be provided to a consumer no later than three business days prior to 
consummation.
    As discussed above, the Closing Disclosure integrates the 
disclosures currently provided in the RESPA settlement statement and 
the final TILA disclosure. In addition, the Closing Disclosure 
integrates several disclosures, including new disclosures under the 
Dodd-Frank Act, that otherwise would likely have been provided 
separately. The Bureau believes that the five-page Closing Disclosure 
integrates at least nine pages of disclosures. Specifically, the 
Closing Disclosure incorporates: (i) Three pages of the RESPA 
settlement statement; (ii) two pages typically used for the final TILA 
disclosure; (iii) one page for the negative amortization statement 
under TILA section 129C(f), which was added by section 1414(a) of the 
Dodd-Frank Act; (iv) one page for the anti-deficiency protection notice 
under TILA section 129C(g)(2), which was added by section 1414(c) of 
the Dodd-Frank Act; (v) one page for the partial payment policy 
disclosure under TILA section 129C(h), which was added by section 
1414(d) of the Dodd-Frank Act; and (vi) one page for the escrow account 
disclosures under TILA sections 129D(h) and (j), which were added by 
sections 1461 and 1462 of the Dodd-Frank Act. In addition, the Closing 
Disclosure incorporates the disclosure of: (i) The total interest 
percentage under TILA section 128(a)(19), which was added by section 
1419 of the Dodd-Frank Act; (ii) the approximate amount of the 
wholesale rate of funds in connection with the loan under TILA section 
128(a)(17), which was added by section 1419 of the Dodd-Frank Act; and 
(iii) the aggregate amount of settlement charges for all settlement 
services provided in connection with the loan and the aggregate amount 
of other fees or required payments in connection with the loan under 
TILA section 128(a)(17), which was added by section 1419 of the Dodd-
Frank Act. In absence of the Bureau's integration of the final TILA 
disclosure and the RESPA settlement statement, these disclosures would 
have been added to the final TILA disclosure, which potentially could 
have increased that disclosure's typical two pages to three pages.
    As in the case of the disclosure content required by proposed Sec.  
1026.37,

[[Page 51236]]

discussed above, Sec.  1026.38 provides that the information set forth 
in proposed Sec.  1026.38(a) through (s) shall be disclosed ``as 
applicable.'' Accordingly, the Bureau is proposing parallel commentary 
under Sec.  1026.38 to that proposed under Sec.  1026.37. Thus, 
proposed comment 38-1 clarifies that a disclosure that is not 
applicable to a transaction generally may be eliminated entirely or may 
be included and marked ``not applicable'' or ``N/A.''
38(a) General Information
    As with the Loan Estimate in proposed Sec.  1026.37(a), the Bureau 
proposes to use its authority under TILA section 105(a), and its 
authority under RESPA section 19(a), Dodd-Frank Act sections 1032(a) 
and (f), 1098, and 1100A, and for residential mortgage loans, Dodd-
Frank Act section 1405(b), to combine and modify disclosures and 
related requirements currently provided under Regulations X and Z and 
add additional disclosures in the Closing Disclosure for transactions 
subject to proposed Sec.  1026.19(f).
38(a)(1) Form Title
    Like the integrated disclosure provided three business days after 
application, TILA, RESPA, and the Dodd-Frank Act do not expressly 
prescribe a title for the form that must be provided in connection with 
a settlement. RESPA refers to the form as the ``uniform settlement 
statement,'' although Sec.  1024.8 of Regulation X uses the titles HUD-
1 and HUD-1A to refer to the forms used to document settlement charges 
in connection with the purchase of a property or refinancing of an 
existing mortgage loan, respectively. Regulation Z, however, does not 
prescribe a title for the disclosures that must be provided to the 
consumer three business days prior to settlement.
    Proposed Sec.  1026.38(a)(1) requires the creditor to use the term 
``Closing Disclosure'' as the name of the integrated disclosures 
provided to consumers three business days prior to settlement pursuant 
to proposed Sec.  1026.19(f). The Bureau believes the adoption of a 
standardized form name will effectuate the purposes of TILA and RESPA 
by promoting the informed use of credit and more effective advance 
notice of settlement costs, consistent with TILA section 105(a) and 
RESPA section 19(a), and will ensure that the features of the 
transaction are fully, accurately and effectively disclosed to 
consumers in a manner that permits consumers to better understand the 
costs, benefits, and risks associated with mortgage transactions in 
light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a). In addition, the use of standard terminology for the 
integrated disclosures will facilitate compliance for industry, which 
is a purpose of this rulemaking under Dodd-Frank Act sections 1098 and 
1100A. The Bureau also believes that, consistent with section 1405(b) 
of the Dodd-Frank Act, the requirement of a standard form name may 
improve consumer awareness and understanding of transactions involving 
residential mortgage loans through the use of disclosures, and is in 
the interest of consumers and in the public interest.
38(a)(2) Form Purpose
    Proposed Sec.  1026.38(a)(2) requires the creditor to include a 
statement regarding the purpose of the Closing Disclosure. 
Specifically, proposed Sec.  1026.38(a)(2) requires creditors to 
provide the following statement: ``This form is a statement of final 
loan terms and closing costs. Compare this document with your Loan 
Estimate.'' Providing the purpose of the Closing Disclosure is a new 
requirement, as neither creditors nor settlement agents are currently 
required to provide this type of information in the disclosures 
required by TILA, RESPA, and their implementing regulations. 
Nonetheless, this disclosure will benefit consumers and promote the 
informed use of credit by encouraging consumers to use both the Loan 
Estimate and Closing Disclosure as tools to identify changes in costs 
and terms that may have occurred after issuance of the Loan Estimate. 
Accordingly, this disclosure will benefit consumers and effectuate the 
purposes of TILA and RESPA by promoting the informed use of credit and 
more effective advance notice of settlement costs, consistent with TILA 
section 105(a) and RESPA section 19(a), and will ensure that the 
features of the transaction are fully, accurately and effectively 
disclosed to consumers in a manner that permits consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a).
38(a)(3) Closing Information
    Appendix A to Regulation X currently requires the settlement agent 
to include in the RESPA settlement statement basic information about 
the settlement process, including the name of the settlement agent, the 
place of settlement, the property location, and the settlement date. In 
addition to this information, with the exception of the place of 
settlement, proposed Sec.  1026.38(a)(3) requires creditors to 
disclose: (1) The date the Closing Disclosure is issued; (2) the dates 
funds are disbursed to the seller and consumer, as applicable; (3) the 
sale price of the property that is the subject of the transaction; and 
(4) the file number assigned to the transaction by the closing agent. 
All of the aforementioned information would be located under the 
heading ``Closing Information.'' The Bureau believes that this 
information and the additional information discussed below effectuate 
the purposes of TILA and RESPA by promoting the informed use of credit 
and more effective advance notice of settlement costs, consistent with 
TILA section 105(a) and RESPA section 19(a), and will ensure that the 
features of the transaction are fully, accurately and effectively 
disclosed to consumers in a manner that permits consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a).
38(a)(3)(i) Date Issued
    Proposed Sec.  1026.38(a)(3)(i) requires the creditor to disclose 
the date the disclosures required for transactions subject to Sec.  
1026.19(f) are issued to the consumer, labeled ``Date Issued.'' 
Proposed comment Sec.  1026.38(a)(3)(i)-1 cross-references the 
commentary to proposed Sec.  1026.37(a)(4).
38(a)(3)(ii) Closing Date
    Proposed Sec.  1026.38(a)(3)(ii) requires the creditor to disclose 
the consummation date for the mortgage loan transaction, labeled 
``Closing Date.''
38(a)(3)(iii) Disbursement Date
    Proposed Sec.  1026.38(a)(3)(iii) requires the disclosure of the 
date the amounts disclosed pursuant to proposed Sec.  
1026.38(j)(3)(iii) and (k)(3)(iii) are expected to be paid to the 
consumer and seller, respectively, labeled ``Disbursement Date.''
38(a)(3)(iv) Agent
    Proposed Sec.  1026.38(a)(3)(iv) requires the identity of the 
settlement agent conducting the closing, labeled ``Agent.'' Proposed 
comment 38(a)(3)(iv)-1 clarifies that the name of the agency that 
employs the settlement agent should be provided in the disclosure 
required by Sec.  1026.38(a)(3)(iv) and that the name of the individual 
conducting the closing is not required.

[[Page 51237]]

38(a)(3)(v) File Number
    Proposed Sec.  1026.38(a)(3)(v) requires disclosure of the number 
assigned to the transaction by the closing agent for identification 
purposes, labeled ``File .''
38(a)(3)(vi) Property
    Proposed Sec.  1026.38(a)(3)(vi) requires the street address of the 
property required to be disclosed under proposed Sec.  1026.37(a)(6), 
labeled ``Property.'' Proposed comment 38(a)(3)(iv)-1 cross-references 
the commentary to Sec.  1026.37(a)(6), which provides guidance 
regarding the information that must be provided in response to this 
requirement when a standard property address is unavailable.
38(a)(3)(vii) Sale Price
    In credit transactions where there is a seller, proposed Sec.  
1026.38(a)(3)(vii)(A) requires disclosure of the contract sale price 
for the property identified in proposed Sec.  1026.38(a)(3)(vi), 
labeled ``Sale Price.'' In transactions where there is no seller, 
proposed Sec.  1026.38(a)(3)(vii)(B) requires disclosure of the 
appraised value of the property in proposed Sec.  1026.38(a)(3)(vi), 
labeled ``Appraised Prop. Value.'' Proposed comment 38(a)(3)(vii)-1 
provides guidance regarding disclosing the property value when there is 
no seller that is a party to the transaction.
38(a)(4) Transaction Information
    Proposed Sec.  1026.38(a)(4) requires the creditor to disclose the 
names and addresses of the parties to the transaction: The borrower, 
seller, and lender, as applicable. This information would appear under 
the heading ``Transaction Information.'' These disclosures are 
currently provided in the RESPA settlement statement. See appendix A to 
Regulations X. In addition, TILA section 128(a)(1) and Regulation Z 
Sec.  1026.18(a) require disclosure of the identity of the creditor. 
The Bureau believes that these disclosures effectuate the purposes of 
TILA and RESPA by promoting the informed use of credit and more 
effective advance notice of settlement costs, consistent with TILA 
section 105(a) and RESPA section 19(a), and will ensure that the 
features of the transaction are fully, accurately and effectively 
disclosed to consumers in a manner that permits consumers to better 
understand the costs, benefits, and risks associated with mortgage 
transactions, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a).
    Proposed comment 38(a)(4)-1 clarifies that the name and address for 
each consumer and seller must be provided and refers creditors to the 
commentary to proposed Sec.  1026.37(a)(5) for further guidance. 
Proposed comment 38(a)(4)-1 also clarifies that the name and address of 
each consumer must be provided and that if the form does not provide 
enough space to include the required information for each seller, an 
additional page with that information may be appended to the end of the 
form, provided the creditor is in compliance with proposed Sec.  
1026.38(t)(3). Proposed comment 38(a)(5)-2 clarifies that, in 
transactions where there is no seller such as in a refinancing or home 
equity loan, the creditor must provide the name of the person or 
persons primarily liable under the obligation or who have a right of 
rescission. Finally, proposed comment 38(a)(4)-3 cross-references the 
commentary to proposed Sec.  1026.37(a)(3) for information regarding 
the identification of multiple creditors.
38(a)(5) Loan Information
    Proposed Sec.  1026.38(a)(5) requires the creditor to provide 
certain information about the mortgage loan that is the subject of the 
transaction. With the exception of the mortgage insurance case number 
required by proposed Sec.  1026.38(a)(5)(vi), all of the disclosures 
required under proposed Sec.  1026.38(a)(5) mirror the disclosures 
required by proposed Sec.  1026.37(a)(8) through (12). The Bureau 
believes that these disclosures effectuate the purposes of TILA and 
RESPA by promoting the informed use of credit and more effective 
advance notice of settlement costs, consistent with TILA section 105(a) 
and RESPA section 19(a), and will ensure that the features of the 
transaction are fully, accurately and effectively disclosed to 
consumers in a manner that permits consumers to better understand the 
costs, benefits, and risks associated with mortgage transactions, in 
light of the facts and circumstances, consistent with Dodd-Frank Act 
section 1032(a).
    Proposed comment 38(a)(5)-1 refers the creditor to the commentary 
to proposed Sec.  1026.37(a)(9) through (11) for further guidance on 
the general requirements and definitions applicable to proposed Sec.  
1026.38(a)(5)(i) through (v). The disclosures required by proposed 
Sec.  1026.38(a)(5) appear under the heading ``Loan Information.''
38(a)(5)(i) Loan Term
    Proposed Sec.  1026.38(a)(5)(i) requires disclosure of the term of 
the loan, consistent with proposed Sec.  1026.37(a)(8) and labeled 
``Loan Term.''
38(a)(5)(ii) Purpose
    Proposed Sec.  1026.38(a)(5)(ii) requires disclosure of the purpose 
of the loan, consistent with proposed Sec.  1026.37(a)(9) and labeled 
``Purpose.''
38(a)(5)(iii) Product
    Proposed Sec.  1026.38(a)(5)(iii) requires disclosure of the loan 
product, consistent with proposed Sec.  1026.37(a)(10) and labeled 
``Product.''
38(a)(5)(iv) Loan Type
    Proposed Sec.  1026.38(a)(5)(iv) requires disclosure of the loan 
type, consistent with proposed Sec.  1026.37(a)(11) and labeled ``Loan 
Type.''
38(a)(5)(v) Loan Identification Number
    Proposed Sec.  1026.38(a)(5)(v) requires disclosure of the loan 
identification number, consistent with proposed Sec.  1026.37(a)(12) 
and labeled ``Loan ID .''
38(a)(5)(vi) Mortgage Insurance Case Number
    The mortgage insurance case number currently is disclosed in 
section B of the RESPA settlement statement. See appendix A to 
Regulation X. Proposed Sec.  1026.38(a)(5)(vi) incorporates this 
disclosure into the Closing Disclosure, labeled ``MIC .''
38(b) Loan Terms
    For transactions subject to proposed Sec.  1026.19(f), proposed 
Sec.  1026.38(b) implements the requirements of TILA section 128(a)(6), 
(a)(11), and (b)(2)(C)(ii) by requiring creditors to disclose on the 
Closing Disclosure the table of key loan terms provided on the Loan 
Estimate pursuant to proposed Sec.  1026.37(b). This information 
includes the loan amount; interest rate; periodic principal and 
interest payment; whether the loan amount, interest rate, or periodic 
payment may increase; and whether the loan has a prepayment penalty or 
balloon payment. For a detailed description of the Bureau's 
implementation of these statutory provisions and its legal authority 
for this proposal, see the section-by-section analysis to proposed 
Sec.  1026.37(b).
    The requirements of proposed Sec.  1026.38(b) generally mirror 
those of proposed Sec.  1026.37(b). Accordingly, proposed comment 
38(b)-1 directs creditors to the commentary to proposed Sec.  
1026.37(b) for guidance on the disclosures required by proposed Sec.  
1026.38(b).
38(c) Projected Payments
    Proposed Sec.  1026.38(c) implements the requirements of TILA 
section 128(a)(6), (a)(16), (b)(2)(C), and (b)(4) for

[[Page 51238]]

transactions subject to proposed Sec.  1026.19(f), by requiring 
creditors to disclose on the Closing Disclosure the periodic payment or 
range of payments, together with an estimate of the taxes, insurance, 
and assessments and the payments to be made with escrow account funds. 
15 U.S.C. 128(a)(6), (a)(16), (b)(2)(C), (b)(4). The requirements of 
proposed Sec.  1026.38(c) generally mirror those of proposed Sec.  
1026.37(c), with certain exceptions which are discussed below. 
Accordingly, proposed comment 38(c)-1 directs creditors to Sec.  
1026.37(c) and its commentary for guidance on the disclosures required 
by Sec.  1026.38(c). For a detailed description of the Bureau's 
implementation of these statutory provisions and its legal authority 
for this proposal, see the section-by-section analysis to proposed 
Sec.  1026.37(c) above. As discussed below in the section-by-section 
analysis to proposed Sec.  1026.38(t), the items required to be 
disclosed pursuant to Sec.  1026.38 will be actual terms and costs, as 
required by Sec.  1026.19(f).
    Proposed Sec.  1026.38(c) differs from proposed Sec.  1026.37(c) in 
several ways. First, proposed Sec.  1026.38(c)(2) requires an 
additional reference to the information required by proposed Sec.  
1026.38(l)(7). The Bureau believes, based on consumer testing, that 
this additional reference will help consumers to understand the 
specific payment amounts to be made with escrow funds and those that 
must be paid separately by the consumer. Second, proposed Sec.  
1026.38(c) contains different rules for estimating escrow payments. As 
discussed in the section-by-section analysis to proposed Sec.  
1026.37(c), the Dodd-Frank Act amended TILA to add new requirements 
regarding the disclosure of escrow payments in consumer credit 
transactions secured by a first mortgage on the principal dwelling of 
the consumer, other than an open-end credit plan or reverse mortgage. 
Specifically, TILA section 128(b)(4)(A) provides that the disclosures 
required by TILA section 128(a)(6) must take into account the amount of 
any monthly payment to an escrow account, in accordance with section 
10(a)(2) of RESPA. 15 U.S.C. 1638(b)(4)(A); 12 U.S.C. 2609(a)(2). In 
addition, new TILA section 128(b)(4)(B) generally requires creditors to 
take into account the taxable assessed value of the property during the 
first year after consummation, including the value of any improvements 
constructed or to be constructed on the property, if known, and the 
replacement costs of the property for hazard or flood insurance, when 
disclosing estimated escrow payments pursuant to TILA section 
128(b)(4)(A). 15 U.S.C. 1638(b)(4)(B). For the Loan Estimate provided 
to consumers near the time of application, proposed Sec.  1026.37(c) 
generally incorporates these statutory provisions, but expands the 
requirements to all transactions subject to Sec.  1026.37(c). However, 
the Bureau believes that separate treatment is required for the Closing 
Disclosure because the statutory requirements may conflict with certain 
provisions of Regulation X, which implements the provisions of RESPA 
sections 6(g) and 10, regarding the administration of escrow accounts. 
12 U.S.C. 2605(g); 2609.
    Regulation X Sec.  1024.17(c)(7) specifies how a creditor 
conducting an escrow account analysis must estimate disbursement 
amounts. If the creditor knows the charge for a particular escrow item, 
the creditor must use that amount in estimating the disbursement. If 
the charge is unknown, the creditor may base the estimate on the 
preceding year's charge, but may adjust the estimate to account for 
inflation. The Regulation X requirement that the creditor use actual 
charges, if known, in estimating escrow payment amounts may conflict 
with the TILA section 128(b)(4)(B) requirement that the creditor take 
into account the replacement costs of the property for hazard insurance 
when determining the estimated escrow amount. Under the plain language 
of TILA section 128(b)(4)(B), a creditor must base estimated escrows 
for hazard insurance on the replacement costs of the property, even if 
it knows that the actual charges will be different. While the Bureau 
believes that the TILA requirement for estimating escrow payments is 
appropriate for the Loan Estimate because it requires creditors to use 
a uniform standard for estimates and therefore facilitates comparison, 
the disclosure of actual payment amounts, when known, is appropriate 
for the Closing Disclosure.
    Accordingly, the Bureau proposes to use its authority under TILA 
section 105(a), Dodd-Frank Act section 1032(a), and, for residential 
mortgage loans, Dodd-Frank Act section 1405(b) to modify the 
requirements of TILA section 128(b)(4)(B) for the estimation of escrow 
payment amounts on the Closing Disclosure. Proposed Sec.  1026.38(c) 
provides that, in disclosing estimated escrow payments as described in 
Sec.  1026.37(c)(2)(iii) and (4)(ii), the amount disclosed on the 
Closing Disclosure: (1) For transactions subject to RESPA, is 
determined under the escrow account analysis described in Regulation X, 
12 CFR 1024.17, and (2) for transactions not subject to RESPA, may be 
determined under the escrow account analysis described in Regulation X, 
12 CFR 1024.17, or in the manner set forth in Sec.  1026.37(c)(5). 
Comment 38(c)(1)-1 clarifies that the amount of estimated escrow 
payments disclosed on the Closing Disclosure is accurate if it differs 
from the estimated escrow payment disclosed on the Loan Estimate due to 
the escrow account analysis described in Regulation X, 12 CFR 1024.17. 
The Bureau believes the proposed modification will effectuate the 
purposes of TILA by promoting the informed use of credit by allowing 
disclosure of actual escrow amounts for hazard insurance, when known. 
Additionally, the proposed modification will ease compliance burden for 
creditors. In particular, permitting creditors in transactions not 
subject to RESPA to rely on the accounting rules described in 
Regulation X, 12 CFR 1024.17, to calculate the escrow payment 
disclosure will avoid requiring creditors to follow a separate 
disclosure requirement for the relatively small number of transactions 
that are subject to TILA but not RESPA. The proposed modification will 
also improve consumer awareness and understanding of residential 
mortgage loans and is in the interest of consumers and the public, 
consistent with Dodd-Frank Act section 1405(b). The Bureau also 
believes that the disclosure ensures that the features of consumer 
credit transactions secured by real property are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances, consistent 
with Dodd-Frank Act section 1032(a).
38(d) Cash To Close
    Pursuant to its authority under TILA section 105(a) and Dodd-Frank 
section 1032(a), the Bureau proposes to require creditors to provide 
the actual total closing costs imposed upon the consumer and the amount 
of the cash required at consummation from the consumer. This disclosure 
will promote the informed use of credit and consumer understanding of 
the costs, benefits, and risks associated with the loan because it will 
indicate to the consumer the amount the consumer will pay at 
consummation of the credit transaction and closing of the real estate 
transaction. Accordingly, proposed Sec.  1026.38(d) requires the 
disclosure of the cash required from the consumer at consummation of 
the transaction, with a

[[Page 51239]]

breakdown of the amounts of loan costs and other costs associated with 
the transaction.
38(d)(1) to (d)(6)
    Under proposed Sec.  1026.38(d)(1), the dollar amount due from the 
consumer is the same amount as calculated in accordance with proposed 
Sec.  1026.38(j)(3)(iii) and is disclosed under a heading of ``Cash to 
Close'' and labeled ``Cash to Close.'' The total dollar amount of the 
loan costs to be paid by the consumer at closing as calculated under 
proposed Sec.  1026.38(f)(4) is disclosed under proposed Sec.  
1026.38(d)(2). The total dollar amount of the other costs to be paid by 
the consumer at closing as calculated under proposed Sec.  
1026.38(g)(5) is disclosed under proposed Sec.  1026.38(d)(3). The 
amount of lender credits disclosed under Sec.  1026.38(h)(3) is 
disclosed under Sec.  1026.38(d)(4). The sum of the amounts disclosed 
under Sec.  1026.38(d)(2), 1026.38(d)(3), and 1026.38(d)(4) is 
disclosed with a description of ``Closing Costs'' under Sec.  
1026.38(d)(5). A statement directing the consumer to refer to the page 
of the Closing Disclosure that contains the tables required under Sec.  
1026.38(f) and (g) is required under Sec.  1026.38(d)(6).
38(f),(g), and (h) Closing Cost Details
    Currently, RESPA section 4(a) requires that the forms published by 
the Bureau ``* * * shall conspicuously and clearly itemize all charges 
imposed upon the borrower and all charges imposed upon the seller in 
connection with the settlement * * *.'' 12 U.S.C. 2603(a). The current 
RESPA settlement statement used in residential real estate transactions 
is promulgated under Regulation X Sec.  1024.8, with instructions in 
appendix A of Regulation X.
    As discussed above, Dodd-Frank Act section 1032(f) requires the 
Bureau to combine these RESPA disclosures with the disclosures required 
by TILA. However, section 1419 of the Dodd-Frank Act amended TILA 
section 128(a) to also require, in the case of a residential mortgage 
loan, disclosure of the aggregate amount of settlement charges for all 
settlement services provided in connection with the loan and the 
aggregate amount of other fees or required payments in connection with 
the loan. 15 U.S.C. 1638(a)(17).
    Pursuant to its authority under Dodd-Frank Act section 1032(a) and 
(f), TILA section 105(a), and RESPA section 19(a), the Bureau proposes 
to require creditors to provide the loan costs and other costs imposed 
upon the consumer and the seller in tables as part of the integrated 
Closing Disclosure for closed-end transactions secured by real property 
(other than reverse mortgages). Based on its consumer testing, the 
Bureau believes that the disclosure of loan costs and other costs in 
the format illustrated in proposed form H-25 of appendix H to 
Regulation Z may improve consumer understanding of the loan costs and 
other costs being imposed. The Bureau tested several different 
prototype formats for disclosing actual closing costs on the Closing 
Disclosure, including prototypes that were similar in format to the 
current RESPA settlement statement, with a similar three-and four-digit 
line numbering system, and other prototypes that more closely matched 
the Loan Estimate. Consumer participants at the Bureau's consumer 
testing performed better at identifying closing costs, including 
whether closing costs had changed between the estimated and actual 
amounts, when using a format for closing costs that closely matched 
that of the Loan Estimate. Participants gained a familiarity with the 
organization of closing costs on the Loan Estimate and benefited from 
this experience when engaging with the Closing Disclosure. In addition, 
consumer participants often placed the Loan Estimate and Closing 
Disclosure prototypes side-by-side to compare the closing costs, and 
this method of comparing the two disclosures was better enabled and 
assisted by a closely matching organization of closing costs between 
them. Accordingly, the Bureau is proposing a format for the disclosure 
of closing cost information required by proposed Sec.  1026.38(f) and 
(g) that closely matches the format and organization of the closing 
cost information on the Loan Estimate, as required by proposed Sec.  
1026.38(t) and illustrated by proposed form H-25.
    This format of form H-25 also uses a different line numbering 
system than that of the current RESPA settlement statement. Both 
consumer and industry participants at the Bureau's testing stated that 
line numbers would be useful to facilitate conversations between 
consumers, creditors, and other participants in the credit and 
underlying real estate transaction. However, consumer participants at 
the Bureau's testing appeared overwhelmed by the three-and four-digit 
line numbers on the prototypes similar to the current RESPA settlement 
statement, and performed worse with prototypes containing that system. 
As discussed above in part III, the Bureau is particularly mindful of 
the potential risk of information overload for consumers, given the 
amount of numbers and complexity involved in the credit transaction and 
the underlying real estate transaction. The Bureau tested prototypes 
with a two-digit line numbering system, which performed better with 
both consumer and industry participants at the Bureau's testing, with 
some industry participants at the Bureau's testing preferring it over 
the system of the current RESPA settlement statement. Accordingly, the 
format for the information required by proposed Sec.  1026.38(f) and 
(g), as required by proposed Sec.  1026.38(t) and illustrated by form 
H-25, also contains a two-digit line numbering system that is different 
than the current RESPA settlement statement.
    The Bureau believes that this disclosure may effectuate the purpose 
of TILA by promoting the informed use of credit and assuring a 
meaningful disclosure to consumers. The Bureau believes that this 
disclosure may also satisfy the purpose of RESPA to provide more 
effective advanced disclosure of settlement costs to both the consumer 
and the seller in the real estate transaction. In addition, consistent 
with section 1032(a) of the Dodd-Frank Act, this disclosure may ensure 
that the features of consumer credit transactions secured by real 
property are fully, accurately, and effectively disclosed to consumers 
in a manner that permits consumers to understand the costs, benefits, 
and risks associated with the product or service, in light of the facts 
and circumstances.
    As discussed below, proposed Sec.  1026.38(f), (g), and (h) require 
the creditor or closing agent to disclose the details of the closing 
costs at closing and totals of those costs. The costs related to the 
consummation of the credit transaction and the closing of the real 
estate transaction would be disclosed under Sec.  1026.38(f), (g), and 
(h), as discussed below, regardless of the person responsible for 
paying the cost.\186\
---------------------------------------------------------------------------

    \186\ The permitted itemization of closing costs under Sec.  
1026.38(f) and (g) allows creditors to provide itemizations required 
by State law without using additional pages. See, e.g., Indiana 
Department of Insurance, Title Insurance Division ``New RESPA Rules 
and Indiana Code FAQs'' (May 1, 2010) available at http://www.in.gov/idoi/files/Indiana_Department_of_Insurance_FAQs.pdf; 
North Carolina Commissioner of Banks Memorandum ``Disclosure of 
Origination Fees under HUD's New RESPA Rules'' (December 3, 2010) 
available at http://www.nccob.gov/public/docs/Financial%20Institutions/Mortgage/OCOB_Letter_Regarding_Disclosure_of_Origination_Fees_under_HUDs_new_RESPA_Rules.pdf; Tex. Ins. Code Ann. art. Sec.  2702.053 (West 2005).
---------------------------------------------------------------------------

    During the Small Business Review Panel, several settlement agents 
and one mortgage company requested that the

[[Page 51240]]

line numbers from the current RESPA settlement statement be retained, 
stating that using the revised line numbers in the prototype integrated 
Closing Disclosure would significantly increase programming costs. See 
Small Business Review Panel Report at 20, 28-9. Based on this feedback, 
the Bureau seeks comment on whether the use of line numbers will lower 
software-related costs on industry, and the exact amount of the savings 
given the rest of the changes in the integrated closing disclosure 
contemplated by this proposal, while improving consumer understanding 
of the loan terms and costs at the consummation of the credit 
transaction and the closing of the real estate transaction.
38(f) Closing Cost Details; Loan Costs
    Under proposed Sec.  1026.38(f), the closing cost details are 
disclosed under a master heading of ``Closing Cost Details'' with 
columns stating whether the charge is paid at or before consummation by 
the consumer or the seller, or paid by others. All loan costs in the 
credit transaction would be disclosed in a table under a heading of 
``Loan Costs'' in three subcategories.
38(f)(1) Origination Charges
    The first subcategory of loan costs would be disclosed under the 
label ``Origination Charges,'' which encompasses the same items as 
disclosed on the Loan Estimate under proposed Sec.  1026.37(f)(1) 
together with any compensation of a loan originator paid by the 
creditor. Each cost would be disclosed in the appropriate column 
designated borrower-paid at or before closing, seller-paid at or before 
closing, or paid by others. Proposed comment 38(f)(1)-1 clarifies that 
comments 37(f)(1)-1, -2 and -3 provide additional guidance for the 
charges listed under Sec.  1026.38(f)(1). Proposed comment 38(f)(1)-2 
clarifies that all compensation paid to a loan originator must be 
provided under Sec.  1026.38(f)(1), that compensation from the creditor 
to a loan originator must be disclosed in the paid by others column, 
and that compensation from both the consumer and the creditor to the 
loan originator is prohibited under Sec.  1026.36(d)(2). Proposed 
comment 38(f)(1)-3 clarifies that any amount disclosed as paid from the 
creditor to the loan originator is calculated as the dollar value of 
all compensation to the loan originator and refers to comments 
36(d)(1)-1, -2, -3 and -6 for further guidance on the components of 
compensation a to loan originator. The Bureau believes that the 
origination charges disclosed under Sec.  1026.38(f)(1) satisfies Dodd-
Frank Act section 1419, which amended section 128(a) of TILA to add 
paragraph (18), requiring disclosure of the aggregate amount of fees 
paid to the mortgage originator, amount of those fees paid directly by 
the consumer, and any additional amount received by the originator from 
the creditor. As discussed above in part II.F, the Bureau currently is 
engaged in six other rulemakings that relate to mortgage credit and 
intends that the rulemakings function collectively as a whole. 
Accordingly, the Bureau may have to modify aspects of this proposed 
rule for consistency with determinations made in the other rulemakings. 
For example, the Bureau would modify the disclosure of origination 
charges under Sec.  1026.38(f)(1) as appropriate for consistency with 
other rulemakings related to permissible mortgage loan originator 
compensation.
    Alternatively, the Bureau invites comment on whether it should 
require itemization in the Closing Disclosure of fees received by loan 
originators from the creditor, and whether it should require 
itemization of any compensation paid by consumers to loan originators, 
which does not include creditors, in the Loan Estimate and Closing 
Disclosure. As discussed above with respect to proposed Sec.  
1026.37(f)(1), the Bureau is proposing to use its authority under TILA 
section 105(a) and (f), RESPA section 19(a), and Dodd-Frank Act section 
1405(b) to exempt the disclosures required by proposed Sec.  1026.19(e) 
from the TILA section 128(a)(18) requirement that creditors disclose 
the amount of origination fees received by loan originators from the 
creditor. The Bureau solicits comment on whether a similar exemption 
should be applied here.
38(f)(2) Services Borrower Did Not Shop For
    The second subcategory of loan costs would be disclosed under the 
label ``Services Borrower Did Not Shop For.'' The costs of services 
that were required by the creditor and provided by persons other than 
the creditor for which the consumer could not or did not shop would 
disclosed under Sec.  1026.38(f)(2). All items that were required to be 
disclosed under Sec.  1026.37(f)(2), plus those items that would be 
disclosed under Sec.  1026.37(f)(3) when the consumer did not shop for 
the service under Sec.  1026.19(e)(1)(vi). Any additional items that 
were required by the creditor but were not disclosed on the Loan 
Estimate under Sec.  1026.37(f)(2) would be disclosed under Sec.  
1026.38(f)(2) when the consumer did not shop for the service under 
Sec.  1026.19(e)(1)(vi). Each cost would be disclosed in the 
appropriate column designated borrower-paid at or before closing, 
seller-paid charges at or before closing, or paid by others. Proposed 
comment 38(f)(2)-1 refers to comments 37(f)(2)-1, through -4 to provide 
additional guidance for the charges listed under Sec.  1026.38(f)(2).
38(f)(3) Services Borrower Did Shop For
    The third subcategory of loan costs would be disclosed under the 
label ``Services Borrower Did Shop For.'' The services required by the 
creditor but for which the consumer independently shopped are disclosed 
under Sec.  1026.38(f)(3). Each cost is disclosed in the appropriate 
column for borrower-paid at or before closing, seller-paid at or before 
closing, or paid by others. Proposed comment 38(f)(3)-1 clarifies that 
all items that were disclosed under Sec.  1026.37(f)(3) that the 
consumer did not shop for the service under Sec.  1026.19(e)(1)(vi) are 
disclosed under Sec.  1026.38(f)(2), and not under Sec.  1026.38(f)(3).
38(f)(4) and (5) Total Loan Costs and Subtotal of Loan Costs
    With the label ``Total Loan Costs (Borrower-Paid),'' the total 
costs designated borrower-paid charges at closing and borrower-paid 
charges before closing would be disclosed under Sec.  1026.38(f)(4). 
The costs disclosed under Sec.  1026.38(f)(1), (2), and (3) would be 
subtotaled and disclosed in the appropriate column designated borrower-
paid at or before closing under Sec.  1026.38(f)(5). Proposed comment 
38(f)(5)-1 clarifies that costs that are seller-paid at or before 
closing, or paid by others, are not subtotaled under Sec.  
1026.38(f)(5), and that the subtotal of charges that are seller-paid at 
or before closing, or paid by others, would be disclosed under Sec.  
1026.38(h)(2).
38(g) Closing Cost Details; Other Costs
    Under proposed Sec.  1026.38(g), all other costs in the credit 
transaction and the real estate transaction are disclosed in a table 
under the heading of ``Other Costs'' in four subcategories. Proposed 
comment 38(g)-1 would refer to comment 38(f)-1 and comment 37(g)-1 to 
provide guidance related to Sec.  1026.38(g).
38(g)(1) Taxes and Other Government Fees
    The first subcategory is disclosed under the label ``Taxes and 
Other Government Fees.'' The amount of recording fees and an 
itemization of transfer taxes would be disclosed under Sec.  
1026.38(g)(1). Proposed comment

[[Page 51241]]

38(g)(1)-1 refers to comments 37(g)(1)-1, -2, -3 and -4 for guidance on 
disclosures required under Sec.  1026.38(g)(1).
38(g)(2) Prepaids
    The second subcategory is disclosed under the label ``Prepaids.'' 
The items that were identified under are stated with the actual costs 
in the applicable columns is disclosed under Sec.  1026.38(g)(2). 
Proposed comment 38(g)(2)-1 refers to comment 37(g)(2)-1 to provide 
guidance on disclosures required under Sec.  1026.38(g)(2). Proposed 
comment 38(g)(2)-2 clarifies that the amount of prepaid interest can be 
disclosed as a negative number if the calculation of prepaid interest 
results in a negative number. Proposed comment 38(g)(2)-3 clarifies 
that if interest is not collected for a portion of a month or other 
period between closing and the date from which interest will be 
collected with the first monthly payment, then $0.00 must be disclosed 
under Sec.  1026.38(g)(2) for prepaid interest. This guidance is 
consistent with instructions for RESPA settlement statement line 901 in 
appendix A of Regulation X.
38(g)(3) Initial Escrow Payment at Closing
    The third subcategory is disclosed under the subheading ``Initial 
Escrow Payment at Closing.'' The items that were identified under Sec.  
1026.37(g)(3) are stated with their actual cost and the applicable 
aggregate adjustment required under 12 CFR 1024.17(d)(2) and disclosed 
under Sec.  1026.38(g)(3). Proposed comment 38(g)(3)-1 clarifies that 
the creditor would be required to state the amount that it would 
require the consumer to place into a reserve or escrow account at 
consummation to be applied to recurring charges for property taxes, 
homeowner's and similar insurance, mortgage insurance, homeowner's 
association dues, condominium dues, and other periodic charges. Each 
charge identified would be disclosed with a relevant label, monthly 
payment amount, and number of months collected at consummation. 
Proposed comment 38(g)(3)-2 clarifies that the method used to determine 
the aggregate adjustment for purposes of establishing the reserve or 
escrow account is described in Regulation X Sec.  1024.17(d)(2), that 
examples of the calculation methodology can be found in appendix E of 
Regulation X, and that the result of the calculation will always be a 
negative number or zero, except for amounts due to rounding. This 
comment incorporates guidance provided in appendix A to Regulation X 
relating to the instructions to complete the current RESPA settlement 
statement section 1000.
38(g)(4) Other
    The fourth subcategory would be disclosed under the label 
``Other.'' The services required to be performed or are to be obtained 
in the real estate closing by the consumer, seller, or other party are 
described and the costs for the services disclosed under Sec.  
1026.38(g)(4). The label for any cost that is a component of title 
insurance must include the description ``Title--''. The label for costs 
of premiums for separate insurance, warranty, guarantee, or event-
coverage products must include the parenthetical ``(optional)'' at the 
end. Proposed comment 38(g)(4)-1 clarifies that the charges disclosed 
under Sec.  1026.38(g)(4) include all real estate brokerage fees, 
homeowner's or condominium association charges paid at closing, home 
warranties, inspection fees, and other fees that are part of the real 
estate transaction but not required by the creditor or disclosed 
elsewhere in Sec.  1026.38. Proposed comment 38(g)(4)-2 clarifies that 
any owner's title insurance premium disclosed under Sec.  1026.38(g)(4) 
in a jurisdiction that permits simultaneous issuance title insurance 
rates is calculated by using the full owner's title insurance premium, 
adding any simultaneous issuance premium for issuance of lender's 
coverage, and then deducting the full premium for lender's coverage 
disclosed under Sec.  1026.38(f)(2) or (f)(3) and that the cost of a 
premium for an owner's title insurance policy will be always labeled 
with ``Title--'' at the beginning, and labeled ``(optional)'' at the 
end when designated borrower-paid at or before closing. Proposed 
comment 38(g)(4)-3 refers to comment 37(g)(4)-3 for additional guidance 
on the use of the parenthetical ``(optional)'' at the end of label on a 
cost under Sec.  1026.38(g)(4)(ii).
38(g)(5) Total Other Costs
38(g)(6) Subtotal of Costs
    With the label ``Total Other Costs (Borrower-Paid),'' the total of 
the consumer paid charges at closing and the consumer paid charges 
before closing would be disclosed under proposed Sec.  1026.38(g)(5). 
The costs disclosed under Sec.  1026.38(g)(1) through (4) are be 
subtotaled and disclosed in the appropriate column designated borrower-
paid at or before closing under Sec.  1026.38(g)(6). Proposed comment 
38(g)(6)-1 would clarify that the only costs subtotaled under Sec.  
1026.38(g)(6) are those that are designated borrower-paid at or before 
closing. Charges that are other costs seller-paid at closing, seller-
paid before closing, or paid by others are not disclosed under Sec.  
1026.38(g)(6), but are subtotaled under Sec.  1026.38(h)(2).
38(h) Closing Cost Totals
38(h)(1) and (2)
    Subtotals of closing costs and total closing costs paid by the 
consumer must be disclosed under proposed Sec.  1026.38(h). With the 
label ``Total Closing Costs (Borrower-Paid),'' the total amount of 
consumer paid closing costs would be disclosed under Sec.  
1026.38(h)(1). With a description of ``Closing Costs Subtotal (Loan 
Costs + Other Costs),'' the subtotal of all charges disclosed under 
Sec.  1026.38(f) and (g) in each column described in Sec.  1026.38(f) 
would be disclosed under Sec.  1026.38(h)(2). Comment 38(h)(2)-1 
clarifies that the loan costs and other costs that are seller-paid at 
closing, seller-paid before closing, and paid by others are also 
subtotaled under Sec.  1026.38(h)(2).
    The Bureau proposes Sec.  1026.38(h) pursuant to its authority 
under TILA section 105(a) and Dodd-Frank Act section 1032(a) because 
disclosure of this closing cost information will promote the informed 
use of credit and consumer understanding of the costs, benefits, and 
risks associated with the mortgage transaction. Furthermore, for the 
reasons stated above, the proposed rule is in the interest of consumers 
and in the public interest, consistent with Dodd-Frank Act section 
1405(b). In addition, proposed Sec.  1026.38(h) implements Dodd-Frank 
Act Section 1419, which amended section 128(a) of TILA to add a new 
paragraph (17) requiring disclosure of, among other amounts, the amount 
of settlement charges the borrower must pay at closing and the 
aggregate amount of all settlement charges for all settlement services 
provided in connection with the loan.
38(h)(3)
    Section 1026.38(h)(3) requires the creditor to disclose the amount 
of credits provided by the creditor to the consumer at consummation. 
Proposed comment 38(h)(3)-1 provides a cross reference to guidance 
provided in comments 17(c)(1)-19, 19(e)(3)(i)-4, and 19(e)(3)(i)-5 
concerning the disclosure of lender credits, including those that are 
disclosed under Sec.  1026.37(g)(6). Proposed comment 38(h)(3)-2 
clarifies that any amounts disclosed under Sec.  1026.38(h)(3) can also 
be used for disclosing any credits from the creditor to remediate 
excess costs determined

[[Page 51242]]

under Sec.  1026.19(e)(3)(i) or (e)(3)(ii). This comment incorporates 
guidance provided in the HUD RESPA Roundup dated April 2010.
38(h)(4)
    Section 1026.38(h)(4) requires the creditor to use terminology 
describing the charges on the Closing Disclosure in a manner that is 
consistent with the descriptions used for charges disclosed on the Loan 
Estimate under Sec.  1026.37. The creditor would also be required to 
list the charges on the Closing Disclosure in the same sequential order 
on the Loan Estimate under Sec.  1026.37. Proposed comment 38(h)(4)-1 
clarifies that the creditor would be required to use the same 
terminology and order to make it easier for the consumer to compare 
charges listed on the Loan Estimate and Closing Disclosure. Also, if 
charges move between subheadings under Sec.  1026.38(f)(2) and (3), 
listing the charges in alphabetical order in each subheading category 
would be considered to be in compliance with Sec.  1026.38(h)(4).
38(i) Calculating Cash To Close
    As discussed above, the total amount of cash or other funds that 
the consumer must provide at consummation is commonly known as the 
``cash to close.'' Prior to the enactment of the Dodd-Frank Act, 
neither TILA nor Regulation Z expressly required disclosure of the cash 
to close amount or its critical components. The Dodd-Frank Act added 
section 128(a)(17) to TILA, which requires the disclosure of ``the 
aggregate amount of settlement charges for all settlement services 
provided in connection with the loan, the amount of charges that are 
included in the loan and the amount of such charges the borrower must 
pay at closing * * * and the aggregate amount of other fees or required 
payments in connection with the loan.'' 15 U.S.C. 1638(a)(17).
    The ``Summary of Borrower's Transaction'' on page 1 of the RESPA 
settlement statement, line 303, includes a box that shows the amount of 
cash due to or from the consumer. See appendix A to Regulation X. Page 
3 of the RESPA settlement statement also includes a chart entitled 
``Comparison of Good Faith Estimate (GFE) and HUD-1 Charges,'' which 
highlights any changes between the estimated and actual amounts for 
settlement service charges that are subject to the limitations on 
increases under 12 CFR 1024.7(e). However, these settlement service 
charges comprise only a portion of the total amount of funds that the 
consumer would need to consummate the transaction. Thus, the cash to 
close box on line 303 and the comparison chart on page 3 of the RESPA 
settlement statement together provide an incomplete picture of how the 
cash to close amount is calculated and whether it is different than the 
consumer expects based on the GFE.
    Consequently, and based on its authority under TILA section 105(a), 
RESPA section 19(a), and Dodd-Frank Act sections 1032(a) and, for 
residential mortgage loans, 1405(b), the Bureau is proposing to require 
that the Closing Disclosure contain a ``Calculating Cash to Close'' 
table that highlights the cash to close amount and its critical 
components and compares those amounts to the corresponding disclosures 
shown on the Loan Estimate under Sec.  1026.37(h). The Bureau believes 
that this disclosure will effectuate the purposes of TILA and RESPA by 
facilitating the informed use of credit and ensuring that consumers are 
provided with greater and timelier information on the costs of the 
closing process. Providing consumers with information about the cash to 
close amount, its critical components, and how such amounts changed 
from the estimated amounts disclosed on the Loan Estimate helps ensure 
that the features of the transaction are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to better understand the costs, benefits, and risks associated with the 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a). The Bureau also believes such 
disclosure will improve consumers' awareness and understanding of 
residential mortgage transactions, which is in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b).
    The ``Calculating Cash to Close'' table in the Closing Disclosure 
under proposed Sec.  1026.38(i) mirrors the format of, and updates the 
amounts shown on, the ``Calculating Cash to Close'' table in the Loan 
Estimate under proposed Sec.  1026.37(h). The Bureau believes that 
including separate ``Calculating Cash to Close'' tables on both the 
Loan Estimate and the Closing Disclosure will aid the consumer in 
ascertaining whether the cash to close amount and its critical 
components changed between the Loan Estimate and the Closing 
Disclosure, and by how much. The two tables are similar in format and 
designed to be used in tandem when the consumer is reviewing the 
Closing Disclosure and comparing its content to that shown on the Loan 
Estimate. However, the table on the Closing Disclosure includes 
additional information under the subheading ``Did this change?'' which 
is intended to assist the consumer in identifying and understanding the 
reasons for any such changes.
    The Bureau's consumer testing indicated that consumers were able to 
use the detailed comparison table to understand how and why the actual 
cash to close amount on the Closing Disclosure differs from the 
estimated amounts shown on the Loan Estimate. During testing, consumers 
tended to use the ``Calculating Cash to Close'' table in conjunction 
with the ``Closing Cost Details'' tables showing itemized charges and 
subtotals on the Closing Disclosure, to identify the differences 
between the estimated and actual cash to close amount and its critical 
components and to gain a better understanding of the numbers underlying 
the cash to close amount. The consumers also benefited from the ``Did 
this change?'' subheading containing statements that components of the 
cash to close changed and simple explanations as to why. The Bureau has 
incorporated this feedback into the design of the table and its choice 
of language to be used under the ``Did this change?'' subheading, as 
applicable.
    Requiring disclosure of the ``Calculating Cash to Close'' table 
also complements proposed Sec.  1026.19(f)(1)(ii), which requires 
delivery of the Closing Disclosure three business days prior to 
consummation. TILA section 128(b)(2)(D) requires that a corrected TILA 
disclosure be given to the consumer not later than three business days 
prior to consummation if the APR as initially disclosed becomes 
inaccurate, and the Bureau understands that the annual percentage rate 
changes triggering the redisclosure obligation occur so frequently that 
many creditors currently provide the corrected TILA disclosure as a 
matter of course even if redisclosure is not required. RESPA section 4 
provides that the RESPA settlement statement be provided ``at or before 
closing,'' however, and the Bureau understands that it typically is 
given the day of closing. As discussed above, proposed Sec.  
1026.19(f)(1)(ii) merges the two provisions by requiring that consumers 
be given the integrated disclosures three business days prior to 
consummation. During this three-business-day period, the consumer can 
review the Closing Disclosure, contact the creditor with questions 
regarding the information contained on the Closing Disclosure, and 
correct any errors prior to consummation. Disclosing the cash to close 
amount and how it was calculated three business days in advance of 
consummation generally provides the consumer with a

[[Page 51243]]

three-business-day window to make arrangements to have the necessary 
funds available for the consummation. This will help alleviate concerns 
that, in some cases, consumers may not know until shortly before 
consummation--or even the day of consummation--how much of their own 
funds they will be expected to bring to the closing table.
    The ``Calculating Cash to Close'' table to be disclosed on the 
Closing Disclosure under Sec.  1026.38(i) consists of four columns and 
nine rows. The first column, which does not have a subheading, includes 
labels for the amounts of cash to close (listed in the final row of the 
table, in more prominent fashion) and its critical components. Total 
closing costs, which are listed in the first row, is the sum total of 
creditor, third party settlement service, and other transaction-related 
charges disclosed on the ``Closing Cost Details'' tables on the Closing 
Disclosure. Subsequent rows list other components of the cash to close 
amount, such as the closing costs paid before consummation, closing 
costs financed, and the deposit. These component amounts are discussed 
in more detail under Sec.  1026.38(i)(1) through (8), below. The second 
column, under the subheading ``Estimate,'' includes the estimated 
amounts of cash to close and its components. These amounts match the 
estimates given on the ``Calculating Cash to Close'' table in the Loan 
Estimate, which are shown to the nearest whole dollar amount. The third 
column, under the subheading ``Final,'' includes the actual amounts of 
the cash to close and its components without rounding. In both the 
second and the third columns, the amounts that increase the total cash 
to close amount are shown as positive numbers, and the amounts that 
reduce the total cash to close amount are shown as negative numbers. 
The fourth column, under the subheading ``Did this change?'' contains 
in each row (1) a statement, more prominent than other disclosures 
under proposed Sec.  1026.38(i), as to whether the actual amount is 
different from or increased above the estimated amount and (2) if the 
actual amount is different from or increased over the estimated amount, 
a simple explanation for the difference or increase along with cross-
references to other relevant information disclosed on the Closing 
Disclosure, as applicable.
    Proposed comment 38(i)-1 discusses how, under each subparagraph 
(iii) of Sec.  1026.38(i)(1) through (i)(8), the statement as to 
whether the ``Final'' amount disclosed under each subparagraph (ii) of 
Sec. Sec.  1026.38(i)(1) through (i)(8) is greater than, equal to, or 
less than the corresponding ``Estimate'' amount disclosed under each 
subparagraph (i) of Sec. Sec.  1026.38(i)(1) through (i)(8) is 
disclosed more prominently than the other disclosures under Sec.  
1026.38(i). The proposed comment clarifies that this more prominent 
statement can take the form, for example, of a ``Yes'' or ``No'' 
disclosed in capital letters and boldface font, as shown on the Closing 
Disclosure form H-25 set forth in appendix H to this part, the standard 
form or model form, as applicable, pursuant to Sec.  1026.38(t). The 
comment also discusses how, in the event a difference or an increase in 
costs has occurred, certain words within the narrative text that are 
included under the subheading ``Did this change?'' are displayed more 
prominently than other disclosures, and gives an example of such a 
prominent statement.
    Proposed comment 38(i)-2 describes how a final amount shown to two 
decimal places on the ``Calculating Cash to Close'' table disclosed 
under Sec.  1026.38(i) could appear to be a larger number than its 
corresponding estimate shown to the nearest dollar when, in fact, the 
apparent increase is due solely to rounding. The comment further 
clarifies that any statement disclosed under the subheading ``Did this 
change?'' as to whether an actual amount is higher than its 
corresponding estimated amount is based on the actual, non-rounded 
estimate that would have been disclosed on the Loan Estimate under 
Sec.  1026.37(h) if it had been shown to two decimal places rather than 
a whole dollar amount. The proposed comment also provides an example of 
how a contrary rule could result in inaccurate disclosures of 
increases. The proposed comment reflects the Bureau's intention that 
the statements of increases to be disclosed under each subparagraph 
(iii) under Sec.  1026.38(i)(1) through (i)(8) capture true increases 
rather than increases due solely to rounding rules.
    Proposed comments 38(i)-3 and 4 provide guidance regarding the 
statements required by each of Sec.  1026.38(i)(4)(iii)(A), 
1026.38(i)(5)(iii)(A), 1026.38(i)(6)(iii)(A), 1026.38(i)(7)(iii)(A), 
and 1026.38(i)(8)(iii)(A) that the consumer should see the details 
disclosed pursuant to another subsection or other subsections within 
Sec.  1026.38, or that an amount has increased or decreased from an 
estimated amount, as applicable. The comments note that, for example, 
Sec.  1026.38(i)(7)(iii)(A) requires a statement that the consumer 
should see the details disclosed pursuant to Sec.  1026.38(j)(2)(v), 
and, as shown on Closing Disclosure form H-25, that statement can read: 
``See Seller Credits in Section L.'' These comments also provide 
guidance regarding the required statements that are not illustrated as 
samples in form H-25 in appendix H.
38(i)(1) Total Closing Costs
    Proposed Sec.  1026.38(i)(1)(i) and (ii) requires the disclosure of 
a comparison of the consumer's estimated and actual ``Total Closing 
Costs'' amounts. The estimated ``Total Closing Costs'' amount is the 
same amount that is disclosed on the Loan Estimate in the ``Calculating 
Cash to Close'' table under proposed Sec.  1026.37(h)(1). This amount 
also matches the ``Total Closing Costs'' amount that is disclosed on 
the Loan Estimate under proposed Sec.  1026.37(g)(6). The actual 
``Total Closing Costs'' amount is the same amount disclosed on the 
Closing Disclosure under Sec.  1026.38(h)(1), reduced by the amount of 
any lender credits disclosed under Sec.  1026.38(h)(3). Proposed 
comment 38(i)(1)(i)-1 provides guidance regarding the requirement under 
Sec.  1026.38(i)(1)(i) that the amount disclosed is labeled ``Total 
Closing Costs'' and that such label is accompanied by a reference to 
the disclosure of ``Total Closing Costs'' under Sec.  1026.38(h)(1).
    Proposed Sec.  1026.38(i)(1)(iii)(A) specifies that if the actual 
amount of ``Total Closing Costs'' is different than the estimated 
amount of such costs as shown on the Loan Estimate (unless the 
difference is due to rounding), the creditor or closing agent must 
state, under the subheading ``Did this change?'', that the consumer 
should see the total loan costs and total other costs subtotals 
disclosed on the Closing Disclosure under Sec.  1026.38(f)(4) and 
(g)(5), and must include a reference to such disclosures, as 
applicable. This language is intended to direct the consumer to the 
more detailed itemization on the Closing Disclosure of the costs that 
comprise the ``Total Closing Costs.''
    Under proposed Sec.  1026.38(i)(1)(iii)(A), the creditor or closing 
agent must also state the dollar amount of any excess amount of closing 
costs above the limitations on increases in closing costs under Sec.  
1026.19(e)(3), if applicable, along with language stating that the 
increase exceeds the legal limits by the dollar amount of the excess. 
The dollar amount to be disclosed must reflect the different methods of 
calculating such excess amounts under Sec.  1026.19(e)(3)(i) and (ii). 
Proposed comment 38(i)(1)(iii)(A)-1 contains examples of how to 
calculate such excess amounts

[[Page 51244]]

and clarifies that because certain closing costs, individually, are 
subject to the limitations on increases in closing costs under Sec.  
1026.19(e)(3)(i) (e.g., origination fees, transfer taxes, charges paid 
by the consumer to an affiliate of the creditor), while other closing 
costs are collectively subject to the limitations on increases in 
closing costs under Sec.  1026.19(e)(3)(ii) (e.g., recordation fees, 
fees paid to an unaffiliated third party if the creditor permitted the 
consumer to shop for the service provider), the creditor or closing 
agent calculates subtotals for each type of excess amount, and then 
adds such subtotals together to yield the dollar amount to be disclosed 
in the table. The proposed comment also clarifies that the calculation 
of the excess amounts above the limitations on increases in closing 
costs takes into account the fact that the itemized, estimated closing 
costs disclosed on the Loan Estimate will not result in charges to the 
consumer if the service is not actually provided at or before 
consummation, and that certain itemized charges listed on the Loan 
Estimate under the subheading ``Services You Can Shop For'' may be 
subject to different limitations depending on the circumstances. 
Proposed comments 38(i)(1)(iii)(A)-2.i through -2.iii complement 
commentary to proposed Sec.  1026.19(e)(3). Pursuant to proposed Sec.  
1026.19(f)(2)(v), the creditor or closing agent must refund to the 
consumer any such excess amounts at consummation or within thirty days 
thereafter. Accordingly, this disclosure may help the consumer identify 
when a refund may be required, and this information can be used by the 
consumer to request that the creditor or closing agent provide such 
refund at consummation or within thirty days thereafter.
38(i)(2) Closing Costs Subtotal Paid Before Closing
    Proposed Sec.  1026.38(i)(2) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Total Closing 
Costs'' that are paid before consummation of the transaction. The 
estimated ``Closing Costs Subtotal Paid Before Closing'' must be 
disclosed as $0. Proposed comment 38(i)(2)(i)-1 clarifies that this 
requirement is because the Loan Estimate does not have an equivalent 
disclosure under proposed Sec.  1026.37(h). The actual ``Closing Costs 
Subtotal Paid Before Closing'' is the sum of the amount disclosed on 
the Closing Disclosure under proposed Sec.  1026.38(h)(2) and 
designated ``Borrower-Paid Before Closing.'' Proposed Sec.  
1026.38(i)(2)(iii) specifies that if the actual amount of ``Closing 
Costs Subtotal Paid Before Closing'' is different than the estimated 
amount, in this case $0 (unless the difference is due to rounding), the 
creditor or closing agent must state under the subheading ``Did this 
change?'' that the consumer paid such costs before consummation. This 
language is intended to remind the consumer that he or she paid certain 
transaction closing costs prior to consummation and that such costs 
will be subtracted from the actual cash to close amount. Proposed 
comment 38(i)(2)(iii)(B)-1 provides guidance regarding the requirement 
to disclose whether the estimated and final amounts are equal.
38(i)(3) Closing Costs Financed
    Proposed Sec.  1026.38(i)(3) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Total Closing 
Costs'' that are financed. The estimated ``Closing Costs Financed'' 
amount is the same amount that is disclosed in the ``Calculating Cash 
to Close'' table in the Loan Estimate under proposed Sec.  
1026.37(h)(2). The actual ``Closing Costs Financed'' amount reflects 
any changes to the amount previously disclosed on the Loan Estimate. 
Proposed Sec.  1026.38(i)(3)(iii) specifies that if the actual amount 
of ``Closing Costs Financed'' is different than the estimated amount 
(unless the excess is due to rounding), the creditor or closing agent 
must state under the subheading ``Did this change?'' that the consumer 
included these closing costs in the loan amount, which increased the 
loan amount. The Bureau believes this explanatory language will be 
particularly helpful to consumers for two reasons. First, an increase 
in closing costs financed may trigger a sizeable decrease in the cash 
to close, which in turn could create a false impression that the 
overall transaction costs to the consumer decreased. Second, during 
consumer testing, when consumers were presented with a scenario 
involving a loan amount that increased after delivery of the Loan 
Estimate, some of the consumers had difficultly isolating the increase 
in closing costs financed as the reason for the increased loan amount. 
The Bureau believes this disclosure may assist consumers in 
understanding that the financed portion of the closing costs are paid 
for through the loan proceeds.
38(i)(4) Downpayment/Funds From Borrower
    Proposed Sec.  1026.38(i)(4) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Downpayment/
Funds from Borrower.'' Downpayment and funds from borrower are related 
concepts, but downpayment is applicable to a transaction that is a 
purchase as defined in proposed Sec.  1026.37(a)(9)(i), while funds 
from borrower relates to a transaction other than a purchase. Under 
proposed Sec.  1026.38(i)(4)(i), the estimated ``Downpayment/Funds from 
Borrower'' amount is the same amount that is disclosed on the 
``Calculating Cash to Close'' table in the Loan Estimate under proposed 
Sec.  1026.37(h)(3). Under proposed Sec.  1026.38(i)(4)(ii)(A), in a 
transaction that is a purchase as defined in proposed Sec.  
1026.37(a)(9)(i), the actual amount of the ``Downpayment/Funds from 
Borrower'' is the actual amount of the difference between the purchase 
price of the property and the principal amount of the credit extended, 
stated as a positive number. Under proposed Sec.  1026.38(i)(4)(ii)(B), 
in a transaction other than a purchase as defined in proposed Sec.  
1026.37(a)(9)(i), the actual amount of ``Funds from Borrower'' is 
determined in accordance with Sec.  1026.38(i)(6)(iv), by subtracting 
from the total amount of all existing debt being satisfied in the real 
estate closing and disclosed under Sec.  1026.38(j)(1)(v) (except to 
the extent the satisfaction of such existing debt is disclosed under 
Sec.  1026.38(g)) the principal amount of the credit extended. If such 
calculation yields a positive number, then the positive number is 
disclosed under proposed Sec.  1026.38(i)(4)(ii)(B); otherwise, $0.00 
is disclosed.
    Proposed comment 38(i)(4)(ii)(A)-1 provides an example of the 
downpayment changing in a particular transaction. Proposed comment 
38(i)(4)(ii)(B)-1 provides further clarification about how the actual 
``Funds from Borrower'' amount is determined under Sec.  
1026.38(i)(6)(iv), and gives an example of when that actual amount may 
change from the corresponding estimated amount.
    Proposed Sec.  1026.38(i)(4)(iii)(A) specifies that if the actual 
amount of ``Downpayment/Funds from Borrower'' is different than the 
estimated amount (unless the difference is due to rounding), the 
creditor or closing agent must state under the subheading ``Did this 
change?'' that the consumer increased or decreased the payment, as 
applicable, and also state that the consumer should see the details 
disclosed under Sec.  1026.38(j)(1) or (j)(2), as applicable. This 
language is intended to remind the consumer that he or she will be 
contributing a different amount of his or her own funds toward the cash 
to close, and therefore must make arrangements prior to the date of 
consummation to procure any necessary funds. Comment 38(i)(4)(iii)(A)-1 
clarifies the requirement under

[[Page 51245]]

Sec.  1026.38(i)(4)(iii)(A) that a statement be given that the consumer 
has increased or decreased this payment, as applicable, along with a 
statement that the consumer should see the details disclosed under 
Sec.  1026.38(j)(1) or (j)(2), as applicable. The comment notes that, 
in the event the purchase price of the property increased, that 
statement can read, for example: ``You increased this payment. See 
details in Section K.'' In the event the loan amount decreased, that 
statement can read, for example, ``You increased this payment. See 
details in Section L.'' This language is intended to direct the 
consumer to the section within the Closing Disclosure containing the 
information that accounts for the increase in the ``Downpayment/Funds 
from Borrower'' amount.
38(i)(5) Deposit
    Proposed Sec.  1026.38(i)(5) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Deposit.'' The 
estimated ``Deposit'' amount is the same amount that is disclosed in 
the ``Calculating Cash to Close'' table on the Loan Estimate under 
proposed Sec.  1026.37(h)(4). The actual ``Deposit'' amount is the same 
amount that is disclosed on the Closing Disclosure under proposed Sec.  
1026.38(j)(2)(ii). Proposed Sec.  1026.38(i)(5)(iii) specifies that if 
the actual amount of ``Deposit'' is different than the estimated amount 
(unless the difference is due to rounding), the creditor or closing 
agent must state, under the subheading ``Did this change?'', that the 
consumer increased or decreased this payment, as applicable, and should 
see the details disclosed under Sec.  1026.38(j)(2)(ii). This language 
is intended to direct the consumer to the section within the Closing 
Disclosure containing the itemization of the deposit in the Closing 
Disclosure.
38(i)(6) Funds for Borrower
    Proposed Sec.  1026.38(i)(6) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Funds for 
Borrower.'' Like proposed Sec.  1026.37(h)(5), this amount is intended 
to generally represent the amount to be disbursed to the consumer or 
used at consumer's discretion at consummation of the transaction, such 
as in cash-out refinance transactions. The determination of whether the 
transaction will result in ``Funds for Borrower'' is made under 
proposed Sec.  1026.38(i)(6)(iv). The estimated ``Funds for Borrower'' 
amount disclosed under Sec.  1026.38(i)(6)(i) is the same amount that 
is disclosed in the ``Calculating Cash to Close'' table in the Loan 
Estimate under proposed Sec.  1026.37(h)(5). Proposed Sec.  
1026.38(i)(6)(ii) provides that the actual ``Funds for Borrower'' 
amount disclosed is determined pursuant to Sec.  1026.38(i)(6)(iv), by 
subtracting from the total amount of all existing debt being satisfied 
in the real estate closing and disclosed under Sec.  1026.38(j)(1)(v) 
(except to the extent the satisfaction of such existing debt is 
disclosed under Sec.  1026.38(g)) the principal amount of the credit 
extended (excluding any amount disclosed under Sec.  
1026.38(i)(3)(ii)). The exclusion of any amount disclosed under Sec.  
1026.38(i)(3)(ii) is necessary since that amount of the credit extended 
has already been accounted for in the cash to close calculation by 
inclusion in Sec.  1026.38(i)(3)(ii). If such calculation yields a 
negative number, then the negative number is disclosed under proposed 
Sec.  1026.38(i)(6)(ii); otherwise, $0.00 is disclosed.
    Proposed comment 38(i)(6)(ii)-1 provides further clarification 
about how the actual ``Funds for Borrower'' amount is determined under 
Sec.  1026.38(i)(6)(iv), and to whom such amount is disbursed. Proposed 
Sec.  1026.38(i)(6)(iii) clarifies that, if the actual amount of 
``Funds for Borrower'' is different than the estimated amount (unless 
the difference is due to rounding), the creditor or closing agent must 
state in the subheading ``Did this change?'' that the consumer's 
available funds from the loan amount have increased or decreased, as 
applicable. This language is intended to remind the consumer that a 
different amount of loan proceeds will be available following payoff of 
existing loans.
38(i)(7) Seller Credits
    Proposed Sec.  1026.38(i)(7) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Seller 
Credits.'' ``Seller Credits'' are described in proposed 
1026.38(j)(2)(v) and corresponding commentary. The estimated ``Seller 
Credits'' amount is the same amount that is disclosed on the 
``Calculating Cash to Close'' table in the Loan Estimate under proposed 
Sec.  1026.37(h)(6). The actual ``Seller Credits'' amount is the same 
amount disclosed on the Closing Disclosure under proposed Sec.  
1026.38(j)(2)(v). Proposed comment 38(i)(7)(ii)-1 clarifies that the 
``Final'' amount reflects any change, following the delivery of the 
Loan Estimate, in the amount of funds given by the seller to the 
consumer for generalized credits for closing costs or for allowances 
for items purchased separately, as distinguished from payments by the 
seller for items attributable to periods of time prior to consummation 
(which are considered ``Adjustments and Other Credits'' separately 
disclosed under proposed Sec.  1026.38(i)(8)).
    Proposed Sec.  1026.38(i)(7)(iii) specifies that, if the actual 
amount of ``Seller Credits'' is different than the estimated amount 
(unless the difference is due to rounding), the creditor or closing 
agent must state that fact under the subheading ``Did this change?,'' 
and state that the consumer should see the details disclosed under 
Sec.  1026.38(j)(2)(v). This language is intended to direct the 
consumer to the section within the Closing Disclosure containing the 
itemization of seller credits.
38(i)(8) Adjustments and Other Credits
    Proposed Sec.  1026.38(i)(8) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Adjustments and 
Other Credits.'' ``Adjustments and Other Credits'' are described in 
proposed Sec.  1026.38(j)(2)(vi) through (xi) and corresponding 
commentary. The estimated ``Adjustments and Other Credits'' amount is 
the same amount that is disclosed on the ``Calculating Cash to Close'' 
table in the Loan Estimate under proposed Sec.  1026.37(h)(7). The 
actual ``Adjustments and Other Credits'' amount is equal to the total 
amount of the adjustments and other credits due from the consumer at 
consummation (i.e., the amounts disclosed on the Closing Disclosure 
under Sec. Sec.  1026.38(j)(1)(v) through (x)), reduced by the total 
amount of the adjustments and other credits paid already by or on 
behalf of the consumer at consummation (i.e., the amounts disclosed on 
the Closing Disclosure under Sec. Sec.  1026.38(j)(2)(vi) through 
(xi)). Proposed Sec.  1026.38(i)(8)(iii) specifies that if the actual 
amount of ``Adjustments and Other Credits'' is different than the 
estimated amount (unless the difference is due to rounding), the 
creditor or closing agent must state that fact under the subheading 
``Did this change?,'' and state that the consumer should see the 
details disclosed under Sec. Sec.  1026.38(j)(1)(v) through (x) and 
(j)(2)(vi) through (xi). This language is intended to direct the 
consumer to the sections within the Closing Disclosure containing the 
itemization of the adjustments and other credits. Proposed comment 
38(i)(8)(ii)-1 gives examples of items that may be adjustments and 
other credits, and clarifies that if the calculation required by Sec.  
1026.38(i)(8)(ii) yields a negative

[[Page 51246]]

number, the creditor or closing agent discloses it as such.
38(i)(9) Cash To Close
    Proposed Sec.  1026.38(i)(9) requires the disclosure of a 
comparison of the estimated and actual amounts of the ``Cash to 
Close.'' The estimated ``Cash to Close'' amount is the same amount that 
is disclosed on the ``Calculating Cash to Close'' table in the Loan 
Estimate under proposed Sec.  1026.37(h)(8) as ``Estimated Cash to 
Close.'' The actual ``Cash to Close'' amount is the sum of the amounts 
disclosed under proposed Sec. Sec.  1026.38(i)(1) through (8). The 
label ``Cash to Close'' and the estimated and actual amounts listed in 
the table are disclosed more prominently than other disclosures in 
Sec.  1026.38(i), as a means of emphasizing the importance of the cash 
to close amount. Proposed comment 38(i)(9)(ii)-1 clarifies that the 
``Final'' amount of ``Cash to Close'' disclosed under Sec.  
1026.38(i)(9)(ii) equals the amount disclosed on the Closing Disclosure 
as ``Cash to Close'' under Sec.  1026.38(j)(3)(iii). The proposed 
comment also clarifies that if the calculation required by Sec.  
1026.38(i)(9)(ii) yields a negative number, the creditor or closing 
agent discloses it as such. Proposed comment 38(i)(9)(ii)-2 discusses 
how the disclosure of the ``Final'' amount of ``Cash to Close'' under 
Sec.  1026.38(i)(9)(ii) is more prominent than the other disclosures 
under Sec.  1026.38(i) and clarifies that this more prominent 
disclosure can take the form, for example, of boldface font, as shown 
on the Closing Disclosure form H-25.
38(j) and (k) Summaries of Borrower's and Seller's Transactions
    Currently, RESPA section 4 requires the settlement agent to clearly 
and conspicuously itemize all charges imposed upon the borrower and 
seller in connection with the settlement. See 12 U.S.C. 2603. 
Regulation X implements these requirements by requiring the settlement 
agent to provide summaries of the consumer's and seller's transactions 
on the RESPA settlement statement. See Regulation X Sec.  1024.8 and 
appendix A. Dodd-Frank Act section 1032(f) requires that the Bureau 
propose disclosures that combine the disclosures required under TILA 
and RESPA sections 4 and 5 into a single, integrated disclosure for 
mortgage loan transactions covered under TILA and RESPA.
    In addition to effectuating Dodd-Frank Act section 1032(f), the 
Bureau believes that including on the Closing Disclosure summaries of 
the consumer's and seller's transactions will effectuate the purposes 
of TILA and RESPA by promoting the informed use of credit and more 
effective advance notice to home buyers and sellers of settlement 
costs, respectively. The summaries will assist consumers in 
understanding of the resolution of their legal obligations to sellers 
under the terms of the sales contract for the property which will be 
used to secure the credit extended to facilitate the purchase. The 
summaries will also assist sellers in understanding the charges they 
are required to pay under the sales contract. In addition, consistent 
with section 1032(a) of the Dodd-Frank Act, the addition of the 
summaries of the consumer's and seller's transactions would ensure that 
the features of consumer credit transactions secured by real property 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand the costs, benefits, and 
risks associated with the product or service, in light of the facts and 
circumstances. Therefore, the Bureau proposes to exercise its authority 
under TILA section 105(a), RESPA section 19(a), and Dodd-Frank Act 
section 1032(a) to require the creditor or closing agent to provide the 
summaries of the consumer's and seller's transactions that are 
currently provided in the RESPA settlement statement. The required 
information regarding the consumer's transaction would be set forth in 
Sec.  1026.38(j) and the required information regarding the seller's 
transaction would be set forth in Sec.  1026.38(k). Furthermore, for 
the reasons stated above, the proposed rule is in the interest of 
consumers and in the public interest, consistent with Dodd-Frank Act 
section 1405(b). The Bureau is not proposing to alter the current 
method for calculating these summaries as currently provided in 
appendix A to Regulation X except as specifically described below. 
However, based on the results of consumer testing, the Bureau is 
proposing to revise the wording of headings, labels, and references to 
make them more understandable for consumers.
    In addition, the format required by proposed Sec.  1026.38(t), as 
illustrated by proposed form H-25 of appendix H to Regulation Z, for 
the information required by proposed Sec.  1026.38(j) and (k) contains 
a two-digit line numbering system, in contrast to the three-digit line 
numbering system for this information on the current RESPA settlement 
statement. At the Bureau's consumer testing, consumer participants 
appeared overwhelmed by the three- and four-digit line numbers on 
prototypes that contained line numbers similar to the current RESPA 
settlement statement. As described above in part III, the Bureau is 
also mindful of the risks of information overload to consumers. The 
Bureau believes that the increased amount of numbers on the page from 
the three- and four-digit line numbering system may significantly 
detract from the consumer's ability to engage with the Closing 
Disclosure. The prototypes that the Bureau tested that contained only a 
two-digit line numbering system performed better with consumers, and 
were more effective at enabling them to understand their actual closing 
costs and the differences between the estimated and actual amounts. In 
addition, as described above in the analysis of proposed Sec.  
1026.38(f) and (g), the use of this two-digit line numbering system for 
the information required by proposed Sec.  1026.38(f) and (g) allows 
the Loan Estimate and Closing Disclosure to match more closely, which 
the Bureau's consumer testing indicates better enables consumers to 
understand their transaction. See the analysis of proposed Sec.  
1026.38(f) and (g) for more detail regarding the two-digit line 
numbering system. During the Small Business Review Panel, several 
settlement agents and one mortgage company requested that the line 
numbers from the current RESPA settlement statement be retained, 
stating that using the revised line numbers in the prototype integrated 
Closing Disclosure would significantly increase programming costs. See 
Small Business Review Panel Report at 20, 28. Based on this feedback, 
the Bureau seeks comment on whether the use of line numbers will lower 
software-related costs on industry, and the exact amount of the savings 
given the rest of the changes contemplated by this proposal, while 
improving consumer understanding of the loan terms and costs at the 
consummation of the credit transaction and the closing of the real 
estate transaction.
38(j) Summary of Borrower's Transaction
    Proposed Sec.  1026.38(j) requires that the creditor or closing 
agent provide the summaries of the consumer's and seller's transactions 
in separate tables under the heading ``Summaries of Transactions'' with 
a statement that the purpose of the table is to summarize the 
transaction. Proposed Sec.  1026.38(j) also lists the information that 
must be provided under the subheading ``Borrower's Transaction.'' 
Proposed comment 38(j)-1 clarifies that it is permissible to give two 
separate Closing Disclosures to the consumer and seller. This comment 
incorporates guidance

[[Page 51247]]

provided in the HUD RESPA FAQs p. 44, 4 (``HUD-1--
``General''). Comment 38(j)-2 clarifies that additional lines can be 
added to the Closing Disclosure to show customary recitals and 
information used locally in real estate closings. This comment 
incorporates guidance provided in HUD RESPA FAQs p. 44, 5 and 
10 (``HUD-1--General''). Proposed comment 38(j)-3 clarifies 
that the amounts disclosed under the following provisions of Sec.  
1026.38(j) are the same as the amounts disclosed under the 
corresponding provisions of Sec.  1026.38(k): Sec.  1026.38(j)(1)(ii) 
and Sec.  1026.38(k)(1)(ii); Sec.  1026.38(j)(1)(iii) and Sec.  
1026.38(k)(1)(iii); if the amount disclosed under Sec.  
1026.38(j)(1)(v) is attributable to contractual adjustments between the 
consumer and seller, Sec.  1026.38(j)(1)(v) and Sec.  
1026.38(k)(1)(iv); Sec.  1026.38(j)(1)(vii) and Sec.  
1026.38(k)(1)(vi); Sec.  1026.38(j)(1)(viii) and Sec.  
1026.38(k)(1)(vii); Sec.  1026.38(j)(1)(ix) and Sec.  
1026.38(k)(1)(viii); Sec.  1026.38(j)(1)(x) and Sec.  
1026.38(k)(1)(ix); Sec.  1026.38(j)(2)(iv) and Sec.  1026.38(k)(2)(iv); 
Sec.  1026.38(j)(2)(v) and Sec.  1026.38(k)(2)(vii); Sec.  
1026.38(j)(2)(viii) and Sec.  1026.38(k)(2)(x); Sec.  1026.38(j)(2)(ix) 
and Sec.  1026.38(k)(2)(xi); Sec.  1026.38(j)(2)(x) and Sec.  
1026.38(k)(2)(xii); and Sec.  1026.38(j)(2)(xi) and Sec.  
1026.38(k)(2)(xiii).
38(j)(1) Itemization of Amount Due From Borrower
    Proposed Sec.  1026.38(j)(1)(i) requires the creditor or closing 
agent to disclose the label ``Due from Borrower at Closing'' and the 
total amount due from the consumer at closing, calculated as the sum of 
items required to be disclosed under Sec.  1026.38(j)(1)(ii) through 
(x), excluding items paid from funds other than closing funds defined 
under Sec.  1026.38(j)(4)(i). Below this label Sec.  1026.38(j)(ii) 
requires the creditor or closing agent to provide a reference to the 
sale price of the property and the amount of the contract sales price 
of the property being sold, excluding the price of any items of 
tangible personal property if the consumer and seller have agreed to a 
separate price for such items. In addition, below the same label, a 
reference to the subtotal of closing costs paid at closing by the 
consumer with adjustments for items paid by the seller in advance must 
also be provided by the creditor or closing agent. Proposed comment 
38(j)(1)(ii)-1 clarifies that, for purposes of this disclosure, 
personal property is defined by state law, but could include such items 
as carpets, drapes, and appliances. Manufactured homes are not 
considered personal property for purposes of Sec.  1026.38(j)(1)(ii). 
This comment incorporates guidance currently provided in the 
instructions for RESPA settlement statement line 102 in appendix A to 
Regulation X. Proposed Sec.  1026.38(j)(1)(iii) requires the creditor 
or closing agent to provide a reference to the sales price of any 
tangible personal property included in the sale that are not included 
in the sales price disclosed under Sec.  1026.38(j)(1)(ii).
    Proposed Sec.  1026.38(j)(1)(iv) requires the creditor or closing 
agent to provide a reference to the subtotal of closing costs paid at 
closing by the consumer and to disclose the amount of closing costs 
paid by the consumer at closing. Proposed Sec.  1026.38(j)(1)(v) 
requires the creditor or closing agent to describe and disclose the 
amount of any additional items that the seller has already paid but are 
attributable to a time after closing and therefore will be used by the 
consumer. Also, proposed Sec.  1026.38(j)(1)(v) requires a description 
and the cost of any other items owed by the consumer not otherwise 
disclosed under proposed Sec.  1026.38(f), (g), or (j). Proposed 
comment 38(j)(1)(v)-1 clarifies that items described and disclosed 
under Sec.  1026.38(j)(v) can include: any balance in the seller's 
reserve account held in connection with an existing loan, if assigned 
to the consumer in a loan assumption case; any rent the consumer would 
collect after closing for a time period prior to closing; or to show 
the treatment of a security deposit. Proposed comment 38(j)(1)(v)-2 
clarifies costs owed by the consumer not otherwise disclosed under 
Sec.  1026.38(f), (g), or (j) will not have a parallel amount disclosed 
under proposed Sec.  1026.38(k)(1)(iv).
    Proposed Sec.  1026.38(j)(1)(vi) requires the creditor or closing 
agent to provide a reference to adjustments paid by seller in advance. 
Proposed Sec.  1026.38(j)(1)(vii) requires the creditor or closing 
agent to provide a reference to city/town taxes, the time period that 
the consumer is responsible to reimburse the seller for any such 
prepaid taxes, and the prorated amount of any such prepaid taxes due 
from the consumer at closing. Proposed Sec.  1026.38(j)(1)(viii) 
requires the creditor or closing agent to provide a reference to county 
taxes, the time period that the consumer is responsible for reimbursing 
the seller for any such prepaid taxes, and the prorated amount of any 
such prepaid taxes due from the consumer at closing. Proposed Sec.  
1026.38(j)(1)(ix) requires the creditor or closing agent to provide a 
reference to assessments, the time period that the consumer is 
responsible for reimbursing the seller for any such prepaid 
assessments, and the prorated amount of any such prepaid assessment due 
from the consumer at closing. Proposed Sec.  1026.38(j)(1)(x) requires 
the creditor or closing agent to provide a description and amount of 
any additional items paid by the seller prior to closing that are due 
from the consumer at closing. Proposed comment 38(j)(1)(x)-1 clarifies 
that amounts disclosed under Sec.  1026.38(j)(1)(x) could be for 
additional taxes not disclosed under Sec.  1026.38(j)(1)(vii) and 
(viii), flood and hazard insurance premiums where the consumer is being 
substituted as an insured under the same policy, mortgage insurance in 
loan assumptions, planned unit development or condominium association 
assessments paid in advance, fuel or other supplies on hand purchased 
by the seller which the consumer will use when consumer takes 
possession of the property, and ground rent paid in advance. This 
comment incorporates instructions for RESPA settlement statement lines 
106-112 in appendix A to Regulation X.
38(j)(2) Itemization of Amounts Already Paid by or on Behalf of 
Borrower
    Proposed Sec.  1026.38(j)(2)(i) requires the creditor or closing 
agent to disclose the label ``Paid Already by or on Behalf of Borrower 
at Closing'' and the total amount paid by or on behalf of the consumer 
prior to closing, calculated as the sum of items required to be 
disclosed under Sec.  1026.38(j)(2)(ii) through (xi), excluding items 
paid from funds other than closing funds defined under Sec.  
1026.38(j)(4)(i). Below this label, Sec.  1026.38(j)(2)(ii) requires 
the creditor or closing agent to provide a reference to the amount of 
the deposit, the consumer's loan amount, the existing loans assumed or 
taken subject to at closing, seller credit, other credits, and 
adjustments for items unpaid by seller. Proposed comment 38(j)(2)(ii)-1 
clarifies that the deposit is any amount paid into a trust account by 
the consumer under the contract of sale for real estate. This is a 
change from the current definition of deposit in the instructions for 
RESPA settlement statement line 201 in appendix A to Regulation X, that 
define the deposit as any amount paid against the sales price prior to 
settlement, because the amount of the downpayment or funds from the 
consumer disclosed under Sec.  1026.38(i)(4) may also be paid prior to 
closing. To differentiate between the downpayment amount and the 
deposit amount in Sec.  1026.38(i)(4), the amount of the deposit needs 
to be specified separately from other payments by the consumer against 
the sales price prior to

[[Page 51248]]

closing. Proposed comment 38(j)(2)(ii)-2 clarifies that the amount of 
the deposit should be reduced by a commensurate amount if any of the 
deposit is used to pay for a closing cost before closing. Instead, the 
charge for the closing cost paid from the deposit will be designated as 
borrower-paid before closing under Sec.  1026.38(f)(1) or (g)(1), as 
applicable.
    Proposed Sec.  1026.38(j)(2)(iii) requires the creditor or closing 
agent to provide a reference to the principal amount of the consumer's 
new loan and the amount of the new loan made by the creditor or the 
amount of the first user loan. Proposed comment 38(j)(2)(iii)-1 
clarifies that first user loan amount disclosed under Sec.  
1026.38(j)(2)(iii) is used to finance construction of a new structure 
or purchase of a manufactured home and that how to disclose a first 
user loan will depend on whether it is known if the manufactured home 
will be considered real property at the time of consummation. This 
comment incorporates guidance currently provided in the instructions 
for RESPA settlement statement line 202 in appendix A to Regulation X 
and HUD RESPA FAQs p. 47, 2 (``HUD-1--200 series'').
    Proposed Sec.  1026.38(j)(2)(iv) requires the creditor or closing 
agent to provide a reference to existing loans assumed or taken subject 
at closing to by the consumer and the amount of those loans. Proposed 
comment 38(j)(2)(iv)-1 clarifies that the amount disclosed under Sec.  
1026.38(j)(2)(iv) is the outstanding amount of any loan that the 
consumer is assuming, or subject to which the consumer is taking title 
to the property, must be disclosed under Sec.  1026.38(j)(2)(iv). This 
comment incorporates guidance currently provided in the instructions 
for RESPA settlement statement line 203 in appendix A to Regulation X.
    Proposed Sec.  1026.38(j)(2)(v) requires the creditor or closing 
agent to provide a reference to seller credits and the total amount of 
money that the seller will provide in a lump sum at closing for closing 
costs, designated borrower-paid at or before closing, as disclosed 
under Sec.  1026.38(f)(1) and (g)(1), as applicable. Proposed comment 
38(j)(2)(v)-1 clarifies that any amount disclosed under Sec.  
1026.38(j)(2)(v) is for generalized seller credits, and that seller 
credits attributable to a specific closing cost would be reflected with 
a seller-paid designation under Sec.  1026.38(f)(1) or (g)(1), as 
applicable. Proposed comment 38(j)(2)(v)-2 clarifies that any other 
obligations of the seller to be paid directly to the consumer, such as 
for issues identified at a walk-through of the property prior to 
closing, are disclosed under Sec.  1026.38(j)(2)(v).
    Proposed Sec.  1026.38(j)(2)(vi) requires the creditor or closing 
agent to provide a reference to other credits and the amount of items 
paid by or on behalf of the consumer and not otherwise disclosed under 
Sec.  1026.38(j)(2), (f)(1), (g)(1), or (h)(3). Proposed comment 
38(j)(2)(vi)-1 clarifies that any amounts disclosed under Sec.  
1026.38(j)(2)(vi) are for o